Fair Value

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value

Fair Value

Financial Instruments Measured at Fair Value

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 its assets and 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. Valuations within these levels are based upon:

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access as of the measurement date

Level 2

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 for substantially the full term of the assets or liabilities

Level 3

Unobservable inputs that are significant to the fair value of the assets or liabilities that reflect a company’s own assumptions about the assumptions that market participants would use in pricing assets or liabilities

Management monitors the availability of observable market data to assess the appropriate classification of assets and liabilities within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. There were no transfers of financial instruments between fair value levels for any period presented.

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

Securities – The Company utilizes an independent pricing service to advise it on the value of the securities portfolio. Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For these investments, the inputs used by the pricing service to determine fair value may include one, or a combination of several, observable inputs such as benchmark yields, reported trades, benchmark securities, bids, offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. For Level 3 securities, in addition to the inputs noted above, inputs used by the pricing service to determine fair value may also include estimated duration, municipal bond interest rate curve, and tax effected yield. There were no Level 3 securities as of June 30, 2024 or December 31, 2023. The Company’s treasury department and Asset Liability Management Committee review the aggregate fair values of the securities portfolio.

Collateral-dependent Loans with Credit Losses – Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured to determine if any credit loss exists on a non-recurring basis. Allowable methods for determining the amount of the credit loss include estimating fair value using the fair value of the collateral for collateral-dependent loans. Specific allowances for these loans are based on comparisons of the recorded carrying values of the loans to the present value of the estimated cash flows of these loans at each loan’s effective interest rate or the fair value of the collateral net of selling costs if the loan is collateral-dependent. Loans that are primarily collateral dependent loans are assessed using a fair value approach. Fair value estimates for collateral-dependent loans are derived from appraised values based on the current market value or as-is value of the property being appraised. Appraisals are based on certain assumptions, which may include construction or development status and the highest and best use of the property. The appraisals are reviewed by the Company’s appraisal department to ensure they are acceptable. Loans that have experienced a credit loss are classified within Level 3 of the fair value hierarchy.

Other Real Estate Owned – Other real estate owned is initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated cost to sell. Fair value estimates begin with obtaining a current independent appraisal or internal evaluation of the collateral value. Subsequent

to foreclosure, valuations are performed periodically by the Company’s appraisal department and any subsequent reduction in value is recognized by a charge to income.

Appraisals for both collateral-dependent loans and other real estate owned are performed by certified appraisers whose qualifications and licenses have been reviewed by the Company. These appraisals are reviewed by a member of the Company’s appraisal department to ensure they are acceptable. Appraised values are adjusted down for costs associated with asset disposal. The significant unobservable inputs (Level 3) used in the fair value measurement of collateral for collateral-dependent loans and other real estate owned are primarily based on appraisals, observable market conditions, and other factors which may affect collectability. The appraisals use marketability and comparability discounts, which generally range from 5% to 15%. Assessment of the significance of a specific input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset. It is reasonably possible that a change in the estimated fair value for assets measured using Level 3 inputs could occur in the future.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair		Fair Value Measurements Using
(In thousands)	Value		Level 1		Level 2		Level 3
June 30, 2024
U.S. Treasuries	$	240,054	$	—	$	240,054	$	—
U.S. Government agency obligations	491,750		—		491,750		—
Residential mortgage-backed securities	73,263		—		73,263		—
Commercial mortgage-backed securities	12,212		—		12,212		—
Corporate investments	47,108		—		47,108		—
State and political subdivisions	42,564		—		42,564		—
Total securities available for sale	$	906,951	$	—	$	906,951	$	—

December 31, 2023
U.S. Treasuries	$	210,118	$	—	$	210,118	$	—
U.S. Government agency obligations	454,923		—		454,923		—
Residential mortgage-backed securities	82,028		—		82,028		—
Commercial mortgage-backed securities	12,273		—		12,273		—
Asset backed securities	6,949		—		6,949		—
Corporate investments	45,539		—		45,539		—
State and political subdivisions	44,191		—		44,191		—
Total securities available for sale	$	856,021	$	—	$	856,021	$	—

There were no transfers between Level 1, 2 or 3 during the periods shown above.

Assets measured at fair value on a non-recurring basis are summarized below.

	Fair		Fair Value Measurements Using
(In thousands)	Value		Level 1		Level 2		Level 3
Collateral-dependent loans, net of allowance for credit losses:
June 30, 2024	$	25,117	$	—	$	—	$	25,117
December 31, 2023	$	15,224	$	—	$	—	$	15,224
Other real estate owned:
June 30, 2024	$	6,467	$	—	$	—	$	6,467
December 31, 2023	$	2,368	$	—	$	—	$	2,368

The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a non-recurring basis.

	Qualitative Information about Level 3 Fair Value Measurements
(In thousands)	Carrying Value		Valuation Methods	Unobservable Inputs	Range	Weighted Average
June 30, 2024
Collateral-dependent loans, net of specific allowance	$	25,117	Third-party appraisals	Selling costs	5% - 10%	6%
Other real estate owned	$	6,467	Third-party appraisals and internal evaluations	Selling costs	5% - 10%	6%

	Qualitative Information about Level 3 Fair Value Measurements
(In thousands)	Carrying Value		Valuation Methods	Unobservable Inputs	Range	Weighted Average
December 31, 2023
Collateral-dependent loans, net of specific allowance	$	15,224	Third-party appraisals	Selling costs	5% - 10%	6%
Other real estate owned	$	2,368	Third-party appraisals and internal evaluations	Selling costs	5% - 10%	6%

Fair Value of Financial Instruments

GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, that are not measured and reported at fair value on a recurring or non-recurring basis. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions significantly affect the estimates and, as such, the derived fair value may not be indicative of the value negotiated in an actual sale and may not be comparable to that reported by other financial institutions. In addition, the fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following table presents estimated fair values of the Company’s financial instruments that are not recorded at fair value:

	June 30, 2024				December 31, 2023
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Level 1 inputs:
Cash and cash equivalents	$	223,477	$	223,477	$	266,591	$	266,591
Level 2 inputs:
Securities held to maturity	52,075		51,874		55,170		55,045
FHLB stock	16,518		16,518		23,634		23,634
Accrued interest receivable	33,657		33,657		30,086		30,086
Level 3 inputs:
Loans held for sale	15,713		15,713		6,525		6,525
Loans, net	6,101,401		5,915,552		6,016,139		5,804,169
Financial liabilities:
Level 2 inputs:
Deposits	6,586,403		6,105,869		6,325,736		6,318,082
FHLB and other borrowings	230,052		228,042		375,059		374,325
Subordinated debentures	133,775		140,326		133,677		137,428
Accrued interest payable	12,631		12,631		10,539		10,539