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Note 17 - Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]

NOTE 17 - FAIR VALUE MEASUREMENTS

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2).

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at the lower of carrying amount or fair value, less costs to sell. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. Fair values are generally based on third party appraisals of the property which are commonly adjusted by management to reflect an expectation of the amount to be ultimately collected and selling costs (Level 3).

Appraisals for OREO are performed by state licensed appraisers (for commercial properties) or state certified appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. When a Notice of Default is recorded, an appraisal report is ordered. Once received, a member of the credit administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison to independent data sources such as recent market data or industry wide-statistics for residential appraisals. Commercial appraisals are sent to an independent third party to review. The Company also compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustments, if any, should be made to the appraisal values on any remaining other real estate owned to arrive at fair value. If the existing appraisal is older than twelve months a new appraisal report is ordered. No significant adjustments to appraised values have been made as a result of this comparison process as of September 30, 2020.

Collateral-dependent impaired loans: Collateral-dependent impaired loans are carried at fair value when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement and the loan has been written down to the fair value of its underlying collateral, net of expected disposition costs where applicable.

The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value at September 30, 2020 and December 31, 2019:

*(dollars in thousands)*	*Fair Value Measurements Using:*
September 30, 2020	*Level 1*		*Level 2*		*Level 3*		*Total*
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities	$	—	$	1,288	$	—	$	1,288
SBA agency securities		—		4,515		—		4,515
Mortgage-backed securities		—		17,818		—		17,818
Collateralized mortgage obligations		—		46,336		—		46,336
Commercial paper		—		109,188		—		109,188
Corporate debt securities		—		33,930		—		33,930
Municipal securities		—		1,587		—		1,587
	$	—	$	214,662	$	—	$	214,662

On a non-recurring basis:
Other real estate owned		—		—		293		293
	$	—	$	—	$	293	$	293

December 31, 2019	*Level 1*		*Level 2*		*Level 3*		*Total*
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities	$	—	$	1,572	$	—	$	1,572
SBA agency securities		—		4,691		—		4,691
Mortgage-backed securities		—		19,171		—		19,171
Collateralized mortgage obligations		—		11,654		—		11,654
Commercial paper		—		69,898		—		69,898
Corporate debt securities		—		19,083		—		19,083
	$	—	$	126,069	$	—	$	126,069

On a non-recurring basis:
Other real estate owned	$	—	$	—	$	293	$	293

No write-downs to OREO were recorded for nine months ended September 30, 2020 or for the year ended December 31, 2019.

Quantitative information about the Company's impaired loans and OREO non-recurring Level 3 fair value measurements at September 30, 2020 and December 31, 2019 is as follows:


*(dollars in thousands)*	*Fair Value*		*Valuation*	*Unobservable*	*Adjustment*
September 30, 2020	*Amount*		*Technique*	*Input*	*Range*
Other real estate owned	$	293	Third Party Appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs	5% - 6%

December 31, 2019
Other real estate owned	$	293	Third Party Appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs	5% - 6%

OREO as of September 30, 2020 consists of one single-family residence with a fair value of $293,000.