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Fair Values Measurements | 6 Months Ended
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Jun. 30, 2016
Fair Value Measurements [Abstract] |
Fair Value Measurements | 8. Fair Value Measurements ﻿ Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments. ﻿ Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows. ﻿ The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied: ﻿ Securities: ﻿ The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable. ﻿ Impaired loans (generally carried at fair value): ﻿ The Company measures impairment 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, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements. ﻿ Foreclosed real estate owned (carried at fair value): ﻿ Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. ﻿ ﻿ ﻿ ﻿ ﻿ For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows: ﻿ ﻿
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﻿ |  | Fair Value Measurement Using
﻿ |  | Reporting Date
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﻿Description |  | Total |  | Level 1 |  | Level 2 |  | Level 3
﻿ |  | (In thousands)
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿June 30, 2016 |  |  |  |  |  |  |  |  |  |  |  |
﻿Available for Sale: |  |  |  |  |  |  |  |  |  |  |  |
﻿States and political subdivisions |  | $ | 58,349 |  | $ | - |  | $ | 58,349 |  | $ | -
﻿Corporate obligations |  |  | 3,328 |  |  | - |  |  | 3,328 |  |  | -
﻿Mortgage-backed securities-government |  |  |  |  |  |  |  |  |  |  |  |
﻿ sponsored agencies |  |  | 67,691 |  |  | - |  |  | 67,691 |  |  | -
﻿Equity securities-financial services |  |  | 353 |  |  | 353 |  |  | - |  |  | -
﻿Total |  | $ | 129,721 |  | $ | 353 |  | $ | 129,368 |  | $ | -
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿Description |  | Total |  | Level 1 |  | Level 2 |  | Level 3
﻿ |  | (In thousands)
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |
﻿Available for Sale: |  |  |  |  |  |  |  |  |  |  |  |
﻿U.S. Government agencies |  | $ | 9,169 |  | $ | - |  | $ | 9,169 |  | $ | -
﻿States and political subdivisions |  |  | 60,755 |  |  | - |  |  | 60,755 |  |  | -
﻿Corporate obligations |  |  | 4,974 |  |  | - |  |  | 4,974 |  |  | -
﻿Mortgage-backed securities-government |  |  |  |  |  |  |  |  |  |  |  |
﻿ sponsored agencies |  |  | 63,569 |  |  | - |  |  | 63,569 |  |  | -
﻿Equity securities-financial services |  |  | 384 |  |  | 384 |  |  | - |  |  | -
﻿Total |  | $ | 138,851 |  | $ | 384 |  | $ | 138,467 |  | $ | -
﻿ ﻿ For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows: ﻿
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﻿ |  |  |  |  | Fair Value Measurement Reporting Date using Reporting Date
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﻿(In thousands) |  |  |  |  |  |  |  |  |  |  |  |
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﻿Description |  | Total |  | Level 1 |  | Level 2 |  | Level 3
﻿June 30, 2016 |  |  |  |  |  |  |  |  |  |  |  |
﻿Impaired Loans |  | $ | 3,297 |  | $ | - |  | $ | - |  | $ | 3,297
﻿Foreclosed Real Estate Owned |  |  | 5,414 |  |  | - |  |  | - |  |  | 5,414
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﻿December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |
﻿Impaired Loans |  | $ | 7,615 |  | $ | - |  | $ | - |  | $ | 7,615
﻿Foreclosed Real Estate Owned |  |  | 2,847 |  |  | - |  |  | - |  |  | 2,847
﻿ The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value: ﻿ ﻿
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﻿ |  | Quantitative Information about Level 3 Fair Value Measurements
﻿(dollars in thousands) | Fair Value Estimate |  | Valuation Techniques | Unobservable Input |  | Range (Weighted Average)
﻿June 30, 2016 |  |  |  |  |  |  |
﻿Impaired loans | $ | 1,709 |  | Appraisal of collateral(1) | Appraisal adjustments(2) |  | 10% (10%)
﻿Impaired loans | $ | 1,588 |  | Present value of future cash flows | Loan discount rate |  | 4 - 6.75% (5.46%)
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﻿Foreclosed real estate owned | $ | 5,414 |  | Appraisal of collateral(1) | Liquidation Expenses(2) |  | 0 - 20% (14.20%)
﻿
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﻿ | Quantitative Information about Level 3 Fair Value Measurements
﻿(dollars in thousands) | Fair Value Estimate |  | Valuation Techniques | Unobservable Input |  | Range (Weighted Average)
﻿December 31, 2015 |  |  |  |  |  |  |
﻿Impaired loans | $ | 2,574 |  | Appraisal of collateral(1) | Appraisal adjustments(2) |  | 10% (10%)
﻿Impaired loans | $ | 5,041 |  | Present value of future cash flows | Loan discount rate |  | 4-7% (5.61%)
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﻿Foreclosed real estate owned | $ | 2,847 |  | Appraisal of collateral(1) | Liquidation Expenses(2) |  | 10% (10%)
﻿
| (1) |  | Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable, less any associated allowance.
| (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 following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2016 and December 31, 2015. ﻿ Cash and cash equivalents (carried at cost): The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets’ fair values. ﻿ ﻿ ﻿ Securities: The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable. ﻿ Loans receivable (carried at cost): The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. ﻿ Impaired loans (generally carried at fair value): The Company measures impairment 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, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements. ﻿ As of June 30, 2016, the fair value investment in impaired loans totaled $3,297,000 which included o ne loan for $74,000 for which a valuation allowance of $15,000 had been provided based on the estimated value of the collateral, and twelve loans for $3,238,000 which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan. As of June 30, 2016, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $1,806,000 over the life of the loans. ﻿ As of December 31, 2015, the fair value investment in impaired loans totaled $7,615,000 which included three loans for $6,373,000 for which a valuation allowance of $1,613,000 had been provided based on the estimated value of the collateral or the present value of estimated cash flows, and seventeen loans for $2,855,000 which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan. As of December 31, 2015, the Company had recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $2,044,000 over the life of the loans. Mortgage servicing rights (generally carried at cost) The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights. Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation. ﻿ Foreclosed real estate owned (carried at fair value): Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. ﻿ Regulatory stock (carried at cost): The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost. ﻿ Bank owned life insurance (carried at cost): The fair value is equal to the cash surrender value of the Bank owned life insurance. ﻿ Accrued interest receivable and payable (carried at cost): The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value. ﻿ Deposit liabilities (carried at cost except certificates of deposit which are at fair value): The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. ﻿ Short-term borrowings (carried at cost): The carrying amounts of short-term borrowings approximate their fair values. ﻿ Other borrowings (carried at cost): Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party. ﻿ Off-balance sheet financial instruments (disclosed at cost): Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. ﻿ The estimated fair values of the Bank’s financial instruments were as follows at June 30, 2016 and December 31, 2015. (In thousands) ﻿ ﻿
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﻿ | Fair Value Measurements at June 30, 2016
﻿ | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
﻿Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash and cash equivalents | $ | 12,615 |  | $ | 12,615 |  | $ | 12,615 |  | $ | - |  | $ | -
﻿Securities |  | 129,721 |  |  | 129,721 |  |  | 353 |  |  | 129,368 |  |  | -
﻿Loans receivable, net |  | 575,422 |  |  | 578,725 |  |  | - |  |  | - |  |  | 578,725
﻿Mortgage servicing rights |  | 255 |  |  | 260 |  |  | - |  |  | - |  |  | 260
﻿Regulatory stock |  | 2,228 |  |  | 2,228 |  |  | 2,228 |  |  | - |  |  | -
﻿Bank owned life insurance |  | 19,082 |  |  | 19,082 |  |  | 19,082 |  |  | - |  |  | -
﻿Accrued interest receivable |  | 2,289 |  |  | 2,289 |  |  | 2,289 |  |  | - |  |  | -
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Deposits |  | 584,259 |  |  | 584,515 |  |  | 388,105 |  |  | - |  |  | 196,410
﻿Short-term borrowings |  | 38,100 |  |  | 38,100 |  |  | 38,100 |  |  | - |  |  | -
﻿Other borrowings |  | 36,579 |  |  | 36,896 |  |  | - |  |  | - |  |  | 36,896
﻿Accrued interest payable |  | 891 |  |  | 891 |  |  | 891 |  |  | - |  |  | -
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Off-balance sheet financial instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ Commitments to extend credit and outstanding letters of credit |  | - |  |  | - |  |  | - |  |  | - |  |  | -
﻿ ﻿ ﻿
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﻿ | Fair Value Measurements at December 31, 2015
﻿ | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
﻿Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash and cash equivalents | $ | 10,010 |  | $ | 10,010 |  | $ | 10,010 |  | $ | - |  | $ | -
﻿Securities |  | 138,851 |  |  | 138,851 |  |  | 384 |  |  | 138,467 |  |  | -
﻿Loans receivable, net |  | 552,627 |  |  | 559,416 |  |  | - |  |  | - |  |  | 559,416
﻿Mortgage servicing rights |  | 261 |  |  | 291 |  |  | - |  |  | - |  |  | 291
﻿Regulatory stock |  | 3,412 |  |  | 3,412 |  |  | 3,412 |  |  | - |  |  | -
﻿Bank owned life insurance |  | 18,820 |  |  | 18,820 |  |  | 18,820 |  |  | - |  |  | -
﻿Accrued interest receivable |  | 2,363 |  |  | 2,363 |  |  | 2,363 |  |  | - |  |  | -
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Deposits |  | 550,909 |  |  | 551,175 |  |  | 354,162 |  |  | - |  |  | 197,013
﻿Short-term borrowings |  | 53,235 |  |  | 53,235 |  |  | 53,235 |  |  | - |  |  | -
﻿Other borrowings |  | 41,126 |  |  | 41,260 |  |  | - |  |  | - |  |  | 41,260
﻿Accrued interest payable |  | 957 |  |  | 957 |  |  | 957 |  |  | - |  |  | -
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Off-balance sheet financial instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ Commitments to extend credit and outstanding letters of credit |  | - |  |  | - |  |  | - |  |  | - |  |  | -
﻿

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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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