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DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS | 3 Months Ended
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Mar. 31, 2022
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS |
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS | NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which 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 value:
| ● | Quoted prices in active markets for identical assets or liabilities (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An active market for the asset is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
| ● | Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets, quoted prices for securities in inactive markets and inputs derived principally from or corroborated by observable market data by correlation or other means.
| ● | Significant unobservable inputs (Level 3): Inputs that reflect assumptions of a source independent of the reporting entity or the reporting entity’s own assumptions that are supported by little or no market activity or observable inputs.
Financial instruments are broken down by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, due to an event or circumstance, were required to be remeasured at fair value after initial recognition in the financial statements at some time during the reporting period. Recurring Measurements The following table presents the fair value measurements of assets recognized in the accompanying statements of financial condition measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at March 31, 2022 and December 31, 2021: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Fair value measurements using
​ | ​ | ​ | ​ | ​ | Quoted prices | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | in active | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | markets | ​ | Other | ​ | Significant
​ | ​ | ​ | ​ | ​ | for identical | ​ | observable | ​ | unobservable
​ | ​ | ​ | ​ | ​ | assets | ​ | inputs | ​ | inputs
​ |  | Fair value |  | (Level 1) |  | (Level 2) |  | (Level 3)
​ | ​ | (In Thousands)
March 31, 2022 | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |
Available-for-sale securities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Agency mortgage-backed securities | ​ | $ | 297,476 | ​ | $ | — | ​ | $ | 297,476 | ​ | $ | —
Agency collateralized mortgage obligations | ​ |  | 73,009 | ​ |  | — | ​ |  | 73,009 | ​ |  | —
States and political subdivisions securities | ​ |  | 40,997 | ​ |  | — | ​ |  | 40,997 | ​ |  | —
Small Business Administration securities | ​ |  | 49,893 | ​ |  | — | ​ |  | 49,893 | ​ |  | —
Interest rate derivative asset | ​ |  | 5,191 | ​ |  | — | ​ |  | 5,191 | ​ |  | —
Interest rate derivative liability | ​ |  | (9,112) | ​ |  | — | ​ |  | (9,112) | ​ |  | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
December 31, 2021 | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Available-for-sale securities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Agency mortgage-backed securities | ​ | $ | 229,441 | ​ | $ | — | ​ | $ | 229,441 | ​ | $ | —
Agency collateralized mortgage obligations | ​ |  | 204,277 | ​ |  | — | ​ |  | 204,277 | ​ |  | —
States and political subdivisions securities | ​ |  | 40,015 | ​ |  | — | ​ |  | 40,015 | ​ |  | —
Small Business Administration securities | ​ |  | 27,299 | ​ |  | — | ​ |  | 27,299 | ​ |  | —
Interest rate derivative asset | ​ |  | 2,816 | ​ |  | — | ​ |  | 2,816 | ​ |  | —
Interest rate derivative liability | ​ |  | (2,895) | ​ |  | — | ​ |  | (2,895) | ​ |  | —
​ The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at March 31, 2022 and December 31, 2021 as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the three-month period ended March 31, 2022. 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. Investment securities available-for-sale are recorded at fair value on a recurring basis. The fair values used by the Company are obtained from an independent pricing service, which represent either quoted market prices for the identical asset or fair values determined by pricing models, or other model-based valuation techniques, that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems. Recurring Level 2 securities include U.S. government agency securities, mortgage-backed securities, state and municipal bonds and certain other investments. Inputs used for valuing Level 2 securities include observable data that may include dealer quotes, benchmark yields, market spreads, live trading levels and market consensus prepayment speeds, among other things. Additional inputs include indicative values derived from the independent pricing service’s proprietary computerized models. There were no recurring Level 3 securities at March 31, 2022 or December 31, 2021. Interest Rate Derivatives. The fair value is estimated using forward-looking interest rate curves and is determined using observable market rates and, therefore, are classified within Level 2 of the valuation hierarchy. Nonrecurring Measurements The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and December 31, 2021: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Fair Value Measurements Using
​ | ​ | ​ | ​ | ​ | Quoted prices | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | in active | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | markets | ​ | Other | ​ | Significant
​ | ​ | ​ | ​ | ​ | for identical | ​ | observable | ​ | unobservable
​ | ​ | ​ | ​ | ​ | assets | ​ | inputs | ​ | inputs
​ |  | Fair value |  | (Level 1) |  | (Level 2) |  | (Level 3)
​ | ​ | (In Thousands)
March 31, 2022 | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |
Collateral-dependent loans | ​ | $ | 256 | ​ | $ | — | ​ | $ | — | ​ | $ | 256
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Foreclosed assets held for sale | ​ | $ | — | ​ | $ | — | ​ | $ | — | ​ | $ | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
December 31, 2021 | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Collateral-dependent loans | ​ | $ | 1,712 | ​ | $ | — | ​ | $ | — | ​ | $ | 1,712
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Foreclosed assets held for sale | ​ | $ | 315 | ​ | $ | — | ​ | $ | — | ​ | $ | 315
​ The following is a description of valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying statements of financial condition, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of carrying value or fair value. The fair value of mortgage loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies mortgage loans held for sale as Nonrecurring Level 2. Write-downs to fair value typically do not occur as the Company generally enters into commitments to sell individual mortgage loans at the time the loan is originated to reduce market risk. The Company typically does not have commercial loans held for sale. At March 31, 2022 and December 31, 2021, the aggregate fair value of mortgage loans held for sale was not materially different than their cost. Accordingly, no mortgage loans held for sale were marked down and reported at fair value. Collateral-Dependent Loans. The Company records collateral-dependent loans as Nonrecurring Level 3. If a loan’s fair value as estimated by the Company is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a reserve within the allowance for credit losses specific to the loan. Loans for which such charge-offs or reserves were recorded during the three months ended March 31, 2022 or the year ended December 31, 2021, are shown in the table above (net of reserves). Foreclosed Assets Held for Sale. Foreclosed assets held for sale are initially recorded at fair value less estimated cost to sell at the date of foreclosure. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy. The foreclosed assets represented in the table above have been re-measured during the three months ended March 31, 2022 or the year ended December 31, 2021, subsequent to their initial transfer to foreclosed assets. Fair Value of Financial Instruments The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying statements of financial condition at amounts other than fair value. Cash and Cash Equivalents and Federal Home Loan Bank Stock. The carrying amount approximates fair value. Held-to-Maturity Securities. Fair values for held-to-maturity securities are estimated based on quoted market prices of similar securities. For these securities, the Company obtains fair value measurements from an independent pricing service, which represent either quoted market prices for the identical asset or fair values determined by pricing models, or other model-based valuation techniques, that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems. These securities include U.S. government agency securities, mortgage-backed securities, state and municipal bonds and certain other investments. Loans and Interest Receivable. The fair value of loans is estimated on an exit price basis incorporating contractual cash flows, prepayments, discount spreads, credit losses and liquidity premiums. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest receivable approximates its fair value. Deposits and Accrued Interest Payable. The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date, i.e., their carrying amounts. The fair value of fixed maturity certificates of deposit is estimated through a discounted cash flow calculation using the average advances yield curve from 11 districts of the FHLB for the as of date. The carrying amount of accrued interest payable approximates its fair value. Short-Term Borrowings. The carrying amount approximates fair value. Subordinated Debentures Issued to Capital Trusts. The subordinated debentures have floating rates that reset quarterly. The carrying amount of these debentures approximates their fair value. Subordinated Notes. The fair values used by the Company are obtained from independent sources and are derived from quoted market prices of the Company’s subordinated notes and quoted market prices of other subordinated debt instruments with similar characteristics. Commitments to Originate Loans, Letters of Credit and Lines of Credit. The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The following table presents estimated fair values of the Company’s financial instruments not recorded at fair value on the statements of financial condition. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, 2022 |  |  | December 31, 2021
​ | ​ | Carrying | ​ | Fair | ​ | Hierarchy | ​ | Carrying | ​ | Fair | ​ | Hierarchy
​ |  | Amount |  | Value |  | Level |  | Amount |  | Value |  | Level
​ | ​ | (In Thousands)
Financial assets | ​ | ​ |  |  | ​ |  | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ |
Cash and cash equivalents | ​ | $ | 353,038 | ​ | $ | 353,038 |  | 1 | ​ | $ | 717,267 | ​ | $ | 717,267 |  | 1
Held-to-maturity securities | ​ | ​ | 227,441 | ​ | ​ | 220,188 | ​ | 2 | ​ | ​ | — | ​ | ​ | — | ​ | 2
Mortgage loans held for sale | ​ |  | 1,672 | ​ |  | 1,672 |  | 2 | ​ |  | 8,735 | ​ |  | 8,735 |  | 2
Loans, net of allowance for credit losses | ​ |  | 4,111,487 | ​ |  | 4,088,157 |  | 3 | ​ |  | 4,007,500 | ​ |  | 4,001,362 |  | 3
Interest receivable | ​ |  | 12,458 | ​ |  | 12,458 |  | 3 | ​ |  | 10,705 | ​ |  | 10,705 |  | 3
Investment in FHLBank stock and other assets | ​ |  | 6,564 | ​ |  | 6,564 |  | 3 | ​ |  | 6,655 | ​ |  | 6,655 |  | 3
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Financial liabilities | ​ |  | ​ | ​ |  | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ |  |
Deposits | ​ |  | 4,489,337 | ​ |  | 4,482,961 |  | 3 | ​ |  | 4,552,101 | ​ |  | 4,552,202 |  | 3
Short-term borrowings | ​ |  | 150,961 | ​ |  | 150,961 |  | 3 | ​ |  | 138,955 | ​ |  | 138,955 |  | 3
Subordinated debentures | ​ |  | 25,774 | ​ |  | 25,774 |  | 3 | ​ |  | 25,774 | ​ |  | 25,774 |  | 3
Subordinated notes | ​ |  | 74,058 | ​ |  | 77,250 |  | 2 | ​ |  | 73,984 | ​ |  | 81,000 |  | 2
Interest payable | ​ |  | 1,656 | ​ |  | 1,656 |  | 3 | ​ |  | 646 | ​ |  | 646 |  | 3
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Unrecognized financial instruments (net of contractual value) | ​ |  | ​ | ​ |  | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ |  |
Commitments to originate loans | ​ |  | — | ​ |  | — |  | 3 | ​ |  | — | ​ |  | — |  | 3
Letters of credit | ​ |  | 30 | ​ |  | 30 |  | 3 | ​ |  | 50 | ​ |  | 50 |  | 3
Lines of credit | ​ |  | — | ​ |  | — |  | 3 | ​ |  | — | ​ |  | — |  | 3
​

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- 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=123874694&loc=d3e19207-110258 + Details
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