A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.


	December 31, 2023
(In thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

Trading security	$	—	$	—	$	6,142	$	6,142
Available-for-sale securities:
U.S Treasuries	7,981		—		—		7,981
Municipal bonds and obligations	—		63,853		—		63,853
Agency collateralized mortgage obligations	—		347,874		—		347,874
Agency residential mortgage-backed securities	—		417,480		—		417,480
Agency commercial mortgage-backed securities	—		145,326		—		145,326
Corporate bonds	—		35,192		3,923		39,115

Other bonds and obligations	—		656		—		656
Marketable equity securities	13,029		—		—		13,029
Loans held for investment	—		—		374		374
Loans held for sale	—		2,237		—		2,237
Derivative assets	—		45,613		55		45,668
Capitalized servicing rights	—		—		1,526		1,526
Derivative liabilities	—		75,957		—		75,957


	December 31, 2022
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
(In thousands)
Trading security	$	—	$	—	$	6,708	$	6,708
Securities available for sale:
U.S Treasuries	11,973		—		—		11,973
Municipal bonds and obligations	—		63,335		—		63,335
Agency collateralized mortgage obligations	—		531,945		—		531,945
Agency residential mortgage-backed securities	—		546,313		—		546,313
Agency commercial mortgage-backed securities	—		228,468		—		228,468
Corporate bonds	—		36,510		4,000		40,510
Other bonds and obligations	—		656				656


Marketable equity securities	12,856		—		—		12,856
Loans held for investment at fair value	—		—		605		605
Loans held for sale	—		942		—		942
Derivative assets	—		54,216		25		54,241
Capitalized servicing rights	—		—		1,846		1,846
Derivative liabilities	—		97,030		—		97,030

During the years ended December 31, 2023 and December 31, 2022, there were no transfers between Level 1, 2 and 3. During the year ended December 31, 2021, the Company had one transfer totaling $4.0 million in corporate bonds from Level 2 to Level 3 based on recent inactivity in the market related to pricing information for similar bonds.

Trading Security at Fair Value. The Company holds one security designated as a trading security. It is a tax advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The determination of the fair value for this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.

Securities Available for Sale and Marketable Equity Securities. Marketable equity securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. Marketable equity securities classified as Level 2 consist of securities with infrequent trades in active exchange markets, and pricing is primarily sourced from third party pricing services. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 and Level 3 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as 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 condition, among other things. Level 3 pricing includes inputs unobservable to market participants.

Loans Held for Investment. The Company’s held for investment loan portfolio includes loans originated by Company and loans acquired through business combinations. The Company intends to hold these assets until maturity as a part of its business operations. For one acquired portfolio subset, the Company previously accounted for these purchased-credit impaired loans as a pool under ASC 310, as they were determined to have common risk characteristics. These loans were recorded at fair value on acquisition date and subsequently evaluated for impairment collectively. Upon adoption of ASC 326, the Company elected the fair value option on this portfolio, recognizing a $11.2 million fair value write-down charged to Retained Earnings, net of deferred tax impact, as of January 1, 2020. The fair value of this loan portfolio is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable; therefore, the loans meet the definition of Level 3 assets. The discount rate used in the valuation is consistent with assets that have significant credit deterioration. The cash flow assumptions include payment schedules for loans with current payment histories and estimated collateral value for delinquent loans. All of these loans were nonperforming as of December 31, 2023.

The changes in fair value of loans held for sale for the year ended December 31, 2023 were gains of $17 thousand. The changes in fair value of loans held for sale for the year ended December 31, 2022 were losses of $169 thousand. The changes in fair value of loans held for sale for the year ended December 31, 2021 were gains of $169 thousand. During 2023, originations of loans held for sale totaled $85 million and sales of loans originated for sale totaled $84 million. During 2022, originations of loans held for sale totaled $20 million and sales of loans originated for sale totaled $25 million. During 2021, originations of loans held for sale totaled $104 million and sales of loans originated for sale totaled $108 million.

Interest Rate Swaps. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of year-end 2023, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Commitments to Lend. The Company enters into commitments to lend for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a certain interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan commitment will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, these commitments to lend are classified as Level 3 measurements.

Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the commitments to lend and loans originated for sale. To be announced (TBA) mortgage-backed securities forward commitment sales are used as hedging instruments, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the commitments to lend using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and

Capitalized Servicing Rights. The Company accounts for certain capitalized servicing rights at fair value in its Consolidated Financial Statements, as the Company is permitted to elect the fair value option for each specific instrument. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.


	Assets (Liabilities)
(In thousands)	Trading Security		Securities Available for Sale		Loans Held for Investment		Commitments to Lend		Forward Commitments		Capitalized Servicing Rights

Balance as of December 31, 2021	$	8,354	$	4,030	$	1,200	$	124	$	134	$	1,966

Unrealized (loss) gain, net recognized in other non-interest income	(828)		—		314		200		(126)		(120)
Unrealized (loss) included in accumulated other comprehensive loss	—		(30)		—		—		—		—

Paydown of asset	(818)		—		(909)		—		—		—
Transfers to loans held for sale	—		—		—		(307)		—		—

Balance as of December 31, 2022	$	6,708	$	4,000	$	605	$	17	$	8	$	1,846


Unrealized gain (loss), net recognized in other non-interest income	294		—		(128)		305		13		(320)

Unrealized (loss) in included in accumulated other comprehensive loss	—		(77)		—		—		—		—

Paydown of asset	(860)		—		(103)		—		—		—
Transfers to loans held for sale	—		—				(288)		—		—

Balance as of December 31, 2023	$	6,142	$	3,923	$	374	$	34	$	21	$	1,526

Unrealized (losses)/gains relating to instruments still held at December 31, 2023	$	(60)	$	(77)	$	—	$	34	$	21	$	—
Unrealized (losses)/gains relating to instruments still held at December 31, 2022	$	(354)	$	—	$	—	$	17	$	8	$	—


	Fair Value				Significant Unobservable Input Value
(In thousands)	December 31, 2023		Valuation Techniques	Unobservable Inputs
Assets
Trading Security	$	6,142	Discounted Cash Flow	Discount Rate	4.19		%
Securities Available for Sale	3,923		Indication from Market Maker	Price	98.07		%
Loans held for investment	374		Discounted Cash Flow	Discount Rate	25.00		%
				Collateral Value	$0.0 - $18.3
Commitments to Lend	34		Historical Trend	Closing Ratio	84.29		%
			Pricing Model	Origination Costs, per loan	$	3
Forward Commitments	21		Historical Trend	Closing Ratio	84.29		%
			Pricing Model	Origination Costs, per loan	$	3
Capitalized Servicing Rights	1,526		Discounted cash flow	Constant prepayment rate (CPR)	7.63		%
				Discount rate	11.08		%
Total	$	12,020


	Fair Value				Significant Unobservable Input Value
(In thousands)	December 31, 2022		Valuation Techniques	Unobservable Inputs
Assets
Trading Security	$	6,708	Discounted Cash Flow	Discount Rate	5.92		%
Securities Available for Sale	4,000		Indication from Market Maker	Price	100.00		%
Loans held for investment	605		Discounted Cash Flow	Discount Rate	25.00		%
				Collateral Value	$0.0 -$20.4
Commitments to Lend	17		Historical Trend	Closing Ratio	80.63		%
			Pricing Model	Origination Costs, per loan	$	2
Forward Commitments	8		Historical Trend	Closing Ratio	80.63		%
			Pricing Model	Origination Costs, per loan	$	2
Capitalized Servicing Rights	1,846		Discounted cash flow	Constant prepayment rate (CPR)	11.07		%
				Discount rate	9.56		%

Total	$	13,184

(in thousands)

December 31, 2023

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (a)

Assets

Individually evaluated loans

4,395

Fair value of collateral

Discounted Cash Flow- Loss Severity

(100.00)% to (0.08)% ((67.00)%)

Appraised value

$0 to $3,389 ($2,774)

Capitalized servicing rights

10,569

Discounted cash flow

Constant prepayment rate (CPR)

5.43% to 17.15% 12.31%

Discount rate

10.09% to 16.59% (13.82%)

Total Assets

14,964

(in thousands)

December 31, 2022

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (a)

Assets

Individually evaluated loans

14,571

Fair value of collateral

Discounted Cash Flow- Loss Severity

(100.00)% to 74.74% ((40.02)%)

Appraised value

$0 to $2,160 ($643)

Loans held for sale

3,369

Fair value of collateral

Appraised value

$3,369

Capitalized servicing rights

11,201

Discounted cash flow

Constant prepayment rate (CPR)

5.81% to 13.18% (10.94%)

Discount rate

9.59% to 22.70% (16.83%)

Total Assets

29,141

Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

Loans Transferred to Held for Sale. Once a decision has been made to sell loans not previously classified as held for sale, these loans are transferred into the held for sale category and carried at the lower of cost or fair value. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. The choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

The following tables summarize the estimated fair values, which represent exit price, and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.


	December 31, 2023
	Carrying Amount		Fair Value
(In thousands)					Level 1		Level 2		Level 3
Financial Assets

Cash and cash equivalents	$	1,203,244	$	1,203,244	$	1,203,244	$	—	$	—
Trading security	6,142		6,142		—		—		6,142
Marketable equity securities	13,029		13,029		13,029		—		—
Securities available for sale	1,022,285		1,022,285		7,981		1,010,381		3,923
Securities held to maturity	543,351		476,228		—		474,742		1,486
FHLB stock and restricted equity securities	22,689		N/A		N/A		N/A		N/A
Net loans	8,934,329		8,768,108		—		—		8,768,108
Loans held for sale	2,237		2,237		—		2,237		—
Accrued interest receivable	53,096		53,096		—		53,096		—

Derivative assets	45,668		45,668		—		45,613		55


Financial Liabilities

Total deposits	10,633,384		10,615,655		—		10,615,655		—
Short-term debt	260,000		260,035		—		260,035		—
Long-term FHLB advances	125,223		123,747		—		123,747		—
Subordinated notes	121,363		98,138		—		98,138		—
Accrued interest payable	13,766		13,766		—		13,766		—
Derivative liabilities	75,957		75,957		—		75,957		—


	December 31, 2022
	Carrying Amount		Fair Value
(In thousands)					Level 1		Level 2		Level 3

Financial Assets
Cash and cash equivalents	$	685,355	$	685,355	$	685,355	$	—	$	—
Trading security	6,708		6,708		—		—		6,708
Marketable equity securities	12,856		12,856		12,856		—		—
Securities available for sale	1,423,200		1,423,200		11,973		1,407,227		4,000
Securities held to maturity	583,453		507,464		—		505,508		1,956
FHLB stock and restricted equity securities	7,219		N/A		N/A		N/A		N/A
Net loans	8,239,039		8,194,110		—		—		8,194,110
Loans held for sale	4,311		4,311		—		942		3,369
Accrued interest receivable	46,868		46,868		—		46,868		—

Derivative assets	54,241		54,241		—		54,216		25


Financial Liabilities
Total deposits	10,327,269		10,283,543		—		10,283,543		—
Short-term debt	—		—		—		—		—
Long-term FHLB advances	4,445		2,782		—		2,782		—
Subordinated notes	121,064		110,853		—		110,853		—
Accrued interest payable	1,610		1,610		—		1,610		—
Derivative liabilities	97,030		97,030		—		97,030		—