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Note 12: Fair Value Measurements | 3 Months Ended
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Sep. 30, 2012
Notes |
Note 12: Fair Value Measurements | Note 12: Fair Value Measurements 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 establishes 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 active 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 Recurring Measurements. The following table presents the fair value measurements of assets recognized in the accompanying 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 September 30 and June 30, 2012:
| Fair Value Measurements at September 30, 2012, Using:
|  | Quoted Prices | Significant |
|  | in Active | Other | Significant
|  | Markets for | Observable | Unobservable
|  | Identical Assets | Inputs | Inputs
| Fair Value | (Level 1) | (Level 2) | (Level 3)
U.S. government sponsored enterprises (GSEs) | $14,086,831 | $- | $14,086,831 | $-
State and political subdivisions | 38,881,064 | - | 38,881,064 | -
Other securities | 1,452,057 | - | 1,409,057 | 43,000
FHLMC preferred stock | - | - | - | -
Mortgage-backed GSE residential | 17,553,946 | - | 17,553,946 | -
| Fair Value Measurements at June 30, 2012, Using:
|  | Quoted Prices | Significant |
|  | in Active | Other | Significant
|  | Markets for | Observable | Unobservable
|  | Identical Assets | Inputs | Inputs
| Fair Value | (Level 1) | (Level 2) | (Level 3)
U.S. government sponsored enterprises (GSEs) | $18,099,618 | $- | $18,099,618 | $-
State and political subdivisions | 36,381,253 | - | 36,381,253 | -
Other securities | 1,393,257 | - | 1,360,657 | 32,600
FHLMC preferred stock | - | - | - | -
Mortgage-backed GSE residential | 19,252,717 | - | 19,252,717 | -
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarch. There have been no significant changes in the valuation techniques during the period ended September 30, 2012. Available-for-sale Securities. When quoted market prices are available in an active market, securities are classified within Level 1. The Company does not have Level 1 securities. If quoted market prices are not available, then fair values are estimated using pricing models, or quoted prices of securities with similar characteristics. For these securities, our Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Level 2 securities include U.S. Government-sponsored enterprises, state and political subdivisions, other securities and mortgage-backed GSE residential securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The following table presents a reconciliation of activity for available for sale securities measured at fair value based on significant unobservable (Level 3) information for the three-month periods ended September 30, 2012 and 2011:
| Three months ended
| September 30, 2012 | September 30, 2011
Available-for-sale securities, beginning of year | $32,600 | $71,004
Total unrealized gain (loss) included in comprehensive income | 10,400 | (42,004)
Transfer from Level 2 to Level 3 | - | -
Available-for-sale securities, end of period | $43,000 | $29,000
Nonrecurring Measurements. The following tables present the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fell at September 30 and June 30, 2012:
| Fair Value Measurements at September 30, 2012, Using:
|  | Quoted Prices in |  |
|  | Active Markets for | Significant Other | Significant
|  | Identical Assets | Observable Inputs | Unobservable Inputs
| Fair Value | (Level 1) | (Level 2) | (Level 3)
Impaired loans (collateral dependent) | $1,071,000 | $- | $- | $1,071,000
Foreclosed and repossessed assets held for sale | 1,138,000 | - | - | 1,138,000
| Fair Value Measurements at June 30, 2012, Using:
|  | Quoted Prices in |  |
|  | Active Markets for | Significant Other | Significant
|  | Identical Assets | Observable Inputs | Unobservable Inputs
| Fair Value | (Level 1) | (Level 2) | (Level 3)
Impaired loans (collateral dependent) | $1,214,000 | $- | $- | $1,214,000
Foreclosed and repossessed assets held for sale | 1,435,000 | - | - | 1,435,000
The following table presents gains and (losses) recognized on assets measured on a non-recurring basis for the three-month periods ended September 30, 2012 and 2011:
| For the three months ended
| September 30, 2012 | September 30, 2011
Impaired loans (collateral dependent) | $(171,000) | $146,000
Foreclosed and repossessed assets held for sale | (13,000) | (102,000)
Total gains (losses) on assets measured on a non-recurring basis | $(184,000) | $44,000
The following is a description of valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarch. For assets classified within Level 3 of fair value hierarchy, the process used to develop the reported fair value process is described below. Impaired Loans (Collateral Dependent). A collateral dependent loan is considered to be impaired when it is probable that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a collateral dependent loan is considered impaired, the amount of reserve required is measured based on the fair value of the underlying collateral. The Company makes such measurements on all material collateral dependent loans deemed impaired using the fair value of the collateral for collateral dependent loans. The fair value of collateral used by the Company is determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data includes information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. In addition, management applies selling and other discounts to the underlying collateral value to determine the fair value. If an appraised value is not available, the fair value of the collateral dependent impaired loan is determined by an adjusted appraised value including unobservable cash flows. On a quarterly basis, loans classified as special mention, substandard, doubtful, or loss are evaluated including the loan officer’s review of the collateral and its current condition, the Company’s knowledge of the current economic environment in the market where the collateral is located, and the Company’s recent experience with real estate in the area. The date of the appraisal is also considered in conjunction with the economic environment and any decline in the real estate market since the appraisal was obtained. For all loan types, updated appraisals are obtained if considered necessary. Of the Company’s $5.5 million (carrying value) in impaired loans (collateral-dependent and purchased credit-impaired) at September 30, 2012, the Company utilized a real estate appraisal performed in the past 12 months to serve as the primary basis of our valuation for approximately $2.5 million. Older real estate appraisals were available for impaired loans with an carrying value of approximately $2.1 million. The remaining $933,000 was secured by collateral such as closely-held stock, an assignment of notes receivable, accounts receivable, or inventory. In instances where the economic environment has worsened and/or the real estate market declined since the last appraisal, a higher distressed sale discount would be applied to the appraised value. The Company records collateral dependent impaired loans based on nonrecurring Level 3 inputs. If a collateral dependent loan’s fair value, as estimated by the Company, is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a specific reserve as part of the allowance for loan losses. Foreclosed and Repossessed A ssets H eld for Sal e. Foreclosed and repossessed assets held for sale are valued at the time the loan is foreclosed upon or collateral is repossessed and the asset is transferred to foreclosed or repossessed assets held for sale. The value of the asset is based on third party or internal appraisals, less estimated costs to sell and appropriate discounts, if any. The appraisals are generally discounted based on current and expected market conditions that may impact the sale or value of the asset and management’s knowledge and experience with similar assets. Such discounts typically may be significant and result in a Level 3 classification of the inputs for determining fair value of these assets. Foreclosed and repossessed assets held for sale are continually evaluated for additional impairment and are adjusted accordingly if impairment is identified. Unobservable (Level 3) Inputs. The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
|  |  |  |  | Range of | Weighted
|  | Fair value at | Valuation | Unobservable | Discounts | average
|  | September 30, 2012 | technique | inputs | applied | discount applied
Available-for-sale securities (pooled trust preferred security) |  | $43,000 | Discounted cash flow | Discount rate | n/a | 7.6%
|  |  |  | Prepayment rate | n/a | 1% annually (1)
|  |  |  | Projected defaults and deferrals (% of pool balance) | n/a | 40.9%
|  |  |  | Anticipated recoveries (% of pool balance) | n/a | 4.5%
Impaired loans (collateral dependent) |  | 1,071,000 | Internal or third-party appraisal | Discount to reflect realizable value | 19.9% - 100% | 40.3%
Foreclosed and repossessed assets |  | 1,138,000 | Third party appraisal | Marketability discount | 0.0% - 35.7% | 18.2%
(1) The Level 3 fair value measurement also assumes that issuers of asset size of $15 billion and above will generally prepay during 2013, unless issued at a variable rate with a spread of less than 150 basis points over LIBOR; other issuers are expected to prepay at a rate of 1% annually, unless issued at a fixed rate of 8% or more by a bank reasonably expected to be able to prepay, based on financial strength. Fair Value of Financial Instruments. The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fell at September 30 and June 30, 2012.
|  | September 30, 2012
|  |  | Quoted Prices |  |
|  |  | in Active |  | Significant
|  |  | Markets for | Significant Other | Unobservable
|  | Carrying | Identical Assets | Observable Inputs | Inputs
|  | Amount | (Level 1) | (Level 2) | (Level 3)
Financial assets |  |  |  |  |
Cash and cash equivalents |  | $9,006 | $9,006 | $- | $-
Interest-bearing time deposits |  | 2,154 | - | 2,154 | -
Stock in FHLB |  | 2,819 | - | 2,819 | -
Stock in Federal Reserve Bank of St. Louis |  | 1,001 | - | 1,001 | -
Loans receivable, net |  | 608,689 | - | - | 612,921
Accrued interest receivable |  | 4,432 | - | 4,432 | -
Financial liabilities |  |  |  |  |
Deposits |  | 571,884 | 346,308 | - | 226,135
Securities sold under agreements to repurchase |  | 22,941 | - | 22,941 | -
Advances from FHLB |  | 42,500 | - | 28,094 | -
Accrued interest payable |  | 545 | - | 545 | -
Subordinated debt |  | 7,217 | - | - | 5,404
Unrecognized financial instruments |  |  |  |  |
(net of contract amount) |  |  |  |  |
Commitments to originate loans |  | - | - | - | -
Letters of credit |  | - | - | - | -
Lines of credit |  | - | - | - | -
|  | June 30, 2012
|  |  | Quoted Prices |  |
|  |  | in Active |  | Significant
|  |  | Markets for | Significant Other | Unobservable
|  | Carrying | Identical Assets | Observable Inputs | Inputs
|  | Amount | (Level 1) | (Level 2) | (Level 3)
Financial assets |  |  |  |  |
Cash and cash equivalents |  | $33,421 | $33,421 | $- | $-
Interest-bearing time deposits |  | 1,273 | - | 1,273 | -
Stock in FHLB |  | 2,018 | - | 2,018 | -
Stock in Federal Reserve Bank of St. Louis |  | 1,001 | - | 1,001 | -
Loans receivable, net |  | 583,465 | - | - | 587,955
Accrued interest receivable |  | 3,694 | - | 3,694 | -
Financial liabilities |  |  |  |  |
Deposits |  | 584,814 | 353,212 |  | 232,583
Securities sold under agreements to repurchase |  | 25,642 | - | 25,642 | -
Advances from FHLB |  | 24,500 | - | 27,923 | -
Accrued interest payable |  | 627 | - | 627 | -
Subordinated debt |  | 7,217 | - | - | 5,103
Unrecognized financial instruments |  |  |  |  |
(net of contract amount) |  |  |  |  |
Commitments to originate loans |  | - | - | - | -
Letters of credit |  | - | - | - | -
Lines of credit |  | - | - | - | -
The following methods and assumptions were used in estimating the fair values of financial instruments: Cash and cash equivalents and interest-bearing time deposits are valued at their carrying amounts, which approximates book value. Stock in FHLB and the Federal Reserve Bank of St. Louis is valued at cost, which approximates fair value. Fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics are aggregated for purposes of the calculations. The carrying amounts of accrued interest approximate their fair values. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. Non-maturity deposits and securities sold under agreements are valued at their carrying value, which approximates fair value. Fair value of advances from the FHLB is estimated by discounting maturities using an estimate of the current market for similar instruments. The fair value of subordinated debt is estimated using rates currently available to the Company for debt with similar terms and maturities. 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 creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and 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 or otherwise settle the obligations with the counterparties at the reporting date.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19279-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19190-110258 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 33 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 10 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 6 -Footnote 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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