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FAIR VALUE MEASUREMENTS | 12 Months Ended
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Dec. 31, 2016
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value. Recurring Fair Value Measurements of Financial Instruments The following table summarizes assets and liabilities measured at fair value on a recurring basis as of year-end 2016 and 2015 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|  | December 31, 2016
(In thousands) |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
Trading security |  | $ | — |  |  | $ | — |  |  | $ | 13,229 |  |  | $ | 13,229 |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds and obligations |  | — |  |  | 119,816 |  |  | — |  |  | 119,816 |
Agency collateralized mortgage obligations |  | — |  |  | 651,911 |  |  | — |  |  | 651,911 |
Agency residential mortgage-backed securities |  | — |  |  | 228,684 |  |  | — |  |  | 228,684 |
Agency commercial mortgage-backed securities |  | — |  |  | 64,534 |  |  | — |  |  | 64,534 |
Corporate bonds |  | — |  |  | 56,006 |  |  | — |  |  | 56,006 |
Trust preferred securities |  | — |  |  | 11,887 |  |  | — |  |  | 11,887 |
Other bonds and obligations |  | — |  |  | 11,158 |  |  | — |  |  | 11,158 |
Marketable equity securities |  | 62,284 |  |  | 3,257 |  |  | — |  |  | 65,541 |
Loans held for sale |  | — |  |  | 120,673 |  |  | — |  |  | 120,673 |
Derivative assets |  | 622 |  |  | 16,157 |  |  | 4,838 |  |  | 21,617 |
Other assets |  | — |  |  | — |  |  | 798 |  |  | 798 |
Derivative liabilities |  | — |  |  | 24,420 |  |  | — |  |  | 24,420 |
|  | December 31, 2015
(In thousands) |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
Trading security |  | $ | — |  |  | $ | — |  |  | $ | 14,189 |  |  | $ | 14,189 |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds and obligations |  | — |  |  | 104,561 |  |  | — |  |  | 104,561 |
Agency collateralized mortgage obligations |  | — |  |  | 833,036 |  |  | — |  |  | 833,036 |
Agency residential mortgage-backed securities |  | — |  |  | 126,829 |  |  | — |  |  | 126,829 |
Agency commercial mortgage-backed securities |  | — |  |  | — |  |  | — |  |  | — |
Corporate bonds |  | — |  |  | 41,023 |  |  | — |  |  | 41,023 |
Trust preferred securities |  | — |  |  | 11,900 |  |  | — |  |  | 11,900 |
Other bonds and obligations |  | — |  |  | 3,141 |  |  | — |  |  | 3,141 |
Marketable equity securities |  | 32,925 |  |  | 334 |  |  | 708 |  |  | 33,967 |
Loans held for sale |  | — |  |  | 13,191 |  |  | — |  |  | 13,191 |
Derivative assets |  | 45 |  |  | 17,130 |  |  | 332 |  |  | 17,507 |
Other assets |  | — |  |  | — |  |  | — |  |  | — |
Derivative liabilities |  | — |  |  | 28,181 |  |  | — |  |  | 28,181 |
During the year ended December 31, 2016, the Company had one transfer of $708 thousand in marketable equity securities from Level 3 to Level 2 based on a change in valuation technique driven by the availability of market data. There were no transfers between Level 1, 2, and 3 during the year ended December 31, 2015. Trading Security at Fair Value. The Company holds one security designated as a trading security. It is a tax advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The determination of the fair value for this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate. Securities Available for Sale. AFS securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things. Loans held for sale. The Company elected the fair value option for all loans originated for sale (HFS) that were originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.
|  | Aggregate Fair Value |  | Aggregate Unpaid Principal |  | Aggregate Fair Value Less Aggregate Unpaid Principal
December 31, 2016 (In thousands) |  |  |
Loans Held for Sale |  | $ | 120,673 |  |  | $ | 118,178 |  |  | $ | 2,495 |
|  | Aggregate Fair Value |  | Aggregate Unpaid Principal |  | Aggregate Fair Value Less Aggregate Unpaid Principal
December 31, 2015 (In thousands) |  |  |
Loans Held for Sale |  | $ | 13,191 |  |  | $ | 12,914 |  |  | $ | 277 |
The changes in fair value of loans held for sale for years ended December 31, 2016 and 2015 were gains of $2.2 million and losses of $331 thousand, respectively. The changes in fair value are included in mortgage banking income in the Consolidated Statements of Income. Interest Rate Swaps. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of year-end 2016, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. Commitments to Lend. The Company enters into commitments to lend for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a certain interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan commitment will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, these commitments to lend are classified as Level 3 measurements. Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the commitments to lend and loans originated for sale. To be announced (TBA) mortgage-backed securities forward commitment sales are used as hedging instruments, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the commitments to lend using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward sale commitments are classified as Level 3 measurements. Capitalized Servicing Rights. The Company accounts for certain capitalized servicing rights at fair value in its Consolidated Financial Statements, as the Company is permitted to elect the fair value option for each specific instrument. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. The table below presents the changes in Level 3 assets that were measured at fair value on a recurring basis at year-end 2016 and 2015:
|  | Assets (Liabilities)
(In thousands) |  | Trading Security |  | Securities Available for Sale |  | Commitments to Lend |  | Forward Commitments |  | Capitalized Servicing Rights
Balance as of December 31, 2014 |  | $ | 14,909 |  |  | $ | 2,326 |  |  | $ | 625 |  |  | $ | (93 | ) |  |
Sale of AFS Security |  | — |  |  | (1,327 | ) |  | — |  |  | — |  |  | — |
Unrealized (loss) gain, net recognized in other non-interest income |  | (150 | ) |  | — |  |  | 4,364 |  |  | 102 |  |  | — |
Unrealized gain included in accumulated other comprehensive loss |  | — |  |  | (291 | ) |  | — |  |  | — |  |  | — |
Paydown of trading security |  | (570 | ) |  | — |  |  | — |  |  | — |  |  | — |
Transfers to loans held for sale |  | — |  |  | — |  |  | (4,666 | ) |  | — |  |  | — |
Balance as of December 31, 2015 |  | $ | 14,189 |  |  | $ | 708 |  |  | $ | 323 |  |  | $ | 9 |  |  | $ | — |
Amounts acquired from First Choice Bank |  | — |  |  | — |  |  | 3,900 |  |  | — |  |  | 696 |
Unrealized (loss) gain, net recognized in other non-interest income |  | (362 | ) |  | — |  |  | 13,563 |  |  | 91 |  |  | 102 |
Unrealized gain included in accumulated other comprehensive loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers to Level 2 |  | — |  |  | (708 | ) |  | — |  |  | — |  |  | — |
Paydown of trading security |  | (598 | ) |  | — |  |  | — |  |  | — |  |  | — |
Transfers to loans held for sale |  | — |  |  | — |  |  | (13,048 | ) |  | — |  |  | — |
Balance as of December 31, 2016 |  | $ | 13,229 |  |  | $ | — |  |  | $ | 4,738 |  |  | $ | 100 |  |  | $ | 798 |
Unrealized gains (losses) relating to instruments still held at December 31, 2016 |  | $ | 1,843 |  |  | $ | — |  |  | $ | 4,738 |  |  | $ | 100 |  |  | $ | 102 |
Unrealized gains (losses) relating to instruments still held at December 31, 2015 |  | $ | 2,204 |  |  | $ | (61 | ) |  | $ | 323 |  |  | $ | 9 |  |  | $ | — |
Quantitative information about the significant unobservable inputs within Level 3 recurring assets/(liabilities) as of December 31, 2016 and 2015 are as follows:
|  | Fair Value |  |  |  |  |  | Significant Unobservable Input Value
(In thousands) |  | December 31, 2016 |  | Valuation Techniques |  | Unobservable Inputs |
Assets |  |  |  |  |  |  |  |  |  |
Trading Security |  | $ | 13,229 |  |  | Discounted Cash Flow |  | Discount Rate |  | 2.62 | %
Forward Commitments |  | 100 |  |  | Historical Trend |  | Closing Ratio |  | 80.36 | %
|  |  |  | Pricing Model |  | Origination Costs, per loan |  | $ | 3,692 |
Commitments to Lend |  | 4,738 |  |  | Historical Trend |  | Closing Ratio |  | 80.36 | %
|  |  |  | Pricing Model |  | Origination Costs, per loan |  | $ | 3,692 |
Capitalized Servicing Rights |  | 798 |  |  | Discounted cash flow |  | Constant prepayment rate (CPR) |  | 10.40 | %
|  |  |  |  |  | Discount rate |  | 11.00 | %
Total |  | $ | 18,865 |  |  |  |  |  |  |  |
|  | Fair Value |  |  |  |  |  | Significant Unobservable Input Value
(In thousands) |  | December 31, 2015 |  | Valuation Techniques |  | Unobservable Inputs |
Assets |  |  |  |  |  |  |  |  |  |
Trading Security |  | $ | 14,189 |  |  | Discounted Cash Flow |  | Discount Rate |  | 2.49 | %
Securities Available for Sale |  | 708 |  |  | Pricing Model |  | Median Peer Price/ Tangible Book Value Percentage Multiple |  | 88.52 | %
Forward Commitments |  | 9 |  |  | Historical Trend |  | Closing Ratio |  | 92.57 | %
|  |  |  | Pricing Model |  | Origination Costs, per loan |  | $ | 2,500 |
Commitments to Lend |  | 323 |  |  | Historical Trend |  | Closing Ratio |  | 92.57 | %
|  |  |  | Pricing Model |  | Origination Costs, per loan |  | $ | 2,500 |
Total |  | $ | 15,229 |  |  |  |  |  |  |  |
Non-Recurring Fair Value Measurements The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured on a non-recurring basis.
|  | December 31, 2016 |  |  | Fair Value Measurements as of December 31, 2016
(In thousands) |  | Level 3 Inputs |  |  | Level 3 Inputs
Assets |  |  |  |  |  |
Impaired loans |  | $ | 17,761 |  |  |  | December 2016
Capitalized servicing rights |  | 10,726 |  |  |  | December 2016
Other real estate owned |  | 151 |  |  |  | Feb. 2016 - July 2016
Total |  | $ | 28,638 |  |  |  |
|  | December 31, 2015 |  |  | Fair Value Measurements as of December 31, 2015
(In thousands) |  | Level 3 Inputs |  |  | Level 3 Inputs
Assets |  |  |  |  |  |
Impaired loans |  | $ | 11,657 |  |  |  | December 2015
Capitalized servicing rights |  | 5,187 |  |  |  | November 2015
Other real estate owned |  | 1,725 |  |  |  | Feb. 2014 - October 2015
Total |  | $ | 18,569 |  |  |  |
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets as of December 31, 2016 and 2015 are as follows:
(in thousands) |  | December 31, 2016 |  | Valuation Techniques |  | Unobservable Inputs |  | Range (Weighted Average) (a)
Assets |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 17,761 |  |  | Fair value of collateral |  | Loss severity |  | 0% to 88.70% (9.73%)
|  |  |  |  |  |  | Appraised value |  | $0 to $2,192 ($1,026)
Capitalized servicing rights |  | 10,726 |  |  | Discounted cash flow |  | Constant prepayment rate (CPR) |  | 7.35% to 14.28% (10.44%)
|  |  |  |  |  |  | Discount rate |  | 10.00% to 14.00% (11.77%)
Other real estate owned |  | 151 |  |  | Fair value of collateral |  | Appraised value |  | $101 to $129 ($122)
Total Assets |  | $ | 28,638 |  |  |  |  |  |  |
(a) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
(in thousands) |  | December 31, 2015 |  | Valuation Techniques |  | Unobservable Inputs |  | Range (Weighted Average) (a)
Assets |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 11,657 |  |  | Fair value of collateral |  | Loss severity |  | .05% to 29.50% (7.55%)
|  |  |  |  |  |  | Appraised value |  | $46.3 to $1962.0 ($999.7)
Capitalized servicing rights |  | 5,187 |  |  | Discounted cash flow |  | Constant prepayment rate (CPR) |  | 7.17% to 12.06% (10.02%)
|  |  |  |  |  |  | Discount rate |  | 10.00% to 15.00 (10.88%)
Other real estate owned |  | 1,725 |  |  | Fair value of collateral |  | Appraised value |  | $39 to $1,200.0 ($919.9)
Total Assets |  | $ | 18,569 |  |  |  |  |  |  |
(a) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties. There were no Level 1 or Level 2 nonrecurring fair value measurements for year-end 2016 and 2015. Impaired Loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. Other real estate owned (“OREO”). OREO results from the foreclosure process on residential or commercial loans issued by the Bank. Upon assuming the real estate, the Company records the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value less the estimated sales costs. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals. Summary of Estimated Fair Values of Financial Instruments The estimated fair values, and related carrying amounts, of the Company’s financial instruments follow. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.
|  | December 31, 2016
|  | Carrying Amount |  | Fair Value |  |  |  |  |  |
(In thousands) |  |  |  | Level 1 |  | Level 2 |  | Level 3
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 113,075 |  |  | $ | 113,075 |  |  | $ | 113,075 |  |  | $ | — |  |  | $ | — |
Trading security |  | 13,229 |  |  | 13,229 |  |  | — |  |  | — |  |  | 13,229 |
Securities available for sale |  | 1,209,537 |  |  | 1,209,537 |  |  | 62,284 |  |  | 1,147,253 |  |  | — |
Securities held to maturity |  | 334,368 |  |  | 337,680 |  |  | — |  |  | 300,806 |  |  | 36,874 |
FHLB stock and restricted equity securities |  | 71,112 |  |  | 71,112 |  |  | — |  |  | 71,112 |  |  | — |
Net loans |  | 6,505,789 |  |  | 6,532,745 |  |  | — |  |  | — |  |  | 6,532,745 |
Loans held for sale |  | 120,673 |  |  | 120,673 |  |  | — |  |  | 120,673 |  |  | — |
Accrued interest receivable |  | 26,113 |  |  | 26,113 |  |  | — |  |  | 26,113 |  |  | — |
Cash surrender value of bank-owned life insurance policies |  | 139,257 |  |  | 139,257 |  |  | — |  |  | 139,257 |  |  | — |
Derivative assets |  | 21,617 |  |  | 21,617 |  |  | 622 |  |  | 16,157 |  |  | 4,838 |
Assets held for sale |  | 322 |  |  | 322 |  |  | — |  |  | 322 |  |  | — |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total deposits |  | 6,622,092 |  |  | 6,624,108 |  |  | — |  |  | 6,624,108 |  |  | — |
Short-term debt |  | 1,082,044 |  |  | 1,081,996 |  |  | — |  |  | 1,081,996 |  |  | — |
Long-term FHLB advances |  | 142,792 |  |  | 143,151 |  |  | — |  |  | 143,151 |  |  | — |
Subordinated notes |  | 89,161 |  |  | 96,973 |  |  | — |  |  | 96,973 |  |  | — |
Derivative liabilities |  | 24,420 |  |  | 24,420 |  |  | — |  |  | 24,420 |  |  | — |
|  | December 31, 2015
|  | Carrying Amount |  | Fair Value |  |  |  |  |  |
(In thousands) |  |  |  | Level 1 |  | Level 2 |  | Level 3
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 103,562 |  |  | $ | 103,562 |  |  | $ | 103,562 |  |  | $ | — |  |  | $ | — |
Trading security |  | 14,189 |  |  | 14,189 |  |  | — |  |  | — |  |  | 14,189 |
Securities available for sale |  | 1,154,457 |  |  | 1,154,457 |  |  | 32,925 |  |  | 1,120,824 |  |  | 708 |
Securities held to maturity |  | 131,652 |  |  | 136,904 |  |  | — |  |  | 98,367 |  |  | 38,537 |
FHLB stock and restricted equity securities |  | 71,018 |  |  | 71,018 |  |  | — |  |  | 71,018 |  |  | — |
Net loans |  | 5,685,928 |  |  | 5,727,570 |  |  | — |  |  | — |  |  | 5,727,570 |
Loans held for sale |  | 13,191 |  |  | 13,191 |  |  | — |  |  | 13,191 |  |  | — |
Accrued interest receivable |  | 20,940 |  |  | 20,940 |  |  | — |  |  | 20,940 |  |  | — |
Cash surrender value of bank-owned life insurance policies |  | 125,233 |  |  | 125,233 |  |  | — |  |  | 125,233 |  |  | — |
Derivative assets |  | 17,507 |  |  | 17,507 |  |  | 45 |  |  | 17,130 |  |  | 332 |
Assets held for sale |  | 278 |  |  | 278 |  |  | — |  |  | 278 |  |  | — |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total deposits |  | 5,589,135 |  |  | 5,582,835 |  |  | — |  |  | 5,582,835 |  |  | — |
Short-term debt |  | 1,071,200 |  |  | 1,071,044 |  |  | — |  |  | 1,071,044 |  |  | — |
Long-term FHLB advances |  | 103,135 |  |  | 103,397 |  |  | — |  |  | 103,397 |  |  | — |
Subordinated notes |  | 89,812 |  |  | 93,291 |  |  | — |  |  | 93,291 |  |  | — |
Derivative liabilities |  | 28,181 |  |  | 28,181 |  |  | — |  |  | 28,181 |  |  | — |
Other than as discussed above, the following methods and assumptions were used by management to estimate the fair value of significant classes of financial instruments for which it is practicable to estimate that value. Cash and cash equivalents. Carrying value is assumed to represent fair value for cash and cash equivalents that have original maturities of ninety days or less. FHLB stock and restricted equity securities. Carrying value approximates fair value based on the redemption provisions of the issuers. Cash surrender value of life insurance policies. Carrying value approximates fair value. Loans, net. The carrying value of the loans in the loan portfolio is based on their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, the unamortized balance of any deferred fees or costs on originated loans and the unamortized balance of any premiums or discounts on loans purchased or acquired through mergers. The fair value of the loans is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. Accrued interest receivable. Carrying value approximates fair value. Deposits. The fair value of demand, non-interest bearing checking, savings and money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using market rates offered for deposits of similar remaining maturities. Borrowed funds. The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings. Such funds include all categories of debt and debentures in the table above. Subordinated borrowings. The Company utilizes a pricing service along with internal models to estimate the valuation of its junior subordinated debentures. The junior subordinated debentures re-price every ninety days. Off-balance-sheet financial instruments. Off-balance-sheet financial instruments include standby letters of credit and other financial guarantees and commitments considered immaterial to the Company’s financial statements.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13433-108611 + Details
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