Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2017

Financial Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis

Assets and liabilities measured at fair value under FASB ASC 820-10 on a recurring and non-recurring basis, including financial assets and liabilities for which the Corporation has elected the fair value option as of September 30, 2017 and December 31, 2016 are summarized below:



(In Thousands)	September 30, 2017
Description	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets - Recurring
Available-for-sale investment securities
U.S. Government agencies	$	26,059	$	—	$	26,059	$	—
Municipals	101,409		—		101,409		—
Mortgage backed securities	246,915		—		246,915		—
Asset backed securities	8,723		—		4,402		4,321
Corporate bonds	8,551		—		8,551		—
Certificates of deposit	1,993		—		1,993		—
CRA mutual fund	1,390		—		1,390		—
Total available-for-sale investment securities	395,040		—		390,719		4,321

Residential loans held for sale	26,234		—		26,234		—
Derivative assets	487		—		51		436
Total Financial Assets - Recurring	$	421,761	$	—	$	417,004	$	4,757

Financial Liabilities - Recurring
Derivative liabilities	$	71	$	—	$	44	$	27

Financial Assets - Non-Recurring
OREO	$	1,980	$	—	$	—	$	1,980
Impaired loans ⁽¹⁾	$	5,837	$	—	$	—	$	5,837


(1)	Represents the carrying value of loans for which adjustments are based on the appraised value of the collateral, if collateral dependent, or the present value of expected future cash flows, discounted at the loan's effective interest rate.



(In Thousands)	December 31, 2016
Description	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets - Recurring
Available-for-sale investment securities
U.S. Government agencies	$	4,994	$	—	$	4,994	$	—
Municipals	44,359		—		44,359		—
Mortgage backed securities	119,807		—		119,807		—
Asset backed securities	12,864		—		8,364		4,500
Corporate bonds	8,666		—		8,666		—
Certificate of deposit	2,009		—		2,009		—
CRA mutual fund	1,391		—		1,391		—
Total available-for-sale investment securities	194,090		—		189,590		4,500

Residential loans held for sale	35,676		—		35,676		—
Derivative assets	993		—		—		993
Total Financial Assets - Recurring	$	230,759	$	—	$	225,266	$	5,493

Financial Liabilities - Recurring
Derivative liabilities	$	325	$	—	$	—	$	325

Financial Assets - Non-Recurring
Impaired loans (1)	$	6,922	$	—	$	—	$	6,922


(1)	Represents the carrying value of loans for which adjustments are based on the appraised value of the collateral, if collateral dependent, or the present value of expected future cash flows, discounted at the loan's effective interest rate.

Changes in Level 3 Assets and Liabilities Measured at Fair Value

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows for the three month periods ended September 30, 2017 and 2016:



	Net Derivatives			Securities Available-for-Sale		Total
	(In Thousands)

Balance, beginning of period	$	606		$	4,226	$	4,832
Realized and unrealized gains (losses) included in earnings	(197		)	—		(197		)
Unrealized gains (losses) included in other comprehensive income	—			95		95
Purchases, settlements, paydowns, and maturities	—			—		—
Transfer into Level 3	—			—		—
Balance, September 30, 2017	$	409		$	4,321	$	4,730

	Net Derivatives			Securities Available-for-Sale		Total
	(In Thousands)

Balance, beginning of period	$	287		$	—	$	287
Realized and unrealized gains (losses) included in earnings	75			—		75
Unrealized gains (losses) included in other comprehensive income	—			—		—
Purchases, settlements, paydowns, and maturities	—			—		—
Transfer into Level 3	—			—		—
Balance, September 30, 2016	$	362		$	—	$	362

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows for the nine month periods ended September 30, 2017 and 2016:



	Net Derivatives			Securities Available-for-Sale			Total
	(In Thousands)

Balance, January 1, 2017	$	668		$	4,500		$	5,168
Realized and unrealized gains (losses) included in earnings	(259		)	—			(259		)
Unrealized gains (losses) included in other comprehensive income	—			(179		)	(179		)
Purchases, settlements, paydowns, and maturities	—			—			—
Transfer into Level 3	—			—			—
Balance, September 30, 2017	$	409		$	4,321		$	4,730

	Net Derivatives			Securities Available-for-Sale			Total
	(In Thousands)

Balance, January 1, 2016	$	273		$	—		$	273
Realized and unrealized gains (losses) included in earnings	89			—			89
Unrealized gains (losses) included in other comprehensive income	—			—			—
Purchases, settlements, paydowns, and maturities	—			—			—
Transfer into Level 3	—			—			—
Balance, September 30, 2016	$	362		$	—		$	362

Quantitative Information about Level 3 Fair Value Measurements

The following tables present quantitative information as of September 30, 2017 and December 31, 2016 about Level 3 fair value measurements for assets measured at fair value:



	September 30, 2017
Description	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
	(In Thousands)
Financial Assets - Recurring
Asset backed securities	$	4,321	Valuation service	Discounted cash flows	3% - 6% (5%)
Derivative assets	436		Market pricing (3)	Estimated pullthrough	75% - 90% (85.5%)
Derivative liabilities	27		Market pricing (3)	Estimated pullthrough	75% - 90% (85.5%)

Financial Assets - Non-recurring
Impaired loans - Real estate secured	$	598	Appraisal of collateral (1)	Liquidation expenses (2)	0% - 20% (10%)
Impaired loans - Non-real estate secured	$	5,239	Cash flow basis	Liquidation expenses (2)	0% - 20% (10%)
Other real estate owned	$	1,980	Appraisal of collateral (1)	Discounts to reflect current market conditions and estimated selling costs	10%


(1)	Fair value is generally determined through independent appraisals of the underlying collateral on real estate secured loans, which generally include various Level 3 inputs which are not identifiable.


(2)	Valuations of impaired loans may be adjusted by management for qualitative factors such as liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percent of the appraisal.


(3)	Market pricing on derivative assets and liabilities is adjusted by management for the anticipated percent of derivative assets and liabilities that will create a realized gain or loss. The range and weighted average of estimated pull-through is presented.



	December 31, 2016
Description	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
	(In Thousands)
Financial Assets - Recurring
Asset backed securities	$	4,500	Valuation service	Discounted cash flows	3% - 6% (5%)
Derivative assets	$	993	Market pricing (3)	Estimated pullthrough	75% - 90% (89.0%)
Derivative liabilities	$	325	Market pricing (3)	Estimated pullthrough	75% - 90% (89.0%)

Financial Assets - Non-recurring
Impaired loans - Real estate secured	$	1,371	Appraisal of collateral (1)	Liquidation expenses (2)	0% - 20% (10%)
Impaired loans - Non-real estate secured	$	5,551	Cash flow basis	Liquidation expenses (2)	0% - 20% (5%)


(1)	Fair value is generally determined through independent appraisals of the underlying collateral on real estate secured loans, which generally include various Level 3 inputs which are not identifiable.


(2)	Valuations of impaired loans may be adjusted by management for qualitative factors such as liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percent of the appraisal.


(3)	Market pricing on derivative assets and liabilities is adjusted by management for the anticipated percent of derivative assets and liabilities that will create a realized gain or loss. The range and weighted average of estimated pull-through is presented.

Difference Between Fair Value and Carrying Amount of Residential Mortgage Loans Held for Sale

The following tables reflect the difference between the fair value carrying amount of residential mortgage loans held for sale, measured at fair value under FASB ASC 825-10, and the aggregate unpaid principal amount the Corporation is contractually entitled to receive at maturity.



	September 30, 2017
(In Thousands)	Aggregate Fair Value		Difference		Contractual Principal
Residential mortgage loans held for sale	$	26,234	$	985	$	25,249



	December 31, 2016
(In Thousands)	Aggregate Fair Value		Difference		Contractual Principal
Residential mortgage loans held for sale	$	35,676	$	1,004	$	34,672

Estimated Fair Values and Related Carrying Amounts of Financial Instruments

The estimated fair values, and related carrying amounts, of the Corporation's financial instruments are as follows:



	September 30, 2017				December 31, 2016

	Carrying Amount		Total Fair Value		Carrying Amount		Total Fair Value
	(In Thousands)
Financial assets:
Cash and short-term investments	$	129,933	$	129,933	$	91,059	$	91,059
Securities held-to-maturity	15,778		16,416		9,200		9,293
Securities available-for-sale	395,040		395,040		194,090		194,090
Restricted stock	14,447		14,447		10,092		10,092
Loans, net	1,953,968		1,992,323		1,069,366		1,080,820
Derivatives	487		487		993		993
Total financial assets	$	2,509,653	$	2,548,646	$	1,374,800	$	1,386,347

Financial liabilities:
Deposits	$	2,286,212	$	2,252,241	$	1,054,327	$	1,040,402
Short-term borrowings	79,527		79,336		186,009		185,910
Long-term borrowings	60,000		59,491		60,000		59,954
Trust preferred debentures	3,863		3,689		—		—
Derivatives	71		71		325		325
Total financial liabilities	$	2,429,673	$	2,394,828	$	1,300,661	$	1,286,591

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) the reasons for electing a fair value option for each eligible item or group of similar eligible items and (b) if the fair value option is elected for some but not all eligible items within a group of similar eligible items: (i) a description of those similar items and the reasons for partial election and (ii) information of how the group of similar items relates to individual balance sheet line items; (c) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, information of how each line item in the statement of financial position relates to major categories of assets and liabilities presented in accordance with other fair value disclosures; (2) for items included in the income statement: (a) a description of how interest and dividends are measured and where they are reported in the income statement; (b) how the gains or losses attributable to changes in instrument-specific credit risk were determined; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk: (i) qualitative information about the reasons for the changes and (ii) how the gains and losses attributable to changes in instrument-specific credit risk were determined; and (3) certain other disclosures as required or determined to be provided.

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