XML 27 R14.htm IDEA: XBRL DOCUMENT

Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2021

Fair Value of Financial Instruments [Abstract]

(6) Fair Value of Financial Instruments

Fair value measurements (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can 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 company’s own assumptions about the value that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of assets and liabilities:

Securities Available for Sale: The fair value of securities available for sale is determined utilizing an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. This results in a Level 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and is included in the Consolidated Statements of Income in the respective investment class under total interest and dividend income. The Company does not have any securities that would be designated as Level 3.

Other Real Estate Owned: Assets acquired through 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. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. This results in a Level 3 classification of the inputs for determining fair value.

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally have had a chargeoff through the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value. When obtained, non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Indications of value for both collateral-dependent impaired loans and other real estate owned are obtained from third party providers or the Company’s internal Appraisal Department. All indications of value are reviewed for reasonableness by a member of the Appraisal Department for the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value via comparison with independent data sources such as recent market data or industry-wide statistics.

Assets and liabilities measured at fair value under ASC 820 on a recurring basis are summarized below:

	Fair Value Measurements at
	March 31, 2021 Using:
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. government sponsored enterprises	$	74,465	$	-	$	74,465	$	-
State and political subdivisions		48		-		48		-
Mortgage backed securities and collateralized mortgage obligations - residential		348,317		-		348,317		-
Corporate bonds		64,839		-		64,839		-
Small Business Administration- guaranteed participation securities		39,232		-		39,232		-
Other securities		686		-		686		-

Total securities available for sale	$	527,587	$	-	$	527,587	$	-

	Fair Value Measurements at
	December 31, 2020 Using:
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Securities available for sale:
U.S. government sponsored enterprises	$	19,968	$	-	$	19,968	$	-
State and political subdivisions		103		-		103		-
Mortgage backed securities and collateralized mortgage obligations - residential		316,158		-		316,158		-
Corporate bonds		59,939		-		59,939		-
Small Business Administration- guaranteed participation securities		42,217		-		42,217		-
Other securities		686		-		686		-

Total securities available for sale	$	439,071	$	-	$	439,071	$	-

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2021 and 2020.

Assets measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements at
	March 31, 2021 Using:
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation technique	Unobservable inputs	Range (Weighted Average)

Other real estate owned	$	420	$	-	$	-	$	420	Sales comparison approach	Adjustments for differences between comparable sales		1% - 7% (2	%)

Impaired loans:
Real estate mortgage -1 to 4 family		-		-		-		-	Sales comparison	Adjustments for differences between comparable sales		N/A

	Fair Value Measurements at
	December 31, 2020 Using:
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation technique	Unobservable inputs	Range (Weighted Average)

Other real estate owned	$	541	$	-	$	-	$	541	Sales comparison approach	Adjustments for differences between comparable sales		1% - 7% (2	%)

Impaired loans:
Real estate mortgage -1 to 4 family		211		-		-		211	Sales comparison	Adjustments for differences between comparable sales		11% - 12% (12	%)

Other real estate owned, that is carried at fair value less costs to sell was approximately $420 thousand at March 31, 2021 and consisted of only residential real estate properties. Valuation charges of $121 thousand are included in earnings for the three months ended March 31, 2021.

Of the total impaired loans of $20.3 million at March 31, 2021, none are collateral dependent and carried at fair value measured on a non-recurring basis.

Other real estate owned, that is carried at fair value less costs to sell, was approximately $541 thousand at December 31, 2020 and consisted of only residential real estate properties. A valuation charge of $120 thousand is included in earnings for the year ended December 31, 2020.

Of the total impaired loans of $21.6 million at December 31, 2020, $211 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of chargeoffs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, 2020. Gross chargeoffs related to residential impaired loans included in the table above amounted to $10 thousand at December 31, 2020.

The carrying amounts and estimated fair values (represents exit price) of financial instruments, at March 31, 2021 and December 31, 2020 are as follows:

(dollars in thousands)			Fair Value Measurements at
	Carrying		March 31, 2021 Using:
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	1,140,373		1,140,373		-		-		1,140,373
Securities available for sale		527,587		-		527,587		-		527,587
Held to maturity securities		12,729		-		13,891		-		13,891
Federal Home Loan Bank stock		5,506		N/A		N/A		N/A		N/A
Net loans		4,219,181		-		-		4,301,999		4,301,999
Accrued interest receivable		9,639		21		1,368		8,250		9,639
Financial liabilities:
Demand deposits		718,343		718,343		-		-		718,343
Interest bearing deposits		4,454,579		3,223,316		1,232,604		-		4,455,920
Short-term borrowings		229,950		-		229,950		-		229,950
Accrued interest payable		310		45		265		-		310

(dollars in thousands)			Fair Value Measurements at
	Carrying		December 31, 2020 Using:
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	1,107,099		1,107,099		-		-		1,107,099
Securities available for sale		439,071		-		439,071		-		439,071
Held to maturity securities		13,824		-		14,988		-		14,988
Federal Reserve Bank and Federal
Home Loan Bank stock		5,506		N/A		N/A		N/A		N/A
Net loans		4,194,875		-		-		4,287,585		4,287,585
Accrued interest receivable		10,031		39		1,458		8,534		10,031
Financial liabilities:
Demand deposits		652,756		652,756		-		-		652,756
Interest bearing deposits		4,384,437		3,088,064		1,298,375		-		4,386,439
Short-term borrowings		214,755		-		214,755		-		214,755
Accrued interest payable		474		68		406		-		474

- 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 + Details