Note Q - Fair Value of Financial Statements -

Fair Value Disclosures

The Bank 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 1 - Includes the most reliable sources, and includes quoted prices in active markets for identical assets or liabilities.

Level 2 - 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 3 - 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 following tables present the balance of assets and liabilities measured on a recurring basis as of December 31, 2019 and 2018. The Bank did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.


			Fair Value Measurement Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
(In thousands)	Fair		Identical Assets		Observable Inputs		Inputs
Description	Value		(Level 1)		(Level 2)			(Level 3)

December 31, 2019
U.S. Government Agency - SBA pools	$	2,270	$		$	2,270	$
U.S. Agency Mortgage-Backed Securities		3,940				3,940
Total Investment Securities	$	6,210	$	—	$	6,210	$	—

December 31, 2018
U.S. Agency Mortgage-Backed Securities	$	4,221	$	—	$	4,221	$	—
Total Investment Securities	$	4,221	$	—	$	4,221	$	—

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 non-recurring 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 2 assets measured using appraisals from external parties of the collateral less any prior liens. Repossessed assets are initially recorded at fair value less estimated costs 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 2.


			Fair Value Measurement Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
(In thousands)	Value		(Level 1)		(Level 2)		(Level 3)

December 31, 2019

Assets
Impaired Loans	$	743	$	—	$	743	$	—
Repossessed Assets		—		—		—		—
Total	$	743	$	—	$	743	$	—


December 31, 2018

Assets
Impaired Loans	$	90	$	—	$	90	$	—
Repossessed Assets		—		—		—		—
Total	$	90	$	—	$	90	$	—

Fair values of financial instruments - In cases where quoted market prices of financial instruments 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. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. The fair values of certain financial instruments and all non-financial instruments are not required to be disclosed. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:

Cash, due from banks, federal funds sold and interest-earning deposits with banks - The carrying amount is a reasonable estimate of fair value.

Securities - Fair value is based on quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans Receivable - Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Cash Value of Life Insurance - The carrying amount approximates its fair value.

Deposits - The fair value of demand, savings, NOW and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity time deposits is estimated using the rates currently offered for deposits of similar remaining maturities.

Borrowings - The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values. Fair values of other borrowings are estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements.

Commitments to extend credit and standby letters of credit - The fair values of commitments to extend credit and standby letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure.

The carrying amounts and estimated fair values of the Company’s financial instruments at December 31 are as follows:


					Fair Value Measurement Using
					Quoted Prices in				Significant
					Active Markets for		Significant Other		Unobservable
	Carrying		Fair		Identical Assets		Observable Inputs		Inputs
(In thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)

December 31, 2019
Financial Assets:
Cash, Short-Term Investments and Federal Funds Sold	$	12,233	$	12,233	$	12,233	$	—	$	—
Securities-Available for Sale		6,210		6,210		—		6,210		—
Securities-Held to Maturity		389		388		—		388		—
Other Equity Securities		827		827		—		—		827
Cash Value of Life Insurance		2,153		2,153		—		2,153		—
Loans Held for Sale		284		—		—		—		—
Loans Held -Net		102,185		107,807		—		—		107,807
	$	124,281	$	129,618	$	12,233	$	8,751	$	108,634

Financial Liabilities:
Deposits	$	88,939	$	89,986	$	—	$	—	$	89,986
Borrowed Funds		18,041		18,130		—		18,130		—
	$	106,980	$	108,116	$	—	$	18,130	$	89,986


					Fair Value Measurement Using
					Quoted Prices in				Significant
					Active Markets for		Significant Other		Unobservable
	Carrying		Fair		Identical Assets		Observable Inputs		Inputs
(In thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)

December 31, 2018
Financial Assets:
Cash, Short-Term Investments and Federal Funds Sold	$	8,001	$	8,001	$	8,001	$	—	$	—
Securities-Available for Sale		4,221		4,221		—		4,221		—
Securities-Held to Maturity		518		507		—		507		—
Other Equity Securities		802		802		—		—		802
Cash Value of Life Insurance		2,102		2,102		—		2,102		—
Loans Held for Sale		580		580		—		580		—
Loans-Net		97,533		98,841		—		—		98,841
	$	113,757	$	115,054	$	8,001	$	7,410	$	99,643

Financial Liabilities:
Deposits	$	77,297	$	76,754	$	—	$	—	$	76,754
Borrowed Funds		16,822		16,677		—		16,677		—
	$	94,119	$	93,431	$	—	$	16,677	$	76,754