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Disclosures about Fair Value Measurements and Financial Instruments | 9 Months Ended
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Sep. 30, 2021
Disclosures about Fair Value Measurements and Financial Instruments |
Disclosures about Fair Value Measurements and Financial Instruments | 19. Disclosures about Fair Value Measurements and Financial Instruments The following disclosures establish a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The three broad levels defined within this hierarchy are as follows: Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed. Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Assets and Liabilities Measured and Recorded on a Recurring Basis Equity securities are reported at fair value utilizing Level 1 inputs. These securities are mutual funds held within a rabbi trust for the Company's executive deferred compensation plan. The mutual funds held are open-end funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price. Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the US Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair values of the interest rate swaps used for interest rate risk management and the risk participation agreement associated with a commercial real estate loan are based on an external derivative valuation model using data inputs from similar transactions as of the valuation date and classified Level 2. ​ The following table presents the assets and liabilities measured and reported on the Consolidated Balance Sheets on a recurring basis at their fair value as of September 30, 2021 and December 31, 2020, by level within the fair value hierarchy (in thousands).
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurements at September 30, 2021
​ |  | TOTAL |  | (LEVEL 1) |  | (LEVEL 2) |  | (LEVEL 3)
Equity securities (1) | ​ | $ | 516 | ​ | $ | 516 | ​ | $ | — | ​ | $ | —
Available for sale securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. Agency | ​ |  | 7,635 | ​ |  | — | ​ |  | 7,635 | ​ |  | —
U.S. Agency mortgage-backed securities | ​ | ​ | 78,760 | ​ | ​ | — | ​ | ​ | 78,760 | ​ | ​ | —
Municipal | ​ |  | 20,302 | ​ |  | — | ​ |  | 20,302 | ​ |  | —
Corporate bonds | ​ |  | 53,656 | ​ |  | — | ​ |  | 53,656 | ​ |  | —
Interest rate swap asset (1) | ​ |  | 1,574 | ​ |  | — | ​ |  | 1,574 | ​ |  | —
Interest rate swap liability (2) | ​ |  | (1,574) | ​ |  | — | ​ |  | (1,574) | ​ |  | —
Risk participation agreement (2) | ​ |  | (8) | ​ |  | — | ​ |  | (8) | ​ |  | —
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurements at December 31, 2020
​ |  | TOTAL |  | (LEVEL 1) |  | (LEVEL 2) |  | (LEVEL 3)
Equity securities (1) | ​ | $ | 443 | ​ | $ | 443 | ​ | $ | — | ​ | $ | —
Available for sale securities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. Agency | ​ | ​ | 3,152 | ​ | ​ | — | ​ | ​ | 3,152 | ​ | ​ | —
U.S. Agency mortgage-backed securities | ​ |  | 67,913 | ​ |  | — | ​ |  | 67,913 | ​ |  | —
Municipal | ​ |  | 20,348 | ​ |  | — | ​ |  | 20,348 | ​ |  | —
Corporate bonds | ​ |  | 52,752 | ​ |  | — | ​ |  | 52,752 | ​ |  | —
Interest rate swap asset (1) | ​ |  | 3,320 | ​ |  | — | ​ |  | 3,320 | ​ |  | —
Interest rate swap liability (2) | ​ |  | (3,320) | ​ |  | — | ​ |  | (3,320) | ​ |  | —
(1) | Included within other assets on the Consolidated Balance Sheets.
(2) | Included within other liabilities on the Consolidated Balance Sheets.
​ Assets Measured and Recorded on a Non-Recurring Basis Loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are reported at the fair value of the underlying collateral if the repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data which at times are discounted using unobservable inputs. At September 30, 2021, collateral-based impaired loans with a carrying value of $7,000 were reduced by a specific valuation allowance totaling $6,000 resulting in a net fair value of $1,000. At December 31, 2020, collateral-based impaired loans with a carrying value of $266,000 were reduced by a specific valuation allowance totaling $8,000 resulting in a net fair value of $258,000. Other real estate owned is measured at fair value based on appraisals, less estimated costs to sell at the date of foreclosure. The Bank’s internal Assigned Risk Department estimates the fair value of repossessed assets, such as vehicles and equipment, using a formula driven analysis based on automobile or other industry data, less estimated costs to sell at the time of repossession. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO and repossessed assets. Assets measured and recorded at fair value on a non-recurring basis are summarized below (in thousands, except range data):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurements
September 30, 2021 |  | TOTAL |  | (LEVEL 1) |  | (LEVEL 2) |  | (LEVEL 3)
Impaired loans | ​ | $ | 1 | ​ | $ | — | ​ | $ | — | ​ | $ | 1
Other real estate owned and repossessed assets | ​ |  | 8 | ​ |  | — | ​ |  | — | ​ |  | 8
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurements
December 31, 2020 |  | TOTAL |  | (LEVEL 1) |  | (LEVEL 2) |  | (LEVEL 3)
Impaired loans | ​ | $ | 258 | ​ | $ | — | ​ | $ | — | ​ | $ | 258
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Quantitative Information About Level 3 Fair Value Measurements |
​ | ​ | ​ | ​ | Valuation | ​ | Unobservable | ​ | ​ | ​
September 30, 2021 |  | Fair Value |  | Techniques |  | Input |  | Range (Wgtd Avg) |
Impaired loans | ​ | $ | 1 |  | Appraisal of |  | Appraisal |  | 0% to 100% (89%) | ​
​ | ​ | ​ | ​ | ​ | collateral (1) | ​ | adjustments(2) | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other real estate owned and repossessed assets | ​ |  | 8 |  | Appraisal of |  | Appraisal |  | 30% (30%) | ​
​ | ​ |  |  |  | collateral (1) |  | adjustments(2) |  | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | Liquidation | ​ | 3% (3%) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | expenses | ​ | ​ | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Quantitative Information About Level 3 Fair Value Measurements |
​ | ​ | ​ | ​ | Valuation | ​ | Unobservable | ​ | ​ | ​
December 31, 2020 |  | Fair Value |  | Techniques |  | Input |  | Range (Wgtd Avg) |
Impaired loans |  | $ | 258 |  | Appraisal of | ​ | Appraisal |  | 0% to 100% (3%) | ​
​ |  |  | ​ |  | collateral (1) |  | adjustments(2) |  | ​ | ​
(1) | Fair Value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable. Also includes qualitative adjustments by management and estimated liquidation expenses.
(2) | Appraisals may be adjusted by management for qualitative factors such as economic conditions.
​ FAIR VALUE OF FINANCIAL INSTRUMENTS For the Company, as for most financial institutions, approximately 90% of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market characterized by a willing buyer and willing seller engaging in an exchange transaction. Therefore, significant estimates and present value calculations were used by the Company for the purpose of this disclosure. Fair values have been determined by the Company using independent third party valuations that use the best available data (Level 2) and an estimation methodology (Level 3) the Company believes is suitable for each category of financial instruments. Management believes that cash and cash equivalents, bank owned life insurance, regulatory stock, accrued interest receivable and payable, deposits with no stated maturities, and short-term borrowings have fair values which approximate the recorded carrying values. The fair value measurements for all of these financial instruments are Level 1 measurements. The estimated fair values based on US GAAP measurements and recorded carrying values at September 30, 2021 and December 31, 2020, for the remaining financial instruments not required to be measured or reported at fair value were as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | September 30, 2021
​ |  | Carrying |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​
​ | ​ | Value | ​ | ​ | Fair Value | ​ | ​ | (Level 1) | ​ | ​ | (Level 2) | ​ | ​ | (Level 3)
​ | ​ | ​ | (IN THOUSANDS)
FINANCIAL ASSETS: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Investment securities – HTM | ​ | $ | 53,942 | ​ | $ | 56,070 | ​ | $ | — | ​ | $ | 53,071 | ​ | $ | 2,999
Loans, net of allowance for loan loss and unearned income | ​ |  | 983,905 | ​ | ​ | 988,679 | ​ | ​ | — | ​ |  | — | ​ |  | 988,679
FINANCIAL LIABILITIES: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Deposits with stated maturities | ​ | ​ | 303,025 | ​ | ​ | 305,424 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 305,424
All other borrowings (1) | ​ |  | 70,253 | ​ |  | 71,207 | ​ |  | — | ​ |  | — | ​ |  | 71,207
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, 2020
​ |  | Carrying | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Value | ​ |  | Fair Value | ​ |  | (Level 1) | ​ |  | (Level 2) | ​ |  | (Level 3)
​ | ​ | ​ | (IN THOUSANDS)
FINANCIAL ASSETS: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Investment securities – HTM | ​ | $ | 44,222 | ​ | $ | 47,106 | ​ | $ | — | ​ | $ | 44,108 | ​ | $ | 2,998
Loans held for sale | ​ |  | 6,250 | ​ | ​ | 6,428 | ​ | ​ | 6,428 | ​ |  | — | ​ |  | —
Loans, net of allowance for loan loss and unearned income | ​ |  | 960,750 | ​ | ​ | 969,433 | ​ | ​ | — | ​ |  | — | ​ |  | 969,433
FINANCIAL LIABILITIES: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Deposits with stated maturities | ​ | ​ | 311,064 | ​ | ​ | 314,845 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 314,845
All other borrowings(1) | ​ |  | 85,493 | ​ |  | 90,907 | ​ |  | — | ​ |  | — | ​ |  | 90,907
(1) | All other borrowings include advances from Federal Home Loan Bank, guaranteed junior subordinated deferrable interest debentures, and subordinated debt.
​ Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Company’s remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary under historical cost accounting.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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