FAIR VALUES OF ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2024

Fair Value Disclosures [Abstract]

FAIR VALUES OF ASSETS AND LIABILITIES

FAIR VALUES OF ASSETS AND LIABILITIES

The Company follows the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The guidance defines the fair value 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. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

In accordance with the guidance, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. These levels are:

Level 1:Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2:Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use 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 for substantially the full term of the assets and liabilities.

Level 3:Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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

Cash and Cash Equivalents – For such short-term instruments, the carrying amount is a reasonable estimate of fair value.

Debt Securities - The fair value of available-for-sale securities is determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities include U.S. Treasury, obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, mortgage-backed securities, and collateralized mortgage obligations. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using the discounted cash flow or other market indicators (Level 3). Level 3 securities include obligations of states and political subdivisions and corporate obligations.

Equity Securities - The fair value of equity securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Loans – The fair value of loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities, in accordance with the exit price notion as defined by FASB ASC 820, Fair Value Measurement ("ASC 820"). Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments and as a result of the adoption of ASU 2016-01, which also included credit risk and other market factors to calculate the exit price fair value in accordance with ASC 820.

Loans Held for Sale - Loans held for sale are carried at fair value in the aggregate as determined by the outstanding commitments from investors. As, such we classify those loans subjected to nonrecurring fair value adjustments as Level 2 of the fair value hierarchy.

Interest Rate Swaps - The Company offers interest rate swaps to certain commercial loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable to fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing the contract or fixed interest payments for the customer. In addition, the Company will enter into risk participation agreements ("RPA"). Under an RPA-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower, for a fee received from the other bank. Under an RPA-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank. RPAs are derivative financial instruments recorded at fair value. Although we have determined that a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit assumptions associated with our risk participation agreements utilize Level 3 inputs.

Accrued Interest Receivable – The carrying amount of accrued interest receivable approximates fair value and is classified as level 2 for accrued interest receivable related to investments securities and Level 3 for accrued interest receivable related to loans.

Deposits – The fair values of demand deposits are, as required by ASC Topic 825, equal to the carrying value of such deposits. Demand deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts, and money market demand accounts. The fair value of variable rate term deposits, those repricing within six months or less, approximates the carrying value of these deposits. Discounted cash flows have been used to value fixed rate term deposits and variable rate term deposits repricing after six months. The discount rate used is based on interest rates currently being offered on comparable deposits as to amount and term.

Short-Term Borrowings – The carrying value of any federal funds purchased and other short-term borrowings approximates their fair values.

FHLB and Other Borrowings – The fair value of the fixed rate borrowings is estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of any variable rate borrowing approximates its fair value.

Subordinated Debentures – Fair values are determined based on the current market value of like instruments of a similar maturity and structure.

Accrued Interest Payable – The carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.

Off-Balance Sheet Instruments – Fair values of off-balance sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value until such commitments are funded or closed. Management has determined that these instruments do not have a distinguishable fair value and no fair value has been assigned.

The following table presents the Company’s financial instruments that are measured at fair value on a recurring basis and the level within the hierarchy in which the fair value measurements fell as of December 31, 2024 and 2023:

December 31, 2024	Fair Value Measurements
($ in thousands)	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available-for-sale
U.S. Treasury	$	5,233	$	—	$	5,233	$	—
Obligations of U.S. government agencies and sponsored entities	96,225		—		96,225		—
Municipal securities	399,532		—		375,907		23,625
Mortgage-backed Securities	472,418		—		472,418		—
Corporate obligations	29,895		—		29,866		29
Total investment securities available-for-sale	$	1,003,303	$	—	$	979,649	$	23,654
Equity Securities	$	15,684	$	15,684	$	—	$	—
Loans held for sale	$	3,687	$	—	$	3,687	$	—
Interest rate swaps	$	10,509	$	—	$	10,491	$	18
Liabilities:
Interest rate swaps	$	10,510	$	—	$	10,491	$	19

December 31, 2023	Fair Value Measurements
($ in thousands)	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available-for-sale
U.S. Treasury	$	16,675	$	16,675	$	—	$	—
Obligations of U.S. government agencies and sponsored entities	104,923		—		104,923		—
Municipal securities	438,466		—		420,283		18,183
Mortgage-backed securities	441,661		—		441,661		—
Corporate obligations	37,597		—		37,567		30
Other	3,043		—		3,043		$	—
Total investment securities available-for-sale	$	1,042,365	$	16,675	$	1,007,477	$	18,213
Loans held for sale	$	2,914	$	—	$	2,914	$	—
Interest rate swaps	$	12,170	$	—	$	12,129	$	41
Liabilities:
Interest rate swaps	$	12,175	$	—	$	12,129	$	46

The following is a reconciliation of activity for assets measured at fair value based on significant unobservable (Level 3) information:

	Bank-Issued Trust Preferred Securities
($ in thousands)	2024		2023
Balance, January 1	$	30	$	31
Paydowns	(1)		(1)
Balance, December 31	$	29	$	30

	Municipal Securities
($ in thousands)	2024		2023
Balance, January 1	$	18,183	$	15,117
Maturities, calls and paydowns	(2,198)		(2,639)
Transfer from level 2 to level 3	8,035		6,085
Transfer from level 3 to level 2	(270)		—
Unrealized (loss) gain included in comprehensive income	(125)		(380)
Balance, December 31	$	23,625	$	18,183

	Interest Rate Swaps - Risk Participations
($ in thousands)	2024		2023
Balance, January 1, net	$	(5)	$	—
RPA-in	27		(46)
RPA-out	(23)		41
Balance at December 31, net	$	(1)	$	(5)

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at December 31, 2024 and 2023. The following tables present quantitative information about recurring Level 3 fair value measurements:

($ in thousands)
Bank-Issued Trust Preferred Securities	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs
December 31, 2024	$	29	Discounted cash flow	Discount rate	6.74% - 6.91%
December 31, 2023	$	30	Discounted cash flow	Discount rate	7.81% - 7.89%

Municipal Securities	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs
December 31, 2024	$	23,625	Discounted cash flow	Discount rate	2.65% - 6.10%
December 31, 2023	$	18,183	Discounted cash flow	Discount rate	2.34% - 5.50%

Interest Rate Swaps - Risk Participations	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs
December 31, 2024	$	(1)	Credit Value Adjustment	Credit Spread	225 bps - 300 bps
				Recovery Rate	70%
December 31, 2023	$	(5)	Credit Value Adjustment	Credit Spread	225 bps - 300 bps
				Recovery Rate	70%

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Collateral Dependent Loans

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income date available for similar loans and collateral underlying such loans. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. The Company adjusts the appraisal for cost associated with litigation and collections. 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 expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment.

Other Real Estate Owned

Other real estate owned consists of properties obtained through foreclosure. The adjustment at the time of foreclosure is recorded through the allowance for credit losses. Fair value of other real estate owned is based on current independent appraisals of the collateral less costs to sell when acquired, establishing a new costs basis. 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. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in market conditions from the time of valuation and anticipated sales values considering plans for disposition, which could result in an adjustment to lower the collateral value estimates indicated in the appraisals. The Company adjust the appraisal 10 percent for carrying costs. Periodic revaluations are classified as Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined the fair value declines subsequent to foreclosure, a valuation allowance is recorded through other income. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and recorded in other income. Other real estate measured at fair value on a non-recurring basis at December 31, 2024, amounted to $7.9 million. Other real estate owned is classified within Level 3 of the fair value hierarchy.

The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements were reported at December 31, 2024 and 2023:

	Fair Value Measurements Using
($ in thousands)	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2024
Collateral dependent loans	$	6,615	$	—	$	—	$	6,615
Other real estate owned	7,874		—		—		7,874
December 31, 2023
Collateral dependent loans	$	2,494	$	—	$	—	$	2,494
Other real estate owned	8,320		—		—		8,320

Estimated fair values for the Company's financial instruments are as follows, as of the date noted:

	Fair Value Measurements
December 31, 2024	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
($ in thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	220,411	$	220,411	$	220,411	$	—	$	—
Securities available-for-sale	1,003,303		1,003,303		—		979,649		23,654
Securities held-to-maturity	582,939		537,275		—		526,743		10,532
Equity securities	15,684		15,684		15,684		—		—
Loans held for sale	3,687		3,687		—		3,687		—
Loans, net	5,351,026		5,132,544		—		—		5,132,544
Accrued interest receivable	34,002		34,002		—		8,160		25,842
Interest rate swaps	10,509		10,509		—		10,491		18
Liabilities:
Non-interest-bearing deposits	$	1,796,685	$	1,796,685	$	—	$	1,796,685	$	—
Interest-bearing deposits	4,808,171		4,644,812		—		4,644,812		—
Subordinated debentures	123,731		111,709		—		—		111,709
FHLB and other borrowings	210,000		210,000		—		210,000		—
Accrued interest payable	13,856		13,856		—		13,856		—
Interest rate swaps	10,510		10,510		—		10,491		19

	Fair Value Measurements
December 31, 2023	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
($ in thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	355,147	$	355,147	$	355,147	$	—	$	—
Securities available-for-sale	1,042,365		1,042,365		16,675		1,007,477		18,213
Securities held-to-maturity	654,539		615,944		—		615,944		—
Loans held for sale	2,914		2,914		—		2,914		—
Loans, net	5,116,010		4,877,935		—		—		4,877,935
Accrued interest receivable	33,300		33,300		—		8,632		24,668
Interest rate swaps	12,170		12,170		—		12,129		41
Liabilities:
Non-interest-bearing deposits	$	1,849,013	$	1,849,013	$	—	$	1,849,013	$	—
Interest-bearing deposits	4,613,859		4,430,227		—		4,430,227		—
Subordinated debentures	123,386		109,426		—		—		109,426
FHLB and other borrowings	390,000		390,000		—		390,000		—
Accrued interest payable	22,702		22,702		—		22,702		—
Interest rate swaps	12,175		12,175		—		12,129		46