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Fair Value of Financial Instruments | 3 Months Ended
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Mar. 31, 2021
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Note 6—Fair Value of Financial Instruments The Company adopted FASB ASC Fair Value Measurement Topic 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (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. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level l | Quoted prices in active markets for identical assets or liabilities.
Level 2 | 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 for substantially the full term of the assets or liabilities.
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
FASB ASC 825-10-50 “Disclosure about Fair Value of Financial Instruments”, requires the Company to disclose estimated fair values for its financial instruments. The Company’s fair value estimates, methods, and assumptions are set forth below. Cash and Short Term Investments - The carrying amount of these financial instruments (cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under agreements to resell) approximates fair value. All mature within 90 days and do not present unanticipated credit concerns and are classified as Level 1. Investment Securities Available-for-Sale - Measurement is on a recurring basis based upon quoted market prices, if available. If quoted market 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 prepayment assumptions, projected credit losses, and liquidity. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, or by dealers or brokers in active over-the-counter markets. Level 2 securities include mortgage-backed securities issued both by government sponsored enterprises and private label mortgage-backed securities. Generally, these fair values are priced from established pricing models. Level 3 securities include corporate debt obligations and asset–backed securities that are less liquid or for which there is an inactive market. Loans Held-for-Sale - The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with an investor, are carried in the Company’s loans held-for-sale portfolio. These loans are fixed rate residential loans that have been originated in the Company’s name and have closed. Virtually all of these loans have commitments to be purchased by investors at a locked in price with the investors on the same day that the loan was locked in with the company’s customers. Therefore, these loans present very little market risk for the Company and are classified as Level 2. The carrying amount of these loans approximates fair value. Loans - The valuation of loans receivable is estimated using the exit price notion which incorporates factors, such as enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated markets. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk as described above. Other Real Estate Owned (“OREO”) - OREO is carried at the lower of carrying value or fair value on a non-recurring basis. Fair value is based upon independent appraisals or management’s estimation of the collateral and is considered a Level 3 measurement. Accrued Interest Receivable - The fair value approximates the carrying value and is classified as Level 1. Deposits - The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities. Deposits are classified as Level 2. Securities Sold Under Agreements to Repurchase - The carrying value of short term borrowings (securities sold under agreements to repurchase and demand notes to the Treasury) approximates fair value. These are classified as Level 2. Junior Subordinated Debt - The fair value of junior subordinated debt is estimated by using discounted cash flow analyses based on incremental borrowing rates for similar types of instruments. These are classified as Level 2. Accrued Interest Payable -The fair value approximates the carrying value and is classified as Level 1. Commitments to Extend Credit - The fair value of these commitments is immaterial because their underlying interest rates approximate market. The carrying amount and estimated fair value by classification level of the Company’s financial instruments as of March 31, 2021 and December 31, 2020 are as follows:
|  | March 31, 2021 |
|  |  |  |  | Fair Value |
(Dollars in thousands) |  | Carrying Amount |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and short term investments |  | $ | 112,866 |  |  | $ | 112,866 |  |  | $ | 112,866 |  |  | $ | — |  |  | $ | — |
Investment securities available-for-sale |  |  | 405,848 |  |  |  | 405,848 |  |  |  | 37,051 |  |  |  | 368,797 |  |  |  | — |
Other investments, at cost |  |  | 1,699 |  |  |  | 1,699 |  |  |  | — |  |  |  | — |  |  |  | 1,699 |
Loans held-for-sale |  |  | 23,481 |  |  |  | 23,481 |  |  |  | — |  |  |  | 23,481 |  |  |  | — |
Net loans receivable |  |  | 858,503 |  |  |  | 839,395 |  |  |  | — |  |  |  | — |  |  |  | 839,395 |
Accrued interest receivable |  |  | 3,783 |  |  |  | 3,783 |  |  |  | 3,783 |  |  |  | — |  |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-interest bearing demand |  | $ | 414,707 |  |  | $ | 414,707 |  |  | $ | — |  |  | $ | 414,707 |  |  | $ | — |
Interest bearing demand deposits and money market accounts |  |  | 566,899 |  |  |  | 566,899 |  |  |  | — |  |  |  | 566,899 |  |  |  | — |
Savings |  |  | 130,984 |  |  |  | 130,984 |  |  |  | — |  |  |  | 130,984 |  |  |  | — |
Time deposits |  |  | 158,850 |  |  |  | 159,538 |  |  |  | — |  |  |  | 159,538 |  |  |  | — |
Total deposits |  |  | 1,271,440 |  |  |  | 1,272,128 |  |  |  | — |  |  |  | 1,272,128 |  |  |  | — |
Securities sold under agreements to repurchase |  |  | 60,319 |  |  |  | 60,319 |  |  |  | — |  |  |  | 60,319 |  |  |  | — |
Junior subordinated debt |  |  | 14,964 |  |  |  | 13,412 |  |  |  | — |  |  |  | 13,412 |  |  |  | — |
Accrued interest payable |  |  | 599 |  |  |  | 599 |  |  |  | 599 |  |  |  | — |  |  |  | — |
|  | December 31, 2020 |
|  | Carrying |  |  | Fair Value |
(Dollars in thousands) |  | Amount |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and short term investments |  | $ | 64,992 |  |  | $ | 64,992 |  |  | $ | 64,992 |  |  | $ | — |  |  | $ | — |
Investment securities available-for-sale |  |  | 359,866 |  |  |  | 359,866 |  |  |  | 20,564 |  |  |  | 339,302 |  |  |  | — |
Other investments, at cost |  |  | 2,053 |  |  |  | 2,053 |  |  |  | — |  |  |  | — |  |  |  | 2,053 |
Loans held for sale |  |  | 45,020 |  |  |  | 45,020 |  |  |  | — |  |  |  | 45,020 |  |  |  | — |
Net loans receivable |  |  | 833,768 |  |  |  | 829,685 |  |  |  | — |  |  |  | — |  |  |  | 829,685 |
Accrued interest receivable |  |  | 4,167 |  |  |  | 4,167 |  |  |  | 4,167 |  |  |  | — |  |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-interest bearing demand |  | $ | 385,511 |  |  | $ | 385,511 |  |  | $ | — |  |  | $ | 385,511 |  |  | $ | — |
Interest bearing demand deposits and money market accounts |  |  | 520,205 |  |  |  | 520,205 |  |  |  | — |  |  |  | 520,205 |  |  |  | — |
Savings |  |  | 123,032 |  |  |  | 123,032 |  |  |  | — |  |  |  | 123,032 |  |  |  | — |
Time deposits |  |  | 160,665 |  |  |  | 161,505 |  |  |  | — |  |  |  | 61,505 |  |  |  | — |
Total deposits |  |  | 1,189,413 |  |  |  | 1,190,253 |  |  |  | — |  |  |  | 1,190,253 |  |  |  | — |
Securities sold under agreements to repurchase |  |  | 40,914 |  |  |  | 40,914 |  |  |  | — |  |  |  | 40,914 |  |  |  | — |
Junior subordinated debt |  |  | 14,964 |  |  |  | 11,748 |  |  |  | — |  |  |  | 11,748 |  |  |  | — |
Accrued interest payable |  |  | 667 |  |  |  | 667 |  |  |  | 667 |  |  |  | — |  |  |  | — |
The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of March 31, 2021 and December 31, 2020 that are measured on a recurring basis. There were no liabilities carried at fair value as of March 31, 2021 or December 31, 2020 that are measured on a recurring basis. (Dollars in thousands)
Description |  | March 31, 2021 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
US treasury securities |  | $ | 15,011 |  |  | $ | — |  |  | $ | 15,011 |  |  | $ | — |
Government sponsored enterprises |  |  | 1,002 |  |  |  | — |  |  |  | 1,002 |  |  |  | — |
Mortgage-backed securities |  |  | 260,906 |  |  |  | 31,270 |  |  |  | 229,636 |  |  |  | — |
Small Business Administration pools |  |  | 37,782 |  |  |  | 5,280 |  |  |  | 32,502 |  |  |  | — |
State and local government |  |  | 87,821 |  |  |  | 501 |  |  |  | 87,320 |  |  |  | — |
Corporate and other securities |  |  | 3,326 |  |  |  | — |  |  |  | 3,326 |  |  |  | — |
Total Available-for-sale securities |  |  | 405,848 |  |  |  | 37,051 |  |  |  | 368,797 |  |  |  | — |
Loans held-for-sale |  |  | 23,481 |  |  |  | — |  |  |  | 23,481 |  |  |  | — |
Total |  | $ | 429,330 |  |  | $ | 37,052 |  |  | $ | 392,278 |  |  | $ | — |
(Dollars in thousands)
Description |  | December 31, 2020 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Available- for-sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
US Treasury Securities |  | $ | 1,502 |  |  | $ | — |  |  | $ | 1,502 |  |  | $ | — |
Government Sponsored Enterprises |  |  | 1,006 |  |  |  | — |  |  |  | 1,006 |  |  |  | — |
Mortgage-backed securities |  |  | 229,929 |  |  |  | 17,029 |  |  |  | 212,900 |  |  |  | — |
Small Business Administration pools |  |  | 35,498 |  |  |  | — |  |  |  | 35,498 |  |  |  | — |
State and local government |  |  | 88,603 |  |  |  | 3,535 |  |  |  | 85,068 |  |  |  | — |
Corporate and other securities |  |  | 3,328 |  |  |  | — |  |  |  | 3,328 |  |  |  | — |
|  |  | 359,866 |  |  |  | 20,564 |  |  |  | 339,302 |  |  |  | — |
Loans held for sale |  |  | 45,020 |  |  |  | — |  |  |  | 45,020 |  |  |  | — |
Total |  | $ | 404,886 |  |  | $ | 20,564 |  |  | $ | 384,322 |  |  | $ | — |
The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of March 31, 2021 and December 31, 2020 that are measured on a non-recurring basis. There were no Level 3 financial instruments for the three months ended March 31, 2021 and March 31, 2020 measured on a recurring basis.
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Description |  | March 31, 2021 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Industrial |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-residential |  |  | 436 |  |  |  | — |  |  |  | — |  |  |  | 436 |
Mortgage-commercial |  |  | 5,576 |  |  |  | — |  |  |  | — |  |  |  | 5,576 |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity |  |  | 21 |  |  |  | — |  |  |  | — |  |  |  | 21 |
Other |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total impaired |  |  | 6,033 |  |  |  | — |  |  |  | — |  |  |  | 6,033 |
Other real estate owned: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction |  |  | 529 |  |  |  | — |  |  |  | — |  |  |  | 529 |
Mortgage-residential |  |  | 541 |  |  |  | — |  |  |  | — |  |  |  | 541 |
Total other real estate owned |  |  | 1,070 |  |  |  | — |  |  |  | — |  |  |  | 1,070 |
Total |  | $ | 7,103 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,103 |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Description |  | December 31, 2020 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Industrial |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-residential |  |  | 440 |  |  |  | — |  |  |  | — |  |  |  | 440 |
Mortgage-commercial |  |  | 5,629 |  |  |  | — |  |  |  | — |  |  |  | 5,629 |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity |  |  | 42 |  |  |  | — |  |  |  | — |  |  |  | 42 |
Other |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total impaired |  |  | 6,111 |  |  |  | — |  |  |  | — |  |  |  | 6,111 |
Other real estate owned: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction |  |  | 600 |  |  |  | — |  |  |  | — |  |  |  | 600 |
Mortgage-commercial |  |  | 594 |  |  |  | — |  |  |  | — |  |  |  | 594 |
Total other real estate owned |  |  | 1,194 |  |  |  | — |  |  |  | — |  |  |  | 1,194 |
Total |  | $ | 7,305 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,305 |
The Company has a large percentage of loans with real estate serving as collateral. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs. Third party appraisals are generally obtained when a loan is identified as being impaired or at the time it is transferred to OREO. This internal process consists of evaluating the underlying collateral to independently obtained comparable properties. With respect to less complex or smaller credits, an internal evaluation may be performed. Generally, the independent and internal evaluations are updated annually. Factors considered in determining the fair value include, among others, geographic sales trends, the value of comparable surrounding properties and the condition of the property. The aggregate amount of impaired loans was $6.0 million and $6.1 million as of March 31, 2021 and December 31, 2020, respectively. For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:
(Dollars in thousands) |  | Fair Value as of December 31, 2021 |  |  | Valuation Technique |  | Significant Observable Inputs |  | Significant Unobservable Inputs
OREO |  | $ | 1,070 |  |  | Appraisal Value/Comparison Sales/Other estimates |  | Appraisals and or sales of comparable properties |  | Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans |  | $ | 6,033 |  |  | Appraisal Value |  | Appraisals and or sales of comparable properties |  | Appraisals discounted 6% to 16% for sales commissions and other holding cost
(Dollars in thousands) |  | Fair Value as of December 31, 2020 |  |  | Valuation Technique |  | Significant Observable Inputs |  | Significant Unobservable Inputs
OREO |  | $ | 1,194 |  |  | Appraisal Value/Comparison Sales/Other estimates |  | Appraisals and or sales of comparable properties |  | Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans |  | $ | 6,111 |  |  | Appraisal Value |  | Appraisals and or sales of comparable properties |  | Appraisals discounted 6% to 16% for sales commissions and other holding cost

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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 -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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