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FAIR VALUE OF FINANCIAL INSTRUMENTS | 12 Months Ended
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Dec. 31, 2023
FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract] |
FAIR VALUE OF FINANCIAL INSTRUMENTS | 21. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:
Level I: | Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II: | Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III: | Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process. Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis The fair values of equity securities and securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The following tables present the assets reported on the consolidated balance sheet at their fair value on a recurring basis as of December 31, 2023 and 2022 (in thousands) by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
2023 |  | Level I |  |  | Level II |  |  | Level III |  |  | Total |
Fair value measurements on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 1,938 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,938 |
Available for sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Agency securities |  |  | - |  |  |  | 60,771 |  |  |  | - |  |  |  | 60,771 |
U.S. Treasuries securities |  |  | 143,288 |  |  |  | - |  |  |  | - |  |  |  | 143,288 |
Obligations of state and political subdivisions |  |  | - |  |  |  | 101,787 |  |  |  | - |  |  |  | 101,787 |
Corporate obligations |  |  | - |  |  |  | 12,403 |  |  |  | - |  |  |  | 12,403 |
Mortgage-backed securities in government sponsored entities |  |  | - |  |  |  | 99,352 |  |  |  | - |  |  |  | 99,352 |
Other Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative instruments |  |  | - |  |  |  | 13,363 |  |  |  | 324 |  |  |  | 13,687 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative instruments |  |  | - |  |  |  | (7,922 | ) |  |  | - |  |  |  | (7,922 | )
2022 |  | Level I |  |  | Level II |  |  | Level III |  |  | Total |
Fair value measurements on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 2,208 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,208 |
Available for sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Agency securities |  |  | - |  |  |  | 70,677 |  |  |  | - |  |  |  | 70,677 |
U.S. Treasuries securities |  |  | 148,570 |  |  |  | - |  |  |  | - |  |  |  | 148,570 |
Obligations of state and political subdivisions |  |  | - |  |  |  | 110,300 |  |  |  | - |  |  |  | 110,300 |
Corporate obligations |  |  | - |  |  |  | 9,383 |  |  |  | - |  |  |  | 9,383 |
Mortgage-backed securities in government sponsored entities |  |  | - |  |  |  | 100,576 |  |  |  | - |  |  |  | 100,576 |
Other Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative instruments |  |  | - |  |  |  | 16,599 |  |  |  | - |  |  |  | 16,599 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative instruments |  |  | - |  |  |  | (9,726 | ) |  |  | - |  |  |  | (9,726 | )
The following tables represent assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at December 31, 2023:
|  | Level 3 |
|  | IRLC - Asset |  |  | IRLC - Liability |
Beginning Balance: June 16, 2023 |  | $ | 657 |  |  | $ | - |
Total gains (losses) (unrealized): |  |  |  |  |  |  |  |
Included in other comprehensive loss |  |  | - |  |  |  | - |
Total (loss) gains included in earnings and held at reporting date |  |  | (333 | ) |  |  | - |
Purchases, sales and settlements |  |  | - |  |  |  | - |
Transfers out of Level 3 |  |  | - |  |  |  | - |
Ending Balance December 31, 2023 |  | $ | 324 |  |  | $ | - |
Change in unrealized (losses) gains for the period included in earnings (or changes in net assets) for assets held as of December 31, 2023 |  | $ | (333 | ) |  |  | - |
Change in unrealized losses for the period included other comprehensive loss for assets held as of December 31, 2023 |  | $ | - |  |  |  | - |
At December 31, 2023, the Company has classified $324,000 of net derivative assets related to IRLC as Level 3. The fair value of IRLCs is based on prices obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Company’s best estimate of the probability that a committed loan will fund. At December 31, 2023, the weighted average pull-through rates applied ranged from 63.6% to 94.2%. Significant unobservable inputs for assets and liabilities measured at fair value on a recurring basis at December 31, 2023:
Quantitative Information about Level 3 Fair Value Measurements |
2023 | Fair Value |  | Valuation Technique(s) | Unobservable input | Range |  | Weighted average |
Measured at Fair Value on a Recurring Basis: |  |  |  |  |  |  |  |
Net derivative asset and liability: |  |  |  |  |  |  |  |
IRLC | 324 |  | Discounted cashflows | Pull-though rates | 63.63%-94.24 | % | 85.43 | %
Financial Instruments, Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during 2023 and 2022 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible credit losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. Assets measured at fair value on a nonrecurring basis as of December 31, 2023 and 2022 (in thousands) are included in the table below:
2023 |  | Level I |  |  | Level II |  |  | Level III |  |  | Total |
Collateral-dependent loans |  | $ | - |  |  | $ | - |  |  | $ | 3,885 |  |  | $ | 3,885 |
Other real estate owned |  |  | - |  |  |  | - |  |  |  | 97 |  |  |  | 97 |
2022 |  | Level I |  |  | Level II |  |  | Level III |  |  | Total |
Impaired loans |  | $ | - |  |  | $ | - |  |  | $ | 496 |  |  | $ | 496 |
Other real estate owned |  |  | - |  |  |  | - |  |  |  | 297 |  |  |  | 297 |
• | Collateral-Dependent Loans (in accordance with ASC 326) - The Company records nonrecurring adjustments of collateral-dependent loans held for investment. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures that include recent sales prices for comparable properties and cost of construction. Periodically, in cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized in the form of a charge-off. The fair values above excluded estimated selling costs of $396,000 at December 31, 2023.
• | Impaired Loans (in accordance with ASC 310) - The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level III measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. The fair values above excluded estimated selling costs of $50,000 at December 31, 2022.
• | Other Real Estate Owned – OREO is carried at the lower of cost or fair value, less estimated costs to sell, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.
The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques (dollars in thousands).
2023 | Fair Value | Valuation Technique(s) | Unobservable input | Range | Weighted average
Collateral-dependent loans | 3,885 | Appraised Collateral Values | Discount for time since appraisal | 0-100% | 29.32%
|  |  | Selling costs | 8%-12% | 10.20%
|  |  | Holding period | 3 - 12 months | 6.65 months
Other real estate owned | 97 | Appraised Collateral Values | Discount for time since appraisal | 32% | 32.00%
2022 | Fair Value | Valuation Technique(s) | Unobservable input | Range | Weighted average
Impaired loans | 496 | Appraised Collateral Values | Discount for time since appraisal | 0-100% | 25.16%
|  |  | Selling costs | 8%-10% | 8.41%
|  |  | Holding period | 6 - 12 months | 11.51 months
Other real estate owned | 297 | Appraised Collateral Values | Discount for time since appraisal | 20-84% | 39.84%
Financial Instruments Not Required to be Measured or Reported at Fair Value The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):
December 31, 2023 |  | Carrying Amount |  |  | Fair Value |  |  | Level I |  |  | Level II |  |  | Level III |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest bearing time deposits with other banks |  | $ | 4,070 |  |  | $ | 4,070 |  |  | $ | - |  |  | $ | - |  |  | $ | 4,070 |
Loans held for sale |  |  | 9,379 |  |  |  | 9,379 |  |  |  | - |  |  |  | - |  |  |  | 9,379 |
Net loans |  |  | 2,227,683 |  |  |  | 2,126,237 |  |  |  | - |  |  |  | - |  |  |  | 2,126,237 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 2,321,481 |  |  |  | 2,315,374 |  |  |  | 1,902,007 |  |  |  | - |  |  |  | 413,367 |
Borrowed funds |  |  | 322,036 |  |  |  | 313,217 |  |  |  | - |  |  |  | - |  |  |  | 313,217 |
December 31, 2022 |  | Carrying Amount |  |  | Fair Value |  |  | Level I |  |  | Level II |  |  | Level III |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest bearing time deposits with other banks |  | $ | 6,055 |  |  | $ | 6,055 |  |  | $ | - |  |  | $ | - |  |  | $ | 6,055 |
Loans held for sale |  |  | 725 |  |  |  | 725 |  |  |  | - |  |  |  | - |  |  |  | 725 |
Net loans |  |  | 1,706,447 |  |  |  | 1,662,514 |  |  |  | - |  |  |  | - |  |  |  | 1,662,514 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 1,844,208 |  |  |  | 1,832,037 |  |  |  | 1,566,517 |  |  |  | - |  |  |  | 265,520 |
Borrowed funds |  |  | 257,278 |  |  |  | 246,288 |  |  |  | - |  |  |  | - |  |  |  | 246,288 |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates. Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The carrying amounts for cash and cash equivalents, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements.

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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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