XML 31 R21.htm IDEA: XBRL DOCUMENT

Note 13 - Assets and Liabilities Measured and Reported at Fair Value

9 Months Ended

Sep. 30, 2023

Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]

(13)

Assets and Liabilities Measured and Reported at Fair Value

Fair value represents 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. There are 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 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 company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Bancorp used the following methods and significant assumptions to estimate fair value of each type of financial instrument:

AFS debt securities - Except for Bancorp’s U.S Treasury securities, the fair value of AFS debt securities is typically determined by matrix pricing, which is a mathematical technique used widely 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 (Level 2 inputs). Bancorp’s U.S. Treasury securities are based on quoted market prices (Level 1 inputs).

Mortgage loans held for sale - The fair value of mortgage loans held for sale is determined using quoted secondary market prices (Level 2 inputs).

Mortgage banking derivatives – Mortgage banking derivatives used in the ordinary course of business consist primarily of interest rate lock loan commitments and mandatory forward sales contracts. The fair value of the Bancorp’s derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from observable market inputs that can generally be verified and do not typically involve significant judgement by Bancorp (Level 2 inputs).

Interest rate swap agreements – Interest rate swaps are valued using valuations received from the relevant dealer counterparty. These valuations consider multiple observable market inputs, including interest rate yield curves, time value and volatility factors (Level 2 inputs).

Carrying values of assets measured at fair value on a recurring basis follows:

	Fair Value Measurements Using:						Total
September 30, 2023 (in thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Available for sale debt securities:
U.S. Treasury and other U.S. Government obligations	$	118,009	$	—	$	—	$	118,009
Government sponsored enterprise obligations		—		109,233		—		109,233
Mortgage backed securities - government agencies		—		672,666		—		672,666
Obligations of states and political subdivisions		—		116,891		—		116,891
Other		—		3,449		—		3,449

Total available for sale debt securities		118,009		902,239		—		1,020,248

Mortgage loans held for sale		—		6,535		—		6,535
Rate lock loan commitments		—		202		—		202
Mandatory forward contracts		—		110		—		110
Interest rate swap assets		—		17,590		—		17,590
Total assets	$	118,009	$	926,676	$	—	$	1,044,685

Liabilities:
Interest rate swap liabilities	$	—	$	11,929	$	—	$	11,929

	Fair Value Measurements Using:						Total
December 31, 2022 (in thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Available for sale debt securities:
U.S. Treasury and other U.S. Government obligations	$	115,039	$	—	$	—	$	115,039
Government sponsored enterprise obligations		—		143,626		—		143,626
Mortgage backed securities - government agencies		—		752,738		—		752,738
Obligations of states and political subdivisions		—		127,599		—		127,599
Other		—		5,615		—		5,615

Total available for sale debt securities		115,039		1,029,578		—		1,144,617

Mortgage loans held for sale		—		2,606		—		2,606
Rate lock loan commitments		—		137		—		137
Mandatory forward contracts		—		47		—		47
Interest rate swaps		—		10,727		—		10,727
Total assets	$	115,039	$	1,043,095	$	—	$	1,158,134

Liabilities:
Interest rate swaps	$	—	$	10,737	$	—	$	10,737

There were no transfers into or out of Level 3 of the fair value hierarchy during 2023 or 2022.

Discussion of assets measured at fair value on a non-recurring basis follows:

Collateral dependent loans – For collateral-dependent loans where Bancorp has determined that the liquidation or foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the estimated fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For real estate loans, fair value of the loan’s collateral is determined by third party or internal appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, comparable sales, or cost) vary based on the status of the project or property. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. Bancorp reviews the third party appraisal for appropriateness and adjusts the value to consider selling and closing costs, which typically range from 8% to 10% of the appraised value. For non-real estate loans, fair value of the loan’s collateral may be determined 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 or knowledge of the client and client’s business.

OREO – OREO is primarily comprised of real estate acquired in partial or full satisfaction of loans. OREO is recorded at its estimated fair value less estimated selling and closing costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the ACL. Subsequent changes in fair value are reported as adjustments to the carrying amount and are recorded against earnings. Bancorp obtains the valuation of OREO with material balances from third party appraisers. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. Bancorp reviews the appraisal for appropriateness and adjusts the value to consider selling and closing costs, which typically range from 8% to 10% of the appraised value.

Carrying values of assets measured at fair value on a non-recurring basis follows:

									Losses recorded
									Three months		Nine months
	Fair Value Measurements Using:						Total		ended		ended
September 30, 2023 (in thousands)	Level 1		Level 2		Level 3		Fair Value		September 30, 2023		September 30, 2023

Collateral dependent loans	$	—	$	—	$	12,141	$	12,141	$	1,377	$	1,377
Other real estate owned		—		—		427		427		250		250

									Losses recorded
									Three months		Nine months
	Fair Value Measurements Using:						Total		ended		ended
December 31, 2022 (in thousands)	Level 1		Level 2		Level 3		Fair Value		September 30, 2022		September 30, 2022

Collateral dependent loans	$	—	$	—	$	20,637	$	20,637	$	377	$	377
Other real estate owned		—		—		677		677		—		—

There were no liabilities measured at fair value on a non-recurring basis at September 30, 2023 and December 31, 2022.

For Level 3 assets measured at fair value on a non-recurring basis, the significant unobservable inputs used in the fair value measurements are presented below.

	September 30, 2023
(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average

Collateral dependent loans	$	12,141	Appraisal	Appraisal discounts		21.2	%
Other real estate owned		427	Appraisal	Appraisal discounts		78.3

	December 31, 2022
(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average

Collateral dependend loans	$	20,637	Appraisal	Appraisal discounts		23.3	%
Other real estate owned		677	Appraisal	Appraisal discounts		65.6