Note 19 - Fair Value Measurements

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

19. Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value, and sets forth disclosures about fair value measurements. ASC Topic 825, “Financial Instruments,” allows entities to choose to measure certain financial assets and liabilities at fair value. The Company has not elected the fair value option for any of its financial assets or liabilities.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This Topic describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions supported by little or no market activity, about the assumptions that market participants would use in pricing the asset or liability.

Following is a description of the valuation method used for instruments measured at fair value on a recurring basis. For this disclosure, the Company only has available for sale investment securities and money market mutual funds classified as cash equivalents that meet the requirement. The carrying value of the $11.0 million in money market mutual funds is equivalent to its fair value and based on Level 1 inputs.

Available for sale investment securities

Valued primarily by independent third party pricing services under the market valuation approach that include, but are not limited to, the following inputs:

● Mutual funds and equity securities are priced utilizing real-time data feeds from active market exchanges for identical securities and are considered Level 1 inputs.

● Government-sponsored agency debt securities, obligations of states and political subdivisions, mortgage-backed securities, corporate bonds, and other similar investment securities are priced with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources and are considered Level 2 inputs.

Fair value disclosures for available for sale investment securities as of December 31, 2015 and 2014 are as follows:

			Fair Value Measurements Using
(In thousands) Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2015
Obligations of U.S. government-sponsored entities	$	106,906	$	-	$	106,906	$	-
Obligations of states and political subdivisions		150,266		-		150,266		-
Mortgage-backed securities – residential		297,861		-		297,861		-
Mortgage-backed securities – commercial		20,584		-		20,584		-
Corporate debt securities		5,840		-		5,840		-
Mutual funds and equity securities		745		745		-		-
Total	$	582,202	$	745	$	581,457	$	-
December 31, 2014
Obligations of U.S. government-sponsored entities	$	109,448	$	-	$	109,448	$	-
Obligations of states and political subdivisions		135,766		-		135,766		-
Mortgage-backed securities – residential		370,489		-		370,489		-
Mortgage-backed securities – commercial		2,512		-		2,512		-
Corporate debt securities		6,307		-		6,307		-
Mutual funds and equity securities		1,866		1,866		-		-
Total	$	626,388	$	1,866	$	624,522	$	-

The Company is required to measure and disclose certain other assets and liabilities at fair value on a nonrecurring basis in periods following their initial recognition. The Company’s disclosure about assets and liabilities measured at fair value on a nonrecurring basis consists of impaired loans and OREO. The carrying value of these assets are adjusted to fair value on a nonrecurring basis through impairment charges as described more fully below.

Impairment charges on collateral-dependent loans are recorded by either an increase to the provision for loan losses and related allowance or by direct loan charge-offs. The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is measured based on recent appraisals of the underlying collateral. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraisers take absorption rates into consideration and adjustments are routinely made in the appraisal process to identify differences between the comparable sales and income data available. Such adjustments consist mainly of estimated costs to sell that are not included in certain appraisals or to update appraised collateral values as a result of market declines of similar properties for which a newer appraisal is available. These adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value.

OREO includes properties acquired by the Company through, or in lieu of, actual loan foreclosures and is carried at fair value less estimated costs to sell. Fair value of OREO at acquisition is generally based on third party appraisals of the property that includes comparable sales data and is considered as Level 3 inputs. The carrying value of each OREO property is updated at least annually and more frequently when market conditions significantly impact the value of the property. If the carrying amount of the OREO exceeds fair value less estimated costs to sell, an impairment loss is recorded through noninterest expense.

The following table represents the carrying amount of assets measured at fair value on a nonrecurring basis and still held by the Company as of the dates indicated. The amounts in the table only represent assets whose carrying amount has been adjusted by impairment charges during the period in a manner as described above; therefore, these amounts will differ from the total amounts outstanding. With the exception of those calculated using the collateral valuation method, collateral-dependent impaired loan amounts in the tables below exclude restructured loans since they are measured based on present value techniques, which are outside the scope of the fair value reporting framework.

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2015
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	2,908	$	-	$	-	$	2,908
Real estate mortgage – residential		3,720		-		-		3,720
Total	$	6,628	$	-	$	-	$	6,628
OREO
Construction and land development	$	2,252	$	-	$	-	$	2,252
Residential real estate		406		-		-		406
Farmland and other commercial enterprises		2,868		-		-		2,868
Total	$	5,526	$	-	$	-	$	5,526

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2014
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	284	$	-	$	-	$	284
Real estate mortgage – residential		946		-		-		946
Real estate mortgage – farmland and other commercial enterprises		340		-		-		340
Total	$	1,570	$	-	$	-	$	1,570
OREO
Construction and land development	$	8,123	$	-	$	-	$	8,123
Residential real estate		863		-		-		863
Farmland and other commercial enterprises		5,459		-		-		5,459
Total	$	14,445	$	-	$	-	$	14,445

The following table presents impairment charges recorded in earnings on assets measured at fair value on a nonrecurring basis. 

(In thousands) Years Ended December 31,	2015		2014
Impairment charges:
Collateral-dependent impaired loans	$	259	$	575
OREO		768		1,595
Total	$	1,027	$	2,170

The following table presents quantitative information about unobservable inputs for assets measured on a nonrecurring basis using Level 3 measurements. As previously discussed, the fair value of real estate securing collateral-dependent impaired loans and OREO are based on current third party appraisals. It is often necessary, however, for the Company to discount the appraisal amounts supporting its impaired loans and OREO. These discounts relate primarily to marketing and other holding costs that are not included in certain appraisals or to update values as a result of market declines of similar properties for which newer appraisals are available. Discounts also result from contracts to sell properties entered into during the period. The range of discounts is presented in the table below for 2015 and 2014. The upper end of the range identified in the table related to OREO for each year is the result of write-downs on relatively small properties. The weighted average column represents a better indicator of the discounts applied to the appraisals.

(In thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range			Weighted Average
December 31, 2015
Collateral-dependent impaired loans	$	6,628	Discounted appraisals	Marketability discount	0%	-	8.3%		7.9	%
OREO	$	5,526	Discounted appraisals	Marketability discount	2.3%	-	26.9%		6.5	%
December 31, 2014
Collateral-dependent impaired loans	$	1,570	Discounted appraisals	Marketability discount	0%	-	6.0%		1.0	%
OREO	$	14,445	Discounted appraisals	Marketability discount	1.3%	-	19.9%		6.2	%

Fair Value of Financial Instruments

The table that follows represents the estimated fair values of the Company’s financial instruments made in accordance with the requirements of ASC Topic 825, “Financial Instruments.” ASC Topic 825 requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and present value or other valuation techniques. These derived fair values are subjective in nature, involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. ASC Topic 825 excludes certain financial instruments and all nonfinancial instruments from the disclosure requirements. Accordingly, the aggregate fair value amounts presented are not intended to represent the underlying value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments not presented elsewhere for which it is practicable to estimate that value.

Cash and Cash Equivalents, Accrued Interest Receivable, and Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization or settlement.

Investment Securities Held to Maturity

Fair value is based on quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources.

Loans

The fair value of loans is estimated by discounting expected future cash flows using current discount rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Expected future cash flows are projected based on contractual cash flows adjusted for estimated prepayments.

Federal Home Loan Bank and Federal Reserve Bank Stock

It is not practical to determine the fair value of Federal Home Loan Bank and Federal Reserve Bank stock due to restrictions placed on its transferability.

Deposit Liabilities

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date and fair value approximates carrying value. The fair value of fixed maturity certificates of deposit is estimated by discounting the expected future cash flows using the rates currently offered for certificates of deposit with similar remaining maturities.

Federal Funds Purchased and Other Short-term Borrowings

The carrying amount is the estimated fair value for these borrowings which reprice frequently in the near term.

Securities Sold Under Agreements to Repurchase, Subordinated Notes Payable, and Other Long-term Borrowings

The fair value of these borrowings is estimated by discounting the expected future cash flows using rates currently available for debt with similar terms and remaining maturities. For subordinated notes payable, the Company uses its best estimate to determine an appropriate discount rate since active markets for similar debt transactions are very limited.

Commitments to Extend Credit and Standby Letters of Credit

Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, compensating balance, and other covenants or requirements. Loan commitments generally have fixed expiration dates, variable interest rates and contain termination and other clauses that provide for relief from funding in the event there is a significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of the Company’s commitments to lend and standby letters of credit are competitive with others in the various markets in which the Company operates. There are no unamortized fees relating to these financial instruments, as such the carrying value and fair value are both zero.

The following table presents the estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2015 and 2014. Information for available for sale investment securities is presented within this footnote in greater detail above.

					Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2015
Assets
Cash and cash equivalents	$	120,493	$	120,493	$	120,493	$	-	$	-
Held to maturity investment securities		3,611		3,809		-		3,809		-
Loans, net		948,960		945,809		-		-		945,809
Accrued interest receivable		5,392		5,392		-		5,392		-
Federal Home Loan Bank and Federal Reserve Bank Stock		9,368		N/A		-		-		-
Liabilities
Deposits		1,368,994		1,369,016		1,043,616		-		325,400
Federal funds purchased and other short-term borrowings		34,353		34,353		-		34,353		-
Securities sold under agreements to repurchase and other long-term borrowings		120,280		126,964		-		126,964		-
Subordinated notes payable to unconsolidated trusts		48,970		31,515		-		-		31,515
Accrued interest payable		851		851		-		851		-
December 31, 2014
Assets
Cash and cash equivalents	$	100,914	$	100,914	$	100,914	$	-	$	-
Held to maturity investment securities		3,728		3,923		-		3,923		-
Loans, net		917,975		918,697		-		-		918,697
Accrued interest receivable		5,625		5,625		-		5,625		-
Federal Home Loan Bank and Federal Reserve Bank Stock		9,368		N/A		-		-		-
Liabilities
Deposits		1,387,161		1,388,614		991,630		-		396,984
Federal funds purchased and other short-term borrowings		28,590		28,590		-		28,590		-
Securities sold under agreements to repurchase and other long-term borrowings		119,724		129,244		-		129,244		-
Subordinated notes payable to unconsolidated trusts		48,970		22,594		-		-		22,594
Accrued interest payable		944		944		-		944		-