XML 24 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
FAIR VALUE
 3 Months Ended
Mar. 31, 2012
FAIR VALUE

NOTE 4 – FAIR VALUE

 

ASC 820-10, formerly SFAS No. 157, defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

Fair Value Hierarchy

 

ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

 

¨          Level 1 – Quoted prices in active markets for identical securities

 

¨          Level 2 – Other significant observable inputs (including quoted prices in active markets for similar securities)

 

¨          Level 3 – Significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

 

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to ASC 820-10.

 

The Company’s bond holdings in the investment securities portfolio are the only asset or liability subject to fair value measurements on a recurring basis. No assets are valued under Level 1 inputs at March 31, 2012 or December 31, 2011. The Company has assets measured by fair value measurements on a non-recurring basis during 2012. At March 31, 2012, these assets include 23 loans classified as impaired, which include nonaccrual, past due 90 days or more and still accruing, or troubled debt restructuring, and a homogeneous pool of indirect loans all considered to be impaired loans, which are valued under Level 3 inputs and two properties classified as OREO valued under Level 2 inputs.

 

 

The changes in the assets subject to fair value measurements are summarized below by Level:

 

    (Dollars in Thousands)        
                      Fair  
December 31, 2011   Level 1     Level 2     Level 3     Value  
Recurring:                                
Investment securities available for sale (AFS)   $ -     $ 102,867     $ -     $ 102,867  
                                 
Non-recurring:                                
Maryland Financial Bank stock     -       30       -       30  
Impaired loans     -       -       8,309       8,309  
OREO     -       1,111       -       1,111  
      -       104,008       8,309       112,317  
                                 
Activity:                                
Investment securities AFS                                
Purchases of investment securities     -       8,855       -       8,855  
Sales, calls and maturities of investment securities     -       (7,596 )     -       (7,596 )
Amortization/accretion of premium/discount     -       (342 )     -       (342 )
Increase in market value     -       481       -       481  
                                 
Loans                                
New impaired loans     -       -       375       375  
Payments and other loan reductions     -       -       (540 )     (540 )
Change in total provision     -       -       196       196  
                                 
OREO                                
Sales of OREO     -       (182 )     -       (182 )
                                 
March 31, 2012                                
Recurring:                                
Investment securities AFS     -       104,265       -       104,265  
                                 
Non-recurring:                                
Maryland Financial Bank stock     -       30       -       30  
Impaired loans     -       -       8,340       8,340  
OREO     -       929       -       929  
    $ -     $ 105,224     $ 8,340     $ 113,564  

 

The estimated fair values of the Company’s financial instruments at March 31, 2012 and December 31, 2011 are summarized below. The fair values of a significant portion of these financial instruments are estimates derived using present value techniques and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

 

 

    March 31, 2012     December 31, 2011  
(In Thousands)   Carrying     Fair     Carrying     Fair  
    Amount     Value     Amount     Value  
Financial assets:                                
Cash and due from banks   $ 5,935     $ 5,935     $ 6,877     $ 6,877  
Interest-bearing deposits     4,564       4,564       2,423       2,423  
Federal funds sold     1,745       1,745       654       654  
Investment securities     104,265       104,265       102,867       102,867  
Investments in restricted stock     1,524       1,524       1,520       1,520  
Ground rents     175       175       175       175  
Loans, net     238,563       236,958       232,734       231,912  
Accrued interest receivable     1,382       1,382       1,542       1,542  
                                 
Financial liabilities:                                
Deposits     320,964       302,579       311,945       293,713  
Short-term borrowings     -       -       255       255  
Long-term borrowings     20,000       21,608       20,000       21,425  
Dividends payable     272       272       272       272  
Accrued interest payable     47       47       48       48  
                                 
Off-balance sheet commitments     26,002       26,002       22,736       22,736  

 

Fair values are based on quoted market prices for similar instruments or estimated using discounted cash flows. The discounts used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs and optionality of such instruments.

 

The fair value of cash and due from banks, federal funds sold, investments in restricted stocks and accrued interest receivable are equal to the carrying amounts. The fair values of investment securities are determined using market quotations. The fair value of loans receivable is estimated using discounted cash flow analysis.

 

The fair value of non-interest bearing deposits, interest-bearing checking, savings, and money market deposit accounts, securities sold under agreements to repurchase, and accrued interest payable are equal to the carrying amounts. The fair value of fixed-maturity time deposits is estimated using discounted cash flow analysis.

 

The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2012 are as follows:

 

Securities available for sale:   Less than 12 months     12 months or more     Total  
(Dollars in Thousands)                                    
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
    Value     Loss     Value     Loss     Value     Loss  
                                     
Obligations of U.S. Govt Agencies   $ 10     $ 5     $ -     $ -     $ 10     $ 5  
State and Municipal     3,851       85       274       26       4,125       111  
Corporate Trust Preferred     -       -       239       235       239       235  
Mortgage Backed     5,403       47       655       11       6,058       58  
    $ 9,264     $ 137     $ 1,168     $ 272     $ 10,432     $ 409  

 

At March 31, 2012, the company owned one pooled trust preferred security issued by Regional Diversified Funding, Senior Notes with a Fitch rating of C. The market for these securities at March 31, 2012 was not active and markets for similar securities were also not active. As a result, the Company had cash flow testing performed as of March 31, 2012 by an unrelated third party in order to measure the possible extent of other-than-temporary-impairment (“OTTI”). This testing assumed future defaults on the currently performing financial institutions of 150 basis points applied annually with a 0% recovery on both current and future defaulting financial institutions. As a result of this testing, no write-down was required in the first quarter of 2012. A write-down of $22,000 was taken on this security in the first quarter of 2011.

 

 

Maryland Financial Bank stock was written down $70,000 in the second quarter of 2011 due to a prospectus that offered stock at a discount from par.

 

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary-impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain it’s investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

As of March 31, 2012, management had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost. On March 31, 2012 the Bank held 4 investment securities having continuous unrealized loss positions for more than 12 months. Management has determined that all unrealized losses are either due to increases in market interest rates over the yields available at the time the underlying securities were purchased, current call features that are nearing, and the effect the sub-prime market has had on all mortgage-backed securities. The Bank has no mortgage-backed securities collateralized by sub-prime mortgages. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Except as noted above, as of March 31, 2012, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Company’s consolidated income statement.

 

A rollforward of the cumulative other-than-temporary credit losses recognized in earnings for all debt securities for which a portion of an other-than-temporary loss is recognized in accumulated other comprehensive loss is as follows:

 

    At     At  
    March 31,     December 31,  
    2012     2011  
    (Dollars in Thousands)  
             
Estimated credit losses, beginning of year   $ 3,247     $ 3,155  
Credit losses - no previous OTTI recognized     -       70  
Credit losses - previous OTTI recognized     -       22  
                 
Estimated credit losses, end of period   $ 3,247     $ 3,247