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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2023

Fair value is the exchange price that would be received to sell the asset or transfer the 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.

Fair value measurement establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Quoted prices for similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following tables present assets measured at fair value and the basis of measurement used at December 31:


		2023
(In thousands)	Basis	Level 1		Level 2		Level 3		Total
Equity securities with readily determinable fair values	Recurring	$	928	$	—	$	—	$	928
AFS Investment Securities:
U.S. Government and agencies		—		156,795		—		156,795
Mortgage-backed securities		—		265,204		—		265,204

Corporate bonds		—		29,694		—		29,694
Total AFS Investment Securities	Recurring	—		451,693		—		451,693
Loans held for sale	Recurring	—		280		—		280
Individually evaluated loans	Non-recurring	—		—		242		242
Foreclosed assets held for resale	Non-recurring	—		—		467		467


		2022
(In thousands)	Basis	Level 1		Level 2		Level 3		Total
Equity securities with readily determinable fair values	Recurring	$	1,719	$	—	$	—	$	1,719
AFS Investment Securities:
U.S. Government and agencies		—		210,999		—		210,999
Mortgage-backed securities		—		295,718		—		295,718
State and municipal		—		15,235		—		15,235
Corporate bonds		—		31,602		—		31,602
Total AFS Investment Securities	Recurring	—		553,554		—		553,554
Loans held for sale	Recurring	—		123		—		123
Individually evaluated loans	Non-recurring	—		—		3,773		3,773
Foreclosed assets held for resale	Non-recurring	—		—		474		474

The valuation techniques used to measure fair value for the items in the preceding tables are as follows:

Equity securities - The fair value of equity securities with readily determinable fair values is recorded on the Consolidated Balance Sheet, with realized and unrealized gains and losses reported in other expense on the Consolidated Statements of Income.

Available for sale investment securities – Included in this asset category are debt securities. Level 2 investment securities are valued by a third-party pricing service. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing. Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security types, additional inputs may be used, or some of the standard market inputs may not be applicable.

• U.S. Government and agencies – These debt securities are classified as Level 2. Fair values are determined by a third-party pricing service, as detailed above.

• Mortgage-backed/State and municipal securities – These debt securities are classified as Level 2. Fair values are determined by a third-party pricing service, as detailed above.

• Corporate bonds – This category consists of subordinated and senior debt issued by financial institutions and are classified as Level 2 investments. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above.

Loans held for sale – This category includes mortgage loans held for sale that are measured at fair value. Fair values as of December 31, 2023 and 2022, were measured as the price that secondary market investors were offering for loans with similar characteristics. See “Note 1 - Summary of Significant Accounting Policies” for details related to the Corporation’s election to measure assets and liabilities at fair value.

Individually evaluated loans – This category consists of loans that were individually evaluated for impairment and have a specific reserve. They are classified as Level 3 assets.

Foreclosed assets held for resale – This category consists of foreclosed assets that are held for resale and classified as Level 3 assets, for which the fair values were based on estimated selling prices less estimated selling costs for similar assets in active markets.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value as of December 31:


(Dollars in thousands)	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
2023
Individually evaluated loans	$	242	Appraisal of collateral (1)	Appraisal adjustments (2)	(33)%–(100)%	(94)	%

2022
Individually evaluated loans	$	3,773	Appraisal of collateral (1)	Appraisal adjustments (2)	(10)%–(50)%	(48)	%

_______________________________

(1) Fair value is generally determined through management’s estimate or independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.

(2) Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, and/or age of the appraisal.

The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’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 Corporation’s disclosures and those of other companies may not be meaningful.

The following tables present the carrying amount and the estimated fair value of the Corporation’s financial instruments as of December 31:


	2023
			Estimated Fair Value
(In thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	21,442	$	21,442	$	7,063	$	14,379	$	—
Interest-bearing deposits with banks	44,516		44,516		44,516		—		—
Equity securities with readily determinable fair values	928		928		928		—		—
Investment securities available for sale	451,693		451,693		—		451,693		—
Investment securities held to maturity	64,600		59,057		—		59,057		—
Loans held for sale	280		280		—		280		—
Loans, net	1,608,019		1,562,703		—		—		1,562,703
Accrued interest receivable	8,080		8,080		—		8,080		—
Restricted investment in bank stocks	9,677		9,677		—		9,677		—

Financial liabilities:
Demand deposits, savings, and money markets	1,629,662		1,391,709		—		1,391,709		—
Time deposits	232,151		221,770		—		221,770		—
Securities sold under repurchase agreements	26,882		23,666		—		23,666		—
FHLB Advances	205,000		206,950		—		206,950		—
Trust preferred and subordinated debt	20,292		16,992		—		16,992		—
Accrued interest payable	794		794		—		794		—


	2022
		Estimated Fair Value
(In thousands)	Carrying Amount	Total	Level 1	Level 2	Level 3
Financial assets:
Cash and due from banks	$40,067	$40,067	$6,977	$33,090	$—
Interest-bearing deposits with banks	128,094	128,094	128,094	—	—
Equity securities with readily determinable fair values	1,719	1,719	1,719	—	—
Investment securities available for sale	553,554	553,554	—	553,554	—
Investment securities held to maturity	64,977	58,078	—	58,078	—
Loans held for sale	123	123	—	123	—
Loans, net	1,520,749	1,458,556	—	—	1,458,556
Accrued interest receivable	6,915	6,915	—	6,915	—
Restricted investment in bank stocks	1,629	1,629	—	1,629	—

Financial liabilities:
Demand deposits, savings, and money markets	1,905,845	1,905,845	—	1,905,845	—
Time deposits	293,130	276,182	—	276,182	—
Securities sold under repurchase agreements	41,954	41,954	—	41,954	—

Trust preferred and subordinated debt	21,000	18,648	—	18,648	—
Accrued interest payable	51	51	—	51	—

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period end.

- Definition

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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