FAIR VALUE

6 Months Ended

Jun. 30, 2020

Fair Value [Abstract]

Fair Value

Note 17 – Fair Value

GAAP provides entities the option to measure eligible financial assets, financial liabilities and commitments at fair value (i.e. the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a commitment. Subsequent changes in fair value must be recorded in earnings. The Company applies the fair value option on residential mortgage loans held for sale. The fair value option on residential mortgage loans held for sale allows the recognition of gains on the sale of mortgage loans to more accurately reflect the timing and economics of the transaction.

The standard for fair value measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below.

Basis of Fair Value Measurement:

Level 1- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2- Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Changes to interest rates may result in changes in the cash flows due to prepayments or extinguishments. Accordingly, changes to interest rates could result in higher or lower measurements of the fair values.

Assets and Liabilities

Mortgage loans held for sale

Mortgage loans held for sale are valued based on quotations from the secondary market for similar instruments and are classified as Level 2 of the fair value hierarchy.

Investments available-for-sale

U.S. treasuries and government agencies securities and mortgage-backed and asset-backed securities

Valuations are based on active market data and use of evaluated broker pricing models that vary based by asset class and includes available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, descriptive terms, and conditions databases coupled with extensive quality control programs. Multiple quality control evaluation processes review available market, credit and deal level information to support the evaluation of the security. If there is a lack of objectively verifiable information available to support the valuation, the evaluation of the security is discontinued. Additionally, proprietary models and pricing systems, mathematical tools, actual transacted prices, integration of market developments and experienced evaluators are used to determine the value of a security based on a hierarchy of market information regarding a security or securities with similar characteristics. The Company does not adjust the quoted price for such securities. Such instruments are generally classified within Level 2 of the fair value hierarchy.

State and municipal securities

Proprietary valuation matrices are used for valuing all tax-exempt municipals that can incorporate changes in the municipal market as they occur. Market evaluation models include the ability to value bank qualified municipals and general market municipals that can be broken down further according to insurer, credit support, state of issuance and rating to incorporate additional spreads and municipal curves. Taxable municipals are valued using a third party model that incorporates a methodology that captures the trading nuances associated with these bonds. Such instruments are generally classified within Level 2 of the fair value hierarchy.

Interest rate swap agreements

Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2.

Assets Measured at Fair Value on a Recurring Basis

The following tables set forth the Company’s financial assets and liabilities at the dates indicated that were accounted for or disclosed at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

			June 30, 2020
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
(In thousands)			(Level 1)		(Level 2)		(Level 3)		Total
Assets:
	Residential mortgage loans held for sale		$	-	$	68,765	$	-	$	68,765
	Investments available-for-sale:
		U.S. treasuries and government agencies		-		168,072		-		168,072
		State and municipal		-		297,580		-		297,580
		Mortgage-backed and asset-backed		-		877,955		-		877,955
		Corporate debt		-		-		12,192		12,192
		Marketable equity securities		-		677		-		677
	Interest rate swap agreements			-		10,804		-		10,804
Liabilities:
	Interest rate swap agreements		$	-	$	(10,804)	$	-	$	(10,804)

			December 31, 2019
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
(In thousands)			(Level 1)		(Level 2)		(Level 3)		Total
Assets:
	Residential mortgage loans held for sale		$	-	$	53,701	$	-	$	53,701
	Investments available-for-sale:
		U.S. treasuries and government agencies		-		258,495		-		258,495
		State and municipal		-		233,649		-		233,649
		Mortgage-backed and asset-backed		-		570,759		-		570,759
		Corporate debt		-		-		9,552		9,552
		Trust preferred		-		-		310		310
		Marketable equity securities		-		568		-		568
	Interest rate swap agreements			-		2,507		-		2,507
Liabilities:
	Interest rate swap agreements		$	-	$	(2,507)	$	-	$	(2,507)

The following table provides a change in the fair value of assets measured in the Condensed Consolidated Statements of Condition at fair value with significant unobservable inputs (Level 3) on a recurring basis for the period indicated:

			Significant
			Unobservable
			Inputs
(In thousands)			(Level 3)
Investments available-for-sale:
	Balance at January 1, 2020		$	9,862
		Additions of Level 3 assets		3,050
		Sales of Level 3 assets		(329)
		Total unrealized loss included in other comprehensive income/ (loss)		(391)
	Balance at June 30, 2020		$	12,192

Assets Measured at Fair Value on a Nonrecurring Basis

The following table sets forth the Company’s financial assets subject to fair value adjustments on a nonrecurring basis at the date indicated that are valued at the lower of cost or market. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

		June 30, 2020
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		for Identical		Observable		Unobservable
(In thousands)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		Total Losses
Loans		$	-	$	-	$	6,636	$	6,636	$	(6,814)
Other real estate owned			-		-		1,671		1,671		(282)
	Total	$	-	$	-	$	8,307	$	8,307	$	(7,096)

		December 31, 2019
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		for Identical		Observable		Unobservable
(In thousands)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		Total Losses
Loans		$	-	$	-	$	6,886	$	6,886	$	(6,299)
Other real estate owned			-		-		1,482		1,482		(281)
	Total	$	-	$	-	$	8,368	$	8,368	$	(6,580)

At June 30, 2020, loans totaling $60.5 million were written down to fair value of $51.7 million as a result of individual credit loss allowances of $8.8 million associated with the collateral dependent loans. Loans totaling $24.8 million were written down to fair value of $19.3 million at December 31, 2019 as a result of individual credit loss allowances of $5.5 million associated with the collateral dependent loans.

Fair value of the collateral dependent loans is measured based on the loan’s observable market price or the fair value of the collateral (less estimated selling costs). Collateral may be real estate and/or business assets such as equipment, inventory and/or accounts receivable. The value of business equipment, inventory and accounts receivable collateral is based on net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical experience, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional individual reserve and adjusted accordingly, based on the factors identified above.

Other real estate owned (“OREO”) is adjusted to fair value upon acquisition of the real estate collateral. Subsequently, OREO is carried at the lower of carrying value or fair value. The estimated fair value for OREO included in Level 3 is determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to initial recognition, the Company records the OREO as a nonrecurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods.

Fair Value of Financial Instruments

The Company discloses fair value information, based on the exit price notion, of financial instruments that are not measured at fair value in the financial statements. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists.

Quoted market prices, where available, are shown as estimates of fair market values. Because no quoted market prices are available for a significant portion of the Company's financial instruments, the fair value of such instruments has been derived based on the amount and timing of future cash flows and estimated discount rates based on observable inputs (“Level 2”) or unobservable inputs (“Level 3”).

Present value techniques used in estimating the fair value of many of the Company's financial instruments are significantly affected by the assumptions used. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate cash settlement of the instrument. Additionally, the accompanying estimates of fair values are only representative of the fair values of the individual financial assets and liabilities, and should not be considered an indication of the fair value of the Company. Management utilizes internal models used in asset liability management to determine the fair values disclosed below.

The carrying amounts and fair values of the Company’s financial instruments at the dates indicated are presented in the following tables:

						Fair Value Measurements
		June 30, 2020				Quoted Prices in
				Estimated		Active Markets for		Significant Other		Significant
		Carrying		Fair		Identical Assets		Observable Inputs		Unobservable Inputs
(In thousands)		Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
	Other equity securities	$	68,853	$	68,853	$	-	$	68,853	$	-
	Loans, net of allowance		10,179,562		10,327,479		-		-		10,327,479
	Other assets (1)		125,477		125,477		-		125,477		-
Financial liabilities:
	Time deposits	$	2,166,695	$	2,194,176	$	-	$	2,194,176	$	-
	Securities sold under retail repurchase agreements and
	federal funds purchased		988,605		988,722		-		988,722		-
	Advances from FHLB		451,844		467,759		-		467,759		-
	Subordinated debentures		230,301		231,114		-		-		231,114
	(1) Includes bank owned life insurance products.

						Fair Value Measurements
		December 31, 2019				Quoted Prices in
				Estimated		Active Markets for		Significant Other		Significant
		Carrying		Fair		Identical Assets		Observable Inputs		Unobservable Inputs
(In thousands)		Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
	Other equity securities	$	51,803	$	51,803	$	-	$	51,803	$	-
	Loans, net of allowance		6,649,100		6,628,054		-		-		6,628,054
	Other assets (1)		113,171		113,171		-		113,171		-
Financial liabilities:
	Time deposits	$	1,542,322	$	1,547,116	$	-	$	1,547,116	$	-
	Securities sold under retail repurchase agreements and
	federal funds purchased		213,605		213,605		-		213,605		-
	Advances from FHLB		513,777		520,729		-		520,729		-
	Subordinated debentures		209,406		200,864		-		-		200,864
	(1) Includes bank owned life insurance products.