XML 30 R19.htm IDEA: XBRL DOCUMENT v3.21.1
FAIR VALUE
 3 Months Ended
Mar. 31, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE FAIR VALUE
Fair value is the exchange price that would be received for 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 on the measurement date. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are:
Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.
Level 2 – significant other observable inputs other than Level 1 prices such as prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – at least one significant unobservable input that reflects a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
In instances in which multiple levels of inputs are used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company used the following methods and significant assumptions to estimate fair value for instruments measured on a recurring basis:
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, securities are classified within Level 2 and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flow. Level 2 securities include U.S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. All of the Company’s securities are classified as available for sale.
The Company had no liabilities measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020.
The following table summarizes assets measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020:
Level 1Level 2Level 3Total Fair
Value
Measurements
March 31, 2021
Investment securities:
States and political subdivisions$— $124,611 $9,062 $133,673 
GSE residential MBSs— 7,861 — 7,861 
GSE residential CMOs— 40,162 — 40,162 
Nonagency CMOs— — 16,502 16,502 
Asset-backed— 209,104 — 209,104 
Other388 — — 388 
Loans held for sale— 11,449 — 11,449 
Interest rate swaps— 390 — 390 
Interest rate lock commitments on residential mortgages— — 672 672 
Totals$388 $393,577 $26,236 $420,201 
December 31, 2020
Investment securities:
States and political subdivisions$— $103,591 $9,079 $112,670 
GSE residential MBSs— 4,293 — 4,293 
GSE residential CMOs— 58,011 — 58,011 
Nonagency CMOs— — 16,918 16,918 
Private label commercial CMOs— 56,730 5,506 62,236 
Asset-backed— 211,966 — 211,966 
Other371 — — 371 
Loans held for sale— 11,734 — 11,734 
Interest rate swaps— 690 — 690 
Interest rate lock commitments on residential mortgages— — 673 673 
Totals$371 $447,015 $32,176 $479,562 

The Company has a municipal bond measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, 2021. At December 31, 2020, this municipal bond as well as three CMOs were measured on a recurring basis using Level 3 unobservable inputs. One of the CMOs was sold and one was called in the three months ended March 31, 2021. The Level 3 valuation is based on a non-executable broker quote, which is considered a significant unobservable input. Such quotes are updated as available and may remain constant for a period of time for certain broker-quoted securities that do not move with the market or that are not interest rate sensitive as a result of their structure or overall attributes.
The Company’s residential mortgage loans held for sale are recorded at fair value utilizing Level 2 measurements. This fair value measurement is determined based upon third party quotes obtained on similar loans. For loans held for sale for which the fair value option has been elected, the aggregate fair value exceeded the aggregate principal balance by $174 thousand as of March 31, 2021.
The determination of the fair value of interest rate lock commitments on residential mortgages is based on agreed upon pricing with the respective investor on each loan and includes a pull through percentage. The pull through percentage represents an estimate of loans in the pipeline to be delivered to an investor versus the total loans committed for delivery. Significant changes in this input could result in a significantly higher or lower fair value measurement. As the pull through percentage is a significant unobservable input, this is deemed a Level 3 valuation input. The average pull through percentage, which is based upon historical experience, was 90% as of March 31, 2021. An increase or decrease of 5% in the pull through assumption would result in a positive or negative change of $29 thousand in the fair value of interest rate lock commitments at March 31, 2021.
The following provides details of the Level 3 fair value measurement activity for the periods ended March 31, 2021 and 2020:
Investment securities:
Three Months Ended March 31,
20212020
Balance, beginning of period$31,503 $24,279 
Unrealized gain (loss) included in OCI(665)(961)
Principal payments and other(1,729)(68)
Sales(3,545)— 
Balance, end of period$25,564 $23,250 

Interest rate lock commitments on residential mortgages:
Three Months Ended March 31,
20212020
Balance, beginning of period$673 $103 
Total gains
Included in earnings(1)332 
Balance, end of period$672 $435 

Certain financial assets are measured at fair value on a nonrecurring basis. Adjustments to the fair value of these assets usually results from the application of lower of cost or market accounting or write-downs of individual assets. The Company used the following methods and significant assumptions to estimate fair value for these financial assets.
Impaired Loans
Loans are designated as impaired when, in the judgment of management and based on current information and events, it is probable that all amounts due, according to the contractual terms of the loan agreement, will not be collected. The measurement of loss associated with impaired loans for all loan classes can be based on either the observable market price of the loan, the fair value of the collateral, or discounted cash flows using the rate of return implicit in the original loan for TDRs. For collateral-dependent loans, fair value is measured based on the value of the collateral securing the loan, less estimated costs to sell. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The value of the real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction, or if management adjusts the appraisal value, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal, if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). Impaired loans with an allocation to the ALL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the unaudited condensed consolidated statements of income.
Any changes in the fair value of impaired loans still held were not material for the three months ended March 31, 2021 and 2020.
Foreclosed Real Estate
OREO property acquired through foreclosure is initially recorded at the fair value of the property at the transfer date less estimated selling cost. Subsequently, OREO is carried at the lower of its carrying value or the fair value less estimated selling
cost. Fair value is usually determined based upon an independent third-party appraisal of the property or occasionally upon a recent sales offer. The Company had no OREO balances at March 31, 2021 and December 31, 2020.
Mortgage Servicing Rights
The MSR fair value is estimated to be equal to its carrying value, unless the quarterly valuation model calculates the present value of the estimated net servicing income is less than its carrying value, in which case an impairment charge is taken. At March 31, 2021 and December 31, 2020, an impairment reserve of $460 thousand and $1.1 million, respectively, existed on the mortgage servicing right portfolio. For the three months ended March 31, 2021 and 2020, an impairment valuation allowance reversal of $606 thousand and an impairment charge of $501 thousand, respectively, were included in mortgage banking activities on the unaudited condensed consolidated statements of income. The impairment charges resulted from rapidly declining market rates caused by the COVID-19 pandemic. The reversal in the three months ended March 31, 2021 was due to a subsequent increase in market rates.
The following table summarizes assets measured at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020:
Level 1Level 2Level 3Total
Fair Value
Measurements
March 31, 2021
Impaired Loans
Commercial real estate:
Owner occupied$— $— $824 $824 
Non-owner occupied residential— — 33 33 
Commercial and industrial— — 9 9 
Residential mortgage:
First lien— — 629 629 
Home equity - lines of credit— — 85 85 
Total impaired loans$— $— $1,580 $1,580 
Mortgage servicing rights$— $— $3,449 $3,449 
December 31, 2020
Impaired Loans
Commercial real estate:
Owner occupied$— $— $846 $846 
Non-owner occupied residential— — 36 36 
Commercial and industrial— — 12 12 
Residential mortgage:
First lien— — 638 638 
Home equity - lines of credit— — 89 89 
Total impaired loans$— $— $1,621 $1,621 
Mortgage servicing rights$— $— $2,745 $2,745 
The following table presents additional qualitative information about assets measured on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
Fair Value
Estimate		Valuation
Techniques		Unobservable InputRange
March 31, 2021
Impaired loans$1,580 Appraisal of collateralManagement adjustments on appraisals for property type and recent activity
5% - 25% discount
 - Management adjustments for liquidation expenses
6% - 19% discount
Mortgage servicing rights$3,449 Discounted cash flowsWeighted average CPR14.65%
 - Weighted average discount rate9.05%
December 31, 2020
Impaired loans$1,621 Appraisal of collateralManagement adjustments on appraisals for property type and recent activity
5% - 25% discount
 - Management adjustments for liquidation expenses
6% - 19% discount
Mortgage servicing rights$2,745 Discounted cash flowsWeighted average CPR18.02%
- Weighted average discount rate9.56%
Fair values of financial instruments
The following table presents carrying amounts and estimated fair values of the Company’s financial instruments at March 31, 2021 and December 31, 2020:
Carrying
Amount		Fair ValueLevel 1Level 2Level 3
March 31, 2021
Financial Assets
Cash and due from banks$27,600 $27,600 $27,600 $— $— 
Interest-bearing deposits with banks298,645 298,645 298,645 — — 
Restricted investments in bank stocks10,307 n/an/an/an/a
Investment securities407,690 407,690 388 381,738 25,564 
Loans held for sale11,449 11,449 — 11,449 — 
Loans, net of allowance for loan losses2,026,054 2,021,322 — — 2,021,322 
Interest rate lock commitments on residential mortgages672 672 — — 672 
Interest rate swaps390 390 — 390 — 
Accrued interest receivable9,070 9,070 — 1,810 7,260 
Financial Liabilities
Deposits2,547,089 2,548,974 — 2,548,974 — 
Securities sold under agreements to repurchase22,794 22,794 — 22,794 — 
FHLB advances and other57,942 58,159 — 58,159 — 
Subordinated notes31,918 33,400 — 33,400 — 
Interest rate swaps781 781 — 781 — 
Accrued interest payable683 683 — 683 — 
December 31, 2020
Financial Assets
Cash and due from banks$26,203 $26,203 $26,203 $— $— 
Interest-bearing deposits with banks99,055 99,055 99,055 — — 
Restricted investments in bank stocks10,563 n/an/an/an/a
Investment securities466,465 466,465 371 434,591 31,503 
Loans held for sale11,734 11,734 — 11,734 — 
Loans, net of allowance for loan losses1,959,539 1,953,860 — — 1,953,860 
Interest rate lock commitments on residential mortgages673 673 — — 673 
Interest rate swaps690 690 — 690 — 
Accrued interest receivable8,927 8,927 — 1,529 7,398 
Financial Liabilities
Deposits2,356,880 2,359,317 — 2,359,317 — 
Securities sold under agreements to repurchase19,466 19,466 — 19,466 — 
FHLB advances and other58,045 58,298 — 58,298 — 
Subordinated notes31,903 31,712 — 31,712 — 
Interest rate swaps1,956 1,956 — 1,956 — 
Accrued interest payable238 238 — 238 — 

The methods used to estimate the fair value of financial instruments at March 31, 2021 did not necessarily represent an exit price. In accordance with the Company's adoption of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, the methods utilized to measure the fair value of financial instruments at March 31, 2021 represents an approximation of exit price; however, an actual exit price may differ.