FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2023

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 15 FAIR VALUE MEASUREMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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.  There are three levels of inputs that may be used to measure fair values:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Available for Sale Securities (“AFS Securities”) - AFS Securities are recorded at fair value on a recurring basis. The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio. No material differences were identified during the valuation for the years ended December 31, 2023 and 2022. The carrying value of restricted FRB and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Loans Held for Sale - Residential loans originated for sale in the open market are carried at fair value. 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). Gains and losses on the sale of loans are recorded within mortgage banking income on the Consolidated Statements of Income.  

Derivative assets – 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.  The Company’s IRLCs are classified as Level 2. 

Derivative Asset/Liability – Forward Sale Commitments - The Company uses the fair value accounting for its forward sales commitments related to IRLCs and LHFS. 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 counterparty against the current market price of the interest rate lock commitment or mortgage loan held for sale. The Company’s forward sale commitments are classified Level 2.

The following tables present the balances of financial assets measured at fair value on a recurring basis as of December 31, 2023, and 2022 (dollars in thousands):

December 31, 2023	Total		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	1,119	$	-	$	1,119	$	-
U. S. Treasury securities		32,881		-		32,881		-
U.S. Government sponsored enterprises		124,703		-		124,703		-
Securities issued by States and political subdivisions of the US		38,761		-		38,761		-
Mortgage-backed obligations of federal agencies		145,073		-		145,073		-
Corporate debt securities		27,256		-		27,256		-
IRLC		81		-		81		-
Assets at Fair Value	$	369,874	$	-	$	369,874	$	-
Liabilities:
Forward sales commitments	$	22	$	-	$	22	$	-
Liabilities at Fair Value	$	22	$	-	$	22	$	-

December 31, 2022	Total		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	1,373	$	-	$	1,373	$	-
U. S. Treasury securities		36,643		-		36,643		-
U.S. Government sponsored enterprises		129,748		-		129,748		-
Securities issued by States and political subdivisions of the US		42,198		-		42,198		-
Mortgage-backed obligations of federal agencies		156,875		-		156,875		-
Corporate debt securities		26,631		-		26,631		-
Forward sales commitments		186		-		186		-
Assets at Fair Value	$	393,654	$	-	$	393,654	$	-
Liabilities:
IRLC	$	92	$	-	$	92	$	-
Liabilities at Fair Value	$	92	$	-	$	92	$	-

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:

Collateral Dependent Loans with an ACL - In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan  is collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.

Other Real Estate Owned - Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a level two input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs. The Company had OREO with a carrying value of $55 thousand at December 31, 2023 and no OREO at December 31, 2022.

The Company markets OREO independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of December 31, 2023 and 2022 (dollars in thousands).  Fair values for December 31, 2023 and 2022 are estimated under the exit price notion in accordance with the adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands):

			Fair Value Measurements Using:
Collateral dependent loans with an ACL	Balance at December 31, 2023		Level 1		Level 2		Level 3
1-4 family residential construction	$	77	$	-	$	-	$	77
Owner-occupied commercial real estate		2,737		-		-		2,737
Commercial and industrial		246		-		-		246
Total collateral dependent loans with an ACL	$	3,060	$	-	$	-	$	3,060
OREO	$	55	$	-	$	-	$	55

			Fair Value Measurements Using:
Impaired Loans	Balance at December 31, 2022		Level 1		Level 2		Level 3
Construction/Land Development	$	293	$	-	$	-	$	293
Real Estate		1,286		-		-		1,286
Commercial Real Estate		969		-		-		969
Dealer Finance		42		-		-		42
Impaired loans	$	2,590	$	-	$	-	$	2,590

The following table presents information about Level 3 Fair Value Measurements for December 31, 2023 and 2022:

	Fair Value at December 31, 2023		Valuation Technique	Significant Unobservable Inputs	Range
Collateral Dependent Loans	$	3,060 thousand	Discounted appraised value	Discount for selling costs and marketability	31% - 71% (Average 44%)
OREO	$	55 thousand	Discounted appraised value	Discount for selling costs and marketability		29%
	Fair Value at December 31, 2022		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	2,590 thousand	Discounted appraised value	Discount for selling costs and marketability	10%-33% (Average 19%)

	2023 Fair Value Measurements using
			Quoted Prices in Active Markets for  Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Assets:
Cash and cash equivalents	$	23,717	$	23,717	$	-	$	-	$	23,717
Securities		368,674		-		368,674		-		368,674
Loans held for sale		1,119		-		1,119		-		1,119
Loans held for investment, net		822,092		-		-		793,440		793,440
Interest receivable		5,034		-		5,034		-		5,034
Bank owned life insurance		22,878		-		22,878		-		22,878
IRLC		81		-		81		-		81
Liabilities:
Deposits	$	1,133,236	$	-	$	1,131,747	$	-	$	1,131,747
Short-term debt		60,000		-		-		60,000		60,000
Long-term debt		6,932		-		-		6,761		6,761
Interest payable		1,592		-		1,592		-		1,592
Forward sales commitments		22		-		22		-		22

	2022 Fair Value Measurements using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Assets:
Cash and cash equivalents	$	34,953	$	34,953	$	-	$	-	$	34,953
Securities		392,220		-		392,220		-		392,220
Loans held for sale		1,373		-		1,373		-		1,373
Loans held for investment, net		743,604		-		-		720,806		720,806
Interest receivable		3,995		-		3,995		-		3,995
Bank owned life insurance		23,554		-		23,554		-		23,554
Forward sales commitments		186		-		186		-		186
Liabilities:
Deposits	$	1,083,377	$	-	$	1,080,909	$	-	$	1,080,909
Short-term debt		70,000		-		-		70,000		70,000
Long-term debt		6,890		-		-		6,778		6,778
IRLC		92		-		92		-		92
Interest payable		295		-		295		-		295