XML 31 R21.htm IDEA: XBRL DOCUMENT
v3.23.3

FAIR VALUE | 9 Months Ended
--- | ---
Sep. 30, 2023
Fair Value Disclosures [Abstract] |
FAIR VALUE | FAIR VALUE Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are: Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date. Level 2 – significant other observable inputs other than Level 1 prices such as prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 – at least one significant unobservable input that reflects a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability. In instances in which multiple levels of inputs are used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company used the following methods and significant assumptions to estimate fair value for instruments measured on a recurring basis: Where quoted prices are available in an active market, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, investment securities are classified within Level 2 and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flow. Level 2 investment securities include U.S. agency securities, MBS, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. The Company’s investment securities are classified as available-for-sale. The fair values of interest rate swaps and risk participation derivatives are determined using models that incorporate readily observable market data into a market standard methodology. This methodology nets the discounted future cash receipts and the discounted expected cash payments. The discounted variable cash receipts and payments are based on expectations of future interest rates derived from observable market interest rate curves. In addition, fair value is adjusted for the effect of nonperformance risk by incorporating credit valuation adjustments for the Company and its counterparties. These assets and liabilities are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements. The following table summarizes assets and liabilities measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022:
| Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value Measurements
September 30, 2023 |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |
U.S. Treasury securities | $ | 17,143 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,143 |
U.S. Government Agencies | — |  |  | 4,322 |  |  | — |  |  | 4,322 |
States and political subdivisions | — |  |  | 182,522 |  |  | 5,595 |  |  | 188,117 |
GSE residential MBSs | — |  |  | 57,351 |  |  | — |  |  | 57,351 |
GSE commercial MBSs | — |  |  | 4,778 |  |  | — |  |  | 4,778 |
GSE residential CMOs | — |  |  | 72,037 |  |  | — |  |  | 72,037 |
Non-agency CMOs | — |  |  | 17,521 |  |  | 21,458 |  |  | 38,979 |
Asset-backed | — |  |  | 112,315 |  |  | — |  |  | 112,315 |
Other | 120 |  |  | — |  |  | — |  |  | 120 |
Loans held for sale | — |  |  | 6,448 |  |  | — |  |  | 6,448 |
Derivatives | — |  |  | 16,553 |  |  | 15 |  |  | 16,568 |
Totals | $ | 17,263 |  |  | $ | 473,847 |  |  | $ | 27,068 |  |  | $ | 518,178 |
Financial Liabilities |  |  |  |  |  |  |
Derivatives | $ | — |  |  | $ | 14,328 |  |  | $ | — |  |  | $ | 14,328 |
December 31, 2022 |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |
U.S. Treasury securities | $ | 17,291 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,291 |
U.S. Government Agencies | — |  |  | 5,135 |  |  | — |  |  | 5,135 |
States and political subdivisions | — |  |  | 191,488 |  |  | 5,926 |  |  | 197,414 |
GSE residential MBSs | — |  |  | 59,402 |  |  | — |  |  | 59,402 |
GSE residential CMOs | — |  |  | 68,378 |  |  | — |  |  | 68,378 |
Non-agency CMOs | — |  |  | 18,491 |  |  | 21,267 |  |  | 39,758 |
Asset-backed | — |  |  | 125,973 |  |  | — |  |  | 125,973 |
Other | 377 |  |  | — |  |  | — |  |  | 377 |
Loans held for sale | — |  |  | 10,880 |  |  | — |  |  | 10,880 |
Derivatives | — |  |  | 10,482 |  |  | 35 |  |  | 10,517 |
Totals | $ | 17,668 |  |  | $ | 490,229 |  |  | $ | 27,228 |  |  | $ | 535,125 |
Financial Liabilities |  |  |  |  |  |  |
Derivatives | $ | — |  |  | $ | 11,333 |  |  | $ | — |  |  | $ | 11,333 |
The Company had one municipal bond and three CMOs measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at both September 30, 2023 and December 31, 2022 compared to one municipal bond at September 30, 2022. During the nine months ended September 30, 2022, the Company had one non-agency CMO security called by the issuer. The Level 3 valuation is based on a non-executable broker quote, which is considered a significant unobservable input. Such quotes are updated as available and may remain constant for a period of time for certain broker-quoted securities that do not move with the market or that are not interest rate sensitive as a result of their structure or overall attributes. The Company’s residential mortgage LHFS are recorded at fair value utilizing Level 2 measurements. This fair value measurement is determined based upon third party quotes obtained on similar loans. For loans held-for-sale, for which the fair value option has been elected, the aggregate fair value was below the aggregate principal balance by $1.4 million and $1.2 million as of September 30, 2023, and December 31, 2022, respectively. The determination of the fair value of interest rate lock commitments on residential mortgages is based on agreed upon pricing with the respective investor on each loan and includes a pull through percentage. The pull through percentage represents an estimate of loans in the pipeline to be delivered to an investor versus the total loans committed for delivery. Significant changes in this input could result in a significantly higher or lower fair value measurement. As the pull through percentage is a significant unobservable input, this is deemed a Level 3 valuation input. The average pull through percentage, which is based upon historical experience, was 92% as of September 30, 2023. An increase or decrease of 5% in the pull through assumption would result in a positive or negative change of $1 thousand in the fair value of interest rate lock commitments at September 30, 2023. The following provides details of the Level 3 fair value measurement activity for the periods ended September 30, 2023 and 2022: Investment securities:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Balance, beginning of period | $ | 27,994 |  |  | $ | 6,255 |  |  | $ | 27,193 |  |  | $ | 23,147 |
Unrealized losses included in OCI | (736) |  |  | (422) |  |  | (600) |  |  | (2,002) |
Purchases | — |  |  | — |  |  | 871 |  |  | — |
Net discount accretion (premium amortization) | 19 |  |  | (4) |  |  | 42 |  |  | 62 |
Principal payments and other | (225) |  |  | — |  |  | (454) |  |  | — |
Sales | — |  |  | — |  |  | — |  |  | (3,053) |
Calls | — |  |  | — |  |  | — |  |  | (12,154) |
OTTI | — |  |  | — |  |  | — |  |  | (171) |
Balance, end of period | $ | 27,052 |  |  | $ | 5,829 |  |  | $ | 27,052 |  |  | $ | 5,829 |
Interest rate lock commitments on residential mortgages:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Balance, beginning of period | $ | 67 |  |  | $ | 186 |  |  | $ | 35 |  |  | $ | 353 |
Total losses included in earnings | (52) |  |  | (98) |  |  | (20) |  |  | (265) |
Balance, end of period | $ | 15 |  |  | $ | 88 |  |  | $ | 15 |  |  | $ | 88 |
Certain financial assets are measured at fair value on a nonrecurring basis. Adjustments to the fair value of these assets usually results from the application of lower of cost or market accounting or write-downs of individual assets. The Company used the following methods and significant assumptions to estimate fair value for these financial assets. Individually Evaluated Loans Upon adoption of CECL, loans individually evaluated for credit expected losses included nonaccrual loans and other loans that do not share similar risk characteristics to loans in the CECL loan pools, which have been classified as Level 3. Individually evaluated loans with an allocation to the ACL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the unaudited condensed consolidated statements of income. Prior to the adoption of CECL and ASU No. 2022-02, which eliminated the TDR accounting model, loans were designated as impaired when, in the judgment of management and based on current information and events, it is probable that all amounts due, according to the contractual terms of the loan agreement, will not be collected. The measurement of loss associated with loans evaluated individually for all loan classes was based on either the observable market price of the loan, the fair value of the collateral, or discounted cash flows. For collateral-dependent loans, fair value was measured based on the value of the collateral securing the loan, less estimated costs to sell. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The value of the real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction, or if management adjusts the appraisal value, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal, if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). Changes in the fair value of individually evaluated loans still held and considered in the determination of the provision for credit losses were a decline of $224 thousand and an increase of $286 thousand for the three and nine months ended September 30, 2023, respectively, compared to zero and a decline of $40 thousand for the three and nine months ended September 30, 2022, respectively. Mortgage Servicing Rights MSRs are evaluated for impairment by comparing the carrying value to the fair value, which is determined through a discounted cash flow valuation. To the extent the amortized cost of the MSRs exceeds their estimated fair values, a valuation allowance is established for such impairment. Fair value adjustments on the MSRs only occurs if there is an impairment charge. At September 30, 2023 and December 31, 2022, the MSR impairment reserve was zero for both periods. For both the three months ended September 30, 2023 and 2022, there was no impairment valuation allowance adjustment. The adjustments in the three and nine months ended September 30, 2022 were zero and a $79 thousand reversal, respectively, due to increases in market rates, which increased the MSR fair value. The following table summarizes assets measured at fair value on a nonrecurring basis at September 30, 2023 and December 31, 2022:
| Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value Measurements
September 30, 2023 |  |  |  |  |  |  |
Individually Evaluated Loans |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |
Owner occupied | $ | — |  |  | $ | — |  |  | $ | 88 |  |  | $ | 88 |
Non-owner occupied residential | — |  |  | — |  |  | — |  |  | — |
Commercial and industrial | — |  |  | — |  |  | 146 |  |  | 146 |
Residential mortgage: |  |  |  |  |  |  |
First lien | — |  |  | — |  |  | 226 |  |  | 226 |
Home equity - lines of credit | — |  |  | — |  |  | 62 |  |  | 62 |
Total individually evaluated loans | $ | — |  |  | $ | — |  |  | $ | 522 |  |  | $ | 522 |
December 31, 2022 |  |  |  |  |  |  |
Impaired Loans |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |
Owner occupied | $ | — |  |  | $ | — |  |  | $ | 116 |  |  | $ | 116 |
Non-owner occupied residential | — |  |  | — |  |  | 9 |  |  | 9 |
Residential mortgage: |  |  |  |  |  |  |
First lien | — |  |  | — |  |  | 309 |  |  | 309 |
Home equity - lines of credit | — |  |  | — |  |  | 86 |  |  | 86 |
Total impaired loans | $ | — |  |  | $ | — |  |  | $ | 520 |  |  | $ | 520 |
The following table presents additional qualitative information about assets measured on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
| Fair Value Estimate |  | Valuation Techniques |  | Unobservable Input |  | Range
September 30, 2023 |  |  |  |  |  |  |
Individually evaluated loans | $ | 522 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 10% - 25% discount
|  |  |  |  | - Management adjustments for liquidation expenses |  | 6.75% - 10.29% discount
December 31, 2022 |  |  |  |  |  |  |
Impaired loans | $ | 520 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 10% - 25% discount
|  |  |  |  | - Management adjustments for liquidation expenses |  | 6.08% - 17.93% discount
Fair values of financial instruments GAAP requires disclosure of the fair value of financial assets and liabilities, including those that are not measured and reported at fair value on a recurring or nonrecurring basis. The following table presents carrying amounts and estimated fair values of the financial assets and liabilities at September 30, 2023 and December 31, 2022:
| Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
September 30, 2023 |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 34,728 |  |  | $ | 34,728 |  |  | $ | 34,728 |  |  | $ | — |  |  | $ | — |
Interest-bearing deposits with banks | 60,211 |  |  | 60,211 |  |  | 60,211 |  |  | — |  |  | — |
Restricted investments in bank stock | 12,987 |  |  | n/a |  | n/a |  | n/a |  | n/a
Investment securities | 495,162 |  |  | 495,162 |  |  | 17,263 |  |  | 450,846 |  |  | 27,053 |
Loans held for sale | 6,448 |  |  | 6,448 |  |  | — |  |  | 6,448 |  |  | — |
Loans, net of allowance for credit losses | 2,238,558 |  |  | 2,083,811 |  |  | — |  |  | — |  |  | 2,083,811 |
Derivatives | 16,568 |  |  | 16,568 |  |  | — |  |  | 16,553 |  |  | 15 |
Accrued interest receivable | 12,212 |  |  | 12,212 |  |  | — |  |  | 4,338 |  |  | 7,874 |
Financial Liabilities |  |  |  |  |  |  |  |  |
Deposits | 2,546,435 |  |  | 2,542,571 |  |  | — |  |  | 2,542,571 |  |  | — |
Deposits held for assumption in connection with sale of bank branches | — |  |  | — |  |  | — |  |  | — |  |  | — |
Securities sold under agreements to repurchase and federal funds purchased | 17,991 |  |  | 17,991 |  |  | — |  |  | 17,991 |  |  | — |
FHLB advances and other borrowings | 157,250 |  |  | 156,513 |  |  | — |  |  | 156,513 |  |  | — |
Subordinated notes | 32,076 |  |  | 28,774 |  |  | — |  |  | 28,774 |  |  | — |
Derivatives | 14,328 |  |  | 14,328 |  |  | — |  |  | 14,328 |  |  | — |
Accrued interest payable | 1,783 |  |  | 1,783 |  |  | — |  |  | 1,783 |  |  | — |
Off-balance sheet instruments | — |  |  | — |  |  | — |  |  | — |  |  | — |
December 31, 2022 |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 28,477 |  |  | $ | 28,477 |  |  | $ | 28,477 |  |  | $ | — |  |  | $ | — |
Interest-bearing deposits with banks | 32,346 |  |  | 32,346 |  |  | 32,346 |  |  | — |  |  | — |
Restricted investments in bank stock | 10,642 |  |  | n/a |  | n/a |  | n/a |  | n/a
Investment securities | 513,728 |  |  | 513,728 |  |  | 17,668 |  |  | 468,867 |  |  | 27,193 |
Loans held for sale | 10,880 |  |  | 10,880 |  |  | — |  |  | 10,880 |  |  | — |
Loans, net of allowance for loan losses | 2,126,054 |  |  | 1,991,164 |  |  | — |  |  | — |  |  | 1,991,164 |
Derivatives | 10,517 |  |  | 10,517 |  |  | — |  |  | 10,482 |  |  | 35 |
Accrued interest receivable | 11,027 |  |  | 11,027 |  |  | — |  |  | 4,441 |  |  | 6,586 |
Financial Liabilities |  |  |  |  |  |  |  |  |
Deposits | 2,444,939 |  |  | 2,440,660 |  |  | — |  |  | 2,440,660 |  |  | — |
Deposits held for assumption in connection with sale of bank branches | 31,307 |  |  | 29,429 |  |  | — |  |  | 29,429 |  |  | — |
Securities sold under agreements to repurchase | 17,251 |  |  | 17,251 |  |  | — |  |  | 17,251 |  |  | — |
FHLB advances and other borrowings | 106,139 |  |  | 106,141 |  |  | — |  |  | 106,141 |  |  | — |
Subordinated notes | 32,026 |  |  | 31,321 |  |  | — |  |  | 31,321 |  |  | — |
Derivatives | 11,333 |  |  | 11,333 |  |  | — |  |  | 11,333 |  |  | — |
Accrued interest payable | 457 |  |  | 457 |  |  | — |  |  | 457 |  |  | — |
Off-balance sheet instruments | — |  |  | — |  |  | — |  |  | — |  |  | — |
In accordance with the Company's adoption of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, the methods utilized to measure the fair value of financial instruments at September 30, 2023 and December 31, 2022 represent an approximation of exit price; however, an actual exit price may differ. At December 31, 2022, deposits held for assumption in connection with the sale of bank branches includes the balance from the Purchase and Assumption Agreement entered into by the Company and announced on December 23, 2022. This agreement provided for the sale of a branch and associated deposit liabilities at an agreed upon premium of 6.0% of the financial deposit balance transferred. The Company completed the sale of the subject branch on May 12, 2023.

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration