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Fair Value Measurement | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value Measurement | (13) Fair Value Measurement The Company uses a fair value hierarchy to measure fair value. This hierarchy describes three levels of inputs that may be used to measure fair value. Level 1: Quoted prices for identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; Level 3: Significant unobservable inputs that reflect the Company’s own view about the assumptions that market participants would use in pricing an asset. Debt securities: The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Equity securities: The Company’s equity securities are not actively traded in an open market. The fair values of these equity securities available for sale is determined by using market data inputs for similar securities that are observable (Level 2 inputs). The fair value of the swap asset/liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs as of the valuation date and classified Level 2. The changes in fair value of these assets/liabilities had no impact on net income or comprehensive income. Impaired loans: The Company has measured impairment on impaired loans 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. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included as a Level 3 measurement. Other real estate owned: OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table below. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. Management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the properties are categorized in the below table as Level 3 measurements since these adjustments are considered to be unobservable inputs. Income and expenses from operations are included in other operating expenses. Further declines in the fair value of the collateral subsequent to foreclosure are included in net gain on sale of other real estate owned. Assets and liabilities measured at fair value are summarized in the table below.
|  | Fair Value Measurements at September 30, 2018 Using: |
Assets: |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ | — |  |  | $ | 28,975 |  |  | $ | — |
Obligations of states and political subdivisions |  |  | — |  |  |  | 153,870 |  |  |  | — |
Mortgage-backed securities in government sponsored entities |  |  | — |  |  |  | 134,121 |  |  |  | — |
Total securities available for sale |  |  | — |  |  |  | 316,966 |  |  |  | — |
Equity securities in financial institutions |  |  | — |  |  |  | 1,146 |  |  |  | — |
Swap asset |  |  | — |  |  |  | 2,059 |  |  |  | — |
Liabilities measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Swap liability |  |  | — |  |  |  | 2,059 |  |  |  | — |
Assets measured at fair value on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | — |  |  | $ | — |  |  | $ | 2,685 |
|  | Fair Value Measurements at December 31, 2017 Using: |
Assets: |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ | — |  |  | $ | 30,358 |  |  | $ | — |
Obligations of states and political subdivisions |  |  | — |  |  |  | 118,056 |  |  |  | — |
Mortgage-backed securities in government sponsored entities |  |  | — |  |  |  | 81,816 |  |  |  | — |
Total securities available for sale |  |  | — |  |  |  | 230,230 |  |  |  | — |
Equity securities in financial institutions |  |  | — |  |  |  | 832 |  |  |  | — |
Swap asset |  |  | — |  |  |  | 1,560 |  |  |  | — |
Liabilities measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Swap liability |  |  | — |  |  |  | 1,560 |  |  |  | — |
Assets measured at fair value on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | — |  |  | $ | — |  |  | $ | 1,040 |
Other real estate owned |  |  | — |  |  |  | — |  |  |  | 16 |
The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2018.
|  | Quantitative Information about Level 3 Fair Value Measurements |
September 30, 2018 |  | Fair Value |  |  | Valuation Technique |  | Unobservable Input |  | Range |  | Weighted Average |
Impaired loans |  | $ | 2,685 |  |  | Appraisal of collateral |  | Appraisal adjustments |  | 10% - 100% |  | 26% |
|  |  |  |  |  |  |  | Liquidation expense |  | 0% - 10% |  | 9% |
|  |  |  |  |  |  |  | Holding period |  | 0 - 30 months |  | 20 months |
The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2017.
|  | Quantitative Information about Level 3 Fair Value Measurements |
December 31, 2017 |  | Fair Value |  |  | Valuation Technique |  | Unobservable Input |  | Range |  | Weighted Average |
Impaired loans |  | $ | 1,040 |  |  | Appraisal of collateral |  | Appraisal adjustments |  | 0% - 30% |  | 16% |
|  |  |  |  |  |  |  | Liquidation expense |  | 0% - 10% |  | 8% |
|  |  |  |  |  |  |  | Holding period |  | 0 - 30 months |  | 20 months |
Other real estate owned |  | $ | 16 |  |  | Appraisal of collateral |  | Appraisal adjustments |  | 10% - 30% |  | 10% |
|  |  |  |  |  |  |  | Liquidation expense |  | 0% - 10% |  | 10% |
The methods of determining the fair value of assets and liabilities presented in the note are consistent with our methodologies disclosed in the Company’s 2017 Form 10-K, except for the valuation of loans held for investment which was impacted by the adoption of ASU 2016-01. In accordance with ASU 2016-01, the fair value of loans held for investment, excluding impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk of the loans. Loans are considered a Level 3 classification. The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at September 30, 2018 are as follows:
September 30, 2018 |  | Carrying Amount |  |  | Total Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from financial institutions |  | $ | 64,754 |  |  | $ | 64,754 |  |  | $ | 64,754 |  |  | $ | — |  |  | $ | — |
Other securities |  |  | 17,774 |  |  |  | 17,774 |  |  |  | 17,774 |  |  |  | — |  |  |  | — |
Loans, held for sale |  |  | 4,025 |  |  |  | 4,025 |  |  |  | 4,025 |  |  |  | — |  |  |  | — |
Loans, net of allowance |  |  | 1,502,313 |  |  |  | 1,495,951 |  |  |  | — |  |  |  | — |  |  |  | 1,495,951 |
Bank owned life insurance |  |  | 42,750 |  |  |  | 42,750 |  |  |  | 42,750 |  |  |  | — |  |  |  | — |
Accrued interest receivable |  |  | 6,878 |  |  |  | 6,878 |  |  |  | 6,878 |  |  |  | — |  |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonmaturing deposits |  |  | 1,300,365 |  |  |  | 1,300,365 |  |  |  | 1,300,365 |  |  |  | — |  |  |  | — |
Time deposits |  |  | 277,390 |  |  |  | 278,680 |  |  |  | — |  |  |  | — |  |  |  | 278,680 |
Short-term FHLB advances |  |  | 140,100 |  |  |  | 140,100 |  |  |  | 140,100 |  |  |  | — |  |  |  | — |
Long-term FHLB advances |  |  | 5,000 |  |  |  | 4,985 |  |  |  | — |  |  |  | — |  |  |  | 4,985 |
Securities sold under agreement to repurchase |  |  | 18,515 |  |  |  | 18,515 |  |  |  | 18,515 |  |  |  | — |  |  |  | — |
Subordinated debentures |  |  | 29,427 |  |  |  | 32,016 |  |  |  | — |  |  |  | — |  |  |  | 32,016 |
Accrued interest payable |  |  | 184 |  |  |  | 184 |  |  |  | 184 |  |  |  | — |  |  |  | — |
The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at December 31, 2017 are as follows:
December 31, 2017 |  | Carrying Amount |  |  | Total Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from financial institutions |  | $ | 40,519 |  |  | $ | 40,519 |  |  | $ | 40,519 |  |  | $ | — |  |  | $ | — |
Loans, held for sale |  |  | 2,197 |  |  |  | 2,197 |  |  |  | 2,197 |  |  |  | — |  |  |  | — |
Loans, net of allowance |  |  | 1,151,527 |  |  |  | 1,146,969 |  |  |  | — |  |  |  | — |  |  |  | 1,146,969 |
Other securities |  |  | 14,247 |  |  |  | 14,247 |  |  |  | 14,247 |  |  |  | — |  |  |  | — |
Bank owned life insurance |  |  | 25,125 |  |  |  | 25,125 |  |  |  | 25,125 |  |  |  | — |  |  |  | — |
Accrued interest receivable |  |  | 4,488 |  |  |  | 4,488 |  |  |  | 4,488 |  |  |  | — |  |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonmaturing deposits |  |  | 981,021 |  |  |  | 981,021 |  |  |  | 981,021 |  |  |  | — |  |  |  | — |
Time deposits |  |  | 223,902 |  |  |  | 223,626 |  |  |  | — |  |  |  | — |  |  |  | 223,626 |
Short-term FHLB advances |  |  | 56,900 |  |  |  | 56,900 |  |  |  | 56,900 |  |  |  | — |  |  |  | — |
Long-term FHLB advances |  |  | 15,000 |  |  |  | 14,964 |  |  |  | — |  |  |  | — |  |  |  | 14,964 |
Securities sold under agreement to repurchase |  |  | 21,755 |  |  |  | 21,755 |  |  |  | 21,755 |  |  |  | — |  |  |  | — |
Subordinated debentures |  |  | 29,427 |  |  |  | 31,052 |  |  |  | — |  |  |  | — |  |  |  | 31,052 |
Accrued interest payable |  |  | 410 |  |  |  | 410 |  |  |  | 410 |  |  |  | — |  |  |  | — |
Cash and due from financial institutions: The carrying amounts for cash and due from financial institutions approximate fair value because they have original maturities of less than 90 days and do not present unanticipated credit concerns. Other securities: The carrying value of regulatory stock approximates fair value based on applicable redemption provisions. Loans, held-for-sale: Loans held for sale are priced individually at market rates on the day that the loan is locked for commitment to an investor. Because the holding period of such loans is typically short, the carrying value generally approximates the fair value at the time the commitment is received. All loans in the held-for-sale account conform to Fannie Mae underwriting guidelines, with specific intent of the loan being purchased by an investor at the predetermined rate structure. Loans, net of allowance: Fair values for loans, other than impaired, are estimated for portfolios of loans with similar financial characteristics. The fair value of performing loans has been estimated by discounting expected future cash flows of the underlying portfolios. The discount rates used in these calculations are generally derived from the treasury yield curve and are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate inherent in the loan. The estimated maturity is based on the Company’s historical experience with repayments for each loan classification. Changes in these significant unobservable inputs used in discounted cash flow analysis, such as the discount rate or prepayment speeds, could lead to changes in the underlying fair value. Bank owned life insurance: The carrying value of bank owned life insurance approximates the fair value based on applicable redemption provisions. Accrued interest receivable and payable and securities sold under agreements to repurchase: The carrying amounts for accrued interest receivable, accrued interest payable and securities sold under agreements to repurchase approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns. Deposits: The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the market rates currently offered for deposits of similar remaining maturities. The deposits’ fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible. Federal Home Loan Bank (“FHLB”) advances: Rates available to the Company for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds. Subordinated debentures: The fair value of subordinated debentures is based on the discounted value of contractual cash flows of the underlying debt agreements. The discount rate is estimated using the current rate for the borrowing from the FHLB with the most similar terms.

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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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