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Fair Value Measurements | 3 Months Ended
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Mar. 31, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (i.e. an 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. The three-level fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows: •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 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 reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Fair value is measured on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate certain assets or liabilities for impairment or for disclosure purposes. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company records securities available-for-sale at fair value on a recurring basis. Certain other assets, such as loans held-for-sale, loans individually evaluated, servicing assets and other real estate owned (“OREO”) are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value: Investment securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management reviews the valuation techniques and assumptions used by the provider and determines that the provider uses widely accepted valuation techniques based on observable market inputs appropriate for the type of security being measured. Securities held-to-maturity are not measured at fair value on a recurring basis. Loans held-for-sale: The Company records SBA loans held-for-sale, residential property loans held-for-sale and certain non-residential real estate loans held-for-sale at the lower of cost or fair value, on an aggregate basis. The Company obtains fair values from a third party independent valuation service provider. Loans held-for-sale accounted for at the lower of cost or fair value are considered to be recognized at fair value when they are recorded at below cost, on an aggregate basis, and are classified as Level 2. Loans individually evaluated: Certain collateral-dependent loans individually evaluated are recognized at fair value when they reflect partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent loans individually evaluated are obtained from real estate brokers or other third-party consultants, and are classified as Level 3. Other real estate owned: The Company initially records OREO at fair value at the time of foreclosure. Thereafter, OREO is recorded at the lower of cost or fair value based on their subsequent changes in fair value. The fair value of OREO is generally based on recent real estate appraisals adjusted for estimated selling costs. 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 appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and result in a Level 3 classification due to the unobservable inputs used for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value. Servicing Assets: Servicing assets represent the value associated with servicing loans that have been sold. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates and prepayment speed assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. The fair market valuation is performed on a quarterly basis for servicing assets. Servicing assets are accounted for at the lower of cost or market value and considered to be recognized at fair value when they are recorded at below cost and are classified as Level 3. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of dates indicated:
|  | Fair Value Measurement Level |  |
($ in thousands) |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
March 31, 2024 |  |  |  |  |  |  |  |
Securities available-for-sale: |  |  |  |  |  |  |  |
U.S. government agency and U.S. government sponsored enterprise securities: |  |  |  |  |  |  |  |
Residential mortgage-backed securities |  | $ | — |  |  | $ | 100,183 |  |  | $ | — |  |  | $ | 100,183 |
Residential collateralized mortgage obligations |  | — |  |  | 23,428 |  |  | — |  |  | 23,428 |
SBA loan pool securities |  | — |  |  | 7,129 |  |  | — |  |  | 7,129 |
Municipal bonds |  | — |  |  | 3,280 |  |  | — |  |  | 3,280 |
Corporate bonds |  | — |  |  | 4,150 |  |  | — |  |  | 4,150 |
Total securities available-for-sale |  | — |  |  | 138,170 |  |  | — |  |  | 138,170 |
Total assets measured at fair value on a recurring basis |  | $ | — |  |  | $ | 138,170 |  |  | $ | — |  |  | $ | 138,170 |
Total liabilities measured at fair value on a recurring basis |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
December 31, 2023 |  |  |  |  |  |  |  |
Securities available-for-sale: |  |  |  |  |  |  |  |
U.S. government agency and U.S. government sponsored enterprise securities: |  |  |  |  |  |  |  |
Residential mortgage-backed securities |  | $ | — |  |  | $ | 104,091 |  |  | $ | — |  |  | $ | 104,091 |
Residential collateralized mortgage obligations |  | — |  |  | 24,173 |  |  | — |  |  | 24,173 |
SBA loan pool securities |  | — |  |  | 7,450 |  |  | — |  |  | 7,450 |
Municipal bonds |  | — |  |  | 3,329 |  |  | — |  |  | 3,329 |
Corporate bonds |  | — |  |  | 4,280 |  |  | — |  |  | 4,280 |
Total securities available-for-sale |  | — |  |  | 143,323 |  |  | — |  |  | 143,323 |
Total assets measured at fair value on a recurring basis |  | $ | — |  |  | $ | 143,323 |  |  | $ | — |  |  | $ | 143,323 |
Total liabilities measured at fair value on a recurring basis |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis The following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis as of dates indicated:
|  | Fair Value Measurement Level |  |
($ in thousands) |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
March 31, 2024 |  |  |  |  |  |  |  |
Loans individually evaluated: |  |  |  |  |  |  |  |
Business property |  | $ | — |  |  | $ | — |  |  | $ | 463 |  |  | $ | 463 |
Total loans individually evaluated |  | — |  |  | — |  |  | 463 |  |  | 463 |
Total assets measured at fair value on a non-recurring basis |  | $ | — |  |  | $ | — |  |  | $ | 463 |  |  | $ | 463 |
Total liabilities measured at fair value on a non-recurring basis |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
December 31, 2023 |  |  |  |  |  |  |  |
Loans individually evaluated: |  |  |  |  |  |  |  |
Business property |  | $ | — |  |  | $ | — |  |  | $ | 425 |  |  | $ | 425 |
Total loans individually evaluated |  | — |  |  | — |  |  | 425 |  |  | 425 |
Total assets measured at fair value on a non-recurring basis |  | $ | — |  |  | $ | — |  |  | $ | 425 |  |  | $ | 425 |
Total liabilities measured at fair value on a non-recurring basis |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a non-recurring basis as of the date indicated:
($ in thousands) |  | Fair Value |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range (Weighted-Average)
March 31, 2024 |  |  |  |  |  |  |  |
Loans individually evaluated: |  |  |  |  |  |  |  |
Business property |  | $ | 463 |  |  | Fair value of collateral |  | NM |  | NM
December 31, 2023 |  |  |  |  |  |  |  |
Loans individually evaluated: |  |  |  |  |  |  |  |
Business property |  | $ | 425 |  |  | Fair value of collateral |  | NM |  | NM
The following table presents gains or losses, including charge-offs, recoveries, and specific reserves recorded, for assets measured at fair value for the periods indicated:
|  | Three Months Ended March 31, |  |
($ in thousands) |  | 2024 |  | 2023 |  |  |  |
Loans individually evaluated: |  |  |  |  |  |  |  |
Business property |  | $ | 13 |  |  | $ | (29) |  |  |  |  |
Commercial and industrial |  | — |  |  | 1,074 |  |  |  |  |
Net gains recognized |  | $ | 13 |  |  | $ | 1,045 |  |  |  |  |
Fair Value of Financial Instruments The following table presents the carrying value and estimated fair values of financial assets and liabilities as of the dates indicated:
|  | Carrying Value |  | Fair Value |  | Fair Value Measurements
($ in thousands) |  |  |  | Level 1 |  | Level 2 |  | Level 3
March 31, 2024 |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits in other financial institutions |  | $ | 210,359 |  |  | $ | 210,359 |  |  | $ | 210,359 |  |  | $ | — |  |  | $ | — |
Securities available-for-sale |  | 138,170 |  |  | 138,170 |  |  | — |  |  | 138,170 |  |  | — |
Loans held-for-sale |  | 3,256 |  |  | 3,498 |  |  | — |  |  | 3,498 |  |  | — |
Net loans held-for-investment |  | 2,369,632 |  |  | 2,285,874 |  |  | — |  |  | — |  |  | 2,285,874 |
Federal Home Loan Bank (“FHLB”) and other restricted stock |  | 12,716 |  |  | N/A |  | N/A |  | N/A |  | N/A
Accrued interest receivable |  | 10,394 |  |  | 10,394 |  |  | 348 |  |  | 452 |  |  | 9,594 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 2,402,840 |  |  | $ | 2,406,788 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,406,788 |
FHLB advances |  | 50,000 |  |  | 50,030 |  |  | — |  |  | 50,030 |  |  | — |
Accrued interest payable |  | 16,742 |  |  | 16,742 |  |  | — |  |  | 46 |  |  | 16,696 |
December 31, 2023 |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits in other financial institutions |  | $ | 215,824 |  |  | $ | 215,824 |  |  | $ | 215,824 |  |  | $ | — |  |  | $ | — |
Securities available-for-sale |  | 143,323 |  |  | 143,323 |  |  | — |  |  | 143,323 |  |  | — |
Loans held-for-sale |  | 5,155 |  |  | 5,472 |  |  | — |  |  | 5,472 |  |  | — |
Net loans held-for-investment |  | 2,295,919 |  |  | 2,225,573 |  |  | — |  |  | — |  |  | 2,225,573 |
FHLB and other restricted stock |  | 12,716 |  |  | N/A |  | N/A |  | N/A |  | N/A
Accrued interest receivable |  | 9,468 |  |  | 9,468 |  |  | 128 |  |  | 513 |  |  | 8,827 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 2,351,612 |  |  | $ | 2,353,465 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,353,465 |
FHLB advances |  | 39,000 |  |  | 39,013 |  |  | — |  |  | 39,013 |  |  | — |
Accrued interest payable |  | 18,052 |  |  | 18,052 |  |  | — |  |  | 192 |  |  | 17,860 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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