Disclosures about Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2014

Disclosures about Fair Value of Assets and Liabilities

9. Disclosures about Fair Value of Assets and Liabilities

The estimated fair values of the Company’s financial instruments are as follows:

	March 31, 2014				December 31, 2013
	Carrying		Fair		Carrying		Fair
	value		value		value		value
	(In thousands)
Financial assets
Cash and cash equivalents	$	39,816	$	39,816	$	22,112	$	22,112
Investment securities		140,702		140,702		153,942		153,942
Mortgage-backed securities		12,125		12,246		12,477		12,591
Loans receivable – net and loans held for sale		332,213		355,074		336,134		362,066
Accrued interest receivable		1,649		1,649		1,971		1,971
Federal Home Loan Bank stock		8,651		8,651		8,651		8,651

	$	535,156	$	558,138	$	535,287	$	561,333

Financial liabilities
Deposits	$	466,635	$	465,776	$	469,387	$	468,417
Advances from the Federal Home Loan Bank		17,801		18,032		19,261		20,207
Accrued interest payable		67		67		71		71
Advances by borrowers for taxes and insurance		1,551		1,551		2,357		2,357

	$	486,054	$	485,426	$	491,076	$	491,052

Fair value is defined 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. A three-level hierarchy exists for fair value measurements based upon the inputs to the valuation of an asset or liability.

Level 1

Quoted prices in active markets for identical assets or liabilities.

Level 2

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.

Fair value methods and assumptions are set forth below for each type of financial instrument.

Securities available for sale: Fair value on available for sale securities was based upon a market approach. Securities which are fixed income instruments that are not quoted on an exchange, but are traded in active markets, are valued using prices obtained from our custodian, which used third party data service providers and classified as level 2 assets. Management compares the fair values to another third party report for reasonableness. Available for sale securities includes U.S. agency securities, municipal bonds and mortgage-backed agency securities.

			Quoted prices
			in active		Significant		Significant
			markets for		other		other
			identical		observable		unobservable
			assets		inputs		inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(In thousands)

Securities available for sale at March 31, 2014:
U.S. Government agency securities	$	136,551		-	$	136,551		-
Municipal obligations		3,076		-		3,076		-
Corporate Securities		1,075		-		1,075		-
Mortgage-backed securities		9,130		-		9,130		-


Securities available for sale at December 31, 2013:
U.S. Government agency securities	$	148,349		-	$	148,349		-
Municipal obligations		3,015		-		3,015		-
Corporate Securities		2,578		-		2,578		-
Mortgage-backed securities		9,361		-		9,361		-

The Corporation is predominately an asset-based lender with real estate serving as collateral on a substantial majority of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals based on comparable sales, which the Corporation considers to be Level 2 inputs. The aggregate carrying amount of impaired loans, including loans acquired from Franklin Savings with a fair value discount, at March 31, 2014 and December 31, 2013 were approximately $14.9 million and $16.5 million, respectively.

The Corporation has real estate acquired through foreclosure totaling $3.0 million and $3.3 million at March 31, 2014 and December 31, 2013, respectively. Real estate acquired through foreclosure is carried at the lower of the cost or fair value less estimated selling expenses at the date of acquisition. Fair values are obtained using independent appraisals, based on comparable sales which the Corporation considers to be Level 2 inputs. The aggregate amount of real estate acquired through foreclosure that is carried at fair value was approximately $3.0 and $3.3 million at March 31, 2014 and December 31, 2013, respectively.

The following table presents fair value measurements for the Company’s financial instruments which are not recognized at fair value in the accompanying statements of financial position on a recurring or nonrecurring basis.


	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant other unobservable inputs (Level 3)
March 31, 2014:
Financial assets:
Cash and cash equivalents	$	39,816	$	39,816	$	-	$	-
Mortgage-backed securities		3,116		-		3,116		-
Loans receivable - net		355,074		-		355,074		-
Federal Home Loan Bank stock		8,651		-		8,651		-
Accrued interest receivable		1,649		-		1,649		-
Financial liabilities:
Deposits		465,776		-		465,776		-
Advances from the Federal Home Loan Bank		18,032		-		18,032		-
Advances by borrowers for taxes and insurance		1,551		-		1,551		-
Accrued interest payable		67		-		67		-

December 31, 2013:
Financial assets:
Cash and cash equivalents	$	22,112	$	22,112	$	-	$	-
Mortgage-backed securities		3,230		-		3,230		-
Loans receivable - net		362,066		-		362,066		-
Federal Home Loan Bank stock		8,651		-		8,651		-
Accrued interest receivable		1,971		-		1,971		-
Financial liabilities:
Deposits		468,417		-		468,417		-
Advances from the Federal Home Loan Bank		20,207		-		20,207		-
Advances by borrowers for taxes and insurance		2,357		-		2,357		-
Accrued interest payable		71		-		71		-

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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