v2.4.0.6
Fair Value
9 Months Ended
Mar. 31, 2012
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.

  

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

 

Securities available-for-sale: 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). The fair value of the Level 3 security is obtained from a third-party pricing service. 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 the individual security is reviewed and incorporated into the calculation.

 

Assets and liabilities measured at fair value on a recurring basis are summarized below, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

          Fair Value Measurements at 
March 31, 2012 Using
 
    Balance at 
March 31,
2012
    Level 1     Level 2     Level 3  
Securities available-for-sale:                                
U.S. government-sponsored entities and agencies   $ 9,639     $     $ 9,639     $  
Obligations of states and political subdivisions     34,207             34,207        
Mortgage-backed securities – residential     50,733             50,733        
Collateralized mortgage obligations     15,130             15,130        
Trust preferred security     64                   64  

 

          Fair Value Measurements at 
June 30, 2011 Using
 
    Balance at 
June 30, 2011
    Level 1     Level 2     Level 3  
Securities available-for-sale:                                
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  

 

There were no transfers between Level 1 and Level 2 during the nine months ended March 31, 2012 or the 2011 fiscal year.

  

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 nine months ended March 31, 2012 and 2011:

 

    2012     2011  
Beginning balance   $ 67     $ 422  
Realized losses included in non-interest income           (200 )
Change in fair value included in other comprehensive income     (3 )     (158 )
Ending balance, March 31   $ 64     $ 64  

 

The significant unobservable inputs used in the fair value measurement of the Corporation’s trust preferred security are probabilities of specific-issuer defaults and deferrals and specific-issuer recovery assumptions. Significant increases in specific-issuer default assumptions or decreases in specific-issuer recovery assumptions would result in a significantly lower fair value measurement. Conversely, decreases in specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a higher fair value measurement.

 

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets and financial liabilities measured at fair value on a non-recurring basis include the following:

 

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly 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.

 

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

  

          Fair Value Measurements at 
March 31, 2012 Using
 
    Balance at 
March 31, 2012
    Level 1     Level 2     Level 3  
Impaired loans:                                
Commercial   $ 12     $     $     $ 12  
Commercial real estate:                                
Other     646                   646  
1-4 Family                                
Owner occupied     40                   40  
Non-owner occupied     431                   431  

 

          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 $1,516, with a valuation allowance of $387 at March 31, 2012. 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 $20 and $303 being recorded for the nine month periods ended March 31, 2012 and 2011, respectively.

 

The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans included in the above tables primarily relate to adjustments made to the value set forth in the appraisal by deducting estimated holding costs, costs to sell and a distressed sale adjustment. During the reported periods, collateral discounts ranged from 20% to 40% in the case of real estate collateral to 50% in the case of equipment collateral.

  

Disclosure of the fair value of financial assets and financial liabilities is required for those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.

 

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. The methodologies for other financial assets and financial liabilities are discussed below:

 

Loans: 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. 

 

Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at March 31, 2012 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.

 

Federal Home Loan Bank advances: Fair value of Federal Home Loan Bank advances was estimated using current rates at March 31, 2012 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 Corporation’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the following table.

  

The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

    March 31, 2012     June 30, 2011  
   

Carrying
Amount
 

    Estimated
Fair
Value
   

Carrying
Amount
 

   

Estimated
Fair
Value
 

 
Financial Assets:                                
Level 2 inputs:                                
Cash and cash equivalents   $ 20,377     $ 20,377     $ 13,828     $ 13,828  
Certificates of deposits in other financial institutions     3,430       3,430       4,900       4,900  
Accrued interest receivable     1,085       1,085       980       980  
Level 3 inputs:                                
Loans, net     181,861       183,830       175,450       174,182  
Financial Liabilities:                                
Level 2 inputs:                                
Demand and savings deposits     195,755       195,755       159,302       159,302  
Time deposits     83,549       84,453       88,944       89,725  
Short-term borrowings     14,467       14,467       17,012       17,012  
Federal Home Loan Bank advances     6,477       7,218       7,535       7,884  
Accrued interest payable     67       67       82       82