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Note 5 - Fair Value Measurements | 9 Months Ended
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Sep. 30, 2021
Notes to Financial Statements |
Fair Value Disclosures [Text Block] |
5. | Fair Value Measurements
Assets and liabilities carried at fair value are required to be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value. 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 or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatility, prepayment speeds, credit risk); or inputs derived principally from or can be corroborated by observable market data by correlation or other means. Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation. The following table presents the balances of assets measured at fair value on a recurring basis by level as of September 30, 2021 and December 31, 2020 (in thousands):
Description |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government treasuries |  | $ | 138,035 |  |  | $ | 138,035 |  |  | $ | - |  |  | $ | - |
U.S. government agencies |  |  | 113,568 |  |  |  | - |  |  |  | 113,568 |  |  |  | - |
U.S. government mortgage-backed securities |  |  | 158,766 |  |  |  | - |  |  |  | 158,766 |  |  |  | - |
State and political subdivisions |  |  | 276,652 |  |  |  | - |  |  |  | 276,652 |  |  |  | - |
Corporate bonds |  |  | 78,402 |  |  |  | - |  |  |  | 78,402 |  |  |  | - |
|  | $ | 765,423 |  |  | $ | 138,035 |  |  | $ | 627,388 |  |  | $ | - |
2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government treasuries |  | $ | 12,053 |  |  | $ | 12,053 |  |  | $ | - |  |  | $ | - |
U.S. government agencies |  |  | 111,199 |  |  |  | - |  |  |  | 111,199 |  |  |  | - |
U.S. government mortgage-backed securities |  |  | 150,195 |  |  |  | - |  |  |  | 150,195 |  |  |  | - |
State and political subdivisions |  |  | 251,584 |  |  |  | - |  |  |  | 251,584 |  |  |  | - |
Corporate bonds |  |  | 71,968 |  |  |  | - |  |  |  | 71,968 |  |  |  | - |
|  | $ | 596,999 |  |  | $ | 12,053 |  |  | $ | 584,946 |  |  | $ | - |
Level 1 securities include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. U.S. government agencies, mortgage-backed securities, state and political subdivisions, and most corporate bonds are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment or a change in previously recognized impairment). The following table presents the assets carried on the balance sheet (after specific reserves) by caption and by level within the valuation hierarchy as of September 30, 2021 and December 31, 2020 (in thousands):
Description |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable |  | $ | 8,989 |  |  | $ | - |  |  | $ | - |  |  | $ | 8,989 |
Other real estate owned |  |  | 768 |  |  |  | - |  |  |  | - |  |  |  | 768 |
Total |  | $ | 9,757 |  |  | $ | - |  |  | $ | - |  |  | $ | 9,757 |
2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable |  | $ | 10,306 |  |  | $ | - |  |  | $ | - |  |  | $ | 10,306 |
Other real estate owned |  |  | 218 |  |  |  | - |  |  |  | - |  |  |  | 218 |
Total |  | $ | 10,524 |  |  | $ | - |  |  | $ | - |  |  | $ | 10,524 |
The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020 are as follows (in thousands):
|  | 2020 |
|  | Estimated |  | Valuation |  |  | Range |
|  | Fair Value |  | Techniques | Unobservable Inputs |  | (Average) |
Loans receivable |  | $ | 8,989 |  | Evaluation of collateral | Estimation of value |  |  | NM* |  |  |
Other real estate owned |  | $ | 768 |  | Appraisal | Appraisal adjustment |  | 6% | - | 8% | (7%) |
|  | 2020 |
|  | Estimated |  | Valuation |  |  | Range |
|  | Fair Value |  | Techniques | Unobservable Inputs |  | (Average) |
Loans receivable |  | $ | 10,306 |  | Evaluation of collateral | Estimation of value |  |  | NM* |  |  |
Other real estate owned |  | $ | 218 |  | Appraisal | Appraisal adjustment |  | 6% | - | 8% | (7%) |
* Evaluations of the underlying assets are completed for each collateral dependent impaired loan with a specific reserve. The types of collateral vary widely and could include accounts receivables, inventory, a variety of equipment and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered included aging of receivables, condition of the collateral, potential market for the collateral and estimated disposal costs. These discounts will vary from loan to loan, thus providing a range would not be meaningful. GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The following table includes the carrying amounts and estimated fair values of the Company’s financial assets and liabilities as of September 30, 2021 and December 31, 2020 (in thousands):
|  |  | 2021 |  |  | 2020 |
| Fair Value |  |  |  |  |  | Estimated |  |  |  |  |  |  | Estimated |
| Hierarchy |  | Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
| Level |  | Amount |  |  | Value |  |  | Amount |  |  | Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks | Level 1 |  | $ | 25,607 |  |  | $ | 25,607 |  |  | $ | 24,819 |  |  | $ | 24,819 |
Interest-bearing deposits in financial institutions and federal funds sold | Level 1 |  |  | 122,786 |  |  |  | 122,786 |  |  |  | 166,704 |  |  |  | 166,704 |
Securities available-for-sale | See previous table |  |  | 765,423 |  |  |  | 765,423 |  |  |  | 596,999 |  |  |  | 596,999 |
FHLB and FRB stock | Level 2 |  |  | 3,424 |  |  |  | 3,424 |  |  |  | 3,148 |  |  |  | 3,148 |
Loans receivable, net | Level 2 |  |  | 1,126,059 |  |  |  | 1,102,573 |  |  |  | 1,129,505 |  |  |  | 1,116,352 |
Loans held for sale | Level 2 |  |  | 378 |  |  |  | 378 |  |  |  | 1,621 |  |  |  | 1,621 |
Accrued income receivable | Level 1 |  |  | 11,178 |  |  |  | 11,178 |  |  |  | 11,143 |  |  |  | 11,143 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits | Level 2 |  | $ | 1,836,708 |  |  | $ | 1,839,016 |  |  | $ | 1,716,446 |  |  | $ | 1,720,023 |
Securities sold under agreements to repurchase | Level 1 |  |  | 36,277 |  |  |  | 36,277 |  |  |  | 37,293 |  |  |  | 37,293 |
FHLB advances | Level 2 |  |  | 3,000 |  |  |  | 3,069 |  |  |  | 3,000 |  |  |  | 3,111 |
Accrued interest payable | Level 1 |  |  | 450 |  |  |  | 450 |  |  |  | 829 |  |  |  | 829 |
The methodologies used to determine fair value as of September 30, 2021 did not change from the methodologies described in the December 31, 2020 Annual Financial Statements. Commitments to extend credit and standby letters of credit: The fair values of commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and credit worthiness of the counterparties. The carrying value and fair value of the commitments to extend credit and standby letters of credit are not considered significant. Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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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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