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Fair Value Measurements and Disclosures | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Disclosures | (9) Fair Value Measurements and Disclosures The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and other real estate owned. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments. Fair Value Hierarchy The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are: Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. Following is a description of valuation methodologies used for assets and liabilities recorded at fair value. Cash and Cash Equivalents The carrying value of cash and cash equivalents is a reasonable estimate of fair value. Investment Securities Available-for-Sale Available-for-sale securities are recorded at market value. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds. Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and state, county and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets. Other Investments The carrying value of other investments includes FHLB stock and FNBB stock and approximates fair value. Loans The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and a specific reserve may be required to be established within the allowance for loan losses. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with GAAP. The fair value of impaired loans is estimated using one of three methods, including collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. In accordance with GAAP, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. For disclosure purposes, the fair value of fixed rate loans which are not considered impaired is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For unimpaired variable rate loans, the carrying amount is a reasonable estimate of fair value for disclosure purposes. Other Real Estate Owned Other real estate properties are adjusted to fair value upon transfer of the loans to other real estate. Subsequently, other real estate assets are carried at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price, the Bank records the other real estate as nonrecurring Level 2. When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the other real estate asset as nonrecurring Level 3. Bank Owned Life Insurance The carrying value of the cash surrender value of life insurance reasonably approximates fair value. Deposits The fair value of savings accounts, interest bearing checking accounts, non-interest bearing checking accounts and market rate checking accounts is the amount payable on demand at the reporting date, while the fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using current rates at which comparable certificates would be issued. FHLB Advances The fair value of FHLB fixed-rate borrowings is estimated using discounted cash flows, based on the current incremental borrowing rates for similar types of borrowing arrangements. PPPLF and Other Borrowings The carrying value of other borrowings reasonably approximates fair value. The Paycheck Protection Program Liquidity Facility funding has a fixed rate of 0.35% for all participants; thus, the carrying value approximates the estimated fair value. Commitments to Extend Credit Commitments to extend credit are short-term and, therefore, the carrying value and the fair value are considered immaterial for disclosure. Assets Recorded at Fair Value on a Recurring Basis The Company’s only assets recorded at fair value on a recurring basis are available-for-sale securities that had fair values of approximately $44.1 million and $24.0 million at September 30, 2021 and December 31, 2020. They are classified as Level 2. Assets Recorded at Fair Value on a Nonrecurring Basis The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of September 30, 2021 and December 31, 2020 (in thousands).
September 30, 2021 |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Other real estate owned |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Impaired loans |  |  | — |  |  |  | — |  |  |  | 7,656 |  |  |  | 7,656 |
Total assets at fair value |  | $ | — |  |  | $ | — |  |  | $ | 7,656 |  |  | $ | 7,656 |
December 31, 2020 |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Other real estate owned |  | $ | — |  |  | $ | — |  |  | $ | 1,292 |  |  | $ | 1,292 |
Impaired loans |  |  | — |  |  |  | — |  |  |  | 7,223 |  |  |  | 7,223 |
Total assets at fair value |  | $ | — |  |  | $ | — |  |  | $ | 8,515 |  |  | $ | 8,515 |
The carrying amounts and estimated fair values (in thousands) of the Company’s financial instruments at September 30, 2021 and December 31, 2020 are as follows:
|  | September 30, 2021 |  |  | December 31, 2020 |
|  | Carrying |  |  | Estimated |  |  | Carrying |  |  | Estimated |
|  | Amount |  |  | Fair Value |  |  | Amount |  |  | Fair Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 130,910 |  |  | $ | 130,910 |  |  | $ | 178,253 |  |  | $ | 178,253 |
Investment securities |  |  |  |  |  |  |  |  |  |  |  |
available-for-sale |  |  | 44,071 |  |  |  | 44,071 |  |  |  | 24,005 |  |  |  | 24,005 |
Other investments |  |  | 2,476 |  |  |  | 2,476 |  |  |  | 1,596 |  |  |  | 1,596 |
Loans, net |  |  | 563,539 |  |  |  | 573,930 |  |  |  | 592,254 |  |  |  | 611,625 |
Cash surrender value of life insurance |  |  | 15,285 |  |  |  | 15,285 |  |  |  | 15,311 |  |  |  | 15,311 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 615,231 |  |  |  | 606,610 |  |  |  | 640,165 |  |  |  | 639,269 |
FHLB advances |  |  | 49,020 |  |  |  | 47,694 |  |  |  | 19,117 |  |  |  | 16,769 |
PPPLF borrowings |  |  | — |  |  |  | — |  |  |  | 100,813 |  |  |  | 100,813 |
Other borrowings |  |  | — |  |  |  | — |  |  |  | 5,000 |  |  |  | 5,000 |
Limitations 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 many judgments. 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. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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