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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2011
Fair Value Measurements [Abstract] |
FAIR VALUE MEASUREMENTS | NOTE 3 — FAIR VALUE MEASUREMENTS Fair Value Option and Fair Value Measurements We determine the fair value of our assets and liabilities in accordance with ASC 820, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value of an asset or liability is determined based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for market activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact for the asset or liability. In determining fair value, we use various methods including market and income approaches. Based on these approaches, we utilize certain assumptions that market participants would use in pricing the asset or liability. These inputs can be readily observable, market corroborated, or generally unobservable inputs. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, we classify and disclose assets and liabilities based on the fair value hierarchy presented below. The hierarchy is based on the quality and reliability of the information used to determine fair values. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. In January 2010, the FASB issued ASU No. 2010-6, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements. This requires (i) fair value disclosures by each class of assets and liabilities (generally a subset within a line item as presented in the statement of financial position) rather than major category, (ii) for items measured at fair value on a recurring basis, the amounts of significant transfers between Levels 1 and 2, and transfers into and out of Level 3, and the reasons for those transfers, including separate discussion related to the transfers into each level apart from transfers out of each level, and (iii) gross presentation of the amounts of purchases, sales, issuances, and settlements in the Level 3 recurring measurement reconciliation. Additionally, the ASU clarifies that a description of the valuation techniques(s) and inputs used to measure fair values is required for both recurring and nonrecurring fair value measurements. In addition, if a valuation technique has changed, entities should disclose that change and the reason for the change. Disclosures other than the gross presentation changes in the Level 3 reconciliation were effective for the first reporting period beginning after December 31, 2009. The requirement to present the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis was effective for fiscal years beginning after December 15, 2010. The adoption of FASB ASU 2010-06 did not have a material effect on our financial condition or result of operations. We used the following methods and significant assumptions to estimate fair value: Investment Securities Available for Sale — The fair values of investment securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. The fair values of investment securities are determined by reference to the average of at least two quoted market prices obtained from independent external brokers or independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, we have evaluated the methodologies used to develop the resulting fair values. We perform a monthly analysis on the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and on-going review of third party pricing methodologies, review of pricing trends, and monitoring of trading volumes. Level 1 investment securities include U.S. government and agency debentures and equity securities that are traded on an active exchange or by dealers or brokers in active over-the-counter markets. The fair value of these securities is determined by quoted prices on an active exchange or over-the-counter market. Level 2 investment securities primarily include mortgage-backed securities, municipal bonds, collateralized mortgage obligations, and asset-backed securities. In determining the fair value of the securities’ categorized as Level 2, we obtain reports from nationally recognized broker-dealers detailing the fair value of each investment security we hold as of each reporting date. The broker-dealers use observable market information to value our fixed income securities, with the primary sources being nationally recognized pricing services. The fair value of the municipal securities is based on a proprietary model maintained by the broker-dealer. We review the market prices provided by the broker-dealer for our securities for reasonableness based on our understanding of the marketplace. We also consider any credit issues related to the bonds. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy. Securities classified as Level 3 investment securities are instruments that are not traded in the market. As such, no observable market data for the instrument is available. This necessitates the use of significant unobservable inputs into our proprietary valuation model. As of June 30, 2011 and December 31, 2010, we had no level 3 investment securities. SBA Loans Held for Sale – All Small Business Administration (“SBA”) loans originate for sale. Loans held for sale are carried at the lower of cost or fair value. As of June 30, 2011 and December 31, 2010, we had $24.3 million and $10.0 million of SBA loans held for sale, respectively. Management obtains quotes, bids or pricing indication sheets on all or part of these loans directly from the purchasing financial institutions. Premiums received or to be received on the quotes, bids or pricing indication sheets are indicative of the fact that cost is lower than fair value. At June 30, 2011 and December 31, 2010, the entire balance of the loans held for sale was recorded at its cost on a nonrecurring basis with Level 2 inputs. Non-performing Loans Held for Sale – We reclassify certain non-performing loans when we make the decision to sell those loans. The fair value of non-performing loans held for sale is generally based upon the quotes, bids or sales contract prices from buyers. Non-performing loans held for sale are recorded at estimated fair value less anticipated liquidation cost. As of June 30, 2011 and December 31, 2010, we had $19.8 million and $26.6 million of non-performing loans held for sale, respectively, and measured them on a nonrecurring basis with Level 3 inputs. Impaired Loans – FASB ASC 820 applies to loans measured for impairment using the practical expedients permitted by FASB ASC 310, “Receivables,” including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, which is then adjusted for the cost related to liquidation of the collateral. These loans are classified as Level 3 and subject to non-recurring fair value adjustments. Other Real Estate Owned – Other real estate owned is measured at fair value less selling costs. Fair value was determined based on third-party appraisals of fair value in an orderly sale. Selling costs were based on standard market factors. We classify other real estate owned, which is subject to non-recurring fair value adjustments, as Level 3. Servicing Assets and Servicing Liabilities – The fair values of servicing assets and servicing liabilities are based on a valuation model that calculates the present value of estimated net future cash flows related to contractually specified servicing fees. The valuation model incorporates assumptions that market participants would use in estimating future cash flows. The valuation model inputs and results are compared to widely available published industry data for reasonableness. Since fair value measurements of servicing assets and servicing liabilities use significant unobservable inputs, we classify them as Level 3. Other Intangible Assets – Other intangible assets consist of a core deposit intangible and acquired intangible assets arising from acquisitions, including non-compete agreements, trade names, carrier relationships and client/insured relationships. The valuation of other intangible assets is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value. We test our other intangible assets annually for impairment, or when indications of potential impairment exist. Since fair value measurements of other intangible assets use significant unobservable inputs, we classify them, which are subject to non-recurring fair value adjustments, as Level 3. Stock Warrants – The fair value of stock warrants was determined by the Black-Scholes option pricing model. The expected stock volatility is based on historical volatility of our common stock over the expected term of the warrants. The expected life assumption is commensurate with the contract term. The dividend yield of zero is determined by the fact that we have no present intention to pay cash dividends. The risk free rate used for the warrant is equal to the zero coupon rate in effect at the time of the grant. As such, we classify them, which are subject to non-recurring fair value adjustments, as Level 3. Fair Value Measurement FASB ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a three-level fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:
| • | Level 1 | Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
| • | Level 2 | Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
| • | Level 3 | Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes in accordance with ASC 825, Financial Instruments. We record investment securities available for sale at fair value on a recurring basis. Certain other assets, such as loans held for sale, mortgage servicing assets, impaired loans, other real estate owned, and other intangible assets, are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed. Assets and Liabilities Measured at Fair Value on a Recurring Basis We recognize transfers of assets between levels at the end of each respective quarterly reporting period. However, there were no transfers of assets between Level 1 and Level 2 of the fair value hierarchy for the three and six months ended June 30, 2011. As of June 30, 2011 and December 31, 2010, assets and liabilities measured at fair value on a recurring basis are as follows:
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  |  |
|  |  |  |  |  | Significant |  |  |  |  |  |  |  |
|  |  |  |  |  | Observable |  |  |  |  |  |  |  |
|  |  |  |  |  | Inputs With |  |  |  |  |  |  |  |
|  | Quoted Prices in |  |  | No Active |  |  |  |  |  |  | Balance as of |
|  | Active Markets |  |  | Market With |  |  | Significant |  |  | June 30, |
|  | for Identical |  |  | Identical |  |  | Unobservable |  |  | 2011 and December |
|  | Assets |  |  | Characteristics |  |  | Inputs |  |  | 31, 2010 |
|  |  |  |  |  | (In Thousands) |  |  |  |  |
June 30, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt Securities Available for Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateralized Mortgage Obligations |  | $ | — |  |  | $ | 125,929 |  |  | $ | — |  |  | $ | 125,929 |
U.S. Government Agency Securities |  |  | 106,325 |  |  |  | — |  |  |  | — |  |  |  | 106,325 |
Residential Mortgage-Backed Securities |  |  | — |  |  |  | 117,777 |  |  |  | — |  |  |  | 117,777 |
Corporate Bonds |  |  | — |  |  |  | 20,385 |  |  |  | — |  |  |  | 20,385 |
Municipal Bonds |  |  | — |  |  |  | 9,256 |  |  |  | — |  |  |  | 9,256 |
Asset-Backed Securities |  |  | — |  |  |  | 6,799 |  |  |  | — |  |  |  | 6,799 |
Other Securities |  |  | — |  |  |  | 3,281 |  |  |  | — |  |  |  | 3,281 |
Total Debt Securities Available for Sale |  | $ | 106,325 |  |  | $ | 283,427 |  |  | $ | — |  |  | $ | 389,752 |
Equity Securities Available for Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial Services Industry |  | $ | 460 |  |  |  | — |  |  |  | — |  |  | $ | 460 |
Total Equity Securities Available for Sale |  | $ | 460 |  |  | $ | — |  |  | $ | — |  |  | $ | 460 |
Total Securities Available for Sale |  | $ | 106,785 |  |  | $ | 283,427 |  |  | $ | — |  |  | $ | 390,212 |
LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock Warrants |  | $ | — |  |  | $ | — |  |  | $ | 1,289 |  |  | $ | 1,289 |
December 31, 2010 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt Securities Available for Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateralized Mortgage Obligations |  | $ | — |  |  | $ | 137,193 |  |  | $ | — |  |  | $ | 137,193 |
U.S. Government Agency Securities |  |  | 113,334 |  |  |  | — |  |  |  | — |  |  |  | 113,334 |
Residential Mortgage-Backed Securities |  |  | — |  |  |  | 109,842 |  |  |  | — |  |  |  | 109,842 |
Municipal Bonds |  |  | — |  |  |  | 21,028 |  |  |  | — |  |  |  | 21,028 |
Corporate Bonds |  |  | — |  |  |  | 20,205 |  |  |  | — |  |  |  | 20,205 |
Asset-Backed Securities |  |  | — |  |  |  | 7,384 |  |  |  | — |  |  |  | 7,384 |
Other Securities |  |  | — |  |  |  | 3,259 |  |  |  | — |  |  |  | 3,259 |
Total Debt Securities Available for Sale |  | $ | 113,334 |  |  | $ | 298,911 |  |  | $ | — |  |  | $ | 412,245 |
Equity Securities Available for Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial Services Industry |  | $ | 873 |  |  |  | — |  |  |  | — |  |  | $ | 873 |
Total Equity Securities Available for Sale |  | $ | 873 |  |  | $ | — |  |  | $ | — |  |  | $ | 873 |
Total Securities Available for Sale |  | $ | 114,207 |  |  | $ | 298,911 |  |  | $ | — |  |  | $ | 413,118 |
LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock Warrants |  | $ | — |  |  | $ | — |  |  | $ | 1,600 |  |  | $ | 1,600 |
The table below presents a reconciliation and income statement classification of gains and losses for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2011:
|  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Realized and |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Unrealized |  |  |  |  |  |  |  |
|  | Beginning |  |  |  |  |  |  | Realized and |  |  | Gains or Losses |  |  |  |  |  |  | Ending |
|  | Balance as of |  |  | Purchases, |  |  | Unrealized |  |  | in Other |  |  | Transfers |  |  | Balance as of |
|  | March 31, |  |  | Issuances and |  |  | Gains or Losses |  |  | Comprehensive |  |  | In and/or Out |  |  | June 30, |
|  | 2011 |  |  | Settlements |  |  | in Earnings |  |  | Income |  |  | of Level 3 |  |  | 2011 |
|  |  |  |  |  |  |  |  |  | (In Thousands) |  |  |  |  |  |  |  |  |
LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock Warrants(1) |  | $ | 1,614 |  |  | $ | — |  |  | $ | 325 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,289 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Realized and |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Unrealized |  |  |  |  |  |  |  |
|  | Beginning |  |  |  |  |  |  | Realized and |  |  | Gains or Losses |  |  |  |  |  |  | Ending |
|  | Balance as of |  |  | Purchases, |  |  | Unrealized |  |  | in Other |  |  | Transfers |  |  | Balance as of |
|  | December 31, |  |  | Issuances and |  |  | Gains or Losses |  |  | Comprehensive |  |  | In and/or Out |  |  | June 30, |
|  | 2010 |  |  | Settlements |  |  | in Earnings |  |  | Income |  |  | of Level 3 |  |  | 2011 |
|  |  |  |  |  |  |  |  |  | (In Thousands) |  |  |  |  |  |  |  |  |
LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock Warrants(1) |  | $ | 1,600 |  |  | $ | — |  |  | $ | 311 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,289 |
(1) |  | Reflects warrants for our common stock issued to Cappello Capital Corp. in connection with services it provided to us as a placement agent in connection with our best efforts public offering and as our financial adviser in connection with our completed rights offering. The warrants were immediately exercisable when issued at an exercise price of $1.20 per share and expire on October 14, 2015. See “Note 8 — Stockholders’ Equity” for more details.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis For the three and six months ended June 30, 2011 and 2010, assets and liabilities measured at fair value on a non-recurring basis are as follows:
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  |  |  |  |  |
|  | Quoted Prices in |  |  | Significant Observable Inputs With No Active |  |  |  |  |  |  | Losses During The |  |  | Losses During The |
|  | Active Markets |  |  | Market With |  |  | Significant |  |  | Three Months Ended |  |  | Six Months Ended |
|  | for Identical |  |  | Identical |  |  |  | Unobservable |  |  | June 30, |  |  | June 30, |
|  | Assets |  |  | Characteristics |  |  | Inputs |  |  | 2011 and 2010 |  |  | 2011 and 2010 |
June 30, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-Performing Loans Held for Sale |  | $ | — |  |  | $ | — |  |  | $ | 18,683 | (1) |  | $ | 682 |  |  | $ | 9,462 |
Impaired Loans |  | $ | — |  |  | $ | — |  |  | $ | 178,090 | (2) |  | $ | 14,314 |  |  | $ | 23,940 |
Other Real Estate Owned |  | $ | — |  |  | $ | — |  |  | $ | 1,298 | (3) |  | $ | 203 |  |  | $ | 770 |
June 30, 2010 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-Performing Loans Held for Sale |  | $ | — |  |  | $ | — |  |  | $ | 23,663 | (4) |  | $ | 5,337 |  |  | $ | 7,053 |
Impaired Loans |  | $ | — |  |  | $ | — |  |  | $ | 168,184 | (5) |  | $ | 19,857 |  |  | $ | 48,696 |
Other Real Estate Owned |  | $ | — |  |  | $ | — |  |  | $ | 22,499 | (6) |  | $ | 966 |  |  | $ | 5,912 |
(1) |  | Includes commercial property loans of $418,000, commercial term loans of $12.0 million, SBA loans of $6.0 million and residential property loans of $266,000.
(2) |  | Includes real estate loans of $73.7 million, commercial and industrial loans of $103.7 million, and consumer loans of $732,000 .
(3) |  | Includes properties from the foreclosure of commercial property loans of $308,000 and SBA loans of $990,000.
(4) |  | Includes commercial term loans of $8.8 million and commercial property loans of $14.9 million.
(5) |  | Includes real estate loans of $43.7 million, commercial and industrial loans of $124.1 million, and consumer loans of $388,000.
(6) |  | Includes properties from the foreclosure of real estate loans of $19.4 million, and commercial and industrial loans of $3.1 million.
FASB ASC 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis or non-recurring basis are discussed above. The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize 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. The estimated fair values of financial instruments were as follows:
|  | June 30, 2011 |  |  | December 31, 2010 |
|  | Carrying |  |  | Estimated |  |  | Carrying |  |  | Estimated |
|  | or Contract |  |  | Fair |  |  | or Contract |  |  | Fair |
|  | Amount |  |  | Value |  |  | Amount |  |  | Value |
|  |  |  |  |  | (In Thousands) |  |  |  |  |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and Cash Equivalents |  | $ | 198,923 |  |  | $ | 198,923 |  |  | $ | 249,720 |  |  | $ | 249,720 |
Investment Securities Held to Maturity |  |  | 833 |  |  |  | 835 |  |  |  | 845 |  |  |  | 847 |
Investment Securities Available for Sale |  |  | 390,212 |  |  |  | 390,212 |  |  |  | 413,118 |  |  |  | 413,118 |
Loans Receivable, Net of Allowance for Loan Losses |  |  | 1,959,564 |  |  |  | 1,943,118 |  |  |  | 2,084,447 |  |  |  | 2,025,368 |
Loans Held for Sale |  |  | 44,105 |  |  |  | 44,105 |  |  |  | 36,620 |  |  |  | 36,620 |
Accrued Interest Receivable |  |  | 7,512 |  |  |  | 7,512 |  |  |  | 8,048 |  |  |  | 8,048 |
Investment in Federal Home Loan Bank Stock |  |  | 25,076 |  |  |  | 25,076 |  |  |  | 27,282 |  |  |  | 27,282 |
Investment in Federal Reserve Bank Stock |  |  | 7,489 |  |  |  | 7,489 |  |  |  | 7,449 |  |  |  | 7,449 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest-Bearing Deposits |  |  | 600,812 |  |  |  | 600,812 |  |  |  | 546,815 |  |  |  | 546,815 |
Interest-Bearing Deposits |  |  | 1,797,563 |  |  |  | 1,807,148 |  |  |  | 1,919,906 |  |  |  | 1,927,314 |
Borrowings |  |  | 86,919 |  |  |  | 87,017 |  |  |  | 237,626 |  |  |  | 233,077 |
Accrued Interest Payable |  |  | 14,226 |  |  |  | 14,226 |  |  |  | 15,966 |  |  |  | 15,966 |
Off-Balance Sheet Items: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commitments to Extend Credit |  |  | 167,018 |  |  |  | 100 |  |  |  | 178,424 |  |  |  | 130 |
Standby Letters of Credit |  |  | 14,771 |  |  |  | 36 |  |  |  | 15,226 |  |  |  | 50 |
The methods and assumptions used to estimate the fair value of each class of financial instruments for which it was practicable to estimate that value are explained below: Cash and Cash Equivalents – For short-term instruments, including cash and due from banks, and interest bearing deposits with banks, the carrying amount is a reasonable estimate of fair value. Investment Securities – Fair values for investment securities are based on quoted market prices when available or through the use of market prices obtained from independent securities brokers or dealers, when market quotes are not readily accessible or available. Loans Receivable, Net of Allowance for Loan Losses – Fair values for loans receivable are estimated based on the discounted cash flow approach. The discount rate is derived from the associated yield curve plus spreads, and reflects the offering rates offered by the Bank for loans with similar financial characteristics. Yield curves are constructed by product type using the Bank’s loan pricing model for like-quality credits. The discount rates used in the Bank’s model represent the rates the Bank would offer to current borrowers for like-quality credits. These rates could be different from what other financial institutions could offer for these loans. No adjustments have been made for changes in credit within the loan portfolio. It is our opinion that the allowance for loan losses relating to performing and nonperforming loans results in a fair valuation of such loans. Additionally, the fair value of our loans may differ significantly from the values that would have been used had a ready market existed for such loans, and may differ materially from the values that we may ultimately realize. Loans Held for Sale – For loans held for sale, the carrying value approximates fair value. Accrued Interest Receivable – The carrying amount of accrued interest receivable approximates its fair value. Investment in Federal Home Loan Bank and Federal Reserve Bank Stock – The carrying amounts approximate fair value as the stock may be resold to the issuer at carrying value. Noninterest-Bearing Deposits – The fair value of noninterest-bearing deposits is equal to the amount payable on demand at the reporting date. Interest-Bearing Deposits – The fair value of interest-bearing deposits, such as savings accounts, money market checking, and certificates of deposit, is estimated based on the discounted value of contractual cash flows. The cash flows for non-maturity deposits, including savings accounts and money market checking, are estimated based on their historical decaying experiences. The discount rates used for fair valuation are based on interest rates currently being offered by the Bank on comparable deposits as to amount and term. Borrowings – Borrowings consist of Federal Home Loan Bank (“FHLB”) advances, junior subordinated debentures and other borrowings. Discounted cash flows are used to value borrowings. Accrued Interest Payable – The carrying amount of accrued interest payable approximates its fair value. Stock Warrants – The fair value of stock warrants is determined by the Black-Scholes option pricing model. The expected stock volatility is based on historical volatility of our common stock over expected term of the warrants. The expected life assumption is commensurate with the contract term. The dividend yield of zero is determined by the fact that we have no present intention to pay cash dividends. The risk free rate used for the warrant is equal to the zero coupon rate in effect at the time of the grant. Commitments to Extend Credit and Standby Letters of Credit – The fair values of commitments to extend credit and standby letters of credit are based upon the difference between the current value of similar loans and the price at which the Bank has committed to make the loans.

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Name: | us-gaap_FairValueDisclosuresAbstract
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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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