NOTE

– FAIR VALUES OF FINANCIAL INSTRUMENTS

The following is a description of the valuation methodologies used for assets measured at fair value. There have been

changes in the methodologies used at

September 30, 2017

and

December 31, 2016.

Available-for-sale Securities

–

Where quoted market prices are available in an active market, securities are classified within Level

of the valuation hierarchy. Level

securities include highly-liquid government bonds, mortgage products and exchange-traded equities. If quoted market prices are

not

available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level

securities include certain collateralized mortgage and debt obligations and certain municipal securities. In certain cases where Level

or Level

inputs are

not

available, securities are classified within Level

of the hierarchy and include certain residual municipal securities and other less liquid securities.

Loans Held for Sale

–

The fair value of loans held for sale is based on quoted or contractual market prices from active investors. Quotes are updated daily and represent prices at which loans

may

be exchanged in bulk bids in a liquid market.

Other Real Estate

–

Other real estate is fair valued under Level

based on property appraisals less estimated disposition costs, which include both observable and unobservable inputs, at the time of transfer and as appropriate thereafter.

Loans Held for Investment

–

Loans held for investment are generally

not

recorded at fair value on a recurring basis. Periodically, the Bank records nonrecurring adjustments to the carrying value of these loans based on fair value measurements for loans subject to impairment. The fair value of impaired loans is typically determined using a combination of observable inputs, such as interest rates, contract terms, appraisals of collateral supporting the loan and recent comparable sales of similar properties, and unobservable inputs such as creditworthiness, disposition costs and underlying cash flows associated with the loan. Since the estimates of fair value utilized for loans also involve unobservable inputs, valuations of impaired loans have been classified as Level

Derivative Financial Instruments -

The estimated fair value of interest rate lock commitments is based on the value of the underlying mortgage loan, quoted MBS prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of commission and other marginal direct expenses. The Company estimates the fair value of forward sales commitments based on quoted MBS prices, which are considered Level

With respect to its interest rate lock commitments ("IRLCs"), management determined that a Level

classification was most appropriate based on the various significant unobservable inputs utilized in estimating the fair value of its IRLCs. Changes in fair value of the Company's derivative financial instruments are recognized through "Gain on sale of loans" on its consolidated statements of operations.

The following table sets forth by level, within the fair value hierarchy, the Company

’s assets at fair value:

	Fair Value Measurements Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Fair Value

September 30, 2017
Recurring basis
Mortgage-backed securities	$	-	$	22,994,426	$	-	$	22,994,426
U.S. Government agencies		-		2,031,252		-		2,031,252
Municipal obligations		-		1,689,831		-		1,689,83
Derivative assets (IRLC's)		-		-		235,401		235,401
Derivative assets (MBS forward trades)		-		21,016		-		21,016
Nonrecurring basis
Loans held for sale		-		10,479,140		-		10,479,140
Impaired loans		-		-		5,802,626		5,802,626

Totals	$	-	$	37,215,665	$	6,038,027	$	43,253,692


December 31, 2016
Recurring basis
Mortgage-backed securities	$	-	$	27,128,396	$	-	$	27,128,396
U.S. Government agencies		-		2,525,737		-		2,525,737
Municipal obligations		-		1,844,999		-		1,844,999
Nonrecurring basis
Loans held for sale		-		14,221,163		-		14,221,163
Impaired loans		-		-		5,968,221		5,968,221

Totals	$	-	$	45,720,295	$	5,968,221	$	51,688,516

The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because

market exists for certain of these financial instruments and because management does

not

intend to sell these financial instruments, the Bank does

not

know whether the fair values shown represent values at which the respective financial instruments could be sold individually or in the aggregate.

The following table present

s estimated fair values of the Company’s financial instruments at

September 30, 2017

and

December 31, 2016.

					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
At September 30, 2017
Financial assets:
Cash and due from banks	$	8,566	$	8,566	$	8,566	$	-	$	-
Interest-bearing deposits with banks		26,330		26,330		26,330		-		-
Available-for-sale securities		26,716		26,716		-		26,716		-
Loans held for sale		10,479		10,479		-		10,479		-
Loans held for investment, net		266,057		266,301		-		-		266,301
Stock in financial institutions		3,809		3,809		-		3,809		-
Derivative assets (IRLC's)		235,401		235,401		-		-		235,401
Derivative assets (MBS forward trades)		21,016		21,016		-		21,016		-

Financial liabilities:
Demand deposits, savings and NOW deposits		169,509		162,458		162,458		-		-
Time deposits		70,629		70,426		-		70,426		-
Federal Home Loan Bank advances		67,000		66,968		-		66,968		-

At December 31, 2016
Financial assets:
Cash and due from banks	$	4,766	$	4,766	$	4,766	$	-	$	-
Interest-bearing deposits with banks		11,645		11,645		11,645		-		-
Available-for-sale securities		31,499		31,499		-		31,499		-
Loans held for sale		14,221		14,221		-		14,221		-
Loans held for investment, net		241,399		241,440		-		-		241,440
Stock in financial institutions		3,575		3,575		-		3,575		-

Financial liabilities:
Demand deposits, savings and NOW deposits		160,961		156,529		156,529		-		-
Time deposits		63,561		63,588		-		63,588		-
Federal Home Loan Bank advances		50,000		50,176		-		50,176		-

The following methods and assumptions were used to estimate the fair value of the additional classes of financial instruments shown:

Cash and Due from Banks, Interest-Bearing Deposits with Banks and Stock in Financial Institutions

– The carrying amount approximates fair value.

Deposits

and

FHLB Advances

– Deposits include demand deposits, savings accounts, NOW accounts and money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits and FHLB advances is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits and advances of similar remaining maturities.