XML 30 R20.htm IDEA: XBRL DOCUMENT v3.19.1
Disclosures about fair value of assets and liabilities
 3 Months Ended
Mar. 31, 2019
Text Block [Abstract]  
Disclosures about fair value of assets and liabilities
Note 11 – Disclosures about Fair Value of Assets and Liabilities
 
 
The Fair Value Measurements topic of the FASB ASC defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. There are 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
 
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated financial statements, as well as the general classification of such instruments pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended September 30, 2018. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
 
Available for sale securities
 
When 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 pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. Treasury and federal agency securities, state and municipal securities, federal agency collateralized mortgage obligations and mortgage-backed pools and corporate notes. Level 2 securities are valued by a third party pricing service commonly used in the banking industry utilizing observable inputs. Observable inputs include dealer quotes, market spreads, cash flow analysis, the U.S. Treasury yield curve, trade execution data, market consensus prepayment spreads and available credit information and the bond’s terms and conditions. The pricing provider utilizes evaluated pricing models that vary based on asset class. These models incorporate available market information including quoted prices of securities
 
with similar characteristics and, because many fixed-income securities do not trade on a daily basis, apply available information through processes such as benchmark curves, benchmarking of like securities, sector grouping, and matrix pricing. In addition, model processes, such as an option adjusted spread model, is used to develop prepayment and interest rate scenarios for securities with prepayment features.
 
 
Hedged loans
 
Certain fixed rate loans have been converted to variable rate loans by entering into interest rate swap agreements. The fair value of those fixed rate loans is based on discounting the estimated cash flows using interest rates determined by the respective interest rate swap agreement. Loans are classified within Level 2 of the valuation hierarchy based on the unobservable inputs used.
 
Interest rate swap agreements
 
The fair value of the Company’s interest rate swap agreements is estimated by a third party using inputs that are primarily unobservable including a yield curve, adjusted for liquidity and credit risk, contracted terms and discounted cash flow analysis, and therefore, are classified within Level 2 of the valuation hierarchy.
 
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated financial statements measured at fair value on a recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at the following:
 
 
 
March 31, 2019
 
 
 
Fair Value
 
 
Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)
 
 
Significant

Other

Observable

Inputs

(Level 2)
 
 
Significant

Unobservable

Inputs

(Level 3)
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
13,995
 
 
$
—
 
 
$
13,995
 
 
$
—
 
State and municipal
 
 
249,760
 
 
 
—
 
 
 
249,760
 
 
 
—
 
Federal agency collateralized mortgage obligations
 
 
213,043
 
 
 
—
 
 
 
213,043
 
 
 
—
 
Federal agency mortgage-backed pools
 
 
192,265
 
 
 
—
 
 
 
192,265
 
 
 
—
 
Corporate notes
 
 
18,079
 
 
 
—
 
 
 
18,079
 
 
 
—
 
Total available for sale securities
 
 
687,142
 
 
 
—
 
 
 
687,142
 
 
 
—
 
Hedged loans
 
 
234,325
 
 
 
—
 
 
 
234,325
 
 
 
—
 
Forward sale commitments
 
 
392
 
 
 
—
 
 
 
392
 
 
 
—
 
Interest rate swap agreements
 
 
(6,958
)
 
 
—
 
 
 
(6,958
)
 
 
—
 
Commitments to originate loans
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
 
December 31, 2018
 
 
 
Fair Value
 
 
Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)
 
 
Significant

Other

Observable

Inputs

(Level 2)
 
 
Significant

Unobservable

Inputs

(Level 3)
 
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
16,608
 
 
$
—
 
 
$
16,608
 
 
$
—
 
State and municipal
 
 
209,303
 
 
 
—
 
 
 
209,303
 
 
 
—
 
Federal agency collateralized mortgage obligations
 
 
185,003
 
 
 
—
 
 
 
185,003
 
 
 
—
 
Federal agency mortgage-backed pools
 
 
178,736
 
 
 
—
 
 
 
178,736
 
 
 
—
 
Corporate notes
 
 
10,698
 
 
 
—
 
 
 
10,698
 
 
 
—
 
Total available for sale securities
 
 
600,348
 
 
 
—
 
 
 
600,348
 
 
 
—
 
Hedged loans
 
 
209,161
 
 
 
—
 
 
 
209,161
 
 
 
—
 
Forward sale commitments
 
 
135
 
 
 
—
 
 
 
135
 
 
 
—
 
Interest rate swap agreements
 
 
(1,801
)
 
 
—
 
 
 
(1,801
)
 
 
—
 
Commitments to originate loans
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Realized gains and losses included in net income for the periods are reported in the condensed consolidated statements of income as follows:
 
Non-interest Income
 
 
Three Months Ended
 
Total gains and losses from:
 
March 31, 2019
 
 
March 31, 2018
 
Hedged loans
 
$
(4,051
)
 
$
2,768
 
Fair value interest rate swap agreements
 
 
4,051
 
 
 
(2,768
)
Derivative loan commitments
 
 
257
 
 
 
112
 
 
 
$
257
 
 
$
112
 
 
Certain other assets are measured at fair value on a non-recurring basis in the ordinary course of business and are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment):
 
 
 
Fair Value
 
 
Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)
 
 
Significant

Other

Observable

Inputs

(Level 2)
 
 
Significant

Unobservable

Inputs

(Level 3)
 
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$
5,318
 
 
$
—
 
 
$
—
 
 
$
5,318
 
Mortgage servicing rights
 
 
13,366
 
 
 
—
 
 
 
—
 
 
 
13,366
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$
5,661
 
 
$
—
 
 
$
—
 
 
$
5,661
 
Mortgage servicing rights
 
 
12,349
 
 
 
—
 
 
 
—
 
 
 
12,349
 
 
Impaired (collateral dependent):
 Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.
 
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.
 
Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.
 
Mortgage Servicing Rights (MSRs):
MSRs do not trade in an active market with readily observable prices. Accordingly, the fair value of these assets is classified as Level 3. The Company determines the fair value of MSRs using an income approach model based upon the Company’s month-end interest rate curve and prepayment assumptions. The model utilizes assumptions to estimate future net servicing income cash flows, including estimates of time decay, payoffs and changes in valuation inputs and assumptions. The Company reviews the valuation assumptions against this market data for reasonableness and adjusts the assumptions if deemed appropriate. The carrying amount of the MSRs’ fair value due to impairment increased by $14,000 during the first three months of 2019 and decreased by $6,000 during the first three months of 2018.
 
The following table presents qualitative information about unobservable inputs used in recurring and non-recurring Level 3 fair value measurements, other than goodwill.
 
 
 
 
March 31, 2019
 
 
 
Fair
 
 
Valuation
 
 
Unobservable
 
 
Range
 
 
 
Value
 
 
Technique
 
 
Inputs
 
 
(Weighted Average)
 
Impaired loans
 
$
5,318
 
 
 
Collateral based measurement
 
 
 
Discount to reflect current market
conditions and ultimate collectability
 
 
 
0
%-
100
% (
14.7
%)
 
Mortgage servicing rights
 
 
13,366
 
 
 
Discounted cash flows
 
 
 
Discount rate,
Constant prepayment rate,
Probability of default
 
 
 
9.7%-10.0% (
9.7
%),
8.9%-21.8% (
9.0
%),
0.1%-3.1% (
0.6
%)
 
 
 
 
December 31, 2018
 
 
 
Fair
 
 
Valuation
 
 
Unobservable
 
 
Range
 
 
 
Value
 
 
Technique
 
 
Inputs
 
 
(Weighted Average)
 
Impaired loans
 
$
5,661
 
 
 
Collateral based
measurement
 
 
 
Discount to reflect current market
conditions and ultimate
collectability
 
 
 
0%-100% (
15.5
%)
 
Mortgage servicing rights
 
 
12,349
 
 
 
Discounted
cash flows
 
 
 
Discount rate,
Constant prepayment rate,
Probability of default
 
 
 
10.2%-11.0% (
10.3
%),
9.1%-21.9% (
9.3
%),
0.1%-2.8% (
0.6
%)