Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2011

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 8 — Fair Value of Financial Instruments

The Company’s estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies.  However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates are not necessarily indicative of the amounts the Company could have realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since the balance sheet date and, therefore, current estimates of fair value may differ significantly from the amounts presented.  The following methods were used to estimate the fair value of each class of financial instruments identified in the table immediately below.

Cash and Cash Equivalents—The carrying amount approximates fair value due to their short-term repricing characteristics.

Securities Available for Sale—Fair values are based on quoted market prices from securities dealers or readily available market quote systems.

Federal Home Loan Bank (“FHLB”) of San Francisco and Federal Reserve Bank Stock —The carrying value approximates the fair value based upon the redemption provisions of the stock.

Loans Held for Sale—Fair values are based on quoted market prices or dealer quotes.

Loans Held for Investment—The fair value of gross loans receivable has been estimated using the present value of cash flow method, discounting expected future cash flows by estimated market interest rates for loans with similar characteristics, including credit ratings and maturities.  Consideration is also given to estimated prepayments and credit losses.

Accrued Interest Receivable/Payable—The carrying amount approximates fair value.

Deposit Accounts—The fair value disclosed for checking, passbook and money market accounts is the amount payable on demand at the reporting date.  The fair value of certificates of deposit accounts is estimated using a discounted cash flow calculation based on interest rates currently offered for certificate of deposits of similar remaining maturities.

FHLB Advances and Other Borrowings—The fair value disclosed for FHLB advances and other borrowings is determined by discounting contractual cash flows at current market interest rates for similar instruments with similar terms.

Subordinated Debentures—The fair value of subordinated debentures is estimated by discounting the balance by the current three-month LIBOR rate plus the current market spread.  The fair value is determined based on the maturity date as the Company does not currently have intentions to call the debenture.

Off-balance sheet commitments and standby letters of credit—The notional amount disclosed for off-balance sheet commitments and standby letters of credit is the amount available to be drawn down on all lines and letters of credit.  The cost to assume is calculated at 10% of the notional amount.

Based on the above methods and pertinent information available to management as of the periods indicated, the following table presents the carrying amount and estimated fair value of our financial instruments:

	At June 30, 2011				At December 31, 2010				At June 30, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in thousands)
Assets:
Cash and cash equivalents	$	47,032	$	47,032	$	63,462	$	63,462	$	34,674	$	34,674
Securities available for sale	141,304		141,304		155,094		155,094		163,470		163,470
Federal Reserve Bank and FHLB stock, at cost	13,492		13,492		13,334		13,334		14,277		14,277
Loans held for investment, net	699,579		779,001		555,538		603,749		543,023		545,716
Accrued interest receivable	3,984		3,984		3,755		3,755		3,680		3,680
Liabilities:
Deposit accounts	815,985		820,232		659,240		670,776		632,043		647,373
FHLB advances	—		—		40,000		40,032		38,000		38,690
Other borrowings	28,500		30,925		28,500		30,052		28,500		29,917
Subordinated debentures	10,310		5,119		10,310		5,232		10,310		7,715
Accrued interest payable	176		176		125		125		181		181
	Notional Amount		Cost to Cede or Assume		Notional Amount		Cost to Cede or Assume		Notional Amount		Cost to Cede or Assume
Off-balance sheet commitments and standby letters of credit	$	65,495	$	6,550	$	34,706	$	3,471	$	18,187	$	1,819