FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2015

Carrying amounts and fair values of financial instruments

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

	Level in	March 31, 2015				December 31, 2014
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial Assets:
Cash and due from banks	Level 1	$	59,024	$	59,024	$	54,516	$	54,516
Federal funds sold	Level 2		-		-		1,000		1,000
Interest-bearing time deposits in other banks	Level 2		10,000		10,009		10,000		10,017
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		6,800		N/A		8,600		N/A
Investment securities held to maturity	Level 2		62,191		65,414		62,270		64,796
Investment securities available for sale	Level 2		291,557		291,557		298,670		298,670
Loans held for sale	Level 2		2,836		2,836		26,495		26,495
Loans, net of allowance	Level 2, 3 (1)		1,362,835		1,364,305		1,336,227		1,329,041
Accrued interest and loan fees receivable	Level 2		6,482		6,482		5,676		5,676

Financial Liabilities:
Non-maturity deposits	Level 2		1,368,484		1,368,484		1,337,301		1,337,301
Time deposits	Level 2		223,188		223,570		218,759		219,089
Borrowings	Level 2		90,000		90,003		130,000		130,004
Accrued interest payable	Level 2		131		131		136		136
Derivatives	Level 3		752		752		752		752

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

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:	March 31, 2015		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,338	$	3,338
Total	$	3,338	$	3,338

Assets:	December 31, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,333	$	3,333
Total	$	3,333	$	3,333

Fair Value Inputs, Quantitative information

The following presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis (dollars in thousands):

	Fair Value at
Assets:	March 31, 2015		December 31, 2014		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:

Commercial and industrial	$	31	$	40	Third party appraisal and/or internal evaluation	Discount to appraised value (1); estimated selling costs	5.6% to 50%

Residential mortgages		3,107		3,097	Third party appraisal	Discount to appraised value	25%

Home equity		104		98	Third party appraisal	Discount to appraised value	25%

Consumer		96		98	Third party appraisal	Discount to appraised value	25%
Total	$	3,338	$	3,333

(1)

The Company also makes adjustments to the appraised value based upon evaluation of corporate assets, such as inventory and accounts receivable, and various other information, such as market conditions and other factors. Higher discounts may be applied to certain assets, such as inventory and accounts receivable.

Valuation of financial instruments measured at fair value on recurring basis

The following presents fair value measurements on a recurring basis at March 31, 2015 and December 31, 2014 (in thousands):

			Fair Value Measurements Using
Assets:	March 31, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	38,709	$	38,709	$	-
Obligations of states and political subdivisions		133,924		133,924		-
Collateralized mortgage obligations		21,391		21,391		-
Mortgage-backed securities		91,084		91,084		-
Corporate bonds		6,449		6,449		-
Total	$	291,557	$	291,557	$	-

Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

			Fair Value Measurements Using
Assets:	December 31, 2014		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	41,577	$	41,577	$	-
Obligations of states and political subdivisions		137,769		137,769		-
Collateralized mortgage obligations		21,997		21,997		-
Mortgage-backed securities		90,919		90,919		-
Corporate bonds		6,408		6,408		-
Total	$	298,670	$	298,670	$	-

Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

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 March 31,
	2015		2014
	Liabilities Derivatives		Liabilities Derivatives
Balance, January 1	$	752	$	932
Net change		-		-
Balance, March 31	$	752	$	932

- 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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