Fair Value Measurements And Fair Values Of Financial Instruments

3 Months Ended

Mar. 31, 2025

Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]

Fair Value Measurements And Fair Values Of Financial Instruments

Note 11. Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end. The Corporation uses the exit price notion to measure the fair value of financial instruments.

FASB ASC Topic 820, “Financial Instruments”, requires disclosure of the fair value of financial assets and liabilities, including those financial assets and liabilities that are not measured and reported at fair value on a recurring and nonrecurring basis. The Corporation does not report any nonfinancial assets at fair value. FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1: Valuation is based on unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. There may be substantial differences in the assumptions used for securities within the same level. For example, prices for U.S. Agency securities have fewer assumptions and are closer to level 1 valuations than the private label mortgage-backed securities that require more assumptions and are closer to level 3 valuations.

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Corporation’s assumptions regarding what market participants would assume when pricing a financial instrument.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following information regarding the fair value of the Corporation’s financial instruments should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Corporation’s financial instruments measured at fair value on a recurring and nonrecurring basis.

Equity Securities: Equity securities are valued using quoted market prices from nationally recognized markets (Level 1). Equity securities are measured at fair value on a recurring basis.

Investment securities: Fair values of investment securities available-for-sale were primarily measured using information from a first-party pricing service. This service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Level 2 investment securities are primarily comprised of debt securities issued by states and municipalities, corporations, mortgage-backed securities issued by government agencies, and government-sponsored enterprises. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. Investment securities are measured at fair value on a recurring basis.

Collateral Dependent Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals conducted by an independent, licensed appraiser, less cost to sell. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach (Level 2). If the appraiser makes an adjustment to account for differences between the comparable sales and income data available for similar loans, or if management adjusts the appraised value, then the fair value is considered Level 3. 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. Collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy. No partial charge-offs on these loans were taken in the first three months of 2025. Collateral dependent loans are measured at fair value on a nonrecurring basis.

Derivatives: The fair value of derivatives are based on valuation methods using observable market data as of the measurement date (Level 2). The fair value of derivatives are determined using quantitative models using multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates and other factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources including, brokers, market transactions and third-party pricing services. The fair value represents an estimate of the amount the Corporation would receive or pay to terminate the derivative contract.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at the lower of cost or the fair value less costs to sell when acquired. 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 which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties (Level2). If the appraiser makes an adjustment to account for differences between the comparable sales and income data available for similar loans, or if management adjusts the appraised value, then the fair value is considered Level 3. In connection with the measurement and initial recognition of other real estate owned, losses are recognized through the allowance for loan losses. Subsequent charge-offs are recognized as an expense. Other real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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Recurring Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis and the fair value measurements by level within the fair value hierarchy used at March 31, 2025 and December 31, 2024 are as follows:

(Dollars in thousands)	Fair Value at March 31, 2025
Assets	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	—	$	—	$	—	$	—
Available for sale:
U.S. Treasury		32,472		—		—		32,472
Municipal		—		133,879		—		133,879
Corporate		—		24,341		—		24,341
Agency MBS & CMO		—		137,693		—		137,693
Non-Agency MBS & CMO		—		137,127		—		137,127
Asset-backed		—		29,975		—		29,975
Total assets	$	32,472	$	463,015	$	—	$	495,487
Liabilities
Derivatives	$	—	$	375	$	—	$	375

(Dollars in thousands)	Fair Value at December 31, 2024
Assets	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	166	$	—	$	—	$	166
Available for sale:
U.S. Treasury		31,797		—		—		31,797
Municipal		—		133,592		—		133,592
Corporate		—		24,224		—		24,224
Agency MBS & CMO		—		138,742		—		138,742
Non-Agency MBS & CMO		—		149,170		—		149,170
Asset-backed				31,079				31,079
Total assets	$	31,963	$	476,807	$	—	$	508,770
Liabilities
Derivatives	$	—	$	2,275	$	—	$	2,275

Nonrecurring Fair Value Measurements

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2025 and December 31, 2024 were as follows:

(Dollars in Thousands)	Fair Value at March 31, 2025
Asset Description	Level 1		Level 2		Level 3		Total
Collateral Dependent (1)	$	—	$	—	$	380	$	380
Total assets	$	—	$	—	$	380	$	380

(Dollars in Thousands)	Fair Value at December 31, 2024
Asset Description	Level 1		Level 2		Level 3		Total
Collateral Dependent (1)	$	—	$	—	$	380	$	380
Total assets	$	—	$	—	$	380	$	380

(1)Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on customized discounting criteria.

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at March 31, 2025. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2025.

The following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis.

(Dollars in thousands)					Range
March 31, 2025		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Collateral Dependent	$	380	Appraisal	Appraisal Adjustment on:
				Real estate assets	100% (100%)
				Cost to sell	10%
					Range
December 31, 2024		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Collateral Dependent	$	380	Appraisal	Appraisal Adjustment on:
				Real estate assets	100% (100%)
				Cost to sell	10%

The carrying amounts and estimated fair value of financial instruments not carried at fair value are as follows:

	March 31, 2025
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	224,956	$	224,956	$	224,956	$	—	$	—
Long-term interest-earning deposits in other banks		1,249		1,249		1,249		—		—
Loans held for sale		1,791		1,821		—		1,821		—
Net loans		1,437,747		1,420,280		—		—		1,420,280
Accrued interest receivable		7,298		7,298		—		—		7,298
Financial liabilities:
Deposits	$	1,867,577	$	1,868,881	$	—	$	1,868,881	$	—
FHLB advances		200,000		201,565		—		201,565		—
Subordinate notes		19,710		18,032		—		18,032		—
Accrued interest payable		3,995		3,995		—		3,995		—
	December 31, 2024
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	203,613	$	203,613	$	203,613	$	—	$	—
Long-term interest-earning deposits in other banks		1,499		1,499		1,499
Loans held for sale		2,470		2,470		—		2,470		—
Net loans		1,380,424		1,351,450		—		—		1,351,450
Accrued interest receivable		7,348		7,348		—		—		7,348
Financial liabilities:
Deposits	$	1,815,647	$	1,814,479	$	—	$	1,814,479	$	—
FHLB Advances		200,000		200,883				200,883
Subordinate notes		19,699		18,032		—		18,032		—
Accrued interest payable		4,689		4,689		—		4,689		—