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Fair Value | 6 Months Ended
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Jun. 30, 2019
Fair Value Disclosures [Abstract] |
Fair Value | 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. There are three levels of inputs that may be used to measure fair values: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other 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. Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument: Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For investment securities where quoted prices are not available, fair values are calculated based on market prices of similar investment securities (Level 2). For investment securities where quoted prices or market prices of similar investment securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Level 3 pricing is obtained from a third-party based upon similar trades that are not traded frequently without adjustment by the Company. At June 30, 2019, the Company held $4.5 million in Level 3 securities which consist of non-rated Obligations of State and Political Subdivisions. Absent the credit rating, significant assumptions must be made such that the credit risk input becomes an unobservable input and thus these investment securities are reported by the Company in a Level 3 classification. Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Impaired Loans: Fair values for impaired collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances includes consideration of offers obtained to purchase properties prior to foreclosure. Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value in the cost to replace the current property. Value of market comparison approach evaluates the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and an investor's required return. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell. Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value. Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s Risk Management Area reviews the assumptions and approaches utilized in the appraisal. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used which include: physical condition of comparable properties sold, net operating income generated by the property and investor rates of return. Other Real Estate: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate (ORE) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property utilizing similar techniques as discussed above for Impaired Loans, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, impairment loss is recognized. Loans Held-for-Sale: The fair values of loans held for sale are determined by using quoted prices for similar assets, adjusted for specific attributes of that loan resulting in a Level 2 classification. Assets and Liabilities Measured on a Recurring Basis Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:
|  | Fair Value Measurements at June 30, 2019 Using
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
Assets: |  |  |  |  |  |  |  |
Obligations of State and Political Subdivisions |  | $ | — |  |  | $ | 298,778 |  |  | $ | 4,506 |  |  | $ | 303,284 |
MBS/CMO - Residential |  | — |  |  | 537,408 |  |  | — |  |  | 537,408 |
Total Securities |  | $ | — |  |  | $ | 836,186 |  |  | $ | 4,506 |  |  | $ | 840,692 |
Loans Held-for-Sale |  | $ | — |  |  | $ | 14,184 |  |  | $ | — |  |  | $ | 14,184 |
Derivative Assets |  | $ | — |  |  | $ | 2,381 |  |  | $ | — |  |  | $ | 2,381 |
Derivative Liabilities |  | $ | — |  |  | $ | 2,607 |  |  | $ | — |  |  | $ | 2,607 |
|  | Fair Value Measurements at December 31, 2018 Using
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
Assets: |  |  |  |  |  |  |  |
Obligations of State and Political Subdivisions |  | $ | — |  |  | $ | 289,542 |  |  | $ | 4,991 |  |  | $ | 294,533 |
MBS/CMO - Residential |  | — |  |  | 518,078 |  |  | — |  |  | 518,078 |
Total Securities |  | $ | — |  |  | $ | 807,620 |  |  | $ | 4,991 |  |  | $ | 812,611 |
Loans Held-for-Sale |  | $ | — |  |  | $ | 4,263 |  |  | $ | — |  |  | $ | 4,263 |
Derivative Assets |  | $ | — |  |  | $ | 1,713 |  |  | $ | — |  |  | $ | 1,713 |
Derivative Liabilities |  | $ | — |  |  | $ | 1,734 |  |  | $ | — |  |  | $ | 1,734 |
There were no transfers between Level 1 and Level 2 for the periods ended June 30, 2019 and December 31, 2018. At June 30, 2019, the aggregate fair value of the Loans Held-for-Sale was $14,184. Aggregate contractual principal balance was $13,925 with a difference of $259. At December 31, 2018, the aggregate fair value of the Loans Held-for-Sale was $4,263. Aggregate contractual principal balance was $4,231 with a difference of $32. No loans were 90 days past due or on non-accrual. The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2019 and 2018:
|  | Obligations of State and Political Subdivisions
|  | 2019 |  | 2018
Balance of Recurring Level 3 Assets at April 1 |  | $ | 4,512 |  |  | $ | 5,171 |
Total Gains or Losses Included in Other Comprehensive Income |  | (6 | ) |  | (4 | )
Maturities / Calls |  | — |  |  | — |
Purchases |  | — |  |  | — |
Balance of Recurring Level 3 Assets at June 30 |  | $ | 4,506 |  |  | $ | 5,167 |
|  | Obligations of State and Political Subdivisions
|  | 2019 |  | 2018
Balance of Recurring Level 3 Assets at January 1 |  | $ | 4,991 |  |  | $ | 5,649 |
Total Gains or Losses Included in Other Comprehensive Income |  | (15 | ) |  | (22 | )
Maturities / Calls |  | (470 | ) |  | (460 | )
Purchases |  | — |  |  | — |
Balance of Recurring Level 3 Assets at June 30 |  | $ | 4,506 |  |  | $ | 5,167 |
Assets and Liabilities Measured on a Non-Recurring Basis Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
|  | Fair Value Measurements at June 30, 2019 Using
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Impaired Loans |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial Loans |  | $ | — |  |  | $ | — |  |  | $ | 1,835 |  |  | $ | 1,835 |
Commercial Real Estate Loans |  | — |  |  | — |  |  | 1,750 |  |  | 1,750 |
|  | Fair Value Measurements at December 31, 2018 Using
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Impaired Loans |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial Loans |  | $ | — |  |  | $ | — |  |  | $ | 2,210 |  |  | $ | 2,210 |
Commercial Real Estate Loans |  | — |  |  | — |  |  | 2,528 |  |  | 2,528 |
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $5,134 with a valuation allowance of $1,549 at June 30, 2019, resulting in an increase to the provision for loan losses of $123 for the three months ended June 30, 2019 and a decrease to the provision for loan losses of $273 for the six months ended June 30, 2019. Impaired loans resulted in an increase to the provision for loan losses of $191 for the three months ended June 30, 2018 and a decrease to the provision for loan losses of $856 for the six months ended June 30, 2018. At December 31, 2018, collateral dependent impaired loans had a carrying amount of $6,561 with a valuation allowance of $1,823, resulting in a decrease to the provision for loan losses of $411 for the year ended December 31, 2018. There was no Other Real Estate carried at fair value less costs to sell at June 30, 2019. No charge to earnings was included in the three or six months ended June 30, 2019 and 2018. There was no Other Real Estate carried at fair value less costs to sell at December 31, 2018. No charge to earnings was included in the year ended December 31, 2018. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2019 and December 31, 2018:
June 30, 2019 |  | Fair Value |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range (Weighted Average)
Impaired Loans - Commercial and Industrial Loans |  | $ | 1,835 |  |  | Sales comparison approach |  | Adjustment for physical condition of comparable properties sold |  | 60%-100% (61%)
Impaired Loans - Commercial Real Estate Loans |  | $ | 1,750 |  |  | Sales comparison approach |  | Adjustment for physical condition of comparable properties sold |  | 47%-76% (60%)
December 31, 2018 |  | Fair Value |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range (Weighted Average)
Impaired Loans - Commercial and Industrial Loans |  | $ | 2,210 |  |  | Sales comparison approach |  | Adjustment for physical condition of comparable properties sold |  | 0%-100% (99%)
Impaired Loans - Commercial Real Estate Loans |  | $ | 2,528 |  |  | Sales comparison approach |  | Adjustment for physical condition of comparable properties sold |  | 22%-76% (55%)
The carrying amounts and estimated fair values of the Company’s financial instruments not previously presented are provided in the tables below for the periods ending June 30, 2019 and December 31, 2018. Not all of the Company’s assets and liabilities are considered financial instruments, and therefore are not included in the tables. Because no active market exists for a significant portion of the Company’s financial instruments, fair value estimates were based on subjective judgments, and therefore cannot be determined with precision. In accordance with the adoption of ASU 2016-01, the tables below for June 30, 2019 and December 31, 2018, present the fair values measured using an exit price notion.
|  |  |  | Fair Value Measurements at June 30, 2019 Using
|  | Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and Short-term Investments |  | $ | 90,007 |  |  | $ | 48,634 |  |  | $ | 41,373 |  |  | $ | — |  |  | $ | 90,007 |
Interest Bearing Time Deposits with Banks |  | 250 |  |  | — |  |  | 250 |  |  | — |  |  | 250 |
Loans, Net |  | 2,697,204 |  |  | — |  |  | — |  |  | 2,684,900 |  |  | 2,684,900 |
Accrued Interest Receivable |  | 16,210 |  |  | — |  |  | 4,389 |  |  | 11,821 |  |  | 16,210 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand, Savings, and Money Market Deposits |  | (2,531,061 | ) |  | (2,531,061 | ) |  | — |  |  | — |  |  | (2,531,061 | )
Time Deposits |  | (597,771 | ) |  | — |  |  | (597,447 | ) |  | — |  |  | (597,447 | )
Short-term Borrowings |  | (142,318 | ) |  | (106,000 | ) |  | (36,318 | ) |  | — |  |  | (142,318 | )
Long-term Debt |  | (163,622 | ) |  | — |  |  | (152,022 | ) |  | (8,751 | ) |  | (160,773 | )
Accrued Interest Payable |  | (2,060 | ) |  | — |  |  | (2,040 | ) |  | (20 | ) |  | (2,060 | )
|  |  |  | Fair Value Measurements at December 31, 2018 Using
|  | Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and Short-term Investments |  | $ | 96,550 |  |  | $ | 64,549 |  |  | $ | 32,001 |  |  | $ | — |  |  | $ | 96,550 |
Interest Bearing Time Deposits with Banks |  | 250 |  |  | — |  |  | 250 |  |  | — |  |  | 250 |
Loans, Net |  | 2,707,498 |  |  | — |  |  | — |  |  | 2,689,393 |  |  | 2,689,393 |
Accrued Interest Receivable |  | 16,634 |  |  | — |  |  | 4,143 |  |  | 12,491 |  |  | 16,634 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand, Savings, and Money Market Deposits |  | (2,484,149 | ) |  | (2,848,149 | ) |  | — |  |  | — |  |  | (2,848,149 | )
Time Deposits |  | (588,483 | ) |  | — |  |  | (586,338 | ) |  | — |  |  | (586,338 | )
Short-term Borrowings |  | (249,774 | ) |  | (204,500 | ) |  | (45,274 | ) |  | — |  |  | (249,774 | )
Long-term Debt |  | (126,635 | ) |  | — |  |  | (117,513 | ) |  | (11,315 | ) |  | (128,828 | )
Accrued Interest Payable |  | (1,740 | ) |  | — |  |  | (1,718 | ) |  | (22 | ) |  | (1,740 | )

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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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