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Fair Value Measurements and Disclosures | 9 Months Ended
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Sep. 30, 2017
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Disclosures | 7. Fair Value Measurements and Disclosures The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company groups assets and liabilities measured or disclosed at fair value in three levels as required by ASC 820, Fair Value Measurements and Disclosures. Under this guidance, fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels used to measure fair value are as follows:
| • |  | Level 1 – Quoted prices in active markets for identical assets or liabilities.
| • |  | Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
| • |  | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level that is significant to the fair value measurement. Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities quarterly. Recurring Basis Investment Securities Available for Sale Fair values of investment securities available for sale are primarily measured using information from a third-party pricing service. This pricing service provides pricing information by utilizing pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities bids, offers and other reference data from market research publications. If quoted prices are available in an active market, investment securities are classified as Level 1 measurements. If quoted prices are not available in an active market, fair values are estimated primarily by the use of pricing models. Level 2 investment securities are primarily comprised of mortgage-backed securities issued by government agencies and U.S. government-sponsored enterprises. In certain cases, where there is limited or less transparent information provided by the Company’s third-party pricing service, fair value is estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes. Investment securities are classified within Level 3 when little or no market activity supports the fair value. Management primarily identifies investment securities, which may have traded in illiquid or inactive markets, by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of September 30, 2017, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets. The following tables present the balances of assets measured for fair value on a recurring basis as of September 30, 2017 and December 31, 2016.
|  |  |  |  | Fair Value Measurements Using |
(dollars in thousands) |  | September 30, 2017 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Available for sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. agency mortgage-backed |  | $ | 75,254 |  |  | $ | — |  |  | $ | 75,254 |  |  | $ | — |
Collateralized mortgage obligations |  |  | 99,873 |  |  |  | — |  |  |  | 99,873 |  |  |  | — |
Municipal bonds |  |  | 18,493 |  |  |  | — |  |  |  | 18,493 |  |  |  | — |
U.S. government agency |  |  | 8,576 |  |  |  | — |  |  |  | 8,576 |  |  |  | — |
Total |  | $ | 202,196 |  |  | $ | — |  |  | $ | 202,196 |  |  | $ | — |
|  |  |  |  | Fair Value Measurements Using |
(dollars in thousands) |  | December 31, 2016 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Available for sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. agency mortgage-backed |  | $ | 78,931 |  |  | $ | — |  |  | $ | 78,931 |  |  | $ | — |
Collateralized mortgage obligations |  |  | 74,330 |  |  |  | — |  |  |  | 74,330 |  |  |  | — |
Municipal bonds |  |  | 21,428 |  |  |  | — |  |  |  | 21,428 |  |  |  | — |
U.S. government agency |  |  | 9,041 |  |  |  | — |  |  |  | 9,041 |  |  |  | — |
Total |  | $ | 183,730 |  |  | $ | — |  |  | $ | 183,730 |  |  | $ | — |
The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis. Nonrecurring Basis In accordance with the provisions of ASC 310, Receivables, the Company records loans considered impaired at fair value. A loan is considered impaired if it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Fair value is measured at the fair value of the collateral for collateral-dependent loans. For non-collateral-dependent loans, fair value is measured by present valuing expected future cash flows. Impaired loans are classified as Level 3 assets when measured using appraisals from external parties of the collateral less any prior liens and when there is no observable market price. Repossessed assets are initially recorded at fair value less estimated costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Company classifies repossessed assets as Level 3 assets. The Company has segregated all financial assets that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.
|  |  |  |  | Fair Value Measurements Using |
(dollars in thousands) |  | September 30, 2017 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Repossessed assets |  | $ | 454 |  |  | $ | — |  |  | $ | — |  |  | $ | 454 |
Impaired loans |  |  | 4,682 |  |  |  | — |  |  |  | — |  |  |  | 4,682 |
Total |  | $ | 5,136 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,136 |
|  |  |  |  | Fair Value Measurements Using |
(dollars in thousands) |  | December 31, 2016 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Repossessed assets |  | $ | 2,893 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,893 |
Impaired loans |  |  | 4,763 |  |  |  | — |  |  |  | — |  |  |  | 4,763 |
Total |  | $ | 7,656 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,656 |
The following table shows significant observable inputs used in the fair value measurement of Level 3 assets.
(dollars in thousands) |  | Fair Value |  |  | Valuation Technique |  | Unobservable Inputs |  | Range of Discounts |  |  | Weighted Average Discount |
As of September 30, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Repossessed assets |  | $ | 454 |  |  | Third party appraisals, sales contracts, broker price opinions |  | Collateral discounts and estimated costs to sell |  |  | 6% - 100% |  |  |  | 41 | %
Impaired loans |  | $ | 4,682 |  |  | Third party appraisals and discounted cash flows |  | Collateral discounts and discount rates |  |  | 0% - 100% |  |  |  | 20 | %
As of December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Repossessed assets |  | $ | 2,893 |  |  | Third party appraisals, sales contracts, Broker price opinions |  | Collateral discounts and estimated costs to sell |  |  | 6% - 96% |  |  |  | 19 | %
Impaired loans |  | $ | 4,763 |  |  | Third party appraisals and discounted cash flows |  | Collateral discounts and discount rates |  |  | 0% - 100% |  |  |  | 15 | %
ASC 820, Fair Value Measurements and Disclosures, requires the disclosure of each class of financial instruments for which it is practicable to estimate. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. 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. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statements. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates included herein are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the fair value of assets and liabilities that are not required to be recorded or disclosed at fair value like premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: The carrying value of cash and cash equivalents and interest-bearing deposits in banks approximate their fair value. The fair value for investment securities is determined from quoted market prices when available. If a quoted market price is not available, fair value is estimated using first party pricing services or quoted market prices of securities with similar characteristics. The carrying value of mortgage loans held for sale approximates their fair value. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturity. The cash surrender value of bank-owned life insurance (“BOLI”) approximates its fair value. The fair value of customer deposits, excluding certificates of deposit, is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. The fair value of short-term FHLB advances is the amount payable at maturity. The fair value of long-term FHLB advances is estimated by discounting the future cash flows using the rates currently offered for advances of similar maturities. The following table presents estimated fair values of the Company’s financial instruments as of the dates indicated.
|  |  |  |  | Fair Value Measurements at September 30, 2017 |
(dollars in thousands) |  | Carrying Amount |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 51,626 |  |  | $ | 51,626 |  |  | $ | 51,626 |  |  | $ | — |  |  | $ | — |
Interest-bearing deposits in banks |  |  | 1,191 |  |  |  | 1,191 |  |  |  | 1,191 |  |  |  | — |  |  |  | — |
Investment securities available for sale |  |  | 202,196 |  |  |  | 202,196 |  |  |  | — |  |  |  | 202,196 |  |  |  | — |
Investment securities held to maturity |  |  | 13,118 |  |  |  | 13,246 |  |  |  | — |  |  |  | 13,246 |  |  |  | — |
Mortgage loans held for sale |  |  | 5,617 |  |  |  | 5,617 |  |  |  | — |  |  |  | 5,617 |  |  |  | — |
Loans, net |  |  | 1,213,969 |  |  |  | 1,214,156 |  |  |  | — |  |  |  | 1,209,474 |  |  |  | 4,682 |
Cash surrender value of BOLI |  |  | 20,510 |  |  |  | 20,510 |  |  |  | 20,510 |  |  |  | — |  |  |  | — |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,319,713 |  |  | $ | 1,319,692 |  |  | $ | — |  |  | $ | 1,319,692 |  |  | $ | — |
Short-term FHLB advances |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Long-term FHLB advances |  |  | 64,804 |  |  |  | 64,498 |  |  |  | — |  |  |  | 64,498 |  |  |  | — |
|  |  |  |  | Fair Value Measurements at December 31, 2016 |
(dollars in thousands) |  | Carrying Amount |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 29,315 |  |  | $ | 29,315 |  |  | $ | 29,315 |  |  | $ | — |  |  | $ | — |
Interest-bearing deposits in banks |  |  | 1,884 |  |  |  | 1,884 |  |  |  | 1,884 |  |  |  | — |  |  |  | — |
Investment securities available for sale |  |  | 183,730 |  |  |  | 183,730 |  |  |  | — |  |  |  | 183,730 |  |  |  | — |
Investment securities held to maturity |  |  | 13,365 |  |  |  | 13,362 |  |  |  | — |  |  |  | 13,362 |  |  |  | — |
Mortgage loans held for sale |  |  | 4,156 |  |  |  | 4,156 |  |  |  | — |  |  |  | 4,156 |  |  |  | — |
Loans, net |  |  | 1,215,323 |  |  |  | 1,205,538 |  |  |  | — |  |  |  | 1,200,775 |  |  |  | 4,763 |
Cash surrender value of BOLI |  |  | 20,150 |  |  |  | 20,150 |  |  |  | 20,150 |  |  |  | — |  |  |  | — |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,248,072 |  |  | $ | 1,247,526 |  |  | $ | — |  |  | $ | 1,247,526 |  |  | $ | — |
Short-term FHLB advances |  |  | 40,000 |  |  |  | 40,000 |  |  |  | 40,000 |  |  |  | — |  |  |  | — |
Long-term FHLB advances |  |  | 78,533 |  |  |  | 78,039 |  |  |  | — |  |  |  | 78,039 |  |  |  | — |

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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 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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