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Fair Value | 9 Months Ended
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Sep. 30, 2018
Fair Value |
Fair Value | NOTE (7) – 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. Assets Measured on a Recurring Basis Assets measured at fair value on a recurring basis are summarized below:
|  | Fair Value Measurement
|  | Quoted Prices |  |  |  |  |  |
|  | in Active |  | Significant |  |  |  |
|  | Markets for |  | Other |  | Significant |  |
|  | Identical |  | Observable |  | Unobservable |  |
|  | Assets |  | Inputs |  | Inputs |  |
|  | (Level 1) |  | (Level 2) |  | (Level 3) |  | Total
|  | (In thousands)
At September 30, 2018: |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale –federal agency mortgage-backed |  | $ | — |  | $ | 9,992 |  | $ | — |  | $ | 9,992
Securities available-for-sale – federal agency debt |  |  | 1,972 |  |  | 3,279 |  |  | — |  |  | 5,251
At December 31, 2017: |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale – federal agency mortgage-backed |  | $ | — |  | $ | 12,008 |  | $ | — |  | $ | 12,008
Securities available-for-sale – federal agency debt |  |  | 1,976 |  |  | 3,510 |  |  | — |  |  | 5,486
There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended September 30, 2018 and 2017. 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 statement of financial condition. 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.
|  | September 30, 2018 |  | December 31, 2017
|  | (In thousands)
Impaired loans carried at fair value of collateral |  | $ | 631 |  | $ | 742
Real estate owned |  |  | 833 |  |  | 878
The following table provides information regarding losses recognized on assets measured at fair value on a non-recurring basis for the three and nine months ended September 30, 2018 and 2017.
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
|  | (In thousands)
Impaired loans carried at fair value of collateral |  | $ | — |  | $ | — |  | $ | — |  | $ | —
Real estate owned – church |  |  | 45 |  |  | — |  |  | 45 |  |  | —
Total |  | $ | 45 |  | $ | — |  | $ | 45 |  | $ | —
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2018 and December 31, 2017:
|  | Valuation |  |  |  |  |  | Weighted
|  | Technique(s) |  | Unobservable Input(s) |  | Range |  | Average
September 30, 2018: |  |  |  |  |  |  |  |
Impaired loans |  | Third Party |  | Adjustment for differences |  |  |  |
|  | Appraisals |  | between the comparable sales |  | -3% to -1% |  | -2.67%
Real estate owned – church |  | Third Party |  | Adjustment for differences |  |  |  |
|  | Appraisals |  | between the comparable sales |  | -11% |  | -10.85%
December 31, 2017: |  |  |  |  |  |  |  |
Impaired loans |  | Third Party |  | Adjustment for differences |  |  |  |
|  | Appraisals |  | between the comparable sales |  | -16% to 7% |  | -4%
Real estate owned – church |  | Third Party |  | Adjustment for differences |  |  |  |
|  | Appraisals |  | between the comparable sales |  | -6% |  | -6%
Fair Values of Financial Instruments The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of September 30, 2018 and December 31, 2017. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and due from banks, interest-bearing deposits in other banks, and accrued interest receivable/payable, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For non-marketable equity securities such as Federal Home Loan Bank stock, the carrying amount is a reasonable estimate of fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government supported institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.
|  |  |  | Fair Value Measurements at September 30, 2018
|  | Carrying |  |  |  |  |  |  |  |
|  | Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In thousands)
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable held for sale |  | $ | 19,087 |  | $ | — |  | $ | 19,217 |  | $ | — |  | $ | 19,217
Loans receivable held for investment |  |  | 358,455 |  |  | — |  |  | — |  |  | 352,475 |  |  | 352,475
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Time Deposits |  | $ | 168,556 |  | $ | — |  | $ | 167,453 |  | $ | — |  | $ | 167,453
Federal Home Loan Bank advances |  |  | 82,000 |  |  | — |  |  | 81,370 |  |  | — |  |  | 81,370
Junior subordinated debentures |  |  | 5,100 |  |  | — |  |  | — |  |  | 4,503 |  |  | 4,503
|  |  |  | Fair Value Measurements at December 31, 2017
|  | Carrying |  |  |  |  |  |  |  |
|  | Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In thousands)
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable held for sale |  | $ | 22,370 |  | $ | — |  | $ | 22,626 |  | $ | — |  | $ | 22,626
Loans receivable held for investment |  |  | 334,851 |  |  | — |  |  | — |  |  | 333,231 |  |  | 333,231
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Time Deposits |  | $ | 150,789 |  | $ | — |  | $ | 150,240 |  | $ | — |  | $ | 150,240
Federal Home Loan Bank advances |  |  | 65,000 |  |  | — |  |  | 64,887 |  |  | — |  |  | 64,887
Junior subordinated debentures |  |  | 5,100 |  |  | — |  |  | — |  |  | 4,503 |  |  | 4,503
In accordance with the prospective adoption of ASU No. 2016-01, the fair value of certain financial assets and liabilities, including loans, time deposits, and junior subordinated debentures, as of September 30, 2018 was measured using an exit price notion. Although the exit price notion represents the value that would be received to sell an asset or paid to transfer a liability, the actual price received for a sale of assets or paid to transfer liabilities could be different from exit price disclosed.

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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 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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