v2.3.0.9
Fair Value
6 Months Ended
Dec. 31, 2011
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]

Note 4 - Fair Value

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2: Significant other 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.

 

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques.

 

The Corporation used the following methods and significant assumptions to estimate the fair value of items:

 

Securities: When available, the fair values of available-for-sale securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3 inputs). Discounted cash flows are calculated using spread to the swap and LIBOR curves. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

 

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

  

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs in determining fair value.

 

Assets and liabilities measured at fair value on a recurring basis are summarized below:

 

          Fair Value Measurements at 
December 31, 2011 Using
 
    Balance at
December 31,
2011
    Level 1     Level 2     Level 3  
Assets:                                
U.S. government-sponsored entities and agencies   $ 9,213     $     $ 9,213     $  
Obligations of states and political subdivisions     28,149             28,149        
Mortgage-backed securities – residential     49,334             49,334        
Collateralized mortgage obligations     20,113             20,113        
Trust preferred security     64                   64  

 

          Fair Value Measurements at 
June 30, 2011 Using
 
    Balance at 
June 30, 2011
    Level 1     Level 2     Level 3  
Assets:                                
U.S. government-sponsored entities and agencies   $ 16,260     $     $ 16,260     $  
Obligations of states and political subdivisions     25,098             25,098        
Mortgage-backed securities - residential     30,596             30,596        
Collateralized mortgage obligations     19,868             19,868        
Trust preferred security     67                   67  

 

The following table presents a reconciliation of the trust preferred security measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended December 31, 2011 and 2010:

 

    2011     2010  
Beginning balance   $ 67     $ 422  
Realized losses included in non-interest income           (50 )
Change in fair value included in other comprehensive income     (3 )     19  
Ending balance, December 31   $ 64     $ 391  

 

 Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

 

          Fair Value Measurements at 
December 31, 2011 Using
 
    Balance at
December 31,
2011
    Level 1     Level 2     Level 3  
Impaired loans:                                
Commercial   $ 14     $     $     $ 14  
Commercial real estate:                                
Other     640                   640  
1-4 Family                                
Owner occupied     204                   204  
Non-owner occupied     437                   437  

 

          Fair Value Measurements at 
June 30, 2011 Using
 
    Balance at
June 30, 2011
    Level 1     Level 2     Level 3  
Impaired loans:                                
Commercial   $ 51     $     $     $ 51  
Commercial real estate:                                
Other     871                   871  
1-4 Family                                
Owner occupied     317                   317  
Non-owner occupied     434                   434  

 

Impaired loans, which are generally measured for impairment using the fair value of the collateral for collateral dependant loans, had a principal balance of $1,717, with a valuation allowance of $422 at December 31, 2011. As of June 30, 2011, impaired loans with a principal balance of $2,105 had a valuation allowance of $432. The resulting impact to the provision for loan losses was $73 and $185 being recorded for the six month periods ended December 31, 2011 and 2010, respectively

  

Fair Value of Financial Instruments

 

The following table shows the estimated fair value at December 31, 2011 and June 30, 2011, and the related carrying value of financial instruments:

 

    December 31, 2011     June 30, 2011  
    Carrying
Amount
    Estimated
Fair
Value
    Carrying
Amount
    Estimated
Fair
Value
 
Financial Assets:                                
Cash and cash equivalents   $ 10,246     $ 10,246     $ 13,828     $ 13,828  
Certificates of deposits in other financial institutions     2,450       2,450       4,900       4,900  
Securities available-for-sale     106,873       106,873       91,889       91,889  
Loans, net     178,492       179,738       175,450       174,182  
Accrued interest receivable     1,022       1,022       980       980  
Financial Liabilities:                                
Demand and savings deposits     (180,925 )     (180,925 )     (159,302 )     (159,302 )
Time deposits     (82,312 )     (83,216 )     (88,944 )     (89,725 )
Short-term borrowings     (12,742 )     (12,742 )     (17,012 )     (17,012 )
Federal Home Loan Bank advances     (6,497 )     (7,240 )     (7,535 )     (7,884 )
Accrued interest payable     (72 )     (72 )     (82 )     (82 )

 

For purposes of the above disclosures of estimated fair value, the following assumptions were used. Estimated fair value for cash and cash equivalents, certificates of deposits in other financial institutions, accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate carrying value for instruments that reprice frequently and fully. Fair value for loans was estimated for portfolios of loans with similar financial characteristics. For adjustable rate loans that reprice at least annually and for fixed rate commercial loans with maturities of six months or less which possess normal risk characteristics, carrying value was determined to be fair value. Fair value of other types of loans (including adjustable rate loans which reprice less frequently than annually and fixed rate term loans or loans which possess higher risk characteristics) was estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar anticipated maturities. Fair value for impaired loans was based on recent appraisals of the collateral or, if appropriate, using estimated discounted cash flows. The Corporation has not considered market illiquidity in estimating the fair value of loans due to uncertain and inconsistent market pricing being experienced on December 31, 2011. 

 

Fair value of core deposits, including demand deposits, savings accounts and certain money market deposits, was the amount payable on demand. Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at December 31, 2011 and June 30, 2011, for deposits of similar remaining maturities. Estimated fair value does not include the benefit that result from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. Fair value of short-term borrowings and accrued interest was determined to be the carrying amounts since these financial instruments generally represent obligations that are due on demand. Fair value of Federal Home Loan Bank advances was estimated using current rates at December 31, 2011 and June 30, 2011 for similar financing.

 

Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability; and therefore, are not subject to the fair value disclosure requirements. The fair value of unrecorded commitments at December 31, 2011 and June 30, 2011 was not material.