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Note 8 - Fair Value Measurements | 9 Months Ended
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Sep. 30, 2016
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | Note 8 : Fair Value Measurements The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations come into play in determining the fair value of assets in markets that are not active. The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:
| Level 1 – |  | Valuation is based on quoted prices in active markets for identical assets and liabilities.
| Level 2 – |  | Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
| Level 3 – |  | Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
The following describes the valuation techniques used by the Company to measure certain assets and liabilities recorded at fair value on a recurring basis in the financial statements. Securities Available for Sale Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.
|  |  |  |  |  | Fair Value Measurements at September 30, 2016 Using |
Description |  | Balance as of September 30, 2016 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
U.S. Government agencies and corporations |  | $ | 270,710 |  |  | $ | --- |  |  | $ | 270,710 |  |  | $ | --- |
States and political subdivisions |  |  | 12,924 |  |  |  | --- |  |  |  | 12,924 |  |  |  | --- |
Mortgage-backed securities |  |  | 1,035 |  |  |  | --- |  |  |  | 1,035 |  |  |  | --- |
Corporate debt securities |  |  | 6,456 |  |  |  | --- |  |  |  | 6,456 |  |  |  | --- |
Other securities |  |  | 152 |  |  |  | --- |  |  |  | 152 |  |  |  | --- |
Total securities available for sale |  | $ | 291,277 |  |  | $ | --- |  |  | $ | 291,277 |  |  | $ | --- |
|  |  |  |  |  | Fair Value Measurements at December 31, 2015 Using |
Description |  | Balance as of December 31, 2015 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
U.S. Government agencies and corporations |  | $ | 212,464 |  |  | $ | --- |  |  | $ | 212,464 |  |  | $ | --- |
States and political subdivisions |  |  | 16,475 |  |  |  | --- |  |  |  | 16,475 |  |  |  | --- |
Mortgage-backed securities |  |  | 1,319 |  |  |  | --- |  |  |  | 1,319 |  |  |  | --- |
Corporate debt securities |  |  | 5,746 |  |  |  | --- |  |  |  | 5,746 |  |  |  | --- |
Other securities |  |  | 127 |  |  |  | --- |  |  |  | 127 |  |  |  | --- |
Total securities available for sale |  | $ | 236,131 |  |  | $ | --- |  |  | $ | 236,131 |  |  | $ | --- |
Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements. Loans Held for Sale Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets offer at the report date for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale at September 30, 2016 or December 31, 2015. Impaired Loans Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected when due according to the contractual terms of the loan agreement. Troubled debt restructurings are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure. Loans measured using the fair value of collateral method may be categorized in Level 2 or Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate. The Company bases collateral method fair valuation upon the “as-is” value of independent appraisals or evaluations. Valuations for impaired loans with outstanding principal balances of $250 or more are based on a current appraisal. Appraisals are also used to value impaired loans with principal balances of $100 or greater and secured by one piece of collateral. Collateral-method impaired loans with principal balances below $100, or if secured by multiple pieces of collateral, below $250, are valued using an internal evaluation. The value of real estate collateral is determined by a current (less than 12 months of age) appraisal or internal evaluation utilizing an income or market valuation approach. Appraisals conducted by an independent, licensed appraiser outside of the Company using observable market data are categorized as Level 2. If a current appraisal cannot be obtained prior to a reporting date and an existing appraisal is discounted to obtain an estimated value, or if declines in value are identified after the date of the appraisal, or if an appraisal is discounted for estimated selling costs, the valuation of real estate collateral is categorized as Level 3. Valuations derived from internal evaluations are categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans are measured quarterly for impairment. The Company employs the most applicable valuation method for each loan based on current information at the time of valuation. Valuations of loans using the collateral method may include a discount for selling costs if collection of the loan is expected to come from sale of the collateral. Fair value measurement using the collateral method for a loan that is dependent on the operation, but not the sale, of collateral for collection is not discounted for selling costs. The following table summarizes the Company’s impaired loans that were measured at fair value on a nonrecurring basis at September 30, 2016 and at December 31, 2015.
|  |  |  |  |  |  | Carrying Value |
Date | Description |  | Balance |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
| Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2016 | Impaired loans net of valuation allowance |  | $ | 593 |  |  |  |  |  |  |  |  |  |  | $ | 593 |
December 31, 2015 | Impaired loans net of valuation allowance |  |  | 2,328 |  |  |  | --- |  |  |  | --- |  |  |  | 2,328 |
The following tables present information about Level 3 Fair Value Measurements for September 30, 2016 and December 31, 2015.
September 30, 2016 | Valuation Technique | Unobservable Input |  | Range (Weighted Average) |
Impaired loans | Present value of cash flows | Market rate for borrower (discount rate) |  |  | 6.75% | – | 7.25% | (7.04%) |
December 31, 2015 | Valuation Technique | Unobservable Input |  | Range (Weighted Average) |
Impaired loans | Present value of cash flows | Discount rate |  |  | 6.00% | – | 7.38% | (6.56%) |
Other Real Estate Owned Other real estate owned are real estate assets acquired in full or partial satisfaction of a loan. At acquisition, other real estate owned assets are measured at fair value. If the assets are marketed for sale by an outside party, the acquisition-date fair value is discounted by selling costs; if the assets are marketed for sale by the Company, no reduction to fair value for selling costs is made. Subsequent to acquisition, the assets are measured at the lower of initial measurement or current fair value, discounted for selling costs as appropriate. The fair value of an other real estate owned asset is determined by an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). If the appraisal is discounted either for age or because management considers the real estate market to be experiencing volatility, then the fair value is considered Level 3. Discounts for selling costs also result in measurement based on Level 3 inputs. Fair value adjustments are measured on a nonrecurring basis and are recorded in the period incurred as valuation allowances to other real estate owned, and expensed through noninterest expense. The following table summarizes the Company’s other real estate owned that was measured at fair value on a nonrecurring basis.
|  |  |  |  |  |  | Carrying Value |
Date | Description |  | Balance |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
| Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2016 | Other real estate owned net of valuation allowance |  | $ | 3,188 |  |  |  |  |  |  |  |  |  |  | $ | 3,188 |
December 31, 2015 | Other real estate owned net of valuation allowance |  |  | 4,165 |  |  |  | --- |  |  |  | --- |  |  |  | 4,165 |
The following tables present information about Level 3 Fair Value Measurements for September 30, 2016 and December 31, 2015.
September 30, 2016 | Valuation Technique | Unobservable Input |  | Range (Weighted Average) |
Other real estate owned | Discounted appraised value | Selling cost |  |  | 0% (1) | – | 8.60% | (5.76%) |
Other real estate owned | Discounted appraised value | Discount for lack of marketability and age of appraisal |  |  | 0% | – | 53.46% | (10.19%) |
December 31, 2015 | Valuation Technique | Unobservable Input |  | Range (Weighted Average) |
Other real estate owned | Discounted appraised value | Selling cost |  |  | 0% (1) | – | 10.00% | (5.89%) |
Other real estate owned | Discounted appraised value | Discount for lack of marketability and age of appraisal |  |  | 0% – | – | 50.01% | (10.16%) |
(1) | The Company markets other real estate owned both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments. Cash and Due from Banks and Interest-Bearing Deposits The carrying amounts approximate fair value. Securities The fair value of securities, excluding restricted stock, is determined by quoted market prices or dealer quotes. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices of similar instruments adjusted for differences between the quoted instruments and the instruments being valued. The carrying value of restricted securities approximates fair value based upon the redemption provisions of the applicable entities. Loans Held for Sale The fair value of loans held for sale is based on commitments on hand from investors or prevailing market prices. Loans Fair value for the loan portfolio is estimated on an account-level basis by discounting scheduled cash flows through the projected maturity for each loan. The calculation applies 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 loan classification, modified by an estimate of the effect of economic conditions on lending. Impaired loans are individually evaluated for fair value. Fair value for the Company’s impaired loans is estimated by using either discounted cash flows or the appraised value of collateral. Any amount of principal balance that exceeds fair value is accrued in the allowance for loan losses. Assumptions regarding credit risk, cash flows and discount rates are determined within management’s judgment, using available market information and specific borrower information. Discount rates for cash flow analysis are based on the loan’s interest rate, and cash flows are estimated based upon the loan’s historical payment performance and the borrower’s current financial condition. Appraisals may be discounted for age, reasonableness, and selling costs. Deposits The fair value of demand and savings deposits is the amount payable on demand. The fair value of fixed maturity term deposits and certificates of deposit is estimated using the rates currently offered for deposits with similar remaining maturities. Accrued Interest The carrying amounts of accrued interest approximate fair value. Bank -O wned Life I nsurance Bank owned life insurance represents insurance policies on officers of the Company and certain officers who are no longer employed by the Company. The cash values of the policies are estimates using information provided by insurance carriers. These policies are carried at their cash surrender value, which approximates the fair value. Commitments to Extend Credit and Standby Letters of Credit The only amounts recorded for commitments to extend credit, standby letters of credit and financial guarantees written are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant at September 30, 2016 and December 31, 2015, and, as such, the related fair values have not been estimated. The estimated fair values and related carrying amounts of the Company’s financial instruments follow.
|  | September 30, 2016 |
|  | Carrying Amount |  |  | Quoted Prices in Active Markets for Identical Assets Level 1 |  |  | Significant Other Observable Inputs Level 2 |  |  | Significant Unobservable Inputs Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 11,302 |  |  | $ | 11,302 |  |  | $ | --- |  |  | $ | --- |
Interest-bearing deposits |  |  | 80,170 |  |  |  | 80,170 |  |  |  | --- |  |  |  | --- |
Securities |  |  | 429,324 |  |  |  | --- |  |  |  | 436,555 |  |  |  | --- |
Restricted securities |  |  | 1,170 |  |  |  | --- |  |  |  | 1,170 |  |  |  | --- |
Mortgage loans held for sale |  |  | 434 |  |  |  | --- |  |  |  | 434 |  |  |  | --- |
Loans, net |  |  | 627,940 |  |  |  | --- |  |  |  | --- |  |  |  | 642,859 |
Accrued interest receivable |  |  | 5,138 |  |  |  | --- |  |  |  | 5,138 |  |  |  | --- |
Bank-owned life insurance |  |  | 22,848 |  |  |  | --- |  |  |  | 22,848 |  |  |  | --- |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,010,008 |  |  | $ | --- |  |  | $ | 834,219 |  |  | $ | 174,388 |
Accrued interest payable |  |  | 48 |  |  |  | --- |  |  |  | 48 |  |  |  | --- |
|  | December 31, 2015 |
|  | Carrying Amount |  |  | Quoted Prices in Active Markets for Identical Assets Level 1 |  |  | Significant Other Observable Inputs Level 2 |  |  | Significant Unobservable Inputs Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 12,152 |  |  | $ | 12,152 |  |  | $ | --- |  |  | $ | --- |
Interest-bearing deposits |  |  | 130,811 |  |  |  | 130,811 |  |  |  | --- |  |  |  | --- |
Securities |  |  | 388,159 |  |  |  | --- |  |  |  | 394,163 |  |  |  | --- |
Restricted securities |  |  | 1,129 |  |  |  | --- |  |  |  | 1,129 |  |  |  | --- |
Mortgage loans held for sale |  |  | 634 |  |  |  | --- |  |  |  | 634 |  |  |  | --- |
Loans, net |  |  | 610,711 |  |  |  | --- |  |  |  | --- |  |  |  | 621,590 |
Accrued interest receivable |  |  | 5,769 |  |  |  | --- |  |  |  | 5,769 |  |  |  | --- |
Bank-owned life insurance |  |  | 22,401 |  |  |  | --- |  |  |  | 22,401 |  |  |  | --- |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,018,859 |  |  | $ | --- |  |  | $ | 826,476 |  |  | $ | 193,912 |
Accrued interest payable |  |  | 56 |  |  |  | --- |  |  |  | 56 |  |  |  | --- |

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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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