FAIR VALUE MEASUREMENTS

Determination of fair value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.

Assets and liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:



	Level 1		Level 2		Level 3		Total Fair Value
	(In thousands)
March 31, 2018
Assets
Equity securities, at fair value	$	9,651	$	—	$	—	$	9,651
Derivative assets:
Interest rate swap agreements	—		13,350		—		13,350
Forward loan sale commitments-best efforts	—		—		30		30
Mortgage loan commitments-best efforts	—		—		206		206
Mortgage loan commitments-mandatory delivery	—		—		171		171
Total assets	$	9,651	$	13,350	$	407	$	23,408
Liabilities
Derivative liabilities:
Interest rate swap agreements	$	—	$	13,338	$	—	$	13,338
Forward loan sale commitments best efforts	—		—		66		66
Forward loan sale commitments mandatory delivery	—		—		55		55
Mortgage loan commitments best efforts	—		—		16		16
Total liabilities	$	—	$	13,338	$	137	$	13,475

December 31, 2017
Assets
Securities available for sale:
Marketable equity securities	9,720		—		—		9,720
Derivative assets:
Interest rate swap agreements	—		8,766		—		8,766
Forward loan sale commitments-best efforts	—		—		22		22
Mortgage loan commitments-best efforts	—		—		210		210
Total assets	$	9,720	$	8,766	$	232	$	18,718
Liabilities
Derivative liabilities:
Interest rate swap agreements	$	—	$	8,785	$	—	$	8,785
Forward loan sale commitments-best efforts	—		—		69		69
Mortgage loan commitments-best efforts	—		—		36		36
Total liabilities	$	—	$	8,785	$	105	$	8,890

The following methods and assumptions were used by the Company in estimating fair value:

Securities: All fair value measurements are obtained from a third-party pricing service and are not adjusted by management. The securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. These securities include U.S. Treasury securities and marketable equity securities. All other securities are measured at fair value in Level 2 based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

Interest rate swap agreements: The fair values of interest rate swap agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rates and also include the value associated with counterparty credit risk. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position.

Forward loan sale commitments and derivative loan commitments: Fair values of forward loan sale commitments and derivative loan commitments are based on changes in the fair values of the underlying mortgage loans from inception and, for derivative loan commitments, fair values also include the value of servicing, deferred origination fees/costs and the probability of such commitments being exercised. Significant management judgment and estimation is required in determining these fair value measurements.

Assets measured at fair value on a non-recurring basis

The Company may also be required, from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. There are no liabilities measured at fair value on a non-recurring basis. The following table summarizes the fair value hierarchy applicable to assets measured at fair value on a non-recurring basis:



	March 31, 2018						December 31, 2017
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	—	$	—	$	2,108	$	—	$	—	$	2,214

The following table summarizes the total gains (losses) on assets measured at fair value on a non-recurring basis for the three months ended March 31, 2018 and 2017.



	Three Months Ended March 31,
	2018			2017
	(In thousands)
Impaired loans	$	(194	)	$	77

Gains and losses applicable to impaired loans are based on the appraised value of the underlying collateral, discounted as necessary due to management’s estimates of changes in market conditions. The gains and losses applicable to impaired loans are not recorded as a direct adjustment to current earnings or comprehensive income, but rather as a component in determining the overall adequacy of the allowance for loan losses. Adjustments to the estimated fair value of impaired loans may result in increases or decreases to the provision for loan losses.

Summary of fair values of financial instruments

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein do not represent the underlying fair value of the Company.



	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
March 31, 2018
Financial assets:
Cash and cash equivalents	$	45,072	$	45,072	$	—	$	—	$	45,072
Equity securities at fair value	9,651		9,651		—		—		9,651
Securities held to maturity	304,036		—		295,472		—		295,472
Federal Home Loan Bank stock	10,730		—		—		10,730		10,730
Loans and loans held for sale, net	2,190,155		—		—		2,165,575		2,165,575
Accrued interest receivable	6,120		—		—		6,120		6,120
Financial liabilities:									—
Deposits	2,077,838		—		—		2,071,733		2,071,733
Borrowings	170,000		—		168,656		—		168,656
On-balance sheet derivative financial instruments:
Derivative assets:
Interest rate swap agreements	13,350		—		13,350		—		13,350
Forward loan sale commitments-best efforts	30		—		—		30		30
Mortgage loan commitments-best efforts	206		—		—		206		206
Mortgage loan commitments-mandatory delivery	171						171		171
Derivative liabilities:
Interest rate swap agreements	13,338		—		13,338		—		13,338
Forward loan sale commitments-best efforts	66		—		—		66		66
Forward loan sale commitments-mandatory delivery	55		—		—		55		55
Mortgage loan commitments-best efforts	16		—		—		16		16



	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
December 31, 2017
Financial assets:
Cash and cash equivalents	$	46,167	$	46,167	$	—	$	—	$	46,167
Securities available for sale	9,720		9,720		—		—		9,720
Securities held to maturity	303,716		—		299,114		—		299,114
Federal Home Loan Bank stock	12,105		—		—		12,105		12,105
Loans and loans held for sale	2,195,139		—		—		2,174,871		2,174,871
Accrued interest receivable	6,438		—		—		6,438		6,438
Financial liabilities:
Deposits	2,039,869		—		—		2,036,150		2,036,150
Borrowings	205,000		—		203,913		—		203,913
On-balance sheet derivative financial instruments:
Derivative assets:
Interest rate swap agreements	8,766		—		8,766		—		8,766
Forward loan sale commitments-best efforts	22		—		—		22		22
Mortgage loan commitments-best efforts	210		—		—		210		210
Derivative liabilities:
Interest rate swap agreements	8,785		—		8,785		—		8,785
Forward loan sale commitments-best efforts	69		—		—		69		69
Mortgage loan commitments-best efforts	36		—		—		36		36