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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, 2018

and

December 31, 2017.

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, 2018

and

December 31, 2017

are shown in the following table.

	June 30, 2018													December 31, 2017
							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	$	31,710			31,710			31,710							37,564			37,564			37,564
Securities available for sale		80,525			80,525					80,525					77,472			77,472					77,472
Loans held for sale		3,624			3,624					3,624					1,837			1,837					1,837
Loans receivable, net		589,855			588,794					588,794					585,931			585,494					585,494
Federal Home Loan Bank stock		867			867					867					817			817					817
Accrued interest receivable		2,330			2,330					2,330					2,344			2,344					2,344

Financial liabilities:
Deposits		639,535			633,844					633,844					635,601			635,905					635,905
Accrued interest payable		264			264					264					146			146					146
Off-balance sheet financial instruments:
Commitments to extend credit		74			74								242,267		28			28								173,645
Commitments to sell loans		(28	)		(28	)							11,321		(11	)		(11	)							5,629

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. The fair value disclosures for both the fixed and adjustable rate portfolios were adjusted to reflect the exit price amount anticipated to be received from the sale of the portfolio in an open market transaction as required upon adoption of ASU

2016

01,

Financial Instruments – Overall (Subtopic

825

) Recognition and Measurement of Financial Assets and Financial Liabilities

beginning in the

first

quarter of

2018.

Federal Home Loan Bank Stock

The carrying amount of Federal 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 of similar remaining maturities. The fair value disclosures for all of the deposits were adjusted to reflect the exit price amount anticipated to be received from the sale of the deposits in an open market transaction as required upon adoption of ASU

2016

01,

Financial Instruments – Overall (Subtopic

825

) Recognition and Measurement of Financial Assets and Financial Liabilities

beginning in the

first

quarter of

2018.

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.

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.