FAIR VALUE ACCOUNTING

3 Months Ended

Mar. 31, 2024

ASC Topic 820-10, “Fair Value Measurements and Disclosures” 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 topic describes three levels of inputs that may be used to measure fair value:

Level 1- Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2- Significant other 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 the Company’s assumptions about the factors that market participants would use in pricing an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement.

The fair value of securities available for sale is determined by obtaining market price quotes from independent third parties wherever such quotes are available (Level 1 inputs); or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Where such quotes are not available, we utilize independent third party valuation analysis to support our own estimates and judgments in determining fair value (Level 3 inputs).

Assets Measured on a Recurring Basis

The following tables present the financial instruments measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:


	Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2024
Investment securities:
U.S. government agency obligations	$	15,728	$	—	$	15,728	$	—

Mortgage-backed securities	70,679		—		70,679		—

Corporate debt securities	41,778		—		41,778		—
Asset-backed securities	23,487		—		23,487		—

Total investment securities	151,672		—		151,672		—
Equity Investments:
Equity Investments	570		570		—		—
Equity investments measured at NAV(1)	2,711		—		—		—
Total equity investments	3,281		570		—		—
Total	$	154,953	$	570	$	151,672	$	—

December 31, 2023
Investment securities:
U.S. government agency obligations	$	16,576	$	—	$	16,576	$	—

Mortgage-backed securities	73,480		—		73,480		—

Corporate debt securities	41,174		—		41,174		—
Corporate asset backed securities	24,513		—		24,513		—

Total investment securities	155,743		—		155,743		—
Equity Investments:
Equity Investments	557		557		—		—
Equity investments measured at NAV(1)	2,727		—		—		—
Total equity investments	3,284		557		—		—
Total	$	159,027	$	557	$	155,743	$	—

(1) Investments valued at NAV are excluded from being reported under the fair value hierarchy but are presented to permit reconciliation with the balance sheet in accordance with ASC 820-10-35-54B.

For the the three months ended March 31, 2024, and twelve months ended December 31, 2023, the Company did not own any securities for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value.

There were no transfers in or out of Level 1, Level 2 or Level 3 fair value measurements during the three months ended March 31, 2024, or twelve months ended December 31, 2023. There were no losses included in earnings attributable to the change in unrealized gains or losses relating to the available-for-sale securities above with fair value measurements utilizing significant unobservable inputs for the three months ended March 31, 2024, or twelve months ended December 31, 2023, respectively.

Assets Measured on Nonrecurring Basis

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of March 31, 2024 and December 31, 2023:


	Carrying Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2024
Foreclosed and repossessed assets, net	$	1,845	$	—	$	—	$	1,845
Collateral dependent loans	2,030		—		—		2,030
Mortgage servicing rights	3,774		—		—		5,442
Total	$	7,649	$	—	$	—	$	9,317
December 31, 2023
Foreclosed and repossessed assets, net	$	1,795	$	—	$	—	$	1,795
Collateral dependent loans	3,499		—		—		3,499
Mortgage servicing rights	3,865		—		—		5,589
Total	$	9,159	$	—	$	—	$	10,883

The fair value of collateral dependent loans with allowances, and impaired loans was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.

The fair value of foreclosed and repossessed assets was determined by obtaining market price valuations from independent third parties wherever such quotes were available for other collateral owned. The Company utilized independent third party appraisals to support the Company’s estimates and judgments in determining fair value for other real estate owned.

The fair value of mortgage servicing rights was estimated using discounted cash flows based on current market rates and other factors.

The following table represents additional quantitative information about assets measured at fair value on a

recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine their fair value at

March 31, 2024.


	Fair Value		Valuation Techniques (1)	Significant Unobservable Inputs (2)	Range
March 31, 2024
Foreclosed and repossessed assets, net	$	1,845	Appraisal value	Estimated costs to sell	10% - 15%
Collateral dependent loans	$	2,030	Appraisal value / Internal Collateral valuations	Estimated costs to sell	10% - 15%
Mortgage servicing rights	$	5,442	Discounted cash flows	Discounted rates	9.750% - 12.750%
December 31, 2023
Foreclosed and repossessed assets, net	$	1,795	Appraisal value	Estimated costs to sell	10% - 15%
Collateral dependent loans	$	3,499	Appraisal value / Internal Collateral valuations	Estimated costs to sell	10% - 15%
Mortgage servicing rights	$	5,589	Discounted cash flows	Discounted rates	9.375% - 12.375%

(1) Fair value is generally determined through independent third-party appraisals of the underlying

collateral, which generally includes various level 3 inputs which are not observable.

(2) The fair value basis of collateral depended loans, and real estate owned may be adjusted to reflect management estimates of disposal costs including, but not limited to, real estate brokerage commissions, legal fees, and delinquent property taxes.

The table below represents what we would receive to sell an asset or what we would have to pay to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount and estimated fair value of the Company’s financial instruments as of the dates indicated below were as follows:


		March 31, 2024				December 31, 2023
	Valuation Method Used	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	(Level I)	$	28,638	$	28,638	$	37,138	$	37,138
Other interest-bearing deposits	(Level II)	—		—		—		—
Securities available for sale “AFS”	(Level II)	151,672		151,672		155,743		155,743
Securities held to maturity “HTM”	(Level II)	89,942		70,270		91,229		73,262
Equity investments	(Level I)	570		NA		557		NA
Equity investments valued at NAV(1)	N/A	2,711		NA		2,727		NA
Other investments	(Level II)	13,022		13,022		15,725		15,725
Loans receivable, net	(Level III)	1,427,723		1,355,761		1,437,884		1,374,387
Loans held for sale - Residential mortgage	(Level I)	—		—		1,134		1,134
Loans held for sale - SBA /FSA	(Level II)	—		—		4,639		4,639
Mortgage servicing rights	(Level III)	3,774		5,442		3,865		5,589
Accrued interest receivable	(Level I)	6,324		6,324		5,409		5,409
Financial liabilities:
Deposits	(Level III)	$	1,527,489	$	1,526,040	$	1,519,092	$	1,517,361
FHLB advances	(Level II)	39,500		39,112		79,530		79,087
Other borrowings	(Level II)	67,523		62,998		67,465		59,743
Accrued interest payable	(Level I)	3,711		3,711		3,175		3,175

(1) Investments valued at NAV are excluded from being reported under the fair value hierarchy but are presented to permit reconciliation with the balance sheet in accordance with ASC 820-10-35-54B.

- 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.

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