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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period end. Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance. This guidance further clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value. Fair value measurement and disclosure guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. For assets measured at fair value, the fair value measurements by level within the fair value hierarchy, and the basis of measurement used, at September 30, 2018, and December 31, 2017, are as follows:
|  |  |  | September 30, 2018
In thousands |  | Basis |  | Total |  | Level 1 |  | Level 2 |  | Level 3
U.S. Government and agencies |  |  |  | $ | 122,076 |  |  | $ | — |  |  | $ | 122,076 |  |  | $ | — |
Mortgage-backed securities, residential |  |  |  | 31,091 |  |  | — |  |  | 31,091 |  |  | — |
State and municipal |  |  |  | 9,790 |  |  | — |  |  | 9,790 |  |  | — |
Total securities available for sale |  | Recurring |  | $ | 162,957 |  |  | $ | — |  |  | $ | 162,957 |  |  | $ | — |
Equity securities with readily determinable fair values |  | Recurring |  | $ | 1,743 |  |  | $ | 1,743 |  |  | $ | — |  |  | $ | — |
Collateral dependent impaired loans |  | Nonrecurring |  | $ | 3,907 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,907 |
|  |  |  | December 31, 2017
In thousands |  | Basis |  | Total |  | Level 1 |  | Level 2 |  | Level 3
U.S. Government and agencies |  |  |  | $ | 104,083 |  |  | $ | — |  |  | $ | 104,083 |  |  | $ | — |
Mortgage-backed securities, residential |  |  |  | 34,833 |  |  | — |  |  | 34,833 |  |  | — |
State and municipal |  |  |  | 13,294 |  |  | — |  |  | 13,294 |  |  | — |
Corporate bonds |  |  |  | 5,057 |  |  | — |  |  | 5,057 |  |  | — |
CRA mutual fund |  |  |  | 1,035 |  |  | 1,035 |  |  | — |  |  | — |
Stock in other banks |  |  |  | 749 |  |  | 749 |  |  | — |  |  | — |
Total securities available for sale |  | Recurring |  | $ | 159,051 |  |  | $ | 1,784 |  |  | $ | 157,267 |  |  | $ | — |
Collateral dependent impaired loans |  | Nonrecurring |  | $ | 5,426 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,426 |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value:
|  | Quantitative Information about Level 3 Fair Value Measurements
Dollars in thousands |  | Fair Value Estimate |  | Valuation Technique |  | Unobservable Input |  |  | Range |  | Weighted Average
September 30, 2018 |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 3,907 |  |  | Appraisal of collateral | (a) | Appraisal adjustments | (b) |  | (10) - (50)% |  | (28)%
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 5,426 |  |  | Appraisal of collateral | (a) | Appraisal adjustments | (b) |  | (10) - (50)% |  | (36)%
(a) Fair value is generally determined through management’s estimate or independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable. (b) Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, and/or age of the appraisal. The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of certain Corporation financial instruments at September 30, 2018, and December 31, 2017: Cash and Cash Equivalents (Carried at Cost) The carrying amounts reported in the consolidated statement of condition for cash and short-term instruments approximate those assets’ fair value. U.S. currency is Level 1 and cash equivalents are Level 2. Securities The fair values of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific security but rather by relying on the security’s relationship to other benchmark quoted prices. The Corporation uses an independent service provider to provide matrix pricing, and uses the valuation of another provider to compare for reasonableness. Loans Held for Sale (Carried at Lower of Cost or Fair Value) The fair values of mortgage loans held for sale are determined based on amounts to be received at settlement by establishing the respective buyer requirement or market interest rates. Loans (Carried at Cost) The fair values of non-impaired loans are estimated using discounted cash flow analyses with the exit pricing concept, as well as using market rates at the balance sheet date that reflect the credit and interest rate risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments, and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Impaired Loans (Generally Carried at Fair Value) Loans for which the Corporation has measured impairment are generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances less the valuation allowance and/or charge-offs. Foreclosed Assets Held for Resale The fair value of real estate acquired through foreclosure is based on independent third-party appraisals of the properties. These assets are included as Level 3 fair values, based upon appraisals that consider the sales prices of similar properties in the proximate vicinity. It is the policy of the Corporation to have the initial market value of a foreclosed asset held for resale determined by an independent third-party valuation. If the Corporation already has a valid appraisal on file for the property and that appraisal has been completed within the previous 12 months, another appraisal shall not be required when the Corporation acquires ownership of that real estate. Further, the Corporation shall update the market value of each foreclosed asset with an independent third-party valuation at least every 18 months, or more frequently if management believes that there is an indication that the fair value has declined. These valuations may be adjusted downward to account for specialized use of the property, change in the condition of the real estate, change in local market and economic conditions, and other specific factors involving the collateral. Restricted Investment in Bank Stock (Carried at Cost) The carrying amount of required and restricted investment in correspondent bank stock approximates fair value, and considers the limited marketability of such securities. Accrued Interest Receivable and Payable (Carried at Cost) The carrying amounts of accrued interest receivable and accrued interest payable approximate their fair value. Deposits (Carried at Cost) The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (e.g., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-Term Borrowings (Carried at Cost) The carrying amounts of short-term borrowings approximate their fair values. Long-Term Borrowings (Carried at Cost) The fair values of long-term borrowings are estimated using discounted cash flow analysis with the exit pricing concept, based on quoted prices for new borrowings with similar credit risk characteristics, terms, and remaining maturity. The prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party. The fair value of the trust preferred subordinated debt, included in long-term borrowings, was determined based upon an estimated fair value from an independent brokerage firm. Off-Balance Sheet Credit-Related Instruments The fair values for the Corporation’s off-balance sheet financial instruments (specifically, lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The following presents the carrying amount, exit pricing concept fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of September 30, 2018:
|  | September 30, 2018
In thousands |  | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 18,145 |  |  | $ | 18,145 |  |  | $ | 7,981 |  |  | $ | 10,164 |  |  | $ | — |
Interest-bearing deposits in banks |  | 45,551 |  |  | 45,551 |  |  | 45,551 |  |  | — |  |  | — |
Equity securities with readily determinable fair value |  | 1,743 |  |  | 1,743 |  |  | 1,743 |  |  | — |  |  | — |
Investment securities available for sale |  | 162,957 |  |  | 162,957 |  |  | — |  |  | 162,957 |  |  | — |
Investment securities held to maturity |  | 33,517 |  |  | 32,767 |  |  | — |  |  | 32,767 |  |  | — |
Loans held for sale |  | 1,112 |  |  | 1,112 |  |  | — |  |  | 1,112 |  |  | — |
Loans, less allowance for loan losses |  | 1,259,032 |  |  | 1,218,667 |  |  | — |  |  | — |  |  | 1,218,667 |
Accrued interest receivable |  | 4,737 |  |  | 4,737 |  |  | — |  |  | 4,737 |  |  | — |
Restricted investment in bank stocks |  | 4,529 |  |  | 4,529 |  |  | — |  |  | 4,529 |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Demand deposits and savings |  | 984,704 |  |  | 984,704 |  |  | — |  |  | 984,704 |  |  | — |
Time deposits |  | 362,539 |  |  | 357,603 |  |  | — |  |  | 357,603 |  |  | — |
Short-term borrowings |  | 38,525 |  |  | 38,525 |  |  | — |  |  | 38,525 |  |  | — |
Long-term borrowings |  | 79,725 |  |  | 79,383 |  |  | — |  |  | 79,383 |  |  | — |
Trust preferred subordinated debt |  | 5,000 |  |  | 4,699 |  |  | — |  |  | 4,699 |  |  | — |
Accrued interest payable |  | 1,406 |  |  | 1,406 |  |  | — |  |  | 1,406 |  |  | — |
Off-balance sheet financial instruments |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of December 31, 2017:
|  | December 31, 2017
In thousands |  | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 19,304 |  |  | $ | 19,304 |  |  | $ | 8,313 |  |  | $ | 10,991 |  |  | $ | — |
Interest-bearing deposits in banks |  | 15,137 |  |  | 15,137 |  |  | 15,137 |  |  | — |  |  | — |
Investment securities available for sale |  | 159,051 |  |  | 159,051 |  |  | 1,784 |  |  | 157,267 |  |  | — |
Investment securities held to maturity |  | 44,829 |  |  | 44,549 |  |  | — |  |  | 44,549 |  |  | — |
Loans held for sale |  | 1,736 |  |  | 1,736 |  |  | — |  |  | 1,736 |  |  | — |
Loans, less allowance for loan losses |  | 1,230,194 |  |  | 1,213,932 |  |  | — |  |  | — |  |  | 1,213,932 |
Accrued interest receivable |  | 3,670 |  |  | 3,670 |  |  | — |  |  | 3,670 |  |  | — |
Restricted investment in bank stocks |  | 4,773 |  |  | 4,773 |  |  | — |  |  | 4,773 |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Demand deposits and savings |  | 944,399 |  |  | 944,399 |  |  | — |  |  | 944,399 |  |  | — |
Time deposits |  | 354,093 |  |  | 351,057 |  |  | — |  |  | 351,057 |  |  | — |
Short-term borrowings |  | 36,908 |  |  | 36,908 |  |  | — |  |  | 36,908 |  |  | — |
Long-term borrowings |  | 89,600 |  |  | 89,571 |  |  | — |  |  | 89,571 |  |  | — |
Trust preferred subordinated debt |  | 5,000 |  |  | 4,692 |  |  | — |  |  | 4,692 |  |  | — |
Accrued interest payable |  | 1,163 |  |  | 1,163 |  |  | — |  |  | 1,163 |  |  | — |
Off-balance sheet financial instruments |  | — |  |  | — |  |  | — |  |  | — |  |  | — |

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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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