The following disclosures establish a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The three broad levels defined within this hierarchy are as follows:

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Securities classified as available for sale are reported at fair value utilizing Level 2 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 quoted market spreads, cash flows, the US Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The fair values of the fair value swaps used for interest rate risk management represents the amount the Company would have expected to receive or pay to terminate such agreements. These fair values are based on an external derivative valuation model using data inputs as of the valuation date and classified Level 2.

The following table presents the assets and liability measured and recorded on the Consolidated Balance Sheets on a recurring basis at their fair value as of March 31, 2019 and December 31, 2018, by level within the fair value hierarchy (in thousands).

	Fair Value Measurements at March 31, 2019
	Total			(Level 1)		(Level 2)			(Level 3)
US Agency securities	$	7,544		$	—	$	7,544		$	—
US Agency mortgage-backed securities		95,252			—		95,252			—
Municipal securities		13,416			—		13,416			—
Corporate bonds		37,813			—		37,813			—
Fair value swap asset		210			—		210			—
Fair value swap liability		(210	)		—		(210	)		—

	Fair Value Measurements at December 31, 2018
	Total			(Level 1)		(Level 2)			(Level 3)
US Agency securities	$	7,529		$	—	$	7,529		$	—
US Agency mortgage-backed securities		89,527			—		89,527			—
Municipal securities		13,181			—		13,181			—
Corporate bonds		36,494			—		36,494			—
Fair value swap asset		257			—		257			—
Fair value swap liability		(257	)		—		(257	)		—

Loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. As detailed in the allowance for loan loss footnote, impaired loans are reported at the fair value of the underlying collateral if the repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data which at times are discounted. At March 31, 2019 and December 31, 2018, impaired loans with a carrying value of $11,000 were reduced by a specific valuation allowance totaling $11,000 resulting in a net fair value of zero.

Other real estate owned is measured at fair value based on appraisals, less estimated costs to sell at the date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.

	Fair Value Measurements at March 31, 2019
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	—	$	—	$	—	$	—
Other real estate owned		18		—		—		18

	Fair Value Measurements at December 31, 2018
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	—	$	—	$	—	$	—
Other real estate owned		157		—		—		157

Quantitative Information About Level 3 Fair Value Measurements

Fair Value

Valuation

Unobservable

Range

March 31, 2019

Estimate

Techniques

Input

(Wgtd Avg)

Impaired loans

—

Appraisal of collateral

(1),(3)

Appraisal adjustments

(2)

100

(100)%

Other real estate owned

Appraisal of collateral

(1),(3)

Appraisal adjustments

(2)

% to

(44)%

Liquidation expenses

% to

(21)%

Quantitative Information About Level 3 Fair Value Measurements

Fair Value

Valuation

Unobservable

Range

December 31, 2018

Estimate

Techniques

Input

(Wgtd Avg)

Impaired loans

—

Appraisal of collateral

(1),(3)

Appraisal adjustments

(2)

100

% (100)%

Other real estate owned

157

Appraisal of collateral

(1),(3)

Appraisal adjustments

(2)

% to

% (8)%

Liquidation expenses

% to

195

% (40)%

For the Company, as for most financial institutions, approximately

% of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market characterized by a willing buyer and willing seller engaging in an exchange transaction. Therefore, significant estimates and present value calculations were used by the Company for the purpose of this disclosure.

Fair values have been determined by the Company using independent third party valuations that use the best available data (Level 2) and an estimation methodology (Level 3) the Company believes is suitable for each category of financial instruments. Management believes that cash and cash equivalents, bank owned life insurance, regulatory stock, accrued interest receivable and payable, deposits with no stated maturities, and short term borrowings have fair values which approximate the recorded carrying values. The fair value measurements for all of these financial instruments are Level 1 measurements.

The estimated fair values based on US GAAP measurements and recorded carrying values at March 31, 2019 and December 31, 2018, for the remaining financial instruments not recorded at fair value on a recurring basis were as follows (in thousands):

	March 31, 2019
	Carrying Value		Fair Value		(Level 1)		(Level 2)		(Level 3)
FINANCIAL ASSETS:
Investment securities – HTM	$	40,528	$	40,730	$	—	$	37,807	$	2,923
Loans held for sale		619		658		658		—		—
Loans, net of allowance for loan loss and unearned income		854,408		844,344		—		—		844,344
FINANCIAL LIABILITIES:
Deposits with stated maturities	$	287,671	$	287,582	$	—	$	—	$	287,582
All other borrowings (1)		69,007		72,010		—		—		72,010

	December 31, 2018
	Carrying Value		Fair Value		(Level 1)		(Level 2)		(Level 3)
FINANCIAL ASSETS:
Investment securities – HTM	$	40,760	$	40,324	$	—	$	37,398	$	2,926
Loans held for sale		847		871		871		—		—
Loans, net of allowance for loan loss and unearned income		853,611		836,122		—		—		836,122
FINANCIAL LIABILITIES:
Deposits with stated maturities	$	277,505	$	277,010	$	—	$	—	$	277,010
All other borrowings (1)		67,148		69,692		—		—		69,692

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Company’s remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary under historical cost accounting.