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Fair Values of Financial Instruments | 9 Months Ended
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Sep. 30, 2012
Fair Values of Financial Instruments [Abstract] |
FAIR VALUES OF FINANCIAL INSTRUMENTS |
10. | FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amount, estimated fair value and level within the fair value hierarchy of financial instruments were as follows as of September 30, 2012 and December 31, 2011 (dollars in thousands):
|  | Level in |  | September 30, 2012 |  |  | December 31, 2011 |
|  | Fair Value |  | Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
|  | Hierarchy |  | Values |  |  | Values |  |  | Values |  |  | Values |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | Level 1 |  | $ | 1,427 |  |  | $ | 1,427 |  |  | $ | 1,311 |  |  | $ | 1,311 |
Cash equivalents |  | Level 2 |  |  | 102,568 |  |  |  | 102,568 |  |  |  | 75,061 |  |  |  | 75,061 |
Securities available for sale |  | (1) |  |  | 135,660 |  |  |  | 135,660 |  |  |  | 172,992 |  |  |  | 172,992 |
Federal Home Loan Bank stock |  | Level 2 |  |  | 11,961 |  |  |  | 11,961 |  |  |  | 11,961 |  |  |  | 11,961 |
Loans, net |  | Level 3 |  |  | 1,007,526 |  |  |  | 998,664 |  |  |  | 1,035,890 |  |  |  | 1,035,164 |
Bank owned life insurance |  | Level 2 |  |  | 49,690 |  |  |  | 49,690 |  |  |  | 48,520 |  |  |  | 48,520 |
Accrued interest receivable |  | Level 2 |  |  | 3,939 |  |  |  | 3,939 |  |  |  | 4,403 |  |  |  | 4,403 |
Purchased interest rate cap |  | (1) |  |  | 17 |  |  |  | 17 |  |  |  | 312 |  |  |  | 312 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | Level 2 |  |  | 1,107,566 |  |  |  | 1,109,599 |  |  |  | 1,112,075 |  |  |  | 1,117,803 |
Securities sold under agreements to repurchase |  | Level 2 |  |  | 60,031 |  |  |  | 60,031 |  |  |  | 72,569 |  |  |  | 72,569 |
Federal Home Loan Bank advances |  | Level 2 |  |  | 35,000 |  |  |  | 35,153 |  |  |  | 45,000 |  |  |  | 46,019 |
Subordinated debentures |  | Level 2 |  |  | 32,990 |  |  |  | 32,912 |  |  |  | 32,990 |  |  |  | 33,096 |
Accrued interest payable |  | Level 2 |  |  | 1,970 |  |  |  | 1,970 |  |  |  | 2,839 |  |  |  | 2,839 |
Sold interest rate cap |  | (1) |  |  | 1 |  |  |  | 1 |  |  |  | 55 |  |  |  | 55 |
Interest rate swap |  | (1) |  |  | 1,106 |  |  |  | 1,106 |  |  |  | 0 |  |  |  | 0 |
(1) | See Note 11 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 and the interest rate swap 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 11. Given 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.

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