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Fair Value

9 Months Ended

Sep. 30, 2023

The Company measures the fair value of financial instruments for reporting in accordance with ASC Topic 820, Fair Value Measurements. Fair values of assets or liabilities are based on estimates of the exit price, which is the price that would be received to sell an asset or paid to transfer a liability. When available, observable market transactions or market information is used. The fair value estimate of loans receivable was based on similar techniques, with the addition of current origination spreads, liquidity premiums, or credit adjustments. The fair value of nonperforming loans is based on the underlying value of the collateral.

The Company determines the fair values of its financial instruments based on the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair values. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect its estimate for market assumptions.

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability using one of the three valuation techniques. Inputs can be observable or unobservable. Observable inputs are those assumptions that market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from an independent source. Unobservable inputs are assumptions based on the Company’s own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information available on the measurement date.

All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy:

•Level 1 - Quoted prices for identical instruments in active markets.

•Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable.

•Level 3 - Instruments whose significant value drivers are unobservable.

The Company used the following methods to measure fair value on a recurring or nonrecurring basis:

•Investments available-for-sale: The fair value of all investments, excluding FHLB stock, is based upon quoted market prices for similar investments in active markets, identical or similar investments in markets that are not active, and model-derived valuations whose inputs are observable.

•Loans individually evaluated: The fair value of individually evaluated loans is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans as appropriate.

•Derivatives: The fair value of derivatives is based on pricing models utilizing observable market data and discounted cash flow methodologies for which the determination of fair value may require significant management judgement or estimation.

The tables below present the balances of assets measured at fair value on a recurring basis (there were no transfers between Level 1, Level 2 and Level 3 recurring measurements) at September 30, 2023 and December 31, 2022:


	Fair Value Measurements at September 30, 2023
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Investments available-for-sale:
Mortgage-backed investments:
Fannie Mae	$	9,431	$	—	$	9,431	$	—
Freddie Mac	11,402		—		11,402		—
Ginnie Mae	26,506		—		26,506		—
Other	29,285		—		29,285		—
Municipal bonds	29,330		—		29,330		—
U.S. Government agencies	70,707		39,194		31,513		—
Corporate bonds	28,314		—		28,314		—
Total available-for-sale investments	204,975		39,194		165,781		—
Derivative fair value asset	10,698		—		10,698		—
Total	$	215,673	$	39,194	$	176,479	$	—


	Fair Value Measurements at December 31, 2022
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Investments available-for-sale:
Mortgage-backed investments:
Fannie Mae	$	9,940	$	—	$	9,940	$	—
Freddie Mac	11,889		736		11,153		—
Ginnie Mae	27,843		—		27,843		—
Other	32,389		—		32,389		—
Municipal bonds	30,883		—		30,883		—
U.S. Government agencies	74,354		38,450		35,904		—
Corporate bonds	30,480		—		30,480		—
Total available-for-sale investments	217,778		39,186		178,592		—
Derivative fair value asset	10,485		—		10,485		—
Total	$	228,263	$	39,186	$	189,077	$	—

The estimated fair value of Level 2 investments is based on quoted prices for similar investments in active markets, identical or similar investments in markets that are not active and model-derived valuations whose inputs are observable.

The tables below present the balances of assets measured at fair value on a nonrecurring basis at September 30, 2023 and December 31, 2022:


	Fair Value Measurements at September 30, 2023
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Collateral dependent loans included in loans receivable	$	45,850	$	—	$	—	$	45,850

Total	$	45,850	$	—	$	—	$	45,850


	Fair Value Measurements at December 31, 2022
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Impaired loans (included in loans receivable, net) (1)	$	48,521	$	—	$	—	$	48,521

Total	$	48,521	$	—	$	—	$	48,521

_____________

(1) Total fair value of impaired loans is net of $13,000 of specific allowances on performing TDRs.

The fair value of impaired loans reflects the exit price and is calculated using the collateral value method or on a discounted cash flow basis. Inputs used in the collateral value method include appraised values, less estimated costs to sell. Some of these inputs may not be observable in the marketplace. Appraised values may be discounted based on management’s knowledge of the marketplace, subsequent changes in market conditions, or management’s knowledge of the borrower.

The following tables present quantitative information about Level 3 fair value measurements for assets measured at fair value on a nonrecurring basis at September 30, 2023 and December 31, 2022:

September 30, 2023

Fair Value

Valuation Technique

Unobservable Input(s)

Range (Weighted Average)

(Dollars in thousands)

Collateral dependent loans

45,850

Market approach

Appraised value discounted by market or borrower conditions

0.0% - 0%

(0.0%)

December 31, 2022

Fair Value

Valuation Technique

Unobservable Input(s)

Range (Weighted Average)

(Dollars in thousands)

Impaired loans

48,521

Market approach

Appraised value discounted by market or borrower conditions

0.0% - 6.91%

(0.06%)

The carrying amounts and estimated fair values of financial instruments were as follows at the dates indicated:


	September 30, 2023
			Estimated		Fair Value Measurements Using:
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	8,074	$	8,074	$	8,074	$	—	$	—
Interest-earning deposits with banks	49,618		49,618		49,618		—		—
Investments available-for-sale	204,975		204,975		39,194		165,781		—
Investments held-to-maturity	2,450		2,450		—		2,450		—
Loans receivable, net	1,168,079		1,101,010		—		—		1,101,010
FHLB stock	6,803		6,803		—		6,803		—
Accrued interest receivable	7,263		7,263		—		7,263		—
Derivative fair value asset	10,698		10,698		—		10,698		—

Financial Liabilities:
Deposits	684,992		684,992		684,992		—		—
Certificates of deposit, retail	349,446		343,663		—		343,663		—

Brokered deposits	175,972		175,808		—		175,808		—
Advances from the FHLB	125,000		124,998		—		124,998		—
Accrued interest payable	2,646		2,646		—		2,646		—


	December 31, 2022
			Estimated		Fair Value Measurements Using:
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	7,722	$	7,722	$	7,722	$	—	$	—
Interest-earning deposits with banks	16,598		16,598		16,598		—		—
Investments available-for-sale	217,778		217,778		39,186		178,592		—
Investments held-to-maturity	2,444		2,444		—		2,444		—
Loans receivable, net	1,167,083		1,120,403		—		—		1,120,403
FHLB stock	7,512		7,512		—		7,512		—
Accrued interest receivable	6,513		6,513		—		6,513		—
Derivative fair value asset	10,485		10,485		—		10,485		—

Financial Liabilities:
Deposits	782,600		782,600		782,600		—		—
Certificates of deposit, retail	262,554		254,004		—		254,004		—
Brokered deposits	124,886		124,843		—		124,843		—
Advances from the FHLB	145,000		144,999		—		144,999		—
Accrued interest payable	328		328		—		328		—

- 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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