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Fair Value
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value
Note 8– Fair Value
The fair value of a financial instrument is the current amount that would be exchanged between willing parties 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 is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.
 
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations are involved to determine the fair value of financial assets in markets that are not active.
The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:
 
                 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:
Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. 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 flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.
The following tables present the balances of financial assets measured at fair value on a recurring basis:
 
   
September 30, 2019
 
(In thousands)
  
Total
   
Level 1
   
Level 2
   
Level 3
 
Available for sale securities
                    
U.S. Treasury and agencies
  $3,331   $—     $3,331   $—   
Mortgage backed securities
   111,790    —      111,790    —   
Corporate bonds
   6,619    —      6,619    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total securities available for sale
  $121,740   $—     $121,740   $—   
   
 
 
   
 
 
   
 
 
   
 
 
 
  
   
December 31, 2018
 
(In thousands)
  
Total
   
Level 1
   
Level 2
   
Level 3
 
Available for sale securities
                    
State and municipal
  $1,003   $—     $1,003   $—   
U.S. Treasury and agencies
   3,167    —      3,167    —   
Mortgage backed securities
   28,370    —      28,370    —   
Corporate bonds
   5,507    —      5,507    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total securities available for sale
  $38,047   $—     $38,047   $—   
   
 
 
   
 
 
   
 
 
   
 
 
 
 
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.
Loans Held for Sale
Mortgage loans originated or purchased and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. The agreed upon sales price is considered fair value as all of these loans are under agreements to sell to investors at the time of origination. This amount is generally the loan’s principal amount. Changes in fair value are recognized in the Gain on Sale of Mortgages on the Consolidated Statements of Income.
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 markets other real estate owned both 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 table summarizes the Company’s other real estate owned that were measured at fair value on a nonrecurring basis during the period.
 
   
September 30, 2019
 
(In thousands)
  
Total
   
Level 1
   
Level 2
   
Level 3
 
Other real estate owned
  $—     $—     $—     $—   
 
   
December 31, 2018
 
(In thousands)
  
Total
   
Level 1
   
Level 2
   
Level 3
 
Other real estate owned
  $134   $—     $—     $134 
 
   
Fair Value At

September 30,
2019
   
Valuation Technique
   
Significant Unobservable Inputs
   
Range
Other real estate owned
  $—      Discounted appraised value    Discounted for selling costs   N/A
 
   
Fair Value At

December 31,
2018
   
Valuation Technique
   
Significant Unobservable Inputs
   
Range
Other real estate owned
  $134    Discounted appraised value    Discounted for selling costs   
15%-35%