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Fair value estimates | 9 Months Ended
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Sep. 30, 2018
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. During the periods ended September 30, 2018 and December 31, 2017 there were no significant transfers between Level 1 and Level 2 and no transfers in or out of Level 3. The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments: 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. Interest rate swaps: The Company’s interest rate swaps are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for swaps, Libor rates, forward rates and rate volatility. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty. Assets and liabilities measured at fair value on a recurring basis at September 30, 2018 and December 31, 2017 are summarized as follows:
|  | Fair Value Measurement Using |
|  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets for |  | Other Observable |  | Unobservable |
|  |  |  | Identical Assets |  | Inputs |  | Inputs |
September 30, 2018 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
U.S. Treasury securities |  | $ | 25,230 |  | $ | 25,230 |  |  |  |  | $ |  |
U.S. Government-sponsored enterprises |  |  | 91,772 |  |  |  |  | $ | 91,772 |  |  |  |
State and Municipals: |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 13,813 |  |  |  |  |  | 13,813 |  |  |  |
Tax-exempt |  |  | 89,969 |  |  |  |  |  | 89,969 |  |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  |  | 13,585 |  |  |  |  |  | 13,585 |  |  |  |
U.S. Government-sponsored enterprises |  |  | 40,425 |  |  |  |  |  | 40,425 |  |  |  |
Common equity securities |  |  | 291 |  |  | 291 |  |  |  |  |  |  |
Interest rate swap-other assets |  |  | 864 |  |  |  |  |  | 864 |  |  |  |
Interest rate swap-other liabilities |  |  | (841) |  |  |  |  |  | (841) |  |  |  |
Total |  | $ | 275,108 |  | $ | 25,521 |  | $ | 249,587 |  | $ |  |
|  | Fair Value Measurement Using |
|  |  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets for |  | Other Observable |  | Unobservable |
|  |  |  | Identical Assets |  | Inputs |  | Inputs |
December 31, 2017 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
U.S. Treasury securities |  | $ | 19,814 |  | $ | 19,814 |  |  |  |  | $ |  |
U.S. Government-sponsored enterprises |  |  | 93,648 |  |  |  |  | $ | 93,648 |  |  |  |
State and Municipals: |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 15,047 |  |  |  |  |  | 15,047 |  |  |  |
Tax-exempt |  |  | 103,833 |  |  |  |  |  | 103,833 |  |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  |  | 14,434 |  |  |  |  |  | 14,434 |  |  |  |
U.S. Government-sponsored enterprises |  |  | 25,726 |  |  |  |  |  | 25,726 |  |  |  |
Common equity securities |  |  | 46 |  |  | 46 |  |  |  |  |  |  |
Interest rate swap-other assets |  |  | 655 |  |  |  |  |  | 655 |  |  |  |
Interest rate swap-other liabilities |  |  | (733) |  |  |  |  |  | (733) |  |  |  |
Total |  | $ | 272,470 |  | $ | 19,860 |  | $ | 252,610 |  | $ |  |
Assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2018 and December 31, 2017 are summarized as follows:
|  | Fair Value Measurement Using |
|  |  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets for |  | Other Observable |  | Unobservable |
|  |  |  | Identical Assets |  | Inputs |  | Inputs |
September 30, 2018 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Impaired loans |  | $ | 3,003 |  |  |  |  |  |  |  | $ | 3,003 |
Other real estate owned |  | $ | 342 |  |  |  |  |  |  |  | $ | 342 |
|  | Fair Value Measurement Using |
|  |  |  |  | Quoted Prices in |  | Significant Other |  | Significant |
|  |  |  | Active Markets for |  | Observable |  | Unobservable |
|  |  |  | Identical Assets |  | Inputs |  | Inputs |
December 31, 2017 |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Impaired loans |  | $ | 3,424 |  |  |  |  |  |  |  | $ | 3,424 |
Other real estate owned |  | $ | 216 |  |  |  |  |  |  |  | $ | 216 |
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 |
September 30, 2018 |  | Estimate |  | Valuation Techniques |  | Unobservable Input |  | (Weighted Average) |
Impaired loans |  | $ | 3,003 |  | Appraisal of collateral |  | Appraisal adjustments |  | 1.3% to 97.0% (55.9)% |
|  |  |  |  |  |  | Liquidation expenses |  | 3.0% to 6.0% (4.9)% |
Other real estate owned |  | $ | 342 |  | Appraisal of collateral |  | Appraisal adjustments |  | 26.0% to 73.3% (31.8)% |
|  |  |  |  |  |  | Liquidation expenses |  | 3.0% to 6.0% (5.0)% |
|  | Quantitative Information about Level 3 Fair Value Measurements |
|  | Fair Value |  |  |  |  |  | Range |
December 31, 2017 |  | Estimate |  | Valuation Techniques |  | Unobservable Input |  | (Weighted Average) |
Impaired loans |  | $ | 3,424 |  | Appraisal of collateral |  | Appraisal adjustments |  | 4.0% to 97.0% (67.2)% |
|  |  |  |  |  |  | Liquidation expenses |  | 3.0% to 6.0% (4.9)% |
Other real estate owned |  | $ | 216 |  | Appraisal of collateral |  | Appraisal adjustments |  | 25.0% to 41.3% (30.7)% |
|  |  |  |  |  |  | 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 September 30, 2018 and December 31, 2017 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 |
September 30, 2018 |  | Value |  | Value |  | (level 1) |  | (level 2) |  | (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 40,595 |  | $ | 40,595 |  | $ | 40,595 |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  | 274,794 |  |  | 274,794 |  |  | 25,230 |  | $ | 249,564 |  |  |  |
Common equity securities |  |  | 291 |  |  | 291 |  |  | 291 |  |  |  |  |  |  |
Held-to-maturity |  |  | 8,551 |  |  | 8,435 |  |  |  |  |  | 8,435 |  |  |  |
Loans held for sale |  |  | 98 |  |  | 98 |  |  |  |  |  | 98 |  |  |  |
Net loans |  |  | 1,759,032 |  |  | 1,706,913 |  |  |  |  |  |  |  | $ | 1,706,913 |
Accrued interest receivable |  |  | 6,565 |  |  | 6,565 |  |  |  |  |  | 6,565 |  |  |  |
Mortgage servicing rights |  |  | 731 |  |  | 1,645 |  |  |  |  |  | 1,645 |  |  |  |
Restricted equity securities |  |  | 7,827 |  |  | 7,827 |  |  |  |  |  | 7,827 |  |  |  |
Interest rate swaps |  |  | 864 |  |  | 864 |  |  |  |  |  | 864 |  |  |  |
Total |  | $ | 2,099,348 |  | $ | 2,048,027 |  |  |  |  |  |  |  |  |  |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,827,864 |  | $ | 1,822,365 |  |  |  |  | $ | 1,822,365 |  |  |  |
Short-term borrowings |  |  | 99,450 |  |  | 99,450 |  |  |  |  |  | 99,450 |  |  |  |
Long-term debt |  |  | 48,461 |  |  | 48,487 |  |  |  |  |  | 48,487 |  |  |  |
Accrued interest payable |  |  | 745 |  |  | 745 |  |  |  |  |  | 745 |  |  |  |
Interest rate swaps |  |  | 841 |  |  | 841 |  |  |  |  |  | 841 |  |  |  |
Total |  | $ | 1,977,361 |  | $ | 1,971,888 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Fair Value Hierarchy |
|  |  |  |  |  |  |  | Quoted |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Prices in |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Active |  | Significant |  |  |  |
|  |  |  |  |  |  |  | Markets for |  | Other |  | Significant |
|  |  |  |  |  |  |  | Identical |  | Observable |  | Unobservable |
|  | Carrying |  | Fair |  | Assets |  | Inputs |  | Inputs |
December 31, 2017 |  | Value |  | Value |  | (level 1) |  | (level 2) |  | (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 37,488 |  | $ | 37,488 |  | $ | 37,488 |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  | 272,548 |  |  | 272,548 |  |  | 19,860 |  | $ | 252,688 |  |  |  |
Held-to-maturity |  |  | 9,274 |  |  | 9,547 |  |  |  |  |  | 9,547 |  |  |  |
Loans held for sale |  |  | 106 |  |  | 106 |  |  |  |  |  | 106 |  |  |  |
Net loans |  |  | 1,674,105 |  |  | 1,645,292 |  |  |  |  |  |  |  | $ | 1,645,292 |
Accrued interest receivable |  |  | 6,936 |  |  | 6,936 |  |  |  |  |  | 6,936 |  |  |  |
Mortgage servicing rights |  |  | 728 |  |  | 1,638 |  |  |  |  |  | 1,638 |  |  |  |
Restricted equity securities |  |  | 8,562 |  |  | 8,562 |  |  |  |  |  | 8,562 |  |  |  |
Interest rate swaps |  |  | 655 |  |  | 655 |  |  |  |  |  | 655 |  |  |  |
Total |  | $ | 2,010,402 |  | $ | 1,982,772 |  |  |  |  |  |  |  |  |  |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,719,018 |  | $ | 1,666,284 |  |  |  |  | $ | 1,666,284 |  |  |  |
Short-term borrowings |  |  | 123,675 |  |  | 123,675 |  |  |  |  |  | 123,675 |  |  |  |
Long-term debt |  |  | 49,734 |  |  | 50,147 |  |  |  |  |  | 50,147 |  |  |  |
Accrued interest payable |  |  | 497 |  |  | 497 |  |  |  |  |  | 497 |  |  |  |
Interest rate swaps |  |  | 733 |  |  | 733 |  |  |  |  |  | 733 |  |  |  |
Total |  | $ | 1,893,657 |  | $ | 1,841,336 |  |  |  |  |  |  |  |  |  |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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