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FAIR VALUE

12 Months Ended

Dec. 31, 2023

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Fair value represents the estimated exchange price that would be received from selling an asset or paid to transfer a liability, otherwise known as an “exit price” in the principal or most advantageous market available to the entity in an orderly transaction between market participants on the measurement date.

Fair Value Hierarchy

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. The Company groups financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

•Level 1—Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•Level 2—Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Significant unobservable inputs that reflect management’s judgment and assumptions that market participants would use in pricing an asset or liability that are supported by little or no market activity.

The carrying amounts and estimated fair values of financial instruments that are reported at cost on the balance sheet were as follows:


	December 31, 2023
	Carrying Amount		Estimated Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets
Cash and cash equivalents	$	399,237	$	399,237	$	—	$	—	$	399,237
Available for sale securities	1,395,680		—		1,395,680		—		1,395,680
Loans held for investment, net of allowance	7,833,449		—		—		7,627,962		7,627,962
Accrued interest receivable	44,244		118		6,716		37,410		44,244
Financial liabilities
Deposits	$	8,873,467	$	—	$	8,866,645	$	—	$	8,866,645
Accrued interest payable	11,288		—		11,288		—		11,288
Borrowed funds	50,000		—		50,000		—		50,000
Subordinated debt	109,765		—		109,390		—		109,390


	December 31, 2022
	Carrying Amount		Estimated Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets
Cash and cash equivalents	$	371,705	$	371,705	$	—	$	—	$	371,705
Available for sale securities	1,807,586		—		1,807,586		—		1,807,586
Loans held for investment, net of allowance	7,661,571		—		—		7,555,602		7,555,602
Accrued interest receivable	44,743		25		10,585		34,133		44,743
Financial liabilities
Deposits	$	9,267,632	$	—	$	9,256,141	$	—	$	9,256,141
Accrued interest payable	2,098		—		2,098		—		2,098
Borrowed funds	63,925		—		63,999		—		63,999
Subordinated debt	109,367		—		107,910		—		107,910

The fair value estimates presented herein are based on pertinent information available to management as of the dates indicated. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value, non-financial assets and non-financial liabilities and for estimating fair value for financial instruments not recorded at fair value:

Cash and Cash Equivalents—For these short-term instruments, the carrying amount is a reasonable estimate of fair value. The Company classifies the estimated fair value of these instruments as Level 1.

Available for Sale Securities—Fair values for available for sale securities are based upon quoted market prices, if available, and are considered Level 1 inputs. For all other available for sale securities, if quoted prices are not available, fair values are measured based on market prices for similar securities and are considered Level 2 inputs. For these securities, the Company generally obtains fair value measurements from an independent pricing service. 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. 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 and are considered Level 3 inputs. Available for sale securities are recorded at fair value on a recurring basis.

Loans—The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and that have no significant change in credit risk resulting in a Level 3 classification. Fair values for fixed-rate loans and variable rate loans which

reprice infrequently are estimated by discounting future cash flows. In accordance with ASU 2016-01, the discount rates used to determine the fair value of loans used interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk of the loans.

Deposits—The fair value of demand deposits (e.g., interest and noninterest checking, savings and certain types of money market deposits) is the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 2 classification. The fair value of fixed rate certificates of deposit is estimated using a discounted cash flows calculation that applies interest rates currently offered on certificates of deposit to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Accrued Interest—The carrying amounts of accrued interest approximate their fair values resulting in a Level 1, 2 or 3 classification.

Borrowed Funds—The fair value of the Company’s borrowed funds is estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements and are measured utilizing Level 2 inputs.

Subordinated Debt—The fair values of subordinated debentures and notes are estimated using discounted cash flow analyses based on the Company’s current borrowing rates for similar types of borrowing arrangements and are measured utilizing Level 2 inputs.

Interest Rate Swaps and Credit Risk Participation Agreements—Fair value measurements for interest rate swaps are obtained from an independent pricing service which uses the income approach. The income approach calls for the utilization of valuation techniques to convert future cash flows as due to be exchanged per the terms of the financial instrument, into a single present value amount. Measurement is based on the value indicated by the market expectations about those future amounts as of the measurement date. The proprietary curves of the independent pricing service utilize pricing models derived from industry standard analytic tools, considering both Level 1 and Level 2 inputs. Interest rate swaps are classified as Level 2. Interest rate swaps are recorded at fair value on a recurring basis.

Off-balance sheet instruments—The fair values of off-balance sheet commitments to extend credit and standby letters of credit financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The Company has reviewed the unfunded portion of commitments to extend credit as well as standby and other letters of credit and has determined that the fair value of such financial instruments is not material.

Financial assets and liabilities measured at fair value on a recurring basis were as follows:


	December 31, 2023
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets
Available for sale securities:
U.S. government and agency securities	$	—	$	297,418	$	—	$	297,418
Municipal securities	—		204,059		—		204,059
Agency mortgage-backed pass-through securities	—		387,873		—		387,873
Agency collateralized mortgage obligations	—		398,117		—		398,117
Corporate bonds and other	—		108,213		—		108,213
Interest rate swaps	—		6,692		—		6,692
Credit risk participation agreements	—		—		20		20
Total fair value of financial assets	$	—	$	1,402,372	$	20	$	1,402,392
Financial liabilities
Interest rate swaps	$	—	$	6,692	$	—	$	6,692
Total fair value of financial liabilities	$	—	$	6,692	$	—	$	6,692


	December 31, 2022
	Level 1			Level 2		Level 3			Total
	(In thousands)
Financial assets
Available for sale securities:
U.S. government and agency securities	$	—		$	414,280	$	—		$	414,280
Municipal securities	—			540,569		—			540,569
Agency mortgage-backed pass-through securities	—			328,801		—			328,801
Agency collateralized mortgage obligations	—			394,130		—			394,130
Corporate bonds and other	—			129,806		—			129,806
Interest rate swaps	—			9,263		—			9,263
Credit risk participation agreements	—		—	—		27		—	27
Total fair value of financial assets	$	—		$	1,816,849	$	27		$	1,816,876
Financial liabilities
Interest rate swaps	$	—		$	9,263	$	—		$	9,263
Total fair value of financial liabilities	$	—		$	9,263	$	—		$	9,263

There were no transfers between levels during 2023 and 2022.

Certain assets, including PCD and individually evaluated loans with allowances for credit losses and branch assets held for sale, are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances such as impairment. There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2023 and 2022. Assets measured on a nonrecurring basis for the periods noted are summarized in the table below.


	December 31, 2023
	Level 1		Level 2		Level 3
	(In thousands)
Loans:
Commercial and industrial	$	—	$	—	$	10,084
Commercial real estate (including multi-family residential)	—		—		7,134
Commercial real estate construction and land development	—		—		6,654
1-4 family residential (including home equity)	—		—		3,892
Consumer and other	—		—		106
Branch assets held for sale	2,033		—		—
	$	2,033	$	—	$	27,870


	December 31, 2022
	Level 1		Level 2		Level 3
	(In thousands)
Loans:
Commercial and industrial	$	—	$	—	$	21,948
Commercial real estate (including multi-family residential)	—		—		11,566
1-4 family residential (including home equity)	—		—		2,883
Branch assets held for sale	5,165		—		—
	$	5,165	$	—	$	36,397

Branch assets held for sale include banking centers that closed and are for sale.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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