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FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2020

FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

23. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value disclosure for financial instruments:

Cash and cash equivalents — Cash and cash equivalents include cash and due from banks and Fed funds sold, and are valued at their carrying amounts because of the short-term nature of these instruments.

Interest bearing deposits in banks — Interest bearing deposits in banks are valued based on quoted interest rates for comparable instruments with similar remaining maturities.

Investment securities — The fair value of available-for-sale securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provides by brokers.

Investment in FHLB and FRB Stock — The carrying value of the FHLB and FRB stock approximates the fair value because the stock is redeemable at par.

Loans held for sale — Since the loans designated by the Company as available-for-sale are typically sold shortly after making the decision to sell them, realized gains and losses are usually recognized within the same period and fluctuations in fair value are thus not relevant for reporting purposes. If the available-for-sale loans stay on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices.

Loans—Loans with variable interest rates are valued at the current carrying value, because these loans are regularly adjusted to market rates. The fair value of fixed rate with remaining maturities in excess of one year is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. The allowance for loan losses is considered to be a reasonable estimate of the loan discount related to credit risk.

Interest receivable and payable — The accrued interest receivable and payable balance approximates its fair value.

Deposits — The fair value of noninterest bearing deposits, interest bearing transaction accounts and savings accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the future cash flows using current rates offered for deposits of similar remaining maturities.

Other borrowings — The fair value is estimated by discounting the future cash flows using current rates offered for similar borrowings. The discount rate is equal to the market rate of currently offered similar products. This is an adjustable rate borrowing and adjusts to market on a quarterly basis.

Junior Subordinated Deferrable Interest Debentures — The fair value of junior subordinated deferrable interest debentures is determined based on rates and/or discounted cash flow analysis using interest rates offered in inactive markets for instruments of a similar maturity and structure resulting in a Level 3 classification. The debenture carried at the current carrying value, because the debentures regularly adjusted to market rates.

Subordinated Debt — The fair value of subordinated debt is determined based on rates and/or discounted cash flow analysis using interest rates offered in inactive markets for instruments of a similar maturity and structure resulting in a Level 2 classification.

Undisbursed loan commitments and standby letters of credit — The fair value of the off-balance sheet items is based on discounted cash flows of expected funding.

The carrying amounts and fair values of the Company’s financial instruments at the dates indicated are presented below:


		Carrying			Fair			Fair value measurements
		amount			value			Level 1			Level 2			Level 3
December 31, 2020
Financial assets:
Cash and cash equivalents		$	299,329		$	299,329		$	299,329		$	—		$	—
Interest bearing deposits in banks			7,718			7,718			7,718			—			—
Investment securities available-for-sale			111,809			115,590			—			115,590			—
Investment in FHLB and FRB Stock			15,342			15,342			15,342			—			—
Loans held for sale			8,664			8,664			—			8,664			—
Loans, net			1,625,812			1,658,605			—			—			1,658,605
Accrued interest receivable			7,312			7,312			—			7,312			—
Financial liabilities:
Deposits			1,838,397			1,839,973			—			1,839,973			—
Other borrowings			5,000			5,000			—			5,000			—
Junior subordinated deferrable interest debentures, net			8,322			8,124			—			—			8,124
Subordinated debt, net			63,372			63,372			—			63,372			—
Accrued interest payable			1,401			1,401			—			1,401			—
Off-balance sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit			110,702			110,287			—			—			110,287


		Carrying			Fair			Fair value measurements
		amount			value			Level 1			Level 2			Level 3
December 31, 2019
Financial assets:
Cash and cash equivalents		$	295,382		$	295,382		$	295,382		$	—		$	—
Interest bearing deposits in banks			1,739			1,739			1,739			—			—
Investment securities available-for-sale			118,132			119,889			999			118,890			—
Investment in FHLB and FRB Stock			13,905			13,905			13,905			—			—
Loans held for sale			2,226			2,226			—			2,226			—
Loans, net			1,450,229			1,453,067			—			—			1,453,067
Accrued interest receivable			5,495			5,495			—			5,495			—
Financial liabilities:
Deposits			1,701,183			1,704,428			—			1,704,428			—
Junior subordinated deferrable interest debentures, net			8,242			8,086			—			—			8,086
Accrued interest payable			1,607			1,607			—			1,607			—
Off-balance sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit			128,934			128,519			—			—			128,519

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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