Fair values of financial instruments are management’s estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, premises, equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates.

The following assumptions and methods were used in estimating the fair value for financial instruments:

The carrying amounts reported in the balance sheet for cash, cash equivalents and federal funds sold approximate their fair values. Also included in this line item are the carrying amounts of interest-bearing deposits maturing within ninety days which approximate their fair values. Fair values of other interest-bearing deposits are estimated using discounted cash flow analyses based on current rates for similar types of deposits.

Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted market price, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

The carrying amount approximates fair value due to insignificant amount of time between origination and date of sale.

The fair values of the loans are estimated using a credit mark adjustment along with discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The credit mark adjustment was estimated using merger and acquisition analysis of nationwide bank and thrift deals.

The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amount payable on demand. The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair value at the reporting date. Fair value for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

The carrying value of Federal Funds purchased and securities sold under agreement to repurchase approximates fair values.

Fair values or FHLB advances are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types or borrowing arrangements.

Fair values for off-balance-sheet, credit related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.

The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of December 31, 2019 and 2018, are reflected below. The aggregate fair values in the table below do not represent the total market value of the Bank’s assets and liabilities. The table excludes the following: Bank Premises and Equipment, Goodwill, Mortgage Servicing Rights, Other Real Estate Owned, Other Assets, Other Liabilities and Accrued Expenses.

	(In Thousands)
	December 31, 2019										December 31, 2018
	Carrying		Fair								Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	51,296	$	51,296	$	51,296	$	-	$	-	$	38,365	$	38,365	$	38,365	$	-	$	-
Interest-bearing time deposits		4,309		4,331		-		4,331		-		4,019		3,954		-		3,954		-
Securities - available-for-sale		222,293		222,293		10,021		210,782		1,490		168,447		168,447		36,935		130,085		1,427
Other securities		5,810		5,810		-		-		5,810		3,679		3,679		-		-		3,679
Loans held for sale		4,248		4,248		-		-		4,248		495		495		-		-		495
Loans, net		1,211,771		1,188,014		-		-		1,188,014		839,599		823,914		-		-		823,914
Interest receivable		6,769		6,769		-		-		6,769		4,542		4,542		-		-		4,542

Financial Liabilities:
Interest bearing deposits	$	746,628	$	746,628	$	-	$	-	$	746,628	$	525,955	$	525,955	$	-	$	-	$	525,955
Noninterest bearing deposits		265,156		265,156		-		265,156		-		215,422		215,422		-		215,422		-
Time deposits		276,563		277,008		-		-		277,008		187,413		187,545		-		-		187,545
Total Deposits		1,288,347		1,288,792		-		265,156		1,023,636		928,790		928,922		-		215,422		713,500
Fed funds purchased and securities sold under agreement to repurchase		48,073		48,073		-		-		48,073		32,181		32,181		-		-		32,181
Federal Home Loan Bank advances		24,806		24,811		-		-		24,811		-		-		-		-		-
Interest payable		754		754		-		-		754		418		418		-		-		418

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2019 and 2018, and the valuation techniques used by the Company to determine those fair values. There were no changes to valuation techniques during 2019.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access.

Available-for-sale securities - When quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. The quoted prices are not adjusted.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. The Bank holds two local municipals that the Bank evaluates based on the credit strength of the underlying project. The fair value is determined by valuing similar credit payment streams at similar rates.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.

The following table summarizes financial assets measured at fair value on a recurring basis as of December 31, 2019 and December 31, 2018 segregated by level or the valuation inputs within the fair value hierarchy utilized to measure fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis (in Thousands)

	Quoted Prices in		Significant		Significant
	Active Markets		Observable		Observable
	for Identical		Inputs		Inputs
December 31, 2019	Assets (Level 1)		(Level 2)		(Level 3)
Assets-(Securities Available-for-Sale)
U.S. Treasury	$	10,021	$	-	$	-
U.S. Government agencies				62,445		-
Mortgage-backed securities		-		95,197		-
State and local governments		-		53,140		1,490
Total Securities Available-for-Sale	$	10,021	$	210,782	$	1,490

	Quoted Prices in		Significant		Significant
	Active Markets		Observable		Observable
	for Identical		Inputs		Inputs
December 31, 2018	Assets (Level 1)		(Level 2)		(Level 3)
Assets-(Securities Available-for-Sale)
U.S. Treasury	$	22,830	$	-	$	-
U.S. Government agencies		14,105		55,222		-
Mortgage-backed securities		-		36,262		-
State and local governments		-		38,601		1,427
Total Securities Available-for-Sale	$	36,935	$	130,085	$	1,427

	(In Thousands)
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	State and Local		State and Local		State and Local
	Governments		Governments		Governments
	Tax-Exempt		Taxable		Total
Balance at January 1, 2019	$	-	$	1,427	$	1,427
Change in Market Value		-		63		63
Purchases		-		-		-
Sales		-		-		-
Payments & Maturities		-		-		-
Balance at December 31, 2019	$	-	$	1,490	$	1,490

	(In Thousands)
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	State and Local		State and Local			State and Local
	Governments		Governments			Governments
	Tax-Exempt		Taxable			Total
Balance at January 1, 2018	$	-	$	1,428		$	1,428
Change in Market Value		-		(1	)		(1	)
Purchases		-		-			-
Sales		-		-			-
Payments & Maturities		-		-			-
Balance at December 31, 2018	$	-	$	1,427		$	1,427

Most of the Company’s available for sale securities, including any bonds issued by local municipalities, have CUSIP numbers or have similar characteristics of those in the municipal markets, making them marketable and comparable as Level 2.

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At December 31, 2019 and 2018, such assets consist primarily of collateral dependent impaired loans. Collateral dependent impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals).

At December 31, 2019 and 2018, collateral dependent impaired loans categorized as Level 3 were $444 and $215 thousand, respectively. The specific allocation for collateral dependent impaired loans was $197 thousand as of December 31, 2019 and $31 thousand as of December 31, 2018, respectively, which are accounted for in the allowance for loan losses (see Note 4).

Other real estate is reported at the lower of either the fair value of the real estate, minus the estimated costs to sell the asset, or the cost of the asset. The determination of the fair value of the real estate relies primarily on appraisals from third parties. If the fair value of the real estate, minus the estimated costs to sell the asset, is less than the asset’s cost, the deficiency is recognized as a valuation allowance against the asset through a charge to expense. The valuation allowance is therefore increased or decreased, through charges or credits to expense, for changes in the asset’s fair value or estimated selling costs.

The following table presents collateral dependent impaired loans and other real estate owned as recorded at fair value:

	($ in Thousands)
	Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2019
			Quoted Prices in
			Markets for		Significant		Significant
	Balance at		Identical		Observable Inputs		Unobservable Inputs
	December 31, 2019		Assets (Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans	$	444	$	-	$	-	$	444
Other real estate owned - commercial		164		-		-		164

	($ in Thousands)
	Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2018
			Quoted Prices in
			Markets for		Significant		Significant
	Balance at		Identical		Observable Inputs		Unobservable Inputs
	December 31, 2018		Assets (Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans	$	215	$	-	$	-	$	215
Other real estate owned - commercial		-		-		-		-

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:

The Company also has other assets, which under certain conditions, are subject to measurement at fair value. These assets include loans held for sale and mortgage servicing rights. The Company estimated the fair values of these assets utilizing Level 3 inputs, including, the discounted present value of expected future cash flows. At December 31, 2019, the Company estimates that there is no impairment of these assets and therefore, no impairment charge to other expense was required to adjust these assets to their estimated fair values.