Note 16. Fair Values of Financial Instruments

The following table shows the estimated fair value and the related carrying values of the Company's financial instruments at December 31, 2019 and 2018. Items that are not financial instruments are not included. Amounts are shown in thousands (000).


	December 31,				December 31,
Dollars are in thousands	2019				2018
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	36,295	$	36,295	$	24,347	$	24,347
Interest bearing deposits		27,586		27,586		4,093		4,093
Federal funds sold		31,230		31,230		1,254		1,254
Securities:
Available for sale		106,256		106,256		51,300		51,300
Loans, net of allowance for credit losses		990,239		976,636		625,513		604,290
Accrued interest receivable		3,138		3,138		2,103		2,103
Federal Home Loan Bank stock		5,180		5,180		2,652		2,652
Atlantic Central Bankers stock		131		131		131		131
Other investments		2,838		2,838		1,537		1,537
Financial liabilities:
Deposits	$	1,006,781	$	1,008,842	$	614,926	$	570,509
Accrued interest payable		572		572		392		392
FHLB advances, notes payable, and financing leases		106,270		109,260		56,989		56,979
Unrecognized financial instruments:
Commitments to extend credit	$	184,376	$	184,376	$	114,395	$	114,395
Standby letters of credit		4,045		4,045		3,276		3,276

For purposes of the above disclosures of estimated fair value, the following assumptions were used.

Cash and cash equivalents:

The estimated fair value for cash and due from banks, interest‑bearing deposits in other banks, and Federal funds purchased is considered to approximate cost because of their short‑term nature.

Investment securities:

Estimated fair values are based on quoted market prices for actual or similar instruments or estimated using discounted cash flows. The discounts used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the audit risk, overhead costs, and optionality of such investments. See Note 17 for further discussion.

Loans:

The estimated fair value for certain homogeneous categories of loans, such as residential mortgages, is based on the quoted market price for securities backed by similar loans, adjusted for differences in loan characteristics. The estimated fair value of other loans is determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits:

The estimated fair value of deposits with no stated maturity, such as noninterest‑bearing demand deposits, savings, NOW accounts and money market accounts, is equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair value of certificates of deposit is based on the rates currently offered for deposits of similar maturities and using a discounted cash flow analysis. The fair value estimates do not include the benefit that results from the low‑cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Borrowings:

The fair value of long‑term fixed rate borrowings is estimated by discounting future cash flows using current interest rates currently offered for similar financial instruments.

Unrecognized financial instruments:

The fair value of unrecognized financial instruments would be estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the customers.

Other assets and liabilities:

Other assets and liabilities of the Company that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, non‑financial instruments typically not recognized in the financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill, and similar items.

The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company's financial instruments not disclosed elsewhere as of December 31, 2019 and 2018. This table excludes financial instruments for which the carrying amount approximates fair value.


Dollars are in thousands					Fair Value Hierarchy
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
December 31, 2019
Financial assets:
Loans, net	$	990,239	$	976,636	$	—	$	—	$	976,636
Financial liabilities:
Interest-bearing deposits	$	745,150	$	747,211	$	—	$	747,211	$	—
FHLB advances, notes payable, and financing leases		106,270		109,260		—		109,260		—

December 31, 2018
Financial assets:
Loans, net	$	625,513	$	604,290	$	—	$	—	$	604,290
Financial liabilities:
Interest bearing deposits	$	429,450	$	393,813	$	—	$	393,813	$	—
FHLB advances and notes payable		56,989		56,979		—		56,979		—