NOTE

– FAIR VALUES OF FINANCIAL INSTRUMENTS

The following table presents information about assets and liabilities measured at fair value on a recurring and non-recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair values as of

March 31, 2019

and

December 31, 2018.

	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

March 31, 2019
Recurring basis
Mortgage-backed securities	$	-	$	27,543,018		$	-	$	27,543,018
U.S. Government agencies		-		1,310,423			-		1,310,423
Municipal obligations		-		3,717,438			-		3,717,438
Loans held for sale		-		14,614,579			-		14,614,579
Derivative IRLC's		-		-			360,830		360,830
Derivative forward commitments		-		(94,922	)		-		(94,922	)
Nonrecurring basis
Impaired loans		-		-			3,605,635		3,605,635

Totals	$	-	$	47,090,536		$	3,966,465	$	51,057,001

December 31, 2018:
Recurring basis
Mortgage-backed securities	$	-	$	28,310,358		$	-	$	28,310,358
U.S. Government agencies		-		1,445,032			-		1,445,032
Municipal obligations		-		3,673,268			-		3,673,268
Loans held for sale		-		26,884,014			-		26,884,014
Derivative IRLC's		-		-			380,866		380,866
Derivative forward commitments		-		(153,906	)		-		(153,906	)
Nonrecurring basis
Impaired loans		-		-			3,643,608		3,643,608

Totals	$	-	$	60,158,766		$	4,024,474	$	64,183,240

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.

There were

transfers between levels of the fair value hierarchy during the

three

months ended

March 31, 2019

2018.

The following tables present estimated fair values of the Company’s financial instruments at

March 31, 2019

and

December 31, 2018.

							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 March 31, 2019:
Financial assets:
Cash and due from banks	$	4,719		$	4,719		$	4,719	$	-		$	-
Interest-bearing deposits with banks		6,855			6,855			6,855		-			-
Available-for-sale securities		32,571			32,571			-		32,571			-
Loans held for sale		14,615			14,615			-		14,615			-
Loans held for investment, net		286,875			287,346			-		-			287,346
Derivative IRLC's		361			361			-		-			361
Derivative forward commitments		(95	)		(95	)		-		(95	)		-
Stock in financial institutions		3,937			3,937			-		3,937			-

Financial liabilities:
Demand deposits, savings and NOW deposits		189,915			176,906			176,906		-			-
Time deposits		77,970			78,208			-		78,208			-
Federal Home Loan Bank advances		50,000			49,880			-		49,880			-

At December 31, 2018:
Financial assets:
Cash and due from banks	$	6,374		$	6,374		$	6,374	$	-		$	-
Interest-bearing deposits with banks		5,400			5,400			5,400		-			-
Available-for-sale securities		33,429			33,429			-		33,429			-
Loans held for sale		26,884			26,884			-		26,884			-
Loans held for investment, net		282,790			283,466			-		-			283,466
Derivative IRLC's		381			381			-		-			381
Derivative forward commitments		(154	)		(154	)		-		(154	)		-
Stock in financial institutions		3,910			3,910			-		3,910			-

Financial liabilities:
Demand deposits, savings and NOW deposits		187,700			172,049			172,049		-			-
Time deposits		77,359			77,688			-		77,688			-
Federal Home Loan Bank advances		67,000			66,653			-		66,653			-

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.

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 market prices from FHLMC. FHLMC quotes are updated daily and represent prices at which loans are exchanged in high volumes and 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

The following table presents the significant unobservable inputs used in the fair value measurements for Level

financial assets measured on a non-recurring basis:

	Fair Value		Valuation Methodologies	Valuation Model	Unobservable Input Valuation
At March 31, 2019
Impaired loans
Commercial real estate	$	2,988,885	Appraisal	Appraisal discount and estimated selling costs		17	-	18%
One- to four-family residential real estate		616,750	Appraisal	Appraisal discount and estimated selling costs		17	-	18%
Total Impaired Loans	$	3,605,635

Derivative IRLC's	$	360,830	Internal pricing model	Pull-through rate			73%

At December 31, 2018
Impaired loans
Commercial real estate	$	2,993,923	Appraisal	Appraisal discount and estimated selling costs		17	-	18%
One- to four-family residential real estate		649,685	Appraisal	Appraisal discount and estimated selling costs		17	-	18%
Total Impaired Loans	$	3,643,608

Derivative IRLC's	$	380,866	Internal pricing model	Pull-through rate			77%