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## Presentation of Cash Flows 

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and short -term investments purchased with a maturity date of three months or less. Generally, federal funds are purchased or sold for one -day periods. 

## Transfers of Financial Assets 

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when ( 1) the assets have been isolated from the Bank, ( 2) the transferee obtains the right ( free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and 3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. 

## Loans Held - for -Sale 

Loans held - for -sale consist of residential mortgages. All residential mortgages held - for -sale are sold servicing released. 

## Fair Value Option 

Financial Accounting Standards Board ( FASB) Accounting Standard Codification ( ASC) Subtopic 825- 10 permits entities to measure many financial instruments and certain other items at fair value and requires certain disclosures for items for which the fair value option is applied. 

The Bank records mortgage loans held - for -sale at fair value. The Bank measures mortgage loans held - for -sale at fair value to more accurately reflect the performance of its entire mortgage banking activities in its financial statements. Derivative financial instruments related to these activities are also recorded at fair value, as detailed under the heading " Derivative Financial Instruments" below. The Bank determines fair value for its mortgage loans held - for -sale based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Changes in fair value during the period are recorded as components of gains on sales of loans on the statement of income. Interest income earned on mortgage loans held - for -sale is classified within interest income on the statement of income. 

The following table presents a summary of the Bank’ s fair value elections and their impact on the Bank’ s financial statements as of and for the years ended December 31, 2013 and 2012 ( in thousands): 

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