FAIR VALUE DISCLOSURES

12 Months Ended

Dec. 31, 2021

FAIR VALUE DISCLOSURES [Abstract]

FAIR VALUE DISCLOSURES

21. FAIR VALUE DISCLOSURES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Valuation techniques that are consistent with the market approach, the income approach and/or the cost approach are required by GAAP. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset. Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy for valuation inputs gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

● Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

● Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

● Level 3 Inputs - Significant unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

The following table summarizes fair value measurements as of December 31:

	Level 1		Level 2			Level 3		Total
2021
Assets (liabilities) measured at fair value on a recurring basis:
Securities available for sale:
U.S. government and agencies	$	—	$	—		$	—	$	—
State and municipal		—		275,672			—		275,672
Mortgage-backed securities		—		303,089			—		303,089
Collateralized mortgage obligations		—		106,320			—		106,320
Asset-backed and other amortizing securities		—		26,936			—		26,936
Other securities		—		12,487			—		12,487
Loans held for sale (mandatory)		—		47,593			—		47,593
Mortgage servicing rights		—		—			19,700		19,700
Asset derivatives		—		7,328			—		7,328
Liability derivatives		—		(535	)		—		(535	)
Assets measured at fair value on a non-recurring basis:
Impaired loans		—		—			6,427		6,427
Other real estate owned		—		—			—		—

	Level 1		Level 2			Level 3		Total
2020
Assets (liabilities) measured at fair value on a recurring basis:
Securities available for sale:
U.S. government and agencies	$	—	$	4,753		$	—	$	4,753
State and municipal		—		272,607			—		272,607
Mortgage-backed securities		—		373,362			—		373,362
Collateralized mortgage obligations		—		106,715			—		106,715
Asset-backed and other amortizing securities		—		33,572			—		33,572
Other securities		—		12,078			—		12,078
Loans held for sale (mandatory)		—		80,174			—		80,174
Mortgage servicing rights		—		—			9,049		9,049
Asset derivatives		—		6,734			—		6,734
Liability derivatives		—		(4,357	)		—		(4,357	)
Assets measured at fair value on a non-recurring basis:
Impaired loans		—		—			11,926		11,926
Other real estate owned		—		—			1,353		1,353

Securities – Fair value is calculated based on market prices of similar securities using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded.

Loans held for sale (mandatory) – Loans held for sale originated for mandatory delivery are reported at fair value. Fair value is determined using quoted prices for similar assets, adjusted for specific attributes of that loan.

Mortgage servicing rights – Mortgage servicing rights are reported at fair value using Level 3 inputs. The mortgage servicing rights asset is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the mortgage servicing rights asset is impacted by a variety of factors, including prepayment and discount rates, which are significant unobservable inputs.

Derivatives – Fair value of derivatives is based on valuation models using observable market data as of the measurement date.

Impaired loans – Impaired loans are reported at the fair value of the underlying collateral, less estimated disposal costs, if repayment is expected solely from the sale of the collateral. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

Foreclosed assets – Foreclosed assets are transferred from loans at the lower of cost or fair value, less estimated costs to sell. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

Loans held for sale (best efforts) – Loans held for sale originated for best efforts delivery are reported at fair value if, on an aggregate basis, the fair value for the loans is less than cost. In determining whether the fair value of loans held for sale is less than cost when quoted market prices are not available, the Company may consider outstanding investor commitments or discounted cash flow analyses with market assumptions. Such fair values are classified within either Level 2 or Level 3 of the fair value hierarchy.

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at December 31:

	Fair Value		Valuation Techniques	Unobservable Inputs	Range of Discounts
2021
Non-recurring:
Impaired loans	$	6,427	Third party appraisals or inspections	Collateral discounts and selling costs		20%-100	%
Other real estate owned		—	Third party appraisals or inspections	Collateral discounts and selling costs		0	%
Recurring:
Mortgage servicing rights		19,700	Discounted cash flows	Conditional prepayment rate		12.35	%
				Discount rate		9.14	%
2020
Non-recurring:
Impaired loans	$	11,926	Third party appraisals or inspections	Collateral discounts and selling costs		0%-100	%
Other real estate owned		1,353	Third party appraisals or inspections	Collateral discounts and selling costs		15%-66	%
Recurring:
Mortgage servicing rights		9,049	Discounted cash flows	Conditional prepayment rate		18.16	%
				Discount rate		9.72	%

The following table summarizes carrying value measurements as of December 31:

	Carrying Amount		Level 1		Level 2		Level 3		Total
2021
Financial assets:
Cash and cash equivalents	$	486,821	$	486,821	$	—	$	—	$	486,821
Loans, net		2,395,479		—		—		2,397,079		2,397,079
Accrued interest receivable		13,900		—		13,900		—		13,900
Bank-owned life insurance		71,978		—		71,978		—		71,978
Financial liabilities:
Deposits		3,341,222		3,004,091		339,797		—		3,343,888
Accrued interest payable		1,914		—		1,914		—		1,914
Notes payable & other borrowings		—		—		—		—		—
Junior subordinated deferrable interest debentures		46,393		—		45,690		—		45,690
Subordinated debt securities		75,775		—		77,939		—		77,939

	Carrying Amount		Level 1		Level 2		Level 3		Total
2020
Financial assets:
Cash and cash equivalents	$	300,307	$	300,307	$	—	$	—	$	300,307
Loans, net		2,176,030		—		—		2,179,573		2,179,573
Accrued interest receivable		15,233		—		15,233		—		15,233
Bank-owned life insurance		70,731		—		70,731		—		70,731
Financial liabilities:
Deposits		2,974,351		2,649,830		329,609		—		2,979,439
Accrued interest payable		2,113		—		2,113		—		2,113
Notes payable & other borrowings		75,000		—		75,000		—		75,000
Junior subordinated deferrable interest debentures		46,393		—		45,690		—		45,690
Subordinated debt securities		75,589		—		76,889		—		76,889