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Fair value estimates

3 Months Ended

Mar. 31, 2023

Fair value estimates

Fair value of estimates

7. Fair value estimates:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the 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 at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:

●

Level 1: Unadjusted quoted prices of 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 reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate.

During the periods ended March 31, 2023 and December 31, 2022 there were no transfers in or out of Level 3.

The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments:

Investment securities: The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model.

Interest rate swaps and options: The Company’s interest rate swaps and options are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for interest rate, forward rates, rate volatility, and volatility surface.

Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

Assets and liabilities measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022 are summarized as follows:


		Fair Value Measurement Using
					Quoted Prices in			Significant			Significant
					Active Markets for			Other Observable			Unobservable
(Dollars in thousands)					Identical Assets			Inputs			Inputs
March 31, 2023		Amount			(Level 1)			(Level 2)			(Level 3)
U.S. Treasury securities		$	181,564		$	181,564		$			$
U.S. government-sponsored enterprises			16,431						16,431
State and municipals:
Taxable			57,204						57,204
Tax-exempt			68,574						68,574
Mortgage-backed securities:
U.S. government agencies			908						908
U.S. government-sponsored enterprises			89,833						89,833
Corporate debt securities			3,611						3,611
Common equity securities			81			81
Total investment securities		$	418,206		$	181,645		$	236,561		$
Interest rate floor-other assets		$	1					$	1
Interest rate swap-other assets		$	18,485					$	18,485
Interest rate floor-other liabilities			(1,980)						(1,980)
Interest rate swap-other liabilities		$	(17,914)					$	(17,914)


		Fair Value Measurement Using
					Quoted Prices in			Significant			Significant
					Active Markets for			Other Observable			Unobservable
(Dollars in thousands)					Identical Assets			Inputs			Inputs
December 31, 2022		Amount			(Level 1)			(Level 2)			(Level 3)
U.S. Treasury securities		$	180,297		$	180,297		$			$
U.S. government-sponsored enterprises			16,370						16,370
State and municipals:
Taxable			55,358						55,358
Tax-exempt			88,407						88,407
Mortgage-backed securities:
U.S. government agencies			942						942
U.S. government-sponsored enterprises			132,703						132,703
Corporate debt securities			3,626						3,626
Common equity securities			110			110
Total investment securities		$	477,813		$	180,407		$	297,406		$
Interest rate floor-other assets		$	1					$	1
Interest rate swap-other assets		$	21,794					$	21,794
Interest rate swap-other liabilities		$	(21,466)					$	(21,466)

Assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2023 and December 31, 2022 are summarized as follows:

Fair Value Measurement Using

Quoted Prices in

Significant

Significant

Active Markets for

Other Observable

Unobservable

(Dollars in thousands)

Identical Assets

Inputs

Inputs

March 31, 2023

Amount

(Level 1)

(Level 2)

(Level 3)

Loans individually evaluated for credit loss

$

1,680

$

$

$

1,680

Fair Value Measurement Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

(Dollars in thousands)

Identical Assets

Inputs

Inputs

December 31, 2022

Amount

(Level 1)

(Level 2)

(Level 3)

Impaired loans

$

220

$

$

$

220

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:


		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)		Fair Value							Range
March 31, 2023		Estimate			Valuation Techniques		Unobservable Input		(Weighted Average)
Loans individually evaluated for credit loss		$	1,680		Appraisal of collateral		Appraisal adjustments		22.8% to 77.0% (67.3)%
							Liquidation expenses		3.0% to 6.0% (5.2)%


		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)		Fair Value							Range
December 31, 2022		Estimate			Valuation Techniques		Unobservable Input		(Weighted Average)
Impaired loans		$	220		Appraisal of collateral		Appraisal adjustments		21.6% to 97.0% (77.7)%
							Liquidation expenses		3.0% to 6.0% (4.9)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The carrying and fair values of the Company’s financial instruments at March 31, 2023 and December 31, 2022 and their placement within the fair value hierarchy are as follows:


								Fair Value Hierarchy
								Quoted
								Prices in
								Active			Significant
								Markets for			Other			Significant
								Identical			Observable			Unobservable
(Dollars in thousands)		Carrying			Fair			Assets			Inputs			Inputs
March 31, 2023		Value			Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Cash and due from banks		$	140,583		$	140,583		$	140,583		$			$
Investment securities:
Available-for-sale			418,125			418,125			181,564			236,561
Common equity securities			81			81			81
Held-to-maturity			89,705			77,073						77,073
Loans held for sale
Net loans			2,792,599			2,629,921									2,629,921
Accrued interest receivable			11,678			11,678						11,678
Mortgage servicing rights			906			1,747						1,747
Restricted equity securities (FHLB and other)			4,887			4,887						4,887
Interest rate floor			1			1						1
Interest rate swaps			18,485			18,485						18,485
Total		$	3,477,050		$	3,302,580
Financial liabilities:
Deposits		$	3,235,967		$	3,229,495		$			$	3,229,495		$
Short-term borrowings			17,280			17,280						17,280
Long-term debt			25,000			24,982						24,982
Subordinated debentures			33,000			31,898						31,898
Accrued interest payable			2,304			2,304						2,304
Interest rate floor			1,980			1,980						1,980
Interest rate swaps			17,914			17,914						17,914
Total		$	3,333,445		$	3,325,853


								Fair Value Hierarchy
								Quoted
								Prices in
								Active			Significant
								Markets for			Other			Significant
								Identical			Observable			Unobservable
(Dollars in thousands)		Carrying			Fair			Assets			Inputs			Inputs
December 31, 2022		Value			Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Cash and due from banks		$	37,868		$	37,868		$	37,868		$			$
Investment securities:
Available-for-sale			477,703			477,703			180,297			294,706
Common equity securities			110			110			110
Held-to-maturity			91,179			76,563						76,563
Loans held for sale
Net loans			2,702,644			2,562,780									2,562,780
Accrued interest receivable			11,715			11,715						11,715
Mortgage servicing rights			914			1,762						1,762
Restricted equity securities (FHLB and other)			9,630			9,630						9,630
Interest rate floor			1			1						1
Interest rate swaps			21,794			21,794						21,794
Total		$	3,353,558		$	3,199,926
Financial liabilities:
Deposits		$	3,046,598		$	3,035,615		$			$	3,035,615		$
Short-term borrowings			114,930			114,743						114,743
Long-term debt			555			555						555
Subordinated debentures			33,000			53,998						53,998
Accrued interest payable			903			903						903
Interest rate swaps			21,466			21,466						21,466
Total		$	3,217,452		$	3,227,280

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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