Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2018

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



	June 30, 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		$36,130		$36,130		$77,841		$77,841
Investment securities available for sale	60,175		60,175		59,117		59,117
Marketable equity securities	6,006		6,006		—		—

Level 2 inputs:
Investment securities available for sale	203,949		203,949		253,633		253,633
Investment in Federal Home Loan Bank stock	2,104		2,104		2,115		2,115
Accrued interest receivable	4,489		4,489		4,385		4,385
Interest rate swaps	956		956		261		261

Level 3 inputs:
Loans and loans held for sale¹	1,022,008		995,564		999,445		1,001,346
Purchased receivables, net	20,323		20,323		22,231		22,231
Interest rate lock commitments	1,417		1,417		873		873
Mortgage servicing rights	8,733		8,733		7,305		7,305

Financial liabilities:
Level 2 inputs:
Deposits		$1,205,521		$1,204,467		$1,258,283		$1,257,670
Securities sold under repurchase agreements	27,695		27,695		27,746		27,746
Borrowings	7,312		7,023		7,362		7,308
Accrued interest payable	91		91		24		24
Interest rate swaps	151		151		77		77
Retail interest rate contracts	134		134		—		—
Level 3 inputs:
Junior subordinated debentures	10,310		10,202		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 June 30, 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)
June 30, 2018
Assets:
Available for sale securities
U.S. Treasury and government sponsored entities		$208,692		$39,534		$169,158		$—
Municipal securities	11,935		—		11,935		—
Corporate bonds	37,490		20,641		16,849		—
Collateralized loan obligations	6,007		—		6,007		—
Total available for sale securities		$264,124		$60,175		$203,949		$—
Preferred stock		$6,006		$6,006		$—		$—
Total marketable equity securities		$6,006		$6,006		$—		$—
Interest rate swaps		$956		$—		$956		$—
Interest rate lock commitments	1,417		—		—		1,417
Mortgage servicing rights	8,733		—		—		8,733
Total other assets		$11,106		$—		$956		$10,150
Liabilities:
Interest rate swaps		$151		$—		$151		$—
Retail interest rate contracts	134		—		134		—
Total other liabilities		$285		$—		$285		$—
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 and six month periods ended June 30, 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 June 30, 2018
Interest rate lock commitments		$1,323		($602	)		$5,800		($5,104	)		$1,417		$1,417
Mortgage servicing rights	8,039		(118		)	812		—			8,733		—
Total		$9,362		($720	)		$6,612		($5,104	)		$10,150		$1,417
Three Months Ended June 30, 2017
Interest rate lock commitments		$1,534		($102	)		$4,445		($4,540	)		$1,337		$1,337
Mortgage servicing rights	5,325		(48		)	551		—			5,828		—
Total		$6,859		($150	)		$4,996		($4,540	)		$7,165		$1,337



(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
Six Months Ended June 30, 2018
Interest rate lock commitments		$873		($1,002	)		$9,484		($7,938	)		$1,417		$1,417
Mortgage servicing rights	7,305		(144		)	1,572		—			8,733		—
Total		$8,178		($1,146	)		$11,056		($7,938	)		$10,150		$1,417
Six Months Ended June 30, 2017
Interest rate lock commitments		$1,137		($418	)		$7,501		($6,883	)		$1,337		$1,337
Mortgage servicing rights	4,157		234			1,437		—			5,828		—
Total		$5,294		($184	)		$8,938		($6,883	)		$7,165		$1,337

Fair Value, Assets Measured on Nonrecurring Basis

As of and for the periods ending June 30, 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)
June 30, 2018
Loans measured for impairment		$373		$—		$—		$373
Total		$373		$—		$—		$373
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 and six month periods ended June 30, 2018 and 2017:



	Three Months Ended June 30,					Six Months Ended June 30,
(In Thousands)	2018		2017			2018		2017
Loans measured for impairment		$299		$600			$893		$220
Other real estate owned	—		(100		)	—		(266		)
Total loss from nonrecurring measurements		$299		$500			$893		($46	)

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 June 30, 2018 and December 31, 2017:



Financial Instrument	Valuation Technique	Unobservable Input	Weighted Average Rate Range
June 30, 2018
Loans measured for impairment	In-house valuation of collateral	Discount rate	25% - 65%
Interest rate lock commitment	External pricing model	Pull through rate	92.22	%
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	7.66% - 9.79%
		Discount rate	9.87% - 11.00%
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%