Fair Value Measurements

Assets and liabilities carried at fair value are required to be classified and disclosed according to the process for determining fair value. There are

three

levels of determining fair value.

Level

Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

Level

Inputs to the valuation methodology include: 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; inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatility, prepayment speeds, credit risk); or inputs derived principally from or can be corroborated by observable market data by correlation or other means.

Level

Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level

assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The following table presents the balances of assets measured at fair value on a recurring basis by level as of

March 31, 2020

and

December 31, 2019.

(in thousands)

Description	Total		Level 1		Level 2

2020

U.S. government treasuries	$	9,771	$	9,771	$	-
U.S. government agencies		113,483		-		113,483
U.S. government mortgage-backed securities		85,985		-		85,985
State and political subdivisions		205,758		-		205,758
Corporate bonds		74,307		-		74,307

	$	489,304	$	9,771	$	479,533

2019

U.S. government treasuries	$	9,452	$	9,452	$	-
U.S. government agencies		126,433		-		126,433
U.S. government mortgage-backed securities		81,128		-		81,128
State and political subdivisions		195,302		-		195,302
Corporate bonds		67,528		-		67,528

	$	479,843	$	9,452	$	470,391

Level

securities include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. U.S. government agencies, mortgage-backed securities, state and political subdivisions, and most corporate bonds are reported at fair value utilizing Level

inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that

may

include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment or a change in previously recognized impairment). The following table presents the assets carried on the balance sheet (after specific reserves) by caption and by level within the valuation hierarchy as of

March 31, 2020

and

December 31, 2019.

(in thousands)

Description	Total		Level 1		Level 2		Level 3

2020

Loans receivable	$	1,973	$	-	$	-	$	1,973
Other real estate owned		1,713		-		-		1,713

Total	$	3,686	$	-	$	-	$	3,686

2019

Loans receivable	$	535	$	-	$	-	$	535
Other real estate owned		4,004		-		-		4,004

Total	$	4,539	$	-	$	-	$	4,539

The significant inputs used in the fair value measurements for Level

assets measured at fair value on a nonrecurring basis as of

March 31, 2020

and

December 31, 2019

are as follows:

(in thousands)

	2020
	Estimated		Valuation		Range
	Fair Value		Techniques	Unobservable Inputs	(Average)

Impaired Loans	$	1,973	Evaluation of collateral	Estimation of value	6%	-	8%	(7%)

Other real estate owned	$	1,713	Appraisal	Appraisal adjustment	6%	-	8%	(7%)

	2019
	Estimated		Valuation		Range
	Fair Value		Techniques	Unobservable Inputs	(Average)

Impaired Loans	$	535	Evaluation of collateral	Estimation of value		NM*

Other real estate owned	$	4,004	Appraisal	Appraisal adjustment	6%	-	8%	(7%)

Not

Meaningful.

Evaluations of the underlying assets are completed for each collateral dependent impaired loan with a specific reserve. The types of collateral vary widely and could include accounts receivables, inventory, a variety of equipment and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal

may

be obtained. Types of discounts considered included aging of receivables, condition of the collateral, potential market for the collateral and estimated disposal costs. These discounts will vary from loan to loan, thus providing a range would

not

be meaningful.

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are

not

measured and reported at fair value on a recurring basis or nonrecurring basis.

The following table includes the carrying amounts and estimated fair values of the Company’s financial assets and liabilities as of

March 31, 2020

and

December 31, 2019:

(in thousands)

		2020				2019
	Fair Value			Estimated				Estimated
	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value

Financial assets:
Cash and due from banks	Level 1	$	32,057	$	32,057	$	34,617	$	34,617
Interest bearing deposits	Level 1		136,466		136,466		108,948		108,948
Securities available-for-sale	See previous table		489,304		489,304		479,843		479,843
FHLB and FRB stock	Level 2		3,160		3,160		3,139		3,139
Loans receivable, net	Level 2		1,079,657		1,059,978		1,048,147		1,025,032
Loans held for sale	Level 2		907		907		2,777		2,777
Accrued income receivable	Level 1		10,248		10,248		11,788		11,788
Financial liabilities:
Deposits	Level 2	$	1,552,425	$	1,556,440	$	1,493,175	$	1,495,155
Securities sold under agreements to repurchase	Level 1		41,618		41,618		42,034		42,034
FHLB advances	Level 2		3,000		3,062		5,000		4,935
Accrued interest payable	Level 1		1,045		1,045		1,163		1,163

The methodologies used to determine fair value as of

March 31, 2020

did

not

change from the methodologies described in the

December 31, 2019

Annual Financial Statements.

Commitments to extend credit and standby letters of credit

: The fair values of commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and credit worthiness of the counterparties. The carrying value and fair value of the commitments to extend credit and standby letters of credit are

not

considered significant.

Limitations

: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because

market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.