Fair Value Measurements

9 Months Ended

Sep. 30, 2025

Note 5 – Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC 820, the fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability (an “exit price”) in the principal or most advantageous market, in an orderly transaction between market participants at the measurement date.

Fair value is best determined based on quoted market prices. However, in many instances, quoted market prices are not available for the Company’s various financial instruments. In such cases, fair values are estimated using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, emphasizing exit price in the principal or most advantageous market, and in an orderly transaction (not a forced liquidation or distressed sale) between market participants at the measurement date, under current market conditions. If there has been a significant decrease in the volume and level of activity for an asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact depends on the facts and circumstances and requires significant judgment. The fair value selected should be a reasonable point within the range most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

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.

Fair Value on a Recurring Basis

Securities Available-for-Sale

Fair values of securities available-for-sale are based on quoted prices available in an active market. If quoted prices are available, these securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, mortgage products, and exchange-traded equities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow.

Level 2 securities 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. Currently, all of the Company’s securities are considered Level 2 securities.

Note 5 – Fair Value Measurements (continued)

Derivatives Assets/Liabilities – Interest Rate Lock Commitments (IRLCs)

The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 3.

The below tables summarize the Company’s financial assets that were measured at fair value on a recurring basis during the period presented.


		Carrying Value at September 30, 2025
		Quoted Prices	Significant
		in Active	Other	Significant
	Balance as of	Markets for	Observable	Unobservable
(dollars in thousands)	September 30,	Identical Assets	Inputs	Inputs
Description	2025	(Level 1)	(Level 2)	(Level 3)
U.S. agency obligations	$ 76,200	$ -	$ 76,200	$ -
Mortgage-backed securities	58,309	-	58,309	-
Municipals	53,145	-	53,145	-
Corporates	14,852	-	14,852	-

Total available-for-sale securities	$ 202,506	$ -	$ 202,506	$ -
IRLCs - asset	136	-	-	136
Total assets at fair value	$ 202,642	$ -	$ 202,506	$ 136


		Carrying Value at December 31, 2024
		Quoted Prices	Significant
		in Active	Other	Significant
	Balance as of	Markets for	Observable	Unobservable
(dollars in thousands)	December 31,	Identical Assets	Inputs	Inputs
Description	2024	(Level 1)	(Level 2)	(Level 3)
U.S. agency obligations	$ 73,060	$ -	$ 73,060	$ -
Mortgage-backed securities	58,973	-	58,973	-
Municipals	41,561	-	41,561	-
Corporates	14,322	-	14,322	-

Total available-for-sale securities	$ 187,916	$ -	$ 187,916	$ -
IRLCs - asset	42	-	-	42
Total assets at fair value	$ 187,958	$ -	$ 187,916	$ 42

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Note 5 – Fair Value Measurements (continued)

The following table provides additional quantitative information about assets measured at fair value on a recurring basis and for which we utilize Level 3 inputs to determine fair value:


Quantitative information about Level 3 Fair Value Measurements for September 30, 2025
(dollars in thousands)
	Fair Value		Valuation Technique(s)	Unobservable Input	Range
Assets
IRLCs – asset	$	136	Market approach	Range of pull through rate	70% - 100% (85%)

(1) Weighted based on the relative value of the instruments


Quantitative information about Level 3 Fair Value Measurements for December 31, 2024
(dollars in thousands)
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average) (1)
Assets
IRLCs - asset	$	42	Market approach	Range of pull through rate	70% - 100% (85%)

There were no transfers of financial assets between hierarchy levels during the three and nine month period ending September 30, 2025.

Fair Value on a Non-recurring Basis

Collateral Dependent Loans with an ACL

In accordance with ASC 326, the Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay, collateral deficiencies, the relative risk grade of the loan, and economic conditions affecting the borrower’s industry, among other factors.

A loan is considered collateral dependent when, based on management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The Company reevaluates the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting such loans is evaluated by appraisal services using methodologies consistent with the Uniform Standards of Professional Appraisal Practice. Based the review of management, no nonrecurring fair value adjustments were needed on collateral dependent loans at September 30, 2025 or December 31, 2024.

Loans Held for Sale

Loans held for sale are carried at cost, which approximates estimated fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on prices currently offered by secondary markets for similar loans using observable market data, which is not materially different from cost due to the short duration between origination and sale (Level 2). As such, the Company records fair value adjustments on a nonrecurring basis. At September 31, 2025 and December 31, 2024 the Company held $3,766 and $3,616 at fair value, respectively. No nonrecurring fair value adjustments were recorded on loans held for sale at September 30, 2025 or December 31, 2024. Gains and losses on the sale of loans are recorded within “Gain on sales of loans held for sale” on the Consolidated Statements of Income.

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Note 5 – Fair Value Measurements (continued)

Financial Instruments

FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The carrying amounts and estimated fair values of the Company’s financial instruments are presented in the following tables whether or not recognized on the Consolidated Balance Sheets at fair value.

The estimated fair values, and related carrying or notional amounts, of Financial’s financial instruments and their placement in the fair value hierarchy at September 30, 2025, and December 31, 2024, were as follows (dollars in thousands):


		Fair Value Measurements at September 30, 2025 using
	Carrying
Assets	Amounts	(Level 1)	(Level 2)	(Level 3)	Balance
Cash and due from banks	$ 28,450	$ 28,450	$ -	$ -	$ 28,450
Federal funds sold	57,001	57,001	-	-	57,001
Securities
Available-for-sale	202,506	-	202,506	-	202,506
Held-to-maturity, net	3,594	-	3,308	-	3,308
Restricted stock	1,828	-	1,828	-	1,828
Loans, net (1)	653,288	-	-	640,567	640,567
Loans held for sale	3,766	-	3,766	-	3,766
Interest receivable	3,001	-	3,001	-	3,001
BOLI	23,480	-	23,480	-	23,480
Derivatives - IRLCs	136	-	-	-	136

Liabilities
Checking, money market, savings and NOW	$ 680,958	$ -	$ 680,958	$ -	$ 680,958
Time deposits	238,838	-	238,884	-	238,884
Other borrowings	8,836	-	8,437	-	8,437
Interest payable	1,292	-	1,292	-	1,292

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Note 5 – Fair Value Measurements (continued)


		Fair Value Measurements at December 31, 2024 using
	Carrying
Assets	Amounts	(Level 1)	(Level 2)	(Level 3)	Balance
Cash and due from banks	$ 23,287	$ 23,827	$ -	$ -	$ 23,827
Federal funds sold	50,022	50,022	-	-	50,022
Securities					-
Available-for-sale	187,916	-	187,916	-	187,916
Held-to-maturity	3,606	-	3,170	-	3,170
Restricted stock	1,821	-	1,821	-	1,821
Loans, net (1)	636,552	-	-	613,984	613,984
Loans held for sale	3,616	-	3,616	-	3,616
Interest receivable	3,065	-	3,065	-	3,065
Cash value - bank owned life insurance	22,907	-	22,907	-	22,907
Derivatives - IRLCs	42	-	-	42	42

Liabilities
Checking, money market, savings and NOW	$ 651,895	$ -	$ 651,895	$ -	$ 651,895
Time deposits	230,509		230,027		$ 230,027
Capital notes	10,048	-	9,836	-	9,836
Other borrowings	9,300	-	8,929	-	8,929
Interest payable	722	-	722	-	722

(1) Carrying amount is net of unearned income and the ACL.

BANK OF THE JAMES FINANCIAL GROUP INC 10-Q