Note 17 Fair Value of Financial Instruments

The fair value of a financial instrument is the amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is determined based upon quoted market prices to the extent possible; however, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques that may be significantly impacted by the assumptions used, including the discount rate and estimates of future cash flows. Changes in any of these assumptions could significantly affect the fair value estimates. The fair value of the financial instruments listed below does not reflect a premium or discount that could result from offering all of the Company’s holdings of financial instruments at one time, nor does it reflect the underlying value of the Company, as ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. The fair value of financial instruments at June 30, 2017 and December 31, 2016, including methods and assumptions utilized for determining fair value of financial instruments, are set forth below:


	Level in fair value	June 30, 2017				December 31, 2016
	measurement	Carrying		Estimated		Carrying		Estimated
	hierarchy	amount		fair value		amount		fair value
ASSETS
Cash and cash equivalents	Level 1	$	129,827	$	129,827	$	152,736	$	152,736
Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises available-for-sale	Level 2		195,341		195,341		227,160		227,160
Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises available-for-sale	Level 2		668,631		668,631		652,739		652,739
Municipal securities	Level 2		2,058		2,058		3,648		3,648
Municipal securities	Level 3		265		265		265		265
Other available-for-sale securities	Level 3		419		419		419		419
Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises held-to-maturity	Level 2		233,026		234,194		263,411		264,862
Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises held-to-maturity	Level 2		61,865		60,675		69,094		67,711
Non-marketable securities	Level 2		18,468		18,468		14,949		14,949
Loans receivable	Level 3		3,087,945		3,096,298		2,860,921		2,879,860
Loans held-for-sale	Level 2		7,067		7,067		24,187		24,187
Accrued interest receivable	Level 2		13,294		13,294		12,562		12,562
Interest rate swap derivatives	Level 2		10,694		10,694		11,428		11,428
Mortgage banking derivatives	Level 3		157		157		287		287
LIABILITIES
Deposit transaction accounts	Level 2		2,730,976		2,730,976		2,696,603		2,696,603
Time deposits	Level 2		1,126,481		1,126,481		1,172,046		1,172,046
Securities sold under agreements to repurchase	Level 2		119,213		119,213		92,011		92,011
Federal Home Loan Bank advances	Level 2		129,115		130,642		38,665		39,324
Accrued interest payable	Level 2		5,098		5,098		4,973		4,973
Interest rate swap derivatives	Level 2		4,729		4,729		3,279		3,279
Mortgage banking derivatives	Level 3		26		26		187		187

Cash and cash equivalents

Cash and cash equivalents have a short-term nature and the estimated fair value is equal to the carrying value.

Investment securities

The estimated fair value of investment securities is based on quoted market prices or bid quotations received from securities dealers. Other investment securities, including securities that are held for regulatory purposes are carried at cost, less any other- than-temporary impairment.

Loans receivable

The estimated fair value of the loan portfolio is estimated using a discounted cash flow analysis using a discount rate based on interest rates offered at the respective measurement dates for loans with similar terms to borrowers of similar credit quality. The allowance for loan losses is considered a reasonable estimate of any required adjustment to fair value to reflect the impact of credit risk. The estimates of fair value do not incorporate the exit-price concept prescribed by ASC Topic 820, Fair Value Measurements and Disclosures.

Loans held-for-sale

Loans held-for-sale are carried at the lower of aggregate cost or estimated fair value. The portfolio consists primarily of fixed rate residential mortgage loans that are sold within 45 days. The estimated fair value is based on quoted market prices for similar loans in the secondary market and is classified as level 2.

Accrued interest receivable

Accrued interest receivable has a short-term nature and the estimated fair value is equal to the carrying value.

Deposits

The estimated fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, NOW accounts, and money market accounts, is equal to the amount payable on demand. The fair value of interest-bearing time deposits is based on the discounted value of contractual cash flows of such deposits, taking into account the option for early withdrawal. The discount rate is estimated using the rates offered by the Company, at the respective measurement dates, for deposits of similar remaining maturities. The fair value of time deposits has a floor equal to the carrying value as the amount payable on demand would approximate the carrying value.

Derivative assets and liabilities

Fair values for derivative assets and liabilities are fully described in note 16 of the consolidated financial statements.

Securities sold under agreements to repurchase

The vast majority of the Company’s repurchase agreements are overnight transactions that mature the day after the transaction, and as a result of this short-term nature, the estimated fair value is equal to the carrying value.

Accrued interest payable

Accrued interest payable has a short-term nature and the estimated fair value is equal to the carrying value.