XML 33 R22.htm IDEA: XBRL DOCUMENT v3.24.1.u1
FAIR VALUE
 3 Months Ended
Mar. 31, 2024
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 DCF. 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, interest rate caps 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 March 31, 2024 and December 31, 2023:
Level 1Level 2Level 3Total Fair
Value
Measurements
March 31, 2024
Financial Assets
Investment securities:
U.S. Treasury securities$17,669 $— $— $17,669 
U.S. Government Agencies— 3,859 — 3,859 
States and political subdivisions— 194,598 6,270 200,868 
GSE residential MBSs— 57,956 — 57,956 
GSE commercial MBSs— 4,384 — 4,384 
GSE residential CMOs— 91,444 — 91,444 
Non-agency CMOs— 23,246 11,464 34,710 
Asset-backed— 103,899 — 103,899 
Other120 — — 120 
Loans held for sale— 535 — 535 
Derivatives— 13,197 56 13,253 
Totals$17,789 $493,118 $17,790 $528,697 
Financial Liabilities
Derivatives$— $12,052 $— $12,052 
December 31, 2023
Financial Assets
Investment securities:
U.S. Treasury securities$17,840 $— $— $17,840 
U.S. Government Agencies— 4,151 — 4,151 
States and political subdivisions— 197,060 6,062 203,122 
GSE residential MBSs— 57,632 — 57,632 
GSE commercial MBSs— 4,743 — 4,743 
GSE residential CMOs— 73,102 — 73,102 
Non-agency CMOs— 22,878 21,791 44,669 
Asset-backed— 108,134 — 108,134 
Other126 — — 126 
Loans held for sale— 5,816 — 5,816 
Derivatives— 11,328 55 11,383 
Totals$17,966 $484,844 $27,908 $530,718 
Financial Liabilities
Derivatives$— $13,464 $— $13,464 
The Company had one municipal bond and three CMOs measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, 2024, December 31, 2023 and March 31, 2023. During the three months ended March 31, 2024, the Company had one non-agency CMO security totaling $10.0 million 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 greater than the aggregate principal balance by $18 thousand as of March 31, 2024 and below the aggregate principal balance by $1.5 million as of December 31, 2023.
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 March 31, 2024. An increase or decrease of 5% in the pull through assumption would result in a positive or negative change of $3 thousand in the fair value of interest rate lock commitments at March 31, 2024.
The following provides details of the Level 3 fair value measurement activity for the periods ended March 31, 2024 and 2023:
Investment securities:
Three Months Ended March 31,
20242023
Balance, beginning of period$27,853 $27,193 
Unrealized gains included in OCI96 220 
Purchases— 871 
Net discount accretion17 13 
Principal payments and other(125)(107)
Calls(10,107)— 
Balance, end of period$17,734 $28,190 

Interest rate lock commitments on residential mortgages:
Three Months Ended March 31,
20242023
Balance, beginning of period$55 $35 
Total gains included in earnings1 22 
Balance, end of period$56 $57 
Certain financial assets are measured at fair value on a nonrecurring basis. Adjustments to the fair value of these assets usually result 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.
There were no transfers into or out of Level 3 at March 31, 2024 and 2023.
Individually Evaluated Loans
Loans individually evaluated for credit expected losses include 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.
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 DCF. 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 $385 thousand for the three months ended March 31, 2024 compared to an increase of $225 thousand for the three months ended March 31, 2023.
Mortgage Servicing Rights
MSRs are evaluated for impairment by comparing the carrying value to the fair value, which is determined through a DCF valuation. To the extent the amortized cost of the MSRs exceeds their estimated fair values, a valuation allowance is established for such impairment. Fair value adjustments on the MSRs only occurs if there is an impairment charge. At March 31, 2024 and December 31, 2023, the MSR impairment reserve was zero for both periods. For both the three months ended March 31, 2024 and 2023, there was no impairment valuation allowance adjustment in mortgage banking activities on the unaudited consolidated statements of income due to increases in market rates, which increased the MSR's fair value.
The following table summarizes assets measured at fair value on a nonrecurring basis at March 31, 2024 and December 31, 2023:
Level 1Level 2Level 3Total
Fair Value
Measurements
March 31, 2024
Individually Evaluated Loans
Commercial real estate:
Owner occupied$— $— $61 $61 
Commercial and industrial— — 23 23 
Residential mortgage:
First lien— — 214 214 
Home equity - lines of credit— — 49 49 
Total individually evaluated loans$— $— $347 $347 
December 31, 2023
Individually Evaluated Loans
Commercial real estate:
Owner occupied$— $— $75 $75 
Commercial and industrial— — 164 164 
Residential mortgage:
First lien— — 219 219 
Home equity - lines of credit— — 56 56 
Total individually evaluated loans
$— $— $514 $514 
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 InputRange
March 31, 2024
Individually evaluated loans$347 Appraisal of collateralManagement adjustments on appraisals for property type and recent activity
10% - 70% discount
 - Management adjustments for liquidation expenses
3.30% - 12.30% discount
December 31, 2023
Individually evaluated loans
$514 Appraisal of collateralManagement adjustments on appraisals for property type and recent activity
10% - 70% discount
 - Management adjustments for liquidation expenses
3.30% - 12.30% 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 March 31, 2024 and December 31, 2023:
Carrying
Amount		Fair ValueLevel 1Level 2Level 3
March 31, 2024
Financial Assets
Cash and due from banks$23,552 $23,552 $23,552 $— $— 
Interest-bearing deposits with banks159,170 159,170 159,170 — — 
Restricted investments in bank stock11,453 n/an/an/an/a
Investment securities514,909 514,909 17,789 479,386 17,734 
Loans held for sale535 535 — 535 — 
Loans, net of allowance for credit losses2,273,908 2,166,917 — — 2,166,917 
Derivatives13,253 13,253 — 13,197 56 
Accrued interest receivable13,496 13,496 — 4,569 8,927 
Financial Liabilities
Deposits2,695,951 2,693,547 — 2,693,547 — 
Securities sold under agreements to repurchase and federal funds purchased12,099 12,099 — 12,099 — 
FHLB advances and other borrowings115,000 114,650 — 114,650 — 
Subordinated notes32,111 29,458 — 29,458 — 
Derivatives12,052 12,052 — 12,052 — 
Accrued interest payable2,435 2,435 — 2,435 — 
Off-balance sheet instruments— — — — — 
December 31, 2023
Financial Assets
Cash and due from banks$32,586 $32,586 $32,586 $— $— 
Interest-bearing deposits with banks32,575 32,575 32,575 — — 
Restricted investments in bank stock11,992 n/an/an/an/a
Investment securities513,519 513,519 17,966 467,700 27,853 
Loans held for sale5,816 5,816 — 5,816 — 
Loans, net of allowance for loan losses2,269,611 2,159,745 — — 2,159,745 
Derivatives11,383 11,383 — 11,328 55 
Accrued interest receivable13,630 13,630 — 4,987 8,643 
Financial Liabilities
Deposits2,558,814 2,555,904 — 2,555,904 — 
Securities sold under agreements to repurchase9,785 9,785 — 9,785 — 
FHLB advances and other borrowings137,500 137,500 — 137,500 — 
Subordinated notes32,093 29,887 — 29,887 — 
Derivatives13,464 13,464 — 13,464 — 
Accrued interest payable2,560 2,560 — 2,560 — 
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 March 31, 2024 and December 31, 2023 represent an approximation of exit price; however, an actual exit price may differ.