FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2025

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

12. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Corporation measures certain assets and liabilities at fair value. Fair value is defined as 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. FASB Topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs.

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques.

The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset or liability becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data.

At March 31, 2025 and December 31, 2024, assets and liabilities measured at fair value and the valuation methods used are as follows:

	March 31, 2025
	Quoted Prices		Other Observable		Unobservable
	in Active Markets		Inputs		Inputs		Total
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Fair Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	7,284	$	0	$	0	$	7,284
Obligations of U.S. Government agencies		0		8,923		0		8,923
Bank holding company debt securities		0		25,944		0		25,944
Obligations of states and political subdivisions:
Tax-exempt		0		99,148		0		99,148
Taxable		0		43,587		0		43,587
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		97,477		0		97,477
Residential collateralized mortgage obligations		0		52,148		0		52,148
Commercial mortgage-backed securities		0		65,553		0		65,553
Private label commercial mortgage-backed securities		0		8,399		0		8,399
Total available-for-sale debt securities		7,284		401,179		0		408,463
Marketable equity security		876		0		0		876
Servicing rights		0		0		2,767		2,767
RPA Out		0		3		0		3
Interest rate swap agreements, assets		0		1,882		0		1,882
Total recurring fair value measurements, assets	$	8,160	$	403,064	$	2,767	$	413,991
Recurring fair value measurements, liabilities:
RPA In	$	0	$	3	$	0	$	3
Interest rate swap agreements, liabilities		0		1,882		0		1,882
Total recurring fair value measurements, liabilities	$	0	$	1,885	$	0	$	1,885
Nonrecurring fair value measurements, assets:
Loans individually evaluated for credit loss, net	$	0	$	0	$	756	$	756
Foreclosed assets held for sale		0		0		199		199
Total nonrecurring fair value measurements, assets	$	0	$	0	$	955	$	955

	December 31, 2024
	Quoted Prices		Other Observable		Unobservable
	in Active Markets		Inputs		Inputs		Total
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Fair Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	7,118	$	0	$	0	$	7,118
Obligations of U.S. Government agencies		0		9,025		0		9,025
Bank holding company debt securities		0		25,246		0		25,246
Obligations of states and political subdivisions:
Tax-exempt		0		101,302		0		101,302
Taxable		0		42,506		0		42,506
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		94,414		0		94,414
Residential collateralized mortgage obligations		0		49,894		0		49,894
Commercial mortgage-backed securities		0		64,501		0		64,501
Private label commercial mortgage-backed securities		0		8,374		0		8,374
Total available-for-sale debt securities		7,118		395,262		0		402,380
Marketable equity security		863		0		0		863
Servicing rights		0		0		2,782		2,782
RPA Out		0		2		0		2
Interest rate swap agreements, assets		0		2,385		0		2,385
Total recurring fair value measurements, assets	$	7,981	$	397,649	$	2,782	$	408,412
Recurring fair value measurements, liabilities,
RPA In	$	0	$	2	$	0	$	2
Interest rate swap agreements, liabilities		0		2,385		0		2,385
Total recurring fair value measurements, liabilities	$	0	$	2,387	$	0	$	2,387
Nonrecurring fair value measurements, assets:
Loans individually evaluated for credit loss, net	$	0	$	0	$	136	$	136
Foreclosed assets held for sale		0		0		181		181
Total nonrecurring fair value measurements, assets	$	0	$	0	$	317	$	317

Level 2 valuation techniques used to measure fair value for the financial instruments in the preceding tables are as follows:

Available-for-sale debt securities - Level 2 debt securities are valued by a third-party pricing service. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing.

Derivative instruments - Interest rate SWAP agreements, RPA Out and RPA In- The fair value of derivatives are based on valuation models using observable market data as of the measurement date, valued by a third-party pricing service using quantitative models that utilize multiple market inputs. The inputs include prices and indices to generate continuous yield or pricing curves, estimates of current and potential future credit exposure and calculated discounted cash flow 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.

Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management.

At March 31, 2025 and December 31, 2024, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

	Fair Value at
	3/31/2025		Valuation	Unobservable			Method or Value As of
Asset	(In Thousands)		Technique	Input(s)			3/31/2025
Servicing rights	$	2,767	Discounted cash flow	Discount rate	13.00	%	Rate used through modeling period
				Loan prepayment speeds	118.00	%	Weighted-average PSA

	Fair Value at
	12/31/2024		Valuation	Unobservable			Method or Value As of
Asset	(In Thousands)		Technique	Input(s)			12/31/2024
Servicing rights	$	2,782	Discounted cash flow	Discount rate	13.00	%	Rate used through modeling period
				Loan prepayment speeds	116.00	%	Weighted-average PSA

The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans.

Following is a reconciliation of activity for Level 3 assets measured at fair value on a recurring basis:

(In Thousands)	Three Months Ended
	March 31, 2025		March 31, 2024
Servicing rights balance, beginning of period	$	2,782	$	2,659
Originations of servicing rights		54		47
Unrealized (loss) gain included in earnings		(69)		25
Servicing rights balance, end of period	$	2,767	$	2,731

Loans are individually evaluated for credit loss when they do not share similar risk characteristics as similar loans within its loan pool. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For individually evaluated loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. The estimated fair value determined for individually evaluated loans secured by real estate and foreclosed assets held for sale used unobservable inputs (Level 3 methodologies).

At March 31, 2025 and December 31, 2024, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

(Dollars In Thousands)									Range (Weighted
			Valuation						Average)
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	3/31/2025		3/31/2025		3/31/2025		Technique	Inputs	3/31/2025
Loans individually evaluated for credit loss:
Commercial real estate - owner occupied	$	245	$	47	$	198	Sales comparison & SBA guaranty	Discount to appraised value	93% (93)	%
All other commercial Loans		700		142		558	Liquidation of accounts receivable	Discount to borrower's financial statement value	35% (35)	%
Total loans individually evaluated for credit loss	$	945	$	189	$	756
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	43	$	0	$	43	Sales comparison	Discount to appraised value	62%-84% (76)	%
Commercial real estate		156		0		156	Sales comparison	Discount to appraised value	18%-77% (34)	%
Total foreclosed assets held for sale	$	199	$	0	$	199

(Dollars In Thousands)									Range (Weighted
			Valuation						Average)
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/2024		12/31/2024		12/31/2024		Technique	Inputs	12/31/2024
Loans individually evaluated for credit loss:
Commercial real estate - owner occupied	$	258	$	122	$	136	Sales comparison & SBA guaranty	Discount to appraised value	95% (95)	%
Total loans individually evaluated for credit loss	$	258	$	122	$	136
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	25	$	0	$	25	Sales comparison	Discount to appraised value	62% (62)	%
Commercial real estate		156		0		156	Sales comparison	Discount to appraised value	18%-77% (34)	%
Total foreclosed assets held for sale	$	181	$	0	$	181

Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation.

The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows:

(In Thousands)	Fair Value	March 31, 2025				December 31, 2024
	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	112,138	$	112,138	$	123,574	$	123,574
Certificates of deposit	Level 2		2,600		2,532		2,600		2,513
Restricted equity securities (included in other assets)	N/A		21,395		N/A		21,567		N/A
Loans, net	Level 3		1,878,260		1,800,194		1,875,813		1,789,044
Accrued interest receivable	Level 2		9,281		9,281		8,735		8,735
Financial liabilities:
Deposits with no stated maturity	Level 2		1,604,109		1,604,109		1,609,552		1,609,552
Time deposits	Level 2		498,032		498,739		484,357		484,900
Short-term borrowings	Level 2		571		571		2,488		2,488
Long-term borrowings - FHLB advances	Level 2		154,423		155,640		165,451		165,616
Senior notes, net	Level 2		14,917		14,207		14,899		13,579
Subordinated debt, net	Level 2		24,860		22,984		24,831		21,051
Accrued interest payable	Level 2		2,175		2,175		1,771		1,771