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Fair Value | 3 Months Ended
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Mar. 31, 2016
Fair Value |
Fair Value | NOTE (6) – 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 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 fair value: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique 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 inputs). The fair value of impaired loans that are collateral dependent is generally based upon the fair value of the collateral, which is obtained from 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. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Assets acquired through or by transfer in lieu 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 the lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated every nine months. 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. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Appraisals for collateral-dependent impaired loans and real estate owned 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 the Company. Once received, an independent third-party licensed appraiser reviews the appraisals for accuracy and reasonableness, reviewing 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. Assets Measured on a Recurring Basis Assets measured at fair value on a recurring basis are summarized below:
|  | Fair Value Measurements at March 31, 2016 |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total |
|  | (In thousands) |
Assets: |  |  |  |  |  |  |  |  |
Securities available-for-sale - residential mortgage-backed |  | $ | - |  | $ | 13,201 |  | $ | - |  | $ | 13,201 |
Securities available-for-sale - U.S. Government and federal agency |  | 2,008 |  | - |  | - |  | 2,008 |
|  | Fair Value Measurements at December 31, 2015 |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total |
|  | (In thousands) |
Assets: |  |  |  |  |  |  |  |  |
Securities available-for-sale - residential mortgage-backed |  | $ | - |  | $ | 12,167 |  | $ | - |  | $ | 12,167 |
Securities available-for-sale - U.S. Government and federal agency |  | 1,973 |  | - |  | - |  | 1,973 |
There were no transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2016 and 2015. Assets Measured on a Non-Recurring Basis Assets are considered to be reflected at fair value on a non-recurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, a non-recurring valuation is the result of the application of other accounting pronouncements that require assets to be assessed for impairment or recorded at the lower of cost or fair value. The following table provides information regarding the carrying values of our assets measured at fair value on a non-recurring basis as of the periods indicated. The fair value measurement for all of these assets falls within Level 3 of the fair value hierarchy.
|  | March 31, 2016 |  | December 31, 2015 |
|  | (In thousands) |
Impaired loans carried at fair value of collateral |  | $ 2,456 |  | $ 2,557 |
Real estate owned |  | - |  | 360 |
There were no losses recognized on assets measured at fair value on a non-recurring basis for the three months ended March 31, 2016 and 2015. The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of March 31, 2016:
|  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range |  | Weighted Average |
Impaired loans |  | Third Party Appraisals |  | Adjustment for differences between the comparable sales |  | -18% to 13% |  | 0% |
Fair Values of Financial Instruments The carrying amounts and estimated fair values of financial instruments as of the periods indicated were as follows:
|  |  |  | Fair Value Measurements at March 31, 2016 |
|  | Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
|  | (In thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 35,991 |  | $ | 35,991 |  | $ | - |  | $ | - |  | $ | 35,991 |
Securities available-for-sale |  | 15,209 |  | 2,008 |  | 13,201 |  | - |  | 15,209 |
Loans receivable held for investment |  | 319,881 |  | - |  | - |  | 327,441 |  | 327,441 |
Accrued interest receivable |  | 1,091 |  | 63 |  | 34 |  | 994 |  | 1,091 |
Federal Home Loan Bank stock |  | 2,573 |  | 2,573 |  | - |  | - |  | 2,573 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 257,409 |  | $ | - |  | $ | 252,816 |  | $ | - |  | $ | 252,816 |
Federal Home Loan Bank advances |  | 72,000 |  | - |  | 73,728 |  | - |  | 73,728 |
Junior subordinated debentures |  | 5,100 |  | - |  | - |  | 3,164 |  | 3,164 |
Accrued interest payable |  | 54 |  | - |  | 48 |  | 6 |  | 54 |
|  |  |  | Fair Value Measurements at December 31, 2015 |
|  | Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
|  | (In thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 67,839 |  | $ | 67,839 |  | $ | - |  | $ | - |  | $ | 67,839 |
Securities available-for-sale |  | 14,140 |  | 1,973 |  | 12,167 |  | - |  | 14,140 |
Loans receivable held for investment |  | 304,171 |  | - |  | - |  | 306,643 |  | 306,643 |
Accrued interest receivable |  | 1,077 |  | 63 |  | 31 |  | 983 |  | 1,077 |
Federal Home Loan Bank stock |  | 2,573 |  | 2,573 |  | - |  | - |  | 2,573 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 272,614 |  | $ | - |  | $ | 265,495 |  | $ | - |  | $ | 265,495 |
Federal Home Loan Bank advances |  | 72,000 |  | - |  | 73,441 |  | - |  | 73,441 |
Junior subordinated debentures |  | 5,100 |  | - |  | - |  | 3,117 |  | 3,117 |
Accrued interest payable |  | 52 |  | - |  | 46 |  | 6 |  | 52 |
The methods and assumptions, not previously presented, used to estimate fair values are described as follows: (a) Cash and Cash Equivalents The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1. (b) Loans Receivable Held For investment Fair values of loans 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. (c) FHLB Stock The carrying value of FHLB stock approximates its fair value as the shares can only be redeemed by the FHLB at par. (d) Accrued Interest Receivable/Payable The carrying amounts of accrued interest receivable/payable approximate their fair value and are classified the same as the related asset. (e) Deposits The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using discounted cash flow calculations that apply interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification. (f) Federal Home Loan Bank Advances The fair values of the Federal Home Loan Bank 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. (g) Junior Subordinated Debentures The fair values of the Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19279-110258 Reference 2: 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 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19190-110258 + Details
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