5.FAIR VALUE

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Bank used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Securities available for sale: Quoted market prices in an active market are available for the Bank’s mutual fund investment and fall within Level 1 of the fair value hierarchy.

Except for the Bank’s mutual fund investment, its private label mortgage backed security and its trust preferred security, the fair value of securities available for sale is typically determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The Bank’s private label mortgage backed security remains illiquid, and as such, the Bank classifies this security as a Level 3 security in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures.” Based on this determination, the Bank utilized an income valuation model (present value model) approach in determining the fair value of this security.

See in this section of the filing under Footnote 3 “Investment Securities” for additional discussion regarding the Bank’s private label mortgage backed security.

The Company’s trust preferred security is also considered highly illiquid and also valued using Level 3 inputs. The Company acquired the security in November 2015 and considered the acquisition price to still approximate market value at December 31, 2015, as there has been no meaningful market activity or events that management believes changed the investment’s value subsequent to acquisition.

Mortgage loans held for sale: The fair value of mortgage loans held for sale is determined using quoted secondary market prices. Mortgage loans held for sale are classified as Level 2 in the fair value hierarchy.

Mortgage Banking derivatives: Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts (“forward contracts”) and interest rate lock loan commitments. The fair value of the Bank’s derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by the Bank. Forward contracts and rate lock loan commitments are classified as Level 2 in the fair value hierarchy.

Interest rate swap agreements used for interest rate risk management: Interest rate swaps are recorded at fair value on a recurring basis. The Company utilizes interest rate swap agreements as part of the management of interest rate risk to modify the repricing characteristics of certain portions of the Company’s interest-bearing liabilities. The Company values its interest rate swaps using Bloomberg Valuation Service’s derivative pricing functions and therefore classifies such valuations as Level 2. Valuations of these interest rate swaps are also received from the relevant counterparty and validated against internal calculations. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.

Impaired loans: Collateral dependent impaired loans generally reflect partial charge-downs to their respective fair value, which is commonly based on recent real estate appraisals or broker price opinions (“BPOs”). These appraisals or BPOs may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Premises, held for sale: Premises held for sale are accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other real estate owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Bank. Once the appraisal is received, a member of the Bank’s Credit Administration Department reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources, such as recent market data or industry-wide statistics. On at least an annual basis, the Bank performs a back test of collateral appraisals by comparing actual selling prices on recent collateral sales to the most recent appraisal of such collateral. Back tests are performed for each collateral class, e.g. residential real estate or commercial real estate, and may lead to additional adjustments to the value of unliquidated collateral of similar class.

Mortgage servicing rights: On at least a quarterly basis, MSRs are evaluated for impairment based upon the fair value of the MSRs as compared to carrying amount. If the carrying amount of an individual grouping exceeds fair value, impairment is recorded and the respective individual tranche is carried at fair value. If the carrying amount of an individual grouping does not exceed fair value, impairment is reversed if previously recognized and the carrying value of the individual tranche is based on the amortization method. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can generally be validated against available market data (Level 2). There were no MSR tranches carried at fair value at December 31, 2015 and 2014.

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below:


	Fair Value Measurements at
	December 31, 2015 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Securities available for sale:
U.S. Treasury securities and U.S. Government agencies	$	—	$	286,479	$	—	$	286,479
Private label mortgage backed security		—		—		5,132		5,132
Mortgage backed securities - residential		—		92,268		—		92,268
Collateralized mortgage obligations		—		113,668		—		113,668
Freddie Mac preferred stock		—		173		—		173
Mutual fund		1,011		—		—		1,011
Corporate bonds		—		14,922		—		14,922
Trust preferred security		—		—		3,405		3,405
Total securities available for sale	$	1,011	$	507,510	$	8,537	$	517,058

Mortgage loans held for sale	$	—	$	4,083	$	—	$	4,083
Rate lock commitments		—		306		—		306
Interest rate swap agreements		—		400		—		400

Financial liabilities:
Mandatory forward contracts		—		25		—		25
Interest rate swap agreements		—		1,000		—		1,000


	Fair Value Measurements at
	December 31, 2014 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Securities available for sale:
U.S. Treasury securities and U.S. Government agencies	$	—	$	146,922	$	—	$	146,922
Private label mortgage backed security		—		—		5,250		5,250
Mortgage backed securities - residential		—		124,256		—		124,256
Collateralized mortgage obligations		—		143,171		—		143,171
Freddie Mac preferred stock		—		231		—		231
Mutual fund		1,018		—		—		1,018
Corporate bonds		—		15,063		—		15,063
Total securities available for sale	$	1,018	$	429,643	$	5,250	$	435,911

Mortgage loans held for sale	$	—	$	6,388	$	—	$	6,388
Rate lock commitments		—		250		—		250

Financial liabilities:
Mandatory forward contracts		—		33		—		33
Interest rate swap agreements		—		488		—		488

All transfers between levels are generally recognized at the end of each quarter. There were no transfers into or out of Level 1, 2 or 3 assets during the years ended December 31, 2015 and 2014.

The table below presents a reconciliation of the Bank’s Private Label Mortgage Backed Security measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ended December 31, 2015, 2014 and 2013:

Private Label Mortgage Backed Security


Years Ended December 31, (in thousands)	2015		2014		2013

Balance, beginning of year	$	5,250	$	5,485	$	5,687
Total gains or losses included in earnings:
Net change in unrealized gain (loss)		(125)		475		742
Recovery of actual losses previously recorded		35		141		201
Principal paydowns		(28)		(851)		(1,145)
Balance, end of year	$	5,132	$	5,250	$	5,485

The fair value of the Bank’s single private label mortgage backed security is supported by analysis prepared by an independent third party. The third party’s approach to determining fair value involved several steps: 1) detailed collateral analysis of the underlying mortgages, including consideration of geographic location, original loan-to-value and the weighted average FICO score of the borrowers; 2) collateral performance projections for each pool of mortgages underlying the security (probability of default, severity of default, and prepayment probabilities) and 3) discounted cash flow modeling.

The significant unobservable inputs in the fair value measurement of the Bank’s single private label mortgage backed security are prepayment rates, probability of default and loss severity in the event of default. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.

The following tables present quantitative information about recurring Level 3 fair value measurements at December 31, 2015 and 2014:


	Fair		Valuation
December 31, 2015 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage backed security	$	5,132	Discounted cash flow	(1) Constant prepayment rate	0.0% - 6.5%

				(2) Probability of default	3.0% - 9.0%

				(2) Loss severity	60% - 90%


	Fair		Valuation
December 31, 2014 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage backed security	$	5,250	Discounted cash flow	(1) Constant prepayment rate	0.5% - 6.5%

				(2) Probability of default	3.0% - 6.2%

				(2) Loss severity	60% - 75%

Trust Preferred Security

The Company invested in its Trust Preferred Security during 2015. The table below presents a reconciliation of the Company’s Trust Preferred Security measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period ended December 31, 2015:


Year Ended December 31, (in thousands)	2015

Balance, beginning of year	$	—
Purchases, net of accretion recognized		3,405
Balance, end of year	$	3,405

Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more nor on nonaccrual as of December 31, 2015 and 2014.

As of December 31, 2015 and 2014, the aggregate fair value, contractual balance (including accrued interest), and unrealized gain was as follows:


December 31, (in thousands)	2015		2014

Aggregate fair value	$	4,083	$	6,388
Contractual balance		3,993		6,265
Unrealized gain		90		123

The total amount of gains and losses from changes in fair value of mortgage loans held for sale included in earnings for 2015, 2014 and 2013 are presented in the following table:


Years Ended December 31, (in thousands)	2015		2014		2013

Interest income	$	219	$	183	$	471
Change in fair value		(33)		34		(488)
Total included in earnings	$	186	$	217	$	(17)

Assets measured at fair value on a non-recurring basis are summarized below:


	Fair Value Measurements at
	December 31, 2015 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Impaired loans:
Residential real estate:
Owner occupied	$	—	$	—	$	3,631	$	3,631
Non owner occupied		—		—		689		689
Commercial real estate		—		—		3,443		3,443
Home equity		—		—		1,245		1,245
Total impaired loans*	$	—	$	—	$	9,008	$	9,008

Other real estate owned:
Residential real estate	$	—	$	—	$	128	$	128
Commercial real estate		—		—		442		442
Construction & land development		—		—		300		300
Total other real estate owned	$	—	$	—	$	870	$	870

Premises, held for sale	$	—	$	—	$	1,185	$	1,185


	Fair Value Measurements at
	December 31, 2014 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Impaired loans:
Residential real estate:
Owner occupied	$	—	$	—	$	1,678	$	1,678
Non owner occupied		—		—		702		702
Commercial real estate		—		—		6,122		6,122
Home equity		—		—		1,346		1,346
Total impaired loans*	$	—	$	—	$	9,848	$	9,848

Other real estate owned:
Residential real estate	$	—	$	—	$	1,916	$	1,916
Commercial real estate		—		—		2,845		2,845
Construction & land development		—		—		4,427		4,427
Total other real estate owned	$	—	$	—	$	9,188	$	9,188

Premises, held for sale	$	—	$	—	$	1,317	$	1,317

* The difference between the carrying value and the fair value of impaired loans measured at fair value is reconciled in a subsequent table of this Footnote.

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2015 and 2014:


					Range
	Fair		Valuation	Unobservable	(Weighted
December 31, 2015 (dollars in thousands)	Value		Technique	Inputs	Average)

Impaired loans - residential real estate owner occupied	$	3,631	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 53% (7%)

Impaired loans - residential real estate non owner occupied	$	689	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 1% (1%)

Impaired loans - commercial real estate	$	1,839	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 58% (19%)

Impaired loans - commercial real estate	$	1,604	Income approach	Adjustments for differences between net operating income expectations	17% (17%)

Impaired loans - home equity	$	1,245	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 29% (20%)

Other real estate owned - residential real estate	$	128	Sales comparison approach	Adjustments determined for differences between comparable sales	18% (18%)

Other real estate owned - commercial real estate	$	442	Sales comparison approach	Adjustments determined for differences between comparable sales	12% - 23% (13%)

Other real estate owned - construction & land development	$	300	Sales comparison approach	Adjustments determined for differences between comparable sales	49% (49%)

Premises, held for sale	$	1,185	Sales comparison approach	Adjustments determined for differences between comparable sales	5% (5%)


					Range
	Fair		Valuation	Unobservable	(Weighted
December 31, 2014 (dollars in thousands)	Value		Technique	Inputs	Average)

Impaired loans - residential real estate owner occupied	$	1,678	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 33% (7%)

Impaired loans - residential real estate non owner occupied	$	702	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 33% (18%)

Impaired loans - commercial real estate	$	2,615	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 9% (2%)

Impaired loans - commercial real estate	$	3,507	Income approach	Adjustments for differences between net operating income expectations	3% - 37% (22%)

Impaired loans - home equity	$	1,346	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 35% (12%)

Other real estate owned - residential real estate	$	1,916	Sales comparison approach	Adjustments determined for differences between comparable sales	9% - 23% (19%)

Other real estate owned - commercial real estate	$	1,378	Sales comparison approach	Adjustments determined for differences between comparable sales	11% - 14% (13%)

Other real estate owned - commercial real estate	$	1,467	Income approach	Adjustments for differences between net operating income expectations	19% (19%)

Other real estate owned - construction & land development	$	2,000	Sales comparison approach	Adjustments determined for differences between comparable sales	13% - 70% (38%)

Other real estate owned - construction & land development	$	2,427	Income approach	Adjustments for differences between net operating income expectations	8% - 9% (8%)

Premises, held for sale	$	1,317	Sales comparison approach	Adjustments determined for differences between comparable sales	5% (5%)

Impaired Loans

Collateral dependent impaired loans are generally measured for impairment using the fair value for reasonable disposition of the underlying collateral. The Bank’s practice is to obtain new or updated appraisals or BPOs on the loans subject to the initial impairment review and then to evaluate the need for an update to this value on an as necessary or possibly annual basis thereafter (depending on the market conditions impacting the value of the collateral). The Bank may discount the valuation amount as necessary for selling costs and past due real estate taxes. If a new or updated appraisal or BPO is not available at the time of a loan’s impairment review, the Bank may apply a discount to the existing value of an old valuation to reflect the property’s current estimated value if it is believed to have deteriorated in either: (i) the physical or economic aspects of the subject property or (ii) material changes in market conditions. The impairment review generally results in a partial charge-off of the loan if fair value less selling costs are below the loan’s carrying value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Impaired collateral dependent loans are as follows:


December 31, (in thousands)	2015		2014

Carrying amount of loans measured at fair value	$	8,162	$	8,343
Estimated selling costs considered in carrying amount		946		1,505
Valuation allowance		(100)		—
Total fair value	$	9,008	$	9,848


Years Ended December 31, (in thousands)	2015		2014		2013

Provisions for loss on collateral dependent impaired loans	$	88	$	729	$	1,295

Other Real Estate Owned

Other real estate owned, which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value at the reporting date. Fair value is determined from external appraisals or BPOs using judgments and estimates of external professionals. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3. All of the Bank’s individual other real estate owned properties were carried at the lower of their fair value or cost at December 31, 2015 and 2014.

Details of other real estate owned carrying value and write downs follow:



December 31, (in thousands)	2015		2014		2013

Other real estate carried at fair value	$	870	$	9,188	$	8,418
Other real estate carried at cost		350		2,055		8,684
Total carrying value of other real estate owned	$	1,220	$	11,243	$	17,102
Other real estate owned write-downs during the year	$	1,257	$	3,101	$	1,824

Premises, Held for Sale

The Company closed its Hudson, Florida banking center in January 2015. The Hudson premises were held for sale at December 31, 2015 and 2014 and carried at $1 million, its fair value less estimated selling costs. The Hudson premises were written down $132,000 during 2015, with no similar write-downs for 2014. Fair value was determined from an external appraisal using judgments and estimates. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3.

Mortgage Servicing Rights

MSRs are carried at lower of cost or fair value with fair value determined by MSR tranche. There were no tranches carried at fair value at December 31, 2015, 2014 and 2013.

The carrying amounts and estimated fair values of financial instruments, at December 31, 2015 and 2014 are as follows:


			Fair Value Measurements at
			December 31, 2015:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	210,082	$	210,082	$	—	$	—	$	210,082
Securities available for sale		517,058		1,011		507,510		8,537		517,058
Securities held to maturity		38,727		—		39,196		—		39,196
Mortgage loans held for sale		4,083		—		4,083		—		4,083
Other loans held for sale		514		—		514		—		514
Loans, net		3,299,119		—		—		3,332,608		3,332,608
Federal Home Loan Bank stock		28,208		—		—		—		NA
Accrued interest receivable		9,233		—		9,233		—		9,233

Liabilities:
Non interest-bearing deposits		634,863		—		634,863		—		634,863
Transaction deposits		1,601,647		—		1,601,647		—		1,601,647
Time deposits		250,967		—		250,882		—		250,882
Securities sold under agreements to repurchase and other short-term borrowings		395,433		—		395,433		—		395,433
Federal Home Loan Bank advances		699,500		—		708,722		—		708,722
Subordinated note		41,240		—		33,358		—		33,358
Accrued interest payable		1,229		—		1,229		—		1,229

NA - Not applicable


			Fair Value Measurements at
			December 31, 2014:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	72,878	$	72,878	$	—	$	—	$	72,878
Securities available for sale		435,911		1,018		429,643		5,250		435,911
Securities held to maturity		45,437		—		45,807		—		45,807
Mortgage loans held for sale		6,388		—		6,388		—		6,388
Loans, net		3,016,085		—		—		3,045,443		3,045,443
Federal Home Loan Bank stock		28,208		—		—		—		NA
Accrued interest receivable		8,807		—		8,807		—		8,807

Liabilities:
Non interest-bearing deposits		502,569		—		502,569		—		502,569
Transaction deposits		1,290,400		—		1,290,400		—		1,290,400
Time deposits		265,213		—		265,858		—		265,858
Securities sold under agreements to repurchase and other short-term borrowings		356,108		—		356,108		—		356,108
Federal Home Loan Bank advances		707,500		—		721,346		—		721,346
Subordinated note		41,240		—		41,198		—		41,198
Accrued interest payable		1,262		—		1,262		—		1,262

NA - Not applicable

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the Bank’s estimates.

The assumptions used in the estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow and other valuation techniques. Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company’s financial instruments, but rather a good-faith estimate of the fair value of financial instruments held by the Company.

In addition to those previously disclosed, the following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and cash equivalents — The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Other loans held for sale – Other loans held for sale constitute short-term consumer loans generally sold within two business days of origination. The carrying amounts of these loans, due to their short-term nature, approximate fair value and result in a Level 2 classification.

Loans, net of Allowance — The fair value of loans is calculated using discounted cash flows by loan type resulting in a Level 3 classification. The discount rate used to determine the present value of the loan portfolio is an estimated market rate that reflects the credit and interest rate risk inherent in the loan portfolio without considering widening credit spreads due to market illiquidity. The estimated maturity is based on the Bank’s historical experience with repayments adjusted to estimate the effect of current market conditions. The Allowance is considered a reasonable discount for credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Federal Home Loan Bank stock — It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Accrued interest receivable/payable — The carrying amounts of accrued interest, due to their short-term nature, approximate fair value resulting in a Level 2 classification.

Deposits — Fair values for certificates of deposit have been determined using discounted cash flows. The discount rate used is based on estimated market rates for deposits of similar remaining maturities and are classified as Level 2. The carrying amounts of all other deposits, due to their short-term nature, approximate their fair values and are also classified as Level 2.

Securities sold under agreements to repurchase — The carrying amount for securities sold under agreements to repurchase generally maturing within ninety days approximates its fair value resulting in a Level 2 classification.

Federal Home Loan Bank advances — The fair value of the FHLB advances is obtained from the FHLB and is calculated by discounting contractual cash flows using an estimated interest rate based on the current rates available to the Company for debt of similar remaining maturities and collateral terms resulting in a Level 2 classification.

Subordinated note — The fair value for the subordinated note is calculated using discounted cash flows based upon current market spreads to London Interbank Borrowing Rate (“LIBOR”) for debt of similar remaining maturities and collateral terms resulting in a Level 2 classification.

The fair value estimates presented herein are based on pertinent information available to management as of the respective period ends. Although management is not aware of any factors that would dramatically affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, estimates of fair value may differ significantly from the amounts presented.