NOTE

– FAIR VALUE MEASUREMENT AND DISCLOSURE

FASB ASC Topic

820,

Fair Value Measurements and Disclosures, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is

not

adjusted for transaction costs. This guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level

measurement inputs) and the lowest priority to unobservable inputs (Level

measurement inputs). The

three

levels of the fair value hierarchy under FASB ASC

820

are described below:

Basis of Fair Value Measurement:

•

Level

- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.

•

Level

- Significant other observable inputs other than Level

prices such as quoted prices in markets that are

not

active, quoted prices for similar assets, or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset.

•

Level

- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or

market activity).

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Securities Available for Sale

Securities classified as available for sale are recorded at fair value on a recurring basis using pricing obtained from an independent pricing service. Where quoted market prices are available in an active market, securities are classified within Level

The Company has

securities classified within Level

If quoted market prices are

not

available, the pricing service estimates the fair values by using pricing models or quoted prices of securities with similar characteristics. For these securities, the inputs used by the pricing service to determine fair value consider observable data that

may

include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and bonds’ terms and conditions, among other things resulting in classification within Level

Level

securities include state and municipal securities, and residential mortgage-backed securities. In cases where Level

or Level

inputs are

not

available, securities are classified within Level

The Company has

securities classified within Level

Foreclosed Assets

Foreclosed assets, consisting of foreclosed real estate and repossessed assets, are adjusted to fair value less estimated costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of cost or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as non-recurring Level

When an appraised value is

not

available or management determines the fair value of the collateral is further impaired below the appraised value and there is

observable market price, the Company records the foreclosed asset as non-recurring Level

Impaired Loans

Impaired loans are evaluated and adjusted to the lower of carrying value or fair value less estimated costs to sell at the time the loan is identified as impaired. Impaired loans are carried at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing these loans. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level

When an appraised value is

not

available or management determines the fair value of the collateral is further impaired below the appraised value and there is

observable market price, the Company records the impaired loan as non-recurring Level

The Company did

not

have any transfers of assets or liabilities between Levels

and

of the fair value hierarchy during the

three

months ended

March 31, 2019

and the year ended

December 31, 2018.

The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfers between levels.

The tables below present the recorded amounts of assets measured at fair value on a recurring basis at

March 31, 2019

and

December 31, 2018.

							Total
March 31, 201 9	Level 1		Level 2		Level 3		Fair Value
State and municipal securities available for sale	$	-	$	12,750,987	$	-	$	12,750,987
Residential mortgage-backed securities available for sale		-		11,719,012		-		11,719,012
	$	-	$	24,469,999	$	-	$	24,469,999

							Total
December 31, 2018	Level 1		Level 2		Level 3		Fair Value
State and municipal securities available for sale	$	-	$	13,186,788	$	-	$	13,186,788
Residential mortgage-backed securities available for sale		-		12,346,979		-		12,346,979
	$	-	$	25,533,767	$	-	$	25,533,767

The tables below present the recorded amounts of assets measured at fair value on a non-recurring basis at

March 31, 2019

and

December 31, 2018.

							Total
March 31, 201 9	Level 1		Level 2		Level 3		Fair Value
Foreclosed assets	$	-	$	-	$	214,392	$	214,392
Impaired loans, net		-		-		441,981		441,981

							Total
December 31, 201 8	Level 1		Level 2		Level 3		F a ir Value
Foreclosed assets	$	-	$	-	$	78,926	$	78,926
Impaired loans, net		-		-		716,998		716,998

The following tables present additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level

inputs to determine fair value.

Quantitative Information about Level 3 Fair Value Measurements

Fair Value

Valuation

Unobservable

Estimate

Techniques

Input

Range

March 31, 201

Foreclosed assets

214,392

Appraisal of collateral

Appraisal adjustments

-38%

-56%

Impaired loans, net

438,883

Appraisal of collateral

Appraisal adjustments

-46%

-100.0%

Impaired loans, net

3,098

Discounted Future Cash Flows

Payment Stream

N/A

Discount Rate

10%

December 31, 2018

Foreclosed assets

78,926

Appraisal of collateral

Appraisal adjustments

-36%

49%

Impaired loans, net

662,799

Appraisal of collateral

Appraisal adjustments

-44.0

69.0%

Impaired loans, net

54,199

Discounted Future Cash Flows

Payment Stream

N/A

Discount Rate

10%

In accordance with accounting pronouncements, the carrying value and estimated fair value of the Company’s financial instruments as of

March 31, 2019

and

December 31, 2018,

are as follows:

			Fair Value Measurements at
	Carrying		March 31, 2019 using:
	Amount		Level 1		Level 2		Level 3		Total

Financial Assets:
Cash and cash equivalents	$	7,302,629	$	7,302,629	$	-	$	-	$	7,302,629
Time deposits		250,000		250,000		-		-		250,000
Federal funds sold		4,409,000		4,409,000		-		-		4,409,000
Securities		24,469,999		-		24,469,999		-		24,469,999
Net loans		235,793,257		-		-		233,769,242		233,769,242
Loans held for sale		250,505		-		250,505		-		250,505
Accrued interest receivable		841,005		841,005		-		-		841,005
Mortgage servicing rights		437,061		-		-		437,061		437,061
Financial Liabilities:
Non-interest bearing deposits		13,747,615		13,747,615		-		-		13,747,615
Interest bearing deposits		207,494,542		-		-		207,890,710		207,890,710
Accrued interest payable		16,146		16,146		-		-		16,146
FHLB advances		10,588,245		-		10,692,350		-		10,692,350

	Carrying		December 31, 2018 using:
	Amount		Level 1		Level 2		Level 3		Total

Financial Assets:
Cash and cash equivalents	$	8,430,458	$	8,430,458	$	-	$	-	$	8,430,458
Time deposits		250,000		250,000		-		-		250,000
Federal funds sold		5,663,000		5,663,000		-		-		5,663,000
Securities		25,533,767		-		25,533,767		-		25,533,767
Net loans		235,926,419		-		-		232,996,807		232,996,807
Accrued interest receivable		824,542		824,542		-		-		824,542
Mortgage servicing rights		446,375		-		-		446,375		446,375
Financial Liabilities:
Non-interest bearing deposits		14,057,719		14,057,719		-		-		14,057,719
Interest bearing deposits		209,390,810		-		-		209,576,569		209,576,569
Accrued interest payable		5,648		5,648		-		-		5,648
FHLB advances		12,087,152		-		12,136,836		-		12,136,386

The following methods and assumptions were used by the Bank in estimating the fair value of financial instruments:

Cash and

ash

quivalents

The carrying amounts reported in the balance sheets for cash and cash equivalents approximate fair values.

Time deposits

The carrying amounts reported in the balance sheets for time deposits approximate fair values.

Federal

unds

old

The carrying amounts reported in the balance sheets for federal funds sold approximate fair values.

Securities:

The Company obtains fair value measurements of available for sale securities from an independent pricing service.

Loans:

For variable-rate loans that re-price frequently and with

significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed rate commercial real estate and rental property mortgage loans and commercial and industrial loans) are estimated using discounted cash flow analysis, based on market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates represent an exit price for

2019,

but do

not

necessarily represent an exit price for years prior. Loan fair value estimates also include judgments regarding future expected loss experience and risk characteristics. Fair values for impaired loans are estimated using underlying collateral values, where applicable or discounted cash flows.

Loans held for sale

The carrying amounts reported in the balance sheets for loans held for sale approximate fair values, as usually these loans are originated with the intent to sell and funding of the sales usually occurs within

three

days.

Accrued

nterest

eceivable

and

ayable

The carrying amounts of accrued interest receivable and payable approximate fair values.

Mortgage

ervicing

ights

The carrying amounts of mortgage servicing rights approximate their fair values.

Deposits:

The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

FHLB

dvances

The fair value of FHLB advances is estimated by discounting future cash flows at the currently offered rates for borrowings of similar remaining maturities.

Loan

ommitments

Commitments to extend credit were evaluated and fair value was 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 counter-parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Bank does

not

charge fees to enter into these agreements. At

March 31, 2019

and

December 31, 2018,

the fair values of the commitments are immaterial in nature.

In addition, other assets and liabilities of the Bank that are

not

defined as financial instruments, such as property and equipment, are

not

included in the above disclosures. Also, non-financial instruments typically

not

recognized in 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.