Note 15 - Disclosures About Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 15: Disclosures about Fair Value of Assets and Liabilities

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies 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 prices in active markets for identical assets or liabilities

Level 2: 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 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-sale securities: Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include equity securities. 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 flows. For these investments, the inputs used by the pricing service to determine fair value may include one or a combination of observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bid offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. government agencies, municipal securities and government sponsored mortgage-backed securities. The Company has no Level 3 securities.

Derivative financial instruments (Cash flow hedge): The Company’s open derivative positions are interest rate swap agreements. Those classified as Level 2 open derivative positions are valued using externally developed pricing models based on observable market inputs provided by a third party and validated by management. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets.

The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2020 and December 31, 2019 (dollar amounts in thousands):

September 30, 2020
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Debt securities:
Government agencies	$	-	$	7,302	$	-	$	7,302
Municipals		-		56,213		-		56,213
Corporates		-		27,639		-		27,639
Mortgage-backed securities - private label		-		13,331		-		13,331
Government sponsored asset-backed securities and SBA loan pools		-		47,752		-		47,752
Available-for-sale securities	$	-	$	152,237	$	-	$	152,237
Financial liabilities:
Interest rate swaps	$	-	$	5,346	$	-	$	5,346

December 31, 2019
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Debt securities:
Government agencies	$	-	$	2,488	$	-	$	2,488
Municipals		-		36,175		-		36,175
Corporates		-		15,535		-		15,535
Mortgage-backed securities - private label		-		13,811				13,811
Government sponsored mortgage-backed securities and SBA loan pools		-		50,236		-		50,236
Available-for-sale securities	$	-	$	118,245	$	-	$	118,245
Financial liabilities:
Interest rate swaps	$	-	$	1,628	$	-	$	1,628

The following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying statements of financial condition, as well as the general classification of such assets pursuant to the valuation hierarchy.

Foreclosed Assets Held for Sale: Fair value is estimated using recent appraisals, comparable sales and other estimates of value obtained principally from independent sources, adjusted for selling costs and discounts based on management’s assessment of the condition and marketability of the collateral. Foreclosed assets held for sale are classified within Level 3 of the valuation hierarchy.

Impaired loans (Collateral Dependent):   Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2020 and December 31, 2019 (dollar amounts in thousands):

Impaired loans:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
September 30, 2020	$	-	$	-	$	2,653	$	2,653
December 31, 2019	$	-	$	-	$	1,483	$	1,483

Foreclosed assets held for sale:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
September 30, 2020	$	-	$	-	$	471	$	471
December 31, 2019	$	-	$	-	$	233	$	233

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurement (dollar amounts in thousands):

	Fair Value September 30, 2020		Valuation Technique	Unobservable Input	Range (Weighted Average)
Impaired loans (collateral dependent)	$	2,653	Market Comparable	Discount to reflect realizable value	0%	-	81%	(18%)
Foreclosed assets held for sale	$	471	Market Comparable	Discount to reflect realizable value	4%	-	57%	(24%)

	Fair Value December 31, 2020		Valuation Technique	Unobservable Input	Range (Weighted Average)
Impaired loans (collateral dependent)	$	1,483	Market Comparable	Discount to reflect realizable value	0%	-	100%	(22%)
Foreclosed assets held for sale	$	233	Market Comparable	Discount to reflect realizable value	30%	-	30%	(30%)

The following tables present estimated fair values of the Company’s financial instruments at September 30, 2020 and December 31, 2019.

	September 30, 2020
	Carrying Amount		Fair Value		Hierarchy Level
Financial assets:
Cash and cash equivalents	$	122,003,730	$	122,003,730	1
Interest-bearing time deposits at other financial institutions		6,230,414		6,255,065	2
Federal Home Loan Bank stock		3,852,100		3,852,100	2
Mortgage loans held for sale		5,259,413		5,259,413	2
Loans, net		771,447,520		769,903,643	3
Interest receivable		4,801,074		4,801,074	2
Financial liabilities:
Deposits		926,919,606		928,280,339	2
Federal Home Loan Bank advances		66,000,000		66,095,943	2
Subordinated debentures issued to Capital Trusts		15,465,000		15,465,000	3
Subordinated notes		19,552,770		19,552,770	3
Note payable to bank		-		-	3
Interest payable		724,200		724,200	2
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit		-		-	-
Unused lines of credit		-		-	-

	December 31, 2019
	Carrying Amount		Fair Value		Hierarchy Level
Financial assets:
Cash and cash equivalents	$	92,671,909	$	92,671,909	1
Interest-bearing time deposits at other financial institutions		250,000		250,315	2
Federal Home Loan Bank stock		3,757,500		3,757,500	2
Mortgage loans held for sale		2,786,564		2,786,564	2
Loans, net		720,732,402		723,363,117	3
Interest receivable		3,511,875		3,511,875	2
Financial liabilities:
Deposits		821,406,532		822,046,988	2
Federal Home Loan Bank advances		65,000,000		66,015,635	2
Subordinated debentures issued to Capital Trusts		15,465,000		15,465,000	3
Note payable to bank		11,200,000		11,200,000	3
Interest payable		793,746		793,746	2
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit		-		-	-
Unused lines of credit		-		-	-