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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS

 

The following tables present information about the Bank’s assets and liabilities measured at fair value on a recurring basis and the valuation techniques used by the Bank to determine those fair values.

 

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Bank has the ability to access.

 

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

 

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Bank’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

 

There were no liabilities measured at fair value as of September 30, 2016 or December 31, 2015. Disclosures concerning assets measured at fair value are as follows:

 

Assets Measured at Fair Value on a Recurring Basis

 

(Dollars in thousands)   Quoted Prices
in Active
Markets for Identical
Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		     Balance at
Date Indicated		  
Investment Securities, Available for Sale – September 30, 2016                                
U.S. Treasury notes and bonds   $ —     $ 2,116     $ —     $ 2,116  
U.S. Government and federal agency     —       64,804       —       64,804  
State and municipal     —       77,885       12,629       90,514  
Mortgage-backed     —       8,559       —       8,559  
Corporate     —       7,034       399       7,433  
Foreign debt     —       1,002       —       1,002  
Equity securities     1,318       —       1,500       2,818  
Asset backed securities     —       198       —       198  
Total   $ 1,318     $ 161,598     $ 14,528     $ 177,444  
                                 
Investment Securities, Available for Sale - December 31, 2015                                
U.S. Treasury notes and bonds   $ —     $ 6,100     $ —     $ 6,100  
U.S. Government and federal agency     —       57,207       —       57,207  
State and municipal     —       67,852       9,902       77,754  
Mortgage-backed     —       6,970       —       6,970  
Corporate     —       7,990       397       8,387  
Foreign debt     —       995       —       995  
Equity securities     953       —       1,500       2,453  
Asset backed securities     —       270       —       270  
Total   $ 953     $ 147,384     $ 11,799     $ 160,136  

  

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

 

(Dollars in thousands)   2016     2015  
Investment Securities, Available for Sale                
Balance, January 1   $ 11,799     $ 11,642  
Total realized and unrealized gains included in income     —       —  
Total unrealized gains (losses) included in other comprehensive income     131       946  
Net purchases, sales, calls, and maturities     2,598       (2,075 )
Net transfers into Level 3     —       —  
Balance, September 30   $ 14,528     $ 10,513  

 

Of the Level 3 assets that were held by the Bank at September 30, 2016, the net unrealized gain for the nine months ended September 30, 2016 was $131,000, which is recognized in other comprehensive income in the consolidated balance sheet. Purchases of Level 3 securities during the first three quarters of 2016 and 2015 consisted of local municipal issues. During the first nine months of 2016, $5.1 million of Level 3 securities were purchased. There were no sales of Level 3 securities in the first nine months of 2016.

 

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 investment securities and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

 

Available for sale investment securities categorized as Level 3 assets primarily consist of bonds issued by local municipalities. The Bank estimates the fair value of these bonds based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.

 

The Bank also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:

 

Assets Measured at Fair Value on a Non-recurring Basis

 

          Quoted Prices     Significant        
          in Active     Other     Significant  
          Markets for Identical     Observable     Unobservable  
    Balance at     Assets     Inputs     Inputs  
(Dollars in thousands)   Dates Indicated     (Level 1)     (Level 2)     (Level 3)  
Impaired Loans                                
September 30, 2016   $ 5,578     $ —     $ —     $ 5,578  
December 31, 2015   $ 5,585     $ —     $ —     $ 5,585  
                                 
Other Real Estate                                
September 30, 2016   $ 483     $ —     $ —     $ 483  
December 31, 2015   $ 31     $ —     $ —     $ 31  

 

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Bank estimates the fair value of the loans based on the present value of expected future cash flows using management’s estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted to the allowance for loan losses and write-downs of other real estate that were posted to a valuation account.