Note 15 - Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 15 - Fair Value Measurements

Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Company’s principal market. The Company has established and documented its process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third-party pricing services, both of which rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions, and estimates related to credit quality, liquidity, interest rates, and other relevant inputs.

Any changes to valuation methodologies are reviewed by management to ensure they are relevant and justified. Valuation methodologies are refined as more market-based data becomes available.

A three-level valuation hierarchy is used in determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy are as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Either: (i) quoted prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.

Level 3 - Unobservable inputs.

The hierarchy gives the highest ranking to Level 1 inputs and the lowest ranking to Level 3 inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.

Qualitative disclosures of valuation techniques - Securities available for sale: where quoted prices are available in an active market, securities are classified as Level 1. Level 1 instruments include highly liquid government bonds, securities issued by the U.S. Treasury, and exchange-traded equity securities.

If quoted prices are not available, management determines fair value using pricing models, quoted prices of similar securities, which are considered Level 2, or discounted cash flows. In certain cases, where there is limited activity in the market for a particular instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.

Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets and liabilities measured at fair value on a recurring basis at the dates indicated:

	December 31, 2020
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Securities available for sale
Municipal bonds	$	—	$	127,862	$	—	$	127,862
ABS agency		—		63,820		—		63,820
ABS corporate		—		29,280		—		29,280
SBA		—		35,510		—		35,510
Corporate debt		—		16,024		2,540		18,564
MBS agency		—		62,683		—		62,683
MBS corporate		—		20,205		6,372		26,577
	$	—	$	355,384	$	8,912	$	364,296

	December 31, 2019
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Securities available for sale
Municipal bonds	$	—	$	39,282	$	—	$	39,282
ABS agency		—		28,858		—		28,858
ABS corporate		—		40,855		—		40,855
SBA		—		9,643		—		9,643
Corporate debt		—		28,459		—		28,459
MBS agency		—		160,167		—		160,167
MBS corporate		—		8,316		—		8,316
	$	—	$	315,580	$	—	$	315,580

The significant unobservable inputs in the fair value measurement of the Company's Level 3 securities are noted below. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.

The following table presents quantitative information about recurring Level 3 fair value measurements at the date indicated:

December 31, 2020	Fair Value (In thousands)		Valuation Technique	Unobservable Input	Range (a)
Corporate debt	$	1,540	Consensus pricing	Offered quotes	89 - 91
				Comparability adjustments (%)	-0.7% - +1.3%
		1,000	Consensus pricing	Offered quotes	92 - 100
				Comparability adjustments (%)	-7.4% - 0%
MBS corporate		6,372	Consensus pricing	Offered quotes	104 - 107
				Comparability adjustments (%)	-1.5% - +1.5%
(a) Unobservable inputs were weighted by the relative fair value of the instruments.

The following table summarizes the changes in Level 3 assets measured at fair value on a recurring basis at the dates indicated:

	December 31, 2020
	Balance at Beginning of Period		Transfers Into Level 3 (1)		Purchases		Unrealized		Total
	(In thousands)
Securities available for sale
Corporate debt	$	—	$	1,540	$	1,000	$	—	$	2,540
MBS corporate		—		—		6,372		—		6,372
	$	—	$	1,540	$	7,372	$	—	$	8,912

(1) Transferred from Level 2 to Level 3 because of a lack of observable market data, resulting from little to no market activity for the securities.

Assets measured at fair value on a nonrecurring basis - Assets are considered to be fair valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the consolidated balance sheets. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements that require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value.

The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the dates indicated:

	December 31, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Impaired loans	$	—	$	—	$	5,511	$	5,511
Real estate owned and repossessed assets		—		—		2		2
	$	—	$	—	$	5,513	$	5,513

	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(In thousands)
Impaired loans	$	—	$	—	$	6,389	$	6,389
Real estate owned and repossessed assets		—		—		154		154
	$	—	$	—	$	6,543	$	6,543

During the years ended December 31, 2020 and 2019, there were no impaired loans with discounts to appraisal disposition value. The following tables present the techniques used to value assets measured at fair value on a nonrecurring basis at the dates indicated:

	December 31, 2020
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted-Average) (1)
	(In thousands)
Real estate owned and repossessed assets	$	2	Market comparable	Discount to appraisal		0% - 10%(5%)

(1) Discount to appraisal disposition value.

	December 31, 2019
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted-Average) (1)
	(In thousands)
Real estate owned and repossessed assets	$	154	Market comparable	Discount to appraisal		0% - 10%(5%)

(1) Discount to appraisal disposition value.

The following tables present the carrying value and estimated fair value of financial instruments at the dates indicated:

	December 31, 2020
	Carrying		Estimated Fair		Fair Value Measurements Using:
	Amount		Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets
Cash and cash equivalents	$	65,155	$	65,155	$	65,155	$	—	$	—
Investment securities available for sale		364,296		364,296		—		355,384		8,912
Loans held for sale		3,753		3,753		—		3,753		—
Loans receivable, net		1,141,969		1,129,570		—		—		1,129,570
FHLB stock		5,977		5,977		—		5,977		—
Accrued interest receivable		6,966		6,966		—		6,966		—
Mortgage servicing rights, net		2,120		2,189		—		—		2,189
Financial liabilities
Demand deposits	$	1,024,748	$	1,024,748	$	1,024,748	$	—	$	—
Time deposits		308,769		310,992		—		310,992		—
Borrowings		109,977		111,462		—		111,462		—
Accrued interest payable		53		53		—		53		—

	December 31, 2019
	Carrying		Estimated Fair		Fair Value Measurements Using:
	Amount		Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets
Cash and cash equivalents	$	48,739	$	48,739	$	48,739	$	—	$	—
Investment securities available for sale		315,580		315,580		—		315,580		—
Loans held for sale		503		503		—		503		—
Loans receivable, net		878,437		858,101		—		—		858,101
FHLB stock		6,034		6,034		—		6,034		—
Accrued interest receivable		3,931		3,931		—		3,931		—
Mortgage servicing rights, net		871		1,486		—		—		1,486
Financial liabilities
Demand deposits	$	693,565	$	693,565	$	693,565	$	—	$	—
Time deposits		308,080		308,819		—		308,819		—
Borrowings		112,930		113,076		—		113,076		—
Accrued interest payable		373		373		—		373		—