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FAIR VALUES OF FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2024
Fair Value Disclosures [Abstract] |
FAIR VALUES OF FINANCIAL INSTRUMENTS | FAIR VALUES OF FINANCIAL INSTRUMENTS The Corporation used fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The accounting guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 applies only when other guidance requires or permits assets or liabilities to be measured at fair value; it does not expand the use of fair value in any new circumstances. As defined in ASC 820, fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants. It represents an exit price at the measurement date. Market participants are buyers and sellers, who are independent, knowledgeable, and willing and able to transact in the principal (or most advantageous) market for the asset or liability being measured. Current market conditions, including imbalances between supply and demand, are considered in determining fair value. The Corporation values its assets and liabilities in the principal market where it sells the particular asset or transfers the liability with the greatest volume and level of activity. In the absence of a principal market, the valuation is based on the most advantageous market for the asset or liability (i.e., the market where the asset could be sold or the liability transferred at a price that maximizes the amount to be received for the asset or minimizes the amount to be paid to transfer the liability). Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability. Inputs can be observable or unobservable. Observable inputs are those assumptions which market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from a source independent of the Corporation. Unobservable inputs are assumptions based on the Corporation’s own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information available on the measurement date. All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy which gives the highest ranking to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest ranking to unobservable inputs for which there is little or no market activity (Level 3). Fair values for assets or liabilities classified as Level 2 are based on one or a combination of the following factors: (i) quoted prices for similar assets; (ii) observable inputs for the asset or liability, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation considers an input to be significant if it drives 10 percent or more of the total fair value of a particular asset or liability. RECURRING MEASUREMENTS Assets and liabilities are considered to be measured at fair value on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly or quarterly). Recurring valuation occurs at a minimum on the measurement date. Assets and liabilities are considered to be measured at fair value on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed for impairment and recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer considered to be realized or unrealized gains or losses. Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy. Investment Securities Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. There were no Level 1 securities. Where significant observable inputs, other than Level 1 quoted prices, are available, securities are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government-sponsored agency and mortgage-backed securities, state and municipal securities and corporate obligations securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include state and municipal securities, U.S. Government-sponsored mortgage-backed securities and corporate obligations securities. Level 3 fair value for securities was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active. Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3. Derivative Financial Agreements See information regarding the Corporation’s derivative financial agreements in NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements. The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2024, and December 31, 2023.
|  |  | Fair Value Measurements Using:
September 30, 2024 | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Available for sale securities: |  |  |  |  |  |  |
U.S. Government-sponsored agency securities | $ | 85,033 |  |  | $ | — |  |  | $ | 85,033 |  |  | $ | — |
State and municipal | 984,111 |  |  | — |  |  | 981,665 |  |  | 2,446 |
U.S. Government-sponsored mortgage-backed securities | 472,046 |  |  | — |  |  | 472,042 |  |  | 4 |
Corporate obligations | 12,306 |  |  | — |  |  | 12,275 |  |  | 31 |
Derivative assets | 62,270 |  |  | — |  |  | 62,270 |  |  | — |
Derivative liabilities | 61,386 |  |  | — |  |  | 61,386 |  |  | — |
|  |  | Fair Value Measurements Using:
December 31, 2023 | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Available for sale securities: |  |  |  |  |  |  |
U.S. Government-sponsored agency securities | $ | 95,307 |  |  | $ | — |  |  | $ | 95,307 |  |  | $ | — |
State and municipal | 1,065,171 |  |  | — |  |  | 1,061,896 |  |  | 3,275 |
U.S. Government-sponsored mortgage-backed securities | 454,815 |  |  | — |  |  | 454,811 |  |  | 4 |
Corporate obligations | 11,819 |  |  | — |  |  | 11,788 |  |  | 31 |
Derivative assets | 79,379 |  |  | — |  |  | 79,379 |  |  | — |
Derivative liabilities | 79,008 |  |  | — |  |  | 79,008 |  |  | — |
Level 3 Reconciliation The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable Level 3 inputs for the three and nine months ended September 30, 2024 and 2023.
| Available for Sale Securities
| Three Months Ended |  | Nine Months Ended
| September 30, 2024 |  | September 30, 2023 |  | September 30, 2024 |  | September 30, 2023
Balance at beginning of the period | $ | 3,224 |  |  | $ | 3,348 |  |  | $ | 3,310 |  |  | $ | 3,439 |
Included in other comprehensive income | 65 |  |  | (30) |  |  | 76 |  |  | (28) |
Principal payments | (808) |  |  | (90) |  |  | (905) |  |  | (183) |
Ending balance | $ | 2,481 |  |  | $ | 3,228 |  |  | $ | 2,481 |  |  | $ | 3,228 |
There were no gains or losses included in earnings that were attributable to the changes in unrealized gains or losses related to assets or liabilities held at September 30, 2024 or December 31, 2023. Transfers Between Levels There were no transfers in or out of Level 3 during the three and nine months ended September 30, 2024 and 2023. Nonrecurring Measurements Following is a description of valuation methodologies used for instruments measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy at September 30, 2024, and December 31, 2023.
|  |  |  | Fair Value Measurements Using
September 30, 2024 |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Collateral dependent loans |  | $ | 55,211 |  |  | $ | — |  |  | $ | — |  |  | $ | 55,211 |
|  |  |  | Fair Value Measurements Using
December 31, 2023 |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Collateral dependent loans |  | $ | 55,020 |  |  | $ | — |  |  | $ | — |  |  | $ | 55,020 |
Collateral Dependent Loans Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions. Unobservable (Level 3) Inputs The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at September 30, 2024 and December 31, 2023.
September 30, 2024 | Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted-Average)
State and municipal securities | $ | 2,446 |  |  | Discounted cash flow |  | Maturity/Call date |  | 1 month to 6 years
|  |  |  |  | US Muni BQ curve |  | BBB
|  |  |  |  | Discount rate |  | 3.1% - 4.3%
|  |  |  |  | Weighted-average coupon |  | 3.6%
Corporate obligations and U.S. Government-sponsored mortgage-backed securities | $ | 35 |  |  | Discounted cash flow |  | Risk free rate |  | 3 month CME Term SOFR plus 26bps
|  |  |  |  | plus premium for illiquidity (basis points) |  | plus 200bps
|  |  |  |  | Weighted-average coupon |  | 0%
Collateral dependent loans | $ | 55,211 |  |  | Collateral based measurements |  | Discount to reflect current market conditions and ultimate collectability |  | 0% - 15%
|  |  |  |  | Weighted-average discount by loan balance |  | 12.1%
December 31, 2023 | Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted-Average)
State and municipal securities | $ | 3,275 |  |  | Discounted cash flow |  | Maturity/Call date |  | 1 month to 15 years
|  |  |  |  | US Muni BQ curve |  | BBB
|  |  |  |  | Discount rate |  | 3.6% - 4.7%
|  |  |  |  | Weighted-average coupon |  | 3.3%
Corporate obligations and U.S. Government-sponsored mortgage-backed securities | $ | 35 |  |  | Discounted cash flow |  | Risk free rate |  | 3 month CME Term SOFR plus 26bps
|  |  |  |  | plus premium for illiquidity (basis points) |  | plus 200bps
|  |  |  |  | Weighted-average coupon |  | 0%
Collateral dependent loans | $ | 55,020 |  |  | Collateral based measurements |  | Discount to reflect current market conditions and ultimate collectability |  | 0% - 10%
|  |  |  |  | Weighted-average discount by loan balance |  | 4.1%
The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement. State and Municipal Securities, Corporate Obligations and U.S. Government-sponsored Mortgage-Backed Securities The significant unobservable inputs used in the fair value measurement of the Corporation's state and municipal securities, corporate obligations and U.S. Government-sponsored mortgage-backed securities are premiums for unrated securities and marketability discounts. Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement. Generally, changes in either of those inputs will not affect the other input. Fair Value of Financial Instruments The following tables present estimated fair values of the Corporation’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2024 and December 31, 2023.
|  |  | September 30, 2024 |  |  |  |
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs |  |
| Carrying Amount | (Level 1) |  | (Level 2) |  | (Level 3) |  | Total Fair Value
Assets: |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 84,719 |  |  | $ | 84,719 |  |  | $ | — |  |  | $ | — |  |  | $ | 84,719 |
Interest-bearing deposits | 359,126 |  |  | 359,126 |  |  | — |  |  | — |  |  | 359,126 |
Investment securities available for sale | 1,553,496 |  |  | — |  |  | 1,551,015 |  |  | 2,481 |  |  | 1,553,496 |
Investment securities held to maturity, net | 2,108,649 |  |  | — |  |  | 1,815,856 |  |  | 7,150 |  |  | 1,823,006 |
Loans held for sale | 40,652 |  |  | — |  |  | 40,652 |  |  | — |  |  | 40,652 |
Net loans | 12,458,980 |  |  | — |  |  | — |  |  | 12,251,924 |  |  | 12,251,924 |
Federal Home Loan Bank stock | 41,716 |  |  | — |  |  | 41,716 |  |  | — |  |  | 41,716 |
Derivative assets | 62,270 |  |  | — |  |  | 62,270 |  |  | — |  |  | 62,270 |
Interest receivable | 92,055 |  |  | — |  |  | 92,055 |  |  | — |  |  | 92,055 |
Liabilities: |  |  |  |  |  |  |  |  |
Deposits | $ | 14,365,100 |  |  | $ | 11,980,746 |  |  | $ | 2,380,600 |  |  | $ | — |  |  | 14,361,346 |
Borrowings: |  |  |  |  |  |  |  |  |
Federal funds purchased | 30,000 |  |  | — |  |  | 30,000 |  |  | — |  |  | 30,000 |
Securities sold under repurchase agreements | 124,894 |  |  | — |  |  | 124,894 |  |  | — |  |  | 124,894 |
Federal Home Loan Bank advances | 832,629 |  |  | — |  |  | 841,458 |  |  | — |  |  | 841,458 |
Subordinated debentures and other borrowings | 93,562 |  |  | — |  |  | 83,242 |  |  | — |  |  | 83,242 |
Deposits and other liabilities held for sale | 288,476 |  |  | — |  |  | 266,898 |  |  | — |  |  | 266,898 |
Derivative liabilities | 61,386 |  |  | — |  |  | 61,386 |  |  | — |  |  | 61,386 |
Interest payable | 18,089 |  |  | — |  |  | 18,089 |  |  | — |  |  | 18,089 |
|  |  | December 31, 2023 |  |  |  |
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs |  |
| Carrying Amount | (Level 1) |  | (Level 2) |  | (Level 3) |  | Total Fair Value
Assets: |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 112,649 |  |  | $ | 112,649 |  |  | $ | — |  |  | $ | — |  |  | $ | 112,649 |
Interest-bearing deposits | 436,080 |  |  | 436,080 |  |  | — |  |  | — |  |  | 436,080 |
Investment securities available for sale | 1,627,112 |  |  | — |  |  | 1,623,802 |  |  | 3,310 |  |  | 1,627,112 |
Investment securities held to maturity, net | 2,184,252 |  |  | — |  |  | 1,859,974 |  |  | 10,400 |  |  | 1,870,374 |
Loans held for sale | 18,934 |  |  | — |  |  | 18,934 |  |  | — |  |  | 18,934 |
Net loans | 12,281,093 |  |  | — |  |  | — |  |  | 11,958,301 |  |  | 11,958,301 |
Federal Home Loan Bank stock | 41,769 |  |  | — |  |  | 41,769 |  |  | — |  |  | 41,769 |
Derivative assets | 79,379 |  |  | — |  |  | 79,379 |  |  | — |  |  | 79,379 |
Interest receivable | 97,664 |  |  | — |  |  | 97,664 |  |  | — |  |  | 97,664 |
Liabilities: |  |  |  |  |  |  |  |  |
Deposits | $ | 14,821,453 |  |  | $ | 12,482,295 |  |  | $ | 2,329,662 |  |  | $ | — |  |  | 14,811,957 |
Borrowings: |  |  |  |  |  |  |  |  |
Securities sold under repurchase agreements | 157,280 |  |  | — |  |  | 157,265 |  |  | — |  |  | 157,265 |
Federal Home Loan Bank advances | 712,852 |  |  | — |  |  | 707,377 |  |  | — |  |  | 707,377 |
Subordinated debentures and other borrowings | 158,644 |  |  | — |  |  | 149,995 |  |  | — |  |  | 149,995 |
Derivative liabilities | 79,008 |  |  | — |  |  | 79,008 |  |  | — |  |  | 79,008 |
Interest payable | 18,912 |  |  | — |  |  | 18,912 |  |  | — |  |  | 18,912 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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