Note

- Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are

three

levels of inputs that

may

be used to measure fair values:

Level

Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level

Significant other observable inputs other than Level

prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level

Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

Securities available-for-sale:

When available, the fair values of available-for-sale securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level

inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level

inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level

inputs).

Assets and liabilities measured at fair value on a recurring basis are summarized below, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

			Fair Value Measurements at December 31, 2016 Using
	Balance at December 31, 2016		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. government-sponsored entities and agencies	$	10,061	$	—	$	10,061	$	—
Obligations of states and political subdivisions		56,661		—		56,661		—
Mortgage-backed securities – residential		55,843		—		55,843		—
Mortgage-backed securities – commercial		1,469		—		1,469		—
Collateralized mortgage obligations - residential		6,831		—		6,831		—
Pooled trust preferred security		420		—		420		—

			Fair Value Measurements at June 30, 2016 Using
	Balance at June 30, 2016		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. government-sponsored entities and agencies	$	10,044	$	—	$	10,044	$	—
Obligations of states and political subdivisions		55,954		—		55,954		—
Mortgage-backed securities - residential		59,596		—		59,596		—
Mortgage-backed securities - commercial		1,526		—		1,526		—
Collateralized mortgage obligations - residential		5,820		—		5,820		—
Pooled trust preferred security		429		—		429		—

There were no transfers between Level

and Level

during the

three

six

month periods ended

December

31,

2016

2015.

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets and financial liabilities measured at fair value on a non-recurring basis include the following:

Impaired Loans:

At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals

may

utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level

classification of the inputs for determining fair value.

Financial assets and financial liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at December 31, 2016 Using
	Balance at December 31, 2016		Level 1		Level 2		Level 3
Impaired loans:
Commercial Real Estate - Other	$	831	$	—	$	—	$	831

			Fair Value Measurements at June 30, 2016 Using
	Balance at June 30, 2016		Level 1		Level 2		Level 3
Impaired loans:
Commercial Real Estate - Other	$	1,206	$	—	$	—	$	1,206
1-4 Family residential real estate Non-owner occupied		197		—		—		197

Impaired loans, which are generally measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of

$831

December

31,

2016.

The resulting impact to the provision for loan losses was a decrease of

$87

and

$47

being recorded for the

three

and

six

months ended

December

31,

2016,

respectively. As of

June

30,

2016,

the recorded investment of impaired loans was

$2,150,

with a valuation allowance of

$747.

The resulting impact to the provision for loan losses was an increase of

$69

and

$123

being recorded for the

three

and

six

month periods ended

December

31,

2015.

The following tables presents quantitative information about Level

fair value measurements for financial instruments measured at fair value on a non-recurring basis at

December

31,

2016

and

June

30,

2016:

December 31, 2016

Fair

Value

Valuation

Technique

Unobservable

Inputs

Range

Weighted

Average

Impaired loans:

Commercial Real Estate – Other

831

Bid Indications

N/A

0.0

June 30, 2016	Fair Value		Valuation Technique	Unobservable Inputs		Range			Weighted Average
Impaired loans:
Commercial Real Estate – Other	$	459	Settlement Contract		N/A		0.0	%		0.0	%
Commercial Real Estate – Other	$	754	Bid Indications		N/A		0.0	%		0.0	%
1-4 Family residential real estate non-owner occupied	$	197	Bid Indications		N/A		0.0	%		0.0	%

The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	December 31, 2016				June 30, 2016
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	10,850	$	10,850	$	10,181	$	10,181
Level 2 inputs:
Certificates of deposits in other financial institutions		4,916		4,920		5,906		5,906
Loans held for sale		1,774		1,798		1,048		1,067
Accrued interest receivable		1,169		1,169		1,077		1,077
Level 3 inputs:
Securities held-to-maturity		4,296		4,293		3,494		3,619
Loans, net		261,681		258,053		252,712		253,155
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		289,275		289,275		281,640		281,640
Time deposits		66,170		66,304		65,008		65,111
Short-term borrowings		19,352		19,352		19,129		19,129
Federal Home Loan Bank advances		20,976		20,615		17,281		17,486
Accrued interest payable		46		46		40		40

The assumptions used to estimate fair value are described as follows:

Cash and cash equivalents:

The carrying value of cash, deposits in other financial institutions and federal funds sold were considered to approximate fair value resulting in a Level

classification.

Certificates of deposits in other financial institutions

: Fair value of certificates of deposits in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level

classification.

Accrued interest receivable and payable, demand and savings deposits and short-term borrowings

: The carrying value of accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level

classification.

(Dollars in thousands, except per share amounts)

Loans held for sale:

The fair value of loans held for sale is estimated based upon binding contracts and quotes from

third

party investors resulting in a Level

classification.

Loans:

Fair value for loans was estimated for portfolios of loans with similar financial characteristics. For adjustable rate loans that reprice at least annually and for fixed rate commercial loans with maturities of

six

months or less which possess normal risk characteristics, carrying value was determined to be fair value. Fair value of other types of loans (including adjustable rate loans which reprice less frequently than annually and fixed rate term loans or loans which possess higher risk characteristics) was estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar anticipated maturities resulting in a Level

classification. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Securities held-to-maturity:

The held-to-maturity securities are general obligation and revenue bonds made to local municipalities.

The fair values of these securities are estimated using a spread to the applicable municipal fair market curve resulting in a Level

classification.

Time deposits:

Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at

December

31,

2016

and

June

30,

2016,

for deposits of similar remaining maturities. Estimated fair value does not include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market resulting in a Level

classification.

Federal Home Loan Bank advances:

Fair value of Federal Home Loan Bank advances was estimated using current rates at

December

31,

2016

and

June

30,

2016

for similar financing resulting in a Level

classification.

Federal bank and other restricted stocks, at cost:

Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability; and therefore, are not subject to the fair value disclosure requirements.

Off-balance sheet commitments:

The Corporation’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the above table.