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Note 7 - Fair Value | 9 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | NOTE 7– FAIR VALUE 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 entity has the ability to access as of the measurement date.
| • | Level 2 – Significant other observable inputs other than Level 1 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 Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument: Securities: The fair value for investment securities is determined by quoted market prices, if available (Level 1). The fair values of debt securities are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Loans Evaluated Individually: The Company does not record portfolio loans at fair value on a recurring basis. However, periodically, a loan is evaluated individually and is reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. If the collateral value is not sufficient, a specific reserve is recorded. Collateral values are estimated using a combination of observable inputs, including recent appraisals, and unobservable inputs based on customized discounting criteria. Due to the significance of unobservable inputs, fair values of individually evaluated collateral dependent loans have been classified as Level 3. Foreclosed assets: 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 which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Foreclosed assets are evaluated on a quarterly basis for additional impairment and adjusted accordingly. The following table sets forth the Company’s financial assets that were accounted for at fair value and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|  | Fair Value Measurements Using |  |  |  |  |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Fair Value |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | — |  |  | $ | 2,725 |  |  | $ | — |  |  | $ | 2,725 |
Municipal securities |  |  | — |  |  |  | 229 |  |  |  | — |  |  |  | 229 |
U.S. Treasury Notes |  |  | 123,095 |  |  |  | — |  |  |  | — |  |  |  | 123,095 |
U.S. government-sponsored agencies |  |  | — |  |  |  | 27,863 |  |  |  | — |  |  |  | 27,863 |
Mortgage-backed securities – residential |  |  | — |  |  |  | 3,480 |  |  |  | — |  |  |  | 3,480 |
Collateralized mortgage obligations – residential |  |  | — |  |  |  | 1,033 |  |  |  | — |  |  |  | 1,033 |
|  | $ | 123,095 |  |  | $ | 35,330 |  |  | $ | — |  |  | $ | 158,425 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | — |  |  | $ | 2,233 |  |  | $ | — |  |  | $ | 2,233 |
Municipal securities |  |  | — |  |  |  | 225 |  |  |  | — |  |  |  | 225 |
U.S. Treasury Notes |  |  | 163,103 |  |  |  | — |  |  |  | — |  |  |  | 163,103 |
U.S. government-sponsored agencies |  |  | — |  |  |  | 39,699 |  |  |  | — |  |  |  | 39,699 |
Mortgage-backed securities – residential |  |  | — |  |  |  | 3,881 |  |  |  | — |  |  |  | 3,881 |
Collateralized mortgage obligations – residential |  |  | — |  |  |  | 1,197 |  |  |  | — |  |  |  | 1,197 |
|  | $ | 163,103 |  |  | $ | 47,235 |  |  | $ | — |  |  | $ | 210,338 |
The following table sets forth the Company’s assets that were measured at fair value on a non-recurring basis:
|  | Fair Value Measurement Using |  |  |  |  |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Fair Value |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other real estate owned |  | $ | — |  |  | $ | — |  |  | $ | 468 |  |  | $ | 468 |
Other foreclosed assets |  |  | — |  |  |  | — |  |  |  | 387 |  |  |  | 387 |
At September 30, 2023 and December 31, 2022 there were no individually evaluated loans that were measured using the fair value of the collateral for collateral–dependent loans and which had specific valuation allowances. Foreclosed assets are carried at the lower of cost or fair value less costs to sell. At September 30, 2023, other real estate owned has a carrying value of $472,000 less a valuation allowance of $4,000, or $468,000, and other foreclosed assets has a carrying value of $431,000 less a valuation allowance of $44,000, or $387,000. At December 31, 2022 there were no foreclosed assets with valuation allowances. There was a $48,000 valuation adjustment of other foreclosed assets recorded in the three and nine months ended September 30, 2023 compared to $31,000 of valuation adjustments of other foreclosed assets recorded for the three and nine and months ended September 30, 2022. The following table presents quantitative information, based on certain empirical data with respect to Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis:
|  | Fair Value |  | Valuation Technique(s) |  | Significant Unobservable Input(s) |  | Range (Weighted Average) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |
Other real estate owned |  | $ | 468 |  | Sales comparison |  | Discount applied to valuation |  |  | 10.0 | %
Other foreclosed assets |  |  | 387 |  | Sales comparison |  | Discount applied to valuation |  |  | 6.2 | %
In January 2023, we completed the previously disclosed closings of our Hazel Crest and Naperville branch offices. At the time of transfer, we recorded a $553,000 valuation adjustment on bank premises held-for-sale. During the second quarter of 2023, we recorded an additional valuation adjustment of $32,000 on our Hazel Crest branch office based on the purchase price reflected in the pending sale agreement for the facility. The carrying amount and estimated fair value of financial instruments are as follows:
|  |  |  |  |  | Fair Value Measurements at September 30, 2023 Using: |  |  |  |  |
|  | Carrying Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 171,561 |  |  | $ | 169,321 |  |  | $ | 2,240 |  |  | $ | — |  |  | $ | 171,561 |
Securities |  |  | 158,425 |  |  |  | 123,095 |  |  |  | 35,330 |  |  |  | — |  |  |  | 158,425 |
Loans receivable, net of allowance for credit losses |  |  | 1,105,604 |  |  |  | — |  |  |  | — |  |  |  | 1,049,622 |  |  |  | 1,049,622 |
FHLB and FRB stock |  |  | 7,490 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | N /A |
Accrued interest receivable |  |  | 8,343 |  |  |  | 437 |  |  |  | 436 |  |  |  | 7,470 |  |  |  | 8,343 |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  |  | 221,164 |  |  |  | — |  |  |  | 217,933 |  |  |  | — |  |  |  | 217,933 |
Borrowings |  |  | 25,000 |  |  |  | — |  |  |  | 24,621 |  |  |  | — |  |  |  | 24,621 |
Subordinated notes |  |  | 19,667 |  |  |  | — |  |  |  | 17,171 |  |  |  | — |  |  |  | 17,171 |
|  |  |  |  |  | Fair Value Measurements at December 31, 2022 Using: |  |  |  |  |
|  | Carrying Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 66,771 |  |  | $ | 65,967 |  |  | $ | 804 |  |  | $ | — |  |  | $ | 66,771 |
Securities |  |  | 210,338 |  |  |  | 163,103 |  |  |  | 47,235 |  |  |  | — |  |  |  | 210,338 |
Loans receivable, net of allowance for credit losses |  |  | 1,226,743 |  |  |  | — |  |  |  | — |  |  |  | 1,198,616 |  |  |  | 1,198,616 |
FHLB and FRB stock |  |  | 7,490 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | N /A |
Accrued interest receivable |  |  | 7,338 |  |  |  | 514 |  |  |  | 477 |  |  |  | 6,347 |  |  |  | 7,338 |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  |  | 186,524 |  |  |  | — |  |  |  | 182,398 |  |  |  | — |  |  |  | 182,398 |
Subordinated notes |  |  | 19,634 |  |  |  | — |  |  |  | 17,800 |  |  |  | — |  |  |  | 17,800 |
Loans: The exit price observations are obtained from an independent third-party using its proprietary valuation model and methodology and may not reflect actual or prospective market valuations. The valuation is based on the probability of default, loss given default, recovery delay, prepayment, and discount rate assumptions. While the above estimates are based on management’s judgment of the most appropriate factors, as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets were disposed of or the liabilities settled at that date, since market values may differ depending on the various circumstances. The estimated fair values would also not apply to subsequent dates. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the above disclosures.

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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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