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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2015
Fair Value Measurements [Abstract] |
Fair Value Measurements | Note 9 – Fair Value Measurements The Company established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:
Level I: | Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II: | Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III: | Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process. Financial Instruments Recorded at Fair Value on a Recurring Basis The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a 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 and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of June 30, 2015 and December 31, 2014 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
June 30, 2015 |  | Level I |  | Level II |  | Level III |  |  | Total
Assets |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |
U.S. Agency securities |  | $ - |  | $ 167,580 |  | $ - |  |  | $ 167,580
Obligations of state and |  |  |  |  |  |  |  |  |
political subdivisions |  | - |  | 96,282 |  | - |  |  | 96,282
Corporate obligations |  | - |  | 12,805 |  | - |  |  | 12,805
Mortgage-backed securities in |  |  |  |  |  |  |  |  |
government sponsored entities |  | - |  | 26,350 |  | - |  |  | 26,350
Equity securities in financial |  |  |  |  |  |  |  |  |
institutions |  | 1,775 |  | - |  | - |  |  | 1,775
December 31, 2014 |  | Level I |  | Level II |  | Level III |  |  | Total
Securities available for sale: |  |  |  |  |  |  |  |  |
U.S. agency securities |  | $ - |  | $ 150,885 |  | $ - |  |  | $ 150,885
U.S. treasuries securities |  | - |  | 4,849 |  | - |  |  | 4,849
Obligations of state and |  |  |  |  |  |  |  |  |
political subdivisions |  | - |  | 105,036 |  | - |  |  | 105,036
Corporate obligations |  | - |  | 13,958 |  | - |  |  | 13,958
Mortgage-backed securities in |  |  |  |  |  |  |  |  |
government sponsored entities |  | - |  | 29,728 |  | - |  |  | 29,728
Equity securities in financial |  |  |  |  |  |  |  |  |
institutions |  | 1,690 |  | - |  | - |  |  | 1,690
Financial Instruments, Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment). Non-financial assets measured at fair value on a non-recurring basis during 2015 and 2014 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense.
· | Impaired Loans - Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data and Level III inputs based on customized discounting criteria. For a majority of impaired real estate related loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.
· | Other Real Estate owned – Other real estate owned, which is obtained through the Bank’s foreclosure process, is valued utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data and Level III inputs based on customized discounting criteria. At the time the foreclosure is completed, the Company obtains an updated external appraisal.
Assets measured at fair value on a nonrecurring basis as of June 30, 2015 and December 31, 2014 are included in the table below (in thousands):
June 30, 2015 |  | Level I |  | Level II |  | Level III |  |  | Total
Impaired Loans |  | $ - |  | $ - |  | $ 7,885 |  |  | $ 7,885
Other real estate owned |  | - |  | - |  | 1,815 |  |  | 1,815
December 31, 2014 |  |  |  |  |  |  |  |  |
Impaired Loans |  | $ - |  | $ - |  | $ 8,724 |  |  | $ 8,724
Other real estate owned |  | - |  | - |  | 1,792 |  |  | 1,792
The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques.
Quantitative Information about Level 3 Fair Value Measurements |
June 30, 2015 | Fair Value |  | Valuation Technique(s) | Unobservable input | Range | Weighted average
Impaired Loans | $ 206 |  | Discounted Cash Flows | Change in interest rates | 0-5.5% | 3.21%
| 7,679 |  | Appraised Collateral Values | Discount for time since appraisal | 0-30% | 17.09%
|  |  |  | Selling costs | 5%-10% | 9.28%
|  |  |  | Holding period | 0 - 18 months | 12 months
Other real estate owned | 1,815 |  | Appraised Collateral Values | Discount for time since appraisal | 0-20% | 20%
|  |  |  | Selling costs | 4%-10% | 9%
|  |  |  | Holding period | 0 - 18 months | 12
December 31, 2014 | Fair Value |  | Valuation Technique(s) | Unobservable input | Range |
Impaired Loans | $ 230 |  | Discounted Cash Flows | Change in interest rates | 0-5.5% | 1.99%
| 8,494 |  | Appraised Collateral Values | Discount for time since appraisal | 0-30% | 22.00%
|  |  |  | Selling costs | 4%-10% | 8.55%
|  |  |  | Holding period | 0 - 18 months | 15 months
Other real estate owned | 1,792 |  | Appraised Collateral Values | Discount for time since appraisal | 0-20% | 20%
|  |  |  | Selling costs | 4%-10% | 9%
|  |  |  | Holding period | 0 - 18 months | 12
The fair values of the Company’s financial instruments are as follows (in thousands):
| Carrying |  |  |  |
June 30, 2015 | Amount | Fair Value | Level I | Level II | Level III
Financial assets: |  |  |  |  |
Cash and due from banks | $ 10,912 | $ 10,912 | $ 10,912 | $ - | $ -
Interest bearing time deposits with other banks | 5,960 | 5,969 |  |  | 5,969
Available-for-sale securities | 304,792 | 304,792 | 1,775 | 303,017 |
Loans held for sale | 1,152 | 1,152 | 1,152 |  |
Net loans | 564,692 | 580,732 | - | - | 580,732
Bank owned life insurance | 20,615 | 20,615 | 20,615 | - | -
Regulatory stock | 1,864 | 1,864 | 1,864 | - | -
Accrued interest receivable | 3,584 | 3,584 | 3,584 | - | -
Financial liabilities: |  |  |  |  |
Deposits | $ 791,887 | $ 792,477 | $ 544,830 | $ - | $ 247,647
Borrowed funds | 39,194 | 36,080 | 6,287 | - | 29,793
Accrued interest payable | 674 | 674 | 674 | - | -
| Carrying |  |  |  |
December 31, 2014 | Amount | Fair Value | Level I | Level II | Level III
Financial assets: |  |  |  |  |
Cash and due from banks | $ 11,423 | $ 11,423 | $ 11,423 | $ - | $ -
Interest bearing time deposits with other banks | 5,960 | 5,969 | - | - | 5,969
Available-for-sale securities | 306,146 | 306,146 | 1,690 | 304,456 | -
Loans held for sale | 497 | 497 | 497 |  |
Net loans | 547,290 | 564,944 | - | - | 564,944
Bank owned life insurance | 20,309 | 20,309 | 20,309 | - | -
Regulatory stock | 2,035 | 2,035 | 2,035 | - | -
Accrued interest receivable | 3,644 | 3,644 | 3,644 | - | -
Financial liabilities: |  |  |  |  |
Deposits | $ 773,933 | $ 774,387 | $ 525,166 | $ - | $ 249,221
Borrowed funds | 41,799 | 38,219 | 16,593 | - | 21,626
Accrued interest payable | 756 | 756 | 756 | - | -
Fair value is determined based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates. Fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments. Cash and Cash Equivalents: The carrying amounts for cash and cash equivalents approximate fair value because they have original maturities of 90 days or less and do not present unanticipated credit concerns. Accrued Interest Receivable and Payable: The carrying amounts for accrued interest receivable and payable approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns. Interest bearing time deposits with other banks: The fair value of interest bearing time deposits with other banks is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Available-For-Sale Securities: The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a 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 and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Loans held for sale: The carrying amount for loans held for sale approximates fair value as the loans are only held for less than a week from origination. Loans: Fair values 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. The discount rate used in these calculations is derived from the Treasury yield curve adjusted for credit quality, operating expense and prepayment option price, and is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions. Bank Owned Life Insurance: The carrying value of bank owned life insurance approximates fair value based on applicable redemption provisions. Regulatory Stock: The carrying value of regulatory stock approximates fair value based on applicable redemption provisions. 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 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. Borrowed Funds: Rates available to the Company for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds.

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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 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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