The carrying values of short-term financial instruments are deemed to approximate fair values. Such instruments are considered readily convertible to cash and include cash and due from financial institutions, interest-bearing deposits in other financial institutions, accrued interest receivable, the majority of Federal Home Loan Bank advances and other short-term borrowings, and accrued interest payable.

The fair value of investment securities is based on market price quotations received from third-party pricing services. The third-party pricing services utilize pricing models supported with timely market data information. Where quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Fair values of loans are estimated based on discounted cash flows of portfolios of loans with similar financial characteristics including the type of loan, interest terms and repayment history. Fair values are calculated by discounting scheduled cash flows through estimated maturities using estimated market discount rates. Estimated market discount rates are reflective of credit and interest rate risks inherent in the Company's various loan types and are derived from available market information, as well as specific borrower information. As of March 31, 2021, the weighted average discount rate used in the valuation of loans was 5.06%. In accordance with ASU 2016-01, the fair value of loans are measured based on the notion of exit price.

The fair value of loans classified as held for sale are generally based upon quoted prices for similar assets in active markets, acceptance of firm offer letters with agreed upon purchase prices, discounted cash flow models that take into account market observable assumptions, or independent appraisals of the underlying collateral securing the loans. We report the fair values of Hawaii and U.S. Mainland construction and commercial real estate loans, if any, net of applicable selling costs on our consolidated balance sheets.

The fair values of deposits with no stated maturity, such as noninterest-bearing demand deposits and interest-bearing demand and savings accounts, are equal to the amount payable on demand. The fair value of time deposits is estimated using discounted cash flow analyses. As of March 31, 2021, the weighted average discount rate used in the valuation of time deposits was 0.29%. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

The fair value of our long-term debt is estimated by discounting scheduled cash flows over the contractual borrowing period at the estimated market rate for similar borrowing arrangements. As of March 31, 2021, the weighted average discount rate used in the valuation of long-term debt was 5.95%.

The fair values of derivative financial instruments are based upon current market values, if available. If there are no relevant comparables, fair values are based on pricing models using current assumptions for interest rate swaps and options.

The fair values of off-balance sheet financial instruments are estimated based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties, current settlement values or quoted market prices of comparable instruments.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of future business and the value of assets and liabilities that are not considered financial instruments. For example,


					Fair Value Measurement Using
(dollars in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
Financial assets:
Cash and due from banks	$	93,358	$	93,358	$	93,358	$	—	$	—
Interest-bearing deposits in other banks	166,533		166,533		166,533		—		—
Investment securities	1,217,776		1,217,776		1,435		1,206,745		9,596
Loans held for sale	5,234		5,234		—		5,234		—
Net loans	5,056,296		4,931,010		—		—		4,931,010

Accrued interest receivable	19,440		19,440		19,440		—		—

Financial liabilities:
Deposits:
Noninterest-bearing demand	2,070,428		2,070,428		2,070,428		—		—
Interest-bearing demand and savings and money market	3,241,942		3,241,942		3,241,942		—		—
Time	896,580		896,753		—		—		896,753

Long-term debt	105,436		90,479		—		—		90,479
Accrued interest payable (included in other liabilities)	2,023		2,023		2,023		—		—


							Fair Value Measurement Using
(dollars in thousands)	Notional Amount		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
Derivatives:
Interest rate lock commitments	$	1,881	$	84	$	84	$	—	$	84	$	—
Forward sale commitments	7,136		(1)		(1)		—		(1)		—
Risk participation agreement	37,704		(17)		(17)		—		—		(17)

Off-balance sheet financial instruments:
Commitments to extend credit	1,292,373		—		1,570		—		1,570		—
Standby letters of credit and financial guarantees written	11,306		—		170		—		170		—


					Fair Value Measurement Using
(dollars in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2020
Financial assets:
Cash and due from banks	$	97,546	$	97,546	$	97,546	$	—	$	—
Interest-bearing deposits in other banks	6,521		6,521		6,521		—		—
Investment securities	1,183,960		1,183,960		1,351		1,170,283		12,326
Loans held for sale	16,687		16,687		—		16,687		—
Net loans	4,880,844		4,795,776		—		—		4,795,776

Accrued interest receivable	20,224		20,224		20,224		—		—

Financial liabilities:
Deposits:
Noninterest-bearing demand	1,790,269		1,790,269		1,790,269		—		—
Interest-bearing demand and savings and money market	3,106,931		3,106,931		3,106,931		—		—
Time	898,918		899,562		—		—		899,562
Short-term borrowings	22,000		22,000		—		22,000		—
Long-term debt	105,385		92,488		—		—		92,488
Accrued interest payable (included in other liabilities)	1,727		1,727		1,727		—		—


							Fair Value Measurement Using
(dollars in thousands)	Notional Amount		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2020
Derivatives:
Interest rate lock commitments	$	714	$	18	$	18	$	—	$	18	$	—
Forward sale commitments	16,603		(115)		(115)		—		(115)		—
Risk participation agreements	37,762		(48)		(48)		—		—		(48)

Off-balance sheet financial instruments:
Commitments to extend credit	1,176,065		—		1,313		—		1,313		—
Standby letters of credit and financial guarantees written	10,544		—		158		—		158		—

We group our financial assets and liabilities at fair value into three levels based on the markets in which the financial assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:

•Level 1 — Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities traded in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

•Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

•Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques that requires the use of significant judgment or estimation.

We base our fair values on the price that we would expect to receive if an asset were sold, or the price that we would expect to pay to transfer a liability in an orderly transaction between market participants at the measurement date. We also maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.

We use fair value measurements to record adjustments to certain financial assets and liabilities and to determine fair value disclosures. Available-for-sale and equity securities and derivatives are recorded at fair value on a recurring basis. From time to time, we may be required to record other financial assets at fair value on a nonrecurring basis such as loans held for sale, impaired loans, mortgage servicing rights, and other real estate owned. These nonrecurring fair value adjustments typically involve application of the lower of cost or fair value accounting or write-downs of individual assets.


			Fair Value at Reporting Date Using
(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
Available-for-sale securities:
Debt securities:
States and political subdivisions	$	166,345	$	—	$	157,654	$	8,691
Corporate securities	46,167		—		46,167		—
U.S. Treasury obligations and direct obligations of U.S Government agencies	41,177		—		41,177		—
Mortgage-backed securities:
Residential - U.S. Government sponsored entities	815,266		—		815,266		—
Commercial - U.S. Government agencies and sponsored entities	85,879		—		85,879		—
Residential - Non-government agencies	18,800		—		17,895		905
Commercial - Non-government agencies	42,707		—		42,707		—

Total available-for-sale securities	1,216,341		—		1,206,745		9,596

Equity securities	1,435		1,435		—		—

Derivatives: Interest rate lock and forward sale commitments	66		—		83		(17)
Total	$	1,217,842	$	1,435	$	1,206,828	$	9,579


			Fair Value at Reporting Date Using
(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2020
Available-for-sale securities:
Debt securities:
States and political subdivisions	$	168,766	$	—	$	157,429	$	11,337
Corporate securities	48,008		—		48,008		—
U.S. Treasury obligations and direct obligations of U.S Government agencies	33,145		—		33,145		—
Mortgage-backed securities:
Residential - U.S. Government sponsored entities	778,826		—		778,826		—
Commercial - U.S. Government agencies and sponsored entities	87,469		—		87,469		—
Residential - Non-government agencies	23,423		—		22,434		989
Commercial - Non-government agencies	42,972		—		42,972		—

Total available-for-sale securities	1,182,609		—		1,170,283		12,326

Equity securities	1,351		1,351		—		—

Derivatives: Interest rate lock and forward sale commitments	(145)		—		(97)		(48)
Total	$	1,183,815	$	1,351	$	1,170,186	$	12,278


	Available-For-Sale Debt Securities:
(dollars in thousands)	States and Political Subdivisions		Residential - Non-Government Agencies		Total
Balance at December 31, 2020	$	11,337	$	989	$	12,326
Principal payments received	(1,973)		(5)		(1,978)
Unrealized net loss included in other comprehensive income	(673)		(79)		(752)

Balance at March 31, 2021	$	8,691	$	905	$	9,596

Balance at December 31, 2019	$	11,255	$	—	$	11,255
Principal payments received	(109)		—		(109)
Unrealized net gain included in other comprehensive income	426		—		426

Balance at March 31, 2020	$	11,572	$	—	$	11,572

Within the states and political subdivisions available-for-sale debt securities category, the Company holds three mortgage revenue bonds issued by the City & County of Honolulu with an aggregate fair value of $8.7 million and $11.6 million at March 31, 2021 and March 31, 2020, respectively. Within the other MBS non-agency category, the Company holds two mortgage backed bonds issued by Habitat for Humanity with a fair value of $0.9 million at March 31, 2021. The Company estimates the aggregate fair value of $9.6 million by using a discounted cash flow model to calculate the present value of estimated future principal and interest payments.

The significant unobservable input used in the fair value measurement of the Company's mortgage revenue bonds and Habitat for Humanity mortgage backed bonds is the weighted average discount rate. As of March 31, 2021, the weighted average discount rate utilized was 3.38% compared to 3.25% at March 31, 2020 and 2.83% at December 31, 2020, which was derived by incorporating a credit spread over the FHLB Fixed-Rate Advance curve. Significant increases (decreases) in the weighted average discount rate could result in a significantly lower (higher) fair value measurement.

The following table presents the fair value of assets measured on a nonrecurring basis and the level of valuation assumptions used to determine the respective fair values as of March 31, 2021 and December 31, 2020:

Fair Value Measurements Using

(dollars in thousands)

Fair Value

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

March 31, 2021

Other real estate (1)

—

December 31, 2020

Other real estate (1)

—