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Note 22 - Fair Value of Assets and Liabilities
 9 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

NOTE 22 Fair Value of Assets and Liabilities

 

The Company categorizes its assets and liabilities measured at estimated fair value into a three level hierarchy based on the priority of the inputs to the valuation technique used to determine estimated fair value. The estimated fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the estimated fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the estimated fair value measurement. Assets and liabilities valued at estimated fair value are categorized based on the following inputs to the valuation techniques as follows: 

 

Level 1—Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that an entity has the ability to access. 

 

Level 2—Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Estimated fair values for these instruments are estimated using pricing models, quoted prices of investment securities with similar characteristics, or discounted cash flows. 

 

Level 3—Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. Subsequent to initial recognition, the Company may re‑measure the carrying value of assets and liabilities measured on a nonrecurring basis to estimated fair value. Adjustments to estimated fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their estimated fair value. 

 

Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at estimated fair value for the initial and subsequent measurement on an instrument‑by‑instrument basis. The Company adopted the policy to value certain financial instruments at estimated fair value. The Company has not elected to measure any existing financial instruments at estimated fair value; however, it may elect to measure newly acquired financial instruments at estimated fair value in the future. 

 

Recurring Basis

 

The Company uses estimated fair value measurements to record estimated fair value adjustments to certain assets and liabilities and to determine estimated fair value disclosures. 

 

The following tables present the balances of the assets and liabilities measured at estimated fair value on a recurring basis as of September 30, 2025 and December 31, 2024: 

 

  

September 30, 2025

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Trading

 $1,411  $—  $—  $1,411 

Available-for-sale

                

U.S. treasury and government agencies

  —  

446

   —  

446

 

Mortgage backed securities

                

Residential agency

  —  

479,837

   —  

479,837

 

Commercial

  —  

1,279

   —  

1,279

 

Asset backed securities

  —  

16

   —  

16

 

Corporate bonds

  —  

49,436

   —  

49,436

 

Total available-for-sale investment securities

 $—  $531,014  $—  $531,014 

Servicing rights

 $—  $—  $6,708  $6,708 

Other assets

                

Derivatives

 $—  $11,097  $—  $11,097 

Other liabilities

                

Derivatives

 $—  $10,825  $—  $10,825 

 

  

December 31, 2024

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Trading

 $3,309  $—  $—  $3,309 

Available-for-sale

                

U.S. treasury and government agencies

  —   30,707   —   30,707 

Mortgage backed securities

                

Residential agency

  —   503,706   —   503,706 

Commercial

  —   1,251   —   1,251 

Asset backed securities

  —   19   —   19 

Corporate bonds

  —   52,370   —   52,370 

Total available-for-sale investment securities

 $—  $588,053  $—  $588,053 

Servicing rights

 $—  $—  $7,918  $7,918 

Other assets

                

Derivatives

 $—  $9,105  $—  $9,105 

Other liabilities

                

Derivatives

 $—  $8,600  $—  $8,600 

 

The following is a description of the valuation methodologies used for instruments measured at estimated fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. 

 

Investment Securities, Trading for Deferred Compensation

 

The fair value of trading securities for deferred compensation is reported using market quoted prices as such securities and underlying securities are actively traded and no valuation adjustments have been applied and therefore are classified as Level 1. 

 

Investment Securities, Available-for-Sale

 

Generally, debt securities are valued using pricing for similar securities, recently executed transactions, and other pricing models utilizing observable inputs and therefore are classified as Level 2. 

 

Derivatives

 

All of the Company’s derivatives are traded in over‑the‑counter markets where quoted market prices are not readily available. For these derivatives, estimated fair value is measured using internally developed models that use primarily market observable inputs, such as yield curves and option volatilities, and accordingly, classify as Level 2. Examples of Level 2 derivatives are basic interest rate swaps and forward contracts.

 

Servicing Rights

 

Servicing rights are measured based on valuation techniques using Level 3 inputs. The Company uses a discounted cash flow model that incorporates assumptions market participants would use in estimating the fair value of servicing rights, including, but not limited to, conditional prepayment rate utilizing the Public Securities Association (PSA) convention, servicing fee rate, ancillary fees, and cost to service. 

 

Nonrecurring Basis

 

Certain assets are measured at estimated fair value on a nonrecurring basis. These assets are not measured at estimated fair value on an ongoing basis; however, they are subject to estimated fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment.

 

The estimated fair value of certain assets on a nonrecurring basis as of September 30, 2025 and December 31, 2024 consisted of the following:

 

   

September 30, 2025

  

(dollars in thousands)

  

Level 1

    

Level 2

    

Level 3

    

Total

  

Collateral dependent loans

     —       —       26,492       26,492  

Foreclosed assets

     —       —       467       467  

 

   

December 31, 2024

  

(dollars in thousands)

  

Level 1

    

Level 2

    

Level 3

    

Total

  

Collateral dependent loans

   $ —     $ —     $ 34,088     $ 34,088  

 

Loans Held for Sale

 

Loans originated and held for sale are carried at the lower of cost or estimated fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically, these quotes include a premium on the sale and thus these quotes indicate estimated fair value of the held for sale loans is greater than cost.

 

Impairment losses for loans held for sale that are carried at the lower of cost or estimated fair value represent additional net write‑downs during the period to record these loans at the lower of cost or estimated fair value, subsequent to their initial classification as loans held for sale.

 

Collateral Dependent Loans

 

The estimated fair value of collateral dependent loans is based on fair value, less estimated cost to sell. Collateral dependent impaired loans are classified within Level 3 of the fair value hierarchy. 

 

The Company considers appraisal analysis as the starting point for determining fair value, and then considers other factors and events in the environment that may affect fair value. Values of the collateral underlying collateral dependent loans are obtained when the loan is determined to be collateral dependent, and subsequently as deemed necessary by management. Values are reviewed for accuracy and consistency by management. The ultimate collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. 

 

Foreclosed Assets

 

Assets acquired through loan foreclosure are included in other assets and are initially recorded at estimated fair value less estimated selling costs. The estimated fair value of foreclosed assets is evaluated regularly and any decreases in value along with holding costs, such as taxes, insurance and utilities, are reported in noninterest expense. 

 

The valuation techniques and significant unobservable inputs used to measure Level 3 estimated fair values as of September 30, 2025 and December 31, 2024, were as follows:

 

       

September 30, 2025

  

(dollars in thousands)

                      

Weighted

  

Asset Type

Valuation Technique

Unobservable Input

  

Fair Value

    

Range

    

Average

  

Individually evaluated

Appraisal value

Property specific adjustment

     26,492       10 - 35 %     34.7 %

Foreclosed assets

Appraisal value

Property specific adjustment

     467       10.0 %     10.0 %

Servicing rights

Discounted cash flows

Prepayment speed assumptions

     6,708       121 - 656       223  
   

Discount rate

             10.3 %     10.3 %

 

       

December 31, 2024

  

(dollars in thousands)

                      

Weighted

  

Asset Type

Valuation Technique

Unobservable Input

  

Fair Value

    

Range

    

Average

  

Individually evaluated

Appraisal value

Property specific adjustment

   $ 34,088       10 - 35 %     28.9 %

Servicing rights

Discounted cash flows

Prepayment speed assumptions

     7,918       103 - 495       165  
   

Discount rate

             10.5 %     10.5 %

 

Disclosure of estimated fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases in which quoted market prices are not available, estimated fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived estimated fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments, with an estimated fair value that is not practicable to estimate and all non‑financial instruments, are excluded from the disclosure requirements. Accordingly, the aggregate estimated fair value amounts presented do not necessarily represent the underlying value of the Company.

 

The following disclosures represent financial instruments for which the ending balances, as of September 30, 2025 and December 31, 2024, were not carried at estimated fair value in their entirety on the consolidated balance sheets.

 

Cash and Cash Equivalents and Accrued Interest

 

The carrying amounts reported in the consolidated balance sheets approximate those assets and liabilities estimated fair values.

 

Investment Securities, Held-to-Maturity

 

The fair values of debt securities held-to-maturity are based on quoted market prices for the same or similar securities, recently executed transactions and pricing models.

 

Loans

 

For variable‑rate loans that reprice frequently and with no significant change in credit risk, estimated fair values are based on carrying values. The estimated fair values of other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

 

Bank‑Owned Life Insurance

 

Bank‑owned life insurance is carried at the amount due upon surrender of the policy, which is also the estimated fair value. This amount was provided by the insurance companies based on the terms of the underlying insurance contract.

 

Deposits

 

The estimated fair values of demand deposits are, by definition, equal to the amount payable on demand at the consolidated balance sheet date. The estimated fair values of fixed‑rate certificates of deposit are estimated using a discounted cash flow calculation that applies current incremental interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

 

Short‑Term Borrowings and Long‑Term Debt

 

For variable‑rate borrowings that reprice frequently, estimated fair values are based on carrying values. The estimated fair values of fixed‑rate borrowings are estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

 

Off‑Balance Sheet Credit‑Related Commitments

 

Off‑balance sheet credit related commitments are generally of short‑term nature. The contract amount of such commitments approximates their estimated fair value since the commitments are comprised primarily of unfunded loan commitments which are generally priced at market at the time of funding.

 

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments at the dates indicated were as follows:

 

   

September 30, 2025

  
   

Carrying

    

Estimated Fair Value

  

(dollars in thousands)

  

Amount

    

Level 1

    

Level 2

    

Level 3

    

Total

  

Financial Assets

                                        

Cash and cash equivalents

   $ 92,043     $ 92,043     $ —     $ —     $ 92,043  

Investment securities held-to-maturity

     259,225       —       230,597       —       230,597  

Loans, net

     4,039,948       —       —       4,039,948       4,039,948  

Accrued interest receivable

     21,602       21,602       —       —       21,602  

Bank-owned life insurance

     38,997       —       38,997       —       38,997  

Servicing rights

     6,708       —       —       6,708       6,708  

Financial Liabilities

                                        

Noninterest-bearing deposits

   $ 776,791     $ —     $ 776,791     $ —     $ 776,791  

Interest-bearing deposits

     2,890,806       —       2,890,806       —       2,890,806  

Time deposits

     745,056       —       663,919       —       663,919  

Short-term borrowings

     200,000       200,000       —       —       200,000  

Long-term debt

     59,154       —       59,379       —       59,379  

Accrued interest payable

     10,020       10,020       —       —       10,020  

 

   

December 31, 2024

  
   

Carrying

    

Estimated Fair Value

  

(dollars in thousands)

  

Amount

    

Level 1

    

Level 2

    

Level 3

    

Total

  

Financial Assets

                                        

Cash and cash equivalents

   $ 61,239     $ 61,239     $ —     $ —     $ 61,239  

Investment securities held-to-maturity

     275,585       —       236,986       —       236,986  

Loans, net

     3,932,605       —       —       3,872,186       3,872,186  

Accrued interest receivable

     20,075       20,075       —       —       20,075  

Bank-owned life insurance

     36,033       —       36,033       —       36,033  

Servicing rights

     7,918       —       —       7,918       7,918  

Financial Liabilities

                                        

Noninterest-bearing deposits

   $ 903,466     $ —     $ 903,466     $ —     $ 903,466  

Interest-bearing deposits

     2,767,979       —       2,767,979       —       2,767,979  

Time deposits

     706,965       —       696,976       —       696,976  

Short-term borrowings

     238,960       238,960       —       —       238,960  

Long-term debt

     59,069       —       59,078       —       59,078  

Accrued interest payable

     11,343       11,343       —       —       11,343