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Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2016

Investments, All Other Investments [Abstract]

Fair Values of Financial Instruments

Note 16. Fair Values of Financial Instruments

ASC Topic 825, Disclosure about Fair Value of Financial Instruments, requires the disclosure of the estimated fair values of financial instruments. Quoted market prices, where available, are shown as estimates of fair values. Because no quoted market prices are available or a significant part of the Company’s financial instruments, the fair values of such instruments have been derived based on the amount and timing of future cash flows and estimated discount rates.

Present value techniques used in estimating the fair value of the Company’s financial instruments are significantly affected by the assumptions used. Fair values derived from using present value techniques are not substantiated by comparisons to independent markets, and in many cases, could not be realized in immediate settlement of the instruments.

ASC Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following table shows the estimated fair value and the related carrying values of the Company’s financial instruments as December 31, 2016, 2015, and 2014. Items that are not financial instruments are not included.

		2016								2015								2014
		Carrying				Fair				Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value				Amount				Value
Financial assets:
Cash and due from banks		$	6,946,065			$	6,946,065			$	7,493,524			$	7,493,524			$	7,101,352			$	7,101,352
Interest-bearing deposits in other financial institutions			479,178				479,178				2,308,117				2,308,117				2,154,817				2,154,817
Federal funds sold			3,196,919				3,196,919				2,569,767				2,569,767				4,024,065				4,024,065
Investment securities available for sale			94,606,576				94,606,576				98,790,010				98,790,010				87,993,145				87,993,145
Federal Home Loan Bank Stock			1,200,100				1,200,100				1,203,100				1,203,100				1,327,800				1,327,800
Maryland Financial Bank Stock			30,000				30,000				30,000				30,000				30,000				30,000
Ground rents			163,634				163,634				163,638				163,638				169,200				169,200
Loans, less allowance for credit losses			262,573,603				260,223,000				259,636,706				252,239,000				273,986,237				268,536,000
Accrued interest receivable			1,134,557				1,134,557				1,121,405				1,121,405				1,274,137				1,274,137
Cash value of life insurance			9,327,878				9,327,878				9,357,712				9,357,712				9,138,658				9,138,658

Financial liabilities:
Deposits			333,237,328				315,418,000				335,191,530				307,924,000				338,877,292				310,239,000
Long-term borrowings			20,000,000				20,445,000				20,000,000				20,688,000				20,000,000				20,951,000
Dividends payable			-				-				-				-				276,096				276,096
Accrued interest payable			34,123				34,123				39,855				39,855				39,823				39,823
Unrecognized financial instruments:
Commitments to extend credit			25,164,714				25,164,714				21,385,509				21,385,509				21,372,092				21,372,092
Standby letters of credit			47,580				47,580				47,580				47,580				57,580				57,580

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments.

		Carrying				Fair
December 31, 2016		Amount				Value				Level 1				Level 2				Level 3

Financial instruments - Assets
Cash and cash equivalents		$	10,622,162			$	10,622,162			$	10,622,162				-			$	-
Loans receivable, net			262,573,603				260,223,000				-				-				260,223,000
Cash value of life insurance			9,327,878				9,327,878				-				9,327,878				-
Financial instruments - Liabilities
Deposits			333,237,328				315,418,000				210,525,000				104,893,000				-
Long-term debt			20,000,000				20,445,000				-				20,445,000				-

For purposes of the disclosures of estimated fair value, the following assumptions were used.

Loans:

The estimated fair value for 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.

Investment securities:

Fair values for investment securities are based on quoted market prices, where applicable. When quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

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. 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 estimated fair value approximates carrying value for short-term 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 over the same maturities.

Other assets and liabilities:

The estimated fair values for cash and due from banks, interest-bearing deposits in other financial institutions, Federal funds sold, accrued interest receivable and payable, and short-term borrowings are considered to approximate cost because of their short-term nature.

Other assets and liabilities of the Bank that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. In addition, 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.