Note 13 - Fair Value of Financial Instruments -

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 13 – Fair Value of Financial Instruments –

Fair Value Disclosures

The Company groups its financial assets and liabilities measured at fair value in three levels.  Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value.  The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs.  The three levels of inputs used to measure fair value are as follows:

● Level 1 – Includes the most reliable sources and includes quoted prices in active markets for identical assets or liabilities.

● Level 2 – Includes observable inputs.  Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

● Level 3 – Includes unobservable inputs and should be used only when observable inputs are unavailable.

Recurring Basis

Fair values of investment securities available for sale were primarily measured using information from a third-party pricing service.  This pricing service provides information by utilizing evaluated pricing models supported with market data information.  Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.

The fair values of loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics.

The following tables present the balance of assets and liabilities measured on a recurring basis as of June 30, 2023, and December 31, 2022.  The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.  The Company transferred $23.4 million of securities from Level 3 to Level 2 fair value measurement designation for the quarter ended June 30, 2023.  Prior to 2023, the securities were not valued using observable market data.

	Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
June 30, 2023
Available for Sale:
U.S. Treasury Securities	$	30,223	$	-	$	30,223	$	-
U.S. Government Agency Securities		47,432		-		47,432		-
Corporate Securities		42,824		-		42,824		-
Mortgage-Backed Securities		444,036		-		444,036		-
Municipal Securities		313,259		-		313,259		-
Loans Held for Sale		435		-		435		-
Total	$	878,209	$	-	$	878,209	$	-
December 31, 2022
Available for Sale:
U.S. Treasury Securities	$	30,115	$	-	$	30,115	$	-
U.S. Government Agency Securities		47,372		-		47,372		-
Corporate Securities		46,004		-		27,004		19,000
Mortgage-Backed Securities		451,725		-		451,725		-
Municipal Securities		315,535		-		280,767		34,768
Loans Held for Sale		304		-		304		-
Total	$	891,055	$	-	$	837,287	$	53,768

Nonrecurring Basis

The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.  The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis.

The fair value of the impaired loans is measured at the fair value of the collateral for collateral-dependent loans.  Impaired loans are Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs.  Adjustments may be made by management based on a customized internally developed discounting matrix.  Repossessed assets are initially recorded at fair value less estimated cost to sell, which is generally 10%.  The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available.  As such, the Bank records repossessed assets as Level 3.

	Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
June 30, 2023
Assets:
Impaired Loans	$	7,733	$	-	$	-	$	7,733
Servicing Rights		2,303		-		2,303		-
Other Nonperforming Assets		1,616		-		-		1,616
Total	$	11,652	$	-	$	2,303	$	9,349
December 31, 2022
Assets:
Impaired Loans	$	16,816	$	-	$	-	$	16,816
Servicing Rights		2,327		-		2,327		-
Other Nonperforming Assets		1,434		-		-		1,434
Total	$	20,577	$	-	$	2,327	$	18,250

Fair Value Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation.  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.  In accordance with GAAP, certain financial instruments and all non-financial instruments are excluded from these disclosure requirements.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Short-Term Investments – For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – Fair value of securities is based on quoted market prices.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans – The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates.  Loans with similar classifications are aggregated for purposes of the calculations.  The allowance for credit losses, which was used to measure the credit risk, is subtracted from loans.

Cash Value of Bank-Owned Life Insurance (“BOLI”) – The carrying amount approximates its fair value.

Other Equity Securities – The carrying amount approximates its fair value.

Deposits – The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.

Borrowings – The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities.  The carrying amount of short-term borrowings maturing within ninety days approximates the fair value.

Commitments to Extend Credit and Standby and Commercial Letters of Credit – The fair values of commitments to extend credit and standby and commercial letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure.

The estimated approximate fair values of the Bank’s financial instruments as of June 30, 2023, and December 31, 2022 are as follows:

	Carrying		Total
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
June 30, 2023
Financial Assets:
Cash and Short-Term Investments	$	354,822	$	354,822	$	354,822	$	-	$	-
Securities		877,774		877,774		-		877,774		-
Loans Held for Sale		435		435		-		435		-
Loans - Net		4,856,724		4,725,441		-		-		4,725,441
Servicing Rights		1,437		2,303		-		2,303		-
Cash Value of BOLI		95,302		95,302		-		95,302		-
Other Equity Securities		34,824		34,824		-		-		34,824
Total	$	6,221,318	$	6,090,901	$	354,822	$	975,814	$	4,760,265
Financial Liabilities:
Deposits	$	5,014,443	$	5,005,851	$	-	$	-	$	5,005,851
Borrowings		794,223		764,387		-		764,387		-
Total	$	5,808,666	$	5,770,238	$	-	$	764,387	$	5,005,851

	Carrying		Total
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
December 31, 2022
Financial Assets:
Cash and Short-Term Investments	$	168,346	$	168,346	$	168,346	$	-	$	-
Securities		890,751		890,751		-		836,983		53,768
Loans Held for Sale		304		304		-		304		-
Loans - Net		4,567,998		4,443,577		-		-		4,443,577
Servicing Rights		1,712		2,327		-		2,327		-
Cash Value of BOLI		91,958		91,958		-		91,958		-
Other Equity Securities		37,467		37,467		-		-		37,467
Total	$	5,758,536	$	5,634,730	$	168,346	$	931,572	$	4,534,812
Financial Liabilities:
Deposits	$	4,820,345	$	4,810,263	$	-	$	-	$	4,810,263
Borrowings		560,123		544,564		-		544,564		-
Total	$	5,380,468	$	5,354,827	$	-	$	544,564	$	4,810,263