NOTE 11: CONTINGENCIES AND COMMITMENTS
In the normal course of business, we have various contingent liabilities and commitments outstanding, which may not be reflected in the Consolidated
Financial Statements. We do not anticipate any material losses because of these contingencies or commitments.
We may be named as a defendant in certain lawsuits or legal actions in the normal course of business. At the date of these Consolidated Financial
Statements, our management team was not aware of any material actions. However, management cannot ensure that such actions or other contingencies
will not arise in the future.
We have commitments to extend credit and letters of credit to satisfy the financing needs of our borrowers. These financial instruments involve, to varying
degrees, elements of credit risk that may be recognized in the financial statements. Commitments to extend credit are agreements to lend to a borrower as
long as there is not a violation of any condition established in the loan contract. Standby letters of credit are agreements to pay a beneficiary if there is a
default on a contractual arrangement. At December 31, 2017, we had commitments to extend credit and unexercised commitments related to standby letters
of credit of $766.0 million. Additionally, we had $6.4 million of issued standby letters of credit as of December 31, 2017.
Commitments to extend credit and letters of credit generally have fixed expiration dates or other termination clauses and we may require payment of a fee. If
commitments to extend credit and letters of credit remain unfulfilled or have not expired, they may have credit risk not recognized in the financial statements.
Many of the commitments to extend credit and letters of credit will expire without being fully drawn upon. Therefore, the total commitments do not necessarily
represent future cash requirements. Certain letters of credit may have recourse provisions that would enable us to recover from third parties amounts paid
under guarantees, thereby limiting our maximum potential exposure. The credit risk involved in issuing these financial instruments is essentially the same as
that involved in extending loans to borrowers and we apply the same credit policies. The amount of collateral obtained, if deemed necessary by us upon
extension of credit, is based on management’s credit evaluation of the borrower.
We are among the limited partners in RBICs. Refer to Note 5 for additional discussion regarding these commitments.
NOTE 12: FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal or most advantageous market for the asset or liability. Accounting guidance also establishes a fair
value hierarchy, with three input levels that may be used to measure fair value. Refer to Note 2 for a more complete description of the three input levels.
We did not have any assets or liabilities measured at fair value on a recurring basis at December 31, 2017, 2016, or 2015.
Non-Recurring
We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis.
Assets Measured at Fair Value on a Non-recurring Basis
(in thousands)
As of December 31, 2017
Impaired loans
Other property owned
As of December 31, 2016
Impaired loans
Other property owned
As of December 31, 2015
Impaired loans
Other property owned
Fair Value Measurement Using
Level 1 Level 2 Level 3 Total Fair Value
$ --
-- $ --
-- $518
-- $518
--
Fair Value Measurement Using
Level 1 Level 2 Level 3 Total Fair Value
$ --
-- $1,512
1,110 $ --
-- $1,512
1,110
Level 3 Total Fair Va lue
$ --
-- $2,789
530
Fair Value Measurement Using
Level 1
Level 2
$ --
--
$2,789
530
Valuation Techniques
Impaired loans: Represents the carrying amount and related write-downs of loans which were evaluated for individual impairment based on the appraised
value of the underlying collateral. When the value of the collateral, less estimated costs to sell, is less than the principal balance of the loan, a specific
reserve is established. Costs to sell represent transaction costs and are not included as a component of the asset’s fair value. If the process uses
independent appraisals and other market-based information, they are classified as Level 2. If the process requires significant input based on management’s
knowledge of and judgment about current market conditions, specific issues relating to the collateral and other matters, they are classified as Level 3.
Other property owned: Represents the fair value and related losses of foreclosed assets that were measured at fair value based on the collateral value,
which is generally determined using appraisals, or other indications based on sales of similar properties. Costs to sell represent transaction costs and are not
included as a component of the asset’s fair value. If the process uses independent appraisals and other market-based information, they are classified as
Level 2. If the process requires significant input based on management’s knowledge of and judgment about current market conditions, specific issues relating
to the property and other matters, they are classified as Level 3.
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