FAIR VALUE MEASUREMENTS

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.



	Balance at		Fair Value Measurements Using:
Dollars in thousands	September 30, 2017		Level 1		Level 2		Level 3
Available for sale securities
U.S. Government sponsored agencies	$	24,135	$	—	$	24,135	$	—
Mortgage backed securities:
Government sponsored agencies	121,759		—		121,759		—
Nongovernment sponsored entities	2,755		—		2,755		—
State and political subdivisions	13,435		—		13,435		—
Corporate debt securities	16,190		—		16,190		—
Other equity securities	137		—		137		—
Tax-exempt state and political subdivisions	150,315		—		150,315		—
Total available for sale securities	$	328,726	$	—	$	328,726	$	—

Derivative financial assets
Interest rate swaps	$	125	$	—	$	125	$	—

Derivative financial liabilities
Interest rate swaps	$	3,056	$	—	$	3,056	$	—



	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2016		Level 1		Level 2		Level 3
Available for sale securities
U.S. Government sponsored agencies	$	15,174	$	—	$	15,174	$	—
Mortgage backed securities:
Government sponsored agencies	138,846		—		138,846		—
Nongovernment sponsored entities	4,653		—		4,653		—
Corporate debt securities	18,170		—		18,170		—
Other equity securities	137		—		137		—
Tax-exempt state and political subdivisions	89,562		—		89,562		—
Total available for sale securities	$	266,542	$	—	$	266,542	$	—

Derivative financial assets
Interest rate swaps	$	200	$	—	$	200	$	—

Derivative financial liabilities
Interest rate swaps	$	4,611	$	—	$	4,611	$	—

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.



	Balance at		Fair Value Measurements Using:
Dollars in thousands	September 30, 2017		Level 1		Level 2		Level 3
Residential mortgage loans held for sale	$	220	$	—	$	220	$	—

Collateral-dependent impaired loans
Commercial real estate	$	518	$	—	$	518	$	—
Construction and development	945		—		945		—
Residential real estate	203		—		203		—
Total collateral-dependent impaired loans	$	1,666	$	—	$	1,666	$	—

Property held for sale
Commercial real estate	$	1,476	$	—	$	1,292	$	184
Construction and development	16,627		—		16,627		—
Residential real estate	352		—		352		—
Total property held for sale	$	18,455	$	—	$	18,271	$	184



	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2016		Level 1		Level 2		Level 3
Residential mortgage loans held for sale	$	176	$	—	$	176	$	—

Collateral-dependent impaired loans
Construction and development	$	945	$	—	$	945	$	—
Residential real estate	130		—		130		—
Total collateral-dependent impaired loans	$	1,075	$	—	$	1,075	$	—

Property held for sale
Commercial real estate	$	976	$	—	$	976	$	—
Construction and development	19,327		—		19,327		—
Residential real estate	279		—		279		—
Total property held for sale	$	20,582	$	—	$	20,582	$	—

The following summarizes the methods and significant assumptions we used in estimating our fair value disclosures for financial instruments, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

Cash and cash equivalents: The carrying values of cash and cash equivalents approximate their estimated fair value.

Securities: Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.

Other investments: Other investments consists of FHLB stock, which does not have readily determinable fair values and is carried at cost and an investment in a limited partnership which owns interests in a diversified portfolio of qualified affordable housing projects which is reflected at its carrying value.

Loans held for sale: The carrying values of loans held for sale approximate their estimated fair values.

Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms to borrowers of similar credit quality. No prepayments of principal are assumed.

Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair values.

Deposits: The estimated fair values of demand deposits (i.e. non-interest bearing checking, NOW, money market and savings accounts) and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered in estimating the fair values disclosed.

Short-term borrowings: The carrying values of short-term borrowings approximate their estimated fair values.

Long-term borrowings: The fair values of long-term borrowings are estimated by discounting scheduled future payments of principal and interest at current rates available on borrowings with similar terms.

Subordinated debentures owed to unconsolidated subsidiary trusts: The carrying values of subordinated debentures owed to unconsolidated subsidiary trusts approximate their estimated fair values.

Derivative financial instruments: The fair value of the interest rate swaps is valued using independent pricing models.

Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counter parties. The amounts of fees currently charged on commitments and standby letters of credit are deemed insignificant and therefore, the estimated fair values and carrying values are not shown below.

The carrying values and estimated fair values of our financial instruments are summarized below:



	September 30, 2017				Fair Value Measurements Using:
Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	51,214	$	51,214	$	—	$	51,214	$	—
Securities available for sale	328,726		328,726		—		328,726		—
Other investments	12,170		12,170		—		12,170		—
Loans held for sale, net	220		220		—		220		—
Loans, net	1,559,328		1,557,227		—		1,666		1,555,561
Accrued interest receivable	7,979		7,979		—		7,979		—
Derivative financial assets	125		125		—		125		—
	$	1,959,762	$	1,957,661	$	—	$	402,100	$	1,555,561
Financial liabilities
Deposits	$	1,616,768	$	1,637,258	$	—	$	1,637,258	$	—
Short-term borrowings	202,988		202,988		—		202,988		—
Long-term borrowings	45,755		46,962		—		46,962		—
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589		—		19,589		—
Accrued interest payable	912		912		—		912		—
Derivative financial liabilities	3,056		3,056		—		3,056		—
	$	1,889,068	$	1,910,765	$	—	$	1,910,765	$	—



	December 31, 2016				Fair Value Measurements Using:
Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	46,616	$	46,616	$	—	$	46,616	$	—
Securities available for sale	266,542		266,542		—		266,542		—
Other investments	12,942		12,942		—		12,942		—
Loans held for sale, net	176		176		—		176		—
Loans, net	1,307,862		1,321,235		—		1,075		1,320,160
Accrued interest receivable	6,167		6,167		—		6,167		—
Derivative financial assets	200		200		—		200		—
	$	1,640,505	$	1,653,878	$	—	$	333,718	$	1,320,160
Financial liabilities
Deposits	$	1,295,519	$	1,309,820	$	—	$	1,309,820	$	—
Short-term borrowings	224,461		224,461		—		224,461		—
Long-term borrowings	46,670		49,013		—		49,013		—
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589		—		19,589		—
Accrued interest payable	736		736		—		736		—
Derivative financial liabilities	4,611		4,611		—		4,611		—
	$	1,591,586	$	1,608,230	$	—	$	1,608,230	$	—