OHIO VALLEY BANC CORPOVBC
OHIO VALLEY BANC CORP Fair Value Disclosure
Note O - Fair Value of Financial Instruments
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. 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
following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:
Securities: The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market
prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During times
when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the
calculations.
Individually Evaluated Collateral Dependent Loans: The fair value of individually evaluated collateral dependent loans is generally based on the fair value of collateral, less
costs to sell. When carried at fair value, individually evaluated collateral dependent loans generally receive specific allocations of the ACL. For collateral dependent loans, fair value is commonly based on recent real estate appraisals.
These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust
for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. 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. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a
purchase agreement. Such adjustments would be classified as a Level 2 classification. Individually evaluated collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are
subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches
including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are
usually significant and typically result in a Level 3 classification of the inputs for determining fair value. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase
agreement. Such adjustments would be classified as a Level 2 classification.
Appraisals
for both individually evaluated collateral dependent loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses
have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management’s own assumptions
of fair value based on factors that include recent market data or industry-wide statistics.
On
an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs, which typically amount to approximately 10%.
Interest Rate Swap Agreements: The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the
discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2).
Assets and Liabilities Measured on a
Recurring Basis
Assets and liabilities measured at fair value on a recurring
basis are summarized below:
|
Fair Value Measurements at December 31, 2024, Using
|
||||||||||||
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||
|
Assets:
|
||||||||||||
| U.S. Government securities | $ |
168,030 | $ |
— | $ |
— | ||||||
|
U.S. Government sponsored entity securities
|
—
|
|
5,888
|
—
|
||||||||
|
Agency mortgage-backed securities, residential
|
—
|
94,202
|
—
|
|||||||||
|
Interest rate swap derivatives
|
—
|
657
|
—
|
|||||||||
|
Liabilities:
|
||||||||||||
|
Interest rate swap derivatives
|
—
|
(657
|
)
|
—
|
||||||||
|
Fair Value Measurements at December 31, 2023, Using
|
||||||||||||
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||
|
Assets:
|
||||||||||||
| U.S. Government securities | $ |
50,297 | $ |
— | $ |
— | ||||||
|
U.S. Government sponsored entity securities
|
—
|
|
5,877
|
—
|
||||||||
|
Agency mortgage-backed securities, residential
|
—
|
106,084
|
—
|
|||||||||
|
Interest rate swap derivatives
|
—
|
1,147
|
—
|
|||||||||
|
Liabilities:
|
||||||||||||
|
Interest rate swap derivatives
|
—
|
(1,147
|
)
|
—
|
||||||||
Assets and Liabilities Measured on a
Nonrecurring Basis
There were no assets or liabilities measured at fair value on a nonrecurring basis at December 31, 2024 or 2023.
There
was no OREO that was measured at fair value less costs to sell at December 31, 2024 or 2023. Furthermore, there were no corresponding write downs during the years ended December 31, 2024 or 2023.
There was no quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2024 or 2023.
The carrying amounts and estimated
fair values of financial instruments at December 31, 2024 and December 31, 2023 are as follows:
|
Fair Value Measurements at December 31, 2024 Using:
|
||||||||||||||||||||
|
Carrying
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
|
Financial Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
83,107
|
$
|
83,107
|
$
|
—
|
$
|
—
|
$
|
83,107
|
||||||||||
|
Securities available for sale
|
268,120
|
168,030
|
100,090
|
—
|
268,120
|
|||||||||||||||
|
Securities held to maturity
|
7,049
|
—
|
3,651
|
2,769
|
6,420
|
|||||||||||||||
|
Loans, net
|
1,051,737
|
—
|
—
|
1,037,349
|
1,037,349
|
|||||||||||||||
|
|
656
|
—
|
656
|
—
|
656
|
|||||||||||||||
|
Accrued interest receivable
|
4,805
|
—
|
1,540
|
3,265
|
4,805
|
|||||||||||||||
|
Financial Liabilities:
|
||||||||||||||||||||
|
Deposits
|
1,275,178
|
881,290
|
394,470
|
—
|
1,275,760
|
|||||||||||||||
|
Other borrowed funds
|
39,740
|
—
|
38,815
|
—
|
38,815
|
|||||||||||||||
|
Subordinated debentures
|
8,500
|
—
|
8,500
|
—
|
8,500
|
|||||||||||||||
|
|
657
|
—
|
657
|
—
|
657
|
|||||||||||||||
|
Accrued interest payable
|
5,234
|
1
|
5,233
|
—
|
5,234
|
|||||||||||||||
|
Fair Value Measurements at December 31, 2023 Using:
|
||||||||||||||||||||
|
Carrying
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
|
Financial Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
128,126
|
$
|
128,126
|
$
|
—
|
$
|
—
|
$
|
128,126
|
||||||||||
|
Securities available for sale
|
162,258
|
50,297
|
111,961
|
—
|
162,258
|
|||||||||||||||
|
Securities held to maturity
|
7,986
|
—
|
4,281
|
3,109
|
7,390
|
|||||||||||||||
|
Loans, net
|
963,133
|
—
|
—
|
944,544
|
944,544
|
|||||||||||||||
|
|
1,147
|
—
|
1,147
|
—
|
1,147
|
|||||||||||||||
|
Accrued interest receivable
|
3,606
|
—
|
466
|
3,140
|
3,606
|
|||||||||||||||
|
Financial Liabilities:
|
||||||||||||||||||||
|
Deposits
|
1,127,136
|
748,013
|
379,455
|
—
|
1,127,468
|
|||||||||||||||
|
Other borrowed funds
|
44,593
|
—
|
45,799
|
—
|
45,799
|
|||||||||||||||
|
Subordinated debentures
|
8,500
|
—
|
8,500
|
—
|
8,500
|
|||||||||||||||
|
|
1,147
|
—
|
1,147
|
—
|
1,147
|
|||||||||||||||
|
Accrued interest payable
|
6,597
|
1
|
6,596
|
—
|
6,597
|
|||||||||||||||
Fair
value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one
time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s 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.
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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.