Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:


Level 1:			Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2:			Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model based valuation techniques for which all significant assumptions are observable in the market.
Level 3:			Valuation is generated from model based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods.

AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources.

Loans: We do not record loans at fair value on a recurring basis. However, some loans are classified as impaired and a specific allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will be significantly different than the contractual terms of the original loan agreement are considered impaired. Once a loan is identified as impaired, we measure the estimated impairment. The fair value of impaired loans is estimated using one of several methods, including the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

We review the net realizable values of the underlying collateral for collateral dependent impaired loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated.

The following tables list the quantitative fair value information about impaired loans as of:


	December 31, 2021
Valuation Technique	Fair Value	Unobservable Input	Actual Range	Weighted Average
		Discount applied to collateral:
		Real Estate	20% - 30%	23%
		Equipment	20% - 35%	28%
Discounted value	$18,812	Cash crop inventory	40%	40%
		Livestock	30%	30%
		Accounts receivable	50%	50%
		Liquor license	75%	75%


	December 31, 2020
Valuation Technique	Fair Value	Unobservable Input	Actual Range	Weighted Average
		Discount applied to collateral:
		Real Estate	20% - 30%	23%
		Equipment	20% - 50%	32%
Discounted value	$19,540	Cash crop inventory	40%	40%
		Livestock	30%	30%
		Other inventory	50%	50%
		Accounts receivable	25% - 50%	27%
		Liquor license	75%	75%

Derivative instruments: Derivative instruments, consisting solely of interest rate swaps, are recorded at fair value on a recurring basis. Derivatives qualifying as cash flow hedges, when highly effective, are reported at fair value in other assets or other liabilities on our Consolidated Balance Sheets with changes in value recorded in OCI. Should the hedge no longer be considered effective, the ineffective portion of the change in fair value is recorded directly in earnings in the period in which the change occurs. The fair value of a derivative is determined by quoted market prices and model-based valuation techniques. As such, we classify derivative instruments as Level 2.

OMSR: OMSR (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 2.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of December 31:


	2021
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
ASSETS
Cash and cash equivalents	$	105,330	$	105,330	$	105,330	$	—	$	—
Mortgage loans AFS	1,735		1,797		—		1,797		—
Gross loans	1,301,037		1,296,841		—		—		1,296,841
Less allowance for loan and lease losses	9,103		9,103		—		—		9,103
Net loans	1,291,934		1,287,738		—		—		1,287,738
Accrued interest receivable	5,804		5,804		5,804		—		—
Equity securities without readily determinable fair values (1)	17,383		N/A		—		—		—
OMSR	2,124		2,753		—		2,753		—
LIABILITIES
Deposits without stated maturities	1,409,577		1,409,577		1,409,577		—		—
Deposits with stated maturities	300,762		301,216		—		301,216		—
Federal funds purchased and repurchase agreements	50,162		50,153		—		50,153		—
FHLB advances	20,000		20,120		—		20,120		—
Subordinated debt, net of unamortized issuance costs	29,158		27,435		—		27,435		—
Accrued interest payable	251		251		251		—		—


	2020
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
ASSETS
Cash and cash equivalents	$	246,640	$	246,640	$	246,640	$	—	$	—
Mortgage loans AFS	2,741		2,858		—		2,858		—
Gross loans	1,238,311		1,239,718		—		—		1,239,718
Less allowance for loan and lease losses	9,744		9,744		—		—		9,744
Net loans	1,228,567		1,229,974		—		—		1,229,974
Accrued interest receivable	6,882		6,882		6,882		—		—
Equity securities without readily determinable fair values (1)	17,383		N/A		—		—		—
OMSR	2,308		2,480		—		2,480		—
LIABILITIES
Deposits without stated maturities	1,183,336		1,183,336		1,183,336		—		—
Deposits with stated maturities	382,981		389,455		—		389,455		—
Federal funds purchased and repurchase agreements	68,747		68,738		—		68,738		—
FHLB advances	90,000		91,512		—		91,512		—
Subordinated debt, net of unamortized issuance costs	—		—		—		—		—
Accrued interest payable	481		481		481		—		—

(1) Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. When an impairment or write-down related to these securities is recorded, such amount would be classified as a nonrecurring Level 3 fair value adjustment.

The table below presents the recorded amount of assets and liabilities measured at fair value on December 31:


	2021											2020
	Total		Level 1			Level 2			Level 3			Total		Level 1			Level 2			Level 3
Recurring items
AFS securities
U.S. Treasury	$	209,703	$	—		$	209,703		$	—		$	—	$	—		$	—		$	—
States and political subdivisions	121,205		—			121,205			—			143,656		—			143,656			—
Auction rate money market preferred	3,242		—			3,242			—			3,237		—			3,237			—
Mortgage-backed securities	56,148		—			56,148			—			88,652		—			88,652			—
Collateralized mortgage obligations	92,301		—			92,301			—			101,983		—			101,983			—
Corporate	8,002		—			8,002			—			1,700		—			1,700			—
Total AFS securities	490,601		—			490,601			—			339,228		—			339,228			—
Derivative instruments	—		—			—			—			54		—			54			—
Nonrecurring items
Impaired loans (net of the ALLL)	18,812		—			—			18,812			19,540		—			—			19,540
OMSR	2,124		—			2,124			—			2,308		—			2,308			—
Foreclosed assets	211		—			—			211			527		—			—			527
Total	$	511,748	$	—		$	492,725		$	19,023		$	361,657	$	—		$	341,590		$	20,067
Percent of assets and liabilities measured at fair value			—		%	96.28		%	3.72		%			—		%	94.45		%	5.55		%

We recorded an impairment related to OMSR of $0 and $316 through earnings for the years ended December 31, 2021 and 2020. We recorded gains of $0 and losses of $41 through earnings related fair value changes in foreclosed assets for the years ended December 31, 2021 and 2020. We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis or nonrecurring basis, as of December 31, 2021 and 2020.