Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 10. Fair Value Measurements:

For impaired loans measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012 and 2011, the following table provides the carrying value of the related individual assets at quarter end. We used Level 3 inputs to determine the estimated fair value of our impaired loans.

	Carrying Value at September 30,				Provision for Loan Losses Nine Months Ended September 30, (2)
	2012		2011		2012		2011
	(In thousands)
Impaired loans (1)	$	12,546	$	8,832	$	341	$	335

(1) Carrying value represents our impaired loans net of loan loss reserves. Our carrying value is determined based on management’s assessment of the fair value of the collateral based on numerous factors including operating statistics to the extent available, appraised value of the collateral, tax assessed value and market environment.

(2) Represents the net change in the provision for loan losses included in our consolidated statements of income (loss) related specifically to our impaired loans during the periods presented.

For real estate owned, our carrying value approximates the estimated fair value at the time of foreclosure and the lower of cost or fair value thereafter. We use Level 3 inputs to determine the estimated fair value of our real estate owned. The carrying value of our real estate owned is established at the time of foreclosure based upon management’s assessment of its fair value based on numerous factors including operating statistics to the extent available, the appraised value, tax assessed value and market environment.

The following is activity for our real estate owned:

	Nine Months Ended September 30,
	2012			2011
	(In thousands)
Value - beginning of year	$	1,259		$	3,477
Foreclosures		1,481			409
Cost of sales		(1,537	)		(1,331	)
Impairment losses		(208	)		(650	)
Value - end of period	$	995		$	1,905

The estimated fair values of our financial instruments were as follows:

	September 30,				December 31,
	2012				2011
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In thousands)
Assets:
Loans receivable, net	$	241,914	$	226,621	$	234,427	$	224,395
Liabilities:
SBIC debentures and structured notes payable		17,187		18,334		18,445		19,027
Secured borrowings - government guaranteed loans		41,287		41,287		32,546		32,546
Revolving credit facility		15,000		15,000		17,800		17,800
Junior subordinated notes		27,070		22,586		27,070		22,595

We used Level 3 inputs to determine the estimated fair value of our financial instruments. In general, estimates of fair value differ from the carrying amounts of the financial assets and liabilities primarily as a result of the effects of discounting future cash flows. Considerable judgment is required to interpret market data and develop estimates of fair value. Accordingly, the estimates presented may not be indicative of the amounts we could realize in a current market exchange.

Loans receivable, net: Our loans receivable are recorded at cost and adjusted by net loan origination fees and discounts. In order to determine the estimated fair value of our loans receivable, we use a present value technique for the anticipated future cash flows using certain assumptions including a discount rate based on current market interest rates, prepayment tendencies and potential loan losses. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Reserves are established based on numerous factors including, but not limited to, the creditor’s payment history, collateral value, guarantor support, expected future cash flows and other factors. In the absence of a readily ascertainable market value, the estimated value of our loans receivable may differ from the values that would be placed on the portfolio if a ready market for the loans receivable existed.

SBIC debentures and structured notes payable and junior subordinated notes: The estimated fair value is based on a present value calculation based on management’s estimate of prices of the same or similar instruments after considering market risks, current interest rates, and remaining maturities. The structured notes payable were repaid on February 15, 2012.

Secured borrowings - government guaranteed loans: The estimated fair value approximates cost as the interest rates on these secured borrowings approximates current market interest rates.

Revolving credit facility: The carrying amount is a reasonable estimation of fair value as the interest rate on this instrument is variable and was set in a third-party transaction.