XML 48 R11.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value Measurements
3 Months Ended
Mar. 31, 2014
Fair Value Measurements [Abstract]  
Fair Value Measurements

 

NOTE 4:  FAIR VALUE MEASUREMENTS 

 

Fair value is defined as 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.  In estimating fair value, we utilize valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach.  Such valuation techniques are consistently applied.  Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability.

 

 

ASC 820, Fair Value Measurements and Disclosure,  establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows: 

 

Level 1Quoted prices in active markets for identical instruments. 

 

Level 2Observable 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 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.   

 

The estimated fair value amounts have been determined by us using available market information and appropriate valuation methodologies.  However, considerable judgment is required to interpret market data to develop the estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amount we could realize in a current market exchange.  The use of different market assumptions and/or estimation methodologies could have a material effect on our estimated fair value amounts.  There were no significant changes in valuation methods used to estimate fair value during the three months ended March 31, 2014

 

A description of the valuation methodologies used for instruments measured at fair value on a recurring basis is as follows: 

 

Loans held for sale – Real estate mortgage loans held for sale are carried at the lower of cost or market, which is determined on an individual loan basis based on loan commitments.  The fair value of loans held for sale is based on existing investor commitments.  Prior year guaranteed student loans held for sale are carried at the lower of cost or market, which is determined on an aggregate basis. 

Available for sale securities – The fair value of U.S. Government and federal agency securities, equity securities, and residential mortgage-backed securities is estimated based on quoted market prices or dealer quotes.  The fair value of other investments such as obligations of state and political subdivisions is estimated based on quoted market prices.  We obtain fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and bond’s terms and conditions, among other things.  We review the prices supplied by our independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. 

The fair value of a single private equity investment is estimated based on our proportionate share of the net asset value, $2.5 million and $2.4 million as of March 31, 2014 and December 31, 2013, respectively.  The investee invests in small and mid-sized U.S. financial institutions and other financial-related companies.  This investment has a quarterly redemption with sixty-five days’ notice. 

Derivative instrument – We utilize an interest rate swap agreement to convert one of our variable-rate subordinated debentures to a fixed rate (cash flow hedge).  The fair value of the interest rate swap agreement is obtained from dealer quotes.   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at Reporting Date Using

 

 

 

 

 

 

 

Quoted Prices in Active Markets for Identical Assets

 

Significant Other Observable Inputs

 

Significant Unobservable Inputs

(Dollars in thousands)

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

At March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family residential

 

 

 

$

4,941 

 

$

 -

 

$

4,941 

 

$

 -

Government guaranteed commercial real estate

 

 

 

 

754 

 

 

 -

 

 

754 

 

 

 -

Other loans held for sale

 

 

 

 

46 

 

 

 -

 

 

46 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency securities

 

 

 

 

117,395 

 

 

 -

 

 

117,395 

 

 

 -

Obligations of state and political subdivisions

 

 

 

 

33,194 

 

 

 -

 

 

33,194 

 

 

 -

Residential mortgage-backed securities

 

 

 

 

180,801 

 

 

 -

 

 

180,801 

 

 

 -

Asset-backed securities

 

 

 

 

9,547 

 

 

 -

 

 

9,547 

 

 

 -

Other securities

 

 

 

 

35,350 

 

 

142 

 

 

35,208 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instrument

 

 

 

 

(1,865)

 

 

 -

 

 

(1,865)

 

 

 -

Total

 

 

 

$

380,163 

 

$

142 

 

$

380,021 

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family residential

 

 

 

 

2,235 

 

 

 -

 

 

2,235 

 

 

 -

Government guaranteed commercial real estate

 

 

 

 

769 

 

 

 -

 

 

769 

 

 

 -

Other loans held for sale

 

 

 

 

56 

 

 

 -

 

 

56 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency securities

 

 

 

 

120,773 

 

 

 -

 

 

120,773 

 

 

 -

Obligations of state and political subdivisions

 

 

 

 

32,636 

 

 

 -

 

 

32,636 

 

 

 -

Residential mortgage-backed securities

 

 

 

 

183,170 

 

 

 -

 

 

183,170 

 

 

 -

Asset-backed securities

 

 

 

 

9,482 

 

 

 

 

 

9,482 

 

 

 

Other securities

 

 

 

 

36,418 

 

 

151 

 

 

36,267 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instrument

 

 

 

 

(1,967)

 

 

 -

 

 

(1,967)

 

 

 -

Total

 

 

 

$

383,572 

 

$

151 

 

$

383,421 

 

$

 -

 

Certain financial assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  These assets are recorded at the lower of cost or fair value.  Valuation methodologies for assets measured on a nonrecurring basis are as follows: 

 

Impaired loans – Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral.  Collateral values are estimated using Level 2 inputs based on third-party appraisals.  Certain other impaired loans are analyzed and reported through a specific valuation allowance based upon the net present value of cash flows.   

Other real estate – Other real estate fair value is based on third-party appraisals for significant properties less the estimated costs to sell the asset.   

Goodwill – Fair value of goodwill is based on the fair value of each of our reporting units to which goodwill is allocated compared with their respective carrying value.  There has been no impairment during 2014 or 2013; therefore, no fair value adjustment was recorded through earnings. 

Core deposit premiums – The fair value of core deposit premiums are based on third-party appraisals. There has been no impairment during 2014 or 2013; therefore, no fair value adjustment was recorded through earnings. 

Mortgage loan servicing rights – There is no active trading market for loan servicing rights.  The fair value of loan servicing rights is estimated by calculating the present value of net servicing revenue over the anticipated life of each loan.  A cash flow model is used to determine fair value.  Key assumptions and estimates, including projected prepayment speeds and assumed servicing costs, earnings on escrow deposits, ancillary income, and discount rates, used by this model are based on current market sources.  A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults, and other relevant factors.  The prepayment model is updated for changes in market conditions.   

 

Assets that were measured at fair value on a nonrecurring basis as of March 31, 2014 and December 31, 2013 are summarized below.   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted Prices in Active Markets for Identical Assets

 

Significant Other Observable Inputs

 

Significant Unobservable Inputs

 

Total Gains

(Dollars in thousands)

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

(Losses)

At March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncovered impaired loans at fair value :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$

21,776 

 

$

 -

 

$

21,776 

 

$

 -

 

$

(953)

Commercial

 

8,345 

 

 

 -

 

 

8,345 

 

 

 -

 

 

6,217 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncovered other real estate

 

2,560 

 

 

 -

 

 

2,560 

 

 

 -

 

 

 -

Covered other real estate

 

2,094 

 

 

 -

 

 

2,094 

 

 

 -

 

 

 -

Mortgage loan servicing rights

 

3,452 

 

 

 -

 

 

 -

 

 

3,452 

 

 

 -

Total

$

38,227 

 

$

 -

 

$

34,775 

 

$

3,452 

 

$

5,264 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncovered impaired loans at fair value :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$

20,423 

 

$

 -

 

$

20,423 

 

$

 -

 

$

3,075 

Real estate construction

 

2,636 

 

 

 -

 

 

2,636 

 

 

 

 

 

(18)

Commercial

 

9,176 

 

 

 -

 

 

9,176 

 

 

 -

 

 

(2,989)

Other consumer

 

46 

 

 

 -

 

 

46 

 

 

 -

 

 

35 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncovered other real estate

 

560 

 

 

 -

 

 

560 

 

 

 -

 

 

(1,520)

Covered other real estate

 

2,094 

 

 

 -

 

 

2,094 

 

 

 -

 

 

(702)

Mortgage loan servicing rights

 

3,492 

 

 

 -

 

 

 

 

 

3,492 

 

 

 -

Total

$

38,427 

 

$

 -

 

$

34,935 

 

$

3,492 

 

$

(2,119)

 

Noncovered impaired loans measured at fair value with a carrying amount of $37 million were written down to a fair value of $30.1 million, resulting in a life-to-date impairment of $6.9 million, of which $5.3 million was included in the provision for loan losses for the three months ended March 31, 2014.  As of December 31, 2013, noncovered impaired loans measured at fair value with a carrying amount of $45.5 million were written down to the fair value of $32.3 million at December 31, 2013, resulting in a life-to-date impairment charge of $27.3 million, of which $0.1 million was included in the provision for loan losses for the year ended December 31, 2013

 

As of March 31, 2014, noncovered and covered other real estate assets required no further adjustments to fair values, resulting in no impairment charges.  As of December 31, 2013, noncovered and covered other real estate assets were written down to their fair values, resulting in an impairment charge of approximately $1.5 million and $0.7 million, respectively, which was included in noninterest expense for the year ended December 31, 2013.

  

For the three months ended March 31, 2014 and for the year ended December 31, 2013 there was no impairment of mortgage loan servicing rights. 

 

ASC 825, Financial Instruments,  requires an entity to provide disclosures about fair value of financial instruments, including those that are not measured and reported at fair value on a recurring or nonrecurring basis.   The methodologies used in estimating the fair value of financial instruments that are measured on a recurring or nonrecurring basis are discussed above.  The methodologies for the other financial instruments are discussed below: 

 

Cash and cash equivalents – For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value. 

Securities held to maturity – The investment securities held to maturity are carried at cost.  The fair value of the held to maturity securities is estimated based on quoted market prices or dealer quotes. 

Loans, net of allowance – Fair values are estimated for certain homogenous categories of loans adjusted for differences in loan characteristics.  Our loans have been aggregated by categories consisting of commercial, real estate, student, and other consumer.  The fair value of loans is estimated by discounting the cash flows using risks inherent in the loan category and interest rates currently offered for loans with similar terms and credit risks. 

Accrued interest receivable – The carrying amount is a reasonable estimate of fair value for accrued interest receivable. 

Investments included in other assets – The estimated fair value of investments included in other assets, which primarily consists of investments carried at cost, approximates their carrying values. 

Deposits – The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the statement of financial condition date.  The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. 

Other liabilities and accrued interest payable – The estimated fair value of other liabilities, which primarily includes trade accounts payable and accrued interest payable, approximates their carrying values. 

Other borrowings – Included in other borrowings are FHLB advances, securities sold under agreements to repurchase, and treasury tax and loan demand notes.  The fair value for fixed rate FHLB advances is based upon discounted cash flow analysis using interest rates currently being offered for similar instruments.  The fair values of other borrowings are the amounts payable at the statement of financial condition date, as the carrying amount is a reasonable estimate of fair value due to the short-term maturity rates.   

Subordinated debentures – Our two subordinated debentures have floating rates that reset quarterly. The fair value of the floating rate subordinated debentures approximates carrying value at March 31, 2014.   

 

The carrying values and estimated fair values of our financial instruments segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value were as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2014

 

At December 31, 2013

 

Carrying

 

Fair

 

Carrying

 

Fair

(Dollars in thousands)

Values

 

Values

 

Values

 

Values

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Level 2 inputs:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

266,574 

 

$

266,574 

 

$

279,839 

 

$

279,839 

Securities held to maturity

 

10,700 

 

 

11,252 

 

 

11,720 

 

 

12,115 

Accrued interest receivable

 

5,380 

 

 

5,380 

 

 

5,335 

 

 

5,335 

Investments included in other assets

 

7,348 

 

 

7,348 

 

 

8,140 

 

 

8,140 

Level 3 inputs:

 

 

 

 

 

 

 

 

 

 

 

Total loans, net of allowance

 

1,285,197 

 

 

1,237,328 

 

 

1,234,240 

 

 

1,190,869 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Level 2 inputs:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

1,605,906 

 

 

1,507,750 

 

 

1,584,086 

 

 

1,486,939 

Accrued interest payable

 

807 

 

 

807 

 

 

832 

 

 

832 

Other liabilities

 

6,804 

 

 

6,804 

 

 

8,248 

 

 

8,248 

Derivative instrument

 

1,865 

 

 

1,865 

 

 

1,967 

 

 

1,967 

Other borrowings

 

85,692 

 

 

88,462 

 

 

80,632 

 

 

83,593 

Subordinated debentures

 

46,393 

 

 

46,393 

 

 

46,393 

 

 

46,393