Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2020

Fair value of assets and liabilities

The following table represents recurring level III assets:


(Dollars in thousands)	Interest Rate Lock Commitments		Municipal Securities		Equity Securities		Total
Balance at December 31, 2019	$	1,660	$	37,259	$	—	$	38,919
Realized and unrealized gains included in earnings	5,678		—		—		5,678
Purchase of securities	—		20,780		—		20,780
Unrealized gain included in other comprehensive income (loss)	—		1,645		—		1,645
Unrealized loss included in other comprehensive income (loss)	—		(19,227)		—		(19,227)
Balance at June 30, 2020	$	7,338	$	40,457	$	—	$	47,795

Balance at March 31, 2020	$	5,791	$	36,626	$	—	$	42,417
Realized and unrealized gains included in earnings	1,547		—		—		1,547
Purchase of securities	—		20,258		—		20,258
Unrealized gain included in other comprehensive income (loss)	—		1,366		—		1,366
Unrealized loss included in other comprehensive income (loss)	—		(17,793)		—		(17,793)
Balance at June 30, 2020	$	7,338	$	40,457	$	—	$	47,795

Balance at December 31, 2018	$	1,750	$	33,122	$	300	$	35,172
Realized and unrealized gains included in earnings	791		—		—		791
Purchase of securities	—		109		1,250		1,359
Unrealized gain included in other comprehensive income (loss)	—		6,915		—		6,915
Unrealized loss included in other comprehensive income (loss)	—		(9,609)		—		(9,609)
Balance at June 30, 2019	$	2,541	$	30,537	$	1,550	$	34,628

Balance at March 31, 2019	$	2,256	$	36,801	$	750	$	39,807
Realized and unrealized losses included in earnings	285		—		—		285
Purchase of securities	—		109		800		909
Unrealized gain included in other comprehensive income (loss)	—		2,160		—		2,160
Unrealized loss included in other comprehensive income (loss)	—		(8,424)		—		(8,424)
Balance at June 30, 2019	$	2,541	$	30,537	$	1,550	$	34,628

Quantitative Information About the Level III Significant Unobservable Inputs for Assets and Liabilities Measured at Fair Value on Nonrecurring Basis

The following tables presents quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value at June 30, 2020 and December 31, 2019.

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

June 30, 2020

Nonrecurring measurements:

Impaired loans

16,201

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 62%

Liquidation expense ²

5% - 10%

Other real estate owned

8,907

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 30%

Liquidation expense ²

5% - 10%

Equity securities

19,081

Net asset value

Cost minus impairment

Recurring measurements:

Municipal securities (Local TIF bonds)

40,457

Appraisal of bond ³

Bond appraisal adjustment ⁴

5% - 15%

Interest rate lock commitments

7,338

Pricing model

Pull through rates

76% - 84%

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

December 31, 2019

Nonrecurring measurements:

Impaired loans

8,909

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 62%

Liquidation expense ²

5% - 10%

Other real estate owned

1,397

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 30%

Liquidation expense ²

5% - 10%

Equity securities

18,514

Net asset value

Cost minus impairment

Recurring measurements:

Municipal securities (Local TIF bonds)

37,259

Appraisal of bond ³

Bond appraisal adjustment ⁴

5% - 15%

Interest rate lock commitments

1,660

Pricing model

Pull through rates

77% - 82%

¹ Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable.

² Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

³ Fair value determined through independent analysis of liquidity, rating, yield and duration.

⁴ Appraisals may be adjusted for qualitative factors such as local economic conditions.

Carrying Values and Estimated Fair Values of Financial Instruments

The carrying values and estimated fair values of the Company’s financial instruments are summarized as follows:

Fair Value Measurements at:


(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)
June 30, 2020
Financial assets:
Cash and cash equivalents	$	78,854	$	78,854	$	78,854	$	—	$	—
Certificates of deposits with other banks	13,046		13,387		—		13,387		—
Securities available-for-sale	220,699		220,699		—		180,242		40,457
Equity securities	19,464		19,464		383		—		19,081
Loans held for sale	242,089		242,089		—		242,089		—
Loans, net	1,476,930		1,502,388		—		—		1,502,388
Mortgage servicing rights	3,331		3,331		—		—		3,331
Interest rate lock commitment	7,338		7,338		—		—		7,338

Interest rate swap	16,514		16,514		—		16,514		—

Accrued interest receivable	8,900		8,900		—		1,515		7,385
Bank-owned life insurance	35,818		35,818		—		35,818		—

Financial liabilities:
Deposits	$	1,863,963	$	1,892,397	$	—	$	1,892,397	$	—
Repurchase agreements	9,815		9,815		—		9,815		—
FHLB and other borrowings	36,610		37,336		—		37,336		—
Mortgage-backed security hedges	858		858		—		858		—
Interest rate swap	16,514		16,514		—		16,514		—
Fair value hedge	2,659		2,659		—		2,659		—
Accrued interest payable	622		622		—		622		—
Subordinated debt	4,124		4,124		—		4,124		—

December 31, 2019
Financial assets:
Cash and cash equivalents	$	28,002	$	28,002	$	28,002	$	—	$	—
Certificates of deposits with other banks	12,549		12,586		—		12,586		—
Securities available-for-sale	235,821		235,821		—		198,562		37,259
Equity securities	18,514		18,514		—		—		18,514
Loans held for sale	109,788		109,788		—		109,788		—
Loans, net	1,362,766		1,364,706		—		—		1,364,706
Mortgage servicing rights	348		348		—		—		348
Interest rate lock commitment	1,660		1,660		—		—		1,660
Interest rate swap	5,722		5,722		—		5,722		—
Fair value hedge	1,770		1,770		—		1,770
Accrued interest receivable	7,909		7,909		—		1,591		6,317
Bank-owned life insurance	35,374		35,374		—		35,374		—

Financial liabilities:
Deposits	$	1,265,042	$	1,249,135	$	—	$	1,249,135	$	—
Repurchase agreements	10,172		10,172		—		10,172		—
FHLB and other borrowings	222,885		222,891		—		222,891		—
Mortgage-backed security hedges	186		186		—		186		—
Interest rate swap	5,722		5,722		—		5,722		—
Fair value hedge	1,418		1,418		—		1,418		—
Accrued interest payable	1,060		1,060		—		1,060		—
Subordinated debt	4,124		4,124		—		4,124		—

Recurring

Fair value of assets and liabilities

Financial Assets and Liabilities Measured at Fair Value

The following tables present the assets reported on the consolidated statements of financial condition at their fair value on a recurring basis as of June 30, 2020 and December 31, 2019 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


	June 30, 2020
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
U.S. Government Agency securities	$	—	$	41,980	$	—	$	41,980
U.S. Sponsored Mortgage backed securities	—		34,274		—		34,274
Municipal securities	—		89,748		40,457		130,205
Other securities	—		14,240		—		14,240
Equity securities	383		—		—		383
Loans held for sale	—		242,089		—		242,089
Interest rate lock commitment	—		—		7,338		7,338
Interest rate swap	—		16,514		—		16,514
Fair value hedge	—		2,430		—		2,430
Bank-owned life insurance	—		35,818		—		35,818
Liabilities:
Interest rate swap	—		16,514		—		16,514
Fair value hedge	—		2,659		—		2,659
Mortgage-backed security hedges	—		858		—		858


	December 31, 2019
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
U.S. Government Agency securities	$	—	$	51,996	$	—	$	51,996
U.S. Sponsored Mortgage backed securities	—		58,312		—		58,312
Municipal securities	—		75,833		37,259		113,092
Other securities	—		12,421		—		12,421
Loans held for sale	—		109,788		—		109,788
Interest rate lock commitment	—		—		1,660		1,660
Interest rate swap	—		5,722		—		5,722
Fair value hedge	—		1,770		—		1,770
Bank-owned life insurance	—		35,374		—		35,374
Liabilities:
Interest rate swap	—		5,722		—		5,722
Fair value hedge	—		1,418		—		1,418
Mortgage-backed security hedges	—		186		—		186

Non-recurring

Fair value of assets and liabilities

Financial Assets and Liabilities Measured at Fair Value

Assets measured at fair value on a nonrecurring basis as of June 30, 2020 and December 31, 2019 are included in the table below:


	June 30, 2020
(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	$	—	$	—	$	16,201	$	16,201
Other real estate owned	—		—		8,907		8,907
Equity securities	—		—		19,081		19,081


	December 31, 2019
(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	$	—	$	—	$	8,909	$	8,909
Other real estate owned	—		—		1,397		1,397
Equity securities	—		—		18,514		18,514