A description of the valuation methodologies used for assets and liabilities 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.


	September 30, 2022
	Level 1		Level 2		Level 3		Total
(In thousands)	Inputs		Inputs		Inputs		Fair Value
Trading security	$	—	$	—	$	6,812	$	6,812
Securities available for sale:
U.S Treasuries	—		20,000		—		20,000
Municipal bonds and obligations	—		60,566		—		60,566
Agency collateralized mortgage obligations	—		557,513		—		557,513
Agency residential mortgage-backed securities	—		553,737		—		553,737
Agency commercial mortgage-backed securities	—		235,576		—		235,576
Corporate bonds	—		38,981		3,920		42,901

Other bonds and obligations	—		656		—		656
Marketable equity securities	12,790		—		—		12,790
Loans held for investment at fair value	—		—		796		796
Loans held for sale	—		550		—		550
Derivative assets	—		52,997		22		53,019
Capitalized servicing rights	—		—		2,026		2,026
Derivative liabilities	—		101,745		—		101,745


	December 31, 2021
	Level 1		Level 2		Level 3		Total
(In thousands)	Inputs		Inputs		Inputs		Fair Value
Trading security	$	—	$	—	$	8,354	$	8,354
Securities available for sale:
U.S Treasuries	—		59,973		—		59,973
Municipal bonds and obligations	—		77,177		—		77,177
Agency collateralized mortgage obligations	—		688,336		—		688,336
Agency residential mortgage-backed securities	—		705,859		—		705,859
Agency commercial mortgage-backed securities	—		300,580		—		300,580
Corporate bonds	—		41,630		4,030		45,660


Marketable equity securities	14,798		655		—		15,453
Loans held for investment at fair value	—		—		1,200		1,200
Loans held for sale	—		6,110		—		6,110
Derivative assets	—		79,270		258		79,528
Capitalized servicing rights	—		—		1,966		1,966
Derivative liabilities	—		35,194		—		35,194

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 fair value of 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 an $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 September 30, 2022.

The changes in fair value of loans held for sale for the three and nine months ended September 30, 2022, were losses of $12 thousand and $173 thousand, respectively. During the three and nine months ended September 30, 2022, originations of loans held for sale totaled $6.0 million and $16.1 million, respectively. During the three and nine months ended September 30, 2022, sales of loans originated for sale totaled $6.5 million and $21.6 million, respectively.

The changes in fair value of loans held for sale for the three and nine months ended September 30, 2021, were gains of $17 thousand and losses of $217 thousand, respectively. During the three and nine months ended September 30, 2021, originations of loans held for sale totaled $24.0 million and $84.4 million, respectively. During the three and nine months ended September 30, 2021, sales of loans originated for sale totaled $22.5 million and $90.8 million, respectively.

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 September 30, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company 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 specific 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 in a lock position 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 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 the hedging instrument, 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 are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward commitments are classified as Level 3 measurements.

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


	Assets (Liabilities)
			Securities		Loans						Capitalized
	Trading		Available		Held for		Commitments		Forward		Servicing
(In thousands)	Security		for Sale		Investment		to Lend		Commitments		Rights
Three Months Ended September 30, 2022
June 30, 2022	$	7,040	$	4,020	$	1,049	$	26	$	18	$	1,906



Unrealized (loss)/gain, net recognized in other non-interest income	(23)		—		(6)		41		(11)		120
Unrealized gain included in accumulated other comprehensive income	—		(100)		—		—		—		—

Paydown of asset	(205)		—		(247)		—		—		—

Transfers to held for sale loans	—		—		—		(52)		—		—

September 30, 2022	$	6,812	$	3,920	$	796	$	15	$	7	$	2,026


Nine Months Ended September 30, 2022
December 31, 2021	$	8,354	$	4,030	$	1,200	$	124	$	134	$	1,966


Unrealized (loss)/gain, net recognized in other non-interest income	(933)		—		462		171		(127)		60
Unrealized (loss) included in accumulated other comprehensive income	—		(110)		—		—		—		—


Paydown of asset	(609)		—		(866)		—		—		—
Transfers to held for sale loans	—		—		—		(280)		—		—

September 30, 2022	$	6,812	$	3,920	$	796	$	15	$	7	$	2,026

Unrealized gain relating to instruments still held at September 30, 2022	$	(459)	$	(80)	$	—	$	26	$	18	$	—


	Fair Value				Significant Unobservable Input
(In thousands)	September 30, 2022		Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)
Trading security	$	6,812	Discounted Cash Flow	Discount Rate	6.38		%
AFS Securities	3,920		Indication from Market Maker	Price	98.00%
Loans held for investment	1,049		Discounted Cash Flow	Discount Rate	25.00		%
				Collateral Value	$— - $20.7
Commitments to lend	15		Historical Trend	Closing Ratio	83.95		%
			Pricing Model	Origination Costs, per loan	$	3
Forward commitments	7		Historical Trend	Closing Ratio	83.95		%
			Pricing Model	Origination Costs, per loan	$	3
Capitalized servicing rights	2,026		Discounted cash flow	Constant Prepayment Rate (CPR)	12.48		%
				Discount Rate	9.55		%
Total	$	13,829


	Fair Value				Significant Unobservable Input
(In thousands)	December 31, 2021		Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)
Trading security	$	8,354	Discounted Cash Flow	Discount Rate	3.35		%
AFS Securities	4,030		Indication from Market Maker	Price	101.00		%
Loans held for investment	1,200		Discounted Cash Flow	Discount Rate	25.00		%
				Collateral Value	$6.3- $19.8
Commitments to lend	124		Historical Trend	Closing Ratio	82.09		%
			Pricing Model	Origination Costs, per loan	$	3
Forward commitments	134		Historical Trend	Closing Ratio	82.09		%
			Pricing Model	Origination Costs, per loan	$	3
Capitalized servicing rights	1,966		Discounted Cash Flow	Constant Prepayment Rate (CPR)	19.41		%
				Discount Rate	9.50		%
Total	$	15,808

The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.


	September 30, 2022		December 31, 2021		Fair Value Measurement Date as of September 30, 2022
	Level 3		Level 3		Level 3
(In thousands)	Inputs		Inputs		Inputs
Assets
Individually evaluated	$	2,944	$	12,482	September 2022
Loans held for sale	3,574		—		September 2022
Capitalized servicing rights	11,793		14,056		September 2022

Total	$	18,311	$	26,538

Fair Value

(In thousands)

September 30, 2022

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (1)

Assets

Individually evaluated

2,944

Fair Value of Collateral

Discounted Cash Flow - Loss Severity

(100.00)% to 26.42% ((49.76)%)

Appraised Value

$0 to $608 ($-501)

Loans held for sale

3,574

Fair Value of Collateral

Appraised Value

$3,574

Capitalized servicing rights

11,793

Discounted Cash Flow

Constant Prepayment Rate (CPR)

5.99% to 13.52% (11.28%)

Discount Rate

9.16% to 16.13% (13.32%)

Total

18,311

Fair Value

(In thousands)

December 31, 2021

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (1)

Assets

Individually evaluated

12,482

Fair Value of Collateral

Discounted Cash Flow - loss severity

(35.96)% to 133.09% ((49.14)%)

Appraised Value

$0 to $405 ($256)

Capitalized servicing rights

14,056

Discounted Cash Flow

Constant Prepayment Rate (CPR)

6.24% to 17.73% (13.29%)

Discount Rate

9.59% to 13.11% (11.97%)

Total

26,538

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 amount 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, 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.

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 (represents exit price), and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.


	September 30, 2022
	Carrying		Fair
(In thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	694,913	$	694,913	$	694,913	$	—	$	—
Trading security	6,812		6,812		—		—		6,812
Marketable equity securities	12,790		12,790		12,790		—		—
Securities available for sale	1,470,949		1,470,949		—		1,467,029		3,920
Securities held to maturity	592,503		503,262		—		501,164		2,098
FHLB bank stock and restricted securities	7,264		N/A		N/A		N/A		N/A
Net loans	7,847,468		7,798,562		—		—		7,798,562
Loans held for sale	4,124		4,124		—		550		3,574
Accrued interest receivable	40,444		40,444		—		40,444		—

Derivative assets	53,019		53,019		—		52,997		22


Financial Liabilities
Total deposits	$	9,988,121	$	9,944,085	$	—	$	9,944,085	$	—
Short-term debt	—		—		—		—		—
Long-term Federal Home Loan Bank advances and other	4,494		2,888		—		2,888		—
Subordinated borrowings	121,001		110,109		—		110,109		—
Derivative liabilities	101,745		101,745		—		101,745		—


	December 31, 2021
	Carrying		Fair
(In thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	1,627,807	$	1,627,807	$	1,627,807	$	—	$	—
Trading security	8,354		8,354		—		—		8,354
Marketable equity securities	15,453		15,453		14,798		655		—
Securities available for sale and other	1,877,585		1,877,585		—		1,873,555		4,030
Securities held to maturity	636,503		647,236		—		644,497		2,739
FHLB bank stock and restricted securities	10,800		N/A		N/A		N/A		N/A
Net loans	6,719,753		6,850,975		—		—		6,850,975
Loans held for sale	6,110		6,110		—		6,110		—
Accrued interest receivable	33,534		33,534		—		33,534		—

Derivative assets	79,528		79,528		—		79,270		258


Financial Liabilities
Total deposits	$	10,068,953	$	10,073,217	$	—	$	10,073,217	$	—
Short-term debt	—		—		—		—		—
Long-term Federal Home Loan Bank advances	13,331		13,053		—		13,053		—
Subordinated borrowings	97,513		95,006		—		95,006		—
Derivative liabilities	35,194		35,194		—		35,194		—