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Fair Value Disclosures and Reporting and Fair Value Measurements

3 Months Ended

Mar. 31, 2024

Fair Value Disclosures [Abstract]

Fair Value Disclosures and Reporting and Fair Value Measurements

Note 8 – Fair Value Disclosures and Reporting and Fair Value Measurements

FASB’s standards on financial instruments, and on fair value measurements and disclosures, require public business entities to disclose in their financial statement footnotes the estimated fair values of financial instruments. In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities that are classified as available for sale and any equity securities which have readily determinable fair values be measured and reported at fair value in our statement of financial position. Certain individually identified loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value. FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but the Company has not elected the fair value option for any of those financial instruments.

Fair value measurement and disclosure standards also establish a framework for measuring fair values. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an 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. Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values. The standards describe three levels of inputs that may be used to measure fair values:

●

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

●

Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

●

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

Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Fair value disclosures for deposits include demand deposits, which are, by definition, equal to the amount payable on demand at the reporting date. Fair value calculations for loans reflect exit pricing and incorporate our assumptions with regard to the impact of prepayments on future cash flows and credit quality adjustments based on risk characteristics of various financial instruments, among other things. Since the estimates are subjective and involve uncertainties and matters of significant judgment they cannot be determined with precision, and changes in assumptions could significantly alter the fair values presented.

Carrying amounts and estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:

Fair Value of Financial Instruments

(dollars in thousands, unaudited)


			March 31, 2024
					Fair Value Measurements
		Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total

Financial assets:
Cash and cash equivalents		$	119,244		$	119,244		$	—		$	—		$	119,244
Investment securities available-for-sale		$	741,789		$	—		$	687,130		$	54,659		$	741,789
Investment securities held-to-maturity		$	316,406		$	—		$	306,156		$	—		$	306,156
Loans, net		$	2,133,938		$	—		$	5,889		$	1,975,688		$	1,981,577

Financial liabilities:
Deposits		$	2,847,004		$	968,997		$	1,874,287		$	—		$	2,843,284
Repurchase agreements		$	121,851		$	—		$	121,851		$	—		$	121,851
Other borrowings		$	80,000		$	—		$	54,786		$	—		$	54,786
Long-term debt		$	49,326		$	—		$	44,189		$	—		$	44,189
Subordinated debentures		$	35,704		$	—		$	35,453		$	—		$	35,453


			December 31, 2023
					Fair Value Measurements
		Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total

Financial assets:
Cash and cash equivalents		$	78,602		$	78,602		$	—		$	—		$	78,602
Investment securities available-for-sale		$	1,019,201		$	—		$	967,161		$	52,040		$	1,019,201
Investment securities held-to-maturity		$	320,057		$	—		$	314,924		$	—		$	314,924
Loans, net		$	2,066,884		$	—		$	5,889		$	1,918,654		$	1,924,543

Financial liabilities:
Deposits		$	2,761,223		$	1,020,772		$	1,738,566		$	—		$	2,759,338
Repurchase agreements		$	107,121		$	—		$	107,121		$	—		$	107,121
Other borrowings		$	360,500		$	—		$	360,500		$	—		$	360,500
Long-term debt		$	49,304		$	—		$	44,097		$	—		$	44,097
Subordinated debentures		$	35,660		$	—		$	35,423		$	—		$	35,423

For financial asset categories that were carried on our balance sheet at fair value as of March 31, 2024, and December 31, 2023, the Company used the following methods and significant assumptions:

●

Investment securities: Fair values are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities.

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Collateral-dependent loans: Collateral-dependent loans are carried at fair value when foreclosure is probable or repayment is expected through the sale or operation of collateral and borrower is experiencing financial difficulty.

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Foreclosed assets: Repossessed real estate (known as other real estate owned, or “OREO”) and other foreclosed assets are carried at the lower of cost or fair value. Fair value is the appraised value less expected disposition costs for OREO; fair values for any other foreclosed assets are represented by estimated sales proceeds as

determined using reasonably available sources. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic reevaluation of expected cash flows and the timing of resolution. If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance.

Assets reported at fair value on a recurring basis are summarized below:

Fair Value Measurements – Recurring

(dollars in thousands, unaudited)


		Fair Value Measurements at March 31, 2024, using
		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total				Realized Gain/(Loss) (Level 3)
Securities:
U.S. government agencies		$	—		$	65,437		$	—		$	65,437			$		—
Mortgage-backed securities			—			13,448			—			13,448					—
State and political subdivisions			—			44,675			—			44,675					—
Corporate bonds			—			—			54,659			54,659					—
Collateralized loan obligations			—			563,570			—			563,570					—
Total available-for-sale securities		$	—		$	687,130		$	54,659		$	741,789			$		—


		Fair Value Measurements at December 31, 2023, using
		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total			Realized Gain/(Loss) (Level 3)
Securities:
U.S. government agencies		$	—		$	102,749		$	—		$	102,749		$	—
Mortgage-backed securities			—			99,544			—			99,544			—
State and political subdivisions			—			194,206			—			194,206			—
Corporate bonds			—			—			52,040			52,040			—
Collateralized loan obligations			—			570,662			—			570,662			—
Total available-for-sale securities		$	—		$	967,161		$	52,040		$	1,019,201		$	—


Fair Value Measurements - Level 3 Recurring
(dollars in thousands, unaudited)
		Corporate Bonds
		2024			2023
Balance of recurring Level 3 assets at January 1,		$	52,040		$	57,435
Total gains or losses for the period:
Included in other comprehensive income			2,619			(5,436)
Balance of recurring Level 3 assets at March 31,		$	54,659		$	51,999

Assets reported at fair value on a nonrecurring basis are summarized below:

Fair Value Measurements – Nonrecurring

(dollars in thousands, unaudited)


		Fair Value Measurements at March 31, 2024, using
		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Individually evaluated collateral dependent loans
Real estate:
Residential real estate		$	—		$	—		$	—		$	—
Commercial real estate			—			5,889			—			5,889
Other construction/land			—			—			—			—
Farmland			—			—			—			—
Total real estate			—			5,889			—			5,889
Other commercial			—			—			—			—
Consumer loans			—			—			—			—
Total collateral dependent loans		$	—		$	5,889		$	—		$	5,889
Foreclosed assets		$	—		$	—		$	—		$	—
Total assets measured on a nonrecurring basis		$	—		$	5,889		$	—		$	5,889


		Fair Value Measurements at December 31, 2023, using

		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Individually evaluated collateral dependent loans
Real estate:
Residential real estate		$	—		$	—		$	—		$	—
Commercial real estate			—			5,889			—			5,889
Other construction/land			—			—			—			—
Farmland			—			—			—			—
Total real estate			—			5,889			—			5,889
Other commercial			—			—			—			—
Consumer loans			—			—			—			—
Total collateral dependent loans		$	—		$	5,889		$	—		$	5,889
Foreclosed assets		$	—		$	—		$	—		$	—
Total assets measured on a nonrecurring basis		$	—		$	5,889		$	—		$	5,889

The table above includes collateral-dependent loan balances for which a specific reserve has been established or on which a write-down has been taken. Information on the Company’s total collateral dependent loan balances and specific loss reserves associated with those balances is included in Note 10 below.

The unobservable inputs are based on Management’s best estimates of appropriate discounts in arriving at fair market value. Adjusting any of those inputs could result in a significantly lower or higher fair value measurement. For example, an increase or decrease in actual loss rates would create a directionally opposite change in the fair value of unsecured individually identified loans.

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.

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