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Fair Value Measurements
 9 Months Ended
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 AssetsBalancesLevel 1Level 2Level 3
As of September 30, 2024:
Available for sale securities:
U.S. government and federal agencies$129,725 $125,773 $3,952 $— 
Mortgage backed securities8,229 — 8,229 — 
Corporate bonds52,595 492 52,103 — 
State and municipal securities104,205 — 104,205 — 
Total available for sale securities$294,754 $126,265 $168,489 $— 
Equity securities527 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 securities8,649 — 8,649 — 
Corporate bonds55,472 475 54,997 — 
State and municipal securities101,696 — 101,696 — 
Total available for sale securities$258,114 $79,292 $178,822 $— 
Equity securities505 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 UsingTotal
Fair Value
Level 1Level 2Level 3
As of September 30, 2024:
Financial assets:
Cash and due from banks$639,767 $639,767 $— $— $639,767 
Securities available for sale294,754 126,265 168,489 — 294,754 
Securities held to maturity, net302,348 109,514 176,266 — 285,780 
Equity securities527 527 — — 527 
Restricted securities2,886 — 2,886 — 2,886 
Loans, net295,826 — — 286,987 286,987 
Accrued interest receivable5,360 — 5,360 — 5,360 
Financial liabilities:
Demand and savings deposits$1,421,999 $— $1,249,724 $163,186 $1,412,910 
Time deposits11,869 — — 11,829 11,829 
Short-term borrowings10,000 — 10,000 — 10,000 
Accrued interest payable25 — 25 — 25 
Carrying
Amount		Fair Value Measurements UsingTotal
Fair Value
Level 1Level 2Level 3
As of December 31, 2023:
Financial assets:
Cash and due from banks$316,767 $316,767 $— $— $316,767 
Securities available for sale258,114 79,292 178,822 — 258,114 
Securities held to maturity, net308,058 106,837 177,079 — 283,916 
Equity securities505 505 — — 505 
Restricted securities2,613 — 2,613 — 2,613 
Loans, net299,825 — — 280,352 280,352 
Accrued interest receivable4,354 — 4,354 — 4,354 
Financial liabilities:
Demand and savings deposits$1,095,283 $— $766,933 $299,765 $1,066,698 
Time deposits16,742 — — 16,600 16,600 
Short-term borrowings5,000 — 5,000 — 5,000 
Accrued interest payable61 — 61 — 61