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FAIR VALUE

3 Months Ended

Mar. 31, 2024

GAAP provides entities the option to measure eligible financial assets, financial liabilities and commitments at fair value (i.e. the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a commitment. Subsequent changes in fair value must be recorded in earnings. The Company applies the fair value option on residential mortgage loans held for sale. The fair value option on residential mortgage loans held for sale allows the recognition of gains on the sale of mortgage loans to more accurately reflect the timing and economics of the transaction.

The standard for fair value measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below.

Basis of Fair Value Measurement:

Level 1- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2- Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Changes to interest rates may result in changes in the cash flows due to prepayments or extinguishments. Accordingly, changes to interest rates could result in higher or lower measurements of the fair values.

Assets and Liabilities

Residential mortgage loans held for sale

Residential mortgage loans held for sale are valued based on quotations from the secondary market for similar instruments and are classified as Level 2 in the fair value hierarchy.

Investment securities available-for-sale

U.S. treasuries and government agencies securities and mortgage-backed and asset-backed securities

Valuations are based on active market data and use of evaluated broker pricing models that vary based by asset class and includes available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, descriptive terms, and databases coupled with extensive quality control programs. Quality control evaluation processes use available market, credit and deal level information to support the evaluation of the security. Additionally, proprietary models and pricing systems, mathematical tools, actual transacted prices, integration of market developments and experienced evaluators are used to determine the value of a security based on a hierarchy of market information regarding a security or securities with similar characteristics. The Company does not adjust the quoted price for such securities. Such instruments are classified within Level 2 in the fair value hierarchy.

State and municipal securities

The Company primarily uses prices obtained from third-party pricing services to determine the fair value of securities. The Company independently evaluates and corroborates the fair value received from pricing services through various methods and techniques, including references to dealer or other market quotes, by reviewing valuations of comparable instruments, and by comparing the prices realized on the sale of similar securities. Such securities are classified within Level 2 in the fair value hierarchy.

Interest rate swap agreements

Interest rate swap agreements are measured by alternative pricing sources using a discounted cash flow method that incorporates current market interest rates. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These characteristics classify interest rate swap agreements as Level 2 in the fair value hierarchy.

Assets Measured at Fair Value on a Recurring Basis

The following tables set forth the Company’s financial assets and liabilities at the dates indicated that were accounted for or disclosed at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


	March 31, 2024
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Residential mortgage loans held for sale (1)	$	—	$	16,627	$	—	$	16,627
Available-for-sale debt securities:
U.S. treasuries and government agencies	—		92,236		—		92,236
State and municipal	—		263,986		—		263,986
Mortgage-backed and asset-backed	—		744,519		—		744,519

Total available-for-sale debt securities	—		1,100,741		—		1,100,741
Interest rate swap agreements	—		17,758		—		17,758
Total assets	$	—	$	1,135,126	$	—	$	1,135,126

Liabilities:
Interest rate swap agreements	$	—	$	(17,758)	$	—	$	(17,758)
Total liabilities	$	—	$	(17,758)	$	—	$	(17,758)

(1) The outstanding principal balance for residential loans held for sale as of March 31, 2024 was $16.4 million.


	December 31, 2023
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Residential mortgage loans held for sale (1)	$	—	$	10,836	$	—	$	10,836
Investments available-for-sale:
U.S. treasuries and government agencies	—		96,927		—		96,927
State and municipal	—		268,214		—		268,214
Mortgage-backed and asset-backed	—		737,540		—		737,540




Total investments available-for-sale	—		1,102,681		—		1,102,681
Interest rate swap agreements	—		15,867		—		15,867
Total assets	$	—	$	1,129,384	$	—	$	1,129,384

Liabilities:
Interest rate swap agreements	$	—	$	(15,867)	$	—	$	(15,867)
Total liabilities	$	—	$	(15,867)	$	—	$	(15,867)

(1) The outstanding principal balance for residential loans held for sale as of December 31, 2023 was $10.5 million.

Assets Measured at Fair Value on a Nonrecurring Basis

The following tables set forth the Company’s financial assets subject to fair value adjustments on a nonrecurring basis at the date indicated that are valued at the lower of cost or market. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


	March 31, 2024
(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Total Losses
Loans(1)	$	—	$	—	$	—	$	—	$	—
Other real estate owned	—		—		2,700		2,700		—
Total	$	—	$	—	$	2,700	$	2,700	$	—

December 31, 2023

(In thousands)

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs (Level 3)

Total

Total Losses

Loans (1)

—

Other real estate owned

—

Total

—

(1) Represent outstanding collateral-dependent non-accrual loans that were written down to the fair value of the underlying collateral. Fair values are determined using actual market prices (Level 2), independent third-party valuations and borrower records, discounted as appropriate (Level 3).

At March 31, 2024, collateral dependent loans totaling $81.1 million had an estimated fair value of $60.2 million as a result of individual credit loss allowances of $20.9 million based on the most recent value of the collateral. Collateral dependent loans totaling $88.2 million had an estimated fair value of $64.2 million at December 31, 2023 as a result of individual credit loss allowances of $24.0 million.

Fair value of the collateral dependent loans is measured based on the loan’s observable market price or the fair value of the collateral (less estimated selling costs). Collateral may be real estate and/or business assets such as equipment, inventory and/or accounts receivable. The value of business equipment, inventory and accounts receivable collateral is based on net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical experience, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional individual reserve and adjusted accordingly, based on the factors identified above.

OREO is adjusted to fair value upon acquisition of the real estate collateral. Subsequently, OREO is carried at the lower of carrying value or fair value. The estimated fair value for OREO included in Level 3 is determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to initial recognition, the Company records the OREO as a nonrecurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods.

Fair Value of Financial Instruments

The Company discloses fair value information, based on the exit price notion, of financial instruments that are not measured at fair value in the financial statements. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists.

Quoted market prices, where available, are shown as estimates of fair market values. Because no quoted market prices are available for a significant portion of the Company's financial instruments, the fair value of such instruments has been derived based on the amount and timing of future cash flows and estimated discount rates based on observable inputs (“Level 2”) or unobservable inputs (“Level 3”).

Present value techniques used in estimating the fair value of many of the Company's financial instruments are significantly affected by the assumptions used. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate cash settlement of the instrument. Additionally, the accompanying estimates of fair values are only representative of the fair values of the individual financial assets and liabilities, and should not be considered an indication of the fair value of the Company. Management utilizes internal models used in asset

liability management to determine the fair values disclosed below. Other investments include FRB and FHLB stock, whose carrying amounts approximate fair values based on the redemption provisions of each entity.

The carrying amounts and fair values of the Company’s financial instruments at the dates indicated are presented in the following tables:


					Fair Value Measurements
	March 31, 2024				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(In thousands)	Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	410,390	$	410,390	$	410,390	$	—	$	—
Residential mortgage loans held for sale	16,627		16,627		—		16,627		—
Available-for-sale debt securities	1,100,741		1,100,741		—		1,100,741		—
Held-to-maturity debt securities	231,354		192,798		—		192,798		—
Other investments	73,395		73,395		—		73,395		—
Loans, net of allowance	11,241,188		10,410,156		—		—		10,410,156
Interest rate swap agreements	17,758		17,758		—		17,758		—
Accrued interest receivable	47,152		47,152		47,152		—		—
Bank owned life insurance	163,381		163,381		—		163,381		—

Financial liabilities:
Time deposits	$	2,621,510	$	2,607,502	$	—	$	2,607,502	$	—
Other deposits	8,605,690		8,605,690		8,605,690		—		—
Securities sold under retail repurchase agreements and
federal funds purchased	71,529		71,529		—		71,529		—
Advances from FHLB	500,000		494,226		—		494,226		—
Subordinated debt	370,952		347,396		—		—		347,396
Interest rate swap agreements	17,758		17,758		—		17,758		—
Accrued interest payable	22,080		22,080		22,080		—		—


					Fair Value Measurements
	December 31, 2023				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(In thousands)	Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	545,898	$	545,898	$	545,898	$	—	$	—
Residential mortgage loans held for sale	10,836		10,836		—		10,836		—
Investments available-for-sale	1,102,681		1,102,681		—		1,102,681		—
Held-to-maturity debt securities	236,165		200,411		—		200,411		—
Other investments	75,607		75,607		—		75,607		—
Loans, net of allowance	11,246,124		10,476,059		—		—		10,476,059
Interest rate swap agreements	15,867		15,867		—		15,867		—
Accrued interest receivable	46,583		46,583		46,583		—		—
Bank owned life insurance	158,921		158,921		—		158,921		—

Financial liabilities:
Time deposits	$	2,714,555	$	2,704,013	$	—	$	2,704,013	$	—
Other deposits	8,281,983		8,281,983		8,281,983		—		—
Securities sold under retail repurchase agreements and
federal funds purchased	375,032		375,032		—		375,032		—

Advances from FHLB	550,000		547,271		—		547,271		—
Subordinated debt	370,803		348,185		—		—		348,185
Interest rate swap agreements	15,867		15,867		—		15,867		—
Accrued interest payable	30,367		30,367		30,367		—		—

- 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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