Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.

ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on Level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities for which identical or similar assets and liabilities are not actively traded in observable markets are based on Level 3 inputs, which are considered to be unobservable.

Among the Company’s assets and liabilities, investment securities available for sale and mortgage banking derivatives are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including other real estate owned, impaired loans, loans held for sale, which are carried at the lower of cost or market, and loan servicing rights, where fair value is determined using similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Deposits, short-term borrowings and long-term obligations are not reported at fair value.

Prices for U.S. Treasury and marketable equity securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the Level 1 input column. Prices for government agency securities, mortgage-backed securities, asset-backed securities and state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the Level 2 input column. Prices for all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are shown in the Level 3 input column. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not the transfer of securities.

Mortgage banking derivatives, which are comprised of interest rate lock commitments, or IRLCs, mortgage forward sales commitments and to-be-announced mortgage-backed securities trades (TBAs), are recorded at fair value on a recurring basis. Fair value of the IRLCs is based on projected pull-through rates and anticipated margins based on changes in market interest rates. The Company considers these to be Level 3 valuations. The fair value of mortgage forward sales commitments and TBAs is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date and is considered to be a Level 2 input.

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at the estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the

property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The Company typically bases the fair value of the collateral on appraised values, which the Company considers Level 3 valuations.

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate, based on secondary market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. These loans are recorded in Level 2.

The following tables provide fair value information for assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021:

	March 31, 2022
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3

Securities available for sale:
U.S. Treasury	$	29,389	$	29,389	$	—	$	—
U.S. Government agencies		41,675		—		41,675		—
GSE - Mortgage-backed securities and CMO’s		117,076		—		117,076		—
Asset-backed securities		42,261		—		42,261		—
State and political subdivisions		84,074		—		84,074		—
Corporate bonds		7,793		—		7,793		—
Equity securities		383		383		—		—
Mortgage banking derivatives		1,485		—		1,216		269
Total assets at fair value on a recurring basis	$	324,136	$	29,772	$	294,095	$	269
Mortgage banking derivatives	$	—	$	—	$	—	$	—
Total liabilities at fair value on a recurring basis	$	—	$	—	$	—	$	—

	December 31, 2021
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3

Securities available for sale:
U.S. Treasury	$	26,381	$	26,381	$	—	$	—
U.S. Government agencies		39,812		—		39,812		—
GSE - Mortgage-backed securities and CMO’s		120,448		—		120,448		—
Asset-backed securities		44,198		—		44,198		—
State and political subdivisions		89,477		—		89,477		—
Corporate bonds		10,021		—		10,021		—
Equity securities		392		392		—		—
Mortgage banking derivatives		1,269		—		253		1,016
Total assets at fair value on a recurring basis	$	331,998	$	26,773	$	304,209	$	1,016
Mortgage banking derivatives	$	50	$	—	$	50	$	—
Total liabilities at fair value on a recurring basis	$	50	$	—	$	50	$	—

The following table provides a rollforward for recurring Level 3 fair value measurements:

The fair value of mortgage interest rate lock commitments at March 31, 2022 was calculated based on a notional amount of $30.9 million. Significant unobservable inputs are used to determine the fair value of these derivatives. For the three months ended March 31, 2022, such inputs included anticipated margins to be earned based on market movement from the original lock date and an

overall projected pull-through rate of 89.1% determined by loan product, loan stage, and loan purpose. The fair value of mortgage interest rate lock commitments at December 31, 2021 was calculated based on a notional amount of $28.9 million. Significant unobservable inputs were the same as those used for the three months ended March 31, 2022 and assumed a projected pull-through rate of 82.47% at December 31, 2021. Changes in interest rates and other assumptions could significantly change these estimated values.

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value less cost to sell at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of March 31, 2022 and December 31, 2021:

	March 31, 2022
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3

Impaired loans	$	3,247	$	—	$	—	$	3,247
Total assets at fair value on a nonrecurring basis	$	3,247	$	—	$	—	$	3,247

	December 31, 2021
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3

Impaired loans	$	3,715	$	—	$	—	$	3,715
Total assets at fair value on a nonrecurring basis	$	3,715	$	—	$	—	$	3,715

At March 31, 2022, impaired loans were being evaluated with discounted expected cash flows for performing TDRs and discounted appraisals were being used on collateral dependent loans.