XML 31 R22.htm IDEA: XBRL DOCUMENT
v3.22.2.2

Note 14 - Fair Value | 9 Months Ended
--- | ---
Sep. 30, 2022
Notes to Financial Statements |
Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block] | Note 14. Fair Value Financial Instruments Measured at Fair Value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows:
| ● | Level 1 – Observable, unadjusted quoted prices in active markets
| ● | Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability
| ● | Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions
The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period. 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 that are subject to a fair value hedge are reported at fair value derived from third-party models. Loans designated in 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:
|  | September 30, 2022 |
|  | 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 |  | $ | 1,488 |  |  | $ | - |  |  | $ | 1,488 |  |  | $ | - |
U.S. Treasury Notes |  |  | 156,460 |  |  |  | - |  |  |  | 156,460 |  |  |  | - |
Municipal securities |  |  | 23,061 |  |  |  | - |  |  |  | 23,061 |  |  |  | - |
Corporate Notes |  |  | 34,519 |  |  |  |  |  |  |  | 34,519 |  |  |  |  |
Agency mortgage-backed securities |  |  | 84,092 |  |  |  | - |  |  |  | 84,092 |  |  |  | - |
Total available-for-sale debt securities |  |  | 299,620 |  |  |  | - |  |  |  | 299,620 |  |  |  | - |
Equity securities |  |  | 55 |  |  |  | - |  |  |  | 55 |  |  |  | - |
Fair value loans |  |  | 3,950 |  |  |  | - |  |  |  | - |  |  |  | 3,950 |
Deferred compensation assets |  |  | 4,822 |  |  |  | 4,822 |  |  |  | - |  |  |  | - |
Deferred compensation liabilities |  |  | 4,822 |  |  |  | 4,822 |  |  |  | - |  |  |  | - |
|  | 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 |  |  |  | - |
Agency mortgage-backed 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 |  |  |  | - |
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:
|  | September 30, 2022 |
|  | Total |  |  | Fair Value Measurements Using |
|  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
(Amounts in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateral dependent assets with specific reserves |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
OREO |  | $ | 559 |  |  | $ | - |  |  | $ | - |  |  | $ | 559 |
|  | 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 |
Quantitative Information about Level 3 Fair Value Measurements The following tables 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 |  | September 30, 2022 |
Collateral dependent assets with specific reserves | Discounted appraisals(1) | Appraisal adjustments(2) |  |  | 0% to 0% (0%) |
OREO | Discounted appraisals(1) | Appraisal adjustments(2) |  |  | 10% to 95% (73%) |
(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, 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.
Fair Value of Financial Instruments The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. A description of valuation methodologies used for instruments not previously discussed is as follows: Cash and Cash Equivalents. Cash and cash equivalents fair value is estimated at their carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments. Accrued Interest Receivable/Payable. Accrued interest receivable/payable fair value is estimated at its carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments. Deposits and Securities Sold Under Agreements to Repurchase. Deposits and repurchase agreements with fixed maturities and rates are estimated at fair value using discounted future cash flows that apply interest rates available in the market for instruments with similar characteristics and maturities. FHLB and Other Borrowings. FHLB and other borrowings are estimated at fair value using discounted future cash flows that apply interest rates available to the Company for borrowings with similar characteristics and maturities. Off-Balance Sheet Instruments. The Company believes that fair values of unfunded commitments to extend credit, standby letters of credit, and financial guarantees are not meaningful; therefore, off-balance sheet instruments are not addressed in the fair value disclosures. The Company believes it is not feasible or practical to accurately disclose the fair values of off-balance sheet instruments due to the uncertainty and difficulty in assessing the likelihood and timing of advancing available proceeds, the lack of an established market for these instruments, and the diversity in fee structures. For additional information about the unfunded, contractual value of off-balance sheet financial instruments, see Note 14, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report. 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:
|  | September 30, 2022 |
|  | Carrying |  |  |  |  |  |  | Fair Value Measurements Using |
(Amounts in thousands) |  | Amount |  |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 229,095 |  |  | $ | 229,095 |  |  | $ | 229,095 |  |  | $ | - |  |  | $ | - |
Debt securities available for sale |  |  | 299,620 |  |  |  | 299,620 |  |  |  | - |  |  |  | 299,620 |  |  |  | - |
Equity securities |  |  | 55 |  |  |  | 55 |  |  |  | - |  |  |  | 55 |  |  |  | - |
Loans held for investment, net of allowance |  |  | 2,333,345 |  |  |  | 2,198,020 |  |  |  | - |  |  |  | - |  |  |  | 2,198,020 |
Derivative financial assets |  |  | 211 |  |  |  | 211 |  |  |  | - |  |  |  | 211 |  |  |  | - |
Interest receivable |  |  | 8,345 |  |  |  | 8,345 |  |  |  | - |  |  |  | 8,345 |  |  |  | - |
Deferred compensation assets |  |  | 4,822 |  |  |  | 4,822 |  |  |  | 4,822 |  |  |  | - |  |  |  | - |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Time deposits |  |  | 304,739 |  |  |  | 304,232 |  |  |  | - |  |  |  | 304,232 |  |  |  | - |
Securities sold under agreements to repurchase |  |  | 1,958 |  |  |  | 1,958 |  |  |  | - |  |  |  | 1,958 |  |  |  | - |
Interest payable |  |  | 180 |  |  |  | 180 |  |  |  | - |  |  |  | 180 |  |  |  | - |
Deferred compensation liabilities |  |  | 4,822 |  |  |  | 4,822 |  |  |  | 4,822 |  |  |  | - |  |  |  | - |
|  | 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 |  |  |  | - |

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

X
- 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 https://asc.fasb.org/topic&trid=2155941 + Details
Name: | us-gaap_FairValueMeasurementInputsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration