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Note 19 - Fair Value Measurements
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

(19)        FAIR VALUE MEASUREMENTS

 

FASB ASC Topic 820, Fair Value Measurements, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are described as follows:

 

 Level 1:Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
   
 Level 2:Inputs to the valuation methodology include quoted market prices for similar assets or liabilities in active markets; quoted market prices for identical or similar assets or liabilities in markets that are not active; or inputs that are 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.

      

Fair value is based upon quoted market prices, where available. If quoted market prices are not available, fair value is based on internally developed models or obtained from independent third parties that primarily use, as inputs, observable market-based parameters or a matrix pricing model that employs the Bond Market Association’s standard calculations for cash flow and price/yield analysis and observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, or the lower of cost or fair value. These adjustments may include unobservable parameters. Any such valuation adjustments have been applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

 

 

The table below presents the balances of assets measured at fair value on a recurring and nonrecurring basis as of December 31, 2023 and 2022. The Company had no liabilities measured at fair value as of December 31, 2023 or 2022.

 

  

Carrying Value

 

(In thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 
                 

December 31, 2023

                

Assets Measured on a Recurring Basis

                

Securities available for sale:

                

Agency mortgage-backed securities

 $-  $72,044  $-  $72,044 

Agency CMO

  -   25,173   -   25,173 

Agency notes and bonds

  -   129,505   -   129,505 

Treasury notes and bonds

  63,084   -   -   63,084 

Municipal obligations

  -   147,465   -   147,465 

Total securities available for sale

 $63,084  $374,187  $-  $437,271 
                 

Equity securities

 $1,260  $-  $-   1,260 
                 

Assets Measured on a Nonrecurring Basis

                

Collateral dependent loans:

                

1-4 Family Residential Mortgage

 $-  $-  $27  $27 

1-4 Family Residential Construction

  -   -   27   27 

Total collateral dependent loans

 $-  $-  $54  $54 
                 

December 31, 2022

                

Assets Measured on a Recurring Basis

                

Securities available for sale:

                

Agency mortgage-backed securities

 $-  $83,863  $-  $83,863 

Agency CMO

  -   9,353   -   9,353 

Agency notes and bonds

  -   137,981   -   137,981 

Treasury notes and bonds

  78,732   -   -   78,732 

Municipal obligations

  -   150,890   -   150,890 

Total securities available for sale

 $78,732  $382,087  $-  $460,819 
                 

Equity securities

 $1,467  $-  $-  $1,467 

 

 

Securities Available for Sale and Equity Securities. Securities classified as available for sale and equity securities are reported at fair value on a recurring basis. These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market. If quoted market prices are not available, the Company obtains fair value measurements from an independent pricing service. These securities are reported using Level 2 inputs and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors. For securities where quoted market prices, market prices of similar securities or prices from an independent third party pricing service are not available, fair values are calculated using discounted cash flows or other market indicators and are classified within Level 3 of the fair value hierarchy. Changes in fair value of securities available for sale are recorded in other comprehensive income, net of income tax effect. Changes in fair value of equity securities are recorded in noninterest income on the consolidated statements of income.

 

Collateral Dependent Loans. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. In accordance with accounting standards, only collateral dependent loans for which a specific ACL has been established require classification in the fair value hierarchy. The fair value of collateral dependent loans is classified as Level 3 in the fair value hierarchy.

 

Collateral dependent loans with specific allocations of ACL are measured at the fair value of the collateral less estimated costs to sell. Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable. The fair value of the collateral is generally determined based on real estate appraisals or other independent evaluations by qualified professionals, which are then discounted to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral.

 

At December 31, 2023, the significant unobservable inputs used in the fair value measurement of collateral dependent loans included a discount from appraised value for estimates of changes in market conditions, the condition of the collateral, and estimated costs to sell the collateral ranging from 23% to 30%, with a weighted average discount of 27%. There were no collateral dependent loans with a specific allocation of the ACL on loans at December 31, 2022.

 

The Company recognized provisions for loan losses of $97,000, $148,000 and $12,000 for the years ended December 31, 2023, 2022 and 2021, respectively, for collateral dependent loans.

 

Loans Held for Sale. Loans held for sale are carried at the lower of cost or market value. The portfolio is comprised of residential real estate loans and fair value is estimated based on specific prices of underlying contracts for sales to investors. These measurements are carried at Level 2 in the fair value hierarchy. At December 31, 2023 and 2022, the Company did not have any loans held for sale measured at fair value on a nonrecurring basis.

 

Foreclosed Real Estate. Foreclosed real estate is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. The fair value of foreclosed real estate is classified as Level 3 in the fair value hierarchy.

 

Foreclosed real estate is reported at fair value less estimated costs to dispose of the property. The fair values are determined by real estate appraisals which are then discounted to reflect management’s estimate of the fair value of the property given current market conditions and the condition of the property.

 

At December 31, 2023 and 2022, the Company held no foreclosed real estate.

 

The Company recognized charges of $5,000 to write down foreclosed real estate to fair value for the year ended December 31, 2021. There were no charges to write down foreclosed real estate recognized in income for the years ended December 31, 2023 and 2022.

 

 

There have been no changes in the valuation techniques and related inputs used for assets measured at fair value on a recurring and nonrecurring basis during the years ended December 31, 2023 and 2022. There were no transfers in or out of the Company’s Level 3 financial assets for the years ended December 31, 2023 and 2022.