Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2024

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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 company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following is a description of valuation methodologies used for assets recorded at fair value. As of both June 30, 2024 and December 31, 2023, the Company did not have any liabilities recorded at fair value.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with the methodologies disclosed in Note 20 of the 2023 Form 10-KT.

Financial Assets Recorded at Fair Value

The following table presents financial assets measured at fair value on a recurring basis at the dates indicated:


	June 30, 2024
	Total		Level 1		Level 2		Level 3
Debt securities available for sale

MBS, residential	$	126,582	$	—	$	126,582	$	—
Municipal bonds	3,378		—		3,378		—
Corporate bonds	4,175		—		4,175		—
Total debt securities available for sale	$	134,135	$	—	$	134,135	$	—

Loans held for sale	$	1,614	$	—	$	1,614	$	—


	December 31, 2023
	Total		Level 1		Level 2		Level 3
Debt securities available for sale

MBS, residential	$	104,499	$	—	$	104,499	$	—
Municipal bonds	3,409		—		3,409		—
Corporate bonds	19,042		—		19,042		—
Total debt securities available for sale	$	126,950	$	—	$	126,950	$	—

Loans held for sale	$	3,359	$	—	$	3,359	$	—

Debt securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include MBS and debentures issued by GSEs, municipal bonds and corporate debt securities. The Company has no Level 3 securities.

Loans held for sale carried at fair value are valued at the individual loan level using quoted secondary market prices.

There were no transfers between levels during the six months ended June 30, 2024 or December 31, 2023.

The following table presents financial assets measured at fair value on a non-recurring basis at the dates indicated:


	June 30, 2024
	Total		Level 1		Level 2		Level 3
Collateral dependent loans
Commercial real estate loans
Commercial real estate – owner occupied	$	890	$	—	$	—	$	890
Commercial real estate – non-owner occupied	3,186		—		—		3,186
Commercial loans
Commercial and industrial	391		—		—		391
Equipment finance	1,693		—		—		1,693



Total	$	6,160	$	—	$	—	$	6,160


	December 31, 2023
	Total		Level 1		Level 2		Level 3
Collateral dependent loans
Commercial real estate loans
Commercial real estate – owner occupied	$	438	$	—	$	—	$	438
Commercial loans
Commercial and industrial	108		—		—		108
Equipment finance	578		—		—		578


Total	$	1,124	$	—	$	—	$	1,124

A loan is considered to be collateral dependent when, based on current information and events, the Company expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Company has determined that the borrower is experiencing financial difficulty as of the measurement date. For real estate loans, the fair value of the loan's collateral is determined by a third-party appraisal, which is then adjusted for the estimated selling and closing costs related to liquidation of the collateral (typically ranging from 8% to 12% of the appraised value). For this asset class, the actual valuation methods (income, sales comparable or cost) vary based on the status of the project or property. Additional discounts of 5% to 15% may be applied depending on the age of the appraisals. The unobservable inputs may vary depending on the age of the appraisals. The unobservable inputs may vary depending on the individual asset

with no one of the three methods being the predominant approach. For non-real estate loans, the fair value of the loan's collateral may be determined using an appraisal, net book value per the borrower's financial statements or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation and management's expertise and knowledge of the customer and customer's business.

The stated carrying value and estimated fair value amounts of financial instruments as of June 30, 2024 and December 31, 2023, are summarized below:


	June 30, 2024
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	294,190	$	294,190	$	294,190	$	—	$	—

Certificates of deposit in other banks	32,131		32,131		—		32,131		—
Debt securities available for sale, at fair value	134,135		134,135		—		134,135		—
FHLB and FRB stock	19,637		N/A		N/A		N/A		N/A
SBIC investments, at cost	15,462		15,462		—		—		15,462
Loans held for sale, at fair value	1,614		1,614		1,614		—		—
Loans held for sale, at the lower of cost or fair value	224,976		227,063		—		—		227,063
Loans, net	3,652,231		3,513,709		—		—		3,513,709
Accrued interest receivable	18,412		18,412		84		647		17,681
Liabilities
Noninterest-bearing and NOW deposits	1,245,135		1,245,135		—		1,245,135		—
Money market accounts	1,311,940		1,311,940		—		1,311,940		—
Savings accounts	185,499		185,499		—		185,499		—
Certificates of deposit	965,205		961,838		—		961,838		—
Junior subordinated debt	10,070		9,613		—		9,613		—
Borrowings	364,513		364,819		—		364,819		—
Accrued interest payable	9,208		9,208		—		9,208		—


	December 31, 2023
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	347,140	$	347,140	$	347,140	$	—	$	—

Certificates of deposit in other banks	34,722		34,722		—		34,722		—
Debt securities available for sale, at fair value	126,950		126,950		—		126,950		—
FHLB and FRB stock	18,393		N/A		N/A		N/A		N/A
SBIC investments, at cost	13,789		13,789		—		—		13,789
Loans held for sale, at fair value	3,359		3,359		3,359		—		—
Loans held for sale, at the lower of cost or fair value	198,433		200,869		—		—		200,869
Loans, net	3,591,381		3,472,491		—		—		3,472,491
Accrued interest receivable	16,902		16,902		107		656		16,139
Liabilities
Noninterest-bearing and NOW deposits	1,376,220		1,376,220		—		1,376,220		—
Money market accounts	1,246,807		1,246,807		—		1,246,807		—
Savings accounts	194,486		194,486		—		194,486		—
Certificates of deposit	843,860		839,501		—		839,501		—
Junior subordinated debt	10,021		9,767		—		9,767		—
Borrowings	433,763		433,747		—		433,747		—
Accrued interest payable	6,849		6,849		—		6,849		—

The Company had off-balance sheet financial commitments, which included approximately $996,439 and $982,397 of commitments to originate loans, undisbursed portions of construction loans, unused lines of credit and standby letters of credit at June 30, 2024 and December 31, 2023, respectively (see "Note 12 – Commitments and Contingencies"). Since these commitments are based on current rates, the carrying amount approximates the fair value.