Fair Value of Financial Instruments | 3 Months Ended |
Mar. 31, 2015 |
Fair Value Disclosures [Abstract] | |
Fair Value of Financial Instruments | Fair Value of Financial Instruments |
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ASC Topic 820, Fair Value Measurement, 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: |
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Level 1 | Quoted prices in active markets for identical assets or liabilities | | | | | | | | | | | | | | | |
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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 | | | | | | | | | | | | | | | |
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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 | | | | | | | | | | | | | | | |
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Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. |
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Securities |
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Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid mutual funds. 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. |
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Level 2 securities include U.S. Government-sponsored agencies, mortgage and asset-backed securities and certain corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but also on the investment securities’ relationship to other benchmark quoted investment securities. |
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In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. |
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Loans Held-for-Sale |
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The fair value of loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2). |
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Forward Contracts |
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The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets, or benchmarked thereto (Level 1). |
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Interest Rate Lock Commitments |
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The fair values of interest rate lock commitments (“IRLCs”) are determined using the projected sale price of individual loans based on changes in market interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3). |
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The following tables present the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2015 and December 31, 2014: |
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| | | | 31-Mar-15 |
Fair Value Measurements Using |
| | Fair | | Quoted Prices | | Significant | | Significant |
Value | in Active | Other | Unobservable |
| Markets for | Observable | Inputs |
| Identical | Inputs | (Level 3) |
| Assets | (Level 2) | |
| (Level 1) | | |
U.S. Government-sponsored agencies | | $ | 28,063 | | | $ | — | | | $ | 28,063 | | | $ | — | |
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Mortgage-backed securities | | 113,132 | | | — | | | 113,132 | | | — | |
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Asset-backed securities | | 19,457 | | | — | | | 19,457 | | | — | |
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Other securities | | 3,024 | | | 3,024 | | | — | | | — | |
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Total available-for-sale securities | | 163,676 | | | 3,024 | | | 160,652 | | | — | |
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Loans held-for-sale (mandatory pricing agreements) | | 26,771 | | | — | | | 26,771 | | | — | |
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Forward contracts | | (402 | ) | | (402 | ) | | — | | | — | |
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Interest rate lock commitments | | 913 | | | — | | | — | | | 913 | |
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| | | | December 31, 2014 |
Fair Value Measurements Using |
| | Fair | | Quoted Prices | | Significant | | Significant |
Value | in Active | Other | Unobservable |
| Markets for | Observable | Inputs |
| Identical | Inputs | (Level 3) |
| Assets | (Level 2) | |
| (Level 1) | | |
U.S. Government-sponsored agencies | | $ | 13,552 | | | $ | — | | | $ | 13,552 | | | $ | — | |
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Mortgage-backed securities | | 117,048 | | | — | | | 117,048 | | | — | |
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Asset-backed securities | | 4,912 | | | — | | | 4,912 | | | — | |
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Other securities | | 2,006 | | | 2,006 | | | — | | | — | |
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Total available-for-sale securities | | 137,518 | | | 2,006 | | | 135,512 | | | — | |
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Loans held-for-sale (mandatory pricing agreements) | | 32,618 | | | — | | | 32,618 | | | — | |
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Forward contracts | | (405 | ) | | (405 | ) | | — | | | — | |
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Interest rate lock commitments | | 521 | | | — | | | — | | | 521 | |
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The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying condensed consolidated balance sheets using significant unobservable (Level 3) inputs: |
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| | Three Months Ended | | | | | | | | |
| | Securities | | Interest Rate | | | | | | | | |
Available-for- | Lock | | | | | | | | |
Sale | Commitments | | | | | | | | |
Balance, January 1, 2015 | | $ | — | | | $ | 521 | | | | | | | | | |
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Total realized and unrealized gains (losses) | | | | | | | | | | | | |
Included in net income | | — | | | 392 | | | | | | | | | |
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Included in other comprehensive income (loss) | | — | | | — | | | | | | | | | |
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Balance, March 31, 2015 | | $ | — | | | $ | 913 | | | | | | | | | |
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Balance, January 1, 2014 | | $ | 1,673 | | | $ | 79 | | | | | | | | | |
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Total realized and unrealized gains (losses) | | | | | | | | | | | | |
Included in net income | | — | | | 91 | | | | | | | | | |
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Included in other comprehensive income (loss) | | 138 | | | — | | | | | | | | | |
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Balance, March 31, 2014 | | $ | 1,811 | | | $ | 170 | | | | | | | | | |
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Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. |
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Impaired Loans (Collateral Dependent) |
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Loans for which it is probable that the Company will not collect all principal and interest due according to 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, less costs to sell, for collateral dependent loans. |
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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. |
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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. |
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The following tables present the fair value measurements of impaired loans recognized in the accompanying condensed consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fell at March 31, 2015 and December 31, 2014: |
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| | | | 31-Mar-15 |
Fair Value Measurements Using |
| | Fair | | Quoted Prices | | Significant | | Significant |
Value | in Active | Other | Unobservable |
| Markets for | Observable | Inputs |
| Identical | Inputs | (Level 3) |
| Assets | (Level 2) | |
| (Level 1) | | |
Impaired loans | | $ | 20 | | | $ | — | | | $ | — | | | $ | 20 | |
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| | | | December 31, 2014 |
Fair Value Measurements Using |
| | Fair | | Quoted Prices | | Significant | | Significant |
Value | in Active | Other | Unobservable |
| Markets for | Observable | Inputs |
| Identical | Inputs | (Level 3) |
| Assets | (Level 2) | |
| (Level 1) | | |
Impaired loans | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Unobservable (Level 3) Inputs |
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The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill. |
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| | Fair Value at | | Valuation | | Unobservable | | Range | | | | | | |
31-Mar-15 | Technique | Inputs | | | | | | |
Collateral dependent impaired loans | | $ | 20 | | | Fair value of collateral | | Discount for type of property and current market conditions | | 30% - 70% | | | | | | |
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IRLCs | | 913 | | | Discounted cash flow | | Loan closing rates | | 45% - 97% | | | | | | |
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| | Fair Value at | | Valuation | | Unobservable | | Range | | | | | | |
December 31, 2014 | Technique | Inputs | | | | | | |
IRLCs | | $ | 521 | | | Discounted cash flow | | Loan closing rates | | 40% - 95% | | | | | | |
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The following methods 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: |
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Cash and Cash Equivalents |
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For these instruments, the carrying amount is a reasonable estimate of fair value. |
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Loans Held-for-Sale |
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The fair value of these loans approximates carrying value. |
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Interest-Bearing Time Deposits |
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The fair value of these financial instruments approximates carrying value. |
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Loans Receivable |
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The fair value of loans receivable is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. |
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Accrued Interest Receivable |
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The fair value of these financial instruments approximates carrying value. |
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Federal Home Loan Bank Stock |
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The fair value approximates carrying value. |
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Deposits |
The fair value of noninterest-bearing and interest-bearing demand deposits, savings and money market accounts approximates carrying value. The fair value of fixed maturity certificates of deposit and brokered deposits are estimated using rates currently offered for deposits of similar remaining maturities. |
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Advances from Federal Home Loan Bank |
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The fair value of fixed rate advances is estimated using rates currently available for advances with similar remaining maturities. The carrying value of variable rate advances approximates fair value. |
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Accrued Interest Payable |
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The fair value of these financial instruments approximates carrying value. |
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Subordinated Debt |
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The fair value of our subordinated debt is estimated using discounted cash flow analysis, based on current borrowing rates for similar types of debt instruments. |
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Commitments |
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The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements with similar maturities and interest rates. The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at each of March 31, 2015 and December 31, 2014. |
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The following schedule includes the carrying value and estimated fair value of all financial assets and liabilities at March 31, 2015 and December 31, 2014: |
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| | 31-Mar-15 |
Fair Value Measurements Using |
| | Carrying | | Quoted Prices | | Significant | | Significant |
Amount | In Active | Other | Unobservable |
| Market for | Observable | Inputs |
| Identical | Inputs | (Level 3) |
| Assets | (Level 2) | |
| (Level 1) | | |
Cash and cash equivalents | | $ | 39,572 | | | $ | 39,572 | | | $ | — | | | $ | — | |
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Interest-bearing time deposits | | 2,000 | | | 2,000 | | | — | | | — | |
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Loans held-for-sale (best efforts pricing agreements) | | 813 | | | — | | | 813 | | | — | |
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Loans receivable | | 767,682 | | | — | | | — | | | 766,823 | |
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Accrued interest receivable | | 3,040 | | | 3,040 | | | — | | | — | |
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Federal Home Loan Bank of Indianapolis stock | | 5,350 | | | — | | | 5,350 | | | — | |
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Deposits | | 821,169 | | | 406,268 | | | — | | | 417,021 | |
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Advances from Federal Home Loan Bank | | 106,921 | | | — | | | 106,943 | | | — | |
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Subordinated debt | | 2,894 | | | — | | | 3,079 | | | — | |
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Accrued interest payable | | 104 | | | 104 | | | — | | | — | |
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| | December 31, 2014 |
Fair Value Measurements Using |
| | Carrying | | Quoted Prices | | Significant | | Significant |
Amount | In Active | Other | Unobservable |
| Market for | Observable | Inputs |
| Identical | Inputs | (Level 3) |
| Assets | (Level 2) | |
| (Level 1) | | |
Cash and cash equivalents | | $ | 28,289 | | | $ | 28,289 | | | $ | — | | | $ | — | |
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Interest-bearing time deposits | | 2,000 | | | 2,000 | | | — | | | — | |
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Loans held-for-sale (best efforts pricing agreements) | | 2,053 | | | — | | | 2,053 | | | — | |
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Loans receivable | | 732,426 | | | — | | | — | | | 733,538 | |
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Accrued interest receivable | | 2,833 | | | 2,833 | | | — | | | — | |
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Federal Home Loan Bank of Indianapolis stock | | 5,350 | | | — | | | 5,350 | | | — | |
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Deposits | | 758,598 | | | 383,847 | | | — | | | 377,067 | |
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Advances from Federal Home Loan Bank | | 106,897 | | | — | | | 107,743 | | | — | |
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Subordinated debt | | 2,873 | | | — | | | 3,094 | | | — | |
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Accrued interest payable | | 97 | | | 97 | | | — | | | — | |
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