Note 6 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2013

Disclosure Text Block Supplement [Abstract]

Financial Instruments Disclosure [Text Block]

(6) Fair Value of Financial Instruments

Generally accepted accounting principles require interim reporting period disclosure about the fair value of financial instruments, including assets, liabilities and off-balance sheet items for which it is practicable to estimate fair value. The fair value hierarchy level for each asset and liability, as defined in note 5, have been included in the following table for September 30, 2013. The fair value estimates are made based upon relevant market information, if available, and upon the characteristics of the financial instruments themselves. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based upon judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. The estimated fair value of the Company’s financial instruments as of September 30, 2013 and December 31, 2012 are shown below.

	September 30, 2013														December 31, 2012
							Fair value hierarchy														Fair value hierarchy
(Dollars in thousands)	Carrying amount			Estimated fair value			Level 1		Level 2		Level 3		Contract amount		Carrying amount			Estimated fair value			Level 1		Level 2		Level 3		Contract amount
Financial assets:
Cash and cash equivalents	$	57,652			57,652			57,652		0		0				83,660			83,660			83,660		0		0
Securities available for sale		89,687			89,687			0		89,687		0				85,891			85,891			81		85,810		0
Loans held for sale		1,180			1,180			0		1,180		0				2,584			2,584			0		2,584		0
Loans receivable, net		393,322			397,827			0		397,827		0				454,045			459,177			0		459,177		0
Accrued interest receivable		1,817			1,817			0		1,817		0				2,018			2,018			0		2,018		0
Financial liabilities:
Deposits		485,921			485,921			0		485,921		0				514,951			514,951			0		514,951		0
Federal Home Loan Bank advances		0			0			0		0		0				70,000			71,623			0		71,623		0
Accrued interest payable		127			127			0		127		0				247			247			0		247		0
Off-balance sheet financial instruments:
Commitments to extend credit		22			22									119,398		27			27									84,877
Commitments to sell loans		(46	)		(46	)								2,533		(40	)		(40	)								7,046

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents approximates their fair value.

Securities Available for Sale

The fair values of securities were based upon quoted market prices for identical or similar instruments in active markets.

Loans Held for Sale

The fair values of loans held for sale were based upon quoted market prices for loans with similar interest rates and terms to maturity.

Loans Receivable, net

The fair value of the loan portfolio, with the exception of the adjustable rate portfolio, was calculated by discounting the scheduled cash flows through the estimated maturity using anticipated prepayment speeds and using discount rates that reflect the credit and interest rate risk inherent in each loan portfolio. The fair value of the adjustable loan portfolio was estimated by grouping the loans with similar characteristics and comparing the characteristics of each group to the prices quoted for similar types of loans in the secondary market. This method of estimating fair value does not incorporate the exit-price concept of fair value perscribed by ASC 820, Fair Value Measurements and Disclosures.

Accrued Interest Receivable

The carrying amount of accrued interest receivable approximates its fair value since it is short-term in nature and does not present unanticipated credit concerns.

Deposits

The fair value of demand deposits, savings accounts and certain money market account deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. If the fair value of the fixed maturity certificates of deposit is calculated at less than the carrying amount, the carrying value of these deposits is reported as the fair value.

The fair value estimate for deposits does not include the benefit that results from the low cost funding provided by the Company's existing deposits and long-term customer relationships compared to the cost of obtaining different sources of funding. This benefit is commonly referred to as the core deposit intangible.

Federal Home Loan Bank Advances

The fair values of advances with fixed maturities are estimated based on discounted cash flow analysis using as discount rates the interest rates charged by the FHLB for borrowings of similar remaining maturities.

Accrued Interest Payable

The carrying amount of accrued interest payable approximates its fair value since it is short-term in nature.

Commitments to Extend Credit

The fair values of commitments to extend credit are estimated using the fees normally charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties.

Commitments to Sell Loans

The fair values of commitments to sell loans are estimated using the quoted market prices for loans with similar interest rates and terms to maturity.