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FAIR VALUE

6 Months Ended

Jun. 30, 2023

4. FAIR VALUE

ASC 820 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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 reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability

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


					Fair Value Measurements Using
								Significant
					Quoted Prices in			Other			Significant
					Active Markets for			Observable			Unobservable
		Total at			Identical Assets			Inputs			Inputs
(dollars in thousands)		June 30, 2023			(Level 1)			(Level 2)			(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities		$	98,014		$	—		$	98,014		$	—
Obligations of states and political subdivisions			29,673			—			29,673			—
Corporate securities			12,956			—			12,956			—
Collateralized loan obligations			4,901			—			4,901			—
Residential government-sponsored collateralized mortgage obligations			28,568			—			28,568			—
Government-sponsored agency securities			13,360			—			13,360			—
Agency commercial mortgage-backed securities			30,794			—			30,794			—
SBA pool securities			4,821			—			4,821			—
			223,087			—			223,087			—
Loans held for investment			195,739			—			—			195,739
Loans held for sale			57,704			—			57,704			—
Mortgage banking financial assets			269			—			—			269
Derivative assets			2,032			—			2,032			—
Interest rate swaps			4,232			—			4,232			—
Total assets		$	483,063		$	—		$	287,055		$	196,008

Liabilities:
Derivative liabilities		$	126		$	—		$	—		$	—
Total liabilities		$	126		$	—		$	—		$	—


					Fair Value Measurements Using
								Significant
					Quoted Prices in			Other			Significant
					Active Markets for			Observable			Unobservable
		Total at			Identical Assets			Inputs			Inputs
(dollars in thousands)		December 31, 2022			(Level 1)			(Level 2)			(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities		$	102,881		$	—		$	102,881		$	—
Obligations of states and political subdivisions			29,178			—			29,178			—
Corporate securities			14,828			—			14,828			—
Collateralized loan obligations			4,876			—			4,876			—
Residential government-sponsored collateralized mortgage obligations			26,595			—			26,595			—
Government-sponsored agency securities			14,616			—			14,616			—
Agency commercial mortgage-backed securities			37,417			—			37,417			—
SBA pool securities			5,924			—			5,924			—
			236,315			—			236,315			—
Loans held for sale			27,626			—			27,626			—
Mortgage banking financial assets			21			—			—			21
Derivative assets			1,410			—			1,386			24
Total assets		$	265,372		$	—		$	265,327		$	45

Liabilities:
Mortgage banking financial liabilities		$	4		$	—		$	—		$	4
Derivative liabilities			122			—			115			7
Total liabilities		$	126		$	—		$	115		$	11

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

Fair Value Measurements Using

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Total at

Identical Assets

Inputs

Inputs

(dollars in thousands)

June 30, 2023

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

$

34,408

$

—

$

—

$

34,408

Assets held for sale

3,115

—

—

3,115

Fair Value Measurements Using

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Total at

Identical Assets

Inputs

Inputs

(dollars in thousands)

December 31, 2022

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

$

47,832

$

—

$

—

$

47,832

Assets held for sale

3,115

—

—

3,115

Fair Value of Financial Instruments

The carrying amount, estimated fair values and fair value hierarchy levels (previously defined) of financial instruments were as follows (in thousands) for the periods indicated:


				June 30, 2023						December 31, 2022
		Fair Value		Carrying			Fair			Carrying			Fair
		Hierarchy Level		Amount			Value			Amount			Value
Financial assets:
Cash and cash equivalents		Level 1		$	100,868		$	100,868		$	77,859		$	77,859
Securities available-for-sale		Level 2			223,087			223,087			236,315			236,315
Securities held-to-maturity		Level 2			12,378			11,369			13,520			12,449
Stock in Federal Reserve Bank and Federal Home Loan Bank		Level 2			12,083			12,083			25,815			25,815
Preferred investment in mortgage company		Level 2			3,005			3,005			3,005			3,005
Net loans		Level 3			3,135,224			2,995,950			2,912,093			2,809,163
Loans held for sale		Level 2			57,704			57,704			27,626			27,626
Accrued interest receivable		Level 2			20,238			20,238			14,938			14,938
Mortgage banking financial assets		Level 3			269			269			21			21
Derivative assets		Level 2 and 3			2,032			2,032			1,410			1,410
Interest rate swaps		Level 2			4,232			4,232			—			—
Credit enhancement		Level 2			4,247			4,247			1,504			1,504
Financial liabilities:
Demand deposits and NOW accounts		Level 2		$	1,298,557		$	1,298,557		$	1,200,243		$	1,200,243
Money market and savings accounts		Level 2			1,547,109			1,547,109			1,057,078			1,057,078
Time deposits		Level 3			471,330			468,551			465,057			462,376
Securities sold under agreements to repurchase		Level 1			3,921			3,921			6,445			6,445
FHLB advances		Level 1			—			—			325,000			325,000
Junior subordinated debt		Level 2			9,806			9,018			9,781			9,181
Senior subordinated notes		Level 2			85,647			83,123			85,531			84,347
Accrued interest payable		Level 2			7,350			7,350			3,261			3,261
Mortgage banking financial liabilities		Level 3			—			—			4			4
Derivative liabilities		Level 2 and 3			126			126			122			122

Carrying amount is the estimated fair value for cash and cash equivalents, loans held for sale, accrued interest receivable and payable, mortgage banking financial assets and liabilities, derivative assets and liabilities, interest rate swaps, demand deposits, savings accounts, money market accounts and FHLB advances and securities sold under agreements to repurchase.

Fair value of long-term debt is based on current rates for similar financing. Carrying amount of Federal Reserve Bank and FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are based on the ultimate recoverability of the par value. The fair value of off-balance-sheet items is not considered material. Fair value of net loans, time deposits, junior subordinated debt, and senior subordinated notes are measured using the exit-price notion.

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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