Fair Value

12 Months Ended

Dec. 31, 2021

Note 10 – Fair Value

The Company used the following methods and significant assumptions to estimate fair value:

The fair values of securities available‑for‑sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans that are collateral dependent is generally based upon the fair value of the collateral, which is obtained from 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. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Assets acquired through or by transfer in lieu 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 which are updated every nine months. 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. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for collateral‑dependent impaired loans 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, an independent third‑party licensed appraiser reviews the appraisals for accuracy and reasonableness, reviewing the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry‑wide statistics.

Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

	Fair Value Measurement
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
At December 31, 2021:
Securities available for sale:
Federal agency mortgage‑backed securities	$	-	$	70,030	$	-	$	70,030
Federal agency CMO		-		9,287		-		9,287
Federal agency debt		-		37,988		-		37,988
Municipal bonds		-		4,915		-		4,915
U.S. Treasuries		-		17,951		-		17,951
SBA Pools		-		16,225		-		16,225

At December 31, 2020:		-
Securities available for sale:
Federal agency mortgage‑backed securities	$	-	$	5,807	$	-	$	5,807
Municipal bonds		-		2,019		-		2,019
Federal agency debt		-		2,872		-		2,872

There were no transfers between Level 1, Level 2, or Level 3 during the years ended December 31, 2021 and 2020.

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments as of the periods indicated were as follows:

	Carrying		Fair Value Measurements at December 31, 2021
	Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	231,520	$	231,520	$	-	$	-	$	231,520
Securities available‑for‑sale		156,396		-		156,396		-		156,396
Loans receivable held for investment		648,513		-		-		623,778		623,778
Accrued interest receivable		3,372		19		1,089		2,264		3,372
Bank owned life insurance		3,190		3,190		-		-		3,190
Financial Liabilities:
Deposits	$	788,052	$	-	$	754,181	$	-	$	754,181
Federal Home Loan Bank advances		85,952		-		87,082		-		87,082
Securities sold under agreements to repurchase		51,960		-		-		-		51,960
Notes payable		14,000		-		-		-		14,000
Accrued interest payable		119		-		119		-		119

	Carrying		Fair Value Measurements at December 31, 2020
	Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	96,109	$	96,109	$	-	$	-	$	96,109
Securities available‑for‑sale		10,698		-		10,698		-		10,698
Loans receivable held for investment		360,129		-		-		366,279		366,279
Accrued interest receivable		1,202		60		14		1,128		1,202
Bank owned life insurance		5,633		5,633		-		-		5,633
Financial Liabilities:
Deposits	$	315,630	$	-	$	312,725	$	-	$	312,725
Federal Home Loan Bank advances		110,500		-		113,851		-		113,851
Junior subordinated debentures		3,315		-		-		2,798		2,798
Accrued interest payable		88		-		84		4		88

- 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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