1 4.	FAIR VALUE MEASUREMENTS

ASC

820,

Fair Value Measurement

, provides a framework for measuring fair value and defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC

820

also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC

820

describes

three

levels of inputs that

may

be used to measure fair value:

Level 1	Unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2	Observable inputs other than Level 1 prices , such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.

Level 3	Unobservable inputs that reflect management ’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

Financial instruments are broken down by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, due to an event or circumstance, were required to be remeasured at fair value after initial recognition in the financial statements at some time during the reporting period.

The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at

September 30, 2017

and

December 31, 2016,

as well as the general classification of such assets pursuant to the valuation hierarchy.

Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. The fair values used by the Company are obtained from an independent pricing service, which represent either quoted market prices for the identical asset or fair values determined by pricing models, or other model-based valuation techniques, that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems. Recurring Level

securities include U.S. Treasury securities, U.S.

government agency securities, residential mortgage-backed securities, municipal bonds and corporate debt securities. Inputs used for valuing Level

securities include observable data that

may

include dealer quotes, benchmark yields, market spreads, live trading levels and market consensus prepayment speeds, among other things. Additional inputs include indicative values derived from the independent pricing service’s proprietary computerized models.

securities were included in the Recurring Level

category at or for the periods ended

September 30, 2017

December 31, 2016.

The following table presents

major categories of assets measured at fair value on a recurring basis as of

September 30, 2017

and

December

31,

2016

(in thousands):

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30 , 2017
Available for sale investment securities:
U.S. Treasuries and government agencies	$	4,973	$	--	$	4,973	$	--
Municipal securities		94,472		--		94,472		--
Residential m ortgage-backed securities		100,727		--		100,727		--
Corporate debt securities		5,220		--		5,220		--
Total	$	205,392	$	--	$	205,392	$	--

December 31, 201 6
Available for sale investment securities:
U.S. Treasuries and government agencies	$	5,631	$	--	$	5,631	$	--
Municipal securities		87,050		--		87,050		--
Residential m ortgage-backed securities		95,795		--		95,795		--
Total	$	188,476	$	--	$	188,476	$	--

The following is a description of valuation methodologies used for significant assets measured at fair value on a nonrecurring basis.

Impaired

Loans Receivable

Loans which meet certain criteria are evaluated individually for impairment. A loan is considered impaired when, based upon current information and events, it is probable the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.

The majority of the Bank’s impaired loans at

September 30, 2017

and

December 31, 2016

are secured by real estate. Impaired loans are individually measured for impairment by comparing the carrying value of the loan to the discounted cash flows or the fair value of the collateral, less estimated selling costs, as appropriate. Fair value is estimated through current appraisals, real estate brokers’ opinions or listing prices. Fair values

may

be adjusted by management to reflect current economic and market conditions and, as such, are classified as Level

During the reported periods, selling costs were estimated at

8%.

Fair value adjustments are made by partial charge-offs or adjustments to the ALLL.

Real Estate Owned, net

Real Estate Owned (“REO”) represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at the lower of cost or fair value less estimated selling costs.

Fair value is estimated through current appraisals, real estate brokers’ opinions or listing prices. As these properties are actively marketed, estimated fair values

may

be adjusted by management to reflect current economic and market conditions and, as such, are classified as Level

During the reported periods, collateral discounts ranged from

25%

and selling costs were typically estimated at

8%.

Fair value adjustments are recorded in earnings during the period such adjustments are made. REO loss provisions recorded during the

nine

months ended

September 30, 2017

and

2016

were

$117,000,

and

$302,000,

respectively.

The following table

presents major categories of assets measured at fair value on a nonrecurring basis as of

September 30, 2017

and

December 31, 2016 (

in thousands). The assets disclosed in the following table represent REO properties or collateral-dependent impaired loans that were remeasured at fair value during the year with a resulting valuation adjustment or fair value write-down.

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30 , 2017
Impaired loans	$	2,832	$	--	$	--	$	2,832
REO, net		645		--		--		645

December 31, 2016
Impaired loans	$	7,105	$	--	$	--	$	7,105
REO, net		963		--		--		963