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Fair Value Measurements
 9 Months Ended
Sep. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements

NOTE 8. Fair Value Measurements

GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

•

 

Level 1

 

Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

 

 

•

 

Level 2

 

Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

 

 

•

 

Level 3

 

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The following section provides a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy:

 

Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

 

Derivative instruments are recorded at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.

The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at September 30, 2025 and December 31, 2024:

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

September 30, 2025

 

 

 

 

 

 

Using

 

 

 

Balance as of

 

 

Quoted Prices
in Active
Markets for
Identical Assets

 

 

Significant
Other
Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

 

 

September 30, 2025

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

7,574

 

 

$

—

 

 

$

7,574

 

 

$

—

 

U.S. Treasury securities

 

 

10,008

 

 

 

—

 

 

 

10,008

 

 

 

—

 

Mortgage-backed securities

 

 

77,163

 

 

 

—

 

 

 

77,163

 

 

 

—

 

Collateralized mortgage obligations

 

 

22,789

 

 

 

 

 

 

22,789

 

 

 

 

Subordinated debt

 

 

3,845

 

 

 

—

 

 

 

3,345

 

 

 

500

 

Derivative:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps on loans

 

 

1,127

 

 

 

—

 

 

 

1,127

 

 

 

—

 

Total assets at fair value

 

$

122,506

 

 

$

—

 

 

$

122,006

 

 

$

500

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps on loans

 

$

1,127

 

 

$

—

 

 

$

1,127

 

 

$

—

 

Fair value swap

 

 

69

 

 

 

—

 

 

 

69

 

 

 

—

 

Total liabilities at fair value

 

$

1,196

 

 

$

—

 

 

$

1,196

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

December 31, 2024

 

 

 

 

 

 

Using

 

 

 

Balance as of

 

 

Quoted Prices
in Active
Markets for
Identical Assets

 

 

Significant
Other
Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

 

 

December 31, 2024

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

7,668

 

 

$

—

 

 

$

7,668

 

 

$

—

 

Mortgage-backed securities

 

 

104,967

 

 

 

—

 

 

 

104,967

 

 

 

—

 

Obligations of states and political subdivisions

 

 

4,645

 

 

 

—

 

 

 

4,645

 

 

 

—

 

Subordinated debt

 

 

4,050

 

 

 

—

 

 

 

4,050

 

 

 

—

 

Derivative:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps on loans

 

 

1,466

 

 

 

 

 

 

1,466

 

 

 

 

Fair value swap

 

 

93

 

 

 

—

 

 

 

93

 

 

 

—

 

Total assets at fair value

 

$

122,889

 

 

$

—

 

 

$

122,889

 

 

$

—

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps on loans

 

$

1,466

 

 

$

—

 

 

$

1,466

 

 

$

—

 

Total liabilities at fair value

 

$

1,466

 

 

$

—

 

 

$

1,466

 

 

$

—

 

 

The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis classified as Level 3 for the periods indicated. Level 3 securities for three and nine months ended September 30, 2025 consisted of one newly issued corporate subordinated debt security for which no pricing information was available and therefore priced at book value.

 

 

 

Level 3 Recurring Fair Value Measurements As Of and For The

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2025

 

2024

 

 

2025

 

2024

 

 

(in thousands)

 

 

(in thousands)

 

Beginning balance

$

—

 

$

—

 

 

$

—

 

$

—

 

Purchases

 

500

 

 

—

 

 

 

500

 

 

—

 

Sales

 

—

 

 

—

 

 

 

—

 

 

—

 

Issuances

 

—

 

 

—

 

 

 

—

 

 

—

 

Settlements

 

—

 

 

—

 

 

 

—

 

 

—

 

Total Gains (Losses) included in Net Income

 

—

 

 

—

 

 

 

—

 

 

—

 

Total Gains (Losses) included in OCI

 

—

 

 

—

 

 

 

—

 

 

—

 

Transfer into Level 3

 

—

 

 

—

 

 

 

—

 

 

—

 

Transfer out of Level 3

 

—

 

 

—

 

 

 

—

 

 

—

 

Total assets at fair value

$

500

 

$

—

 

 

$

500

 

$

—

 

 

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:

Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). The Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during nine months ended September 30, 2025 and the year ended December 31, 2024.

Individually Evaluated Collateral-Dependent Loans: The estimated fair value of individually evaluated collateral-dependent loans is based on the value of the underlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, marine vessels, equipment, inventory, accounts receivable, and/or other business assets. The value of real estate collateral is determined using a market valuation approach based on an appraisal conducted by an independent, licensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the Consolidated Statements of Income. At September 30, 2025 collateral-dependent loans totaling $2.3 million were individually evaluated and being carried at fair value of $2.0 million, the majority of which represents one relationship consisting of an owner occupied commercial real estate loan totaling $1.8 million. The remaining collateral-dependent loans of $478 thousand at September 30, 2025 were commercial business loans collateralized by equipment. At December 31, 2024 there were two collateral-dependent relationships totaling $908 thousand, which were individually evaluated and being carried at fair value of $659 thousand. These two relationships consist of four commercial business loans collateralized by equipment.

Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s

fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as collateral-dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held no other real estate owned at September 30, 2025 or December 31, 2024.

Repossessed Assets: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the asset, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant improvements are capitalized, whereas costs relating to holding assets are expensed. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of an asset to fair value less cost to sell. The fair value measurement of repossessed assets is assessed in the same manner as collateral dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held $1.0 million and $514 thousand at September 30, 2025 and December 31, 2024, respectively. Repossessed assets are included in Other Assets in the Consolidated Balance Sheets.

The following table summarizes the Company's financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at September 30, 2025 and December 31, 2024.

 

 

 

 

 

 

Carrying value at

 

 

 

 

 

 

September 30, 2025

 

 

 

Balance as of

 

 

Identical
Assets

 

 

Observable
Inputs

 

 

Unobservable
Inputs

 

 

 

September 30, 2025

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

(in thousands)

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral-dependent loans

 

$

1,989

 

 

$

—

 

 

$

—

 

 

$

1,989

 

Nonfinancial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Repossessed assets

 

 

1,009

 

 

 

—

 

 

 

—

 

 

 

1,009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value at

 

 

 

 

 

 

December 31, 2024

 

 

 

Balance as of

 

 

Quoted Prices
in Active
Markets
for Identical
Assets

 

 

Significant
Other
Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

 

 

December 31, 2024

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

(in thousands)

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral-dependent loans

 

$

659

 

 

$

—

 

 

$

—

 

 

$

659

 

Nonfinancial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Repossessed assets

 

 

514

 

 

 

—

 

 

 

—

 

 

 

514

 

 

 

 

The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial and nonfinancial assets measured at fair value on a nonrecurring basis for September 30, 2025 and December 31, 2024.

 

 

 

Quantitative information about Level 3 Fair Value Measurements

 

 

September 30, 2025

 

 

Valuation Technique(s)

 

Unobservable Input

 

Range

 

Weighted Average (1)

Assets:

 

 

 

 

 

 

 

 

Collateral dependent individually evaluated loans

 

Discounted value

 

Selling cost and appraisal discount

 

6% - 31%

 

9 %

Repossessed assets

 

Discounted appraised value

 

Selling cost

 

10 %

 

10 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quantitative information about Level 3 Fair Value Measurements

 

 

December 31, 2024

 

 

Valuation Technique(s)

 

Unobservable Input

 

Range

 

Weighted Average (1)

Assets:

 

 

 

 

 

 

 

 

Collateral dependent individually evaluated loans

 

Discounted value

 

Selling cost and appraisal discount

 

16 %

 

16 %

Repossessed assets

 

Discounted appraised value

 

Selling cost

 

10 %

 

10 %

(1) Weighted based on the relative fair value of the specific items measured at fair value.

 

The carrying value and fair value of the Company’s financial instruments at September 30, 2025 and December 31, 2024 were as follows:

 

 

 

Fair Value Measurements at

 

 

 

September 30, 2025

 

 

 

Using

 

 

 

Carrying
Value
as of

 

 

Quoted Prices
in Active
Markets for
Identical
Assets

 

 

Significant
Other
Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

 

Fair Value
as of

 

 

 

September 30, 2025

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

September 30, 2025

 

 

 

(in thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

268,129

 

 

$

268,129

 

 

$

—

 

 

$

—

 

 

$

268,129

 

Securities

 

 

121,379

 

 

 

—

 

 

 

120,879

 

 

 

500

 

 

 

121,379

 

Restricted investments

 

 

3,786

 

 

 

—

 

 

 

3,786

 

 

 

—

 

 

 

3,786

 

Loans held for sale

 

 

3,479

 

 

 

 

 

 

3,479

 

 

 

—

 

 

 

3,479

 

Loans, net

 

 

1,445,118

 

 

 

—

 

 

 

—

 

 

 

1,353,121

 

 

 

1,353,121

 

Bank owned life insurance

 

 

31,440

 

 

 

—

 

 

 

31,440

 

 

 

—

 

 

 

31,440

 

Accrued interest receivable

 

 

5,255

 

 

 

—

 

 

 

5,255

 

 

 

—

 

 

 

5,255

 

Derivative assets

 

 

1,127

 

 

 

—

 

 

 

1,127

 

 

 

—

 

 

 

1,127

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,655,048

 

 

$

—

 

 

$

1,655,617

 

 

$

—

 

 

$

1,655,617

 

Federal funds purchased

 

 

101

 

 

 

101

 

 

 

—

 

 

 

—

 

 

 

101

 

Federal Home Loan Bank advances, long-term

 

 

40,000

 

 

 

—

 

 

 

40,172

 

 

 

—

 

 

 

40,172

 

Subordinated debt, net of unamortized issuance costs

 

 

29,562

 

 

 

—

 

 

 

25,766

 

 

 

—

 

 

 

25,766

 

Accrued interest payable

 

 

991

 

 

 

—

 

 

 

991

 

 

 

—

 

 

 

991

 

Derivative liabilities

 

 

1,196

 

 

 

—

 

 

 

1,196

 

 

 

—

 

 

 

1,196

 

 

 

 

 

Fair Value Measurements at

 

 

 

December 31, 2024

 

 

 

Using

 

 

 

Carrying Value
as of

 

 

Quoted Prices
in Active
Markets for
Identical
Assets

 

 

Significant
Other
Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

 

Fair Value
as of

 

 

 

December 31, 2024

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

December 31, 2024

 

 

 

(in thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

$

193,159

 

 

$

193,159

 

 

$

—

 

 

$

—

 

 

$

193,159

 

Securities

 

 

121,330

 

 

 

—

 

 

 

121,330

 

 

 

—

 

 

 

121,330

 

Restricted Investments

 

 

7,557

 

 

 

—

 

 

 

7,557

 

 

 

—

 

 

 

7,557

 

Loans held for sale

 

 

2,660

 

 

 

—

 

 

 

2,660

 

 

 

—

 

 

 

2,660

 

Loans, net

 

 

1,452,022

 

 

 

—

 

 

 

—

 

 

 

1,358,734

 

 

 

1,358,734

 

Bank owned life insurance

 

 

30,621

 

 

 

—

 

 

 

30,621

 

 

 

—

 

 

 

30,621

 

Accrued interest receivable

 

 

5,149

 

 

 

—

 

 

 

5,149

 

 

 

—

 

 

 

5,149

 

Derivative assets

 

 

1,559

 

 

 

—

 

 

 

1,559

 

 

 

—

 

 

 

1,559

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,575,156

 

 

$

—

 

 

$

1,575,743

 

 

$

—

 

 

$

1,575,743

 

Federal Home Loan Bank advances, short-term

 

 

25,000

 

 

 

—

 

 

 

25,006

 

 

 

—

 

 

 

25,006

 

Federal Home Loan Bank advances, long-term

 

 

95,000

 

 

 

—

 

 

 

95,242

 

 

 

—

 

 

 

95,242

 

Subordinated debt, net of unamortized issuance costs

 

 

29,512

 

 

 

—

 

 

 

26,148

 

 

 

—

 

 

 

26,148

 

Accrued interest payable

 

 

2,249

 

 

 

—

 

 

 

2,249

 

 

 

—

 

 

 

2,249

 

Derivative liabilities

 

 

1,466

 

 

 

—

 

 

 

1,466

 

 

 

—

 

 

 

1,466