Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2017

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



	September 30, 2017				December 31, 2016
(In Thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash, due from banks and deposits in other banks		$87,269		$87,269		$50,551		$50,551
Investment securities	58,316		58,316		43,486		43,486

Level 2 inputs:
Investment securities	212,932		212,931		288,632		288,655
Investment in Federal Home Loan Bank stock	2,116		2,116		1,965		1,965
Accrued interest receivable	4,130		4,130		3,734		3,734
Interest rate swaps	161		161		71		71

Level 3 inputs:
Loans and loans held for sale	1,048,468		1,047,884		1,018,661		1,026,350
Purchased receivables, net	12,930		12,930		20,491		20,491
Interest rate lock commitments	1,508		1,508		1,137		1,137
Mortgage servicing rights	6,181		6,181		4,157		4,157

Financial liabilities:
Level 2 inputs:
Deposits		$1,258,317		$1,257,825		$1,267,653		$1,266,995
Securities sold under repurchase agreements	31,084		31,084		27,607		27,607
Borrowings	7,387		7,352		4,338		4,186
Accrued interest payable	125		125		64		64
Interest rate swaps	34		34		71		71
Retail interest rate contracts	38		38		78		78
Level 3 inputs:
Accrued liability, RML acquisition payments	509		509		186		186
Junior subordinated debentures	10,310		9,786		18,558		18,398

Unrecognized financial instruments:
Commitments to extend credit⁽¹⁾		$298,601		$2,986		$236,624		$2,366
Standby letters of credit⁽¹⁾	7,631		76		9,931		99

⁽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, 2017
Assets:
Available for sale securities
U.S. Treasury and government sponsored entities		$209,100		$30,012		$179,088		$—
Municipal securities	17,366		—		17,366		—
Corporate bonds	35,082		22,503		12,579		—
Collateralized loan obligations	3,002		—		3,002		—
Preferred stock	5,801		5,801		—		—
Total available for sale securities		$270,351		$58,316		$212,035		$—
Interest rate swaps		$161		$—		$161		$—
Interest rate lock commitments	1,508		—		—		1,508
Mortgage servicing rights	6,181		—		—		6,181
Total other assets		$7,850		$—		$161		$7,689
Liabilities:
Interest rate swaps		$34		$—		$34		$—
Total other liabilities		$72		$—		$72		$—
December 31, 2016
Assets:
Available for sale securities
U.S. Treasury and government sponsored entities		$263,361		$30,063		$233,298		$—
Municipal securities	18,157		—		18,157		—
U.S. Agency mortgage-backed securities	2		—		2		—
Corporate bonds	44,732		8,456		36,276		—
Preferred stock	4,967		4,967		—		—
Total available for sale securities		$331,219		$43,486		$287,733		$—
Interest rate swaps		$71		$—		$71		$—
Interest rate lock commitments	1,137		—		—		1,137
Mortgage servicing rights	4,157		—		—		4,157
Total other assets		$5,365		$—		$71		$5,294
Liabilities:
Interest rate swaps		$71		$—		$71		$—
Retail interest rate contracts	78		—		78		—
Total other liabilities		$149		$—		$149		$—

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, 2017 and 2016, 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, 2017
Interest rate lock commitments		$1,337		($455	)		$4,443		($3,817	)		$1,508		$1,508
Mortgage servicing rights	5,828		(296		)	649		—			6,181		—
Total		$7,165		($751	)		$5,092		($3,817	)		$7,689		$1,508
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



(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, 2017
Interest rate lock commitments		$1,137		($873	)		$11,944		($10,700	)		$1,508		$1,508
Mortgage servicing rights	4,157		(62		)	2,086		—			6,181		—
Total		$5,294		($935	)		$14,030		($10,700	)		$7,689		$1,508
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

Fair Value, Assets Measured on Nonrecurring Basis

As of and for the periods ending September 30, 2017 and December 31, 2016, respectively, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis. 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)
September 30, 2017
Loans measured for impairment		$11,966		$—		$—		$11,966
Other real estate owned	—		—		—		—
Total		$11,966		$—		$—		$11,966
December 31, 2016
Loans measured for impairment		$9,222		$—		$—		$9,222
Other real estate owned	1,700		—		—		1,700
Total		$10,922		$—		$—		$10,922

The following table presents the losses resulting from nonrecurring fair value adjustments for the three and nine month periods ended September 30, 2017 and 2016, respectively:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2017		2016		2017		2016
Loans measured for impairment		$1,120		$309		$900		$191
Other real estate owned	74		57		340		187
Total loss from nonrecurring measurements		$1,194		$366		$1,240		$378

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, 2017:



Financial Instrument	Valuation Technique	Unobservable Input	Weighted Average Rate Range
Loans measured for impairment	In-house valuation of collateral	Discount rate	25% - 100%
	Discounted cash flow	Discount rate	7	%
Other real estate owned	Fair value of collateral	Estimated capital costs to complete improvements	25	%
Interest rate lock commitment	External pricing model	Pull through rate	92.79	%
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	10.05% - 12.89%
		Discount rate	9.17% - 9.78%