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Fair value estimates | 6 Months Ended
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Jun. 30, 2016
Fair value estimates |
Fair value estimates | 7. Fair value estimates: The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements. In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument. Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:
| · |  | Level 1: Unadjusted quoted prices of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
| · |  | Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
| · |  | Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate. The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments: Cash and cash equivalents: The carrying values of cash and cash equivalents as reported on the balance sheet approximate fair value. Investment securities: The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model. Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market. Net loans: For adjustable-rate loans that re-price frequently and with no significant credit risk, fair values are based on carrying values. The fair values of other non-impaired loans are estimated using discounted cash flow analysis, using interest rates currently offered in the market for loans with similar terms to borrowers of similar credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis determined by the loan review function or underlying collateral values, where applicable. Mortgage servicing rights: To determine the fair value, the Company estimates the present value of future cash flows incorporating assumptions such as cost of servicing, discount rates, prepayment speeds and default rates. Accrued interest receivable: The carrying value of accrued interest receivable as reported on the balance sheet approximates fair value. Restricted equity securities: The carrying values of restricted equity securities approximate fair value, due to the lack of marketability for these securities. Deposits: The fair values of noninterest-bearing deposits and savings, NOW and money market accounts are the amounts payable on demand at the reporting date. The fair value estimates do not include the benefit that results from such low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The carrying values of adjustable-rate, fixed-term time deposits approximate their fair values at the reporting date. For fixed-rate time deposits, the present value of future cash flows is used to estimate fair values. The discount rates used are the current rates offered for time deposits with similar maturities. Short-term borrowings: The carrying values of short-term borrowings approximate fair value. Long-term debt: The fair value of fixed-rate long-term debt is based on the present value of future cash flows. The discount rate used is the current rate offered for long-term debt with the same maturity. Accrued interest payable: The carrying value of accrued interest payable as reported on the balance sheet approximates fair value. Off-balance sheet financial instruments: The majority of commitments to extend credit, unused portions of lines of credit and standby letters of credit carry current market interest rates if converted to loans. Because such commitments are generally unassignable of either the Company or the borrower, they only have value to the Company and the borrower. None of the commitments are subject to undue credit risk. The estimated fair values of off-balance sheet financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of off-balance sheet financial instruments was not material at June 30, 2016 and December 31, 2015. Assets and liabilities measured at fair value on a recurring basis at June 30, 2016 and December 31, 2015 are summarized as follows:
|  | Fair Value Measurement Using |
|  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets for |  | Other Observable |  | Unobservable |
|  |  |  | Identical Assets |  | Inputs |  | Inputs |
June 30, 2016 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
U.S. Government-sponsored enterprises |  | $ | 58,745 |  | $ |  |  | $ | 58,745 |  | $ |  |
State and Municipals: |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 15,949 |  |  |  |  |  | 15,949 |  |  |  |
Tax-exempt |  |  | 123,155 |  |  |  |  |  | 123,155 |  |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  |  | 26,054 |  |  |  |  |  | 26,054 |  |  |  |
U.S. Government-sponsored enterprises |  |  | 27,479 |  |  |  |  |  | 27,479 |  |  |  |
Total |  | $ | 251,382 |  | $ |  |  | $ | 251,382 |  | $ |  |
|  | Fair Value Measurement Using |
|  |  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets for |  | Other Observable |  | Unobservable |
|  |  |  | Identical Assets |  | Inputs |  | Inputs |
December 31, 2015 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
U.S. Treasury securities |  | $ | 9,999 |  | $ | 9,999 |  |  |  |  | $ |  |
U.S. Government-sponsored enterprises |  |  | 69,060 |  |  |  |  | $ | 69,060 |  |  |  |
State and Municipals: |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 16,545 |  |  |  |  |  | 16,545 |  |  |  |
Tax-exempt |  |  | 124,924 |  |  |  |  |  | 124,924 |  |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  |  | 31,568 |  |  |  |  |  | 31,568 |  |  |  |
U.S. Government-sponsored enterprises |  |  | 32,839 |  |  |  |  |  | 32,839 |  |  |  |
Total |  | $ | 284,935 |  | $ | 9,999 |  | $ | 274,936 |  | $ |  |
Assets and liabilities measured at fair value on a nonrecurring basis at June 30, 2016 and December 31, 2015 are summarized as follows:
|  | Fair Value Measurement Using |
|  |  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets for |  | Other Observable |  | Unobservable |
|  |  |  | Identical Assets |  | Inputs |  | Inputs |
June 30, 2016 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Impaired loans |  | $ | 5,801 |  |  |  |  |  |  |  | $ | 5,801 |
Other real estate owned |  | $ | 1,256 |  |  |  |  |  |  |  | $ | 1,256 |
|  | Fair Value Measurement Using |
|  |  |  |  | Quoted Prices in |  | Significant Other |  | Significant |
|  |  |  | Active Markets for |  | Observable |  | Unobservable |
|  |  |  | Identical Assets |  | Inputs |  | Inputs |
December 31, 2015 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Impaired loans |  | $ | 4,944 |  |  |  |  |  |  |  | $ | 4,944 |
Other real estate owned |  | $ | 878 |  |  |  |  |  |  |  | $ | 878 |
Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
|  | Quantitative Information about Level 3 Fair Value Measurements |
|  | Fair Value |  |  |  |  |  | Range |
June 30, 2016 |  | Estimate |  | Valuation Techniques |  | Unobservable Input |  | (Weighted Average) |
Impaired loans |  | $ | 5,801 |  | Appraisal of collateral |  | Appraisal adjustments |  | 13.5% to 94.0% (62.4)% |
|  |  |  |  |  |  | Liquidation expenses |  | 3.0% to 6.0% (5.3)% |
Other real estate owned |  | $ | 1,256 |  | Appraisal of collateral |  | Appraisal adjustments |  | 20.0% to 54.1% (35.9)% |
|  |  |  |  |  |  | Liquidation expenses |  | 3.0% to 6.0% (5.0)% |
|  | Quantitative Information about Level 3 Fair Value Measurements |
|  | Fair Value |  |  |  |  |  | Range |
December 31, 2015 |  | Estimate |  | Valuation Techniques |  | Unobservable Input |  | (Weighted Average) |
Impaired loans |  | $ | 4,944 |  | Appraisal of collateral |  | Appraisal adjustments |  | 3.3% to 97.0% (61.7)% |
|  |  |  |  |  |  | Liquidation expenses |  | 3.0% to 6.0% (5.4)% |
Other real estate owned |  | $ | 878 |  | Appraisal of collateral |  | Appraisal adjustments |  | 20.0% to 77.3% (30.3)% |
|  |  |  |  |  |  | Liquidation expenses |  | 3.0% to 6.0% (5.0)% |
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 Inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. The carrying and fair values of the Company’s financial instruments at June 30, 2016 and December 31, 2015 and their placement within the fair value hierarchy are as follows:
|  |  |  |  |  |  |  | Fair Value Hierarchy |
|  |  |  |  |  |  |  | Quoted |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Prices in |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Active |  | Significant |  |  |  |
|  |  |  |  |  |  |  | Markets for |  | Other |  | Significant |
|  |  |  |  |  |  |  | Identical |  | Observable |  | Unobservable |
|  | Carrying |  | Fair |  | Assets |  | Inputs |  | Inputs |
June 30, 2016 |  | Value |  | Value |  | (level 1) |  | (level 2) |  | (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 30,077 |  | $ | 30,077 |  | $ | 30,077 |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  | 251,382 |  |  | 251,382 |  |  |  |  | $ | 251,382 |  |  |  |
Held-to-maturity |  |  | 11,262 |  |  | 12,065 |  |  |  |  |  | 12,065 |  |  |  |
Loans held for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loans |  |  | 1,450,009 |  |  | 1,465,095 |  |  |  |  |  |  |  | $ | 1,465,095 |
Accrued interest receivable |  |  | 5,952 |  |  | 5,952 |  |  |  |  |  | 5,952 |  |  |  |
Mortgage servicing rights |  |  | 489 |  |  | 1,543 |  |  |  |  |  | 1,543 |  |  |  |
Restricted equity securities |  |  | 6,878 |  |  | 6,878 |  |  |  |  |  | 6,878 |  |  |  |
Total |  | $ | 1,756,049 |  | $ | 1,772,992 |  |  |  |  |  |  |  |  |  |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,496,863 |  | $ | 1,499,201 |  |  |  |  |  | 1,499,201 |  |  |  |
Short-term borrowings |  |  | 86,300 |  |  | 86,282 |  |  |  |  |  | 86,282 |  |  |  |
Long-term debt |  |  | 59,232 |  |  | 61,334 |  |  |  |  |  | 61,334 |  |  |  |
Accrued interest payable |  |  | 453 |  |  | 453 |  |  |  |  | $ | 453 |  |  |  |
Total |  | $ | 1,642,848 |  | $ | 1,647,270 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Fair Value Hierarchy |
|  |  |  |  |  |  |  | Quoted |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Prices in |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Active |  | Significant |  |  |  |
|  |  |  |  |  |  |  | Markets for |  | Other |  | Significant |
|  |  |  |  |  |  |  | Identical |  | Observable |  | Unobservable |
|  | Carrying |  | Fair |  | Assets |  | Inputs |  | Inputs |
December 31, 2015 |  | Value |  | Value |  | (level 1) |  | (level 2) |  | (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 32,917 |  | $ | 32,917 |  | $ | 32,917 |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  | 284,935 |  |  | 284,935 |  | $ | 9,999 |  | $ | 274,936 |  |  |  |
Held-to-maturity |  |  | 12,109 |  |  | 12,606 |  |  |  |  |  | 12,606 |  |  |  |
Loans held for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loans |  |  | 1,327,890 |  |  | 1,330,900 |  |  |  |  |  |  |  | $ | 1,330,900 |
Accrued interest receivable |  |  | 5,796 |  |  | 5,796 |  |  |  |  |  | 5,796 |  |  |  |
Mortgage servicing rights |  |  | 465 |  |  | 1,543 |  |  |  |  |  | 1,543 |  |  |  |
Restricted equity securities |  |  | 5,403 |  |  | 5,403 |  |  |  |  |  | 5,403 |  |  |  |
Total |  | $ | 1,669,515 |  | $ | 1,674,100 |  |  |  |  |  |  |  |  |  |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,455,810 |  | $ | 1,455,979 |  |  |  |  |  | 1,455,979 |  |  |  |
Short-term borrowings |  |  | 38,325 |  |  | 38,325 |  |  |  |  |  | 38,325 |  |  |  |
Long-term debt |  |  | 60,354 |  |  | 61,412 |  |  |  |  |  | 61,412 |  |  |  |
Accrued interest payable |  |  | 560 |  |  | 560 |  |  |  |  | $ | 560 |  |  |  |
Total |  | $ | 1,555,049 |  | $ | 1,556,276 |  |  |  |  |  |  |  |  |  |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: 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 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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