FAIR VALUE ACCOUNTING

3 Months Ended

Mar. 31, 2021

ASC Topic 820-10, “Fair Value Measurements and Disclosures” 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 topic 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 Company 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 the Company’s assumptions about the factors that market participants would use in pricing an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement.

The fair value of securities available for sale is determined by obtaining market price quotes from independent third parties wherever such quotes are available (Level 1 inputs); or matrix pricing, which is a mathematical technique widely used in the industry 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). Where such quotes are not available, we utilize independent third party valuation analysis to support our own estimates and judgments in determining fair value (Level 3 inputs).

Assets Measured on a Recurring Basis

The following tables present the financial instruments measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:


	Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
Investment securities:
U.S. government agency obligations	$	31,712	$	—	$	31,712	$	—
Obligations of states and political subdivisions	140		—		140		—
Mortgage-backed securities	72,056		—		72,056		—

Corporate debt securities	27,913		—		27,913		—
Corporate asset-backed securities	35,709		—		35,709		—
Trust preferred securities	17,630		—		17,630		—
Total	$	185,160	$	—	$	185,160	$	—
December 31, 2020
Investment securities:
U.S. government agency obligations	$	33,365	$	—	$	33,365	$	—
Obligations of states and political subdivisions	140		—		140		—
Mortgage-backed securities	40,991		—		40,991		—

Corporate debt securities	17,462		—		17,462		—
Corporate asset backed securities	35,827		—		35,827		—
Trust preferred securities	16,448		—		16,448		—
Total	$	144,233	$	—	$	144,233	$	—

Assets Measured on Nonrecurring Basis

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020:


	Carrying Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
Foreclosed and repossessed assets, net	$	85	$	—	$	—	$	85
Impaired loans with allocated allowances	4,704		—		—		4,704
Mortgage servicing rights	3,999		—		—		4,005
Total	$	8,788	$	—	$	—	$	8,794
December 31, 2020
Foreclosed and repossessed assets, net	$	197	$	—	$	—	$	197
Impaired loans with allocated allowances	3,037		—		—		3,037
Mortgage servicing rights	3,252		—		—		3,285
Total	$	6,486	$	—	$	—	$	6,519

The fair value of impaired loans referenced above was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.

The fair value of foreclosed and repossessed assets was determined by obtaining market price valuations from independent third parties wherever such quotes were available for other collateral owned. The Company utilized independent third party appraisals to support the Company’s estimates and judgments in determining fair value for other real estate owned.

The fair value of mortgage servicing rights was estimated using discounted cash flows based on current market rates and other factors.

The following table represents additional quantitative information about assets measured at fair value on a

recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine their fair value at

March 31, 2021.


	Fair Value		Valuation Techniques (1)	Significant Unobservable Inputs (2)	Range
March 31, 2021
Foreclosed and repossessed assets, net	$	85	Appraisal value	Estimated costs to sell	10% - 15%
Impaired loans with allocated allowances	$	4,704	Appraisal value	Estimated costs to sell	10% - 15%
Mortgage servicing rights	$	4,005	Discounted cash flows	Discounted rates	9% - 12%
December 31, 2020
Foreclosed and repossessed assets, net	$	197	Appraisal value	Estimated costs to sell	10% - 15%
Impaired loans with allocated allowances	$	3,037	Appraisal value	Estimated costs to sell	10% - 15%
Mortgage servicing rights	$	3,285	Discounted cash flows	Discounted rates	9% - 12%

(1) Fair value is generally determined through independent third-party appraisals of the underlying

collateral, which generally includes various level 3 inputs which are not observable.

(2) The fair value basis of impaired loans and real estate owned may be adjusted to reflect management

estimates of disposal costs including, but not limited to, real estate brokerage commissions, legal fees,

and delinquent property taxes.

The table below represents what we would receive to sell an asset or what we would have to pay to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount and estimated fair value of the Company’s financial instruments as of the dates indicated below were as follows:


		March 31, 2021				December 31, 2020
	Valuation Method Used	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	(Level I)	$	196,039	$	196,039	$	119,440	$	119,440
Other interest-bearing deposits	(Level II)	2,016		2,062		3,752		3,818
Securities available for sale “AFS”	(Level II)	185,160		185,160		144,233		144,233
Securities held to maturity “HTM”	(Level II)	57,419		55,786		43,551		43,784
Equity securities with readily determinable fair value	(Level I)	297		297		200		200
Other investments	(Level II)	15,069		15,069		14,948		14,948
Loans receivable, net	(Level III)	1,175,266		1,198,049		1,220,538		1,239,692
Loans held for sale	(Level II)	2,267		2,267		3,075		3,075
Mortgage servicing rights	(Level III)	3,999		4,005		3,252		3,285
Accrued interest receivable	(Level 1)	5,464		5,464		5,652		5,652
Financial liabilities:
Deposits	(Level III)	$	1,380,202	$	1,360,333	$	1,295,256	$	1,292,104
FHLB advances	(Level II)	115,481		118,996		123,498		128,282
Other borrowings	(Level I)	58,354		58,354		58,328		58,328
Accrued interest payable	(Level I)	603		603		796		796

- 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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