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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

September 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

September 30, 2018

and

December 31, 2017

are shown in the following table.

	September 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	$	48,076	48,076	48,076				37,564		37,564		37,564
Securities available for sale		79,604	79,604		79,604			77,472		77,472			77,472
Loans held for sale		2,109	2,109		2,109			1,837		1,837			1,837
Loans receivable, net		586,092	578,676		578,676			585,931		585,494			585,494
Federal Home Loan Bank stock		867	867		867			817		817			817
Accrued interest receivable		2,225	2,225		2,225			2,344		2,344			2,344
Financial liabilities:
Deposits		651,429	645,417		645,417			635,601		635,905			635,905
Accrued interest payable		279	279		279			146		146			146
Off-balance sheet financial instruments:
Commitments to extend credit		13	13				225,242	28		28					173,645
Commitments to sell loans		18	18				8,334	(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.

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.