XML 37 R26.htm IDEA: XBRL DOCUMENT
v3.20.2

FAIR VALUE OF FINANCIAL INSTRUMENTS | 9 Months Ended
--- | ---
Sep. 30, 2020
FAIR VALUE OF FINANCIAL INSTRUMENTS |
FAIR VALUE OF FINANCIAL INSTRUMENTS | NOTE 17 – FAIR VALUE OF FINANCIAL INSTRUMENTS Recurring Basis The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Additional information on fair value measurements are summarized in Note 1 to the Company’s annual consolidated financial statements included in the Annual Report on Form 10-K filed with the SEC on March 27, 2020. There were no transfers between levels during the three and nine months ended September 30, 2020 and 2019. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels. The following tables present the balances of the assets measured at fair value on a recurring basis:
September 30, 2020 |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
|  |  | (dollars in thousands)
Debt securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency |  | $ | — |  | $ | 104,326 |  | $ | — |  | $ | 104,326
Municipal |  |  | — |  |  | 240,410 |  |  | — |  |  | 240,410
Mortgage-backed: |  |  |  |  |  |  |  |  |  |  |  |
Agency residential |  |  | — |  |  | 226,317 |  |  | — |  |  | 226,317
Agency commercial |  |  | — |  |  | 171,072 |  |  | — |  |  | 171,072
Corporate |  |  | — |  |  | 72,673 |  |  | — |  |  | 72,673
Equity securities with readily determinable fair values |  |  | 3,262 |  |  | — |  |  | — |  |  | 3,262
Mortgage servicing rights |  |  | — |  |  | — |  |  | 5,571 |  |  | 5,571
Derivative financial assets |  |  | — |  |  | 21,568 |  |  | — |  |  | 21,568
Derivative financial liabilities |  |  | — |  |  | 23,140 |  |  | — |  |  | 23,140
December 31, 2019 |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
|  |  | (dollars in thousands)
Debt securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency |  | $ | — |  | $ | 49,615 |  | $ | — |  | $ | 49,615
Municipal |  |  | — |  |  | 133,738 |  |  | — |  |  | 133,738
Mortgage-backed: |  |  |  |  |  |  |  |  |  |  |  |
Agency residential |  |  | — |  |  | 200,678 |  |  | — |  |  | 200,678
Agency commercial |  |  | — |  |  | 134,954 |  |  | — |  |  | 134,954
Corporate |  |  | — |  |  | 73,419 |  |  | — |  |  | 73,419
Equity securities with readily determinable fair values |  |  | 3,241 |  |  | — |  |  | — |  |  | 3,241
Mortgage servicing rights |  |  | — |  |  | — |  |  | 8,518 |  |  | 8,518
Derivative financial assets |  |  | — |  |  | 8,642 |  |  | — |  |  | 8,642
Derivative financial liabilities |  |  | — |  |  | 9,318 |  |  | — |  |  | 9,318
The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. There were no changes to the valuation techniques from December 31, 2019 to September 30, 2020. Investment Securities When available, the Company uses quoted market prices to determine the fair value of securities; such items are classified in Level 1 of the fair value hierarchy. For the Company’s securities where quoted prices are not available for identical securities in an active market, the Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2. However, when prices from independent sources vary, cannot be obtained or cannot be corroborated, a security is generally classified as Level 3. The change in fair value of debt securities available-for-sale is recorded through an adjustment to the consolidated statement of comprehensive income. The change in fair value of equity securities with readily determinable fair values is recorded through an adjustment to the consolidated statement of income. Derivative Financial Instruments Interest rate swap agreements are carried at fair value as determined by dealer valuation models. Based on the inputs used, the derivative financial instruments subjected to recurring fair value adjustments are classified as Level 2. For derivative financial instruments designated as a hedging instruments, the change in fair value is recorded through an adjustment to the consolidated statement of comprehensive income. For derivative financial instruments not designated as a hedging instruments, the change in fair value is recorded through an adjustment to the consolidated statement of income. Mortgage Servicing Rights The Company has elected to record its mortgage servicing rights at fair value. Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced as calculated by an independent third party. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds and discount rates. Due to the nature of the valuation inputs, mortgage servicing rights are classified as Level 3. The change in fair value is recorded through an adjustment to the consolidated statement of income. The following tables present additional information about the unobservable inputs used in the fair value measurement of the mortgage servicing rights (dollars in thousands):
September 30, 2020 |  | Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
Mortgage servicing rights |  | $ | 5,571 |  | Discounted cash flows |  | Constant pre-payment rates (CPR) |  | 7.0% to 85.0% (18.2%)
|  |  |  |  |  |  | Discount rate |  | 9.0% to 11.0% (9.0%)
December 31, 2019 |  | Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
Mortgage servicing rights |  | $ | 8,518 |  | Discounted cash flows |  | Constant pre-payment rates (CPR) |  | 7.0% to 68.5% (12.3%)
|  |  |  |  |  |  | Discount rate |  | 9.0% to 11.0% (9.0%)
Nonrecurring Basis Certain assets are measured at fair value on a nonrecurring basis. 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 there is evidence of impairment or a change in the amount of previously recognized impairment. The following tables present the balances of the assets measured at fair value on a nonrecurring basis:
September 30, 2020 |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
|  |  | (dollars in thousands)
Loans held for sale |  | $ | — |  | $ | 23,723 |  | $ | — |  | $ | 23,723
Collateral-dependent impaired loans |  |  | — |  |  | — |  |  | 16,209 |  |  | 16,209
Bank premises held for sale |  |  | — |  |  | — |  |  | 121 |  |  | 121
Foreclosed assets |  |  | — |  |  | — |  |  | 3,857 |  |  | 3,857
December 31, 2019 |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
|  |  | (dollars in thousands)
Loans held for sale |  | $ | — |  | $ | 4,531 |  | $ | — |  | $ | 4,531
Collateral-dependent impaired loans |  |  | — |  |  | — |  |  | 15,811 |  |  | 15,811
Bank premises held for sale |  |  | — |  |  | — |  |  | 121 |  |  | 121
Foreclosed assets |  |  | — |  |  | — |  |  | 5,099 |  |  | 5,099
Loans Held for Sale Mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically, these quotes include a premium on the sale and thus these quotes indicate fair value of the held for sale loans is greater than cost. Collateral-Dependent Impaired Loans In accordance with the provisions of the loan impairment guidance, impairment was measured for loans which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The fair value of collateral-dependent impaired loans is estimated based on the fair value of the underlying collateral supporting the loan. Collateral-dependent impaired loans require classification in the fair value hierarchy. Impaired loans include loans acquired with deteriorated credit quality. Collateral values are estimated using Level 3 inputs based on customized discounting criteria. Bank Premises Held for Sale Bank premises held for sale are recorded at the lower of cost or fair value, less estimated selling costs, at the date classified as held for sale. Values are estimated using Level 3 inputs based on appraisals and customized discounting criteria. The carrying value of bank premises held for sale is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. Foreclosed Assets Foreclosed assets are recorded at fair value based on property appraisals, less estimated selling costs, at the date of the transfer. Subsequent to the transfer, foreclosed assets are carried at the lower of cost or fair value, less estimated selling costs. Values are estimated using Level 3 inputs based on appraisals and customized discounting criteria. The carrying value of foreclosed assets is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. Collateral-Dependent Impaired Loans, Bank Premises Held for Sale, and Foreclosed Assets The estimated fair value of collateral-dependent impaired loans, bank premises held for sale, and foreclosed assets is based on the appraised fair value of the collateral, less estimated costs to sell. Collateral-dependent impaired loans, bank premises held for sale, and foreclosed assets are classified within Level 3 of the fair value hierarchy. The Company considers the appraisal or a similar 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 or a similar evaluation of the collateral underlying collateral-dependent loans and foreclosed assets are obtained at the time a loan is first considered impaired or a loan is transferred to foreclosed assets. Appraisals or a similar evaluation of bank premises held for sale are obtained when first classified as held for sale. Appraisals or similar evaluations are obtained subsequently as deemed necessary by management but at least annually on foreclosed assets and bank premises held for sale. Appraisals are reviewed for accuracy and consistency by management. Appraisals are performed by individuals selected from the list of approved appraisers maintained by management. The appraised values are reduced by estimated costs to sell. These discounts and estimates are developed by management by comparison to historical results. The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements (dollars in thousands):
September 30, 2020 |  | Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
Collateral-dependent impaired loans |  | $ | 16,209 |  | Appraisal of collateral |  | Appraisal adjustments |  | Not meaningful
Bank premises held for sale |  |  | 121 |  | Appraisal |  | Appraisal adjustments |  | 7% (7%)
Foreclosed assets |  |  | 3,857 |  | Appraisal |  | Appraisal adjustments |  | 7% (7%)
December 31, 2019 |  | Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
Collateral-dependent impaired loans |  | $ | 15,811 |  | Appraisal of collateral |  | Appraisal adjustments |  | Not meaningful
Bank premises held for sale |  |  | 121 |  | Appraisal |  | Appraisal adjustments |  | 7% (7%)
Foreclosed assets |  |  | 5,099 |  | Appraisal |  | Appraisal adjustments |  | 7% (7%)
Other Fair Value Methods The following methods and assumptions were used by the Company in estimating fair value disclosures of its other financial instruments. There were no changes in the methods and significant assumptions used to estimate the fair value of these financial instruments. Cash and Cash Equivalents The carrying amounts of these financial instruments approximate their fair values. Interest-bearing Time Deposits with Banks The carrying values of interest-bearing time deposits with banks approximate their fair values. Restricted Stock The carrying amount of FHLB stock approximates fair value based on the redemption provisions of the FHLB. Loans The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent with discounts in the market place. Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type such as commercial and industrial, agricultural and farmland, commercial real estate - owner occupied, commercial real estate - non-owner occupied, multi-family, construction and land development, one-to-four family residential, and municipal, consumer, and other. 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 similar maturities. The fair value analysis also includes other assumptions to estimate fair value, intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate. Investments in Unconsolidated Subsidiaries The fair values of the Company’s investments in unconsolidated subsidiaries are presumed to approximate carrying amounts. Time Deposits Fair values of certificates of deposit with stated maturities have been estimated using the present value of estimated future cash flows discounted at rates currently offered for similar instruments. Time deposits also include public funds time deposits. Securities Sold Under Agreements to Repurchase The fair values of repurchase agreements with variable interest rates are presumed to approximate their recorded carrying amounts. Subordinated Notes The fair values of subordinated notes are estimated using discounted cash flow analyses based on rates observed on recent debt issuances by other financial institutions. Junior Subordinated Debentures The fair values of subordinated debentures are estimated using discounted cash flow analyses based on rates observed on recent debt issuances by other financial institutions. Accrued Interest The carrying amounts of accrued interest approximate fair value. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant 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. Fair values have been estimated using data which management considered the best available and estimation methodologies deemed suitable for the pertinent category of financial instrument. The following table provides summary information on the carrying amounts and estimated fair values of the Company’s financial instruments:
|  | Fair Value |  | September 30, 2020 |  | December 31, 2019
|  | Hierarchy |  | Carrying |  | Estimated |  | Carrying |  | Estimated
|  | Level |  | Amount |  | Fair Value |  | Amount |  | Fair Value
|  |  |  |  | (dollars in thousands)
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | Level 1 |  | $ | 236,724 |  | $ | 236,724 |  | $ | 283,971 |  | $ | 283,971
Interest-bearing time deposits with banks |  | Level 1 |  |  | — |  |  | — |  |  | 248 |  |  | 248
Debt securities held-to-maturity |  | Level 2 |  |  | 74,510 |  |  | 78,891 |  |  | 88,477 |  |  | 90,529
Restricted stock |  | Level 3 |  |  | 2,498 |  |  | 2,498 |  |  | 2,425 |  |  | 2,425
Loans, net |  | Level 3 |  |  | 2,247,985 |  |  | 2,269,402 |  |  | 2,141,527 |  |  | 2,181,103
Investments in unconsolidated subsidiaries |  | Level 3 |  |  | 1,165 |  |  | 1,165 |  |  | 1,165 |  |  | 1,165
Accrued interest receivable |  | Level 2 |  |  | 13,820 |  |  | 13,820 |  |  | 13,951 |  |  | 13,951
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Time deposits |  | Level 3 |  |  | 307,907 |  |  | 309,806 |  |  | 356,408 |  |  | 355,340
Securities sold under agreements to repurchase |  | Level 2 |  |  | 45,438 |  |  | 45,438 |  |  | 44,433 |  |  | 44,433
Subordinated notes |  | Level 3 |  |  | 39,218 |  |  | 39,999 |  |  | — |  |  | —
Junior subordinated debentures |  | Level 3 |  |  | 37,632 |  |  | 24,844 |  |  | 37,583 |  |  | 31,959
Accrued interest payable |  | Level 2 |  |  | 819 |  |  | 819 |  |  | 1,132 |  |  | 1,132
The Company estimated the fair value of lending related commitments as described in Note 18 to be immaterial based on limited interest rate exposure due to their variable nature, short-term commitment periods and termination clauses provided in the agreements.

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration