Accounting standards describe three levels of inputs that may be used to measure fair value (the fair value hierarchy). The level of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement of that asset or liability.

Level 1 — Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.

Level 2 — Fair value measurement is based on: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

Level 3 — Fair value measurement is based on valuation models and methodologies that incorporate at least one significant assumption that cannot be corroborated by observable market data. Level 3 measurements reflect the Company’s estimates about assumptions market participants would use in measuring fair value of the asset or liability.

Some assets and liabilities, such as securities available for sale, are measured at fair value on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as impaired loans, may be measured at fair value on a nonrecurring basis.

Following is a description of the Company’s valuation methodology and significant inputs used for each asset and liability measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset or liability within the fair value hierarchy.

Securities — Marketable equity securities and available for sale securities may be classified as Level 1 or Level 2 measurements within the fair value hierarchy. Level 1 securities include equity securities traded on a national exchange. The fair value measurement of a Level 1 security is based on the quoted price of the security. Level 2 securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage related securities. The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

Loans — Loans are not measured at fair value on a recurring basis. However, loans considered to be impaired may be measured at fair value on a nonrecurring basis. The fair value measurement of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. Independent appraisals are obtained that utilize one or more valuation methodologies-typically they will incorporate a comparable sales approach and an income approach. Management routinely evaluates the fair value measurements of independent appraisers and adjusts those valuations based on differences noted between actual selling prices of collateral and the most recent appraised value. Such adjustments are usually significant, which results in a Level 3 classification. All other impaired loan measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and, thus, are not fair value measurements.


	Recurring Fair Value Measurements Using
December 31, 2019	Level 1	Level 2	Level 3	Total
Marketable equity securities	$ 2,553	$ -	$ -	$ 2,553
Available for sale securities:
Obligations of states and political subdivisions	$ -	$ 9,826	$ -	$ 9,826
Government-sponsored mortgage-backed securities	-	57,034	-	57,034
Corporate collateralized mortgage obligations	-	289	-	289
Asset-backed securities	-	2,465	-	2,465
Certificates of deposit	-	1,761	-	1,761
Total	$ 2,553	$ 71,375	$ -	$ 73,928

	Recurring Fair Value Measurements Using
December 31, 2018	Level 1	Level 2	Level 3	Total
Trading securities	$ 2,429	$ -	$ -	$ 2,429
Available for sale securities:
Obligations of states and political subdivisions	$ -	$ 11,169	$ -	$ 11,169
Government-sponsored mortgage-backed securities	-	50,375	-	50,375
Corporate collateralized mortgage obligations	-	410	-	410
Asset-backed securities	-	3,531	-	3,531
Certificates of deposit	-	246	-	246
Total	$ 2,429	$ 65,731	$ -	$ 68,160

Information regarding the fair value of assets measured at fair value on a nonrecurring basis follows:


	Recurring Fair Value Measurements Using
	Level 1	Level 2	Level 3	Total
December 31, 2019
Loans	$ -	$ -	$ -	$ -

December 31, 2018
Loans	$ -	$ -	$ 85	$ 85

Loans with a carrying amount of $67 were considered impaired and were written down to their estimated fair value of $0 as of December 31, 2019. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $67 as of December 31, 2019. Loans with a carrying amount of $97 were considered impaired and were written down to their estimated fair value of $85 as of December 31, 2018. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $12.

Quantitative information about nonrecurring Level 3 fair value measurements follows:


	Fair Value	Valuation Technique	Significant Unobservable Input(s)	Range/Weighted Average
December 31, 2019
Impaired loans	$ -	Market and/or income approach	Management discount to appraised values	10-20%

December 31, 2018
Impaired loans	$ 85	Market and/or income approach	Management discount to appraised values	10-20%

The Company estimates fair value of all financial instruments regardless of whether such instruments are measured at fair value. The following methods and assumptions were used by the Company to estimate fair value of financial instruments not previously discussed.

Loans held for sale — Fair value is based on commitments on hand from investors or prevailing market prices.

Loans — Fair value of variable rate loans that reprice frequently is based on carrying values. Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Fair value of impaired and other non-performing loans is estimated using discounted expected future cash flows or the fair value of the underlying collateral, if applicable.

FHLB stock — Fair value is the redeemable (carrying) value based on the redemption provisions of the Federal Home Loan Bank.

Accrued interest receivable and payable — Fair value approximates the carrying value.

Cash value of life insurance — Fair value is based on reported values of the assets.

Deposits and advance payments by borrowers for taxes and insurance — Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, including advance payments by borrowers for taxes and insurance, by definition, is the amount payable on demand on the reporting date. Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently being offered on similar time deposits.

FHLB Advances — Fair value of fixed rate, fixed term borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made. Fair value of borrowings with variable rates or maturing within 90 days approximates the carrying value of those borrowings.


	December 31, 2019
		Carrying Value	Level 1	Level 2	Level 3
Financial assets:
Cash and cash equivalents		$ 11,707	$ 11,707	$ -	$ -
Available for sale securities		71,375	-	71,375	-
Loans held for sale		685	-	685	-
Loans		310,674	-	-	310,993
Accrued interest receivable		963	963	-	-
Cash value of life insurance		13,085	-	-	13,085
FHLB stock		913	-	-	913
Marketable securities		2,553	2,553	-	-
Financial liabilities:
Deposits		344,596	202,180	-	142,708
Advance payments by borrowers for taxes and insurance		1,681	1,681	-	-
FHLB advances		17,623	-	-	17,976
Accrued interest payable		385	385	-	-


	December 31, 2018
	Carrying Value	Level 1	Level 2	Level 3
Financial assets:	(in thousands)
Cash and cash equivalents	$ 7,923	$ 7,923	$ -	$ -
Available for sale securities	65,731	-	65,731	-
Loans held for sale	771	-	771	-
Loans	369,830	-	-	362,233
Accrued interest receivable	1,106	1,106	-	-
Cash value of life insurance	13,400	-	-	13,400
FHLB stock	1,261	-	-	1,261
Trading securities	2,429	2,429	-	-
Financial liabilities:
Deposits	406,137	223,860	-	180,703
Advance payments by borrowers for taxes and insurance	1,240	1,240	-	-
FHLB advances	30,010	-	-	29,499
Accrued interest payable	372	372	-	-

Limitations — The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many instances, there are no 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. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business. Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts, nor is it recorded as an intangible asset on the balance sheets. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.