XML 29 R18.htm IDEA: XBRL DOCUMENT v3.22.2
Fair Value Measurements
 6 Months Ended
Jun. 30, 2022
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Note 10 – Fair Value Measurements

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time of our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our 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 value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

The methods of determining the fair value of assets and liabilities presented in this footnote are consistent with our methodologies disclosed in Note 1 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of the 2021 Form 10-K.

Assets Measured on a Recurring Basis

As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We classified investments in government securities as Level II instruments and valued them using the market approach.

The following measurements are made on a recurring basis:

Available-for-sale investment securities – Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level I securities include those traded on an active exchange, such as the New York Stock Exchange and money market funds. Level II securities include mortgage-backed securities issued by government-sponsored entities and private label entities, municipal bonds, United States Treasury securities that are traded by dealers or brokers in inactive over-the-counter markets and corporate debt securities. There have been no changes in valuation techniques for the three and six months ended June 30, 2022. Valuation techniques are consistent with techniques used in prior periods. Certain local municipal securities related to tax increment financing (“TIF”) are independently valued and classified as Level III instruments. We classified investments in government securities as Level II instruments and valued them using the market approach.

Equity securities – Certain equity securities are recorded at fair value on both a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. The valuation methodologies utilized may include significant unobservable inputs. There have been no changes in valuation techniques for the three and six months ended June 30, 2022. Valuation techniques are consistent with techniques used in prior periods.

Interest rate swap – Interest rate swaps are recorded at fair value based on third-party vendors who compile prices from various sources and may determine the fair value of identical or similar instruments by using pricing models that consider observable market data.

Fair value hedge – Treated like an interest rate swap, fair value hedges are recorded at fair value based on third-party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.

Loans held-for-sale - The fair value of loans held-for-sale is determined, when possible, using quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants. If the fair value at the reporting date exceeds the amortized cost of a loan, the loan is reported at amortized cost.

Bank-owned life insurance - Life insurance where the bank is both the policy beneficiary and owner. Bank-owned life insurance ("BOLI") is recorded at fair value on a recurring basis, and increases in cash surrender, contract value and net insurance proceeds at maturity are recorded as other income.
The following tables present assets and liabilities reported on the consolidated statements of financial condition at their fair value on a recurring basis as of the periods shown by level within the fair value hierarchy:
 June 30, 2022
(Dollars in thousands)Level ILevel IILevel IIITotal
Assets:
United States government agency securities$— $49,711 $— $49,711 
United States sponsored mortgage-backed securities— 63,068 — 63,068 
United States treasury securities— 104,280 — 104,280 
Municipal securities— 107,489 37,035 144,524 
Corporate debt securities— 6,794 — 6,794 
Other securities— 855 — 855 
Equity securities264 — — 264 
Loans held-for-sale— 11,856 — 11,856 
Interest rate swap— 4,398 — 4,398 
Fair value hedge— 204 — 204 
Bank-owned life insurance— 42,744 — 42,744 
Liabilities:
Interest rate swap— 4,398 — 4,398 
Fair value hedge— (142)— (142)
 December 31, 2021
(Dollars in thousands)Level ILevel IILevel IIITotal
Assets:
United States government agency securities$— $40,437 $— $40,437 
United States sponsored mortgage-backed securities— 76,108 — 76,108 
United States treasury securities— 110,389 — 110,389 
Municipal securities— 133,249 41,763 175,012 
Corporate debt securities— 11,142 — 11,142 
Other debt securities— 7,500 — 7,500 
Other securities— 878 — 878 
Equity securities247 — — 247 
Interest rate swap— 6,702 — 6,702 
Fair value hedge— 1,552 — 1,552 
Bank-owned life insurance— 42,257 — 42,257 
Liabilities:
Interest rate swap— 6,702 — 6,702 
Fair value hedge— 807 — 807 
The following table represents recurring Level III assets, consisting of only municipal securities, as of the periods shown:
(Dollars in thousands)Total
Balance at March 31, 2022$39,668 
Realized and unrealized gains included in earnings1 
Purchase of securities186 
Maturities/calls(785)
Unrealized loss included in other comprehensive income (loss)(2,035)
Balance at June 30, 2022$37,035 
Balance at December 31, 2021$41,763 
Realized and unrealized gains included in earnings8 
Purchase of securities1,048 
Maturities/calls(3,075)
Unrealized loss included in other comprehensive income (loss)(2,709)
Balance at June 30, 2022$37,035 
Balance at March 31, 2021$40,272 
Realized and unrealized losses included in earnings1 
Purchase of securities627 
Maturities/calls(1,241)
Unrealized gain included in other comprehensive income (loss)3,293 
Unrealized loss included in other comprehensive income (loss)(3,182)
Balance at June 30, 2021$39,770 
Balance at December 31, 2020$43,679 
Realized and unrealized gains included in earnings20 
Purchase of securities1,818 
Maturities/calls(5,174)
Unrealized gain included in other comprehensive income (loss)4,420 
Unrealized loss included in other comprehensive income (loss)(4,993)
Balance at June 30, 2021$39,770 

Assets Measured on a Nonrecurring Basis

From time to time, we may be required to measure certain financial and non-financial assets and liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a nonrecurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and liabilities measured at fair value in the second step of a goodwill impairment test and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a nonrecurring basis during 2022 and 2021 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other noninterest expense.

Impaired loans – Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate-related loans, we obtain a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.
Other real estate owned – Other real estate owned, which is obtained through the Bank’s foreclosure process, is valued utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. At the time the foreclosure is completed, we obtain a current external appraisal.

Other debt securities – Certain debt securities are recorded at fair value on a nonrecurring basis. These other debt securities are securities without a readily determinable fair value and are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

Equity securities – Certain equity securities are recorded at fair value on a nonrecurring basis. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

The following table presents the fair value of these assets as of the periods shown:
June 30, 2022
(Dollars in thousands)Level ILevel IILevel IIITotal
Impaired loans$— $— $22,045 $22,045 
Other real estate owned— — 1,334 1,334 
Other debt securities— — 7,500 7,500 
Equity securities— — 33,986 33,986 
December 31, 2021
(Dollars in thousands)Level ILevel IILevel IIITotal
Impaired loans$— $— $21,980 $21,980 
Other real estate owned— — 2,330 2,330 
Other debt securities— — 7,500 7,500 
Equity securities— — 32,155 32,155 
The following tables present quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value as of the periods shown:
 Quantitative Information about Level III Fair Value Measurements
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable Input Range
June 30, 2022
Nonrecurring measurements:
Impaired loans$22,045 
Appraisal of collateral 1
Appraisal adjustments 2
0% - 20%
   
Liquidation expense 2
6%
Other real estate owned$1,334 
Appraisal of collateral 1
Appraisal adjustments 2
0% - 20%
   
Liquidation expense 2
6%
Other debt securities$7,500 Net asset valueCost minus impairment—%
Equity securities$33,986 Net asset valueCost minus impairment—%
Recurring measurements:
Municipal securities 5
$37,035 
Appraisal of bond 3
Bond appraisal adjustment 4
5% - 15%
December 31, 2021
Nonrecurring measurements:
Impaired loans$21,980 
Appraisal of collateral 1
Appraisal adjustments 2
10% - 20%
Liquidation expense 2
5% - 10%
Other real estate owned$2,330 
Appraisal of collateral 1
Appraisal adjustments 2
10% - 20%
Liquidation expense 2
5% - 10%
Other debt securities$7,500 Net asset valueCost minus impairment—%
Equity securities$32,155 Net asset valueCost minus impairment—%
Recurring measurements:
Municipal securities 5
$41,763 
Appraisal of bond 3
Bond appraisal adjustment 4
1% - 20%

1 Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level III inputs that are not identifiable.
2 Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
3 Fair value is determined through independent analysis of liquidity, rating, yield and duration.
4 Appraisals may be adjusted for qualitative factors, such as local economic conditions, liquidity, marketability and legal structure.
5 Municipal securities classified as Level III instruments are comprised of TIF bonds related to certain local municipal securities.