Fair Value Measurements

3 Months Ended

Mar. 31, 2024

We use fair value measurements when recording and disclosing certain financial assets and liabilities. Debt securities, equity securities and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other financial instruments at fair value on a nonrecurring basis, such as loans held for sale, individually assessed loans, other real estate owned, or OREO, and other repossessed assets, mortgage servicing rights, or MSRs, and certain other assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data that we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows.

Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.

Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.

Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

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.

There have been no changes in our valuation methodologies during the three months ended March 31, 2024. Refer to Note 1 Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2023 Form 10-K for more information on the valuation methodologies that we use for financial instruments recorded at fair value on a recurring or nonrecurring basis.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at the dates presented:


	March 31, 2024
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Available-for-sale debt securities:
U.S. Treasury securities	$	132,586	$	—	$	—	$	132,586
Obligations of U.S. government corporations and agencies	—		32,593		—		32,593
Collateralized mortgage obligations of U.S. government corporations and agencies	—		467,198		—		467,198
Residential mortgage-backed securities of U.S. government corporations and agencies	—		36,662		—		36,662
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		275,749		—		275,749

Obligations of states and political subdivisions	—		25,005		—		25,005
Total Available-for-Sale Debt Securities	132,586		837,207		—		969,793
Equity securities	935		—		—		935
Total Securities Available for Sale	133,521		837,207		—		970,728
Securities held in a deferred compensation plan	10,257		—		—		10,257
Derivative financial assets:
Interest rate swaps - commercial loans	—		72,093		—		72,093



Total Assets	$	143,778	$	909,300	$	—	$	1,053,078
LIABILITIES
Derivative financial liabilities:
Interest rate swaps - commercial loans	$	—	$	72,578	$	—	$	72,578


Interest rate swaps - cash flow hedge	—		18,404		—		18,404
Total Liabilities	$	—	$	90,982	$	—	$	90,982


	December 31, 2023
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Available-for-sale debt securities:
U.S. Treasury securities	$	133,786	$	—	$	—	$	133,786
Obligations of U.S. government corporations and agencies	—		32,513		—		32,513
Collateralized mortgage obligations of U.S. government corporations and agencies	—		460,939		—		460,939
Residential mortgage-backed securities of U.S. government corporations and agencies	—		38,177		—		38,177
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		273,425		—		273,425

Obligations of states and political subdivisions	—		30,468		—		30,468
Total Available-for-Sale Debt Securities	133,786		835,522		—		969,308
Equity securities	1,010		73		—		1,083
Total Securities Available for Sale	134,796		835,595		—		970,391
Securities held in a deferred compensation plan	9,399		—		—		9,399
Derivative financial assets:
Interest rate swaps - commercial loans	—		63,018		—		63,018



Total Assets	$	144,195	$	898,613	$	—	$	1,042,808
LIABILITIES
Derivative financial liabilities:
Interest rate swaps - commercial loans	$	—	$	63,554	$	—	$	63,554

Interest rate swaps - cash flow hedge	—		14,739		—		14,739
Total Liabilities	$	—	$	78,293	$	—	$	78,293

Assets Recorded at Fair Value on a Nonrecurring Basis

We may be required to measure certain assets and liabilities at fair value on a nonrecurring basis. Nonrecurring assets are recorded at the lower of cost or fair value in our consolidated financial statements. There were no liabilities measured at fair value on a nonrecurring basis at either March 31, 2024 or December 31, 2023. There were no Level 3 assets measured at fair

value on a nonrecurring basis as of March 31, 2024 or December 31, 2023. There was one Level 2 individually assessed loan measured at fair value on a nonrecurring basis for $13.4 million at March 31, 2024 and $5.9 million at December 31, 2023.

Fair Value of Financial Instruments

The following tables present the carrying values and fair values of our financial instruments at the dates presented:


	Carrying Value(1)		Fair Value Measurements at March 31, 2024
(dollars in thousands)			Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	207,462	$	207,462	$	207,462	$	—	$	—
Securities available for sale	970,728		970,728		133,521		837,207		—

Portfolio loans, net	7,551,232		7,247,276		—		—		7,247,276
Collateral receivable	6,770		6,770		6,770		—		—
Securities held in a deferred compensation plan	10,257		10,257		10,257		—		—
Mortgage servicing rights	6,153		8,809		—		—		8,809
Interest rate swaps - commercial loans	72,093		72,093		—		72,093		—



LIABILITIES
Deposits	$	7,600,347	$	7,588,523	$	5,855,869	$	1,732,654	$	—
Collateral payable	58,587		58,587		58,587		—		—

Short-term borrowings	285,000		284,631		—		284,631		—
Long-term borrowings	39,156		38,924		—		38,924		—
Junior subordinated debt securities	49,373		49,373		—		49,373		—
Interest rate swaps - commercial loans	72,578		72,578		—		72,578		—
Interest rate swaps - cash flow hedge	18,404		18,404		—		18,404		—


(1) As reported in the Consolidated Balance Sheets


	Carrying Value(1)		Fair Value Measurements at December 31, 2023
(dollars in thousands)			Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	233,612	$	233,612	$	233,612	$	—	$	—
Securities available for sale	970,391		970,391		134,796		835,595		—
Loans held for sale	153		153		—		153		—
Portfolio loans, net	7,545,375		7,263,270		—		—		7,263,270
Collateral receivable	5,356		5,356		5,356		—		—
Securities held in a deferred compensation plan	9,399		9,399		9,399		—		—
Mortgage servicing rights	6,345		8,704		—		—		8,704
Interest rate swaps - commercial loans	63,018		63,018		—		63,018		—


LIABILITIES
Deposits	$	7,521,769	$	7,511,598	$	5,940,117	$	1,571,481	$	—
Collateral payable	50,920		50,920		50,920		—		—

Short-term borrowings	415,000		415,000		—		415,000		—
Long-term borrowings	39,277		38,995		—		38,995		—
Junior subordinated debt securities	49,358		49,358		—		49,358		—
Interest rate swaps - commercial loans	63,554		63,554		—		63,554		—
Interest rate swaps - cash flow hedge	14,739		14,739		—		14,739		—

(1) As reported in the Consolidated Balance Sheets

- 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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