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Note 10 - Fair Value Measurements | 3 Months Ended
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Mar. 31, 2015
Disclosure Text Block [Abstract] |
Fair Value, Measurement Inputs, Disclosure [Text Block] | Note 10. Fair Value Measurements The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
| Level 1 | Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. Government and agency securities actively traded in over-the-counter markets.
| Level 2 | Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency securities, corporate debt securities, derivative instruments, and residential mortgage loans held for sale.
| Level 3 | Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category generally includes certain private equity investments, retained interests from securitizations, and certain collateralized debt obligations.
Assets and Liabilities Recorded as Fair Value on a Recurring Basis The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014.
(dollars in thousands) |  | Quoted Prices (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Other Unobservable Inputs (Level 3) |  |  | Total (Fair Value) |
March 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U. S. Government agency securities |  | $ | - |  |  | $ | 30,119 |  |  | $ | - |  |  | $ | 30,119 |
Residential mortgage backed securities |  |  | - |  |  |  | 234,151 |  |  |  | - |  |  |  | 234,151 |
Municipal bonds |  |  | - |  |  |  | 68,797 |  |  |  | - |  |  |  | 68,797 |
Other equity investments |  |  | 245 |  |  |  | - |  |  |  | 219 |  |  |  | 464 |
Residential mortgage loans held for sale |  |  | - |  |  |  | 62,758 |  |  |  | - |  |  |  | 62,758 |
Derivative assets |  |  | - |  |  |  | - |  |  |  | 219 |  |  |  | 219 |
Total assets measured at fair value on a recurring basis as of March 31, 2015 |  | $ | 245 |  |  | $ | 395,825 |  |  | $ | 438 |  |  | $ | 396,508 |
(dollars in thousands) |  | Quoted Prices (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Other Unobservable Inputs (Level 3) |  |  | Total (Fair Value) |
December 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U. S. Government agency securities |  | $ | - |  |  | $ | 29,894 |  |  | $ | - |  |  | $ | 29,894 |
Residential mortgage backed securities |  |  | - |  |  |  | 240,320 |  |  |  | - |  |  |  | 240,320 |
Municipal bonds |  |  | - |  |  |  | 111,712 |  |  |  | - |  |  |  | 111,712 |
Other equity investments |  |  | 198 |  |  |  | - |  |  |  | 219 |  |  |  | 417 |
Residential mortgage loans held for sale |  |  | - |  |  |  | 44,317 |  |  |  | - |  |  |  | 44,317 |
Derivative assets |  |  | - |  |  |  | - |  |  |  | 146 |  |  |  | 146 |
Total assets measured at fair value on a recurring basis as of December 31, 2014 |  | $ | 198 |  |  | $ | 426,243 |  |  | $ | 365 |  |  | $ | 426,806 |
Investment Securities Available-for-Sale Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. Government agency debt securities, mortgage backed securities issued by government sponsored entities and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, the carrying amount approximate the fair value. The Company’s residential loans held for sale are reported on an aggregate basis at the lower of cost or fair value. The following is a reconciliation of activity for assets measured at fair value based on Significant Other Unobservable Inputs (Level 3):
|  | Other Equity |  |  | Derivative |  |  |  |  |
(dollars in thousands) |  | Investments |  |  | Assets/(Liability) |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance at December 31, 2014 |  | $ | 219 |  |  | $ | 146 |  |  | $ | 365 |
Realized gain (loss) included in earnings - net derivatives |  |  | - |  |  |  | 73 |  |  |  | 73 |
Principal redemption |  |  | - |  |  |  | - |  |  |  | - |
Ending balance at March 31, 2015 |  | $ | 219 |  |  | $ | 219 |  |  | $ | 438 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance at December 31, 2014 |  | $ | - |  |  | $ | (250 | ) |  | $ | (250 | )
Realized gain (loss) included in earnings - net derivatives |  |  | - |  |  |  | 110 |  |  |  | 110 |
Principal redemption |  |  | - |  |  |  | - |  |  |  | - |
Ending balance at March 31, 2015 |  | $ | - |  |  | $ | (140 | ) |  | $ | (140 | )
|  | Other Equity |  |  | Derivative |  |  |  |  |
(dollars in thousands) |  | Investments |  |  | Assets/(Liability) |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance at December 31, 2013 |  | $ | 219 |  |  | $ | - |  |  | $ | 219 |
Realized gain (loss) included in earnings - net derivatives |  |  | - |  |  |  | 146 |  |  |  | 146 |
Ending balance at December 31, 2014 |  | $ | 219 |  |  | $ | 146 |  |  | $ | 365 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance at December 31, 2013 |  | $ | - |  |  | $ | - |  |  | $ | - |
Realized gain (loss) included in earnings - net derivatives |  |  | - |  |  |  | (250 | ) |  |  | (250 | )
Ending balance at December 31, 2014 |  | $ | - |  |  | $ | (250 | ) |  | $ | (250 | )
Securities classified as Level 3 include securities in less liquid markets, the carrying amount approximate the fair value. The securities consist of equity investments in the form of common stock of two local banking companies which are not publicly traded. The Corporation relies on a third-party pricing service to value its derivative financial assets and liabilities. The external valuation model estimates the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups. The Corporation also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Corporation would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to value such assets. Loans held for sale: Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans subjected to nonrecurring fair value adjustments as Level 2 valuation. Impaired loans: The Company considers a loan impaired when it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that nonaccrual loans and loans that have had their terms restructured in a troubled debt restructuring meet this impaired loan definition. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the estimated fair value of the underlying collateral for collateral-dependent loans, which the Company classifies as a Level 3 valuation. Other real estate owned: Other real estate owned is initially recorded at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral, which the Company classifies as a Level 3 valuation. Assets measured at fair value on a nonrecurring basis are included in the table below:
(dollars in thousands) |  | Quoted Prices (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Other Unobservable Inputs (Level 3) |  |  | Total (Fair Value) |
March 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | - |  |  | $ | 1,934 |  |  | $ | 6,278 |  |  | $ | 8,212 |
Income producing - commercial real estate |  |  | - |  |  |  | 1,272 |  |  |  | 450 |  |  |  | 1,722 |
Owner occupied - commercial real estate |  |  | - |  |  |  | 724 |  |  |  | 590 |  |  |  | 1,314 |
Real estate mortgage - residential |  |  | - |  |  |  | - |  |  |  | 342 |  |  |  | 342 |
Construction - commercial and residential |  |  | - |  |  |  | - |  |  |  | 3,058 |  |  |  | 3,058 |
Home equity |  |  | - |  |  |  | 130 |  |  |  | 565 |  |  |  | 695 |
Other consumer |  |  | - |  |  |  | - |  |  |  | 5 |  |  |  | 5 |
Other real estate owned |  |  | - |  |  |  | 9,214 |  |  |  | 3,124 |  |  |  | 12,338 |
Derivative liabilities |  |  | - |  |  |  | - |  |  |  | 140 |  |  |  | 140 |
Total assets measured at fair value on a nonrecurring basis as of March 31, 2015 |  | $ | - |  |  | $ | 13,274 |  |  | $ | 14,552 |  |  | $ | 27,826 |
(dollars in thousands) |  | Quoted Prices (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Other Unobservable Inputs (Level 3) |  |  | Total (Fair Value) |
December 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | - |  |  | $ | 781 |  |  | $ | 7,171 |  |  | $ | 7,952 |
Income producing - commercial real estate |  |  | - |  |  |  | 703 |  |  |  | 1,199 |  |  |  | 1,902 |
Owner occupied - commercial real estate |  |  | - |  |  |  | - |  |  |  | 824 |  |  |  | 824 |
Real estate mortgage - residential |  |  | - |  |  |  | - |  |  |  | 346 |  |  |  | 346 |
Construction - commercial and residential |  |  | - |  |  |  | - |  |  |  | 3,297 |  |  |  | 3,297 |
Home equity |  |  | - |  |  |  | 5 |  |  |  | 963 |  |  |  | 968 |
Other consumer |  |  | - |  |  |  | - |  |  |  | 13 |  |  |  | 13 |
Other real estate owned |  |  | - |  |  |  | 9,184 |  |  |  | 4,040 |  |  |  | 13,224 |
Derivative liabilities |  |  | - |  |  |  | - |  |  |  | 250 |  |  |  | 250 |
Total assets measured at fair value on a nonrecurring basis as of December 31, 2014 |  | $ | - |  |  | $ | 10,673 |  |  | $ | 18,103 |  |  | $ | 28,776 |
Loans The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Receivables.” The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At March 31, 2015, substantially all of the totally impaired loans were evaluated based upon the fair value of the collateral. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3. Fair Value of Financial Instruments The Company discloses fair value information about financial instruments for which it is practicable to estimate the value, whether or not such financial instruments are recognized on the balance sheet. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by quoted market price, if one exists. Quoted market prices, if available, are shown as estimates of fair value. Because no quoted market prices exist for a portion of the Company’s financial instruments, the fair value of such instruments has been derived based on management’s assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimates. Accordingly, the net realizable value could be materially different from the estimates presented below. In addition, the estimates are only indicative of individual financial instrument values and should not be considered an indication of the fair value of the Company taken as a whole. The following methods and assumptions were used to estimate the fair value of each category of financial instrument for which it is practicable to estimate value: Cash due from banks and federal funds sold: For cash and due from banks and federal funds sold the carrying amount approximates fair value. Interest bearing deposits with other banks: Values are estimated by discounting the future cash flows using the current rates at which similar deposits would be earning. Investment securities: For these instruments, fair values are based upon quoted prices, if available. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Federal Reserve and Federal Home Loan Bank stock: The carrying amount approximate the fair values at the reporting date. Loans held for sale: Fair values are at the carrying value (lower of cost or market) since such loans are typically committed to be sold (servicing released) at a profit. Loans: For variable rate loans that re-price on a scheduled basis, fair values are based on carrying values. The fair value of the remaining loans are estimated by discounting the estimated future cash flows using the current interest rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. Bank owned life insurance: The fair value of bank owned life insurance is the current cash surrender value, which is the carrying value. Annuity investment: The fair value of the annuity investments is the carrying amount at the reporting date. Derivative financial instruments: Derivative instruments are used to hedge residential mortgage loans held for sale that utilize mandatory delivery and the related interest rate lock commitments and include forward commitments to sell those loans. The fair values of derivative financial instruments are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for interest rate lock commitments. Noninterest bearing deposits: The fair value of these deposits is the amount payable on demand at the reporting date, since generally accepted accounting standards do not permit an assumption of core deposit value. Interest bearing deposits: The fair value of interest bearing transaction, savings, and money market deposits with no defined maturity is the amount payable on demand at the reporting date, since generally accepted accounting standards do not permit an assumption of core deposit value. Certificates of deposit: The fair value of certificates of deposit is estimated by discounting the future cash flows using the current rates at which similar deposits with remaining maturities would be accepted. Customer repurchase agreements and federal funds purchased: The carrying amount approximate the fair values at the reporting date. Borrowings: The carrying amount for variable rate borrowings approximate the fair values at the reporting date. The fair value of fixed rate FHLB advances and the subordinated notes are estimated by computing the discounted value of contractual cash flows payable at current interest rates for obligations with similar remaining terms. The fair value of variable rate FHLB advances is estimated to be carrying value since these liabilities are based on a spread to a current pricing index. Off-balance sheet items: Management has reviewed the unfunded portion of commitments to extend credit, as well as standby and other letters of credit, and has determined that the fair value of such instruments is equal to the fee, if any, collected and unamortized for the commitment made. The estimated fair values of the Company’s financial instruments at March 31, 2015 and December 31, 2014 are as follows:
|  |  |  |  |  |  |  |  |  | Fair Value Measurements |
|  |  |  |  |  |  |  |  |  | Quoted Prices in Active Markets for Identical Assets or Liabilities |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
(dollars in thousands) |  | Carrying Value |  |  | Fair Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
March 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 9,997 |  |  | $ | 9,997 |  |  | $ | - |  |  | $ | 9,997 |  |  | $ | - |
Federal funds sold |  |  | 2,700 |  |  |  | 2,700 |  |  |  | - |  |  |  | 2,700 |  |  |  | - |
Interest bearing deposits with other banks |  |  | 402,964 |  |  |  | 402,964 |  |  |  | - |  |  |  | 402,964 |  |  |  | - |
Investment securities |  |  | 333,531 |  |  |  | 333,531 |  |  |  | 245 |  |  |  | 333,067 |  |  |  | 219 |
Federal Reserve and Federal Home Loan Bank stock |  |  | 16,793 |  |  |  | 16,793 |  |  |  | - |  |  |  | 16,793 |  |  |  | - |
Loans held for sale |  |  | 62,758 |  |  |  | 63,074 |  |  |  | - |  |  |  | 63,074 |  |  |  | - |
Loans |  |  | 4,444,893 |  |  |  | 4,447,182 |  |  |  | - |  |  |  | 4,060 |  |  |  | 4,443,122 |
Bank owned life insurance |  |  | 56,983 |  |  |  | 56,983 |  |  |  | - |  |  |  | 56,983 |  |  |  | - |
Annuity investment |  |  | 12,269 |  |  |  | 12,269 |  |  |  | - |  |  |  | 12,269 |  |  |  | - |
Derivative assets |  |  | 219 |  |  |  | 219 |  |  |  | - |  |  |  | 219 |  |  |  | - |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest bearing deposits |  |  | 1,196,165 |  |  |  | 1,196,165 |  |  |  | - |  |  |  | 1,196,165 |  |  |  | - |
Interest bearing deposits |  |  | 3,388,200 |  |  |  | 3,387,995 |  |  |  | - |  |  |  | 3,387,995 |  |  |  | - |
Borrowings |  |  | 137,889 |  |  |  | 138,386 |  |  |  | - |  |  |  | 138,386 |  |  |  | - |
Derivative liabilities |  |  | 140 |  |  |  | 140 |  |  |  | - |  |  |  | - |  |  |  | 140 |
December 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 9,097 |  |  | $ | 9,097 |  |  | $ | - |  |  | $ | 9,097 |  |  | $ | - |
Federal funds sold |  |  | 3,516 |  |  |  | 3,516 |  |  |  | - |  |  |  | 3,516 |  |  |  | - |
Interest bearing deposits with other banks |  |  | 243,412 |  |  |  | 243,412 |  |  |  | - |  |  |  | 243,412 |  |  |  | - |
Investment securities |  |  | 382,343 |  |  |  | 382,343 |  |  |  | 198 |  |  |  | 381,926 |  |  |  | 219 |
Federal Reserve and Federal Home Loan Bank stock |  |  | 22,560 |  |  |  | 22,560 |  |  |  | - |  |  |  | 22,560 |  |  |  | - |
Loans held for sale |  |  | 44,317 |  |  |  | 44,669 |  |  |  | - |  |  |  | 44,669 |  |  |  | - |
Loans |  |  | 4,312,399 |  |  |  | 4,314,618 |  |  |  | - |  |  |  | 1,489 |  |  |  | 4,313,129 |
Bank owned life insurance |  |  | 56,594 |  |  |  | 56,594 |  |  |  | - |  |  |  | 56,594 |  |  |  | - |
Annuity investment |  |  | 11,277 |  |  |  | 11,277 |  |  |  | - |  |  |  | 11,277 |  |  |  | - |
Derivative assets |  |  | 146 |  |  |  | 146 |  |  |  | - |  |  |  | 146 |  |  |  | - |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest bearing deposits |  |  | 1,175,799 |  |  |  | 1,175,799 |  |  |  | - |  |  |  | 1,175,799 |  |  |  | - |
Interest bearing deposits |  |  | 3,134,969 |  |  |  | 3,134,295 |  |  |  | - |  |  |  | 3,134,295 |  |  |  | - |
Borrowings |  |  | 280,420 |  |  |  | 281,958 |  |  |  | - |  |  |  | 281,958 |  |  |  | - |
Derivative liabilities |  |  | 250 |  |  |  | 250 |  |  |  | - |  |  |  | - |  |  |  | 250 |

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19279-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19190-110258 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 + Details
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