Financial Instruments

The following is a summary of the carrying amounts and fair values of the Company's financial assets and liabilities at September 30, 2011 and December 31, 2009:



	September 30, 2011				December 31, 2010
	Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	168,917	$	168,917	$	229,780	$	229,780
Investment securities	293,078		293,078		298,002		298,002
Loans and loans held-for-sale, net	1,453,728		1,383,696		1,613,206		1,541,071
Accrued interest receivable	6,447		6,447		7,947		7,947
Federal Home Loan Bank stock	7,005		7,005		9,416		9,416
Investment in Bank owned life insurance	25,769		25,769		25,278		25,278
Interest rate swap agreements	228		228		159		159
Interest rate lock commitments	330		330		105		105
Forward sales commitments	—		—		161		161
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	843,751		843,846		805,951		805,951
Time deposits	940,361		949,250		1,214,455		1,227,628
Borrowed funds	108,309		108,997		116,768		117,741
Accrued interest payable	2,681		2,681		3,302		3,302
Interest rate swap agreements	228		228		159		159
Forward sales commitments	121		121		—		—

The carrying amounts of cash and cash equivalents approximate their fair value.

The fair value of marketable securities is based on quoted market prices, prices quoted for similar instruments, and prices obtained from independent pricing services.

For certain categories of loans, such as installment and commercial loans, the fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The cost of fixed rate mortgage loans held‑for‑sale approximates the lower of cost or market as these loans are typically sold within 60 days of origination. Fair values for adjustable-rate mortgages are based on quoted market prices of similar loans adjusted for differences in loan characteristics. The Company applied an additional illiquidity discount in the amount of 5.0%.

The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB stock.

The investment in bank-owned life insurance represents the cash value of the policies at September 30, 2011 and December 31, 2010. The rates are adjusted annually thereby minimizing market fluctuations.

The fair value of demand deposits and savings accounts is the amount payable on demand at September 30, 2011 and December 31, 2010, respectively. The fair value of fixed‑maturity certificates of deposit and individual retirement accounts is estimated using the present value of the projected cash flows using rates currently offered for similar deposits with similar maturities.

The fair values of borrowings are based on discounting expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements. The carrying values of short-term borrowings, including overnight, securities sold under agreements to repurchase, federal funds purchased and FHLB advances, approximates the fair values due to the short maturities of those instruments. The Company's credit risk is not material to calculation of fair value because these borrowings are collateralized.

The carrying values of accrued interest receivable and accrued interest payable approximates fair values due to the short-term duration.

Interest rate swaps are recorded at fair value on a recurring basis. Fair value measurement is based on discounted cash flow models. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date.

Interest rate locks and forward loan sale commitments are recorded at fair value on a recurring basis. The fair value of forward sales commitments is based on changes in loan pricing between the commitment date and period end, typically month end. The fair value of interest rate lock commitments is based on servicing release premium, origination income net of origination costs, and changes in loan pricing between the commitment date and period end, typically month end.