ASC Topic 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 include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable 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 Statements 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 from Level 1 to Level 2 and no transfers into or out of Level 3 during the years ended December 31, 2022 and 2021, respectively.


December 31,	Fair Value Hierarchy	2022		2021
(Dollars in Thousands)

Securities:
Available-for-Sale Debt Securities
U.S. Government Agencies	Level 2	$	44,634	$	52,561
Obligations of States and Political Subdivisions	Level 2	13,342		18,955
Mortgage-Backed Securities - Government-Sponsored Enterprises	Level 2	41,427		56,559
Collateralized Mortgage Obligations - Government Sponsored Enterprises	Level 2	79,642		86,583
Corporate Debt	Level 2	8,315		7,450
Total Available-for-Sale Debt Securities		187,360		222,108

Equity Securities
Mutual Funds	Level 1	875		990
Other	Level 1	1,823		1,876
Total Equity Securities		2,698		2,866
Total Securities		$	190,058	$	224,974

The following table presents the financial assets measured at fair value on a nonrecurring basis on the Consolidated Statements of Financial Condition as of the dates indicated by level within the fair value hierarchy. The table also presents the significant unobservable inputs used in the fair value measurements. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include quoted market prices for identical assets classified as Level 1 inputs or observable inputs, employed by certified appraisers, for similar assets classified as Level 2 inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level 3 inputs.

Financial Asset

Fair Value Hierarchy

December 31,
2022

Valuation Technique

Significant Unobservable Inputs

Range

Weighted Average

(Dollars in Thousands)

Impaired Loans Individually Assessed

Level 3

1,591

Appraisal of Collateral (1)

Appraisal Adjustments (2)

7.2%

Financial Asset

Fair Value Hierarchy

December 31,
2021

Valuation Technique

Significant Unobservable Inputs

Range

Weighted Average

(Dollars in Thousands)

Impaired Loans Individually Assessed

Level 3

1,980

Appraisal of Collateral (1)

Appraisal Adjustments (2)

50%

15.8%

MSRs

Level 3

141

Discounted Cash Flow

Discount Rate

11%

10.2%

Prepayment Speed

36%

16.0%

OREO

Level 3

Appraisal of Collateral (1)

Liquidation Expenses (2)

10%

30%

26.6%

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal.

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing the loans and is classified as Level 3 in the fair value hierarchy. At December 31, 2022 and 2021, the fair value of impaired loans consists of the loan balance of $1.6 million and $2.3 million less their specific valuation allowances of $24,000 and $299,000, respectively.

The fair value of 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.

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.

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 that 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, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.


		2022				2021
December 31,	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	$	82,957	$	82,957	$	63,968	$	63,968
Non-Interest Bearing	Level 1	20,743		20,743		55,706		55,706
Securities	See Above	190,058		190,058		224,974		224,974
Loans, Net	Level 3	1,037,054		1,011,098		1,009,214		1,039,980
Restricted Stock	Level 2	2,749		2,749		3,403		3,403
Mortgage Servicing Rights	Level 3	633		1,000		730		773
Accrued Interest Receivable	Level 2	3,983		3,983		3,350		3,350
Financial Liabilities:
Deposits	Level 2	1,268,503		1,264,846		1,226,613		1,227,653
Short-term Borrowings	Level 2	8,060		8,060		39,266		39,266
Other Borrowed Funds
FHLB Borrowings	Level 2	—		—		3,000		3,000
Subordinated Debt	Level 2	14,638		13,490		14,601		15,000
Accrued Interest Payable	Level 2	355		355		486		486