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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurements | NOTE 9. Fair Value Measurements GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
• |  | Level 1 |  | Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• |  | Level 2 |  | Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• |  | Level 3 |  | Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following section provides a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy: Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Derivative instruments are recorded at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities. The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at September 30, 2024 and December 31, 2023:
|  |  |  |  | Fair Value Measurements at |
|  |  |  |  | September 30, 2024 |
|  |  |  |  | Using |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | September 30, 2024 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government corporations and agencies |  | $ | 7,852 |  |  | $ | — |  |  | $ | 7,852 |  |  | $ | — |
Mortgage-backed securities |  |  | 113,539 |  |  |  | — |  |  |  | 113,539 |  |  |  | — |
Obligations of states and political subdivisions |  |  | 4,721 |  |  |  | — |  |  |  | 4,721 |  |  |  | — |
Subordinated debt |  |  | 3,939 |  |  |  | — |  |  |  | 3,939 |  |  |  | — |
Derivative: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 1,207 |  |  |  | — |  |  |  | 1,207 |  |  |  | — |
Total assets at fair value |  | $ | 131,258 |  |  | $ | — |  |  | $ | 131,258 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 1,207 |  |  | $ | — |  |  | $ | 1,207 |  |  | $ | — |
Fair value swap |  |  | 272 |  |  |  | — |  |  |  | 272 |  |  |  | — |
Total liabilities at fair value |  | $ | 1,479 |  |  | $ | — |  |  | $ | 1,479 |  |  | $ | — |
|  |  |  |  | Fair Value Measurements at |
|  |  |  |  | December 31, 2023 |
|  |  |  |  | Using |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | December 31, 2023 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government corporations and agencies |  | $ | 8,591 |  |  | $ | — |  |  | $ | 8,591 |  |  | $ | — |
Mortgage-backed securities |  |  | 118,822 |  |  |  | — |  |  |  | 118,822 |  |  |  | — |
Obligations of states and political subdivisions |  |  | 5,931 |  |  |  | — |  |  |  | 5,931 |  |  |  | — |
Subordinated debt |  |  | 4,099 |  |  |  | — |  |  |  | 4,099 |  |  |  | — |
Derivative: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | — |
Total assets at fair value |  | $ | 138,908 |  |  | $ | — |  |  | $ | 138,908 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | — |
Total liabilities at fair value |  | $ | 1,465 |  |  | $ | — |  |  | $ | 1,465 |  |  | $ | — |
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. 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. The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements: Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four 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). The Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during nine months ended September 30, 2024 and the year ended December 31, 2023. Individually Evaluated Collateral-Dependent Loans: The estimated fair value of individually evaluated collateral-dependent loans is based on the value of the underlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, equipment, inventory, accounts receivable, and/or other business assets. The value of real estate collateral is determined using a market valuation approach based on an appraisal conducted by an independent, licensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the Consolidated Statements of Income. At September 30, 2024 there was one collateral-dependent relationship totaling $891 thousand, which was individually evaluated and being carried at fair value of $623 thousand. This relationship consists of three commercial business loans collateralized by equipment. There were no individually evaluated collateral dependent loans recorded at fair value at December 31, 2023. Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as collateral-dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held no other real estate owned at September 30, 2024 or December 31, 2023. Repossessed Assets: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the asset, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant improvements are capitalized, whereas costs relating to holding assets are expensed. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of an asset to fair value less cost to sell. The fair value measurement of repossessed assets is assessed in the same manner as collateral dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held $99 thousand and $304 thousand at September 30, 2024 and December 31, 2023. Repossessed assets are included in other assets in the Consolidated Balance Sheets. The following table summarizes the Company's nonfinancial assets that were measured at fair value on a nonrecurring basis at September 30, 2024 and December 31, 2023.
|  |  |  |  | Carrying value at |
|  |  |  |  | September 30, 2024 |
|  | Balance as of |  |  | Identical Assets |  |  | Observable Inputs |  |  | Unobservable Inputs |
|  | September 30, 2024 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |
Collateral-dependent loans |  | $ | 623 |  |  | $ | — |  |  | $ | — |  |  | $ | 623 |
Nonfinancial Assets: |  |  |  |  |  |  |  |  |  |  |  |
Repossessed assets |  |  | 99 |  |  |  | — |  |  |  | — |  |  |  | 99 |
|  |  |  |  | Carrying value at |
|  |  |  |  | December 31, 2023 |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | December 31, 2023 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Nonfinancial Assets: |  |  |  |  |  |  |  |  |  |  |  |
Repossessed assets |  | $ | 304 |  |  | $ | — |  |  | $ | — |  |  | $ | 304 |
The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis for September 30, 2024 and December 31, 2023.
|  | Quantitative information about Level 3 Fair Value Measurements
|  | September 30, 2024
|  | Valuation Technique(s) |  | Unobservable Input |  | Range |  | Weighted Average (1)
Assets: |  |  |  |  |  |  |  |
Collateral-dependent loans |  | Discounted value |  | Selling cost and appraisal discount |  | 16 % |  | 16 %
Repossessed assets |  | Discounted appraised value |  | Selling cost |  | 10 % |  | 10 %
|  | Quantitative information about Level 3 Fair Value Measurements
|  | December 31, 2023
|  | Valuation Technique(s) |  | Unobservable Input |  | Range |  | Weighted Average (1)
Assets: |  |  |  |  |  |  |  |
Repossessed assets |  | Discounted appraised value |  | Selling cost |  | 10 % |  | 10 %
(1) Weighted based on the relative fair value of the specific items measured at fair value. The carrying value and fair value of the Company’s financial instruments at September 30, 2024 and December 31, 2023 were as follows:
|  | Fair Value Measurements at |
|  | September 30, 2024 |
|  | Using |
|  | Carrying Value as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  | Fair Value as of |
|  | September 30, 2024 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | September 30, 2024 |
|  | (in thousands) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and short-term investments |  | $ | 181,191 |  |  | $ | 181,191 |  |  | $ | — |  |  | $ | — |  |  | $ | 181,191 |
Securities |  |  | 130,051 |  |  |  | — |  |  |  | 130,051 |  |  |  | — |  |  |  | 130,051 |
Restricted investments |  |  | 9,967 |  |  |  | — |  |  |  | 9,967 |  |  |  | — |  |  |  | 9,967 |
Loans held for sale |  |  | 3,657 |  |  |  |  |  |  | 3,657 |  |  |  | — |  |  |  | 3,657 |
Loans, net |  |  | 1,468,025 |  |  |  | — |  |  |  | — |  |  |  | 1,381,764 |  |  |  | 1,381,764 |
Bank owned life insurance |  |  | 30,361 |  |  |  | — |  |  |  | 30,361 |  |  |  | — |  |  |  | 30,361 |
Accrued interest receivable |  |  | 5,331 |  |  |  | — |  |  |  | 5,331 |  |  |  | — |  |  |  | 5,331 |
Derivative assets |  |  | 1,207 |  |  |  | — |  |  |  | 1,207 |  |  |  | — |  |  |  | 1,207 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,545,936 |  |  | $ | — |  |  | $ | 1,545,719 |  |  | $ | — |  |  | $ | 1,545,719 |
Federal funds purchased |  |  | 244 |  |  |  | 244 |  |  |  | — |  |  |  | — |  |  |  | 244 |
Federal Home Loan Bank advances, long-term |  |  | 170,000 |  |  |  | — |  |  |  | 169,558 |  |  |  | — |  |  |  | 169,558 |
Subordinated debt, net of unamortized issuance costs |  |  | 29,495 |  |  |  | — |  |  |  | 25,150 |  |  |  | — |  |  |  | 25,150 |
Accrued interest payable |  |  | 2,217 |  |  |  | — |  |  |  | 2,217 |  |  |  | — |  |  |  | 2,217 |
Derivative liabilities |  |  | 1,479 |  |  |  | — |  |  |  | 1,479 |  |  |  | — |  |  |  | 1,479 |
|  | Fair Value Measurements at |
|  | December 31, 2023 |
|  | Using |
|  | Carrying Value as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  | Fair Value as of |
|  | December 31, 2023 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | December 31, 2023 |
|  | (in thousands) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and short-term investments |  | $ | 138,353 |  |  | $ | 138,353 |  |  | $ | — |  |  | $ | — |  |  | $ | 138,353 |
Securities |  |  | 137,443 |  |  |  | — |  |  |  | 137,443 |  |  |  | — |  |  |  | 137,443 |
Restricted Investments |  |  | 9,568 |  |  |  | — |  |  |  | 9,568 |  |  |  | — |  |  |  | 9,568 |
Loans held for sale |  |  | 1,661 |  |  |  |  |  |  | 1,661 |  |  |  | — |  |  |  | 1,661 |
Loans, net |  |  | 1,448,193 |  |  |  | — |  |  |  | — |  |  |  | 1,377,017 |  |  |  | 1,377,017 |
Bank owned life insurance |  |  | 29,575 |  |  |  | — |  |  |  | 29,575 |  |  |  | — |  |  |  | 29,575 |
Accrued interest receivable |  |  | 5,008 |  |  |  | — |  |  |  | 5,008 |  |  |  | — |  |  |  | 5,008 |
Interest rate swap |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,506,322 |  |  | $ | — |  |  | $ | 1,506,147 |  |  | $ | — |  |  | $ | 1,506,147 |
Federal Home Loan Bank advances, short-term |  |  | 20,000 |  |  |  | — |  |  |  | 19,954 |  |  |  | — |  |  |  | 19,954 |
Federal Home Loan Bank advances, long-term |  |  | 145,000 |  |  |  | — |  |  |  | 145,141 |  |  |  | — |  |  |  | 145,141 |
Subordinated debt, net of unamortized issuance costs |  |  | 29,444 |  |  |  | — |  |  |  | 25,581 |  |  |  | — |  |  |  | 25,581 |
Accrued interest payable |  |  | 2,364 |  |  |  | — |  |  |  | 2,364 |  |  |  | — |  |  |  | 2,364 |
Interest rate swap |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |

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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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