Fair Value |
21. FAIR VALUE Fair value is defined by U.S. GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an 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. U.S. GAAP 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 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 observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and 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 factors that market participants would use in pricing an asset or liability. |
The Company used the following methods and significant assumptions to estimate fair values for each category of financial asset noted below: Securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, live trading desk pricing from brokerages, or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities. In certain circumstances live trading desk pricing from brokerages and third party internal models are used to value debt securities that we classify as Level 3. Collateral-dependent loans: A specific loss allowance is created for collateral dependent loans, representing the difference between the face value of the loan and the current appraised value of its associated collateral, less estimated disposition costs. Foreclosed assets: Repossessed real estate (OREO) and other assets are carried at the lower of cost or fair value. Fair value is the appraised value less expected selling costs for OREO and some other assets such as mobile homes, and for all other assets fair value is represented by the estimated sales proceeds as determined using reasonably available sources. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic re-evaluation of expected cash flows and the timing of resolution. If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance. Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands): | | | | | | | | | | | | | | | | | | Fair Value Measurements at December 31, 2022, using | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Realized Gain/(Loss) | Securities: | | | | | | | | | | | | | | | | U.S. government agencies | | $ | — | | $ | 50,599 | | $ | — | | $ | 50,599 | | $ | — | Mortgage-backed securities | | | — | | | 122,532 | | | — | | | 122,532 | | | — | State and political subdivisions | | | — | | | 205,980 | | | — | | | 205,980 | | | — | Corporate bonds | | | — | | | — | | | 57,435 | | | 57,435 | | | — | Collateralized loan obligations | | | — | | | 498,377 | | | — | | | 498,377 | | | — | Total available-for-sale securities | | $ | — | | $ | 877,488 | | $ | 57,435 | | $ | 934,923 | | $ | — |
| | | | | | | | | | | | | | | | | | Fair Value Measurements at December 31, 2021, using | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Realized Gain/(Loss) | Securities: | | | | | | | | | | | | | | | | U.S. government agencies | | $ | — | | $ | 1,574 | | $ | — | | $ | 1,574 | | $ | — | Mortgage-backed securities | | | — | | | 306,727 | | | — | | | 306,727 | | | — | State and political subdivisions | | | — | | | 304,268 | | | — | | | 304,268 | | | — | Corporate bonds | | | — | | | 999 | | | 27,530 | | | 28,529 | | | — | Collateralized loan obligations | | | — | | | 136,509 | | | 195,707 | | | 332,216 | | | — | Total available-for-sale securities | | $ | — | | $ | 750,077 | | $ | 223,237 | | $ | 973,314 | | $ | — |
The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2022 and 2021 (dollars in thousands): | | | | | | | | | | | | | | | Collateralized Loan Obligations | | Corporate Bonds | | | 2022 | | 2021 | | 2022 | | 2021 | Balance of recurring Level 3 assets at January 1, | | $ | 195,707 | | $ | — | | $ | 27,530 | | $ | — | Purchases | | | — | | | 195,707 | | | 29,905 | | | 27,530 | Transfers out of Level 3 | | | (195,707) | | | — | | | — | | | — | Balance of recurring Level 3 assets at December 31, | | $ | — | | $ | 195,707 | | $ | 57,435 | | $ | 27,530 |
The following tables present quantitative information about recurring level 3 fair value measurements at December 31, 2022 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | Range | | | Fair Value | | Valuation Technique(s) | | Unobservable Input(s) | | Min | | Max | | Weighted Average | Corporate Bonds | | $ | 57,435 | | New issue pricing | | Risk appetite | | N/A | | N/A | | N/A | | | | | | Secondary market pricing | | Market volatility | | | | | | | | | | | | Credit quality of issuer | | | | | | | | | | | | | | Credit spread | | | | | | | | |
The following table presents quantitative information about recurring level 3 fair value measurements at December 31, 2021 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | Range | | | Fair Value | | Valuation Technique(s) | | Unobservable Input(s) | | Min | | Max | | Weighted Average | Corporate Bonds | | $ | 27,530 | | New issue pricing | | Risk appetite | | N/A | | N/A | | N/A | | | | | | Secondary market pricing | | Market volatility | | | | | | | | | | | | Credit quality of issuer | | | | | | | | | | | | | | Credit spread | | | | | | | | | | | | | | | | | | | | | | | Collateralized Loan Obligations | | | 195,707 | | New issue pricing | | Constant prepayment rate | | N/A | | N/A | | N/A | | | | | | Secondary market pricing | | Default rate | | | | | | | | | | | | Credit quality of issuer | | Recovery rate | | | | | | | | | | | | Credit spread | | | | | | | | | | | $ | 223,237 | | | | | | | | | | |
Assets and liabilities measured at fair market value on a non-recurring basis are summarized below (dollars in thousands): | | | | | | | | | | | | | | | Year Ended December 31, 2022 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | Collateral dependent loans | | $ | — | | $ | 18,141 | | $ | — | | $ | 18,141 | Foreclosed assets | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | Year Ended December 31, 2021 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | Collateral dependent impaired loans | | $ | — | | $ | 221 | | $ | 177 | | $ | 398 | Foreclosed assets | | $ | — | | $ | 93 | | $ | — | | $ | 93 |
The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a non-recurring basis at December 31, 2021 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | Range | | | Fair Value | | Valuation Technique(s) | | Unobservable Input(s) | | Min | | Max | | Weighted Average | Impaired loans - commercial and industrial | | $ | 177 | | Fair value of collateral | | Collateral discount | | 50% | | 70% | | 56% | | | $ | 177 | | | | | | | | | | |
There were no assets measured at fair value on a non-recurring basis with level 3 fair value measurements at December 31, 2022.
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