Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

Estimated fair values as of the periods indicated are as follows:



	September 30, 2016				December 31, 2015
(In Thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash, due from banks and deposits in other banks		$45,866		$45,866		$58,673		$58,673
Investment securities	52,641		52,641		43,033		43,033

Level 2 inputs:
Investment securities	248,616		248,648		248,983		249,039
Investment in Federal Home Loan Bank stock	1,965		1,965		1,816		1,816
Accrued interest receivable	3,674		3,674		3,620		3,620
Commercial interest rate swaps	296		296		125		125

Level 3 inputs:
Loans and loans held for sale	1,073,528		1,072,547		1,031,340		1,033,551
Purchased receivables, net	15,500		15,500		13,326		13,326
Interest rate lock commitments	1,764		1,764		1,514		1,514
Mortgage servicing rights	3,196		3,196		1,654		1,654

Financial liabilities:
Level 2 inputs:
Deposits		$1,278,366		$1,278,081		$1,240,792		$1,240,223
Securities sold under repurchase agreements	27,701		27,701		31,420		31,420
Borrowings	4,350		4,461		2,120		2,101
Accrued interest payable	163		163		56		56
Commercial interest rate swaps	296		296		216		216
Retail interest rate contracts	134		134		91		91
Level 3 inputs:
Accrued liability, RML acquisition payments	3,274		7,949		6,624		6,624
Junior subordinated debentures	18,558		20,418		18,558		17,433

Unrecognized financial instruments:
Commitments to extend credit⁽¹⁾		$222,438		$2,224		$222,387		$2,224
Standby letters of credit⁽¹⁾	9,135		91		6,399		64

⁽¹⁾Carrying amounts reflect the notional amount of credit exposure under these financial instruments.

Schedule of Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table sets forth the balances as of the periods indicated of assets measured at fair value on a recurring basis:



(In Thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2016
Assets:
Available for sale securities
U.S. Treasury and government sponsored entities		$245,505		$30,224		$215,281		$—
Municipal securities	9,269		—		9,269		—
U.S. Agency mortgage-backed securities	4		—		4		—
Corporate bonds	40,534		17,372		23,162		—
Preferred stock	5,045		5,045		—		—
Total available for sale securities		$300,357		$52,641		$247,716		$—
Commercial interest rate swaps		$296		$—		$296		$—
Interest rate lock commitments	1,764		—		—		1,764
Mortgage servicing rights	3,196		—		—		3,196
Total other assets		$5,256		$—		$296		$4,960
Liabilities:
Commercial interest rate swaps		$296		$—		$296		$—
Retail interest rate contracts	134		—		134		—
Total other liabilities		$430		$—		$430		$—
December 31, 2015
Assets:
Available for sale securities
U.S. Treasury and government sponsored entities		$237,436		$35,008		$202,428		$—
Municipal securities	10,326		—		10,326		—
U.S. Agency mortgage-backed securities	809		—		809		—
Corporate bonds	39,018		4,501		34,517		—
Preferred stock	3,524		3,524		—		—
Total available for sale securities		$291,113		$43,033		$248,080		$—
Commercial interest rate swaps		$125		$—		$125		$—
Interest rate lock commitments	1,514		—		—		1,514
Mortgage servicing rights	1,654		—		—		1,654
Total other assets		$3,293		$—		$125		$3,168
Liabilities:
Commercial interest rate swaps		$125		$—		$125		$—
Retail interest rate contracts	91		—		91		—
Total other liabilities		$216		$—		$216		$—

Fair Value, Assets Measured on Recurring Basis

The following table provides a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine month periods ended September 30, 2016 and 2015, respectively:



(In Thousands)	Beginning balance		Change included in earnings			Purchases and issuances		Sales and settlements			Ending balance		Net change in unrealized gains (losses) relating to items held at end of period
Three Months Ended September 30, 2016
Interest rate lock commitments		$2,580		($589	)		$6,003		($6,230	)		$1,764		$1,764
Mortgage servicing rights	2,602		(166		)	760		—			3,196		—
Total		$5,182		($755	)		$6,763		($6,230	)		$4,960		$1,764
Three Months Ended September 30, 2015
Interest rate lock commitments		$1,487		($660	)		$5,358		($4,398	)		$1,787		$1,787
Mortgage servicing rights	942		(27		)	284		—			1,199		—
Total		$2,429		($687	)		$5,642		($4,398	)		$2,986		$1,787



(In Thousands)	Beginning balance		Change included in earnings			Purchases and issuances		Sales and settlements			Ending balance		Net change in unrealized gains (losses) relating to items held at end of period
Nine Months Ended September 30, 2016
Interest rate lock commitments		$1,514		($1,647	)		$16,446		($14,549	)		$1,764		$1,764
Mortgage servicing rights	1,654		(523		)	2,065		—			3,196		—
Total		$3,168		($2,170	)		$18,511		($14,549	)		$4,960		$1,764
Nine Months Ended September 30, 2015
Interest rate lock commitments		$841		($1,792	)		$16,250		($13,512	)		$1,787		$1,787
Mortgage servicing rights	1,010		(105		)	294		—			1,199		—
Total		$1,851		($1,897	)		$16,544		($13,512	)		$2,986		$1,787

Schedule of Asset Impairment

As of and for the periods ending September 30, 2016 and December 31, 2015, respectively, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis, except for certain assets as shown in the following table. For loans measured for impairment, the Company classifies fair value measurements using observable inputs, such as external appraisals, as Level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as Level 3 valuations in the fair value hierarchy.



(In Thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (gains) losses
September 30, 2016
Loans measured for impairment		$3,972		$—		$—		$3,972		$191
Other real estate owned	1,700		—		—		1,700		187
Total		$5,672		$—		$—		$5,672		$378
December 31, 2015
Loans measured for impairment		$1,061		$—		$—		$1,061		$269
Other real estate owned	830		—		—		830		361
Total		$1,891		$—		$—		$1,891		$630

Schedule of Valuation Assumptions

The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at September 30, 2016:



Financial Instrument	Valuation Technique	Unobservable Input	Weighted Average Rate Range
Loans measured for impairment	In-house valuation of collateral	Discount rate	9%
Interest rate lock commitment	External pricing model	Pull through rate	92.71	%
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	11.89% - 21.73%
		Discount rate	8.79% - 10.50%