Fair Value Measurements

12 Months Ended

Dec. 31, 2020

9.	Fair Value Measurements

The Company follows FASB ASC

820-10,

Fair Value Measurements and Disclosures,

which among other things, requires enhanced disclosures about assets and liabilities carried at fair value. ASC

820-10

establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad levels of the hierarchy are as follows:

Level I—Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The type of financial instruments included in Level I are highly liquid cash instruments with quoted prices such as listed equities and money market securities, as well as listed derivative instruments.

Level II—Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Instruments which are generally included in this category are

G-7

government, agency securities, corporate bonds and loans, mortgage whole loans, municipal bonds and OTC derivatives.

Level III—These instruments have little to no pricing observability as of the reported date. These financial instruments do not have

two-way

markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Instruments that are included in this category generally include certain commercial mortgage loans, and obligations issued by states and political subdivisions.

The results of the fair value hierarchy as of December 31, 2020, are as follows:


			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
(dollars in thousands)
Financial Instruments Measured at Fair Value on a Recurring Basis
Securities AFS
SBA Backed Securities	$	44,039	$	—	$	44,039	$	—
U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities		177,741		—		177,741		—
Privately Issued Residential Mortgage-Backed Securities		328		—		328		—
Obligations Issued by States and Political Subdivisions		52,276		—		—		52,276
Other Debt Securities		8,064		—		8,064		—

Total	$	282,448	$	—	$	230,172	$	52,276

Equity Securities	$	1,668	$	303	$	1,365	$	—
Financial Instruments Measured at Fair Value on a Non-recurring Basis
Impaired Loans	$	3,178	$	—	$	—	$	3,178

The changes in Level 3 securities for the year ended December 31, 2019 are as shown in the table below:


	Obligations Issued by States and Political Subdivisions
(dollars in thousands)
Balance at December 31, 2018	$	88,728
Purchases		21,408
Maturities/redemptions		(96,812	)
Transfer to Level 2		—
Amortization		(23	)
Change in fair value		—

Balance at December 31, 2019	$	13,301

The amortized cost of Level 3 securities was $13,301,000 with an unrealized loss of $0 at December 31, 2019. The securities in this category are generally municipal securities with no readily determinable fair value or failed auction rate securities. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.

- 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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