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Fair Value Measurements and Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

Derivatives: The fair value of derivatives are based on valuation models using observable market data as of the measurement date (level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2019 and December 31, 2018 are as follows:

						December 31, 2019 Fair Value Measurements at Reporting Date Using
		Total 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)
Recurring fair value measurements:
Assets
Investment securities:
Available-for-sale:
Federal agency obligations		$	28,237			$	-			$	28,237			$	-
Residential mortgage pass-through securities			200,496				-				200,496				-
Commercial mortgage pass-through securities			4,997				-				4,997				-
Obligations of U.S. states and political subdivision			136,519				-				127,405				9,114
Corporate bonds and notes			28,382				-				28,382				-
Asset-backed securities			5,780				-				5,780				-
Certificates of deposit			150				-				150				-
Other securities			140				140				-				-
Total available-for-sale		$	404,701			$	140			$	395,447			$	9,114
Equity securities			11,185				11,185				-				-
Total assets		$	415,886			$	11,325			$	395,447			$	9,114
Liabilities
Derivatives		$	(273)			$	-			$	(273)			$	-
Total liabilities		$	(273)				-				(273)

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2019 and 2018.

- 101 -

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22 - Fair Value Measurements and Fair Value of Financial Instruments – (continued)

						December 31, 2018 Fair Value Measurements at Reporting Date Using
		Total 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)
Recurring fair value measurements:
Assets
Investment securities:
Available-for-sale:
Federal agency obligations		$	44,955			$	-			$	44,955			$	-
Residential mortgage pass-through securities			185,204				-				185,204				-
Commercial mortgage pass-through securities			3,874				-				3,874				-
Obligations of U.S. states and political subdivision			139,185				-				129,808				9,377
Corporate bonds and notes			25,813				-				25,813				-
Asset-backed securities			9,691				-				9,691				-
Certificates of deposit			322				-				322				-
Other securities			2,990				2,990				-				-
Total available-for-sale		$	412,034			$	2,990			$	399,667			$	9,377
Equity securities			11,460				11,460				-				-
Derivatives			1,159				-				1,159				-
Total assets		$	424,653			$	14,450			$	400,826			$	9,377

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

For assets measured at fair value on a non-recurring basis, the fair value measurements at December 31, 2019 and December 31, 2018 are as follows:

						Fair Value Measurements at Reporting Date Using
Assets measured at fair value on a nonrecurring basis:		December 31, 2019				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Impaired loans:		(dollars in thousands)
Commercial construction		$	2,286			$	-			$	-			$	2,286
Residential			240				-				-				240

						Fair Value Measurements at Reporting Date Using
Assets measured at fair value on a nonrecurring basis:		December 31, 2018				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Impaired loans:		(dollars in thousands)
Commercial real estate		$	1,481			$	-			$	-			$	1,481
Residential			231				-				-				231

Fair Value, by Balance Sheet Grouping [Table Text Block]

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of December 31, 2019 and December 31, 2018:

										Fair Value Measurements
		Carrying Amount				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)
December 31, 2019
Financial assets:
Cash and due from banks		$	201,483			$	201,483			$	201,483			$	-			$	-
Investment securities available-for-sale			404,701				404,701				140				395,447				9,114
Restricted investment in bank stocks			27,397				n/a				n/a				n/a				n/a
Equity securities			11,185				11,185				11,185				-				-
Net loans			5,075,234				5,096,669				-				-				5,096,669
Accrued interest receivable			20,949				20,949				-				2,187				18,762
Financial liabilities:
Noninterest-bearing deposits			861,728				861,728				861,728				-				-
Interest-bearing deposits			3,905,814				3,917,405				2,352,093				1,565,312				-
Borrowings			500,293				502,026				-				502,026				-
Subordinated debentures			128,885				134,973				-				134,973				-
Derivatives			273				273				-				273				-
Accrued interest payable			4,018				4,018				-				4,018				-
December 31, 2018
Financial assets:
Cash and due from banks		$	172,366			$	172,366			$	172,366			$	-			$	-
Investment securities available-for-sale			412,034				412,034				2,990				399,667				9,377
Restricted investment in bank stocks			31,136				n/a				n/a				n/a				n/a
Equity securities			11,460				11,460				11,460				-				-
Net loans			4,506,138				4,402,878				-				-				4,402,878
Derivatives			1,159				1,159				-				1,159				-
Accrued interest receivable			18,214				18,214				-				2,064				16,150
Financial liabilities:
Noninterest-bearing deposits			768,584				768,584				768,584				-				-
Interest-bearing deposits			3,323,508				3,320,640				1,957,503				1,363,137				-
Borrowings			600,001				598,598				-				598,598				-
Subordinated debentures			128,556				132,426				-				132,426				-
Accrued interest payable			6,764				6,764				-				6,764				-

Fair Value, Recurring basis [Table Text Block]

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2019 and year ended December 31, 2018:

	Municipal Securities
	(dollars in thousands)
Beginning balance, January 1, 2019	$	9,377
Principal paydowns		(263)
Ending balance, December 31, 2019	$	9,114

	Municipal Securities
	(dollars in thousands)
Beginning balance, January 1, 2018	$	9,632
Principal paydowns		(255)
Ending balance, December 31, 2018	$	9,377

Significant unobservable inputs used in fair value measurements [Table Text Block]

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at December 31, 2019 and December 31, 2018. The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy.

December 31, 2019

		Fair Value				Valuation Techniques		Unobservable Input		Range
Securities available-for-sale:						(dollars in thousands)
Municipal securities		$	9,114			Discounted cash flows		Discount rate			2.9%

December 31, 2018

		Fair Value				Valuation Techniques		Unobservable Input		Range
Securities available-for-sale:						(dollars in thousands)
Municipal securities		$	9,377			Discounted cash flows		Discount rate			2.9%

Fair Value Measurements, Nonrecurring [Table Text Block]

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a non-recurring basis for the periods presented. The tables below provide quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy.

December 31, 2019

(dollars in thousands)		Fair Value				Valuation Techniques		Unobservable Input		Range (weighed average)
Impaired loans:
Commercial construction		$	2,286			Appraisals of collateral value		Comparable sales		0% - 5% (3%)
Residential		$	240			Appraisals of collateral value		Comparable sales		2% - 14% (9%)

December 31, 2018

(dollars in thousands)		Fair Value				Valuation Techniques		Unobservable Input		Range (weighed average)
Impaired loans:
Commercial real estate		$	1,481			Appraisals of collateral value		Comparable sales		6% - 9% (8%)
Residential		$	231			Appraisals of collateral value		Comparable sales		0% - 10% (5%)

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