Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2018

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



	September 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		$70,179		$70,179		$77,841		$77,841
Investment securities available for sale	75,165		75,165		59,117		59,117
Marketable equity securities	6,035		6,035		—		—

Level 2 inputs:
Investment securities available for sale	189,028		189,028		253,633		253,633
Investment in Federal Home Loan Bank stock	2,103		2,103		2,115		2,115
Accrued interest receivable	4,787		4,787		4,385		4,385
Interest rate swaps	1,161		1,161		261		261

Level 3 inputs:
Loans and loans held for sale¹	1,038,643			$1,006,152	999,445		1,001,346
Purchased receivables, net	12,706		12,706		22,231		22,231
Interest rate lock commitments	1,117		1,117		873		873
Mortgage servicing rights	9,695		9,695		7,305		7,305

Financial liabilities:
Level 2 inputs:
Deposits		$1,233,268		$1,231,850		$1,258,283		$1,257,670
Securities sold under repurchase agreements	32,429		32,429		27,746		27,746
Borrowings	7,282		6,901		7,362		7,308
Accrued interest payable	125		125		24		24
Interest rate swaps	122		122		77		77
Retail interest rate contracts	—		—		—		—
Level 3 inputs:
Junior subordinated debentures	10,310		10,001		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 September 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)
September 30, 2018
Assets:
Available for sale securities
U.S. Treasury and government sponsored entities		$205,832		$54,452		$151,380		$—
Municipal securities	11,843		—		11,843		—
Corporate bonds	40,516		20,713		19,803		—
Collateralized loan obligations	6,002		—		6,002		—
Total available for sale securities		$264,193		$75,165		$189,028		$—
Marketable equity securities		$6,035		$6,035		$—		$—
Total marketable equity securities		$6,035		$6,035		$—		$—
Interest rate swaps		$1,161		$—		$1,161		$—
Interest rate lock commitments	1,117		—		—		1,117
Mortgage servicing rights	9,695		—		—		9,695
Total other assets		$11,973		$—		$1,161		$10,812
Liabilities:
Interest rate swaps		$122		$—		$122		$—
Total other liabilities		$122		$—		$122		$—
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		$—
Marketable equity securities		$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 nine-month periods ended September 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 September 30, 2018
Interest rate lock commitments		$1,417		($560	)		$4,641		($4,381	)		$1,117		$1,117
Mortgage servicing rights	8,733		(128		)	1,090		—			9,695		—
Total		$10,150		($688	)		$5,731		($4,381	)		$10,812		$1,117
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



(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, 2018
Interest rate lock commitments		$873		($1,562	)		$14,125		($12,319	)		$1,117		$1,117
Mortgage servicing rights	7,305		(272		)	2,662		—			9,695		—
Total		$8,178		($1,834	)		$16,787		($12,319	)		$10,812		$1,117
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

Fair Value, Assets Measured on Nonrecurring Basis

As of and for the periods ending September 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)
September 30, 2018
Loans measured for impairment		$1,680		$—		$226		$1,454
Other assets - equity method investment	743		—		—		743
Total		$2,423		$—		$226		$2,197
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 nine-month periods ended September 30, 2018 and 2017:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2018		2017		2018			2017
Loans measured for impairment		$299		$1,120		($594	)		$900
Other real estate owned	—		74		—			340
Other operating expense - impairment of equity method investment	804		—		804			—
Total loss from nonrecurring measurements		$1,103		$1,194		$210			$1,240

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, 2018 and December 31, 2017:



Financial Instrument	Valuation Technique	Unobservable Input	Weighted Average Rate Range
September 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	93.53	%
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	8.20% - 10.34%
		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%