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Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
Note 8: Fair Value of Financial Instruments

 

Accounting Standards Codification 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 specifies 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 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

 

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 hierarchy.

 

Securities

 

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

 

Level 2 securities include U.S. government-sponsored enterprises, mortgage and asset-backed securities and obligations of state, municipals and certain corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities.

 

In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain other securities. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities and volatility. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation.

 

The following tables present the fair value measurements of securities available for sale recognized in the accompanying condensed consolidated 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 March 31, 2013 and December 31, 2012:

 

          March 31, 2013  
          Fair Value Measurements Using  
    Fair
Value		     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  
U.S. government-sponsored enterprises   $ 50,385     $ —     $ 50,385     $ —  
Municipals     39,856       —       39,856       —  
Mortgage-backed and asset-backed securities - government-sponsored enterprises     49,398       —       49,398       —  
Mortgage-backed and asset-backed securities - private labeled     2,199       —       2,199       —  
Other securities     22,437       1,542       19,727       1,168  
    $ 164,275     $ 1,542     $ 161,565     $ 1,168  

 

          December 31, 2012  
          Fair Value Measurements Using  
    Fair
Value		     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  
U.S. government-sponsored enterprises   $ 19,618     $ —     $ 19,618     $ —  
Municipals     42,540       —       42,540       —  
Mortgage-backed and asset-backed securities - government-sponsored enterprises     77,489       —       77,489       —  
Mortgage-backed and asset-backed securities - private labeled     2,453       —       2,453       —  
Other securities     14,593       1,553       12,200       840  
    $ 156,693     $ 1,553     $ 154,300     $ 840  

 

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying condensed consolidated balance sheets using significant unobservable (Level 3) inputs:

 

    Securities
Available for Sale		  
       
Balance, January 1, 2012   $ 470  
Total realized and unrealized gains and losses        
Included in net income     —  
Included in other comprehensive loss     55  
         
Balance, March 31, 2012   $ 525  
         
Balance, January 1, 2013   $ 840  
Total realized and unrealized gains and losses        
Included in net income     —  
Included in other comprehensive loss     328  
         
Balance, March 31, 2013   $ 1,168  

 

Following is a description of the 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 pursuant to the valuation hierarchy.

 

Impaired Loans (Collateral Dependent)

 

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

 

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

 

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

 

The following tables present the fair value measurements of impaired loans recognized in the accompanying condensed consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fell at March 31, 2013 and December 31, 2012:

 

          March 31, 2013  
          Fair Value Measurements Using  
    Fair
Value		     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  
Impaired loans   $ 89     $ —     $ —     $ 89  

 

 
         December 31, 2012  
          Fair Value Measurements Using  
    Fair
Value		     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  
Impaired loans   $ 1,481     $ —     $ —     $ 1,481  

 

Unobservable (Level 3) Inputs

 

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill.

 

    Fair Value at
March 31, 2013		     Valuation
Technique		   Unobservable
Inputs		   Range
Other securities   $ 1,168     Discounted cash flow   Discount margin   6.5% - 14%
                Cumulative default %   2.7% - 100%
                Loss given default %   85% - 100%
                Cumulative prepayment %   0% - 100%
                     
Collateral dependent impaired loans   $ 89     Market comparable properties   Marketability discount   35%

 

    Fair Value at
December 31, 2012		     Valuation
Technique		   Unobservable
Inputs		   Range
Other securities   $ 840     Discounted cash flow   Discount margin   7% - 14.25%
                Cumulative default %   2.2% - 100%
                Loss given default %   85% – 100%
                Cumulative prepayment %   0% - 100%
                     
Collateral dependent impaired loans   $ 1,481     Market comparable properties   Marketability discount   12%

 

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value:

 

Cash and Cash Equivalents

 

For these instruments, the carrying amount is a reasonable estimate of fair value.

 

Loans Held For Sale

 

The fair value of these financial instruments approximates carrying value.

 

Loans Receivable

 

The fair value of loans receivable is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities.

 

Accrued Interest Receivable

 

The fair value of these financial instruments approximates carrying value.

 

Federal Home Loan Bank Stock

 

The carrying amount approximates fair value.

 

Deposits

 

The fair value of noninterest-bearing demand deposits and savings and NOW accounts is the amount payable as of the reporting date. The fair value of fixed maturity certificates of deposit is estimated using rates currently offered for deposits of similar remaining maturities.

 

FHLB Advances

 

The fair value of fixed rate advances is estimated using rates currently offered for similar remaining maturities.

 

Accrued Interest Payable

 

The fair value of these financial instruments approximates carrying value.

 

Commitments

 

The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements with similar maturities and interest rates. The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at March 31, 2013 and December 31, 2012.

 

The following schedule includes the carrying value and estimated fair value of all financial assets and liabilities at March 31, 2013 and December 31, 2012:

 

    March 31, 2013  
    Fair Value Measurements Using  
    Carrying
Amount		     Quoted Prices
In Active
Market for
Identical
Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  
Cash and cash equivalents   $ 34,406     $ 34,406     $ —     $ —  
Interest bearing time deposits     1,500       1,500       —       —  
Loans held for sale     61,596       —       61,596       —  
Loans receivable - net     352,616       —       —       353,563  
Accrued interest receivable     2,137       2,137       —       —  
FHLB stock     2,943       2,943       —       —  
Deposits     546,667       315,007       —       237,656  
FHLB advances     25,713       —       27,860       —  
Accrued interest payable     91       91       —       —  

 

    December 31, 2012  
    Fair Value Measurements Using  
    Carrying
Amount		     Quoted Prices
In Active
Market for
Identical
Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  
Cash and cash equivalents   $ 32,513     $ 32,513     $ —     $ —  
Loans held for sale     63,234       —       63,234       —  
Loans receivable - net     352,328       —       —       351,194  
Accrued interest receivable     2,196       2,196       —       —  
FHLB stock     2,943       2,943       —       —  
Deposits     530,691       300,818       —       236,375  
FHLB advances     40,686       —       42,986       —  
Accrued interest payable     120       120       —       —