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Fair Value | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value | Fair Value Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:
Level 1: | Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2: | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods. Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion. Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. 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 and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources. Loans: We do not record loans at fair value on a recurring basis. However, some loans are classified as impaired and a specific allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will be significantly different than the contractual terms of the original loan agreement are considered impaired. Once a loan is identified as impaired, we measure the estimated impairment. The fair value of impaired loans is estimated using one of several methods, including the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. 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. We review the net realizable values of the underlying collateral for collateral dependent impaired loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated. The following tables list the quantitative fair value information about impaired loans as of:
| September 30, 2020
Valuation Technique | Fair Value | Unobservable Input |  | Actual Range |  | Weighted Average
|  | Discount applied to collateral: |  |  |  |
|  | Real Estate |  | 20% - 40% |  | 25%
|  | Equipment |  | 20% - 40% |  | 32%
Discounted value | $19,333 | Cash crop inventory |  | 40% |  | 40%
|  | Livestock |  | 30% |  | 30%
|  | Other inventory |  | 50% |  | 50%
|  | Accounts receivable |  | 25% - 50% |  | 26%
| December 31, 2019
Valuation Technique | Fair Value | Unobservable Input |  | Actual Range |  | Weighted Average
|  | Discount applied to collateral: |  |  |  |
|  | Real Estate |  | 20% - 30% |  | 22%
|  | Equipment |  | 20% - 40% |  | 32%
Discounted value | $19,135 | Cash crop inventory |  | 40% |  | 40%
|  | Livestock |  | 30% |  | 30%
|  | Other inventory |  | 50% |  | 50%
|  | Accounts receivable |  | 25% - 50% |  | 28%
Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation. Derivative instruments: Derivative instruments, consisting solely of interest rate swaps, are recorded at fair value on a recurring basis. Derivatives qualifying as cash flow hedges, when highly effective, are reported at fair value in other assets or other liabilities on our Consolidated Balance Sheets with changes in value recorded in OCI. Should the hedge no longer be considered effective, the ineffective portion of the change in fair value is recorded directly in earnings in the period in which the change occurs. The fair value of a derivative is determined by quoted market prices and model-based valuation techniques. As such, we classify derivative instruments as Level 2. OMSR: OMSR (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 2. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement. Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of:
| September 30, 2020
| Carrying Value |  | Estimated Fair Value |  | Level 1 |  | Level 2 |  | Level 3
ASSETS |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 165,749 |  |  | $ | 165,749 |  |  | $ | 165,749 |  |  | $ | — |  |  | $ | — |
Mortgage loans AFS | 4,661 |  |  | 4,701 |  |  | — |  |  | 4,701 |  |  | — |
Gross loans | 1,303,308 |  |  | 1,303,380 |  |  | — |  |  | — |  |  | 1,303,380 |
Less allowance for loan and lease losses | 9,506 |  |  | 9,506 |  |  | — |  |  | — |  |  | 9,506 |
Net loans | 1,293,802 |  |  | 1,293,874 |  |  | — |  |  | — |  |  | 1,293,874 |
Accrued interest receivable | 8,458 |  |  | 8,458 |  |  | 8,458 |  |  | — |  |  | — |
Equity securities without readily determinable fair values (1) | 21,690 |  |  | N/A |  | — |  |  | — |  |  | — |
OMSR | 2,185 |  |  | 2,221 |  |  | — |  |  | 2,221 |  |  | — |
LIABILITIES |  |  |  |  |  |  |  |  |
Deposits without stated maturities | 1,115,374 |  |  | 1,115,374 |  |  | 1,115,374 |  |  | — |  |  | — |
Deposits with stated maturities | 379,721 |  |  | 387,369 |  |  | — |  |  | 387,369 |  |  | — |
Borrowed funds | 238,349 |  |  | 247,211 |  |  | — |  |  | 247,211 |  |  | — |
Accrued interest payable | 663 |  |  | 663 |  |  | 663 |  |  | — |  |  | — |
| December 31, 2019
| Carrying Value |  | Estimated Fair Value |  | Level 1 |  | Level 2 |  | Level 3
ASSETS |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 60,572 |  |  | $ | 60,572 |  |  | $ | 60,572 |  |  | $ | — |  |  | $ | — |
Mortgage loans AFS | 904 |  |  | 925 |  |  | — |  |  | 925 |  |  | — |
Gross loans | 1,186,570 |  |  | 1,170,370 |  |  | — |  |  | — |  |  | 1,170,370 |
Less allowance for loan and lease losses | 7,939 |  |  | 7,939 |  |  | — |  |  | — |  |  | 7,939 |
Net loans | 1,178,631 |  |  | 1,162,431 |  |  | — |  |  | — |  |  | 1,162,431 |
Accrued interest receivable | 6,501 |  |  | 6,501 |  |  | 6,501 |  |  | — |  |  | — |
Equity securities without readily determinable fair values (1) | 21,629 |  |  | N/A |  | — |  |  | — |  |  | — |
OMSR | 2,264 |  |  | 2,264 |  |  | — |  |  | 2,264 |  |  | — |
LIABILITIES |  |  |  |  |  |  |  |  |
Deposits without stated maturities | 906,232 |  |  | 906,232 |  |  | 906,232 |  |  | — |  |  | — |
Deposits with stated maturities | 407,619 |  |  | 409,600 |  |  | — |  |  | 409,600 |  |  | — |
Borrowed funds | 275,999 |  |  | 278,761 |  |  | — |  |  | 278,761 |  |  | — |
Accrued interest payable | 860 |  |  | 860 |  |  | 860 |  |  | — |  |  | — |
(1)Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. When an impairment or write-down related to these securities is recorded, such amount would be classified as a nonrecurring Level 3 fair value adjustment. Financial Instruments Recorded at Fair Value The table below presents the recorded amount of assets and liabilities measured at fair value on:
| September 30, 2020 |  | December 31, 2019
| Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Recurring items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AFS securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions | $ | 148,401 |  |  | $ | — |  |  | $ | 148,401 |  |  | $ | — |  |  | $ | 169,752 |  |  | $ | — |  |  | $ | 169,752 |  |  | $ | — |
Auction rate money market preferred | 3,194 |  |  | — |  |  | 3,194 |  |  | — |  |  | 3,119 |  |  | — |  |  | 3,119 |  |  | — |
Mortgage-backed securities | 104,165 |  |  | — |  |  | 104,165 |  |  | — |  |  | 140,204 |  |  | — |  |  | 140,204 |  |  | — |
Collateralized mortgage obligations | 107,294 |  |  | — |  |  | 107,294 |  |  | — |  |  | 116,764 |  |  | — |  |  | 116,764 |  |  | — |
Total AFS securities | 363,054 |  |  | — |  |  | 363,054 |  |  | — |  |  | 429,839 |  |  | — |  |  | 429,839 |  |  | — |
Derivative instruments | 78 |  |  | — |  |  | 78 |  |  | — |  |  | 67 |  |  | — |  |  | 67 |  |  | — |
Nonrecurring items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans (net of the ALLL) | 19,333 |  |  | — |  |  | — |  |  | 19,333 |  |  | 19,135 |  |  | — |  |  | — |  |  | 19,135 |
OMSR | 2,185 |  |  | — |  |  | 2,185 |  |  | — |  |  | 2,264 |  |  | — |  |  | 2,264 |  |  | — |
Total | $ | 384,650 |  |  | $ | — |  |  | $ | 365,317 |  |  | $ | 19,333 |  |  | $ | 451,305 |  |  | $ | — |  |  | $ | 432,170 |  |  | $ | 19,135 |
Percent of assets and liabilities measured at fair value |  |  | — | % |  | 94.97 | % |  | 5.03 | % |  |  |  | — | % |  | 95.76 | % |  | 4.24 | %
We recorded an impairment related to OMSR of $316 and $81 through earnings for the nine-month period ended September 30, 2020 and 2019, respectively. We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis or nonrecurring basis, as of September 30, 2020. Further, we had no unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period.

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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=117815213&loc=d3e19207-110258 + Details
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