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Fair Value | 9 Months Ended
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Sep. 30, 2024
Fair Value Disclosures [Abstract] |
Fair Value | Fair Value Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:
Level 1: | Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2: | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods. Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally, we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion. Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources. Loans: We do not record loans at fair value on a recurring basis. However, some loans are individually evaluated for ACL purposes, and a specific ACL may be established. To measure reserve, the fair value of the loan is estimated using the fair value of the collateral, less costs to sell if foreclosure is probable, or the present value of expected future cash flows discounted at the loan’s effective interest rate. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. We review the net realizable values of the underlying collateral for collateral dependent loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated. The following tables list the quantitative information about loans measured at fair value on a nonrecurring basis as of:
September 30, 2024
Valuation Technique | Fair Value | Unobservable Input |  | Actual Range |  | Weighted Average
Collateral Dependent Loans - |  | Discount applied to collateral: |  |  |  |
Discounted value | $357 | Real Estate |  | 20% |  | 20%
December 31, 2023
Valuation Technique | Fair Value | Unobservable Input |  | Actual Range |  | Weighted Average
Collateral Dependent Loans - |  | Discount applied to collateral: |  |  |  |
Discounted value | $1,083 | Real Estate |  | 20% |  | 20%
|  | Equipment |  | 25% - 35% |  | 33%
|  | Accounts receivable |  | 25% |  | 25%
Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation. OMSR: OMSR (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 3. The following table lists the quantitative information about OMSR fair value measurement as of:
September 30, 2024
Valuation Technique | Fair Value | Unobservable Input |  | Rate
Discounted cash flow | $ | 2,277 |  | Constant prepayment rate |  | 7%
|  | Discount rate |  | 11%
During the third quarter of 2024, the classification of OMSR was changed from Level 2 to Level 3. We elected to reevaluate our process for testing for impairment, which included a change in the third-party provider for the valuation. Our valuation is generated using a model-based approach that relies upon significant assumptions not observable in the market. As such, the Level 3 classification is most appropriate based on the valuation approach. As a result of the change described above, Level 3 transfers in and Level 2 transfer out totaled $2,277 as of September 30, 2024. There were no other transfers to or from Levels 1, 2, or 3 as of September 30, 2024 or December 31, 2023. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods 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 fair value measurement. Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of:
| September 30, 2024
| Carrying Value |  | Estimated Fair Value |  | Level 1 |  | Level 2 |  | Level 3
ASSETS |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 27,378 |  |  | $ | 27,378 |  |  | $ | 27,378 |  |  | $ | — |  |  | $ | — |
FHLB stock (1) | 12,762 |  |  | N/A |  | — |  |  | — |  |  | — |
Mortgage loans HFS | 504 |  |  | 513 |  |  | — |  |  | 513 |  |  | — |
Gross loans | 1,424,283 |  |  | 1,367,235 |  |  | — |  |  | — |  |  | 1,367,235 |
Less allowance for credit losses | 12,635 |  |  | 12,635 |  |  | — |  |  | — |  |  | 12,635 |
Net loans | 1,411,648 |  |  | 1,354,600 |  |  | — |  |  | — |  |  | 1,354,600 |
Accrued interest receivable | 8,567 |  |  | 8,567 |  |  | 8,567 |  |  | — |  |  | — |
Equity securities without readily determinable fair values (1) | 3,086 |  |  | N/A |  | — |  |  | — |  |  | — |
OMSR | 2,218 |  |  | 2,277 |  |  | — |  |  | — |  |  | 2,277 |
LIABILITIES |  |  |  |  |  |  |  |  |
Deposits without stated maturities | 1,398,235 |  |  | 1,398,235 |  |  | 1,398,235 |  |  | — |  |  | — |
Deposits with stated maturities | 383,597 |  |  | 381,378 |  |  | — |  |  | 381,378 |  |  | — |
Short-term borrowings | 52,434 |  |  | 52,360 |  |  | — |  |  | 52,360 |  |  | — |
FHLB advances | 15,000 |  |  | 15,000 |  |  | — |  |  | 15,000 |  |  | — |
Subordinated debt, net of unamortized issuance costs | 29,402 |  |  | 27,147 |  |  | — |  |  | 27,147 |  |  | — |
Accrued interest payable | 973 |  |  | 973 |  |  | 973 |  |  | — |  |  | — |
| December 31, 2023
| Carrying Value |  | Estimated Fair Value |  | Level 1 |  | Level 2 |  | Level 3
ASSETS |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 33,672 |  |  | $ | 33,672 |  |  | $ | 33,672 |  |  | $ | — |  |  | $ | — |
FHLB stock (1) | 12,762 |  |  | N/A |  | — |  |  | — |  |  | — |
Mortgage loans HFS | — |  |  | — |  |  | — |  |  | — |  |  | — |
Gross loans | 1,349,463 |  |  | 1,292,458 |  |  | — |  |  | — |  |  | 1,292,458 |
Less allowance for credit losses | 13,108 |  |  | 13,108 |  |  | — |  |  | — |  |  | 13,108 |
Net loans | 1,336,355 |  |  | 1,279,350 |  |  | — |  |  | — |  |  | 1,279,350 |
Accrued interest receivable | 8,167 |  |  | 8,167 |  |  | 8,167 |  |  | — |  |  | — |
Equity securities without readily determinable fair values (1) | 3,086 |  |  | N/A |  | — |  |  | — |  |  | — |
OMSR | 2,422 |  |  | 3,164 |  |  | — |  |  | 3,164 |  |  | — |
LIABILITIES |  |  |  |  |  |  |  |  |
Deposits without stated maturities | 1,377,321 |  |  | 1,377,321 |  |  | 1,377,321 |  |  | — |  |  | — |
Deposits with stated maturities | 346,374 |  |  | 341,489 |  |  | — |  |  | 341,489 |  |  | — |
Short-term borrowings | 46,801 |  |  | 46,704 |  |  | — |  |  | 46,704 |  |  | — |
FHLB advances | 40,000 |  |  | 40,000 |  |  | — |  |  | 40,000 |  |  | — |
Subordinated debt, net of unamortized issuance costs | 29,335 |  |  | 26,146 |  |  | — |  |  | 26,146 |  |  | — |
Accrued interest payable | 890 |  |  | 890 |  |  | 890 |  |  | — |  |  | — |
(1) Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. When an impairment or write-down related to these securities is recorded, such amount would be classified as a nonrecurring Level 3 fair value adjustment. Financial Instruments Recorded at Fair Value The table below presents the recorded amount of assets and liabilities measured at fair value on:
| September 30, 2024 |  | December 31, 2023
| Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Recurring items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AFS securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 220,829 |  |  | $ | — |  |  | $ | 220,829 |  |  | $ | — |  |  | $ | 214,801 |  |  | $ | — |  |  | $ | 214,801 |  |  | $ | — |
States and political subdivisions | 82,899 |  |  | — |  |  | 82,899 |  |  | — |  |  | 92,876 |  |  | — |  |  | 92,876 |  |  | — |
Auction rate money market preferred | 3,117 |  |  | — |  |  | 3,117 |  |  | — |  |  | 2,931 |  |  | — |  |  | 2,931 |  |  | — |
Mortgage-backed securities | 28,955 |  |  | — |  |  | 28,955 |  |  | — |  |  | 32,815 |  |  | — |  |  | 32,815 |  |  | — |
Collateralized mortgage obligations | 163,764 |  |  | — |  |  | 163,764 |  |  | — |  |  | 177,775 |  |  | — |  |  | 177,775 |  |  | — |
Corporate | 7,242 |  |  | — |  |  | 7,242 |  |  | — |  |  | 6,950 |  |  | — |  |  | 6,950 |  |  | — |
Total AFS securities | 506,806 |  |  | — |  |  | 506,806 |  |  | — |  |  | 528,148 |  |  | — |  |  | 528,148 |  |  | — |
Nonrecurring items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateral dependent (net of ACL) | 357 |  |  | — |  |  | — |  |  | 357 |  |  | 1,083 |  |  | — |  |  | — |  |  | 1,083 |
OMSR | 2,218 |  |  | — |  |  | — |  |  | 2,218 |  |  | 2,422 |  |  | — |  |  | 2,422 |  |  | — |
Foreclosed assets | 546 |  |  | — |  |  | — |  |  | 546 |  |  | 406 |  |  | — |  |  | — |  |  | 406 |
Total | $ | 509,927 |  |  | $ | — |  |  | $ | 506,806 |  |  | $ | 3,121 |  |  | $ | 532,059 |  |  | $ | — |  |  | $ | 530,570 |  |  | $ | 1,489 |
Percent of assets and liabilities measured at fair value |  |  | 0.00 | % |  | 99.39 | % |  | 0.61 | % |  |  |  | 0.00 | % |  | 99.72 | % |  | 0.28 | %
We recorded an impairment related to OMSR of $21 through earnings for the three and nine month periods ended September 30, 2024 and $0 for the three and nine month periods ended September 30, 2023. We also recorded an impairment related to foreclosed assets of $0 through earnings for the three and nine month periods ended September 30, 2024 and $27 and $36 for the three and nine month periods ended September 30, 2023 We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis or nonrecurring basis, as of September 30, 2024. Further, we had no unrealized gains and losses included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period.

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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/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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