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Fair Value of Financial Instruments

Generally accepted accounting principles require interim reporting period disclosure about the fair value of financial instruments, including assets, liabilities and off-balance sheet items for which it is practicable to estimate fair value. The fair value hierarchy level for each asset and liability, as defined in Note

have been included in the following table for

June 30, 2017

and

December 31, 2016.

The fair value estimates are made based upon relevant market information, if available, and upon the characteristics of the financial instruments themselves. Because

market exists for a significant portion of the Company

’s financial instruments, fair value estimates are based upon judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. The estimated fair value of the Company’s financial instruments as of

June 30, 2017

and

December 31, 2016

are shown below.

	June 30, 201 7													December 31, 201 6
							Fair value hierarchy													Fair value hierarchy
(Dollars in thousands)	Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount		Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount
Financial assets:
Cash and cash equivalents	$	31,892			31,892			31,892							27,561			27,561			27,561
Securities available for sale		78,647			78,647					78,647					78,477			78,477					78,477
Loans held for sale		2,061			2,061					2,061					2,009			2,009					2,009
Loans receivable, net		590,259			591,170					591,170					551,171			552,395					552,395
Federal Home Loan Bank stock		817			817					817					770			770					770
Accrued interest receivable		2,609			2,609					2,609					2,626			2,626					2,626
Financial liabilities:
Deposits		634,101			634,519					634,519					592,811			593,297					593,297
Other borrowings		7,000			6,902					6,902					7,000			7,018					7,018
Accrued interest payable		214			214					214					236			236					236
Off-balance sheet financial instruments:
Commitments to extend credit		22			22								215,169		66			66								184,596
Commitments to sell loans		(1	)		(1	)							10,773		(22	)		(22	)							9,595

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents approximates their fair value.

Securities Available for

Sale

The fair values of securities were based upon quoted market prices for identical

or similar instruments in active markets.

Loans Held for

Sale

The fair values of loans held for sale were based upon quoted market prices for loans with similar interest rates and terms to maturity.

Loans Receivable, net

The fair value of the loan portfolio, with the exception of the adjustable rate portfolio, was calculated by discounting the scheduled cash flows through the estimated maturity using anticipated prepayment speeds and using discount rates that reflect the credit and interest rate risk inherent in each loan portfolio. The fair value of the adjustable loan portfolio was estimated by grouping the loans with similar characteristics and comparing the characteristics of each group to the prices quoted for similar types of loans in the secondary market.

Federal Home Loan Bank stock

The carrying amount of F

ederal Home Loan Bank (FHLB) stock approximates its fair value.

Accrued Interest Receivable

The carrying amount of accrued interest receivable approximates its fair value since it is short-term in nature and does

not

present unanticipated credit concerns.

Deposits

The fair value of demand deposits, savings accounts and certain money market account deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits o

f similar remaining maturities.

The fair value estimate for deposits does

not

include the benefit that results from the low cost funding provided by the Company's existing deposits and long-term customer relationships compared to the cost of obtaining different sources of funding. This benefit is commonly referred to as the core deposit intangible.

Other Borrowings

The fair values of

other borrowings with fixed maturities are estimated based on discounted cash flow analysis using as discount rates the interest rates charged by the FHLB for borrowings of similar remaining maturities.

Accrued Interest Payable

The carrying amount of accrued interest payable approximates its fair value since it is short-term in nature.

Commitments to Extend Credit

The fair values of commitments to extend credit are estimated using the fees normally charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties.

Commitments to Sell Loans

The fair values of commitments to sell loans are estimated using the quoted market prices for loans with similar interest rates and terms to maturity.