Page 45 - Annual Report 2017

TEXAS GULF BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Statements
December 31, 2016 and 2015

NOTE Q FAIR VALUE DISCLOSURES (CONTINUED)

In general, fair value is based upon quoted market prices, where available. If such quoted
market prices are not available, fair value is based upon internally developed models that
primarily use observable market-based parameters as inputs. Valuation adjustments may be
made to ensure that assets or liabilities are recorded at fair value. These adjustments may
include amounts to reflect counterparty credit quality and creditworthiness, among other
things, as well as unobservable parameters. Any such valuation adjustments are applied
consistently over time.

The Company’s valuation methodologies may produce a fair value calculation that may not
be indicative of net realizable value or reflective of future fair values. While management
believes the Company’s valuation methodologies are appropriate and consistent with other
market participants, the use of different methodologies or assumptions to determine the fair
value of certain financial instruments could result in a different estimate of fair value at the
reporting date.

During the year ended December 31, 2016 and 2015, there were no transfers of financial
assets or liabilities within the fair value hierarchy.

Financial Instruments Recorded at Fair Value

Recurring - The following table summarizes financial assets measured at fair value on a
recurring basis as of December 31, 2016 and 2015 (in thousands):

Level 1 Level 2 Level 3
Inputs Inputs Inputs Total
2016
Securities available for sale $ - $ 158,347 $ - $ 158,347

2015
Securities available for sale $ - $ 172,852 $ - $ 172,852

Nonrecurring - Certain financial assets are measured at fair value on a nonrecurring basis;
that is, the instruments are not measured at fair value on an ongoing basis but are subject to
fair value adjustments in certain circumstances (for example, when there is evidence of
impairment). At December 31, 2016 and 2015, the Company held no financial instruments
measured at fair value on a nonrecurring basis with Level 1 or Level 2 valuation inputs. The
fair value of impaired loans disclosed in Note E and servicing assets disclosed in Note D were
measured on a nonrecurring basis using Level 3 inputs.

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