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Fair Value
 9 Months Ended
Sep. 30, 2020
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). These models utilize the market approach with standard inputs that include, but are not limited to benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities that observable inputs about the specific issuer are not available, fair values are estimated using observable data from other securities presumed to be similar or other market data on other similar securities (Level 3 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, 2020 and December 31, 2019:
  Fair Value Measurements at September 30, 2020 Using:
Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Assets:
Securities Available For Sale:
U.S. Government sponsored entities$169,709 $0 $169,709 $0 
States and political subdivisions66,952 0 66,530 422 
Residential and multi-family mortgage306,309 5,130 301,179 0 
Corporate notes and bonds13,402 0 13,402 0 
Pooled SBA27,503 0 27,503 0 
Other982 982 0 0 
Total Securities Available For Sale$584,857 $6,112 $578,323 $422 
Interest Rate swaps$4,493 $0 $4,493 $0 
Trading Securities:
Corporate equity securities$3,964 $3,964 $0 $0 
Mutual funds1,060 1,060 0 0 
Certificates of deposit417 417 0 0 
Corporate notes and bonds672 672 0 0 
U.S. Government sponsored entities51 0 51 0 
Total Trading Securities$6,164 $6,113 $51 $0 
Liabilities:
Interest rate swaps$(5,327)$0 $(5,327)$0 
  Fair Value Measurements at December 31, 2019 Using:
  Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Assets:
Securities Available For Sale:
U.S. Government sponsored entities$127,094 $0 $127,094 $0 
States and political subdivisions104,363 0 104,363 0 
Residential and multi-family mortgage276,636 0 273,841 2,795 
Corporate notes and bonds8,082 0 8,082 0 
Pooled SBA25,174 0 25,174 0 
Other964 964 0 0 
Total Securities Available For Sale$542,313 $964 $538,554 $2,795 
Interest Rate swaps$1,877 $0 $1,877 $0 
Trading Securities:
Corporate equity securities$7,946 $7,946 $0 $0 
Mutual funds807 807 0 0 
Certificates of deposit350 350 0 0 
Corporate notes and bonds655 655 0 0 
U.S. Government sponsored entities51 0 51 0 
Total Trading Securities$9,809 $9,758 $51 $0 
Liabilities:
Interest rate swaps$(2,362)$0 $(2,362)$0 

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) as of September 30, 2020:

States and Political SubdivisionsResidential & Multi-Family Mortgage
Balance, January 1, 2020$0 $2,795 
Purchases422 0 
Total gains or (losses):
Included in other comprehensive income (loss)0 0 
Transfers out of Level 30 $(2,795)
Balance, September 30, 2020$422 $0 

Assets and liabilities measured at fair value on a non-recurring basis are as follows at September 30, 2020 and December 31, 2019:

  Fair Value Measurements at September 30, 2020 Using:
Quoted Prices in
Active Markets 
for
Identical Assets		Significant Other
Observable Inputs		Significant
Unobservable
Inputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Assets:
Impaired loans:
Commercial, industrial and agricultural$2,519 0 0 $2,519 
Commercial mortgages$11,140 0 0 $11,140 
  Fair Value Measurements at December 31, 2019 Using
  Quoted Prices in Significant
  Active Markets 
for		Significant OtherUnobservable
  Identical AssetsObservable InputsInputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Assets:
Impaired loans:
Commercial, industrial and agricultural$2,910 0 0 $2,910 
Commercial mortgages$1,147 0 0 $1,147 

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, 2020:
Fair
value		Valuation TechniqueUnobservable InputsRange
(Weighted Average)
Impaired loans – commercial, industrial and agricultural
$2,519Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability
0%-100% (49%)
Impaired loans – commercial mortgages$11,140Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability
0%-44% (25%)
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, 2019:
Fair
value		Valuation TechniqueUnobservable InputsRange
(Weighted Average)
Impaired loans – commercial, industrial and agricultural$2,910Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability
0%-100% (54%)
Impaired loans – commercial mortgages$1,147Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability
25%-100% (52%)
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments at September 30, 2020:
 CarryingFair Value Measurement Using:Total
 AmountLevel 1Level 2Level 3Fair Value
ASSETS
Cash and cash equivalents$555,941 $555,941 $0 $0 $555,941 
Securities available for sale584,857 6,112 578,323 422 584,857 
Trading securities6,164 6,113 51 0 6,164 
Loans held for sale3,668 0 3,697 0 3,697 
Net loans3,318,923 0 0 3,290,329 3,290,329 
FHLB and other restricted interests26,815 n/an/an/an/a
Interest rate swaps4,493 0 4,493 0 4,493 
Accrued interest receivable21,299 33 3,103 18,161 21,297 
LIABILITIES
Deposits$(4,022,705)$(3,543,338)$(494,056)$0 $(4,037,394)
FHLB and other borrowings(169,327)0 (174,846)0 (174,846)
Subordinated debentures(70,620)0 (62,394)0 (62,394)
Interest rate swaps(5,327)0 (5,327)0 (5,327)
Accrued interest payable(1,514)0 (1,514)0 (1,514)

The following table presents the carrying amount and fair value of financial instruments at December 31, 2019:
 CarryingFair Value Measurement Using:Total
 AmountLevel 1Level 2Level 3Fair Value
ASSETS
Cash and cash equivalents$192,974 $192,974 $0 $0 $192,974 
Securities available for sale542,313 964 538,554 2,795 542,313 
Trading securities9,809 9,758 51 0 9,809 
Loans held for sale930 0 933 0 933 
Net loans2,784,562 0 0 2,765,133 2,765,133 
FHLB and other restricted interests27,868 n/an/an/an/a
Interest rate swaps1,877 0 1,877 0 1,877 
Accrued interest receivable11,486 6 3,238 8,242 11,486 
LIABILITIES
Deposits$(3,102,327)$(2,674,511)$(432,287)$0 $(3,106,798)
FHLB and other borrowings(227,907)0 (230,679)0 (230,679)
Subordinated debentures(70,620)0 (64,084)0 (64,084)
Interest rate swaps(2,362)0 (2,632)0 (2,632)
Accrued interest payable(1,597)0 (1,597)0 (1,597)

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. The fair value of other equity interests is based on the net asset values provided by the 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.