FAIR VALUE MEASUREMENTS

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing observations are as follows:



Level I:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:		Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III:		Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the use of observable market data when available.

The following table presents the assets reported on the balance sheet at their fair value on a recurring basis as of December 31, 2017 and 2016, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.



	2017
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
Mortgage-backed securities	$	—	$	4,213	$	—	$	4,213
State and political securities	—		56,508		—		56,508
Other debt securities	—		47,907		—		47,907
Financial institution equity securities	14,596		—		—		14,596
Other equity securities	1,251		—		—		1,251
Investment securities, trading:
Other equity securities	190		—		—		190
Total assets measured on a recurring basis	$	16,037	$	108,628	$	—	$	124,665



	2016
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
Mortgage-backed securities	$	—	$	9,313	$	—	$	9,313
Asset-backed securities	—		109		—		109
State and political securities	—		60,934		—		60,934
Other debt securities	—		51,118		—		51,118
Financial institution equity securities	10,535		—		—		10,535
Other equity securities	1,483		—		—		1,483
Investment securities, trading:
Financial institution equity securities	58		—		—		58
Total assets measured on a recurring basis	$	12,076	$	121,474	$	—	$	133,550

The following table presents the assets reported on the balance sheet at their fair value on a non-recurring basis as of December 31, 2017 and 2016, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.



	2017
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	12,262	$	12,262
Other real estate owned	—		—		143		143



	2016
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	13,797	$	13,797
Other real estate owned	—		—		839		839

The following table provides a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of December 31, 2017 and 2016:

2017

Quantitative Information About Level III Fair Value Measurements

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

Impaired loans

6,583

Discounted cash flow

Temporary reduction in payment amount

3% to (70)%

(4)%

Probability of default

—%

5,679

Appraisal of collateral (1)

Appraisal adjustments (1)

0 to (20)%

(17)%

Other real estate owned

143

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

2016

Quantitative Information About Level III Fair Value Measurements

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

Impaired loans

5,304

Discounted cash flow

Temporary reduction in payment amount

0 to (70)%

(20)%

Probability of default

—%

8,493

Appraisal of collateral (1)

Appraisal adjustments (1)

0 to (20)%

(15)%

Other real estate owned

839

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The significant unobservable inputs used in the fair value measurement of the Company’s impaired loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.

The significant unobservable input used in the fair value measurement of the Company’s impaired loans using the appraisal of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for qualitative factors such as economic conditions and estimated liquidation expenses. The significant unobservable input used in the fair value measurement of the Company’s other real estate owned are the same inputs used to value impaired loans using the appraisal of collateral valuation technique.