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Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2012
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.

 

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.

 

Other borrowings—The fair value disclosed for 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 March 31, 2012

 

At December 31, 2011

 

At March 31, 2011

 

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

93,649

 

$

93,649

 

$

60,235

 

$

60,235

 

$

56,880

 

$

56,880

 

Securities available for sale

 

150,739

 

150,739

 

115,645

 

115,645

 

140,927

 

140,927

 

Federal Reserve Bank and FHLB stock, at cost

 

11,975

 

11,975

 

12,475

 

12,475

 

14,161

 

14,161

 

Loans held for investment, net

 

687,079

 

758,893

 

730,067

 

794,906

 

691,074

 

774,241

 

Accrued interest receivable

 

3,632

 

3,632

 

3,885

 

3,885

 

4,014

 

4,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit accounts

 

846,717

 

849,378

 

828,877

 

833,241

 

832,786

 

838,007

 

Other borrowings

 

28,500

 

31,964

 

28,500

 

31,361

 

28,500

 

29,859

 

Subordinated debentures

 

10,310

 

7,617

 

10,310

 

5,405

 

10,310

 

5,223

 

Accrued interest payable

 

181

 

181

 

147

 

147

 

169

 

169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

105,011

 

$

10,501

 

$

73,053

 

$

7,305

 

$

69,671

 

$

6,967