Fair Value Measurements and Disclosures:

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company

may

be required to record other assets at fair value on a non-recurring basis, such as impaired loans and ORE. These non-recurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. Additionally, the Company is required to disclose, but

not

record, the fair value of other financial instruments.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in

three

levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. These levels are:

Level

- Valuation is based upon quoted prices for identical instruments traded in active markets.

Level

- Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active and model-based valuation techniques for which all significant assumptions are observable in the market.

Level

- Valuation is generated from model-based techniques that use at least

one

significant assumption

not

observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used to determine the fair value of financial assets and liabilities.

Cash and Due from Banks

The carrying amount shown as cash and due from banks approximates fair value.

Available for Sale Securities

The fair value of available for sale securities is based on quoted market prices. The Company’s available for sale securities are reported at their estimated fair value, which is determined utilizing several sources. The primary source is Interactive Data Corporation, which utilizes pricing models that vary based on asset class and include available trade, bid and other market information and whose methodology includes broker quotes, proprietary models and vast descriptive databases. Another source for determining fair value is matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark securities. The Company’s available for sale securities for which fair value is determined through the use of such pricing models and matrix pricing are classified as Level

assets. If the fair value of available for sale securities is generated through model-based techniques, including the discounting of estimated cash flows, such securities are classified as Level

assets.

Held to Maturity Securities

The fair value of held to maturity securities is based on quoted market prices.

Other Investments

The carrying amount shown as other investments approximates fair value.

Federal Home Loan Bank Stock

The carrying amount shown as Federal Home Loan Bank Stock approximates fair value.

Loans

The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings for the remaining maturities. The cash flows considered in computing the fair value of such loans are segmented into categories relating to the nature of the contract and collateral based on contractual principal maturities. Appropriate adjustments are made to reflect probable credit losses. Cash flows have

not

been adjusted for such factors as prepayment risk or the effect of the maturity of balloon notes. The fair value of floating rate loans is estimated to be its carrying value. At each reporting period, the Company determines which loans are impaired. Accordingly, the Company’s impaired loans are reported at their estimated fair value on a non-recurring basis. An allowance for each impaired loan, which are generally collateral-dependent, is calculated based on the fair value of its collateral. The fair value of the collateral is based on appraisals performed by

third

-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by Management. If the recorded investment in the impaired loan exceeds the measure of fair value of the collateral, a valuation allowance is recorded as a component of the allowance for loan losses. Impaired loans are non-recurring Level

assets.

Other

eal

state

In the course of lending operations, Management

may

determine that it is necessary to foreclose on the related collateral. Other real estate acquired through foreclosure is carried at fair value, less estimated costs to sell. The fair value of the collateral is based on appraisals performed by

third

-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by Management. If the current appraisal is more than

one

year old and/or the loan balance is more than

$200,000,

a new appraisal is obtained. Otherwise, the Bank uses a

third

-party desk top appraisal service to determine the fair value of the collateral, based on comparable sales, market conditions, Management’s plans for disposition and other estimates of fair value obtained from principally independent sources, adjusted for estimated selling costs. Other real estate is a non-recurring Level

asset.

Cash Surrender Value of Life Insurance

The carrying amount of cash surrender value of bank-owned life insurance approximates fair value.

Deposits

The fair value of non-interest bearing demand and interest bearing savings and demand deposits is the amount reported in the financial statements. The fair value of time deposits is estimated by discounting the cash flows using current rates of time deposits with similar remaining maturities. The cash flows considered in computing the fair value of such deposits are based on contractual maturities, since approximately

98%

of time deposits provide for automatic renewal at current interest rates.

Borrowings from Federal Home Loan Bank

The fair value of Federal Home Loan Bank (“FHLB”) fixed rate borrowings is estimated using discounted cash flows based on current incremental borrowing rates for similar types of borrowing arrangements. The fair value of FHLB variable rate borrowings is estimated to be its carrying value.

The balances of available for sale securities, which are the only assets measured at fair value on a recurring basis, by level within the fair value hierarchy and by investment type, as of

March 31, 2020

and

December 31, 2019

are as follows (in thousands):

			Fair Value Measurements Using
	Total		Level 1	Level 2		Level 3
March 31, 2020:
U.S. Treasuries	$	96,419	$	$	96,419	$
U.S. Government agencies		7,661			7,661
Mortgage-backed securities		103,925			103,925
Collateralized mortgage obligations		28,012			28,012
States and political subdivisions		3,642			3,642
Total	$	239,659	$	$	239,659	$

December 31, 2019:
U.S. Treasuries	$	55,653	$	$	55,653	$
U.S. Government agencies		12,570			12,570
Mortgage-backed securities		106,153			106,153
Collateralized mortgage obligations		15,488			15,488
States and political subdivisions		6,447			6,447
Total	$	196,311	$	$	196,311	$

Impaired loans, which are measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of

March 31, 2020

and

December 31, 2019

are as follows (in thousands):

			Fair Value Measurements Using
	Total		Level 1	Level 2	Level 3
March 31, 2020	$	726	$	$	$	726
December 31, 2019		764				764

Other real estate, which is measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of

March 31,

20120and

December 31, 2019

are as follows (in thousands):

			Fair Value Measurements Using
	Total		Level 1	Level 2	Level 3
March 31, 2020	$	6,573	$	$	$	6,573
December 31, 2019		7,453				7,453

The following table presents a summary of changes in the fair value of other real estate which is measured using level

inputs (in thousands):

	For the Three			For the Year
	Months Ended			Ended
	March 31, 2020			December 31, 2019
Balance, beginning of period	$	7,453		$	8,943

Loans transferred to ORE					1,707

Sales		(782	)		(2,755	)

Writedowns		(98	)		(442	)

Balance, end of period	$	6,573		$	7,453

The carrying value and estimated fair value of financial instruments, by level within the fair value hierarchy, at

March 31, 2020

and

December 31, 2019,

are as follows (in thousands):

	Carrying		Fair Value Measurements Using
	Amount		Level 1		Level 2		Level 3		Total
March 31, 2020:
Financial Assets:
Cash and due from banks	$	40,376	$	40,376	$		$		$	40,376
Available for sale securities		239,659				239,659				239,659
Held to maturity securities		48,718				50,229				50,229
Other investments		2,605		2,605						2,605
Federal Home Loan Bank stock		2,129				2,129				2,129
Loans, net		266,737						269,546		269,546
Other real estate		6,573						6,573		6,573
Cash surrender value of life insurance		19,512				19,512				19,512
Financial Liabilities:
Deposits:
Non-interest bearing		133,549		133,549						133,549
Interest bearing		392,276						392,923		392,923
Borrowings from Federal Home Loan Bank		1,012				1,374				1,374

December 31, 2019:
Financial Assets:
Cash and due from banks	$	29,424	$	29,424	$		$		$	29,424
Available for sale securities		196,311				196,311				196,311
Held to maturity securities		52,231				53,130				53,130
Other investments		2,643		2,643						2,643
Federal Home Loan Bank stock		2,129				2,129				2,129
Loans, net		264,742						261,710		261,710
Other real estate		7,453						7,453		7,453
Cash surrender value of life insurance		19,381				19,381				19,381
Financial Liabilities:
Deposits:
Non-interest bearing		122,592		122,592						122,592
Interest bearing		353,551						354,141		354,141
Borrowings from Federal Home Loan Bank		3,526				3,730				3,730