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Fair Value

3 Months Ended

Mar. 31, 2024

Fair value is 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. There are 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 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.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For investment securities where quoted prices are not available, fair values are calculated based on market prices of similar investment securities (Level 2). For investment securities where quoted prices or market prices of similar investment securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Level 3 pricing is obtained from a third-party based upon similar trades that are not traded frequently without adjustment by the Company. At March 31, 2024, the Company held $76 in Level 3 securities which consist of non-rated Obligations of State and Political Subdivisions and $991 in Level 3 securities which consist of non-rated MBS/CMO. Absent the credit rating, significant assumptions must be made such that the credit risk input becomes an unobservable input and thus these investment securities are reported by the Company in a Level 3 classification.

Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

Individually Analyzed Loans: Fair values for collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances includes consideration of offers obtained to purchase properties prior to foreclosure. Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value in the cost to replace the current property. Value of market comparison approach evaluates the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and an investor’s required return. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell. Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s Risk Management Area reviews the assumptions and approaches utilized in the appraisal. In determining the value of collateral dependent loans and other real estate owned, significant unobservable inputs may be used which include: physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

Other Real Estate: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property utilizing similar techniques as discussed above for Individually Analyzed Loans, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, impairment loss is recognized.

Loans Held-for-Sale: The fair values of loans held for sale are determined by using quoted prices for similar assets, adjusted for specific attributes of that loan resulting in a Level 2 classification.

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:


	Fair Value Measurements at March 31, 2024 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
U.S. Treasury	$	49,686	$	—	$	—	$	49,686
Obligations of State and Political Subdivisions	—		688,684		76		688,760
MBS/CMO	—		622,025		991		623,016
US Gov’t Sponsored Entities & Agencies	—		177,808		—		177,808
Total Securities	$	49,686	$	1,488,517	$	1,067	$	1,539,270

Loans Held-for-Sale	$	—	$	10,325	$	—	$	10,325

Derivative Assets	$	—	$	8,287	$	—	$	8,287

Derivative Liabilities	$	—	$	8,294	$	—	$	8,294


	Fair Value Measurements at December 31, 2023 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
U.S. Treasury	$	—	$	—	$	—	$	—
Obligations of State and Political Subdivisions	—		768,800		75		768,875
MBS/CMO	—		644,056		984		645,040
US Gov’t Sponsored Entities & Agencies	—		182,917		—		182,917
Total Securities	$	—	$	1,595,773	$	1,059	$	1,596,832

Loans Held-for-Sale	$	—	$	5,226	$	—	$	5,226

Derivative Assets	$	—	$	7,458	$	—	$	7,458

Derivative Liabilities	$	—	$	7,467	$	—	$	7,467

As of March 31, 2024 and December 31, 2023, the aggregate fair value, contractual balance (including accrued interest), and gain or loss on Loans Held-for-Sale was as follows:


	March 31, 2024		December 31, 2023

Aggregate Fair Value	$	10,325	$	5,226
Contractual Balance	10,136		5,125
Gain (Loss)	189		101

The total amount of gains and losses from changes in fair value included in earnings for the three months ended March 31, 2024 and 2023 for loans held for sale were $88 and $(29), respectively.

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2024 and 2023:


	Obligations of State and Political Subdivisions				MBS/CMO
	2024		2023		2024		2023

Balance of Recurring Level 3 Assets at January 1	$	75	$	83	$	984	$	906
Total Gains (Losses) Included in Other Comprehensive Income	1		—		7		11
Maturities / Calls	—		—		—		—
Acquired through Bank Acquisition	—		—		—		—
Balance of Recurring Level 3 Assets at March 31	$	76	$	83	$	991	$	917

Of the total gain (loss) included in earnings for the three months ended March 31, 2024 and 2023, $8 and $11 was attributable to other changes in fair value, respectively.

Assets and Liabilities Measured on a Non-Recurring Basis

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


	Fair Value Measurements at March 31, 2024 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Individually Analyzed Loans
Commercial and Industrial Loans	$	—	$	—	$	2,715	$	2,715
Commercial Real Estate Loans	$	—	$	—	$	3,098	$	3,098
Agricultural Loans	$	—	$	—	$	2,220	$	2,220
Consumer Loans	$	—	$	—	$	9	$	9
Home Equity Loans	$	—	$	—	$	326	$	326
Residential Mortgage Loans	$	—	$	—	$	326	$	326


	Fair Value Measurements at December 31, 2023 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Individually Analyzed Loans
Commercial and Industrial Loans	$	—	$	—	$	2,506	$	2,506
Commercial Real Estate Loans	$	—	$	—	$	3,447	$	3,447
Agricultural Loans	$	—	$	—	$	2,395	$	2,395
Consumer Loans	$	—	$	—	$	9	$	9
Home Equity Loans	$	—	$	—	$	326	$	326
Residential Mortgage Loans	$	—	$	—	$	450	$	450

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2024 and December 31, 2023:


March 31, 2024	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)

Individual Analyzed Loans - Commercial and Industrial Loans	$	2,715	Sales comparison approach	Adjustment for physical condition of comparable properties sold	23%-100% (37%)
Individual Analyzed Loans - Commercial Real Estate Loans	$	3,098	Sales comparison approach	Adjustment for physical condition of comparable properties sold	20%-68% (43%)
Individual Analyzed Loans - Agricultural Loans	$	2,220	Sales comparison approach	Adjustment for physical condition of comparable properties sold	31%-100% (52%)
Individual Analyzed Loans - Consumer Loans	$	9	Sales comparison approach	Adjustment for physical condition of comparable properties sold	20%-20% (20%)
Individual Analyzed Loans - Home Equity Loans	$	326	Sales comparison approach	Adjustment for physical condition of comparable properties sold	20%-20% (20%)
Individual Analyzed Loans - Residential Mortgage Loans	$	326	Sales comparison approach	Adjustment for physical condition of comparable properties sold	20%-20% (20%)


December 31, 2023	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)

Individual Analyzed Loans - Commercial and Industrial Loans	$	2,506	Sales comparison approach	Adjustment for physical condition of comparable properties sold	23%-100% (33%)
Individual Analyzed Loans - Commercial Real Estate Loans	$	3,447	Sales comparison approach	Adjustment for physical condition of comparable properties sold	20%-68% (42%)
Individual Analyzed Loans - Agricultural Loans	$	2,395	Sales comparison approach	Adjustment for physical condition of comparable properties sold	31%-100% (51%)
Individual Analyzed Loans - Consumer Loans	$	9	Sales comparison approach	Adjustment for physical condition of comparable properties sold	20%-20% (20%)
Individual Analyzed Loans - Home Equity Loans	$	326	Sales comparison approach	Adjustment for physical condition of comparable properties sold	20%-20% (20%)
Individual Analyzed Loans - Residential Mortgage Loans	$	450	Sales comparison approach	Adjustment for physical condition of comparable properties sold	20%-20% (20%)

The carrying amounts and estimated fair values of the Company’s financial instruments not previously presented are provided in the tables below for the periods ending March 31, 2024 and December 31, 2023. Not all of the Company’s assets and liabilities are considered financial instruments, and therefore are not included in the tables. Because no active market exists for a significant portion of the Company’s financial instruments, fair value estimates were based on subjective judgments, and therefore cannot be determined with precision.


			Fair Value Measurements at March 31, 2024 Using
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Short-term Investments	$	123,470	$	52,839	$	70,631	$	—	$	123,470
Interest Bearing Time Deposits with Banks	500		—		500		—		500
Loans, Net	3,919,462		—		—		3,821,382		3,821,382
Accrued Interest Receivable	30,385		—		9,028		21,357		30,385
Financial Liabilities:
Demand, Savings, and Money Market Deposits	(4,382,392)		(4,382,392)		—		—		(4,382,392)
Time Deposits	(836,955)		—		(828,378)		—		(828,378)
Short-term Borrowings	(63,764)		(25,000)		(38,764)		—		(63,764)
Long-term Debt	(128,046)		—		(52,513)		(74,678)		(127,191)
Accrued Interest Payable	(9,236)		—		(8,768)		(468)		(9,236)


			Fair Value Measurements at December 31, 2023 Using
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Short-term Investments	$	115,330	$	78,805	$	36,525	$	—	$	115,330
Interest Bearing Time Deposits with Banks	500		—		500		—		500
Loans, Net	3,918,184		—		—		3,801,738		3,801,738
Accrued Interest Receivable	30,595		—		10,014		20,581		30,595
Financial Liabilities:
Demand, Savings, and Money Market Deposits	(4,485,921)		(4,485,921)		—		—		(4,485,921)
Time Deposits	(767,042)		—		(759,217)		—		(759,217)
Short-term Borrowings	(65,968)		(25,000)		(40,968)		—		(65,968)
Long-term Debt	(127,969)		—		(52,522)		(74,562)		(127,084)
Accrued Interest Payable	(7,073)		—		(6,701)		(372)		(7,073)

- 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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