Note 9 - Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

9.) Fair Value of Assets and Liabilities:

Measurements

The Company groups assets and liabilities recorded at fair value into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with level 1 considered highest and level 3 considered lowest). A brief description of each level follows:

Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but which trade less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where inputs into the determination of fair value require significant management judgment or estimation.

Such techniques and assumptions, as they apply to individual categories of the financial instruments, are as follows:

Investment securities available-for-sale– Fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Loans held for sale – Loans held for sale consist of residential mortgage loans originated for sale. Loans held for sale are recorded at fair value based on what the secondary markets have offered on best efforts commitments.

Interest rate derivatives – The fair value is based on settlement values adjusted for credit risks associated with the counter parties and the Company and observable market interest rate curves.

The following table presents the assets reported on the Consolidated Balance Sheets, on a recurring basis, at their fair value as of September 30, 2020 and December 31, 2019 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	(Amounts in thousands)
			Fair Value Measurements at September 30, 2020 Using
	September 30,
Description	2020		Level 1		Level 2		Level 3
ASSETS
U.S. Government agencies and corporations	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		88,411		—		88,411		—
U.S. Government-sponsored mortgage-backed securities		67,915		—		67,915		—
U.S. Government-sponsored collateralized mortgage obligations		5,616		—		5,616		—
U.S. Government-guaranteed small business administration pools		5,635		—		5,635		—
Loans held for sale		6,564		6,564		—		—
Interest rate derivatives		4,239		—		4,239		—
LIABILITIES
Interest rate derivatives	$	4,239	$	—	$	4,239	$	—

	(Amounts in thousands)
			Fair Value Measurements at December 31, 2019 Using
	December 31,
Description	2019		Level 1		Level 2		Level 3
ASSETS
U.S. Government agencies and corporations	$	3,310	$	—	$	3,310	$	—
Obligations of states and political subdivisions		69,626		—		69,626		—
U.S. Government-sponsored mortgage-backed securities		48,237		—		48,237		—
U.S. Government-sponsored collateralized mortgage obligations		8,481		—		8,481		—
U.S. Government-guaranteed small business administration pools		6,477		—		6,477		—
Loans held for sale		4,890		4,890		—		—
Interest rate derivatives		1,422		—		1,422		—
LIABILITIES
Interest rate derivatives	$	1,422	$	—	$	1,422	$	—

The following table presents quantitative information about the Level 3 significant inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2020 and December 31, 2019.

	(Amounts in thousands)
	Fair value at September 30,		Valuation	Significant Unobservable
	2020		Technique	Input	Range of Inputs
Impaired loans	$	233	Appraisal of Collateral	Appraisal Adjustments		(76	)%
				Liquidation Expenses		(10	)%

	(Amounts in thousands)
	Fair value at December 31,		Valuation	Significant Unobservable
	2019		Technique	Input	Range of Inputs
Impaired loans	$	405	Appraisal of Collateral	Appraisal Adjustments		(76	)%
				Liquidation Expenses		(10	)%

Financial Instruments

The Company discloses fair value information about financial instruments, whether or not recognized in the Consolidated Balance Sheets, for which it is practicable to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other estimation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

In addition, other assets and liabilities of the Company that are not defined as financial instruments are not included in the disclosures, such as property and equipment. Also, non-financial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earning power of core deposit accounts, the trained work force, customer goodwill and similar items. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The carrying amounts and fair values of the Company’s financial instruments carried at amortized cost are as follows:

	(Amounts in thousands)
	September 30, 2020
	Carrying
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	48,633	$	48,633	$	—	$	—	$	48,633
Net loans		528,101		—		—		530,052		530,052
Bank-owned life insurance		21,046		21,046		—		—		21,046
Accrued interest receivable		2,471		2,471		—		—		2,471
LIABILITIES:
Demand, savings and money market deposits	$	571,060	$	571,060	$	—	$	—	$	571,060
Time deposits		109,580		—		—		110,833		110,833
Securities sold under agreements to repurchase		1,088		1,088		—		—		1,088
Federal Home Loan Bank advances - short term		7,000		—		—		7,002		7,002
Federal Home Loan Bank advances - long term		24,000		—		—		24,472		24,472
Subordinated debt		5,155		—		—		4,537		4,537
Accrued interest payable		411		411		—		—		411

	(Amounts in thousands)
	December 31, 2019
	Carrying
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	27,815	$	27,815	$	—	$	—	$	27,815
Net loans		514,251		—		—		517,787		517,787
Bank-owned life insurance		17,768		17,768		—		—		17,768
Accrued interest receivable		2,336		2,336		—		—		2,336
LIABILITIES:
Demand, savings and money market deposits	$	476,358	$	476,358	$	—	$	—	$	476,358
Time deposits		142,023		—		—		143,485		143,485
Securities sold under agreements to repurchase		1,922		1,922		—		—		1,922
Federal Home Loan Bank advances - short term		—		—		—		—		—
Federal Home Loan Bank advances - long term		24,000		—		—		24,005		24,005
Subordinated debt		5,155		—		—		4,835		4,835
Accrued interest payable		510		510		—		—		510