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Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the orderly
transaction between market participants at the measurement date. Fair value measurement establishes a fair value hierarchy that
prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. These three levels
of fair value hierarchy are defined as follows:
• Level 1 - inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities
in active markets that are accessible at the measurement date.
• Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or quoted
prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument.
• Level 3 - inputs to the valuation methodology are unobservable, reflecting the entity’s own assumptions about
assumptions market participants would use in pricing the asset or liability.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. Fair value is a market based measure considered from the perspective of a market
participant who holds the assets or owes the liabilities rather than an entity specific measure. Therefore, even when market
assumptions are not readily available, our own assumptions are set to reflect those that market participants would use in pricing
the assets or liabilities at the measurement date. We use valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. We also evaluate various factors to determine whether certain transactions are orderly
and may make adjustments to transactions or quoted prices when the volume and level of activity for an asset or liability have
decreased significantly.
The above conditions could cause certain assets and liabilities to be reclassified from Level 1 to Level 2 or Level 3 or
reclassified from Level 2 to Level 3. The inputs or methodology used for valuing the assets or liabilities are not necessarily an
indication of the risk associated with the assets and liabilities.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from us, (2) the transferee obtains the right
(free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) when
we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity,
the ability to unilaterally cause the holder to return specific assets or through an agreement that permits the transferee to require
the transferor to repurchase the transferred financial assets that is so favorable to the transferee that it is probable that the transferee
will require the transferor to repurchase them. Transfers that do not meet the criteria to be accounted for as sales are accounted
for as secured borrowings.
The amendments toASC 860,
Transfers and Servicing
(“ASC 860”), eliminated the concept of a qualified special purpose
entity, changed the requirements for derecognizing financial assets, and required additional disclosures about transfers of financial
assets, including securitization transactions and continuing involvement with transferred financial assets.
Consolidation
In August of 2014, the FASB issued ASU No. 2014-13,
Measuring the Financial Assets and the Financial Liabilities of
a Consolidated Collateralized Financing Entity
which relates to how an entity accounts for the financial assets and the financial
liabilities of a consolidated collateralized financing entity at fair value. The ASU will allow an entity to elect to measure their
financial assets and financial liabilities using either the measurement alternative provided under this ASU, which allows for the
entity to measure both the financial assets and the financial liabilities of its collateralized financing entities in its consolidated
financial statements using the more observable fair value of either the financial assets or financial liabilities, or under ASC 820
FairValueMeasurements andDisclosure.
ThisASUbecomes effective for public entities in the fiscal year beginning afterDecember
15, 2015 and for non-public entities in the fiscal year beginning after December 15, 2016. Early adoption is permitted. The standard
permits the use of either the retrospective or cumulative effect transition method. Management is currently evaluating the impact
of the future adoption of this ASU on our consolidated financial statements.
