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, 2020

follows, in thousands:

			Fair Value Measurements at March 31, 2020, Using:
	Carrying Value		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	58,058	$	58,058	$	-	$	-	$	58,058
Investment securities		159,247		-		159,247		-		159,247
Loans, net		619,487		-		-		662,368		662,368
FHLB stock		3,517		-		-		-		N/A
Accrued interest receivable		2,995		1		559		2,435		2,995
Financial liabilities:
Deposits		762,886		725,158		39,242		-		764,400
Repurchase agreements		8,383		-		8,383		-		8,383
Junior subordinated deferrable interest debentures		10,310		-		-		7,080		7,080
Accrued interest payable		91		11		60		20		91

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

December 31, 2019

follows, in thousands:

			Fair Value Measurements at December 31, 2019 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	46,942	$	46,942	$	-	$	-	$	46,942
Investment securities		159,320		-		159,320		-		159,320
Loans, net		616,036		-		-		626,795		626,795
FHLB stock		3,517		-		-		-		N/A
Accrued interest receivable		3,398		15		574		2,809		3,398
Financial liabilities:
Deposits		747,324		709,130		38,202		-		747,332
Repurchase agreements		16,013		-		16,013		-		16,013
Junior subordinated deferrable interest debentures		10,310		-		-		7,661		7,661
Accrued interest payable		96		13		60		23		96

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, 2020

and

December 31, 2019

, 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, 2020

are summarized below, in thousands:

			Fair Value Measurements at
			March 31, 2020 Using
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential	$	125,895	$	-	$	125,895	$	-
Obligations of states and political subdivisions		33,352				33,352
	$	159,247	$	-	$	159,247	$	-

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

December 31, 2019

are summarized below, in thousands:

			Fair Value Measurements at
			December 31, 2019 Using
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential	$	125,678	$	-	$	125,678	$	-
Obligations of states and political subdivisions		33,642				33,642
	$	159,320	$	-	$	159,320	$	-

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

2020

2019

. 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, 2020

are summarized below, in thousands:

			Fair Value Measurements at
			March 31, 2020 Using
			Quoted
			Prices in						Total
			Active		Significant				Losses
			Markets for		Other		Significant		Three Months
			Identical		Observable		Unobservable		Ended
			Assets		Inputs		Inputs		March 31,
	Total Fair Value		(Level 1)		(Level 2)		(Level 3)		2020
Assets:
Impaired loans:
Real estate – commercial	$	130	$	-	$	-	$	130	$	-
Other real estate:
Real estate – commercial		347		-		-		347		-
Construction and land		360		-		-		360		-
Total other real estate		707		-		-		707		-
Total	$	837	$	-	$	-	$	837	$	-

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

December 31, 2019

are summarized below, in thousands:

			Fair Value Measurements at
			December 31, 2019 Using
			Quoted
			Prices in						Total
			Active		Significant				Losses
			Markets for		Other		Significant		Three Months
			Identical		Observable		Unobservable		Ended
			Assets		Inputs		Inputs		March 31,
	Total Fair Value		(Level 1)		(Level 2)		(Level 3)		2019
Assets:
Impaired loans:
Real estate – commercial	$	130	$	-	$	-	$	130	$	61
Other real estate:
Real estate – commercial		347		-		-		347		-
Construction and land		360		-		-		360		-
Total other real estate		707		-		-		707		-
Total	$	837	$	-	$	-	$	837	$	61

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 of

$61,000

represent impairment charges recognized during the

three

months ended

March 31, 2019

related to the above impaired loans.

impairment charges were incurred during the

three

months ended

March 31, 2020.

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, 2020

and

December 31, 2019

(dollars in thousands):

							Range		Range
	Fair Value		Fair Value		Valuation		(Weighted Average)		(Weighted Average)
Description	3/31/2020		12/31/2019		Technique	Significant Unobservable Input	3/31/2020		12/31/2019
Impaired Loans:

RE – Commercial	$	130	$	130	Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs	10%	(10.0)%	10%	(10.0)%

Other Real Estate:

RE – Commercial	$	347	$	347	Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs	16% - 17%	(16.0)%	16% - 17%	(16.0)%

Construction and Land	$	360	$	360	Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs	10%	(10.0)%	10%	(10.0)%