Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2023

Fair Value of Financial Instruments [Abstract]

6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Instruments Recorded at Fair Value. When measuring fair value, the Corporation uses a fair value hierarchy, which is designed to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy involves three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation can access at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or can be corroborated by observable market data.

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

The fair values of the Corporation’s financial assets and liabilities measured at fair value on a recurring basis are set forth in the table that follows. The fair values of AFS securities are determined on a recurring basis using matrix pricing (Level 2 inputs). Matrix pricing, which is a mathematical technique widely used in the industry to value debt securities, does not rely exclusively on quoted prices for the specific securities but rather on the relationship of such securities to other benchmark quoted securities. Where no significant other observable inputs were available, Level 3 inputs were used.



	Fair Value Measurements Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
March 31, 2023:
Financial Assets:
Available-for-Sale Securities:
State and municipals	$	155,768	$	—	$	155,288	$	480
Pass-through mortgage securities		148,126		—		148,126		—
Collateralized mortgage obligations		111,903		—		111,903		—
SBA agency obligations		134,664		—		134,664		—
Corporate bonds		104,158		—		104,158		—
	$	654,619	$	—	$	654,139	$	480

December 31, 2022:
Financial Assets:
Available-for-Sale Securities:
State and municipals	$	305,247	$	—	$	304,680	$	567
Pass-through mortgage securities		148,520		—		148,520		—
Collateralized mortgage obligations		113,394		—		113,394		—
Corporate bonds		106,252		—		106,252		—
	$	673,413	$	—	$	672,846	$	567

State and municipal AFS securities measured using Level 3 inputs. The Bank held four non-rated bond anticipation notes with a book value of $0.5 million at March 31, 2023. These bonds have a one year maturity and are issued by local municipalities that are customers of the Bank. Due to the short duration of the bonds, book value approximates fair value at March 31, 2023.

Land and Buildings. Premises and facilities held-for-sale of $2.4 million at March 31, 2023 and December 31, 2022 are reported in the line item “Other assets” in the consolidated balance sheets and are measured at lower of cost or fair value on a nonrecurring basis.

Financial Instruments Not Recorded at Fair Value. Fair value estimates are made at a specific point in time. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of similar financial instruments, including estimates of discount rates, liquidity, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument, or the income tax consequences of realizing gains or losses on the sale of financial instruments.

The following table sets forth the carrying amounts and estimated fair values of financial instruments that are not recorded at fair value in the Corporation’s financial statements.



	Level of	March 31, 2023				December 31, 2022
	Fair Value	Carrying				Carrying
(in thousands)	Hierarchy	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and cash equivalents	Level 1	$	51,768	$	51,768	$	74,178	$	74,178
Loans, net (1)	Level 3		3,228,610		2,989,960		3,280,301		3,064,849
Restricted stock	n/a		25,035		n/a		26,363		n/a

Financial Liabilities:
Checking deposits	Level 1		1,192,139		1,192,139		1,324,141		1,324,141
Savings, NOW and money market deposits	Level 1		1,684,874		1,684,874		1,661,512		1,661,512
Time deposits	Level 2		521,737		513,485		478,981		467,986
Long-term debt	Level 2		382,500		380,747		411,000		407,890

(1)The decrease in fair value of net loans is mainly due to an increase in interest rates.

- 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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