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Disclosures About Fair Value of Assets and Liabilities | 3 Months Ended
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Mar. 31, 2021
Fair Value Disclosures [Abstract] |
Disclosures About Fair Value of Assets and Liabilities | DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES The Corporation used fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The accounting guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 applies only when other guidance requires or permits assets or liabilities to be measured at fair value; it does not expand the use of fair value in any new circumstances. As defined in ASC 820, fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants. It represents an exit price at the measurement date. Market participants are buyers and sellers, who are independent, knowledgeable, and willing and able to transact in the principal (or most advantageous) market for the asset or liability being measured. Current market conditions, including imbalances between supply and demand, are considered in determining fair value. The Corporation values its assets and liabilities in the principal market where it sells the particular asset or transfers the liability with the greatest volume and level of activity. In the absence of a principal market, the valuation is based on the most advantageous market for the asset or liability (i.e., the market where the asset could be sold or the liability transferred at a price that maximizes the amount to be received for the asset or minimizes the amount to be paid to transfer the liability). Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability. Inputs can be observable or unobservable. Observable inputs are those assumptions which market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from a source independent of the Corporation. Unobservable inputs are assumptions based on the Corporation’s own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information available on the measurement date. All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy which gives the highest ranking to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest ranking to unobservable inputs for which there is little or no market activity (Level 3). Fair values for assets or liabilities classified as Level 2 are based on one or a combination of the following factors: (i) quoted prices for similar assets; (ii) observable inputs for the asset or liability, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation considers an input to be significant if it drives 10 percent or more of the total fair value of a particular asset or liability. RECURRING MEASUREMENTS Assets and liabilities are considered to be measured at fair value on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly or quarterly). Recurring valuation occurs at a minimum on the measurement date. Assets and liabilities are considered to be measured at fair value on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer considered to be realized or unrealized gains or losses. Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy. Investment Securities Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Corporation currently has no securities classified within Level 1 of the hierarchy. Where significant observable inputs, other than Level 1 quoted prices, are available, securities are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. treasury securities, government-sponsored agency and mortgage-backed securities, state and municipal securities and corporate obligations securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include state and municipal securities, government-sponsored mortgage-backed securities and corporate obligations securities. Level 3 fair value for securities was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active. Third party vendors compile prices from various sources and 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 specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3. Interest Rate Derivative Agreements See information regarding the Corporation’s interest rate derivative products in NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements. The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall at March 31, 2021, and December 31, 2020.
|  |  | Fair Value Measurements Using:
March 31, 2021 | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Available for sale securities: |  |  |  |  |  |  |
U.S. Treasury | $ | 1,000 |  |  | $ | — |  |  | $ | 1,000 |  |  | $ | — |
U.S. Government-sponsored agency securities | 11,381 |  |  | — |  |  | 11,381 |  |  | — |
State and municipal | 1,366,162 |  |  | — |  |  | 1,364,051 |  |  | 2,111 |
U.S. Government-sponsored mortgage-backed securities | 1,022,863 |  |  | — |  |  | 1,022,859 |  |  | 4 |
Corporate obligations | 4,162 |  |  | — |  |  | 4,131 |  |  | 31 |
Interest rate swap asset | 48,576 |  |  | — |  |  | 48,576 |  |  | — |
Interest rate swap liability | 50,284 |  |  | — |  |  | 50,284 |  |  | — |
|  |  | Fair Value Measurements Using:
December 31, 2020 | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Available for sale securities: |  |  |  |  |  |  |
U.S. Government-sponsored agency securities | $ | 2,430 |  |  | $ | — |  |  | $ | 2,430 |  |  | $ | — |
State and municipal | 1,257,885 |  |  | — |  |  | 1,255,441 |  |  | 2,444 |
U.S. Government-sponsored mortgage-backed securities | 654,669 |  |  | — |  |  | 654,665 |  |  | 4 |
Corporate obligations | 4,135 |  |  | — |  |  | 4,104 |  |  | 31 |
Interest rate swap asset | 74,335 |  |  | — |  |  | 74,335 |  |  | — |
Interest rate swap liability | 76,353 |  |  | — |  |  | 76,353 |  |  | — |
There were no gains or losses included in earnings that were attributable to the changes in unrealized gains or losses related to assets or liabilities held at March 31, 2021 or December 31, 2020. Level 3 Reconciliation The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable Level 3 inputs for the three months ended March 31, 2021 and 2020.
| Available for Sale Securities
| Three Months Ended |  |
| March 31, 2021 |  | March 31, 2020 |  |  |  |
Balance at beginning of the period | $ | 2,479 |  |  | $ | 2,893 |  |  |  |  |
Included in other comprehensive income | (60) |  |  | (20) |  |  |  |  |
Principal payments | (273) |  |  | (344) |  |  |  |  |
Ending balance | $ | 2,146 |  |  | $ | 2,529 |  |  |  |  |
Transfers Between Levels There were no transfers in or out of Level 3 for the three months ended March 31, 2021 and 2020. Nonrecurring Measurements Following is a description of valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy for March 31, 2021, and December 31, 2020.
|  |  |  | Fair Value Measurements Using
March 31, 2021 |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Collateral dependent loans |  | $ | 40,698 |  |  | $ | — |  |  | $ | — |  |  | $ | 40,698 |
Other real estate owned |  | 185 |  |  | — |  |  | — |  |  | 185 |
|  |  |  | Fair Value Measurements Using
December 31, 2020 |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Impaired loans (collateral dependent) |  | $ | 37,250 |  |  | $ | — |  |  | $ | — |  |  | $ | 37,250 |
Other real estate owned |  | 544 |  |  | — |  |  | — |  |  | 544 |
Impaired Loans (collateral dependent) Loans for which it is probable that the Corporation will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value of the collateral for collateral dependent loans. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectability of the loan is confirmed. During 2020 and 2021, certain impaired loans were partially charged off or re-evaluated. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method. Other Real Estate Owned The fair value for impaired loans and other real estate owned is measured based on the value of the collateral securing those loans or real estate and is determined using several methods. The fair value of real estate is generally determined based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a discounted cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and/or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions. Unobservable (Level 3) Inputs The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at March 31, 2021 and December 31, 2020.
March 31, 2021 | Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted-Average)
State and municipal securities | $ | 2,111 |  |  | Discounted cash flow |  | Maturity/Call date |  | 1 month to 15 years
|  |  |  |  | US Muni BQ curve |  | A- to BBB-
|  |  |  |  | Discount rate |  | 2% - 4%
|  |  |  |  | Weighted-average coupon |  | 4%
Corporate obligations and U.S. Government-sponsored mortgage-backed securities | $ | 35 |  |  | Discounted cash flow |  | Risk free rate |  | 3 month LIBOR
|  |  |  |  | plus premium for illiquidity |  | plus 200bps
|  |  |  |  | Weighted-average coupon |  | —%
Collateral dependent loans | $ | 40,698 |  |  | Collateral based measurements |  | Discount to reflect current market conditions and ultimate collectability |  | 0% - 10%
|  |  |  |  | Weighted-average discount by loan balance |  | 4%
Other real estate owned | $ | 185 |  |  | Appraisals |  | Discount to reflect current market conditions |  | 0% - 72%
|  |  |  |  | Weighted-average discount of other real estate owned balance |  | 39%
December 31, 2020 | Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted-Average)
State and municipal securities | $ | 2,444 |  |  | Discounted cash flow |  | Maturity/Call date |  | 1 month to 15 years
|  |  |  |  | US Muni BQ curve |  | A- to BBB-
|  |  |  |  | Discount rate |  | 2% - 4%
|  |  |  |  | Weighted-average coupon |  | 4%
Corporate obligations and U.S Government-sponsored mortgage-backed securities | $ | 35 |  |  | Discounted cash flow |  | Risk free rate |  | 3 month LIBOR
|  |  |  |  | plus premium for illiquidity |  | plus 200bps
|  |  |  |  | Weighted-average coupon |  | —%
Impaired loans (collateral dependent) | $ | 37,250 |  |  | Collateral based measurements |  | Discount to reflect current market conditions and ultimate collectability |  | 0% - 10%
|  |  |  |  | Weighted-average discount by loan balance |  | 6%
Other real estate owned | $ | 544 |  |  | Appraisals |  | Discount to reflect current market conditions |  | 0% - 30%
|  |  |  |  | Weighted-average discount of other real estate owned balance |  | 26%
The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement. State and Municipal Securities, Corporate Obligations and U.S. Government-sponsored Mortgage-Backed Securities The significant unobservable inputs used in the fair value measurement of the Corporation's state and municipal securities, corporate obligations and U.S. Government-sponsored mortgage-backed securities are premiums for unrated securities and marketability discounts. Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement. Generally, changes in either of those inputs will not affect the other input. Fair Value of Financial Instruments The following table presents estimated fair values of the Corporation’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2021, and December 31, 2020.
|  |  | March 31, 2021 |  |
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
| Carrying Amount |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Cash and cash equivalents | $ | 187,901 |  |  | $ | 187,901 |  |  | $ | — |  |  | $ | — |
Interest-bearing deposits | 392,806 |  |  | 392,806 |  |  | — |  |  | — |
Investment securities available for sale | 2,405,568 |  |  | — |  |  | 2,403,422 |  |  | 2,146 |
Investment securities held to maturity | 1,295,289 |  |  | — |  |  | 1,299,944 |  |  | 18,836 |
Loans held for sale | 4,430 |  |  | — |  |  | 4,430 |  |  | — |
Loans | 9,117,146 |  |  | — |  |  | — |  |  | 9,168,023 |
Federal Home Loan Bank stock | 28,736 |  |  | — |  |  | 28,736 |  |  | — |
Interest rate swap asset | 48,576 |  |  | — |  |  | 48,576 |  |  | — |
Interest receivable | 54,662 |  |  | — |  |  | 54,662 |  |  | — |
Liabilities: |  |  |  |  |  |  |
Deposits | $ | 11,951,780 |  |  | $ | 11,103,474 |  |  | $ | 847,398 |  |  | $ | — |
Borrowings: |  |  |  |  |  |  |
Securities sold under repurchase agreements | 185,721 |  |  | — |  |  | 185,716 |  |  | — |
Federal Home Loan Bank advances | 359,337 |  |  | — |  |  | 366,179 |  |  | — |
Subordinated debentures and other borrowings | 118,439 |  |  | — |  |  | 108,124 |  |  | — |
Interest rate swap liability | 50,284 |  |  | — |  |  | 50,284 |  |  | — |
Interest payable | 4,020 |  |  | — |  |  | 4,020 |  |  | — |
|  |  | December 31, 2020 |  |
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
| Carrying Amount |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Cash and cash equivalents | $ | 192,896 |  |  | $ | 192,896 |  |  | $ | — |  |  | $ | — |
Interest-bearing deposits | 392,305 |  |  | 392,305 |  |  | — |  |  | — |
Investment securities available for sale | 1,919,119 |  |  | — |  |  | 1,916,640 |  |  | 2,479 |
Investment securities held to maturity | 1,227,668 |  |  | — |  |  | 1,260,815 |  |  | 19,478 |
Loans held for sale | 3,966 |  |  | — |  |  | 3,966 |  |  | — |
Loans | 9,112,526 |  |  | — |  |  | — |  |  | 9,191,628 |
Federal Home Loan Bank stock | 28,736 |  |  | — |  |  | 28,736 |  |  | — |
Interest rate swap asset | 74,335 |  |  | — |  |  | 74,335 |  |  | — |
Interest receivable | 53,948 |  |  | — |  |  | 53,948 |  |  | — |
Liabilities: |  |  |  |  |  |  |
Deposits | $ | 11,361,610 |  |  | $ | 10,482,865 |  |  | $ | 878,257 |  |  | $ | — |
Borrowings: |  |  |  |  |  |  |
Securities sold under repurchase agreements | 177,102 |  |  | — |  |  | 177,097 |  |  | — |
Federal Home Loan Bank advances | 389,430 |  |  | — |  |  | 399,991 |  |  | — |
Subordinated debentures and other borrowings | 118,380 |  |  | — |  |  | 108,439 |  |  | — |
Interest rate swap liability | 76,353 |  |  | — |  |  | 76,353 |  |  | — |
Interest payable | 3,287 |  |  | — |  |  | 3,287 |  |  | — |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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