Note 10. Fair Values of Financial Instruments

The following table shows the estimated fair value and the related carrying value of the Company's financial instruments at March 31, 2020 and December 31, 2019. Items that are not financial instruments are not included.


	March 31,				December 31,
Dollars are in thousands	2020				2019
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	29,882	$	29,882	$	36,295	$	36,295
Interest bearing deposits		23,221		23,221		27,586		27,586
Federal funds sold		31,587		31,587		31,230		31,230
Securities:
Available for sale		104,652		104,652		106,256		106,256
Loans, net of allowance for credit losses		1,012,560		1,005,188		990,239		976,636
Accrued interest receivable		3,302		3,302		3,138		3,138
Federal Home Loan Bank stock		4,959		4,959		5,180		5,180
Atlantic Central Bankers stock		131		131		131		131
Other investments		2,849		2,849		2,838		2,838
Financial liabilities:
Deposits	$	1,020,724	$	1,028,956	$	1,006,781	$	1,008,842
Accrued interest payable		584		584		572		572
FHLB advances, notes payable, and financing leases		98,950		103,966		105,021		109,260
Unrecognized financial instruments:
Commitments to extend credit	$	185,758	$	185,758	$	184,376	$	184,376
Standby letters of credit		5,362		5,362		4,045		4,045

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 financial institutions, and federal funds sold 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.

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 March 31, 2020 and December 31, 2019. 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
March 31, 2020
Financial assets:
Loans, net of allowance for credit losses	$	1,012,560	$	1,005,188	$	—	$	—	$	1,005,188
Financial liabilities:
Interest-bearing deposits	$	752,498	$	760,730	$	—	$	760,730	$	—
FHLB advances, notes payable, and financing leases		98,950		103,966		—		103,966		—

December 31, 2019
Financial assets:
Loans, net of allowance for credit losses	$	990,239	$	976,636	$	—	$	—	$	976,636
Financial liabilities:
Interest bearing deposits	$	745,150	$	747,211	$	—	$	747,211	$	—
FHLB advances, notes payable, and financing leases		105,021		109,260		—		109,260		—