Note 11.

Fair Value

The following fair value hierarchy is used based on the lowest level of input significant to the fair value measurement. There are three levels of inputs that may be used to measure fair values:

Level 1 – 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 2 – Significant other 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.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Bank used the following methods and significant assumptions to estimate fair value:

Cash and Cash Equivalents, Accrued Interest Receivable, Advance Payments by Borrowers for Taxes and Insurance, Short-Term Borrowings Under Repurchase Agreements and Accrued Interest Payable: The carrying amount is a reasonable estimate of fair value. The Bank did not record these assets and liabilities at fair value on a recurring basis.

Available-for-Sale Securities: These financial instruments are recorded at fair value in the consolidated financial statements on a recurring basis. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted prices are not available, then fair values are estimated by using pricing models (e.g., matrix pricing) or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. Examples of such instruments include government agency bonds and mortgage-backed securities. Level 3 securities are securities for which significant unobservable inputs are utilized. There were no changes in valuation techniques used to measure similar assets during the year.

FHLB Stock: The carrying value of FHLB stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Loans: For variable rate loans, which reprice frequently and have no significant change in credit risk, carrying values are a reasonable estimate of fair values, adjusted for credit losses inherent in the portfolios. The fair value of fixed rate loans is estimated by discounting the future cash flows using estimated market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for credit losses inherent in the portfolios. Impaired loans are valued using a present value discounted cash flow method, or the fair value of the collateral. The Bank does not record loans at fair value on a recurring basis.

Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is determined from actual bids from bona fide investors. The Bank classifies these assets as Level 2.

Other Real Estate Owned: Other real estate owned represents real estate acquired through foreclosure, and is recorded at fair value less estimated disposal costs on a nonrecurring basis. 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 Bank classifies the asset as Level 2. 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 no observable market price, the Bank classifies the asset as Level 3.

Deposits: The fair values of demand deposits, savings, NOW and money market accounts equal their carrying amounts, which represent the amounts payable on demand at the reporting date. Fair values for fixed-term, fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on certificates of deposit to a schedule of aggregated expected monthly maturities on such deposits. The Bank does not record deposits at fair value on a recurring basis.

Advances From the Federal Home Loan Bank: The fair value of the advances is estimated using a discounted cash flow calculation that applies current market-based FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances. The Bank does not record these borrowings at fair value on a recurring basis.

Off-Balance-Sheet Instruments: Fair values for the Bank's off-balance-sheet instruments (lending commitments and standby letters of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The Bank does not record its off-balance-sheet instruments at fair value on a recurring basis.

The following tables detail the assets that are carried at fair value and measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, and indicate the level within the fair value hierarchy utilized by the Bank to determine the fair value:

			June 30, 2017
					(Unaudited)
Description	Total		Level 1		Level 2		Level 3
Available-for-Sale Securities:
U.S. government and federal agencies	$	24,658	$	—	$	24,658	$	—
Certificates of Deposit		—		—		—		—
Mortgage-Backed Securities:
FHLMC Certificates		—		—		—		—
FNMA Certificates		1,301		—		1,301		—
GNMA Certificates		3,709		—		3,709		—
	$	29,668	$	—	$	29,668	$	—

			December 31, 2016
Description	Total		Level 1		Level 2		Level 3
Available-for-Sale Securities:
U.S. government and federal agencies	$	41,559	$	—	$	41,559	$	—
Certificates of Deposit		500		—		500		—
Mortgage-Backed Securities:
FHLMC Certificates		216		—		216		—
FNMA Certificates		3,606		—		3,606		—
GNMA Certificates		6,809		—		6,809		—
	$	52,690	$	—	$	52,690	$	—

The following tables detail the assets carried at fair value and measured at fair value on a nonrecurring basis as of June 30, 2017 and December 31, 2016 and indicate the fair value hierarchy utilized by the Bank to determine the fair value:

	June 30, 2017
	(Unaudited)
	Total		Level 1		Level 2		Level 3
Impaired loans	$	24,779	$	—	$	—	$	24,779
Loans held for sale	$	2,143	$	—	$	2,143	$	—
Other real estate owned	$	—	$	—	$	—	$	—

	December 31, 2016
	Total		Level 1		Level 2		Level 3
Impaired loans	$	26,075	$	—	$	—	$	26,075
Loans held for sale	$	2,143	$	—	$	2,143	$	—
Other real estate owned	$	—	$	—	$	—	$	—

Losses on assets carried at fair value on a nonrecurring basis were immaterial for the three months and six months ended June 30, 2017 and 2016, respectively.

The Bank discloses fair value information about financial instruments, whether or not recognized in the consolidated statements of financial condition, for which it is practicable to estimate that value. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Bank. The estimated fair value amounts for 2017 and 2016 have been measured as of their respective period-ends and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than amounts reported at each period.

The information presented should not be interpreted as an estimate of the fair value of the entire Bank since a fair value calculation is only required for a limited portion of the Bank's assets and liabilities. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Bank's disclosures and those of other banks may not be meaningful.

As of June 30, 2017 and December 31, 2016, the recorded book balances and estimated fair values of the Bank's financial instruments were as follows:

	Carrying		Fair Value Measurements
June 30, 2017 (Unaudited)	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	9,496	$	9,496	$	—	$	—	$	9,496
Investment securities		29,668		—		29,668		—		29,668
Loans held for sale		2,143		—		2,143		—		2,143
Loans receivable, net		732,520		—		—		748,928		748,928
Accrued interest receivable		2,917		—		2,917		—		2,917
FHLB stock		1,288		1,288		—		—		1,288
Pension plan asset				—		14,963		—		14,963
Financial liabilities:
Deposits:
Demand deposits		91,060		91,060		—		—		91,060
Interest-bearing deposits		205,816		205,816		—		—		205,816
Certificates of deposit		405,530		—		411,406		—		411,406
Advance payments by borrowers for taxes and insurance		4,661		—		4,661		—		4,661
Advances from FHLB		8,000		8,000		—		—		8,000
Accrued interest payable		31		—		31		—		31

December 31, 2016
Financial assets:
Cash and cash equivalents	$	11,716	$	11,716	$	—	$	—	$	11,716
Investment securities		52,690		—		52,690		—		52,690
Loans held for sale		2,143		—		2,143		—		2,143
Loans receivable, net		642,148		—		—		660,706		660,706
Accrued interest receivable		2,707		—		2,707		—		2,707
FHLB stock		964		964		—		—		964
Pension plan asset				—		15,038		—		15,038
Financial liabilities:
Deposits:
Demand deposits		78,792		78,792		—		—		78,792
Interest-bearing deposits		195,565		195,565		—		—		195,565
Certificates of deposit		368,721		—		368,721		—		368,721
Advance payments by borrowers for taxes and insurance		3,882		—		3,882		—		3,882
Advances from FHLB		3,000		3,000		—		—		3,000
Accrued interest payable		28		—		28		—		28

Off-Balance-Sheet Instruments: Loan commitments on which the committed interest rate is less than the current market rate are insignificant at June 30, 2017 and December 31, 2016.

Pension Plan Asset: The pension plan asset included above represents the guaranteed deposit account on the old pension plan. The guaranteed deposit account is valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the creditworthiness of the issuer. Such fair value measurement is considered a Level 2 measurement.