Fair Value Measurements |
Note 9 – Fair Value Measurements
The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and
liabilities at fair value. The three broad levels defined by this hierarchy are as follows:
Level I: |
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
|
Level II: |
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these
assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
|
Level III: |
Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using
management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
|
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon
internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect
counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value
calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date
of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.
Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis
The fair values of equity securities and securities available for sale are determined by quoted prices in active markets, when available, and classified
as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used 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 and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
The following tables present the assets and liabilities reported on the Consolidated
Balance Sheet at their fair value on a recurring basis as of June 30, 2025 and December 31, 2024 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement.
June 30, 2025
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Fair value measurements on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
1,768
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,768
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
|
-
|
|
|
|
54,659
|
|
|
|
-
|
|
|
|
54,659
|
|
U.S. Treasury securities
|
|
|
101,739
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101,739
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
93,693
|
|
|
|
-
|
|
|
|
93,693
|
|
Corporate obligations
|
|
|
-
|
|
|
|
10,908
|
|
|
|
-
|
|
|
|
10,908
|
|
Mortgage-backed securities in government sponsored entities
|
|
|
-
|
|
|
|
170,650
|
|
|
|
-
|
|
|
|
170,650
|
|
Loans held for sale
|
|
|
- |
|
|
|
15,529 |
|
|
|
- |
|
|
|
15,529 |
|
Derivative instruments – assets
|
|
|
-
|
|
|
|
7,724
|
|
|
|
548
|
|
|
|
8,272
|
|
Derivative instruments - liabilities
|
|
|
-
|
|
|
|
(4,701
|
)
|
|
|
-
|
|
|
|
(4,701
|
)
|
December 31, 2024
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Fair value measurements on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
1,747
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,747
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
|
-
|
|
|
|
53,487
|
|
|
|
-
|
|
|
|
53,487
|
|
U.S. Treasuries securities
|
|
|
120,502
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,502
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
94,902
|
|
|
|
-
|
|
|
|
94,902
|
|
Corporate obligations
|
|
|
-
|
|
|
|
10,438
|
|
|
|
-
|
|
|
|
10,438
|
|
Mortgage-backed securities in government sponsored entities
|
|
|
-
|
|
|
|
146,583
|
|
|
|
-
|
|
|
|
146,583
|
|
Loans held for sale
|
|
|
- |
|
|
|
9,607 |
|
|
|
- |
|
|
|
9,607 |
|
Derivative instruments – assets
|
|
|
-
|
|
|
|
10,053
|
|
|
|
317
|
|
|
|
10,370
|
|
Derivative instruments - liabilities
|
|
|
-
|
|
|
|
(5,817
|
)
|
|
|
-
|
|
|
|
(5,817
|
)
|
The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3)
for the three and six months ended June 30, 2025 and 2024 (in thousands):
For the three months ended June 30, 2025
|
|
|
|
|
|
IRLC-
Asset
|
|
Balance: March 31, 2025
|
|
$
|
472
|
|
Total unrealized losses:
|
|
|
|
|
Included in other comprehensive loss
|
|
|
-
|
|
Total gains included in earnings and held at reporting date
|
|
|
76
|
|
Purchases, sales and settlements |
|
|
- |
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
Ending Balance: June 30, 2025
|
|
$
|
548
|
|
Change in unrealized gains for the period included in earnings for assets held as of June 30, 2025
|
|
|
76
|
|
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2024
|
|
|
- |
|
For the six months ended June 30, 2025
|
|
|
|
|
|
IRLC-
Asset
|
|
Balance: December 31, 2024
|
|
$
|
317
|
|
Total unrealized losses:
|
|
|
|
|
Included in other comprehensive loss
|
|
|
-
|
|
Total gains included in earnings and held at reporting date
|
|
|
231
|
|
Purchases, sales and settlements |
|
|
- |
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
Ending Balance: June 30, 2025
|
|
$
|
548
|
|
Change in unrealized gains for the period included in earnings for assets held as of June 30, 2025
|
|
|
231
|
|
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2024
|
|
|
- |
|
For the three months ended June 30, 2024
|
|
|
|
|
|
IRLC-
Asset
|
|
|
|
$
|
566
|
|
|
|
|
|
|
Included in other comprehensive loss
|
|
|
-
|
|
Total losses included in earnings and held at reporting date
|
|
|
(72
|
)
|
Purchases, sales and settlements
|
|
|
-
|
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
Ending Balance: June 30, 2024
|
|
$ |
494 |
|
Change in unrealized (losses) for the period included in earnings for assets held as of June 30, 2024
|
|
|
(72
|
)
|
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2023
|
|
|
- |
|
For the six months ended June 30, 2024
|
|
|
|
|
|
IRLC-
Asset
|
|
Balance: December 31, 2023
|
|
$
|
324
|
|
Total unrealized losses:
|
|
|
|
|
Included in other comprehensive loss
|
|
|
-
|
|
Total gains included in earnings and held at reporting date
|
|
|
170
|
|
Purchases, sales and settlements
|
|
|
-
|
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
Ending Balance: June 30, 2024
|
|
$
|
494
|
|
Change in unrealized gains for the period included in earnings for assets held as of June 30, 2024
|
|
|
170
|
|
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2023
|
|
|
-
|
|
At June 30, 2025 and December 31, 2024, the Company had classified as Level 3 $548,000
and $317,000, respectively, of net derivative assets and liabilities related to IRLC. The fair value of IRLCs is based on prices
obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Company’s best estimate of the probability that a committed loan will fund. The weighted average pull-through rates
applied ranged from 71.98% to 96.29%
at June 30, 2025.
Significant unobservable inputs for assets measured at fair value on a recurring basis at June 30, 2025 and December 31, 2024 (dollars in thousands):
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
June 30, 2025 |
|
Fair
Value
|
|
Valuation
Technique
|
Significant
Unobservable
Input
|
|
Range
|
|
|
Weighted
Average
|
|
Measured at Fair Value on a Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative asset and liability:
|
|
|
|
|
|
|
|
|
|
|
|
IRLC
|
|
$
|
548
|
|
Discounted cash flows
|
Pull-through rates
|
|
|
71.98%-96.29
|
%
|
|
|
83.88
|
%
|
|
|
Quantitative Information about Level 3 Fair Value Measurements |
|
December 31, 2024 |
|
Fair
Value
|
|
Valuation
Technique |
Significant
Unobservable
Input
|
|
Range |
|
|
Weighted
Average
|
|
Measured
at Fair Value on a Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
derivative asset and liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLC |
|
$ |
317 |
|
Discounted cash flows
|
Pull-through rates |
|
|
76.35%-100.00
|
%
|
|
|
89.65 |
% |
Assets and
Liabilities Required to be Measured and Reported at Fair Value on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis as of June 30, 2025 and December 31,
2024 are included in the table below (in thousands):
June 30,
2025
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Collateral-dependent loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,155
|
|
|
$
|
2,155
|
|
Other real estate owned |
|
|
- |
|
|
|
- |
|
|
|
2,434 |
|
|
|
2,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2024
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Collateral-dependent loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,579
|
|
|
$
|
3,579
|
|
Other real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
2,486
|
|
|
|
2,486
|
|
|
• |
Collateral-Dependent Loans (in accordance with ASC 326) - The Company records nonrecurring adjustments of collateral-dependent loans held for investment. Such amounts are generally based on the fair value of the underlying collateral
supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures that include recent sales prices for comparable properties and cost of construction. Periodically, in cases where
the carrying value exceeds the fair value of the collateral less estimated cost to sell, an impairment charge is recognized in the form of a charge-off. The fair values above excluded estimated selling costs of $187,000 and $253,000 at June 30,
2025 and December 31, 2024, respectively.
|
|
• |
Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, less estimated costs to sell, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the
carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying
amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales
for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes
in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be
unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.
|
The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level
III techniques (dollars in thousands).
Quantitative Information about Level III Fair Value Measurements |
|
June 30,
2025
|
|
Fair
Value
|
|
Valuation Technique(s)
|
|
Unobservable input
|
|
Range
|
|
|
Weighted
average
|
|
Collateral-dependent loans
|
|
$
|
2,155
|
|
Appraised Collateral Values
|
|
Discount for time since appraisal
|
|
|
0-100
|
%
|
|
|
31.52
|
%
|
|
|
|
|
|
|
|
Selling costs
|
|
|
0%-10
|
%
|
|
|
8.67
|
%
|
|
|
|
|
|
|
|
Holding period
|
|
0 - 12 months
|
|
|
10.88 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
2,434 |
|
Appraised Collateral Values |
|
Discount for time since appraisal |
|
|
20-31.8 |
% |
|
|
31.52 |
% |
December 31, 2024
|
|
Fair
Value
|
|
Valuation Technique(s)
|
Unobservable input
|
Range
|
|
Weighted
average
|
|
Collateral-dependent loans
|
|
|
3,579
|
|
Appraised Collateral Values
|
Discount for time since appraisal
|
|
|
0-100
|
%
|
|
|
36.67
|
%
|
|
|
|
|
|
|
Selling costs
|
|
|
4%-12
|
%
|
|
|
7.05
|
%
|
|
|
|
|
|
|
Holding period
|
1 - 12 months
|
|
11.04 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
2,486
|
|
Appraised Collateral Values
|
Discount for time since appraisal
|
|
|
20-32 |
% |
|
|
31.32
|
%
|
Financial Instruments Not Required to be Measured or Reported at Fair Value
The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring
basis are as follows (in thousands):
June 30, 2025
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing time deposits with other banks
|
|
$
|
3,820
|
|
|
$
|
3,774
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,774
|
|
Net loans
|
|
|
2,219,646
|
|
|
|
2,163,927
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,163,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,292,662
|
|
|
|
2,289,738
|
|
|
|
1,828,008
|
|
|
|
-
|
|
|
|
461,730
|
|
Borrowed funds
|
|
|
313,219
|
|
|
|
307,441
|
|
|
|
-
|
|
|
|
-
|
|
|
|
295,081
|
|
December 31, 2024
|
|
Carrying
Amount
|
|
|
Fair Value |
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing time deposits with other banks
|
|
$
|
3,820
|
|
|
$
|
3,820
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,820
|
|
Net loans
|
|
|
2,291,543
|
|
|
|
2,209,083
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,209,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,382,028
|
|
|
|
2,377,438
|
|
|
|
1,842,223
|
|
|
|
-
|
|
|
|
535,215
|
|
Borrowed funds
|
|
|
297,721
|
|
|
|
284,952
|
|
|
|
-
|
|
|
|
-
|
|
|
|
284,952
|
|
The carrying amounts for cash and due from banks, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair
value and are considered Level I measurements.
|