Disclosures About Fair Value Of Assets And Liabilities

3 Months Ended

Mar. 31, 2012

Disclosures About Fair Value Of Assets And Liabilities [Abstract]

Disclosures About Fair Value Of Assets And Liabilities

Note 11: 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 condensed consolidated balance sheet, 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 March 31, 2012 and December 31, 2011:

				Fair Value Measurements Using
				Quoted Prices
				in Active	Significant
				Markets for		Other
				Identical	Observable			Unobservable
				Assets		Inputs		Inputs
		Fair Value		(Level 1)	(Level 2)			(Level 3)
(In thousands)
March 31, 2012:
Assets:
Available-for-sale securities:
U.S. Government sponsored agencies	$	66,048	$	–	$	66,048	$	–
Equity and other securities		618		618		–		–
Mortgage loans held for sale		1,597		–		1,597		–
Commitments to originate loans		4		–		–		4
Forward sales commitments		45		–		–		45
Total assets	$	68,312	$	618	$	67,645	$	49
Liabilities:
Commitments to originate loans	$	2	$	–	$	–	$	2
Forward sales commitments		1		–		–		1
Total liabilities	$	3	$	–	$	–	$	3
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

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

		Commitments to			Forward Sales
		Originate Loans			Commitments
(In thousands)
Balance as of December 31, 2011	$	7		$	100
Total realized and unrealized gains (losses):
Included in net loss		(5	)		(56	)
Included in other comprehensive loss		–			–
Transfers in and/or out due to changes in significant inputs		–			–
Balance as of March 31, 2012	$	2		$	44
Balance as of December 31, 2010	$	(8	)	$	372
Total realized and unrealized gains (losses):
Included in net loss		8			(362	)
Included in other comprehensive loss		–			–
Transfers in and/or out due to changes in significant inputs		–			–
Balance as of March 31, 2011	$	–		$	10

Realized and unrealized gains and losses for items reflected in the table above are included in other income in the condensed statements of operations for the periods ended March 31, 2012 and 2011.

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

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. The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Collateral evaluations on collateral-dependent loans are monitored on an ongoing basis. The collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Company based on comparison to historical results and other factors.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated costs to sell when the real estate is acquired. Subsequent to foreclosure, valuations are periodically performed and the assets are recorded at the lower of carrying amount or estimated fair value less cost to sell. Estimated fair value of foreclosed assets held for sale is based on outside third party appraisals. Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.

Appraisals of foreclosed assets held for sale are obtained when the real estate is acquired and annually thereafter. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management.

The following table presents the fair value measurement at March 31, 2012 and December 31, 2011 of assets and liabilities measured at fair value on a non-recurring basis during the respective period:

				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)
March 31, 2012:
Impaired loans, net of reserves	$	16,684	$	–	$	–	$	16,684
Foreclosed assets held for sale, net		3,339		–		–		3,339
Total	$	20,023	$	–	$	–	$	20,023
December 31, 2011:
Impaired loans, net of reserves	$	21,139	$	–	$	–	$	21,139
Foreclosed assets held for sale, net		12,826		–		–		12,826
Total	$	33,965	$	–	$	–	$	33,965

					Range
			Valuation		(Weighted
		Fair Value	Technique	Unobservable Inputs	Average)
(In thousands)
March 31, 2012:
			Market comparable
Impaired Loans (Collateral Dependent)	$	16,684	properties	Marketability discount	10-50	%
Foreclosed assets held for sale, net		3,339	Outside Appraisals	Comparability adjustments	5-10	%

The following methods and assumptions were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed 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 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 is 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 and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2012 and December 31, 2011.

		March 31, 2012				December 31, 2011
		Carrying		Fair		Carrying		Fair
		Amount		Value		Amount		Value
(In thousands)
Financial assets:
Cash and cash equivalents (Level 1)	$	115,989	$	115,989	$	99,899	$	99,899
Loans, net of allowance for loan losses (Level 3)		427,094		429,650		425,654		428,698
Federal Home Loan Bank stock, Federal Reserve
Bank stock, and other securities (Level 3)		7,398		7,398		7,369		7,369
Interest receivable (Level 3)		1,899		1,899		1,573		1,573
Financial liabilities:
Deposits (Level 3)		507,404		509,458		490,413		492,688
Securities sold under agreement to repurchase
and other interest-bearing liabilities (Level 3)
		15,625		15,625		15,372		15,372
Long-term debt (Level 3)		100,603		94,433		100,434		94,411
Interest payable (Level 3)		3,351		3,351		3,228		3,228
Unrecognized financial instruments
(net of amortization):
Commitments to extend credit (Level 3)		–		–		–		–
Letters of credit (Level 3)		–		–		–		–
Lines of credit (Level 3)		–		–		–		–