10.

FAIR VALUE MEASUREMENT

The Company measures fair value under the fair value hierarchy described below.

Level

Quoted prices for identical instruments traded in active exchange markets.

Level

Quoted prices (unadjusted) for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data.

Level

Model based techniques that use

one

significant assumption

not

observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability. Valuation techniques include management judgment and estimation which

may

be significant.

In certain cases, the inputs used to measure fair value

may

fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques

may

require the transfer of financial instruments from

one

fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, at

March 31, 2019

follows, in thousands:

			Fair Value Measurements at March 31, 2019 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	44,753	$	44,753	$	-	$	-	$	44,753
Investment securities		173,227		-		173,227		-		173,227
Loans, net		569,778		-		-		598,785		598,785
FHLB stock		3,027		-		-		-		N/A
Accrued interest receivable		3,065		5		654		2,406		3,065
Financial liabilities:
Deposits		730,923		676,306		54,746		-		731,052
Repurchase agreements		8,910		-		8,910		-		8,910
Junior subordinated deferrable interest debentures		10,310		-		-		7,925		7,925
Accrued interest payable		94		12		57		25		94

The carrying amounts and estimated fair values of financial instruments, at

December 31, 2018

follows, in thousands:

			Fair Value Measurements at December 31, 2018 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	46,686	$	46,686	$	-	$	-	$	46,686
Investment securities		171,507		-		171,507		-		171,507
Loans, net		562,498		-		-		580,396		580,396
FHLB stock		3,027		-		-		-		N/A
Accrued interest receivable		3,345		22		685		2,638		3,345
Financial liabilities:
Deposits		726,565		669,599		57,050		-		726,649
Repurchase agreements		13,058		-		13,058		-		13,058
Junior subordinated deferrable interest debentures		10,310		-		-		8,092		8,092
Accrued interest payable		88		11		52		25		88

Because

market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. Those estimates that are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision are included in Level

Changes in assumptions could significantly affect the fair values presented.

These estimates do

not

reflect any premium or discount that could result from offering the Company's entire holdings of a particular financial instrument for sale at

one

time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have

not

been considered in any of these estimates.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of

March 31, 2019

and

December 31, 2018,

and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Assets and liabilities measured at fair value on a recurring basis at

March 31, 2019

are summarized below, in thousands:

			Fair Value Measurements at March 31, 2019 Using

	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential	$	132,088	$	-	$	132,088	$	-
Obligations of states and political subdivisions		41,139				41,139
	$	173,227	$	-	$	173,227	$	-

Assets and liabilities measured at fair value on a recurring basis at

December 31, 2018

are summarized below, in thousands:

			Fair Value Measurements at December 31, 2018 Using
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets:
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential	$	132,678	$	-	$	132,678	$	-
Obligations of states and political subdivisions		38,829				38,829
	$	171,507	$	-	$	171,507	$	-

The fair value of securities available-for-sale equals quoted market price, if available. If quoted market prices are

not

available, fair value is determined using quoted market prices for similar securities or matrix pricing. There were

changes in the valuation techniques used during

2019

2018.

Transfers between hierarchy measurement levels are recognized by the Company as of the beginning of the reporting period. Changes in fair market value are recorded in other comprehensive income.

Assets and liabilities measured at fair value on a non-recurring basis at

March 31, 2019

are summarized below, in thousands:

			Fair Value Measurements at March 31, 2019 Using
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses Three Months Ended March 31, 2019
Assets:
Impaired loans:
Construction and land	$	418	$	-	$	-	$	418	$	61
Other real estate:				-		-
Real estate – residential		368		-		-		368		-
Real estate – commercial		347		-		-		347		-
Construction and land		455		-		-		455		-
Total other real estate		1,170		-		-		1,170		-
Total	$	1,588	$	-	$	-	$	1,588	$	61

Assets and liabilities measured at fair value on a non-recurring basis at

December 31, 2018

are summarized below, in thousands:

			Fair Value Measurements at December 31, 2018 Using
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains Three Months Ended March 31, 2018
Assets:
Impaired loans:
Construction and land	$	-	$	-	$	-	$	-	$	3
Other real estate:
Real estate – residential		368		-		-		368		-
Real estate – commercial		347		-		-		347		-
Construction and land		455		-		-		455		-
Total other real estate		1,170		-		-		1,170		-
Total	$	1,170	$	-	$	-	$	1,170	$	3

Assets and liabilities measured at fair value on a non-recurring basis at

December 31, 2018

are summarized below, in thousands:

The Company has

liabilities which are reported at fair value.

The following methods were used to estimate fair value.

Collateral-Dependent Impaired Loans

: The Bank does

not

record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect partial write-downs, through charge-offs or specific reserve allowances, that are based on fair value estimates of the underlying collateral. The fair value estimates for collateral-dependent impaired loans are generally based on recent real estate appraisals or broker opinions, obtained from independent

third

parties, which are frequently adjusted by management to reflect current conditions and estimated selling costs (Level

). Net (losses) gains of (

$61,000

) and

$3,000

represent impairment charges recognized during the years ended

March 31, 2019

and

2018,

respectively, related to the above impaired loans.

Other Real Estate:

Nonrecurring adjustments to certain real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. Fair values are generally based on

third

party appraisals of the property which are commonly adjusted by management to reflect current conditions and selling costs (Level

Appraisals for both collateral-dependent impaired loans and other real estate are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Loan Administration Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On a quarterly basis, the Company compares the actual selling price of similar collateral that has been liquidated to the most recent appraised value for unsold properties to determine what additional adjustment, if any, should be made to the appraisal value to arrive at fair value. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.

The following table presents quantitative information about Level

fair value measurements for financial instruments measured at fair value on a non-recurring basis at

March 31, 2019

and

December 31, 2018 (

dollars in thousands):

							Range				Range
Description	Fair Value 3/31/2019		Fair Value 12/31/2018		Valuation Technique	Significant Unobservable Input	(Weighted Average) 3/31/2019				(Weighted Average) 12/31/2018
Impaired Loans:

RE – Commercial	$	418	$	-	Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs			10%	(10%)	N/A

Other Real Estate:

RE – Residential	$	368	$	368	Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs	10%	-	34%	(16%)	10%	-	34%	(16%)

RE – Commercial	$	347	$	347	Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs	16%	-	17%	(16%)	16%	-	17%	(16%)

Construction and Land	$	455	$	455	Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs	10%	-	51%	(24%)	10%	-	51%	(24%)