Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments

Fair Value of Financial Instruments

15. Fair Value of Financial Instruments

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.

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.

FHLB 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 all lines and letters of credit.  The cost to assume is calculated at 10% of the notional amount.

The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2011 and 2010.

	At December 31, 2011
	Carrying		Estimated
	Amount		Fair Value
	(in thousands)
Assets:
Cash and cash equivalents	$	60,235	$	60,235
Securities available for sale	115,645		115,645
Federal Reserve Bank and FHLB stock, at cost	12,475		12,475
Loans held for investment, net	730,067		794,906
Accrued interest receivable	3,885		3,885
Liabilities:
Deposit accounts	828,877		833,241
FHLB advances	—		—
Other borrowings	28,500		31,361
Subordinated debentures	10,310		5,405
Accrued interest payable	147		147
	Notional Amount		Cost to Cede or Assume
Off-balance sheet commitments and standby letters of credit	$	73,053	$	7,305
	At December 31, 2010
	Carrying		Estimated
	Amount		Fair Value
	(in thousands)
Assets:
Cash and cash equivalents	$	63,462	$	63,462
Securities available for sale	155,094		155,094
Federal Reserve Bank and FHLB stock, at cost	13,334		13,334
Loans held for sale, net	—		—
Loans held for investment, net	555,538		603,749
Accrued interest receivable	3,755		3,755
Liabilities:
Deposit accounts	659,240		670,776
FHLB advances	40,000		40,032
Other borrowings	28,500		30,052
Subordinated debentures	10,310		5,232
Accrued interest payable	125		125
	Notional Amount		Cost to Cede or Assume
Off-balance sheet commitments and standby letters of credit	$	34,706	$	3,471