FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that 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 in the market in which the reporting entity transacts.

The fair value hierarchy is as follows:

Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.

Level 2 Inputs - Valuation is based upon (1) quoted prices for similar instruments in active markets, (2) quoted prices for identical or similar instruments in markets that are not active and (3) model-based valuation techniques for which significant assumptions are observable in the market.

Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Debt Securities Available for Sale and Equity Securities. Debt securities available for sale and equity securities are recorded at fair value on a recurring basis and securities held to maturity are carried at amortized cost. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using an independent pricing service. For both Level 1 and Level 2 securities, management uses various methods and techniques to corroborate prices obtained from the pricing service, including but not limited to reference to dealer or other market quotes, and by reviewing valuations of comparable instruments. The Company’s Level 1 securities include equity securities and mutual funds. Level 2 securities include U.S. Government agency and instrumentality securities, U.S. Government agency and instrumentality mortgage-backed securities, municipal bonds and corporate debt securities. The Company had no Level 3 securities at December 31, 2018 or September 30, 2018.

The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or valuation 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 significant assumptions are observable in the market (Level 2 inputs). The Company considers these valuations supplied by a third party provider which utilizes several sources for valuing fixed-income securities. These sources include Interactive Data Corporation, Reuters, Standard and Poor’s, Bloomberg Financial Markets, Street Software Technology, and the third party provider’s own matrix and desk pricing. The Company, no less than annually, reviews the third party’s methods and source’s methodology for reasonableness and to ensure an understanding of inputs utilized in determining fair value. Sources utilized by the third party provider include but are not limited to pricing models that vary based by asset class and include available trade, bid, and other market information. This methodology includes but is not limited to broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs. Monthly, the Company receives and compares prices provided by multiple securities dealers and pricing providers to validate the accuracy and reasonableness of prices received from the third party provider. On a monthly basis, the Investment Committee reviews mark-to-market changes in the securities portfolio for reasonableness.

The following table summarizes the fair values of debt securities available for sale and equity securities at December 31, 2018 and September 30, 2018, as they are measured at fair value on a recurring basis.



	Fair Value At December 31, 2018
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Debt securities AFS
Small business administration securities	$	94,056	$	—	$	94,056	$	—
Obligations of states and political subdivisions	14,950		—		14,950		—
Non-bank qualified obligations of states and political subdivisions	944,571		—		944,571		—
Asset-backed securities	287,293		—		287,293		—
Mortgage-backed securities	354,186		—		354,186		—
Total debt securities AFS	1,695,056		—		1,695,056		—
Common equities and mutual funds⁽¹⁾⁽²⁾	$	3,837	$	3,837	$	—	$	—

⁽¹⁾Equity securities at fair value are included within other assets on the consolidated statement of financial condition at December 31, 2018 and September 30, 2018.

⁽²⁾ ASU 2016-01 adopted on October 1, 2018, on a prospective basis, removed equity securities from AFS category at December 31, 2018.



	Fair Value At September 30, 2018
	Available For Sale
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Debt securities AFS
Small business administration securities	$	44,337	$	—	$	44,337	$	—
Obligations of states and political subdivisions	16,910		—		16,910		—
Non-bank qualified obligations of states and political subdivisions	1,109,885		—		1,109,885		—
Asset-backed securities	313,028		—		313,028		—
Mortgage-backed securities	364,065		—		364,065		—
Total debt securities AFS	1,848,225		—		1,848,225		—
Common equities and mutual funds⁽¹⁾	3,800		3,800		—		—
Total securities	$	1,852,025	$	3,800	$	1,848,225	$	—

⁽¹⁾Equity securities at fair value are included within other assets on the consolidated statement of financial condition at December 31, 2018 and September 30, 2018.

The Company did not transfer any AFS debt securities or equity securities between fair value hierarchy categories at December 31, 2018 or September 30, 2018.

Loans and Leases. The Company does not record loans and leases at fair value on a recurring basis. If a loan or lease is identified as individually impaired, management then measures impairment in accordance with ASC 310, Receivables. See Note 4 Loans and Leases, Net for further information.

The following table summarizes the assets of the Company that were measured at fair value in the consolidated statements of financial condition on a non-recurring basis as of December 31, 2018 and September 30, 2018.



	Fair Value At December 31, 2018
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Impaired Loans and Leases, net
Asset Based Lending	$	761	$	—	$	—	$	761
Factoring	724		—		—		724
Commercial finance	1,485		—		—		1,485
Total National Lending	1,485		—		—		1,485
Total Impaired Loans and Leases	1,485		—		—		1,485
Foreclosed Assets, net	31,548		—		—		31,548
Total	$	33,033	$	—	$	—	$	33,033



	Fair Value At September 30, 2018
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Impaired loans and leases, net
Asset Based Lending	$	57	$	—	$	—	$	57
Factoring	1,899		—		—		1,899
Lease Financing	2,869		—		—		2,869
Commercial finance	4,825		—		—		4,825
Total National Lending	4,825		—		—		4,825
Total impaired loans and leases	4,825		—		—		4,825
Foreclosed assets, net	31,638		—		—		31,638
Total	$	36,463	$	—	$	—	$	36,463

Quantitative Information About Level 3 Fair Value Measurements

(Dollars in Thousands)

Fair Value at
December 31, 2018

Fair Value at
September 30, 2018

Valuation
Technique

Unobservable Input

Range of Inputs

Impaired loans and leases, net

1,485

4,825

Market approach

Appraised values (1)

4.00 - 10.00%

Foreclosed Assets, net

31,548

31,638

Market approach

Appraised values (1)

4.00 - 10.00%


⁽¹⁾	The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs in a range of 4% to 10%.

The following table discloses the Company’s estimated fair value amounts of its financial instruments as of the dates set forth below. It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company as of December 31, 2018 and September 30, 2018, as more fully described below. The operations of the Company are managed from a going concern basis and not a liquidation basis. As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations. Additionally, a substantial portion of the Company’s inherent value is the Bank’s capitalization and franchise value. Neither of these components have been given consideration in the presentation of fair values below.

The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at December 31, 2018 and September 30, 2018.



	December 31, 2018
(Dollars in Thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	164,169	$	164,169	$	164,169	$	—	$	—

Debt securities available for sale	1,695,056		1,695,056		—		1,695,056		—
Debt securities held to maturity	160,736		151,590		—		151,590		—
Equity securities ⁽¹⁾	3,837		3,837		3,837		—		—
Total securities	1,859,629		1,850,483		3,837		1,846,646		—

Loans held for sale	33,560		33,560		—		33,560		—

Loans and leases:
Asset based lending	554,072		541,707		—		—		541,707
Factoring	284,912		281,731		—		—		281,731
Lease financing	290,889		291,205		—		—		291,205
Insurance premium finance	330,712		329,753		—		—		329,753
SBA/USDA	67,893		67,891		—		—		67,891
Other commercial finance	89,402		89,859		—		—		89,859
Commercial finance	1,617,880		1,602,146		—		—		1,602,146
Consumer credit products	96,144		95,310		—		—		95,310
Other consumer finance	182,510		178,616		—		—		178,616
Consumer finance	278,654		273,926		—		—		273,926
Tax services	76,575		76,568		—		—		76,568
Warehouse finance	176,134		173,488		—		—		173,488
Total National Lending	2,149,243		2,126,128		—		—		2,126,128
Commercial real estate and operating	863,753		849,384		—		—		849,384
Consumer one to four family real estate and other	256,341		252,230		—		—		252,230
Agricultural real estate and operating	58,971		56,906		—		—		56,906
Total Community Banking	1,179,065		1,158,520		—		—		1,158,520
Total loans and leases	3,328,308		3,284,648		—		—		3,284,648

Federal Home Loan Bank stock	15,600		15,600		—		15,600		—
Accrued interest receivable	22,076		22,076		22,076		—		—

Financial liabilities
Noninterest-bearing demand deposits	2,739,757		2,739,757		2,739,757		—		—
Interest-bearing demand deposits, savings, and money markets	235,450		235,450		235,450		—		—
Certificates of deposits	170,629		169,397		—		169,397		—
Wholesale non-maturing deposits	146,227		146,227		146,227		—		—
Wholesale certificates of deposits	1,644,384		1,640,910		—		1,640,910		—
Total deposits	4,936,447		4,931,741		3,121,434		1,810,307		—

Advances from Federal Home Loan Bank	—		—		—		—		—
Federal funds purchased	227,000		227,000		227,000		—		—
Securities sold under agreements to repurchase	4,226		4,226		—		4,226		—
Capital leases	1,860		1,860		—		1,860		—
Trust preferred securities	13,662		13,867		—		13,867		—
Subordinated debentures	73,528		75,000		—		75,000		—
Accrued interest payable	11,280		11,280		11,280		—		—

⁽¹⁾Equity securities at fair value are included within other assets on the consolidated statement of financial condition at December 31, 2018 and September 30, 2018.



	September 30, 2018
(Dollars in Thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	99,977	$	99,977	$	99,977	$	—	$	—

Securities available for sale	1,852,025		1,852,025		3,800		1,848,225		—
Securities held to maturity	172,154		160,974		—		160,974		—
Total securities	2,024,179		2,012,999		3,800		2,009,199		—

Loans held for sale	15,606		15,606		—		15,606		—

Loans and leases:
Asset based lending	477,917		477,471		—		—		477,471
Factoring	284,221		283,424		—		—		283,424
Lease financing	265,315		264,679		—		—		264,679
Insurance premium finance	337,877		337,212		—		—		337,212
SBA/USDA	59,374		61,072		—		—		61,072
Other commercial finance	85,145		83,111		—		—		83,111
Commercial finance	1,509,849		1,506,969		—		—		1,506,969
Consumer credit products	80,605		80,633		—		—		80,633
Other consumer finance	189,756		197,320		—		—		197,320
Consumer finance	270,361		277,953		—		—		277,953
Tax services	1,073		1,073		—		—		1,073
Warehouse finance	65,000		64,978		—		—		64,978
Total National Lending	1,846,283		1,850,973		—		—		1,850,973
Commercial real estate and operating	790,890		773,203		—		—		773,203
Consumer one to four family real estate and other	247,318		244,730		—		—		244,730
Agricultural real estate and operating	60,498		58,849		—		—		58,849
Total Community Banking	1,098,706		1,076,782		—		—		1,076,782
Total loans and leases	2,944,989		2,927,755		—		—		2,927,755

Federal Home Loan Bank stock	23,400		23,400		—		23,400		—
Accrued interest receivable	22,016		22,016		22,016		—		—

Financial liabilities
Noninterest-bearing demand deposits	2,405,274		2,405,274		2,405,274		—		—
Interest-bearing demand deposits, savings, and money markets	218,347		218,347		218,347		—		—
Certificates of deposits	276,180		273,800		—		273,800		—
Wholesale non-maturing deposits	94,384		94,384		94,384		—		—
Wholesale certificates of deposits	1,436,802		1,432,146		—		1,432,146		—
Total deposits	4,430,987		4,423,951		2,718,005		1,705,946		—

Advances from Federal Home Loan Bank	—		—		—		—		—
Federal funds purchased	422,000		422,000		422,000		—		—
Securities sold under agreements to repurchase	3,694		3,694		—		3,694		—
Capital leases	1,876		1,876		—		1,876		—
Trust preferred securities	13,661		13,866		—		13,866		—
Subordinated debentures	73,491		75,563		—		75,563		—
Accrued interest payable	7,794		7,794		7,794		—		—

The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at December 31, 2018 and September 30, 2018.

CASH AND CASH EQUIVALENTS

The carrying amount of cash and short-term investments is assumed to approximate the fair value.

DEBT SECURITIES AVAILABLE FOR SALE AND EQUITY SECURITIES

Debt securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair values for these investment securities are based on obtaining quoted prices on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.

LOANS HELD FOR SALE

The carrying amount of loans held for sale is assumed to approximate the fair value.

LOANS AND LEASES, NET

Upon adoption of ASU 2016-01, the fair value of loans and leases were estimated using an exit price methodology. The exit price estimation of fair value is based on the present value of expected cash flows, which are based on the contractual terms of the loans, adjusted for prepayments and a discount rate based on the relative risk of the cash flows. Other considerations include the loan type, remaining life of the loan and credit risk. In comparison, loan and lease fair values as of September 30, 2018 were estimated on an entrance price methodology, which discounts future cash flows using the then-current rates at which a similar loan would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of non-impaired loans and leases as of December 31, 2018 and September 30, 2018 are not comparable.

FEDERAL HOME LOAN BANK (“FHLB”) STOCK

The fair value of FHLB stock is assumed to approximate book value since the Company is only able to redeem this stock at par value.

ACCRUED INTEREST RECEIVABLE

The carrying amount of accrued interest receivable is assumed to approximate the fair value.

DEPOSITS

The carrying values of noninterest-bearing checking deposits, interest-bearing checking deposits, savings, money markets, and wholesale non-maturing deposits are assumed to approximate fair value since deposits are immediately withdrawable without penalty. The fair value of time certificate deposits and wholesale certificate deposits are estimated using a discounted cash flows calculation that applies the FHLB Des Moines curve to aggregated expected maturities of time deposits. In accordance with ASC 825, Financial Instruments, no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) since such intangible is not a financial instrument as defined under ASC 825.

ADVANCES FROM FHLB

The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities.

FEDERAL FUNDS PURCHASED

The carrying amount of federal funds purchased is assumed to approximate the fair value.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND SUBORDINATED DEBENTURES

The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.

ACCRUED INTEREST PAYABLE

The carrying amount of accrued interest payable is assumed to approximate the fair value.

LIMITATIONS

Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument. Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time. Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision. Changes in assumptions as well as tax considerations could significantly affect the estimates. Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.