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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements | NOTE 9. Fair Value Measurements GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
• |  | Level 1 |  | Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• |  | Level 2 |  | Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• |  | Level 3 |  | Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following section provides a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy: Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020:
|  |  |  |  |  | Fair Value Measurements at |
|  |  |  |  |  | September 30, 2021 |
|  |  |  |  |  | Using |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | September 30, 2021 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government corporations and agencies |  | $ | 15,155 |  |  | $ | — |  |  | $ | 15,155 |  |  | $ | — |
Mortgage-backed securities |  |  | 161,256 |  |  |  | — |  |  |  | 161,256 |  |  |  | — |
Obligations of states and political subdivisions |  |  | 23,528 |  |  |  | — |  |  |  | 23,528 |  |  |  | — |
Subordinated debt |  |  | 1,500 |  |  |  | — |  |  |  | 1,500 |  |  |  | — |
Total assets at fair value |  | $ | 201,439 |  |  | $ | — |  |  | $ | 201,439 |  |  | $ | — |
|  |  |  |  |  | Fair Value Measurements at |
|  |  |  |  |  | December 31, 2020 |
|  |  |  |  |  | Using |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | December 31, 2020 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government corporations and agencies |  | $ | 17,483 |  |  | $ | — |  |  | $ | 17,483 |  |  | $ | — |
Mortgage-backed securities |  |  | 119,009 |  |  |  | — |  |  |  | 119,009 |  |  |  | — |
Obligations of states and political subdivisions |  |  | 27,213 |  |  |  | — |  |  |  | 27,213 |  |  |  | — |
Subordinated debt |  |  | 1,250 |  |  |  | — |  |  |  | 1,250 |  |  |  | — |
Total assets at fair value |  | $ | 164,955 |  |  | $ | — |  |  | $ | 164,955 |  |  | $ | — |
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets. The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements: Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such. The Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during three and nine months ended September 30, 2021 and the year ended December 31, 2020. Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on the present value of its expected future cash flows discounted at the loan's coupon rate, or at the loans' observable market price or the fair value of the collateral securing the loans, if they are collateral dependent. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data within the last twelve months (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the property is more than one year old and not solely based on observable market comparables or management determines the fair value of the collateral is further impaired below the appraised value, then a Level 3 valuation is considered to measure the fair value. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as impaired loans described above. We believe that the fair value follows the provisions of GAAP. The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020:
|  | Quantitative information about Level 3 Fair Value Measurements |
|  | September 30, 2021 |
|  | Valuation Technique(s) |  | Unobservable Input |  | Range |  |  | Weighted Average (1) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | Discounted appraised value |  | Selling cost |  | 12% |  |  | 12% |
Impaired loans |  | Present value of cash flows |  | Discount rate |  | 4% - 6% |  |  | 5% |
Other real estate owned |  | Discounted appraised value |  | Selling cost |  | 6% |  |  | 6% |
|  | Quantitative information about Level 3 Fair Value Measurements |
|  | December 31, 2020 |
|  | Valuation Technique(s) |  | Unobservable Input |  | Range |  |  | Weighted Average (1) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | Present value of cash flows |  | Discount rate |  | 4% - 6% |  |  | 4% |
Other real estate owned |  | Discounted appraised value |  | Selling cost |  | 6% |  |  | 6% |
(1) | Unobservable inputs were weighted by the relative fair values of the instruments.
The following table summarizes the Company’s financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020:
|  |  |  |  |  | Carrying value at |
|  |  |  |  |  | September 30, 2021 |
|  | Balance as of |  |  | Identical Assets |  |  | Observable Inputs |  |  | Unobservable Inputs |
|  | September 30, 2021 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 751 |  |  | $ | — |  |  | $ | — |  |  | $ | 751 |
Nonfinancial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other real estate owned |  |  | 193 |  |  |  | — |  |  |  | — |  |  |  | 193 |
|  |  |  |  |  | Carrying value at |
|  |  |  |  |  | December 31, 2020 |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | December 31, 2020 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 1,355 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,355 |
Nonfinancial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other real estate owned |  |  | 607 |  |  |  | — |  |  |  | 165 |  |  |  | 442 |
The carrying value and fair value of the Company’s financial instruments at September 30, 2021 and December 31, 2020 were as follows:
|  | Fair Value Measurements at |
|  | September 30, 2021 |
|  | Using |
|  | Carrying Value as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  | Fair Value as of |
|  | September 30, 2021 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | September 30, 2021 |
|  | (in thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and short-term investments |  | $ | 68,408 |  |  | $ | 68,408 |  |  | $ | — |  |  | $ | — |  |  | $ | 68,408 |
Securities |  |  | 201,439 |  |  |  | — |  |  |  | 201,439 |  |  |  | — |  |  |  | 201,439 |
Restricted Investments |  |  | 1,049 |  |  |  | — |  |  |  | 1,049 |  |  |  | — |  |  |  | 1,049 |
Loans held for sale |  |  | 1,148 |  |  |  | — |  |  |  | 1,148 |  |  |  | — |  |  |  | 1,148 |
Loans, net |  |  | 914,628 |  |  |  | — |  |  |  | — |  |  |  | 905,831 |  |  |  | 905,831 |
Accrued interest receivable |  |  | 2,597 |  |  |  | — |  |  |  | 2,597 |  |  |  | — |  |  |  | 2,597 |
Bank owned life insurance |  |  | 23,076 |  |  |  | — |  |  |  | 23,076 |  |  |  | — |  |  |  | 23,076 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,130,665 |  |  | $ | — |  |  | $ | 1,131,151 |  |  | $ | — |  |  | $ | 1,131,151 |
Accrued interest payable |  |  | 29 |  |  |  | — |  |  |  | 29 |  |  |  | — |  |  |  | 29 |
|  | Fair Value Measurements at |
|  | December 31, 2020 |
|  | Using |
|  | Carrying Value as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  | Fair Value as of |
|  | December 31, 2020 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | December 31, 2020 |
|  | (in thousands) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and short-term investments |  | $ | 79,920 |  |  | $ | 79,920 |  |  | $ | — |  |  | $ | — |  |  | $ | 79,920 |
Securities |  |  | 164,955 |  |  |  | — |  |  |  | 164,955 |  |  |  | — |  |  |  | 164,955 |
Restricted Investments |  |  | 1,267 |  |  |  | — |  |  |  | 1,267 |  |  |  | — |  |  |  | 1,267 |
Loans, net |  |  | 829,238 |  |  |  | — |  |  |  | — |  |  |  | 819,691 |  |  |  | 819,691 |
Bank owned life insurance |  |  | 12,709 |  |  |  | — |  |  |  | 12,709 |  |  |  | — |  |  |  | 12,709 |
Accrued interest receivable |  |  | 3,441 |  |  |  | — |  |  |  | 3,441 |  |  |  | — |  |  |  | 3,441 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,013,098 |  |  | $ | — |  |  | $ | 1,013,600 |  |  | $ | — |  |  | $ | 1,013,600 |
Accrued interest payable |  |  | 72 |  |  |  | — |  |  |  | 72 |  |  |  | — |  |  |  | 72 |

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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