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6. Fair Value

3 Months Ended

Mar. 31, 2016

Accounting Standards Codification (ASC) 820, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement

The following sections provide 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:

Securities: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

Impaired Loans: ASC 820 applies to loans measured for impairment using the practical expedients permitted by ASC 310 including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral.

Other Real Estate Owned: Certain assets such as other real estate owned (OREO) are measured at the lower of carrying amount or fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of ASC 820.

Derivative Financial Instruments: The equity derivative contracts are purchased as part of our Indexed Certificate of Deposit (ICD) program and are an offset of an asset and liability. ICD values are measured on the S&P 500 Index.

For level 3 assets and liabilities measured at fair value on a recurring basis or non-recurring basis as of March 31, 2016 and December 31, 2015 and significant unobservable inputs used in the fair value measurements were as follows:

		Fair Value at March 31, 2016		Valuation Technique		Significant Unobservable Inputs		Range
Impaired Loans		$11,226		Discounted appraised value		Discount for selling costs and age of appraisals		15%-55%
Other Real Estate Owned		$2,450		Discounted appraised value		Discount for selling costs and age of appraisals		15%-55%

		Fair Value at December 31, 2015		Valuation Technique		Significant Unobservable Inputs		Range
Impaired Loans		$11,315		Discounted appraised value		Discount for selling costs and age of appraisals		15%-55%
Other Real Estate Owned		$2,128		Discounted appraised value		Discount for selling costs and age of appraisals		15%-55%

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.

March 31, 2016		Total				Level 1				Level 2				Level 3
U. S. Treasuries		$	4,030			$	-			$	4,030			$	-
Government sponsored enterprises			8,062				-				8,062				-
Mortgage-backed obligations of federal agencies			784				-				784				-
Marketable Equities			135				-				135				-
Investment securities available for sale			13,011				-				13,011				-

Total assets at fair value		$	13,011			$	-			$	13,011			$	-

Total liabilities at fair value		$	-			$	-			$	-			$	-

Derivative financial instruments at fair value		$	15			$	-			$	15			$	-

December 31, 2015		Total				Level 1				Level 2				Level 3
U. S. Treasuries		$	4,021			$	-			$	4,021			$	-
Government sponsored enterprises			8,074				-				8,074				-
Mortgage-backed obligations of federal agencies			817				-				817				-
Marketable Equities			135				-				135				-
Investment securities available for sale			13,047				-				13,047				-

Total assets at fair value		$	13,047			$	-			$	13,047			$	-

Total liabilities at fair value		$	-			$	-			$	-			$	-

Derivative financial instruments at fair value		$	15			$	-			$	15			$	-

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis

March 31, 2016		Total				Level 1				Level 2				Level 3
Other Real Estate Owned		$	2,450				-				-			$	2,450
							-				-
Construction/Land Development			8,465				-				-				8,465
Farmland			-				-				-				-
Real Estate			990				-				-				990
Multi-Family			-				-				-				-
Commercial Real Estate			895				-				-				895
Home Equity – closed end			-				-				-				-
Home Equity – open end			820				-				-				820
Commercial & Industrial – Non-Real Estate			-				-				-				-
Consumer			-				-				-				-
Credit cards			-				-				-				-
Dealer Finance			56				-				-				56
Impaired loans			11,226				-				-				11,226

Total assets at fair value		$	13,676			$	-			$	-			$	13,676

Total liabilities at fair value		$	-			$	-			$	-			$	-

The table below presents the recorded amount of assets and liabilities measured at fair value on a non-recurring basis. The Company has determined that Other Real Estate Owned and Impaired Loans are Level 3.

December 31, 2015		Total				Level 1				Level 2				Level 3
Other Real Estate Owned		$	2,128				-				-			$	2,128
							-				-
Construction/Land Development			9,161				-				-				9,161
Farmland			-				-				-				-
Real Estate			85				-				-				85
Multi-Family			-				-				-				-
Commercial Real Estate			872				-				-				872
Home Equity – closed end			-				-				-				-
Home Equity – open end			1,145				-				-				1,145
Commercial & Industrial – Non-Real Estate			-				-				-				-
Consumer			-				-				-				-
Credit cards			-				-				-				-
Dealer Finance			52				-				-				52
Impaired loans			11,315				-				-				11,315

Total assets at fair value		$	13,443				-			$	-			$	13,443

Total liabilities at fair value		$	-			$	-			$	-			$	-

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.

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