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FAIR VALUE OF INSTRUMENTS (Policies)
6 Months Ended
Jun. 30, 2014
Fair Value Disclosures [Abstract]  
Cash and Cash Equivalents

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash, cash equivalents and federal funds sold approximate their fair values. Also included in this line item are the carrying amounts of interest-bearing deposits maturing within ninety days which approximate their fair values. Fair values of other interest-bearing deposits are estimated using discounted cash flow analyses based on current rates for similar types of deposits.

Securities

Securities

Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted market price, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Other Securities

Other Securities

The carrying value of Federal Home Loan Bank stock, listed as “other securities”, approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Loans

Loans

For those variable-rate loans that re-price frequently, and with no significant change in credit risk, fair values are based on carrying values. The fair values of the fixed rate and all other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Deposits - Interest Bearing, Non-interest Bearing and Time

Deposits - Interest Bearing, Non-interest Bearing and Time

The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amount payable on demand. The carrying amounts for variable-rate, fixed term money market accounts and certificates of deposit approximate their fair value at the reporting date. Fair value for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings

Short-Term Borrowings

The carrying value of short-term borrowings approximates fair values.

FHLB Advances

FHLB Advances

Fair values of FHLB advances are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types or borrowing arrangements.

Accrued Interest Receivable and Payable

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate their fair values.

Dividends Payable

Dividends Payable

The carrying amounts of dividends payable approximate their fair values and are generally paid within forty days of declaration.

Off Balance Sheet Financial Instruments

Off Balance Sheet Financial Instruments

Fair values for off-balance sheet, credit related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter-parties’ credit standing.

The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of June 30, 2014 and December 31, 2013 are reflected below.

 

     (In Thousands)  
     June 2014  
     Carrying
Amount
     Fair
Value
     Level 1      Level 2      Level 3  

Financial Assets:

              

Cash and Cash Equivalents

   $ 19,098       $ 19,098       $ 19,098       $ —         $ —     

Securities - available for sale

     284,628         284,628         25,331         251,222         8,074   

Other Securities

     3,717         3,717         —           —           3,717   

Loans, net

     592,176         602,149         —           —           602,149   

Interest receivable

     3,659         3,659         —           —           359   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 903,278       $ 913,251       $ 44,429       $ 251,222       $ 614,299   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities:

              

Interest bearing Deposits

   $ 427,881       $ 429,276       $ —         $ —         $ 429,276   

Non-interest bearing Deposits

     115,371         115,371         —           115,371         —     

Time Deposits

     217,820         217,498         —           —           217,498   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Deposits

   $ 761,072       $ 762,145       $ —         $ 115,371       $ 646,774   

Short-term debt

     70,066         70,066         —           —           70,066   

Interest payable

     205         205         —           —           205   

Dividends payable

     963         963         —           963         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities

   $ 832,306       $ 833,379       $ —         $ 116,334       $ 717,045   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     (In Thousands)  
     December 2013  
     Carrying
Amount
     Fair Value      Level 1      Level 2      Level 3  

Financial Assets:

              

Cash and Cash Equivalents

   $ 19,263       $ 19,263       $ 19,263       $ —         $ —     

Securities - available for sale

     324,509         324,509         25,272         288,891         10,346   

Other Securities

     4,216         4,216         —           —           4,216   

Loans, net

     570,919         579,992         —           —           579,992   

Interest receivable

     3,694         3,694         —           —           3,694   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 922,601       $ 931,674       $ 44,535       $ 288,891       $ 598,248   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities:

              

Interest bearing Deposits

   $ 429,652       $ 429,750       $ —         $ —         $ 429,750   

Non-interest bearing Deposits

     110,452         110,452         —           110,452         —     

Time Deposits

     236,360         236,027         —           —           236,027   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Deposits

   $ 776,464       $ 776,229       $ —         $ 110,452       $ 665,777   

Short-term debt

     69,756         69,756         —           —           69,756   

Federal Home Loan Bank advances

     4,500         4,570         —           —           4,570   

Interest payable

     223         223         —           —           223   

Dividends payable

     967         967         —           967         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities

   $ 851,910       $ 851,745       $ —         $ 111,419       $ 740,326   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Fair Value Measurements

Fair Value Measurements

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access.

Available-for-sale securities, when quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the market place.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. The Bank holds some local municipals that the Bank evaluates based on the credit strength of the underlying project such as hospital or retirement housing. The fair value is determined by valuing similar credit payment streams at similar rates.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.

 

The following summarizes financial assets measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013, segregated by level or the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis (In Thousands)  
June 30, 2014    Quoted Prices in Active
Active Markets
for Identical
Assets (Level 1)
     Significant
Observable
Inputs
(Level 2)
     Significant
Observable
Inputs
(Level 3)
 

Assets-(Securities Available for Sale)

        

U.S. Treasury

   $ 25,331       $ —         $ —     

U.S. Government agency

        147,146         —     

Mortgage-backed securities

        33,182         —     

State and local governments

     —           70,895         8,074   
  

 

 

    

 

 

    

 

 

 

Total Securities Available for Sale

   $ 25,331       $ 251,223       $ 8,074   
  

 

 

    

 

 

    

 

 

 
December 31, 2013    Quoted Prices in Active
Active Markets
for Identical
Assets (Level 1)
     Significant
Observable
Inputs
(Level 2)
     Significant
Observable
Inputs
(Level 3)
 

Assets-(Securities Available for Sale)

        

U.S. Treasury

   $ 25,272       $ —         $ —     

U.S. Government agency

     —           172,972         —     

Mortgage-backed securities

     —           44,792         —     

State and local governments

     —           71,127         10,346   
  

 

 

    

 

 

    

 

 

 

Total Securities Available for Sale

   $ 25,272       $ 288,891       $ 10,346   
  

 

 

    

 

 

    

 

 

 

 

The following table represents the changes in the Level 3 fair-value category of which unobservable inputs are relied upon as of June 30, 2014 and June 30, 2013.

 

     (In Thousands)  
     Fair Value Measurements Using Significant  
     Unobservable Inputs (Level 3)  
     State and Local
Governments
Tax-Exempt
    State and Local
Governments
Taxable
    State and Local
Governments
Total
 

Balance at January 1, 2014

   $ 8,802      $ 1,544      $ 10,346   

Change in Market Value

     (1,093     (359     (1,452

Payments & Maturities

     (820     —          (820
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

   $ 6,889      $ 1,185      $ 8,074   
  

 

 

   

 

 

   

 

 

 
     (In Thousands)  
     Fair Value Measurements Using Significant  
     Unobservable Inputs (Level 3)  
     State and Local
Governments
Tax-Exempt
    State and Local
Governments
Taxable
    State and Local
Governments
Total
 

Balance at January 1, 2013

   $ 14,863      $ 1,545      $ 16,408   

Change in Market Value

     (116     1        (115

Purchases

     519        —          519   

Payments & Maturities

     (4,388     —          (4,388
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 10,878      $ 1,546      $ 12,424   
  

 

 

   

 

 

   

 

 

 

Most of the Company’s available for sale securities, including any bonds issued by local municipalities, have CUSIP numbers or have similar characteristics of those in the municipal markets, making them marketable and comparable as Level 2.

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At June 30, 2014 and December 31, 2013, such assets consist primarily of impaired loans. Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals.)

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:

 

    Fair Value at
June 30, 2014
   

Valuation Technique

 

Unobservable Inputs

  Range
(Weighted
Average)
 

State and political subdivision securities

  $ 8,074     

Discounted cash flow

 

Credit strength of underlying project or entity / Discount rate

    0-5

Impaired Loans

  $ 1,587     

Collateral based measurements

 

Discount to reflect current market conditions and ultimate collectability

    0-50

Other real estate owned - residential

  $ 734     

Appraisals

 

Discount to reflect current market

    0-20

Other real estate owned - commercial

  $ 807     

Appraisals

 

Discount to reflect current market

    0-20
    Fair Value at
December 31, 2013
   

Valuation Technique

 

Unobservable Inputs

  Range
(Weighted
Average)
 

State and political subdivision securities

  $ 10,346     

Discounted cash flow

 

Credit strength of underlying project or entity / Discount rate

    0-5

Impaired Loans

  $ 1,924     

Collateral based measurements

 

Discount to reflect current market conditions and ultimate collectability

    0-50

Other real estate owned - residential

  $ 964     

Appraisals

 

Discount to reflect current market

    0-20

Other real estate owned - commercial

  $ 1,127      Appraisals  

Discount to reflect current market

    0-20

At June 30, 2014 and December 31, 2013, impaired loans categorized as Level 3 were $1.8 and $1.9 million, respectively. The specific allocation for impaired loans was $202 and $516 thousand as of June 30, 2014 and December 31, 2013, respectively, which are accounted for in the allowance for loan losses (see Note 4).

Other real estate is reported at either the lower of the fair value of the real estate minus the estimated costs to sell the asset or the cost of the asset. The determination of fair value of the real estate relies primarily on appraisals from third parties. If the fair value of the real estate, minus the estimated costs to sell the asset, is less than the asset’s cost, the deficiency is recognized as a valuation allowance against the asset through a charge to expense. The valuation allowance is therefore increased or decreased, through charges or credits to expense, for changes in the asset’s fair value or estimated selling costs.

The following table presents impaired loans and other real estate owned as recorded at fair value on June 30, 2014 and December 31, 2013:

 

     Assets Measured at Fair Value on a Nonrecurring Basis at June 30, 2014  
            Quoted Prices
in Active
               
(In Thousands)    Balance at
June 30, 2014
     Markets for
Identical
Assets (Level 1)
     Significant
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Impaired loans

   $ 1,587       $ —         $ —         $ 1,587   

Other real estate owned residential mortgages

   $ 734       $ —         $ —         $ 734   

Other real estate owned commercial

   $ 807       $ —         $ —         $ 807   
     Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2013  
            Quoted Prices
in Active
               
(In Thousands)    Balance at
December 31, 2013
     Markets for
Identical
Assets (Level 1)
     Significant
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Impaired loans

   $ 1,924       $ —         $ —         $ 1,924   

Other real estate owned residential mortgages

   $ 964       $ —         $ —         $ 964   

Other real estate owned commercial

   $ 1,127       $ —         $ —         $ 1,127   

The Company also has other assets, which under certain conditions, are subject to measurement at fair value. These assets include loans held for sale, bank owned life insurance, and mortgage servicing rights. The Company estimated the fair values of these assets utilizing Level 3 inputs, including, the discounted present value of expected future cash flows. At June 30, 2014 and December 31, 2013, the Company estimates that there is no impairment of these assets.