XML 27 R17.htm IDEA: XBRL DOCUMENT v3.24.3
Fair Value of Assets and Liabilities
9 Months Ended
Sep. 30, 2024
Fair Value of Assets and Liabilities [Abstract]  
Fair Value of Assets and Liabilities 9.          Fair Value of Assets and Liabilities

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Financial Statements. Those assets and liabilities are presented in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis”. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as 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.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 16 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2024 and December 31, 2023 are as follows:

Fair Value Measurement Using

Reporting Date

Description

Total

Level 1

Level 2

Level 3

September 30, 2024

(In thousands)

ASSETS

Available for Sale:

U.S. Treasury securities

$

33,730

$

-

$

33,730

$

-

U.S. Government agencies

25,707

-

25,707

-

States and political subdivisions

130,701

-

130,701

-

Mortgage-backed securities-government

sponsored entities

206,753

-

206,753

-

Interest rate derivatives

966

-

966

-

LIABILITIES

Interest rate derivatives

966

-

966

-

Description

Total

Level 1

Level 2

Level 3

December 31, 2023

(In thousands)

ASSETS

Available for Sale:

U.S. Treasury securities

$

53,600

$

-

$

53,600

$

-

U.S. Government agencies

15,996

-

15,996

-

States and political subdivisions

129,479

-

129,479

-

Mortgage-backed securities-government

sponsored entities

207,184

-

207,184

-

Interest rate derivatives

1,225

-

1,225

-

LIABILITIES

Interest rate derivatives

1,225

-

1,225

-

Securities:

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

Interest Rate Swaps:

The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the Secured Overnight Financing Rate (“SOFR”) swap curve, the basis for the underlying interest rate. To price interest rate swaps, cash flows are first projected for each payment date using the fixed rate for the fixed side of the swap and the forward rates for the floating side of the swap. These swap cash flows are then discounted to time zero using SOFR zero-coupon interest rates. The sum of the present value of both legs is the fair market value of the interest rate swap. These valuations have been derived from our third party vendor’s proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions that we believe to be reasonable.

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2024 and December 31, 2023 are as follows:

Fair Value Measurement Using Reporting Date

(In thousands)

Description

Total

Level 1

Level 2

Level 3

September 30, 2024

Individually analyzed loans held for investment

$

7,649

$

-

$

-

$

7,649

Foreclosed Real Estate Owned

-

-

-

-

December 31, 2023

Individually analyzed loans held for investment

$

7,487

$

-

$

-

$

7,487

Foreclosed Real Estate Owned

97

-

-

97

Individually analyzed loans held for investment:

The Company measures impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements.

As of September 30, 2024, the fair value investment in individually analyzed loans totaled $7,649,000, which included 40 loan relationships with a carrying value of $7,192,000 that did not require a specific allowance for credit loss since either the estimated realizable value of the collateral or the discounted cash flows exceeded the recorded investment in the loan. As of September 30, 2024, the Company has recognized charge-offs against the allowance for credit losses on these individually analyzed loans in the amount of $456,000. As of September 30, 2024, the fair value investment in individually analyzed loans included 30 loan relationships with a carrying value of $696,000 that required a valuation allowance of $239,000 since the estimated realizable value of the collateral did not support the recorded investment in the loan. As of September 30, 2024, the Company has recognized charge-offs against the allowance for credit losses on these individually analyzed loans in the amount of $0 over the life of the loan.

As of December 31, 2023, the fair value investment in individually analyzed loans totaled $7,487,000, which included 33 loan relationships with a carrying value of $7,069,000 that did not require a specific allowance for credit loss since either the estimated realizable value of the collateral or the discounted cash flows exceeded the recorded investment in the loan. As of December 31, 2023, the Company has recognized charge-offs against the allowance for credit losses on these individually analyzed loans in the amount of $5,277,000 over the life of the loans. As of December 31, 2023, the fair value investment in individually analyzed loans included 21 loan relationships with a carrying value of $553,000 that required a valuation allowance of $135,000 since the estimated realizable value of the collateral did not support the recorded investment in the loan. As of December 31, 2023, the Company has recognized charge-offs against the allowance for credit losses on these individually analyzed loans in the amount of $0 over the life of the loan.

Foreclosed real estate owned:

Real estate properties acquired through loan foreclosures, or by deed in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements

(dollars in thousands)

Fair Value Estimate

Valuation Techniques

Unobservable Input

Range (Weighted Average)

September 30, 2024

Individually analyzed loans held for investment

$

7,649

Appraisal of collateral(1)

Appraisal adjustments(2)

2.38%-20.0% (9.87%)

Foreclosed real estate owned

$

-

Appraisal of collateral(1)

Liquidation Expenses(2)

0.0%-0.0% (0.0%)

Quantitative Information about Level 3 Fair Value Measurements

(dollars in thousands)

Fair Value Estimate

Valuation Techniques

Unobservable Input

Range (Weighted Average)

December 31, 2023

Individually analyzed loans held for investment

$

7,487

Appraisal of collateral(1)

Appraisal adjustments(2)

0%-10.0% (2.68%)

Foreclosed real estate owned

$

97

Appraisal of collateral(1)

Liquidation Expenses(2)

16.67%-37.20% (28.07%)

(1)Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable, less any associated allowance.

(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

Assets and Liabilities Not Required to be Measured or Reported at Fair Value

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2024 and December 31, 2023.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Mortgage servicing rights (generally carried at cost)

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights. Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.

Deposit liabilities (carried at cost):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Other borrowings (carried at cost):

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a fair value that is deemed to represent the transfer price if the liability were assumed by a third party.

The estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as follows at September 30, 2024 and December 31, 2023. (In thousands)

Fair Value Measurements at September 30, 2024

Carrying Amount

Fair Value

Level 1

Level 2

Level 3

Financial assets:

Cash and cash equivalents (1)

$

82,880

$

82,880

$

82,880

$

-

$

-

Loans receivable, net

1,656,440

1,627,200

-

-

1,627,200

Mortgage servicing rights

193

529

-

-

529

Regulatory stock (1)

6,329

6,329

6,329

-

-

Bank owned life insurance (1)

46,382

46,382

46,382

-

-

Accrued interest receivable (1)

8,062

8,062

8,062

-

-

Financial liabilities:

Deposits

1,855,251

1,799,780

1,059,146

-

740,634

Short-term borrowings (1)

52,453

52,453

52,453

-

-

Other borrowings

144,959

145,465

-

-

145,465

Accrued interest payable (1)

12,688

12,688

12,688

-

-

Off-balance sheet financial instruments:

Commitments to extend credit and
outstanding letters of credit

-

-

-

-

-

Fair Value Measurements at December 31, 2023

Carrying Amount

Fair Value

Level 1

Level 2

Level 3

Financial assets:

Cash and cash equivalents (1)

$

66,120

$

66,120

$

66,120

$

-

$

-

Loans receivable, net

1,584,650

1,521,667

-

-

1,521,667

Mortgage servicing rights

188

506

-

-

506

Regulatory stock (1)

7,318

7,318

7,318

-

-

Bank owned life insurance (1)

46,439

46,439

46,439

-

-

Accrued interest receivable (1)

8,123

8,123

8,123

-

-

Financial liabilities:

Deposits

1,795,159

1,800,104

1,086,050

-

714,054

Short-term borrowings (1)

74,076

74,076

74,076

-

-

Other borrowings

124,236

124,058

-

-

124,058

Accrued interest payable (1)

10,510

10,510

10,510

-

-

Off-balance sheet financial instruments:

Commitments to extend credit and
outstanding letters of credit

-

-

-

-

-

(1)This financial instrument is carried at cost, which approximates the fair value of the instrument.