Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

v3.23.4
FAIR VALUE MEASUREMENTS
12 Months Ended
Dec. 31, 2022
Fair Value Measurements [Abstract]  
FAIR VALUE MEASUREMENTS
Note 22
FAIR VALUE
 
MEASUREMENTS
The fair value of an asset or liability is the exchange price that would be received
 
were the Bank to sell that asset or paid to
transfer that liability (exit price) in an orderly transaction occurring in the principal
 
market (or most advantageous market in the
absence of a principal market) for such asset or liability.
 
In estimating fair value, the Company utilizes valuation techniques that
are consistent with the market approach, the income approach and/or
 
the cost approach.
 
Such valuation techniques are
consistently applied.
 
Inputs to valuation techniques include the assumptions that market participants would
 
use in pricing an asset
or liability.
 
ASC Topic 820 establishes a fair value
 
hierarchy for valuation inputs that gives the highest priority to quoted prices
in active markets for identical assets or liabilities and the lowest priority to unobservable
 
inputs.
 
The fair value hierarchy is as
follows:
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting
 
entity has
the ability to access at the measurement date
.
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
 
either
directly or indirectly.
 
These might include 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,
 
inputs other than quoted prices that are
observable for the asset or liability (such as interest rates, volatilities, prepayment
 
speeds, credit risks, etc.) or inputs that
are derived principally from, or corroborated, by market data by correlation
 
or other means
.
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or liabilities that reflect an
 
entity’s own
assumptions about the assumptions that market participants would
 
use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis
Securities Available for Sale.
 
U.S. Treasury securities are reported at fair value
 
utilizing Level 1 inputs.
 
Other securities
classified as available-for-sale are reported at fair value utilizing Level 2 inputs.
 
For these securities, the Company obtains fair
value measurements from an independent pricing service.
 
The fair value measurements consider observable data that may
include dealer quotes, market spreads, cash flows, the U.S. Treasury
 
yield curve, live trading levels, trade execution data, credit
information and the bond’s
 
terms and conditions, among other things.
In general, the Company does not purchase securities that have a complicated structure.
 
The Company’s entire portfolio consists
of traditional investments, nearly all of which are U.S. Treasury
 
obligations, federal agency bullet or mortgage pass-through
securities, or general obligation or revenue based municipal bonds.
 
Pricing for such instruments is easily obtained.
 
At least
annually, the Company
 
will validate prices supplied by the independent pricing service by comparing them
 
to prices obtained
from an independent third-party source.
Loans Held for Sale
. The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,
 
when
possible, using either quoted secondary-market prices or investor commitments.
 
If no such quoted price exists, the fair value is
determined using quoted prices for a similar asset or assets, adjusted for
 
the specific attributes of that loan, which would be used
by other market participants. The Company has elected the fair value option
 
accounting for its held for sale loans.
 
Mortgage Banking Derivative Instruments.
The fair values of IRLCs are derived by valuation models incorporating
 
market
pricing for instruments with similar characteristics, commonly referred
 
to as best execution pricing, or investor commitment
prices for best effort IRLCs which have unobservable inputs, such as an
 
estimate of the fair value of the servicing rights expected
to be recorded upon sale of the loans, net estimated costs to originate the loans, and the pull-through
 
rate, and are therefore
classified as Level 3 within the fair value hierarchy.
 
The fair value of forward sale commitments is based on observable market
pricing for similar instruments and are therefore classified as Level 2 within
 
the fair value hierarchy.
Interest Rate Swap.
The Company’s derivative positions are
 
classified as Level 2 within the fair value hierarchy and are valued
using models generally accepted in the financial services industry and
 
that use actively quoted or observable market input values
from external market data providers. The fair value derivatives are determined
 
using discounted cash flow models.
Fair Value
 
Swap
.
 
The Company entered into a stand-alone derivative contract with the purchaser of
 
its Visa Class B shares.
 
The
valuation represents the amount due and payable to the counterparty based upon
 
the revised share conversion rate, if any,
 
during
the period.
 
At December 31, 2022 and 2021, there was $
0.1
 
million payable.
 
A summary of fair values for assets and liabilities at December 31 consisted
 
of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in Thousands)
Level 1
Level 2
Level 3
Total
 
Fair
Inputs
Inputs
Inputs
Value
2022 (As Restated)
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
22,050
$
-
$
-
$
22,050
U.S. Government Agency
-
186,052
-
186,052
States and Political Subdivisions
-
40,329
-
40,329
Mortgage-Backed Securities
-
69,405
-
69,405
Corporate Debt Securities
-
88,236
-
88,236
Loans Held for Sale
-
26,909
-
26,909
Interest Rate Swap Derivative
-
6,195
-
6,195
Mortgage Banking Hedge Derivative
-
187
-
187
Mortgage Banking IRLC Derivative
-
-
819
819
2021
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
187,868
$
-
$
-
$
187,868
U.S. Government Agency
-
237,578
-
237,578
State and Political Subdivisions
-
46,980
-
46,980
Mortgage-Backed Securities
-
88,869
-
88,869
Corporate Debt Securities
-
86,222
-
86,222
Loans Held for Sale
-
52,532
-
52,532
Interest Rate Swap Derivative
-
2,050
-
2,050
Mortgage Banking IRLC Derivative
-
-
1,258
1,258
LIABILITIES:
Mortgage Banking Hedge Derivative
$
-
$
7
$
-
$
7
Mortgage Banking Activities.
 
The Company had Level 3 issuances and transfers of $
15.4
 
million and $
28.5
 
million, respectively
for the year ended December 31, 2022 related to mortgage banking
 
activities.
 
The Company had Level 3 issuances and transfers
of $
31.3
 
million and $
47.7
 
million, respectively, for
 
the year ended December 31, 2021.
 
Issuances are valued based on the
change in fair value of the underlying mortgage loan from inception of the IRLC to the Consolidated
 
Statement of Financial
Condition date, adjusted for pull-through rates and costs to originate.
 
IRLCs transferred out of Level 3 represent IRLCs that were
funded and moved to mortgage loans held for sale, at fair value.
Assets Measured at Fair Value
 
on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the
 
assets are not measured at fair value on an ongoing
basis but are subject to fair value adjustments in certain circumstances).
 
An example would be assets exhibiting evidence of
impairment.
 
The following is a description of valuation methodologies used for assets measured on a non-recurring
 
basis.
 
Collateral Dependent Loans
.
 
Impairment for collateral dependent loans is measured using the fair
 
value of the collateral less
selling costs.
 
The fair value of collateral is determined by an independent valuation
 
or professional appraisal in conformance with
banking regulations.
 
Collateral values are estimated using Level 3 inputs due to the volatility in the real
 
estate market, and the
judgment and estimation involved in the real estate appraisal process.
 
Collateral dependent loans are reviewed and evaluated on
at least a quarterly basis for additional impairment and adjusted accordingly.
 
Valuation
 
techniques are consistent with those
techniques applied in prior periods.
 
Collateral dependent loans had a carrying value of $
0.7
 
million with a valuation allowance of
$
0.1
 
million at December 31, 2022.
 
Collateral dependent loans had a carrying value of $
2.8
 
million with a valuation allowance of
$
0.2
 
million at December 31, 2021.
Other Real Estate Owned
.
 
During 2022 and 2021, certain foreclosed assets, upon initial recognition, were measured
 
and reported
at fair value through a charge-off to the allowance
 
for credit losses based on the fair value of the foreclosed asset less estimated
cost to sell.
 
At December 31, 2022 and 2021, these assets were recorded at fair value, which
 
is determined by an independent
valuation or professional appraisal in conformance with banking regulations.
 
On an ongoing basis, we obtain updated appraisals
on foreclosed assets and record valuation adjustments as necessary.
 
The fair value of foreclosed assets is estimated using Level 3
inputs due to the judgment and estimation involved in the real estate valuation process.
 
Mortgage Servicing Rights
. Residential mortgage loan servicing rights are evaluated for impairment
 
at each reporting period
based upon the fair value of the rights as compared to the carrying amount.
 
Fair value is determined by a third-party valuation
model using estimated prepayment speeds of the underlying mortgage loans
 
serviced and stratifications based on the risk
characteristics of the underlying loans (predominantly loan type and note
 
interest rate).
 
The fair value is estimated using Level 3
inputs, including a discount rate, weighted average prepayment speed,
 
and the cost of loan servicing.
 
Further detail on the key
inputs utilized are provided in Note 4 – Mortgage Banking Activities.
 
At December 31, 2022 and 2021, there was
no
 
valuation
allowance for mortgage servicing rights.
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments,
 
both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation
 
methodologies used for those assets and liabilities.
Cash and Short-Term
 
Investments.
 
The carrying amount of cash and short-term investments is used to approximate
 
fair value,
given the short time frame to maturity and as such assets do not present unanticipated
 
credit concerns.
 
Securities Held to Maturity
.
 
Securities held to maturity are valued in accordance with the methodology previously
 
noted in the
caption “Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis – Securities Available
 
for Sale”.
 
Loans.
 
The loan portfolio is segregated into categories and the fair value of each loan category is calculated
 
using present value
techniques based upon projected cash flows and estimated discount
 
rates.
 
Pursuant to the adoption of ASU 2016-01,
Recognition
and Measurement of Financial Assets and Financial
 
Liabilities
, the values reported reflect the incorporation of a liquidity
discount to meet the objective of “exit price” valuation.
 
Deposits.
 
The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market
 
Accounts and Savings Accounts are
the amounts payable on demand at the reporting date. The fair value of fixed
 
maturity certificates of deposit is estimated using
present value techniques and rates currently offered for deposits of similar remaining
 
maturities.
Subordinated Notes Payable.
 
The fair value of each note is calculated using present value techniques,
 
based upon projected cash
flows and estimated discount rates as well as rates being offered
 
for similar obligations.
Short-Term
 
and Long-Term
 
Borrowings.
 
The fair value of each note is calculated using present value techniques,
 
based upon
projected cash flows and estimated discount rates as well as rates being offered
 
for similar debt.
A summary of estimated fair values of significant financial instruments at December
 
31 consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2022 (As Restated)
(Dollars in Thousands)
Carrying
Level 1
Level 2
Level 3
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
72,114
$
72,114
$
-
$
-
Short-Term Investments
528,536
528,536
-
-
Investment Securities, Held to Maturity
660,774
431,733
180,968
-
Equity Securities
(1)
10
-
10
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
2,599
-
-
4,491
Loans, Net of Allowance for Credit Losses
2,522,617
-
-
2,377,229
LIABILITIES:
Deposits
$
3,939,317
$
-
$
3,310,383
$
-
Short-Term
 
Borrowings
56,793
-
56,793
-
Subordinated Notes Payable
52,887
-
45,763
-
Long-Term Borrowings
513
-
513
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2021
(Dollars in Thousands)
Carrying
Level 1
Level 2
Level 3
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
65,313
$
65,313
$
-
$
-
Short-Term Investments
970,041
970,041
-
-
Investment Securities, Held to Maturity
339,601
113,877
225,822
-
Equity Securities
(1)
861
-
861
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
3,774
-
-
4,718
Loans, Net of Allowance for Credit Losses
1,909,859
-
-
1,903,640
LIABILITIES:
Deposits
$
3,712,862
$
-
$
3,713,478
$
-
Short-Term
 
Borrowings
34,557
-
34,557
-
Subordinated Notes Payable
52,887
-
42,609
-
Long-Term Borrowings
884
-
938
-
(1)
 
Not readily marketable securities.
(2)
 
Accounted for under the equity method - not readily
 
marketable securities - reflected in other assets.
All non-financial instruments are excluded from the above table.
 
The disclosures also do not include goodwill.
 
Accordingly, the
aggregate fair value amounts presented do not represent the underlying
 
value of the Company.