HVBC 2016 Annual Report

HV Bancorp, Inc. and Subsidiary Notes to the Consolidated Financial Statements Years Ended June 30, 2017 and 2016 87 Real Estate Owned (Cost or Fair Value) The fair value basis of real estate owned is generally determined based upon the lower of an independent appraisal of the property’s appraisal value or applicable listing price or contracted sales price. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurements. Accrued Interest Receivable and Accrued Interest Payable The carrying amount of accrued interest receivable and payable approximates their respective fair values. Deposits The fair value of demand deposits, savings accounts, and money market deposits is estimated by discounting expected cash flows, net of expected servicing costs, using the current rates and anticipated maturities of each deposit category. As these deposits do not have stated maturity dates, the average lives of these deposits are estimated when calculating the discounted cash flows. The fair value of certificates of deposit is estimated discounting the contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with comparable remaining maturities. Advances from the FHLB The fair value of advances is estimated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for borrowings with comparable terms, credit, and remaining maturities. Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase are carried at the amounts at which the securities will be d subsequently repurchased as specified in the agreements. The Company values the collateral on a daily basis an obtains additional collateral, if necessary, to protect the Company in the event of default by the counterparties. Commitments to Extend Credit The majority of the Company's commitments to extend credit carry current market interest rates if converted to loans. Because commitments to extend credit are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. 14. Commitments and Contingencies The Company is involved in various legal actions arising in the normal course of business. Management, after taking into consideration legal counsel's evaluation of such actions, is of the opinion that the outcome of these matters will not have a material adverse effect on the financial position, operating results, or equity of the Company. The Company is party to certain financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments are entered into in the normal course of business and include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. In the opinion of management, market risk (interest rate changes) associated with these instruments is nominal.