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FAIR VALUE

9 Months Ended

Sep. 30, 2024

5. 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)		September 30, 2024			(Level 1)			(Level 2)			(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities		$	92,280		$	—		$	92,280		$	—
Obligations of states and political subdivisions			30,568			—			30,568			—
Corporate securities			14,003			—			14,003			—
Residential government-sponsored collateralized mortgage obligations			56,833			—			56,833			—
Government-sponsored agency securities			14,276			—			14,276			—
Agency commercial mortgage-backed securities			26,953			—			26,953			—
SBA pool securities			7,630			—			7,630			—
			242,543			—			242,543			—
Loans held for investment			250,525			—			250,525			—
Loans held for sale			96,897			—			96,897			—
Consumer Program derivative			7,146			—			—			7,146
Mortgage banking financial assets			145			—			—			145
Mortgage banking derivative assets			1,538			—			—			1,538
Total assets		$	598,794		$	—		$	589,965		$	8,829


					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, 2023			(Level 1)			(Level 2)			(Level 3)
Assets:
Available-for-sale securities
Residential government-sponsored mortgage-backed securities		$	96,808		$	—		$	96,808		$	—
Obligations of states and political subdivisions			30,080			—			30,080			—
Corporate securities			14,048			—			14,048			—
Collateralized loan obligations			4,982			—			4,982			—
Residential government-sponsored collateralized mortgage obligations			34,471			—			34,471			—
Government-sponsored agency securities			13,711			—			13,711			—
Agency commercial mortgage-backed securities			30,110			—			30,110			—
SBA pool securities			4,210			—			4,210			—
			228,420			—			228,420			—
Loans held for investment			248,906			—			248,906			—
Loans held for sale			57,691			—			57,691			—
Consumer Program derivative			10,806			—			—			10,806
Mortgage banking financial assets			91			—			—			91
Mortgage banking derivative assets			611			—			—			611
Interest rate swaps			1,068			—			1,068			—
Total assets		$	547,593		$	—		$	536,085		$	11,508

Liabilities:
Mortgage banking derivative liabilities		$	200			—		$	—		$	200
Total liabilities		$	200		$	—		$	—		$	200

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)

September 30, 2024

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

$

42,711

$

—

$

—

$

42,711

Assets held for sale

9,864

—

—

9,864

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, 2023

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

$

15,577

$

—

$

—

$

15,577

Assets held for sale

6,735

—

—

6,735

Fair Value of Financial Instruments

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


				September 30, 2024						December 31, 2023
		Fair Value		Carrying			Fair			Carrying			Fair
		Hierarchy Level		Amount			Value			Amount			Value
Financial assets:
Cash and cash equivalents		Level 1		$	77,274		$	77,274		$	77,553		$	77,553
Securities available-for-sale		Level 2			242,543			242,543			228,420			228,420
Securities held-to-maturity		Level 2			9,766			9,162			11,650			10,839
Stock in Federal Reserve Bank and Federal Home Loan Bank		Level 2			20,875			20,875			14,246			14,246
Preferred investment in mortgage company		Level 2			3,005			3,005			3,005			3,005
Net loans		Level 2 and 3			2,922,591			2,786,734			3,167,205			3,068,663
Loans held for sale		Level 2			96,897			96,897			57,691			57,691
Loans held for sale, at lower of cost or market		Level 3			361,825			361,825			—			—
Consumer Program derivative		Level 3			7,146			7,146			10,806			10,806
Mortgage banking financial assets		Level 3			145			145			91			91
Mortgage banking derivative assets		Level 3			1,538			1,538			611			611
Interest rate swaps, net		Level 2			—			—			1,068			1,068
Financial liabilities:
Demand deposits and NOW accounts		Level 2		$	1,170,064		$	1,170,064		$	1,245,969		$	1,245,969
Money market and savings accounts		Level 2			1,708,909			1,708,909			1,578,288			1,578,288
Time deposits		Level 3			427,458			427,112			445,898			443,765
Securities sold under agreements to repurchase		Level 1			3,677			3,677			3,044			3,044
FHLB advances		Level 1			165,000			165,000			30,000			30,000
Junior subordinated debt		Level 2			9,867			8,943			9,830			9,039
Senior subordinated notes		Level 2			85,941			85,701			85,765			84,513
Secured borrowings		Level 3			17,495			17,495			20,393			20,393
Mortgage banking derivative liabilities		Level 3			—			—			200			200
Interest rate swaps, net		Level 2			565			565			—			—

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

Fair value of junior subordinated debt and senior subordinated notes are 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 net loans that use level 2 inputs are related to the portfolio of loans underlying our interest rate swaps as previously discussed in “Note 1 – Accounting Policies”.

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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