Fair values of financial instruments are management's estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, premises, equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates.

The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of March 31, 2022 and December 31, 2021 are reflected below.

	(In Thousands)
	March 31, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	139,522	$	139,522	$	139,522	$	-	$	-
Interest-bearing time deposits		8,677		8,690		-		8,690		-
Securities - available-for-sale		413,996		413,996		99,545		310,949		3,502
Other securities		8,568		8,568		-		-		8,568
Loans held for sale		6,060		6,162		-		-		6,162
Loans, net		1,945,449		1,969,643		-		-		1,969,643
Interest receivable		7,961		7,961		-		-		7,961

Financial Liabilities:
Interest bearing deposits	$	1,308,762	$	1,306,633	$	-	$	-	$	1,306,633
Non-interest bearing deposits		497,249		497,249		-		497,249		-
Time deposits		447,586		451,085		-		-		451,085
Total Deposits		2,253,597		2,254,967		-		497,249		1,757,718

Federal funds purchased and securities sold under agreement to repurchase		31,680		31,680		-		-		31,680
Federal Home Loan Bank advances		22,656		22,448		-		-		22,448
Other borrowings		40,000		40,000		-		40,000		-
Subordinated notes, net of unamortized issuance costs		34,499		35,000		-		35,000		-
Interest payable		823		823		-		-		823

	(In Thousands)
	December 31, 2021
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	180,823	$	180,832	$	180,823	$	-	$	-
Interest-bearing time deposits		10,913		10,933		-		10,933		-
Securities - available-for-sale		429,931		429,931		89,177		335,981		4,773
Other securities		8,162		8,162		-		-		8,162
Loans held for sale		7,714		7,844		-		-		7,844
Loans, net		1,841,177		1,864,386		-		-		1,864,386
Interest receivable		7,209		7,209		-		-		7,209

Financial Liabilities:
Interest bearing deposits	$	1,248,294	$	1,248,044	$	-	$	-	$	1,248,044
Non-interest bearing deposits		473,689		473,689		-		473,689		-
Time deposits		471,479		475,810		-		-		475,810
Total Deposits		2,193,462		2,197,543		-		473,689		1,723,854

Federal funds purchased and securities sold under agreement to repurchase		29,268		29,268		-		-		29,268
Federal Home Loan Bank advances		24,065		24,305		-		-		24,305
Other borrowings		40,000		40,000		-		40,000		-
Subordinated notes, net of unamortized issuance costs		34,471		35,000		-		35,000		-
Interest payable		1,125		1,125		-		-		1,125

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access.

Available-for-sale securities, when quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. The Bank holds some local municipals that the Bank evaluates based on the credit strength of the underlying project. The fair value is determined by valuing similar credit payment streams at similar rates.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.

The following summarizes financial assets measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, segregated by level or the valuation inputs within the fair value hierarchy utilized to measure fair value:

Assets and Liabilities Measured at Fair Value on a Recurring Basis (In Thousands)
March 31, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets - (Securities Available-for-Sale)
U.S. Treasury	$	99,545	$	-	$	-
U.S. Government agencies		-		143,807		-
Mortgage-backed securities		-		105,060		-
State and local governments		-		62,082		3,502
Total Securities Available-for-Sale	$	99,545	$	310,949	$	3,502

December 31, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets - (Securities Available-for-Sale)
U.S. Treasury	$	89,177	$	-	$	-
U.S. Government agencies		-		156,886		-
Mortgage-backed securities		-		117,927		-
State and local governments		-		61,168		4,773
Total Securities Available-for-Sale	$	89,177	$	335,981	$	4,773

The following tables represent the changes in the Level 3 fair-value category of which unobservable inputs are relied upon as of the three month periods ended March 31, 2022 and March 31, 2021. For the three month period ended March 31, 2022, there was one security transfer from Level 3 to Level 2.

	(In Thousands)
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	State and Local Governments Tax-Exempt			State and Local Governments Taxable			State and Local Governments Total
Balance at January 1, 2022	$	2,307		$	2,466		$	4,773

Change in Market Value		(39	)		(83	)		(122	)

Payments & Maturities		(160	)		-			(160	)

Reclassification & Adjustments		-			(989	)		(989	)

Balance at March 31, 2022	$	2,108		$	1,394		$	3,502

	(In Thousands)
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	State and Local Governments Tax-Exempt		State and Local Governments Taxable			State and Local Governments Total
Balance at January 1, 2021	$	-	$	1,562		$	1,562

Change in Market Value		-		(23	)		(23	)

Payments & Maturities		-		-			-

Reclassification & Adjustments		-		-			-

Balance at March 31, 2021	$	-	$	1,539		$	1,539

Most of the Company's available-for-sale securities, including any bonds issued by local municipalities, have CUSIP numbers or have similar characteristics of those in the municipal markets, making them marketable and comparable as Level 2.

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At March 31, 2022 and December 31, 2021, such assets consist primarily of collateral dependent impaired loans. Collateral dependent impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management's best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals.)

At March 31, 2022 and December 31, 2021, fair value of collateral dependent impaired loans categorized as Level 3 was $7.1 million and $8.5 million, respectively. The specific allocation for impaired loans was $1.5 million and $2.2 million as of March 31, 2022 and December 31, 2021, respectively, which are accounted for in the allowance for loan losses (see Note 4).

During 2021, impairment was recognized on mortgage servicing rights based upon the independent third party’s quarterly valuations. A valuation allowance was established by strata to quantify the likely impairment of the value of the mortgage servicing rights to the Company. If the carrying amount of an individual strata exceeds the fair value, impairment was recorded on that strata so the servicing asset was carried at fair value. Impairment was $280 thousand at March 31, 2022 and $414 thousand at December 31, 2021.

Other real estate is reported at either the lower of the fair value of the real estate minus the estimated costs to sell the asset or the cost of the asset. The determination of fair value of the real estate relies primarily on appraisals from third parties. If the fair value of the real estate, minus the estimated costs to sell the asset, is less than the asset's cost, the deficiency is recognized as a valuation allowance against the asset through a charge to expense. The valuation allowance is therefore increased or decreased, through charges or credits to expense, for changes in the asset's fair value or estimated selling costs.

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:

	(In Thousands)				Range
	Fair Value at				(Weighted
	March 31, 2022		Valuation Technique	Unobservable Inputs	Average)
State and local government	$	3,502	Discounted Cash Flow	Credit strength of underlying project or entity / Discount rate	0.97-2.94% (2.45%)

Collateral dependent impaired loans		7,099	Collateral based measurements	Discount to reflect current market conditions and ultimate collectability	20.00-36.49% (31.27%)

Mortgage servicing rights		3,336	Discounted Cash Flow	Constant prepayment rate and probability of default / Discount rate	4.39-18.42% (11.54%)

Other real estate owned - residential		-	Appraisals	Discount to reflect current market	— % ( — %)

	(In Thousands)				Range
	Fair Value at				(Weighted
	December 31, 2021		Valuation Technique	Unobservable Inputs	Average)
State and local government	$	4,773	Discounted Cash Flow	Credit strength of underlying project or entity / Discount rate	0.21-1.77% (1.33%)

Collateral dependent impaired loans		8,527	Collateral based measurements	Discount to reflect current market conditions and ultimate collectability	20.00-53.95% (34.78%)

Mortgage servicing rights		3,157	Discounted Cash Flow	Constant prepayment rate and probability of default / Discount rate	1.94-27.70% (18.44%)

Other real estate owned - residential		99	Appraisals	Discount to reflect current market	32.72% (32.72%)

The following table presents impaired loans as recorded at fair value on March 31, 2022 and December 31, 2021: