Fair Value Presentation

6 Months Ended

Jun. 30, 2023

Fair Value Presentation [Abstract]

Fair Value Presentation

6. Fair Value Presentation

U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no observable pricing as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables provide the fair market value for assets required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets as of June 30, 2023, and December 31, 2022, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

	June 30, 2023
	Level I		Level II		Level III		Total
	$		$		$		$
U.S. treasuries		17,765		—		—		17,765
U.S. government agencies		—		16,988		—		16,988
U.S. agency mortgage-backed securities		—		42,506		—		42,506
U.S. agency collateralized mortgage obligations		—		20,644		—		20,644
Non-agency MBS/CMO		—		50,152		—		50,152
Asset-backed securities		—		68,541		—		68,541
Corporate bonds		—		54,076		—		54,076
Obligations of states & political subdivisions		—		185,332		—		185,332
Equity securities		9,019		—		—		9,019
Total securities		26,784		438,239		—		465,023

On June 30, 2023, the Corporation held no securities valued using level III inputs. Most of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s U.S. Treasury bonds, CRA fund investments, and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of June 30, 2023, the CRA fund investments had a $7,516,000 book and fair market value and the bank stock portfolio had a book value of $1,716,000, and fair market value of $1,503,000.

Financial instruments are considered level III when their values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

	December 31, 2022
	Level I		Level II		Level III		Total
	$		$		$		$
U.S. Treasuries		32,657		—				32,657
U.S. government agencies		—		24,787		—		24,787
U.S. agency mortgage-backed securities		—		45,307		—		45,307
U.S. agency collateralized mortgage obligations		—		27,490		—		27,490
Non-agency MBS/CMO				50,250		—		50,250
Asset-backed securities		—		73,234		—		73,234
Corporate bonds		—		69,631		—		69,631
Obligations of states & political subdivisions		—		205,786		—		205,786
Equity securities		9,118		—		—		9,118
Total securities		41,775		496,485		—		538,260

On December 31, 2022, the Corporation held no securities valued using level III inputs. Most of the Corporation’s debt instruments were valued using level II inputs, except for Treasuries, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of December 31, 2022, the CRA fund investments had a $7,345,000 book and market value and the bank stocks had a book value of $1,685,000 and a market value of $1,773,000.

The following tables provide the fair value for each class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

(Dollars in Thousands)

	June 30, 2023
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Individually analyzed loans	$	—	$	—	$	3,318	$	3,318
Total	$	—	$	—	$	3,318	$	3,318

	December 31, 2022
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Impaired Loans	$	—	$	—	$	4,620	$	4,620
Total	$	—	$	—	$	4,620	$	4,620

The Corporation had a total of $3,318,000 of individually analyzed loans as of June 30, 2023 and $4,620,000 of impaired loans as of December 31, 2022. The value of impaired loans is generally determined through independent appraisals of the underlying collateral.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Corporation has utilized level III inputs to determine fair value:

QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS

(DOLLARS IN THOUSANDS)  

	June 30, 2023
	Fair Value	Valuation	Unobservable	Range
	Estimate	Techniques	Input	(Weighted Avg)
Individually analyzed loans	3,318	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -20% (-20%)
			Liquidation expenses (2)	0% to -10% (-10%)

	December 31, 2022
	Fair Value	Valuation	Unobservable	Range
	Estimate	Techniques	Input	(Weighted Avg)
Impaired loans	4,620	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -20% (-20%)
			Liquidation expenses (2)	0% to -10% (-10%)

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable.

(2) 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 following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022:

FINANCIAL INSTRUMENTS NOT REQUIRED TO BE MEASURED OR REPORTED AT FAIR VALUE

(DOLLARS IN THOUSANDS)

	June 30, 2023
					Quoted Prices in
					Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		61,081		61,081		61,081		—		—
Regulatory stock		7,843		7,843		7,843		—		—
Loans held for sale		652		652		652		—		—
Loans, net of allowance		1,279,669		1,213,305		—		—		1,213,305
Mortgage servicing assets		2,052		2,880		—		—		2,880
Accrued interest receivable		6,249		6,249		6,249		—		—
Bank owned life insurance		35,197		35,197		35,197		—		—
Financial Liabilities:
Demand deposits		634,360		634,360		634,360		—		—
Interest-bearing demand deposits		220,949		220,949		220,949		—		—
NOW accounts		109,257		109,257		109,257		—		—
Money market deposit accounts		164,431		164,431		164,431		—		—
Savings accounts		342,422		342,422		342,422		—		—
Time deposits		184,532		180,390		—		—		180,390
Total deposits		1,655,951		1,651,809		1,471,419		—		180,390
Long-term debt		91,717		90,066		—		—		90,066
Subordinated debt		39,476		33,447		—		—		33,447
Accrued interest payable		1,169		1,169		1,169		—		—

FINANCIAL INSTRUMENTS NOT REQUIRED TO BE MEASURED OR REPORTED AT FAIR VALUE

(DOLLARS IN THOUSANDS)

	December 31, 2022
					Quoted Prices in
					Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		37,572		37,572		37,572		—		—
Regulatory stock		6,670		6,670		6,670		—		—
Loans held for sale		5,927		5,927		5,927		—		—
Loans, net of allowance		1,176,966		1,112,400		—		—		1,112,400
Mortgage servicing assets		2,030		2,894		—		—		2,894
Accrued interest receivable		6,249		6,249		6,249		—		—
Bank owned life insurance		34,805		34,805		34,805		—		—
Financial Liabilities:
Demand deposits		672,342		672,342		672,342		—		—
Interest-bearing demand deposits		164,208		164,208		164,208		—		—
NOW accounts		139,846		139,846		139,846		—		—
Money market deposit accounts		163,836		163,836		163,836		—		—
Savings accounts		364,897		364,897		364,897		—		—
Time deposits		133,829		129,422		—		—		129,422
Total deposits		1,638,958		1,634,551		1,505,129		—		129,422
Short-term debt		16,000		15,721						15,721
Long-term debt		58,039		56,431		—		—		56,431
Subordinated debt		39,396		35,975		—		—		35,975
Accrued interest payable		597		597		597		—		—