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FAIR VALUE ACCOUNTING | 9 Months Ended
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Sep. 30, 2024
Fair Value Disclosures [Abstract] |
FAIR VALUE ACCOUNTING | FAIR VALUE ACCOUNTING 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 September 30, 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)
September 30, 2024 |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |
U.S. government agency obligations | $ | 14,457 |  |  | $ | — |  |  | $ | 14,457 |  |  | $ | — |
Mortgage-backed securities | 74,020 |  |  | — |  |  | 74,020 |  |  | — |
Corporate debt securities | 41,051 |  |  | — |  |  | 41,051 |  |  | — |
Asset-backed securities | 19,904 |  |  | — |  |  | 19,904 |  |  | — |
Total investment securities | 149,432 |  |  | — |  |  | 149,432 |  |  | — |
Equity Investments: |  |  |  |  |  |  |
Farmer Mac equity securities | 540 |  |  | 540 |  |  | — |  |  | — |
Preferred equity | 1,812 |  |  | — |  |  | — |  |  | 1,812 |
Equity investments measured at NAV(1) | 2,744 |  |  | — |  |  | — |  |  | — |
Total equity investments | 5,096 |  |  | 540 |  |  | — |  |  | 1,812 |
Total | $ | 154,528 |  |  | $ | 540 |  |  | $ | 149,432 |  |  | $ | 1,812 |
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: |  |  |  |  |  |  |
Farmer Mac equity securities | 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. During the three months ended June 30, 2024, senior debt of a community development financial institution, classified as available-for-sale securities was exchanged for preferred equity of the financial institution’s operating subsidiary. At September 30, 2024, the Company owned $1,812 preferred equity investments for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value. For the 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.
During the three and nine months ended September 30, 2024, $0 and $2,082 of senior debt, previously measured as a Level 1 instrument, was exchanged for preferred equity, now measured as a Level 3 instrument, resulting in a transfer out of Level 1 fair value measurement to Level 3 fair value measurement. The exchange resulted in the recognition of $0 and $168 of unrealized losses on available-for-sale securities during the three and nine months ended September 30, 2024, previously included in other comprehensive income, as well as an additional $270 loss, for a total loss of $438. This total loss of $438 was recognized on the consolidated statement of operations as net losses on equity securities. There were no transfers in or out of Level 1, Level 2 or Level 3 fair value measurements relating to the available-for-sale securities above during the 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 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 September 30, 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)
September 30, 2024 |  |  |  |  |  |  |
Foreclosed and repossessed assets, net | $ | 1,572 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,572 |
Collateral dependent loans | 1,805 |  |  | — |  |  | — |  |  | 1,805 |
Mortgage servicing rights | 3,696 |  |  | — |  |  | — |  |  | 5,025 |
Total | $ | 7,073 |  |  | $ | — |  |  | $ | — |  |  | $ | 8,402 |
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 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 September 30, 2024.
| Fair Value |  | Valuation Techniques (1) |  | Significant Unobservable Inputs (2) |  | Range
September 30, 2024 |  |  |  |  |  |  |
Foreclosed and repossessed assets, net | $ | 1,572 |  |  | Appraisal value |  | Estimated costs to sell |  | 10% - 15%
Collateral dependent loans | $ | 1,805 |  |  | Appraisal value / Internal Collateral valuations |  | Estimated costs to sell |  | 10% - 15%
Mortgage servicing rights | $ | 5,025 |  |  | Discounted cash flows |  | Discounted rates |  | 9.125% - 12.125%
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:
|  |  | September 30, 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) |  | $ | 36,632 |  |  | $ | 36,632 |  |  | $ | 37,138 |  |  | $ | 37,138 |
Securities available for sale “AFS” | (Level II) |  | 149,432 |  |  | 149,432 |  |  | 155,743 |  |  | 155,743 |
Securities held to maturity “HTM” | (Level II) |  | 87,033 |  |  | 71,046 |  |  | 91,229 |  |  | 73,262 |
Farmer Mac equity securities | (Level I) |  | 540 |  |  | 540 |  |  | 557 |  |  | 557 |
Preferred equity | (Level III) |  | 1,812 |  |  | 1,812 |  |  | — |  |  | — |
Equity investments valued at NAV(1) | N/A |  | 2,744 |  |  | N/A |  | 2,727 |  |  | N/A
Other investments | (Level II) |  | 12,311 |  |  | 12,311 |  |  | 15,725 |  |  | 15,725 |
Loans receivable, net | (Level III) |  | 1,403,828 |  |  | 1,379,680 |  |  | 1,437,884 |  |  | 1,374,387 |
Loans held for sale - Residential mortgage | (Level I) |  | 535 |  |  | 535 |  |  | 1,134 |  |  | 1,134 |
Loans held for sale - SBA /FSA | (Level II) |  | 162 |  |  | 162 |  |  | 4,639 |  |  | 4,639 |
Mortgage servicing rights | (Level III) |  | 3,696 |  |  | 5,025 |  |  | 3,865 |  |  | 5,589 |
Accrued interest receivable | (Level I) |  | 6,235 |  |  | 6,235 |  |  | 5,409 |  |  | 5,409 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Deposits | (Level III) |  | $ | 1,520,667 |  |  | $ | 1,520,399 |  |  | $ | 1,519,092 |  |  | $ | 1,517,361 |
FHLB advances | (Level II) |  | 21,000 |  |  | 20,915 |  |  | 79,530 |  |  | 79,087 |
Other borrowings | (Level II) |  | 61,548 |  |  | 57,225 |  |  | 67,465 |  |  | 59,743 |
Accrued interest payable | (Level I) |  | 6,887 |  |  | 6,887 |  |  | 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.

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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/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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