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FAIR VALUES OF FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

FAIR VALUES OF FINANCIAL INSTRUMENTS

NOTE 7 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at March 31, 2016 and December 31, 2015.

Available-for-sale Securities – Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly-liquid government bonds, mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include certain collateralized mortgage and debt obligations and certain municipal securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain residual municipal securities and other less liquid securities.

Loans Held for Sale – The fair value of loans held for sale is based on quoted market prices from FHLMC. FHLMC quotes are updated daily and represent prices at which loans are exchanged in high volumes and in a liquid market.

Other Real Estate – Other real estate is fair valued under Level 3 based on property appraisals less estimated disposition costs, which include both observable and unobservable inputs, at the time of transfer and as appropriate thereafter.

Loans Held for Investment – Loans held for investment are generally not recorded at fair value on a recurring basis. Periodically, the Bank records nonrecurring adjustments to the carrying value of these loans based on fair value measurements for loans subject to impairment. The fair value of impaired loans is typically determined using a combination of observable inputs, such as interest rates, contract terms, appraisals of collateral supporting the loan and recent comparable sales of similar properties, and unobservable inputs such as creditworthiness, disposition costs and underlying cash flows associated with the loan. Since the estimates of fair value utilized for loans also involve unobservable inputs, valuations of impaired loans have been classified as Level 3.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets at fair value:

		Fair Value Measurements Using
		Quoted Prices				Significant
		in Active				Other				Significant
		Markets for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
		Level 1				Level 2				Level 3				Fair Value

March 31, 2016
Recurring basis
Mortgage-backed securities		$	-			$	24,271,668			$	-			$	24,271,668
U.S. Government agencies			-			$	3,302,618				-				3,302,618
Municipal obligations			-			$	1,907,033				-				1,907,033
Nonrecurring basis
Loans held for sale			-				17,597,841				-				17,597,841
Other real estate			-				-				501,558				501,558
Impaired loans			-				-				1,352,595				1,352,595

Totals		$	-			$	47,079,160			$	1,854,153			$	48,933,314

December 31, 2015
Recurring basis
Mortgage-backed securities		$	-			$	23,270,496			$	-			$	23,270,496
U.S. Government agencies			-				3,458,813				-				3,458,813
Municipal obligations			-				1,901,242				-				1,901,242
Nonrecurring basis
Loans held for sale			-				11,380,627				-				11,380,627
Other real estate			-				-				306,000				306,000
Impaired loans			-				-				1,844,059				1,844,059

Totals		$	-			$	40,011,178			$	2,150,059			$	42,161,237

The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Bank does not know whether the fair values shown represent values at which the respective financial instruments could be sold individually or in the aggregate.

The following tables present estimated fair values of the Company’s financial instruments at March 31, 2016 and December 31, 2015.

										Quoted Prices				Significant
										in Active				Other				Significant
										Markets for				Observable				Unobservable
		Carrying								Identical Assets				Inputs				Inputs
		Amount				Fair Value				Level 1				Level 2				Level 3
		(Dollars in thousands)
At March 31, 2016
Financial assets:
Cash and due from banks		$	3,773			$	3,773			$	3,773			$	-			$	-
Interest-bearing deposits with banks			12,145				12,145				12,145				-				-
Available-for-sale securities			29,481				29,481				-				29,481				-
Loans held for sale			17,598				17,598				-				17,598				-
Loans held for investment, net			194,904				194,934				-				-				194,934
Stock in financial institutions			1,553				1,553				-				1,553				-

Financial liabilities:
Demand deposits, savings and NOW deposits			162,873				160,198				160,198				-				-
Time deposits			71,756				71,791				-				71,791				-
Federal Home Loan Bank advances			11,000				10,998				-				10,998				-

At December 31, 2015
Financial assets:
Cash and due from banks		$	5,960			$	5,960			$	5,960			$	-			$	-
Interest-bearing deposits with banks			13,865				13,865				13,865				-				-
Available-for-sale securities			28,631				28,631				-				28,631				-
Loans held for sale			11,381				11,381				-				11,381				-
Loans held for investment, net			192,137				195,631				-				-				195,631
Stock in financial institutions			1,547				1,547				-				1,547				-

Financial liabilities:
Demand deposits, savings and NOW deposits			151,593				147,947				147,947				-				-
Time deposits			74,107				74,149				-				74,149				-
Federal Home Loan Bank advances			13,000				13,004				-				13,004				-

The following methods and assumptions were used to estimate the fair value of the additional classes of financial instruments shown:

Cash and Due from Banks, Interest-Bearing Deposits with Banks and Stock in Financial Institutions– The carrying amount approximates fair value.

Deposits and Federal Home Loan Bank (FHLB) Advances – Deposits include demand deposits, savings accounts, NOW accounts and money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits and FHLB advances is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits and advances of similar remaining maturities.

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.

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