Fair Value Measurements | 6 Months Ended |
Jun. 30, 2014 |
Fair Value Disclosures [Abstract] | ' |
Fair Value Measurements | ' |
Note 4 – Fair Value Measurements |
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Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values: |
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Level 1: | Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. | | | | | | | | | | | | | | | | | | | |
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Level 2: | Significant other observable inputs other than Level 1 prices, such as quoted market 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. | | | | | | | | | | | | | | | | | | | |
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Level 3: | Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. | | | | | | | | | | | | | | | | | | | |
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In determining the appropriate levels, the Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument: |
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Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on matrix pricing which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities relationship to other benchmark quoted securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other non-observable market indicators (Level 3). The fair values of Level 3 investment securities are determined by an independent third party. These valuations are then reviewed by the Company’s Controller and CFO. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations. |
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Interest Rate Swap Derivatives: The fair value of interest rate swap derivatives is determined based on discounted cash flow valuation models using observable market data as of the measurement date (Level 2 inputs). The fair value adjustment is included in other liabilities. |
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Mortgage Banking Derivatives: The fair value of mortgage banking derivatives is determined by individual third party sales contract prices for the specific loans held at each reporting period end (Level 2 inputs). The fair value adjustment is included in other assets. |
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Loans Held for Sale: Loans held for sale are carried at fair value, as determined by outstanding commitments, from third party investors (Level 2). |
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Impaired Loans: The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. |
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Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. The fair value of other real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly. |
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Appraisals for both collateral dependent impaired loans and other real estate owned are performed by certified general appraisers, certified residential appraisers or state licensed appraisers whose qualifications and licenses are annually reviewed and verified by the Company. Once received, a member of the Real Estate Valuation Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value and determines if reasonable. Appraisals for collateral dependent impaired loans and other real estate owned are updated annually. On an annual basis the Company compares the actual selling costs of collateral that has been liquidated to the selling price to determine what additional adjustment should be made to the appraisal value. The most recent analysis performed indicated that an additional discount of 10% should be applied to properties with appraisals performed within 12 months. |
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Assets and Liabilities Measured on a Recurring Basis |
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The following tables present the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy as of June 30, 2014 and December 31, 2013. |
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| | June 30, | | | Quoted Prices in | | | Significant Other | | | Significant | | | | | |
Active Markets for | Observable Inputs | Unobservable | | | | |
Identical Assets | | Inputs | | | | |
| | 2014 | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | | | |
| | (Dollars in thousands) | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | | | | | | |
Obligations of U.S. Government agencies | | $ | 200,905 | | | | - | | | | 200,905 | | | | - | | | | | |
Obligations of states and political subdivisions | | | 92,903 | | | | - | | | | 92,903 | | | | - | | | | | |
Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
U.S. GSE’s MBS - residential | | | 142,356 | | | | - | | | | 142,356 | | | | - | | | | | |
U.S. GSE’s CMO | | | 114,272 | | | | - | | | | 114,272 | | | | - | | | | | |
Corporate bonds | | | 97,163 | | | | - | | | | 97,052 | | | | 111 | | | | | |
Total available-for-sale securities | | $ | 647,599 | | | | - | | | | 647,488 | | | | 111 | | | | | |
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Loans held for sale | | | 24,500 | | | | - | | | | 24,500 | | | | - | | | | | |
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Mortgage banking derivatives | | | 81 | | | | - | | | | 81 | | | | - | | | | | |
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| | $ | 672,180 | | | | - | | | | 672,069 | | | | 111 | | | | | |
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Liabilities: | | | | | | | | | | | | | | | | | | | | |
Interest rate swap derivatives | | | 1,411 | | | | - | | | | 1,411 | | | | - | | | | | |
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| | $ | 1,411 | | | | - | | | | 1,411 | | | | - | | | | | |
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| | December 31, | | | Quoted Prices in | | | Significant Other | | | Significant | | | | | |
Active Markets for | Observable Inputs | Unobservable | | | | |
Identical Assets | | Inputs | | | | |
| | 2013 | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | | | |
| | (Dollars in thousands) | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | | | | | | | | | | |
Obligations of U.S. Government agencies | | $ | 224,062 | | | | - | | | | 224,062 | | | | - | | | | | |
Obligations of states and political subdivisions | | | 110,434 | | | | - | | | | 110,434 | | | | - | | | | | |
Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
U.S. GSE’s MBS - residential | | | 129,971 | | | | - | | | | 129,971 | | | | - | | | | | |
U.S. GSE’s CMO | | | 79,722 | | | | - | | | | 79,722 | | | | - | | | | | |
Corporate bonds | | | 105,790 | | | | - | | | | 105,680 | | | | 110 | | | | | |
Total available-for-sale securities | | $ | 649,979 | | | | - | | | | 649,869 | | | | 110 | | | | | |
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Loans held for sale | | | 10,638 | | | | - | | | | 10,638 | | | | - | | | | | |
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Mortgage banking derivatives | | | 31 | | | | - | | | | 31 | | | | - | | | | | |
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| | $ | 660,648 | | | | - | | | | 660,538 | | | | 110 | | | | | |
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Liabilities: | | | | | | | | | | | | | | | | | | | | |
Interest rate swap derivatives | | | 768 | | | | - | | | | 768 | | | | - | | | | | |
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| | $ | 768 | | | | - | | | | 768 | | | | - | | | | | |
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The Company’s policy is to recognize transfers into or out of a level as of the end of the reporting period. |
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Transfers between Level 1 and Level 2: |
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No securities were transferred between Level 1 and Level 2 during the six months ended June 30, 2014 and the six months ended June 30, 2013. |
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Transfers between Level 2 and Level 3: |
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No securities were transferred between Level 2 and Level 3 during the six months ended June 30, 2014 and the six months ended June 30, 2013. |
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The following tables present a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2014 and 2013. |
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Fair Value Measurements Using Significant Unobservable |
Inputs (Level 3) |
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| | Total | | | Corporate bonds | | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | |
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Beginning balance, January 1, 2014 | | $ | 110 | | | $ | 110 | | | | | | | | | | | | | |
Total gains or losses (realized/unrealized) | | | | | | | | | | | | | | | | | | | | |
Included in earnings | | | | | | | | | | | | | | | | | | | | |
Gain (loss) on sales | | | - | | | | - | | | | | | | | | | | | | |
Other-than-temporary impairment | | | - | | | | - | | | | | | | | | | | | | |
Included in other comprehensive income | | | 1 | | | | 1 | | | | | | | | | | | | | |
Purchases, sales, issuances and settlements | | | | | | | | | | | | | | | | | | | | |
Purchases | | | - | | | | - | | | | | | | | | | | | | |
Sales, Calls | | | - | | | | - | | | | | | | | | | | | | |
Issuances | | | - | | | | - | | | | | | | | | | | | | |
Settlements | | | - | | | | - | | | | | | | | | | | | | |
Principal repayments | | | - | | | | - | | | | | | | | | | | | | |
Transfers into Level 3 | | | - | | | | - | | | | | | | | | | | | | |
Transfers out of Level 3 | | | - | | | | - | | | | | | | | | | | | | |
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Ending balance, June 30, 2014 | | $ | 111 | | | $ | 111 | | | | | | | | | | | | | |
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Fair Value Measurements Using Significant Unobservable |
Inputs (Level 3) |
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| | Total | | | Other CMO | | | Corporate bonds | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | |
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Beginning balance, January 1, 2013 | | $ | 1,684 | | | $ | 1,576 | | | $ | 108 | | | | | | | | | |
Total gains or losses (realized/unrealized) | | | | | | | | | | | | | | | | | | | | |
Included in earnings | | | | | | | | | | | | | | | | | | | | |
Gain (loss) on sales | | | 129 | | | | 129 | | | | - | | | | | | | | | |
Other-than-temporary impairment | | | - | | | | - | | | | - | | | | | | | | | |
Included in other comprehensive income | | | 41 | | | | 40 | | | | 1 | | | | | | | | | |
Purchases, sales, issuances and settlements | | | | | | | | | | | | | | | | | | | | |
Purchases | | | - | | | | - | | | | - | | | | | | | | | |
Sales, Calls | | | (1,620 | ) | | | (1,620 | ) | | | - | | | | | | | | | |
Issuances | | | - | | | | - | | | | - | | | | | | | | | |
Settlements | | | - | | | | - | | | | - | | | | | | | | | |
Principal repayments | | | (125 | ) | | | (125 | ) | | | - | | | | | | | | | |
Transfers into Level 3 | | | - | | | | - | | | | - | | | | | | | | | |
Transfers out of Level 3 | | | - | | | | - | | | | - | | | | | | | | | |
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Ending balance, June 30, 2013 | | $ | 109 | | | $ | - | | | $ | 109 | | | | | | | | | |
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The Company uses an independent third party to value its U.S. government agencies, mortgage-backed securities, and corporate bonds. Their approach uses relevant information generated by transactions that have occurred in the market place that involve similar assets, as well as using cash flow information when necessary. These inputs are observable, either directly or indirectly in the market place for similar assets. The Company considers these valuations to be Level 2 pricing. |
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The fair value of the Company’s municipal securities is determined by another independent third party. Their approach uses relevant information generated by transactions that have occurred in the market place that involve similar assets. These inputs are observable, either directly or indirectly in the market place for similar assets. The Company considers these valuations to be Level 2 pricing. |
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For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3 pricing) as determined by an independent third party. The significant unobservable inputs used in the valuation model include prepayment rates, constant default rates, loss severity and yields. |
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On a quarterly basis, the Company selects a random sample of investment security valuations, as determined by the independent third party, to validate pricing and level assignments. |
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The following tables present quantitative information about level 3 fair value measurements at June 30, 2014 and 2013. |
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| | | June 30, | | Valuation | | Unobservable | | Range | | | | | | | | | | | |
| | | 2014 | | Technique | | Inputs | | (Weighted Avg) | | | | | | | | | | | |
| | | (Dollars in thousands) | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | | | | | | | | | |
| Corporate bonds | | 111 | | discounted cash flow | | yield | | 10.00% | | | | | | | | | | | |
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| | | June 30, | | Valuation | | Unobservable | | Range | | | | | | | | | | | |
| | | 2013 | | Technique | | Inputs | | (Weighted Avg) | | | | | | | | | | | |
| | | (Dollars in thousands) | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | | | | | | | | | |
| Corporate bonds | | 109 | | discounted cash flow | | yield | | 10.00% | | | | | | | | | | | |
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The significant unobservable inputs used in the fair value measurement of the Company’s corporate bonds are yields that the market would require for corporate debt obligations with similar maturities and risk characteristics. |
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Assets and Liabilities Measured on a Non-Recurring Basis |
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Assets and liabilities measured at fair value on a non-recurring basis as of June 30, 2014 and December 31, 2013 are summarized below. |
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| | | | | Quoted Prices in | | | | | | Significant | | | | | |
| | | | | Active Markets for | | | Significant Other | | | Unobservable | | | | | |
| | June 30, | | | Identical Assets | | | Observable Inputs | | | Inputs | | | | | |
| | 2014 | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | | | |
| | (Dollars in thousands) | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Impaired loans (1) | | | | | | | | | | | | | | | | |
Commercial, financial, and agricultural | | $ | 115 | | | | - | | | | - | | | | 115 | | | | | |
Real estate: | | | | | | | | | | | | | | | | | | | | |
Commercial | | | 3,915 | | | | - | | | | - | | | | 3,915 | | | | | |
Residential | | | 1,162 | | | | - | | | | - | | | | 1,162 | | | | | |
Acquisition, development and | | | | | | | | | | | | | | | | | | | | |
construction | | | 6,570 | | | | - | | | | - | | | | 6,570 | | | | | |
| | $ | 11,762 | | | | - | | | | - | | | | 11,762 | | | | | |
Other real estate owned | | | | | | | | | | | | | | | | | | | | |
Real estate: | | | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 149 | | | | - | | | | - | | | | 149 | | | | | |
Acquisition, development and | | | | | | | | | | | | | | | | | | | | |
construction | | | 75 | | | | | | | | | | | | 75 | | | | | |
| | $ | 224 | | | | - | | | | - | | | | 224 | | | | | |
| | $ | 11,986 | | | | - | | | | - | | | | 11,986 | | | | | |
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(1) Includes loans directly charged down to fair value. |
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| | December 31, | | | Quoted Prices in | | | Significant Other | | | Significant Unobservable Inputs | | | | | |
Active Markets for | Observable Inputs | | | | |
Identical Assets | | | | | |
| | 2013 | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | | | |
| | (Dollars in thousands) | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Impaired loans | | | | | | | | | | | | | | | | |
Real estate: | | | | | | | | | | | | | | | | |
Commercial | | $ | 939 | | | | - | | | | - | | | | 939 | | | | | |
Residential | | | 2,505 | | | | - | | | | - | | | | 2,505 | | | | | |
Acquisition, development and | | | | | | | | | | | | | | | | | | | | |
construction | | | 5,691 | | | | - | | | | - | | | | 5,691 | | | | | |
| | $ | 9,135 | | | | - | | | | - | | | | 9,135 | | | | | |
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Other real estate owned | | | | | | | | | | | | | | | | | | | | |
Real estate: | | | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 149 | | | | - | | | | - | | | | 149 | | | | | |
| | $ | 149 | | | | - | | | | - | | | | 149 | | | | | |
| | $ | 9,284 | | | | - | | | | - | | | | 9,284 | | | | | |
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The following represents impairment charges recognized during the period: |
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Impaired loans, which are measured for impairment using the fair value of collateral for collateral dependent loans, had a recorded investment of $11,762, resulting in an additional provision for loan losses of $67 and $935 for the three and six months ended June 30, 2014. |
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As of December 31, 2013, impaired loans had a recorded investment of $9,135, resulting in an additional provision for loan losses of $2,879 for the year ending 2013. |
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Other real estate owned, which is carried at fair value less costs to sell, was $224 which consisted of the outstanding balance of $289, less a valuation allowance of $65, resulting in a write down of $19 for the three and six months ended June 30, 2014. |
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As of December 31, 2013, other real estate owned was $149 which consisted of the outstanding balance of $200, less a valuation allowance of $51, resulting in a write down of $51 for the year ending 2013. |
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The following tables present quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2014 and December 31, 2013. |
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| | | June 30, | | Valuation | | Unobservable | | Range | | | | | | | | | | | |
| | | 2014 | | Techniques | | Inputs | | (Weighted Avg) | | | | | | | | | | | |
| | | (Dollars in thousands) | | | | | | | | | | | |
Impaired loans | | | | | | | | | | | | | | | | | | | |
| Commercial, financial, and agricultural | | 115 | | liquidation value | | | | | | | | | | | | | | | |
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| Real estate: | | | | | | | | | | | | | | | | | | | |
| Commercial | | 3,915 | | sales comparison | | adjustment for | | 0.00% - 70.99% (15.28%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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| | | | | income approach | | discount rate | | 11.50% | | | | | | | | | | | |
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| | | | | income approach | | capitalization rate | | 8.25% - 9.29% (8.64%) | | | | | | | | | | | |
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| Residential | | 1,162 | | sales comparison | | adjustment for | | 0.00% - 24.46% (8.68%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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| Acquisition, development and | | | | | | | | | | | | | | | | | | | |
| construction | | 6,570 | | sales comparison | | adjustment for | | 0.00% - 65.00% (17.68%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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| | | | | income approach | | discount rate | | 10.00% | | | | | | | | | | | |
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| | | | | income approach | | capitalization rate | | 7.25% | | | | | | | | | | | |
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Other real estate owned | | | | | | | | | | | | | | | | | | | |
| Real estate: | | | | | | | | | | | | | | | | | | | |
| Commercial | | 149 | | sales comparison | | adjustment for | | 5.00% - 50.00% (27.50%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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| Acquisition, development and | | | | | | | | | | | | | | | | | | | |
| construction | | 75 | | sales comparison | | adjustment for | | 0.00% - 25.00% (12.50%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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| | | Dec. 31, | | Valuation | | Unobservable | | Range | | | | | | | | | | | |
| | | 2013 | | Techniques | | Inputs | | (Weighted Avg) | | | | | | | | | | | |
| | | (Dollars in thousands) | | | | | | | | | | | |
Impaired loans | | | | | | | | | | | | | | | | | | | |
| Real estate: | | | | | | | | | | | | | | | | | | | |
| Commercial | | 939 | | sales comparison | | adjustment for | | 0.00% - 70.99% (20.38%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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| | | | | income approach | | capitalization rate | | 9.00% | | | | | | | | | | | |
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| Residential | | 2,505 | | sales comparison | | adjustment for | | 0.00% - 18.76% (6.85%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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| Acquisition, development and | | | | | | | | | | | | | | | | | | | |
| construction | | 5,691 | | sales comparison | | adjustment for | | 0.00% - 65.00% (20.85%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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| | | | | income approach | | discount rate | | 12.00% | | | | | | | | | | | |
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| | | | | income approach | | capitalization rate | | 7.25% | | | | | | | | | | | |
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Other real estate owned | | | | | | | | | | | | | | | | | | | |
| Real estate: | | | | | | | | | | | | | | | | | | | |
| Commercial | | 149 | | sales comparison | | adjustment for | | 5.00% - 50.00% (27.50%) | | | | | | | | | | | |
| | | | | | | differences between | | | | | | | | | | | | | |
| | | | | | | the comparable sales | | | | | | | | | | | | | |
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Disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value is required. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. |
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Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. |
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Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. |
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The assumptions used in the estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow and other valuation techniques. Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company’s financial instruments, but rather a good-faith estimate of the fair value of financial instruments held by the Company. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. |
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The following methods and assumptions, not previously presented, were used by the Company in estimating the fair value of its financial instruments: |
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| (a) | Cash and Cash Equivalents | | | | | | | | | | | | | | | | | | |
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Fair value equals the carrying value of such assets due to their nature and is classified as Level 1. |
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| (b) | Loans, net | | | | | | | | | | | | | | | | | | |
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The fair value of loans is calculated using discounted cash flows by loan type resulting in a Level 3 classification. The discount rate used to determine the present value of the loan portfolio is an estimated market rate that reflects the credit and interest rate risk inherent in the loan portfolio without considering widening credit spreads due to market illiquidity. The estimated maturity is based on the Company’s historical experience with repayments adjusted to estimate the effect of current market conditions. The carrying amount of related accrued interest receivable, due to its short-term nature, approximates its fair value, is not significant and is not disclosed. The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification. The allowance for loan losses is considered a reasonable discount for credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. |
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| (c) | Restricted Equity Securities | | | | | | | | | | | | | | | | | | |
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| The fair value of Federal Home Loan Bank (“FHLB”) stock was not practicable to determine due to restrictions placed on its transferability. | | | | | | | | | | | | | | | | | | | |
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| (d) | Deposits | | | | | | | | | | | | | | | | | | |
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Fair values for certificates of deposit have been determined using discounted cash flows. The discount rate used is based on estimated market rates for deposits of similar remaining maturities and are classified as Level 2. The carrying amounts of all other deposits, due to their short-term nature, approximate their fair values and are classified as Level 1. The carrying amount of related accrued interest payable, due to its short-term nature, approximates its fair value, is not significant and is not disclosed. |
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| (e) | Securities Sold Under Repurchase Agreements | | | | | | | | | | | | | | | | | | |
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Fair value approximates the carrying value of such liabilities due to their short-term nature and is classified as Level 1. |
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| (f) | Advances from FHLB | | | | | | | | | | | | | | | | | | |
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The fair value of the FHLB advances is obtained from the FHLB and is calculated by discounting contractual cash flows using an estimated interest rate based on the current rates available to the Company for debt of similar remaining maturities and collateral terms resulting in a Level 2 classification. |
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| (g) | Subordinated debentures | | | | | | | | | | | | | | | | | | |
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The fair value for subordinated debentures is calculated using discounted cash flows based upon current market spreads to LIBOR for debt of similar remaining maturities and collateral terms resulting in a Level 3 classification. |
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| (h) | Commitments | | | | | | | | | | | | | | | | | | |
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The difference between the carrying values and fair values of commitments to extend credit are not significant and are not disclosed. |
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The carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2014 and December 31, 2013 are as follows: |
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| | 30-Jun-14 | |
| | Carrying | | | Fair Value Measurements | |
| | amount | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
| | (Dollars in thousands) | |
Financial assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 81,035 | | | | 81,035 | | | | 81,035 | | | | - | | | | - | |
Loans, net | | | 921,586 | | | | 919,270 | | | | - | | | | - | | | | 919,270 | |
Restricted equity securities | | | 4,398 | | | | N/A | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits with stated maturities | | | 403,910 | | | | 404,746 | | | | - | | | | 404,746 | | | | - | |
Deposits without stated maturities | | | 1,127,902 | | | | 1,127,902 | | | | 1,127,902 | | | | - | | | | - | |
Securities sold under repurchase agreements | | | 653 | | | | 653 | | | | 653 | | | | - | | | | - | |
Advances from FHLB | | | 64,000 | | | | 68,196 | | | | - | | | | 68,196 | | | | - | |
Subordinated debentures | | | 20,000 | | | | 14,797 | | | | - | | | | - | | | | 14,797 | |
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| | 31-Dec-13 | |
| | Carrying | | | Fair Value Measurements | | | | |
| | amount | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
| | (Dollars in thousands) | |
Financial assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 47,336 | | | | 47,336 | | | | 47,336 | | | | - | | | | - | |
Loans, net | | | 870,169 | | | | 869,348 | | | | - | | | | - | | | | 869,348 | |
Restricted equity securities | | | 4,870 | | | | N/A | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits with stated maturities | | | 377,996 | | | | 379,247 | | | | - | | | | 379,247 | | | | - | |
Deposits without stated maturities | | | 1,076,807 | | | | 1,076,807 | | | | 1,076,807 | | | | - | | | | - | |
Securities sold under repurchase agreements | | | 808 | | | | 808 | | | | 808 | | | | - | | | | - | |
Advances from FHLB | | | 64,000 | | | | 68,309 | | | | - | | | | 68,309 | | | | - | |
Subordinated debentures | | | 21,547 | | | | 16,258 | | | | - | | | | - | | | | 16,258 | |
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