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FAIR VALUE MEASUREMENTS
6 Months Ended
Jun. 30, 2024
FAIR VALUE MEASUREMENTS  
FAIR VALUE MEASUREMENTS

NOTE 11 — FAIR VALUE MEASUREMENTS

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance provides additional information on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes information on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the fair value measurement and disclosure guidance.

This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

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. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own belief about the assumptions market participants would use in pricing the asset or liability based upon the best information available. Fair value measurement and disclosure guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs:     Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Inputs:     Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 Inputs:     Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth as follows.

Financial Assets Measured at Fair Value on a Recurring Basis

At June 30, 2024 and December 31, 2023, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(Dollars in thousands)

    

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

June 30, 2024

​

Level 1

    

Level 2

    

Level 3

    

Total

Debt Securities Available-for-Sale:

 

​

  

 

​

  

 

​

  

 

​

  

U.S. Treasury securities

​

$

7,003

​

$

—

​

$

—

​

$

7,003

Obligations of U.S. Government Agencies and Sponsored Agencies:

​

 

  

​

 

​

​

 

  

​

 

​

Mortgaged-backed

​

​

—

​

​

142,375

​

​

—

​

​

142,375

Other

​

 

—

​

 

6,003

​

 

—

​

 

6,003

Other mortgage backed debt securities

​

 

—

​

 

48,628

​

 

—

​

 

48,628

Obligations of state and political subdivisions

​

 

—

​

 

84,641

​

 

—

​

 

84,641

Asset-backed securities

​

 

—

​

 

85,071

​

 

—

​

 

85,071

Corporate debt securities

​

 

—

​

 

29,868

​

 

—

​

 

29,868

Total debt securities available-for-sale

​

 

7,003

​

 

396,586

​

 

—

​

 

403,589

Marketable equity securities

​

 

1,288

​

 

—

​

 

—

​

 

1,288

Total recurring fair value measurements

​

$

8,291

​

$

396,586

​

$

—

​

$

404,877

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(Dollars in thousands)

    

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2023

​

Level 1

    

Level 2

    

Level 3

    

Total

Debt Securities Available-for-Sale:

 

​

  

 

​

  

 

​

  

 

​

  

U.S. Treasury securities

​

$

7,041

​

$

—

​

$

—

​

$

7,041

Obligations of U.S. Government Agencies and Sponsored Agencies:

​

 

  

​

 

  

​

 

  

​

 

  

Mortgaged-backed

​

​

—

​

​

137,992

​

​

—

​

​

137,992

Other

​

 

—

​

 

7,632

​

 

—

​

 

7,632

Other mortgage backed debt securities

​

 

—

​

 

34,050

​

 

—

​

 

34,050

Obligations of state and political subdivisions

​

 

—

​

 

87,703

​

 

—

​

 

87,703

Asset-backed securities

​

 

—

​

 

82,162

​

 

—

​

 

82,162

Corporate debt securities

​

 

—

​

 

36,388

​

 

—

​

 

36,388

Total debt securities available-for-sale

​

 

7,041

​

 

385,927

​

 

—

​

 

392,968

Marketable equity securities

​

 

1,482

​

 

—

​

 

—

​

 

1,482

Total recurring fair value measurements

​

$

8,523

​

$

385,927

​

$

—

​

$

394,450

​

The estimated fair values of equity securities and US Treasury debt securities classified as Level 1 are derived from quoted market prices in active markets; the equity securities consist mainly of stocks held in other banks. The estimated fair values of all debt securities classified as Level 2 are obtained from nationally-recognized third-party pricing agencies. The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (observable inputs), and are therefore classified as Level 2 within the fair value hierarchy. The Company does not have any Level 3 inputs for securities. There were no transfers between Level 1 and Level 2 during 2024 or 2023.

Financial Assets Measured at Fair Value on a Nonrecurring Basis

Periodically, non-recurring adjustments may be applied to the carrying value of loans based on the fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain specific allocation amounts for individually evaluated collateral-dependent loans as calculated when establishing the allowance for credit losses. The Company’s valuation procedure for any individually evaluated loans

greater than $250,000 requires an appraisal to be obtained and reviewed annually at year end unless the Board of Directors waives such requirement for a specific loan, in favor of obtaining a Certificate of Inspection instead, defined as an internal evaluation completed by the Company. A quarterly collateral evaluation is performed which may include a site visit, property pictures and discussions with realtors and other similar business professionals to ascertain current values. For individually evaluated loans less than $250,000 upon classification and annually at year end, the Company completes a Certificate of Inspection, which includes an onsite inspection, and considers value indicators such as insured values, tax assessed values, recent sales comparisons and a review of the previous evaluations.These assets are included as Level 3 fair values, based upon the lowest level that is significant to the fair value measurements. The fair value consists of the individually evaluated loan balances less the valuation allowance and/or charge-offs. There were no transfers between valuation levels in 2024 and 2023.

Individually evaluated loans measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023 are as follows:

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​

​

​

​

​

​

​

​

​

​

​

​

​

(Dollars in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets at June 30, 2024

 

​

  

 

​

  

 

​

  

 

​

  

Individually evaluated loans:

 

​

  

 

​

  

 

​

  

 

​

  

Real Estate

​

$

—

​

$

—

​

$

1,953

​

$

1,953

Total individually evaluated loans

​

$

—

​

$

—

​

$

1,953

​

$

1,953

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(Dollars in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets at December 31, 2023

 

​

  

 

​

  

 

​

  

 

​

  

Individually evaluated loans:

 

​

  

 

​

  

 

​

  

 

​

  

Real Estate

​

$

—

​

$

—

​

$

1,990

​

$

1,990

Total individually evaluated loans

​

$

—

​

$

—

​

$

1,990

​

$

1,990

​

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

There were no foreclosed assets held for resale measured at fair value on a nonrecurring basis at June 30, 2024 and December 31, 2023.

​

The Company’s foreclosed asset valuation procedure requires an appraisal or a Certificate of Inspection, which considers the sales prices of similar properties in the proximate vicinity, to be completed periodically with the exception of those cases in which the Bank has obtained a sales agreement. These assets are included as Level 3 fair values, based upon the lowest level that is significant to the fair value measurements. There were no transfers between valuation levels in 2024 and 2023.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine the fair value:

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​

​

​

​

​

​

​

​

​

(Dollars in thousands)

​

Quantitative Information about Level 3 Fair Value Measurements

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​

​

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​

​

​

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​

June 30, 2024

    

Estimate

    

Valuation Technique

    

Unobservable Input

    

Range

    

Average

Individually evaluated loans - collateral dependent

​

$

1,953

 

Appraisal of collateral1,3
Certificate of Inspection1,3

 

Appraisal adjustments2
Qualitative Adjustments4

 

(5%) – (5%)

 

(5%)

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​

 

  

 

  

 

  

 

  

 

  

December 31, 2023

​

 

  

 

  

 

  

 

  

 

  

Individually evaluated loans - collateral dependent

​

$

1,990

 

Appraisal of collateral1,3
Certificate of Inspection1,3

 

Appraisal adjustments2
Qualitative Adjustments4

 

(5%) – (5%)

 

(5%)

1. Fair value is generally determined through independent appraisals or Certificates of Inspection of the underlying collateral, as defined by Bank regulators.

2. Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The typical range of appraisal adjustments are presented as a percent of the appraisal value.

3. Includes qualitative adjustments by management and estimated liquidation expenses.

4. Collateral values may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses.

​

Fair Value of Financial Instruments Measured on a Nonrecurring Basis

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​

​

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​

​

​

​

​

​

​

​

​

​

​

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(Dollars in thousands)

​

Carrying

​

Fair Value Measurements at June 30, 2024

​

    

Amount

    

Level 1

    

Level 2

    

Level 3

    

Total

FINANCIAL ASSETS:

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

Cash and due from banks

​

$

14,292

​

$

14,292

​

$

—

​

$

—

​

$

14,292

Interest-bearing deposits in other banks

​

 

1,979

​

 

—

​

 

1,979

​

 

—

​

 

1,979

Restricted investment in bank stocks

​

 

11,493

​

 

—

​

 

11,493

​

 

—

​

 

11,493

Net loans

​

 

914,807

​

 

—

​

 

—

​

 

891,098

​

 

891,098

Mortgage servicing rights

​

 

241

​

 

—

​

 

—

​

 

241

​

 

241

Accrued interest receivable

​

 

5,328

​

 

—

​

 

5,328

​

 

—

​

 

5,328

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

FINANCIAL LIABILITIES:

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

Demand, savings and other deposits

​

 

671,430

​

 

—

​

 

671,430

​

 

—

​

 

671,430

Time deposits

​

 

312,779

​

 

—

​

 

310,426

​

 

—

​

 

310,426

Short-term borrowings

​

 

175,311

​

 

—

​

 

175,555

​

 

—

​

 

175,555

Long-term borrowings

​

 

122,000

​

 

—

​

 

123,244

​

 

—

​

 

123,244

Subordinated debentures

​

​

25,000

​

​

—

​

​

20,378

​

​

—

​

​

20,378

Accrued interest payable

​

 

3,698

​

 

—

​

 

3,698

​

 

—

​

 

3,698

Derivative Liabilities

​

 

741

​

 

—

​

 

741

​

 

—

​

 

741

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(Dollars in thousands)

​

Carrying

​

Fair Value Measurements at December 31, 2023

​

    

Amount

    

Level 1

    

Level 2

    

Level 3

    

Total

FINANCIAL ASSETS:

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

Cash and due from banks

​

$

9,462

​

$

9,462

​

$

—

​

$

—

​

$

9,462

Interest-bearing deposits in other banks

​

 

7,551

​

 

—

​

 

7,551

​

 

—

​

 

7,551

Restricted investment in bank stocks

​

 

10,885

​

 

—

​

 

10,885

​

 

—

​

 

10,885

Net loans

​

 

904,153

​

 

—

​

 

—

​

 

885,840

​

 

885,840

Mortgage servicing rights

​

 

265

​

 

—

​

 

—

​

 

265

​

 

265

Accrued interest receivable

​

 

5,201

​

 

—

​

 

5,201

​

 

—

​

 

5,201

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

FINANCIAL LIABILITIES:

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

Demand, savings and other deposits

​

 

686,321

​

 

—

​

 

686,321

​

 

—

​

 

686,321

Time deposits

​

 

294,118

​

 

—

​

 

292,073

​

 

—

​

 

292,073

Short-term borrowings

​

 

153,468

​

 

—

​

 

153,509

​

 

—

​

 

153,509

Long-term borrowings

​

 

122,000

​

 

—

​

 

125,343

​

 

—

​

 

125,343

Subordinated debentures

​

 

25,000

​

​

—

​

​

22,762

​

​

—

​

​

22,762

Accrued interest payable

​

​

2,823

​

 

—

​

 

2,823

​

 

—

​

 

2,823

Derivative Liabilities

​

​

4,501

​

 

—

​

 

4,501

​

 

—

​

 

4,501

​

​

 

​

​

​

​

​

​

​

​

​

​

​

​

​

​