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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Fair Value Hierarchy 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 market prices (unadjusted) for identical instruments traded 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 an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, we report the transfer at the beginning of the reporting period. The estimated carrying and fair values of the Company’s financial instruments are as follows (in thousands):
|  | September 30, 2021
|  | Carrying Amount |  | Fair Value
(In thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 32,634 |  |  | $ | 32,634 |  |  | $ | — |  |  | $ | — |  |  | $ | 32,634 |
Interest-earning deposits in other banks |  | 35,059 |  |  | 35,059 |  |  | — |  |  | — |  |  | 35,059 |
Available-for-sale debt securities |  | 1,060,362 |  |  | — |  |  | 1,060,362 |  |  | — |  |  | 1,060,362 |
Equity securities |  | 7,486 |  |  | 7,486 |  |  | — |  |  | — |  |  | 7,486 |
Loans, net |  | 1,073,436 |  |  | — |  |  | — |  |  | 1,065,575 |  |  | 1,065,575 |
Federal Home Loan Bank stock |  | 5,595 |  |  | N/A |  | N/A |  | N/A |  | N/A
Accrued interest receivable |  | 9,170 |  |  | 8 |  |  | 5,587 |  |  | 3,575 |  |  | 9,170 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Deposits |  | 2,058,092 |  |  | 1,952,489 |  |  | 89,877 |  |  | — |  |  | 2,042,366 |
Junior subordinated deferrable interest debentures |  | 5,155 |  |  | — |  |  | — |  |  | 4,322 |  |  | 4,322 |
Accrued interest payable |  | 52 |  |  | — |  |  | 29 |  |  | 23 |  |  | 52 |
|  | December 31, 2020
|  | Carrying Amount |  | Fair Value
(In thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 34,175 |  |  | $ | 34,175 |  |  | $ | — |  |  | $ | — |  |  | $ | 34,175 |
Interest-earning deposits in other banks |  | 36,103 |  |  | 36,103 |  |  | — |  |  | — |  |  | 36,103 |
Available-for-sale debt securities |  | 710,092 |  |  | — |  |  | 710,092 |  |  | — |  |  | 710,092 |
Equity securities |  | 7,634 |  |  | 7,634 |  |  | — |  |  | — |  |  | 7,634 |
Loans, net |  | 1,089,432 |  |  | — |  |  | — |  |  | 1,087,124 |  |  | 1,087,124 |
Federal Home Loan Bank stock |  | 5,595 |  |  | N/A |  | N/A |  | N/A |  | N/A
Accrued interest receivable |  | 8,834 |  |  | 9 |  |  | 3,617 |  |  | 5,208 |  |  | 8,834 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Deposits |  | 1,722,710 |  |  | 1,691,647 |  |  | 90,008 |  |  | — |  |  | 1,781,655 |
Junior subordinated deferrable interest debentures |  | 5,155 |  |  | — |  |  | — |  |  | 3,693 |  |  | 3,693 |
Accrued interest payable |  | 65 |  |  | — |  |  | 41 |  |  | 24 |  |  | 65 |
These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding 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 fair values presented. The methods and assumptions used to estimate fair values are described as follows: (a) Cash and Cash Equivalents — The carrying amounts of cash and due from banks, interest-earning deposits in other banks, and Federal funds sold approximate fair values and are classified as Level 1. (b) Investment Securities — Investment securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for investment securities classified in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. (c) Loans — Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Purchased credit impaired (PCI) loans are measured at estimated fair value on the date of acquisition. Carrying value is calculated as the present value of expected cash flows and approximates fair value and included in Level 3. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are initially valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued 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 client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. The estimated fair values of financial instruments disclosed above follow the guidance in ASU 2016-01 which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and marketability factors. (d) FHLB Stock — It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. (e) Deposits — Fair value of demand deposit, savings, and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair value for fixed and variable rate certificates of deposit are estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Company for certificates with similar remaining maturities resulting in a Level 2 classification. (f) Subordinated Debentures — The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification. (g) Accrued Interest Receivable/Payable — The fair value of accrued interest receivable and payable is based on the fair value hierarchy of the related asset or liability. (h) Off-Balance Sheet Instruments — Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not considered significant for financial reporting purposes. Assets Recorded at Fair Value The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2021: Recurring Basis The Company is required or permitted to record the following assets at fair value on a recurring basis as of September 30, 2021 (in thousands).
Description |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Available-for-sale debt securities: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 10,010 |  |  | $ | — |  |  | $ | 10,010 |  |  | $ | — |
U.S. Government agencies |  | 505 |  |  | — |  |  | 505 |  |  | — |
Obligations of states and political subdivisions |  | 507,920 |  |  | — |  |  | 507,920 |  |  | — |
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations |  | 228,045 |  |  | — |  |  | 228,045 |  |  | — |
Private label mortgage and asset backed securities |  | 253,756 |  |  | — |  |  | 253,756 |  |  | — |
Corporate debt securities |  | 60,126 |  |  | — |  |  | 60,126 |  |  | — |
Equity securities |  | 7,486 |  |  | 7,486 |  |  | — |  |  | — |
Total assets measured at fair value on a recurring basis |  | $ | 1,067,848 |  |  | $ | 7,486 |  |  | $ | 1,060,362 |  |  | $ | — |
Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for available-for-sale debt securities in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the nine months ended September 30, 2021, no transfers between levels occurred. There were no Level 3 assets measured at fair value on a recurring basis at or during the nine months ended September 30, 2021. Also there were no liabilities measured at fair value on a recurring basis at September 30, 2021. Non-recurring Basis The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include assets and liabilities that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at September 30, 2021.
|  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Impaired loans: |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |
Real estate-construction and other land loans |  | $ | 262 |  |  | $ | — |  |  | $ | — |  |  | $ | 262 |
At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued 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 client and client’s business, resulting in a Level 3 fair value classification. The fair value of impaired loans is based on the fair value of the collateral. Impaired loans were determined to be collateral dependent and categorized as Level 3 due to ongoing real estate market conditions resulting in inactive market data, which in turn required the use of unobservable inputs and assumptions in fair value measurements. Impaired loans evaluated under the discounted cash flow method are excluded from the table above. The discounted cash flow methods as prescribed by ASC Topic 310 is not a fair value measurement since the discount rate utilized is the loan’s effective interest rate which is not necessarily a market rate. There were no changes in valuation techniques used during the nine months ended September 30, 2021. Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value is compared with independent data sources such as recent market data or industry-wide statistics. Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had a principal balance of $304,000 with a valuation allowance of $42,000 at September 30, 2021, and a resulting fair value of $262,000. The valuation allowance represent specific allocations for the allowance for credit losses for impaired loans. There were no charge-offs related to loans carried at fair value during the nine months ended September 30, 2021 and 2020. Activity related to changes in the allowance for loan losses related to impaired loans for the three months ended September 30, 2021 and 2020 was not considered significant for disclosure purposes. There were no liabilities measured at fair value on a non-recurring basis at September 30, 2021. The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2020: Recurring Basis The Company is required or permitted to record the following assets at fair value on a recurring basis as of December 31, 2020 (in thousands).
Description |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Available-for-sale debt securities: |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 680 |  |  | $ | — |  |  | $ | 680 |  |  | $ | — |
Obligations of states and political subdivisions |  | 379,565 |  |  | — |  |  | 379,565 |  |  | — |
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations |  | 216,298 |  |  | — |  |  | 216,298 |  |  | — |
Private label mortgage and asset backed securities |  | 83,508 |  |  | — |  |  | 83,508 |  |  | — |
Corporate debt securities |  | 30,041 |  |  | — |  |  | 30,041 |  |  | — |
Equity securities |  | 7,634 |  |  | 7,634 |  |  | — |  |  | — |
Total assets measured at fair value on a recurring basis |  | $ | 717,726 |  |  | $ | 7,634 |  |  | $ | 710,092 |  |  | $ | — |
Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for available-for-sale debt securities in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the year ended December 31, 2020, no transfers between levels occurred. There were no Level 3 assets measured at fair value on a recurring basis at or during the year ended December 31, 2020. Also there were no liabilities measured at fair value on a recurring basis at December 31, 2020. Non-recurring Basis The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include the following assets and liabilities that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at December 31, 2020 (in thousands):
|  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Impaired loans: |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |
Real estate-construction and other land loans |  | $ | 1,260 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,260 |
Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had a principal balance of $1,528,000 with a valuation allowance of $268,000 at December 31, 2020, and a resulting fair value of $1,260,000. The valuation allowance represents specific allocations for the allowance for credit losses for impaired loans. There were no liabilities measured at fair value on a non-recurring basis at December 31, 2020.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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