Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time of 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 anticipated future business and the value of assets and liabilities that are not considered financial instruments.

As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following measurements are made on a recurring basis.

Available-for-sale investment securities — Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level I securities include those traded on an active exchange, such as the New York Stock Exchange and money market funds. Level II securities include mortgage-backed securities issued by government sponsored entities and private label entities, municipal bonds,

United States Treasury securities that are traded by dealers or brokers in inactive over-the-counter markets and corporate debt securities. There have been no changes in valuation techniques for the year ended December 31, 2023. Certain local municipal securities related to tax increment financing (“TIF”) are independently valued and classified as Level III instruments. We classified investments in government securities as Level II instruments and valued them using the market approach.

Equity securities — Certain equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. The valuation methodologies utilized may include significant unobservable inputs. There have been no changes in valuation techniques for the year ended December 31, 2023. Valuation techniques are consistent with techniques used in prior periods.

Loans held-for-sale - The fair value of loans held-for-sale is determined, when possible, using quoted secondary market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants. If the fair value at the reporting date exceeds the amortized cost of a loan, the loan is reported at amortized cost.

Interest rate swaps – Interest rate swaps are recorded at fair value based on third-party vendors who compile prices from various sources and may determine the fair value of identical or similar instruments by using pricing models that consider observable market data.

Fair value hedges – Treated like an interest rate swap, fair value hedges are recorded at fair value based on third-party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.

Bank-owned life insurance - Life insurance where the bank is both the policy beneficiary and owner. Bank-owned life insurance is recorded at fair value on a recurring basis, and increases in cash surrender, contract value and net insurance proceeds at maturity are recorded as other income.

Embedded derivatives — Accounted for and recorded separately from the underlying contract as a derivative at fair value on a recurring basis. Fair values are determined using the Monte Carlo model valuation technique. The valuation methodology utilized includes significant unobservable inputs.

The following tables present the assets reported on the consolidated statements of financial condition at their fair value on a recurring basis as of December 31, 2023 and 2022 by level within the fair value hierarchy:


	December 31, 2023
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
United States government agency securities	$	—	$	38,408	$	—	$	38,408
United States sponsored mortgage-backed securities	—		82,382		—		82,382
United States treasury securities	—		100,356		—		100,356
Municipal securities	—		88,662		18,245		106,907
Corporate debt securities	—		8,942		—		8,942

Other securities	—		780		—		780
Equity securities	3,590		—		—		3,590
Loans held-for-sale	—		629		—		629
Interest rate swaps	—		6,249		—		6,249

Bank-owned life insurance	—		44,287		—		44,287
Embedded derivative	—		—		648		648
Liabilities:
Interest rate swaps	—		6,249		—		6,249
Fair value hedge	—		6,111		—		6,111


	December 31, 2022
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
United States government agency securities	$	—	$	44,814	$	—	$	44,814
United States sponsored mortgage-backed securities	—		56,571		—		56,571
United States treasury securities	—		120,909		—		120,909
Municipal securities	—		103,293		35,343		138,636
Corporate debt securities	—		10,560		—		10,560
Other securities	—		824		—		824
Equity securities	5,382		—		—		5,382
Loans held-for-sale			24,898		—		24,898
Interest rate swaps	—		8,427		—		8,427
Bank-owned life insurance	—		43,239		—		43,239
Embedded derivative	—		—		787		787
Liabilities:
Interest rate swaps	—		8,427		—		8,427
Fair value hedge	—		572		—		572


(Dollars in thousands)	Municipal Securities		Embedded Derivatives		Total
Balance at December 31, 2022	$	35,343	$	787	$	36,130
Realized and unrealized income (loss) included in earnings	47		(139)		(92)
Purchase of securities	246		—		246
Maturities/calls	(18,294)		—		(18,294)
Unrealized gain included in other comprehensive loss	903		—		903
Balance at December 31, 2023	$	18,245	$	648	$	18,893

Balance at December 31, 2021	$	41,763	$	—	$	41,763
Realized and unrealized gains included in earnings	9		—		9
Purchase of securities	1,048		—		1,048
Maturities/calls	(3,207)		—		(3,207)
Unrealized loss included in other comprehensive loss	(4,270)		—		(4,270)
Host contract executed	—		787		787
Balance at December 31, 2022	$	35,343	$	787	$	36,130

We may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment) and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a nonrecurring basis during 2023 and 2022 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible credit losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other noninterest expense.

Collateral-dependent loans - Certain loans receivable are evaluated individually for credit loss when the borrower is experiencing financial difficulties and repayment is expected to be provided substantially through the operation or sale of collateral. Estimated credit losses are based on the fair value of the collateral, adjusted for costs to sell. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of collateral-dependent real estate related loans, we obtain a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.

Other real estate owned – Other real estate owned, which is obtained through the Bank’s foreclosure process, is valued utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. At the time the foreclosure is completed, we obtain a current external appraisal.

Other debt securities – Certain debt securities are recorded at fair value on a nonrecurring basis. These other debt securities are securities without a readily determinable fair value and are measured at cost minus impairment, if any.

Equity securities – Certain equity securities are recorded at fair value on a nonrecurring basis. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.


	December 31, 2023
(Dollars in thousands)	Level I	Level II	Level III	Total
Collateral-dependent loans	—	—	2,891	2,891
Other real estate owned	—	—	825	825
Other debt securities	—	—	7,500	7,500
Equity securities	—	—	37,496	37,496


	December 31, 2022
(Dollars in thousands)	Level I		Level II		Level III		Total
Collateral-dependent loans	$	—	$	—	$	14,117	$	14,117
Other real estate owned	—		—		1,194		1,194
Other debt securities	—		—		7,500		7,500

Equity securities	—		—		33,362		33,362

The carrying amount of equity securities without a readily determinable fair value and amounts of unrealized gains and losses recognized in earnings as of December 31, 2023 and 2022 are included in the table below:


(Dollars in thousands)	Cumulative Adjustments		Annual Adjustments
December 31, 2023
Carrying value	$	37,496	$	37,496
Carrying value adjustments:
Upward changes for observable prices	18,038		671
Downward changes for observable prices	(2,014)		(250)
Net gain	$	16,024	$	421

December 31, 2022
Carrying value	$	33,362	$	33,362
Carrying value adjustments:
Upward changes for observable prices	17,367		203
Downward changes for observable prices	(1,764)		(1,652)
Net gain (loss)	$	15,603	$	(1,449)

At December 31, 2023 equity securities consist of our Fintech investment portfolio, which is comprised of investments in 10 companies with a carrying value of $36.4 million, and other equity security investments with a carrying value of $1.1 million. The equity securities included in the table above do not have readily determinable fair values and are recorded at cost and adjusted for observable price changes for underlying transactions for identical or similar investments. The net gain (loss) in values of the equity securities is included in holding gain (loss) on equity securities in our consolidated statements of income.

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

December 31, 2023

Nonrecurring measurements:

Collateral-dependent loans

2,891

Appraisal of collateral 1

Appraisal adjustments 2

0% - 20%

Liquidation expense 2

Other real estate owned

825

Appraisal of collateral 1

Appraisal adjustments 2

0% - 20%

Liquidation expense 2

Other debt securities

7,500

Net asset value

Cost, less impairment

Equity securities

37,496

Net asset value

Cost, less impairment

Recurring measurements:

Municipal securities 5

18,245

Appraisal of bond 3

Bond appraisal adjustment 4

5% - 15%

Embedded Derivatives

648

Monte Carlo pricing model

Deferred payment

$0 - $49.1 million

Volatility

59%

Term

4.75 years

Risk free rate

3.59%

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

December 31, 2022

Nonrecurring measurements:

Impaired loans

14,117

Appraisal of collateral 1

Appraisal adjustments 2

0% - 20%

Liquidation expense 2

Other real estate owned

1,194

Appraisal of collateral 1

Appraisal adjustments 2

0% - 20%

Liquidation expense 2

Other debt securities

7,500

Net asset value

Cost, less impairment

Equity securities

33,362

Net asset value

Cost, less impairment

Recurring measurements:

Municipal securities 5

35,343

Appraisal of bond 3

Bond appraisal adjustment 4

5% - 15%

Embedded Derivatives

787

Monte Carlo pricing model

Deferred payment

$0 - $51.9 million

Volatility

58%

Term

5 years

Risk free rate

3.95%

2 Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted-average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.