NOTE 12 — Fair Value Measurements

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.

For available-for-sale securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Assets and liabilities measured at fair value on a recurring basis are summarized below:


	Fair Value Measurements Using
	Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)
December 31, 2019
Assets
Available-for-sale securities
Mortgage-backed securities – agency	$	—	$	25,037	$	—
CMO’s – agency		—		121,382		—
Total	$	—	$	146,419	$	—

December 31, 2018
Assets
Available-for-sale securities
Mortgage-backed securities – agency	$	—	$	26,675	$	—
CMO’s – agency		—		119,023		—
Total	$	—	$	145,698	$	—

There were no transfers between Level 1 and Level 2 during the year. There were no assets measured on a non-recurring basis as of December 31, 2019 and 2018.

Estimated Fair Value of Financial Instruments

Fair value estimates are made at specific points in time and are based on existing on-and off-balance sheet financial instruments. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of financial instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments.

The Company used the following method and assumptions in estimating the fair value of its financial instruments:

Securities Available-for-Sale: The fair values for securities available-for-sale are determined by quoted market prices in active markets, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values 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 with observable transactions (Level 2 inputs).

The following table presents the carrying amounts and fair values (represents exit price) of the Company’s financial instruments:


	Fair Value Measurement at December 31, 2019, Using:
	Carrying
	Value		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	61,806	$	669	$	61,007	$	—	$	61,676
Securities available-for-sale		146,419		—		146,419		—		146,419
Securities, restricted, at cost		2,665		N/A		N/A		N/A		N/A
Loans, net		558,380		—		—		560,859		560,859
Accrued interest receivable		3,242		—		386		2,856		3,242

Financial Liabilities:
Time deposits		19,746		—		19,763		—		19,763
Demand and other deposits		660,874		660,874		—		—		660,874
Secured borrowings		86		—		86		—		86
Accrued interest payable		12		—		12		—		12


	Fair Value Measurement at December 31, 2018, Using:
	Carrying
	Value		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	30,562	$	659	$	29,903	$	—	$	30,562
Securities available-for-sale		145,698		—		145,698		—		145,698
Securities, restricted, at cost		2,583		N/A		N/A		N/A		N/A
Loans, net		462,472		—		—		464,144		464,144
Accrued interest receivable		3,855		—		368		3,487		3,855

Financial Liabilities:
Time deposits		20,417		—		20,377		—		20,377
Demand and other deposits		548,004		548,004		—		—		548,004
Secured borrowings		89		—		89		—		89
Accrued interest payable		15		—		15		—		15