FAIR VALUE MEASUREMENTS

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period end.

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.

This guidance further clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

Fair value measurement and disclosure guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value, the fair value measurements by level within the fair value hierarchy, and the basis of measurement used at December 31, 2018 and 2017, are as follows:



		Fair Value Measurements at December 31, 2018
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	118,413	$	—	$	118,413	$	—
Mortgage-backed securities, residential		33,811		—		33,811		—
State and municipal		9,506		—		9,506		—
Total securities available for sale	Recurring	$	161,730	$	—	$	161,730	$	—
Equity securities with readily determinable fair values	Recurring	$	1,839	$	1,839	$	—	$	—
Collateral dependent impaired loans	Non-recurring	$	3,883	$	—	$	—	$	3,883



		Fair Value Measurements at December 31, 2017
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	104,083	$	—	$	104,083	$	—
Mortgage-backed securities, residential		34,833		—		34,833		—
State and municipal		13,294		—		13,294		—
Corporate bonds		5,057		—		5,057		—
Total securities available for sale	Recurring	$	157,267	$	—	$	157,267	$	—
Equity securities with readily determinable fair values	Recurring	$	1,784	$	1,784	$	—	$	—
Collateral dependent impaired loans	Non-recurring	$	5,426	$	—	$	—	$	5,426

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value:



	Quantitative Information about Level 3 Fair Value Measurements
Dollars in thousands	Fair Value Estimate		Valuation Technique		Unobservable Input		Range	Weighted Average
December 31, 2018
Impaired loans	$	3,883	Appraisal of collateral	(1)	Appraisal adjustments	(2)	(10) - (50)%	(16	)%

December 31, 2017
Impaired loans	$	5,426	Appraisal of collateral	(1)	Appraisal adjustments	(2)	(10) - (50)%	(36	)%


(1)	Fair value is generally determined through management’s estimate or independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.

(2)

Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, and/or age of the appraisal.


(3)	Includes qualitative adjustments by management and estimated liquidation expenses.

The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

The following presents the carrying amount, exit pricing concept fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments at December 31, 2018:



	December 31, 2018
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	20,105	$	20,105	$	8,190	$	11,915	$	—
Interest-bearing deposits in banks	20,800		20,800		20,800		—		—
Equity securities available for sale	1,839		1,839		1,839		—		—
Investment securities available for sale	161,730		161,730		—		161,730		—
Investment securities held to maturity	27,266		26,911		—		26,911		—
Loans held for sale	408		408		—		408		—
Loans, less allowance for loan losses	1,288,501		1,272,393		—		—		1,272,393
Accrued interest receivable	3,670		3,670		—		3,670		—
Restricted investment in bank stocks	4,336		4,336		—		4,336		—

Financial liabilities:
Demand deposits and savings	979,964		979,964		—		979,964		—
Time deposits	368,128		364,093		—		364,093		—
Short-term borrowings	34,648		34,648		—		34,648		—
Long-term borrowings	78,516		78,545		—		78,545		—
Trust preferred subordinated debt	5,000		4,701		—		4,701		—
Accrued interest payable	1,163		1,163		—		1,163		—

Off-balance sheet financial instruments	—		—		—		—		—

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments at December 31, 2017:



	December 31, 2017
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	19,304	$	19,304	$	8,313	$	10,991	$	—
Interest-bearing deposits in banks	15,137		15,137		15,137		—		—
Equity securities available for sale	1,784		1,784		1,784		—		—
Investment securities available for sale	157,267		157,267		—		157,267		—
Investment securities held to maturity	44,829		44,549		—		44,549		—
Loans held for sale	1,736		1,736		—		1,736		—
Loans, less allowance for loan losses	1,230,194		1,213,932		—		—		1,213,932
Accrued interest receivable	3,670		3,670		—		3,670		—
Restricted investment in bank stocks	4,773		4,773		—		4,773		—

Financial liabilities:
Demand deposits and savings	944,401		944,401		—		944,401		—
Time deposits	354,091		351,055		—		351,055		—
Short-term borrowings	36,908		36,908		—		36,908		—
Long-term borrowings	89,600		89,571		—		89,571		—
Trust preferred subordinated debt	5,000		4,692		—		4,692		—
Accrued interest payable	1,163		1,163		—		1,163		—

Off-balance sheet financial instruments	—		—		—		—		—