v2.3.0.9
Fair Value
3 Months Ended
Sep. 30, 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, fare 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 
September 30, 2011 Using
 
   
Balance at 
September 30,
2011
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                       
U.S. government-sponsored entities and agencies
  $ 9,819     $     $ 9,819     $  
Obligations of states and political subdivisions
    26,209             26,209        
Mortgage-backed securities – residential
    42,722             42,722        
Collateralized mortgage obligations
    19,857             19,857        
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 three months ended September 30, 2011 and 2010:
 
   
2011
   
2010
 
Beginning balance
  $ 67     $ 422  
Realized losses included in non-interest income
           
Change in fair value included in other comprehensive income
    (3 )      19  
Ending balance, September 30
  $ 64     $ 441  
 
 
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
 
         
Fair Value Measurements at 
September 30, 2011 Using
 
   
Balance at 
September 30,
2011
   
Level 1
   
Level 2
   
Level 3
 
Impaired loans:
                       
Commercial
  $ 51     $     $     $ 51  
Commercial real estate:
                               
Other
    654                   654  
1-4 Family
                               
Owner occupied
    204                   204  
Non-owner occupied
    705                   705  
         
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 $1,980, with a valuation allowance of $366 at September 30, 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 no additional provision for loan losses being recorded for the three month period ended September 30, 2011 and $79 being recorded for the three month period ended September 30, 2010.
 
 
Fair Value of Financial Instruments
 
The following table shows the estimated fair value at September 30, 2011 and June 30, 2011, and the related carrying value of financial instruments:
 
   
September 30, 2011
   
June 30, 2011
 
   
Carrying
Amount
   
Estimated
Fair
Value
   
Carrying
Amount
   
Estimated
Fair
Value
 
Financial Assets:
                       
Cash and cash equivalents
  $ 21,864     $ 21,864     $ 13,828     $ 13,828  
Certificates of deposits in other financial institutions
    3,675       3,675       4,900       4,900  
Securities available-for-sale
    98,671       98,671       91,889       91,889  
Loans, net
    177,814       177,582       175,450       174,182  
Accrued interest receivable
    1,023       1,023       980       980  
Financial Liabilities:
                               
Demand and savings deposits
    (173,080 )     (173,080 )     (159,302 )     (159,302 )
Time deposits
    (89,274 )     (90,388 )     (88,944 )     (89,725 )
Short-term borrowings
    (17,636 )     (17,636 )     (17,012 )     (17,012 )
Federal Home Loan Bank advances
    (7,516 )     (7,855 )     (7,535 )     (7,884 )
Accrued interest payable
    (74 )     (74 )     (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 September 30, 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 September 30, 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 September 30, 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 September 30, 2011 and June 30, 2011 was not material.