The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, income approach, and/or the cost approach. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Marketable equity securities, debt securities available-for-sale, loans held for sale, and mortgage servicing rights are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application impairment write-downs of individual assets.

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. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Marketable equity securities and debt securities available for sale - Marketable equity securities and debt securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. 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 assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. The Company had no securities classified as Level 3 during any of the periods covered in these financial statements.

Loans held for sale - Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for loans with similar characteristics. As such, we classify those loans subjected to recurring fair value adjustments as Level 2.

Individually evaluated loans - Loans are not recorded at fair value on a recurring basis. However, from time to time, certain loans have individual risk characteristics not consistent with a pool of loans and is individually evaluated for credit reserves. Loans for which it is probable that payment of interest and principal will not be made in accordance with the original contractual terms of the loan agreement are typically individually evaluated. The fair value of these loans are estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those 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. Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further

Foreclosed assets - Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed assets are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value less cost to sell. When the fair value of foreclosed assets is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3. Revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense.

Mortgage servicing rights - Mortgage servicing rights are carried at fair value. A valuation model, which utilizes a discounted cash flow analysis using a discount rate and prepayment speed assumptions is used in the computation of the fair value measurement. While the prepayment speed assumption is currently quoted for comparable instruments, the discount rate assumption currently requires a significant degree of management judgment and is therefore considered an unobservable input. As such, the Company classifies mortgage servicing rights subjected to recurring fair value adjustments as Level 3.

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):


Fair value at March 31, 2022	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,801	$	2,801
Debt securities available for sale:
Obligations of U.S. government corporations and agencies	1,690,744				1,690,744
Obligations of states and political subdivisions	267,195				267,195
Corporate bonds	7,616				7,616
Asset backed securities	397,352				397,352
Loans held for sale	1,030				1,030
Mortgage servicing rights	6,405						6,405
Total assets measured at fair value	$	2,373,143	$	2,801	$	2,363,937	$	6,405


Fair value at December 31, 2021	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,938	$	2,938	$	—	$	—
Debt securities available for sale:
Obligations of U.S. government corporations and agencies	1,257,389		—		1,257,389		—
Obligations of states and political subdivisions	192,244		—		192,244		—
Corporate bonds	6,756		—		6,756		—
Asset backed securities	751,549		—		751,549		—
Loans held for sale	3,466		—		3,466		—
Mortgage servicing rights	5,874		—		—		5,874
Total assets measured at fair value	$	2,220,216	$	2,938	$	2,211,404	$	5,874

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were no transfers between any levels during the three months ended March 31, 2022, or the year ended December 31, 2021.

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated. Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands):


Three months ended March 31,	Beginning Balance		Transfers into (out of) Level 3	Change Included in Earnings		Issuances		Ending Balance
2022: Mortgage servicing rights	$	5,874	—	$	274	$	257	$	6,405
2021: Mortgage servicing rights	$	5,092	—	$	12	$	503	$	5,607

The key unobservable inputs used in determining the fair value of mortgage servicing rights are mortgage prepayment speeds and the discount rate used to discount cash projected cash flows. Generally, any significant increases in the mortgage prepayment speed and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustments (and decrease in the fair value measurement). Conversely, a decrease in the mortgage prepayment speed and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

As of March 31, 2022:

Fair Value
(in thousands)

Valuation
Technique

Unobservable
Inputs

Range,
Weighted
Average

Mortgage Servicing Rights

6,405

Discounted cash flow

Constant prepayment rate

9% - 16%; 9.8%

Discount rate

10% - 14%; 12%

As of December 31, 2021:

Mortgage Servicing Rights

5,874

Discounted cash flow

Constant prepayment rate

11% - 15.8%; 12.5%

Discount rate

10% - 14%; 12%

The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated (in thousands):


March 31, 2022	Total		Level 1		Level 2		Level 3		Total Losses
Fair value:
Individually evaluated loans	$	684	—		—		$	684	$	(615)
Foreclosed assets	313		—		—		313		(294)
Total assets measured at fair value	$	997	$	—	$	—	$	997	$	(909)

The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan with unique risk characteristics, the Company evaluates the need for an allowance using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the loan is less than the recorded investment in the loan, the Company recognizes this impairment and adjust the carrying value of the loan to fair value through the allowance for credit losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully charged-off is zero.

The foreclosed assets amount above represents impaired real estate that has been adjusted to fair value. Foreclosed assets represent real estate which the Company has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at fair value less costs to sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate.

general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at March 31, 2022:

March 31, 2022

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

684

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales;
Capitalization rate

Not meaningful
N/A

Foreclosed assets (Residential real estate)

313

Sales comparison
approach

Adjustment for differences between
comparable sales

Not meaningful
N/A

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2021:

December 31, 2021

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

3,683

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales;
Capitalization rate

Not meaningful
N/A

Fair values for financial instruments are management’s estimates of the values at which the instruments could be exchanged in a transaction between willing parties. The Company uses the exit price notion when measuring the fair value of financial instruments. 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, any mortgage banking operations, deferred tax assets, and premises and equipment. 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 these estimates.


	March 31, 2022				December 31, 2021
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash and due from banks	$	49,705	$	49,705	$	57,032	$	57,032
Cash at Federal Reserve and other banks	985,978		985,978		711,389		711,389
Level 2 inputs:
Securities held to maturity	186,748		183,970		199,759		208,140
Restricted equity securities	17,250		N/A		17,250		N/A

Level 3 inputs:
Loans, net	5,755,926		5,761,682		4,831,248		4,880,044
Financial liabilities:
Level 2 inputs:
Deposits	8,714,477		8,710,991		7,367,159		7,366,422
Other borrowings	36,184		36,184		50,087		50,087
Level 3 inputs:
Junior subordinated debt	100,984		107,396		58,079		57,173