Fair Value Measurements And Fair Values Of Financial Instruments

6 Months Ended

Jun. 30, 2022

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 2022. 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, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)	Fair Value at June 30, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	495	$	—	$	—	$	495
Available for sale:
U.S. Treasury		84,069		—		—		84,069
Municipal		—		182,194		—		182,194
Corporate		—		24,829		—		24,829
Agency mortgage & asset-backed		—		164,973		—		164,973
Non-Agency mortgage & asset-backed		—		53,722		—		53,722
Total assets	$	84,564	$	425,718	$	—	$	510,282

(Dollars in thousands)	Fair Value at December 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	481	$	—	$	—	$	481
Available for sale:
U.S. Government and Agency securities		84,286		—		—		84,286
Municipal securities		—		212,227		—		212,227
Corporate securities		—		24,939		—		24,939
Agency mortgage and asset-backed securities		—		177,685		—		177,685
Non-Agency mortgage and asset-backed securities		—		30,674		—		30,674
Total assets	$	84,767	$		$	—	$	530,292

The fair value of derivative liabilities measured at fair value at June 30, 2022 and December 31, 2021 was $7 thousand and $21 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, 2022 and December 31, 2021 are as follows:

(Dollars in Thousands)	Fair Value at June 30, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	4,881	$	4,881
Total assets	$	—	$	—	$	4,881	$	4,881

(Dollars in Thousands)	Fair Value at December 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	4,880	$	4,880
Total assets	$	—	$	—	$	4,880	$	4,880

(1)Includes assets that may have been charged-down to fair value during the reporting period or 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, 2022. 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, 2022.

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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, 2022 and December 31, 2021:

(Dollars in thousands)					Range
June 30, 2022		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	4,881	Appraisal	Appraisal Adjustment on:
				Real estate assets	20% (20%)
				Cost to sell	8%
				Non-real estate assets	50% - 100% (83%)
				Cost to sell	8%
					Range
December 31, 2021		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired Loans	$	4,880	Appraisal	Appraisal Adjustment on:
				Real estate assets	20% (20%)
				Cost to sell	8%
				Non-real estate assets	50% - 100% (83%)
				Cost to sell	8%

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

	June 30, 2022
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	198,269	$	198,269	$	198,269	$	—	$	—
Long-term interest-bearing deposits in other banks		12,476		12,476		12,476		—		—
Loans held for sale		2,054		2,094		—		2,094		—
Net loans		1,019,608		984,430		—		—		984,430
Accrued interest receivable		5,375		5,375		—		—		5,375
Financial liabilities:
Deposits	$	1,679,187	$	1,432,863	$	—	$	1,432,863	$	—
Subordinate notes		19,605		18,573		—		18,573		—
Accrued interest payable		70		70		—		70		—
	December 31, 2021
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	175,149	$	175,149	$	175,149	$	—	$	—
Long-term interest-bearing deposits in other banks		10,492		10,492		10,492		—		—
Loans held for sale		2,827		2,940		—		2,940		—
Net loans		983,746		1,003,580		—		—		1,003,580
Accrued interest receivable		5,217		5,217		—		—		5,217
Financial liabilities:
Deposits	$	1,584,359	$	1,616,128	$	—	$	1,616,128	$	—
Subordinate notes		19,588		19,909		—		19,909		—
Accrued interest payable		83		83		—		83		—