inputs are inputs that reflect the Corporation’s assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances, including assumptions about risk. Three levels of inputs are used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement.

Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 3: Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include: financial instruments whose value is determined using pricing models, discounted cash-flow methodologies, or similar techniques, as well as instruments for which the fair value calculation requires significant management judgment or estimation.

Where quoted prices are available in an active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include U.S. Treasury securities, most equity securities and money market mutual funds. Mutual funds are registered investment companies which are valued at net asset value of shares on a market exchange at the end of each trading day. Level 2 of the valuation hierarchy includes securities issued by U.S. Government sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, corporate and municipal bonds and certain equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy.

Fair values for securities are determined using independent pricing services and market-participating brokers. The Corporation’s independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing service’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does not have sufficient verifiable information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third-party service’s valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.

On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at June 30, 2021.

The fair value of our loans held for sale is based on estimates using Level 2 inputs. These inputs are based on pricing information obtained from wholesale mortgage banks and brokers and applied to loans with similar interest rates and maturities.

The fair values of derivative financial instruments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate swaps and mortgage banking derivative financial instruments are classified

within Level 2 of the valuation hierarchy. Credit derivatives are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and therefore classified in Level 3 of the valuation hierarchy.

One commercial loan associated with an interest rate swap is classified in Level 3 of the valuation hierarchy at June 30, 2021 since lending credit risk is not an observable input for this loan. The unrealized gain on the one loan was $2 thousand at June 30, 2021.

The Corporation estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on projected revenue related to the acquired business. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a change of estimated future contingent payments based on projected revenue of the acquired business affecting the contingent consideration liability will be recorded through noninterest expense. Due to the significant unobservable input related to the projected revenue, the contingent consideration liability is classified within Level 3 of the valuation hierarchy. An increase in the projected revenue may result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the projected revenue may result in a lower estimated fair value of the contingent consideration liability.


	At June 30, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:


State and political subdivisions	$	—	$	3,312	$	—	$	3,312
Residential mortgage-backed securities	—		176,159		—		176,159
Collateralized mortgage obligations	—		4,130		—		4,130
Corporate bonds	—		81,561		9,700		91,261
Total available-for-sale securities	—		265,162		9,700		274,862
Equity securities:
Equity securities - financial services industry	956		—		—		956
Money market mutual funds	1,916		—		—		1,916
Total equity securities	2,872		—		—		2,872
Loans*	—		—		118		118
Loans held for sale	—		27,322		—		27,322

Interest rate locks with customers*	—		1,662		—		1,662

Total assets	$	2,872	$	294,146	$	9,818	$	306,836
Liabilities:

Interest rate swaps*	$	—	$	383	$	—	$	383
Credit derivatives*	—		—		369		369

Forward loan sale commitments*	—		267		—		267
Total liabilities	$	—	$	650	$	369	$	1,019

The $9.7 million of corporate bonds was comprised of one investment grade bond and the Corporation utilizes a third party to estimate fair value. The value is derived from a discounted cash flow analysis which utilizes a probability of default input. The $369 thousand of credit derivatives liability represents the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of 116 interest rate swaps with a current notional amount of $730.9 million. The June 30, 2021 CVA assumes a zero-deal recovery percentage based on the most recent index credit curve.


	At December 31, 2020
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:


State and political subdivisions	$	—	$	13,537	$	—	$	13,537
Residential mortgage-backed securities	—		114,163		—		114,163
Collateralized mortgage obligations	—		5,321		—		5,321
Corporate bonds	—		76,019		9,600		85,619
Total available-for-sale securities	—		209,040		9,600		218,640
Equity securities:
Equity securities - financial services industry	818		—		—		818
Money market mutual funds	2,461		—		—		2,461
Total equity securities	3,279		—		—		3,279
Loans*	—		—		187		187
Loans held for sale	—		37,039		—		37,039
Interest rate locks with customers*	—		2,894		—		2,894

Total assets	$	3,279	$	248,973	$	9,787	$	262,039
Liabilities:
Contingent consideration liability	$	—	$	—	$	55	$	55
Interest rate swaps*	—		541		—		541
Credit derivatives*	—		—		535		535
Forward loan sale commitments*	—		752		—		752
Total liabilities	$	—	$	1,293	$	590	$	1,883

The following table includes a rollforward of corporate bonds, loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the six months ended June 30, 2021 and 2020:


	Six Months Ended June 30, 2021
(Dollars in thousands)	Balance at December 31, 2020		Additions		Payments received		Increase (decrease) in value		Balance at June 30, 2021
Corporate bonds	$	9,600	$	—	$	—	$	100	$	9,700
Loans	187		—		(65)		(4)		118
Credit derivatives	(535)		(1,213)		—		1,379		(369)
Net total	$	9,252	$	(1,213)	$	(65)	$	1,475	$	9,449


	Six Months Ended June 30, 2020
(Dollars in thousands)	Balance at December 31, 2019		Additions		Payments received		Increase (decrease) in value		Balance at June 30, 2020

Loans	$	317	$	—	$	(60)	$	(2)	$	255
Credit derivatives	(176)		(2,541)		—		1,805		(912)
Net total	$	141	$	(2,541)	$	(60)	$	1,803	$	(657)

The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the six months ended June 30, 2021 and 2020:


	Six Months Ended June 30, 2021
(Dollars in thousands)	Balance at December 31, 2020		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at June 30, 2021
Girard Partners	$	55	$	—	$	58	$	3	$	—
Total contingent consideration liability	$	55	$	—	$	58	$	3	$	—


	Six Months Ended June 30, 2020
(Dollars in thousands)	Balance at December 31, 2019		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at June 30, 2020
Girard Partners	$	160	$	—	$	61	$	10	$	109
Total contingent consideration liability	$	160	$	—	$	61	$	10	$	109

The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or changes in the value of loans held for investment analyzed on an individual basis. The following table represents assets measured at fair value on a non-recurring basis at June 30, 2021 and December 31, 2020:


	At June 30, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Individually analyzed loans held for investment	$	—	$	—	$	33,142	$	33,142

Other real estate owned	—		—		279		279
Total	$	—	$	—	$	33,421	$	33,421


	At December 31, 2020
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Individually analyzed loans held for investment	$	—	$	—	$	30,900	$	30,900

Other real estate owned	—		—		7,355		7,355
Total	$	—	$	—	$	38,255	$	38,255

The following table presents assets and liabilities not measured at fair value on a recurring or non-recurring basis in the Corporation’s condensed consolidated balance sheets but for which the fair value is required to be disclosed at June 30, 2021 and December 31, 2020. The disclosed fair values are classified using the fair value hierarchy.


	At June 30, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	203,449	$	—	$	—	$	203,449	$	203,449

Held-to-maturity securities	—		123,119		—		123,119		119,692
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		25,228
Net loans and leases held for investment	—		—		5,317,505		5,317,505		5,226,485
Servicing rights	—		—		9,793		9,793		7,433
Total assets	$	203,449	$	123,119	$	5,327,298	$	5,653,866	$	5,582,287
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	4,826,481	$	—	$	—	$	4,826,481	$	4,826,481
Time deposits	—		500,436		—		500,436		492,223
Total deposits	4,826,481		500,436		—		5,326,917		5,318,704
Short-term borrowings	—		25,251		—		25,251		25,251
Long-term debt	—		96,976		—		96,976		95,000
Subordinated notes	—		106,500		—		106,500		98,719
Total liabilities	$	4,826,481	$	729,163	$	—	$	5,555,644	$	5,537,674


	At December 31, 2020
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	219,858	$	—	$	—	$	219,858	$	219,858
Held-to-maturity securities	—		156,325		—		156,325		151,257
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		28,183
Net loans and leases held for investment	—		—		5,338,782		5,338,782		5,192,710
Servicing rights	—		—		6,783		6,783		6,408
Total assets	$	219,858	$	156,325	$	5,345,565	$	5,721,748	$	5,598,416
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	4,678,940	$	—	$	—	$	4,678,940	$	4,678,940
Time deposits	—		574,018		—		574,018		563,775
Total deposits	4,678,940		574,018		—		5,252,958		5,242,715
Short-term borrowings	—		17,906		—		17,906		17,906
Long-term debt	—		112,968		—		112,968		110,000
Subordinated notes	—		190,045		—		190,045		183,515
Total liabilities	$	4,678,940	$	894,937	$	—	$	5,573,877	$	5,554,136

The following valuation methods and assumptions were used by the Corporation in estimating the fair value for financial instruments measured at fair value on a non-recurring basis and financial instruments not measured at fair value on a recurring or non-recurring basis in the Corporation’s condensed consolidated balance sheets but for which the fair value is required to be disclosed:

Cash and short-term interest-earning assets: The carrying amounts reported in the balance sheet for cash and due from banks, interest-earning deposits with other banks and other short-term investments is their stated value. Cash and short-term interest-earning assets are classified within Level 1 in the fair value hierarchy.

Held-to-maturity securities: Fair values for the held-to-maturity investment securities are estimated by using pricing models or quoted prices of securities with similar characteristics and are classified in Level 2 in the fair value hierarchy.

Federal Home Loan Bank, Federal Reserve Bank and other stock: It is not practical to determine the fair values of Federal Home Loan Bank, Federal Reserve Bank and other stock, due to restrictions placed on their transferability.

Loans held for sale: Loans held for sale are carried at the lower of cost or estimated fair value. The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data. At June 30, 2021, loans held for sale included two nonaccrual commercial real estate loans totaling $4.0 million. The fair value of these loans was measured based on the estimated sale price of the loans and is classified within Level 1 in the fair value hierarchy.

Loans and leases held for investment: The fair values for loans and leases held for investment are estimated using discounted cash flow analyses, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers, adjusted as appropriate to consider credit, liquidity and marketability factors to arrive at a fair value that represents the Corporation's exit price at which these instruments would be sold or transferred. Loans and leases are classified within Level 3 in the fair value hierarchy since credit risk is not an observable input.

Individually analyzed loans and leases held for investment: For individually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At June 30, 2021, individually analyzed loans held for investment had a carrying amount of $33.5 million with a valuation allowance of $356 thousand. At December 31, 2020, individually analyzed loans held for investment had a carrying amount of $31.5 million with a valuation allowance of $585 thousand. The Corporation had no individually analyzed leases at June 30, 2021 or December 31, 2020.

Servicing rights: The Corporation estimates the fair value of servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. Servicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the servicing rights portfolio on a quarterly basis for impairment and the servicing rights are carried at the lower of amortized cost or estimated fair value. At June 30, 2021, servicing rights had a net carrying amount of $7.4 million, which included a valuation allowance of $1 thousand. At December 31, 2020, servicing rights had a net carrying amount of $6.5 million, which included a valuation allowance of $87 thousand.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. During the six months ended June 30, 2021, there were no required valuation adjustments of goodwill and other identifiable intangible assets.

Other real estate owned: Other real estate owned (OREO) represents properties that the Corporation has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking possession of assets that were used as loan collateral. The Corporation reports OREO at the lower of cost or fair value less cost to sell, adjusted periodically based on a current appraisal or an executed agreement of sale. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset. Write-downs and any gain or loss upon the sale of OREO is recorded in other noninterest income. OREO is reported in other assets on the condensed consolidated balance sheet. During the six months ended June 30, 2021, three commercial real estate properties were transferred to OREO with a carrying balance of $126 thousand. At June 30, 2021 and December 31, 2020, OREO had a carrying amount of $279 thousand and $7.4 million, respectively. During the quarter, a commercial real estate property with a carrying value of $7.1 million was sold. Other real

Deposit liabilities: The fair values for demand and savings accounts, with no stated maturities, is the amount payable on demand at the reporting date (carrying value) and are classified within Level 1 in the fair value hierarchy. The fair values for time deposits with fixed maturities are estimated by discounting the final maturity using interest rates currently offered for deposits with similar remaining maturities. Time deposits are classified within Level 2 in the fair value hierarchy.

Long-term debt: The fair value of long-term debt is estimated by using discounted cash flow analysis, based on current market rates for debt with similar terms and remaining maturities. Long-term debt is classified within Level 2 in the fair value hierarchy.