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Note 16 - Fair Value | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block] | Note 16. Fair Value Financial Instruments Measured at Fair Value The following discussion describes the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments under the valuation hierarchy. Assets and Liabilities Reported at Fair Value on a Recurring Basis Available-for-Sale Debt Securities. Debt securities available for sale are reported at fair value on a recurring basis. The fair value of Level 1 securities is based on quoted market prices in active markets, if available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are primarily derived from or corroborated by observable market data. Level 2 securities use fair value measurements from independent pricing services obtained by the Company. These fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and bond terms and conditions. The Company’s Level 2 securities include U.S. Agency and Treasury securities, municipal securities, and mortgage-backed securities. Securities are based on Level 3 inputs when there is limited activity or less transparency to the valuation inputs. In the absence of observable or corroborated market data, internally developed estimates that incorporate market-based assumptions are used when such information is available. Fair value models may be required when trading activity has declined significantly or does not exist, prices are not current, or pricing variations are significant. For Level 3 securities, the Company obtains the cash flow of specific securities from third parties that use modeling software to determine cash flows based on market participant data and knowledge of the structures of each individual security. The fair values of Level 3 securities are determined by applying proper market observable discount rates to the cash flow derived from third-party models. Discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity, which are based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Securities with increased uncertainty about the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium based on assumptions about the performance of the underlying collateral. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of specific markets and the general economic indicators. Equity Securities. Equity securities are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. The Company uses Level 1 inputs to value equity securities that are traded in active markets. Equity securities that are not actively traded are classified in Level 2. Loans Held for Investment. Loans held for investment are reported at fair value using the exit price notion, which is derived from third-party models. Loans related to fair value hedges are recorded at fair value on a recurring basis. Deferred Compensation Assets and Liabilities. Securities held for trading purposes are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. These securities include assets related to employee deferred compensation plans, which are generally invested in Level 1 equity securities. The liability associated with these deferred compensation plans is carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets. Derivative Assets and Liabilities. Derivatives are recorded at fair value on a recurring basis. The Company obtains dealer quotes, Level 2 inputs, based on observable data to value derivatives. The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
|  | December 31, 2021 |
|  | Total |  |  | Fair Value Measurements Using |
(Amounts in thousands) |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Available-for-sale debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Agency securities |  | $ | 466 |  |  | $ | — |  |  | $ | 466 |  |  | $ | — |
Municipal securities |  |  | 28,794 |  |  |  | — |  |  |  | 28,794 |  |  |  | — |
Corporate Notes |  |  | 9,919 |  |  |  | — |  |  |  | 9,919 |  |  |  | — |
Mortgage-backed Agency securities |  |  | 37,113 |  |  |  | — |  |  |  | 37,113 |  |  |  | — |
Total available-for-sale debt securities |  |  | 76,292 |  |  |  | — |  |  |  | 76,292 |  |  |  | — |
Equity securities |  |  | 55 |  |  |  | — |  |  |  | 55 |  |  |  | — |
Fair value loans |  |  | 13,106 |  |  |  | — |  |  |  | — |  |  |  | 13,106 |
Deferred compensation assets |  |  | 5,245 |  |  |  | 5,245 |  |  |  | — |  |  |  | — |
Deferred compensation liabilities |  |  | 5,245 |  |  |  | 5,245 |  |  |  | — |  |  |  | — |
Derivative liabilities |  |  | 837 |  |  |  | — |  |  |  | 837 |  |  |  | — |
|  | December 31, 2020 |
|  | Total |  |  | Fair Value Measurements Using |
(Amounts in thousands) |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Available-for-sale debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Agency securities |  | $ | 551 |  |  | $ | — |  |  | $ | 551 |  |  | $ | — |
Municipal securities |  |  | 44,459 |  |  |  | — |  |  |  | 44,459 |  |  |  | — |
Mortgage-backed Agency securities |  |  | 38,348 |  |  |  | — |  |  |  | 38,348 |  |  |  | — |
Total available-for-sale debt securities |  |  | 83,358 |  |  |  | — |  |  |  | 83,358 |  |  |  | — |
Equity securities |  |  | 55 |  |  |  | — |  |  |  | 55 |  |  |  | — |
Fair value loans |  |  | 17,831 |  |  |  | — |  |  |  | — |  |  |  | 17,831 |
Deferred compensation assets |  |  | 4,181 |  |  |  | 4,181 |  |  |  | — |  |  |  | — |
Deferred compensation liabilities |  |  | 4,181 |  |  |  | 4,181 |  |  |  | — |  |  |  | — |
Derivative liabilities |  |  | 1,131 |  |  |  | — |  |  |  | 1,131 |  |  |  | — |
Changes in Level 3 Fair Value Measurements The following table presents the changes in Level 3 assets recorded at fair value on a recurring basis during the period indicated:
|  | Assets |
(Amounts in thousands) |  |  |  |
Balance January 1, 2020 |  | $ | 17,942 |
Changes in fair value |  |  | 621 |
Changes due to principal reduction |  |  | (732 | )
Balance December 31, 2020 |  | $ | 17,831 |
Balance January 1, 2021 |  | $ | 17,831 |
Changes in fair value |  |  | (303 | )
Changes due to principal reduction |  |  | (4,422 | )
Balance December 31, 2021 |  | $ | 13,106 |
No transfers into or out of Level 3 of the fair value hierarchy occurred during the year ended December 31, 2021 or 2020. Assets Measured at Fair Value on a Nonrecurring Basis Impaired Loans. Prior to the adoption of ASU 2016-13, impaired loans were recorded at fair value on a nonrecurring basis when repayment is expected solely from the sale of the loan’s collateral. Fair value is based on appraised value adjusted for customized discounting criteria, Level 3 inputs. The Company maintains an active and robust problem credit identification system. The impairment review includes obtaining third-party collateral valuations to help management identify potential credit impairment and determine the amount of impairment to record. The Company’s Special Assets staff manages and monitors all impaired loans. Internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment. The internal valuation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs. The Company typically receives a third-party valuation within thirty to forty-five days of completing the internal valuation. When a third-party valuation is received, it is reviewed for reasonableness. Once the valuation is reviewed and accepted, discounts are applied to fair market value, based on, but not limited to, our historical liquidation experience for like collateral, resulting in an estimated net realizable value. The estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve. OREO. OREO is recorded at fair value on a nonrecurring basis using Level 3 inputs. The Company calculates the fair value of OREO from current or prior appraisals that have been adjusted for valuation declines, estimated selling costs, and other proprietary qualitative adjustments that are deemed necessary. The following tables present assets measured at fair value on a nonrecurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
|  | December 31, 2021 |
|  | Total |  |  | Fair Value Measurements Using |
|  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
(Amounts in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateral dependent assets with specific reserves |  | $ | 2,312 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,312 |
OREO |  |  | 1,015 |  |  |  | — |  |  |  | — |  |  |  | 1,015 |
|  | December 31, 2020 |
|  | Total |  |  | Fair Value Measurements Using |
|  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
(Amounts in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 979 |  |  | $ | — |  |  | $ | — |  |  | $ | 979 |
OREO |  |  | 2,083 |  |  |  | — |  |  |  | — |  |  |  | 2,083 |
Quantitative Information about Level 3 Fair Value Measurements The following table provides quantitative information for assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs as of the dates indicated:
|  |  |  |  | Discount Range |
| Valuation |  | Unobservable |  | (Weighted Average) |
| Technique |  | Input |  | December 31, 2021 |
Collateral dependent assets with specific reserves | Discounted appraisals(1) |  | Appraisal adjustments(2) |  |  | 0% to 11% | (6)% |
OREO | Discounted appraisals(1) |  | Appraisal adjustments(2) |  |  | 0% to 87% | (32)% |
(1) | Fair value is generally based on appraisals of the underlying collateral.
(2) | Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.
|  |  |  |  | Discount Range |
| Valuation |  | Unobservable |  | (Weighted Average) |
| Technique |  | Input |  | December 31, 2020 |
Impaired loans | Discounted appraisals(1) |  | Appraisal adjustments(2) |  |  | 22% to 38% | (30 | )%
OREO | Discounted appraisals(1) |  | Appraisal adjustments(2) |  |  | 8% to 77% | (25 | )%
(1) | Fair value is generally based on appraisals of the underlying collateral.
(2) | Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.
The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
|  | December 31, 2021 |
|  | Carrying |  |  |  |  |  |  | Fair Value Measurements Using |
(Amounts in thousands) |  | Amount |  |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 677,439 |  |  | $ | 677,439 |  |  | $ | 677,439 |  |  | $ | — |  |  | $ | — |
Debt securities available for sale |  |  | 76,292 |  |  |  | 76,292 |  |  |  | — |  |  |  | 76,292 |  |  |  | — |
Equity securities |  |  | 55 |  |  |  | 55 |  |  |  | — |  |  |  | 55 |  |  |  | — |
Loans held for investment, net of allowance |  |  | 2,137,711 |  |  |  | 2,108,513 |  |  |  | — |  |  |  | — |  |  |  | 2,108,513 |
Interest receivable |  |  | 7,900 |  |  |  | 7,900 |  |  |  | — |  |  |  | 7,900 |  |  |  | — |
Deferred compensation assets |  |  | 5,245 |  |  |  | 5,245 |  |  |  | 5,245 |  |  |  | — |  |  |  | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Time deposits |  |  | 354,863 |  |  |  | 352,000 |  |  |  | — |  |  |  | 352,000 |  |  |  | — |
Securities sold under agreements to repurchase |  |  | 1,536 |  |  |  | 1,536 |  |  |  | — |  |  |  | 1,536 |  |  |  | — |
Interest payable |  |  | 314 |  |  |  | 314 |  |  |  | — |  |  |  | 314 |  |  |  | — |
Deferred compensation liabilities |  |  | 5,245 |  |  |  | 5,245 |  |  |  | 5,245 |  |  |  | — |  |  |  | — |
Derivative liabilities |  |  | 837 |  |  |  | 837 |  |  |  | — |  |  |  | 837 |  |  |  | — |
|  | December 31, 2020 |
|  | Carrying |  |  |  |  |  |  | Fair Value Measurements Using |
(Amounts in thousands) |  | Amount |  |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 456,561 |  |  | $ | 456,561 |  |  | $ | 456,561 |  |  | $ | — |  |  | $ | — |
Debt securities available for sale |  |  | 83,358 |  |  |  | 83,358 |  |  |  | — |  |  |  | 83,358 |  |  |  | — |
Equity securities |  |  | 55 |  |  |  | 55 |  |  |  | — |  |  |  | 55 |  |  |  | — |
Loans held for sale |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Loans held for investment, net of allowance |  |  | 2,160,450 |  |  |  | 2,126,221 |  |  |  | — |  |  |  | — |  |  |  | 2,126,221 |
FDIC indemnification asset |  |  | 1,223 |  |  |  | 509 |  |  |  | — |  |  |  | — |  |  |  | 509 |
Interest receivable |  |  | 9,052 |  |  |  | 9,052 |  |  |  | — |  |  |  | 9,052 |  |  |  | — |
Deferred compensation assets |  |  | 4,181 |  |  |  | 4,181 |  |  |  | 4,181 |  |  |  | — |  |  |  | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Time deposits |  |  | 420,619 |  |  |  | 423,120 |  |  |  | — |  |  |  | 423,120 |  |  |  | — |
Securities sold under agreements to repurchase |  |  | 964 |  |  |  | 964 |  |  |  | — |  |  |  | 964 |  |  |  | — |
Interest payable |  |  | 582 |  |  |  | 582 |  |  |  | — |  |  |  | 582 |  |  |  | — |
Deferred compensation liabilities |  |  | 4,181 |  |  |  | 4,181 |  |  |  | 4,181 |  |  |  | — |  |  |  | — |
Derivative liabilities |  |  | 1,131 |  |  |  | 1,131 |  |  |  | — |  |  |  | 1,131 |  |  |  | — |

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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