XML 29 R19.htm IDEA: XBRL DOCUMENT

Fair Value

9 Months Ended

Sep. 30, 2021

NOTE 11 – Fair Value

Accounting standards describe three levels of inputs that may be used to measure fair value (the fair value hierarchy). The level of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement of that asset or liability.

Following is a brief description of each level of the fair value hierarchy:

Level 1 - Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.

Level 2 - Fair value measurement is based on: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

Level 3 - Fair value measurement is based on valuation models and methodologies that incorporate at least one significant assumption that cannot be corroborated by observable market data. Level 3 measurements reflect the Company’s estimates about assumptions market participants would use in measuring fair value of the asset or liability.

Some assets and liabilities, such as securities available for sale, are measured at fair value on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as impaired loans, may be measured at fair value on a nonrecurring basis.

Following is a description of the Company’s valuation methodology and significant inputs used for each asset and liability measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset or liability within the fair value hierarchy.

Available for sale securities - Available for sale securities may be classified as Level 1 or Level 2 measurements within the fair value hierarchy. Level 1 securities include equity securities traded on a national exchange. The fair value measurement of a Level 1 security is based on the quoted price of the security. Level 2 securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage related securities. The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

Loans - Loans are not measured at fair value on a recurring basis. However, loans considered to be impaired may be measured at fair value on a nonrecurring basis. The fair value measurement of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. Independent appraisals are obtained that utilize one or more valuation methodologies - typically they will incorporate a comparable sales approach and an income approach. Management routinely evaluates the fair value measurements of independent appraisers and adjusts those valuations based on differences noted between actual selling prices of collateral and the most recent appraised value. Such adjustments are usually significant, which results in a Level 3 classification. All other impaired loan measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and, thus, are not fair value measurements.

Foreclosed assets - Real estate acquired through or in lieu of loan foreclosure are not measured at fair value on a recurring basis. However, foreclosed assets are initially measured at fair value (less estimated costs to sell) when they are acquired and may also be measured at fair value (less estimated costs to sell) if they become subsequently impaired. The fair value measurement for each asset may be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

Other equity investments - Certain equity investments are measured at fair value on a non-recurring basis using observable transactions and are classified as Level 2.

Assets measured at fair value on a recurring basis are summarized below:


		Recurring Fair Value Measurements Using
		Quoted Prices
		in Active			Significant
		Markets for			Other			Significant
		Identical			Observable			Unobservable
		Instruments			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)			Total

As of September 30, 2021
Assets:
Available for sale securities:
Obligations of the US government and US government sponsored agencies		$	—		$	1,093		$	—		$	1,093
Obligations of states and political subdivisions			—			14,821			—			14,821
Mortgage-backed securities			—			28,234			—			28,234
Certificates of deposit			—			1,277			—			1,277
Corporate debt securities			—			4,460			—			4,460
Total available for sale securities		$	—		$	49,885		$	—		$	49,885


As of December 31, 2020
Assets:
Available for sale securities:
Obligations of the US government and US government sponsored agencies		$	—		$	754		$	—		$	754
Obligations of states and political subdivisions			—			15,605			—			15,605
Mortgage-backed securities			—			37,680			—			37,680
Certificates of deposit			—			7,937			—			7,937
Corporate debt securities			—			2,267			—			2,267
Total available for sale securities		$	—		$	64,243		$	—		$	64,243

Information regarding the fair value of assets measured at fair value on a nonrecurring basis follows:


					Nonrecurring Fair Value Measurements Using
					Quoted Prices
					in Active			Significant
					Markets for			Other			Significant
		Assets			Identical			Observable			Unobservable
		Measured at			Instruments			Inputs			Inputs
		Fair Value			(Level 1)			(Level 2)			(Level 3)

As of September 30, 2021
Assets:
Other equity investments		$	428		$	—		$	428		$	—

As of December 31, 2020
Assets:
Loans		$	254		$	—		$	—		$	254
Foreclosed assets			125			—			—			125
Other equity investments			225			—			225			—

As of September 30, 2021 there were no impaired loans requiring a write down to their estimated fair value. Loans with a carrying amount of $704 were considered impaired and were written down to their estimated fair value of $254 as of December 31, 2020. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $0 and $450 as of September 30, 2021 and December 31, 2020, respectively.

Foreclosed assets with a carrying amount of $0 and $125 were determined to be at their fair value as of September 30, 2021 and December 31, 2020, respectively.

The following presents quantitative information about nonrecurring Level 3 fair value measurements:


									Range/Weighted
		Fair Value			Valuation Technique		Unobservable Input(s)		Average
As of September 30, 2021
Loans		$	0		Market and/or income approach		Management discount on appraised values		10	%	-	20	%
Foreclosed assets		$	0		Market and/or income approach		Management discount on appraised values		10	%	-	20	%

As of December 31, 2020
Loans		$	254		Market and/or income approach		Management discount on appraised values		10	%	-	20	%
Foreclosed assets		$	125		Market and/or income approach		Management discount on appraised values		10	%	-	20	%

The carrying value and estimated fair value of financial instruments as of September 30, 2021 and December 31, 2020 follow:


		September 30, 2021
		Carrying				Fair Value
		Value			Level 1			Level 2			Level 3
Financial assets:
Cash and cash equivalents		$	80,102		$	80,102		$	—		$	—
Available for sale securities			49,885			—			49,885			—
Loans held for sale			—			—			—			—
Loans			206,314			—			—			209,011
Accrued interest receivable			843			843			—			—
Cash value of life insurance			9,961			—			—			9,961
Other equity investments			1,279			—			428			851

Financial liabilities:
Deposits			250,511			189,525			—			55,321
Advance payments by borrowers for taxes and insurance			1,089			1,089			—			—
FHLB advances			6,500			—			—			6,505
Accrued interest payable			212			212			—			—


		December 31, 2020
		Carrying				Fair Value
		Value			Level 1			Level 2			Level 3
Financial assets:
Cash and cash equivalents		$	41,479		$	41,479		$	—		$	—
Available for sale securities			64,243			—			64,243			—
Loans held for sale			1,708			—			1,708			—
Loans			214,723			—			—			217,893
Accrued interest receivable			995			995			—			—
Cash value of life insurance			7,272			—			—			7,272
Other equity investments			1,279			—			225			1,054

Financial liabilities:
Deposits			226,498			175,987			—			50,732
Advance payments by borrowers for taxes and insurance			127			127			—			—
FHLB advances			7,500			—			—			7,544
Accrued interest payable			17			17			—			—

Limitations - The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based on 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. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

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.

+ References + Details