NOTE 17 - FAIR VALUE MEASUREMENTS

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

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2).

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. Fair values are generally based on third party appraisals of the property which are commonly adjusted by management to reflect an expectation of the amount to be ultimately collected and selling costs (Level 3).

Appraisals for other real estate owned are performed by state licensed appraisers (for commercial properties) or state certified appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. When a Notice of Default is recorded, an appraisal report is ordered. Once received, a member of the credit administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison to independent data sources such as recent market data or industry wide-statistics for residential appraisals. Commercial appraisals are sent to an independent third party to review. The Company also compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustments, if any, should be made to the appraisal values on any remaining other real estate owned to arrive at fair value. If the existing appraisal is older than twelve months a new appraisal report is ordered. No significant adjustments to appraised values have been made as a result of this comparison process as of September 30, 2017.

The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value at September 30, 2017 and December 31, 2016:

(dollars in thousands)	Fair Value Measurements Using:
September 30, 2017	Level 1		Level 2		Level 3		Total
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities			$	4,957			$	4,957
Mortgage-backed securities								-
Government sponsored agencies				33,256				33,256
Corporate debt securities				17,484				17,484
	$	—	$	55,697	$	—	$	55,697

On a non-recurring basis:
Other real estate owned	$	—	$	—	$	293	$	293

December 31, 2016
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities			$	5,317				5,317
Mortgage-backed securities
Government sponsored agencies				23,640				23,640
Corporate debt securities				10,320				10,320
	$	—	$	39,277	$	—	$	39,277

On a non-recurring basis:
Other real estate owned	$	—	$	—	$	833	$	833

No write-downs to OREO were recorded in for the nine months ended September 30, 2017 or for the year ended December 31, 2016.

Quantitative information about the Company's non-recurring Level 3 fair value measurements at September 30, 2017 and December 31, 2016 is as follows:

Weighted-

(dollars in thousands)

Fair Value

Valuation

Unobservable

Adjustment

Average

September 30, 2017

Amount

Technique

Input

Range

Adjustment

Other real estate owned

293

Third Party

Management Adjustments

15%

Appraisals

to Reflect Current

Conditions and Selling

Costs

December 31, 2016