FAIR VALUE (Tables)

9 Months Ended

Sep. 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	September 30, 2014				December 31, 2013
	Fair Value	Carrying		Estimated		Carrying		Estimated
	Hierarchy	Amount		Fair Value		Amount		Fair Value
Cash and due from banks	Level 1	$	70,152	$	70,152	$	131,352	$	131,352
Cash equivalents	Level 2		1,000		1,000		1,000		1,000
Interest-bearing time deposits in other banks	Level 2		10,000		10,020		10,000		10,000
Federal Reserve Bank, Federal Home Loan
Bank and other stock	N/A		3,200		N/A		2,863		N/A
Investment securities held to maturity	Level 2		62,323		63,942		11,666		12,234
Investment securities available for sale	Level 2		308,589		308,589		400,780		400,780
Loans held for sale	Level 2		-		-		175		175
Loans, net of allowance	Level 2, 3 (1)		1,243,261		1,235,732		1,051,585		1,056,279
Bank owned life insurance	Level 3		44,791		44,791		38,755		38,755
Accrued interest and loan fees receivable	Level 2		6,227		6,227		5,441		5,441
Non-maturity deposits	Level 2		1,356,343		1,356,343		1,284,982		1,284,982
Time deposits	Level 2		224,426		224,860		225,079		225,946
Accrued interest payable	Level 2		149		149		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 September 30, 2014 and December 31, 2013 (in thousands):

			Fair Value Measurements Using
			Significant Other		Significant
			Observable Inputs		Unobservable Inputs
Assets:	September 30, 2014		(Level 2)		(Level 3)
U.S. Government agency securities	$	41,008	$	41,008	$	-
Corporate bonds		6,350		6,350		-
Collateralized mortgage obligations		22,745		22,745		-
Mortgage-backed securities		92,313		92,313		-
Obligations of states and political subdivisions		146,173		146,173		-
Loans held for sale		-		-		-
Mortgage servicing rights		2,173		-		2,173
Total	$	310,762	$	308,589	$	2,173

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

			Fair Value Measurements Using
			Significant Other		Significant
			Observable Inputs		Unobservable Inputs
Assets:	December 31, 2013		(Level 2)		(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 September 30,
	2014				2013
	Assets		Liabilities		Assets		Liabilities
	Mortgage Servicing Rights		Derivatives		Mortgage Servicing Rights		Derivatives
Balance, July 1	$	2,172	$	932	$	2,136	$	-
Net increase		1		-		33		460
Balance, September 30	$	2,173	$	932	$	2,169	$	460

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Nine Months Ended September 30,
	2014				2013
	Assets		Liabilities		Assets		Liabilities
	Mortgage Servicing Rights		Derivatives		Mortgage Servicing Rights		Derivatives
Balance, January 1	$	2,163	$	932	$	1,856	$	-
Net increase		10		-		313		460
Balance, September 30	$	2,173	$	932	$	2,169	$	460

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:	September 30, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	16,361	$	16,361
Total	$	16,361	$	16,361

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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