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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2022
Fair Value Measurements [Abstract] |
Fair Value Measurements | Note 5 – Fair Value Measurements Determination of Fair Value The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market and in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. 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. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market and in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. Fair Value Hierarchy In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured 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. Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. Fair Value on a Recurring Basis Securities Available-for-Sale Fair values of securities available-for sale are based on quoted prices available in an active market. If quoted prices are available, these securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the Company’s securities are considered to be Level 2 securities. ‎ Note 5 – Fair Value Measurements (continued) Derivatives Assets/Liabilities – Interest Rate Lock Commitments (IRLCs) and Forward Sales Commitments The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 3. Beginning with the first quarter of 2022, the Company elected to begin using fair value accounting for its forward sales commitments related to IRLCs. Best efforts sales commitments are entered into for loans intended for sale in the secondary market at the time the borrower commitment is made. The best efforts commitments are valued using the committed price to the counter-party against the current market price of the interest rate lock commitment. All the Company’s forward sale commitments are classified Level 3. The below tables summarize the Company’s financial assets that were measured at fair value on a recurring basis during the period.
|  |  |  | Carrying Value at September 30, 2022 (in thousands)
|  |  |  | Quoted Prices |  | Significant |  | Significant
|  |  |  | in Active |  | Other |  | Unobservable
|  | Balance as of |  | Markets for |  | Observable |  | Inputs
|  | September 30, |  | Identical Assets |  | Inputs |  | (Level 3)
Description |  | 2022 |  | (Level 1) |  | (Level 2) |  |
US Treasuries | $ | 4,721 |  | $ | — |  | $ | 4,721 |  | $ | —
US agency obligations |  | 62,139 |  |  | — |  |  | 62,139 |  |  | —
Mortgage-backed securities |  | 70,394 |  |  | — |  |  | 70,394 |  |  | —
Municipals |  | 37,799 |  |  | — |  |  | 37,799 |  |  | —
Corporates |  | 16,078 |  |  | — |  |  | 16,078 |  |  | —
Total available-for-sale securities | $ | 191,131 |  | $ | — |  | $ | 191,131 |  | $ | —
Forward sales commitments - asset |  | 429 |  |  | — |  |  | — |  |  | 429
Total assets at fair value | $ | 191,560 |  | $ | — |  | $ | 191,131 |  | $ | 429
IRLCs - liability |  | (225) |  |  | — |  |  | — |  |  | (225)
|  |  |  | Carrying Value at December 31, 2021 (in thousands)
|  |  |  | Quoted Prices |  | Significant |  | Significant
|  |  |  | in Active |  | Other |  | Unobservable
| Balance as of |  | Markets for |  | Observable |  | Inputs
| December 31, |  | Identical Assets |  | Inputs |  | (Level 3)
Description | 2021 |  | (Level 1) |  | (Level 2) |  |
US Treasuries | $ | 2,002 |  | $ | — |  | $ | 2,002 |  | $ | —
US agency obligations |  | 58,470 |  |  | — |  |  | 58,470 |  |  | —
Mortgage-backed securities |  | 37,438 |  |  | — |  |  | 37,438 |  |  | —
Municipals |  | 50,204 |  |  | — |  |  | 50,204 |  |  | —
Corporates |  | 13,153 |  |  | — |  |  | 13,153 |  |  | —
Total available-for-sale securities | $ | 161,267 |  | $ | — |  | $ | 161,267 |  | $ | —
IRLCs – asset |  | 144 |  |  | — |  |  | — |  |  | 144
Total assets at fair value | $ | 161,411 |  | $ | — |  | $ | 161,267 |  | $ | 144
‎ Note 5 – Fair Value Measurements (continued) The following table provides additional quantitative information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:
| Quantitative information about Level 3 Fair Value Measurements for September 30, 2022
| (dollars in thousands)
| Fair Value |  | Valuation Technique(s) |  | Unobservable Input |  | Range (Weighted Average) (1)
Assets |  |  |  |  |  |  |  |
IRLCs – liability | $ | (225) |  | Market approach |  | Range of pull through rate |  | 70% - 100% (85%)
Forward Sales Commitments – asset |  | 429 |  | Market approach |  | Range of pull through rate |  | 70% - 100% (85%)
(1) Weighted based on the relative value of the instruments
| Quantitative information about Level 3 Fair Value Measurements for December 31, 2021
| (dollars in thousands)
| Fair Value |  | Valuation Technique(s) |  | Unobservable Input |  | Range (Weighted Average) (1)
Assets |  |  |  |  |  |  |  |
IRLCs - asset | $ | 144 |  | Market approach |  | Range of pull through rate |  | 70% - 100% (85%)
(1) Weighted based on the relative value of the instruments Fair Value on a Non-recurring Basis Impaired loans Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using observable market data (Level 2). However, in situations where the collateral is a house or building in the process of construction, the appraisal is more than 12 months old, management has determined the fair value of the collateral is further impaired below the appraised value, or the appraisal is not based solely on market comparables adjusted for observable inputs, the value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. Loans held for sale Loans held for sale are carried at cost which approximates estimated fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the period ended September 30, 2022. Gains and losses on the sale of loans are recorded within gains on sales of loans held for sale on the Consolidated Statements of Income. Other real estate owned Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of ASC 820. Note 5 – Fair Value Measurements (continued) Real estate acquired through foreclosure is transferred to OREO. The measurement of loss associated with OREO is based on the fair value of the collateral compared to the unpaid loan balance and anticipated costs to sell the property. The value of OREO property is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using observable market data (Level 2). Any fair value adjustments are recorded in the period incurred and expensed against current earnings. However, in situations where the collateral is a house or building in the process of construction, the appraisal is more than 12 months old, management has determined the fair value of the collateral is further impaired below the appraised value, or the appraisal is not based solely on market comparables adjusted for observable inputs, the value is considered Level 3. The following table summarizes the Company’s impaired loans and OREO measured at fair value on a nonrecurring basis during the period (in thousands):
|  |  |  | Carrying Value at September 30, 2022
Description | Balance as of September 30, 2022 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Impaired loans* | $ | 1,364 |  | $ | — |  | $ | — |  | $ | 1,364
Other real estate owned |  | 566 |  |  | — |  |  | — |  |  | 566
* Includes loans charged down to the net realizable value of the collateral.
|  |  |  | Carrying Value at December 31, 2021
Description | Balance as of December 31, 2021 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Impaired loans* | $ | 1,802 |  | $ | — |  | $ | — |  | $ | 1,802
Other real estate owned |  | 761 |  |  | — |  |  | — |  |  | 761
* Includes loans charged down to the net realizable value of the collateral. The following table sets forth information regarding the quantitative inputs used to value assets classified as Level 3:
| Quantitative information about Level 3 Fair Value Measurements for September 30, 2022
| (dollars in thousands)
| Fair Value |  | Valuation Technique(s) |  | Unobservable Input |  | Range (Weighted Average) (1)
Assets |  |  |  |  |  |  |  |
Impaired loans | $ | 1,364 |  | Discounted appraised value |  | Selling cost |  | 0% - 10% (8%)
|  |  |  |  |  | Discount for lack of marketability and age of appraisal |  | 0% - 20% (6%)
OREO |  | 566 |  | Discounted appraised value |  | Selling cost |  | 10%
|  |  |  |  |  | Discount for lack of marketability and age of appraisal |  | 0% - 25% (15%)
(1)Weighted based on the relative value of the instruments. ‎ Note 5 – Fair Value Measurements (continued)
| Quantitative information about Level 3 Fair Value Measurements for December 31, 2021
| (dollars in thousands)
| Fair Value |  | Valuation Technique(s) |  | Unobservable Input |  | Range (Weighted Average) (1)
Assets |  |  |  |  |  |  |  |
Impaired loans | $ | 1,802 |  | Discounted appraised value |  | Selling cost |  | 0% - 10% (8%)
|  |  |  |  |  | Discount for lack of marketability and age of appraisal |  | 0% - 20% (6%)
OREO |  | 761 |  | Discounted appraised value |  | Selling cost |  | 10%
|  |  |  |  |  | Discount for lack of marketability and age of appraisal |  | 0% - 27% (26%)
(1)Weighted based on the relative value of the instruments. Financial Instruments FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The carrying amounts and estimated fair values of the Company’s financial instruments are presented in the following tables whether or not recognized on the Consolidated Balance Sheets at fair value. ‎ Note 5 – Fair Value Measurements (continued) The estimated fair values, and related carrying or notional amounts, of Financial’s financial instruments and their placement in the fair value hierarchy at September 30, 2022 and December 31, 2021 was as follows (in thousands):
|  |  | Fair Value Measurements at September 30, 2022 using
|  |  | Quoted Prices |  | Significant |  |  |  |
|  |  | in Active |  | Other |  | Significant |  |
|  |  | Markets for |  | Observable |  | Unobservable |  |
| Carrying |  | Identical Assets |  | Inputs |  | Inputs |  |
Assets | Amounts |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | Balance
Cash and due from banks | $ 38,622 |  | $ 38,622 |  | $ - |  | $ - |  | $ 38,622
Federal funds sold | 42,398 |  | 42,398 |  | - |  | - |  | 42,398
Securities |  |  |  |  |  |  |  |  |
Available-for-sale | 191,131 |  | - |  | 191,131 |  | - |  | 191,131
Held-to-maturity | 3,643 |  | - |  | 3,192 |  | - |  | 3,192
Restricted stock | 1,387 |  | - |  | 1,387 |  | - |  | 1,387
Loans, net (1) | 614,117 |  | - |  | - |  | 576,085 |  | 576,085
Loans held for sale | 3,239 |  | - |  | 3,239 |  | - |  | 3,239
Interest receivable | 2,382 |  | - |  | 2,382 |  | - |  | 2,382
BOLI | 19,123 |  | - |  | 19,123 |  | - |  | 19,123
Derivatives – Forward Sales Commitments | 429 |  | - |  | - |  | 429 |  | 429
Liabilities |  |  |  |  |  |  |  |  |
Deposits | $ 883,069 |  | $ - |  | $ 883,188 |  | $ - |  | $ 883,188
Capital notes | 10,037 |  | - |  | - |  | 9,228 |  | 9,228
Other borrowings | 10,596 |  | - |  | - |  | 10,077 |  | 10,077
Interest payable | 37 |  | - |  | 37 |  | - |  | 37
Derivatives - IRLCs | 225 |  | - |  | - |  | 225 |  | 225
|  |  | Fair Value Measurements at December 31, 2021 using
|  |  | Quoted Prices |  | Significant |  |  |  |
|  |  | in Active |  | Other |  | Significant |  |
|  |  | Markets for |  | Observable |  | Unobservable |  |
| Carrying |  | Identical Assets |  | Inputs |  | Inputs |  |
Assets | Amounts |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | Balance
Cash and due from banks | $ 29,337 |  | $ 29,337 |  | $ - |  | $ - |  | $ 29,337
Federal funds sold | 153,816 |  | 153,816 |  | - |  | - |  | 153,816
Securities |  |  |  |  |  |  |  |  |
Available-for-sale | 161,267 |  | - |  | 161,267 |  | - |  | 161,267
Held-to-maturity | 3,655 |  | - |  | 4,006 |  | - |  | 4,006
Restricted stock | 1,324 |  | - |  | 1,324 |  | - |  | 1,324
Loans, net (1) | 576,469 |  | - |  | - |  | 565,543 |  | 565,543
Loans held for sale | 1,628 |  | - |  | 1,628 |  | - |  | 1,628
Interest receivable | 2,064 |  | - |  | 2,064 |  | - |  | 2,064
BOLI | 18,785 |  | - |  | 18,785 |  | - |  | 18,785
Derivatives - IRLCs | 144 |  | - |  | - |  | 144 |  | 144
Liabilities |  |  |  |  |  |  |  |  |
Deposits | $ 887,056 |  | $ - |  | $ 887,955 |  | $ - |  | $ 887,955
Capital notes | 10,031 |  | - |  | - |  | 10,712 |  | 10,712
Other borrowings | 10,985 |  | - |  | - |  | 11,467 |  | 11,467
Interest payable | 46 |  | - |  | 46 |  | - |  | 46
(1) Carrying amount is net of unearned income and the Allowance.

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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 https://asc.fasb.org/topic&trid=2155941 + Details
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