Fair Value Disclosures | 3 Months Ended |
Mar. 31, 2015 |
Fair Value Disclosures [Abstract] | |
Fair Value Disclosures | Note 5. | Fair Value Disclosures | | | | | | | | | | | | | | | |
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with ASC Topic 820, Fair Value Measurements and Disclosures, the fair value of a financial instrument is 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. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. |
ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the |
price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. |
ASC Topic 820 also establishes a three-tier fair value which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, as follows: |
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. |
Level 2 - Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets, 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. |
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There have been no changes in the methodologies used at March 31, 2015 and December 31, 2014. |
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments. |
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Cash, cash equivalents, and interest-bearing deposits in banks: |
The carrying amounts of cash, cash equivalents, and interest-bearing deposits in banks approximate fair values based on the short-term nature of the assets. These assets are included in Level 1 of the valuation hierarchy. |
Securities: |
Fair values are estimated using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. |
Investments, at cost: |
The carrying value of investments at cost approximate fair value. These assets are included in Level 3 of the valuation hierarchy. |
Loans: |
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair value for fixed-rate loans are estimated using discounted cash flow analyses, using market interest rates for comparable loans. These are reflected within Level 3 of the valuation hierarchy. The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, Receivables. The fair value of impaired loans is estimated using several methods including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2015, substantially all of the total impaired loans were evaluated based on the fair value of collateral. In accordance with ASC Topic 310, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on the observable market price or a current, independent appraised value, the Company records the impaired loan as nonrecurring Level 2. The Company records the impaired loan as nonrecurring Level 3 when management has become aware of events that have significantly impacted the condition or marketability of the collateral since the most recent appraisal which are not observable market prices. Also, certain impaired loans recorded as nonrecurring Level 3 are evaluated based on a discounted cash flow methodology comparing the contractual rate against the modified rate. In this case, management will reduce the appraisal value based on factors determined by their judgment and collective knowledge of the collateral and market conditions. |
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Foreclosed real estate: |
Foreclosed real estate consisting of properties obtained through foreclosure or in satisfaction of loans is initially recorded at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the fair value are recorded as a component of foreclosed real estate expense. Foreclosed real estate is included in Level 2 of the valuation hierarchy. |
Deposits: |
The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits and NOW, money market, and savings accounts, is equal to the amount payable on demand at the reporting date. The fair value of time deposits is based on the discounted value of contractual cash flows, and is included in Level 3 of the valuation hierarchy. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. |
Securities sold under agreements to repurchase: |
The estimated fair value of these liabilities, which are extremely short term, approximates their carrying value. These liabilities are included in Level 3 of the valuation hierarchy. |
Federal Home Loan Bank advances: |
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. These liabilities are included in Level 3 of the valuation hierarchy. |
Accrued interest: |
The carrying amounts of accrued interest approximate fair value. These assets and liabilities are included in Level 3 of the valuation hierarchy. |
Commitments to extend credit, letters of credit and lines of credit: |
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. |
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The tables below present the recorded amount of assets measured at fair value on a recurring basis: |
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| | | | | | | | | | | | | | | | |
| | Balance as of | | | Quoted Prices in | | | Significant | | | Significant | |
March 31, | Active Markets | Other | Other |
2015 | for Identical | Observable | Unobservable |
| Assets | Inputs | Inputs |
| (Level 1) | (Level 2) | (Level 3) |
Securities available for sale: | | | | | | | | | | | | | | | | |
Securities of U.S. Government agencies and corporations | | $ | 2,637,021 | | | $ | — | | | $ | 2,637,021 | | | $ | — | |
Mortgage-backed securities | | | 12,499,885 | | | | — | | | | 12,499,885 | | | | — | |
State and municipal securities | | | 13,164,193 | | | | — | | | | 13,164,193 | | | | — | |
| | | | | | | | | | | | | | | | |
Total securities available for sale | | $ | 28,301,099 | | | $ | — | | | $ | 28,301,099 | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | |
| | Balance as of | | | Quoted Prices in | | | Significant | | | Significant | |
December 31, | Active Markets | Other | Other |
2014 | for Identical | Observable | Unobservable |
| Assets | Inputs | Inputs |
| (Level 1) | (Level 2) | (Level 3) |
Securities available for sale: | | | | | | | | | | | | | | | | |
Securities of U.S. Government agencies and corporations | | $ | 2,629,854 | | | $ | — | | | $ | 2,629,854 | | | $ | — | |
Mortgage-backed securities | | | 13,037,123 | | | | — | | | | 13,037,123 | | | | — | |
State and municipal securities | | | 13,104,777 | | | | — | | | | 13,104,777 | | | | — | |
| | | | | | | | | | | | | | | | |
Total securities available for sale | | $ | 28,771,754 | | | $ | — | | | $ | 28,771,754 | | | $ | — | |
| | | | | | | | | | | | | | | | |
At March 31, 2015 and December 31, 2014, the Company had no assets or liabilities whose fair values are measured on a recurring basis using Level 3 inputs. Additionally, there were no transfers between Levels 1 and 2 during the three months ended March 31, 2015. |
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The tables below present information about assets for which a nonrecurring change in fair value was recorded: |
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| | | | | | | | | | | | | | | | |
| | Balance as of | | | Quoted Prices in | | | Significant | | | Significant | |
March 31, | Active Markets | Other | Other |
2015 | for Identical | Observable | Unobservable |
| Assets | Inputs | Inputs |
| (Level 1) | (Level 2) | (Level 3) |
Impaired loans | | $ | 2,713,371 | | | $ | — | | | $ | 993,261 | | | $ | 1,720,110 | |
Foreclosed real estate | | | 2,543,121 | | | | — | | | | 2,543,121 | | | | — | |
| | | | |
| | Balance as of | | | Quoted Prices in | | | Significant | | | Significant | |
December 31, | Active Markets | Other | Other |
2014 | for Identical | Observable | Unobservable |
| Assets | Inputs | Inputs |
| (Level 1) | (Level 2) | (Level 3) |
Impaired loans | | $ | 2,691,266 | | | $ | — | | | $ | 966,265 | | | $ | 1,725,001 | |
Foreclosed real estate | | | 1,942,844 | | | | — | | | | 1,942,844 | | | | — | |
For Level 3 assets measured at fair value on a non-recurring basis as of March 31, 2015, the significant unobservable inputs used in the fair value measurements are presented below. |
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| | | | | | | | | | | | | | | | |
| | Carrying | | | Valuation | | Significant | | Weighted | | | | | |
Amount | Technique | Unobservable | Average | | | | |
| | Input | of Input | | | | |
Impaired loans | | $ | 1,720,110 | | | Present | | Discounted | | | 6.5 | % | | | | |
Value | Cash Flows | | | | |
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The carrying amount and estimated fair value of the Company’s financial instruments at March 31, 2015 and December 31, 2014 are as follows: |
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| | | | | | | | | | | | | | | | |
| | March 31, 2015 | | | December 31, 2014 | |
| | Carrying | | | Estimated | | | Carrying | | | Estimated | |
Amount | Fair Value | Amount | Fair Value |
Financial assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 14,106,925 | | | $ | 14,106,925 | | | $ | 11,925,541 | | | $ | 11,925,541 | |
Securities available for sale | | | 28,301,099 | | | | 28,301,099 | | | | 28,771,754 | | | | 28,771,754 | |
Investments, at cost | | | 3,449,000 | | | | 3,449,000 | | | | 3,449,000 | | | | 3,449,000 | |
Loans, net | | | 243,559,302 | | | | 245,280,382 | | | | 238,558,389 | | | | 239,013,615 | |
Accrued interest receivable | | | 961,011 | | | | 961,011 | | | | 1,007,115 | | | | 1,007,115 | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Deposits | | | 256,427,335 | | | | 259,931,740 | | | | 248,572,231 | | | | 252,393,127 | |
Securities sold under agreements to repurchase | | | 833,035 | | | | 833,035 | | | | 1,512,993 | | | | 1,512,993 | |
Federal Home Loan Bank advances | | | 5,000,000 | | | | 5,000,000 | | | | 5,000,000 | | | | 5,000,112 | |
Accrued interest payable | | | 134,065 | | | | 134,065 | | | | 132,397 | | | | 132,397 | |
Unrecognized financial instruments (net of contract amount): | | | | | | | | | | | | | | | | |
Commitments to extend credit | | | — | | | | — | | | | — | | | | — | |
Letters of credit | | | — | | | | — | | | | — | | | | — | |
Lines of credit | | | — | | | | — | | | | — | | | | — | |