Note 6 - Fair Value

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 6 – FAIR VALUE

Accounting guidance on fair value measurement uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:

● Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in 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; and

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

Assets measured at fair value on a recurring basis comprise the following at March 31, 2016 and December 31, 2015:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2016:
Securities available for sale:
U.S. govt. sponsored agency securities	$	132,741,822	$	-	$	132,741,822	$	-
Residential mortgage-backed and related securities		116,452,374		-		116,452,374		-
Municipal securities		24,929,655		-		24,929,655		-
Other securities		2,064,016		779		2,063,237		-
Derivative instruments		450,651		-		450,651		-
	$	276,638,518	$	779	$	276,637,739	$	-
December 31, 2015:
Securities available for sale:
U.S. govt. sponsored agency securities	$	213,537,379	$	-	$	213,537,379	$	-
Residential mortgage-backed and related securities		80,670,135		-		80,670,135		-
Municipal securities		27,578,588		-		27,578,588		-
Other securities		1,648,880		411		1,648,469		-
Derivative instruments		856,024		-		856,024
	$	324,291,006	$	411	$	324,290,595	$	-

There were no transfers of assets or liabilities between Levels 1, 2, and 3 of the fair value hierarchy for the three months ended March 31, 2016 or 2015.

A small portion of the securities available for sale portfolio consists of common stock issued by various unrelated bank holding companies. The fair values used by the Company are obtained from an independent pricing service and represent quoted market prices for the identical securities (Level 1 inputs).

The remainder of the securities available for sale portfolio consists of securities whereby the Company obtains fair values from an independent pricing service. The fair values are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs).

Derivative instruments consist of interest rate caps that are used for the purpose of hedging interest rate risk. See Note 4 to the Consolidated Financial Statements for the details of these instruments. The fair values are determined by pricing models that consider observable market data for derivative instruments with similar structures (Level 2 inputs).

Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Assets measured at fair value on a non-recurring basis comprise the following at March 31, 2016 and December 31, 2015:

			Fair Value Measurements at Reporting Date Using
	Fair Value		Level 1		Level 2		Level 3
March 31, 2016:
Impaired loans/leases	$	4,969,221	$	-	$	-	$	4,969,221
OREO		7,214,706		-		-		7,214,706
	$	12,183,927	$	-	$	-	$	12,183,927
December 31, 2015:
Impaired loans/leases	$	4,545,966	$	-	$	-	$	4,545,966
OREO		7,722,711		-		-		7,722,711
	$	12,268,677	$	-	$	-	$	12,268,677

Impaired loans/leases are evaluated and valued at the time the loan/lease is identified as impaired, at the lower of cost or fair value, and are classified as Level 3 in the fair value hierarchy.  Fair value is measured based on the value of the collateral securing these loans/leases.  Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and is determined based on appraisals by qualified licensed appraisers hired by the Company.  Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business.  

OREO in the table above consists of property acquired through foreclosures and settlements of loans.  Property acquired is carried at the estimated fair value of the property, less disposal costs, and is classified as Level 3 in the fair value hierarchy. The estimated fair value of the property is determined based on appraisals by qualified licensed appraisers hired by the Company.  Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the property.

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitave Information about Level Fair Value Measurments
	Fair Value March 31, 2016		Fair Value December 31, 2015		Valuation Technique	Unobservable Input	Range
Impaired loans/leases	$	4,969,221	$	4,545,966	Appraisal of collateral	Appraisal adjustments	-10.00%	to	-50.00%
OREO		7,214,706		7,722,711	Appraisal of collateral	Appraisal adjustments	0.00%	to	-35.00%

For the impaired loans/leases and OREO, the Company records carrying value at fair value less disposal or selling costs. The amounts reported in the tables above are fair values before the adjustment for disposal or selling costs.

There have been no changes in valuation techniques used for any assets measured at fair value during the three months ended March 31, 2016 and 2015.

The following table presents the carrying values and estimated fair values of financial assets and liabilities carried on the Company’s consolidated balance sheets, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis:

	Fair Value	As of March 31, 2016					As of December 31, 2015
	Hierarchy	Carrying		Estimated			Carrying		Estimated
	Level	Value		Fair Value			Value		Fair Value
Cash and due from banks	Level 1	$	44,930,836	$	44,930,836		$	41,742,321	$	41,742,321
Federal funds sold	Level 2		15,740,000		15,740,000			19,850,000		19,850,000
Interest-bearing deposits at financial institutions	Level 2		41,489,171		41,489,171			36,313,965		36,313,965
Investment securities:
Held to maturity	Level 2		261,129,586		264,414,722			253,674,159		255,691,285
Available for sale	See Previous Table		276,187,867		276,187,867			323,434,982		323,434,982
Loans/leases receivable, net	Level 3		4,601,131		4,969,221			4,209,228		4,545,966
Loans/leases receivable, net	Level 2		1,841,827,043		(4,601,131	)		1,767,672,541		1,764,178,772
Derivative instruments	Level 2		450,651		450,651			856,024		856,024
Deposits:
Nonmaturity deposits	Level 2		1,586,207,114		1,586,207,114			1,516,599,081		1,516,599,081
Time deposits	Level 2		403,365,975		404,278,000			364,067,103		364,192,000
Short-term borrowings	Level 2		64,022,811		64,022,811			144,662,716		144,662,716
FHLB advances	Level 2		150,500,000		152,206,000			151,000,000		153,143,000
Other borrowings	Level 2		100,000,000		106,466,000			110,000,000		116,061,000
Junior subordinated debentures	Level 2		33,378,402		24,520,003			38,499,052		27,642,093