Note 11. Fair Value Measurements

Effective January 1, 2008, the Company adopted ASC 820‑10 Fair Value Measurements and Disclosures (“ASC 820-10”) which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investments securities) or on a nonrecurring basis (for example, impaired loans).

ASC Topic 820 defines fair value 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. ASC Topic 820 also establishes 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

Fair Value Hierarchy

Level 1 — Quoted prices in active markets for identical assets or liabilities

Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)

Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets or liabilities)

In determining the appropriate levels, the Company performs a detailed analysis of assets and liabilities that are subject to ASC Topic 820.

The following table presents fair value measurements on a recurring basis as of March 31, 2020 and December 31, 2019:


							Fair
Dollars are in thousands	Level 1		Level 2		Level 3		Value
March 31, 2020
Securities available for sale:
Obligations of U.S. Government agencies and corporations	$	—	$	5,966	$	—	$	5,966
Obligations of States and political subdivisions		—		35,388		—		35,388
Mortgage-backed securities		—		58,319		—		58,319
Subordinated debt investments		—		3,013		—		3,013
Equity securities		—		1,966		—		1,966
Total securities available for sale	$	—	$	104,652	$	—	$	104,652
December 31, 2019
Securities available for sale:
Obligations of U.S. Government agencies and corporations	$	—	$	10,312	$	—	$	10,312
Obligations of States and political subdivisions		—		34,558		—		34,558
Mortgage-backed securities		—		56,421		—		56,421
Subordinated debt investments		—		3,030		—		3,030
Equity securities		—		1,935		—		1,935
Total securities available for sale	$	—	$	106,256	$	—	$	106,256

Securities available for sale 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 instruments, which are considered level 2 inputs. For these securities, management obtains fair value measurements from an independent pricing service.

The Company may also be required, from time to time, to measure certain other financial and non‑financial assets and liabilities at fair value on a non‑recurring basis in accordance with U.S. GAAP. The following table presents all fair value measurements on a non‑recurring basis as of March 31, 2020 and December 31, 2019:


Dollars are in thousands							Fair
March 31, 2020	Level 1		Level 2		Level 3		Value
Impaired loans	$	—	$	—	$	22,176	$	22,176
Loans held for sale		—		5,190		—		5,190
OREO		—		2,417		—		2,417
Total	$	—	$	7,607	$	22,176	$	29,783
December 31, 2019
Impaired loans	$	—	$	—	$	19,493	$	19,493
Loans held for sale		—		3,555		—		3,555
OREO		—		2,417		—		2,417
Total	$	—	$	5,972	$	19,493	$	25,465

Measured on a Non‑Recurring Basis:

Financial Assets and Liabilities

The Company is predominantly a cash flow lender with real estate serving as collateral on a majority of loans. Loans which are deemed to be impaired financial assets are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. The Company determines such fair values from independent appraisals, which management considers level 3 inputs.

Loans held for sale are loans originated by JMC for sale in the secondary market. Loans originated for sale by JMC are recorded at lower of cost or market. No market adjustments were required at March 31, 2020 and December 31, 2019; therefore, loans held for sale were carried at cost. Because of the short-term nature, the book value of these loans approximates fair value at March 31, 2020 and December 31, 2019.

Non Financial Assets and Non Financial Liabilities

The Company has no non‑financial assets and non‑financial liabilities measured at fair value on a recurring basis. Certain non‑financial assets and non‑financial liabilities typically measured at fair value on a non‑recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non‑financial assets and non‑financial liabilities measured at fair value in a goodwill impairment test, and intangible assets and other non‑financial long‑lived assets measured at fair value for impairment assessment.

Foreclosed real estate values are adjusted to their fair values, resulting in an impairment charge, which is included in earnings for the period. Foreclosed real estate, which are considered to be non‑financial assets, have been valued using a market approach at the time they are recorded in OREO. The values were determined using current market prices of similar real estate assets, which the Company considers to be level 2 inputs.