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FAIR VALUE DISCLOSURES
 6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE DISCLOSURES Fair Value Disclosures
The fair value framework as disclosed in the Fair Value Topic includes a hierarchy which focuses on prioritizing the inputs used in valuation techniques.  The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), a lower priority to observable inputs other than quoted prices in active markets for identical assets and liabilities (Level 2) and the lowest priority to unobservable inputs (Level 3).  When determining the fair value measurements for assets and liabilities, First Financial looks to active markets to price identical assets or liabilities whenever possible and classifies such items in Level 1.  When identical assets and liabilities are not traded in active markets, First Financial looks to observable market data for similar assets and liabilities and classifies such items as Level 2.  Certain assets and liabilities are not actively traded in observable markets and First Financial must use alternative techniques, based on unobservable inputs, to determine the fair value and classifies such items as Level 3. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.

The estimated fair values of First Financial's financial instruments not measured at fair value on a recurring or nonrecurring basis in the consolidated financial statements were as follows:
CarryingEstimated fair value
(Dollars in thousands)valueTotalLevel 1Level 2Level 3
December 31, 2020
Financial assets  
Cash and short-term investments$251,359 $251,359 $251,359 $0 $0 
Investment securities held-to-maturity131,687 136,698 0 136,698 0 
Other investments133,198 133,198 837 122,953 9,408 
Loans and leases9,725,291 9,743,497 0 0 9,743,497 
Accrued interest receivable50,903 50,903 0 13,221 37,682 
Financial liabilities  
Deposits12,232,003 12,238,058 0 12,238,058 0 
Short-term borrowings166,594 166,594 166,594 0 0 
Long-term debt776,202 774,674 0 774,674 0 
Accrued interest payable6,240 6,240 14 6,226 0 

CarryingEstimated Fair Value
(Dollars in thousands)ValueTotalLevel 1Level 2Level 3
December 31, 2019
Financial assets
Cash and short-term investments$257,639 $257,639 $257,639 $0 $0 
Investment securities held-to-maturity142,862 142,821 0 142,821 0 
Other investments125,020 125,020 699 123,821 500 
Loans and leases9,144,015 9,134,215 0 0 9,134,215 
Accrued interest receivable39,591 39,591 0 12,743 26,848 
Financial liabilities
Deposits10,210,229 10,209,790 0 10,209,790 0 
Short-term borrowings1,316,181 1,316,181 1,316,181 0 0 
Long-term debt414,376 414,937 0 414,937 0 
Accrued interest payable13,671 13,671 1,899 11,772 0 

The following methods, assumptions and valuation techniques were used by First Financial to measure different financial assets and liabilities at fair value on a recurring or nonrecurring basis.

Investment securities. Investment securities classified as available-for-sale are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted market prices, when available (Level 1).  If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar investment securities.  First Financial compiles prices from various sources who may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2).  Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for the specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities.  Any investment securities not valued based upon the methods previously described are considered Level 3.

First Financial utilizes values provided by third-party pricing vendors to price the investment securities portfolio in accordance with the fair value hierarchy of the Fair Value Topic and reviews the pricing methodologies utilized by the pricing vendors to ensure that the fair value determination is consistent with the applicable accounting guidance.  First Financial’s pricing process includes a series of quality assurance activities where prices are compared to recent market conditions, historical prices and other independent pricing services.  Further, the Company periodically validates the fair value of a sample of securities in the portfolio by comparing the fair values to prices from other independent sources for the same or similar securities.  First Financial analyzes unusual or significant variances, conducts additional research with the pricing vendor, and if necessary, takes appropriate action based on its findings.  The results of the quality assurance process are incorporated into the selection of pricing providers by the portfolio manager.

Loans held for sale. The fair value of the Company’s residential mortgage loans held for sale is determined on a recurring basis based on quoted prices for similar loans in active markets, and therefore, is classified as a Level 2 measurement.

Derivatives. The fair values of derivative instruments are based primarily on a net present value calculation of the cash flows related to the interest rate swaps and foreign exchange contracts at the reporting date, using primarily observable market inputs such as interest rate yield curves and currency exchange rates, which represents the cost to terminate the swap if First Financial should choose to do so. Additionally, First Financial utilizes an internally-developed model to value the credit risk component of derivative assets and liabilities, which is recorded as an adjustment to the fair value of the derivative asset or liability on the reporting date. Derivative instruments are classified as Level 2 in the fair value hierarchy.

Collateral dependent loans. Collateral dependent loans carried at fair value have been partially charged-off or receive specific allocations of the allowance for credit losses. For collateral dependent loans, fair value is generally based on real estate appraisals, a calculation of enterprise value or a valuation of business assets including equipment, inventory and accounts receivable. These loans had a principal amount of $45.3 million, with a valuation allowance of $13.5 million at December 31, 2020.

The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed third-party appraiser (Level 3). These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Collateral dependent loans are evaluated on a quarterly basis for additional write-downs and are adjusted accordingly.

Enterprise value is defined as imputed value for the entire underlying business. To determine an appropriate range of enterprise value, FFB relies on a standardized set of valuation methodologies that take into account future projected cash flows, market based multiples as well as asset values. Valuations involve both quantitative and qualitative considerations and professional judgments concerning differences in financial and operating characteristics in addition to other factors that may impact values over time (Level 3).

The value of business equipment is based on an outside appraisal, if deemed significant, or the net book value on the applicable borrower financial statements.  Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3).  

The fair value of collateral dependent loans is measured at fair value on a nonrecurring basis.  Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.

OREO. Assets acquired through loan foreclosure are recorded at fair value less costs to sell, with any difference between the fair value of the property and the carrying value of the loan recorded as a charge-off. If the fair value is higher than the carrying amount of the loan, the excess is recognized first as a recovery and then as noninterest income. Subsequent declines in value are reported as adjustments to the carrying amount and are recorded in noninterest expense. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value differs from the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. The Company classifies OREO in level 3 of the fair value hierarchy.

The financial assets and liabilities measured at fair value on a recurring basis, including those for which we elected the fair value option, were as follows:
 Fair Value Measurements UsingAssets/Liabilities
(Dollars in thousands)Level 1Level 2Level 3at Fair Value
December 31, 2020
Assets    
Investment securities available-for-sale$103 $3,383,902 $40,575 $3,424,580 
Loans held for sale0 41,103 0 41,103 
Interest rate derivative contracts0 185,032 0 185,032 
Foreign exchange derivative contracts0 87,615 0 87,615 
Total$103 $3,697,652 $40,575 $3,738,330 
Liabilities    
Interest rate derivative contracts$0 $186,124 $0 $186,124 
Foreign exchange derivative contracts0 87,615 0 87,615 
Total$0 $273,739 $0 $273,739 


 Fair Value Measurements UsingAssets/Liabilities
(Dollars in thousands)Level 1Level 2Level 3at Fair Value
December 31, 2019
Assets    
Investment securities available-for-sale$100 $2,842,794 $9,190 $2,852,084 
Loans held for sale0 13,680 0 13,680 
Interest rate derivative contracts0 73,558 0 73,558 
Foreign exchange derivative contracts0 39,172 0 39,172 
Total$100 $2,969,204 $9,190 $2,978,494 
Liabilities    
Interest rate derivative contracts$0 $73,750 $0 $73,750 
Foreign exchange derivative contracts0 39,172 0 39,172 
Total$0 $112,922 $0 $112,922 
The following table presents a reconciliation for certain AFS securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2020.
(dollars in thousands)December 31, 2020December 31, 2019
Beginning balance$9,190 $14,715 
Accretion (amortization)1 (552)
Increase (decrease) in fair value(17)30 
Purchases (settlements)31,401 (5,003)
Ending balance$40,575 $9,190 

Certain financial assets and liabilities are measured at fair value on a nonrecurring basis.  Adjustments to the fair market value of these assets usually result from the application of fair value accounting or write-downs of individual assets.  The following table summarizes financial assets and liabilities measured at fair value on a nonrecurring basis:
 Fair Value Measurements Using
(Dollars in thousands)Level 1Level 2Level 3
December 31, 2020
Assets   
Collateral dependent loans
Commercial$0 $0 $25,367 
Commercial real estate0 0 6,432 
OREO0 0 54 
 Fair Value Measurements Using
(Dollars in thousands)Level 1Level 2Level 3
December 31, 2019
Assets   
Collateral dependent loans
Commercial$0 $0 $8,710 
Commercial real estate0 0 558 
OREO0 0 1,088