Note

Fair Value Measurements

Accounting standards describe

three

levels of inputs that

may

be used to measure fair value (the fair value hierarchy). The level of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement of that asset or liability.

Following is a brief description of each level of the fair value hierarchy:

Level

- Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.

Level

- Fair value measurement is based on: (

) quoted prices for similar assets or liabilities in active markets; (

) quoted prices for identical or similar assets or liabilities in markets that are

not

active; or (

) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

Level

- Fair value measurement is based on valuation models and methodologies that incorporate at least

one

significant assumption that cannot be corroborated by observable market data. Level

measurements reflect the Company’s estimates about assumptions market participants would use in measuring fair value of the asset or liability.

Some assets and liabilities, such as available for sale securities, are measured at fair value on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as impaired loans,

may

be measured at fair value on a nonrecurring basis.

Following is a description of the valuation methodology used for each asset measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset within the fair value hierarchy.

Available for sale securities –

Available for sale securities

may

be classified as Level

or Level

measurements within the fair value hierarchy. Level

securities include equity securities traded on a national exchange. The fair value measurement of a Level

security is based on the quoted price of the security. Level

securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage-related securities. The fair value measurement of a Level

security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

Information regarding the fair value of assets measured at fair value on a recurring basis as of

June 30, 2018

and

December 31, 2017

follows:

Recurring Fair Value Measurements Using

Assets Measured at

Quoted Prices in Active Markets for Identical

Instruments

Significant Other Observable Inputs

Significant Unobservable

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

June 30, 2018

Assets - Available for sale securities

55,135

December 31, 2017

Assets - Available for sale securities

58,012

Loans -

Loans are

not

measured at fair value on a recurring basis. However, loans considered to be impaired

may

be measured at fair value on a nonrecurring basis. The fair value measurement of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. All other impaired loan measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and, thus, are

not

fair value measurements. Fair value measurements of underlying collateral that utilize observable market data, such as independent appraisals reflecting recent comparable sales are considered Level

measurements. Other fair value measurements that incorporate estimated assumptions market participants would use to measure fair value are considered Level

measurements.

Foreclosed Assets –

Real estate acquired through or in lieu of loan foreclosure are

not

measured at fair value on a recurring basis. However, foreclosed assets are initially measured at fair value (less estimated costs to sell) when they are acquired and

may

also be measured at fair value (less estimated costs to sell) if they become subsequently impaired. The fair value measurement for each asset

may

be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level

measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level

measurements. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level

measurements.

Information regarding the fair value of assets measured at fair value on a nonrecurring basis as of

June 30, 2018

and

December 31, 2017

follows:

			Nonrecurring Fair Value Measurements Using
	Assets Measured at		Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)

As of June 30, 2018
Assets:
Loans		65		-		-		65
Foreclosed assets		-		-		-		-

As of December 31, 2017
Assets :
Loans		151		-		-		151
Foreclosed assets		619		-		-		619

The Company estimates fair value of all financial instruments regardless of whether such instruments are measured at fair value. The following methods and assumptions were used by the Company to estimate fair value of financial instruments

not

previously discussed.

Cash and cash equivalents -

Fair value approximates the carrying value.

Loans held for sale -

Fair value is based on commitments on hand from investors or prevailing market prices.

Loans -

Fair value of variable rate loans that reprice frequently is based on carrying values. Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Fair value of impaired and other nonperforming loans is estimated using discounted expected future cash flows or the fair value of underlying collateral, if applicable.

FHLB

stock -

Fair value is the redeemable (carrying) value based on the redemption provisions of the Federal Home Loan Bank.

Accrued interest receivable and payable -

Fair value approximates the carrying value.

Cash value of life insurance -

Fair value is based on reported values of the assets.

Deposits and advance payments by borrowers for taxes and insurance -

Fair value of deposits with

stated maturity, such as demand deposits, savings, and money market accounts, including advance payments by borrowers for taxes and insurance, by definition, is the amount payable on demand on the reporting date. Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently being offered on similar time deposits.

FHLB advances

Fair value of fixed rate, fixed term borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made. Fair value of borrowings with variable rates or maturing within

days approximates the carrying value of these borrowings.

Off-balance-sheet instruments -

Fair value is based on quoted market prices of similar financial instruments where available. If a quoted market price is

not

available, fair value is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the counterparty’s credit standing. Since the estimated fair value of off-balance-sheet instruments is

not

material,

amounts are presented in the following schedule.

The carrying value and estimated fair value of financial instruments at

June 30, 2018

and

December 31, 2017

follow:

	June 30, 2018
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents		2,393		2,393		-		-
Available for sale securities		55,135		-		55,135		-
Loans held for sale		-		-		-		-
Loans		193,057		-		-		193,014
Accrued interest receivable		821		821		-		-
Cash value of life insurance		6,653		-		-		6,653
FHLB stock		1,098		-		-		1,098

Financial liabilities:
Deposits		166,334		99,104		-		66,797
Advance payments by borrowers for taxes and insurance		812		812		-		-
FHLB advances		38,000		-		-		37,736
Accrued interest payable		360		360		-		-

	December 31, 2017
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents		11,813		11,813		-		-
Available for sale securities		58,012		-		58,012		-
Loans held for sale		109		-		109		-
Loans		171,355		-		-		171,729
Accrued interest receivable		782		782		-		-
Cash value of life insurance		6,558		-		-		6,558
FHLB stock		514		-		-		514

Financial liabilities:
Deposits		182,913		106,125		-		76,099
Advance payments by borrowers for taxes and insurance		36		36		-		-
FHLB advances		12,750		-		-		12,597
Accrued interest payable		37		37		-		-

Limitations –

The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many instances, there are

quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are

not

available, fair values are based on estimates using present value of other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates

may

not

be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented

may

not

necessarily represent the underlying fair value of the Company.