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Fair Value Measurements
6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements

NOTE 6 – FAIR VALUE MEASUREMENTS

The following tables present information about assets and liabilities measured at fair value on a recurring basis and the valuation techniques used to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that ChoiceOne Bank has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. ChoiceOne Bank’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

Disclosures concerning assets and liabilities measured at fair value are as follows:

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

 

In Active

 

 

Significant

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

Balance

 

(Dollars in thousands)

Assets

 

 

Inputs

 

 

Inputs

 

 

at Date

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Indicated

 

Equity Securities Held at Fair Value - June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

Equity securities

$

5,599

 

 

$

-

 

 

$

2,700

 

 

$

8,299

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale - June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes and bonds

$

78,395

 

 

$

-

 

 

$

-

 

 

$

78,395

 

State and municipal

 

-

 

 

 

232,797

 

 

 

-

 

 

 

232,797

 

Mortgage-backed

 

-

 

 

 

197,649

 

 

 

-

 

 

 

197,649

 

Corporate

 

-

 

 

 

705

 

 

 

-

 

 

 

705

 

Asset-backed securities

 

-

 

 

 

11,656

 

 

 

-

 

 

 

11,656

 

Total

$

78,395

 

 

$

442,807

 

 

$

-

 

 

$

521,202

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Instruments - June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivative contracts - assets

$

-

 

 

$

11,177

 

 

$

-

 

 

$

11,177

 

Interest rate derivative contracts - liabilities

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

Equity Securities Held at Fair Value - December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

Equity securities

$

6,024

 

 

$

-

 

 

$

2,542

 

 

$

8,566

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale - December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

U. S. Government and federal agency

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

U. S. Treasury notes and bonds

 

78,204

 

 

 

-

 

 

 

-

 

 

 

78,204

 

State and municipal

 

-

 

 

 

229,938

 

 

 

-

 

 

 

229,938

 

Mortgage-backed

 

-

 

 

 

208,563

 

 

 

-

 

 

 

208,563

 

Corporate

 

-

 

 

 

711

 

 

 

-

 

 

 

711

 

Asset-backed securities

 

-

 

 

 

12,333

 

 

 

-

 

 

 

12,333

 

Total

$

78,204

 

 

$

451,545

 

 

$

-

 

 

$

529,749

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Instruments - December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivative contracts - assets

$

-

 

 

$

9,204

 

 

$

-

 

 

$

9,204

 

Interest rate derivative contracts - liabilities

$

-

 

 

$

5,823

 

 

$

-

 

 

$

5,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

 

 

Six Months Ended

 

(Dollars in thousands)

June 30,

 

 

2023

 

 

2022

 

Equity Securities Held at Fair Value

 

 

 

 

 

Balance, January 1

$

2,542

 

 

$

1,768

 

Total realized and unrealized gains included in noninterest income

 

60

 

 

 

(5

)

Net purchases, sales, calls, and maturities

 

98

 

 

 

63

 

Net transfers into Level 3

 

-

 

 

 

-

 

Balance, June 30,

$

2,700

 

 

$

1,826

 

 

 

 

 

 

Amount of total losses for the period included in earning attributable to the change in
   unrealized gains (losses) relating to assets and liabilities still held at June 30,

$

60

 

 

$

(5

)

 

 

 

 

 

Investment Securities, Available for Sale

 

 

 

 

 

Balance, January 1

$

-

 

 

$

21,050

 

Total unrealized gains included in other comprehensive income

 

-

 

 

 

-

 

Net purchases, sales, calls, and maturities

 

-

 

 

 

-

 

Net transfers into Level 3

 

-

 

 

 

-

 

Transfer to held to maturity

 

-

 

 

 

(21,050

)

Balance, June 30,

$

-

 

 

$

-

 

 

 

 

 

 

Amount of total losses for the period included in earning attributable to the change in
   unrealized gains (losses) relating to assets and liabilities still held at June 30,

$

-

 

 

$

-

 

 

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 investment securities and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Securities categorized as Level 3 assets as of June 30, 2023 and December 31, 2022 primarily consist of common and preferred equity securities of community banks. ChoiceOne estimates the fair value of these equity securities based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.

ChoiceOne also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:

 

Assets Measured at Fair Value on a Non-recurring Basis

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

 

In Active

 

 

Significant

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

Balances at

 

 

Identical

 

 

Observable

 

 

Unobservable

 

(Dollars in thousands)

Dates

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

Indicated

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Collateral Dependent Loans

 

 

 

 

 

 

 

 

 

 

 

June 30, 2023

$

676

 

 

$

-

 

 

$

-

 

 

$

676

 

December 31, 2022

$

2,846

 

 

$

-

 

 

$

-

 

 

$

2,846

 

 

 

 

 

 

 

 

 

 

 

 

Other Real Estate

 

 

 

 

 

 

 

 

 

 

 

June 30, 2023

$

266

 

 

$

-

 

 

$

-

 

 

$

266

 

December 31, 2022

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

Collateral dependent loans categorized as Level 3 assets consist of non-homogeneous loans that are considered non-accrual or higher risk. ChoiceOne estimates the fair value of the loans based on the present value of expected future cash flows using management’s estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of collateral dependent loans that were posted to the allowance for credit losses and write-downs of other real estate that were posted to a valuation account.