Disclosures About Fair Value Of Assets And Liabilities

12 Months Ended

Dec. 31, 2011

Disclosures About Fair Value Of Assets And Liabilities [Abstract]

Disclosures About Fair Value Of Assets And Liabilities

NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Level 2	Quoted prices in active markets for identical assets or liabilities 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 for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the Company's consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. Government sponsored agencies. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include other less liquid securities.

Mortgage Loans Held for Sale

Mortgage loans held for sale are valued using market prices for loans with similar characteristics. This measurement is classified as Level 2 within the hierarchy.

Commitments to Originate Loans and Forward Sales Commitments

The fair value of commitments to originate loans and the fair value of forward sales commitments are estimated using a valuation model which considers differences between quoted prices for loans with similar characteristics in the secondary market and the committed rates. The valuation model includes assumptions which adjust the price for the likelihood that the commitment will ultimately result in a closed loan. These measurements are significant unobservable inputs and are classified as Level 3 within the hierarchy.

The following table presents the fair value measurements of assets and liabilities recognized in the Company's condensed consolidated balance sheet and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and 2010:

				Fair Value Measurements Using
						Significant
				Quoted Prices in		Other
				Active Markets		Observable		Unobservable
				for Identical		Inputs		Inputs
		Fair Value		Assets (Level 1)		(Level 2)		(Level 3)
(In thousands)
December 31, 2011:
Assets:
Available-for-sale securities:
U.S. Government sponsored agencies	$	61,171	$	–	$	61,171	$	–
Equity and other securities		619		619		–		–
Mortgage loans held for sale		5,686		–		5,686		–
Commitments to originate loans		8		–		–		8
Forward sales commitments		100		–		–		100
Total assets	$	67,584	$	619	$	66,857	$	108
Liabilities:
Commitments to originate loans	$	1	$	–	$	–	$	1
Forward sales commitments		–		–		–		–
Total liabilities	$	1	$	–	$	–	$	1
December 31, 2010:
Assets:
Available-for-sale securities:
U.S. Government sponsored agencies	$	63,039	$	–	$	63,039	$	–
Equity and other securities		601		601		–		–
Mortgage loans held for sale		8,162		–		8,162		–
Commitments to originate loans		1		–		–		1
Forward sales commitments		372		–		–		372
Total assets	$	72,175	$	601	$	71,201	$	373
Liabilities:
Commitments to originate loans	$	9	$	–	$	–	$	9
Forward sales commitments		–		–		–		–
Total liabilities	$	9	$	–	$	–	$	9

The following table is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the Company's consolidated balance sheet using significant unobservable (Level 3) inputs:

		Commitments to			Forward Sales
		Originate Loans			Commitments
(In thousands)
Balance as of December 31, 2010	$	(8	)	$	372
Total realized and unrealized gains (losses):
Included in net income (loss)		15			(272	)
Balance as of December 31, 2011	$	7		$	100
Balance as of December 31, 2009	$	(47	)	$	283
Total realized and unrealized gains (losses):
Included in net income (loss)		39			89
Balance as of December 31, 2010	$	(8	)	$	372

Realized and unrealized gains and losses for items reflected in the table above are included in other income in the consolidated statement of operations.

Following is a description of the valuation methodologies and inputs used for financial and nonfinancial instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Impaired Loans (Collateral Dependent)

Loans for which it is probable that the Company will not collect all principal and interest due according to the contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale are carried at the fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed and the assets are recorded at the lower of carrying amount or fair value less cost to sell.

The following table presents the fair value measurements at December 31, 2011 and 2010 of assets and liabilities measured at fair value on a non-recurring basis during the respective year:

				Fair Value Measurements Using
					Significant
				Quoted Prices in		Other
				Active Markets	Observable			Unobservable
				for Identical		Inputs		Inputs
		Fair Value		Assets (Level 1)		(Level 2)		(Level 3)
(In thousands)
December 31, 2011:
Impaired loans, net of reserves	$	21,139	$	–	$	–	$	21,139
Foreclosed assets held for sale, net		12,826		–		–		12,826
	$	33,965	$	–	$	–	$	33,965
December 31, 2010:
Impaired loans, net of reserves	$	26,106	$	–	$	–	$	26,106
Foreclosed assets held for sale, net		3,360		–		–		3,360
	$	29,466	$	–	$	–	$	29,466

The following methods and assumptions were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.

Cash and Cash Equivalents

For these short-term instruments, the carrying amount approximates fair value.

Loans

The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.

Federal Home Loan Bank Stock, Federal Reserve Bank Stock and other securities

The carrying amounts for these securities approximate their fair value.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount of these deposits approximates fair value. The fair value of fixed maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

Securities Sold Under Agreement to Repurchase and Other Interest-Bearing Liabilities

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Long-Term Debt

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. Fair value of long-term debt is based on quoted market prices or dealer prices for the identical liability when traded as an asset in an active market. If a quoted market price is not available, an expected present value technique is used to estimate fair value.

Commitments to Extend Credit, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

The following table presents estimated fair values of the Company's financial instruments not previously disclosed at December 31, 2011 and 2010.

			2011				2010
		Carrying		Fair		Carrying		Fair
(In thousands)		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	99,899	$	99,899	$	114,781	$	114,781
Loans, net of allowance for loan losses		425,654		428,698		477,723		478,926
Federal Home Loan Bank stock, Federal Reserve
Bank stock, and other securities		7,369		7,369		7,163		7,163
Interest receivable		1,573		1,573		1,783		1,783
Financial liabilities:
Deposits		490,413		492,688		541,218		543,832
Securities sold under agreement to repurchase
and other interest-bearing liabilities		15,372		15,372		18,748		18,748
Long-term debt		100,434		94,411		99,757		90,880
Interest payable		3,228		3,228		2,689		2,689
Unrecognized financial instruments
(net of amortization):
Commitments to extend credit		–		–		–		–
Letters of credit		–		–		–		–
Lines of credit		–		–		–		–