Princeton Bancorp, Inc.BPRN
Princeton Bancorp, Inc. Fair Value Disclosure
Note 15 – Fair Value Measurements and Disclosure
The Company follows the guidance on fair value measurements codified as FASB ASC Topic 820, Fair Value Measurement (“Topic 820”). Fair value measurements are not adjusted for transaction costs. Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
Management uses its best judgment in estimating the fair value of the Company’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 Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective
period-end
and have not been re-evaluated
or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.
The fair value measurement 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 are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
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.
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2024 were as follows:
| Description |
(Level 1) Quoted Price in Active Markets for Identical Assets |
(Level 2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
Total Fair Value December 31, 2024 |
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| (In thousands) | ||||||||||||||||
| Mortgage-backed securities -U.S. government sponsored enterprise (GSEs) |
$ | — | $ | 190,545 | $ | — | $ | 190,545 | ||||||||
| U.S. government agency securities |
— | 10,200 | — | 10,200 | ||||||||||||
| Obligations of state and political subdivisions |
— | 39,730 | — | 39,730 | ||||||||||||
| Small Business Association (SBA) securities |
— | 1,857 | — | 1,857 | ||||||||||||
| U.S. treasury securities |
4,839 | — | — | 4,839 | ||||||||||||
| Mortgage servicings rights |
— | 1,060 | 1,060 | |||||||||||||
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| Financial assets at fair value |
$ | 4,839 | $ | 243,392 | $ | — | $ | 248,231 | ||||||||
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For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2023 were as follows:
| Description |
(Level 1) Quoted Price in Active Markets for Identical Assets |
(Level 2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
Total Fair Value December 31, 2023 |
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| (In thousands) | ||||||||||||||||
| Mortgage-backed securities -U.S. government sponsored enterprise (GSEs) |
$ | — | $ | 42,634 | $ | — | $ | 42,634 | ||||||||
| U.S. government agency securities |
5,291 | — | 5,291 | |||||||||||||
| Obligations of state and political subdivisions |
— | 40,809 | — | 40,809 | ||||||||||||
| Small Business Association (SBA) securities |
— | 2,618 | — | 2,618 | ||||||||||||
| Mortgage servicings rights |
— | 1,562 | 1,562 | |||||||||||||
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| Financial assets at fair value |
$ | — | $ | 92,914 | $ | — | $ | 92,914 | ||||||||
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For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2024, were as follows:
| Description |
(Level 1) Quoted Price in Active Markets for Identical Assets |
(Level 2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
Total Fair Value December 31, 2024 |
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| (In thousands) | ||||||||||||||||
| Collateral dependent loan |
$ | — | $ | — | $ | 16,223 | $ | 16,223 | ||||||||
| Other real estate owned 1 |
295 | 295 | ||||||||||||||
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| $ | — | $ | — | $ | 16,518 | $ | 16,518 | |||||||||
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1 |
The Bank charged off approximately $197,000 during the year ended December 31, 2024, prior to the property being transferred to other real estate owned. |
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2023, were as follows:
| Description |
(Level 1) Quoted Price in Active Markets for Identical Assets |
(Level 2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
Total Fair Value December 31, 2023 |
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| (In thousands) | ||||||||||||||||
| Collateral dependent loan |
$ | — | $ | — | $ | 4,485 | $ | 4,485 | ||||||||
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| $ | — | $ | — | $ | 4,485 | $ | 4,485 | |||||||||
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The following table presents quantitative information with regards to Level 3 fair value measurements at December 31, 2024.
| Description |
December 31, 2024 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average) |
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| (Dollars in thousands) | ||||||||||||||
| Collateral dependent loan |
$ | 16,223 | Collateral | 1 |
Discount | 12.0 | % | |||||||
| adjustment | 12.0 | % | ||||||||||||
| Other real estate owned 2 |
$ | 295 | Collateral | 1 |
Discount | 0.0 | % | |||||||
| adjustment | 0.0 | % | ||||||||||||
1 |
Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales. |
2 |
The other real estate owned was written down to the estimated net realizable value. |
The following table presents quantitative information with regards to Level 3 fair value measurements at December 31, 2023.
| Description |
December 31, 2023 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average) |
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| Discount | 0.0 | % | ||||||||||||
| Collateral dependent loan |
$ | 4,485 | Collateral | 1 |
adjustment | (0.0 | %) | |||||||
1 |
Value based on third party offer to purchase note from the Bank. |
There were no liabilities measured at fair value on a recurring or nonrecurring basis at December 31, 2024 or 2023.
The following methods and assumptions were used by the Company in estimating fair value disclosures:
Investment Securities
The fair value of securities (carried at fair value) and (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. Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry, and not adjusted by management. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
available-for-sale
held-to-maturity
Individual evaluated loans (generally carried at fair value)
Individual loans carried at fair value are those loans in which the Company has measured for a reserve are generally based on the fair value of the related loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds, discounted for estimated selling costs or other factors the Company determines will impact collection of proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Loans Receivable, net
The fair value of loans receivable, net is based on discounted cash flow methodologies for which the determination of fair value may require significant management judgement.
Deposits
The fair value of demand deposits is considered to approximate fair value since they are due upon demand. The fair value of time deposits is based on discounted cash flow methodologies of observable market rate data.
Borrowings
Borrowings held by the Company that are overnight, the carrying value is deemed to be its approximate fair value.
Restricted investment in Company stock and accrued interest receivable and accrued interest payable
Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business. The fair value has not been estimated for assets and liabilities that are not considered financial instruments.
Mortgage Servicing Rights
The Company uses a third party to estimate the fair value of mortgage servicing rights and they are carried at fair value and included in other assets on the statement of financial condition.
The carrying amounts and estimated fair value of financial instruments are as follows:
December 31, 2024 |
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Carrying Amount |
Estimated Fair Value |
Level 1 |
Level 2 |
Level 3 |
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| Financial Assets: |
(In thousands) | |||||||||||||||||||
| Cash and cash equivalents |
$ | 117,348 | $ | 117,348 | $ | 117,348 | $ | — | $ | — | ||||||||||
| Securities available-for-sale |
247,171 | 247,171 | 4,389 | 242,782 | — | |||||||||||||||
| Securities held-to-maturity |
161 | 162 | — | 162 | — | |||||||||||||||
| Loans receivable, net |
1,795,218 | 1,798,302 | — | — | 1,798,302 | |||||||||||||||
| Restricted investments in bank stock |
2,075 | 2,075 | — | 2,075 | — | |||||||||||||||
| Accrued interest receivable |
7,975 | 7,975 | — | 7,975 | — | |||||||||||||||
| Equity method investments |
11,160 | 11,160 | — | 6,850 | 4,310 | |||||||||||||||
| Mortgage servicing rights |
1,060 | 1,060 | — | 1,060 | — | |||||||||||||||
| Financial Liabilities: |
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| Deposits |
$ | 2,032,625 | 1,934,884 | $ | — | $ | 1,934,884 | $ | — | |||||||||||
| Accrued interest payable |
15,401 | 15,401 | — | 15,401 | — | |||||||||||||||
December 31, 2023 |
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Carrying Amount |
Estimated Fair Value |
Level 1 |
Level 2 |
Level 3 |
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| Financial assets: |
(In thousands) | |||||||||||||||||||
| Cash and cash equivalents |
$ | 150,557 | $ | 150,557 | $ | 150,557 | $ | — | $ | — | ||||||||||
| Securities available-for-sale |
91,352 | 91,352 | — | 91,352 | — | |||||||||||||||
| Securities held-to-maturity |
193 | 192 | — | 192 | — | |||||||||||||||
| Loans receivable, net |
1,529,843 | 1,425,814 | — | — | 1,425,814 | |||||||||||||||
| Restricted investments in bank stock |
1,410 | 1,410 | — | 1,410 | — | |||||||||||||||
| Accrued interest receivable |
6,089 | 6,089 | — | 6,089 | — | |||||||||||||||
| Equity method investments |
8,296 | 8,296 | — | 5,900 | 2,396 | |||||||||||||||
| Mortgage servicing rights |
1,562 | 1,562 | — | 1,562 | — | |||||||||||||||
| Financial liabilities: |
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| Deposits |
$ | 1,635,741 | $ | 1,581,762 | $ | — | $ | 1,581,762 | $ | — | ||||||||||
| Accrued interest payable |
9,162 | 9,162 | — | 9,162 | — | |||||||||||||||
Limitations
The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale. This is due to the fact that no active market exists for a sizable portion of the loan, deposit and
off-balance
sheet instruments. In addition, the fair value estimates are based on existing on and
off-balance
sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.