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FAIR VALUE OF FINANCIAL INSTRUMENTS
 9 Months Ended
Sep. 30, 2025
FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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.  There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the reporting entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:

Securities:  The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Individually Evaluated Collateral Dependent Loans:  The fair value of individually evaluated collateral dependent loans with specific allocations of the ACL is generally based on the fair value of collateral, less costs to sell, based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. Individually evaluated collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.




Other Real Estate Owned ("OREO"):  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement.  Such adjustments would be classified as a Level 2 classification.

Appraisals for collateral securing both  individually evaluated collateral dependent loans and OREO owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management’s own assumptions of fair value based on factors that include recent market data or industry-wide statistics.

On an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs, which typically amount to approximately 10%.

Interest Rate Swap Agreements:  The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments).  The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

 
Fair Value Measurements at September 30, 2025 Using
  
   
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
    
Significant Other
Observable Inputs
(Level 2)
    
Significant
Unobservable Inputs
(Level 3)
  
Assets:
                  
U.S. Government securities
  
$
104,846
    
$
—
    
$
—
  
U.S. Government sponsored entity securities
    
—
      
6,040
      
—
  
Agency mortgage-backed securities, residential
    
—
      
149,879
      
—
  
Interest rate swap derivatives
    
—
      
777
      
—
  
                         
Liabilities:
                        
Interest rate swap derivatives
    
—
      
(777
)
    
—
  

 
Fair Value Measurements at December 31, 2024 Using
  
   
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
    
Significant Other
Observable Inputs
(Level 2)
    
Significant
Unobservable Inputs
(Level 3)
  
Assets:
                  
U.S. Government securities
  
$
168,030
    
$
—
    
$
—
  
U.S. Government sponsored entity securities
    
—
      
5,888
      
—
  
Agency mortgage-backed securities, residential
    
—
      
94,202
      
—
  
Interest rate swap derivatives
    
—
      
657
      
—
  
                         
Liabilities:
                        
Interest rate swap derivatives
    
—
      
(657
)
    
—
  

There were no transfers into or out of Level 3 during the periods ended September 30, 2025 or 2024.






Assets and Liabilities Measured on a Nonrecurring Basis

There were no assets or liabilities measured at fair value on a nonrecurring basis at September 30, 2025 or December 31, 2024.
The carrying amounts and estimated fair values of financial instruments at September 30, 2025 and December 31, 2024 are as follows:

 
Carrying
    
Fair Value Measurements at September 30, 2025 Using
  
   
Value
    
Level 1
    
Level 2
    
Level 3
    
Total
  
Financial Assets:
                              
Cash and cash equivalents
  
$
89,316
    
$
89,316
    
$
—
    
$
—
    
$
89,316
  
Securities available for sale
    
260,765
      
104,846
      
155,919
      
—
      
260,765
  
Securities held to maturity
    
6,474
      
—
      
3,778
      
2,246
      
6,024
  
Loans, net
    
1,119,114
      
—
      
—
      
1,106,081
      
1,106,081
  
Interest rate swap derivatives
    
777
      
—
      
777
      
—
      
777
  
Accrued interest receivable
    
5,509
      
—
      
1,262
      
4,247
      
5,509
  
                                         
Financial liabilities:
                                        
Deposits
    
1,332,487
      
869,176
      
464,904
      
—
      
1,334,080
  
Other borrowed funds
    
36,024
      
—
      
35,550
      
—
      
35,550
  
Subordinated debentures
    
8,500
      
—
      
8,500
      
—
      
8,500
  
Interest rate swap derivatives
    
777
      
—
      
777
      
—
      
777
  
Accrued interest payable
    
5,477
      
—
      
5,477
      
—
      
5,477
  

 
Carrying
    
Fair Value Measurements at December 31, 2024 Using
  
   
Value
    
Level 1
    
Level 2
    
Level 3
    
Total
  
Financial Assets:
                              
Cash and cash equivalents
  
$
83,107
    
$
83,107
    
$
—
    
$
—
    
$
83,107
  
Securities available for sale
    
268,120
      
168,030
      
100,090
      
—
      
268,120
  
Securities held to maturity
    
7,049
      
—
      
3,651
      
2,769
      
6,420
  
Loans, net
    
1,051,737
      
—
      
—
      
1,037,349
      
1,037,349
  
Interest rate swap derivatives
    
657
      
—
      
657
      
—
      
657
  
Accrued interest receivable
    
4,805
      
—
      
1,540
      
3,265
      
4,805
  
                                         
Financial liabilities:
                                        
Deposits
    
1,275,178
      
881,290
      
394,470
      
—
      
1,275,760
  
Other borrowed funds
    
39,740
      
—
      
38,815
      
—
      
38,815
  
Subordinated debentures
    
8,500
      
—
      
8,500
      
—
      
8,500
  
Interest rate swap derivatives
    
657
      
—
      
657
      
—
      
657
  
Accrued interest payable
    
5,234
      
1
      
5,233
      
—
      
5,234
  

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular 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.