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Note 4 - Fair Value Measurements | 9 Months Ended
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Sep. 30, 2016
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | NOTE 4 - FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following levels:
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 the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes 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.
The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|  |  |  |  |  | September 30, 2016 |  |  |  |  |
(Dollar amounts in thousands) |  | Level I |  |  | Level II |  |  | Level III |  |  | Total |
Assets measured on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency securities |  | $ | - |  |  | $ | 10,863 |  |  | $ | - |  |  | $ | 10,863 |
Obligations of states and political subdivisions |  |  | - |  |  |  | 87,525 |  |  |  | - |  |  |  | 87,525 |
Mortgage-backed securities in government- sponsored entities |  |  | - |  |  |  | 21,380 |  |  |  | - |  |  |  | 21,380 |
Private-label mortgage-backed securities |  |  | - |  |  |  | 2,068 |  |  |  | - |  |  |  | 2,068 |
Total debt securities |  |  | - |  |  |  | 121,836 |  |  |  | - |  |  |  | 121,836 |
Equity securities in financial institutions |  |  | 5 |  |  |  | 1,213 |  |  |  | - |  |  |  | 1,218 |
Total |  | $ | 5 |  |  | $ | 123,049 |  |  | $ | - |  |  | $ | 123,054 |
|  |  |  |  |  | December 31, 2015 |  |  |  |  |
(Dollar amounts in thousands) |  | Level I |  |  | Level II |  |  | Level III |  |  | Total |
Assets measured on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency securities |  | $ | - |  |  | $ | 21,629 |  |  | $ | - |  |  | $ | 21,629 |
Obligations of states and political subdivisions |  |  | - |  |  |  | 97,290 |  |  |  | - |  |  |  | 97,290 |
Mortgage-backed securities in government- sponsored entities |  |  | - |  |  |  | 24,524 |  |  |  | - |  |  |  | 24,524 |
Private-label mortgage-backed securities |  |  | - |  |  |  | 2,263 |  |  |  | - |  |  |  | 2,263 |
Total debt securities |  |  | - |  |  |  | 145,706 |  |  |  | - |  |  |  | 145,706 |
Equity securities in financial institutions |  |  | 5 |  |  |  | 809 |  |  |  | - |  |  |  | 814 |
Total |  | $ | 5 |  |  | $ | 146,515 |  |  | $ | - |  |  | $ | 146,520 |
The Company obtains fair values from an independent pricing service which represent either quoted market prices for the identical securities (Level I inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II). Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The Company has no securities considered to be Level III as of September 30, 2016 or December 31, 2015. The Company uses prices compiled by third party vendors. The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include quoted market prices for identical assets classified as Level I inputs and observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs. The Company values other real estate owned at the estimated fair value of the underlying collateral less expected selling costs. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level III inputs, other real estate owned has been classified as Level III.
|  |  |  |  |  | September 30, 2016 |  |  |  |  |
(Dollar amounts in thousands) |  | Level I |  |  | Level II |  |  | Level III |  |  | Total |
Assets measured on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | - |  |  | $ | - |  |  | $ | 11,102 |  |  | $ | 11,102 |
Other real estate owned |  |  | - |  |  |  | - |  |  |  | 1,205 |  |  |  | 1,205 |
|  |  |  |  |  | December 31, 2015 |  |  |  |  |
(Dollar amounts in thousands) |  | Level I |  |  | Level II |  |  | Level III |  |  | Total |
Assets measured on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | - |  |  | $ | - |  |  | $ | 12,848 |  |  | $ | 12,848 |
Other real estate owned |  |  | - |  |  |  | - |  |  |  | 1,412 |  |  |  | 1,412 |
The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company uses Level III inputs to determine fair value:
|  | Quantitative Information about Level III Fair Value Measurements |
(Dollar amounts in thousands) |  |  |  |  |  |  |  |  |
|  | Fair Value Estimate |  | Valuation Techniques | Unobservable Input |  |  | Range (Weighted Average) |
September 30, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 7,743 |  | Discounted cash flow | Discount rate |  |  | 3.1% | to | 7.0% | (5.0%) |
|  |  | 3,359 |  | Appraisal of collateral (1) | Appraisal adjustments (2) |  |  | 0.0% | to | 55.7% | (34.6%) |
Other real estate owned |  | $ | 1,205 |  | Appraisal of collateral (1) | Appraisal adjustments (2) |  |  | 0.0% | to | 10.0% | (7.3%) |
|  | Quantitative Information about Level III Fair Value Measurements |
(Dollar amounts in thousands) |  |  |  |  |  |  |  |  |
|  | Fair Value Estimate |  | Valuation Techniques | Unobservable Input |  |  | Range (Weighted Average) |
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 6,867 |  | Discounted cash flow | Discount rate |  |  | 3.1% | to | 7.9% | (5.0%) |
|  |  | 5,981 |  | Appraisal of collateral (1) | Appraisal adjustments (2) |  |  | 0.0% | to | 87.1% | (23.3%) |
Other real estate owned |  | $ | 1,412 |  | Appraisal of collateral (1) | Appraisal adjustments (2) |  |  | 0% | to | 10.0% | (7.3%) |
| (1) | Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.
| (2) | Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
The estimated fair value of the Company’s financial instruments is as follows:
|  | September 30, 2016 |
|  | Carrying |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |
|  | Value |  |  | Level I |  |  | Level II |  |  | Level III |  |  | Fair Value |
|  | (Dollar amounts in thousands) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 23,276 |  |  | $ | 23,276 |  |  | $ | - |  |  | $ | - |  |  | $ | 23,276 |
Investment securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale |  |  | 123,054 |  |  |  | 5 |  |  |  | 123,049 |  |  |  | - |  |  |  | 123,054 |
Loans held for sale |  |  | 880 |  |  |  | - |  |  |  | 880 |  |  |  | - |  |  |  | 880 |
Net loans |  |  | 579,995 |  |  |  | - |  |  |  | - |  |  |  | 586,739 |  |  |  | 586,739 |
Bank-owned life insurance |  |  | 13,438 |  |  |  | 13,438 |  |  |  | - |  |  |  | - |  |  |  | 13,438 |
Federal Home Loan Bank stock |  |  | 1,887 |  |  |  | 1,887 |  |  |  | - |  |  |  | - |  |  |  | 1,887 |
Accrued interest receivable |  |  | 2,526 |  |  |  | 2,526 |  |  |  | - |  |  |  | - |  |  |  | 2,526 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 639,342 |  |  | $ | 454,427 |  |  | $ | - |  |  | $ | 188,668 |  |  | $ | 643,095 |
Short-term borrowings |  |  | 32,803 |  |  |  | 32,803 |  |  |  | - |  |  |  | - |  |  |  | 32,803 |
Other borrowings |  |  | 9,713 |  |  |  | - |  |  |  | - |  |  |  | 10,003 |  |  |  | 10,003 |
Accrued interest payable |  |  | 391 |  |  |  | 391 |  |  |  | - |  |  |  | - |  |  |  | 391 |
|  | December 31, 2015 |
|  | Carrying |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |
|  | Value |  |  | Level I |  |  | Level II |  |  | Level III |  |  | Fair Value |
|  | (Dollar amounts in thousands) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 23,750 |  |  | $ | 23,750 |  |  | $ | - |  |  | $ | - |  |  | $ | 23,750 |
Investment securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale |  |  | 146,520 |  |  |  | 5 |  |  |  | 146,515 |  |  |  | - |  |  |  | 146,520 |
Loans held for sale |  |  | 1,107 |  |  |  | - |  |  |  | 1,107 |  |  |  | - |  |  |  | 1,107 |
Net loans |  |  | 527,325 |  |  |  | - |  |  |  | - |  |  |  | 534,021 |  |  |  | 534,021 |
Bank-owned life insurance |  |  | 13,141 |  |  |  | 13,141 |  |  |  | - |  |  |  | - |  |  |  | 13,141 |
Federal Home Loan Bank stock |  |  | 1,887 |  |  |  | 1,887 |  |  |  | - |  |  |  | - |  |  |  | 1,887 |
Accrued interest receivable |  |  | 2,387 |  |  |  | 2,387 |  |  |  | - |  |  |  | - |  |  |  | 2,387 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 624,447 |  |  | $ | 433,226 |  |  | $ | - |  |  | $ | 191,747 |  |  | $ | 624,973 |
Short-term borrowings |  |  | 35,825 |  |  |  | 35,825 |  |  |  | - |  |  |  | - |  |  |  | 35,825 |
Other borrowings |  |  | 9,939 |  |  |  | - |  |  |  |  |  |  |  | 10,063 |  |  |  | 10,063 |
Accrued interest payable |  |  | 395 |  |  |  | 395 |  |  |  | - |  |  |  | - |  |  |  | 395 |
Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms. Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values. As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company. The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions: Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings The fair value is equal to the current carrying value. Bank-Owned Life Insurance The fair value is equal to the cash surrender value of the life insurance policies. Investment Securities Available for Sale The fair value of investment securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Loans Held for Sale Loans held for sale are carried at lower of cost or fair value. The fair value of loans held for sale is based on secondary market pricing on portfolios with similar characteristics. The changes in fair value of the assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale. Net Loans The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were used as estimates for fair value. Deposits and Other Borrowings The fair values of certificates of deposit and other borrowings are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of period end. Commitments to Extend Credit These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.

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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=66048111&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=73719730&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=73719730&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=73719730&loc=d3e13433-108611 + Details
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