Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

The Company used the following methods and significant assumptions to estimate the fair value:

Investment Securities: The fair values for investment securities are determined by quoted market prices (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Loans Held for Sale, at Fair Value: The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan and lease losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Impaired loans may, in some cases, also be measured by the discounted cash flow methodology where payments are anticipated. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO") are measured at fair value, less estimated costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by Management. Once received, a third party conducts a review of the appraisal for compliance with the Uniform Standards of Professional Appraisal Practice and appropriate analysis methods for the type of property. Subsequently, a member of the Credit Department reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals on collateral dependent impaired loans and other real estate owned (consistent for all loan types) are obtained on an annual basis, unless a significant change in the market or other factors warrants a more frequent appraisal. On an annual basis, Management compares the actual selling price of any collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value for other properties. The most recent analysis performed indicated that a discount up to 15 percent should be applied to appraisals on properties. The discount is determined based on the nature of the underlying properties, aging of appraisals and other factors. For each collateral-dependent impaired loan, we consider other factors, such as certain indices or other market information, as well as property specific circumstances to determine if an adjustment to the appraised value is needed. In situations where there is evidence of change in

value, the Bank will determine if there is a need for an adjustment to the specific reserve on the collateral dependent impaired loans. When the Bank applies an interim adjustment, it generally shows the adjustment as an incremental specific reserve against the loan until it has received the full updated appraisal. All collateral-dependent impaired loans and other real estate owned valuations were supported by an appraisal less than 12 months old or in the process of obtaining an appraisal as of September 30, 2021.

The following table summarizes, at the dates indicated, assets measured at fair value on a recurring basis, including financial assets for which the Corporation has elected the fair value option:

			Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets For		Other		Significant
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(In thousands)	2021		(Level 1)		(Level 2)		(Level 3)
Assets:
Available for sale:
U.S. government-sponsored agencies	$	274,433	$	—	$	274,433	$	—
Mortgage-backed securities-residential		515,131		—		515,131		—
SBA pool securities		42,930		—		42,930		—
State and political subdivisions		5,750		—		5,750		—
Corporate bond		5,535		—		5,535		—
CRA investment fund		14,824		14,824		—		—
Loans held for sale, at fair value		3,013		—		3,013		—
Derivatives:
Loan level swaps		43,133		—		43,133		—
Total	$	904,749	$	14,824	$	889,925	$	—

Liabilities:
Derivatives:
Cash flow hedges	$	5,267	$	—	$	5,267	$	—
Loan level swaps		44,483		—		44,483		—
Total	$	49,750	$	—	$	49,750	$	—

			Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets For		Other		Significant
			Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
(In thousands)	2020		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale:
U.S. treasuries	$	2,613	$	—	$	2,613	$	—
U.S. government-sponsored agencies		83,771		—		83,771		—
Mortgage-backed securities-residential		476,058		—		476,058		—
SBA pool securities		49,129		—		49,129		—
State and political subdivisions		8,089		—		8,089		—
Corporate bond		3,029		—		3,029		—
CRA investment fund		15,117		15,117		—		—
Loans held for sale, at fair value		13,588		—		13,588		—
Derivatives:
Loan level swaps		79,529		—		79,529		—
Total	$	730,923	$	15,117	$	715,806	$	—

Liabilities:
Derivatives:
Cash flow hedges	$	9,616	$	—	$	9,616	$	—
Loan level swaps		79,529		—		79,529		—
Total	$	89,145	$	—	$	89,145	$	—

The Company has elected the fair value option for certain loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of September 30, 2021 and December 31, 2020.

The following tables present residential loans held for sale, at fair value at the dates indicated:

There were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2021.

The following tables summarize, at the dates indicated, assets measured at fair value on a non-recurring basis:

Fair Value Measurements Using

Quoted

Prices in

Active

Significant

Markets For

Other

Significant

Identical

Observable

Unobservable

September 30,

Assets

Inputs

(In thousands)

2021

(Level 1)

(Level 2)

(Level 3)

Assets:

Impaired loans:

Primary residential mortgage

1,057

—

1,057

Investment commercial real estate

12,750

—

12,750

Fair Value Measurements Using

Quoted

Prices in

Active

Significant

Markets For

Other

Significant

Identical

Observable

Unobservable

December 31,

Assets

Inputs

(In thousands)

2020

(Level 1)

(Level 2)

(Level 3)

Assets:

Impaired loans:

Commercial and industrial

2,300

—

2,300

The carrying amounts and estimated fair values of financial instruments at September 30, 2021 are as follows:

			Fair Value Measurements at September 30, 2021 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	616,212	$	616,212	$	—	$	—	$	616,212
Securities available for sale		843,779		—		843,779		—		843,779
CRA investment fund		14,824		14,824		—		—		14,824
FHLB and FRB stock		12,950		—		—		—	N/A
Loans held for sale, at fair value		3,013		—		3,013		—		3,013
Loans held for sale, at lower of cost or fair value		17,235		—		18,627		—		18,627
Loans, net of allowance for loan and lease losses		4,510,265		—		—		4,619,193		4,619,193
Accrued interest receivable		22,790		—		2,028		20,762		22,790
Accrued interest receivable loan level swaps (A)		4,688		—		4,688		—		4,688
Loan level swaps		43,133		—		43,133		—		43,133
Financial liabilities
Deposits	$	5,376,341	$	4,884,174	$	495,816	$	—	$	5,379,990
Paycheck Protection Program Liquidity Facility		48,496		—		48,496		—		48,496
Subordinated debt		132,629		—		—		130,917		130,917
Accrued interest payable		2,157		132		659		1,366		2,157
Accrued interest payable loan level swaps (B)		4,688		—		4,688		—		4,688
Cash flow hedges		5,267		—		5,267		—		5,267
Loan level swap		44,483		—		44,483		—		44,483

The carrying amounts and estimated fair values of financial instruments at December 31, 2020 are as follows:

			Fair Value Measurements at December 31, 2020 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	653,322	$	653,322	$	—	$	—	$	653,322
Securities available for sale		622,689		—		622,689		—		622,689
CRA investment fund		15,117		15,117		—		—		15,117
FHLB and FRB stock		13,709		—		—		—	N/A
Loans held for sale, at fair value		13,588		—		13,588		—		13,588
Loans held for sale, at lower of cost or fair value		18,520		—		19,115		—		19,115
Loans, net of allowance for loan and lease losses		4,305,128		—		—		4,462,243		4,462,243
Accrued interest receivable		22,495		—		1,653		20,842		22,495
Loan level swaps		79,529		—		79,529		—		79,529
Financial liabilities
Deposits	$	4,818,484	$	4,222,370	$	604,036	$	—	$	4,826,406
Short-term borrowings		15,000		—		15,000		—		15,000
Paycheck Protection Program Liquidity Facility		177,086		—		177,086		—		177,086
Subordinated debt		181,794		—		—		183,348		183,348
Accrued interest payable		1,650		150		1,347		153		1,650
Cash flow hedges		9,616		—		9,616		—		9,616
Loan level swaps		79,529		—		79,529		—		79,529