FAIR VALUE OF FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2022

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at March 31, 2022 and December 31, 2021. AFS securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may

be required to record at fair value other assets or liabilities on a non-recurring basis, such as certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

Accounting guidance 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 on a Recurring Basis

Assets measured on a recurring basis are limited to the Company’s AFS securities portfolio, equity investments and an interest rate cap derivative contract. The AFS portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in shareholders’ equity. Equity investments are carried at estimated fair value with changes in fair value reported as “unrealized gain/(loss)” on the statements of operations. The interest rate cap derivative contract is carried at estimated fair value with changes in fair value reported as accumulated other comprehensive income or loss in shareholders’ equity. The fair values for substantially all of these assets are obtained monthly from an independent nationally recognized pricing service. On a quarterly basis, the Company assesses the reasonableness of the fair values obtained for the AFS portfolio by reference to a second independent nationally recognized pricing service. Based on the nature of these securities, the Company’s independent pricing service provides prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the Company’s portfolio. Various modeling techniques are used to determine pricing for the Company’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. On an annual basis, the Company obtains the models, inputs and assumptions utilized by its pricing service and reviews them for reasonableness.

There are no liabilities that are measured at fair value on a recurring basis.

Assets measured at fair value on a recurring basis are summarized below (in thousands):

	Fair Value Measurement using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable
	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
At March 31, 2022
U.S. Government agency securities	$	62,746	$	—	$	62,746	$	—
U.S. State and Municipal securities		10,238		—		10,238		—
Residential mortgage securities		412,121		—		412,121		—
Commercial mortgage securities		16,208		—		16,208		—
Asset-backed securities		4,415		—		4,415		—
CRA Mutual Fund		2,173		2,173		—		—
Derivative assets - interest rate cap		12,076		—		12,076		—
	Fair Value Measurement using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable
	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
At December 31, 2021
U.S. Government agency securities	$	66,334	$	—	$	66,334	$	—
U.S. State and Municipal securities		11,499		—		11,499		—
Residential mortgage securities		466,551		—		466,551		—
Commercial mortgage securities		17,627		—		17,627		—
Asset-backed securities		4,613		—		4,613		—
CRA Mutual Fund		2,273		2,273		—		—
Derivative assets - interest rate cap		3,385		—		3,385		—

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2022 and 2021.

There were no material assets measured at fair value on a non-recurring basis at March 31, 2022 or December 31, 2021.

Carrying amounts and estimated fair values of financial instruments carried at amortized cost were as follows (in thousands):

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable		Total Fair
At March 31, 2022	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	32,483	$	32,483	$	—	$	—	$	32,483
Overnight deposits		1,381,475		1,381,475		—		—		1,381,475
Securities held-to-maturity		467,893		—		436,825		—		436,825
Loans, net		4,083,309		—		—		4,111,399		4,111,399
Other investments
FRB Stock		11,421		N/A		N/A		N/A		N/A
FHLB Stock		3,070		N/A		N/A		N/A		N/A
Disability Fund		1,000		—		1,000		—		1,000
Time deposits at banks		498		498		—		—		498
Receivable from prepaid card programs, net		62,129		—		—		62,129		62,129
Accrued interest receivable		16,186		—		765		15,421		16,186
Financial Liabilities:
Non-interest-bearing demand deposits	$	3,176,048	$	3,176,048	$	—	$	—	$	3,176,048
Money market and savings deposits		2,689,424		2,689,424		—		—		2,689,424
Time deposits		73,891		—		73,233		—		73,233
Trust preferred securities payable		20,620		—		—		19,965		19,965
Subordinated debt, net of issuance cost		—		—		—		—		—
Prepaid debit cardholder balances		24,092		—		—		24,092		24,092
Accrued interest payable		297		5		180		112		297
Secured borrowings		32,322		—		32,322		—		32,322

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable		Total Fair
At December 31, 2021	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	28,864	$	28,864	$	—	$	—	$	28,864
Overnight deposits		2,330,486		2,330,486		—		—		2,330,486
Securities held-to-maturity		382,099		—		380,108		—		380,108
Loans, net		3,697,200		—		—		3,721,619		3,721,619
Other investments
FRB Stock		7,430		N/A		N/A		N/A		N/A
FHLB Stock		3,070		N/A		N/A		N/A		N/A
Disability Fund		1,000		—		1,000		—		1,000
CRA - CD		498		498		—		—		498
Receivable from prepaid card programs, net		39,864		—		—		39,864		39,864
Accrued interest receivable		15,195		—		892		14,303		15,195
Financial Liabilities:
Non-interest-bearing demand deposits	$	3,668,673	$	3,668,673	$	—	$	—	$	3,668,673
Money market and savings deposits		2,687,913		2,687,913		—		—		2,687,913
Time deposits		78,986		—		79,187		—		79,187
Trust preferred securities payable		20,620		—		—		19,997		19,997
Subordinated debt, net of issuance cost		24,712		—		25,125		—		25,125
Prepaid debit cardholder balances		8,847		—		—		8,847		8,847
Accrued interest payable		746		5		633		108		746
Secured borrowings		32,461		—		32,507		—		32,507