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Fair Value Measurements
 3 Months Ended
Mar. 31, 2013
Fair Value Measurements [Abstract]  
Fair Value Measurements

8.         Fair Value Measurements

 

            Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques.  These valuations are significantly affected by discount rates, cash flow assumptions and risk assumptions used.  Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

 

            Fair value is determined at one point in time and is not representative of future value.  These amounts do not reflect the total value of a going concern organization.  Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

 

            The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:

 

 

Securities:

 

            The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management's best estimate is used. Management's best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

 

Impaired loans (generally carried at fair value):

           

            The Company measures impairment generally based on the fair value of the loan's collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements.

 

Foreclosed real estate owned (carried at fair value):

           

            Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell.  Fair value is based upon independent market prices, appraised value of the collateral or management's estimation of the value of the collateral.  These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

 

 

 

 

 

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and December 31, 2012 are as follows:

 

 

Fair Value Measurement Using

Reporting Date

 

 

 

 

 

Description

 

 

 

 

 

Total

(Level 1)

(Level 2)

(Level 3)

                                                                                             (In thousands)

 

 

 

 

 

March 31, 2013

 

 

 

 

Available for Sale:

 

 

 

 

US Government agencies

 $17,295

$-

$17,295

$-

States and political subdivisions

58,327

-

58,327

-

Corporate obligations

8,830

-

8,830

-

Mortgage-backed securities-government

  sponsored agencies

 

63,833

 

-

 

63,833

 

-

Equity securities-financial services

313

313

    ­  ______-

     -

Total

$148,598

$313

$148,285         

   $-

 

 

 

 

 

December 31, 2012

 

 

 

 

Available for Sale:

 

 

 

 

US Government agencies

$  13,092

$     -

$   13,092

$             -

States and political subdivisions

58,786

-

58,786

-

Corporate obligations

8,868

-

8,868

-

Mortgage-backed securities-government

  sponsored agencies

64,325

 

-

64,325

 

-

Equity securities-financial services

319

319

_____-_

­_______-

Total

$145,390

$319

$145,071

$             - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and December 31, 2012 are as follows:

 

 

 

Fair Value Measurement Reporting Date using

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

 

 

Total

 

 

 

 (Level 1)

 

 

 

(Level 2)

 

 

 

(Level 3)

March 31, 2013

 

Impaired Loans

$11,084

$-

$-

$11,084

Foreclosed Real Estate Owned

1,099

-

-

1,099

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

Impaired Loans

$11,616

$ -

$ -

$11,616

Foreclosed Real Estate Owned

852

-

-

852

 

 

 

 

 

 

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which has utilized Level 3 inputs to determine fair value:

 

 

Quantitative Information about Level 3 Fair Value Measurements

 

(In thousands)

Fair Value

Estimate

Valuation Techniques

Unobservable

Input

Range (Weighted

Average)

March 31, 2013

 

 

 

 

 

Impaired loans

 

$11,084

Appraisal of

collateral

(1)

Appraisal

adjustments(2)

 

 

 

            0-30% (24.07%)

 

 

Foreclosed real estate owned

  $1,099

Appraisal of

collateral

(1)(3)

Liquidation

Expenses(2)

 

20%

 

 

 

Quantitative Information about Level 3 Fair Value Measurements

 

(In thousands)

Fair Value

Estimate

Valuation Techniques

Unobservable

Input

Range (Weighted

Average)

December 31, 2012

 

 

 

 

 

Impaired loans

 

$11,616

Appraisal of

collateral

(1)

Appraisal

adjustments(2)

 

 

 

            0-30% (24.10%)

 

 

Foreclosed real estate owned

  $   852

Appraisal of

collateral

(1)(3)

Liquidation

Expenses(2)

 

20%

 

1) Fair value is generally determined through independent appraisals of the underlying collateral, which

      generally include various level 3 inputs which are not identifiable, less any associated allowance.

(

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and

       estimated liquidation expenses.  The range and weighted average of liquidation expenses and other

       appraisal adjustments are presented as a percent of the appraisal.

(3) Includes qualitative adjustments by management and estimated liquidation expenses.

 

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company's disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company's financial instruments at March 31, 2013 and December 31, 2012.

 

Cash and cash equivalents (carried at cost):

 

            The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets' fair values.

 

Loans receivable (carried at cost):

 

            The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

 

Mortgage servicing rights (generally carried at cost)

 

            The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.

 

Restricted Investment in Federal Home Loan Bank stock (carried at cost):

 

            The Company as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula.  This restricted stock has no quoted market value and is carried at cost.

 

Bank Owned Life Insurance (carried at cost):

           

            The fair value is equal to the cash surrender value of the Bank-owned life insurance.

 

Accrued interest receivable and payable (carried at cost):    

 

            The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

 

Deposit liabilities (carried at cost):

 

            The fair values disclosed for demand deposits (e.g. interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

 

Short-term borrowings (carried at cost):

 

            The carrying amounts of short-term borrowings approximate their fair values.

 

Other borrowings (carried at cost):

 

            Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity.  These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

 

Off-balance sheet financial instruments (disclosed at cost):

 

            Fair values for the Company's off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties' credit standing.

 

The estimated fair values of the Bank's financial instruments were as follows at March 31, 2013 and December 31, 2012. (In thousands)

 

Fair Value Measurements at March 31, 2013

 

 

 

 

 

Carrying Amount

 

 

 

 

Fair Value

Quoted Prices in Active Markets for Identical Assets

(Level 1)

Significant Other Observable Inputs

(Level 2)

 

Significant Unobservable Inputs

(Level 3)

Financial assets:

 

 

 

 

 

Cash and cash equivalents

$15,945

$15,945

$15,945

$-

$-

Securities

148,771

148,773

313

148,460

-

Loans receivable, net

472,937

486,608

-

-

486,608

Mortgage servicing rights

234

234

234

-

-

Regulatory Stock

2,533

2,533

2,533

-

-

Bank owned life insurance

14,402

14,402

14,402

-

-

Accrued interest receivable

2,456

2,456

2,456

-

-

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

Deposits

535,632

537,201

324,564

-

212,637

Short-term borrowings

21,859

21,859

21,859

-

-

Other borrowings

25,343

28,068

-

-

28,068

Accrued interest payable

1,082

1,082

1,082

-

-

 

 

 

 

 

 

Off-balance sheet financial instruments:

 Commitments to extend credit and outstanding letters of credit

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2012

 

 

 

 

 

 

 

Carrying Amount

 

 

 

 

 

 

Fair Value

Quoted Prices in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

 

Significant Unobservable Inputs

(Level 3)

Financial assets:

 

 

 

 

 

Cash and cash equivalents

$12,295

$12,295

$12,295

$-

$-

Securities

145,563

145,567

319

145,248

-

Loans receivable, net

471,208

485,848

-

-

485,848

Mortgage servicing rights

243

243

-

243

-

Regulatory stock

2,630

2,630

2,630

-

-

Bank owned life insurance

15,357

15,357

15,357

-

-

Accrued interest receivable

2,393

2,393

2,393

-

-

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

Deposits

524,425

526,081

313,166

-

212,915

Short-term borrowings

28,697

28,697

28,697

-

-

Other borrowings

22,487

25,426

-

-

25,426

Accrued interest payable

1,242

1,242

1,242

-

-

 

 

 

 

 

 

Off-balance sheet financial instruments:

 Commitments to extend credit

and outstanding letters of  credit

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-