Note

– Fair Value of Financial Instruments –

Fair Value Disclosures

The Company groups its financial assets and liabilities measured at fair value in

three

levels. Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The

three

levels of inputs used to measure fair value are as follows:

●

Level

– Includes the most reliable sources, and includes quoted prices in active markets for identical assets or liabilities.

●

Level

– Includes observable inputs. Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

●

Level

– Includes unobservable inputs and should be used only when observable inputs are unavailable.

Recurring Basis

Fair values of investment securities available for sale were primarily measured using information from a

third

-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.

The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics.

The following tables present the balance of assets and liabilities measured on a recurring basis as of

December 31, 2019

and

2018.

The Company did

not

record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

	Fair Value		Level 1		Level 2		Level 3

	(Dollars in thousands)
December 31, 2019
Available for Sale:
U.S. Government Agency Securities	$	15,937	$	-	$	15,937	$	-
Corporate Securities		23,714		-		23,714		-
Mortgage-Backed Securities		139,459		-		139,459		-
Municipal Securities		99,083		-		92,496		6,587
Mortgage Loans Held for Sale		251		-		251		-

Total	$	278,444	$	-	$	271,857	$	6,587


December 31, 2018
Available for Sale:
U.S. Government Agency Securities	$	17,439	$	-	$	17,439	$	-
Corporate Securities		12,692		-		12,692		-
Mortgage-Backed Securities		165,618		-		165,618		-
Municipal Securities		113,767		-		105,383		8,384
Mortgage Loans Held for Sale		58		-		58		-

Total	$	309,574	$	-	$	301,190	$	8,384

Nonrecurring Basis

The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The Company did

not

record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis.

The fair value of the impaired loans is measured at the fair value of the collateral for collateral-dependent loans. Impaired loans are Level

assets measured using appraisals from external parties of the collateral less any prior liens. Repossessed assets are initially recorded at fair value less estimated cost to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Bank records repossessed assets as Level

	Fair Value		Level 1		Level 2		Level 3

	(Dollars in thousands)
December 31, 2019
Assets:
Impaired Loans	$	15,876	$	-	$	15,876	$	-
Repossessed Assets		4,196		-		4,196		-

Total	$	20,072	$	-	$	20,072	$	-

December 31, 2018
Assets:
Impaired Loans	$	21,557	$	-	$	21,557	$	-
Repossessed Assets		1,920		-		1,920		-

Total	$	23,477	$	-	$	23,477	$	-

Fair Value Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are

quoted market prices for the Company’s various financial instruments. 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. In accordance with generally accepted accounting principles, certain financial instruments and all non-financial instruments are excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented

may

not

necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Short-Term Investments – For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – Fair value of securities is based on quoted market prices. If a quoted market price is

not

available, fair value is estimated using quoted market prices for similar securities.

Loans – The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses, which was used to measure the credit risk, is subtracted from loans.

Cash Value of Bank-Owned Life Insurance (BOLI) – The carrying amount approximates its fair value.

Other Equity Securities – The carrying amount approximates its fair value.

Deposits – The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.

Borrowings – The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities. The carrying amount of short-term borrowings maturing within

ninety

days approximates the fair value.

Commitments to Extend Credit and Standby and Commercial Letters of Credit – The fair values of commitments to extend credit and standby and commercial letters of credit do

not

differ significantly from the commitment amount and are therefore omitted from this disclosure.

The estimated approximate fair values of the Bank’s financial instruments as of

December 31, 2019

and

2018

are as follows:

	Carrying		Total
	Amount		Fair Value		Level 1		Level 2		Level 3

	(Dollars in thousands)
December 31, 2019
Financial Assets:
Cash and Short-Term Investments	$	150,743	$	150,743	$	150,743	$	-	$	-
Securities		278,193		278,193		-		271,606		6,587
Mortgage Loans Held for Sale		251		251		-		251		-
Loans - Net		1,698,141		1,696,470		-		-		1,696,470
Cash Value of BOLI		32,568		32,568		-		32,568		-
Other Equity Securities		12,565		12,565		-		-		12,565

Total	$	2,172,461	$	2,170,790	$	150,743	$	304,425	$	1,715,622

Financial Liabilities:
Deposits	$	1,782,010	$	1,782,692	$	-	$	-	$	1,782,692
Borrowings		185,989		202,863		-		202,863		-

Total	$	1,967,999	$	1,985,555	$	-	$	202,863	$	1,782,692


December 31, 2018
Financial Assets:
Cash and Short-Term Investments	$	137,908	$	137,908	$	137,908	$	-	$	-
Securities		309,516		309,516		-		301,132		8,384
Mortgage Loans Held for Sale		58		58		-		58		-
Loans - Net		1,517,249		1,495,454		-		-		1,495,454
Cash Value of BOLI		31,882		31,882		-		31,882		-
Other Equity Securities		9,282		9,282		-		-		9,282

Total	$	2,005,895	$	1,984,100	$	137,908	$	333,072	$	1,513,120

Financial Liabilities:
Deposits	$	1,733,934	$	1,717,698	$	-	$	-	$	1,717,698
Borrowings		92,229		104,930		-		104,930		-

Total	$	1,826,163	$	1,822,628	$	-	$	104,930	$	1,717,698