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DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2023

DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS

DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS

13. DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS

The following disclosures establish a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The three broad levels defined within 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 the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes 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.

Assets and Liabilities Measured and Recorded on a Recurring Basis

Equity securities are reported at fair value utilizing Level 1 inputs. These securities are mutual funds held within a rabbi trust for the Company’s executive deferred compensation plan. The mutual funds held are open-end funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price.

Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider

observable data that may include dealer quoted 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. It should be noted that available for sale securities are reported at fair value, net of any related allowance for credit losses.

The fair values of the simultaneous interest rate swaps and the interest rate hedge used for interest rate risk management and the risk participation agreements associated with certain commercial real estate loans are based on an external derivative valuation model using data inputs from similar transactions as of the valuation date and classified Level 2.

The following table presents the assets and liabilities measured and reported on the Consolidated Balance Sheets on a recurring basis at their fair value as of December 31, 2023 and 2022 by level within the fair value hierarchy (in thousands).

FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2023

TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)

Equity securities ⁽¹⁾

499

—

Available for sale securities:

U.S. Agency

5,339

—

5,339

—

U.S. Agency mortgage-backed securities

93,075

—

93,075

—

Municipal

10,360

—

10,360

—

Corporate bonds

56,937

—

56,937

—

Interest rate swap asset ⁽¹⁾

4,582

—

4,582

—

Interest rate hedge ⁽²⁾

(446)

—

(446)

—

Interest rate swap liability ⁽²⁾

(4,665)

—

(4,665)

—

Risk participation agreement ⁽²⁾

(410)

—

(410)

—


	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2022
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Equity securities ⁽¹⁾	$	502	$	502	$	—	$	—
Available for sale securities:
U.S. Agency		10,533		—		10,533		—
U.S. Agency mortgage-backed securities		89,985		—		89,985		—
Municipal		19,038		—		19,038		—
Corporate bonds		59,952		—		59,952		—
Interest rate swap asset ⁽¹⁾		6,992		—		6,992		—
Interest rate swap liability ⁽²⁾		(6,872)		—		(6,872)		—
Risk participation agreement ⁽²⁾		—		—		—		—

(1)	Included within other assets on the Consolidated Balance Sheets.

(2)	Included within other liabilities on the Consolidated Balance Sheets.

Assets Measured and Recorded on a Non-Recurring Basis

The Company evaluates individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. Individually evaluated loans are reported at the fair value of the underlying collateral if the repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data which at times are discounted using unobservable inputs. At December 31, 2023, the Company had no individually evaluated loans using the collateral method which were carried at fair value. At December 31, 2022, individually evaluated loans using the collateral method with a carrying value of $1.6 million were reduced by a specific valuation allowance totaling $3,000 resulting in a net fair value of $1.6 million.

Other real estate owned is measured at fair value based on appraisals, less estimated costs to sell at the date of foreclosure. The Bank’s internal Collections and Assigned Risk Department estimates the fair value of repossessed

assets, such as vehicles and equipment, using a formula driven analysis based on automobile or other industry data, less estimated costs to sell at the time of repossession. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less costs to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO and repossessed assets.

Assets measured and recorded at fair value on a non-recurring basis are summarized below (in thousands, except range data):


	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2023
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Other real estate owned and repossessed assets		15		—		—		15


	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2022
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Impaired loans	$	1,583	$	—	$	—	$	1,583
Other real estate owned and repossessed assets		39		—		—		39


	Quantitative Information About Level 3 Fair Value Measurements
			Valuation	Unobservable
DECEMBER 31, 2023	Fair Value		Techniques	Input	Range (Wgtd Avg)
Other real estate owned and repossessed assets		15	Appraisal of	Appraisal	63% (63%)
			collateral ⁽¹⁾	adjustments ⁽²⁾
				Liquidation	33% (33%)
				expenses


	Quantitative Information About Level 3 Fair Value Measurements
			Valuation	Unobservable
DECEMBER 31, 2022	Fair Value		Techniques	Input	Range (Wgtd Avg)
Impaired loans	$	1,583	Appraisal of	Appraisal	0% to 100% (0.2%)
			collateral ⁽¹⁾	adjustments ⁽²⁾
Other real estate owned and repossessed assets		39	Appraisal of	Appraisal	52% (52%)
			collateral ⁽¹⁾	adjustments ⁽²⁾
				Liquidation	10% to 39% (11%)
				expenses

(1)	Fair Value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable. Also includes qualitative adjustments by management and estimated liquidation expenses.

(2)	Appraisals may be adjusted by management for qualitative factors such as economic conditions.