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FAIR VALUE MEASUREMENTS
 12 Months Ended
Dec. 31, 2011
FAIR VALUE MEASUREMENTS
(21) FAIR VALUE MEASUREMENTS

FASB ASC Topic 820 , Fair Value Measurements, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are described as follows:

 

Level 1:    Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
Level 2:    Inputs to the valuation methodology include quoted market prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted market prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.
Level 3:    Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial and nonfinancial assets carried at fair value or the lower of cost or fair value. The table below presents the balances of assets measured at fair value on a recurring and nonrecurring basis as of December 31, 2011 and 2010. The Company had no liabilities measured at fair value as of December 31, 2011 and 2010.

 

     Carrying Value  
     Level 1      Level 2      Level 3      Total  
     (In thousands)  

December 31, 2011:

            

Assets Measured on a Recurring Basis

            

Securities available for sale:

            

Agency mortgage-backed securities

    $ 0       $ 12,220       $ 0       $ 12,220   

Agency CMO

      0         23,288         0         23,288   

Privately-issued CMO

      0         880         0         880   

Agency notes and bonds

      0         42,363         0         42,363   

Municipal obligations

      0         27,301         0         27,301   

Mutual funds

      5,388         0         0         5,388   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total securities available for sale

    $ 5,388       $ 106,052       $ 0       $ 111,440   
  

 

 

     

 

 

     

 

 

     

 

 

  

Assets Measured on a Nonrecurring Basis

            

Impaired loans

    $ 0       $ 0       $ 6,107       $ 6,107   

Loans held for sale

      0         2,909         0         2,909   

Foreclosed real estate

      0         0         661         661   

December 31, 2010:

            

Assets Measured on a Recurring Basis

            

Securities available for sale:

            

Agency mortgage-backed securities

    $ 0       $ 12,681       $ 0       $ 12,681   

Agency CMO

      0         11,968         0         11,968   

Privately-issued CMO

      0         1,652         0         1,652   

Agency notes and bonds

      0         42,380         0         42,380   

Municipal obligations

      0         29,456         0         29,456   

Mutual funds

      2,714         0         0         2,714   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total securities available for sale

    $ 2,714       $ 98,137       $ 0       $ 100,851   
  

 

 

     

 

 

     

 

 

     

 

 

  

Assets Measured on a Nonrecurring Basis

            

Impaired loans

    $ 0       $ 0       $ 5,435       $ 5,435   

Loans held for sale

      0         4,375         0         4,375   

Foreclosed real estate

      0         0         591         591   

Fair value is based upon quoted market prices, where available. If quoted market prices are not available, fair value is based on internally developed models or obtained from third parties that primarily use, as inputs, observable market-based parameters or a matrix pricing model that employs the Bond Market Association’s standard calculations for cash flow and price/yield analysis and observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, or the lower of cost or fair value. These adjustments may include unobservable parameters. Any such valuation adjustments have been 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.

Securities Available for Sale. Securities classified as available for sale are reported at fair value on a recurring basis. These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market. If quoted market prices are not available, the Company obtains fair value measurements from an independent pricing service. These securities are reported using Level 2 inputs and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors. Changes in fair value of securities available for sale are recorded in other comprehensive income, net of income tax effect.

Impaired Loans. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate or the fair value of collateral if the loan is collateral dependent. Impaired loans are evaluated and valued at the time the loan is identified as impaired at the lower of cost or market value. For collateral dependent impaired loans, market value is measured based on the value of the collateral securing these loans. Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and its fair value is generally determined based on real estate appraisals or other independent evaluations by qualified professionals. The appraisals are then discounted to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above. Fair value of impaired loans is classified as Level 3 in the fair value hierarchy.

Loans Held for Sale. Loans held for sale are carried at the lower of cost or market value. The portfolio comprised of residential real estate loans and fair value is based on specific prices of underlying contracts for sales to investors. These measurements are carried at Level 2.

Foreclosed Real Estate Held for Sale. Foreclosed real estate held for sale is reported at fair value less estimated costs to dispose of the property. The fair values are determined by real estate appraisals which are then discounted to reflect management’s estimate of the fair value of the property given current market conditions. Fair value of foreclosed real estate held for sale is classified as Level 3 in the fair value hierarchy.

There have been no changes in the valuation techniques and related inputs used for assets measured at fair value on a recurring and nonrecurring basis during the years ended December 31, 2011 and 2010. There were no transfers in or out of the Company’s Level 3 financial assets for the years ended December 31, 2011 and 2010. In addition, there were no transfers into or out of Levels 1 and 2 of the fair value hierarchy during the years ended December 31, 2011 and 2010.