Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 11: Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities
Level 2	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	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Recurring Measurements

Following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the Company’s consolidated balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy.

The following table presents the fair value measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016:

			Fair Value Measurement Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
September 30, 2017
U.S. government agencies	$	8	$	—	$	8	$	—
Mortgage-backed securities           of government sponsored           entities		47,188		—		47,188		—
State and political           subdivisions		11,360		—		11,360		—

			Fair Value Measurement Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2016
U.S. government agencies	$	11	$	—	$	11	$	—
Mortgage-backed securities           of government sponsored           entities		58,614		—		58,614		—
Private-label collateralized           mortgage obligations		40		—		40		—
State and political           subdivisions		12,044		—		12,044		—

Nonrecurring Measurements

Certain assets may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

Collateral-dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the office of the Chief Financial Officer. Appraisals are reviewed for accuracy and consistency by the Credit Analyst. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the office of the Chief Financial Officer by comparison to historical results.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of real estate is based on appraisals or evaluations. Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.

Appraisals of real estate are obtained when the real estate is acquired and subsequently as deemed necessary by the Chief Financial Officer. Appraisals are reviewed internally for accuracy and consistency in accordance with regulatory requirements. Appraisers are selected from the list of approved appraisers maintained by management.

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016.

			Fair Value Measurement Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
September 30, 2017
Collateral-dependent           impaired loans	$	94	$	—	$	—	$	94
Foreclosed assets		27		—		—		27
December 31, 2016
Collateral-dependent           impaired loans	$	1,053	$	—	$	—	$	1,053
Foreclosed assets		2		—		—		2

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements in thousands.

	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
September 30, 2017
Collateral-dependent         impaired loans	$	94	Market comparable properties	Discounts		27%
Foreclosed assets		27	Expected selling price	Selling Costs		N/A
December 31, 2016
Collateral-dependent         impaired loans	$	1,053	Market comparable properties and specialized equipment discounts	Discounts		25%
Foreclosed assets		2	Expected selling price	Selling Costs		10%

There were changes in the inputs or methodologies used to determine fair value at September 30, 2017 as compared to December 31, 2016 as the commercial customer is in the process of liquidating its collateral.

The following table presents estimated fair values of the Company’s financial instruments not carried at fair value. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
September 30, 2017
Financial assets
Cash and cash equivalents	$	6,962	$	6,962	$	—	$	—
Held-to-maturity securities		11,749		—		11,794		—
Loans, net of allowance for           loan losses		343,872		—		—		356,698
Federal Home Loan Bank           stock		4,226		—		4,226		—
Interest receivable		1,361		—		1,361		—
Financial liabilities
Deposits		370,395		257,103		112,755		—
Other short-term borrowings		7,148		—		7,148		—
Federal Home Loan Bank           advances		22,300		—		22,258		—
Advances from borrowers           for taxes and insurance		753		—		753		—
Interest payable		33		—		33		—

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2016
Financial assets
Cash and cash  equivalents	$	16,756	$	16,756	$	—	$	—
Held-to-maturity securities		9,559		—		9,339
Loans, net of allowance for           loan losses		332,283		—		—		341,999
Federal Home Loan Bank           stock		4,226		—		4,226		—
Interest receivable		1,146		—		1,146		—
Financial liabilities
Deposits		383,733		252,242		130,770		—
Other short-term borrowings		7,246		—		7,246		—
Federal Home Loan Bank           advances		18,000		—		17,938		—
Advances from borrowers           for taxes and insurance		1,306		—		1,306		—
Interest payable		29		—		29		—

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents, Interest Receivable and Federal Home Loan Bank Stock

The carrying amount approximates fair value.

Held-to-maturity Securities

The fair value of held-to-maturity securities was estimated by using pricing models that contain market pricing and information, quoted prices of securities with similar characteristics or discounted cash flows that use credit-adjusted discount rates.

Loans, net of allowance for loan losses

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

Deposits include savings accounts, checking accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Interest Payable, Other Short-Term Borrowings and Advances From Borrowers for Taxes and Insurance

The carrying amount approximates fair value.

Federal Home Loan Bank Advances

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Commitments to Originate Loans, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. Fair values of commitments were not material at September 30, 2017 and December 31, 2016.