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Fair Value Accounting

9 Months Ended

Sep. 30, 2022

Fair Value Accounting [Abstract]

Fair Value Accounting

NOTE 7 – Fair Value Accounting

FASB ASC 820, “Fair Value Measurement and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an 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. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted market price in active markets

Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include certain debt and equity securities that are traded in an active exchange market.

Level 2 – Significant other observable inputs

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 for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Company’s available-for-sale portfolio and valued by a third-party pricing service, as well as certain impaired loans.

Level 3 – Significant unobservable inputs

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable data.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 14 of the Company’s 2021 Annual Report on Form 10-K. The Company’s loan portfolio is initially fair valued using a segmented approach, using the eight categories of loans as disclosed in Note 4 – Loans and Allowance for Credit Losses. Loans are considered a Level 3 classification.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021.

										September 30, 2022
(dollars in thousands)		Level 1				Level 2				Level 3				Total
Assets
Securities available for sale
Corporate bonds		$	-				1,877				-				1,877
US treasuries			-				863				-				863
US government agencies			-				10,635				-				10,635
State and political subdivisions			-				18,646				-				18,646
Asset-backed securities			-				6,845				-				6,845
Mortgage-backed securities			-				52,655				-				52,655
Mortgage loans held for sale			-				9,243				-				9,243
MBS forward sales commitments			-				162				-				162
Total assets measured at fair value on a recurring basis		$	-				100,926				-				100,926

Liabilities
Mortgage loan interest rate lock commitments		$	-				7				-				7
Total liabilities measured at fair value on a recurring basis		$	-				7				-				7

		December 31, 2021
(dollars in thousands)		Level 1				Level 2				Level 3				Total
Assets
Securities available for sale:
Corporate bonds		$	-				2,188				-				2,188
US treasuries			-				992				-				992
US government agencies			-				14,169				-				14,169
SBA securities			-				438				-				438
State and political subdivisions			-				25,176				-				25,176
Asset-backed securities			-				10,164				-				10,164
Mortgage-backed securities			-				67,154				-				67,154
Mortgage loans held for sale			-				13,556				-				13,556
Mortgage loan interest rate lock commitments			-				425				-				425
Total assets measured at fair value on a recurring basis		$	-				134,262				-				134,262

Liabilities
MBS forward sales commitments		$	-				41				-				41
Total liabilities measured at fair value on a recurring basis		$	-				41				-				41

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021.

										As of September 30, 2022
(dollars in thousands)		Level 1				Level 2				Level 3				Total
Assets
Individually assessed loans		$	-				314				4,275				4,589
Total assets measured at fair value on a nonrecurring basis		$	-				314				4,275				4,589

										As of December 31, 2021
(dollars in thousands)		Level 1				Level 2				Level 3				Total
Assets
Impaired loans		$	-				5,262				2,065				7,327
Total assets measured at fair value on a nonrecurring basis		$	-				5,262				2,065				7,327

The Company had no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

Fair Value of Financial Instruments

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the disclosure requirements, including the Company’s common stock, premises and equipment and other assets and liabilities.

The estimated fair values of the Company’s financial instruments at September 30, 2022 and December 31, 2021 are as follows:

										September 30, 2022
(dollars in thousands)		Carrying Amount				Fair Value				Level 1				Level 2				Level 3
Financial Assets:
Other investments, at cost		$	5,449				5,449				-				-				5,449
Loans¹			2,986,412				2,825,209				-				-				2,825,209
Financial Liabilities:
Deposits			3,001,452				2,563,398				-				2,563,398				-
Subordinated debentures			36,187				38,639				-				38,639				-

										December 31, 2021
(dollars in thousands)		Carrying Amount				Fair Value				Level 1				Level 2				Level 3
Financial Assets:
Other investments, at cost		$	4,021				4,021				-				-				4,021
Loans¹			2,451,306				2,422,621				-				-				2,422,621
Financial Liabilities:
Deposits			2,563,826				2,327,055				-				2,327,055				-
Subordinated debentures			36,106				33,936				-				33,936				-

¹

Carrying amount is net of the allowance for credit losses or loan losses, as applicable, and previously presented individually assessed or impaired loans.

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.

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