4. FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2011

Fair Value Disclosures [Text Block]

4.           FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FASB ASC 820, “Financial Instruments”. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company 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 following methods and assumptions were used by the Company in estimating fair values of financial instruments:

Interest-bearing Bank Balances– Interest-bearing bank balances mature within one year and are carried at cost, which are estimated to be reasonably close to fair value.

Money Market Investments– The fair value of these securities approximates their carrying value due to the relatively short time to maturity

Investment Securities, Available For Sale– The estimated fair value of these securities is determined by using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

Loans Receivable- The fair value of commercial and construction loans is approximated by the carrying value as the loans are tied directly to the Prime Rate and are subject to change on a daily basis, subject to the applicable interest rate floors. The fair value of the remainder of the portfolio is determined by discounting the future cash flows of the loans using the appropriate discount rate.

Other Financial Assets- The fair value of these assets, principally accrued interest receivable, approximates their carrying value due to their short maturity.

Non-Interest Bearing and Interest Bearing Deposits - The fair value disclosed for non-interest bearing deposits is equal to the amount payable on demand at the reporting date. The fair value of interest bearing deposits is based upon the current rates for instruments of the same remaining maturity. Interest bearing deposits with a maturity of greater than one year are estimated using a discounted cash flow approach that applies interest rates currently being offered.

Other Liabilities - The estimated fair value of other liabilities, which primarily include accrued interest payable, approximates their carrying amount.

The carrying amounts and estimated fair values of financial instruments, at September 30, 2011 and December 31, 2010 are as follows:

	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial Assets:
Cash and cash equivalents	$	47,214,664	$	47,214,664	$	28,764,987	$	28,764,987
Investment securities, available for sale		113,007,622		113,007,622		121,307,907		121,307,907
Loans receivable		80,804,304		81,806,839		80,261,004		81,526,941
Other financial assets		594,314		594,314		673,967		673,967
Total Financial Assets	$	241,620,904	$	242,623,439	$	231,007,865	$	232,273,802
Financial Liabilities:
Non-interest bearing deposits	$	78,549,968	$	78,549,968	$	66,626,755	$	66,626,755
Interest bearing deposits		137,312,568		137,198,331		140,779,902		140,634,427
Other liabilities		16,341		16,341		19,039		19,039
Total Financial Liabilities	$	215,878,877	$	215,764,640	$	207,425,696	$	207,280,221

ASC 825 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing and asset or liability.

The fair value of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or using matrix pricing, which is a mathematical technique widely used 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 (Level 2 inputs).

	Fair Value Measurements at September 30, 2011 Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
FNMA MBS - Residential	$	2,631,211	$	—	$	2,631,211	$	—
GNMA MBS - Residential		7,363,017		—		7,363,017		—
Whole Loan MBS-Residential		884,191		—		884,191		—
Collateralized mortgage obligations		102,129,203		—		102,129,203		—
Total Available for sale Securities	$	113,007,622	$	—	$	113,007,622	$	—

	Fair Value Measurements at December 31, 2010 Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
FNMA MBS - Residential	$	3,571,217	$	—	$	3,571,217	$	—
GNMA MBS - Residential		4,081,112		—		4,081,112		—
Whole Loan MBS - Residential		1,235,501		—		1,235,501		—
Collateralized mortgage obligations		112,420,077		—		112,420,077		—
Total Available for sale Securities	$	121,307,907	$	—	$	121,307,907	$	—

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on internally customized discounting criteria and updated appraisals when received.

	Fair Value Measurements at September 30, 2011 Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
Commercial Real Estate	$	1,266,982		—		—	$	1,266,982

	Fair Value Measurements at December 31, 2010 Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
Commercial Real Estate	$	643,758		—		—	$	643,758

As of September 30, 2011, we had four impaired loans with specific reserves that were collateral dependent. Collateral dependent impaired loans, which are measured for impairment using the fair value of the collateral, had a carrying amount of $1,355,141, with a valuation allowance of $88,159 at that date.

As of December 31, 2010, we had two impaired loans with specific reserves that were collateral dependent. Collateral dependent impaired loans, which are measured for impairment using the fair value of the collateral, had a carrying amount of $727,217, with a valuation allowance of $83,459 at that date.