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Fair value of financial instruments

12 Months Ended

Dec. 31, 2023

Fair value of financial instruments

Fair value of financial instruments

12. Fair value of financial instruments:

The following methods and assumptions were used by the Company to construct the summary table below containing the fair values and related carrying amounts of financial instruments measured at fair value:

Investment securities: The fair values of marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model and quoted market prices.

Individually evaluated loans: Fair values for individually evaluated loans are estimated using discounted cash flow analysis determined by the loan review function or underlying collateral values, where applicable.

Interest rate swaps and floors: Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for swaps, market index rates, forward rates and rate volatility. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

Assets and liabilities measured at fair value on a recurring basis at December 31, 2023 and 2022 are summarized as follows:


		Fair Value Measurement Using
					Quoted Prices in			Significant			Significant
					Active Markets for			Other Observable			Unobservable
(Dollars in thousands)					Identical Assets			Inputs			Inputs
December 31, 2023		Amount			(Level 1)			(Level 2)			(Level 3)
U.S. Treasury securities		$	184,057		$	184,057		$			$
U.S. government-sponsored enterprises			2,152						2,152
State and municipals:
Taxable			57,100						57,100
Tax-exempt			67,124						67,124
Mortgage-backed securities:
U.S. government agencies			724						724
U.S. government-sponsored enterprises			84,040						84,040
Corporate debt securities			3,730						3,730
Common equity securities			98			98
Total investment securities		$	399,025		$	184,155		$	214,870		$
Interest rate floor-other assets		$						$
Interest rate swap-other assets		$	19,278					$	19,278
Interest rate swap-other liabilities		$	(18,808)					$	(18,808)


		Fair Value Measurement Using
					Quoted Prices in			Significant			Significant
					Active Markets for			Other Observable			Unobservable
(Dollars in thousands)					Identical Assets			Inputs			Inputs
December 31, 2022		Amount			(Level 1)			(Level 2)			(Level 3)
U.S. Treasury securities		$	180,297		$	180,297		$			$
U.S. government-sponsored enterprises			16,370						16,370
State and municipals:
Taxable			55,358						55,358
Tax-exempt			88,407						88,407
Mortgage-backed securities:
U.S. government agencies			942						942
U.S. government-sponsored enterprises			132,703						132,703
Corporate debt securities			3,626						3,626
Common equity securities			110			110
Total investment securities		$	477,813		$	180,407		$	297,406		$
Interest rate floor-other assets		$	1					$	1
Interest rate swap-other assets		$	21,794					$	21,794
Interest rate swap-other liabilities		$	(21,466)					$	(21,466)

Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2023 and 2022 are summarized as follows:

Fair Value Measurement Using

Quoted Prices in

Significant

Significant

Active Markets for

Other Observable

Unobservable

(Dollars in thousands)

Identical Assets

Inputs

Inputs

December 31, 2023

Amount

(Level 1)

(Level 2)

(Level 3)

Loans individually evaluated for credit loss

$

4,740

$

$

$

4,740

Fair Value Measurement Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

(Dollars in thousands)

Identical Assets

Inputs

Inputs

December 31, 2022

Amount

(Level 1)

(Level 2)

(Level 3)

Impaired loans

$

220

$

$

$

220

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring 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, except percents)		Fair Value							Range
December 31, 2023		Estimate			Valuation Techniques		Unobservable Input		(Weighted Average)
Loans individually evaluated for credit loss		$	4,740		Appraisal of collateral		Appraisal adjustments		22.8% to 82.4% (63.6)%
							Liquidation expenses		3.0% to 6.0% (5.2)%


		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)		Fair Value							Range
December 31, 2022		Estimate			Valuation Techniques		Unobservable Input		(Weighted Average)
Impaired loans		$	220		Appraisal of collateral		Appraisal adjustments		21.6% to 97.0% (77.7)%
							Liquidation expenses		3.0% to 6.0% (4.9)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

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.

The carrying and fair values of the Company’s financial instruments at December 31, 2023 and 2022 and their placement within the fair value hierarchy are as follows:


								Fair Value Hierarchy
								Quoted
								Prices in
								Active			Significant
								Markets for			Other			Significant
								Identical			Observable			Unobservable
(Dollars in thousands)		Carrying			Fair			Assets			Inputs			Inputs
December 31, 2023		Value			Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Cash and due from banks		$	187,365		$	187,365		$	187,365		$			$
Investment securities:
Available-for-sale			398,927			398,927			184,057			214,870
Common equity securities			98			98			98
Held-to-maturity			84,851			71,698						71,698
Net loans			2,828,002			2,593,151									2,593,151
Accrued interest receivable			12,734			12,734						12,734
Mortgage servicing rights			870			1,745						1,745
Restricted equity securities (FHLB and other)			5,180			5,180						5,180
Interest rate floor
Interest rate swaps			19,278			19,278						19,278
Total		$	3,537,555		$	3,290,426
Financial liabilities:
Deposits		$	3,279,037		$	3,274,774		$			$	3,274,774		$
Short-term borrowings			17,590			17,590						17,590
Long-term debt			25,000			24,924						24,924
Subordinated debt			33,000			45,504						45,504
Accrued interest payable			5,765			5,765						5,765
Interest rate swaps			18,808			18,808						18,808
Total		$	3,379,200		$	3,387,365


								Fair Value Hierarchy
								Quoted
								Prices in
								Active			Significant
								Markets for			Other			Significant
								Identical			Observable			Unobservable
(Dollars in thousands)		Carrying			Fair			Assets			Inputs			Inputs
December 31, 2022		Value			Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Cash and due from banks		$	37,868		$	37,868		$	37,868		$			$
Investment securities:
Available-for-sale			477,703			477,703			180,297			294,706
Common equity securities			110			110			110
Held-to-maturity			91,179			76,563						76,563
Net loans			2,702,644			2,562,780									2,562,780
Accrued interest receivable			11,715			11,715						11,715
Mortgage servicing rights			914			1,762						1,762
Restricted equity securities (FHLB and other)			9,630			9,630						9,630
Interest rate floor			1			1						1
Interest rate swaps			21,794			21,794						21,794
Total		$	3,353,558		$	3,199,926
Financial liabilities:
Deposits		$	3,046,598		$	3,035,615		$			$	3,035,615		$
Short-term borrowings			114,930			114,743						114,743
Long-term debt			555			555						555
Subordinated debt			33,000			53,998						53,998
Accrued interest payable			903			903						903
Interest rate swaps			21,466			21,466						21,466
Total		$	3,217,452		$	3,227,280

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.

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