FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2014

Carrying amounts and estimated fair values of financial instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments (in thousands).

	Level in		June 30, 2014				December 31, 2013
	Fair Value		Carrying		Estimated		Carrying		Estimated
	Heirarchy		Amount		Fair Value		Amount		Fair Value
Cash and due from banks	Level 1		$	96,926	$	96,926	$	131,352	$	131,352
Cash equivalents	Level 2			1,102		1,102		1,000		1,000
Interest-bearing time deposits in other banks	Level 2			10,000		10,036		10,000		10,000
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/	A		3,201		N/A		2,863		N/A
Investment securities held to maturity	Level 2			61,839		63,280		11,666		12,234
Investment securities available for sale	Level 2			321,574		321,574		400,780		400,780
Loans held for sale	Level 2			573		573		175		175
Loans, net of allowance	Level 2, 3 (1)			1,177,018		1,178,250		1,051,585		1,056,279
Bank owned life insurance	Level 3			44,475		44,475		38,755		38,755
Accrued interest and loan fees receivable	Level 2			5,607		5,607		5,441		5,441
Non-maturity deposits	Level 2			1,339,204		1,339,204		1,284,982		1,284,982
Time deposits	Level 2			228,999		229,623		225,079		225,946
Accrued interest payable	Level 2			155		155		160		160

(1) Impaired loans are generally classified within Level 3 of the fair value hierarchy.

Valuation of financial instruments measured at fair value on recurring basis

The following presents fair value measurements on a recurring basis at June 30, 2014 and December 31, 2013 (in thousands):

			Fair Value Measurements Using
Assets:	June 30, 2014		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	45,997	$	45,997	$	-
Corporate bonds		6,363		6,363		-
Collateralized mortgage obligations		24,959		24,959		-
Mortgage-backed securities		93,604		93,604		-
Obligations of states and political subdivisions		150,651		150,651		-
Loans held for sale		573		573		-
Mortgage servicing rights		2,172		-		2,172
Total	$	324,319	$	322,147	$	2,172

Liabilities:
Derivatives		932	$	-	$	932
Total	$	932	$	-	$	932

			Fair Value Measurements Using
Assets:	December 31, 2013		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	100,095	$	100,095	$	-
Corporate bonds		15,651		15,651		-
Collateralized mortgage obligations		30,104		30,104		-
Mortgage-backed securities		97,767		97,767		-
Obligations of states and political subdivisions		157,163		157,163		-
Loans held for sale		175		175		-
Mortgage servicing rights		2,163		-		2,163
Total	$	403,118	$	400,955	$	2,163

Liabilities:
Derivatives		932	$	-	$	932
Total	$	932	$	-	$	932

Changes in Level 3 assets and liabilities measured at fair value on a recurring basis

Reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follow (in thousands).

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30,
	2014					2013
	Assets			Liabilities		Assets
	Mortgage Servicing Rights			Derivatives		Mortgage Servicing Rights
Balance, April 1	$	2,179		$	932	$	2,039
Net (decrease) increase		(7	)		-		97
Balance, June 30	$	2,172		$	932	$	2,136

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Six Months Ended June 30,
	2014				2013
	Assets		Liabilities		Assets
	Mortgage Servicing Rights		Derivatives		Mortgage Servicing Rights
Balance, January 1	$	2,163	$	932	$	1,856
Net increase		9		-		280
Balance, June 30	$	2,172	$	932	$	2,136

Assets measured at fair value on a non-recurring basis

Assets measured at fair value on a non-recurring basis are as follows (in thousands):

Assets:	June 30, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	15,217	$	15,217
Total	$	15,217	$	15,217

Assets:	December 31, 2013		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	16,942	$	16,942
Total	$	16,942	$	16,942

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

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