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Fair Value

9 Months Ended

Sep. 30, 2023

11. Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. A description of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below.

Cash and Cash Equivalents

The carrying amount is a reasonable estimate of fair value.

Available for Sale Securities

Where quoted prices are available in an active market for identical securities, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include marketable equity securities and U.S. Treasury obligations. If quoted prices are not available, then fair values are estimated by using pricing models (i.e., matrix pricing) or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. Examples of such instruments include government agency bonds, mortgage-backed securities and municipal bonds. Level 3 securities include securities for which significant unobservable inputs are utilized. Available for sale securities are recorded at fair value on a recurring basis.

FHLB Stock

The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

Loans

Loans receivable are carried at cost. For variable rate loans which reprice frequently, carrying values are a reasonable estimate of fair values adjusted for credit losses inherent in the portfolios. The fair value of fixed rate loans is estimated by discounting the future cash flows using the year end rates, estimated using local market data, at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for credit losses inherent in the portfolios. The Company does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral-dependent individually analyzed loans are recorded to reflect partial write-downs based on the observable market price or current appraised value of collateral.

Other Real Estate Owned

Other real estate owned represents real estate acquired through foreclosure and is carried at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. These assets are included as Level 3 fair values, based upon the lowest level of input that is utilized in the fair value measurements.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Mortgage Servicing Rights

The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated future net servicing income. Mortgage servicing rights are carried at the lower of amortized cost or estimated fair value and are included in other assets on the consolidated statements of financial condition.

Deposits

Deposit liabilities are carried at cost. The fair value of NOW, savings and money market deposits is the amount payable on demand at the reporting date. The fair value of time certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities estimated using local market data to a schedule of aggregated expected maturities on such deposits.

Mortgagors’ Escrow Accounts

The fair value is estimated using a discounted cash flow calculation that applies interest rates currently being offered on deposited escrow accounts of similarly expected maturities.

Advances from the FHLB

The fair value of the advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances.

Subordinated Debt

Based on the floating rate characteristic of these instruments, the carrying value is considered to approximate fair value.

Off-Balance-Sheet Instruments

Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings. Such amounts are not significant.

Loan Level Interest Rate Swaps

The fair value is based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves.

The following tables detail the assets that are carried at fair value on a recurring basis as of the periods shown and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:


					Quoted Prices in
					Active Markets			Significant			Significant
					for Identical			Observable			Unobservable
		Balance			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)

		September 30, 2023
Assets:
U.S. Treasury securities		$	28,566		$	28,566		$	—		$	—
U.S. government agency mortgage-backed securities-residential			127,222			—			127,222			—
U.S. government agency securities			22,530			—			22,530			—
Municipal securities			2,799			—			2,684			115
Corporate Bonds			12,439			—			12,439			—
Other			696			—			696			—
Total available for sale securities			194,252			28,566			165,571			115
Loan level interest rate swaps			7,678			—			7,678			—
Total assets		$	201,930		$	28,566		$	173,249		$	115
Liabilities:
Loan level interest rate swaps		$	7,678		$	—		$	7,678		$	—
Total liabilities		$	7,678		$	—		$	7,678		$	—


		December 31, 2022
Assets:
U.S. Treasury securities		$	37,857		$	37,857		$	—		$	—
U.S. government agency mortgage-backed securities – residential			144,534			—			144,534			—
U.S. government agency securities			22,449			—			22,449			—
Municipal securities			4,786			—			4,656			130
Corporate Bonds			13,217			—			13,217			—
Other			816			—			816			—
Total available for sale securities			223,659			37,857			185,672			130
Loan level interest rate swaps			4,548			—			4,548			—
Total assets		$	228,207		$	37,857		$	190,220		$	130
Liabilities:
Loan level interest rate swaps		$	4,548		$	—		$	4,548		$	—
Total liabilities		$	4,548		$	—		$	4,548		$	—

The following tables detail the assets carried at fair value and measured at fair value on a nonrecurring basis as of September 30, 2023 and December 31, 2022 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:


					Quoted Prices in
					Active Markets			Significant			Significant
					for Identical			Observable			Unobservable
		Balance			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)

		September 30, 2023
Individually analyzed loans, with specific reserves		$	977		$	—		$	—		$	977
Total		$	977		$	—		$	—		$	977


		December 31, 2022
Impaired loans, with specific reserves		$	319		$	—		$	—		$	319
Total		$	319		$	—		$	—		$	319

Loans that were individually analyzed using the fair value of the collateral had recorded investments of $1,192 and $428 with valuation allowances of $215 and $109 resulting in fair values of $977 and $319 at September 30, 2023 and December 31, 2022, respectively. The valuation allowance represents specific allocations to the allowance for credit losses.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:


		Quantitative Information About Level 3 Fair Value Measurements
		Fair Value			Valuation		Unobservable		Range
		Estimate			Techniques		Input		(Weighted Average)

		September 30, 2023
Individually analyzed loans, with specific reserves		$	977		Appraisal of collateral	⁽¹⁾	Liquidation expenses	⁽³⁾	0% to 8%
							Appraisal adjustments	⁽²⁾	0% to 20%

		December 31, 2022
Impaired loans		$	319		Appraisal of collateral	⁽¹⁾	Liquidation expenses	⁽³⁾	0% to 8%
							Appraisal adjustments	⁽²⁾	0% to 20%

(1)	Fair value is generally through independent appraisals of the underlying collateral that generally include various level 3 inputs which are not identifiable.

(2)	Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraised value.

(3)	Estimated costs to sell.

The estimated fair value amounts for 2023 and 2022 have been measured as of their respective reporting dates and have not been reevaluated or updated for purposes of these 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 than amounts reported at each year-end.

The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

As of the following dates, the carrying value and fair values of the Company’s financial instruments were:


		September 30,						December 31,
		2023						2022
		Carrying Value			Fair Value			Carrying Value			Fair Value
Financial Assets:
Cash and cash equivalents (Level 1)		$	26,760		$	26,760		$	31,384		$	31,384
Available for sale securities (Level 1)			28,566			28,566			37,857			37,857
Available for sale securities (Level 2)			165,571			165,571			185,672			185,672
Available for sale securities (Level 3)			115			115			130			130
Loan level interest rate swaps (Level 2)			7,678			7,678			4,548			4,548
FHLB stock (Level 2)			4,697			4,697			3,258			3,258
Loans, net (Level 3)			1,003,766			968,289			994,368			953,432
Accrued interest receivable (Level 2)			3,463			3,463			4,255			4,255
Mortgage servicing rights (Level 3)			2,081			4,786			2,409			5,211
Financial Liabilities:
Deposits (Level 2)			1,082,300			968,426			1,129,933			1,001,455
Mortgagors' escrow accounts (Level 2)			4,797			4,797			9,732			9,723
FHLB advances (Level 2)			87,683			86,128			57,723			57,739
Subordinated debt (Level 2)			5,155			5,155			5,155			5,155
Loan level interest rate swaps (Level 2)			7,678			7,678			4,548			4,548
Accrued interest payable (Level 2)			958			958			774			774

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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