Note 6 - Other Assets

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Other Assets Disclosure [Text Block]

(6) Other Assets

A summary of the major components of other assets follows:

	September 30,		December 31,
(in thousands)	2021		2020
Cash surrender value of life insurance other than BOLI	$	19,792	$	18,426
Net deferred tax asset		24,202		22,320
Investments in tax credit related ventures		11,576		9,552
Swap assets		4,180		8,374
Prepaid assets		4,082		2,935
Trust fees receivable		2,557		2,192
Mortgage servicing rights		4,600		2,710
Other real estate owned		7,229		281
Other		10,118		4,575
Total other assets	$	88,336	$	71,365

Bancorp maintains life insurance policies other than BOLI in conjunction with its non-qualified defined benefit retirement and non-qualified compensation plans.

Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance sheet at fair value. For additional information, see the footnote titled “Derivative Financial Instruments.”

MSRs, a component of other assets, are initially recognized at fair value when mortgage loans are sold with servicing retained. The MSRs are amortized in proportion to and over the period of estimated net servicing income, considering appropriate prepayment assumptions. MSRs are evaluated quarterly for impairment by comparing carrying value to fair value. Fair value is based on a valuation model that calculates the PV of estimated net servicing income. The model incorporates assumptions that market participants would use in estimating future net servicing income.

The estimated fair value of MSRs at September 30, 2021 and December 31, 2020 were $5.3 million and $3.1 million, respectively. MSRs with an estimated fair value of $1.7 million were acquired in the KB acquisition. There was no valuation allowance recorded for MSRs as of September 30, 2021 and December 31, 2020, as fair value exceeded carrying value.

Changes in the net carrying amount of MSRs follows:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2021			2020			2021			2020
Balance at beginning of period	$	4,657		$	1,888		$	2,710		$	1,372
MSRs acquired		—			—			1,662			—
Additions for mortgage loans sold		177			631			888			1,272
Amortization		(234	)		(99	)		(660	)		(224	)
Impairment		—			—			—			—
Balance at end of period	$	4,600		$	2,420		$	4,600		$	2,420

Total outstanding principal balances of loans serviced for others were $697 million and $428 million at September 30, 2021 and December 31, 2020, respectively. Loans serviced for others acquired as part of the KB acquisition totaled $233 million at the date of acquisition.