XML 26 R15.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Fair Value Measurements

Fair Value Measurements

Note 7.Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in 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.

Level 1 —

Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2 —

Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

Level 3 —

Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available-for-sale: Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). 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 derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2).

Cash flow hedges: The Company has interest rate swap derivatives that are designated as cash flow hedges and are recorded at fair value using published yield curve rates from a national valuation service. These observable rates and inputs are applied to a third party industry-wide valuation model, and therefore, the valuations fall into a Level 2 category.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:


					Fair Value Measurements at
					March 31, 2021 Using
					Quoted Prices
					in Active			Significant
					Markets for			Other			Significant
					Identical			Observable			Unobservable
(In thousands)		Balance as of			Assets			Inputs			Inputs
Description		March 31, 2021			(Level 1)			(Level 2)			(Level 3)
Assets
Available-for-sale
Securities of state and local municipalities tax exempt		$	2,466		$	—		$	2,466		$	—
Securities of state and local municipalities taxable			754			—			754			—
Corporate bonds			14,062			—			14,062			—
SBA pass-through securities			122			—			122			—
Mortgage-backed securities			96,254			—			96,254			—
Collateralized mortgage obligations			21,446			—			21,446			—
Total Available-for-Sale Securities		$	135,104		$	—		$	135,104		$	—


					Fair Value Measurements at
					December 31, 2020 Using
					Quoted Prices
					in Active			Significant
					Markets for			Other			Significant
					Identical			Observable			Unobservable
(In thousands)		Balance as of			Assets			Inputs			Inputs
Description		December 31, 2020			(Level 1)			(Level 2)			(Level 3)
Assets
Available-for-sale
Securities of state and local municipalities tax exempt		$	3,493		$	—		$	3,493		$	—
Securities of state and local municipalities taxable			818			—			818			—
Corporate bonds			12,817			—			12,817			—
SBA pass-through securities			141			—			141			—
Mortgage-backed securities			83,714			—			83,714			—
Collateralized mortgage obligations			25,168			—			25,168			—
Total Available-for-Sale Securities		$	126,151		$	—		$	126,151		$	—

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:

Impaired Loans: Loans are designated as impaired when, in the judgment of management 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 can be based on either the present value of future cash flows,observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a 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, has the value derived by discounting comparable sales due to lack of similar properties, or is discounted by the Company due to marketability, 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’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the allowance for loan losses 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 Consolidated Statements of Income.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available, which results in a Level 3 classification of the inputs for determining fair value. OREO properties are evaluated regularly for impairment and adjusted accordingly.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020:


					Fair Value Measurements
					Using
					Quoted Prices
					in Active			Significant
					Markets for			Other			Significant
					Identical			Observable			Unobservable
(In thousands)		Balance as of			Assets			Inputs			Inputs
Description		March 31, 2021			(Level 1)			(Level 2)			(Level 3)
Assets
Impaired loans		$	5,690		$	—		$	—		$	5,690
Other real estate owned		$	3,866		$	—		$	—		$	3,866


					Fair Value Measurements
					Using
					Quoted Prices
					in Active			Significant
					Markets for			Other			Significant
					Identical			Observable			Unobservable
(In thousands)		Balance as of			Assets			Inputs			Inputs
Description		December 31, 2020			(Level 1)			(Level 2)			(Level 3)
Assets
Impaired loans		$	6,587		$	—		$	—		$	6,587
Other real estate owned		$	3,866		$	—		$	—		$	3,866

The following table displays quantitative information about Level 3 Fair Value Measurements for March 31, 2021 and December 31, 2020:


Quantitative information about Level 3 Fair Value Measurements for March 31, 2021
(In thousands)
Assets		Fair Value			Valuation Technique(s)		Unobservable input		Range			(Avg.)
Impaired loans		$	5,690		Discounted appraised value		Marketability/Selling costs		0% - 10	%		(8.71)	%
Other real estate owned		$	3,866		Discounted appraised value		Selling costs		10.51	%


Quantitative information about Level 3 Fair Value Measurements for December 31, 2020
(In thousands)
Assets		Fair Value			Valuation Technique(s)		Unobservable input		Range			(Avg.)
Impaired loans		$	6,587		Discounted appraised value		Marketability/Selling costs		0% - 8	%		(6.23)	%
Other real estate owned		$	3,866		Discounted appraised value		Selling costs		10.51	%

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2021 and December 31, 2020. Fair values for March 31, 2021 and December 31, 2020 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”


					Fair Value Measurements as of March 31, 2021, using
					Quoted Prices in
					Active Markets			Significant			Significant
		Carrying			for Identical			Other Observable			Unobservable
		Amount			Assets			Inputs			Inputs
(In thousands)					Level 1			Level 2			Level 3
Financial assets:
Cash and due from banks		$	16,593		$	16,593		$	—		$	—
Interest-bearing deposits at other institutions			203,285			203,285			—			—
Securities held-to-maturity			264			—			272			—
Securities available-for-sale			135,104			—			135,104			—
Restricted stock			6,377			—			6,377			—
Loans, net			1,432,491			—			—			1,442,367
Bank owned life insurance			38,425			—			38,425			—
Accrued interest receivable			8,912			—			8,912			—
Financial liabilities:
Checking, savings and money market accounts		$	1,324,700		$	—		$	1,324,700		$	—
Time deposits			269,939			—			272,710			—
FHLB advances			25,000			—			25,000			—
Subordinated notes			44,116			—			40,889			—
Accrued interest payable			1,372			—			1,372			—


					Fair Value Measurements as of December 31, 2020, using
					Quoted Prices in
					Active Markets			Significant			Significant
		Carrying			for Identical			Other Observable			Unobservable
		Amount			Assets			Inputs			Inputs
(In thousands)					Level 1			Level 2			Level 3
Financial assets:
Cash and due from banks		$	20,835		$	20,835		$	—		$	—
Interest-bearing deposits at other institutions			120,228			120,228			—			—
Securities held-to-maturity			264			—			274			—
Securities available-for-sale			126,151			—			126,151			—
Restricted stock			6,563			—			6,563			—
Loans, net			1,451,125			—			—			1,463,270
Bank owned life insurance			38,178			—			38,178			—
Accrued interest receivable			9,135			—			9,135			—
Financial liabilities:
Checking, savings and money market accounts		$	1,219,440		$	—		$	1,219,440		$	—
Time deposits			313,053			—			316,341			—
FHLB advances			25,000			—			25,000			—
Subordinated notes			44,085			—			42,438			—
Accrued interest payable			685			—			685			—

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 + Details