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Fair Value Measurements And Fair Values Of Financial Instruments | 9 Months Ended
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Sep. 30, 2021
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 third quarter of 2021. Impaired loans are measured at fair value on a nonrecurring basis. ‎ 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 September 30, 2021 and December 31, 2020 are as follows:
(Dollars in thousands) |  | Fair Value at September 30, 2021
Asset Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Equity securities, at fair value |  | $ | 473 |  | $ | — |  | $ | — |  | $ | 473
Available for sale: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and Agency securities |  |  | 79,499 |  |  | 10,147 |  |  | — |  |  | 89,646
Municipal securities |  |  | — |  |  | 232,276 |  |  | — |  |  | 232,276
Corporate securities |  |  | — |  |  | 24,956 |  |  | — |  |  | 24,956
Agency mortgage-backed securities |  |  | — |  |  | 126,117 |  |  | — |  |  | 126,117
Private-label mortgage-backed securities |  |  | — |  |  | 27,049 |  |  | — |  |  | 27,049
Asset-backed securities |  |  | — |  |  | 45,744 |  |  | — |  |  | 45,744
Total assets |  | $ | 79,972 |  | $ | 466,289 |  | $ | — |  | $ | 546,261
(Dollars in thousands) |  | Fair Value at December 31, 2020
Asset Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Equity securities, at fair value |  | $ | 391 |  | $ | — |  | $ | — |  | $ | 391
Available for sale: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and Agency securities |  |  | — |  |  | 12,574 |  |  | — |  |  | 12,574
Municipal securities |  |  | — |  |  | 247,054 |  |  | — |  |  | 247,054
Corporate securities |  |  | — |  |  | 20,288 |  |  | — |  |  | 20,288
Agency mortgage-backed securities |  |  | — |  |  | 72,241 |  |  | — |  |  | 72,241
Private-label mortgage-backed securities |  |  | — |  |  | 8,453 |  |  | — |  |  | 8,453
Asset-backed securities |  |  | — |  |  | 36,330 |  |  | — |  |  | 36,330
Total assets |  | $ | 391 |  | $ | 396,940 |  | $ | — |  | $ | 397,331
The fair value of derivative liabilities measured at fair value at September 30, 2021 and December 31, 2020 was $21 thousand and $40 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 September 30, 2021 and December 31, 2020 are as follows:
(Dollars in Thousands) |  | Fair Value at September 30, 2021
Asset Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Impaired loans (1) |  | $ | — |  | $ | — |  | $ | 4,379 |  | $ | 4,379
Total assets |  | $ | — |  | $ | — |  | $ | 4,379 |  | $ | 4,379
(Dollars in Thousands) |  | Fair Value at December 31, 2020
Asset Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Impaired loans (1) |  | $ | — |  | $ | — |  | $ | 5,474 |  | $ | 5,474
Total assets |  | $ | — |  | $ | — |  | $ | 5,474 |  | $ | 5,474
(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 no t record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at September 30, 2021. 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 September 30, 2021. ‎ The following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020:
(Dollars in thousands) |  |  |  |  |  |  |  |  | Range
September 30, 2021 |  |  | Fair Value |  | Valuation Technique |  | Unobservable Input |  | Weighted Average
Impaired loans |  | $ | 4,379 |  | Appraisal |  | Appraisal Adjustment on: |  |
|  |  |  |  |  |  | Real estate assets |  | 20% (20%)
|  |  |  |  |  |  | Non-real estate assets |  | 100% (100%)
|  |  |  |  |  |  | Cost to sell |  | 8%
|  |  |  |  |  |  |  |  | Range
December 31, 2020 |  |  | Fair Value |  | Valuation Technique |  | Unobservable Input |  | (Weighted Average)
Impaired Loans |  | $ | 5,474 |  | Appraisal |  | Appraisal Adjustment |  | 0% - 100% (66%)
|  |  |  |  |  |  | Cost to sell |  | 8%
The carrying amounts and estimated fair value of financial instruments not carried at fair value are as follows:
| September 30, 2021
| Carrying |  | Fair |  |  |  |  |  |  |
(Dollars in thousands) | Amount |  | Value |  | Level 1 |  | Level 2 |  | Level 3
Financial assets, carried at cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 98,893 |  | $ | 98,893 |  | $ | 98,893 |  | $ | — |  | $ | —
Long-term interest-bearing deposits in other banks |  | 10,742 |  |  | 10,742 |  |  | 10,742 |  |  | — |  |  | —
Loans held for sale |  | 4,114 |  |  | 4,223 |  |  | — |  |  | 4,223 |  |  | —
Net loans |  | 1,002,802 |  |  | 1,013,357 |  |  | — |  |  | — |  |  | 1,013,357
Accrued interest receivable |  | 5,543 |  |  | 5,543 |  |  | — |  |  | — |  |  | 5,543
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits | $ | 1,544,295 |  | $ | 1,580,215 |  | $ | — |  | $ | 1,580,215 |  | $ | —
Subordinate notes |  | 19,581 |  |  | 20,169 |  |  | — |  |  | 20,169 |  |  | —
Accrued interest payable |  | 90 |  |  | 90 |  |  | — |  |  | 90 |  |  | —
| December 31, 2020
| Carrying |  | Fair |  |  |  |  |  |  |  |  |
(Dollars in thousands) | Amount |  | Value |  | Level 1 |  | Level 2 |  | Level 3
Financial assets, carried at cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 57,146 |  | $ | 57,146 |  | $ | 57,146 |  | $ | — |  | $ | —
Long-term interest-bearing deposits in other banks |  | 12,741 |  |  | 12,741 |  |  | 12,741 |  |  | — |  |  | —
Loans held for sale |  | 9,446 |  |  | 9,446 |  |  | — |  | 9,446 | 9,446 |  |  | —
Net loans |  | 992,915 |  |  | 990,867 |  |  | — |  |  | — |  |  | 990,867
Accrued interest receivable |  | 6,410 |  |  | 6,410 |  |  | — |  |  | — |  |  | 6,410
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits | $ | 1,354,573 |  | $ | 1,355,086 |  | $ | — |  | $ | 1,355,086 |  | $ | —
Subordinate notes |  | 19,555 |  |  | 19,750 |  |  | — |  |  | 19,750 |  |  | —
Accrued interest payable |  | 180 |  |  | 180 |  |  | — |  |  | 180 |  |  | —

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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=117815213&loc=d3e19207-110258 + Details
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