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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS Fair values of financial instruments are management's estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, premises, equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates. The following assumptions and methods were used in estimating the fair value for financial instruments: Cash and Cash Equivalents The carrying amounts reported in the balance sheet for cash, cash equivalents and federal funds sold approximate their fair values. Also included in this line item are the carrying amounts of interest-bearing deposits maturing within ninety days which approximate their fair values. Fair values of other interest-bearing deposits are estimated using discounted cash flow analyses based on current rates for similar types of deposits. Interest Bearing Time Deposits Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Securities – Available-for-sale Fair values for securities, excluding Federal Home Loan Bank and Farmer Mac stock, are based on quoted market price, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Other Securities The carrying value of Federal Home Loan Bank and Farmer Mac stock, listed as "other securities", approximates fair value based on the respective redemption provisions. Loans Held for Sale The carrying amount approximates fair value due to insignificant amount of time between origination and date of sale. Loans, net The fair values of the loans are estimated using a credit mark adjustment along with discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The credit mark adjustment was estimated using merger and acquisition analysis of nationwide bank and thrift deals. Deposits The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amount payable on demand. The carrying amounts for variable-rate, fixed term money market accounts and certificates of deposit approximate their fair value at the reporting date. Fair value for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Federal Funds Purchased and Securities Sold Under Agreements to Repurchase The carrying value of federal funds purchased and securities sold under agreements to repurchase approximates fair values. FHLB Advances Fair values or FHLB advances are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types or borrowing arrangements. Accrued Interest Receivable and Payable The carrying amounts of accrued interest approximate their fair values. Off Balance Sheet Financial Instruments Fair values for off-balance sheet, credit related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter-parties' credit standing. The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of September 30, 2018 and December 31, 2017 are reflected below.
|  | (In Thousands) |
|  | September 30, 2018 |
|  | Carrying |  |  | Fair |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Amount |  |  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and Cash Equivalents |  | $ | 29,721 |  |  | $ | 29,721 |  |  | $ | 29,721 |  |  | $ | - |  |  | $ | - |
Interest-bearing time deposits |  |  | 4,019 |  |  |  | 4,019 |  |  |  | - |  |  |  | 4,019 |  |  |  | - |
Securities - available-for-sale |  |  | 183,075 |  |  |  | 183,075 |  |  |  | 20,771 |  |  |  | 160,911 |  |  |  | 1,393 |
Other Securities |  |  | 3,717 |  |  |  | 3,717 |  |  |  | - |  |  |  | - |  |  |  | 3,717 |
Loans held for sale |  |  | 1,679 |  |  |  | 1,679 |  |  |  | - |  |  |  | - |  |  |  | 1,679 |
Loans, net |  |  | 831,943 |  |  |  | 815,856 |  |  |  | - |  |  |  | - |  |  |  | 815,856 |
Interest receivable |  |  | 5,826 |  |  |  | 5,826 |  |  |  | - |  |  |  | - |  |  |  | 5,826 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest bearing Deposits |  | $ | 545,179 |  |  | $ | 545,208 |  |  | $ | - |  |  | $ | - |  |  | $ | 545,208 |
Non-interest bearing Deposits |  |  | 197,088 |  |  |  | 197,088 |  |  |  | - |  |  |  | 197,088 |  |  |  | - |
Time Deposits |  |  | 186,592 |  |  |  | 186,690 |  |  |  | - |  |  |  | - |  |  |  | 186,690 |
Total Deposits |  |  | 928,859 |  |  |  | 928,986 |  |  |  | - |  |  |  | 197,088 |  |  |  | 731,898 |
Federal Funds Purchased and Securities Sold Under Agreement to Repurchase |  |  | 27,026 |  |  |  | 27,026 |  |  |  | - |  |  |  | - |  |  |  | 27,026 |
Federal Home Loan Bank advances |  |  | 5,000 |  |  |  | 5,001 |  |  |  | - |  |  |  | - |  |  |  | 5,001 |
Interest payable |  |  | 367 |  |  |  | 367 |  |  |  | - |  |  |  | - |  |  |  | 367 |
|  | (In Thousands) |
|  | December 31, 2017 |
|  | Carrying |  |  | Fair |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Amount |  |  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and Cash Equivalents |  | $ | 34,467 |  |  | $ | 34,467 |  |  | $ | 34,467 |  |  | $ | - |  |  | $ | - |
Interest-bearing time deposits |  |  | 4,018 |  |  |  | 4,009 |  |  |  | - |  |  |  | 4,009 |  |  |  | - |
Securities - available-for-sale |  |  | 196,398 |  |  |  | 196,398 |  |  |  | 20,978 |  |  |  | 173,992 |  |  |  | 1,428 |
Other Securities |  |  | 3,717 |  |  |  | 3,717 |  |  |  | - |  |  |  | - |  |  |  | 3,717 |
Loans held for sale |  |  | 1,221 |  |  |  | 1,221 |  |  |  | - |  |  |  | - |  |  |  | 1,221 |
Loans, net |  |  | 816,156 |  |  |  | 819,193 |  |  |  | - |  |  |  | - |  |  |  | 819,193 |
Interest receivable |  |  | 4,276 |  |  |  | 4,276 |  |  |  | - |  |  |  | - |  |  |  | 4,276 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest bearing Deposits |  | $ | 532,660 |  |  | $ | 532,660 |  |  | $ | - |  |  | $ | - |  |  | $ | 532,660 |
Non-interest bearing Deposits |  |  | 199,114 |  |  |  | 199,114 |  |  |  | - |  |  |  | 199,114 |  |  |  | - |
Time Deposits |  |  | 187,566 |  |  |  | 188,335 |  |  |  | - |  |  |  | - |  |  |  | 188,335 |
Total Deposits |  |  | 919,340 |  |  |  | 920,109 |  |  |  | - |  |  |  | 199,114 |  |  |  | 720,995 |
Federal Funds Purchased and Securities Sold Under Agreement to Repurchase |  |  | 39,495 |  |  |  | 39,495 |  |  |  | - |  |  |  | - |  |  |  | 39,495 |
Federal Home Loan Bank advances |  |  | 5,000 |  |  |  | 5,021 |  |  |  | - |  |  |  | - |  |  |  | 5,021 |
Interest payable |  |  | 318 |  |  |  | 318 |  |  |  | - |  |  |  | - |  |  |  | 318 |
Fair Value Measurements In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access. Available-for-sale securities, when quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. 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. Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. 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. The Bank holds some local municipals that the Bank evaluates based on the credit strength of the underlying project. The fair value is determined by valuing similar credit payment streams at similar rates. 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 Company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset. The following summarizes financial assets measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017, segregated by level or the valuation inputs within the fair value hierarchy utilized to measure fair value:
Assets and Liabilities Measured at Fair Value on a Recurring Basis (In Thousands) |
September 30, 2018 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Observable Inputs (Level 3) |
Assets - (Securities Available-for-Sale) |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 20,771 |  |  | $ | - |  |  | $ | - |
U.S. Government agencies |  |  | - |  |  |  | 75,767 |  |  |  | - |
Mortgage-backed securities |  |  | - |  |  |  | 34,600 |  |  |  | - |
State and local governments |  |  | - |  |  |  | 50,544 |  |  |  | 1,393 |
Total Securities Available-for-Sale |  | $ | 20,771 |  |  | $ | 160,911 |  |  | $ | 1,393 |
December 31, 2017 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Observable Inputs (Level 3) |
Assets - (Securities Available-for-Sale) |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 20,978 |  |  | $ | - |  |  | $ | - |
U.S. Government agencies |  |  | - |  |  |  | 80,466 |  |  |  | - |
Mortgage-backed securities |  |  | - |  |  |  | 39,510 |  |  |  | - |
State and local governments |  |  | - |  |  |  | 54,016 |  |  |  | 1,428 |
Total Securities Available-for-Sale |  | $ | 20,978 |  |  | $ | 173,992 |  |  | $ | 1,428 |
The following table represents the changes in the Level 3 fair-value category of which unobservable inputs are relied upon as of September 30, 2018 and September 30, 2017.
|  | (In Thousands) |
|  | Fair Value Measurements Using Significant |
|  | Unobservable Inputs (Level 3) |
|  | State and Local Governments Tax-Exempt |  |  | State and Local Governments Taxable |  |  | State and Local Governments Total |
Balance at January 1, 2018 |  | $ | - |  |  | $ | 1,428 |  |  | $ | 1,428 |
Change in Market Value |  |  | - |  |  |  | (35 | ) |  |  | (35 | )
Payments & Maturities |  |  | - |  |  |  | - |  |  |  | - |
Balance at September 30, 2018 |  | $ | - |  |  | $ | 1,393 |  |  | $ | 1,393 |
|  | (In Thousands) |
|  | Fair Value Measurements Using Significant |
|  | Unobservable Inputs (Level 3) |
|  | State and Local Governments Tax-Exempt |  |  | State and Local Governments Taxable |  |  | State and Local Governments Total |
Balance at January 1, 2017 |  | $ | - |  |  | $ | 1,418 |  |  | $ | 1,418 |
Change in Market Value |  |  | - |  |  |  | 24 |  |  |  | 24 |
Payments & Maturities |  |  | - |  |  |  | - |  |  |  | - |
Balance at September 30, 2017 |  | $ | - |  |  | $ | 1,442 |  |  | $ | 1,442 |
Most of the Company's available-for-sale securities, including any bonds issued by local municipalities, have CUSIP numbers or have similar characteristics of those in the municipal markets, making them marketable and comparable as Level 2. The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At September 30, 2018 and December 31, 2017, such assets consist primarily of collateral dependent impaired loans. Collateral dependent impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management's best 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.) At September 30, 2018 and December 31, 2017, fair value of collateral dependent impaired loans categorized as Level 3 was $822 and $508 thousand, respectively. The specific allocation for impaired loans was $148 and $106 thousand as of September 30, 2018 and December 31, 2017, respectively, which are accounted for in the allowance for loan losses (see Note 4). Other real estate is reported at either the lower of the fair value of the real estate minus the estimated costs to sell the asset or the cost of the asset. The determination of fair value of the real estate relies primarily on appraisals from third parties. If the fair value of the real estate, minus the estimated costs to sell the asset, is less than the asset's cost, the deficiency is recognized as a valuation allowance against the asset through a charge to expense. The valuation allowance is therefore increased or decreased, through charges or credits to expense, for changes in the asset's fair value or estimated selling costs. The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:
|  | (In Thousands) |  |  |  |  |  |  | Range
|  | Fair Value at |  |  |  |  |  |  | (Weighted
|  | September 30, 2018 |  |  | Valuation Technique |  | Unobservable Inputs |  | Average)
State and local government |  | $ | 1,393 |  |  | Discounted Cash Flow |  | Credit strength of underlying project or entity / Discount rate |  | 0-5% (3.92% )
Collateral dependent impaired loans |  |  | 822 |  |  | Collateral based measurements |  | Discount to reflect current market conditions and ultimate collectability |  | 0-50% (15.28%)
Other real estate owned - residential |  |  | - |  |  | Appraisals |  | Discount to reflect current market |  | — % ( — )
Other real estate owned - commercial |  |  | - |  |  | Appraisals |  | Discount to reflect current market |  | — % ( — )
|  | (In Thousands) |  |  |  |  |  |  | Range
|  | Fair Value at |  |  |  |  |  |  | (Weighted
|  | December 31, 2017 |  |  | Valuation Technique |  | Unobservable Inputs |  | Average)
State and local government |  | $ | 1,428 |  |  | Discounted Cash Flow |  | Credit strength of underlying project or entity / Discount rate |  | 0-5% (3.68%)
Collateral dependent impaired loans |  |  | 508 |  |  | Collateral based measurements |  | Discount to reflect current market conditions and ultimate collectability |  | 0-50% (17.28%)
Other real estate owned - residential |  |  | 22 |  |  | Appraisals |  | Discount to reflect current market |  | 0-20% (2.22%)
Other real estate owned - commercial |  |  | 266 |  |  | Appraisals |  | Discount to reflect current market |  | 0-20% (5.15%)
The following table presents impaired loans and other real estate owned as recorded at fair value on September 30, 2018 and December 31, 2017:
|  | Assets Measured at Fair Value on a Nonrecurring Basis at September 30, 2018 |
|  | (In Thousands) |
|  | Balance at September 30, 2018 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Collateral dependent impaired loans |  | $ | 822 |  |  | $ | - |  |  | $ | - |  |  | $ | 822 |
Other real estate owned - residential |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Other real estate owned - commercial |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  | Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2017 |
|  | (In Thousands) |
|  | Balance at December 31, 2017 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Collateral dependent impaired loans |  | $ | 508 |  |  | $ | - |  |  | $ | - |  |  | $ | 508 |
Other real estate owned - residential |  |  | 22 |  |  |  | - |  |  |  | - |  |  |  | 22 |
Other real estate owned - commercial |  |  | 266 |  |  |  | - |  |  |  | - |  |  |  | 266 |

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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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