XML 40 R29.htm IDEA: XBRL DOCUMENT

Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2017

Assets Reported on Consolidated Balance Sheets at their Fair Value

The following table presents the assets reported on the consolidated balance sheets at their fair value as of March 31, 2017 and December 31, 2016 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	(Amounts in thousands)
			Fair Value Measurements at March 31, 2017 Using
Description	March 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS
U.S. Government agencies and corporations	$	8,013	$	—	$	8,013	$	—
Obligations of states and political subdivisions		62,398		—		62,398		—
U.S. Government-sponsored mortgage-backed securities		72,821		—		72,821		—
U.S. Government-sponsored collateralized mortgage obligations		7,299		—		7,299		—
U.S. Government-guaranteed small business administration pools		11,160		—		11,160		—
Trust preferred securities		827		—		—		827
Regulatory stock		2,581		2,581		—		—
Loans held for sale		2,436		2,436		—		—
Interest rate derivatives		260		—		260		—

LIABILITIES
Interest rate derivatives	$	260	$	—	$	260	$	—

	(Amounts in thousands)
			Fair Value Measurements at December 31, 2016 Using
Description	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS
U.S. Government agencies and corporations	$	7,988	$	—	$	7,988	$	—
Obligations of states and political subdivisions		66,770		—		66,770		—
U.S. Government-sponsored mortgage-backed securities		79,767		—		79,767		—
U.S. Government-sponsored collateralized mortgage obligations		9,349		—		9,349		—
U.S. Government-guaranteed small business administration pools		11,939		—		11,939		—
Trust preferred securities		825		—		—		825
Regulatory stock		2,581		2,581		—		—
Loans held for sale		4,554		4,554		—		—
Interest rate derivatives		297		—		297		—

LIABILITIES
Interest rate derivatives	$	297	$	—	$	297	$	—

Changes in the Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the three months ended March 31, 2017 and 2016. The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

	(Amounts in thousands)
	Three Months Ended
	March 31,
	2017			2016
	Trust preferred securities			Trust preferred securities
Beginning balance	$	825		$	778
Net realized/unrealized losses included in:
Noninterest income		—			—
Other comprehensive income (loss)		3			(48	)
Discount accretion (premium amortization)		—			—
Sales		—			—
Purchases, issuance, and settlements		(1	)		(4	)
Ending balance	$	827		$	726
Losses included in net income for the period relating to assets held at period end	$	—		$	—

Breakdown of Trust Preferred Securities

The following table details the breakdown of trust preferred securities for the periods indicated:

	(Dollar amounts in thousands)
	March 31, 2017		December 31, 2016
Total number of trust preferred securities		2		2
Par value	$	1,969	$	1,970

Number not considered OTTI		1		1
Par value	$	933	$	940

Number considered OTTI		1		1
Par value	$	1,036	$	1,030

Life-to-date impairment recognized in earnings	$	140	$	140
Life-to-date impairment recognized in other comprehensive income		792		795
Total life-to-date impairment	$	932	$	935

Trust Preferred Security with OTTI, its Credit Rating at Period End and Related Losses Recognized in Earnings

The following table details the one debt security with other-than-temporary impairment, its credit rating at March 31, 2017 and the related losses recognized in earnings:

		(Amounts in thousands)
	Moody’s/Fitch Rating	Amount of OTTI related to credit loss at January 1, 2017		Additions in QTD March 31, 2017		Amount of OTTI related to credit loss at March 31, 2017
Trapeza IX B-1	Caa2/CC	$	140	$	—	$	140
Total		$	140	$	—	$	140

The following table details the one debt security with other-than-temporary impairment, its credit ratings at March 31, 2016 and the related losses recognized in earnings:

		(Amounts in thousands)
	Moody’s/Fitch Rating	Amount of OTTI related to credit loss at January 1, 2016		Additions in QTD March 31, 2016		Amount of OTTI related to credit loss at March 31, 2016
Trapeza IX B-1	Caa2/CC	$	140	$	—	$	140
Total		$	140	$	—	$	140

Additional Information Related to the Company's Trust Preferred Securities

The following table provides additional information related to the Company’s trust preferred securities as of March 31, 2017 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	Amortized Cost		Fair Value		Unrealized Gain/(Loss)			Moody’s/ Fitch Rating	Number of Issuers Currently Performing		Deferrals and Defaults as a % of Current Collateral			Excess Subordination as a % of Current Performing Collateral
PreTSL XXIII	C-2	$	759	$	309	$	(450	)	B2/CCC		90		22.5	%		5.48	%
Trapeza IX	B-1		860		518		(342	)	Caa2/CC		32	13.3				—
Total		$	1,619	$	827	$	(792	)

The following table provides additional information related to the Company’s trust preferred securities as of December 31, 2016 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	Amortized Cost		Fair Value		Unrealized Gain/(Loss)			Moody’s/ Fitch Rating	Number of Issuers Currently Performing		Deferrals and Defaults as a % of Current Collateral			Excess Subordination as a % of Current Performing Collateral
PreTSL XXIII	C-2	$	760	$	310	$	(450	)	B2/CCC		90		22.5	%		5.33	%
Trapeza IX	B-1		860		515		(345	)	Caa2/CC		32		13.3			—
Total		$	1,620	$	825	$	(795	)

Assets Measured on a Nonrecurring Basis on the Consolidated Balance Sheets at their Fair Value

The following table presents the assets measured on a nonrecurring basis on the Consolidated Balance Sheets at their fair value as of March 31, 2017 and December 31, 2016, by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include: quoted market prices for identical assets classified as Level 1 inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level 2 inputs. In cases where valuation techniques include inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level 3 inputs. Other real estate owned is carried at the lower of cost or fair value less estimated costs to sell.

	(Amounts in thousands)
	March 31, 2017
	Level 1		Level 2		Level 3		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	5,936	$	5,936

Other real estate owned		—		—		480		480

	(Amounts in thousands)
	December 31, 2016
	Level 1		Level 2		Level 3		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	6,788	$	6,788

Carrying Amounts and Fair Values of the Company's Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments are as follows:

	(Amounts in thousands)
	March 31, 2017
	Carrying Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	15,930	$	15,930	$	—	$	—	$	15,930
Investment securities available-for-sale		165,099		2,581		161,691		827		165,099
Loans held for sale		2,436		2,436		—		—		2,436
Loans, net of allowance for loan losses		392,232		—		—		395,299		395,299
Bank-owned life insurance		17,451		17,451		—		—		17,451
Accrued interest receivable		2,010		2,010		—		—		2,010
Interest rate derivatives		260		—		260		—		260

LIABILITIES:
Demand, savings and money market deposits	$	384,742	$	384,742	$	—	$	—	$	384,742
Time deposits		132,610		—		—		134,442		134,442
Short term borrowings		2,281		2,281		—		—		2,281
Federal Home Loan Bank advances - short term		11,000		3,000		—		7,991		10,991
Federal Home Loan Bank advances - long term		17,000		—		—		17,023		17,023
Subordinated debt		5,155		—		—		4,504		4,504
Accrued interest payable		296		296		—		—		296
Interest rate derivatives		260		—		260		—		260

	(Amounts in thousands)
	December 31, 2016
	Carrying Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	15,351	$	15,351	$	—	$	—	$	15,351
Investment securities available-for-sale		179,219		2,581		175,813		825		179,219
Loans held for sale		4,554		4,554		—		—		4,554
Loans, net of allowance for loan losses		414,900		—		—		418,532		418,532
Bank-owned life insurance		17,376		17,376		—		—		17,376
Accrued interest receivable		2,041		2,041		—		—		2,041
Interest rate derivatives		297		—		297		—		297

LIABILITIES:
Demand, savings and money market deposits	$	408,983	$	408,983	$	—	$	—	$	408,983
Time deposits		130,867		—		—		133,108		133,108
Short term borrowings		2,702		2,702		—		—		2,702
Federal Home Loan Bank advances - short term		23,000		17,000		—		5,998		22,998
Federal Home Loan Bank advances - long term		17,500		—		—		17,580		17,580
Subordinated debt		5,155		—		—		4,363		4,363
Accrued interest payable		288		288		—		—		288
Interest rate derivatives		297		—		297		—		297

Significant Unobservable Inputs for Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at March 31, 2017:

	(Amounts in thousands)
	Fair value at March 31, 2017		Valuation Technique	Significant Unobservable Input	Description of Inputs
Trust preferred securities	$	827	Discounted Cash Flow	Projected Prepayments	1) Trust preferred securities issued by banks subject to Dodd-Frank's phase-out of trust preferred securities from Tier 1 Capital. All fixed rate within one year; variable rate at increasing intervals depending on spread. 2) Trust preferred securities issued by healthy, well capitalized banks that have fixed rate coupons greater than 8%. 3) 1% annually for all other fixed rate issues and all variable rate issues. 4) Zero for collateral issued by REITs and 2% for insurance companies.

				Projected Defaults	1) All deferring issuers that do not meet the criteria for curing, as described below, are projected to default immediately. 2) Banks with high, near team default risk are identified using a CAMELS model, and projected to default immediately. Healthy banks are projected to default at a rate of 2% annually for 2 years, and 0.36% annually thereafter. 3) Insurance and REIT defaults are projected according to the historical default rates exhibited by companies with the same credit ratings. Historical default rates are doubled in each of the first two years of the projection to account for current economic conditions. Unrated issuers are assumed to have CCC- ratings.

				Projected Cures	1) Deferring issuers that have definitive agreements to either be acquired or recapitalized.

				Projected Recoveries	1) Zero for insurance companies, REITs and insolvent banks, and 10% for projected bank deferrals lagged 2 years.

				Discount Rates	1) Ranging from ~9.60% to ~15.21%, depending on each bond's seniority and remaining subordination after projected losses.

Impaired loans		5,936	Appraisal of Collateral (1)	Appraisal Adjustments (2)	Range (0)% to (50)% Weighted average (28)%

				Liquidation Expenses (2)	Range (0)% to (48)% Weighted average (5)%

Other real estate owned		480	Appraisal of Collateral (1), (3)	Appraisal Adjustments (2)		0%

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses are presented as a percent of the appraisal. The adjustment of appraised value is measured as the effect on fair value as a percentage of unpaid principal.

(3)	Includes qualitative adjustments by management and estimated liquidation expenses.

	(Amounts in thousands)
	Fair value at December 31, 2016		Valuation Technique	Significant Unobservable Input	Description of Inputs
Trust preferred securities	$	825	Discounted Cash Flow	Projected Prepayments	1) Trust preferred securities issued by banks subject to Dodd-Frank's phase-out of trust preferred securities from Tier 1 Capital. All fixed rate within one year; variable rate at increasing intervals depending on spread. 2) Trust preferred securities issued by healthy, well capitalized banks that have fixed rate coupons greater than 8%. 3) 1% annually for all other fixed rate issues and all variable rate issues. 4) Zero for collateral issued by REITs and 2% for insurance companies.

				Projected Defaults	1) All deferring issuers that do not meet the criteria for curing, as described below, are projected to default immediately. 2) Banks with high, near team default risk are identified using a CAMELS model, and projected to default immediately. Healthy banks are projected to default at a rate of 2% annually for 2 years, and 0.36% annually thereafter. 3) Insurance and REIT defaults are projected according to the historical default rates exhibited by companies with the same credit ratings. Historical default rates are doubled in each of the first two years of the projection to account for current economic conditions. Unrated issuers are assumed to have CCC- ratings.

				Projected Cures	1) Deferring issuers that have definitive agreements to either be acquired or recapitalized.

				Projected Recoveries	1) Zero for insurance companies, REITs and insolvent banks, and 10% for projected bank deferrals lagged 2 years.

				Discount Rates	1) Ranging from ~9.69% to ~15.11%, depending on each bond's seniority and remaining subordination after projected losses.

Impaired loans		6,788	Appraisal of Collateral (1)	Appraisal Adjustments (2)	Range (0)% to (50)% Weighted average (29)%

				Liquidation Expenses (2)	Range (0)% to (48)% Weighted average (5)%

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2)

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

+ References + Details