Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Values of Financial Instruments [Abstract]

FAIR VALUES OF FINANCIAL INSTRUMENTS

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Carrying amount, estimated fair value and level within the fair value hierarchy of financial instruments were as follows at year-end (dollars in thousands):

	Level in			2012				2011
	Fair Value Hierarchy			Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash		Level 1		$	1,576	$	1,576	$	1,311	$	1,311
Cash equivalents		Level 2			134,427		134,427		75,061		75,061
Securities available for sale			(1)		138,314		138,314		172,992		172,992
Federal Home Loan Bank stock		Level 2			11,961		11,961		11,961		11,961
Loans, net		Level 3			1,012,512		1,004,541		1,035,890		1,035,164
Bank owned life insurance		Level 2			50,048		50,048		48,520		48,520
Accrued interest receivable		Level 2			3,874		3,874		4,403		4,403
Purchased interest rate cap			(1)		4		4		312		312
Financial liabilities
Deposits		Level 2			1,135,204		1,135,614		1,112,075		1,117,803
Securities sold under agreements to repurchase		Level 2			64,765		64,765		72,569		72,569
Federal Home Loan Bank advances		Level 2			35,000		35,000		45,000		46,019
Subordinated debentures		Level 2			32,990		32,943		32,990		33,096
Accrued interest payable		Level 2			2,314		2,314		2,839		2,839
Sold interest rate cap			(1)		0		0		55		55
Interest rate swap			(1)		1,113		1,113		0		0

(1) See Note 15 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

Carrying amount is the estimated fair value for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable and payable, bank owned life insurance, demand deposits, securities sold under agreements to repurchase, and variable rate loans and deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans and deposits and for variable rate loans and deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of subordinated debentures and Federal Home Loan Bank advances is based on current rates for similar financing. Fair value of interest rate caps is determined primarily utilizing market-consensus forecasted yield curves. Fair value of off-balance sheet items is estimated to be nominal.

Current accounting pronouncements require disclosure of the estimated fair value of financial instruments as disclosed in Note 15. Given the current market conditions, a portion of our loan portfolio is not readily marketable and market prices do not exist. We have not attempted to market our loans to potential buyers, if any exist, to determine the fair value of those instruments. Since negotiated prices in illiquid markets depend upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time. Accordingly, the fair value measurements for loans included in the table above are unlikely to represent the instruments’ liquidation values.