NOTE R - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities Available for Sale

Management utilizes quoted market pricing for the fair value of the Corporation's securities that are available for sale, if available. If a quoted market rate is not available, fair value is estimated using quoted market prices for similar securities.

Regulatory Stock

Regulatory stock is valued at a stable dollar price, which is the price used to purchase or liquidate shares; therefore the carrying amount is a reasonable estimate of fair value.

Loans Held for Sale

Loans held for sale are individual loans for which the Corporation has a firm sales commitment; therefore, the carrying value is a reasonable estimate of the fair value.

Loans

The fair value of fixed and variable rate loans is estimated by discounting back the scheduled future cash flows of the particular loan product, using the market interest rates of comparable loan products in the Corporation's greater market area, with the same general structure, comparable credit ratings, and for the same remaining maturities.

Accrued Interest Receivable

The carrying amount of accrued interest receivable is a reasonable estimate of fair value.

Bank-Owned Life Insurance

Fair value is equal to the cash surrender value of the life insurance policies.

Deposits

The fair value of non-interest bearing demand deposit accounts and interest bearing demand deposit and savings accounts is based on the amount payable on demand at the reporting date. The fair value of fixed-maturity time deposits is estimated by discounting back the expected cash flows of the time deposit using market interest rates from the Corporation's greater market area, which are currently being offered for similar time deposits with similar remaining maturities.

Borrowings

The fair value of a term borrowing is estimated by comparing the rate currently offered for the same type of borrowing instrument with a matching remaining term.

Accrued Interest Payable

The carrying amount of accrued interest payable is a reasonable estimate of fair value.

Firm Commitments to Extend Credit, Lines of Credit, and Open Letters of Credit

These financial instruments are generally not subject to sale and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, 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, is not considered material for disclosure purposes. The contractual amounts of unfunded commitments are presented in Note O.

The carrying amounts and estimated fair values of the Corporation's financial instruments at December 31, 2014, are summarized as follows:

FAIR VALUE OF FINANCIAL INSTRUMENTS

(DOLLARS IN THOUSANDS)

	December 31, 2014
					Quoted Prices in
					Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level I)		(Level II)		(Level III)
		$		$		$		$		$
Financial Assets:
Cash and cash equivalents		43,412		43,412		43,412		—		—
Securities available for sale		295,822		295,822		5,208		290,614		—
Regulatory stock		3,227		3,227		3,227		—		—
Loans held for sale		506		506		506		—		—
Loans, net of allowance		464,027		463,197		—		—		463,197
Accrued interest receivable		3,706		3,706		3,706		—		—
Bank owned life insurance		20,603		20,603		20,603		—		—

Financial Liabilities:
Demand deposits		210,444		210,444		210,444		—		—
Interest-bearing demand deposits		14,039		14,039		14,039		—		—
NOW accounts		72,951		72,951		72,951		—		—
Money market deposit accounts		69,442		69,442		69,442		—		—
Savings accounts		131,206		131,206		131,206		—		—
Time deposits		201,569		203,787		—		—		203,787
Total deposits		699,651		701,869		498,082		—		203,787

Long-term debt		62,300		63,058		—		—		63,058

Accrued interest payable		586		586		586		—		—

The carrying amounts and estimated fair values of the Corporation's financial instruments at December 31, 2013, are summarized as follows:

FAIR VALUE OF FINANCIAL INSTRUMENTS

(DOLLARS IN THOUSANDS)

	December 31, 2013
					Quoted Prices in
					Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level I)		(Level II)		(Level III)
		$		$		$		$		$
Financial Assets:
Cash and cash equivalents		24,577		24,577		24,577		—		—
Securities available for sale		300,328		300,328		5,171		295,157		—
Regulatory stock		3,660		3,660		3,660		—		—
Loans held for sale		59		59		59		—		—
Loans, net of allowance		431,001		434,049		—		—		434,049
Accrued interest receivable		3,605		3,605		3,605		—		—
Bank owned life insurance		19,911		19,911		19,911		—		—

Financial Liabilities:
Demand deposits		173,070		173,070		173,070		—		—
Interest-bearing demand deposits		13,055		13,055		13,055		—		—
NOW accounts		70,540		70,540		70,540		—		—
Money market deposit accounts		61,882		61,882		61,882		—		—
Savings accounts		120,935		120,935		120,935		—		—
Time deposits		217,144		221,172		—		—		221,172
Total deposits		656,626		660,654		439,482		—		221,172

Short-term borrowings		3,900		3,900		3,900		—		—
Long-term debt		65,000		66,934		—		—		66,934

Accrued interest payable		699		699		699		—		—