UNIVEST FINANCIAL CorpUVSP
UNIVEST FINANCIAL Corp Fair Value Disclosure
Fair Value Disclosures
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Corporation determines the fair value of financial instruments based on the fair value hierarchy. The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Corporation. Unobservable inputs are inputs that reflect the Corporation's assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances, including assumptions about risk. Three levels of inputs are used to measure fair value. A financial instrument's level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement. Transfers between levels are recognized at the end of the reporting periods.
Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2: Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include: financial instruments whose value is determined using pricing models, discounted cash-flow methodologies, or similar techniques, as well as instruments for which the fair value calculation requires significant management judgment or estimation.
Following is 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.
Investment Securities
Where quoted prices are available in an active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include U.S. Treasury securities, most equity securities and money market mutual funds. Mutual funds are registered investment companies which are valued at net asset value of shares on a market exchange at the end of each trading day. Level 2 of the valuation hierarchy includes securities issued by U.S. Government sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, corporate and municipal bonds and certain equity securities. 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 flows. In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy.
Fair values for securities are determined using independent pricing services and market-participating brokers. The Corporation's independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing service's evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does not have sufficient verifiable information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third-party service's valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.
On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation's review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service's evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at December 31, 2025.
Loans Held for Sale
The fair value of our mortgage loans held for sale is based on estimates using Level 2 inputs. These inputs are based on pricing information obtained from wholesale mortgage banks and brokers and applied to loans with similar interest rates and maturities.
Derivative Financial Instruments
The fair values of derivative financial instruments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate swaps and mortgage banking derivative financial instruments are classified within Level 2 of the valuation hierarchy. Credit derivatives are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and therefore classified in Level 3 of the valuation hierarchy.
Contingent Consideration Liability
The Corporation estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on projected revenue related to the acquired business. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a change of estimated future contingent payments based on projected revenue of the acquired business affecting the contingent consideration liability will be recorded through noninterest expense. Due to the significant unobservable input related to the projected revenue, the contingent consideration liability is classified within Level 3 of the valuation hierarchy. An increase in the projected revenue may result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the projected revenue may result in a lower estimated fair value of the contingent consideration liability.
The following table presents the assets and liabilities measured at fair value on a recurring basis at December 31, 2025 and 2024, classified using the fair value hierarchy:
| At December 31, 2025 | |||||||||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Assets/ Liabilities at Fair Value | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||
| Residential mortgage-backed securities | $ | — | $ | 289,580 | $ | — | $ | 289,580 | |||||||||||||||
| Collateralized mortgage obligations | — | 1,368 | — | 1,368 | |||||||||||||||||||
| Corporate bonds | — | 75,303 | 5,000 | 80,303 | |||||||||||||||||||
| Total available-for-sale securities | — | 366,251 | 5,000 | 371,251 | |||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Money market mutual funds | 2,014 | — | — | 2,014 | |||||||||||||||||||
| Total equity securities | 2,014 | — | — | 2,014 | |||||||||||||||||||
| Loans held for sale | — | 15,288 | — | 15,288 | |||||||||||||||||||
| Interest rate locks with customers* | — | 331 | — | 331 | |||||||||||||||||||
| Total assets | $ | 2,014 | $ | 381,870 | $ | 5,000 | $ | 388,884 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Credit derivatives* | $ | — | $ | — | $ | 140 | $ | 140 | |||||||||||||||
| Forward loan sale commitments* | — | 82 | — | 82 | |||||||||||||||||||
| Total liabilities | $ | — | $ | 82 | $ | 140 | $ | 222 | |||||||||||||||
*Such financial instruments are recorded at fair value as further described in Note 18, "Derivative Instruments and Hedging Activities."
The $140 thousand of credit derivatives liability represents the Credit Valuation Adjustment ("CVA"), which is obtained from real-time financial market data, of 138 interest rate swaps with a current notional amount of $873.6 million. The December 31, 2025, CVA is calculated using a 40% loss given default rate on the most recent investment grade credit curve.
| At December 31, 2024 | |||||||||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Assets/ Liabilities at Fair Value | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||
| State and political subdivisions | $ | — | $ | 1,295 | $ | — | $ | 1,295 | |||||||||||||||
| Residential mortgage-backed securities | — | 283,381 | — | 283,381 | |||||||||||||||||||
| Collateralized mortgage obligations | — | 1,685 | — | 1,685 | |||||||||||||||||||
| Corporate bonds | — | 71,000 | — | 71,000 | |||||||||||||||||||
| Total available-for-sale securities | — | 357,361 | — | 357,361 | |||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Money market mutual funds | 2,506 | — | — | 2,506 | |||||||||||||||||||
| Total equity securities | 2,506 | — | — | 2,506 | |||||||||||||||||||
| Loans held for sale | — | 16,653 | — | 16,653 | |||||||||||||||||||
| Interest rate locks with customers* | — | 214 | — | 214 | |||||||||||||||||||
| Forward loan sale commitments* | — | 12 | — | 12 | |||||||||||||||||||
| Total assets | $ | 2,506 | $ | 374,240 | $ | — | $ | 376,746 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration liability | $ | — | $ | — | $ | 635 | $ | 635 | |||||||||||||||
| Credit derivatives* | — | — | 67 | 67 | |||||||||||||||||||
| Total liabilities | $ | — | $ | — | $ | 702 | $ | 702 | |||||||||||||||
*Such financial instruments are recorded at fair value as further described in Note 18, "Derivative Instruments and Hedging Activities."
The $67 thousand of credit derivatives liability represents the CVA, which is obtained from real-time financial market data, of 135 interest rate swaps with a current notional amount of $860.4 million. The December 31, 2024 CVA is calculated using a 40% loss given default rate on the most recent investment grade credit curve.
The contingent consideration liability resulting from the Sheaffer acquisition was calculated using a discount rate of 8.3% on the acquisition date. During the years ended December 31, 2025 and 2024, the Corporation paid $635 thousand in contingent consideration related to this acquisition. There was no contingent consideration liability at December 31, 2025 and the contingent consideration liability was $635 thousand at December 31, 2024.
The following table includes a rollforward of credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the years ended December 31, 2025 and 2024.
| For the Year Ended December 31, 2025 | |||||||||||||||||||||||
| (Dollars in thousands) | Balance at December 31, 2024 | Additions | Increase in value | Balance at December 31, 2025 | |||||||||||||||||||
| Credit derivatives | $ | (67) | $ | (1,255) | $ | 1,182 | $ | (140) | |||||||||||||||
| Net total | $ | (67) | $ | (1,255) | $ | 1,182 | $ | (140) | |||||||||||||||
| For the Year Ended December 31, 2024 | |||||||||||||||||||||||
| (Dollars in thousands) | Balance at December 31, 2023 | Additions | Increase in value | Balance at December 31, 2024 | |||||||||||||||||||
| Credit derivatives | $ | (186) | $ | (443) | $ | 562 | $ | (67) | |||||||||||||||
| Net total | $ | (186) | $ | (443) | $ | 562 | $ | (67) | |||||||||||||||
The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the years ended December 31, 2025 and 2024:
| For the Year Ended December 31, 2025 | |||||||||||||||||||||||
| (Dollars in thousands) | Balance at December 31, 2024 | Payment of Contingent Consideration | Adjustment of Contingent Consideration | Balance at December 31, 2025 | |||||||||||||||||||
| Paul I. Sheaffer Insurance Agency | $ | 635 | $ | 635 | $ | — | $ | — | |||||||||||||||
| Total contingent consideration liability | $ | 635 | $ | 635 | $ | — | $ | — | |||||||||||||||
| For the Year Ended December 31, 2024 | |||||||||||||||||||||||
| (Dollars in thousands) | Balance at December 31, 2023 | Payment of Contingent Consideration | Adjustment of Contingent Consideration | Balance at December 31, 2024 | |||||||||||||||||||
| Paul I. Sheaffer Insurance Agency | $ | 1,224 | $ | 635 | $ | 46 | $ | 635 | |||||||||||||||
| Total contingent consideration liability | $ | 1,224 | $ | 635 | $ | 46 | $ | 635 | |||||||||||||||
The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or changes in the value of individual assets. The following table represents assets measured at fair value on a non-recurring basis at December 31, 2025 and 2024:
| At December 31, 2025 | |||||||||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Assets at Fair Value | |||||||||||||||||||
| Individually analyzed loans held for investment | $ | — | $ | — | $ | 10,194 | $ | 10,194 | |||||||||||||||
| Other real estate owned | — | — | 23,926 | 23,926 | |||||||||||||||||||
| Repossessed assets | — | — | 65 | 65 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 34,185 | $ | 34,185 | |||||||||||||||
| At December 31, 2024 | |||||||||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Assets at Fair Value | |||||||||||||||||||
| Individually analyzed loans held for investment | $ | — | $ | — | $ | 10,111 | $ | 10,111 | |||||||||||||||
| Other real estate owned | — | — | 20,141 | 20,141 | |||||||||||||||||||
| Repossessed assets | — | — | 76 | 76 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 30,328 | $ | 30,328 | |||||||||||||||
The following table presents assets and liabilities not measured at fair value on a recurring or non-recurring basis in the Corporation's consolidated balance sheet but for which the fair value is required to be disclosed at December 31, 2025 and 2024. The disclosed fair values are classified using the fair value hierarchy.
| At December 31, 2025 | |||||||||||||||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Fair Value | Carrying Amount | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and short-term interest-earning assets | $ | 553,712 | $ | — | $ | — | $ | 553,712 | $ | 553,712 | |||||||||||||||||||
| Held-to-maturity securities | — | 109,724 | — | 109,724 | 123,024 | ||||||||||||||||||||||||
| Federal Home Loan Bank, Federal Reserve Bank and other stock | N/A | N/A | N/A | N/A | 37,808 | ||||||||||||||||||||||||
| Net loans and leases held for investment | — | — | 6,824,797 | 6,824,797 | 6,816,445 | ||||||||||||||||||||||||
| Servicing rights | — | — | 10,267 | 10,267 | 6,478 | ||||||||||||||||||||||||
| Total assets | $ | 553,712 | $ | 109,724 | $ | 6,835,064 | $ | 7,498,500 | $ | 7,537,467 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||
| Demand and savings deposits, non-maturity | $ | 5,673,028 | $ | — | $ | — | $ | 5,673,028 | $ | 5,673,028 | |||||||||||||||||||
| Time deposits | — | 1,417,969 | — | 1,417,969 | 1,414,285 | ||||||||||||||||||||||||
| Total deposits | 5,673,028 | 1,417,969 | — | 7,090,997 | 7,087,313 | ||||||||||||||||||||||||
| Short-term borrowings | 24,411 | — | — | 24,411 | 24,411 | ||||||||||||||||||||||||
| Long-term debt | — | 211,230 | — | 211,230 | 200,000 | ||||||||||||||||||||||||
| Subordinated notes | — | 102,000 | — | 102,000 | 98,867 | ||||||||||||||||||||||||
| Total liabilities | $ | 5,697,439 | $ | 1,731,199 | $ | — | $ | 7,428,638 | $ | 7,410,591 | |||||||||||||||||||
| At December 31, 2024 | |||||||||||||||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Fair Value | Carrying Amount | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and short-term interest-earning assets | $ | 328,844 | $ | — | $ | — | $ | 328,844 | $ | 328,844 | |||||||||||||||||||
| Held-to-maturity securities | — | 115,007 | — | 115,007 | 134,111 | ||||||||||||||||||||||||
| Federal Home Loan Bank, Federal Reserve Bank and other stock | N/A | N/A | N/A | N/A | 38,980 | ||||||||||||||||||||||||
| Net loans and leases held for investment | — | — | 6,586,054 | 6,586,054 | 6,729,381 | ||||||||||||||||||||||||
| Servicing rights | — | — | 12,710 | 12,710 | 6,990 | ||||||||||||||||||||||||
| Total assets | $ | 328,844 | $ | 115,007 | $ | 6,598,764 | $ | 7,042,615 | $ | 7,238,306 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||
| Demand and savings deposits, non-maturity | $ | 5,305,553 | $ | — | $ | — | $ | 5,305,553 | $ | 5,305,553 | |||||||||||||||||||
| Time deposits | — | 1,458,774 | — | 1,458,774 | 1,453,706 | ||||||||||||||||||||||||
| Total deposits | 5,305,553 | 1,458,774 | — | 6,764,327 | 6,759,259 | ||||||||||||||||||||||||
| Short-term borrowings | 11,181 | — | — | 11,181 | 11,181 | ||||||||||||||||||||||||
| Long-term debt | — | 225,475 | — | 225,475 | 225,000 | ||||||||||||||||||||||||
| Subordinated notes | — | 147,500 | — | 147,500 | 149,261 | ||||||||||||||||||||||||
| Total liabilities | $ | 5,316,734 | $ | 1,831,749 | $ | — | $ | 7,148,483 | $ | 7,144,701 | |||||||||||||||||||
The following valuation methods and assumptions were used by the Corporation in estimating the fair value for financial instruments measured at fair value on a non-recurring basis and financial instruments not measured at fair value on a recurring or non-recurring basis in the Corporation's consolidated balance sheets but for which the fair value is required to be disclosed:
Cash and short-term interest-earning assets: The carrying amounts reported in the balance sheet for cash and due from banks, interest-earning deposits with other banks and other short-term investments is their stated value. Cash and short-term interest-earning assets are classified within Level 1 in the fair value hierarchy.
Held-to-maturity securities: Fair values for the held-to-maturity investment securities are estimated by using pricing models or quoted prices of securities with similar characteristics and are classified in Level 2 in the fair value hierarchy.
Federal Home Loan Bank, Federal Reserve Bank and other stock: It is not practical to determine the fair values of Federal Home Loan Bank, Federal Reserve Bank and other stock, due to restrictions placed on their transferability.
Loans held for sale: Loans held for sale are carried at the lower of cost or estimated fair value. The fair value of the Corporation's mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data.
Loans and leases held for investment: The fair values for loans and leases held for investment are estimated using discounted cash flow analyses, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers, adjusted as appropriate to consider credit, liquidity and marketability factors to arrive at a fair value that represents the Corporation's exit price at which these instruments would be sold or transferred. Loans and leases are classified within Level 3 in the fair value hierarchy since credit risk is not an observable input.
Individually analyzed loans and leases held for investment: For individually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At December 31, 2025, individually analyzed loans held for investment had a carrying amount of $13.0 million with a valuation allowance of $2.8 million. At December 31, 2024, individually analyzed loans held for investment had a carrying amount of $12.1 million with a valuation allowance of $1.9 million. At December 31, 2025, the Corporation had individually analyzed leases of $260 thousand with a valuation allowance of $260 thousand. At December 31, 2024, the Corporation had no individually analyzed leases.
Servicing rights: The Corporation estimates the fair value of servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. Servicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the servicing rights portfolio on a quarterly basis for impairment and the servicing rights are carried at the lower of amortized cost or estimated fair value. At December 31, 2025, servicing rights had a net carrying amount of $6.8 million, which included a valuation allowance of $307 thousand. At December 31, 2024, servicing rights had a net carrying amount of $7.0 million, which included a valuation allowance of $7 thousand.
Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. In accordance with ASC Topic 350, goodwill is tested at least annually for impairment at the reporting unit level. The Corporation performed its annual test of goodwill for impairment during the fourth quarter of 2025 and concluded there was no impairment of goodwill. There was no impairment of goodwill recorded in 2023 or 2024. The Corporation also completed an impairment test for other intangible assets during the fourth quarter of 2025 and concluded there was no impairment of other intangible assets. There was no impairment of other identifiable intangible assets recorded in 2023 or 2024.
Other real estate owned: Other real estate owned ("OREO") represents properties that the Corporation has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking possession of assets that collateralized a loan. The Corporation reports OREO at the lower of cost or fair value less cost to sell, adjusted periodically based on a current appraisal or an executed agreement of sale. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset. Write-downs and any gain or loss upon the sale of OREO is recorded in other noninterest income. OREO is reported in other assets on the consolidated balance sheet. At December 31, 2025 and 2024, OREO had a carrying amount of $23.9 million and $20.1 million, respectively. During the year ended December 31, 2025, two nonaccrual residential real estate properties with a carrying value of $3.9 million were transferred to OREO. Additionally, during the year ended December 31, 2025, two residential real estate properties with a total carrying value of $226 thousand were sold. Other real estate owned is classified within Level 3 in the fair value hierarchy based on appraisals, letters of intent or agreement of sale received from third parties.
Repossessed Assets: Repossessed assets represents non-real estate assets that the Corporation has acquired by taking possession of the asset that collateralized a loan or lease. The Corporation reports repossessed assets at the fair value less cost to sell, adjusted periodically based on a current appraisal provided by a third party based on their assumptions and quoted market prices for similar assets, when available. Write-downs and any gain or loss upon the sale of repossessed assets is recorded in other noninterest income. Repossessed assets are reported in other assets on the consolidated balance sheet. At December 31, 2025 and 2024, repossessed assets had a carrying amount of $65 thousand and $76 thousand, respectively. During the year ended December 31, 2025, repossessed assets totaling $143 thousand were acquired and repossessed assets totaling $105 thousand were sold. Additionally, write-downs on repossessed assets totaled $44 thousand during the year. Repossessed assets are classified within Level 3 in the fair value hierarchy based on appraisals, letters of intent, agreement of sale or indications of value received from third parties.
Deposit liabilities: The fair values for demand and savings accounts, with no stated maturities, is the amount payable on demand at the reporting date (carrying value) and are classified within Level 1 in the fair value hierarchy. The fair values for time deposits with fixed maturities are estimated by discounting the final maturity using interest rates currently offered for deposits with similar remaining maturities. Time deposits are classified within Level 2 in the fair value hierarchy.
Short-term borrowings: The fair value of short-term borrowings are estimated using current market rates for similar borrowings and are classified within Level 2 in the fair value hierarchy.
Long-term debt: The fair value of long-term debt is estimated by using discounted cash flow analysis, based on current market rates for debt with similar terms and remaining maturities. Long-term debt is classified within Level 2 in the fair value hierarchy.
Subordinated notes: The fair value of the subordinated notes are estimated by discounting the principal balance using indicative pricing for the term to the call date as the Corporation has the option to call the subordinated notes. The subordinated notes are classified within Level 2 in the fair value hierarchy.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 3, 2017 | |
| 2015 | Mar 4, 2016 | |
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.