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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2024

Fair Value of Financial Instruments –

Fair Value Disclosures

The Company groups its financial assets and liabilities measured at fair value in three levels. Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•Level 1 – Includes the most reliable sources and includes quoted prices in active markets for identical assets or liabilities.

•Level 2 – Includes observable inputs. Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

•Level 3 – Includes unobservable inputs and should be used only when observable inputs are unavailable.

Recurring Basis

Fair values of investment securities available for sale were primarily measured using information from a third-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.

The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics.

The following tables present the balance of assets and liabilities measured on a recurring basis as of March 31, 2024, and December 31, 2023. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.


	Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
March 31, 2024
Available for Sale:
U.S. Treasury Securities	$	16,216	$	-	$	16,216	$	-
U.S. Government Agency Securities	9,377		-		9,377		-
Corporate Securities	44,173		-		36,186		7,987
Mortgage-Backed Securities	511,617		-		511,617		-
Municipal Securities	291,520		-		265,213		26,307
Loans Held for Sale	77		-		77		-
Total	$	872,980	$	-	$	838,686	$	34,294


December 31, 2023
Available for Sale:
U.S. Treasury Securities	$	16,239	$	-	$	16,239	$	-
U.S. Government Agency Securities	9,410		-		9,410		-
Corporate Securities	43,839		-		35,871		7,968
Mortgage-Backed Securities	506,310		-		506,310		-
Municipal Securities	303,773		-		282,926		20,847
Loans Held for Sale	835		-		835		-
Total	$	880,406	$	-	$	851,591	$	28,815

The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company's ability to observe inputs to the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy.

The table below provides a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs, as of March 31, 2024, and December 31, 2023.


	Corporate		Municipal
	Bonds		Securities
	(Dollars in thousands)
Balance at December 31, 2022	$	19,000	$	34,768
Realized Gains (Losses) Included in Net Income	-		-
Unrealized Losses Included in Other Comprehensive Loss	(1,532)		(2,228)
Purchases	-		-
Sales	-		-
Maturities, Prepayments, and Calls	-		(1,798)
Transfers Into Level 3	-		-
Transfers Out of Level 3	(9,500)		(9,895)
Balance at December 31, 2023	7,968		20,847
Realized Gains (Losses) Included in Net Income	-		-
Unrealized Gains (Losses) Included in Other Comprehensive Loss	19		(3,398)
Purchases	-		9,938
Sales	-		-
Maturities, Prepayments, and Calls	-		(1,080)
Transfers Into Level 3	-		-
Transfers Out of Level 3	-		-
Balance at March 31, 2024	$	7,987	$	26,307

The following table provides quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured at fair value on a recurring basis at March 31, 2024.

Estimated

Valuation

Unobservable

Range of

Fair Value

Technique

Inputs

Discounts

(Dollars in thousands)

March 31, 2024

Corporate Securities

7,987

Present Value of Expected Future Cash Flow Model

Liquidity Premium

Municipal Securities

26,307

Present Value of Expected Future Cash Flow Model

Liquidity Premium

Nonrecurring Basis

The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis.

The fair value of the individually evaluated loans is measured at the fair value of the collateral for collateral-dependent loans. Individually evaluated loans are Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs. Adjustments may be made by management based on a customized internally developed discounting matrix. Repossessed assets are initially recorded at fair value less

estimated cost to sell, which is generally 10%. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Bank records repossessed assets as Level 3.


	Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
March 31, 2024
Assets:
Individually Evaluated Loans	$	8,564	$	-	$	-	$	8,564
Other Nonperforming Assets	1,339		-		-		1,339
Total	$	9,903	$	-	$	-	$	9,903

December 31, 2023
Assets:
Individually Evaluated Loans	$	4,750	$	-	$	-	$	4,750
Other Nonperforming Assets	1,685		-		-		1,685
Total	$	6,435	$	-	$	-	$	6,435

Fair Value Financial Instruments

The fair value of a financial instruments is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. 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. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. In accordance with GAAP, certain financial instruments and all non-financial instruments are excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Short-Term Investments – For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – Fair value of securities is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans – The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses, which was used to measure the credit risk, is subtracted from loans.

Cash Value of Bank-Owned Life Insurance (“BOLI”) – The carrying amount approximates its fair value.

Other Equity Securities – The carrying amount approximates its fair value.

Deposits – The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.

Borrowings – The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities. The carrying amount of short-term borrowings maturing within ninety days approximates the fair value.

Commitments to Extend Credit and Standby and Commercial Letters of Credit – The fair values of commitments to extend credit and standby and commercial letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure.

The estimated approximate fair values of the Bank’s financial instruments as of March 31, 2024, and December 31, 2023 are as follows:


	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
March 31, 2024
Financial Assets:
Cash and Short-Term Investments	$	397,198	$	397,198	$	397,198	$	-	$	-
Securities	872,903		872,903		-		838,609		34,294
Loans Held for Sale	77		77		-		77		-
Loans - Net	5,047,674		4,933,670		-		-		4,933,670
Cash Value of BOLI	100,056		100,056		-		100,056		-
Other Equity Securities	34,940		34,940		-		-		34,940
Total	$	6,452,848	$	6,338,844	$	397,198	$	938,742	$	5,002,904

Financial Liabilities:
Deposits	$	5,572,750	$	5,567,623	$	-	$	-	$	5,567,623
Borrowings	430,346		408,524		-		408,524		-
Total	$	6,003,096	$	5,976,147	$	-	$	408,524	$	5,567,623


	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
December 31, 2023
Financial Assets:
Cash and Short-Term Investments	$	377,244	$	377,244	$	377,244	$	-	$	-
Securities	879,571		879,571		-		850,756		28,815
Loans Held for Sale	835		835		-		835		-
Loans - Net	4,952,371		4,849,503		-		-		4,849,503
Cash Value of BOLI	96,478		96,478		-		96,478		-
Other Equity Securities	33,942		33,942		-		-		33,942
Total	$	6,340,441	$	6,237,573	$	377,244	$	948,069	$	4,912,260

Financial Liabilities:
Deposits	$	5,248,790	$	5,243,326	$	-	$	-	$	5,243,326
Borrowings	635,073		613,464		-		613,464		-
Total	$	5,883,863	$	5,856,790	$	-	$	613,464	$	5,243,326

- Definition

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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