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Fair Value (Notes) | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value | FAIR VALUE Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. 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 financial instrument: Securities: The fair values of marketable equity securities are generally determined by quoted prices, in active markets, for each specific security (Level 1). If Level 1 measurement inputs are not available for a marketable equity security, we determine its fair value based on the quoted price of a similar security traded in an active market (Level 2). The fair values of debt securities are generally determined by 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). Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses 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 independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. 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 in accordance with the allowance policy. Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly. The following table sets forth the Company’s financial assets that were accounted for at fair value and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
| Fair Value Measurements Using |  |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Fair Value
September 30, 2018 |  |  |  |  |  |  |
Securities: |  |  |  |  |  |  |
Certificates of deposit | $ | — |  |  | $ | 89,175 |  |  | $ | — |  |  | $ | 89,175 |
Mortgage-backed securities – residential | — |  |  | 10,925 |  |  | — |  |  | 10,925 |
Collateralized mortgage obligations – residential | — |  |  | 3,821 |  |  | — |  |  | 3,821 |
| $ | — |  |  | $ | 103,921 |  |  | $ | — |  |  | $ | 103,921 |
December 31, 2017 |  |  |  |  |  |  |
Securities: |  |  |  |  |  |  |
Certificates of deposit | $ | — |  |  | $ | 75,916 |  |  | $ | — |  |  | $ | 75,916 |
Equity mutual fund | 499 |  |  | — |  |  | — |  |  | 499 |
Mortgage-backed securities - residential | — |  |  | 12,472 |  |  | — |  |  | 12,472 |
Collateralized mortgage obligations – residential | — |  |  | 4,486 |  |  | — |  |  | 4,486 |
SBA-guaranteed loan participation certificates | — |  |  | 10 |  |  | — |  |  | 10 |
| $ | 499 |  |  | $ | 92,884 |  |  | $ | — |  |  | $ | 93,383 |
The following table sets forth the Company’s assets that were measured at fair value on a non-recurring basis:
| Fair Value Measurement Using |  |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Fair Value
September 30, 2018 |  |  |  |  |  |  |
Other real estate owned: |  |  |  |  |  |  |
Land | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | 1 |
December 31, 2017 |  |  |  |  |  |  |
Other real estate owned: |  |  |  |  |  |  |
One-to-four family residential real estate | $ | — |  |  | $ | — |  |  | $ | 102 |  |  | $ | 102 |
Nonresidential real estate | — |  |  | — |  |  | 814 |  |  | 814 |
| $ | — |  |  | $ | — |  |  | $ | 916 |  |  | $ | 916 |
At September 30, 2018 and December 31, 2017 there were no impaired loans that were measured for impairment using the fair value of the collateral for collateral–dependent loans and which had specific valuation allowances. OREO, which is carried at the lower of cost or fair value less costs to sell, and had a carrying value of $24,000 less a valuation allowance of $23,000, or $1,000 at September 30, 2018, compared to a carrying value of $1.2 million less a valuation allowance of $261,000, or $916,000, at December 31, 2017. There were $27,000 and $301,000 of valuation adjustments of OREO recorded for the nine months ended September 30, 2018 and 2017, respectively. The following table presents quantitative information, based on certain empirical data with respect to Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis:
| Fair Value |  | Valuation Technique(s) |  | Significant Unobservable Input(s) |  | Range (Weighted Average)
September 30, 2018 |  |  |  |  |  |  |
Other real estate owned: |  |  |  |  |  |  |
Land | 1 |  |  | Sales comparison |  | Discount applied to valuation |  | 12.3%
| $ | 1 |  |  |  |  |  |  |
December 31, 2017 |  |  |  |  |  |  |
Other real estate owned |  |  |  |  |  |  |
One-to-four family residential real estate | $ | 102 |  |  | Sales comparison |  | Discount applied to valuation |  | 5.6%
Nonresidential real estate | 814 |  |  | Sales comparison |  | Comparison between sales and income approaches |  | -3.66% to 15.22% (11.0%)
| $ | 916 |  |  |  |  |  |  |
The carrying amount and estimated fair value of financial instruments are as follows:
|  |  | Fair Value Measurements at September 30, 2018 Using: |  |
| Carrying Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial assets |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 86,934 |  |  | $ | 12,473 |  |  | $ | 74,461 |  |  | $ | — |  |  | $ | 86,934 |
Securities | 103,921 |  |  | — |  |  | 103,921 |  |  | — |  |  | 103,921 |
Loans receivable, net of allowance for loan losses | 1,267,787 |  |  | — |  |  | — |  |  | 1,265,906 |  |  | 1,265,906 |
FHLB and FRB stock | 8,026 |  |  | — |  |  | — |  |  | — |  |  | N/A |
Accrued interest receivable | 4,974 |  |  | — |  |  | 4,974 |  |  | — |  |  | 4,974 |
Financial liabilities |  |  |  |  |  |  |  |  |
Noninterest-bearing demand deposits | $ | 225,446 |  |  | $ | — |  |  | $ | 225,446 |  |  | $ | — |  |  | $ | 225,446 |
NOW and money market accounts | 549,631 |  |  | — |  |  | 549,631 |  |  | — |  |  | 549,631 |
Savings deposits | 155,232 |  |  | — |  |  | 155,232 |  |  | — |  |  | 155,232 |
Certificates of deposit | 365,461 |  |  | — |  |  | 362,670 |  |  | — |  |  | 362,670 |
Borrowings | 21,232 |  |  | — |  |  | 21,214 |  |  | — |  |  | 21,214 |
Accrued interest payable | 361 |  |  | — |  |  | 361 |  |  | — |  |  | 361 |
|  |  | Fair Value Measurements at December 31, 2017 Using: |  |
| Carrying Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial assets |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 127,592 |  |  | $ | 13,572 |  |  | $ | 114,020 |  |  | $ | — |  |  | $ | 127,592 |
Securities | 93,383 |  |  | 499 |  |  | 92,884 |  |  | — |  |  | 93,383 |
Loans receivable, net of allowance for loan losses | 1,314,651 |  |  | — |  |  | 1,323,139 |  |  | — |  |  | 1,323,139 |
FHLB and FRB stock | 8,290 |  |  | — |  |  | — |  |  | — |  |  | N/A |
Accrued interest receivable | 4,619 |  |  | — |  |  | 4,619 |  |  | — |  |  | 4,619 |
Financial liabilities |  |  |  |  |  |  |  |  |
Noninterest-bearing demand deposits | $ | 234,354 |  |  | $ | — |  |  | $ | 234,354 |  |  | $ | — |  |  | $ | 234,354 |
NOW and money market accounts | 589,238 |  |  | — |  |  | 589,238 |  |  | — |  |  | 589,238 |
Savings deposits | 160,501 |  |  | — |  |  | 160,501 |  |  | — |  |  | 160,501 |
Certificates of deposit | 355,958 |  |  | — |  |  | 353,969 |  |  | — |  |  | 353,969 |
Borrowings | 60,768 |  |  | — |  |  | 60,627 |  |  | — |  |  | 60,627 |
Accrued interest payable | 147 |  |  | — |  |  | 147 |  |  | — |  |  | 147 |
For purposes of the above, the following assumptions were used: Cash and Cash Equivalents: The estimated fair values for cash and cash equivalents are based on their carrying value due to the short-term nature of these assets. Loans: At September 30, 2018, the exit price observations are obtained from an independent third-party using its proprietary valuation model and methodology and may not reflect actual or prospective market valuations. The valuation is based on the probability of default, loss given default, recovery delay, prepayment, and discount rate assumptions. The new methodology is a result of the adoption of ASU 2016-01. At December 31, 2017, the estimated fair value for loans has been determined by calculating the present value of future cash flows based on the current rate the Company would charge for similar loans with similar maturities, applied for an estimated time period until the loan is assumed to be repriced or repaid. The methods utilized to estimate fair value of loans do not necessarily represent an exit price. FHLB and FRB Stock: It is not practicable to determine the fair value of FHLB and FRB stock due to the restrictions placed on their transferability. Deposit Liabilities: The estimated fair value for certificates of deposit has been determined by calculating the present value of future cash flows based on estimates of rates the Company would pay on such deposits, applied for the time period until maturity. The estimated fair values of noninterest-bearing demand, NOW, money market, and savings deposits are assumed to approximate their carrying values as management establishes rates on these deposits at a level that approximates the local market area. Additionally, these deposits can be withdrawn on demand. Borrowings: The estimated fair values of advances from the FHLB and notes payable are based on current market rates for similar financing. The estimated fair value of securities sold under agreements to repurchase is assumed to equal its carrying value due to the short-term nature of the liability. Accrued Interest: The estimated fair values of accrued interest receivable and payable are assumed to equal their carrying value. Off-Balance-Sheet Instruments: Off-balance-sheet items consist principally of unfunded loan commitments, standby letters of credit, and unused lines of credit. The estimated fair values of unfunded loan commitments, standby letters of credit, and unused lines of credit are not material. While the above estimates are based on management’s judgment of the most appropriate factors, as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets were disposed of or the liabilities settled at that date, since market values may differ depending on the various circumstances. The estimated fair values would also not apply to subsequent dates. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the above disclosures.

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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://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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