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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Determination of Fair Value 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. The fair value measurements and disclosure topic specifies a hierarchy of valuation techniques based on whether the inputs to these valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. U.S. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Fair Value Hierarchy U.S. GAAP establishes a fair value hierarchy which categorizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are: Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 - Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation. An asset or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements: Securities Available for Sale & Equity Securities Debt securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity then the security would fall to the lowest level of the hierarchy (Level 3). The Company’s investment portfolio is valued using fair value measurements that are considered to be Level 1 or Level 2 but may also use Level 3 measurements if required by the composition of the portfolio. The Bank has contracted with a securities portfolio accounting service provider for valuation of its securities portfolio. Most security types are priced using the securities accounting provider’s internally developed pricing software which appraises securities from an online real-time database. Subscription pricing services such as ICE Data Services and Bloomberg Valuation Services may be used to supplement the internal pricing system for security types where the underlying collateral, cash flow projections or trade data is not readily available. If Level 1 or Level 2 inputs are not available, the software may rely upon a discounted cash flow analysis based on the net present value of a security’s projected cash flow to arrive at fair market value. Valuations for direct obligations of the U.S. Treasury, exchange listed stock and preferred stock are obtained from on-line real-time databases. The securities accounting service provider utilizes proprietary valuation matrices for valuing all municipal securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance and rating to incorporate additional spreads to the industry benchmark curves. The following table presents the balances of financial assets measured at fair value on a recurring basis (dollars in thousands):
|  |  | Fair Value Measurements Using
Financial Assets | Balances |  | Level 1 |  | Level 2 |  | Level 3
As of September 30, 2024: |  |  |  |  |  |  |
Available for sale securities: |  |  |  |  |  |  |
U.S. government and federal agencies | $ | 129,725 |  |  | $ | 125,773 |  |  | $ | 3,952 |  |  | $ | — |
Mortgage backed securities | 8,229 |  |  | — |  |  | 8,229 |  |  | — |
Corporate bonds | 52,595 |  |  | 492 |  |  | 52,103 |  |  | — |
State and municipal securities | 104,205 |  |  | — |  |  | 104,205 |  |  | — |
Total available for sale securities | $ | 294,754 |  |  | $ | 126,265 |  |  | $ | 168,489 |  |  | $ | — |
Equity securities | 527 |  |  | 527 |  |  | — |  |  | — |
Total | $ | 295,281 |  |  | $ | 126,792 |  |  | $ | 168,489 |  |  | $ | — |
As of December 31, 2023: |  |  |  |  |  |  |
Available for sale securities: |  |  |  |  |  |  |
U.S. government and federal agencies | $ | 92,297 |  |  | $ | 78,817 |  |  | $ | 13,480 |  |  | $ | — |
Mortgage backed securities | 8,649 |  |  | — |  |  | 8,649 |  |  | — |
Corporate bonds | 55,472 |  |  | 475 |  |  | 54,997 |  |  | — |
State and municipal securities | 101,696 |  |  | — |  |  | 101,696 |  |  | — |
Total available for sale securities | $ | 258,114 |  |  | $ | 79,292 |  |  | $ | 178,822 |  |  | $ | — |
Equity securities | 505 |  |  | 505 |  |  | — |  |  | — |
Total | $ | 258,619 |  |  | $ | 79,797 |  |  | $ | 178,822 |  |  | $ | — |
Assets Measured at Fair Value on a Non-recurring Basis Certain assets are measured at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. Collateral Dependent Loans Individually evaluated loans are analyzed to determine whether they are collateral dependent. Any individually evaluated loans, which are deemed to be collateral dependent, with an allocation to the ACL are measured at fair value on a non-recurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the consolidated statements of income. The measurement of loss associated with collateral dependent loans can be based on either the observable market price of the loan or fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property using an income approach or is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Any fair value adjustments are recorded in the period incurred as a provision for loan credit losses on the consolidated statements of income. There were no collateral dependent loans with a recorded reserve as of September 30, 2024 and December 31, 2023. Other Real Estate Owned Other real estate owned (“OREO”) is measured at fair value less costs to sell. Valuation of OREO is determined using current appraisals from independent parties, a Level 2 input. If current appraisals cannot be obtained, or if declines in value are identified after a recent appraisal is received, appraisal values may be discounted, resulting in a Level 3 estimate. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs. Fair value adjustments are recorded in the period incurred and expensed against current earnings. The Bank held no OREO at September 30, 2024 and December 31, 2023. Loans Held for Sale Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of 1-4 family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale at September 30, 2024 or December 31, 2023. There were no assets measured at fair value on a nonrecurring basis at September 30, 2024 and December 31, 2023. Fair Value of Financial Instruments The following tables present the carrying value and estimated fair value including the level within the fair value hierarchy of the Company’s financial instruments as of September 30, 2024 and December 31, 2023 (dollars in thousands):
| Carrying Amount |  | Fair Value Measurements Using |  | Total Fair Value
|  | Level 1 |  | Level 2 |  | Level 3 |
As of September 30, 2024: |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 639,767 |  |  | $ | 639,767 |  |  | $ | — |  |  | $ | — |  |  | $ | 639,767 |
Securities available for sale | 294,754 |  |  | 126,265 |  |  | 168,489 |  |  | — |  |  | 294,754 |
Securities held to maturity, net | 302,348 |  |  | 109,514 |  |  | 176,266 |  |  | — |  |  | 285,780 |
Equity securities | 527 |  |  | 527 |  |  | — |  |  | — |  |  | 527 |
Restricted securities | 2,886 |  |  | — |  |  | 2,886 |  |  | — |  |  | 2,886 |
Loans, net | 295,826 |  |  | — |  |  | — |  |  | 286,987 |  |  | 286,987 |
Accrued interest receivable | 5,360 |  |  | — |  |  | 5,360 |  |  | — |  |  | 5,360 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Demand and savings deposits | $ | 1,421,999 |  |  | $ | — |  |  | $ | 1,249,724 |  |  | $ | 163,186 |  |  | $ | 1,412,910 |
Time deposits | 11,869 |  |  | — |  |  | — |  |  | 11,829 |  |  | 11,829 |
Short-term borrowings | 10,000 |  |  | — |  |  | 10,000 |  |  | — |  |  | 10,000 |
Accrued interest payable | 25 |  |  | — |  |  | 25 |  |  | — |  |  | 25 |
| Carrying Amount |  | Fair Value Measurements Using |  | Total Fair Value
|  | Level 1 |  | Level 2 |  | Level 3 |
As of December 31, 2023: |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 316,767 |  |  | $ | 316,767 |  |  | $ | — |  |  | $ | — |  |  | $ | 316,767 |
Securities available for sale | 258,114 |  |  | 79,292 |  |  | 178,822 |  |  | — |  |  | 258,114 |
Securities held to maturity, net | 308,058 |  |  | 106,837 |  |  | 177,079 |  |  | — |  |  | 283,916 |
Equity securities | 505 |  |  | 505 |  |  | — |  |  | — |  |  | 505 |
Restricted securities | 2,613 |  |  | — |  |  | 2,613 |  |  | — |  |  | 2,613 |
Loans, net | 299,825 |  |  | — |  |  | — |  |  | 280,352 |  |  | 280,352 |
Accrued interest receivable | 4,354 |  |  | — |  |  | 4,354 |  |  | — |  |  | 4,354 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Demand and savings deposits | $ | 1,095,283 |  |  | $ | — |  |  | $ | 766,933 |  |  | $ | 299,765 |  |  | $ | 1,066,698 |
Time deposits | 16,742 |  |  | — |  |  | — |  |  | 16,600 |  |  | 16,600 |
Short-term borrowings | 5,000 |  |  | — |  |  | 5,000 |  |  | — |  |  | 5,000 |
Accrued interest payable | 61 |  |  | — |  |  | 61 |  |  | — |  |  | 61 |

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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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