Fair Value of Assets and Liabilities

12 Months Ended

Dec. 31, 2016

Fair Value of Assets and Liabilities

Note 4. Fair Value of Assets and Liabilities

Recurring Basis

The following table provides a summary of the financial instruments the Company measures at fair value on a recurring basis as of December 31, 2016 and 2015:

			Fair Value Measurements Using
	As of December 31, 2016 Assets At Fair Value		Fair Value Measurements Using
	As of December 31, 2016 Assets At Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(dollars in thousands)
Assets
Available for sale investments:
Obligations of U.S. government agencies	$	60,643	$	–	$	60,643	$	–
Mortgage backed securities
U.S. government sponsored entities and agencies		239,335		–		239,335		–
Non-agency		24,237		–		24,237		–
State and municipal securities		125,831		–		125,831		–
Asset backed securities		8,771		–		8,771		–
Derivative financial instruments:
Interest rate swaps		1,364		–		1,364		–

Total assets measured on a recurring basis	$	460,181	$	–	$	460,181	$	–


Liabilities
Derivative financial instruments:
Interest rate swaps	$	1,364	$	–	$	1,364	$	–

Total liabilities measured on a recurring basis	$	1,364	$	–	$	1,364	$	–

Fair Value Measurements Using

As of
December 31,
2015
Assets At
Fair Value

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

(dollars in thousands)

Assets

Available for sale investments:

Obligations of U.S. government agencies

47,318

–

47,318

–

Mortgage backed securities

U.S. government sponsored entities and agencies

245,235

–

245,235

–

Non-agency

34,317

–

34,317

–

State and municipal securities

108,406

–

108,406

–

Asset backed securities

15,627

–

15,627

–

Other investments

–

Derivative financial instruments:

Interest rate swaps

–

Total assets measured on a recurring basis

450,935

450,903

–

Liabilities

Derivative financial instruments:

Interest rate swaps

–

Total liabilities measured on a recurring basis

–

There were no transfers between levels of fair value measures during 2016 and 2015 for assets measured at fair value on a recurring basis. There were no liabilities measured on a recurring basis during 2015. As of December 31, 2016 and 2015, there were no assets or liabilities classified as Level 3.

Non-recurring Basis

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include assets and liabilities that are measured at the lower of cost or fair value, and that were recognized at fair value which was below cost. Certain impaired loans are recorded in the Company's consolidated financial statements using the discounted cash flow method versus the collateral method. The discounted cash flow method as prescribed by ASC 310 Receivables, is not a fair value measurement since the discount rate utilized is the loan's effective interest rate, which is not considered a market rate for those loans. The discounted cash flow approach is used to measure impairment for certain impaired loans, because of the significant payment history and the global cash flow analysis performed on each borrower.

The following tables provide a summary of assets the Company measures at fair value on a non-recurring basis as of December 31, 2016 and 2015. There were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2015.

			Fair Value Measurements Using
	As of December 31, 2016 Assets At Fair Value		Fair Value Measurements Using
	As of December 31, 2016 Assets At Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year To Date Losses (Recoveries)
		(dollars in thousands)
Assets
Foreclosed assets	$	70	$	–	$	70	$	–	$	18

Total assets measured on a non-recurring basis	$	70	$	–	$	70	$	–	$	18

Fair Value Measurements Using

As of
December 31,
2015
Assets At
Fair Value

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Year To
Date Losses
(Recoveries)

(dollars in thousands)

Assets

Foreclosed assets

–

Total assets measured on a non-recurring basis

–

There were no transfers between levels of fair value measures during 2016 and 2015 for assets measured at fair value on a non-recurring basis.

Fair Value of Financial Instruments

The following tables provide a summary of the estimated fair value of financial instruments at December 31, 2016 and 2015:

			Fair Value Measurements Using
	As of December 31, 2016 Carrying Amount		Fair Value Measurements Using
	As of December 31, 2016 Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
		(dollars in thousands)
Assets
Cash and cash equivalents	$	50,874	$	50,874	$	–	$	–	$	50,874
Investment securities available for sale		458,817		–		458,817		–		458,817
Federal Home Loan Bank stock		7,853		–		–		–		N/A
Loans receivable, net		1,367,042		–		–		1,355,761		1,355,761
Loans held for sale		10,055		–		10,055		–		10,055
Interest rate swaps		1,364		–		1,364		–		1,364
Accrued interest receivable		6,834		–		2,840		3,994		6,834
Liabilities
Non-interest bearing deposits		573,957		573,957		–		–		573,957
Interest bearing deposits		1,109,938		–		1,108,247		–		1,108,247
Federal Home Loan Bank advances		107,500		–		107,503		–		107,503
Junior subordinated debentures		10,612		–		–		9,185		9,185
Interest rate swaps		1,364		–		1,364		–		1,364
Accrued interest payable		489		–		489		–		489

			Fair Value Measurements Using
	As of December 31, 2015 Carrying Amount		Fair Value Measurements Using
	As of 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)		Fair Value
		(dollars in thousands)
Assets
Cash and cash equivalents	$	69,923	$	69,923	$	–	$	–	$	69,923
Investment securities available for sale		450,935		32		450,903		–		450,935
Federal Home Loan Bank stock		7,853		–		–		–		N/A
Loans receivable, net		1,228,696		–		–		1,250,903		1,250,903
Loans held for sale		9,755		–		9,755		–		9,755
Interest rate swaps		–		–		–		–		–
Accrued interest receivable		6,256		–		2,589		3,667		6,256
Liabilities
Non-interest bearing deposits		514,559		514,559		–		–		514,559
Interest bearing deposits		1,050,402		–		1,051,731		–		1,051,731
Federal Home Loan Bank advances		103,521		–		104,718		–		104,718
Junior subordinated debentures		10,438		–		–		8,195		8,195
Interest rate swaps		–		–		–		–		–
Accrued interest payable		390		–		390		–		390

Information on off-balance sheet instruments as of December 31, 2016 and 2015 follows:

	December 31, 2016				December 31, 2015
	Notional Amount		Cost to Cede or Assume		Notional Amount		Cost to Cede or Assume
		(dollars in thousands)
Off-balance sheet instruments, commitments to extend credit and standby letters of credit	$	276,184	$	2,762	$	255,093	$	2,551

- 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.

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