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Fair Value | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
FAIR VALUE | FAIR VALUE Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an 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. A fair value hierarchy has also been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs are used to measure fair value: 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 company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The fair values of most trading securities and securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Corporation’s derivative instruments are interest rate swaps that are similar to those that trade in liquid markets. As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (Level 2 inputs). The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2018 and December 31, 2017:
|  |  | Fair Value Measurements at September 30, 2018 Using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
Description | Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Securities Available For Sale: |  |  |  |  |  |  |
U.S. Government sponsored entities | $ | 145,509 |  |  | $ | — |  |  | $ | 145,509 |  |  | $ | — |
States and political subdivisions | 138,395 |  |  | — |  |  | 138,395 |  |  | — |
Residential and multi-family mortgage | 194,635 |  |  | — |  |  | 194,635 |  |  | — |
Corporate notes and bonds | 12,036 |  |  | — |  |  | 12,036 |  |  | — |
Pooled SBA | 30,833 |  |  | — |  |  | 30,833 |  |  | — |
Other | 926 |  |  | 926 |  |  | — |  |  | — |
Total Securities Available For Sale | $ | 522,334 |  |  | $ | 926 |  |  | $ | 521,408 |  |  | $ | — |
Interest Rate swaps | $ | 191 |  |  | $ | — |  |  | $ | 191 |  |  | $ | — |
Trading Securities: |  |  |  |  |  |  |
Corporate equity securities | $ | 6,643 |  |  | $ | 6,643 |  |  | — |  |  | — |
Mutual funds | 1,687 |  |  | 1,687 |  |  | — |  |  | — |
Certificates of deposit | 228 |  |  | 228 |  |  | — |  |  | — |
Corporate notes and bonds | 278 |  |  | 278 |  |  | — |  |  | — |
U.S. Government sponsored entities | 51 |  |  | — |  |  | 51 |  |  | — |
Total Trading Securities | $ | 8,887 |  |  | $ | 8,836 |  |  | $ | 51 |  |  | $ | — |
Liabilities, |  |  |  |  |  |  |
Interest rate swaps | $ | (182 | ) |  | $ | — |  |  | $ | (182 | ) |  | $ | — |
|  |  | Fair Value Measurements at December 31, 2017 Using
|  |  | Quoted Prices in |  |  |  | Significant
|  |  | Active Markets for |  | Significant Other |  | Unobservable
|  |  | Identical Assets |  | Observable Inputs |  | Inputs
Description | Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Securities Available For Sale: |  |  |  |  |  |  |
U.S. Government sponsored entities | $ | 108,148 |  |  | $ | — |  |  | $ | 108,148 |  |  | $ | — |
States and political subdivisions | 137,723 |  |  | — |  |  | 137,723 |  |  | — |
Residential and multi-family mortgage | 109,636 |  |  | — |  |  | 109,636 |  |  | — |
Corporate notes and bonds | 17,200 |  |  | — |  |  | 17,200 |  |  | — |
Pooled SBA | 36,040 |  |  | — |  |  | 36,040 |  |  | — |
Other | 962 |  |  | 962 |  |  | — |  |  | — |
Total Securities Available For Sale | $ | 409,709 |  |  | $ | 962 |  |  | $ | 408,747 |  |  | $ | — |
Interest Rate swaps | $ | 149 |  |  | $ | — |  |  | $ | 149 |  |  | $ | — |
Trading Securities: |  |  |  |  |  |  |
Corporate equity securities | 5,125 |  |  | 5,125 |  |  | — |  |  | — |
Mutual funds | 1,499 |  |  | 1,499 |  |  | — |  |  | — |
Certificates of deposit | 220 |  |  | 220 |  |  | — |  |  | — |
Corporate notes and bonds | 254 |  |  | 254 |  |  | — |  |  | — |
U.S. Government sponsored entities | 52 |  |  | — |  |  | 52 |  |  | — |
Total Trading Securities | $ | 7,150 |  |  | $ | 7,098 |  |  | 52 |  |  | — |
Liabilities, |  |  |  |  |  |  |
Interest rate swaps | $ | (310 | ) |  | $ | — |  |  | $ | (310 | ) |  | $ | — |
The table below presents a reconciliation of the fair value of securities available for sale measured on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018 and 2017:
| 2018 |  | 2017
Balance, January 1 | $ | — |  |  | $ | 2,049 |
Total gains: |  |  |
Included in other comprehensive income (unrealized) | — |  |  | 134 |
Sale of available-for-sale securities | — |  |  | (2,183 | )
Balance, September 30 | $ | — |  |  | $ | — |
The Corporation did not have any Level 3 securities during the three months ended September 30, 2018 and 2017. Assets and liabilities measured at fair value on a non-recurring basis are as follows at September 30, 2018 and December 31, 2017:
|  |  | Fair Value Measurements at September 30, 2018 Using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
Description | Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |
Commercial mortgages | $ | 324 |  |  | — |  |  | — |  |  | $ | 324 |
|  |  | Fair Value Measurements at December 31, 2017 Using
|  |  | Quoted Prices in |  |  |  | Significant
|  |  | Active Markets for |  | Significant Other |  | Unobservable
|  |  | Identical Assets |  | Observable Inputs |  | Inputs
Description | Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |
Commercial mortgages | $ | 11 |  |  | — |  |  | — |  |  | $ | 11 |
Impaired loans, measured for impairment using the fair value of collateral for collateral dependent loans, had a recorded investment of $1,310 with a valuation allowance of $986 as of September 30, 2018, resulting in a provision (benefit) for loan losses of $(634) and $352 for the corresponding three and nine month periods ended September 30, 2018. Impaired loans had a recorded investment of $646 with a valuation allowance of $635 as of December 31, 2017. Impaired loans carried at fair value resulted in a negative provision for loan losses of $(22) and $(395) for the three and nine month periods ended September 30, 2017. The estimated fair values of impaired collateral dependent loans such as commercial or residential mortgages are determined primarily through third-party appraisals. When a collateral dependent loan, such as a commercial or residential mortgage loan, becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral and a further reduction for estimated costs to sell the property is applied, which results in an amount that is considered to be the estimated fair value. If a loan becomes impaired and the appraisal of related loan collateral is outdated, management applies an appropriate adjustment factor based on its experience with current valuations of similar collateral in determining the loan’s estimated fair value and resulting allowance for loan losses. Third-party appraisals are not customarily obtained in respect of unimpaired loans, unless in management’s view changes in circumstances warrant obtaining an updated appraisal. 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 September 30, 2018:
| Fair value |  | Valuation Technique |  | Unobservable Inputs |  | Weighted Average (Range)
Impaired loans – commercial mortgages | $ | 324 |  |  | Valuation of third party appraisal on underlying collateral |  | Loss severity rates |  | 15% (10-15%)
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 December 31, 2017:
| Fair value |  | Valuation Technique |  | Unobservable Inputs |  | Weighted Average (Range)
Impaired loans – commercial mortgages | $ | 11 |  |  | Valuation of third party appraisal on underlying collateral |  | Loss severity rates |  | 10% (10%)
Fair Value of Financial Instruments The following table presents the carrying amount and fair value of financial instruments at September 30, 2018:
| Carrying |  | Fair Value Measurement Using: |  | Total
| Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Fair Value
ASSETS |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 36,500 |  |  | $ | 36,500 |  |  | $ | — |  |  | $ | — |  |  | $ | 36,500 |
Securities available for sale | 522,334 |  |  | 926 |  |  | 521,408 |  |  | — |  |  | 522,334 |
Trading securities | 8,887 |  |  | 8,836 |  |  | 51 |  |  | — |  |  | 8,887 |
Loans held for sale | 775 |  |  | — |  |  | 775 |  |  | — |  |  | 775 |
Net loans | 2,364,445 |  |  | — |  |  | — |  |  | 2,334,576 |  |  | 2,334,576 |
FHLB and other restricted interests | 16,885 |  |  | n/a |  |  | n/a |  |  | n/a |  |  | n/a |
Other equity interests | 6,951 |  |  |  |  |  |  |  |  | 6,951 |
Interest rate swaps | 191 |  |  | — |  |  | 191 |  |  | — |  |  | 191 |
Accrued interest receivable | 11,221 |  |  | 7 |  |  | 3,748 |  |  | 7,466 |  |  | 11,221 |
LIABILITIES |  |  |  |  |  |  |  |  |
Deposits | $ | (2,522,379 | ) |  | $ | (2,132,769 | ) |  | $ | (391,848 | ) |  | $ | — |  |  | $ | (2,524,617 | )
FHLB and other borrowings | (252,422 | ) |  | — |  |  | (248,986 | ) |  | — |  |  | (248,986 | )
Subordinated debentures | (70,620 | ) |  | — |  |  | (68,202 | ) |  | — |  |  | (68,202 | )
Interest rate swaps | (182 | ) |  | — |  |  | (182 | ) |  | — |  |  | (182 | )
Accrued interest payable | (820 | ) |  | — |  |  | (820 | ) |  | — |  |  | (820 | )
The following table presents the carrying amount and fair value of financial instruments at December 31, 2017:
| Carrying |  | Fair Value Measurement Using: |  | Total
| Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Fair Value
ASSETS |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 35,345 |  |  | $ | 35,345 |  |  | $ | — |  |  | $ | — |  |  | $ | 35,345 |
Securities available for sale | 409,709 |  |  | 962 |  |  | 408,747 |  |  | — |  |  | 409,709 |
Trading securities | 7,150 |  |  | 7,098 |  |  | 52 |  |  | — |  |  | 7,150 |
Loans held for sale | 852 |  |  | — |  |  | 853 |  |  | — |  |  | 853 |
Net loans | 2,126,266 |  |  | — |  |  | — |  |  | 2,126,824 |  |  | 2,126,824 |
FHLB and other restricted interests | 17,035 |  |  | n/a |  |  | n/a |  |  | n/a |  |  | n/a |
Other equity interests | 4,482 |  |  |  |  |  |  |  |  | 4,482 |
Interest rate swaps | 149 |  |  | — |  |  | 149 |  |  | — |  |  | 149 |
Accrued interest receivable | 9,254 |  |  | 6 |  |  | 2,651 |  |  | 6,597 |  |  | 9,254 |
LIABILITIES |  |  |  |  |  |  |  |  |
Deposits | $ | (2,167,815 | ) |  | $ | (1,802,844 | ) |  | $ | (362,756 | ) |  | $ | — |  |  | $ | (2,165,600 | )
FHLB and other borrowings | (257,359 | ) |  | — |  |  | (257,361 | ) |  | — |  |  | (257,361 | )
Subordinated debentures | (70,620 | ) |  | — |  |  | (63,575 | ) |  | — |  |  | (63,575 | )
Interest rate swaps | (310 | ) |  | — |  |  | (310 | ) |  | — |  |  | (310 | )
Accrued interest payable | (554 | ) |  | — |  |  | (554 | ) |  | — |  |  | (554 | )
The methods utilized to estimate the fair value of financial instruments at December 31, 2017 did not necessarily represent an exit price. In accordance with our adoption of ASU 2016-01 in 2018, the methods utilized to measure the fair value of financial instruments at September 30, 2018 represent an approximation of exit price; however, an actual exit price may differ. While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. Other equity interests fair value is based on the net asset values provided by underlying investment partnership. ASU 2015-7 removes the requirement to categorize within the fair value hierarchy all investments measured using the net asset value per share practical expedient and related disclosures. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures. Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet, may have value but are not included in the fair value disclosures.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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