FAIR VALUES

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

FAIR VALUES

NOTE 22 FAIR VALUES 

Fair value is defined 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. Fair Value Measurements and Disclosures also establish 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 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an exchange market, as well as U. S. Treasury, other U. S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets. 

Level 2: Significant 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 debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts and impaired loans. 

Level 3: Significant unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and 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. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities Available for Sale - Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s available for sale securities, totaling $50.6 million and $59.4 million at December 31, 2019 and 2018, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service. 

Loans - The Company does not record loans at fair value on a recurring basis. Real estate serves as collateral on a substantial majority of the Company’s loans. From time to time a loan is considered impaired and an allowance for loan losses is established. Loans which are deemed to be impaired and require a reserve are primarily valued on a non-recurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which management evaluates and determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, or an appraised value does not include estimated costs of disposition and management must make an estimate, the Company records the impaired loan as nonrecurring Level 3. The aggregate carrying amount of impaired loans carried at fair value was $5.3 million and $7.7 million at December 31, 2019 and 2018, respectively. 

Foreclosed Assets – Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets.  Foreclosed assets are carried at the lower of the carrying value or fair value.  Fair value is based upon independent observable market prices or appraised values of the collateral with a third party estimate of disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When the appraised value is not available, management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, or an appraised value does not include estimated costs of disposition and management must make an estimate, the Company records the foreclosed asset as nonrecurring Level 3. The aggregate carrying amounts of foreclosed assets were $3.4 million and $5.9 million at December 31, 2019 and 2018, respectively. 

Assets and liabilities measured at fair value are as follows as of December 31, 2019 (for purpose of this table the impaired loans are shown net of the related allowance): 

(Dollars are in thousands)		Quoted market price in active markets  (Level 1)		Significant other observable inputs  (Level 2)		Significant unobservable inputs  (Level 3)
(On a recurring basis)  Available for sale investments
U.S. Government Agencies	$	-	$	15,633	$	-
Taxable municipals		-		4,442		-
Corporate bonds		-		5,523		-
Mortgage backed securities		-		25,051		-
(On a non-recurring basis)  Other real estate owned		-		-		3,393
Impaired loans:
Real estate secured:
Commercial		-		-		2,709
Construction and land development		-		-		70
Residential 1-4 family		-		-		1,274
Multifamily		-		-		-
Farmland		-		-		985
Commercial		-		-		214
Agriculture		-		-		-
Consumer installment loans		-		-		-
All other loans		-		-		-
Total	$	-	$	50,649	$	8,645

Assets and liabilities measured at fair value are as follows as of December 31, 2018 (for purpose of this table the impaired loans are shown net of the related allowance): 

(Dollars are in thousands)		Quoted market price in active markets  (Level 1)		Significant other observable inputs  (Level 2)		Significant unobservable inputs  (Level 3)
(On a recurring basis)  Available for sale investments
U.S. Government Agencies	$	-	$	19,389	$	-
Taxable municipals		-		4,313		-
Corporate bonds		-		5,320		-
Mortgage backed securities		-		30,385		-
(On a non-recurring basis)  Other real estate owned		-		-		5,937
Impaired loans:
Real estate secured:
Commercial		-		-		2,282
Construction and land development		-		-		114
Residential 1-4 family		-		-		3,179
Multifamily		-		-		75
Farmland		-		-		1,906
Commercial		-		-		96
Agriculture		-		-		-
Consumer installment loans		-		-		6
All other loans		-		-		-
Total	$	-	$	59,407	$	13,595

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of December 31, 2019 and 2018, the significant unobservable inputs used in the fair value measurements were as follows: 

(Dollars in thousands)		Fair Value at December 31, 2019		Fair Value at  December 31,  2018	Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Impaired Loans	$	5,252	$	7,658	Appraised Value/Discounted Cash Flows/Market Value of Note	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	0 – 18%
Other Real Estate Owned	$	3,393	$	5,937	Appraised Value/Comparable Sales/Other Estimates from Independent Sources	Discounts to reflect current market conditions and estimated costs to sell	0 – 18%

Fair Value of Financial Instruments

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows:

						Fair Value Measurements
(Dollars are in thousands)		Carrying  Amount		Fair  Value		Quoted market price in active markets  (Level 1)		Significant other observable inputs  (Level 2)		Significant unobservable inputs  (Level 3)
December 31, 2019
Financial Instruments – Assets
Net Loans	$	557,176	$	550,495	$	-	$	545,243	$	5,252
Financial Instruments – Liabilities
Time Deposits		257,406		259,325		-		259,325		-
FHLB Advances		5,000		5,054		-		5,054		-
December 31, 2018
Financial Instruments – Assets
Net Loans	$	541,760	$	534,425	$	-	$	526,767	$	7,658
Financial Instruments – Liabilities
Time Deposits		258,850		258,671		-		258,671		-
FHLB Advances		7,000		7,215		-		7,215		-

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates. 

Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments. 

The carrying value of cash and due from banks, federal funds sold, interest-bearing deposits, deposits with no stated maturities, trust preferred securities and accrued interest approximates fair value and are excluded from the table above. 

In accordance with our adoption of ASU 2016-01 in 2018, the methods utilized to measure the fair value of financial instruments represent an approximation of exit price; however, an actual exit price may differ.