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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS Fair values of financial instruments are management's estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, premises, equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates. Fair Value Measurements: In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access. Available-for-sale securities, when quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. The Bank holds some local municipals that the Bank evaluates based on the credit strength of the underlying project. The fair value is determined by valuing similar credit payment streams at similar rates. In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset. The following summarizes financial assets measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, segregated by level or the valuation inputs within the fair value hierarchy utilized to measure fair value:
Assets and Liabilities Measured at Fair Value on a Recurring Basis |
|  | (In Thousands) |
September 30, 2023 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets - (Securities Available-for-Sale) |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 81,978 |  |  | $ | - |  |  | $ | - |
U.S. Government agencies |  |  | - |  |  |  | 123,762 |  |  |  | - |
Mortgage-backed securities |  |  | - |  |  |  | 76,480 |  |  |  | - |
State and local governments |  |  | - |  |  |  | 63,608 |  |  |  | 2,427 |
Total Securities Available-for-Sale |  | $ | 81,978 |  |  | $ | 263,850 |  |  | $ | 2,427 |
|  | (In Thousands) |
December 31, 2022 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets - (Securities Available-for-Sale) |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 94,678 |  |  | $ | - |  |  | $ | - |
U.S. Government agencies |  |  | - |  |  |  | 139,767 |  |  |  | - |
Mortgage-backed securities |  |  | - |  |  |  | 86,927 |  |  |  | - |
State and local governments |  |  | - |  |  |  | 66,072 |  |  |  | 3,345 |
Total Securities Available-for-Sale |  | $ | 94,678 |  |  | $ | 292,766 |  |  | $ | 3,345 |
The following tables represent the changes in the Level 3 fair-value category of which unobservable inputs are relied upon as of the three and nine month periods ended September 30, 2023 and September 30, 2022. During the three month period ended March 31, 2022, there was one security transferred from Level 3 to Level 2.
|  | (In Thousands) |
|  | Fair Value Measurements Using Significant |
|  | Unobservable Inputs (Level 3) |
|  | State and Local Governments |
|  | Tax-Exempt |  |  | Taxable |  |  | Total |
Balance at July 1, 2023 |  | $ | 1,831 |  |  | $ | 1,278 |  |  | $ | 3,109 |
Change in Fair Value |  |  | - |  |  |  | (25 | ) |  |  | (25 | )
Payments, Maturities & Calls |  |  | (657 | ) |  |  | - |  |  |  | (657 | )
Reclassification & Adjustments |  |  | - |  |  |  | - |  |  |  | - |
Balance at September 30, 2023 |  | $ | 1,174 |  |  | $ | 1,253 |  |  | $ | 2,427 |
|  | (In Thousands) |
|  | Fair Value Measurements Using Significant |
|  | Unobservable Inputs (Level 3) |
|  | State and Local Governments |
|  | Tax-Exempt |  |  | Taxable |  |  | Total |
Balance at July 1, 2022 |  | $ | 2,089 |  |  | $ | 1,325 |  |  | $ | 3,414 |
Change in Fair Value |  |  | (19 | ) |  |  | (29 | ) |  |  | (48 | )
Payments, Maturities & Calls |  |  | - |  |  |  | - |  |  |  | - |
Reclassification & Adjustments |  |  | - |  |  |  | - |  |  |  | - |
Balance at September 30, 2022 |  | $ | 2,070 |  |  | $ | 1,296 |  |  | $ | 3,366 |
|  | (In Thousands) |
|  | Fair Value Measurements Using Significant |
|  | Unobservable Inputs (Level 3) |
|  | State and Local Governments |
|  | Tax-Exempt |  |  | Taxable |  |  | Total |
Balance at January 1, 2023 |  | $ | 2,071 |  |  | $ | 1,274 |  |  | $ | 3,345 |
Change in Fair Value |  |  | 5 |  |  |  | (21 | ) |  |  | (16 | )
Payments, Maturities & Calls |  |  | (902 | ) |  |  | - |  |  |  | (902 | )
Reclassification & Adjustments |  |  | - |  |  |  | - |  |  |  | - |
Balance at September 30, 2023 |  | $ | 1,174 |  |  | $ | 1,253 |  |  | $ | 2,427 |
|  | (In Thousands) |
|  | Fair Value Measurements Using Significant |
|  | Unobservable Inputs (Level 3) |
|  | State and Local Governments |
|  | Tax-Exempt |  |  | Taxable |  |  | Total |
Balance at January 1, 2022 |  | $ | 2,307 |  |  | $ | 2,466 |  |  | $ | 4,773 |
Change in Fair Value |  |  | (77 | ) |  |  | (181 | ) |  |  | (258 | )
Payments, Maturities & Calls |  |  | (160 | ) |  |  | - |  |  |  | (160 | )
Reclassification & Adjustments |  |  | - |  |  |  | (989 | ) |  |  | (989 | )
Balance at September 30, 2022 |  | $ | 2,070 |  |  | $ | 1,296 |  |  | $ | 3,366 |
Most of the Company's available-for-sale securities, including any bonds issued by local municipalities, have CUSIP numbers or have similar characteristics of those in the municipal markets, making them marketable and comparable as Level 2. The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At September 30, 2023 and December 31, 2022, such assets consist primarily of collateral dependent loans. Collateral dependent loans categorized as Level 3 assets consist of non-homogeneous loans that have expected credit losses. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management's best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals.) At September 30, 2023 and December 31, 2022, fair value of collateral dependent loans categorized as Level 3 was $312 thousand and $2.7 million, respectively. During 2023, impairment was recognized on real estate servicing rights based upon the independent third party's quarterly valuation. A valuation allowance was established by strata to quantify the likely impairment of the value of the real estate servicing rights to the Company. If the carrying amount of an individual strata exceeds the fair value, impairment was recorded on that strata so the servicing asset was carried at fair value. Impairment was $3 thousand at September 30, 2023. There was no impairment at December 31, 2022. The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:
|  | (In Thousands) |  |  |  |  |  |  | Range
|  | Fair Value at |  |  |  |  |  |  | (Weighted
|  | September 30, 2023 |  |  | Valuation Technique |  | Unobservable Inputs |  | Average)
State and local government |  | $ | 2,427 |  |  | Discounted Cash Flow |  | Credit strength of underlying project or entity / Discount rate |  | 3.96- 5.78% (5.18%)
Collateral dependent loans |  |  | 312 |  |  | Collateral based measurements |  | Discount to reflect current market conditions and ultimate collectability |  | 25.00-50.00% (26.37%)
Real estate servicing rights |  |  | 35 |  |  | Discounted Cash Flow |  | Constant prepayment rate and probability of default / Discount rate |  | 5.71- 7.33% (7.29%)
|  | (In Thousands) |  |  |  |  |  |  | Range
|  | Fair Value at |  |  |  |  |  |  | (Weighted
|  | December 31, 2022 |  |  | Valuation Technique |  | Unobservable Inputs |  | Average)
State and local government |  | $ | 3,345 |  |  | Discounted Cash Flow |  | Credit strength of underlying project or entity / Discount rate |  | 2.08-5.01% (4.38%)
Collateral dependent impaired loans |  |  | 2,667 |  |  | Collateral based measurements |  | Discount to reflect current market conditions and ultimate collectability |  | 20.00-29.01% (24.13%)
Real estate servicing rights |  |  | - |  |  | Discounted Cash Flow |  | Constant prepayment rate and probability of default / Discount rate |  | — % ( — )
The following table presents assets measured at fair value on a nonrecurring basis at September 30, 2023 and December 31, 2022:
|  | (In Thousands) |
|  | Assets Measured at Fair Value on a Nonrecurring Basis at September 30, 2023 |
|  | Balance at September 30, 2023 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Collateral dependent loans |  | $ | 312 |  |  | $ | - |  |  | $ | - |  |  | $ | 312 |
Real estate servicing rights |  |  | 35 |  |  |  | - |  |  |  | - |  |  |  | 35 |
|  | (In Thousands) |
|  | Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2022 |
|  | Balance at December 31, 2022 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Collateral dependent impaired loans |  | $ | 2,667 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,667 |
Real estate servicing rights |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of September 30, 2023 and December 31, 2022 are reflected below.
|  | (In Thousands) |
|  | September 30, 2023 |
|  | Carrying |  |  | Fair |  |  |  |  |  |  |  |  |  |
|  | Amount |  |  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 153,182 |  |  | $ | 153,182 |  |  | $ | 153,182 |  |  | $ | - |  |  | $ | - |
Interest-bearing time deposits |  |  | 2,989 |  |  |  | 2,977 |  |  |  | - |  |  |  | 2,977 |  |  |  | - |
Securities - available-for-sale |  |  | 348,255 |  |  |  | 348,255 |  |  |  | 81,978 |  |  |  | 263,850 |  |  |  | 2,427 |
Other securities |  |  | 16,995 |  |  |  | 16,995 |  |  |  | - |  |  |  | - |  |  |  | 16,995 |
Loans held for sale |  |  | 1,039 |  |  |  | 1,023 |  |  |  | - |  |  |  | - |  |  |  | 1,023 |
Loans, net |  |  | 2,504,329 |  |  |  | 2,336,246 |  |  |  | - |  |  |  | - |  |  |  | 2,336,246 |
Interest receivable |  |  | 12,902 |  |  |  | 12,902 |  |  |  | - |  |  |  | - |  |  |  | 12,902 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest bearing deposits |  | $ | 1,369,477 |  |  | $ | 1,369,406 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,369,406 |
Non-interest bearing deposits |  |  | 505,358 |  |  |  | 505,358 |  |  |  | 505,358 |  |  |  | - |  |  |  | - |
Time deposits |  |  | 700,445 |  |  |  | 691,341 |  |  |  | - |  |  |  | - |  |  |  | 691,341 |
Total Deposits |  |  | 2,575,280 |  |  |  | 2,566,105 |  |  |  | 505,358 |  |  |  | - |  |  |  | 2,060,747 |
Federal funds purchased and securities sold under agreement to repurchase |  |  | 30,527 |  |  |  | 30,527 |  |  |  | - |  |  |  | - |  |  |  | 30,527 |
Federal Home Loan Bank advances |  |  | 266,286 |  |  |  | 260,871 |  |  |  | - |  |  |  | - |  |  |  | 260,871 |
Other borrowings |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Subordinated notes, net of unamortized issuance costs |  |  | 34,673 |  |  |  | 30,642 |  |  |  | - |  |  |  | 30,642 |  |  |  | - |
Interest payable |  |  | 4,760 |  |  |  | 4,760 |  |  |  | - |  |  |  | - |  |  |  | 4,760 |
|  | (In Thousands) |
|  | December 31, 2022 |
|  | Carrying |  |  | Fair |  |  |  |  |  |  |  |  |  |
|  | Amount |  |  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 84,409 |  |  | $ | 84,409 |  |  | $ | 84,409 |  |  | $ | - |  |  | $ | - |
Interest-bearing time deposits |  |  | 4,442 |  |  |  | 4,440 |  |  |  | - |  |  |  | 4,440 |  |  |  | - |
Securities - available-for-sale |  |  | 390,789 |  |  |  | 390,789 |  |  |  | 94,678 |  |  |  | 292,766 |  |  |  | 3,345 |
Other securities |  |  | 9,799 |  |  |  | 9,799 |  |  |  | - |  |  |  | - |  |  |  | 9,799 |
Loans held for sale |  |  | 827 |  |  |  | 815 |  |  |  | - |  |  |  | - |  |  |  | 815 |
Loans, net |  |  | 2,336,074 |  |  |  | 2,171,152 |  |  |  | - |  |  |  | - |  |  |  | 2,171,152 |
Interest receivable |  |  | 10,440 |  |  |  | 10,440 |  |  |  | - |  |  |  | - |  |  |  | 10,440 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest bearing deposits |  | $ | 1,378,090 |  |  | $ | 1,377,944 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,377,944 |
Non-interest bearing deposits |  |  | 532,794 |  |  |  | 532,794 |  |  |  | 532,794 |  |  |  | - |  |  |  | - |
Time deposits |  |  | 557,980 |  |  |  | 543,737 |  |  |  | - |  |  |  | - |  |  |  | 543,737 |
Total Deposits |  |  | 2,468,864 |  |  |  | 2,454,475 |  |  |  | 532,794 |  |  |  | - |  |  |  | 1,921,681 |
Federal funds purchased and securities sold under agreement to repurchase |  |  | 54,206 |  |  |  | 54,206 |  |  |  | - |  |  |  | - |  |  |  | 54,206 |
Federal Home Loan Bank advances |  |  | 127,485 |  |  |  | 125,761 |  |  |  | - |  |  |  | - |  |  |  | 125,761 |
Other borrowings |  |  | 10,000 |  |  |  | 10,000 |  |  |  | - |  |  |  | 10,000 |  |  |  | - |
Subordinated notes, net of unamortized issuance costs |  |  | 34,586 |  |  |  | 30,993 |  |  |  | - |  |  |  | 30,993 |  |  |  | - |
Interest payable |  |  | 1,739 |  |  |  | 1,739 |  |  |  | - |  |  |  | - |  |  |  | 1,739 |

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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/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
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