Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2025

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

(6) Fair Value of Financial Instruments

FASB Topic 820, Fair Value Measurements (“ASC 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can 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 company’s own assumptions about the value that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of assets and liabilities:

Securities Available for Sale: The fair value of securities available for sale is determined utilizing an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. This results in a Level 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and is included in the Consolidated Statements of Income in the respective investment class under total interest and dividend income. The Company does not have any securities that would be designated as Level 3.

Other Real Estate Owned: Assets acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. This results in a Level 3 classification of the inputs for determining fair value.

Individually evaluated loans: Periodically the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.  Non-recurring adjustments can also include certain adjustments for collateral-dependent loans to adjust balances to fair value and generally have had a charge-off through the allowance for credit losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value. When obtained, non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Loans individually evaluated are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Indications of value for both collateral-dependent loans and other real estate owned are obtained from third party providers or the Company’s internal Appraisal Department. All indications of value are reviewed for reasonableness by a member of the Appraisal Department for the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value via comparison with independent data sources such as recent market data or industry-wide statistics.

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2025 and 2024.

Assets and liabilities measured at fair value under ASC 820 on a recurring basis are summarized below:

	Fair Value Measurements at
	June 30, 2025 Using:
							Significant
				Quoted Prices in			Other			Significant
				Active Markets for			Observable			Unobservable
	Carrying			Identical Assets			Inputs			Inputs
(dollars in thousands)	Value			(Level 1)			(Level 2)			(Level 3)
U.S. government sponsored enterprises		$	71,241		$	-		$	71,241		$	-
State and political subdivisions			18			-			18			-
Mortgage backed securities and collateralized mortgage obligations - residential			221,721			-			221,721			-
Corporate bonds			29,943			-			29,943			-
Small Business Administration- guaranteed  participation securities			12,945			-			12,945			-
Other securities			698			-			698			-
Total securities available for sale		$	336,566		$	-		$	336,566		$	-

	Fair Value Measurements at
	December 31, 2024 Using:
							Significant
				Quoted Prices in			Other			Significant
				Active Markets for			Observable			Unobservable
	Carrying			Identical Assets			Inputs			Inputs
(dollars in thousands)	Value			(Level 1)			(Level 2)			(Level 3)
Securities available for sale:
U.S. government sponsored enterprises		$	85,617		$	-		$	85,617		$	-
State and political subdivisions			18			-			18			-
Mortgage backed securities and collateralized mortgage obligations - residential			213,128			-			213,128			-
Corporate bonds			44,581			-			44,581			-
Small Business Administration- guaranteed participation securities			14,141			-			14,141			-
Other securities			700			-			700			-
Total securities available for sale		$	358,185		$	-		$	358,185		$	-

Assets measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements at

June 30, 2025 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Carrying

Identical Assets

Inputs

Inputs

(dollars in thousands)

Value

(Level 1)

(Level 2)

(Level 3)

Valuation technique

Unobservable inputs

Range (Weighted Average)

Other real estate owned

$

1,136

$

-

$

-

$

1,136

Sales comparison approach

Adjustments for differences between comparable sales

58% (58%

)

Fair Value Measurements at

December 31, 2024 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Carrying

Identical Assets

Inputs

Inputs

(dollars in thousands)

Value

(Level 1)

(Level 2)

(Level 3)

Valuation technique

Unobservable inputs

Range (Weighted Average)

Other real estate owned

$

2,174

$

-

$

-

$

2,174

Sales comparison approach

Adjustments for differences between comparable sales

0% - 44% (18%

)

Other real estate owned that is carried at fair value less costs to sell was approximately $1.1 million at June 30, 2025 and consisted of residential and commercial real estate properties. Valuation charges of $480 thousand and $547 thousand were included in earnings for the three and six months ended June 30, 2025, respectively.

Of the total individually evaluated loans of $24.3 million at June 30, 2025, there were no loans that were collateral dependent and were carried at fair value measured on a non-recurring basis.  Due to the sufficiency of charge-offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans during the three and six months ended June 30, 2025.

Other real estate owned, which is carried at fair value less costs to sell, was approximately $2.2 million at December 31, 2024, and consisted of only residential real estate properties. A valuation charge of $350 thousand is included in earnings for the year ended December 31, 2024.

Of the total individually evaluated loans of $24.4 million at December 31, 2024, there were no loans that were collateral dependent and were carried at fair value measured on a non-recurring basis.  Due to the sufficiency of charge-offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, 2024.

In accordance with FASB Topic 825, Financial Instruments (“ASC 825”), the carrying amounts and estimated fair values of financial instruments, at June 30, 2025 and December 31, 2024 are as follows:

(dollars in thousands)			Fair Value Measurements at
	Carrying		June 30, 2025 Using:
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	713,591	$	713,591	$	-	$	-	$	713,591
Securities available for sale		336,566		-		336,566		-		336,566
Held to maturity securities		4,836		-		4,844		-		4,844
Federal Home Loan Bank stock		6,601		N/A		N/A		N/A		N/A
Net loans		5,105,436		-		-		4,647,987		4,647,987
Accrued interest receivable		13,966		249		1,100		12,617		13,966
Financial liabilities:
Demand deposits		784,351		784,351		-		-		784,351
Interest bearing deposits		4,705,963		2,594,619		2,100,677		-		4,695,296
Short-term borrowings		82,370		-		82,370		-		82,370
Accrued interest payable		4,265		856		3,409		-		4,265

(dollars in thousands)			Fair Value Measurements at
	Carrying		December 31, 2024 Using:
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	641,812	$	641,812	$	-	$	-	$	641,812
Securities available for sale		358,185		-		358,185		-		358,185
Held to maturity securities		5,365		-		5,306		-		5,306
Federal Home Loan Bank stock		6,507		N/A		N/A		N/A		N/A
Net loans		5,047,810		-		-		4,589,822		4,589,822
Accrued interest receivable		13,194		271		1,317		11,606		13,194
Financial liabilities:
Demand deposits		762,101		762,101		-		-		762,101
Interest bearing deposits		4,628,882		2,579,123		2,038,200		-		4,617,323
Short-term borrowings		84,781		-		84,781		-		84,781
Accrued interest payable		3,817		216		3,601		-		3,817