Fair Value Of Assets And Liabilities

12 Months Ended

Dec. 31, 2024

Fair Value Of Assets And Liabilities [Abstract]

Fair Value Of Assets And Liabilities

20.FAIR VALUE OF ASSETS AND LIABILITIES

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.

There are three levels of inputs to fair value measurements:

Level 1 inputs are quoted prices for identical instruments in active markets;

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 inputs are unobservable inputs.

Observable market data should be used when available.

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS

The following table presents for each of the fair-value hierarchy levels as defined in this footnote, those assets and liabilities which are measured at fair value on a recurring basis at December 31, 2024 and 2023:

(in thousands)		Level 1		Level 2		Level 3		Fair Value
December 31, 2024
Securities available-for-sale:
US treasuries and government agencies	$	-	$	91,355	$	-	$	91,355
States and political subdivisions		-		5,299		-		5,299
Mortgage-backed securities		-		162,023		-		162,023
Mortgage servicing rights		-		-		1,190		1,190
December 31, 2023
Securities available-for-sale:
US treasuries and government agencies	$	-	$	96,240	$	-	$	96,240
States and political subdivisions		-		6,029		-		6,029
Mortgage-backed securities		-		173,411		-		173,411
Mortgage servicing rights		-		-		1,061		1,061

Securities available for sale

Fair values for available for sale securities are determined using independent pricing services and market-participating brokers. The Company utilizes a third-party for these pricing services. The third-party utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the third-party service provider’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. In addition, our third-party pricing service provider uses model processes, such as the Option Adjusted Spread model, to assess interest rate impact and develop prepayment scenarios. The models and the process take into account market convention. For each asset class, a team of evaluators gathers information from market sources and integrates relevant credit information, perceived market movements and sector news into the evaluated pricing applications and models. The third-party, at times, may determine that it does not have sufficient verifiable information to value a particular security.

On a quarterly basis the Company reviews changes, as submitted by our third-party pricing service provider, in the market value of its securities portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. Additionally, on a quarterly basis the Company has its entire securities portfolio priced by a second pricing service to determine consistency with another market evaluator. If, on the Company’s review or in comparing with another servicer, a material difference between pricing evaluations were to exist, the Company may submit an inquiry to our third-party pricing service provider regarding the data used to value a particular security. If the Company determines it has market information that would support a different valuation than our third-party service provider’s evaluation it can submit a challenge for a change to that security’s valuation. There were no material differences in valuations noted in 2024 or 2023.

Securities available for sale are classified as Level 2 in the fair value hierarchy as the valuation provided by the third-party provider uses observable market data.

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A NONRECURRING BASIS

The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements.

The following table presents for each of the fair-value hierarchy levels as defined in this footnote, those assets and liabilities which are measured at fair value on a nonrecurring basis at December 31, 2024 and 2023:

(in thousands) Level 1 Level 2 Level 3 Fair Value

December 31, 2024
Collateral dependent individually analyzed loans	$	-	$	-	$	4,680	$	4,680
December 31, 2023
Collateral dependent individually analyzed loans	$	-	$	-	$	7,147	$	7,147

The following table presents qualitative information about Level 3 fair value measurements for financial instruments which are measured at fair value on a nonrecurring basis at December 31, 2024 and December 31, 2023:

December 31, 2024
(In thousands)		Fair Value	Valuation Technique	Unobservable Input(s)	Range	(Weighted Average)
Individually evaluated collateral dependent loans:
Commercial Real Estate	$	4,032	Income approach	Capitalization rate	8.00%	8.00%
Commercial and industrial	$	502	Cost approach	Book value	50.00%	50.00%
Residential Real Estate	$	146	Sales comparison approach	Adjustment to comparables	(14%) - 1%	-8.70%
December 31, 2023
(In thousands)		Fair Value	Valuation Technique	Unobservable Input	Range	(Weighted Average)
Individually evaluated collateral dependent loans:
Commercial Real Estate	$	7,110	Sales comparison approach	Adjustment to comparables	(0.6%) - 16%	8.82%
			Income approach	Capitalization rate	8.50%	8.50%
Commercial and industrial	$	37	Sales comparison approach	Adjustment to comparables	N/A	N/A

Individually evaluated collateral dependent loans

When a loan is individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent loans which are individually evaluated and carried at fair value have been partially charged off or receive provisions in the allowance for credit losses. For collateral

dependent loans, fair value is generally based on appraisal values performed by licensed appraisers, except for certain circumstances in which book value is used. Appraisals have multiple valuation methodologies to arrive at the fair value, these methodologies include the sales comparison approach, cost approach, and the income capitalization approach. The methodology chosen is reliant on the data available, and adjustments are made by independent appraisers to reflect differences between the asset valued and the comparable data used. These adjustments result in Level 3 classification for determining fair value. Collateral may be adjusted or discounted based on management's historical knowledge, changes in market conditions, management's expertise, and knowledge of the customer and related business. Individually analyzed loans are evaluated on a quarterly basis for additional impairment, and valuations for collateral dependent loans are updated by a new independent appraisal or a validation of the existing appraisal by an internal licensed appraiser, in accordance with Company policy. Appraisals are obtained upon a commercial loan being downgraded on the Company’s internal loan rating scale to a special mention or a substandard depending on the amount of the loan, the type of loan and the type of collateral.  All individually analyzed commercial loans are graded substandard or worse on the internal loan rating scale.  For consumer loans, the Company obtains appraisals when a loan becomes 90 days past due or is determined to be individually analyzed, whichever occurs first.  Subsequent to the downgrade or reaching 90 days past due, if the loan remains outstanding and individually analyzed for at least one year or more, management may require another follow-up appraisal.  Between receipts of updated appraisals, if necessary, management may perform an internal valuation based on any known changing conditions in the marketplace such as sales of similar properties, a change in the condition of the collateral, or feedback from local appraisers.  

Three types of valuation techniques generally used: 1. Income approach valuations typically use the net operating income of the business divided by the capitalization rate as determined by the appraiser. Management applies a 10% discount to income approach values which management expects will cover disposition costs, including selling costs. 2. Sales comparison approach valuations typically use the values of similar sales of listings in the market area, adjusted for differences in the assets sold as determined by the appraiser. Management applies a 10% discount to income approach values which management expects will cover disposition costs, including selling costs. 3. Cost comparison approach valuations are based on either the existing book value in which appraisals are not obtained, or the cost necessary to replace or reproduce the asset based on current prices. Management applies a discount dependent on the underlying asset, according to policy which ranges from 10%-50%.

Collateral dependent individually evaluated loans had a gross value of $6.1 million, with an allowance for credit loss of $1.1 million, at December 31, 2024 compared with $7.9 million and $0.8 million, respectively, at December 31, 2023.

At December 31, 2024 and 2023, the estimated fair values of the Company’s financial instruments, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis, were as follows:

	December 31, 2024				December 31, 2023
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
		(in thousands)				(in thousands)
Financial assets:
Level 1:
Cash and cash equivalents	$	42,716	$	42,716	$	23,467	$	23,467
Level 2:
Available for sale securities		258,677		258,677		275,680		275,680
FHLB and FRB stock		9,891		N/A		8,011		N/A
Level 3:
Held to maturity securities		4,347		4,241		2,059		1,988
Loans, net		1,759,488		1,674,236		1,698,832		1,606,666
Financial liabilities:
Level 1:
Demand deposits	$	373,240	$	373,240	$	390,238	$	390,238
NOW deposits		399,046		399,046		345,279		345,279
Savings deposits		699,635		699,635		649,621		649,621
Level 2:
Securities sold under agreement to
repurchase		6,586		6,586		9,475		9,475
Other borrowed funds		80,000		80,242		145,123		145,055
Subordinated debt		31,279		30,487		31,177		29,563
Level 3:
Time deposits		394,556		393,789		333,623		331,675

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

FHLB and FRB stock

The carrying value of FHLB and FRB stock, which are non-marketable equity investments, approximates fair value.

Loans

Fair value for pooled loans is estimated using discounted cash flow analyses.

Deposits

The fair value of demand deposits, NOW accounts, muni-vest accounts and regular savings accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated using the rates currently offered for deposits of similar remaining maturities.

Borrowed Funds and Securities Sold Under Agreement to Repurchase

The fair value of securities sold under agreement to repurchase approximates its carrying value. The fair value of other borrowed funds was estimated using a discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated Debt

Subordinated debt consists of subordinated notes and trust preferred capital securities. There is no active market for the Company’s trust preferred capital securities and there have been no issuances of similar instruments in recent years.  The Company looked at a market bond index to estimate a discount margin to value the debentures.  The discount margin was very similar to the spread to LIBOR established at the issuance of the debentures.  As a result, the Company determined that the fair value of the adjustable-rate debentures approximates their face amount. The Company utilizes active markets with similar assets to determine the fair value of the subordinated notes.

Pension Plan Assets

Refer to Note 12 to these Consolidated Financial Statements, “Employee Benefits and Deferred Compensation Plans” for the fair value analysis of the Pension Plan assets.