Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2018

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



	March 31, 2018				December 31, 2017
(In Thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash, due from banks and deposits in other banks		$83,962		$83,962		$77,841		$77,841
Investment securities available for sale	70,540		70,540		59,117		59,117
Marketable securities	5,527		5,527		—		—

Level 2 inputs:
Investment securities available for sale	227,033		227,033		253,633		253,633
Investment in Federal Home Loan Bank stock	2,105		2,105		2,115		2,115
Accrued interest receivable	4,390		4,390		4,385		4,385
Interest rate swaps	784		784		261		261

Level 3 inputs:
Loans and loans held for sale¹	1,008,790		1,003,372		999,445		1,001,346
Purchased receivables, net	19,412		19,412		22,231		22,231
Interest rate lock commitments	1,323		1,323		873		873
Mortgage servicing rights	8,039		8,039		7,305		7,305

Financial liabilities:
Level 2 inputs:
Deposits		$1,260,790		$1,259,613		$1,258,283		$1,257,670
Securities sold under repurchase agreements	31,018		31,018		27,746		27,746
Borrowings	7,338		6,993		7,362		7,308
Accrued interest payable	58		58		24		24
Interest rate swaps	133		133		77		77
Retail interest rate contracts	103		103		—		—
Level 3 inputs:
Junior subordinated debentures	10,310		9,919		10,310		9,856

¹Carrying amount is net of unearned income. In accordance with the prospective adoption of ASU 2016-01, the fair value of loans and loans held for sale as of March 31, 2018 was measured using an exit price notion. The fair value of loans as of December 31, 2017 was measured using an entry price notion.

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)
March 31, 2018
Assets:
Available for sale securities
U.S. Treasury and government sponsored entities		$243,318		$49,603		$193,715		$—
Municipal securities	13,776		—		13,776		—
Corporate bonds	34,469		20,937		13,532		—
Collateralized loan obligations	6,010		—		6,010		—
Total available for sale securities		$297,573		$70,540		$227,033		$—
Preferred stock		$5,527		$5,527		$—		$—
Total marketable securities		$5,527		$5,527		$—		$—
Interest rate swaps		$784		$—		$784		$—
Interest rate lock commitments	1,323		—		—		1,323
Mortgage servicing rights	8,039		—		—		8,039
Total other assets		$10,146		$—		$784		$9,362
Liabilities:
Interest rate swaps		$133		$—		$133		$—
Retail interest rate contracts	103		—		103		—
Total other liabilities		$236		$—		$236		$—
December 31, 2017
Assets:
Available for sale securities
U.S. Treasury and government sponsored entities		$249,461		$49,878		$199,583		$—
Municipal securities	14,421		—		14,421		—
Corporate bonds	37,132		3,508		33,624		—
Collateralized loan obligations	6,005		—		6,005		—

Total available for sale securities		$307,019		$53,386		$253,633		$—
Preferred stock		$5,731		$5,731		$—		$—
Total marketable securities		$5,731		$5,731		$—		$—
Interest rate swaps		$261		$—		$261		$—
Interest rate lock commitments	873		—		—		873
Mortgage servicing rights	7,305		—		—		7,305
Total other assets		$8,439		$—		$261		$8,178
Liabilities:
Interest rate swaps		$77		$—		$77		$—
Total other liabilities		$77		$—		$77		$—

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 month periods ended March 31, 2018 and 2017:



(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 March 31, 2018
Interest rate lock commitments		$873		($400	)		$3,684		($2,834	)		$1,323		$1,323
Mortgage servicing rights	7,305		(26		)	760		—			8,039		—
Total		$8,178		($426	)		$4,444		($2,834	)		$9,362		$1,323
Three Months Ended March 31, 2017
Interest rate lock commitments		$1,137		($316	)		$3,056		($2,343	)		$1,534		$1,534
Mortgage servicing rights	4,157		282			886		—			5,325		—
Total		$5,294		($34	)		$3,942		($2,343	)		$6,859		$1,534

Fair Value, Assets Measured on Nonrecurring Basis

As of and for the periods ending March 31, 2018 and December 31, 2017, 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)
March 31, 2018
Loans measured for impairment		$7,369		$—		$—		$7,369
Total		$7,369		$—		$—		$7,369
December 31, 2017
Loans measured for impairment		$7,988		$—		$—		$7,988
Other real estate owned	3,927		—		—		3,927
Other assets - equity method investment	2,292		—		—		2,292
Total		$14,207		$—		$—		$14,207

The following table presents the (gains) and losses resulting from nonrecurring fair value adjustments for the three month periods ended March 31, 2018 and 2017:



	Three Months Ended March 31,
(In Thousands)	2018			2017
Loans measured for impairment		($594	)		$380
Other real estate owned	—			166
Total loss from nonrecurring measurements		($594	)		$546

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 March 31, 2018 and December 31, 2017:



Financial Instrument	Valuation Technique	Unobservable Input	Weighted Average Rate Range
March 31, 2018
Loans measured for impairment	In-house valuation of collateral	Discount rate	0% - 100%
	Discounted cash flow	Discount rate	21	%
Interest rate lock commitment	External pricing model	Pull through rate	92.15	%
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	8.09% - 10.85%
		Discount rate	9.69% - 10.36%
December 31, 2017
Loans measured for impairment	In-house valuation of collateral	Discount rate	32% - 40%
	Discounted cash flow	Discount rate	14	%
Other real estate owned	Fair value of collateral	Estimated capital costs to complete improvements	25% - 32%
Interest rate lock commitment	External pricing model	Pull through rate	93.05	%
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	8.94% - 11.34%
		Discount rate	9.42% - 10.05%