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Fair Value of Assets and Liabilities | 9 Months Ended
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Sep. 30, 2021
Fair Value of Assets and Liabilities [Abstract] |
Fair Value of Assets and Liabilities | 10. Fair Value of Assets and Liabilities Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Financial Statements. Those assets and liabilities are presented in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis”. There are three levels of inputs that may be used to measure fair values: Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 16 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2021 and December 31, 2020 are as follows: Fair Value Measurement Using Reporting DateDescription Total Level 1 Level 2 Level 3September 30, 2021 (In thousands)ASSETS Available for Sale: U.S. Treasury securities $ 15,506 $ - $ 15,506 $ -U.S. Government agencies 14,048 14,048 States and political subdivisions 121,351 - 121,351 -Mortgage-backed securities-government sponsored entities 211,083 - 211,083 -Interest rate derivatives 171 - 171 - LIABILITIES Interest rate derivatives 171 - 171 - Description Total Level 1 Level 2 Level 3December 31, 2020 (In thousands)ASSETS Available for Sale: U.S. Government agencies $ 3,969 $ - $ 3,969 $ -States and political subdivisions 73,091 73,091 Corporate obligations 3,032 - 3,032 -Mortgage-backed securities-government sponsored entities 146,494 - 146,494 -Interest rate derivatives 276 - 276 - LIABILITIES Interest rate derivatives 276 - 276 - Securities: The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable. Interest rate derivatives: The fair value of interest rate derivatives is based on settlement values adjusted for credit risks associated with the counter parties and the Company and observable market interest rate curves. Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2021 and December 31, 2020 are as follows: Fair Value Measurement Using Reporting Date (In thousands) Description Total Level 1 Level 2 Level 3September 30, 2021 Impaired Loans $ 2,330 $ - $ - $ 2,330Foreclosed Real Estate Owned 1,876 - - 1,876December 31, 2020 Impaired Loans $ 2,662 $ - $ - $ 2,662Foreclosed Real Estate Owned 965 - - 965 Impaired loans (generally carried at fair value): The Company measures impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements. As of September 30, 2021, the fair value investment in impaired loans was $2,330,000 which included three loan relationships that did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan, and one loan relationship with a carrying value of $1,520,000 that required a valuation allowance of $275,000 based on the estimated realizable. As of September 30, 2021, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $0 over the life of the loans. As of December 31, 2020, the fair value investment in impaired loans totaled $2,662,000 which included six loan relationships that did not require a valuation allowance since either the estimated realizable value of the collateral or the discounted cash flows exceeded the recorded investment in the loan. As of December 31, 2020, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $652,000 over the life of the loans. There were no loan relationships which required a valuation allowance. Foreclosed real estate owned (carried at fair value): Real estate properties acquired through loan foreclosures, or by deed in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value: Quantitative Information about Level 3 Fair Value Measurements(dollars in thousands)Fair Value Estimate Valuation TechniquesUnobservable Input Range (Weighted Average)September 30, 2021 Impaired loans$ 2,330 Appraisal of collateral(1)Appraisal adjustments(2) 10%-18.09% (14.73%)Foreclosed real estate owned$ 1,876 Appraisal of collateral(1)Liquidation Expenses(2) 7.00% (7.00%) Quantitative Information about Level 3 Fair Value Measurements(dollars in thousands)Fair Value Estimate Valuation TechniquesUnobservable Input Range (Weighted Average)December 31, 2020 Impaired loans$ 2,662 Appraisal of collateral(1)Appraisal adjustments(2) 0%-10.59% (9.75%) Foreclosed real estate owned$ 965 Appraisal of collateral(1)Liquidation Expenses(2) 7.00% (7.00%) (1)Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable, less any associated allowance.(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. Assets and Liabilities Not Required to be Measured or Reported at Fair Value The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’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 Company’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 Company’s financial instruments at September 30, 2021 and December 31, 2020. Loans receivable (carried at cost): The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Mortgage servicing rights (generally carried at cost) The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights. Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation. Deposit liabilities (carried at cost): The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. Other borrowings (carried at cost): Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a fair value that is deemed to represent the transfer price if the liability were assumed by a third party. The estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as follows at September 30, 2021 and December 31, 2020. (In thousands) Fair Value Measurements at September 30, 2021 Carrying Amount Fair Value Level 1 Level 2 Level 3Financial assets: Cash and cash equivalents (1)$ 219,933 $ 219,933 $ 219,933 $ - $ -Loans receivable, net 1,354,899 1,415,701 - - 1,415,701Mortgage servicing rights 313 479 - - 479Regulatory stock (1) 3,898 3,898 3,898 - -Bank owned life insurance (1) 39,864 39,864 39,864 - -Accrued interest receivable (1) 6,049 6,049 6,049 - -Financial liabilities: Deposits 1,722,522 1,725,871 1,241,518 - 484,353Short-term borrowings (1) 78,246 78,246 78,246 - -Other borrowings 33,136 33,593 - - 33,593Accrued interest payable (1) 1,341 1,341 1,341 - -Off-balance sheet financial instruments: Commitments to extend credit and‎outstanding letters of credit - - - - - Fair Value Measurements at December 31, 2020 Carrying Amount Fair Value Level 1 Level 2 Level 3Financial assets: Cash and cash equivalents (1)$ 111,693 $ 111,693 $ 111,693 $ - $ -Loans receivable, net 1,397,582 1,493,480 - - 1,493,480Mortgage servicing rights 337 476 - - 476Regulatory stock (1) 3,981 3,981 3,981 - -Bank owned life insurance (1) 39,608 39,608 39,608 - -Accrued interest receivable (1) 6,232 6,232 6,232 - -Financial liabilities: Deposits 1,535,385 1,540,661 1,001,555 - 539,106Short-term borrowings (1) 63,303 63,303 63,303 - -Other borrowings 42,459 43,452 - - 43,452Accrued interest payable (1) 1,601 1,601 1,601 - -Off-balance sheet financial instruments: Commitments to extend credit and‎outstanding letters of credit - - - - - (1)This financial instrument is carried at cost, which approximates the fair value of the instrument.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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