FAIR VALUE

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE

NOTE 4 – FAIR VALUE

ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

Fair Value Hierarchy

ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

¨      Level 1 – Quoted prices in active markets for identical securities

¨      Level 2 – Other significant observable inputs (including quoted prices in active markets for similar securities)

¨      Level 3 – Significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to ASC 820-10.

The Company’s bond holdings in the investment securities portfolio are the only asset or liability subject to fair value measurements on a recurring basis. At March 31, 2016, these assets include 26 loans classified as impaired, which include nonaccrual, past due 90 days or more and still accruing, and a homogeneous pool of indirect loans all considered to be impaired loans, which are valued under Level 3 inputs.

The changes in the assets subject to fair value measurements are summarized below by Level:

							Fair
	Level 1		Level 2		Level 3		Value
March 31, 2016
Recurring:
Securities available for sale
U.S. Treasury	$	-	$	2,996,331	$	-	$	2,996,331
State and Municipal		-		28,253,185		-		28,253,185
Mortgaged-backed		-		68,226,301		-		68,226,301
Non-recurring:
Maryland Financial Bank stock		-		-		30,000		30,000
Impaired loans		-		-		3,619,011		3,619,011
OREO				200,605		-		200,605
	$	-	$	99,676,422	$	3,649,011	$	103,325,433
December 31, 2015
Recurring:
Securities available for sale
U.S. Treasury	$	-	$	2,991,485	$	-	$	2,991,485
State and Municipal		-		29,996,099		-		29,996,099
Mortgaged-backed		-		65,802,426		-		65,802,426
Non-recurring:
Maryland Financial Bank stock		-		-		30,000		30,000
Impaired loans		-		-		4,023,092		4,023,092
OREO		-		74,400		-		74,400
	$	-	$	98,864,410	$	4,053,092	$	102,917,502

The estimated fair values of the Company’s financial instruments at March 31, 2016 and December 31, 2015 are summarized below. The fair values of a significant portion of these financial instruments are estimates derived using present value techniques and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

	March 31, 2016				December 31, 2015
(In Thousands)	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	6,124	$	6,124	$	7,493	$	7,493
Interest-bearing deposits		6,069		6,069		2,308		2,308
Federal funds sold		8,425		8,425		2,570		2,570
Investment securities		99,476		99,476		98,790		98,790
Investments in restricted stock		1,200		1,200		1,203		1,203
Ground rents		164		164		164		164
Loans, net		254,791		248,480		259,637		252,239
Cash Value of life insurance		9,411		9,411		9,358		9,358
Accrued interest receivable		1,120		1,120		1,121		1,121
Financial liabilities:
Deposits		339,055		316,354		335,191		307,924
Long-term borrowings		20,000		20,774		20,000		20,688
Dividends payable		-		-		-		-
Accrued interest payable		40		40		40		40

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments.

	Carrying		Fair
March 31, 2016	Amount		Value		Level 1		Level 2		Level 3
Financial instruments - Assets
Cash and cash equivalents	$	20,617,846	$	20,617,846	$	-	$	20,617,846	$	-
Loans receivable, net		254,791,379		248,480,000		-		-		248,480,000
Cash value of life insurance		9,411,064		9,411,064		-		9,411,064		-
Financial instruments - Liabilities
Deposits		339,054,807		316,354,000		201,923,000		114,431,000		-
Long-term debt		20,000,000		20,774,000		-		20,774,000		-

Fair values are based on quoted market prices for similar instruments or estimated using discounted cash flows. The discounts used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs and optionality of such instruments.

The fair value of cash and due from banks, federal funds sold, investments in restricted stocks and accrued interest receivable are equal to the carrying amounts. The fair values of investment securities are determined using market quotations. The fair value of loans receivable is estimated using discounted cash flow analysis.

The fair value of non-interest bearing deposits, interest-bearing checking, savings, and money market deposit accounts, securities sold under agreements to repurchase, and accrued interest payable are equal to the carrying amounts. The fair value of fixed-maturity time deposits is estimated using discounted cash flow analysis.

The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2016 are as follows:

Securities available for sale:	Less than 12 months				12 months or more				Total
(Dollars in Thousands)
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
Obligations of U.S. Govt Agencies	$	-	$	-	$	-	$	-	$	-	$	-
State and Municipal		2,593		24		1,254		11		3,847		35
Corporate Trust Preferred		-		-		-		-		-		-
Mortgage Backed		24,938		113		12,643		244		37,581		357
	$	27,531	$	137	$	13,897	$	255	$	41,428	$	392

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary-impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain it’s investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

As of March 31, 2016, management had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost. On March 31, 2016, the Bank held 22 investment securities having continuous unrealized loss positions for more than 12 months. Management has determined that all unrealized losses are either due to increases in market interest rates over the yields available at the time the underlying securities were purchased, current call features that are nearing, and the effect the sub-prime market has had on all mortgage-backed securities. The Bank has no mortgage-backed securities collateralized by sub-prime mortgages. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Except as noted above, as of March 31, 2016, management believes the impairments detailed in the table above are temporary and no impairment loss has been recognized in the Company’s consolidated income statement.

A rollforward of the cumulative other-than-temporary credit losses recognized in earnings for all debt securities for which a portion of an other-than-temporary loss is recognized in accumulated other comprehensive loss is as follows:

	At		At
	March 31,		December 31,
	2016		2015
	(Dollars in Thousands)
Estimated credit losses, beginning of year	$	-	$	3,262
Sales of securities with previous OTTI recognized				(3,262	)
Credit losses - no previous OTTI recognized		-		-
Credit losses - previous OTTI recognized		-		-
Estimated credit losses, end of period	$	-	$	-