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FAIR VALUE MEASUREMENT | 6 Months Ended
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Jun. 30, 2018
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENT | NOTE 16 – FAIR VALUE MEASUREMENT On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825 10), Recognition and Measurement of Financial Assets and Financial Liabilities, which requires us to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company determines the fair values of its financial instruments based on the requirements established in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, which provides a framework for measuring fair value in accordance with U.S. GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair values for financial instruments as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. The Company’s fair values for financial instruments at June 30, 2018 were determined based on these requirements. The following definitions describe the levels of inputs that may be used to measure fair value: Level 1 - Inputs are unadjusted quoted prices in active markets (as defined) for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 - Inputs are inputs other than quoted prices include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 - Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our quarterly valuation process. There were no transfers between levels during 2018 or 2017. The following financial instruments are measured at fair value on a recurring basis:
June 30, 2018 |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Municipal securities |  | $ | 16,081 |  |  | $ | - |  |  | $ | 16,081 |  |  | $ | - |
Mortgage-backed securities |  |  | 22,152 |  |  |  | - |  |  |  | 22,152 |  |  |  | - |
Corporate Bonds |  |  | 5,476 |  |  |  | - |  |  |  | 5,476 |  |  |  | - |
Collateralized mortgage obligations |  |  | 1,007 |  |  |  | - |  |  |  | 1,007 |  |  |  | - |
U.S. Government Agencies |  |  | 4,723 |  |  |  | - |  |  |  | 4,723 |  |  |  | - |
SBA securities |  |  | 4,993 |  |  |  | - |  |  |  | 4,993 |  |  |  | - |
Total assets measured at fair value |  | $ | 54,433 |  |  | $ | - |  |  | $ | 54,433 |  |  | $ | - |
December 31, 2017 |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Municipal securities |  | $ | 16,047 |  |  | $ | - |  |  | $ | 16,047 |  |  | $ | - |
Mortgage-backed securities |  |  | 9,740 |  |  |  | - |  |  |  | 9,740 |  |  |  | - |
Collateralized mortgage obligations |  |  | 1,750 |  |  |  | - |  |  |  | 1,750 |  |  |  | - |
Corporate Bonds |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
U.S. Government Agencies |  |  | 6,971 |  |  |  | - |  |  |  | 6,971 |  |  |  | - |
SBA securities |  |  | 5,997 |  |  |  | - |  |  |  | 5,997 |  |  |  | - |
Total assets measured at fair value |  | $ | 40,505 |  |  | $ | - |  |  | $ | 40,505 |  |  | $ | - |
Fair values for investment 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 instruments. The following table represents the premises owned at fair value on a recurring basis:
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
June 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Premises owned |  | $ | 7,286 |  |  | $ | - |  |  | $ | - |  |  | $ | 7,286 |
Write-down on premises owned |  |  | (600 | ) |  |  | - |  |  |  | - |  |  |  | (600 | )
Total assets measured at fair value |  | $ | 6,686 |  |  | $ | - |  |  | $ | - |  |  | $ | 6,686 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Premises owned |  | $ | 7,276 |  |  | $ | - |  |  | $ | - |  |  | $ | 7,286 |
Write-down on premises owned |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total assets measured at fair value |  | $ | 7,276 |  |  | $ | - |  |  | $ | - |  |  | $ | 7,286 |
The following tables present the recorded amounts of impaired loans measured at fair value on a non-recurring basis:
June 30, 2018 |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Commercial and industrial |  | $ | 691 |  |  | $ | - |  |  | $ | - |  |  | $ | 691 |
Construction and land |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Commercial real estate |  |  | 877 |  |  |  | - |  |  |  | - |  |  |  | 877 |
Residential |  |  | 129 |  |  |  | - |  |  |  | - |  |  |  | 129 |
Consumer |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total impaired assets measured at fair value |  | $ | 1,697 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,697 |
December 31, 2017 |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Commercial and industrial |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Construction and land |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Commercial real estate |  |  | 1,120 |  |  |  | - |  |  |  | - |  |  |  | 1,120 |
Residential |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Consumer |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total impaired assets measured at fair value |  | $ | 1,120 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,120 |
The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral equals or exceeds the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on a non-observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3. Fair Values of Financial Instruments. There have been no significant changes in valuation techniques during the periods reported. The following methods and assumptions were used to estimate the fair value disclosure for financial instruments: Cash and cash equivalents - Cash and cash equivalents include cash and due from banks, interest bearing deposits in banks, and Fed funds sold, and are valued at their carrying amounts because of the short-term nature of these instruments. Interest bearing deposits in financial institutions - Interest bearing deposits in financial institutions are valued based on quoted interest rates for comparable instruments with similar remaining maturities. Investment Securities - The fair value of available of sale securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provides by brokers. Other equity securities - The carrying value of the FHLB and FRB stock approximates the fair value because the stock is redeemable at par. Loans – Loans with variable interest rates are valued at their exit price value, because these loans are regularly adjusted to market rates. The fair value of fixed rate loans with remaining maturities in excess of one year is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. The allowance for loan losses is considered to be a reasonable estimate of the loan discount related to credit risk. Accrued interest receivable and payable - The accrued interest receivable and payable balance approximates its fair value. Deposits - The fair value of non-interest bearing deposits, interest bearing transaction accounts and savings accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the future cash flows using current rates offered for deposits of similar remaining maturities. Other borrowings - The fair value is estimated by discounting the future cash flows using current rates offered for similar borrowings. The discount rate is equal to the market rate of currently offered similar products. This is an adjustable rate borrowing and adjusts to market on a quarterly basis. Junior Subordinated Deferrable Interest Debentures - The fair value of the Subordinated Debentures is determined based on rates and/or discounted cash flow analysis using interest rates offered in inactive markets for instruments of a similar maturity and structure resulting in a Level 3 classification. The Subordinated Debentures are carried at their current carrying value, because the Subordinated Debentures regularly adjust to market rates Undisbursed loan commitments and standby letters of credit - The fair value of the off-balance sheet items is based on discounted cash flows of expected fundings. Loans held for sale - Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what the secondary markets are currently offering for loans with similar characteristics. As such, the Bank classifies those loans subjected to nonrecurring fair value adjustments as Level 2. Non-financial assets and liabilities defined by the FASB ASC 820, Fair Value measurements, such as Bank premises and equipment, deferred taxes, and other liabilities are excluded from the table. In addition, we have not disclosed the fair value of financial instruments specifically. The following table provides summary information on the estimated fair value of financial instruments as of June 30, 2018:
|  | Carrying |  |  | Fair |  |  | Fair value measurements |
|  | amount |  |  | value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 318,267 |  |  | $ | 318,267 |  |  | $ | 318,267 |  |  | $ | - |  |  | $ | - |
Interest bearing deposits with financial institutions |  |  | 1,245 |  |  |  | 1,245 |  |  |  | 1,245 |  |  |  | - |  |  |  | - |
Securities available for sale |  |  | 54,433 |  |  |  | 54,433 |  |  |  | - |  |  |  | 54,433 |  |  |  | - |
Loans, net |  |  | 908,463 |  |  |  | 905,206 |  |  |  | - |  |  |  | - |  |  |  | 905,206 |
Loans held for sale |  |  | 334 |  |  |  | 334 |  |  |  | - |  |  |  | 334 |  |  |  | - |
Other equity securities |  |  | 8,454 |  |  |  | 8,454 |  |  |  | - |  |  |  | 8,454 |  |  |  | - |
Accrued interest receivable |  |  | 3,043 |  |  |  | 3,043 |  |  |  | - |  |  |  | 3,043 |  |  |  | - |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 1,138,168 |  |  |  | 1,138,252 |  |  |  | 916,881 |  |  |  | 221,371 |  |  |  |  |
Subordinated Debentures |  |  | 5,417 |  |  |  | 5,428 |  |  |  | - |  |  |  | - |  |  |  | 5,428 |
Accrued interest payable |  |  | 170 |  |  |  | 170 |  |  |  | - |  |  |  | 170 |  |  |  | - |
Off-balance-sheet liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Undisbursed loan commitments, lines of credit, standby letters of credit |  |  | 310 |  |  |  | 310 |  |  |  | - |  |  |  | - |  |  |  | 310 |
The carrying amount of loans includes $932,000 of nonaccrual loans (loans that are not accruing interest) as of June 30, 2018. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received. The following table provides summary information on the estimated fair value of financial instruments as of December 31, 2017:
|  | Carrying |  |  | Fair |  |  | Fair value measurements |
|  | amount |  |  | value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 249,853 |  |  | $ | 249,853 |  |  | $ | 249,853 |  |  | $ | - |  |  | $ | - |
Interest bearing deposits with financial institutions |  |  | 1,743 |  |  |  | 1,743 |  |  |  | 1,743 |  |  |  | - |  |  |  | - |
Securities available for sale |  |  | 40,505 |  |  |  | 40,505 |  |  |  | - |  |  |  | 40,505 |  |  |  | - |
Other equity securities |  |  | 7,759 |  |  |  | 7,759 |  |  |  | - |  |  |  | 7,759 |  |  |  | - |
Loans, net |  |  | 886,864 |  |  |  | 883,361 |  |  |  | - |  |  |  | - |  |  |  | 883,361 |
Loans held for sale |  |  | 3,245 |  |  |  | 3,245 |  |  |  | - |  |  |  | 3,245 |  |  |  | - |
Accrued interest receivable |  |  | 3,002 |  |  |  | 3,002 |  |  |  | - |  |  |  | 3,002 |  |  |  | - |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 1,104,305 |  |  |  | 1,104,665 |  |  |  | 875,506 |  |  |  | 229,159 |  |  |  | - |
Subordinated Debentures |  |  | 5,387 |  |  |  | 5,387 |  |  |  | - |  |  |  | - |  |  |  | 5,387 |
Other borrowings |  |  | 6,000 |  |  |  | 6,000 |  |  |  | - |  |  |  | - |  |  |  | 6,000 |
Accrued interest payable |  |  | 141 |  |  |  | 141 |  |  |  | - |  |  |  | 141 |  |  |  | - |
Off-balance-sheet liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Undisbursed loan commitments, lines of credit, standby letters of credit |  |  | 310 |  |  |  | 310 |  |  |  | - |  |  |  | - |  |  |  | 310 |
The carrying amounts of loans include $179,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2017. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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