XML 37 R25.htm IDEA: XBRL DOCUMENT
v3.23.1

Note 17 - Fair Value of Financial Instruments | 12 Months Ended
--- | ---
Dec. 31, 2022
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | Note 17 – Fair Values of Financial Instruments The Fair Value Measurements Topic (the “Topic”) establishes a hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Topic describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The fair values of securities available for sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges or pricing models utilizing significant observable inputs such as matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. Different judgments and assumptions used in pricing could result in different estimates of value. In certain cases where market data is not readily available because of lack of market activity or little public disclosure, values may be based on unobservable inputs and classified in Level 3 of the fair value hierarchy. At the end of each reporting period, securities held in the investment portfolio are evaluated on an individual security level for other-than-temporary impairment in accordance with the Investments – Debt and Equity Securities Topic. Impairment is other-than-temporary if the decline in the fair value of the security is below its amortized cost and it is probable that all amounts due according to the contractual terms of a debt security will not be received. Significant judgments are required in determining impairment, which include making assumptions regarding the estimated prepayments, loss assumptions and the change in interest rates. The Bancorp considers the following factors when determining other-than-temporary impairment for a security: the length of time and the extent to which the market value has been less than amortized cost; the financial condition and near-term prospects of the issuer; the underlying fundamentals of the relevant market and the outlook for such market for the near future; an assessment of whether the Bancorp (1) has the intent to sell the debt securities or (2) more likely than not will be required to sell the debt securities before their anticipated market recovery. If either of these conditions are met, management will recognize other-than-temporary impairment. If, in management’s judgment, an other-than-temporary impairment exists, the cost basis of the security will be written down for the credit loss, and the unrealized loss will be transferred from accumulated other comprehensive loss as an immediate reduction of current earnings. The Bancorp’s management utilizes a specialist to perform an other-than-temporary impairment analysis for each of its two pooled trust preferred securities, with a cost basis of $2.2 million and fair value of $1.0 million as of December 31, 2022. The analysis is performed annually on December 31 and utilizes analytical models used to project future cash flows for the pooled trust preferred securities based on current assumptions for prepayments, default and deferral rates, and recoveries. The projected cash flows are then tested for impairment consistent with the Investments – Other Topic and the Investments – Debt and Equity Securities Topic. The other-than-temporary impairment testing compares the present value of the cash flows from quarter to quarter to determine if there is a “favorable” or “adverse” change. Other-than-temporary impairment is recorded if the projected present value of cash flows is lower than the book value of the security. To perform the annual other-than-temporary impairment analysis, management utilizes current reports issued by the trustee, which contain principal and interest tests, waterfall distributions, note valuations, collection detail and credit ratings for each pooled trust preferred security. In addition, a detailed review of the performing collateral (which consists of banks) was performed. The review of the collateral began with a review of financial information provided by S&P Global Capital IQ, a comprehensive database, widely used in the industry, which gathers financial data on banks from U.S. GAAP financial statements for public companies (annual and quarterly reports on Forms 10-K and 10-Q), as well as regulatory reports for private companies, including consolidated financial statements for bank holding companies (FR Y-9C reports) and parent company-only financial statements for bank holding companies (FR Y-9SP reports) filed with the Federal Reserve and bank call reports filed with the FDIC and OCC. Using the information sources described above, for each bank and thrift examined, the following items were examined: nature of the issuer’s business, years of operating history, corporate structure, loan composition and loan concentrations, deposit mix, asset growth rates, geographic footprint and local economic environment. The issuers’ historical financial performance was reviewed and their financial ratios were compared to appropriate peer groups of regional banks or thrifts with similar asset sizes. The analysis focused on six broad categories: profitability (revenue streams and earnings quality, return on assets and shareholder’s equity, net interest margin and interest rate sensitivity), credit quality (charge-offs and recoveries, non-current loans and total non-performing assets as a percentage of total loans, loan loss reserve coverage and the adequacy of the loan loss provision), operating efficiency (noninterest expense compared to total revenue), capital adequacy (Tier-1, total capital and leverage ratios and equity capital growth), leverage (tangible equity as a percentage of tangible assets, short-term and long-term borrowings and double leverage at the holding company) and liquidity (the nature and availability of funding sources, net non-core funding dependence and quality of deposits). In addition, for publicly traded companies, stock price movements were reviewed and the market price of publicly traded debt instruments was examined. The current other-than-temporary impairment analysis indicated that the Bancorp’s two pooled trust preferred securities had no additional other-than-temporary impairment for the years ending December 31, 2022 and 2021. The table below shows the credit loss roll forward for the Bancorp’s pooled trust preferred securities that have been classified with other-than-temporary impairment:
|  | (Dollars in thousands) |
|  | Collateralized debt obligations |
|  | other-than-temporary impairment |
Ending balance, December 31, 2021 |  | $ | 173 |
Additions not previously recognized |  |  | - |
Ending balance, December 31, 2022 |  | $ | 173 |
The Bancorp’s subordination for each trust preferred security is calculated by taking the total performing collateral and subtracting the sum of the total collateral within the Bancorp’s class and the total collateral within all senior classes, and then stating this result as a percentage of the total performing collateral. This measure is an indicator of the level of collateral that can default before potential cash flow disruptions may occur. In addition, management calculates subordination assuming future collateral defaults by utilizing the default/deferral assumptions in the Bancorp’s other-than-temporary impairment analysis. Subordination assuming future default/deferral assumptions is calculated by deducting future defaults from the current performing collateral. At December 31, 2022 and 2021, management reviewed the subordination levels for each security in context of the level of current collateral defaults and deferrals within each security; the potential for additional defaults and deferrals within each security; the length of time that the security has been in “payment in kind” status; and the Bancorp’s class position within each security. Management calculated the other-than-temporary impairment model assumptions based on the specific collateral underlying each individual security. The following assumption methodology was applied consistently to each of the two pooled trust preferred securities: For collateral that has already defaulted, no recovery was assumed; no cash flows were assumed from collateral currently in deferral, with the exception of the recovery assumptions. The default and recovery assumptions were calculated based on the detailed collateral review. The discount rate assumption used in the calculation of the present value of cash flows is based on the discount margin (i.e., credit spread) at the time each security was purchased using the original purchase price. The discount margin is then added to the appropriate 3-month Secured Overnight Financing Rate (SOFR) forward rate obtained from the forward SOFR curve. At December 31, 2022 and 2021, the trust preferred securities with a cost basis of $2.2 million have been placed in “payment in kind” status. The Bancorp’s securities that are classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments. For the securities in “payment in kind” status, management anticipates to receive the unpaid contractual interest payments from the issuer, because of the self-correcting cash flow waterfall provisions within the structure of the securities. When a tranche senior to the Bancorp’s position fails the coverage test, the Bancorp’s interest cash flows are paid to the senior tranche and recorded as a reduction of principal. The coverage test represents an over collateralization target by stating the balance of the performing collateral as a percentage of the balance of the Bancorp’s tranche, plus the balance of all senior tranches. The principal reduction in the senior tranche continues until the appropriate coverage test is passed. As a result of the principal reduction in the senior tranche, more cash is available for future payments to the Bancorp’s tranche. Consistent with the Investments – Debt and Equity Securities Topic, management considered the failure of the issuer of the security to make scheduled interest payments in determining whether a credit loss existed. Management will not capitalize the “payment in kind” interest payments to the book value of the securities and will keep these securities in non-accrual status until the quarterly interest payments resume. The fair value of the Bancorp’s interest rate swap contracts, both assets and liabilities, are valued by a third-party pricing agent using an income approach and are classified within Level 2 of the valuation hierarchy. The fair value of the Bancorp’s is based on the price of the underlying loans to are expected to be sold to an investor while taking into consideration the probability the rate lock commitments will close and are classified within Level 2 of the valuation hierarchy. Assets and Liabilities Measured at Fair Values on a Recurring Basis There were no transfers to or from Levels 1 and 2 during the years ended December 31, 2022 and 2021. Changes in Level 3 assets relate to the result of changes in estimated fair values, payments received, and sales of securities that have been classified as Level 3 during all of 2022 and 2021. Assets measured at fair value on a recurring basis are summarized below:
|  |  |  |  |  | (Dollars in thousands) |
|  |  |  |  |  | Fair Value Measurements at December 31, 2022 Using |
(Dollars in thousands) |  | Estimated Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts |  | $ | 8,972 |  |  | $ | - |  |  | $ | 8,972 |  |  | $ | - |
Interest rate lock commitments |  |  | 38 |  |  |  | - |  |  |  | 38 |  |  |  | - |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government sponsored entities |  |  | 7,625 |  |  |  | - |  |  |  | 7,625 |  |  |  | - |
U.S. treasury securities |  |  | 389 |  |  |  | - |  |  |  | 389 |  |  |  | - |
Collateralized mortgage obligations and residential mortgage-backed securities |  |  | 134,116 |  |  |  | - |  |  |  | 134,116 |  |  |  | - |
Municipal securities |  |  | 227,718 |  |  |  | - |  |  |  | 227,718 |  |  |  | - |
Collateralized debt obligations |  |  | 1,048 |  |  |  | - |  |  |  | - |  |  |  | 1,048 |
Total securities available-for-sale |  | $ | 370,896 |  |  | $ | - |  |  | $ | 369,848 |  |  | $ | 1,048 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts |  | $ | 8,972 |  |  | $ | - |  |  | $ | 8,972 |  |  | $ | - |
|  |  |  |  |  | (Dollars in thousands) |
|  |  |  |  |  | Fair Value Measurements at December 31, 2021 Using |
(Dollars in thousands) |  | Estimated Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts |  | $ | 2,686 |  |  | $ | - |  |  | $ | 2,686 |  |  | $ | - |
Interest rate lock commitments |  |  | 141 |  |  |  | - |  |  |  | 141 |  |  |  | - |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government sponsored entities |  |  | 8,669 |  |  |  | - |  |  |  | 8,669 |  |  |  | - |
U.S. treasury securities |  |  | 400 |  |  |  | - |  |  |  | 400 |  |  |  | - |
Collateralized mortgage obligations and residential mortgage-backed securities |  |  | 184,701 |  |  |  | - |  |  |  | 184,701 |  |  |  | - |
Municipal securities |  |  | 332,127 |  |  |  | - |  |  |  | 332,127 |  |  |  | - |
Collateralized debt obligations |  |  | 992 |  |  |  | - |  |  |  | - |  |  |  | 992 |
Total securities available-for-sale |  | $ | 526,889 |  |  | $ | - |  |  | $ | 525,897 |  |  | $ | 992 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts |  | $ | 2,686 |  |  | $ | - |  |  | $ | 2,686 |  |  | $ | - |
A reconciliation of available-for-sale securities, which require significant adjustment based on unobservable data, is presented below:
|  | (Dollars in thousands) |
|  | Estimated Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|  | Available-for- sale securities |
Beginning balance, January 1, 2021 |  | $ | 929 |
Principal payments |  |  | (9 | )
Total unrealized gains, included in other comprehensive income |  |  | 72 |
Ending balance, December 31, 2021 |  | $ | 992 |
Beginning balance, January 1, 2022 |  | $ | 992 |
Principal payments |  |  | - |
Total unrealized gains, included in other comprehensive loss |  |  | 56 |
Ending balance, December 31, 2022 |  | $ | 1,048 |
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
|  |  |  |  |  | (Dollars in thousands) |
|  |  |  |  |  | Fair Value Measurements at December 31, 2022 Using |
(Dollars in thousands) |  | Estimated Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Impaired loans |  | $ | 2,620 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,620 |
|  |  |  |  |  | (Dollars in thousands) |
|  |  |  |  |  | Fair Value Measurements at December 31, 2021 Using |
(Dollars in thousands) |  | Estimated Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Impaired loans |  | $ | 896 |  |  | $ | - |  |  | $ | - |  |  | $ | 896 |
Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2 inputs. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore, qualifying the assets as Level 3 in the fair value hierarchy. The following table shows carrying values and related estimated fair values of financial instruments as of the dates indicated. Estimated fair values are further categorized by the inputs used to measure fair value. Items that are not financial instruments are not included.
|  | December 31, 2022 |  |  | Estimated Fair Value Measurements at December 31, 2022 Using |
(Dollars in thousands) |  | Carrying Value |  |  | Estimated Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 31,282 |  |  | $ | 31,282 |  |  | $ | 31,282 |  |  | $ | - |  |  | $ | - |
Certificates of deposit in other financial institutions |  |  | 2,456 |  |  |  | 2,404 |  |  |  | - |  |  |  | 2,404 |  |  |  | - |
Loans held-for-sale |  |  | 1,543 |  |  |  | 1,555 |  |  |  | - |  |  |  | 1,555 |  |  |  | - |
Loans receivable, net |  |  | 1,500,734 |  |  |  | 1,437,496 |  |  |  | - |  |  |  | - |  |  |  | 1,437,496 |
Federal Home Loan Bank stock |  |  | 6,547 |  |  |  | 6,547 |  |  |  | - |  |  |  | 6,547 |  |  |  | - |
Accrued interest receivable |  |  | 7,421 |  |  |  | 7,421 |  |  |  | - |  |  |  | 7,421 |  |  |  | - |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-interest bearing deposits |  |  | 359,092 |  |  |  | 359,092 |  |  |  | 359,092 |  |  |  | - |  |  |  | - |
Interest bearing deposits |  |  | 1,415,925 |  |  |  | 1,414,738 |  |  |  | 1,052,807 |  |  |  | 361,931 |  |  |  | - |
Repurchase agreements |  |  | 15,503 |  |  |  | 15,361 |  |  |  | 7,975 |  |  |  | 7,386 |  |  |  | - |
Borrowed funds |  |  | 120,000 |  |  |  | 119,689 |  |  |  | - |  |  |  | 119,689 |  |  |  | - |
Accrued interest payable |  |  | 336 |  |  |  | 336 |  |  |  | - |  |  |  | 336 |  |  |  | - |
|  | December 31, 2021 |  |  | Estimated Fair Value Measurements at December 31, 2021 Using |
(Dollars in thousands) |  | Carrying Value |  |  | Estimated Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 33,176 |  |  | $ | 33,176 |  |  | $ | 33,176 |  |  | $ | - |  |  | $ | - |
Certificates of deposit in other financial institutions |  |  | 1,709 |  |  |  | 1,737 |  |  |  | - |  |  |  | 1,737 |  |  |  | - |
Loans held-for-sale |  |  | 4,987 |  |  |  | 5,065 |  |  |  | - |  |  |  | 5,065 |  |  |  | - |
Loans receivable, net |  |  | 953,377 |  |  |  | 951,744 |  |  |  | - |  |  |  | - |  |  |  | 951,744 |
Federal Home Loan Bank stock |  |  | 3,247 |  |  |  | 3,247 |  |  |  | - |  |  |  | 3,247 |  |  |  | - |
Accrued interest receivable |  |  | 5,444 |  |  |  | 5,444 |  |  |  | - |  |  |  | 5,444 |  |  |  | - |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-interest bearing deposits |  |  | 295,294 |  |  |  | 295,294 |  |  |  | 295,294 |  |  |  | - |  |  |  | - |
Interest bearing deposits |  |  | 1,138,907 |  |  |  | 1,139,126 |  |  |  | 899,690 |  |  |  | 239,436 |  |  |  | - |
Repurchase agreements |  |  | 14,581 |  |  |  | 14,579 |  |  |  | 12,842 |  |  |  | 1,737 |  |  |  | - |
Accrued interest payable |  |  | 22 |  |  |  | 22 |  |  |  | - |  |  |  | 22 |  |  |  | - |
The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the periods ended December 31, 2022 and 2021: Cash and cash equivalent carrying amounts approximate fair value. Certificates of deposits in other financial institutions fair value amounts are based on estimates of the rate the Bancorp would receive on similar deposits (Level 2). Loans held-for-sale comprise residential mortgages and are priced based on values established by the secondary mortgage markets (Level 2). The estimated fair value for net loans receivable is based on the exit price notion which is the exchange price that would be received to transfer the loans at the most advantageous market price in an orderly transaction between market participants on the measurement date (Level 3). Federal Home Loan Bank stock is estimated at book value due to restrictions that limit the sale or transfer of the security. Fair values of accrued interest receivable and payable approximate book value, as the carrying values are determined using the observable interest rate, balance, and last payment date. Non-interest and interest bearing deposits, which include checking, savings, and money market deposits, are estimated to have fair values based on the amount payable as of the reporting date (Level 1). The fair value of fixed-maturity certificates of deposit (included in interest bearing deposits) are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2). Estimated fair values for short-term repurchase agreements, which represent sweeps from demand deposits to accounts secured by pledged securities, are estimated based on the amount payable as of the reporting date (Level 1). Longer-term repurchase agreements, with contractual maturity dates of three months or more, are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2). The fair value of FHLB Advances are estimated by discounting the future cash flows using quoted rates from the FHLB for similar advances with similar maturities (Level 2). The estimated fair value of other financial instruments, and off-balance sheet loan commitments, approximate cost and are not considered significant to this presentation.

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 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 https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration