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Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

NOTE 9 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, 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 June 30, 2024 and December 31, 2023, 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)

 

June 30, 2024

 

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

 

$

75,114

 

 

$

-

 

 

$

-

 

U.S. Government agencies

 

 

19,651

 

 

 

108,920

 

 

 

-

 

Mortgage-backed securities

 

 

-

 

 

 

96,710

 

 

 

-

 

State and local governments

 

 

-

 

 

 

63,028

 

 

 

1,786

 

Total Securities Available-for-Sale

 

$

94,765

 

 

$

268,658

 

 

$

1,786

 

Interest rate swap liabilities

 

$

-

 

 

$

(567

)

 

$

-

 

 

 

 

(In Thousands)

 

December 31, 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

 

$

80,270

 

 

$

-

 

 

$

-

 

U.S. Government agencies

 

 

19,630

 

 

 

108,592

 

 

 

-

 

Mortgage-backed securities

 

 

-

 

 

 

82,132

 

 

 

-

 

State and local governments

 

 

-

 

 

 

65,394

 

 

 

2,460

 

Total Securities Available-for-Sale

 

$

99,900

 

 

$

256,118

 

 

$

2,460

 

Interest rate swaps liabilities

 

$

-

 

 

$

(2,679

)

 

$

-

 

 

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 six month periods ended June 30, 2024 and June 30, 2023.

 

 

 

(In Thousands)

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

State and Local Governments

 

 

 

Tax-Exempt

 

 

Taxable

 

 

Total

 

Balance at April 1, 2024

 

$

521

 

 

$

1,274

 

 

$

1,795

 

 

 

 

 

 

 

 

 

 

Change in Fair Value

 

 

(1

)

 

 

(8

)

 

 

(9

)

 

 

 

 

 

 

 

 

 

Payments, Maturities & Calls

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2024

 

$

520

 

 

$

1,266

 

 

$

1,786

 

 

 

 

 

(In Thousands)

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

State and Local Governments

 

 

 

Tax-Exempt

 

 

Taxable

 

 

Total

 

Balance at January 1, 2024

 

$

1,188

 

 

$

1,272

 

 

$

2,460

 

 

 

 

 

 

 

 

 

 

Change in Fair Value

 

 

(3

)

 

 

(6

)

 

 

(9

)

 

 

 

 

 

 

 

 

 

Payments, Maturities & Calls

 

 

(665

)

 

 

-

 

 

 

(665

)

 

 

 

 

 

 

 

 

 

Balance at June 30, 2024

 

$

520

 

 

$

1,266

 

 

$

1,786

 

 

 

 

 

(In Thousands)

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

State and Local Governments

 

 

 

Tax-Exempt

 

 

Taxable

 

 

Total

 

Balance at April 1, 2023

 

$

1,835

 

 

$

1,305

 

 

$

3,140

 

 

 

 

 

 

 

 

 

 

Change in Fair Value

 

 

(4

)

 

 

(27

)

 

 

(31

)

 

 

 

 

 

 

 

 

 

Payments, Maturities & Calls

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

$

1,831

 

 

$

1,278

 

 

$

3,109

 

 

 

 

 

(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

 

 

 

4

 

 

 

9

 

 

 

 

 

 

 

 

 

 

Payments, Maturities & Calls

 

 

(245

)

 

 

-

 

 

 

(245

)

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

$

1,831

 

 

$

1,278

 

 

$

3,109

 

 

 

 

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 June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, fair value of collateral dependent loans categorized as Level 3 was $2.8 million and $22.7 million, respectively.

During 2023, impairment was recognized on loan 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 loan 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 $7 thousand at June 30, 2024 and December 31, 2023.

The following table presents assets measured at fair value on a nonrecurring basis at June 30, 2024 and December 31, 2023:

 

 

 

(In Thousands)

 

 

 

Assets Measured at Fair Value on a Nonrecurring Basis at June 30, 2024

 

 

 

Balance at
June 30, 2024

 

 

Quoted Prices
in Active
Markets for
Identical
Assets (Level 1)

 

 

Significant
Observable Inputs
(Level 2)

 

 

Significant
Unobservable Inputs
(Level 3)

 

Collateral dependent
   loans

 

$

2,776

 

 

$

-

 

 

$

-

 

 

$

2,776

 

Loan servicing rights

 

 

51

 

 

 

-

 

 

 

-

 

 

 

51

 

 

 

 

 

(In Thousands)

 

 

 

Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2023

 

 

 

Balance at
December 31, 2023

 

 

Quoted Prices
in Active
Markets for
Identical
Assets (Level 1)

 

 

Significant
Observable Inputs
(Level 2)

 

 

Significant
Unobservable Inputs
(Level 3)

 

Collateral dependent
   loans

 

$

22,676

 

 

$

-

 

 

$

-

 

 

$

22,676

 

Loan servicing rights

 

 

58

 

 

 

-

 

 

 

-

 

 

 

58

 

 

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

 

June 30, 2024

 

 

Valuation Technique

 

Unobservable Inputs

 

Average)

State and local government

 

$

1,786

 

 

Discounted Cash Flow

 

Credit strength of underlying project
or entity / discount rate

 

3.76-5.00%
(4.73%)

 

 

 

 

 

 

 

 

 

Collateral dependent
   loans

 

 

2,776

 

 

Collateral based
measurements

 

Discount to reflect current market
conditions and ultimate collectability

 

0.00-20.00%
(5.05%)

 

 

 

 

 

 

 

 

 

Loan servicing rights

 

 

51

 

 

Discounted Cash Flow

 

Constant prepayment rate and
probability of default / discount rate

 

9.39-22.80%
(12.88%)

 

 

 

 

(In Thousands)

 

 

 

 

 

 

Range

 

 

Fair Value at

 

 

 

 

 

 

(Weighted

 

 

December 31, 2023

 

 

Valuation Technique

 

Unobservable Inputs

 

Average)

State and local government

 

$

2,460

 

 

Discounted Cash Flow

 

Credit strength of underlying project
or entity / discount rate

 

-0.17-4.92%
(3.49%)

 

 

 

 

 

 

 

 

 

Collateral dependent
   loans

 

 

22,676

 

 

Collateral based
measurements

 

Discount to reflect current market
conditions and ultimate collectability

 

0.00-50.00%
(0.41%)

 

 

 

 

 

 

 

 

 

Loan servicing rights

 

 

58

 

 

Discounted Cash Flow

 

Constant prepayment rate and
probability of default / discount rate

 

5.11-22.80%
(10.87%)

 

The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of June 30, 2024 and December 31, 2023 are reflected below.

 

 

 

(In Thousands)

 

 

 

June 30, 2024

 

 

 

Carrying

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

193,068

 

 

$

193,068

 

 

$

193,068

 

 

$

-

 

 

$

-

 

Interest-bearing time deposits

 

 

3,221

 

 

 

3,197

 

 

 

-

 

 

 

3,197

 

 

 

-

 

Securities - available-for-sale

 

 

365,209

 

 

 

365,209

 

 

 

94,765

 

 

 

268,658

 

 

 

1,786

 

Other securities

 

 

14,721

 

 

 

14,721

 

 

 

-

 

 

 

-

 

 

 

14,721

 

Loans held for sale

 

 

1,628

 

 

 

1,603

 

 

 

-

 

 

 

-

 

 

 

1,603

 

Loans, net

 

 

2,534,468

 

 

 

2,507,497

 

 

 

-

 

 

 

-

 

 

 

2,507,497

 

Interest receivable

 

 

13,327

 

 

 

13,327

 

 

 

-

 

 

 

-

 

 

 

13,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

1,494,429

 

 

$

1,493,910

 

 

$

-

 

 

$

-

 

 

$

1,493,910

 

Non-interest bearing deposits

 

 

479,069

 

 

 

479,069

 

 

 

479,069

 

 

 

-

 

 

 

-

 

Time deposits

 

 

667,592

 

 

 

661,792

 

 

 

-

 

 

 

-

 

 

 

661,792

 

Total Deposits

 

 

2,641,090

 

 

 

2,634,771

 

 

 

479,069

 

 

 

-

 

 

 

2,155,702

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds purchased and securities sold under
   agreement to repurchase

 

 

27,218

 

 

 

27,218

 

 

 

-

 

 

 

-

 

 

 

27,218

 

Federal Home Loan Bank advances

 

 

266,102

 

 

 

266,231

 

 

 

-

 

 

 

-

 

 

 

266,231

 

Subordinated notes, net of unamortized issuance costs

 

 

34,759

 

 

 

30,223

 

 

 

-

 

 

 

30,223

 

 

 

-

 

Interest payable

 

 

6,459

 

 

 

6,459

 

 

 

-

 

 

 

-

 

 

 

6,459

 

 

 

 

(In Thousands)

 

 

 

December 31, 2023

 

 

 

Carrying

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

142,201

 

 

$

142,201

 

 

$

142,201

 

 

$

-

 

 

$

-

 

Interest-bearing time deposits

 

 

2,740

 

 

 

2,725

 

 

 

-

 

 

 

2,725

 

 

 

-

 

Securities - available-for-sale

 

 

358,478

 

 

 

358,478

 

 

 

99,900

 

 

 

256,118

 

 

 

2,460

 

Other securities

 

 

17,138

 

 

 

17,138

 

 

 

-

 

 

 

-

 

 

 

17,138

 

Loans held for sale

 

 

1,576

 

 

 

1,552

 

 

 

-

 

 

 

-

 

 

 

1,552

 

Loans, net

 

 

2,556,167

 

 

 

2,396,540

 

 

 

-

 

 

 

-

 

 

 

2,396,540

 

Interest receivable

 

 

11,774

 

 

 

11,774

 

 

 

-

 

 

 

-

 

 

 

11,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

1,415,981

 

 

$

1,416,007

 

 

$

-

 

 

$

-

 

 

$

1,416,007

 

Non-interest bearing deposits

 

 

528,465

 

 

 

528,465

 

 

 

528,465

 

 

 

-

 

 

 

-

 

Time deposits

 

 

663,017

 

 

 

656,141

 

 

 

-

 

 

 

-

 

 

 

656,141

 

Total Deposits

 

 

2,607,463

 

 

 

2,600,613

 

 

 

528,465

 

 

 

-

 

 

 

2,072,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds purchased and securities sold under
   agreement to repurchase

 

 

28,218

 

 

 

28,218

 

 

 

-

 

 

 

-

 

 

 

28,218

 

Federal Home Loan Bank advances

 

 

265,750

 

 

 

260,400

 

 

 

-

 

 

 

-

 

 

 

260,400

 

Subordinated notes, net of unamortized issuance costs

 

 

34,702

 

 

 

30,676

 

 

 

-

 

 

 

30,676

 

 

 

-

 

Interest payable

 

 

5,441

 

 

 

5,441

 

 

 

-

 

 

 

-

 

 

 

5,441