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Note 21 - Fair Value Measurements and Fair Values of Financial Instruments | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | 2 1 . FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS The Corporation measures certain assets at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. FASB ASC topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available. Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets and other observable inputs. Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques. The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data. At December 31, 2019 and 2018, assets measured at fair value and the valuation methods used are as follows:
|  |  |  |  |  | December 31, 201 9 |  |  |  |  |
|  | Quoted Prices |  |  | Other |  |  |  |  |  |  |  |  |
|  | in Active |  |  | Observable |  |  | Unobservable |  |  | Total |
|  | Markets |  |  | Inputs |  |  | Inputs |  |  | Fair |
(In Thousands) |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Value |
Recurring fair value measurements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AVAILABLE-FOR-SALE DEBT SECURITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. Government agencies |  | $ | 0 |  |  | $ | 17,000 |  |  | $ | 0 |  |  | $ | 17,000 |
Obligations of states and political subdivisions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax-exempt |  |  | 0 |  |  |  | 70,760 |  |  |  | 0 |  |  |  | 70,760 |
Taxable |  |  | 0 |  |  |  | 36,303 |  |  |  | 0 |  |  |  | 36,303 |
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential pass-through securities |  |  | 0 |  |  |  | 59,210 |  |  |  | 0 |  |  |  | 59,210 |
Residential collateralized mortgage obligations |  |  | 0 |  |  |  | 114,723 |  |  |  | 0 |  |  |  | 114,723 |
Commercial mortgage-backed securities |  |  | 0 |  |  |  | 48,727 |  |  |  | 0 |  |  |  | 48,727 |
Total available-for-sale debt securities |  |  | 0 |  |  |  | 346,723 |  |  |  | 0 |  |  |  | 346,723 |
Marketable equity security |  |  | 979 |  |  |  | 0 |  |  |  | 0 |  |  |  | 979 |
Servicing rights |  |  | 0 |  |  |  | 0 |  |  |  | 1,277 |  |  |  | 1,277 |
Total recurring fair value measurements |  | $ | 979 |  |  | $ | 346,723 |  |  | $ | 1,277 |  |  | $ | 348,979 |
Nonrecurring fair value measurements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans with a valuation allowance |  | $ | 0 |  |  | $ | 0 |  |  | $ | 3,375 |  |  | $ | 3,375 |
Valuation allowance |  |  | 0 |  |  |  | 0 |  |  |  | (1,051 | ) |  |  | (1,051 | )
Impaired loans, net |  |  | 0 |  |  |  | 0 |  |  |  | 2,324 |  |  |  | 2,324 |
Foreclosed assets held for sale |  |  | 0 |  |  |  | 0 |  |  |  | 2,886 |  |  |  | 2,886 |
Total nonrecurring fair value measurements |  | $ | 0 |  |  | $ | 0 |  |  | $ | 5,210 |  |  | $ | 5,210 |
|  |  |  |  |  | December 31, 201 8 |  |  |  |  |
|  | Quoted Prices |  |  | Other |  |  |  |  |  |  |  |  |
|  | in Active |  |  | Observable |  |  | Unobservable |  |  | Total |
|  | Markets |  |  | Inputs |  |  | Inputs |  |  | Fair |
(In Thousands) |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Value |
Recurring fair value measurements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AVAILABLE-FOR-SALE DEBT SECURITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. Government agencies |  | $ | 0 |  |  | $ | 12,500 |  |  | $ | 0 |  |  | $ | 15,500 |
Obligations of states and political subdivisions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax-exempt |  |  | 0 |  |  |  | 83,952 |  |  |  | 0 |  |  |  | 83,952 |
Taxable |  |  | 0 |  |  |  | 27,699 |  |  |  | 0 |  |  |  | 27,699 |
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential pass-through securities |  |  | 0 |  |  |  | 53,445 |  |  |  | 0 |  |  |  | 53,445 |
Residential collateralized mortgage obligations |  |  | 0 |  |  |  | 145,912 |  |  |  | 0 |  |  |  | 145,912 |
Commercial mortgage-backed securities |  |  | 0 |  |  |  | 39,765 |  |  |  | 0 |  |  |  | 39,765 |
Total available-for-sale debt securities |  |  | 0 |  |  |  | 363,273 |  |  |  | 0 |  |  |  | 363,273 |
Marketable equity security |  |  | 950 |  |  |  | 0 |  |  |  | 0 |  |  |  | 950 |
Servicing rights |  |  | 0 |  |  |  | 0 |  |  |  | 1,404 |  |  |  | 1,404 |
Total recurring fair value measurements |  | $ | 950 |  |  | $ | 363,273 |  |  | $ | 1,404 |  |  | $ | 365,627 |
Nonrecurring fair value measurements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans with a valuation allowance |  | $ | 0 |  |  | $ | 0 |  |  | $ | 4,851 |  |  | $ | 4,851 |
Valuation allowance |  |  | 0 |  |  |  | 0 |  |  |  | (1,605 | ) |  |  | (1,605 | )
Impaired loans, net |  |  | 0 |  |  |  | 0 |  |  |  | 3,246 |  |  |  | 3,246 |
Foreclosed assets held for sale |  |  | 0 |  |  |  | 0 |  |  |  | 1,703 |  |  |  | 1,703 |
Total nonrecurring fair value measurements |  | $ | 0 |  |  | $ | 0 |  |  | $ | 4,949 |  |  | $ | 4,949 |
Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management. The following table shows quantitative information regarding significant techniques and inputs used at December 31, 2019 and 2018 for servicing rights assets measured using unobservable inputs (Level 3 methodologies) on a recurring basis:
|  | Fair Value at |  |  |  |  |  |  |  |  |  |
|  | 12/31/1 9 |  | Valuation |  | Unobservable |  | Method or Value As of
Asset |  | (In Thousands) |  | Technique |  | Input(s) |  | 12/31/1 9
Servicing rights |  | $ | 1,277 |  | Discounted cash flow |  | Discount rate |  |  | 12.50 | % |  | Rate used through modeling period
|  |  |  |  |  |  | Loan prepayment speeds |  |  | 183.00 | % |  | Weighted-average PSA
|  |  |  |  |  |  | Servicing fees |  |  | 0.25 | % |  | of loan balances
|  |  |  |  |  |  |  |  |  | 4.00 | % |  | of payments are late
|  |  |  |  |  |  |  |  |  | 5.00 | % |  | late fees assessed
|  |  |  |  |  |  |  |  | $ | 1.94 |  |  | Miscellaneous fees per account per month
|  |  |  |  |  |  | Servicing costs |  | $ | 6.00 |  |  | Monthly servicing cost per account
|  |  |  |  |  |  |  |  | $ | 24.00 |  |  | Additional monthly servicing cost per loan on loans more than 30 days delinquent
|  |  |  |  |  |  |  |  |  | 1.50 | % |  | of loans more than 30 days delinquent
|  |  |  |  |  |  |  |  |  | 3.00 | % |  | annual increase in servicing costs
|  | Fair Value at |  |  |  |  |  |  |  |  |  |
|  | 12/31/1 8 |  | Valuation |  | Unobservable |  | Method or Value As of
Asset |  | (In Thousands) |  | Technique |  | Input(s) |  | 12/31/1 8
Servicing rights |  | $ | 1,404 |  | Discounted cash flow |  | Discount rate |  |  | 12.50 | % |  | Rate used through modeling period
|  |  |  |  |  |  | Loan prepayment speeds |  |  | 114.00 | % |  | Weighted-average PSA
|  |  |  |  |  |  | Servicing fees |  |  | 0.25 | % |  | of loan balances
|  |  |  |  |  |  |  |  |  | 4.00 | % |  | of payments are late
|  |  |  |  |  |  |  |  |  | 5.00 | % |  | late fees assessed
|  |  |  |  |  |  |  |  | $ | 1.94 |  |  | Miscellaneous fees per account per month
|  |  |  |  |  |  | Servicing costs |  | $ | 6.00 |  |  | Monthly servicing cost per account
|  |  |  |  |  |  |  |  | $ | 24.00 |  |  | Additional monthly servicing cost per loan on loans more than 30 days delinquent
|  |  |  |  |  |  |  |  |  | 1.50 | % |  | of loans more than 30 days delinquent
|  |  |  |  |  |  |  |  |  | 3.00 | % |  | annual increase in servicing costs
The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans. Following is a reconciliation of activity for Level 3 assets (servicing rights) measured at fair value on a recurring basis:
(In Thousands) |  | Years Ended December 31, |
|  | 2019 |  |  | 2018 |
Balance, beginning of period |  | $ | 1,404 |  |  | $ | 1,299 |
Issuances of servicing rights |  |  | 204 |  |  |  | 188 |
Unrealized losses included in earnings |  |  | (331 | ) |  |  | (83 | )
Balance, end of period |  | $ | 1,277 |  |  | $ | 1,404 |
Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For impaired commercial loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third -party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. At December 31, 2019 and 2018, quantitative information regarding significant techniques and inputs used for nonrecurring fair value measurements using unobservable inputs (Level 3 methodologies) are as follows:
(In Thousands, Except |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Weighted- |
Percentages) |  |  |  |  |  | Valuation |  |  |  |  |  |  |  |  |  | Average |
|  | Balance at |  |  | Allowance at |  |  | Fair Value at |  | Valuation |  | Unobservable |  | Discount at |
|  | 12/31/19 |  |  | 12/31/19 |  |  | 12/31/19 |  | Technique |  | Inputs |  | 12/31/19 |
Asset |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage loans - first and junior liens |  | $ | 732 |  |  | $ | 176 |  |  | $ | 556 |  | Sales comparison |  | Discount to appraised value |  |  | 30 | %
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 106 |  |  |  | 89 |  |  |  | 17 |  | Sales comparison |  | Discount to appraised value |  |  | 69 | %
Commercial and industrial |  |  | 798 |  |  |  | 60 |  |  |  | 738 |  | Liquidation of accounts receivable |  | Discount to borrower's financial statement value |  |  | 15 | %
Commercial construction and land |  |  | 1,261 |  |  |  | 678 |  |  |  | 583 |  | Sales comparison |  | Discount to appraised value |  |  | 47 | %
Loans secured by farmland |  |  | 478 |  |  |  | 48 |  |  |  | 430 |  | Sales comparison |  | Discount to appraised value |  |  | 46 | %
Total impaired loans |  | $ | 3,375 |  |  | $ | 1,051 |  |  | $ | 2,324 |  |  |  |  |  |  |  |
Foreclosed assets held for sale - real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential (1-4 family) |  | $ | 292 |  |  | $ | 0 |  |  | $ | 292 |  | Sales comparison |  | Discount to appraised value |  |  | 46 | %
Land |  |  | 70 |  |  |  | 0 |  |  |  | 70 |  | Sales comparison |  | Discount to appraised value |  |  | 53 | %
Commercial real estate |  |  | 2,524 |  |  |  | 0 |  |  |  | 2,524 |  | Sales comparison |  | Discount to appraised value |  |  | 39 | %
Total foreclosed assets held for sale |  | $ | 2,886 |  |  | $ | 0 |  |  | $ | 2,886 |  |  |  |  |  |  |  |
(In Thousands, Except |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Weighted- |
Percentages) |  |  |  |  |  | Valuation |  |  |  |  |  |  |  |  |  | Average |
|  | Balance at |  |  | Allowance at |  |  | Fair Value at |  | Valuation |  | Unobservable |  | Discount at |
|  | 12/31/18 |  |  | 12/31/18 |  |  | 12/31/18 |  | Technique |  | Inputs |  | 12/31/18 |
Asset |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage loans - first liens |  | $ | 509 |  |  | $ | 116 |  |  | $ | 393 |  | Sales comparison |  | Discount to appraised value |  |  | 26 | %
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans secured by real estate |  |  | 2,515 |  |  |  | 781 |  |  |  | 1,734 |  | Sales comparison |  | Discount to appraised value |  |  | 16 | %
Commercial and industrial |  |  | 75 |  |  |  | 75 |  |  |  | 0 |  | Sales comparison |  | Discount to appraised value |  |  | 100 | %
Commercial and industrial |  |  | 1,265 |  |  |  | 584 |  |  |  | 681 |  | Sales comparison |  | Discount to borrower's financial statement value |  |  | 36 | %
Loans secured by farmland |  |  | 487 |  |  |  | 49 |  |  |  | 438 |  | Sales comparison |  | Discount to appraised value |  |  | 56 | %
Total impaired loans |  | $ | 4,851 |  |  | $ | 1,605 |  |  | $ | 3,246 |  |  |  |  |  |  |  |
Foreclosed assets held for sale - real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential (1-4 family) |  | $ | 64 |  |  | $ | 0 |  |  | $ | 64 |  | Sales comparison |  | Discount to appraised value |  |  | 68 | %
Land |  |  | 110 |  |  |  | 0 |  |  |  | 110 |  | Sales comparison |  | Discount to appraised value |  |  | 61 | %
Commercial real estate |  |  | 1,529 |  |  |  | 0 |  |  |  | 1,529 |  | Sales comparison |  | Discount to appraised value |  |  | 20 | %
Total foreclosed assets held for sale |  | $ | 1,703 |  |  | $ | 0 |  |  | $ | 1,703 |  |  |  |  |  |  |  |
Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. 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. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation. The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows:
(In Thousands) | Valuation |  | December 31, 201 9 |  |  | December 31, 201 8 |
| Method(s) |  | Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
| Used |  | Amount |  |  | Value |  |  | Amount |  |  | Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | Level 1 |  | $ | 31,122 |  |  | $ | 31,122 |  |  | $ | 32,827 |  |  | $ | 32,827 |
Certificates of deposit | Level 2 |  |  | 4,080 |  |  |  | 4,227 |  |  |  | 4,660 |  |  |  | 4,634 |
Restricted equity securities (included in Other Assets) | Level 2 |  |  | 10,321 |  |  |  | 10,321 |  |  |  | 5,712 |  |  |  | 5,712 |
Loans, net | Level 3 |  |  | 1,172,386 |  |  |  | 1,181,000 |  |  |  | 818,254 |  |  |  | 825,809 |
Accrued interest receivable | Level 2 |  |  | 5,001 |  |  |  | 5,001 |  |  |  | 3,968 |  |  |  | 3,968 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits with no stated maturity | Level 2 |  |  | 877,965 |  |  |  | 877,965 |  |  |  | 804,207 |  |  |  | 804,207 |
Time deposits | Level 2 |  |  | 374,695 |  |  |  | 376,738 |  |  |  | 229,565 |  |  |  | 229,751 |
Short-term borrowings | Level 2 |  |  | 86,220 |  |  |  | 86,166 |  |  |  | 12,853 |  |  |  | 12,617 |
Long-term borrowings | Level 2 |  |  | 52,127 |  |  |  | 52,040 |  |  |  | 35,915 |  |  |  | 35,902 |
Accrued interest payable | Level 2 |  |  | 311 |  |  |  | 311 |  |  |  | 142 |  |  |  | 142 |

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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