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Fair Value Measurements and Disclosure | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Disclosure | Note 8 – Fair Value Measurements and Disclosures The Company follows the guidance on fair value measurements now codified as FASB ASC Topic 820, Fair Value Measurement (“Topic 820”) . Fair value measurements are not adjusted for transaction costs. Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Management uses its best judgment in estimating the fair value of the Company’s financial instruments, however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective period-end and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each period-end. The fair value measurement hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 : Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 : Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 3 : Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2023 were as follows:
Description |  | (Level 1) Quoted Price in Active Markets for Identical Assets |  |  | (Level 2) Significant Other Observable Inputs |  |  | (Level 3) Significant Unobservable Inputs |  |  | Total Fair Value September 30, 2023 |
|  |  |  |  | (In thousands) |  |  |  |
Mortgage-backed securities -U.S. government sponsored enterprise (GSEs) |  | $ | — |  |  | $ | 40,043 |  |  | $ | — |  |  | $ | 40,043 |
U.S. government agency securities |  |  | — |  |  |  | 4,904 |  |  |  | — |  |  |  | 4,904 |
Obligations of state and political subdivisions |  |  | — |  |  |  | 37,627 |  |  |  | — |  |  |  | 37,627 |
Small Business Association (SBA) securities |  |  | — |  |  |  | 2,818 |  |  |  | — |  |  |  | 2,818 |
Subordinated debentures |  |  | — |  |  |  | 453 |  |  |  | — |  |  |  | 453 |
SBIC securities |  |  | — |  |  |  | — |  |  |  | 2,219 |  |  |  | 2,219 |
Securities available-for-sale at fair value |  | $ | — |  |  | $ | 85,845 |  |  | $ | 2,219 |  |  | $ | 88,064 |
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy, used at December 31, 2022 were as follows:
Description |  | (Level 1) Quoted Price in Active Markets for Identical Assets |  |  | (Level 2) Significant Other Observable Inputs |  |  | (Level 3) Significant Unobservable Inputs |  |  | Total Fair Value December 31, 2022 |
|  |  |  |  | (In thousands) |  |  |  |
Mortgage-backed securities -U.S. government sponsored enterprise (GSEs) |  | $ | — |  |  | $ | 34,915 |  |  | $ | — |  |  | $ | 34,915 |
U.S. government agency securities |  |  |  |  |  |  | 5,085 |  |  |  | — |  |  |  | 5,085 |
Obligations of state and political subdivisions |  |  | — |  |  |  | 41,341 |  |  |  | — |  |  |  | 41,341 |
SBIC securities |  |  | — |  |  |  | — |  |  |  | 2,061 |  |  |  | 2,061 |
Securities available-for-sale at fair value |  | $ | — |  |  | $ | 81,341 |  |  | $ | 2,061 |  |  | $ | 83,402 |
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2023, were as follows.
Description |  | (Level 1) Quoted Price in Active Markets for Identical Assets |  |  | (Level 2) Significant Other Observable Inputs |  |  | (Level 3) Significant Unobservable Inputs |  |  | Total Fair Value September 30, 2023 |
|  |  |  |  | (In thousands) |  |  |  |
Collateral dependent loan |  | $ | — |  |  | $ | — |  |  | $ | 4,485 |  |  | $ | 4,485 |
|  | $ | — |  |  | $ | — |  |  | $ | 4,485 |  |  | $ | 4,485 |
The following table presents quantitative information using Level 3 fair value measurements at September 30, 2023.
Description |  | September 30, 2023 |  |  | Valuation Technique |  |  | Unobservable Input |  |  | Range (Weighted Average) |
|  |  |  |  | (Dollars in thousands) |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Discount |  |  |  | 0.0 | %
Collateral dependent loan |  | $ | 4,485 |  |  |  | Collateral | 1 |  |  | adjustment |  |  |  | (0.0 | %)
1 | Value based on third party offer to purchase note from the Bank.
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2022, were as follows:
Description |  | (Level 1) Quoted Price in Active Markets for Identical Assets |  |  | (Level 2) Significant Other Observable Inputs |  |  | (Level 3) Significant Unobservable Inputs |  |  | Total Fair Value December 31, 2022 |
|  |  |  |  | (In thousands) |  |  |  |
Impaired loans |  | $ | — |  |  | $ | — |  |  | $ | 30 |  |  | $ | 30 |
|  | $ | — |  |  | $ | — |  |  | $ | 30 |  |  | $ | 30 |
The following table presents quantitative information using Level 3 fair value measurements at December 31, 2022.
Description |  | Fair Value December 31, 2022 |  |  | Valuation Technique |  |  | Unobservable Input |  |  | Range (Weighted Average) |
|  |  |  |  | (Dollars in thousands) |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Discount |  |  |  | 6.0 | %
Impaired loans |  | $ | 30 |  |  |  | Collateral | 1 |  |  | adjustment |  |  |  | (6.0 | %)
1 | Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
There were no transfers between fair value hierarchy levels during the nine months ended September 30, 2023 and 2022. The Company’s policy is to recognize transfers between levels as of the end of the reporting period. The following methods and assumptions were used by the Company in estimating fair value disclosures: Investment Securities The fair value of securities available-for-sale (carried at fair value) and held-to-maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry and not adjusted by management. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. Level 3 securities are securities with no observable market prices. The SBIC fund’s underlying collateral is valued using prices obtained from pricing vendors or brokers, typically using at least two pricing vendors for the subject or similar securities. When vendor pricing is not available, a fair value is composed of quotes for the subject or quotes for similar securities from broker dealers. Impaired loans (generally carried at fair value) Impaired loans carried at fair value are those impaired loans in which the Company has measured impairment generally based on the fair value of the related loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds, discounted for estimated selling costs or other factors the Company determines will impact collection of proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The carrying amounts and estimated fair value of financial instruments at September 30, 2023 are as follows.
|  | September 30, 2023 |
|  | Carrying Amount |  |  | Estimated Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  |  |  |  |  |  |  | (In thousands) |  |  |  |  |  |  |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 206,931 |  |  | $ | 206,931 |  |  | $ | 206,931 |  |  | $ | — |  |  | $ | — |
Securities available-for-sale at fair value |  |  | 88,064 |  |  |  | 88,064 |  |  |  | — |  |  |  | 85,845 |  |  |  | 2,219 |
Securities held-to-maturity |  |  | 195 |  |  |  | 189 |  |  |  | — |  |  |  | 189 |  |  |  | — |
Loans receivable, net |  |  | 1,480,508 |  |  |  | 1,470,144 |  |  |  | — |  |  |  | — |  |  |  | 1,470,144 |
Restricted investments in bank stock |  |  | 1,385 |  |  |  | 1,385 |  |  |  | — |  |  |  | 1,385 |  |  |  | — |
Accrued interest receivable |  |  | 5,783 |  |  |  | 5,783 |  |  |  | — |  |  |  | 5,783 |  |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,637,966 |  |  | $ | 1,534,774 |  |  | $ | — |  |  | $ | 1,534,774 |  |  | $ | — |
Accrued interest payable |  |  | 10,243 |  |  |  | 10,243 |  |  |  | — |  |  |  | 10,243 |  |  |  | — |
The carrying amounts and estimated fair value of financial instruments at December 31, 2022 are as follows:
|  | December 31, 2022 |
|  | Carrying Amount |  |  | Estimated Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  |  |  |  |  |  |  | (In thousands) |  |  |  |  |  |  |
Financial Assets: |  |  |  |
Cash and cash equivalents |  | $ | 53,351 |  |  | $ | 53,351 |  |  | $ | 53,351 |  |  | $ | — |  |  | $ | — |
Securities AFS |  |  | 83,402 |  |  |  | 83,402 |  |  |  | — |  |  |  | 81,341 |  |  |  | 2,061 |
Securities HTM |  |  | 201 |  |  |  | 200 |  |  |  | — |  |  |  | 200 |  |  |  | — |
Loans receivable, net |  |  | 1,353,907 |  |  |  | 1,347,137 |  |  |  | — |  |  |  | — |  |  |  | 1,347,137 |
Restricted bank stock |  |  | 1,742 |  |  |  | 1,742 |  |  |  | — |  |  |  | 1,742 |  |  |  | — |
Accrued interest receivable |  |  | 4,756 |  |  |  | 4,756 |  |  |  | — |  |  |  | 4,756 |  |  |  | — |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 1,347,730 |  |  |  | 1,225,087 |  |  |  |  |  |  |  | 1,225,087 |  |  |  | — |
Borrowings |  |  | 10,000 |  |  |  | 10,000 |  |  |  |  |  |  |  | 10,000 |  |  |  |  |
Accrued interest payable |  |  | 1,027 |  |  |  | 1,027 |  |  |  | — |  |  |  | 1,027 |  |  |  | — |
The fair value of cash and cash equivalents, restricted bank stock, accrued interest receivable, and accrued interest payable are measured at the Company’s carrying amount. The fair value of loans, deposits and borrowings are measured on a discounted basis using similar rates and terms. Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Limitations The fair value estimates are made at a discrete point in time based on relevant market information and information about the 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. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all the financial instruments were offered for sale. This is due to the fact that no market exists for a sizable portion of the loan, deposit and off-balance sheet instruments. In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial 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 the estimates. Finally, reasonable comparability between financial institutions may not be practical due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

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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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