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Fair Value | 9 Months Ended
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Sep. 30, 2014
Fair Value [Abstract] |
Fair Value | NOTE 5 - FAIR VALUE Fair value is the exchange 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. There are three levels of inputs that may be used to measure fair values: Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2 – Significant other 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. Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Company used the following methods and significant assumptions to estimate the fair value of each type of asset and liability: Securities available for sale: The fair value of securities available for sale is determined using pricing models that vary based on asset class and include available trade, bid and other market information or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Derivatives: The fair value of derivatives, which includes yield maintenance provisions, interest rate lock commitments and interest rate swaps, is based on valuation models using observable market data as of the measurement date (Level 2). Impaired loans: The fair value of impaired loans with specific allocations of the ALLL is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by a third-party appraisal management company approved by the Board of Directors annually. Once received, the loan officer or a member of the credit department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals are updated as needed based on facts and circumstances associated with the individual properties. Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management applies an additional discount to real estate appraised values, typically to reflect changes in market conditions since the date of the appraisal and to cover disposition costs (including selling expenses) based on the intended disposition method of the property. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Loans held for sale: Loans originated and held for sale are carried at fair value, as determined by outstanding commitments from third party investors (Level 2). Loans originated as construction loans, that were subsequently transferred to held for sale, are carried at the lower of cost or market, and are excluded from the fair value measurement table. These loans totaled $3,292 at September 30, 2014. Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:
| Fair Value Measurements at September 30, 2014 using Significant Other Observable Inputs(Level 2)
Financial Assets: |  |
Securities available for sale: |  |
Corporate debt | $ | 4,321
State and municipal |  | 1,884
Issued by U.S. government-sponsored entities and agencies: |  |
Mortgage-backed securities - residential |  | 768
Collateralized mortgage obligations |  | 1,170
Total securities available for sale | $ | 8,143
Loans held for sale |  | 2,568
Yield maintenance provisions (embedded derivatives) | $ | 318
Interest rate lock commitments | $ | 44
Financial Liabilities: |  |
Interest-rate swaps | $ | 318
| Fair Value Measurements at December 31, 2013 using Significant Other Observable Inputs(Level 2)
Financial Assets: |  |
Securities available for sale: |  |
Corporate debt | $ | 4,363
State and municipal |  | 1,919
Issued by U.S. government-sponsored entities and agencies: |  |
Mortgage-backed securities - residential |  | 983
Collateralized mortgage obligations |  | 2,407
Total securities available for sale | $ | 9,672
Loans held for sale |  | 3,285
Yield maintenance provisions (embedded derivatives) | $ | 599
Interest rate lock commitments | $ | 16
Financial Liabilities: |  |
Interest-rate swaps | $ | 599
The Company had no assets or liabilities measured at fair value on a recurring basis that were measured using Level 1 or Level 3 inputs at September 30, 2014 or December 31, 2013. Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
Fair Value Measurements at September 30, 2014 Using
Significant Unobservable Inputs (Level 3)
Impaired loans: |  |
Commercial | $ | -
Real Estate: |  |
Single-family residential |  | 300
Multi-family residential |  | 1,301
Commercial: |  |
Non-owner occupied |  | -
Owner occupied |  | 223
Land |  | 158
Total impaired loans | $ | 1,982
Fair Value Measurements at December 31, 2013 Using
Significant Unobservable Inputs (Level 3)
Impaired loans: |  |
Commercial | $ | -
Real Estate: |  |
Single-family residential |  | 316
Multi-family residential |  | 1,301
Commercial: |  |
Non-owner occupied |  | -
Owner occupied |  | 234
Land |  | 629
Total impaired loans | $ | 2,480
The Company had no assets or liabilities, that were material, measured at fair value on a non-recurring basis that were measured using Level 1 or Level 2 inputs at September 30, 2014 or December 31, 2013. L oan servicing rights, which are carried at fair value at September 30, 2014 and December 31, 2013, are not material based on the value of the asset. Impaired loans, which are carried at the fair value of the collateral for collateral-dependent loans, had an unpaid principal balance of $3,037 with a valuation allowance of $709, at September 30, 2014. There were no write-downs of impaired collateral-dependent loans during the three and nine months ended September 30, 2014 or 2013. Impaired loans carried at the fair value of collateral had an unpaid principal balance of $3,465, with a valuation allowance of $985 at December 31, 2013. During the three and nine months ended September 30, 2014, the Company did not have any significant transfers of assets or liabilities between those measured using Level 1, 2 or 3 inputs. The Company recognizes transfers of assets and liabilities between Level 1 and 2 inputs based on the information relating to those assets and liabilities at the end of the reporting period. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2014:
|  | Fair Value |  | Valuation Technique(s) |  | Unobservable Inputs |  | (Range) Weighted Average
Impaired loans: |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |
Single-family residential |  | 300 |  | Comparable sales approach |  | Adjustment for differences between the comparable market transactions |  | (-17.67%, 2.35%) -8.33%
Multi-family residential |  | 1,301 |  | Comparable sales approach |  | Adjustment for differences between the comparable market transactions |  | -20.59%
Commercial: |  |  |  |  |  |  |  |
Owner occupied |  | 223 |  | Comparable sales approach |  | Adjustment for differences between the comparable market transactions |  | -12.21%
Land |  | 158 |  | Comparable sales approach |  | Adjustment for differences between the comparable market transactions |  | 8.10%
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2013:
|  | Fair Value |  | Valuation Technique(s) |  | Unobservable Inputs |  | (Range) Weighted Average
Impaired loans: |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |
Single -family residential |  | 316 |  | Comparable sales approach |  | Adjustment for differences between the comparable market transactions |  | (-17.67%, 2.35%) -8.33%
Multi-family residential |  | 1,301 |  | Comparable sales approach |  | Adjustment for differences between the comparable market transactions |  | -20.59%
Commercial: |  |  |  |  |  |  |  |
Owner occupied |  | 234 |  | Comparable sales approach |  | Adjustment for differences between the comparable market transactions |  | -12.21%
Land |  | 629 |  | Comparable sales approach |  | Adjustment for differences between the comparable market transactions |  | (-8.59% , 8.10%) 1.44%
Financial Instruments Recorded Using Fair Value Option The Company has elected the fair value option for loans originated for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Loans originated as construction loans, that were subsequently transferred to held for sale, are carried at the lower cost or market and are not included. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans were 90 days or more past due or on nonaccrual as of September 30, 2014 or December 31, 2013. As of September 30, 2014 and December 31, 2013, the aggregate fair value, contractual balance (including accrued interest) and gain or loss were as follows:
|  | September 30, 2014 |  |  | December 31, 2013 |
Aggregate fair value | $ | 2,568 |  | $ | 3,285 |
Contractual balance |  | 2,540 |  |  | 3,270 |
Gain (loss) |  | 28 |  |  | 15 |
The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2014 and 2013 for loans held for sale were:
| Three months ended September 30, |  | Nine months ended September 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
Interest income | $ | 31 |  | $ | 13 |  | $ | 84 |  | $ | 29
Interest expense |  | - |  |  | - |  |  | - |  |  | -
Change in fair value |  | (3) |  |  | 26 |  |  | 13 |  |  | 6
Total change in fair value | $ | 28 |  | $ | 39 |  | $ | 97 |  | $ | 35
The carrying amounts and estimated fair values of financial instruments at September 30, 2014 were as follows:
| Fair Value Measurements at September 30, 2014 Using:
| Carrying |  |  |  |  |  |  |  |  |  |  |  |
| Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 30,184 |  | $ | 30,184 |  | $ | - |  | $ | - |  | $ | 30,184
Interest-bearing deposits in other financial institutions |  | 742 |  |  | 742 |  |  | - |  |  | - |  |  | 742
Securities available for sale |  | 8,143 |  |  | - |  |  | 8,143 |  |  | - |  |  | 8,143
Loans held for sale |  | 5,861 |  |  | - |  |  | 2,568 |  |  | - |  |  | 2,568
Loans, net |  | 248,168 |  |  | - |  |  | - |  |  | 249,017 |  |  | 249,017
FHLB stock |  | 1,942 |  |  | n/a |  |  | n/a |  |  | n/a |  |  | n/a
Accrued interest receivable |  | 64 |  |  | 4 |  |  | 60 |  |  | - |  |  | 64
Yield maintenance provisions (embedded derivatives) |  | 318 |  |  | - |  |  | 318 |  |  | - |  |  | 318
Interest rate lock commitments |  | 44 |  |  | - |  |  | 44 |  |  | - |  |  | 44
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits | $ | (250,963) |  | $ | (105,025) |  | $ | (146,478) |  | $ | - |  | $ | (251,503)
FHLB advances and other borrowings |  | (14,500) |  |  | - |  |  | (14,574) |  |  | - |  |  | (14,574)
Advances by borrowers for taxes and insurance |  | (212) |  |  | - |  |  | - |  |  | (212) |  |  | (212)
Subordinated debentures |  | (5,155) |  |  | - |  |  | (2,786) |  |  | - |  |  | (2,786)
Accrued interest payable |  | (48) |  |  | - |  |  | (48) |  |  | - |  |  | (48)
Interest-rate swaps |  | (318) |  |  | - |  |  | (318) |  |  | - |  |  | (318)
The carrying amounts and estimated fair values of financial instruments at December 31, 2013 were as follows:
| Fair Value Measurements at December 31, 2013 Using:
| Carrying |  |  |  |  |  |  |  |  |  |  |  |
| Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 19,160 |  | $ | 19,160 |  | $ | - |  | $ | - |  | $ | 19,160
Interest-bearing deposits in other financial institutions |  | 1,982 |  |  | 1,982 |  |  | - |  |  | - |  |  | 1,982
Securities available for sale |  | 9,672 |  |  | - |  |  | 9,672 |  |  | - |  |  | 9,672
Loans held for sale |  | 3,285 |  |  | - |  |  | 3,285 |  |  | - |  |  | 3,285
Loans, net |  | 207,141 |  |  | - |  |  | - |  |  | 207,445 |  |  | 207,445
FHLB stock |  | 1,942 |  |  | n/a |  |  | n/a |  |  | n/a |  |  | n/a
Accrued interest receivable |  | 50 |  |  | 4 |  |  | 46 |  |  | - |  |  | 50
Yield maintenance provisions (embedded derivatives) |  | 599 |  |  | - |  |  | 599 |  |  | - |  |  | 599
Interest rate lock commitments |  | 16 |  |  | - |  |  | 16 |  |  | - |  |  | 16
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits | $ | (208,309) |  | $ | (89,266) |  | $ | (119,933) |  | $ | - |  | $ | (209,199)
FHLB advances and other borrowings |  | (16,526) |  |  | - |  |  | (10,051) |  |  | (6,526) |  |  | (16,577)
Subordinated debentures |  | (5,155) |  |  | - |  |  | (3,004) |  |  | - |  |  | (3,004)
Accrued interest payable |  | (255) |  |  | - |  |  | (255) |  |  | - |  |  | (255)
Interest-rate swaps |  | (599) |  |  | - |  |  | (599) |  |  | - |  |  | (599)
The methods and assumptions, not previously presented, used to estimate fair values are described as follows: Cash and Cash Equivalents The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1. Interest-Bearing Deposits in Other Financial Institutions The carrying amounts of interest-bearing deposits in other financial institutions approximate fair values and are classified as Level 1. FHLB Stock It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability. Loans Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. Deposits The fair values disclosed for demand deposits (e.g., interest and noninterest-bearing checking, passbook savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification. Other Borrowings The fair values of the Company’s long-term FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification. The fair values for secured borrowings are valued in the same manner as loans noted above, resulting in a level 3 classification. The fair values of the Company’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification. Accrued Interest Receivable/Payable The carrying amounts of accrued interest approximate fair value resulting in a Level 1 or 2 classification, consistent with the asset or liability with which they are associated. Off-Balance-Sheet Instruments The fair value of off-balance-sheet items is not considered material.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
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