Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 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	(1,660)		3		—		(1,657)
Purchase of securities	—		21,147		—		21,147
Maturities/calls	—		(15,574)		—		(15,574)
Unrealized gain included in other comprehensive income (loss)	—		5,872		—		5,872
Unrealized loss included in other comprehensive income (loss)	—		(6,599)		—		(6,599)
Balance at September 30, 2020	$	—	$	42,108	$	—	$	42,108

Balance at June 30, 2020	$	7,338	$	40,457	$	—	$	47,795
Realized and unrealized gains included in earnings	(7,338)		—		—		(7,338)
Purchase of securities	—		368		—		368
Maturities/calls	—		(61)		—		(61)
Unrealized gain included in other comprehensive income (loss)	—		1,810		—		1,810
Unrealized loss included in other comprehensive income (loss)	—		(466)		—		(466)
Balance at September 30, 2020	$	—	$	42,108	$	—	$	42,108

Balance at December 31, 2018	$	1,750	$	33,122	$	300	$	35,172
Realized and unrealized gains included in earnings	565		—		—		565
Purchase of securities	—		682		1,300		1,982
Unrealized gain included in other comprehensive income (loss)	—		10,707		16,814		27,521
Unrealized loss included in other comprehensive income (loss)	—		(9,062)		—		(9,062)
Balance at September 30, 2019	$	2,315	$	35,449	$	18,414	$	56,178

Balance at June 30, 2019	$	2,541	$	30,537	$	1,550	$	34,628
Realized and unrealized losses included in earnings	(226)		—		—		(226)
Purchase of securities	—		573		50		623
Unrealized gain included in other comprehensive income (loss)	—		4,339		16,814		21,153
Unrealized loss included in other comprehensive income (loss)	—		—		—		—
Balance at September 30, 2019	$	2,315	$	35,449	$	18,414	$	56,178

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 September 30, 2020 and December 31, 2019.

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

September 30, 2020

Nonrecurring measurements:

Impaired loans

15,518

Appraisal of collateral 1

Appraisal adjustments 2

20% - 62%

Liquidation expense 2

5% - 10%

Other real estate owned

6,409

Appraisal of collateral 1

Appraisal adjustments 2

20% - 30%

Liquidation expense 2

5% - 10%

Other debt securities

7,500

Net asset value

Cost minus impairment

—%

Equity securities

24,020

Net asset value

Cost minus impairment

—%

Recurring measurements:

Municipal securities (Local TIF bonds)

42,108

Appraisal of bond 3

Bond appraisal adjustment 4

5% - 15%

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)
September 30, 2020
Financial assets:
Cash and cash equivalents	$	295,823	$	295,823	$	295,823	$	—	$	—
Certificates of deposits with other banks	12,301		12,592		—		12,592		—
Securities available-for-sale	297,964		297,964		—		248,356		49,608
Equity securities	24,164		24,164		144		—		24,020
Loans held for sale	2,271		2,271		—		2,271		—
Loans, net	1,402,680		1,422,972		—		—		1,422,972
Mortgage servicing rights	3,136		3,136		—		—		3,136


Interest rate swap	15,735		15,735		—		15,735		—

Accrued interest receivable	7,460		7,460		—		2,084		5,376
Bank-owned life insurance	36,037		36,037		—		36,037		—

Financial liabilities:
Deposits	$	1,898,957	$	1,972,480	$	—	$	1,972,480	$	—
Repurchase agreements	10,045		10,045		—		10,045		—
FHLB and other borrowings	25,800		26,523		—		26,523		—

Interest rate swap	15,735		15,735		—		15,735		—
Fair value hedge	2,441		2,441		—		2,441		—
Accrued interest payable	417		417		—		417		—
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 September 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.


	September 30, 2020
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
U.S. agency securities	$	—	$	53,382	$	—	$	53,382
U.S. sponsored mortgage-backed securities	—		68,097		—		68,097
Municipal securities	—		111,236		42,108		153,344
Other debt securities	—		—		7,500		7,500
Other securities	—		15,641		—		15,641
Equity securities	144		—		—		144
Loans held for sale	—		2,271		—		2,271

Interest rate swap	—		15,735		—		15,735
Fair value hedge	—		2,272		—		2,272
Bank-owned life insurance	—		36,037		—		36,037
Liabilities:
Interest rate swap	—		15,735		—		15,735
Fair value hedge	—		2,441		—		2,441


	December 31, 2019
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
U.S. 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

The fair value of these assets as of September 30, 2020 and December 31, 2019 are included in the table below:


	September 30, 2020
(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	$	—	$	—	$	15,518	$	15,518
Other real estate owned	—		—		6,409		6,409
Other debt securities	—		—		7,500		7,500
Equity securities	—		—		24,020		24,020


	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