Note 8 – Fair Value

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 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 Measurement
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Total
	(In thousands)
At December 31, 2020:
Securities available‑for‑sale – federal agency mortgage‑backed	$	‑	$	5,807	$ ‑	$	5,807
Municipal bonds				2,019			2,019
Securities available‑for‑sale – federal agency debt		-		2,872	‑		2,872
At December 31, 2019:
Securities available‑for‑sale – federal agency mortgage‑backed	$	‑	$	7,956	$ ‑	$	7,956
Securities available‑for‑sale – federal agency debt		-		3,050	‑		3,050

There were no transfers between Level 1, Level 2, or Level 3 during the years ended December 31, 2020 and 2019.

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 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 these assets falls within Level 3 of the fair value hierarchy.

	December 31, 2020		December 31, 2019
	(In thousands)
Impaired loans carried at fair value of collateral	$	-	$	130

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments as of the periods indicated were as follows:

	Carrying		Fair Value Measurements at December 31, 2020
	Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	96,109	$	96,109	$	-	$	-	$	96,109
Securities available‑for‑sale		10,698		-		10,698		-		10,698
Loans receivable held for investment		360,129		-		-		366,279		366,279
Accrued interest receivable		1,202		60		14		1,128		1,202
Bank owned life insurance		5,633		5,633		-		-		5,633
Financial Liabilities:
Deposits	$	315,630	$	-	$	312,725	$	-	$	312,725
Federal Home Loan Bank advances		110,500				113,851		-		113,851
Junior subordinated debentures		3,315				-		2,798		2,798
Accrued interest payable		88		-		84		4		88

	Carrying		Fair Value Measurements at December 31, 2019
	Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	15,566	$	15,566	$	‑	$	‑	$	15,566
Securities available‑for‑sale		11,006		-		11,006	‑			11,006
Loans receivable held for sale			‑				‑
Loans receivable held for investment		397,847	‑		‑			404,923		404,923
Accrued interest receivable		1,223		69		22		1,132		1,223
Bank owned life insurance		5,220		5,220		-		-		5,220
Financial Liabilities:
Deposits	$	297,724	$	‑	$	289,629	$	‑	$	289,629
Federal Home Loan Bank advances		84,000	‑			84,997	‑			84,997
Junior subordinated debentures		4,335	‑		‑			3,734		3,734
Accrued interest payable		384	‑			377		7		384