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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2012
Fair Value Measurements |
7. | Fair Value Measurements
Financial Accounting Standards Board (FASB) Accounting Standards Codification (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 September 30, 2012 and December 31, 2011. The Company had no liabilities measured at fair value as of September 30, 2012 or December 31, 2011.
|  | Carrying Value |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (In thousands) |
September 30, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets Measured on a Recurring Basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency mortgage-backed securities |  | $ | 0 |  |  | $ | 22,551 |  |  | $ | 0 |  |  | $ | 22,551 |
Agency CMO |  |  | 0 |  |  |  | 24,357 |  |  |  | 0 |  |  |  | 24,357 |
Privately-issued CMO |  |  | 0 |  |  |  | 657 |  |  |  | 0 |  |  |  | 657 |
Agency notes and bonds |  |  | 0 |  |  |  | 42,448 |  |  |  | 0 |  |  |  | 42,448 |
Municipal obligations |  |  | 0 |  |  |  | 30,061 |  |  |  | 0 |  |  |  | 30,061 |
Mutual funds |  |  | 3,301 |  |  |  | 0 |  |  |  | 0 |  |  |  | 3,301 |
Total securities available for sale |  | $ | 3,301 |  |  | $ | 120,074 |  |  | $ | 0 |  |  | $ | 123,375 |
Assets Measured on a Nonrecurring Basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 0 |  |  | $ | 0 |  |  | $ | 6,341 |  |  | $ | 6,341 |
Loans held for sale |  |  | 0 |  |  |  | 2,306 |  |  |  | 0 |  |  |  | 2,306 |
Foreclosed real estate |  |  | 0 |  |  |  | 0 |  |  |  | 420 |  |  |  | 420 |
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 |
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 is comprised of residential real estate loans and fair value is based on specific prices of underlying contracts for sales to investors. These measurements are classified as Level 2. Foreclosed Real Estate. 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 were no transfers into or out of the Company’s Level 3 financial assets for the nine months ended September 30, 2012. In addition, there were no transfers into or out of Levels 1 and 2 of the fair value hierarchy during the nine months ended September 30, 2012. GAAP requires disclosure of the fair value of financial assets and financial liabilities, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The estimated fair values of the Company’s financial instruments are as follows:
|  | September 30, 2012 |  |  | December 31, 2011 |
|  | Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
|  | Amount |  |  | Value |  |  | Amount |  |  | Value |
|  |  |  |  | (In thousands) |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 22,695 |  |  | $ | 22,695 |  |  | $ | 18,923 |  |  | $ | 18,923 |
Securities available for sale |  |  | 123,375 |  |  |  | 123,375 |  |  |  | 111,440 |  |  |  | 111,440 |
Securities held to maturity |  |  | 14 |  |  |  | 14 |  |  |  | 16 |  |  |  | 16 |
Loans held for sale |  |  | 2,306 |  |  |  | 2,364 |  |  |  | 2,909 |  |  |  | 2,966 |
Loans, net |  |  | 280,967 |  |  |  | 285,564 |  |  |  | 276,047 |  |  |  | 287,624 |
Federal Home Loan Bank stock |  |  | 2,820 |  |  |  | 2,820 |  |  |  | 2,820 |  |  |  | 2,820 |
Accrued interest receivable |  |  | 1,782 |  |  |  | 1,782 |  |  |  | 1,801 |  |  |  | 1,801 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 384,067 |  |  |  | 385,147 |  |  |  | 364,374 |  |  |  | 367,359 |
Retail repurchase agreements |  |  | 9,112 |  |  |  | 9,112 |  |  |  | 9,125 |  |  |  | 9,125 |
Advances from Federal Home |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan Bank |  |  | 10,100 |  |  |  | 10,100 |  |  |  | 12,350 |  |  |  | 12,840 |
Accrued interest payable |  |  | 320 |  |  |  | 320 |  |  |  | 413 |  |  |  | 413 |
Off-balance-sheet financial instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Asset related to commitments to extend credit |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 48 |
The carrying amounts in the preceding table are included in the consolidated balances sheets under the applicable captions. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: Cash and Cash Equivalents For cash and cash equivalents, including cash and due from banks, interest-bearing deposits with banks, and federal funds sold, the carrying amount is a reasonable estimate of fair value. Debt and Equity Securities For marketable equity securities, the fair values are based on quoted market prices. For debt securities, the Company obtains fair value measurements from an independent pricing service 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. For Federal Home Loan Bank stock, a restricted equity security, the carrying amount is a reasonable estimate of fair value because it is not marketable. Loans The 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. The carrying amount of accrued interest receivable approximates its fair value. Deposits The fair value of demand deposits, savings accounts, money market deposit accounts and other transaction accounts is the amount payable on demand at the balance sheet date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value. Borrowed Funds The carrying amounts of retail repurchase agreements approximate their fair value. The fair value of advances from Federal Home Loan Bank is estimated by discounting the future cash flows using the current rates at which similar loans with the same remaining maturities could be obtained. Commitments to Extend Credit The majority of commitments to extend credit would result in loans with a market rate of interest if funded. The fair value of these commitments are the fees that would be charged to customers to enter into similar agreements. For fixed rate loan commitments, the fair value also considers the difference between current levels of interest rates and the committed rates.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -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 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -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 Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -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 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -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 Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -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 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -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 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -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 11: 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 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 + Details
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