Note

Disclosures about Fair Value of Assets and Liabilities

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of

three

levels of inputs that

may

be used to measure fair value:

Level

Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level

Significant other observable inputs other than Level

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.

Level

Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Nonrecurring Measurements

The following table presents fair value measurements of assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which fair value measurements fall at

June 30, 2017

and

December 31, 2016:

			Fair Value Measurement Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
June 30, 2017
Impaired loans, collateral dependent	$	-	$	-	$	-	$	-


December 31, 2016
Impaired loans, collateral dependent	$	232	$	-	$	-	$	232

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level

of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level

of the fair value hierarchy.

The Bank considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that

may

affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by management

. Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by management by comparison to historical results.

Unobservable (Level

) Inputs

The following table presents quantitative information about unobservable inputs used in nonrecurring Level

fair value measurements:

	Fair Value		Valuation Technique	Unobservable Inputs	Range
June 30, 2017	(In thousands)
Impaired loans (collateral dependent)	$	-	Marketable comparable properties	Marketability discount		-	-	-


December 31, 2016
Impaired loans (collateral dependent)	$	232	Marketable comparable properties	Marketability discount		10%	-	15%

Fair Value of Financial Instruments

The following table presents the estimated fair values of the

Company’s financial instruments

not

carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at

June 30, 2017

and

December 31, 2016.

					Fair Value Measurement Using
	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
June 30, 2017
Financial assets
Cash and due from banks	$	1,208	$	1,208	$	1,208	$	-	$	-
Interest-earning demand deposits		2,011		2,011		2,011		-		-
Federal funds sold		17,751		17,751		17,751		-		-
Interest-earning time deposits in banks		744		744		-		744		-
Loans, net		90,831		90,178		-		-		90,178
Federal Home Loan Bank stock		468		468		-		468		-
Accrued interest receivable		220		220		220		-		-
Servicing rights		802		802		-		-		802
Financial liabilities
Deposits		95,512		95,481		54,133		41,348		-
Advances from the Federal Home Loan Bank		10,027		10,105		-		10,105		-
Accrued interest payable		15		15		15		-		-

December 31, 2016
Financial assets
Cash and due from banks	$	1,419	$	1,419	$	1,419	$	-	$	-
Interest-earning demand deposits		8,438		8,438		8,438		-		-
Interest-earning time deposits in banks		992		992		-		992		-
Loans, net		83,008		83,538		-		-		83,538
Federal Home Loan Bank stock		468		468		-		468		-
Accrued interest receivable		203		203		203		-		-
Servicing rights		483		483		-		-		483
Financial liabilities
Deposits		76,841		77,104		45,080		32,024		-
Federal funds purchased		1,000		1,000		1,000		-		-
Advances from the Federal Home Loan Bank		10,027		10,120		-		10,120		-
Accrued interest payable		7		7		7		-		-

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

Cash and

Due from Banks, Interest-earning Demand Deposits and Federal Funds Sold

The carrying amount approximates fair value.

Interest-earning Time Deposits in Banks

The carrying amount approximates fair value.

Loans

Fair value is estimated by discounting the future cash flows using the market rates at which similar notes would be made to borrowers with similar credit ratings and for the same remaining maturities. The market rates used are based on current rates the Bank would impose for similar loans and reflect a market participant assumption

about risks associated with nonperformance, illiquidity, and the structure and term of the loans along with local economic and market conditions.

Federal Home Loan Bank Stock

Fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Accrued Interest Receivable and Payable

The carrying amount approximates fair value. The carrying amount is determined using the interest rate, balance and last payment date.

Servicing Rights

ervicing rights do

not

trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed and default rate.

Deposits

Fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from a knowledgeable independent

third

party and reviewed by the

Bank. The rates were the average of current rates offered by local competitors of the Bank.

The estimated fair val

ue of demand, NOW, savings and money market deposits is the book value since rates are regularly adjusted to market rates and amounts are payable on demand at the reporting date.

Federal Funds Purchased

The carrying amount approximates fair value.

ederal Home Loan Bank Advances

Fair value is estimated by discounting the future cash flows using rates of similar advances with similar maturities. These rates were obtained from current rates offered by

the Federal Home Loan Bank.

Commitments to Originate Loans, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.