v3.26.1
FAIR VALUE OF FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2026
FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Fair value is the exchange price that would be received for 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 on the measurement date. There are three levels of inputs that may be used to measure fair values:
 
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
 
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
 
The following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:
 
Securities: Debt securities classified as AFS are measured at fair value on a recurring basis. The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.
 
Individually Evaluated Collateral Dependent Loans: Loans with specific reserves based on their fair value of collateral are measured on an as-needed, nonrecurring basis. The fair value of individually evaluated collateral dependent loans with specific allocations of the ACL is generally based on the fair value of collateral, less costs to sell, based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. Individually evaluated collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
 
Other Real Estate Owned (“OREO”): The value of foreclosed assets is measured on a nonrecurring basis. Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification.
 
Appraisals for both collateral-dependent loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management’s own assumptions of fair value based on factors that include recent market data or industry-wide statistics.
 
On an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs that typically approximate 10%.
 
Interest Rate Swap Agreements:  The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2).
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
 
 Fair Value Measurements at June 30, 2026 Using
 Quoted Prices in Active Significant Other  Significant 
 Markets for Identical Assets Observable Inputs  Unobservable Inputs 
  (Level 1)   (Level 2)   (Level 3) 
Assets:            
U.S. Government securities$83,839  $-  $- 
U.S. Government sponsored entity securities -   5,108   - 
Agency mortgage-backed securities, residential -   161,289   - 
Equity securities 376   -   - 
Interest rate swap derivatives -   726   - 
            
Liabilities:            
Interest rate swap derivatives -   (726)   - 
 
 Fair Value Measurements at December 31, 2025 Using
 Quoted Prices in Active Significant Other  Significant 
 Markets for Identical Assets Observable Inputs  Unobservable Inputs 
  (Level 1)   (Level 2)   (Level 3) 
Assets:         
U.S. Government securities$86,779  $-  $- 
U.S. Government sponsored entity securities -   5,124   - 
Agency mortgage-backed securities, residential -   162,003   - 
Interest rate swap derivatives -   754   - 
        
Liabilities:         
Interest rate swap derivatives -   (754)   - 
 
There were no transfers into or out of Level 3 during the periods ended June 30, 2026  or 2025.
 
Assets and Liabilities Measured on a Nonrecurring Basis
There were no assets or liabilities measured at fair value on a nonrecurring basis at December 31, 2025. Assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2026 are summarized below:
 
 
 Fair Value Measurements at June 30, 2026 Using
  Quoted Prices in Active   Significant Other   Significant 
  Markets for Identical Assets   Observable Inputs   Unobservable Inputs 
  (Level 1)   (Level 2)   (Level 3) 
Assets:           
Individually evaluated collateral dependent loans:           
Residential real estate$-  $-  $882 
Commercial real estate:           
Nonowner-occupied -   -   3,748 
Commercial and industrial -   -   799 
 
At June 30, 2026, the recorded investment of individually evaluated collateral dependent loans measured for impairment using the fair value of collateral totaled $11,990, with a corresponding valuation allowance of $6,561, resulting in an increase of $4,823 and $6,561 in provision expense during the three and six months ended June 30, 2026, with no corresponding charge-offs recognized. This is compared to an increase of $42 in provision expense during the three and six months ended June 30, 2025.
There were no financial instruments measured at fair value on a non-recurring basis at December 31, 2025. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2026:
 
      
June 30, 2026               
  Fair   Valuation  Unobservable         
  Value  Technique(s) Input(s)  Range   Weighted Average 
Individually evaluated collateral dependent loans:               
Residential real estate$882  Sales approach Adjustment to comparables  4.4% to 33.6%   13.78%
Commercial real estate:               
Nonowner-occupied 3,748  Income approach Capitalization rate  8%  8%
Commercial and industrial 799  Sales approach Adjustment to comparables  0% to 25%   12.31%
 
The carrying amounts and estimated fair values of financial instruments at June 30, 2026 and December 31, 2025 are as follows:
 
  Carrying   Fair Value Measurements at June 30, 2026 Using
  Value   Level 1   Level 2   Level 3   Total 
Financial Assets:                    
Cash and cash equivalents$78,084  $78,084  $-  $-  $78,084 
Debt securities available for sale 250,236   83,839   166,397   -   250,236 
Debt securities held to maturity 5,404   -   2,987   2,047   5,034 
Equity securities 376   376   -   -   376 
Loans, net 1,229,504   -   -   1,222,459   1,222,459 
Interest rate swap derivatives 726   -   726   -   726 
Accrued interest receivable 5,485   -   1,275   4,210   5,485 
                    
Financial liabilities:                   
Deposits 1,408,428   875,556   532,942   -   1,408,498 
Other borrowed funds 41,822   -   41,148   -   41,148 
Subordinated debentures 8,500   -   8,500   -   8,500 
Interest rate swap derivatives 726   -   726   -   726 
Accrued interest payable 6,495   -   6,495   -   6,495 
 
  Carrying   Fair Value Measurements at December 31, 2025 Using
  Value   Level 1   Level 2   Level 3   Total 
Financial Assets:                    
Cash and cash equivalents$45,897  $45,897  $-  $-  $45,897 
Securities available for sale 253,906   86,779   167,127   -   253,906 
Securities held to maturity 5,452   -   2,963   2,111   5,074 
Loans, net 1,184,499   -   -   1,171,189   1,171,189 
Interest rate swap derivatives 754   -   754   -   754 
Accrued interest receivable 5,476   -   1,357   4,119   5,476 
                    
Financial liabilities:                   
Deposits 1,329,667   839,931   490,970   -   1,330,901 
Other borrowed funds 44,848   -   44,386   -   44,386 
Subordinated debentures 8,500   -   8,500   -   8,500 
Interest rate swap derivatives 754   -   754   -   754 
Accrued interest payable 6,584   -   6,584   -   6,584 
 
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.