Same commitment. - Seaway Bank and Trust Company

Note 2, continued
December 31, 2007: consolidated B bank Only
estimated Fair Value Approximate Carrying Value estimated Fair Value Approximate Carrying Value
Financial Assets:
Cash and Short-term Investments $ 18,463,000 $ 18,463,000 $ 18,462,000 $ 18,462,000
Investment Securities 131,951,000 131,951,000 131,951,000 131,951,000
Loans 177,571,000 181,246,000 177,571,000 181,246,000
Unallocated Reserves for loan losses — (1,840,000) — (1,840,000)
Loan, Net 177,571,000 179,406,000 177,571,000 179,406,000
Total Financial Assets $ 327,985,000 $ 329,820,000 $ 327,984,000 $ 329,819,000
Financial Liabilities
Deposits 300,148,000 300,148,000 301,034,000 301,034,000
Short-Term Borrowings 1,125,000 1,125,000 1,125,000 1,125,000
Long-Term Debt 10,660,000 11,186,000 5,597,000 5,000,000
Total Financial Liabilities 311,933,000 312,459,000 307,756,000 307,159,000
Core Deposit Intangibles 12,631,000 — 12,691,000 —
Fixed Assets and Net Other Assets and Liabilities 11,747,000 11,747,000 12,528,000 12,528,000
Net Total Asset Value $ 40,430,000 $ 29,108,000 $ 45,447,000 $ 35,188,000
Note 3 — Fair Value Measurements
Effective January 1, 2008 the Corporation adopted the provisions of SFAS No.
157, “Fair Value Measurements” for assets and liabilities measured and reported at
fair value. SFAS 157 defined fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements.
SFAS 157 defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants.
SFAS 157 requires the use of valuation techniques that are consistent with
the market approach, the income approach and/or the cost approach. Inputs to
valuation techniques refer to the assumptions that market participants would
use in pricing the asset or liability. Inputs may be observable, meaning those that
reflect the assumptions market participants would use in pricing the asset or
liability developed based on market data obtained from independent sources, or
unobservable, meaning those that reflect the reporting entity’s own assumptions
about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances. In
that regard, SFAS 157 established a fair value hierarchy for valuation inputs that
gives the highest priority to quoted prices in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The fair value hierarchy
is as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own
assumptions about the assumptions that market participants would use in pricing
an asset or liability.
A description of the valuation methodologies used for assets and liabilities
measure at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy, is set forth below.
Securities Available for Sale
When available, quoted market prices are used to determine the fair value of
investment securities and such items are classified within Level 1 of the fair value
hierarchy. An example is U.S. Treasury securities. For other securities, the Corporation
determines fair value based on various sources and may apply matrix pricing
with observable prices for similar bonds where a price for the identical bond
is not observable. Securities measured at fair value by such methods are classified
as Level 2. Certain securities are not valued based on observable transactions and
are, therefore, classified as Level 3. The fair value of these securities is based on
management’s best estimates.
Impaired Loans
Impaired loans are evaluated and valued at the time the loan is identified as
impaired, at the lower cost of fair value. Fair value is measured based on the value
of the collateral securing these loans and is classified at a level 3 in the fair value
hierarchy. Collateral may be real estate and/or business assets including equipment,
inventory and/or accounts receivable and is determined based on appraisals
by qualified licensed appraisers hired by the Corporation. Appraised and reported
values may be discounted based on management’s historical knowledge, changes
in market conditions from the time of valuation, and/or management’s expertise
and knowledge of the client and client’s business.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value. The fair value
of loans held for sale is based on what secondary markets are currently offering
for portfolios with similar characteristics. As such, the Corporation classifies loans
subjected to nonrecurring fair value adjustments as Level 2.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following table summarizes assets and liabilities measured at fair value on a recurring basis as of December 31, 2008, segregated by the level of the valuation inputs
within the fair value hierarchy utilized to measure fair value.
Fair Value Measurements at December 31, 2008 Using:
December 31, 2008 Quoted Prices in Active Significant Other Significant
markets for Identical Observable Inputs unobservable Inputs
Assets (Level 1) (Level 2) (Level 3)
Securities available for sale 137,928,610 1,147,508 136,781,102 —
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Corporation may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted
accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.
Assets measured at fair value on a nonrecurring basis are included in the table below.
Fair Value Measurements at December 31, 2008 Using:
December 31, 2008 Quoted Prices in Active Significant Other Significant
markets for Identical Observable Inputs unobservable Inputs
Assets (Level 1) (Level 2) (Level 3)
Impaired loans 1,000,000 — — 1,000,000
Loans held for sale 220,918 — 220,918 —
Impaired loans with a carrying amount of $1,060,000 were written down to the fair value $1,000,000 less cost to sell of $100,000 resulting in a valuation allowance of
$160,000 included in the allowance for loan losses.
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