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DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
12 Months Ended
Dec. 31, 2014
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]  
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

 

For the Company, as for most financial institutions, approximately 90% of its assets and liabilities are considered financial instruments. Many of the Company's financial instruments, however, lack an available trading market characterized by a willing buyer and willing seller engaging in an exchange transaction. Therefore, significant estimates and present value calculations were used by the Company for the purpose of this disclosure.

 

Fair values have been determined by the Company using independent third party valuations that uses best available data (Level 2) and an estimation methodology (Level 3) the Company believes is suitable for each category of financial instruments. Management believes that cash and cash equivalents, and loans and deposits with floating interest rates have estimated fair values which approximate the recorded carrying values. The estimation methodologies used, the estimated fair values based on US GAAP measurements, and recorded carrying values at December 31, 2014 and 2013, were as follows:


At December 31, 2014
Carrying
Value

  Fair Value

   

  (Level 1)

   

  (Level 2)

   

  (Level 3)

 





      (IN THOUSANDS)         
FINANCIAL ASSETS:                                
Cash and cash equivalents   $ 32,872     $ 32,872     $ 32,872     $ -     $ -  
Investment securities - AFS     127,110       127,110       -       127,110       -  
Investment securities – HTM     19,840       20,213       -       17,241       2,972  
Regulatory stock     6,173       6,173       6,173       -       -  
Loans held for sale     5,051       5,127       5,127       -       -  
Loans, net of allowance for loan loss and unearned income     817,457       819,935       -       -       819,935  
Accrued interest income receivable     3,127       3,127       3,127       -       -  
Bank owned life insurance     37,417       37,417       37,417       -       -  
                                         
FINANCIAL LIABILITIES:                                        
Deposits with no stated maturities   $ 568,625     $ 568,625     $ 568,625     $ -     $ -  
Deposits with stated maturities     301,256       304,744       -       -       304,744  
Short-term borrowings     38,880       38,880       38,880       -       -  
All other borrowings     55,085       59,256       -       -       59,256  
Accrued interest payable     1,706       1,706       1,706       -       -  

 

At December 31, 2013
Carrying  Value Fair Value     (Level 1)     (Level 2)     (Level 3)  
      (IN THOUSANDS)          
FINANCIAL ASSETS:                                
Cash and cash equivalents   $ 30,066     $ 30,066     $ 30,066     $ -     $ -  
Investment securities - AFS     141,978       141,978       -       141,978       -  
Investment securities – HTM     18,187       17,788       -       14,822       2,966  
Regulatory stock     6,802       6,802       6,802       -       -  
Loans held for sale     3,402       3,453       3,453       -       -  
Loans, net of allowance for loan loss and unearned income     773,242       771,460       -       -       771,460  
Accrued interest income receivable     2,908       2,908       2,908       -       -  
Bank owned life insurance     36,669       36,669       36,669       -       -  
                                         
FINANCIAL LIABILITIES:                                        
Deposits with no stated maturities   $ 546,384     $ 546,384     $ 546,384     $ -     $ -  
Deposits with stated maturities     308,138       313,272       -       -       313,272  
Short-term borrowings     41,555       41,555       41,555       -       -  
All other borrowings     38,085       40,598       -       -       40,598  
Accrued interest payable     1,784       1,784       1,784       -       -  

            The fair value of cash and cash equivalents, regulatory stock, accrued interest income receivable, short-term borrowings, and accrued interest payable are equal to the current carrying value.

 

The fair value of investment securities is equal to the available quoted market price for similar securities. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the US Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things. The Level 3 securities are valued by discounted cash flows using the US Treasury rate for the remaining term of the securities.

 

Loans held for sale are priced individually at market rates on the day that the loan is locked for commitment with an investor. All loans in the held for sale account conform to Fannie Mae underwriting guidelines, with the specific intent of the loan being purchased by an investor at the predetermined rate structure. Loans in the held for sale account have specific delivery dates that must be executed to protect the pricing commitment (typically a 30, 45, or 60 day lock period).

 

The net loan portfolio has been valued using a present value discounted cash flow. The discount rate used in these calculations is based upon the treasury yield curve adjusted for non-interest operating costs, credit loss, current market prices and assumed prepayment risk.

 

The fair value of bank owned life insurance is based upon the cash surrender value of the underlying policies and matches the book value.

 

Deposits with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Deposits with no stated maturities have an estimated fair value equal to both the amount payable on demand and the recorded book balance.

 

The fair value of all other borrowings is based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities.

 

Commitments to extend credit and standby letters of credit are financial instruments generally not subject to sale, and fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments are presented in Note 16.

 

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Company's remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary under historical cost accounting.