Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants. A fair value measurement assumes 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 including the market approach, the income approach and/or the cost approach are utilized to determine fair value. Inputs to valuation techniques refer to the assumptions market participants would use in pricing the asset or liability. Valuation policies and procedures are determined by our investment department and reported to our ALCO for review. An entity must consider all aspects of nonperforming risk, including the entity’s own credit standing, when measuring fair value of a 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. A 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 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.

Certain financial assets are measured at fair value in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of fair value accounting or write-downs of individual assets. A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities AFS and Equity Investments with readily determinable fair values – U.S. Treasury securities and equity investments with readily determinable fair values are reported at fair value utilizing Level 1 inputs. Other securities classified as AFS are reported at fair value utilizing Level 2 inputs. For these securities, we obtain fair value measurements from independent pricing services and obtain an understanding of the pricing methodologies used by these independent pricing services. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. 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, as stated in the pricing methodologies of the independent pricing services.

We review and validate the prices supplied by the independent pricing services for reasonableness by comparison to prices obtained from, in some cases, two additional third-party sources. For securities where prices are outside a reasonable range, we further review those securities, based on internal ALCO approved procedures, to determine what a reasonable fair value measurement is for those securities, given available data.

Derivatives – Derivatives are reported at fair value utilizing Level 2 inputs. We obtain fair value measurements from two sources including an independent pricing service and the counterparty to the derivatives designated as hedges. The fair value measurements consider observable data that may include dealer quotes, market spreads, the U.S. Treasury yield curve, live trading levels, trade execution data, credit information and the derivatives’ terms and conditions, among other things. We review the prices supplied by the sources for reasonableness. In addition, we obtain a basic understanding of their underlying pricing methodology. We validate prices supplied by the sources by comparison to one another.

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, which means that the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a nonrecurring basis included foreclosed assets and collateral-dependent loans at September 30, 2021 and December 31, 2020.

Foreclosed Assets – Foreclosed assets are initially recorded at fair value less costs to sell. The fair value measurements of foreclosed assets can include Level 2 measurement inputs such as real estate appraisals and comparable real estate sales information, in conjunction with Level 3 measurement inputs such as cash flow projections, qualitative adjustments and sales cost estimates. As a result, the categorization of foreclosed assets is Level 3 of the fair value hierarchy. In connection with the measurement and initial recognition of certain foreclosed assets, we may recognize charge-offs through the allowance for credit losses.

Collateral-Dependent Loans (Impaired loans prior to the adoption of ASU 2016-13) – Certain loans may be reported at the fair value of the underlying collateral if repayment is expected substantially from the operation or sale of the collateral. Collateral values are estimated using Level 3 inputs based on customized discounting criteria or appraisals. At September 30, 2021 and December 31, 2020, the impact of the fair value of collateral-dependent loans was reflected in our allowance for loan losses.

The fair value estimate of financial instruments for which quoted market prices are unavailable is dependent upon the assumptions used. Consequently, those estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented in the fair value tables do not necessarily represent their underlying value.



			Fair Value Measurements at the End of the Reporting Period Using
September 30, 2021	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring fair value measurements
Investment securities:
U.S. Treasury	$	43,547	$	43,547	$	—	$	—

State and political subdivisions	1,967,477		—		1,967,477		—
Corporate bonds and other	119,699		—		119,699		—
MBS: (1)
Residential	514,078		—		514,078		—
Commercial	108,303		—		108,303		—
Equity investments:
Equity investments	5,976		5,976		—		—
Derivative assets:
Interest rate swaps	16,350		—		16,350		—
Total asset recurring fair value measurements	$	2,775,430	$	49,523	$	2,725,907	$	—

Derivative liabilities:
Interest rate swaps	$	24,905	$	—	$	24,905	$	—
Total liability recurring fair value measurements	$	24,905	$	—	$	24,905	$	—

Nonrecurring fair value measurements
Foreclosed assets	$	40	$	—	$	—	$	40
Collateral-dependent loans (2)	8,579		—		—		8,579
Total asset nonrecurring fair value measurements	$	8,619	$	—	$	—	$	8,619



			Fair Value Measurements at the End of the Reporting Period Using
December 31, 2020	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring fair value measurements
Investment securities:


State and political subdivisions	$	1,580,594	$	—	$	1,580,594	$	—
Corporate bonds and other	78,255		—		78,255		—
MBS: (1)
Residential	810,010		—		810,010		—
Commercial	118,446		—		118,446		—
Equity investments:
Equity investments	6,094		6,094		—		—
Derivative assets:
Interest rate swaps	18,537		—		18,537		—
Total asset recurring fair value measurements	$	2,611,936	$	6,094	$	2,605,842	$	—

Derivative liabilities:
Interest rate swaps	$	40,172	$	—	$	40,172	$	—
Total liability recurring fair value measurements	$	40,172	$	—	$	40,172	$	—

Nonrecurring fair value measurements
Foreclosed assets	$	120	$	—	$	—	$	120
Collateral-dependent loans (2)	10,653		—		—		10,653

Total asset nonrecurring fair value measurements	$	10,773	$	—	$	—	$	10,773

(2)Consists of individually evaluated loans. Loans for which the fair value of the collateral and commercial real estate fair value of the properties is less than cost basis are presented net of allowance. Losses on these loans represent charge-offs which are netted against the allowance for loan losses.

Disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, is required when it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other estimation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Such techniques and assumptions, as they apply to individual categories of our financial instruments, are as follows:

Investment and MBS HTM – Fair values for these securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities or estimates from independent pricing services.

Equity investments – The carrying value of equity investments without readily determinable fair values are measured at cost less impairment, if any, adjusted for observable price changes for an identical or similar investment of the same issuer. This carrying value is a reasonable estimate of the fair value of those assets.

Loans receivable – We estimate the fair value of our loan portfolio to an exit price notion with adjustments for liquidity, credit and prepayment factors. Nonperforming loans continue to be estimated using discounted cash flow analyses or the underlying value of the collateral where applicable.

Deposit liabilities – The fair value of demand deposits, savings accounts and certain money market deposits is the amount on demand at the reporting date, which is the carrying value. Fair values for fixed rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities.

Other borrowings – Federal funds purchased generally have original terms to maturity of one day and repurchase agreements generally have terms of less than one year, and therefore both are considered short-term borrowings. Consequently, their carrying value is a reasonable estimate of fair value.

Subordinated notes – The fair value of the subordinated notes is estimated by discounting future cash flows using estimated rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities.

Trust preferred subordinated debentures – The fair value of the long-term debt is estimated by discounting future cash flows using estimated rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities.


			Estimated Fair Value
September 30, 2021	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	87,133	$	87,133	$	87,133	$	—	$	—
Investment securities:
HTM, at carrying value	788		791		—		791		—
MBS:
HTM, at carrying value	91,691		97,244		—		97,244		—
FHLB stock, at cost	27,248		27,248		—		27,248		—
Equity investments	5,818		5,818		—		5,818		—
Loans, net of allowance for loan losses	3,609,563		3,755,534		—		—		3,755,534
Loans held for sale	1,131		1,131		—		1,131		—
Financial liabilities:
Deposits	$	5,331,655	$	5,333,064	$	—	$	5,333,064	$	—
Other borrowings	20,724		20,724		—		20,724		—
FHLB borrowings	659,204		668,232		—		668,232		—
Subordinated notes, net of unamortized debt issuance costs	98,500		98,722		—		98,722		—
Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,259		48,436		—		48,436		—


			Estimated Fair Value
December 31, 2020	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	108,408	$	108,408	$	108,408	$	—	$	—
Investment securities:
HTM, at carrying value	907		920		—		920		—
Mortgage-backed securities:
HTM, at carrying value	108,091		117,278		—		117,278		—
FHLB stock, at cost	25,259		25,259		—		25,259		—
Equity investments	5,811		5,811		—		5,811		—
Loans, net of allowance for loan losses	3,608,773		3,784,291		—		—		3,784,291
Loans held for sale	3,695		3,695		—		3,695		—
Financial liabilities:
Deposits	$	4,932,322	$	4,936,188	$	—	$	4,936,188	$	—
Other borrowings	23,172		23,172		—		23,172		—
FHLB borrowings	832,527		854,865		—		854,865		—
Subordinated notes, net of unamortized debt issuance costs	197,251		198,391		—		198,391		—
Trust preferred subordinated debentures, net of unamortized debt issuance costs	60,255		51,993		—		51,993		—