v2.4.0.6
FAIR VALUE
12 Months Ended
Jun. 30, 2013
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
NOTE 12—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 calculated using spread to the swap and LIBOR curves. During times when trading is more liquid, broker quotes are used (if available) to validate the model. 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:
 
 
 
Balance at
 
Fair Value Measurements at
June 30, 2013 Using
 
 
 
June 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of government-sponsored entities
 
$
4,658
 
$
 
$
4,658
 
$
 
Obligations of states and political subdivisions
 
 
39,812
 
 
 
 
39,812
 
 
 
Mortgage-backed securities - residential
 
 
46,889
 
 
 
 
46,889
 
 
 
Collateralized mortgage obligations
 
 
5,708
 
 
 
 
5,708
 
 
 
Trust preferred security
 
 
162
 
 
 
 
 
 
162
 
 
 
 
Balance at
 
Fair Value Measurements at
June 30, 2012 Using
 
 
 
June 30, 2012
 
Level 1
 
Level 2
 
Level 3
 
Securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of government sponsored entities
 
$
8,567
 
$
 
$
8,567
 
$
 
Obligations of states and political subdivisions
 
 
35,276
 
 
 
 
35,276
 
 
 
Mortgage-backed securities - residential
 
 
49,331
 
 
 
 
49,331
 
 
 
Collateralized mortgage obligations
 
 
12,097
 
 
 
 
12,097
 
 
 
Trust preferred security
 
 
64
 
 
 
 
 
 
64
 
 
There were no transfers between Level 1 and Level 2 during the 2013 or the 2012 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 years ended June 30, 2013 and 2012:
 
 
 
 
Trust Preferred Security
 
 
 
2013
 
2012
 
Beginning balance
 
$
64
 
$
67
 
Realized losses included in other income
 
 
 
 
 
Change in fair value included in other comprehensive income
 
 
98
 
 
(3)
 
Ending balance, June 30
 
$
162
 
$
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 or are charged down to their fair value. 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.
 
Financial assets and financial liabilities measured at fair value on a non-recurring basis are summarized below:
 
 
 
Balance at
 
Fair Value Measurements at
June 30, 2013 Using
 
 
 
June 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Impaired loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
43
 
$
 
$
 
$
43
 
1-4 Family:
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
 
101
 
 
 
 
 
 
101
 
Non-owner occupied
 
 
475
 
 
 
 
 
 
475
 
 
 
 
Balance at
 
Fair Value Measurements at
June 30, 2012 Using
 
 
 
June 30, 2012
 
Level 1
 
Level 2
 
Level 3
 
Impaired loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
11
 
$
 
$
 
$
11
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
647
 
 
 
 
 
 
647
 
1-4 Family:
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
 
40
 
 
 
 
 
 
40
 
Non-owner occupied
 
 
438
 
 
 
 
 
 
438
 
 
Impaired loans, which are generally measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $839, with a valuation allowance of $220 at June 30, 2013. The resulting impact to the provision for loan losses was a reduction of $48 being recorded for the year ended June 30, 2013. As of June 30, 2012, impaired loans with a principal balance of $1,479 had a valuation allowance of $343. The resulting impact to the provision for loan losses was a reduction of $24 being recorded for the year ended June 30, 2012.
 
The valuation technique used by an independent third party appraiser in the fair value measurement of collateral for collateral-dependent commercial real estate impaired loans primarily consisted of the sales comparison approach. The valuation technique used by an independent third party appraiser in the fair value measurement of collateral for collateral-dependent 1-4 family non-owner occupied impaired loans primarily consisted of the sales comparison and income approach. The significant unobservable inputs used in the fair value measurement 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 2013 fiscal year, collateral discounts for 1-4 family non-owner occupied impaired loans ranged from 0% to 20%. During the 2012 fiscal year, collateral discounts for commercial real estate impaired loans ranged from 33% to 41% and for 1-4 family non-owner occupied impaired loans ranged from 15% to 39%.
 
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 held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.
 
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 resulting in a Level 3 classification. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
 
Securities held-to-maturity: The held-to-maturity security is a revenue bond made to a local municipality. The fair value of this security is calculated using a spread to the Bloomberg municipal fair market health care curve resulting in a Level 3 classification.
 
Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at June 30, 2013 and 2012, 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 resulting in a Level 2 classification.
 
Federal Home Loan Bank advances: Fair value of Federal Home Loan Bank advances was estimated using current rates at June 30, 2013 and 2012 for similar financing resulting in a Level 2 classification.
 
Federal bank and other restricted stocks: 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:
 
 
 
2013
 
2012
 
 
 
Carrying
Amount
 
Estimated
Fair
Value
 
Carrying
Amount
 
Estimated
Fair
Value
 
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1 inputs:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
9,356
 
$
9,356
 
$
13,745
 
$
13,745
 
Level 2 inputs:
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposits in other financial institutions
 
 
4,175
 
 
4,175
 
 
5,645
 
 
5,645
 
Loans held for sale
 
 
93
 
 
97
 
 
377
 
 
387
 
Accrued interest receivable
 
 
1,044
 
 
1,044
 
 
1,043
 
 
1,043
 
Level 3 inputs:
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities held-to-maturity
 
 
3,000
 
 
2,926
 
 
 
 
 
Loans, net
 
 
214,544
 
 
212,555
 
 
195,095
 
 
196,592
 
Financial Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 2 inputs:
 
 
 
 
 
 
 
 
 
 
 
 
 
Demand and savings deposits
 
 
214,898
 
 
214,898
 
 
200,011
 
 
200,011
 
Time deposits
 
 
79,209
 
 
79,575
 
 
84,470
 
 
85,262
 
Short-term borrowings
 
 
12,490
 
 
12,490
 
 
13,722
 
 
13,722
 
Federal Home Loan Bank advances
 
 
6,366
 
 
7,049
 
 
6,446
 
 
7,398
 
Accrued interest payable
 
 
48
 
 
48
 
 
56
 
 
56