Fair Value Measurements And Fair Values Of Financial Instruments

6 Months Ended

Jun. 30, 2021

Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]

Fair Value Measurements And Fair Values Of Financial Instruments

Note 11. Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates maybe different than the amounts reported at each year-end. The Corporation uses the exit price notion to measure the fair value of financial instruments.

FASB ASC Topic 820, “Financial Instruments”, requires disclosure of the fair value of financial assets and liabilities, including those financial assets and liabilities that are not measured and reported at fair value on a recurring and nonrecurring basis. The Corporation does not report any nonfinancial assets at fair value. FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy

gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1: Valuation is based on unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. There may be substantial differences in the assumptions used for securities within the same level. For example, prices for U.S. Agency securities have fewer assumptions and are closer to level 1 valuations than the private label mortgage-backed securities that require more assumptions and are closer to level 3 valuations.

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Corporation’s assumptions regarding what market participants would assume when pricing a financial instrument.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following information regarding the fair value of the Corporation’s financial instruments should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Corporation’s financial instruments measured at fair value on a recurring and nonrecurring basis.

Equity Securities: Equity securities are valued using quoted market prices from nationally recognized markets (Level 1). Equity securities are measured at fair value on a recurring basis.

Investment securities: Fair values of investment securities available-for-sale were primarily measured using information from a third-party pricing service. This service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Level 2 investment securities are primarily comprised of debt securities issued by states and municipalities, corporations, mortgage-backed securities issued by government agencies, and government-sponsored enterprises. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. Investment securities are measured at fair value on a recurring basis.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals conducted by an independent, licensed appraiser, less cost to sell. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach (Level 2). If the appraiser makes an adjustment to account for differences between the comparable sales and income data available for similar loans, or if management adjusts the appraised value, then the fair value is considered Level 3. Non-real estate collateral may be valued 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 and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy. No partial charge-offs on impaired loans were taken in the second quarter of 2021. Impaired loans are measured at fair value on a nonrecurring basis.

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Recurring Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)	Fair Value at June 30, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	482	$	—	$	—	$	482
Available for sale:
U.S. Government and Agency securities		69,074		10,644		—		79,718
Municipal securities		—		227,268		—		227,268
Corporate securities		—		24,411		—		24,411
Agency mortgage-backed securities		—		117,123		—		117,123
Private-label mortgage-backed securities		—		20,062		—		20,062
Asset-backed securities		—		43,665		—		43,665
Total assets	$	69,556	$	443,173	$	—	$	512,729

(Dollars in thousands)	Fair Value at December 31, 2020
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	391	$	—	$	—	$	391
Available for sale:
U.S. Government and Agency securities		—		12,574		—		12,574
Municipal securities		—		247,054		—		247,054
Corporate securities		—		20,288		—		20,288
Agency mortgage-backed securities		—		72,241		—		72,241
Private-label mortgage-backed securities		—		8,453		—		8,453
Asset-backed securities		—		36,330		—		36,330
Total assets	$	391	$	396,940	$	—	$	397,331

The fair value of derivative liabilities measured at fair value at June 30, 2021 and December 31, 2020 was $24 thousand and $40 thousand, respectively, and was considered immaterial.

Nonrecurring Fair Value Measurements

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2021 and December 31, 2020 are as follows:

(Dollars in Thousands)	Fair Value at June 30, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	5,474	$	5,474
Total assets	$	—	$	—	$	5,474	$	5,474

(Dollars in Thousands)	Fair Value at December 31, 2020
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	5,474	$	5,474
Total assets	$	—	$	—	$	5,474	$	5,474

(1)Includes assets that may have been charged-down to fair value during the reporting period or may have a specific reserve established.

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at June 30, 2021. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending June 30, 2021.

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The following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis at June 30, 2021 and December 31, 2020:

(Dollars in thousands)					Range
June 30, 2021		Fair Value	Valuation Technique	Unobservable Input	Weighted Average
Impaired loans	$	5,474	Appraisal	Appraisal Adjustment on	0%-100% (66%)
				Non-real estate assets
				Cost to sell	8%
					Range
December 31, 2020		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired Loans	$	5,474	Appraisal	Appraisal Adjustment	0% - 100% (66%)
				Cost to sell	8%

The carrying amounts and estimated fair value of financial instruments not carried at fair value are as follows:

	June 30, 2021
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	98,131	$	98,131	$	98,131	$	—	$	—
Long-term interest-bearing deposits in other banks		10,492		10,492		10,492		—		—
Loans held for sale		5,537		5,598		—		5,598		—
Net loans		983,980		1,007,488		—		—		1,007,488
Accrued interest receivable		6,059		6,059		—		—		6,059
Financial liabilities:
Deposits	$	1,491,208	$	1,535,180	$	—	$	1,535,180	$	—
Subordinate notes		19,571		20,215		—		20,215		—
Accrued interest payable		94		94		—		94		—
	December 31, 2020
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	57,146	$	57,146	$	57,146	$	—	$	—
Long-term interest-bearing deposits in other banks		12,741		12,741		12,741		—		—
Loans held for sale		9,446		9,446		—	9,446	9,446		—
Net loans		992,915		990,867		—		—		990,867
Accrued interest receivable		6,410		6,410		—		—		6,410
Financial liabilities:
Deposits	$	1,354,573	$	1,355,086	$	—	$	1,355,086	$	—
Subordinate notes		19,555		19,750		—		19,750		—
Accrued interest payable		180		180		—		180		—