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Note 15 - Fair Value Measurements | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | Note 15: Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of the observable inputs and minimize the use of the unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:
| Level 1 – | Valuation is based on quoted prices in active markets for identical assets and liabilities.
| Level 2 – | Valuation is based on observable inputs including:
| ● | quoted prices in active markets for similar assets and liabilities,
| ● | quoted prices for identical or similar assets and liabilities in less active markets,
| ● | inputs other than quoted prices that are observable, and
| ● | model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
| Level 3 – | Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
Fair value is best determined by quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements: Financial Instruments Measured At Fair Value on a Recurring Basis Securities Available for Sale Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The carrying value of restricted Federal Reserve Bank of Richmond and Federal Home Loan Bank of Atlanta stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables. The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated:
|  |  |  |  |  | Fair Value Measurement Using |
December 31, 2023 |  | Balance |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
U.S. government agencies and corporations |  | $ | 311,844 |  |  | $ | - |  |  | $ | 311,844 |  |  | $ | - |
States and political subdivisions |  |  | 149,893 |  |  |  | - |  |  |  | 149,893 |  |  |  | - |
Mortgage-backed securities |  |  | 150,151 |  |  |  | - |  |  |  | 150,151 |  |  |  | - |
Corporate debt securities |  |  | 5,750 |  |  |  | - |  |  |  | 5,750 |  |  |  | - |
U.S. treasury |  |  | 963 |  |  |  |  |  |  |  | 963 |  |  |  |  |
Total securities available for sale |  | $ | 618,601 |  |  | $ | - |  |  | $ | 618,601 |  |  | $ | - |
|  |  |  |  |  | Fair Value Measurement Using |
December 31, 2022 |  | Balance |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
U.S. Government agencies and corporations |  | $ | 336,575 |  |  | $ | - |  |  | $ | 336,575 |  |  | $ | - |
States and political subdivisions |  |  | 152,200 |  |  |  | - |  |  |  | 152,200 |  |  |  | - |
Mortgage-backed securities |  |  | 161,477 |  |  |  | - |  |  |  | 161,477 |  |  |  | - |
Corporate debt securities |  |  | 5,664 |  |  |  | - |  |  |  | 5,664 |  |  |  | - |
U.S. treasury |  |  | 936 |  |  |  | - |  |  |  | 936 |  |  |  | - |
Total securities available for sale |  | $ | 656,852 |  |  | $ | - |  |  | $ | 656,852 |  |  | $ | - |
The Company’s securities portfolio is valued using Level 2 inputs. The Company relies on an independent third party vendor to provide market valuations. The inputs used to determine value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio. Level 2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any, may impact securities fair value, deferred tax assets or liabilities, or expense. Interest Rate Loan Contracts and Forward Sale Commitment The Company originates consumer real estate loans which it intends to sell to a correspondent lender. Interest rate loan contracts and forward sale commitments result from originating loans held for sale and are derivatives reported at fair value. The Company enters interest rate lock commitments with customers who apply for a loan which the Company intends to sell to a correspondent lender. The interest rate loan contract ends when the loan closes or the customer withdraws their application. Fair value of the interest rate loan contract is based upon the correspondent lender’s pricing quotes at the report date. Fair value is adjusted for the estimated probability of the loan closing with the borrower. At the time the Company enters into an interest rate loan contract with a customer, it also enters into a best efforts forward sales commitment with the correspondent lender. If the loan is closed and funded, the best efforts commitment converts to a mandatory forward sales commitment. Fair value is based on the gain or loss that would occur if the Company were to pair-off the transaction with the investor at the measurement date. This is a Level 3 input. The Company measures and reports best efforts commitments at fair value. Interest rate loan contracts and forward sale commitments are valued based on quotes from the correspondent lender at the reporting date. Pricing changes daily and if a loan has not been sold to the correspondent by the next reporting date, the fair value may be different from that reported currently. Changes in fair value measurement impacts net income. The Company had one rate lock commitment as of December 31, 2023, resulting in an interest rate loan contract and a forward sales commitment. The interest rate lock commitment gave rise to an asset and the forward loan sales contracts gave rise to a liability. The Company had one rate lock commitment as of December 31, 2022, resulting in an interest rate loan contract and forward sales commitment. The interest rate lock was at market value as of December 31, 2022 and did not result in recognition of an asset or liability. The following tables present information on the interest rate loan contracts and forward sale commitments as of the date indicated:
|  |  |  |  |  | Fair Value Measurement Using |
December 31, 2023 |  | Balance |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Interest rate loan contract |  | $ | 3 |  |  | $ | - |  |  | $ | - |  |  | $ | 3 |
Forward sale commitment |  | $ | (4 | ) |  | $ | - |  |  | $ | - |  |  | $ | (4 | )
December 31, 2023 |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average) |
Interest rate loan contract |  | Market approach |  | Pull-through rate |  | 100%(1) |
Forward sale commitment |  | Market approach |  | Pull-through rate |  | 100%(1) |
Interest rate loan contract |  | Market approach |  | Current reference price |  | 102.64%(2) |
Forward sale commitment |  | Market approach |  | Current reference price |  | 101.60% - 102.64% (101.98%)(3) |
| (1) | All contracts are valued using the same pull-through rate
| (2) | Comprised of only one loan.
| (3) | Current reference prices were weighted by the relative amount of the loan
Financial Instruments Measured at Fair Value on a Non-Recurring Basis 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 assets recorded at fair value on a nonrecurring basis in the consolidated financial statements: Loans Held for Sale Loans held for sale are carried at the lower of cost or fair 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 as of December 31, 2022. Collateral Dependent Loans Collateral dependent loans are measured on a non-recurring basis for the ACL. As of December 31, 2023, the Company evaluated three collateral dependent loans. None of the loans had a specific allocation. Other Real Estate Owned Certain assets such as OREO are measured at fair value less cost to sell. Valuation of OREO is determined using current appraisals from independent parties, a Level 2 input. The Company works with a realtor to determine the list price, which may be set at appraised value or at a different amount based on the realtor’s advice and management’s judgement of marketability. Discounts to appraisals for selling costs or for marketability result in a Level 3 estimate. The Company did not have any OREO as of December 31, 2023. The following table summarizes the Company’s OREO measured at fair value on a nonrecurring basis as of December 31, 2022.
|  |  |  |  |  |  | Carrying Value |
Date | Description |  | Balance |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
December 31, 2022 | OREO net of valuation allowance |  | $ | 662 |  |  | $ | - |  |  | $ | - |  |  | $ | 662 |
The following table presents information about OREO and Level 3 fair value measurements as of the dates indicated.
Date | Valuation Technique | Unobservable Input |  | Discount |
December 31, 2022 | Discounted appraised value | Selling cost |  |  | 7.00 | %
December 31, 2022 | Discounted appraised value | Discount for lack of marketability |  |  | 34.72 | %
As of December 31, 2022, the Company held a single OREO property, measured using appraised value, discounted by selling costs. During 2022, the Company reduced the list price as part of a marketing strategy and recorded an additional discount for marketability. Fair Value Summary The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of December 31, 2023 and December 31, 2022. Fair values are estimated using the exit price notion.
|  |  |  |  |  | Estimated Fair Value |
December 31, 2023 |  | Carrying Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 12,967 |  |  | $ | 12,967 |  |  | $ | - |  |  | $ | - |
Interest-bearing deposits |  |  | 73,636 |  |  |  | 73,636 |  |  |  | - |  |  |  | - |
Securities available for sale |  |  | 618,601 |  |  |  | - |  |  |  | 618,601 |  |  |  | - |
Restricted stock, at cost |  |  | 1,264 |  |  |  | - |  |  |  | 1,264 |  |  |  | - |
Mortgage loans held for sale |  |  | 406 |  |  |  | - |  |  |  | 406 |  |  |  | - |
Loans, net |  |  | 847,552 |  |  |  | - |  |  |  | - |  |  |  | 793,800 |
Accrued interest receivable |  |  | 6,313 |  |  |  | - |  |  |  | 6,313 |  |  |  | - |
Bank-owned life insurance |  |  | 43,583 |  |  |  | - |  |  |  | 43,583 |  |  |  | - |
Interest rate loan contract |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | 3 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,503,972 |  |  | $ | - |  |  | $ | 1,280,732 |  |  | $ | 222,374 |
Accrued interest payable |  |  | 1,416 |  |  |  | - |  |  |  | 1,416 |  |  |  | - |
Forward sale commitment |  |  | 4 |  |  |  | - |  |  |  | - |  |  |  | 4 |
|  |  |  |  |  | Estimated Fair Value |
December 31, 2022 |  | Carrying Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 12,403 |  |  | $ | 12,403 |  |  | $ | - |  |  | $ | - |
Interest-bearing deposits |  |  | 59,026 |  |  |  | 59,026 |  |  |  | - |  |  |  | - |
Securities available for sale |  |  | 656,852 |  |  |  | - |  |  |  | 656,852 |  |  |  | - |
Restricted stock, at cost |  |  | 941 |  |  |  | - |  |  |  | 941 |  |  |  | - |
Loans, net |  |  | 844,519 |  |  |  | - |  |  |  | - |  |  |  | 781,749 |
Accrued interest receivable |  |  | 6,001 |  |  |  | - |  |  |  | 6,001 |  |  |  | - |
Bank-owned life insurance |  |  | 43,312 |  |  |  | - |  |  |  | 43,312 |  |  |  | - |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,542,725 |  |  | $ | - |  |  | $ | 1,475,096 |  |  | $ | 67,542 |
Accrued interest payable |  |  | 106 |  |  |  | - |  |  |  | 106 |  |  |  | - |

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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 -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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