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Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2012

Investments, All Other Investments [Abstract]

Note 17. Fair Values of Financial Instruments

ASC Topic 825, Disclosure about Fair Value of Financial Instruments, requires the disclosure of the estimated fair values of financial instruments. Quoted market prices, where available, are shown as estimates of fair values. Because no quoted market prices are available or a significant part of the Company’s financial instruments, the fair values of such instruments have been derived based on the amount and timing of future cash flows and estimated discount rates.

Present value techniques used in estimating the fair value of the Company’s financial instruments are significantly affected by the assumptions used. Fair values derived from using present value techniques are not substantiated by comparisons to independent markets, and in many cases, could not be realized in immediate settlement of the instruments.

ASC Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following table shows the estimated fair value and the related carrying values of the Company’s financial instruments as December 31, 2012, 2011, and 2010. Items that are not financial instruments are not included.

	2012				2011				2010
	Carrying		Fair		Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	9,332,087	$	9,332,087	$	6,877,110	$	6,877,110	$	6,492,313	$	6,492,313
Interest-bearing deposits in other financial institutions		6,627,394		6,627,394		2,422,579		2,422,579		1,567,673		1,567,673
Federal funds sold		2,669,101		2,669,101		653,901		653,901		940,317		940,317
Investment securities available for sale		100,490,267		100,490,267		102,866,555		102,866,555		87,268,359		87,268,359
Federal Home Loan Bank Stock		1,448,000		1,448,000		1,520,400		1,520,400		1,745,100		1,745,100
Maryland Financial Bank Stock		30,000		30,000		30,000		30,000		100,000		100,000
Ground rents		175,200		175,200		175,200		175,200		178,200		178,200
Loans, less allowance for credit losses		249,631,525		251,419,000		232,734,257		231,912,000		229,850,888		234,426,000
Accrued interest receivable		1,450,321		1,450,321		1,541,519		1,541,519		1,538,883		1,538,883

Financial liabilities:
Deposits		332,288,886		314,680,000		311,944,661		293,713,000		294,444,828		269,480,000
Short-term borrowings		-		-		254,749		254,749		4,273,948		4,273,948
Long-term borrowings		20,000,000		21,899,000		20,000,000		21,425,000		20,000,000		19,611,000
Dividends payable		-		-		271,791		271,791		231,579		231,579
Accrued interest payable		28,365		28,365		48,101		48,101		55,131		55,131
Unrecognized financial instruments:
Commitments to extend credit		26,235,516		26,235,516		22,704,032		22,704,032		21,690,058		21,690,058
Standby letters of credit		32,000		32,000		32,000		32,000		71,762		71,762

For purposes of the disclosures of estimated fair value, the following assumptions were used.

Loans:

The estimated fair value for loans is determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Investment securities:

Fair values for investment securities are based on quoted market prices, where applicable. When quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Deposits:

The estimated fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW accounts and money market accounts, is equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair value of certificates of deposit is based on the rates currently offered for deposits of similar maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Borrowings:

The estimated fair value approximates carrying value for short-term borrowings. The fair value of long-term fixed rate borrowings is estimated by discounting future cash flows using current interest rates currently offered for similar financial instruments over the same maturities.

Other assets and liabilities:

The estimated fair values for cash and due from banks, interest-bearing deposits in other financial institutions, Federal funds sold, accrued interest receivable and payable, and short-term borrowings are considered to approximate cost because of their short-term nature.

Other assets and liabilities of the Bank that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. In addition, non-financial instruments typically not recognized in the financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill, and similar items.