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Note 11 - Fair Value Measurements | 9 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Fair Value Disclosures [Text Block] |
11. | 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.
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 September 30, 2024 and December 31, 2023. The Company had no liabilities measured at fair value as of September 30, 2024 or December 31, 2023.
|  | Carrying Value |
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
September 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets Measured on a Recurring Basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency mortgage-backed securities |  | $ | - |  |  | $ | 66,512 |  |  | $ | - |  |  | $ | 66,512 |
Agency CMO |  |  | - |  |  |  | 52,312 |  |  |  | - |  |  |  | 52,312 |
Agency notes and bonds |  |  | - |  |  |  | 121,835 |  |  |  | - |  |  |  | 121,835 |
Treasury notes and bonds |  |  | 34,383 |  |  |  | - |  |  |  | - |  |  |  | 34,383 |
Municipal obligations |  |  | - |  |  |  | 133,427 |  |  |  | - |  |  |  | 133,427 |
Total securities available for sale |  | $ | 34,383 |  |  | $ | 374,086 |  |  | $ | - |  |  | $ | 408,469 |
Equity securities |  | $ | 990 |  |  | $ | - |  |  | $ | - |  |  |  | 990 |
Assets Measured on a Nonrecurring Basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateral dependent loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 Family Residential Construction |  | $ | - |  |  | $ | - |  |  | $ | 37 |  |  | $ | 37 |
Commercial Business |  |  | - |  |  |  | - |  |  |  | 770 |  |  |  | 770 |
Total collateral dependent loans |  | $ | - |  |  | $ | - |  |  | $ | 807 |  |  | $ | 807 |
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 |
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 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. 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. 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 September 30, 2024 and December 31, 2023, the Company did not have any loans held for sale measured at fair value on a nonrecurring basis. 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 September 30, 2024, 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 10% to 20%, with a weighted average discount of 11%. The Company recognized provisions for credit losses on collateral dependent loans of $371,000 for the three months ended September 30, 2024. The Company recognized provisions for credit losses on collateral dependent loans of $1.2 million and $38,000 for the nine months ended September 30, 2024 and 2023, respectively. The Company recognized a $2,000 reduction in provisions for credit losses on collateral dependent impaired loans for the three months ended September 30, 2023. 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 three month periods ended September 30, 2024 and 2023. There were no transfers into or out of the Company’s Level 3 financial assets for the three month periods ended September 30, 2024 and 2023. GAAP requires disclosure of the fair value of financial assets and financial liabilities, whether or not recognized in the balance sheet. 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. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The estimated fair values of the Company's financial instruments are as follows:
|  | Carrying |  |  | Fair |  |  | Fair Value Measurements Using |
(In thousands) |  | Value |  |  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
September 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 89,939 |  |  | $ | 89,939 |  |  | $ | 89,939 |  |  | $ | - |  |  | $ | - |
Interest-bearing time deposits |  |  | 2,695 |  |  |  | 2,744 |  |  |  | - |  |  |  | 2,744 |  |  |  | - |
Securities available for sale |  |  | 408,469 |  |  |  | 408,469 |  |  |  | 34,383 |  |  |  | 374,086 |  |  |  | - |
Securities held to maturity |  |  | 7,000 |  |  |  | 4,688 |  |  |  | - |  |  |  | 4,688 |  |  |  | - |
Loans held for sale |  |  | 678 |  |  |  | 692 |  |  |  | - |  |  |  | 692 |  |  |  | - |
Loans, net |  |  | 630,607 |  |  |  | 636,068 |  |  |  | - |  |  |  | - |  |  |  | 636,068 |
FHLB and other restricted stock |  |  | 1,836 |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Accrued interest receivable |  |  | 4,218 |  |  |  | 4,218 |  |  |  | - |  |  |  | 4,218 |  |  |  | - |
Equity securities (included in other assets) |  |  | 990 |  |  |  | 990 |  |  |  | 990 |  |  |  | - |  |  |  | - |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 1,030,249 |  |  |  | 1,029,528 |  |  |  | - |  |  |  | - |  |  |  | 1,029,528 |
Borrowed funds |  |  | 33,625 |  |  |  | 33,627 |  |  |  | - |  |  |  | 33,627 |  |  |  | - |
Accrued interest payable |  |  | 2,502 |  |  |  | 2,502 |  |  |  | - |  |  |  | 2,502 |  |  |  | - |
December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 38,670 |  |  | $ | 38,670 |  |  | $ | 38,670 |  |  | $ | - |  |  | $ | - |
Interest-bearing time deposits |  |  | 3,920 |  |  |  | 3,925 |  |  |  | - |  |  |  | 3,925 |  |  |  | - |
Securities available for sale |  |  | 437,271 |  |  |  | 437,271 |  |  |  | 63,084 |  |  |  | 374,187 |  |  |  | - |
Securities held to maturity |  |  | 7,000 |  |  |  | 4,446 |  |  |  | - |  |  |  | 4,446 |  |  |  | - |
Loans held for sale |  |  | 800 |  |  |  | 811 |  |  |  | - |  |  |  | 811 |  |  |  | - |
Loans, net |  |  | 614,409 |  |  |  | 609,243 |  |  |  | - |  |  |  | - |  |  |  | 609,243 |
FHLB and other restricted stock |  |  | 1,836 |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Accrued interest receivable |  |  | 4,788 |  |  |  | 4,788 |  |  |  | - |  |  |  | 4,788 |  |  |  | - |
Equity securities (included in other assets) |  |  | 1,260 |  |  |  | 1,260 |  |  |  | 1,260 |  |  |  | - |  |  |  | - |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 1,025,211 |  |  |  | 1,023,813 |  |  |  | - |  |  |  | - |  |  |  | 1,023,813 |
Borrowed funds |  |  | 21,500 |  |  |  | 21,470 |  |  |  | - |  |  |  | 21,470 |  |  |  | - |
Accrued interest payable |  |  | 1,209 |  |  |  | 1,209 |  |  |  | - |  |  |  | 1,209 |  |  |  | - |
The methods and assumptions used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits and other transactions accounts. The fair value of securities and interest-bearing time deposits in other financial institutions is based on quoted market prices (where available) or values obtained from an independent pricing service. The fair value of loans, excluding loans held for sale, fixed-maturity certificates of deposit and borrowed funds is based on discounted cash flows using current market rates applied to the estimated life and credit risk of the instrument. The fair value of loans held for sale is based on specific prices of underlying contracts for sales to investors. It is not practicable to determine the fair value of FHLB and other restricted stock due to restrictions placed on its transferability. The methods utilized to measure the fair value of financial instruments at September 30, 2024 and December 31, 2023 represent an approximation of exit price, but an actual exit price may differ.

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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/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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