Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 10. Fair Value Measurements

Determination of Fair Value

The Company follows ASC 820, “Fair Value Measurements and Disclosures,” to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This codification clarifies that the fair value of a financial instrument is the price that would be received to sell 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 at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market

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 consolidated financial statements:

Securities available for sale

Securities AFS 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. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

The following tables present the balances measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 (dollars in thousands):

			Fair Value Measurements at June 30, 2024 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government treasuries	$	11,433	$	-	$	11,433	$	-
U.S. Government agencies		26,537		-		26,537		-
Mortgage-backed/CMOs		146,085		-		146,085		-
Corporate bonds		18,244		-		18,244		-
Municipal bonds		82,399		-		82,399		-
Total securities available for sale	$	284,698	$	-	$	284,698	$	-

			Fair Value Measurements at December 31, 2023 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government treasuries	$	121,708	$	-	$	121,708	$	-
U.S. Government agencies		39,581		-		39,581		-
Mortgage-backed/CMOs		155,144		-		155,144		-
Corporate bonds		19,129		-		19,129
Municipal bonds		85,033		-		85,033		-
Total securities available for sale	$	420,595	$	-	$	420,595	$	-

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 assets recorded at fair value on a nonrecurring basis in the consolidated financial statements:

Collateral Dependent Loans with an ACL

In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the ACL are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.

There were no assets that were measured at fair value on a nonrecurring basis as of June 30, 2024. The following table presents the Company's assets that were measured at fair value on a nonrecurring basis as of December 31, 2023:

			Fair Value Measurements at December 31, 2023 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
Assets:
Individually evaluated loans	$	461	$	-	$	-	$	461
Description	Fair Value		Valuation Technique		Unobservable Inputs		Discount Rate
Assets:
Individually evaluated loans	$	461	Market comparables		Discount applied to recent appraisal			20.0	%

ASC 825, “Financial Instruments,” requires disclosures about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis. The carrying values and estimated fair values of the Company's financial instruments as of June 30, 2024 and December 31, 2023 are as follows (dollars in thousands):

			Fair Value Measurements at June 30, 2024 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying value		Level 1		Level 2		Level 3		Fair Value
Assets
Cash and cash equivalent	$	17,300	$	17,300	$	-	$	-	$	17,300
Available for sale securities		284,698		-		284,698		-		284,698
Restricted securities		6,667		-		6,667		-		6,667
Loans, net		1,150,186		-		-		1,084,432		1,084,432
Bank owned life insurance		39,468		-		39,468		-		39,468
Accrued interest receivable		6,579		-		1,716		4,863		6,579
Liabilities
Demand deposits and interest-bearing transaction and money market accounts	$	1,038,351	$	-	$	1,038,351	$	-	$	1,038,351
Certificates of deposit		335,490		-		335,282		-		335,282
Federal funds purchased		2,438				2,438				2,438
Borrowings		30,000		-		30,072		-		30,072
Junior subordinated debt, net		3,483		-		3,483		-		3,483
Accrued interest payable		2,122		-		2,122		-		2,122

			Fair Value Measurements at December 31, 2023 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying value		Level 1		Level 2		Level 3		Fair Value
Assets
Cash and cash equivalent	$	28,390	$	28,390	$	-	$	-	$	28,390
Available for sale securities		420,595		-		420,595		-		420,595
Restricted securities		8,385		-		8,385		-		8,385
Loans, net		1,084,270		-		-		1,029,359		1,029,359
Bank owned life insurance		38,904		-		38,904		-		38,904
Accrued interest receivable		6,179		-		1,916		4,263		6,179
Liabilities
Demand deposits and interest-bearing transaction and money market accounts	$	1,090,517	$	-	$	1,090,517	$	-	$	1,090,517
Certificates of deposit		318,581		-		318,768		-		318,768
Federal funds purchased		3,462		3,462						3,462
Borrowings		66,500				66,360				66,360
Junior subordinated debt, net		3,459		-		3,459		-		3,459
Accrued interest payable		2,143		-		2,143		-		2,143

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. Consequently, the fair values of the Company’s financial instruments will fluctuate when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk; however, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.