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Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Fair Value Measurements [Abstract]

Fair Value Measurements

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Note 21 – Fair value measurements

Financial instruments measured at fair value on recurring basis.

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 for an asset or liability 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.

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Note 21 – Fair value measurements (continued)

Securities

Where quoted prices are available in an active market, 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.

Derivatives Assets/Liabilities – Interest Rate Lock Commitments (IRLCs)

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.

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Note 21 – Fair value measurements (continued)

The following table summarizes the Company’s financial assets that were measured at fair value on a recurring basis during the period.

				Fair Value at December 31, 2022
				Quoted Prices			Significant			Significant
				in Active			Other			Unobservable
	Balance as of			Markets for			Observable			Inputs
	December 31,			Identical Assets			Inputs			(Level 3)
Description	2022			(Level 1)			(Level 2)
U.S. Treasuries	$	4,741		$	—		$	4,741		$	—
U.S. agency obligations		59,273			—			59,273			—
Mortgage-backed securities		67,842			—			67,842			—
Municipals		37,855			—			37,855			—
Corporates		16,076			—			16,076			—
Total available-for-sale securities	$	185,787		$	—		$	185,787		$	—
IRLCs – asset		91			—			—			91
Total assets at fair value	$	185,878		$	—		$	185,787		$	91

				Fair Value at December 31, 2021
				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)
U.S. Treasuries	$	2,002		$	—		$	2,002		$	—
U.S. 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

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Note 21 – 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 December 31, 2022
	(dollars in thousands)
		Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
IRLCs - asset	$	91		Market approach	Range of pull through rate	85%
	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)
Assets
IRLCs - asset	$	144		Market approach	Range of pull through rate	85%

Assets measured at fair value on a nonrecurring basis.

Loans held for sale

Loans held for sale are measured at lower of cost or fair value. Under ASC 820, market value is to represent fair value. Management obtains quotes or bids on all or part of these loans directly from the purchasing financial institutions. Premiums received or to be received on the quotes or bids are indicative of the fact that cost is lower than fair value. Because quotes and bids on loans held for sale are available in active markets, loans held for sale are considered to be Level 2. No nonrecurring fair value adjustments were recorded during the years ended December 31, 2022 and 2021. Gains and losses on the sale of loans are recorded in noninterest income on the Consolidated Statements of Income.

Impaired loans

ASC 820 applies to loans measured for impairment at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral.

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

Note 21 – Fair value measurements (continued)

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 The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’s 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. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. The carrying values of all impaired loans are considered to be Level 3.

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.

Real estate acquired through foreclosure is transferred to other real estate owned (“OREO”). The measurement of loss associated with OREO at the date of transfer from loans is based on the fair value of the collateral less anticipated selling costs compared to the unpaid loan balance. Subsequent changes in fair value are recorded in noninterest expense on the Consolidated Statements of Income. The value of OREO properties is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using market data.

Any fair value adjustments are recorded in the period incurred and expensed against current earnings. The carrying values of all OREO are considered to be Level 3.

The following table summarizes the Company’s impaired loans and OREO measured at fair value on a nonrecurring basis during the period.

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Note 21 – Fair value measurements (continued)

				Fair Value at December 31, 2022
				Quoted Prices			Significant			Significant
				in Active			Other			Unobservable
	Balance as of			Markets for			Observable			Inputs
	December 31,			Identical Assets			Inputs			(Level 3)
Description	2022			(Level 1)			(Level 2)
Impaired loans*	$	854		$	—		$	—		$	854
Other real estate	$	566		$	—		$	—		$	566

*Includes loans charged down to the net realizable value of the collateral.

				Fair Value at December 31, 2021
				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)
Impaired loans*	$	1,802		$	—		$	—		$	1,802
Other real estate	$	761		$	—		$	—		$	761

*Includes loans charged down to the net realizable value of the collateral.

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Note 21 – Fair value measurements (continued)

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
	December 31, 2022
	(dollars in thousands)
	Fair Value			Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Impaired loans	$	854		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		26%
						Discount for lack of marketability and age of appraisal		0% - 27% (26%)

	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)
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%)

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. Fair values for December 31, 2022 and 2021 were estimated using an exit price notion.

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Note 21 – Fair value measurements (continued)

				Fair Value Measurements at December 31, 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	$	30,025		$	30,025		$	—		$	—		$	30,025
Fed funds sold		31,737			31,737			—			—			31,737
Securities
Available-for-sale		185,787			—			185,787			—			185,787
Held-to-maturity		3,639			—			3,135			—			3,135
Restricted stock		1,387			—			1,387			—			1,387
Loans, net		605,366			—			—			564,802			564,802
Loans held for sale		2,423			—			2,423			—			2,423
Interest receivable		2,736			—			2,736			—			2,736
BOLI		19,237			—			19,237			—			19,237
Derivaties		91			—			—			91			91
Liabilities
Deposits	$	848,138		$	—		$	850,102		$	—		$	850,102
Capital notes		10,037			—			9,200			—			9,200
Other borrowings		10,457			—			9,438			—			9,438
Interest payable		89			—			89			—			89

				Fair Value Measurements at December 31, 2021 using
	Carrying
Assets	Amounts			(Level 1)			(Level 2)			(Level 3)			Balance
Cash and due from banks	$	29,337		$	29,337		$	—		$	—		$	29,337
Fed 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		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		144			—			—			144			144
Liabilities
Deposits	$	887,056		$	—		$	887,955		$	—		$	887,955
Capital notes		10,031			—			10,711			—			10,711
Other borrowings		10,985			—			11,465			—			11,465
Interest payable		46			—			46			—			46

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- References

No definition available.

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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

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