Disclosures About Fair Value of Assets and Liabilities

6 Months Ended

Jun. 30, 2024

Disclosures about Fair Value of Assets and Liabilities [Abstract]

Disclosures about Fair Value of Assets and Liabilities

Note 10: Disclosures About Fair Value of Assets and Liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs.  There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 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 for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities

Recurring Measurements

Assets and liabilities measured at fair value on a recurring basis include the following:

Available-for-sale debt securities: Debt securities classified as available-for-sale, as discussed in Note 5, are reported at fair value utilizing Level 2 inputs. For those debt securities classified as Level 2, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels, trade execution data for similar securities, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2024 and December 31, 2023 (dollars in thousands):

	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2024
Collateral-dependent loans	$	1,122	$	-	$	-	$	1,122
Asset retirement obligations		281		-		-		281
December 31, 2023
Collateral-dependent loans	$	16,370	$	-	$	-	$	16,370
Asset retirement obligations		361		-		-		361

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.  For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-Dependent Loans, Net of Allowance for Credit Losses

The estimated fair value of collateral-dependent loans is based on fair value, less estimated cost to sell. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy.

The Company considers engineering reports or appraisals as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Values of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by executive management and loan administration. Values are reviewed for accuracy and consistency by executive management and loan administration. The ultimate collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.

Asset retirement obligations

Asset retirement obligations related to the plugging and abandonment of oil and natural gas properties and are classified within the Level 3 of the fair value hierarchy.

The fair value of the asset retirement obligations is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate. Fair value, to the extent possible, includes a market risk premium for unforeseeable circumstances. Inherent in the fair value calculation of the asset retirement obligations are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. To the extent future revisions to these assumptions impact the fair value of the existing asset retirement obligations liability, a corresponding adjustment is made to the oil and gas property balance.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements(dollars in thousands):

			Valuation	Unobservable
	Fair Value		Technique	Inputs
June 30, 2024
Collateral-dependent loans	$	1,122	Estimated cash to be received pending resolution of bankruptcy proceedings	Estimated cost to sell
Asset retirement obligations		281	Expected present value	Plugging and abandonment expense
December 31, 2023
Collateral-dependent loans	$	16,370	Estimated cash to be received pending resolution of bankruptcy proceedings	Estimated cost to sell
Asset retirement obligations		361	Expected present value	Plugging and abandonment expense

The following table presents estimated fair values of the Company’s financial instruments not recorded at fair value at June 30, 2024 and December 31, 2023 (dollars in thousands):

	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
June 30, 2024
Financial Assets
Cash and due from banks	$	210,105	$	210,105	$	-	$	-	$	210,105
Interest-bearing time deposits in other banks		12,202		-		12,202		-		12,202
Loans, net of allowance		1,334,317		-		1,330,431		1,122		1,331,553
Nonmarketable equity securities		1,275		-		1,275		-		1,275
Interest receivable and other assets		32,240		-		18,614		13,626		32,240
Financial Liabilities
Deposits	$	1,481,317	$	-	$	1,480,191	$	-	$	1,480,191
Interest payable and other liabilities		10,790		-		10,029		761		10,790
December 31, 2023
Financial Assets
Cash and due from banks	$	181,042	$	181,042	$	-	$	-	$	181,042
Interest-bearing time deposits in other banks		17,679		-		17,679		-		17,679
Loans, net of allowance		1,341,148		-		1,321,413		16,370		1,337,783
Loans held for sale		718		-		718		-		718
Nonmarketable equity securities		1,283		-		1,283		-		1,283
Interest receivable and other assets		35,878		-		19,211		16,667		35,878
Financial Liabilities
Deposits	$	1,591,391	$	-	$	1,590,295	$	-	$	1,590,295
Interest payable and other liabilities		9,647		-		8,335		1,312		9,647

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value:

Cash and Due from Banks, Interest-Bearing Time Deposits in Other Banks, Nonmarketable Equity Securities, Interest Receivable and Interest Payable

The carrying amount approximates fair value.

Loans and Mortgage Loans Held for Sale

The Company determines fair value of loans by using exit market assumptions including factors such as liquidity, credit quality and risk of nonperformance. The fair value is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Commitments to Extend Credit, Lines of Credit and Standby Letters of Credit

The fair values of unfunded commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair values of standby letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The estimated fair values of the Company’s commitments to extend credit, lines of credit and standby letters of credit were not material at June 30, 2024 and December 31, 2023.

Interest Receivable and Other Assets

Interest receivable and other assets include prepaid expenses, right-of-use lease assets, interest receivable on loans, deferred tax assets, and oil and gas related assets. For prepaid expense, right-of-use lease assets, deferred tax assets, and interest receivable on loans the carrying amount approximates fair value. For the determination of fair value of oil and gas assets, see discussion in the December 31, 2023 Form 10-K, Note 1, Summary of Significant Accounting Policies--Specific to Production of Oil and Natural Gas Reserves Operations.

Interest Payable and Other Liabilities

Interest payable and other liabilities include unfunded commitment liabilities, lease liabilities, interest payable on deposits, dividends payable, other accrued liabilities, and oil and gas related liabilities. For unfunded commitment liabilities, lease liabilities, interest payable on deposits, dividends payable, and other accrued liabilities carrying amount approximates fair value. For the determination of fair value of oil and gas liabilities, see discussion in the December 31, 2023 Form 10-K, Note 1, Summary of Significant Accounting Policies--Specific to Production of Oil and Natural Gas Reserves Operations.