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Note 8 - Disclosures about Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 8: Disclosures about Fair Value of Assets and Liabilities

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities

Level 2: 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 for substantially the full term of the assets or liabilities

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

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 equity securities. 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. For these investments, the inputs used by the pricing service to determine fair value may include one or a combination of observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bid offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. government agencies, municipal securities and government sponsored mortgage-backed securities. The Company has no Level 3 securities.

The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015 (dollar amounts in thousands):

3/31/2016
Financial assets:
		Level 1 inputs				Level 2 inputs				Level 3 inputs				Total fair value
Equity securities		$	86			$	-			$	-			$	86
Debt securities:
Municipals			-				38,000				-				38,000
Corporates			-				3,567				-				3,567
Government sponsored mortgage-backed securities and SBA loan pools			-				62,072				-				62,072
Available-for-sale securities		$	86			$	103,639			$	-			$	103,725

12/31/2015
Financial assets:
		Level 1 inputs				Level 2 inputs				Level 3 inputs				Total fair value
Equity securities		$	99			$	-			$	-			$	99
Debt securities:
U.S. government agencies			-				8,397				-				8,397
Municipals			-				31,349				-				31,349
Corporates			-				3,814				-				3,814
Government sponsored mortgage-backed securities and SBA loan pools			-				53,633				-				53,633
Available-for-sale securities		$	99			$	97,193			$	-			$	97,292

The following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying statements of financial condition, as well as the general classification of such assets pursuant to the valuation hierarchy.

Foreclosed Assets Held for Sale: Fair value is estimated using recent appraisals, comparable sales and other estimates of value obtained principally from independent sources, adjusted for selling costs. Foreclosed assets held for sale are classified within Level 3 of the valuation hierarchy.

Impaired loans (Collateral Dependent): Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015 (dollar amounts in thousands):

Impaired loans:
		Level 1 inputs				Level 2 inputs				Level 3 inputs				Total fair value
March 31, 2016		$	-			$	-			$	12,540			$	12,540

December 31, 2015		$	-			$	-			$	12,923			$	12,923

Foreclosed assets held for sale:

Level 1 inputs

Level 2 inputs

Level 3 inputs

Total fair value

March 31, 2016

$

-

$

-

$

-

$

-

December 31, 2015

$

-

$

-

$

-

$

-

There were no transfers between valuation levels for any asset during the three months ended March 31, 2016 or 2015. If valuation techniques are deemed necessary, the Company considers those transfers to occur at the end of the period when the assets are valued.

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurement (dollar amounts in thousands):

		Fair Value March 31, 2016			Valuation Techniques		Unobservable Input		Range (Weighted Average)

Impaired loans (collateral dependent)		$	4,554		Market Comparable		Discount to reflect realizable value		0%	-	38%	(6%)

Impaired loans		$	7,986		Discounted cash flow		Discount rate		0%	-	41%	(3%)

Foreclosed assets held for sale		$	-		Market Comparable		Discount to reflect realizable value			0%

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.

Cash and cash equivalents, interest-bearing deposits and Federal Home Loan Bank stock

The carrying amounts reported in the condensed consolidated balance sheets approximate those assets' fair value.

Held-to-maturity securities

Fair value is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans

The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank advances

The fair value of advances is estimated by using rates on debt with similar terms and remaining maturities.

Subordinated debentures

For these variable rate instruments, the carrying amount is a reasonable estimate of fair value. There is currently a limited market for similar debt instruments and the Company has the option to call the subordinated debentures at an amount close to its par value.

Interest payable

The carrying amount approximates fair value.

Commitments to originate loans, letters of credit and lines of credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

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

		March 31, 2016
		Carrying Amount				Fair Value				Hierarchy Level
Financial assets:
Cash and cash equivalents		$	17,621,871			$	17,621,871				1
Held-to-maturity securities			38,781				39,553				2
Federal Home Loan Bank stock			2,867,000				2,867,000				2
Mortgage loans held for sale			1,517,016				1,517,016				2
Loans, net			490,064,640				490,230,468				3
Interest receivable			1,769,927				1,769,927				2
Financial liabilities:
Deposits			519,063,768				506,125,859				2
Federal Home Loan Bank advances			52,100,000				53,440,089				2
Subordinated debentures			15,465,000				15,465,000				3
Interest payable			190,573				190,573				2
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit			-				-				-
Unused lines of credit			-				-				-

		December 31, 2015
		Carrying Amount				Fair Value				Hierarchy Level
Financial assets:
Cash and cash equivalents		$	18,774,419			$	18,774,419				1
Held-to-maturity securities			43,099				43,935				2
Federal Home Loan Bank stock			2,837,500				2,837,500				2
Mortgage loans held for sale			1,902,933				1,902,933				2
Loans, net			491,001,907				495,207,798				3
Interest receivable			1,986,692				1,986,692				2
Financial liabilities:
Deposits			517,385,695				511,225,380				2
Federal Home Loan Bank advances			52,100,000				53,227,960				2
Subordinated debentures			15,465,000				15,465,000				3
Interest payable			196,102				196,102				2
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit			-				-				-
Unused lines of credit			-				-				-

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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