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FAIR VALUE MEASUREMENTS
 3 Months Ended
Mar. 31, 2020
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 the Banks have 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. The 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.

 

There were no liabilities measured at fair value as of March 31, 2020 or December 31, 2019. Disclosures concerning assets measured at fair value are as follows:

 

Assets 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 - December 31, 2018 March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

1,055

 

 

$

—

 

 

$

1,407

 

 

$

2,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale - March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. Government and federal agency

 

$

—

 

 

$

17,129

 

 

$

—

 

 

$

17,129

 

U. S. Treasury notes and bonds

 

 

—

 

 

 

2,074

 

 

 

—

 

 

 

2,074

 

State and municipal

 

 

—

 

 

 

178,587

 

 

 

11,552

 

 

 

190,139

 

Mortgage-backed

 

 

—

 

 

 

148,703

 

 

 

—

 

 

 

148,703

 

Corporate

 

 

—

 

 

 

2,859

 

 

 

—

 

 

 

2,859

 

Trust preferred securities

 

 

—

 

 

 

—

 

 

 

1,000

 

 

 

1,000

 

     Total

 

$

—

 

 

$

349,352

 

 

$

12,552

 

 

$

361,904

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Securities Held at Fair Value - December 31, 2018 December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

1,379

 

 

$

—

 

 

$

1,472

 

 

$

2,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale - December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. Government and federal agency

 

$

—

 

 

$

17,215

 

 

$

—

 

 

$

17,215

 

U. S. Treasury notes and bonds

 

 

—

 

 

 

2,008

 

 

 

—

 

 

 

2,008

 

State and municipal

 

 

—

 

 

 

162,557

 

 

 

11,367

 

 

 

173,924

 

Mortgage-backed

 

 

—

 

 

 

142,760

 

 

 

—

 

 

 

142,760

 

Corporate

 

 

—

 

 

 

2,672

 

 

 

—

 

 

 

2,672

 

Trust preferred securities

 

 

—

 

 

 

—

 

 

 

1,000

 

 

 

1,000

 

     Total

 

$

—

 

 

$

327,212

 

 

$

12,367

 

 

$

339,579

 

 

 

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

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

2020

 

 

2019

 

Equity Securities Held at Fair Value

 

 

 

 

 

 

Balance, January 1

 

$

1,472

 

 

$

886

 

Total realized and unrealized gains (losses) included in noninterest income

 

 

(65

)

 

 

77

 

Net purchases, sales, calls, and maturities

 

 

—

 

 

 

—

 

Net transfers into Level 3

 

 

—

 

 

 

—

 

Balance, March 31

 

$

1,407

 

 

$

963

 

 

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale

 

 

 

 

 

 

 

 

Balance, January 1

 

$

12,367

 

 

$

8,498

 

Total unrealized gains (losses) included in other comprehensive income

 

 

185

 

 

 

97

 

Net purchases, sales, calls, and maturities

 

 

—

 

 

 

—

 

Net transfers into Level 3

 

 

—

 

 

 

—

 

Balance, March 31

 

$

12,552

 

 

$

8,595

 

 

Of the available for sale Level 3 assets that were held by ChoiceOne at March 31, 2020, the net unrealized gain as of March 31, 2020 was $571,000, which was recognized in accumulated other comprehensive income in the consolidated balance sheet. 

 

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 primarily consist of bonds issued by local municipalities and common and preferred equity securities of community banks. ChoiceOne estimates the fair value of these bonds and 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)

Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

$

5,375

 

 

$

—

 

 

$

—

 

 

$

5,375

 

December 31, 2019

 

$

5,922

 

 

$

—

 

 

$

—

 

 

$

5,922

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

$

926

 

 

$

—

 

 

$

—

 

 

$

926

 

December 31, 2019

 

$

929

 

 

$

—

 

 

$

—

 

 

$

929

 

 

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired.  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 impaired loans that were posted to the allowance for loan losses and write-downs of other real estate that were posted to a valuation account.