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, 2012 and December 31, 2011:



	September 30, 2012
	Carrying amount		Estimated fair value		Level 1		Level 2		Level 3
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	123,222	$	123,222	$	123,222	$	—	$	—
Investment securities	310,556		310,556		1,112		309,444		—
Loans and loans held-for-sale, net	1,356,403		1,228,930		—		—		1,228,930
Accrued interest receivable	6,229		6,229		—		6,229		—
Federal Home Loan Bank stock	4,155		4,155		4,155		—		—
Forward sales commitments	1,008		1,008		—		1,008		—
Interest rate swap agreements	213		213		—		—		213
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	862,622		858,491		—		858,491		—
Time deposits	788,838		800,977		—		800,977		—
Borrowed funds	102,299		103,270		—		103,270		—
Accrued interest payable	1,746		1,746		—		1,746		—
Interest rate swap agreements	213		213		—		—		213
Interest rate lock commitments	491		491		—		—		491



	December 31, 2011
	Carrying amount		Estimated fair value		Level 1		Level 2		Level 3
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	92,918	$	92,918	$	92,918	$	—	$	—
Investment securities	330,422		330,422		1,084		329,338		—
Loans and loans held-for-sale, net	1,437,610		1,365,586		—		—		1,365,586
Accrued interest receivable	6,745		6,745		—		6,745		—
Federal Home Loan Bank stock	6,130		6,130		6,130		—		—
Forward sales commitments	57		57		—		57		—
Interest rate swap agreements	216		216		—		—		216
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	855,455		855,455		—		855,455		—
Time deposits	875,886		885,903		—		885,903		—
Borrowed funds	105,539		106,923		—		106,923		—
Accrued interest payable	2,619		2,619		—		2,619		—
Interest rate swap agreements	216		216		—		—		216
Interest rate lock commitments	130		130		—		—		130

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 10.0%.

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

The fair value of demand deposits and savings accounts is the amount payable on demand at September 30, 2012 and December 31, 2011, 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.