Note 21 - Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2016

21.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table represents the recorded carrying values, estimated fair values and fair value hierarchy within which the fair value measurements of the Company’s financial instruments are categorized at

December

31,

2016

and

2015:

	Level in	December 31, 2016				December 31, 2015
	Fair Value	Estimated		Carrying		Estimated			Carrying
	Hierarchy	Fair Value		Amount		Fair Value			Amount
		(In thousands)
Financial assets:
Cash and due from banks	Level 1	$	22,855	$	22,855	$	19,426		$	19,426
Interest-bearing deposits in other banks	Level 1		23,321		23,321		18,566			18,566
Securities available for sale	Level 1		16,995		16,995		31,385			31,385
Securities available for sale	Level 2		175,611		175,611		216,910			216,910
Securities held to maturity	Level 2		511		510		510			508
Loans held for sale	Level 2		5,099		5,099		3,944			3,944
Loans and leases HFI, net, less impaired loans	Level 2		678,911		681,239		586,494			583,946
Stock in FHLB of Atlanta	Level 2		1,574		1,574		2,369			2,369
Accrued interest receivable	Level 2		3,526		3,526		2,875			2,875
Interest rate swap	Level 2		121		121		(394	)		(394	)
Bank-owned life insurance	Level 2		18,080		18,080		15,635			15,635
Impaired loans HFI, net	Level 3		10,730		10,730		15,202			15,202
Mortgage servicing rights	Level 3		3,128		2,149		2,301			1,266
Financial liabilities:
Deposits	Level 2	$	869,591	$	870,600	$	811,089		$	811,322
Junior subordinated debentures	Level 2		10,310		10,310		10,310			10,310

Fair values of financial assets and liabilities have been estimated using data which management considers as the best available, and estimation methodologies deemed suitable for the pertinent category of financial instrument. With regard to financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of future financing commitments. The estimation methodologies used by the Bank are as follows:

Financial assets

Cash and Due from banks and Interest –Bearing Deposits in Other Banks

: The carrying amounts for cash and due from banks and interest bearing deposits in other banks are equal to their fair value. Fair value hierarchy Input level

Investment Securities Available for Sale and Held to Maturity

: The estimated fair value of investment securities is provided in Note

of the Notes to Consolidated Financial Statements. These are based on quoted market prices, when available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Fair value hierarchy Input levels

and

Loans Held for Sale.

The estimated fair value of loans held for sale is based on commitments from investors within the

secondary

market for loans with similar characteristics. Fair value hierarchy Input level

Loans and Leases Held for Investment, net, less Impaired Loans

: Fair values are estimated for portfolios of loans and leases held for investment with similar financial characteristics. Loans and leases are segregated by collateral type and by fixed and variable interest rate terms. The fair value of each category is determined by discounting scheduled future cash flows using current interest rates offered on loans or leases with similar characteristics. Fair value hierarchy Input level

Stock in Federal Home Loan Bank of Atlanta

: The fair value for FHLB stock approximates carrying value, based on the redemption provisions of the Federal Home Loan Bank. Fair value hierarchy Input level

Accrued Interest Receivable

: The carrying amount of accrued interest receivable approximates fair value because of the short maturities of these instruments. Fair value hierarchy Input level

Interest Rate Swap

: The Company has entered into a pay-fixed receive-floating swap to hedge our

$10.0

million of floating rate Trust Preferred debt. The primary objective of the swap is to minimize future interest rate risk. The effective date of the swap is

December

30,

2014.

Fair value hierarchy Input level

Bank-Owned Life Insurance

: The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the issuer. Fair value hierarchy Input level

Impaired Loans Held for Investment, Net

: Fair values for impaired loans and leases are estimated based on discounted cash flows or underlying collateral values, where applicable. Fair value hierarchy Input Level

Mortgage Servicing Rights (“MSRs”)

: The fair value of MSRs is estimated for those loans sold with servicing retained. The loans are stratified into pools by product type and within product type by interest rate and maturity. The fair value of the MSR is based upon the present value of estimated future cash flows using current market assumptions for prepayments, servicing costs and other factors. Fair value hierarchy Input level

Financial liabilities

Deposits

: The fair value of demand deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposits is estimated using rates currently offered for similar instruments with similar remaining maturities. Fair value hierarchy Input level

Junior Subordinated Debentures

: The carrying amount of junior subordinated debentures approximates fair value of similar instruments with similar characteristics and remaining maturities. Fair value hierarchy Input level

- 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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