FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques.

This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated Statement of Financial Condition as of the dates indicated, by level within the fair value hierarchy. The majority of the Company’s securities are included in Level 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the nine months ended September 30, 2020 or year ended December 31, 2019.


	Fair Value Hierarchy	September 30, 2020		December 31, 2019
(Dollars in thousands)

Available for Sales Securities:
Debt Securities:
U.S. Government Agencies	Level 2	$	41,832	$	48,056
Obligations of States and Political Subdivisions	Level 2	22,051		25,843
Mortgage-Backed Securities - Government-Sponsored Enterprises	Level 2	92,784		120,776
Total Debt Securities		156,667		194,675

Marketable Equity Securities:
Mutual Funds	Level 1	1,022		997
Other	Level 1	1,267		1,713
Total Marketable Equity Securities		2,289		2,710
Total Available-for-Sale Securities		$	158,956	$	197,385

The following table presents the financial assets on the Consolidated Statement of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount. The table also presents the significant unobservable inputs used in the fair value measurements.


		Fair Value at
Financial Asset	Fair Value Hierarchy	September 30, 2020		December 31, 2019		Valuation Techniques	Significant Unobservable Inputs	Range
(Dollars in thousands)

Impaired Loans	Level 3	$	8,171	$	3,140	Market Comparable Properties	Marketability Discount	10	%	to	30	%	(1)
Premises and Equipment, Net	Level 3	240		—		Market Comparable Properties	Price Per Square Footage	$26.88		to	$34.79
Mortgage Servicing Rights	Level 3	694		930		Discounted Cash Flow	Discount Rate	9	%	to	11	%
							Prepayment Rate	15.7	%	to	21.4	%
OREO	Level 3	34		58		Market Comparable Properties	Marketability Discount	10	%	to	30	%	(1)

Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. At September 30, 2020 and December 31, 2019, the fair value of impaired loans consists of the loan balances of $11.0 million and $4.0 million, respectively, less their specific valuation allowances of $2.9 million and $884,000, respectively.

Given the change in business purpose of the Monessen branch due to closure, an appraisal was obtained to determine the property value and, as a result, the property was written down to fair value based on market comparable properties. The fair value was determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

The fair value of mortgage servicing rights ("MSRs") is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3. MSRs are reported in other assets in the Consolidated Statement of Financial Condition and are amortized into mortgage servicing income in Other (Loss) Income in the Consolidated Statement of (Loss) Income.

OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

For the nine months ended September 30, 2020, one commercial real estate OREO property with a fair value of $18,000 sold at a gain of $4,000 and two residential real estate OREO properties with a fair value of $108,000 sold at a loss of $30,000. In addition, two residential real estate loans with a fair value of $81,000 and one commercial real estate loan with a fair value of $34,000 transferred to OREO.

For the nine months ended September 30, 2019, one commercial real estate OREO property with a fair value of $697,000 was sold at a $33,000 gain and one residential OREO property with a fair value of $46,000 was sold at a loss of $3,000. In addition, three residential real estate loans with a fair value of $427,000 transferred into OREO, of which two properties with a fair value of $386,000 were subsequently sold at a net loss of $36,000.

Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition,

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.


		September 30, 2020				December 31, 2019
	Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
(Dollars in thousands)

Financial Assets:
Cash and Due From Banks:
Interest Bearing	Level 1	$	102,400	$	102,400	$	68,798	$	68,798
Non-Interest Bearing	Level 1	9,769		9,769		11,419		11,419
Investment Securities:
Available for Sale	See Above	158,956		158,956		197,385		197,385
Loans, Net	Level 3	1,037,105		1,076,438		942,629		961,110
Restricted Stock	Level 2	3,961		3,961		3,656		3,656
Bank-Owned Life Insurance	Level 2	24,639		24,639		24,222		24,222
Mortgage Servicing Rights	Level 3	694		694		930		930
Accrued Interest Receivable	Level 2	4,241		4,241		3,297		3,297

Financial Liabilities:
Deposits	Level 2	1,199,036		1,207,246		1,118,359		1,128,078
Short-term Borrowings	Level 2	42,061		42,061		30,571		30,571
Other Borrowed Funds	Level 2	11,000		11,138		14,000		15,380
Accrued Interest Payable	Level 2	735		735		987		987