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Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements

NOTE 6 – FAIR VALUE MEASUREMENTS

 

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2024 and December 31, 2023, and the valuation techniques used by the Company 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 Company 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. The Company’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 - September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

Equity securities

$

4,919

 

 

$

-

 

 

$

2,897

 

 

$

7,816

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale - September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes and bonds

$

82,232

 

 

$

-

 

 

$

-

 

 

$

82,232

 

State and municipal

 

-

 

 

 

235,034

 

 

 

-

 

 

 

235,034

 

Mortgage-backed

 

-

 

 

 

170,759

 

 

 

-

 

 

 

170,759

 

Corporate

 

-

 

 

 

213

 

 

 

-

 

 

 

213

 

Asset-backed securities

 

-

 

 

 

9,314

 

 

 

-

 

 

 

9,314

 

Total

$

82,232

 

 

$

415,320

 

 

$

-

 

 

$

497,552

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Instruments - September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivative contracts - assets

$

-

 

 

$

6,410

 

 

$

-

 

 

$

6,410

 

Interest rate derivative contracts - liabilities

$

-

 

 

$

2,004

 

 

$

-

 

 

$

2,004

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan Swaps - September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

Loan swaps - assets

$

-

 

 

$

1,331

 

 

$

-

 

 

$

1,331

 

Loan swaps - liabilities

$

-

 

 

$

1,331

 

 

$

-

 

 

$

1,331

 

 

 

 

 

 

 

 

 

 

 

 

Equity Securities Held at Fair Value - December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

Equity securities

$

4,749

 

 

$

-

 

 

$

2,756

 

 

$

7,505

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities, Available for Sale - December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

U. S. Treasury notes and bonds

$

80,194

 

 

$

-

 

 

$

-

 

 

$

80,194

 

State and municipal

 

-

 

 

 

234,682

 

 

 

-

 

 

 

234,682

 

Mortgage-backed

 

-

 

 

 

188,501

 

 

 

-

 

 

 

188,501

 

Corporate

 

-

 

 

 

204

 

 

 

-

 

 

 

204

 

Asset-backed securities

 

-

 

 

 

11,017

 

 

 

-

 

 

 

11,017

 

Total

$

80,194

 

 

$

434,404

 

 

$

-

 

 

$

514,598

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Instruments - December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivative contracts - assets

$

-

 

 

$

8,880

 

 

$

-

 

 

$

8,880

 

Interest rate derivative contracts - liabilities

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs. ChoiceOne’s external investment advisor obtained fair value measurements from an independent pricing service that uses 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 (Level 2 inputs). The fair value measurements considered observable data that may include dealer quotes, market spreads, cash flows and the bonds' terms and conditions, among other things. Securities classified in Level 2 included U.S. Government and federal agency securities, state and municipal securities, mortgage-backed securities, corporate bonds, and asset backed securities. The Company classified certain state and municipal securities and corporate bonds, and equity securities as Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable unobservable market data.

 

 

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

 

 

Nine Months Ended

 

(Dollars in thousands)

September 30,

 

 

2024

 

 

2023

 

Equity Securities Held at Fair Value

 

 

 

 

 

Balance, January 1

$

2,756

 

 

$

2,542

 

Total realized and unrealized gains included in noninterest income

 

71

 

 

 

67

 

Net purchases, sales, calls, and maturities

 

70

 

 

 

110

 

Net transfers into Level 3

 

-

 

 

 

-

 

Balance, September 30,

$

2,897

 

 

$

2,719

 

 

 

 

 

 

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 September 30,

$

36

 

 

$

-

 

 

Of the Level 3 assets that were held by the Company at September 30, 2024, the net unrealized gain as of September 30, 2024 was $283,000, compared to $208,000 as of September 30, 2023. The change in the net unrealized gain or loss is recognized in noninterest income or other comprehensive income in the consolidated balance sheets and income statements. Amounts recognized in noninterest income relate to changes in equity securities. A total of $70,000 and $110,000 of Level 3 securities were purchased during the nine months ended 2024 and 2023, respectively.

 

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets 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.

The Company 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

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024

$

1,155

 

 

$

-

 

 

$

-

 

 

$

1,155

 

December 31, 2023

$

387

 

 

$

-

 

 

$

-

 

 

$

387

 

 

 

 

 

 

 

 

 

 

 

 

Other Real Estate

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024

$

529

 

 

$

-

 

 

$

-

 

 

$

529

 

December 31, 2023

$

122

 

 

$

-

 

 

$

-

 

 

$

122

 

 

Collateral dependent loans classified as Level 3 are loans for which the repayment is expected to be provided substantially through the sale or operation of the collateral when the borrower is experiencing financial difficulty. The fair value of the collateral should be adjusted for estimated costs to sell if the repayment depends on the sale of the collateral. The net carrying amount of the loan should not exceed the fair value of the collateral (less costs to sell, if applicable).