10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2014

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 0-18415

Isabella Bank Corporation

(Exact name of registrant as specified in its charter)

Michigan	38-2830092
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
401 N. Main St, Mt. Pleasant, MI	48858
(Address of principal executive offices)	(Zip code)

(989) 772-9471

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	ý
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨  Yes    ý  No

The number of shares outstanding of the registrant’s Common Stock (no par value) was 7,750,559 as of August 6, 2014.

ISABELLA BANK CORPORATION

QUARTERLY REPORT ON FORM 10-Q

Table of Contents

PART I – FINANCIAL INFORMATION		4
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	61
PART II – OTHER INFORMATION		62
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 6.	Exhibits	63
SIGNATURES		64

2

Forward Looking Statements

This report contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995, and are included in this statement for purposes of these safe harbor provisions. Forward looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects include, but are not limited to, changes in: interest rates, general economic conditions, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the FRB, the quality or composition of the loan or investment portfolios, demand for loan products, fluctuation in the value of collateral securing our loan portfolio, deposit flows, competition, demand for financial services in our market area, and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward looking statements and undue reliance should not be placed on such statements. Further information concerning our business, including additional factors that could materially affect our financial results, is included in our filings with the SEC.

The acronyms and abbreviations identified below may be used throughout this Quarterly Report on Form 10-Q, or in our other filings. You may find it helpful to refer back to this page while reading this report.

AFS: Available-for-sale	GAAP: U.S. generally accepted accounting principles
ALLL: Allowance for loan and lease losses	GLB Act: Gramm-Leach-Bliley Act of 1999
AOCI: Accumulated other comprehensive income (loss)	IFRS: International Financial Reporting Standards
ASC: FASB Accounting Standards Codification	IRR: Interest rate risk
ASU: FASB Accounting Standards Update	JOBS Act: Jumpstart our Business Startups Act
ATM: Automated Teller Machine	LIBOR: London Interbank Offered Rate
BHC Act: Bank Holding Company Act of 1956	N/A: Not applicable
CFPB: Consumer Financial Protection Bureau	N/M: Not meaningful
CIK: Central Index Key	NASDAQ: NASDAQ Stock Market Index
CRA: Community Reinvestment Act	NASDAQ Banks: NASDAQ Bank Stock Index
DIF: Deposit Insurance Fund	NAV: Net asset value
DIFS: Department of Insurance and Financial Services	NOW: Negotiable order of withdrawal
Directors Plan: Isabella Bank Corporation and Related Companies Deferred Compensation Plan for Directors	NSF: Non-sufficient funds
Dividend Reinvestment Plan: Isabella Bank Corporation Stockholder Dividend Reinvestment Plan and Employee Stock Purchase Plan	OCI: Other comprehensive income (loss)
Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010	OMSRs: Originated mortgage servicing rights
ESOP: Employee stock ownership plan	OREO: Other real estate owned
Exchange Act: Securities Exchange Act of 1934	OTC: Over-the-Counter
FASB: Financial Accounting Standards Board	OTTI: Other-than-temporary impairment
FDI Act: Federal Deposit Insurance Act	PBO: Projected benefit obligation
FDIC: Federal Deposit Insurance Corporation	PCAOB: Public Company Accounting Oversight Board
FFIEC: Federal Financial Institutions Examinations Council	Rabbi Trust: A trust established to fund the Directors Plan
FRB: Federal Reserve Bank	SEC: U.S. Securities & Exchange Commission
FHLB: Federal Home Loan Bank	SOX: Sarbanes-Oxley Act of 2002
Freddie Mac: Federal Home Loan Mortgage Corporation	TDR: Troubled debt restructuring
FTE: Fully taxable equivalent	XBRL: eXtensible Business Reporting Language

3

PART I – FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	June 30 2014		December 31 2013
ASSETS
Cash and cash equivalents
Cash and demand deposits due from banks	$	26,484	$	21,755
Interest bearing balances due from banks	896		19,803
Total cash and cash equivalents	27,380		41,558
Certificates of deposit held in other financial institutions	580		580
Trading securities	—		525
AFS securities (amortized cost of $546,102 in 2014 and $517,614 in 2013)	550,518		512,062
Mortgage loans AFS	340		1,104
Loans
Commercial	407,791		392,104
Agricultural	97,661		92,589
Residential real estate	278,545		289,931
Consumer	32,310		33,413
Gross loans	816,307		808,037
Less allowance for loan and lease losses	10,700		11,500
Net loans	805,607		796,537
Premises and equipment	25,701		25,719
Corporate owned life insurance policies	24,775		24,401
Accrued interest receivable	5,448		5,442
Equity securities without readily determinable fair values	19,303		18,293
Goodwill and other intangible assets	46,216		46,311
Other assets	16,267		20,605
TOTAL ASSETS	$	1,522,135	$	1,493,137
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	162,537	$	158,428
NOW accounts	186,705		192,089
Certificates of deposit under $100 and other savings	463,497		455,547
Certificates of deposit over $100	248,189		237,702
Total deposits	1,060,928		1,043,766
Borrowed funds	279,457		279,326
Accrued interest payable and other liabilities	10,651		9,436
Total liabilities	1,351,036		1,332,528
Shareholders’ equity
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,735,156 shares (including 6,697 shares held in the Rabbi Trust) in 2014 and 7,723,023 shares (including 12,761 shares held in the Rabbi Trust) in 2013	137,945		137,580
Shares to be issued for deferred compensation obligations	3,984		4,148
Retained earnings	28,702		25,222
Accumulated other comprehensive income (loss)	468		(6,341		)
Total shareholders’ equity	171,099		160,609
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,522,135	$	1,493,137

See notes to interim condensed consolidated financial statements.

4

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands except per share amounts)

	Three Months Ended   June 30					Six Months Ended   June 30
	2014			2013		2014			2013
Interest income
Loans, including fees	$	9,799		$	10,280	$	19,550		$	20,610
AFS securities
Taxable	1,993			1,798		3,991			3,632
Nontaxable	1,486			1,244		2,943			2,478
Trading securities	1			9		6			23
Federal funds sold and other	112			109		265			225
Total interest income	13,391			13,440		26,755			26,968
Interest expense
Deposits	1,589			1,822		3,205			3,696
Borrowings	879			959		1,763			1,906
Total interest expense	2,468			2,781		4,968			5,602
Net interest income	10,923			10,659		21,787			21,366
Provision for loan losses	(200		)	215		(442		)	515
Net interest income after provision for loan losses	11,123			10,444		22,229			20,851
Noninterest income
Service charges and fees	1,360			1,445		2,754			2,726
Net gain on sale of mortgage loans	151			249		266			607
Earnings on corporate owned life insurance policies	190			190		374			359
Net gains (losses) on sale of AFS securities	—			—		—			99
Other	733			852		1,289			1,392
Total noninterest income	2,434			2,736		4,683			5,183
Noninterest expenses
Compensation and benefits	5,385			5,236		10,871			10,681
Furniture and equipment	1,219			1,192		2,487			2,381
Occupancy	676			641		1,418			1,306
Other	2,020			2,255		4,010			4,147
Total noninterest expenses	9,300			9,324		18,786			18,515
Income before federal income tax expense	4,257			3,856		8,126			7,519
Federal income tax expense	692			643		1,252			1,219
NET INCOME	$	3,565		$	3,213	$	6,874		$	6,300
Earnings per common share
Basic	$	0.46		$	0.42	$	0.89		$	0.82
Diluted	$	0.45		$	0.41	$	0.87		$	0.80
Cash dividends per common share	$	0.22		$	0.21	$	0.44		$	0.42

See notes to interim condensed consolidated financial statements.

5

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

	Three Months Ended   June 30						Six Months Ended   June 30
	2014			2013			2014			2013
Net income	$	3,565		$	3,213		$	6,874		$	6,300
Unrealized gains (losses) on AFS securities
Unrealized gains (losses) arising during the period	4,448			(11,997		)	9,968			(13,958		)
Reclassification adjustment for net realized (gains) losses included in net income	—			—			—			(99		)
Net unrealized gains (losses)	4,448			(11,997		)	9,968			(14,057		)
Tax effect (1)	(1,420		)	3,979			(3,159		)	4,902
Other comprehensive income (loss), net of tax	3,028			(8,018		)	6,809			(9,155		)
Comprehensive income (loss)	$	6,593		$	(4,805	)	$	13,683		$	(2,855	)

⁽¹⁾  See “Note 12 – Accumulated Other Comprehensive Income (Loss)” for tax effect reconciliation.

See notes to interim condensed consolidated financial statements.

6

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands except per share amounts)

	Common Stock
	Shares Outstanding		Amount			Shares to be Issued for Deferred Compensation Obligations			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Totals
Balance, January 1, 2013	7,671,846		$	136,580		$	3,734		$	19,168		$	5,007		$	164,489
Comprehensive income (loss)	—		—			—			6,300			(9,155		)	(2,855		)
Issuance of common stock	77,568		1,900			—			—			—			1,900
Common stock issued for deferred compensation obligations	—		—			—			—			—			—
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—		121			(121		)	—			—			—
Share-based payment awards under equity compensation plan	—		—			258			—			—			258
Common stock purchased for deferred compensation obligations	—		(166		)	—			—			—			(166		)
Common stock repurchased pursuant to publicly announced repurchase plan	(45,825	)	(1,114		)	—			—			—			(1,114		)
Cash dividends ($0.42 per share)	—		—			—			(3,224		)	—			(3,224		)
Balance, June 30, 2013	7,703,589		$	137,321		$	3,871		$	22,244		$	(4,148	)	$	159,288
Balance, January 1, 2014	7,723,023		$	137,580		$	4,148		$	25,222		$	(6,341	)	$	160,609
Comprehensive income (loss)	—		—			—			6,874			6,809			13,683
Issuance of common stock	76,341		1,778			—			—			—			1,778
Common stock issued for deferred compensation obligations	6,126		143			(143		)	—			—			—
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—		258			(258		)	—			—			—
Share-based payment awards under equity compensation plan	—		—			237			—			—			237
Common stock purchased for deferred compensation obligations	—		(166		)	—			—			—			(166		)
Common stock repurchased pursuant to publicly announced repurchase plan	(70,334	)	(1,648		)	—			—			—			(1,648		)
Cash dividends ($0.44 per share)	—		—			—			(3,394		)	—			(3,394		)
Balance, June 30, 2014	7,735,156		$	137,945		$	3,984		$	28,702		$	468		$	171,099

See notes to interim condensed consolidated financial statements.

7

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Six Months Ended   June 30
	2014			2013
OPERATING ACTIVITIES
Net income	$	6,874		$	6,300
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses	(442		)	515
Impairment of foreclosed assets	63			92
Depreciation	1,242			1,249
Amortization of OMSRs	139			210
Amortization of acquisition intangibles	95			114
Net amortization of AFS securities	920			1,131
Net (gains) losses on sale of AFS securities	—			(99		)
Net unrealized (gains) losses on trading securities	5			18
Net gain on sale of mortgage loans	(266		)	(607		)
Increase in cash value of corporate owned life insurance policies	(374		)	(359		)
Share-based payment awards under equity compensation plan	237			258
Origination of loans held-for-sale	(12,878		)	(35,014		)
Proceeds from loan sales	13,908			38,511
Net changes in operating assets and liabilities which provided (used) cash:
Trading securities	520			605
Accrued interest receivable	(6		)	(5		)
Other assets	(250		)	914
Accrued interest payable and other liabilities	1,215			761
Net cash provided by (used in) operating activities	11,002			14,594
INVESTING ACTIVITIES
Net change in certificates of deposit held in other financial institutions	—			2,655
Activity in AFS securities
Sales	—			9,857
Maturities and calls	32,354			46,780
Purchases	(61,762		)	(67,140		)
Loan principal (originations) collections, net	(9,551		)	(32,185		)
Proceeds from sales of foreclosed assets	1,140			1,556
Purchases of premises and equipment	(1,224		)	(1,314		)
Purchases of corporate owned life insurance policies	—			(1,092		)
Proceeds from redemption of corporate owned life insurance policies	—			123
Net cash provided by (used in) investing activities	(39,043		)	(40,760		)

8

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

	Six Months Ended   June 30
	2014			2013
FINANCING ACTIVITIES
Net increase (decrease) in deposits	17,162			3,757
Increase (decrease) in borrowed funds	131			21,459
Cash dividends paid on common stock	(3,394		)	(3,224		)
Proceeds from issuance of common stock	1,778			1,900
Common stock repurchased	(1,648		)	(1,114		)
Common stock purchased for deferred compensation obligations	(166		)	(166		)
Net cash provided by (used in) financing activities	13,863			22,612
Increase (decrease) in cash and cash equivalents	(14,178		)	(3,554		)
Cash and cash equivalents at beginning of period	41,558			24,920
Cash and cash equivalents at end of period	$	27,380		$	21,366
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid	$	5,074		$	5,667
Federal income taxes paid	715			702
SUPPLEMENTAL NONCASH INFORMATION:
Transfers of loans to foreclosed assets	$	923		$	735

See notes to interim condensed consolidated financial statements.

9

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share amounts)

Note 1 – Basis of Presentation

As used in these notes as well as in Management's Discussion and Analysis of Financial Condition and Results of Operations, references to “Isabella,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiaries. Isabella Bank Corporation refers solely to the parent holding company, and Isabella Bank refers to Isabella Bank Corporation’s subsidiary, Isabella Bank.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Our accounting policies are materially the same as those discussed in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Note 2 – Computation of Earnings Per Common Share

Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan.

Earnings per common share have been computed based on the following:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Average number of common shares outstanding for basic calculation	7,722,367		7,701,042		7,721,814		7,689,092
Average potential effect of common shares in the Directors Plan (1)	168,715		168,323		170,984		166,800
Average number of common shares outstanding used to calculate diluted earnings per common share	7,891,082		7,869,365		7,892,798		7,855,892
Net income	$	3,565	$	3,213	$	6,874	$	6,300
Earnings per common share
Basic	$	0.46	$	0.42	$	0.89	$	0.82
Diluted	$	0.45	$	0.41	$	0.87	$	0.80

⁽¹⁾  Exclusive of shares held in the Rabbi Trust

Note 3 – Pending Accounting Standards Updates

ASU No. 2014-01: “Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)”

In January 2014, ASU No. 2014-01 amended ASC Topic 323, “Investments" to allow investors in low income housing tax credits to use the proportional amortization method if the following criteria are met:

• It is probable that the tax credits allocable to the investor will be available.

• The investor does not have the ability to exercise significant influence over the operating and financial policies of the limited liability entity.

• Substantially all of the projected benefits are from tax credits and other tax benefits (e.g., operating losses).

• The investor’s projected yield is based solely on the cash flows from the tax credits and other tax benefits are positive.

• The investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the investor’s liability is limited to its capital investment.

10

Investors that do not meet the above criteria must utilize the cost method or equity method in accordance with previously issued authoritative accounting guidance. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2014 and is not expected to have a significant impact on our operations.

ASU No. 2014-04: “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)”

In January 2014, ASU No. 2014-04 amended ASC Topic 310, “Receivables” to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2014 and is not expected to have a significant impact on our operations.

ASU No. 2014-11: “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”

In June 2014, ASU No. 2014-11 amended ASC Topic 860, “Transfers and Servicing” to address concerns that current accounting guidance distinguishes between repurchase agreements that settle at the same time as the maturity of the transferred financial asset and those that settle any time before maturity. The update changes the accounting for repurchase-to-maturity transactions to secured borrowing accounting and, for repurchase financing arrangements, separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2014 and is not expected to impact our financial statement disclosures.

Note 4 – AFS Securities

The amortized cost and fair value of AFS securities, with gross unrealized gains and losses, are as follows at:

	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,706	$	5	$	607	$	24,104
States and political subdivisions	208,564		6,962		1,316		214,210
Auction rate money market preferred	3,200		—		333		2,867
Preferred stocks	6,800		6		592		6,214
Mortgage-backed securities	162,949		1,732		1,689		162,992
Collateralized mortgage obligations	139,883		1,652		1,404		140,131
Total	$	546,102	$	10,357	$	5,941	$	550,518

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,860	$	7	$	1,122	$	23,745
States and political subdivisions	200,323		5,212		3,547		201,988
Auction rate money market preferred	3,200		—		623		2,577
Preferred stocks	6,800		20		993		5,827
Mortgage-backed securities	147,292		657		3,834		144,115
Collateralized mortgage obligations	135,139		1,016		2,345		133,810
Total	$	517,614	$	6,912	$	12,464	$	512,062

11

The amortized cost and fair value of AFS securities by contractual maturity at June 30, 2014 are as follows:

	Maturing								Securities with Variable Monthly Payments or Noncontractual Maturities
	Due in One Year or Less		After One Year But Within Five Years		After Five Years But Within Ten Years		After Ten Years				Total
Government sponsored enterprises	$	—	$	9,068	$	15,638	$	—	$	—	$	24,706
States and political subdivisions	10,714		49,186		99,791		48,873		—		208,564
Auction rate money market preferred	—		—		—		—		3,200		3,200
Preferred stocks	—		—		—		—		6,800		6,800
Mortgage-backed securities	—		—		—		—		162,949		162,949
Collateralized mortgage obligations	—		—		—		—		139,883		139,883
Total amortized cost	$	10,714	$	58,254	$	115,429	$	48,873	$	312,832	$	546,102
Fair value	$	10,812	$	60,195	$	118,057	$	49,250	$	312,204	$	550,518

Expected maturities for government sponsored enterprises and states and political subdivisions may differ from contractual maturities because issuers may have the right to call or prepay obligations.

As the auction rate money market preferred and preferred stocks have continual call dates, they are not reported by a specific maturity group. Because of their variable monthly payments, mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group.

A summary of the sales activity of AFS securities was as follows for the three and six month periods ended:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Proceeds from sales of AFS securities	$	—	$	—	$	—	$	9,857
Gross realized gains (losses)	$	—	$	—	$	—	$	99
Applicable income tax expense (benefit)	$	—	$	—	$	—	$	34

The cost basis used to determine the realized gains or losses of AFS securities sold was the amortized cost of the individual investment security as of the trade date.

Information pertaining to AFS securities with gross unrealized losses at June 30, 2014 and December 31, 2013, respectively, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	June 30, 2014
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
Government sponsored enterprises	$	—	$	—	$	607	$	23,389	$	607
States and political subdivisions	259		15,190		1,057		27,852		1,316
Auction rate money market preferred	—		—		333		2,167		333
Preferred stocks	—		—		592		3,208		592
Mortgage-backed securities	17		9,268		1,672		65,346		1,689
Collateralized mortgage obligations	82		23,739		1,322		42,518		1,404
Total	$	358	$	48,197	$	5,583	$	164,480	$	5,941
Number of securities in an unrealized loss position:			123				116		239

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	December 31, 2013
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
Government sponsored enterprises	$	1,122	$	22,873	$	—	$	—	$	1,122
States and political subdivisions	2,566		42,593		981		6,115		3,547
Auction rate money market preferred	—		—		623		2,577		623
Preferred stocks	—		—		993		2,807		993
Mortgage-backed securities	2,424		101,816		1,410		21,662		3,834
Collateralized mortgage obligations	2,345		84,478		—		—		2,345
Total	$	8,457	$	251,760	$	4,007	$	33,161	$	12,464
Number of securities in an unrealized loss position:			182				19		201

As of June 30, 2014 and December 31, 2013, we conducted an analysis to determine whether any securities currently in an unrealized loss position should be other-than-temporarily impaired. Such analyses considered, among other factors, the following criteria:

• Has the value of the investment declined more than what is deemed to be reasonable based on a risk and maturity adjusted discount rate?

• Is the investment credit rating below investment grade?

• Is it probable the issuer will be unable to pay the amount when due?

• Is it more likely than not that we will have to sell the security before recovery of its cost basis?

• Has the duration of the investment been extended?

Based on our analyses, the fact that we have asserted that we do not have the intent to sell AFS securities in an unrealized loss position, and considering it is unlikely that we will have to sell AFS securities in an unrealized loss position before recovery of their cost basis, we do not believe that the values of any AFS securities are other-than-temporarily impaired as of June 30, 2014, or December 31, 2013.

Note 5 – Loans and ALLL

We grant commercial, agricultural, residential real estate, and consumer loans to customers situated primarily in Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of the borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, light manufacturing, retail, gaming, tourism, higher education, and general economic conditions of this region. Substantially all of our consumer and residential real estate loans are secured by various items of property, while commercial loans are secured primarily by real estate, business assets, and personal guarantees; a portion of loans are unsecured.

Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs, the ALLL, and any deferred fees or costs. Interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the level yield method.

The accrual of interest on commercial, agricultural, and residential real estate loans is typically discontinued at the time the loan is 90 days or more past due unless the credit is well-secured and in the process of collection. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

For loans that are placed on nonaccrual status or charged-off, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ALLL. Loans are typically returned to accrual status after six months of continuous performance. For impaired loans not classified as nonaccrual, interest income continues to be accrued over the term of the loan based on the principal amount outstanding.

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Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, farmland and agricultural production, and states and political subdivisions. Repayment of these loans is often dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of credit exposure to any one borrower to $15,000. Borrowers with credit needs of more than $15,000 are serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans generally require loan-to-value limits of less than 80%. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, and property and equipment. Personal guarantees are generally required from the owners of closely held corporations, partnerships, and sole proprietorships. In addition, we require annual financial statements, prepare cash flow analyses, and review credit reports as deemed necessary.

We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which typically have amortization periods up to a maximum of 30 years. Fixed rate residential real estate loans with an amortization of greater than 15 years are generally sold upon origination to Freddie Mac. Fixed rate residential real estate loans with an amortization of 15 years or less may be held in our portfolio or sold upon origination. We consider the direction of interest rates, the sensitivity of our balance sheet to changes in interest rates, and overall loan demand to determine whether or not to sell these loans to Freddie Mac.

Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 95% of the lower of the appraised value of the property or the purchase price, with the condition that private mortgage insurance is required on loans with loan-to-value ratios in excess of 80%. Substantially all loans upon origination have a loan to value ratio of less than 80%. Underwriting criteria for residential real estate loans include: evaluation of the borrower’s ability to make monthly payments, the value of the property securing the loan, ensuring the payment of principal, interest, taxes, and hazard insurance does not exceed 28% of a borrower’s gross income, all debt servicing does not exceed 36% of income, acceptable credit reports, verification of employment, income, and financial information. Appraisals are performed by independent appraisers and reviewed internally. All mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market automated underwriting system; loans in excess of $500 require the approval of our Internal Loan Committee, the Board of Directors’ Loan Committee, or the Board of Directors.

Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 12 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market.

The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the ALLL when we believe the uncollectability of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the ALLL.

The ALLL is evaluated on a regular basis and is based upon a periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The primary factors behind the determination of the level of the ALLL are specific allocations for impaired loans, historical loss percentages, as well as unallocated components. Specific allocations for impaired loans are primarily determined based on the difference between the net realizable value of the loan’s underlying collateral or the net present value of the projected payment stream and our recorded investment. Historical loss allocations were calculated at the loan class and segment levels based on a migration analysis of the loan portfolio over the preceding five years. An unallocated component is maintained to cover uncertainties that we believe affect our estimate of probable losses based on qualitative factors. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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A summary of changes in the ALLL and the recorded investment in loans by segments follows:

	Allowance for Loan Losses
	Three Months Ended June 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
April 1, 2014	$	4,814		$	425		$	4,727		$	630		$	504	$	11,100
Loans charged-off	(79		)	—			(264		)	(68		)	—		(411		)
Recoveries	92			—			86			33			—		211
Provision for loan losses	185			(206		)	(568		)	207			182		(200		)
June 30, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700

	Allowance for Loan Losses
	Six Months Ended June 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2014	$	6,048		$	434		$	3,845		$	639		$	534	$	11,500
Loans charged-off	(271		)	(31		)	(377		)	(182		)	—		(861		)
Recoveries	306			—			122			75			—		503
Provision for loan losses	(1,071		)	(184		)	391			270			152		(442		)
June 30, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700

	Allowance for Loan Losses and Recorded Investment in Loans
	June 30, 2014
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	1,633	$	36	$	2,270	$	1	$	—	$	3,940
Collectively evaluated for impairment	3,379		183		1,711		801		686		6,760
Total	$	5,012	$	219	$	3,981	$	802	$	686	$	10,700
Loans
Individually evaluated for impairment	$	13,164	$	1,583	$	12,906	$	74			$	27,727
Collectively evaluated for impairment	394,627		96,078		265,639		32,236				788,580
Total	$	407,791	$	97,661	$	278,545	$	32,310			$	816,307

	Allowance for Loan Losses
	Three Months Ended June 30, 2013
	Commercial			Agricultural		Residential Real Estate			Consumer			Unallocated		Total
April 1, 2013	$	6,897		$	321	$	3,634		$	732		$	325	$	11,909
Loans charged-off	(234		)	—		(397		)	(88		)	—		(719		)
Recoveries	166			—		61			68			—		295
Provision for loan losses	(357		)	14		378			(65		)	245		215
June 30, 2013	$	6,472		$	335	$	3,676		$	647		$	570	$	11,700

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	Allowance for Loan Losses
	Six Months Ended June 30, 2013
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2013	$	6,862		$	407		$	3,627		$	666		$	374	$	11,936
Loans charged-off	(445		)	—			(587		)	(209		)	—		(1,241		)
Recoveries	223			—			114			153			—		490
Provision for loan losses	(168		)	(72		)	522			37			196		515
June 30, 2013	$	6,472		$	335		$	3,676		$	647		$	570	$	11,700

	Allowance for Loan Losses and Recorded Investment in Loans
	December 31, 2013
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	2,035	$	30	$	2,287	$	—	$	—	$	4,352
Collectively evaluated for impairment	4,013		404		1,558		639		534		7,148
Total	$	6,048	$	434	$	3,845	$	639	$	534	$	11,500
Loans
Individually evaluated for impairment	$	13,816	$	1,538	$	14,302	$	119			$	29,775
Collectively evaluated for impairment	378,288		91,051		275,629		33,294				778,262
Total	$	392,104	$	92,589	$	289,931	$	33,413			$	808,037

The following table displays the credit quality indicators for commercial and agricultural credit exposures based on internally assigned credit ratings as of:

	June 30, 2014
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	15,038	$	16,364	$	31,402	$	5,619	$	3,817	$	9,436
3 - High satisfactory	92,014		48,135		140,149		25,840		12,843		38,683
4 - Low satisfactory	166,155		42,561		208,716		29,461		15,804		45,265
5 - Special mention	9,816		1,153		10,969		1,810		318		2,128
6 - Substandard	13,557		145		13,702		1,848		186		2,034
7 - Vulnerable	2,605		234		2,839		115		—		115
8 - Doubtful	—		14		14		—		—		—
Total	$	299,185	$	108,606	$	407,791	$	64,693	$	32,968	$	97,661

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	December 31, 2013
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	18,671	$	14,461	$	33,132	$	3,527	$	3,235	$	6,762
3 - High satisfactory	91,323		39,403		130,726		26,015		17,000		43,015
4 - Low satisfactory	149,921		43,809		193,730		26,874		10,902		37,776
5 - Special mention	13,747		1,843		15,590		1,609		922		2,531
6 - Substandard	16,974		473		17,447		1,232		1,273		2,505
7 - Vulnerable	1,041		238		1,279		—		—		—
8 - Doubtful	183		17		200		—		—		—
Total	$	291,860	$	100,244	$	392,104	$	59,257	$	33,332	$	92,589

Internally assigned risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned risk ratings for commercial and agricultural loans are as follows:

1. EXCELLENT – Substantially Risk Free

Credit has strong financial condition and solid earnings history, characterized by:

• High liquidity, strong cash flow, low leverage.

• Unquestioned ability to meet all obligations when due.

• Experienced management, with management succession in place.

• Secured by cash.

2. HIGH QUALITY – Limited Risk

Credit with sound financial condition and has a positive trend in earnings supplemented by:

• Favorable liquidity and leverage ratios.

• Ability to meet all obligations when due.

• Management with successful track record.

• Steady and satisfactory earnings history.

• If loan is secured, collateral is of high quality and readily marketable.

• Access to alternative financing.

• Well defined primary and secondary source of repayment.

• If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident.

3.HIGH SATISFACTORY – Reasonable Risk

Credit with satisfactory financial condition and further characterized by:

• Working capital adequate to support operations.

• Cash flow sufficient to pay debts as scheduled.

• Management experience and depth appear favorable.

• Loan performing according to terms.

• If loan is secured, collateral is acceptable and loan is fully protected.

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4. LOW SATISFACTORY – Acceptable Risk

Credit with bankable risks, although some signs of weaknesses are shown:

• Would include most start-up businesses.

• Occasional instances of trade slowness or repayment delinquency – may have been 10-30 days slow within the past year.

• Management’s abilities are apparent, yet unproven.

• Weakness in primary source of repayment with adequate secondary source of repayment.

• Loan structure generally in accordance with policy.

• If secured, loan collateral coverage is marginal.

• Adequate cash flow to service debt, but coverage is low.

To be classified as less than satisfactory, only one of the following criteria must be met.

5. SPECIAL MENTION – Criticized

Credit constitutes an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific loan:

• Downward trend in sales, profit levels, and margins.

• Impaired working capital position.

• Cash flow is strained in order to meet debt repayment.

• Loan delinquency (30-60 days) and overdrafts may occur.

• Shrinking equity cushion.

• Diminishing primary source of repayment and questionable secondary source.

• Management abilities are questionable.

• Weak industry conditions.

• Litigation pending against the borrower.

• Collateral or guaranty offers limited protection.

• Negative debt service coverage, however the credit is well collateralized and payments are current.

6. SUBSTANDARD – Classified

Credit where the borrower’s current net worth, paying capacity, and value of the collateral pledged is inadequate. There is a distinct possibility that we will implement collection procedures if the loan deficiencies are not corrected. In addition, the following characteristics may apply:

• Sustained losses have severely eroded the equity and cash flow.

• Deteriorating liquidity.

• Serious management problems or internal fraud.

• Original repayment terms liberalized.

• Likelihood of bankruptcy.

• Inability to access other funding sources.

• Reliance on secondary source of repayment.

• Litigation filed against borrower.

• Collateral provides little or no value.

• Requires excessive attention of the loan officer.

• Borrower is uncooperative with loan officer.

7.VULNERABLE – Classified

Credit is considered “Substandard” and warrants placing on nonaccrual. Risk of loss is being evaluated and exit strategy options are under review. Other characteristics that may apply:

• Insufficient cash flow to service debt.

• Minimal or no payments being received.

• Limited options available to avoid the collection process.

• Transition status, expect action will take place to collect loan without immediate progress being made.

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8. DOUBTFUL – Workout

Credit has all the weaknesses inherent in a “Substandard” loan with the added characteristic that collection and/or liquidation is pending. The possibility of a loss is extremely high, but its classification as a loss is deferred until liquidation procedures are completed, or reasonably estimable. Other characteristics that may apply:

• Normal operations are severely diminished or have ceased.

• Seriously impaired cash flow.

• Original repayment terms materially altered.

• Secondary source of repayment is inadequate.

• Survivability as a “going concern” is impossible.

• Collection process has begun.

• Bankruptcy petition has been filed.

• Judgments have been filed.

• Portion of the loan balance has been charged-off.

Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due aging. The following tables summarize the past due and current loans as of:

	June 30, 2014
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	857	$	332	$	—	$	2,605	$	3,794	$	295,391	$	299,185
Commercial other	257		13		28		234		532		108,074		108,606
Total commercial	1,114		345		28		2,839		4,326		403,465		407,791
Agricultural
Agricultural real estate	208		—		—		115		323		64,370		64,693
Agricultural other	312		84		—		—		396		32,572		32,968
Total agricultural	520		84		—		115		719		96,942		97,661
Residential real estate
Senior liens	1,558		766		91		1,239		3,654		222,355		226,009
Junior liens	311		18		—		23		352		11,984		12,336
Home equity lines of credit	246		—		—		361		607		39,593		40,200
Total residential real estate	2,115		784		91		1,623		4,613		273,932		278,545
Consumer
Secured	46		—		—		10		56		27,827		27,883
Unsecured	38		4		—		—		42		4,385		4,427
Total consumer	84		4		—		10		98		32,212		32,310
Total	$	3,833	$	1,217	$	119	$	4,587	$	9,756	$	806,551	$	816,307

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	December 31, 2013
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	1,226	$	296	$	—	$	1,136	$	2,658	$	289,202	$	291,860
Commercial other	368		15		13		238		634		99,610		100,244
Total commercial	1,594		311		13		1,374		3,292		388,812		392,104
Agricultural
Agricultural real estate	34		295		—		—		329		58,928		59,257
Agricultural other	—		—		—		—		—		33,332		33,332
Total agricultural	34		295		—		—		329		92,260		92,589
Residential real estate
Senior liens	3,441		986		129		1,765		6,321		229,865		236,186
Junior liens	408		44		—		29		481		13,074		13,555
Home equity lines of credit	181		—		—		25		206		39,984		40,190
Total residential real estate	4,030		1,030		129		1,819		7,008		282,923		289,931
Consumer
Secured	167		11		—		50		228		28,444		28,672
Unsecured	25		5		—		1		31		4,710		4,741
Total consumer	192		16		—		51		259		33,154		33,413
Total	$	5,850	$	1,652	$	142	$	3,244	$	10,888	$	797,149	$	808,037

Impaired Loans

Loans may be classified as impaired if they meet one or more of the following criteria:

1. There has been a charge-off of its principal balance (in whole or in part),

2. The loan has been classified as a TDR, or

3. The loan is in nonaccrual status.

Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell, if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Impairment is measured on a loan-by-loan basis for residential real estate and consumer loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate.

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We do not recognize interest income on impaired loans in nonaccrual status. For impaired loans not in nonaccrual status, interest income is recognized daily, as earned, according to the terms of the loan agreement. The following is a summary of information pertaining to impaired loans as of:

	June 30, 2014						December 31, 2013
	Outstanding Balance		Unpaid Principal Balance		Valuation Allowance		Outstanding Balance		Unpaid Principal Balance		Valuation Allowance
Impaired loans with a valuation allowance
Commercial real estate	$	6,512	$	6,720	$	1,621	$	6,748	$	6,888	$	1,915
Commercial other	629		848		12		521		521		120
Agricultural real estate	204		204		36		90		90		30
Residential real estate senior liens	12,454		13,727		2,242		14,061		15,315		2,278
Residential real estate junior liens	92		102		19		48		64		9
Home equity lines of credit	360		660		9		—		—		—
Consumer secured	64		64		1		—		—		—
Total impaired loans with a valuation allowance	20,315		22,325		3,940		21,468		22,878		4,352
Impaired loans without a valuation allowance
Commercial real estate	5,708		6,326				5,622		6,499
Commercial other	315		356				925		1,035
Agricultural real estate	1,361		1,361				1,370		1,370
Agricultural other	18		138				78		198
Home equity lines of credit	—		—				193		493
Consumer secured	10		10				119		148
Total impaired loans without a valuation allowance	7,412		8,191				8,307		9,743
Impaired loans
Commercial	13,164		14,250		1,633		13,816		14,943		2,035
Agricultural	1,583		1,703		36		1,538		1,658		30
Residential real estate	12,906		14,489		2,270		14,302		15,872		2,287
Consumer	74		74		1		119		148		—
Total impaired loans	$	27,727	$	30,516	$	3,940	$	29,775	$	32,621	$	4,352

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The following is a summary of information pertaining to impaired loans for the three and six month periods ended:

	Three Months Ended   June 30, 2014					Six Months Ended   June 30, 2014
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	6,644	$	91		$	6,701	$	185
Commercial other	852		11			825		29
Agricultural real estate	147		(1		)	118		—
Agricultural other	—		—			—		—
Residential real estate senior liens	12,786		126			13,188		264
Residential real estate junior liens	68		1			57		1
Home equity lines of credit	265		10			175		11
Consumer secured	63		1			77		2
Total impaired loans with a valuation allowance	20,825		239			21,141		492
Impaired loans without a valuation allowance
Commercial real estate	5,819		91			5,797		193
Commercial other	286		1			438		7
Agricultural real estate	1,405		21			1,407		37
Agricultural other	131		—			146		28
Home equity lines of credit	—		—			48		—
Consumer secured	5		—			3		—
Total impaired loans without a valuation allowance	7,646		113			7,839		265
Impaired loans
Commercial	13,601		194			13,761		414
Agricultural	1,683		20			1,671		65
Residential real estate	13,119		137			13,468		276
Consumer	68		1			80		2
Total impaired loans	$	28,471	$	352		$	28,980	$	757

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	Three Months Ended   June 30, 2013					Six Months Ended   June 30, 2013
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	7,990	$	102		$	8,084	$	221
Commercial other	764		37			932		38
Agricultural real estate	91		1			124		4
Agricultural other	—		—			105		—
Residential real estate senior liens	10,466		110			10,460		209
Residential real estate junior liens	85		1			85		1
Home equity lines of credit	—		—			—		—
Consumer secured	—		—			—		—
Total impaired loans with a valuation allowance	19,396		251			19,790		473
Impaired loans without a valuation allowance
Commercial real estate	3,954		85			3,790		158
Commercial other	1,020		19			1,126		59
Agricultural real estate	133		2			67		2
Agricultural other	458		(11		)	423		(4		)
Home equity lines of credit	179		5			181		9
Consumer secured	63		1			68		2
Total impaired loans without a valuation allowance	5,807		101			5,655		226
Impaired loans
Commercial	13,728		243			13,932		476
Agricultural	682		(8		)	719		2
Residential real estate	10,730		116			10,726		219
Consumer	63		1			68		2
Total impaired loans	$	25,203	$	352		$	25,445	$	699

As of June 30, 2014 and December 31, 2013, we had committed to advance $36 and $134, respectively, in connection with impaired loans, which include TDRs.

Troubled Debt Restructurings

Loan modifications are considered to be TDRs when the modification includes terms outside of normal lending practices to a borrower who is experiencing financial difficulties.

Typical concessions granted include, but are not limited to:

1. Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.

2. Extending the amortization period beyond typical lending guidelines for debt with similar risk characteristics.

3. Forgiving principal.

4. Forgiving accrued interest.

To determine if a borrower is experiencing financial difficulties, we consider if:

1. The borrower is currently in default on any of their debt.

2. The borrower would likely default on any of their debt if the concession was not granted.

3. The borrower’s cash flow was insufficient to service all of their debt if the concession was not granted.

4. The borrower has declared, or is in the process of declaring, bankruptcy.

5. The borrower is unlikely to continue as a going concern (if the entity is a business).

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The following is a summary of information pertaining to TDRs granted in the:

	Three Months Ended June 30, 2014					Six Months Ended June 30, 2014
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	1	$	8	$	8	5	$	363	$	363
Agricultural other	—	—		—		—	—		—
Residential real estate
Senior liens	3	170		170		12	661		661
Junior liens	1	41		41		1	41		41
Home equity lines of credit	1	160		160		1	160		160
Total residential real estate	5	371		371		14	862		862
Consumer unsecured	2	8		8		3	8		8
Total	8	$	387	$	387	22	$	1,233	$	1,233

	Three Months Ended June 30, 2013					Six Months Ended June 30, 2013
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	7	$	3,153	$	2,957	7	$	3,153	$	2,957
Agricultural other	—	—		—		1	134		134
Residential real estate
Senior liens	7	635		635		15	1,435		1,418
Junior liens	—	—		—		—	—		—
Home equity lines of credit	—	—		—		—	—		—
Total residential real estate	7	635		635		15	1,435		1,418
Consumer unsecured	—	—		—		—	—		—
Total	14	$	3,788	$	3,592	23	$	4,722	$	4,509

The following tables summarize concessions we granted to borrowers in financial difficulty for the:

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
	Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period			Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period
	Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment
Commercial other	—	$	—	1	$	8	4	$	355	1	$	8
Agricultural other	—	—		—	—		—	—		—	—
Residential real estate
Senior liens	1	48		2	122		3	98		9	563
Junior liens	—	—		1	41		—	—		1	41
Home equity lines of credit	1	160		—	—		1	160		—	—
Total residential real estate	2	208		3	163		4	258		10	604
Consumer unsecured	1	5		1	3		2	5		1	3
Total	3	$	213	5	$	174	10	$	618	12	$	615

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	Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
	Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period			Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period
	Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment
Commercial other	3	$	1,357	4	$	1,796	3	$	1,357	4	$	1,796
Agricultural other	—	—		—	—		1	134		—	—
Residential real estate
Senior liens	4	414		3	221		7	625		8	810
Junior liens	—	—		—	—		—	—		—	—
Home equity lines of credit	—	—		—	—		—	—		—	—
Total residential real estate	4	414		3	221		7	625		8	810
Consumer unsecured	—	—		—	—		—	—		—	—
Total	7	$	1,771	7	$	2,017	11	$	2,116	12	$	2,606

We did not restructure any loans by forgiving principal or accrued interest in the three and six month periods ended June 30, 2014 or 2013.

Based on our historical loss experience, losses associated with TDRs are not significantly different than other impaired loans within the same loan segment. As such, TDRs, including TDRs that have been modified in the past 12 months that subsequently defaulted, are analyzed in the same manner as other impaired loans within their respective loan segment.

We had no loans that defaulted in the three and six month periods ended June 30, 2014 or 2013, which were modified within 12 months prior to the default date.

The following is a summary of TDR loan balances as of:

	June 30, 2014		December 31, 2013
TDRs	$	24,192	$	25,865

Note 6 – Equity Securities Without Readily Determinable Fair Values

Included in equity securities without readily determinable fair values are restricted securities, which are carried at cost, and investments in unconsolidated entities accounted for under the equity method of accounting.

Equity securities without readily determinable fair values consist of the following as of:

	June 30 2014		December 31 2013
FHLB Stock	$	9,100	$	8,100
Corporate Settlement Solutions, LLC	6,983		6,970
FRB Stock	1,879		1,879
Valley Financial Corporation	1,000		1,000
Other	341		344
Total	$	19,303	$	18,293

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Note 7 – Borrowed Funds

Borrowed funds consist of the following obligations as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
FHLB advances	$	182,000	1.84	%	$	162,000	2.02	%
Securities sold under agreements to repurchase without stated maturity dates	87,058		0.13	%	106,025		0.13	%
Securities sold under agreements to repurchase with stated maturity dates	1,199		4.27	%	11,301		3.30	%
Federal funds purchased	9,200		0.39	%	—		—
Total	$	279,457	1.27	%	$	279,326	1.35	%

FHLB advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans and certain mortgage-backed securities and collateralized mortgage obligations. FHLB advances are also secured by our holdings of FHLB stock.

The following table lists the maturity and weighted average interest rates of FHLB advances as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Fixed rate advances due 2014	$	10,000	0.48	%	$	10,000	0.48	%
Variable rate advances due 2014	20,000		0.42	%	—		—
Fixed rate advances due 2015	32,000		0.84	%	32,000		0.84	%
Fixed rate advances due 2016	10,000		2.15	%	10,000		2.15	%
Fixed rate advances due 2017	30,000		1.95	%	30,000		1.95	%
Fixed rate advances due 2018	40,000		2.35	%	40,000		2.35	%
Fixed rate advances due 2019	20,000		3.11	%	20,000		3.11	%
Fixed rate advances due 2020	10,000		1.98	%	10,000		1.98	%
Fixed rate advances due 2023	10,000		3.90	%	10,000		3.90	%
Total	$	182,000	1.84	%	$	162,000	2.02	%

Securities sold under agreements to repurchase are classified as secured borrowings. Securities sold under agreements to repurchase without stated maturity dates generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. The securities underlying the agreements have a carrying value and a fair value of $144,683 and $148,930 at June 30, 2014 and December 31, 2013, respectively. Such securities remain under our control. We may be required to provide additional collateral based on the fair value of underlying securities.

The following table lists the maturity and weighted average interest rates of securities sold under agreements to repurchase with stated maturity dates as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Repurchase agreements due 2014	$	767	4.84	%	$	10,876	3.30	%
Repurchase agreements due 2015	432		3.25	%	425		3.25	%
Total	$	1,199	4.27	%	$	11,301	3.30	%

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Securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances generally mature within one to four days from the transaction date. The following table provides a summary of securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances borrowings for the three and six month periods ended:

	Three Months Ended June 30, 2014						Three Months Ended June 30, 2013
	Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period		Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates	$	90,813	$	90,484	0.13	%	$	71,668	$	69,692	0.15	%
Federal funds purchased	16,500		6,849		0.48	%	13,700		6,022		0.57	%

	Six Months Ended June 30, 2014						Six Months Ended June 30, 2013
	Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period		Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates	$	94,741	$	92,412	0.13	%	$	71,668	$	65,363	0.15	%
Federal funds purchased	16,500		6,305		0.47	%	13,700		3,646		0.56	%

We had pledged trading securities, AFS securities, and 1-4 family residential real estate loans in the following amounts at:

	June 30 2014		December 31 2013
Pledged to secure borrowed funds	$	295,175	$	320,173
Pledged to secure repurchase agreements	144,683		148,930
Pledged for public deposits and for other purposes necessary or required by law	18,446		20,922
Total	$	458,304	$	490,025

As of June 30, 2014, we had the ability to borrow up to an additional $84,668, based on assets pledged as collateral. We had no investment securities that are restricted to be pledged for specific purposes.

Note 8 – Other Noninterest Expenses

A summary of expenses included in other noninterest expenses is as follows for the:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Marketing and community relations	$	211	$	432	$	454	$	674
FDIC insurance premiums	221		273		423		545
Directors fees	183		205		378		404
Audit and related fees	182		162		320		301
Education and travel	143		116		264		238
Postage and freight	90		94		198		193
Printing and supplies	87		99		189		185
Loan underwriting fees	92		123		187		239
Consulting fees	76		83		167		155
All other	735		668		1,430		1,213
Total other	$	2,020	$	2,255	$	4,010	$	4,147

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Note 9 – Federal Income Taxes

The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of 34% of income before federal income tax expense is as follows for the:

	Three Months Ended   June 30						Six Months Ended   June 30
	2014			2013			2014			2013
Income taxes at 34% statutory rate	$	1,448		$	1,311		$	2,763		$	2,556
Effect of nontaxable income
Interest income on tax exempt municipal securities	(503		)	(424		)	(997		)	(845		)
Earnings on corporate owned life insurance policies	(64		)	(65		)	(127		)	(122		)
Effect of tax credits	(191		)	(196		)	(388		)	(397		)
Other	(43		)	(26		)	(77		)	(52		)
Total effect of nontaxable income	(801		)	(711		)	(1,589		)	(1,416		)
Effect of nondeductible expenses	45			43			78			79
Federal income tax expense	$	692		$	643		$	1,252		$	1,219

Note 10 – Defined Benefit Pension Plan

We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. As a result of the curtailment, future salary increases are no longer considered (the projected benefit obligation is equal to the accumulated benefit obligation), and plan benefits are based on years of service and the individual employee’s five highest consecutive years of compensation out of the last ten years of service through March 1, 2007. We do not anticipate any contributions to the plan in 2014. We contributed the following to the plan during the three and six month periods ended:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Plan Contributions	$	—	$	—	$	—	$	215

Following are the components of net periodic benefit cost for the:

	Three Months Ended   June 30						Six Months Ended   June 30
	2014			2013			2014			2013
Interest cost on benefit obligation	$	121		$	112		$	243		$	225
Expected return on plan assets	(154		)	(144		)	(308		)	(287		)
Amortization of unrecognized actuarial net loss	43			82			85			165
Net periodic benefit cost	$	10		$	50		$	20		$	103

Note 11 – Fair Value

Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.

Cash and cash equivalents: The carrying amounts of cash and demand deposits due from banks and interest bearing balances due from banks approximate fair values. As such, we classify cash and cash equivalents as Level 1.

Certificates of deposit held in other financial institutions: Certificates of deposit held in other financial institutionsinclude certificates of deposit and other short term interest bearing balances that mature within 3 years. Fair value is determined using prices for similar assets with similar characteristics. As such, we classify certificates of deposits held in other financial institutions as Level 2.

AFS and trading securities:AFS and trading securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2

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investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources.

Mortgage loans AFS:Mortgage loans AFS are carried at the lower of cost or fair value. The fair value of Mortgage loans AFS are based on what price secondary markets are currently offering for portfolios with similar characteristics. As such, we classify Mortgage loans AFS subject to nonrecurring fair value adjustments as Level 2.

Loans: For variable rate loans with no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. As such, we classify loans as Level 3 assets.

We do not record loans at fair value on a recurring basis. However, from time-to-time, loans are classified as impaired and a specific allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will be significantly different than the contractual terms of the original loan agreement are considered impaired. Once a loan is identified as impaired, we measure the estimated impairment. The fair value of impaired loans is estimated using one of several methods, including the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell, if the loan is collateral dependent. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

We review the net realizable values of the underlying collateral for collateral dependent impaired loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to carry and sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated.

The following tables list the quantitative fair value information about impaired loans as of:

	June 30, 2014
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 30%
		Equipment	30% - 40%
Discounted appraisal value	$13,352	Cash crop inventory	40%
		Other inventory	50%
		Accounts receivable	50% - 75%
		Liquor license	75%

	December 31, 2013
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 30%
		Equipment	50%
Discounted appraisal value	$13,902	Livestock	50%
		Cash crop inventory	50%
		Other inventory	75%
		Accounts receivable	75%

Discount factors with ranges are based on the age of the independent appraisal, broker price opinion, or internal evaluations.

Accrued interest receivable: The carrying amounts of accrued interest receivable approximate fair value. As such, we classify accrued interest receivable as Level 1.

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Equity securities without readily determinable fair values: Included in equity securities without readily determinable fair values are FHLB stock and FRB stock as well as our ownership interests in Corporate Settlement Solutions, LLC and Valley Financial Corporation. The investment in Corporate Settlement Solutions, LLC, a title insurance company, was made in the first quarter 2008. We are not the managing entity of Corporate Settlement Solutions, LLC, and therefore, we account for our investment under the equity method of accounting. Valley Financial Corporation is the parent company of 1st State Bank in Saginaw, Michigan, which is a community bank that opened in 2005. We made investments in Valley Financial Corporation in 2004 and in 2007.

The lack of an active market, or other independent sources to validate fair value estimates coupled with the impact of future capital calls and transfer restrictions, is an inherent limitation in the valuation process. As the fair values of these investments are not readily determinable, they are not disclosed under a specific fair value hierarchy; however, they are reviewed quarterly for impairment. If we were to record an impairment adjustment related to these securities, it would be classified as a nonrecurring Level 3 fair value adjustment. During 2014 and 2013, there were no impairments recorded on equity securities without readily determinable fair values.

Foreclosed assets: Upon transfer from the loan portfolio, foreclosed assets (which are included in other assets) are adjusted to and subsequently carried at the lower of carrying value or fair value less costs to sell. Net realizable value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. Due to the inherent level of estimation in the valuation process, we record foreclosed assets as nonrecurring Level 3.

The table below lists the quantitative fair value information related to foreclosed assets as of:

	June 30, 2014
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,132	Real Estate	20% - 30%

	December 31, 2013
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,412	Real Estate	20% - 30%

Discount factors with ranges are based on the age of the independent appraisal, broker price opinion, or internal evaluations.

Goodwill and other intangible assets: Acquisition intangibles and goodwill are evaluated for potential impairment on at least an annual basis. Acquisition intangibles and goodwill are typically qualitatively evaluated to determine if it is more likely than not that the carrying balance is impaired. If it is determined that the carrying balance of acquisition intangibles or goodwill is more likely than not to be impaired, we perform a cash flow valuation to determine the extent of the potential impairment. If the testing resulted in impairment, we would classify goodwill and other acquisition intangibles subjected to nonrecurring fair value adjustments as Level 3. During 2014 and 2013, there were no impairments recorded on goodwill and other acquisition intangibles.

OMSRs:OMSRs (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSRs are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSRs subject to nonrecurring fair value adjustments as Level 2.

Deposits: The fair value of demand, savings, and money market deposits are, by definition, equal their carrying amounts and are classified as Level 1. Fair values for variable rate certificates of deposit approximate their carrying value. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. As such, fixed rate certificates of deposit are classified as Level 2.

Borrowed funds: The carrying amounts of federal funds purchased, borrowings under overnight repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values. The fair values of other borrowed funds are estimated using discounted cash flow analyses based on current incremental borrowing arrangements. As such, borrowed funds are classified as Level 2.

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Accrued interest payable: The carrying amounts of accrued interest payable approximate fair value. As such, we classify accrued interest payable as Level 1.

Commitments to extend credit, standby letters of credit, and undisbursed loans: Our commitments to extend credit, standby letters of credit, and undisbursed funds have no carrying amount and are estimated to have no realizable fair value. Historically, a majority of the unused commitments to extend credit have not been drawn upon and, generally, we do not receive fees in connection with these commitments other than standby letter of credit fees, which are not significant.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis

Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

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The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on our consolidated balance sheets are as follows as of:

	June 30, 2014
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	27,380	$	27,380	$	27,380	$	—	$	—
Certificates of deposit held in other financial institutions	580		580		—		580		—
Mortgage loans AFS	340		357		—		357		—
Total loans	816,307		802,848		—		—		802,848
Less allowance for loan and lease losses	10,700		10,700		—		—		10,700
Net loans	805,607		792,148		—		—		792,148
Accrued interest receivable	5,448		5,448		5,448		—		—
Equity securities without readily determinable fair values (1)	19,303		19,303		—		—		—
OMSRs	2,618		2,703		—		2,703		—
LIABILITIES
Deposits without stated maturities	609,280		609,280		609,280		—		—
Deposits with stated maturities	451,648		453,458		—		453,458		—
Borrowed funds	279,457		263,604		—		263,604		—
Accrued interest payable	527		527		527		—		—

	December 31, 2013
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	41,558	$	41,558	$	41,558	$	—	$	—
Certificates of deposit held in other financial institutions	580		582		—		582		—
Mortgage loans AFS	1,104		1,123		—		1,123		—
Total loans	808,037		808,246		—		—		808,246
Less allowance for loan and lease losses	11,500		11,500		—		—		11,500
Net loans	796,537		796,746		—		—		796,746
Accrued interest receivable	5,442		5,442		5,442		—		—
Equity securities without readily determinable fair values (1)	18,293		18,293		—		—		—
OMSRs	2,555		2,667		—		2,667		—
LIABILITIES
Deposits without stated maturities	593,754		593,754		593,754		—		—
Deposits with stated maturities	450,012		452,803		—		452,803		—
Borrowed funds	279,326		283,060		—		283,060		—
Accrued interest payable	633		633		633		—		—

⁽¹⁾  Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. If we were to record an impairment adjustment related to these securities, such amount would be classified as a nonrecurring Level 3 fair value adjustment.

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Financial Instruments Recorded at Fair Value

The table below presents the recorded amount of assets and liabilities measured at fair value on:

	June 30, 2014											December 31, 2013
	Total		(Level 1)			(Level 2)			(Level 3)			Total		(Level 1)			(Level 2)			(Level 3)
Recurring items
Trading securities
States and political subdivisions	$	—	$	—		$	—		$	—		$	525	$	—		$	525		$	—
AFS securities
Government-sponsored enterprises	24,104		—			24,104			—			23,745		—			23,745			—
States and political subdivisions	214,210		—			214,210			—			201,988		—			201,988			—
Auction rate money market preferred	2,867		—			2,867			—			2,577		—			2,577			—
Preferred stocks	6,214		6,214			—			—			5,827		5,827			—			—
Mortgage-backed securities	162,992		—			162,992			—			144,115		—			144,115			—
Collateralized mortgage obligations	140,131		—			140,131			—			133,810		—			133,810			—
Total AFS securities	550,518		6,214			544,304			—			512,062		5,827			506,235			—
Nonrecurring items
Impaired loans (net of the ALLL)	13,352		—			—			13,352			13,902		—			—			13,902
Foreclosed assets	1,132		—			—			1,132			1,412		—			—			1,412
Total	$	565,002	$	6,214		$	544,304		$	14,484		$	527,901	$	5,827		$	506,760		$	15,314
Percent of assets and liabilities measured at fair value			1.10		%	96.34		%	2.56		%			1.10		%	96.00		%	2.90		%

The following table provides a summary of the changes in fair value of assets and liabilities recorded at fair value through earnings on a recurring basis and changes in assets and liabilities recorded at fair value on a nonrecurring basis, for which gains or losses were recognized in the:

	Three Months Ended June 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(1	)	$	—		$	(1	)	$	(8	)	$	—		$	(8	)
Nonrecurring items
Foreclosed assets	—			(20		)	(20		)	—			(68		)	(68		)
Total	$	(1	)	$	(20	)	$	(21	)	$	(8	)	$	(68	)	$	(76	)

	Six Months Ended June 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(5	)	$	—		$	(5	)	$	(18	)	$	—		$	(18	)
Nonrecurring items
Foreclosed assets	—			(63		)	(63		)	—			(92		)	(92		)
Total	$	(5	)	$	(63	)	$	(68	)	$	(18	)	$	(92	)	$	(110	)

33

Note 12 – Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in AOCI by component for the:

	Three Months Ended June 30
	2014									2013
	Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total			Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total
Balance, April 1	$	(426	)	$	(2,134	)	$	(2,560	)	$	7,541		$	(3,671	)	$	3,870
OCI before reclassifications	4,448			—			4,448			(11,997		)	—			(11,997		)
Amounts reclassified from AOCI	—			—			—			—			—			—
Subtotal	4,448			—			4,448			(11,997		)	—			(11,997		)
Tax effect	(1,420		)	—			(1,420		)	3,979			—			3,979
OCI, net of tax	3,028			—			3,028			(8,018		)	—			(8,018		)
Balance, June 30	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)

	Six Months Ended June 30
	2014									2013
	Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total			Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total
Balance, January 1	$	(4,207	)	$	(2,134	)	$	(6,341	)	$	8,678		$	(3,671	)	$	5,007
OCI before reclassifications	9,968			—			9,968			(13,958		)	—			(13,958		)
Amounts reclassified from AOCI	—			—			—			(99		)	—			(99		)
Subtotal	9,968			—			9,968			(14,057		)	—			(14,057		)
Tax effect	(3,159		)	—			(3,159		)	4,902			—			4,902
OCI, net of tax	6,809			—			6,809			(9,155		)	—			(9,155		)
Balance, June 30	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)

Included in OCI for the three and six month periods ended June 30, 2014 and 2013 are changes in unrealized holding gains and losses related to auction rate money market preferred and preferred stocks. For federal income tax purposes, these securities are considered equity investments. As such, no deferred federal income taxes related to unrealized holding gains or losses are expected or recorded.

A summary of the components of unrealized holding gains on AFS securities included in OCI follows for the:

	Three Months Ended June 30
	2014								2013
	Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total			Auction Rate Money Market Preferred and Preferred Stocks			All Other AFS Securities			Total
Unrealized gains (losses) arising during the period	$	298	$	4,150		$	4,448		$	(363	)	$	(11,634	)	$	(11,997	)
Reclassification adjustment for net realized (gains) losses included in net income	—		—			—			—			—			—
Net unrealized gains (losses)	298		4,150			4,448			(363		)	(11,634		)	(11,997		)
Tax effect	—		(1,420		)	(1,420		)	—			3,979			3,979
Unrealized gains (losses), net of tax	$	298	$	2,730		$	3,028		$	(363	)	$	(7,655	)	$	(8,018	)

34

	Six Months Ended June 30
	2014								2013
	Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total			Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total
Unrealized gains (losses) arising during the period	$	298	$	9,670		$	9,968		$	295	$	(14,253	)	$	(13,958	)
Reclassification adjustment for net realized (gains) losses included in net income	—		—			—			—		(99		)	(99		)
Net unrealized gains (losses)	298		9,670			9,968			295		(14,352		)	(14,057		)
Tax effect	—		(3,159		)	(3,159		)	—		4,902			4,902
Unrealized gains (losses), net of tax	$	298	$	6,511		$	6,809		$	295	$	(9,450	)	$	(9,155	)

The following table details reclassification adjustments and the related affected line items on our interim condensed consolidated statements of income for the noted periods:

Details about AOCI components	Amount Reclassified from AOCI								Affected Line Item in the Interim Condensed Consolidated Statements of Income
	Three Months Ended June 30				Six Months Ended June 30
	2014		2013		2014		2013
Unrealized holding gains (losses) on AFS securities
	$	—	$	—	$	—	$	99	Net gains (losses) on sale of AFS securities
	—		—		—		99		Income before federal income tax expense
	—		—		—		34		Federal income tax expense
	$	—	$	—	$	—	$	65	Net income

35

Note 13 – Parent Company Only Financial Information

Interim Condensed Balance Sheets

	June 30 2014		December 31 2013
ASSETS
Cash on deposit at the Bank	$	961	$	529
AFS securities	3,522		3,542
Investments in subsidiaries	121,714		110,192
Premises and equipment	1,954		2,013
Other assets	54,274		54,223
TOTAL ASSETS	$	182,425	$	170,499
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities	$	11,326	$	9,890
Shareholders' equity	171,099		160,609
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	182,425	$	170,499

Interim Condensed Statements of Income

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Income
Dividends from subsidiaries	$	1,500	$	1,500	$	3,000	$	3,000
Interest income	39		41		78		84
Management fee and other	722		559		1,228		1,067
Total income	2,261		2,100		4,306		4,151
Expenses
Compensation and benefits	772		669		1,604		1,381
Occupancy and equipment	107		119		221		230
Audit and related fees	98		93		169		158
Other	298		297		566		501
Total expenses	1,275		1,178		2,560		2,270
Income before income tax benefit and equity in undistributed earnings of subsidiaries	986		922		1,746		1,881
Federal income tax benefit	178		199		432		388
Income before equity in undistributed earnings of subsidiaries	1,164		1,121		2,178		2,269
Undistributed earnings of subsidiaries	2,401		2,092		4,696		4,031
Net income	$	3,565	$	3,213	$	6,874	$	6,300

36

Interim Condensed Statements of Cash Flows

	Six Months Ended   June 30
	2014			2013
Operating activities
Net income	$	6,874		$	6,300
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(4,696		)	(4,031		)
Undistributed earnings of equity securities without readily determinable fair values	(10		)	125
Share-based payment awards	237			258
Depreciation	65			77
Net amortization of AFS securities	2			1
Changes in operating assets and liabilities which provided (used) cash
Other assets	(40		)	(26		)
Accrued interest and other liabilities	836			211
Net cash provided by (used in) operating activities	3,268			2,915
Investing activities
Maturities, calls, and sales of AFS securities	—			395
Purchases of premises and equipment	(6		)	(127		)
Advances to subsidiaries, net of repayments	—			101
Net cash provided by (used in) investing activities	(6		)	369
Financing activities
Net increase (decrease) in borrowed funds	600			(200		)
Cash dividends paid on common stock	(3,394		)	(3,224		)
Proceeds from the issuance of common stock	1,778			1,900
Common stock repurchased	(1,648		)	(1,114		)
Common stock purchased for deferred compensation obligations	(166		)	(166		)
Net cash provided by (used in) financing activities	(2,830		)	(2,804		)
Increase (decrease) in cash and cash equivalents	432			480
Cash and cash equivalents at beginning of period	529			332
Cash and cash equivalents at end of period	$	961		$	812

Note 14 – Operating Segments

Our reportable segments are based on legal entities that account for at least 10% of net operating results. The operations of the Bank as of June 30, 2014 and 2013 and each of the three and six month periods then ended, represent approximately 90% or more of our consolidated total assets and operating results. As such, no additional segment reporting is presented.

37

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

ISABELLA BANK CORPORATION FINANCIAL REVIEW

(Dollars in thousands except per share amounts)

This section reviews our financial condition and results of our operations for the three and six month periods ended June 30, 2014 and 2013. This analysis should be read in conjunction with our 2013Annual Report on Form 10-K and with the unaudited interim condensed consolidated financial statements and notes, beginning on page 4 of this report.

Executive Summary

During the three and six month periods ended June 30, 2014, we reported record net income of $3,565 and $6,874, respectively. In addition to record net income, we also posted record earnings per common share of $0.46 and $0.89 in the three and six month periods ended June 30, 2014, respectively.

The primary driver for the increase in net income was a continued improvement in various credit quality indicators. These improvements continue to drive declines in the level of the ALLL in both amount and as a percentage of gross loans, resulting in a reversal of provision for loan losses of $442 for the six month period ended June 30, 2014. Net loans charged-off during the first six months of 2014 were $358 as compared to $751 in the first six months of 2013. Additionally, we continue to see reductions in loans classified as less than satisfactory. While we experienced reductions in net loans charged-off and in the level of loans classified as less than satisfactory, nonperforming loans have increased since December 31, 2013. This increase was primarily the result of two loans, which are well collateralized and closely monitored by management.

While competition for high quality commercial loans continues to be intense, we were able to grow our commercial loan portfolio in the first six months of 2014 by $15,687 without relaxing our underwriting standards. This growth was partially offset by declines in both residential real estate loans of $11,386 and consumer loans of $1,103, resulting in a net increase in total loans of $8,270 for the period. The lack of demand for residential real estate loans continues to result in noticeable declines in loan fees and the gain on sale of mortgage loans.

We anticipate that competition for commercial loans will continue to be significant, residential mortgage loan activity will remain soft, and growing our deposit base will be challenging throughout the foreseeable future. Despite these challenges, our unwavering commitment to core community banking principles and long term sustainable growth has, and will continue to, enable us to meet the needs of the communities we serve and increase shareholder value.

38

Results of Operations

The following table outlines our quarterly results of operations and provides certain performance measures as of, and for the three month periods ended:

	June 30 2014			March 31 2014			December 31 2013			September 30 2013			June 30 2013
INCOME STATEMENT DATA
Interest income	$	13,391		$	13,364		$	13,603		$	13,505		$	13,440
Interest expense	2,468			2,500			2,683			2,736			2,781
Net interest income	10,923			10,864			10,920			10,769			10,659
Provision for loan losses	(200		)	(242		)	245			351			215
Noninterest income	2,434			2,249			2,130			2,862			2,736
Noninterest expenses	9,300			9,486			9,578			9,320			9,324
Federal income tax expense	692			560			303			674			643
Net Income	$	3,565		$	3,309		$	2,924		$	3,286		$	3,213
PER SHARE
Basic earnings	$	0.46		$	0.43		$	0.38		$	0.43		$	0.42
Diluted earnings	$	0.45		$	0.42		$	0.37		$	0.42		$	0.41
Dividends	$	0.22		$	0.22		$	0.21		$	0.21		$	0.21
Tangible book value*	$	16.08		$	15.82		$	15.62		$	15.43		$	15.19
Market value
High	$	23.50		$	23.94		$	24.84		$	25.50		$	26.00
Low	$	22.52		$	22.25		$	21.12		$	23.40		$	24.75
Close*	$	22.95		$	23.00		$	23.85		$	24.85		$	24.75
Common shares outstanding*	7,735,156			7,727,547			7,723,023			7,709,781			7,703,589
PERFORMANCE RATIOS (annualized)
Return on average total assets	0.95		%	0.88		%	0.80		%	0.91		%	0.89		%
Return on average shareholders' equity	8.43		%	8.04		%	7.18		%	8.27		%	7.76		%
Return on average tangible shareholders' equity	11.59		%	10.92		%	9.78		%	11.16		%	11.10		%
Net interest margin yield (FTE)	3.43		%	3.42		%	3.50		%	3.48		%	3.50		%
BALANCE SHEET DATA*
Gross loans	$	816,307		$	808,411		$	808,037		$	807,849		$	803,452
AFS securities	$	550,518		$	555,144		$	512,062		$	501,057		$	499,424
Total assets	$	1,522,135		$	1,513,371		$	1,493,137		$	1,459,341		$	1,451,415
Deposits	$	1,060,928		$	1,065,935		$	1,043,766		$	1,023,931		$	1,021,424
Borrowed funds	$	279,457		$	272,536		$	279,326		$	266,001		$	262,460
Shareholders' equity	$	171,099		$	165,971		$	160,609		$	161,305		$	159,288
Gross loans to deposits	76.94		%	75.84		%	77.42		%	78.90		%	78.66		%
ASSETS UNDER MANAGEMENT*
Loans sold with servicing retained	$	290,590		$	292,382		$	293,665		$	294,999		$	295,047
Assets managed by our Investment and Trust Services Department	$	374,092		$	358,811		$	351,420		$	351,505		$	336,132
Total assets under management	$	2,186,817		$	2,164,564		$	2,138,222		$	2,105,845		$	2,082,594
ASSET QUALITY*
Nonperforming loans to gross loans	0.58		%	0.65		%	0.42		%	0.53		%	0.52		%
Nonperforming assets to total assets	0.38		%	0.42		%	0.32		%	0.37		%	0.36		%
ALLL to gross loans	1.31		%	1.37		%	1.42		%	1.44		%	1.46		%
CAPITAL RATIOS*
Shareholders' equity to assets	11.24		%	10.97		%	10.76		%	11.05		%	10.97		%
Tier 1 capital to average assets	8.50		%	8.38		%	8.46		%	8.45		%	8.38		%
Tier 1 risk-based capital	13.84		%	13.88		%	13.67		%	13.75		%	13.59		%
Total risk-based capital	15.09		%	15.13		%	14.92		%	15.00		%	14.84		%

* At end of period

39

The following table outlines our quarterly results of operations and provides certain performance measures as of, and for the six month periods ended:

	June 30 2014			June 30 2013
INCOME STATEMENT DATA
Interest income	$	26,755		$	26,968
Interest expense	4,968			5,602
Net interest income	21,787			21,366
Provision for loan losses	(442		)	515
Noninterest income	4,683			5,183
Noninterest expenses	18,786			18,515
Federal income tax expense	1,252			1,219
Net Income	$	6,874		$	6,300
PER SHARE
Basic earnings	$	0.89		$	0.82
Diluted earnings	$	0.87		$	0.80
Dividends	$	0.44		$	0.42
Tangible book value*	$	16.08		$	15.19
Market value
High	$	23.94		$	26.00
Low	$	22.52		$	21.60
Close*	$	22.95		$	24.75
Common shares outstanding*	7,735,156			7,703,589
PERFORMANCE RATIOS (annualized)
Return on average total assets	0.91		%	0.88		%
Return on average shareholders' equity	8.24		%	7.63		%
Return on average tangible shareholders' equity	11.17		%	10.98		%
Net interest margin yield (FTE)	3.42		%	3.52		%
BALANCE SHEET DATA*
Gross loans	$	816,307		$	803,452
AFS securities	$	550,518		$	499,424
Total assets	$	1,522,135		$	1,451,415
Deposits	$	1,060,928		$	1,021,424
Borrowed funds	$	279,457		$	262,460
Shareholders' equity	$	171,099		$	159,288
Gross loans to deposits	76.94		%	78.66		%
ASSETS UNDER MANAGEMENT*
Loans sold with servicing retained	$	290,590		$	295,047
Assets managed by our Investment and Trust Services Department	$	374,092		$	336,132
Total assets under management	$	2,186,817		$	2,082,594
ASSET QUALITY*
Nonperforming loans to gross loans	0.58		%	0.52		%
Nonperforming assets to total assets	0.38		%	0.36		%
ALLL to gross loans	1.31		%	1.46		%
CAPITAL RATIOS*
Shareholders' equity to assets	11.24		%	10.97		%
Tier 1 capital to average assets	8.50		%	8.38		%
Tier 1 risk-based capital	13.84		%	13.59		%
Total risk-based capital	15.09		%	14.84		%

* At end of period

40

Average Balances, Interest Rate, and Net Interest Income

The following schedules present the daily average amount outstanding for each major category of interest earning assets, nonearning assets, interest bearing liabilities, and noninterest bearing liabilities. These schedules also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a 34% federal income tax rate. Nonaccrual loans, for the purpose of the following computations, are included in the average loan balances. FRB and FHLB restricted equity holdings are included in accrued income and other assets.

The following tables display the results for the:

	Three Months Ended
	June 30, 2014							March 31, 2014							June 30, 2013
	Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate
INTEREST EARNING ASSETS
Loans	$	808,541		$	9,799	4.85	%	$	805,812		$	9,751	4.84	%	$	780,909		$	10,280	5.27	%
Taxable investment securities	353,878			1,993		2.25	%	353,013			1,998		2.26	%	341,232			1,798		2.11	%
Nontaxable investment securities	194,307			2,376		4.89	%	189,000			2,332		4.94	%	162,626			2,024		4.98	%
Trading account securities	172			2		4.65	%	524			8		6.11	%	1,156			14		4.84	%
Other	21,421			112		2.09	%	26,604			153		2.30	%	23,533			109		1.85	%
Total earning assets	1,378,319			14,282		4.14	%	1,374,953			14,242		4.14	%	1,309,456			14,225		4.35	%
NONEARNING ASSETS
Allowance for loan losses	(11,208		)					(11,634		)					(11,889		)
Cash and demand deposits due from banks	17,403							17,690							17,157
Premises and equipment	25,960							26,018							25,917
Accrued income and other assets	97,187							94,704							99,729
Total assets	$	1,507,661						$	1,501,731						$	1,440,370
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	192,798		39		0.08	%	$	197,776		41		0.08	%	$	181,044		40		0.09	%
Savings deposits	257,628			91		0.14	%	252,979			94		0.15	%	242,247			90		0.15	%
Time deposits	455,592			1,459		1.28	%	451,350			1,481		1.31	%	460,379			1,692		1.47	%
Borrowed funds	263,606			879		1.33	%	270,010			884		1.31	%	243,936			959		1.57	%
Total interest bearing liabilities	1,169,624			2,468		0.84	%	1,172,115			2,500		0.85	%	1,127,606			2,781		0.99	%
NONINTEREST BEARING LIABILITIES
Demand deposits	158,804							155,176							138,483
Other	10,166							9,861							8,571
Shareholders’ equity	169,067							164,579							165,710
Total liabilities and shareholders’ equity	$	1,507,661						$	1,501,731						$	1,440,370
Net interest income (FTE)				$	11,814						$	11,742						$	11,444
Net yield on interest earning assets (FTE)						3.43	%						3.42	%						3.50	%

41

	Six Months Ended
	June 30, 2014							June 30, 2013
	Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate
INTEREST EARNING ASSETS
Loans	$	807,177		$	19,550	4.84	%	$	773,825		$	20,610	5.33	%
Taxable investment securities	353,446			3,991		2.26	%	342,375			3,632		2.12	%
Nontaxable investment securities	191,654			4,703		4.91	%	159,147			4,035		5.07	%
Trading account securities	348			9		5.17	%	1,363			35		5.14	%
Other	24,013			265		2.21	%	26,955			225		1.67	%
Total earning assets	1,376,638			28,518		4.14	%	1,303,665			28,537		4.38	%
NONEARNING ASSETS
ALLL	(11,421		)					(11,987		)
Cash and demand deposits due from banks	17,546							17,909
Premises and equipment	25,989							25,927
Accrued income and other assets	95,946							100,773
Total assets	$	1,504,698						$	1,436,287
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	195,287		80		0.08	%	$	183,921		81		0.09	%
Savings deposits	255,304			185		0.14	%	241,824			181		0.15	%
Time deposits	453,472			2,940		1.30	%	460,958			3,434		1.49	%
Borrowed funds	266,808			1,763		1.32	%	237,863			1,906		1.60	%
Total interest bearing liabilities	1,170,871			4,968		0.85	%	1,124,566			5,602		1.00	%
NONINTEREST BEARING LIABILITIES
Demand deposits	156,990							138,221
Other	10,014							8,388
Shareholders’ equity	166,823							165,112
Total liabilities and shareholders’ equity	$	1,504,698						$	1,436,287
Net interest income (FTE)				$	23,550						$	22,935
Net yield on interest earning assets (FTE)						3.42	%						3.52	%

Net Interest Income

Net interest income is the amount by which interest income on earning assets exceeds the interest expenses on interest bearing liabilities. Net interest income is influenced by changes in the balance and mix of assets and liabilities and market interest rates. We exert some control over these factors; however, FRB monetary policy and competition have a significant impact. For analytical purposes, net interest income is adjusted to an FTE basis by adding the income tax savings from interest on tax exempt loans, AFS securities, and trading securities, thus making year to year comparisons more meaningful. Included in interest income are loan fees for the three and six month periods ended:

	Three Months Ended						Six Months Ended
	June 30 2014		March 31 2014		June 30 2013		June 30 2014		June 30 2013
Loan fees	$	566	$	476	$	862	$	1,042	$	1,683

42

Volume and Rate Variance Analysis

The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows:

Volume—change in volume multiplied by the previous period's rate.

Rate—change in the FTE rate multiplied by the previous period's volume.

The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

	Three Months Ended   June 30, 2014 Compared to   March 31, 2014   Increase (Decrease) Due to									Three Months Ended   June 30, 2014 Compared to   June 30, 2013   Increase (Decrease) Due to									Six Months Ended   June 30, 2014 Compared to   June 30, 2013   Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net			Volume			Rate			Net
Changes in interest income
Loans	$	33		$	15		$	48		$	355		$	(836	)	$	(481	)	$	862		$	(1,922	)	$	(1,060	)
Taxable AFS securities	5			(10		)	(5		)	68			127			195			120			239			359
Nontaxable AFS securities	65			(21		)	44			388			(36		)	352			801			(133		)	668
Trading securities	(4		)	(2		)	(6		)	(11		)	(1		)	(12		)	(26		)	—			(26		)
Other	(28		)	(13		)	(41		)	(10		)	13			3			(27		)	67			40
Total changes in interest income	71			(31		)	40			790			(733		)	57			1,730			(1,749		)	(19		)
Changes in interest expense
Interest bearing demand deposits	(1		)	(1		)	(2		)	3			(4		)	(1		)	5			(6		)	(1		)
Savings deposits	2			(5		)	(3		)	6			(5		)	1			10			(6		)	4
Time deposits	14			(36		)	(22		)	(17		)	(216		)	(233		)	(55		)	(439		)	(494		)
Borrowed funds	(21		)	16			(5		)	73			(153		)	(80		)	215			(358		)	(143		)
Total changes in interest expense	(6		)	(26		)	(32		)	65			(378		)	(313		)	175			(809		)	(634		)
Net change in interest margin (FTE)	$	77		$	(5	)	$	72		$	725		$	(355	)	$	370		$	1,555		$	(940	)	$	615

While our net yield on interest earning assets remains at historically low levels, our net yield on interest earning assets has stabilized. The low net yields on interest earning assets are a direct result of FRB monetary policy. As we do not foresee any significant changes in FRB monetary policy or our earning asset and liability mix in the near future, we anticipate that the net yield on interest earning assets will likely approximate current levels. Net interest income will increase only through continued balance sheet growth.

	Average Yield / Rate for the Three Month Periods Ended:
	June 30 2014		March 31 2014		December 31 2013		September 30 2013		June 30 2013
Total earning assets	4.14	%	4.14	%	4.30	%	4.31	%	4.35	%
Total interest bearing liabilities	0.84	%	0.85	%	0.94	%	0.96	%	0.99	%
Net yield on interest earning assets (FTE)	3.43	%	3.42	%	3.50	%	3.48	%	3.50	%

43

	Quarter to Date Net Interest Income (FTE)
	June 30 2014		March 31 2014		December 31 2013		September 30 2013		June 30 2013
Total interest income (FTE)	$	14,282	$	14,242	$	14,441	$	14,290	$	14,225
Total interest expense	2,468		2,500		2,683		2,736		2,781
Net interest income (FTE)	$	11,814	$	11,742	$	11,758	$	11,554	$	11,444

One of the the primary contributors to the decline in the net yield on interest earning assets in the first quarter of 2014 was a drastic decline in loan fees. Loan fees have declined as the demand for residential mortgage loans has diminished and the competition for commercial loans remains intense. As shown in the following table, the net yield on interest earning assets and net interest income excluding the impact of loan fees (FTE) has remained essentially unchanged since the second quarter of 2013.

	June 30 2014			March 31 2014			December 31 2013			September 30 2013			June 30 2013
Net interest income (FTE)	$	11,814		$	11,742		$	11,758		$	11,554		$	11,444
Less loan fees	566			476			761			738			862
Net interest income excluding loan fees (FTE)	$	11,248		$	11,266		$	10,997		$	10,816		$	10,582
Net yield on interest earning assets excluding loan fees (FTE)	3.26		%	3.28		%	3.27		%	3.26		%	3.23		%

Allowance for Loan and Lease Losses

The viability of any financial institution is ultimately determined by its management of credit risk. Loans represent our single largest concentration of risk. The ALLL is our estimation of losses within the existing loan portfolio. We allocate the ALLL throughout the loan portfolio based on our assessment of the underlying risks associated with each loan segment. Our assessments include allocations based on specific impairment valuation allowances, historical charge-offs, internally assigned risk ratings, and past due and nonaccrual balances. A portion of the ALLL is not allocated to any one loan segment, but is instead a reflection of other qualitative risks within the loan portfolio.

The following table summarizes our charge-off and recovery activity for the three and six month periods ended June 30:

	Three Months Ended   June 30						Six Months Ended   June 30
	2014			2013			2014			2013
ALLL at beginning of period	$	11,100		$	11,909		$	11,500		$	11,936
Loans charged-off
Commercial and agricultural	79			234			302			445
Residential real estate	264			397			377			587
Consumer	68			88			182			209
Total loans charged-off	411			719			861			1,241
Recoveries
Commercial and agricultural	92			166			306			223
Residential real estate	86			61			122			114
Consumer	33			68			75			153
Total recoveries	211			295			503			490
Net loans charged-off	200			424			358			751
Provision for loan losses	(200		)	215			(442		)	515
ALLL at end of period	$	10,700		$	11,700		$	10,700		$	11,700
Net loans charged-off to average loans outstanding	0.02		%	0.05		%	0.04		%	0.10		%

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The following table summarizes our charge-offs, recoveries, provisions for loan losses, and ALLL balances as of, and for the three month periods ended:

	June 30 2014			March 31 2014			December 31 2013			September 30 2013			June 30 2013
Total loans charged-off	$	411		$	450		$	497		$	602		$	719
Total recoveries	211			292			152			151			295
Net loans charged-off	200			158			345			451			424
Net loans charged-off to average loans outstanding	0.02		%	0.02		%	0.04		%	0.06		%	0.05		%
Provision for loan losses	$	(200	)	$	(242	)	$	245		$	351		$	215
Provision for loan losses to average loans outstanding	(0.02		)%	(0.03		)%	0.03		%	0.04		%	0.03		%
ALLL	$	10,700		$	11,100		$	11,500		$	10,600		$	11,909
ALLL as a% of loans at end of period	1.31		%	1.37		%	1.42		%	1.44		%	1.46		%

As the level of net loans charged-off continues to decline and credit quality indicators continue to improve, we have reduced the ALLL in both amount and as a percentage of loans. For further discussion of the allocation of the ALLL, see “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.

Loans Past Due and Loans in Nonaccrual Status

Increases in past due and nonaccrual loans can have a significant impact on the ALLL. To determine the potential impact, and corresponding estimated losses, we analyze our historical loss trends on loans past due greater than 30 days and nonaccrual loans. We monitor all loans that are past due and in nonaccrual status for indicators of additional deterioration.

	Total Past Due and Nonaccrual
	June 30 2014			March 31 2014			December 31 2013			September 30 2013			June 30 2013
Commercial and agricultural	$	5,045		$	4,986		$	3,621		$	5,371		$	4,962
Residential real estate	4,613			7,067			7,008			6,339			5,080
Consumer	98			113			259			152			104
Total	$	9,756		$	12,166		$	10,888		$	11,862		$	10,146
Total past due and nonaccrual loans to gross loans	1.20		%	1.50		%	1.35		%	1.47		%	1.26		%

The decline in residential real estate loans past due and nonaccrual since March 31, 2014 can be attributed to a decline of loans 30-59 days past due. The majority of these loans were current as of June 30, 2014 and no longer past due.

A summary of loans past due and in nonaccrual status, including the composition of the ending balance of nonaccrual loans by type, is included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.

Troubled Debt Restructurings

We have taken a proactive approach to avoid foreclosures on borrowers who are willing to work with us in modifying their loans, thus making them more affordable. While this approach has allowed certain borrowers to develop a payment structure that will allow them to continue making payments in lieu of foreclosure, it has contributed to a significant increase in the level of loans classified as TDRs. The modifications have been successful for us and our customers as very few of the modified loans have resulted in foreclosures. At the time of the TDR, the loan is reviewed to determine whether or not to classify the loan as accrual or nonaccrual. The majority of new modifications result in terms that satisfy our criteria for continued interest accrual. TDRs that have been placed in nonaccrual status may be placed back on accrual status after six months of continued performance.

We restructure debt with borrowers who due to temporary financial difficulties are unable to service their debt under the original terms. We may extend the amortization period, reduce interest rates, forgive principal, forgive interest, or a combination of these modifications. Typically, the modifications are for a period of five years or less. There were no TDRs that were Government sponsored as of June 30, 2014 or December 31, 2013.

45

Losses associated with TDRs, if any, are included in the estimation of the ALLL in the quarter in which a loan is identified as a TDR, and we review the ALLL estimation each reporting period to ensure its continued appropriateness.

The following tables provide a roll-forward of TDRs for the:

	Three Months Ended June 30, 2014
	Accruing Interest					Nonaccrual					Total
	Number of Loans		Balance			Number of Loans		Balance			Number of Loans		Balance
April 1, 2014	165		$	22,954		16		$	2,679		181		$	25,633
New modifications	6		218			2		169			8		387
Principal payments	—		(809		)	—		(45		)	—		(854		)
Loans paid-off	(5	)	(552		)	(2	)	(88		)	(7	)	(640		)
Partial charge-off	—		(70		)	—		(100		)	—		(170		)
Balances charged-off	—		—			—		—			—		—
Transfers to OREO	—		—			(2	)	(164		)	(2	)	(164		)
Transfers to accrual status	1		263			(1	)	(263		)	—		—
Transfers to nonaccrual status	(5	)	(739		)	5		739			—		—
June 30, 2014	162		$	21,265		18		$	2,927		180		$	24,192

	Six Months Ended June 30, 2014
	Accruing Interest					Nonaccrual					Total
	Number of Loans		Balance			Number of Loans		Balance			Number of Loans		Balance
January 1, 2014	165		$	24,423		15		$	1,442		180		$	25,865
New modifications	18		988			4		245			22		1,233
Principal payments	—		(1,082		)	—		(74		)	—		(1,156		)
Loans paid-off	(15	)	(1,270		)	(2	)	(88		)	(17	)	(1,358		)
Partial charge-off	—		(70		)	—		(118		)	—		(188		)
Balances charged-off	(1	)	(6		)	—		—			(1	)	(6		)
Transfers to OREO	—		—			(4	)	(198		)	(4	)	(198		)
Transfers to accrual status	3		320			(3	)	(320		)	—		—
Transfers to nonaccrual status	(8	)	(2,038		)	8		2,038			—		—
June 30, 2014	162		$	21,265		18		$	2,927		180		$	24,192

	Three Months Ended June 30, 2013
	Accruing Interest					Nonaccrual					Total
	Number of Loans		Balance			Number of Loans		Balance			Number of Loans		Balance
April 1, 2013	119		$	16,900		19		$	2,502		138		$	19,402
New modifications	14		3,592			—		—			14		3,592
Principal payments	—		(198		)	—		(206		)	—		(404		)
Loans paid-off	(7	)	(1,089		)	(4	)	(497		)	(11	)	(1,586		)
Partial charge-off	—		—			—		—			—		—
Balances charged-off	(3	)	(147		)	—		—			(3	)	(147		)
Transfers to OREO	—		—			—		—			—		—
Transfers to accrual status	1		105			(1	)	(105		)	—		—
Transfers to nonaccrual status	(1	)	(29		)	1		29			—		—
June 30, 2013	123		$	19,134		15		$	1,723		138		$	20,857

46

	Six Months Ended June 30, 2013
	Accruing Interest					Nonaccrual					Total
	Number of Loans		Balance			Number of Loans		Balance			Number of Loans		Balance
January 1, 2013	115		$	16,531		19		$	2,824		134		$	19,355
New modifications	22		4,411			1		98			23		4,509
Principal payments	—		(463		)	—		(243		)	—		(706		)
Loans paid-off	(10	)	(1,219		)	(5	)	(697		)	(15	)	(1,916		)
Partial charge-off	—		(15		)	—		(211		)	—		(226		)
Balances charged-off	(3	)	(147		)	—		—			(3	)	(147		)
Transfers to OREO	—		—			(1	)	(12		)	(1	)	(12		)
Transfers to accrual status	1		105			(1	)	(105		)	—		—
Transfers to nonaccrual status	(2	)	(69		)	2		69			—		—
June 30, 2013	123		$	19,134		15		$	1,723		138		$	20,857

The following table summarizes our TDRs as of:

	June 30, 2014						December 31, 2013
	Accruing Interest		Nonaccrual		Total		Accruing Interest		Nonaccrual		Total		Total Change
Current	$	19,663	$	1,522	$	21,185	$	21,690	$	1,189	$	22,879	$	(1,694	)
Past due 30-59 days	1,036		1,013		2,049		2,158		37		2,195		(146		)
Past due 60-89 days	566		4		570		575		—		575		(5		)
Past due 90 days or more	—		388		388		—		216		216		172
Total	$	21,265	$	2,927	$	24,192	$	24,423	$	1,442	$	25,865	$	(1,673	)

Additional disclosures about TDRs are included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.

47

Impaired Loans

The following is a summary of information pertaining to impaired loans as of:

	June 30, 2014						December 31, 2013
	Outstanding Balance		Unpaid Principal Balance		Valuation Allowance		Outstanding Balance		Unpaid Principal Balance		Valuation Allowance
TDRs
Commercial real estate	$	10,396	$	10,897	$	1,342	$	10,663	$	11,193	$	1,585
Commercial other	847		1,096		12		1,310		1,340		62
Agricultural real estate	1,450		1,450		29		1,459		1,459		30
Agricultural other	18		138		—		79		199		—
Residential real estate senior liens	11,197		11,777		2,052		12,266		12,841		2,010
Residential real estate junior liens	60		60		12		20		20		4
Home equity lines of credit	160		460		4		—		—		—
Consumer secured	64		64		1		68		69		—
Total TDRs	24,192		25,942		3,452		25,865		27,121		3,691
Other impaired loans
Commercial real estate	1,824		2,149		279		1,707		2,193		330
Commercial other	97		108		—		136		217		58
Agricultural real estate	115		115		7		—		—		—
Agricultural other	—		—		—		—		—		—
Residential real estate senior liens	1,257		1,950		190		1,795		2,473		268
Residential real estate junior liens	32		42		7		28		45		5
Home equity lines of credit	200		200		5		193		493		—
Consumer secured	10		10		—		51		79		—
Total other impaired loans	3,535		4,574		488		3,910		5,500		661
Total impaired loans	$	27,727	$	30,516	$	3,940	$	29,775	$	32,621	$	4,352

Additional disclosure related to impaired loans is included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.

Nonperforming Assets

The following table summarizes our nonperforming assets as of:

	June 30 2014			March 31 2014			December 31 2013			September 30 2013			June 30 2013
Nonaccrual loans	$	4,587		$	4,345		$	3,244		$	3,812		$	3,651
Accruing loans past due 90 days or more	119			893			142			457			520
Total nonperforming loans	4,706			5,238			3,386			4,269			4,171
Foreclosed assets	1,132			1,126			1,412			1,186			1,105
Total nonperforming assets	$	5,838		$	6,364		$	4,798		$	5,455		$	5,276
Nonperforming loans as a % of total loans	0.58		%	0.65		%	0.42		%	0.53		%	0.52		%
Nonperforming assets as a % of total assets	0.38		%	0.42		%	0.32		%	0.37		%	0.36		%

After a loan is 90 days past due, it is generally placed in nonaccrual status unless it is well secured and in the process of collection. Upon transferring the loans to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if any charge-offs are necessary. Loans may be placed back on accrual status after six months months of continued performance.

48

Included in the nonaccrual loan balances above were loans currently classified as TDRs as of:

	June 30 2014		December 31 2013
Commercial and agricultural	$	2,136	$	833
Residential real estate	791		609
Total	$	2,927	$	1,442

The following table lists individually significant commercial and agricultural loan relationships in nonaccrual status as of June 30, 2014 and December 31, 2013. To be classified as individually significant, the recorded investment in nonaccrual loans to each borrower must have exceeded $1,000 as of the end of either period.

	June 30, 2014					December 31, 2013
	Outstanding Balance		Specific Allocation			Outstanding Balance		Specific Allocation
Borrower 1	$	1,111	$	—	1	$	—	$	—
Others not individually significant	3,476					3,244
Total	$	4,587				$	3,244

¹ No specific allocation was established as the loan was collateral dependent and the net realizable value of the underlying collateral value exceeded the loan's carrying balance.

Additional disclosures about nonaccrual loans are included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.

We continue to devote considerable attention to identifying impaired loans and adjusting the net carrying value of these loans to their current net realizable values through the establishment of a specific reserve or the recording of a charge-off. We believe that all loans deemed to be impaired have been identified.

We believe that the level of the ALLL is appropriate as of June 30, 2014 and we will continue to closely monitor overall credit quality and our policies and procedures related to the analysis of the ALLL to ensure that the ALLL remains appropriate.

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Noninterest Income and Noninterest Expenses

Noninterest income consists of service charges and fees, gains on sale of mortgage loans, earnings on corporate owned life insurance policies, gains and losses on sales of AFS securities, and other income. Significant account balances are highlighted in the following table with additional descriptions of significant fluctuations:

	Three Months Ended June 30
						Change
	2014			2013		$			%
Service charges and fees
NSF and overdraft fees	$	552		$	558	$	(6	)	(1.08	)%
ATM and debit card fees	534			489		45			9.20	%
Freddie Mac servicing fee	180			187		(7		)	(3.74	)%
Service charges on deposit accounts	89			95		(6		)	(6.32	)%
Net OMSRs income (loss)	(28		)	88		(116		)	(131.82	)%
All other	33			28		5			17.86	%
Total service charges and fees	1,360			1,445		(85		)	(5.88	)%
Gain on sale of mortgage loans	151			249		(98		)	(39.36	)%
Earnings on corporate owned life insurance policies	190			190		—			—	%
Gains (losses) on sale of AFS securities	—			—		—			—	%
Other
Trust and brokerage advisory fees	519			483		36			7.45	%
Other	214			369		(155		)	(42.01	)%
Total other	733			852		(119		)	(13.97	)%
Total noninterest income	$	2,434		$	2,736	$	(302	)	(11.04	)%

	Six Months Ended June 30
					Change
	2014		2013		$			%
Service charges and fees
NSF and overdraft fees	$	1,065	$	1,074	$	(9	)	(0.84	)%
ATM and debit card fees	1,021		944		77			8.16	%
Freddie Mac servicing fee	363		371		(8		)	(2.16	)%
Service charges on deposit accounts	175		185		(10		)	(5.41	)%
Net OMSRs income (loss)	63		96		(33		)	(34.38	)%
All other	67		56		11			19.64	%
Total service charges and fees	2,754		2,726		28			1.03	%
Gain on sale of mortgage loans	266		607		(341		)	(56.18	)%
Earnings on corporate owned life insurance policies	374		359		15			4.18	%
Gains (losses) on sale of AFS securities	—		99		(99		)	(100.00	)%
Other
Trust and brokerage advisory fees	1,026		893		133			14.89	%
Other	263		499		(236		)	(47.29	)%
Total other	1,289		1,392		(103		)	(7.40	)%
Total noninterest income	$	4,683	$	5,183	$	(500	)	(9.65	)%

Significant changes in noninterest income are detailed below:

• As customers continue to increase their dependence on ATM and debit cards, we have realized a corresponding increase in fees. We do not anticipate significant changes to our ATM and debit fee structure; however, we do expect that these fees will continue to increase as the usage of ATM and debit cards increase.

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• Offering rates on residential mortgage loans is the most significant driver behind fluctuations in the gain on sale of mortgage loans and net OMSRs income (loss). As offering rates increase, we typically experience reductions in the gain on sale of mortgage loans. Offsetting these declines are increases in the value of our mortgage servicing portfolio which typically leads to the increase in net OMSRs income. As a result of the lack of demand in residential mortgage loan originations, we are experiencing declines in both the gain on sale of mortgage loans and net OMSRs income (loss). As mortgage rates are expected to approximate current levels in the foreseeable future and purchase money mortgage activity will likely remain soft, we do not anticipate any significant changes in origination volumes or the gain on sale of mortgage loans.

• We are continually analyzing our AFS securities for potential sale opportunities. These analyses identified several mortgage-backed securities pools in 2013 that made economic sense to sell. Currently we are not planning any significant investment sales during 2014.

• In recent periods, we have invested considerable efforts to increase our market share in trust and brokerage advisory services. These efforts have translated into increases in trust fees and brokerage and advisory fees. We expect this trend to continue.

• The fluctuations in all other income is spread throughout various categories, none of which are individually significant. We do not anticipate any significant fluctuations from current levels in 2014.

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Noninterest expenses include compensation and benefits, furniture and equipment, occupancy, and other expenses. Significant account balances are highlighted in the following table with additional descriptions of significant fluctuations:

	Three Months Ended June 30
					Change
	2014		2013		$			%
Compensation and benefits
Employee salaries	$	4,046	$	3,844	$	202		5.25	%
Employee benefits	1,339		1,392		(53		)	(3.81	)%
Total compensation and benefits	5,385		5,236		149			2.85	%
Furniture and equipment
Service contracts	591		534		57			10.67	%
Depreciation	449		459		(10		)	(2.18	)%
ATM and debit card fees	166		185		(19		)	(10.27	)%
All other	13		14		(1		)	(7.14	)%
Total furniture and equipment	1,219		1,192		27			2.27	%
Occupancy
Outside services	168		151		17			11.26	%
Depreciation	174		165		9			5.45	%
Utilities	119		119		—			—	%
Property taxes	131		134		(3		)	(2.24	)%
All other	84		72		12			16.67	%
Total occupancy	676		641		35			5.46	%
Other
Marketing and community relations	211		432		(221		)	(51.16	)%
FDIC insurance premiums	221		273		(52		)	(19.05	)%
Directors fees	183		205		(22		)	(10.73	)%
Audit and related fees	182		162		20			12.35	%
Education and travel	143		116		27			23.28	%
Postage and freight	90		94		(4		)	(4.26	)%
Printing and supplies	87		99		(12		)	(12.12	)%
Loan underwriting fees	92		123		(31		)	(25.20	)%
Consulting fees	76		83		(7		)	(8.43	)%
All other	735		668		67			10.03	%
Total other	2,020		2,255		(235		)	(10.42	)%
Total noninterest expenses	$	9,300	$	9,324	$	(24	)	(0.26	)%

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	Six Months Ended June 30
					Change
	2014		2013		$			%
Compensation and benefits
Employee salaries	$	8,088	$	7,720	$	368		4.77	%
Employee benefits	2,783		2,961		(178		)	(6.01	)%
Total compensation and benefits	10,871		10,681		190			1.78	%
Furniture and equipment
Service contracts	1,211		1,070		141			13.18	%
Depreciation	894		923		(29		)	(3.14	)%
ATM and debit card fees	354		353		1			0.28	%
All other	28		35		(7		)	(20.00	)%
Total furniture and equipment	2,487		2,381		106			4.45	%
Occupancy
Outside services	375		321		54			16.82	%
Depreciation	348		326		22			6.75	%
Utilities	275		255		20			7.84	%
Property taxes	265		269		(4		)	(1.49	)%
All other	155		135		20			14.81	%
Total occupancy	1,418		1,306		112			8.58	%
Other
Marketing and community relations	454		674		(220		)	(32.64	)%
FDIC insurance premiums	423		545		(122		)	(22.39	)%
Directors fees	378		404		(26		)	(6.44	)%
Audit and related fees	320		301		19			6.31	%
Education and travel	264		238		26			10.92	%
Postage and freight	198		193		5			2.59	%
Printing and supplies	189		185		4			2.16	%
Loan underwriting fees	187		239		(52		)	(21.76	)%
Consulting fees	167		155		12			7.74	%
All other	1,430		1,213		217			17.89	%
Total other	4,010		4,147		(137		)	(3.30	)%
Total noninterest expenses	$	18,786	$	18,515	$	271		1.46	%

Significant changes in noninterest expenses are detailed below:

• Employee salaries have increased as a result of normal merit increases and additional staffing required by our continued growth. The decline in employee benefits is related to health care costs as a result of lower than anticipated claims. Employee benefits are expected to increase moderately in future periods as a result of anticipated increases in health care costs.

• Service contracts have increased during 2014 due to costs related to data lines as well as increases in various other contracts as we continue to expand our on-line services offered to customers. Service contracts are anticipated to approximate current levels for the remainder of 2014.

• We have consistently been a strong supporter of the various communities, schools, and charities in the markets we serve. We sponsor a foundation, which we established in 1996, that is funded by discretionary donations. The affiliated foundation provides centralized oversight for donations to organizations that benefit our communities. Included in marketing and community relations were discretionary donations to the foundation of $0 and $200 for the six month periods ended June 30, 2014 and 2013, respectively.

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• FDIC insurance premiums increased in 2013 as a result of us receiving less of a refund for prepaid FDIC insurance premiums than we had anticipated. FDIC insurance premiums have returned to normalized levels and are anticipated to approximate current levels for the remainder of 2014.

• Loan underwriting fees have declined in 2014 as a result of declines in residential real estate loan originations.

• The fluctuations in all other expenses are spread throughout various categories, none of which are individually significant.

Analysis of Changes in Financial Condition

	June 30 2014		December 31 2013			$ Change			% Change (unannualized)
ASSETS
Cash and cash equivalents	$	27,380	$	41,558		$	(14,178	)	(34.12	)%
Certificates of deposit held in other financial institutions	580		580			—			—
Trading securities	—		525			(525		)	(100.00	)%
AFS securities
Amortized cost of AFS securities	546,102		517,614			28,488			5.50	%
Unrealized Gains (losses) on AFS securities	4,416		(5,552		)	9,968			N/M
AFS securities	550,518		512,062			38,456			7.51	%
Mortgage loans AFS	340		1,104			(764		)	(69.20	)%
Loans
Gross loans	816,307		808,037			8,270			1.02	%
Less allowance for loan and lease losses	10,700		11,500			(800		)	(6.96	)%
Net loans	805,607		796,537			9,070			1.14	%
Premises and equipment	25,701		25,719			(18		)	(0.07	)%
Corporate owned life insurance policies	24,775		24,401			374			1.53	%
Accrued interest receivable	5,448		5,442			6			0.11	%
Equity securities without readily determinable fair values	19,303		18,293			1,010			5.52	%
Goodwill and other intangible assets	46,216		46,311			(95		)	(0.21	)%
Other assets	16,267		20,605			(4,338		)	(21.05	)%
TOTAL ASSETS	$	1,522,135	$	1,493,137		$	28,998		1.94	%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits	$	1,060,928	$	1,043,766		$	17,162		1.64	%
Borrowed funds	279,457		279,326			131			0.05	%
Accrued interest payable and other liabilities	10,651		9,436			1,215			12.88	%
Total liabilities	1,351,036		1,332,528			18,508			1.39	%
Shareholders’ equity	171,099		160,609			10,490			6.53	%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,522,135	$	1,493,137		$	28,998		1.94	%

The following table outlines the changes in loans:

	June 30 2014		December 31 2013		$ Change			% Change (unannualized)
Commercial	$	407,791	$	392,104	$	15,687		4.00	%
Agricultural	97,661		92,589		5,072			5.48	%
Residential real estate	278,545		289,931		(11,386		)	(3.93	)%
Consumer	32,310		33,413		(1,103		)	(3.30	)%
Total	$	816,307	$	808,037	$	8,270		1.02	%

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The following table displays loan balances as of:

	June 30 2014		March 31 2014		December 31 2013		September 30 2013		June 30 2013
Commercial	$	407,791	$	399,702	$	392,104	$	388,973	$	389,044
Agricultural	97,661		92,059		92,589		92,927		87,516
Residential real estate	278,545		284,586		289,931		291,825		293,158
Consumer	32,310		32,064		33,413		34,124		33,734
Total	$	816,307	$	808,411	$	808,037	$	807,849	$	803,452

We continue to see declines in residential real estate loans which have been offset by increases in commercial and agricultural loans. This trend is likely to continue as the demand for residential real estate loans is anticipated to remain soft due to continuing uncertainty in the residential real estate markets, increases in interest rates, and the implementation of CFPB underwriting guidelines.

The following table outlines the changes in deposits:

	June 30 2014		December 31 2013		$ Change			% Change (unannualized)
Noninterest bearing demand deposits	$	162,537	$	158,428	$	4,109		2.59	%
Interest bearing demand deposits	186,705		192,089		(5,384		)	(2.80	)%
Savings deposits	260,038		243,237		16,801			6.91	%
Certificates of deposit	346,200		362,473		(16,273		)	(4.49	)%
Brokered certificates of deposit	75,031		56,329		18,702			33.20	%
Internet certificates of deposit	30,417		31,210		(793		)	(2.54	)%
Total	$	1,060,928	$	1,043,766	$	17,162		1.64	%

The following table displays deposit balances as of:

	June 30 2014		March 31 2014		December 31 2013		September 30 2013		June 30 2013
Noninterest bearing demand deposits	$	162,537	$	158,241	$	158,428	$	143,013	$	139,942
Interest bearing demand deposits	186,705		194,407		192,089		186,630		173,184
Savings deposits	260,038		261,444		243,237		245,217		248,098
Certificates of deposit	346,200		356,847		362,473		366,349		368,713
Brokered certificates of deposit	75,031		65,273		56,329		51,410		57,701
Internet certificates of deposit	30,417		29,723		31,210		31,312		33,786
Total	$	1,060,928	$	1,065,935	$	1,043,766	$	1,023,931	$	1,021,424

While deposits declined in the second quarter of 2014, deposits have grown considerably since June 30, 2013. As a result of the current interest rate environment, we continue to see declines in certificates of deposits, but these declines have been offset by increases in noninterest bearing demand deposits, interest bearing demand deposits, and savings accounts. We expect this trend to continue for the foreseeable future.

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The current interest rate environment has made it almost impossible to increase net interest income without increasing earning assets. As deposit growth has generally outpaced loan demand, we continue to deploy deposits into purchases of AFS securities to provide additional interest income. We anticipate that future increases in our AFS securities will be in the form of mortgage-backed securities and collateralized mortgage obligations. The following table displays fair values of AFS securities as of:

	June 30 2014		March 31 2014		December 31 2013		September 30 2013		June 30 2013
Government sponsored enterprises	$	24,104	$	23,883	$	23,745	$	24,155	$	24,249
States and political subdivisions	214,210		219,644		201,988		193,786		187,302
Auction rate money market preferred	2,867		2,755		2,577		2,639		2,943
Preferred stocks	6,214		6,053		5,827		6,144		6,559
Mortgage-backed securities	162,992		157,856		144,115		146,393		149,407
Collateralized mortgage obligations	140,131		144,953		133,810		127,940		128,964
Total	$	550,518	$	555,144	$	512,062	$	501,057	$	499,424

The following table displays borrowed funds balances as of:

	June 30 2014		March 31 2014		December 31 2013		September 30 2013		June 30 2013
FHLB advances	$	182,000	$	162,000	$	162,000	$	162,000	$	162,000
Securities sold under agreements to repurchase without stated maturity dates	87,058		94,741		106,025		81,405		71,668
Securities sold under agreements to repurchase with stated maturity dates	1,199		1,195		11,301		16,296		16,292
Federal funds purchased	9,200		14,600		—		6,300		12,500
Total	$	279,457	$	272,536	$	279,326	$	266,001	$	262,460

Capital

Capital consists solely of common stock, retained earnings, and accumulated other comprehensive income (loss). We are currently authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Pursuant to these authorizations, we issued 76,341 shares or $1,778 of common stock during the first six months of 2014, as compared to 77,568 shares or $1,900 of common stock during the same period in 2013. We also offer the Directors Plan in which participants either directly purchase stock or purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by $237 and $258 during the six month periods ended June 30, 2014 and 2013, respectively.

We have approved a publicly announced common stock repurchase plan. Pursuant to this plan, we repurchased 70,334 shares or $1,648 of common stock compared to 45,825 shares for $1,114 during the first six months of 2014 and 2013, respectively. As of June 30, 2014, we were authorized to repurchase up to an additional 66,812 shares of common stock.

There are no significant regulatory constraints placed on our capital. The FRB’s current recommended minimum primary capital to assets requirement is 6.00%. Our primary capital to adjusted average assets, which consists of shareholders' equity plus the ALLL acquisition intangibles, was 8.50% as of June 30, 2014.

The FRB has established minimum risk based capital guidelines. Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off balance sheet items to arrive at risk adjusted total assets. Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital. The minimum standard is 8.00%, of which at least 4.00% must consist of equity capital net of goodwill. The following table sets forth the percentages required under the Risk Based Capital guidelines and our values as of:

	June 30 2014		December 31 2013		Required
Equity Capital	13.84	%	13.67	%	4.00	%
Secondary Capital	1.25	%	1.25	%	4.00	%
Total Capital	15.09	%	14.92	%	8.00	%

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Secondary capital includes only the ALLL. The percentage for the secondary capital under the required column is the maximum amount allowed from all sources.

The FRB and FDIC also prescribe minimum capital requirements for Isabella Bank. At June 30, 2014, the Bank exceeded these minimum capital requirements. On July 2, 2013, the FRB published revised BASEL III Capital standards for banks. The rules redefine what is included or deducted from equity capital, changes risk weighting for certain on and off-balance sheet assets, increases the minimum required equity capital to be considered well capitalized, and introduces a capital cushion buffer. The rules, which will be gradually phased in between 2015 and 2019, are not expected to have a material impact on our operations.

Contractual Obligations and Loan Commitments

We are party to credit related financial instruments with off-balance-sheet risk. These financial instruments are entered into in the normal course of business to meet the financing needs of our customers. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contract or notional amounts of these instruments reflect the extent of involvement we have in a particular class of financial instrument.

The following table summarizes our credit related financial instruments with off-balance-sheet risk as of:

	June 30 2014		December 31 2013
Unfunded commitments under lines of credit	$	111,348	$	121,959
Commercial and standby letters of credit	4,189		4,169
Commitments to grant loans	24,722		29,096
Total	$	140,259	$	155,224

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. These commitments may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements.

Commercial and standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements, including commercial paper, bond financing, and similar transactions. These commitments to extend credit and letters of credit generally mature within one year. The credit risk involved in these transactions is essentially the same as that involved in extending loans to customers. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on a credit evaluation of the borrower. While we consider standby letters of credit to be guarantees, the amount of the liability related to such guarantees on the commitment date is not significant and a liability related to such guarantees is not recorded on the consolidated balance sheets.

Commitments to grant loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The amount of collateral obtained, if it is deemed necessary, is based on management’s credit evaluation of the customer. Commitments to grant loans include loans committed to be sold to the secondary market.

Our exposure to credit-related loss in the event of nonperformance by the counter parties to the financial instruments for commitments to extend credit and standby letters of credit could be up to the contractual notional amount of those instruments. We use the same credit policies as we do for extending loans to customers. No significant losses are anticipated as a result of these commitments.

Fair Value

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Trading securities, AFS securities, and certain liabilities are recorded at fair value on a recurring basis. Additionally, from time-to-time, we may be required to record at fair value other assets on a nonrecurring basis, such as mortgage loans AFS, foreclosed assets, OMSRs, and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets.

For further information regarding fair value measurements see “Note 11 – Fair Value” of our notes to the interim condensed consolidated financial statements.

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Liquidity

Liquidity is monitored regularly by our Market Risk Committee, which consists of members of senior management. The committee reviews projected cash flows, key ratios, and liquidity available from both primary and secondary sources.

Our primary sources of liquidity are cash and cash equivalents, certificates of deposit held in other financial institutions, trading securities, and AFS securities. These categories totaled $578,478 or 38.00% of assets as of June 30, 2014 as compared to $554,725 or 37.15% as of December 31, 2013. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Liquidity varies significantly daily, based on customer activity.

Our primary source of funds is deposit accounts. We also have the ability to borrow from the FHLB, the FRB, and through various correspondent banks in the form of federal funds purchased. These funding methods typically carry a higher interest rate than traditional market deposit accounts. Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of certificates of deposits held in other financial institutions, trading securities, AFS securities, or loans as collateral. As of June 30, 2014, we had available lines of credit of $84,668.

The following table summarizes our sources and uses of cash for the six month periods ended June 30:

	2014			2013			$ Variance
Net cash provided by (used in) operating activities	$	11,002		$	14,594		$	(3,592	)
Net cash provided by (used in) investing activities	(39,043		)	(40,760		)	1,717
Net cash provided by (used in) financing activities	13,863			22,612			(8,749		)
Increase (decrease) in cash and cash equivalents	(14,178		)	(3,554		)	(10,624		)
Cash and cash equivalents January 1	41,558			24,920			16,638
Cash and cash equivalents June 30	$	27,380		$	21,366		$	6,014

Market Risk

Our primary market risks are interest rate risk and liquidity risk. We have no significant foreign exchange risk and do not utilize interest rate swaps or derivatives, except for interest rate locks and forward loan commitments, in the management of IRR. Any changes in foreign exchange rates or commodity prices would have an insignificant impact on our interest income and cash flows.

IRR is the exposure of our net interest income to changes in interest rates. IRR results from the difference in the maturity or repricing frequency of a financial institution's interest earning assets and its interest bearing liabilities. IRR is the fundamental method by which financial institutions earn income and create shareholder value. Excessive exposure to IRR could pose a significant risk to our earnings and capital.

The FRB has adopted a policy requiring us to effectively manage the various risks that can have a material impact on our safety and soundness. The risks include credit, interest rate, liquidity, operational, and reputational. We have policies, procedures, and internal controls for measuring and managing these risks. Specifically, our Funds Management policy and procedures include defining acceptable types and terms of investments and funding sources, liquidity requirements, limits on investments in long term assets, limiting the mismatch in repricing opportunity of assets and liabilities, and the frequency of measuring and reporting to our Board.

The primary technique to measure IRR is simulation analysis. Simulation analysis forecasts the effects on the balance sheet structure and net interest income under a variety of scenarios that incorporate changes in interest rates, the shape of yield curves, interest rate relationships, and loan prepayments. These forecasts are compared against net interest income projected in a stable interest rate environment. While many assets and liabilities reprice either at maturity or in accordance with their contractual terms, several balance sheet components demonstrate characteristics that require an evaluation to more accurately reflect their repricing behavior. Key assumptions in the simulation analysis include prepayments on loans, probable calls of investment securities, changes in market conditions, loan volumes and loan pricing, deposit sensitivity, and customer preferences. These assumptions are inherently uncertain as they are subject to fluctuation and revision in a dynamic environment. As a result, the simulation analysis cannot precisely forecast the impact of rising and falling interest rates on net interest income. Actual results will differ from simulated results due to many other factors, including changes in balance sheet components, interest rate changes, changes in market conditions, and management strategies.

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Our interest rate sensitivity is estimated by first forecasting the next 12 and 24 months of net interest income under an assumed environment of a constant balance sheet and constant market interest rates (base case). We then compare the results of various simulation analyses to the base case. At June 30, 2014, we projected the change in net interest income during the next 12 and 24 months assuming market interest rates were to immediately decrease by 100 basis points and increase by 100, 200, 300, and 400 basis points in a parallel fashion over the entire yield curve during the same time period. We did not project scenarios showing decreases in interest rates beyond 100 basis points as this is considered extremely unlikely given current interest rate levels. These projections were based on our assets and liabilities remaining static over the next 12 and 24 months, while factoring in probable calls and prepayments of certain investment securities and real estate residential and consumer loans. While it is extremely unlikely that interest rates would immediately increase to these levels, we feel that these extreme scenarios help us identify potential gaps and mismatches in the repricing characteristics of assets and liabilities. We regularly monitor our projected net interest income sensitivity to ensure that it remains within established limits.

The following table summarizes our interest rate sensitivity for the:

	12 Months Ending June 30, 2015
Immediate basis point change assumption (short-term)	(100)		0	100		200		300		400
Percent change in net interest income vs. constant rates	(2.30	)%	—	(0.66	)%	(1.52	)%	(2.92	)%	(4.46	)%

	24 Months Ending June 30, 2016
Immediate basis point change assumption (short-term)	(100)		0	100		200		300		400
Percent change in net interest income vs. constant rates	(2.19	)%	—	(1.10	)%	(1.14	)%	(1.98	)%	(3.30	)%

	12 Months Ending December 31, 2014
Immediate basis point change assumption (short-term)	(100)		0	100		200		300		400
Percent change in net interest income vs. constant rates	(2.85	)%	—	0.25	%	(0.28	)%	(0.99	)%	(2.16	)%

	24 Months Ending December 31, 2015
Immediate basis point change assumption (short-term)	(100)		0	100		200		300		400
Percent change in net interest income vs. constant rates	(3.24	)%	—	0.04	%	0.29	%	0.41	%	(0.35	)%

The following tables provide information about assets and liabilities that are sensitive to changes in interest rates as of June 30, 2014 and December 31, 2013. The principal amounts of investments, loans, other interest earning assets, borrowings, and time deposits maturing were calculated based on the contractual maturity dates. Estimated cash flows for savings and NOW accounts are based on our estimated deposit decay rates.

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	June 30, 2014
	2015			2016			2017			2018			2019			Thereafter			Total			Fair Value
Rate sensitive assets
Other interest bearing assets	$	1,136		$	240		$	100		$	—		$	—		$	—		$	1,476		$	1,476
Average interest rates	0.40		%	1.05		%	0.35		%	—			—			—			0.50		%
Trading securities	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Average interest rates	—		%	—			—			—			—			—			—		%
AFS securities	$	141,652		$	82,697		$	71,563		$	50,596		$	44,848		$	159,162		$	550,518		$	550,518
Average interest rates	1.06		%	2.24		%	2.37		%	2.34		%	2.50		%	2.58		%	2.08		%
Fixed interest rate loans (1)	$	233,285		$	146,050		$	102,598		$	63,483		$	37,076		$	54,377		$	636,869		$	623,410
Average interest rates	4.91		%	4.74		%	4.55		%	4.32		%	4.50		%	4.26		%	4.67		%
Variable interest rate loans (1)	$	99,126		$	29,335		$	18,636		$	13,074		$	12,550		$	6,717		$	179,438		$	179,438
Average interest rates	4.41		%	4.02		%	3.56		%	3.41		%	3.38		%	3.42		%	4.08		%
Rate sensitive liabilities
Borrowed funds	$	149,457		$	10,000		$	30,000		$	40,000		$	30,000		$	20,000		$	279,457		$	263,604
Average interest rates	0.33		%	1.23		%	1.88		%	2.46		%	2.72		%	2.94		%	1.28		%
Savings and NOW accounts	$	39,720		$	35,807		$	32,172		$	28,932		$	26,050		$	284,062		$	446,743		$	446,743
Average interest rates	0.11		%	0.11		%	0.11		%	0.11		%	0.11		%	0.11		%	0.11		%
Fixed interest rate certificates of deposit	$	216,946		$	76,320		$	53,302		$	62,795		$	22,567		$	18,601		$	450,531		$	452,341
Average interest rates	0.88		%	1.86		%	1.76		%	1.38		%	1.49		%	1.57		%	1.28		%
Variable interest rate certificates of deposit	$	878		$	239		$	—		$	—		$	—		$	—		$	1,117		$	1,117
Average interest rates	0.40		%	0.40		%	—			—			—			—			0.40		%

	December 31, 2013
	2014			2015			2016			2017			2018			Thereafter			Total			Fair Value
Rate sensitive assets
Other interest bearing assets	$	19,903		$	480		$	—		$	—		$	—		$	—		$	20,383		$	20,385
Average interest rates	0.25		%	1.15		%	—			—			—			—			0.27		%
Trading securities	$	525		$	—		$	—		$	—		$	—		$	—		$	525		$	525
Average interest rates	2.77		%	—			—			—			—			—			2.77		%
AFS securities	$	131,892		$	73,723		$	63,190		$	52,078		$	37,972		$	153,207		$	512,062		$	512,062
Average interest rates	2.26		%	2.23		%	2.42		%	2.48		%	2.48		%	2.80		%	2.48		%
Fixed interest rate loans (1)	$	115,183		$	94,841		$	91,140		$	118,479		$	85,448		$	134,614		$	639,705		$	639,914
Average interest rates	5.31		%	5.17		%	4.93		%	4.53		%	4.33		%	4.33		%	4.75		%
Variable interest rate loans (1)	$	69,036		$	29,460		$	20,332		$	14,208		$	15,699		$	19,597		$	168,332		$	168,332
Average interest rates	4.76		%	3.90		%	4.06		%	3.36		%	3.35		%	3.99		%	4.19		%
Rate sensitive liabilities
Borrowed funds	$	126,950		$	32,376		$	10,000		$	30,000		$	40,000		$	40,000		$	279,326		$	283,060
Average interest rates	0.43		%	0.86		%	2.15		%	1.95		%	2.35		%	3.02		%	1.35		%
Savings and NOW accounts	$	47,000		$	33,569		$	30,200		$	27,198		$	24,522		$	272,837		$	435,326		$	435,326
Average interest rates	0.19		%	0.12		%	0.11		%	0.11		%	0.11		%	0.11		%	0.12		%
Fixed interest rate certificates of deposit	$	206,514		$	81,038		$	58,627		$	46,336		$	39,214		$	17,144		$	448,873		$	451,664
Average interest rates	0.89		%	1.93		%	1.95		%	1.63		%	1.34		%	1.66		%	1.36		%
Variable interest rate certificates of deposit	$	764		$	375		$	—		$	—		$	—		$	—		$	1,139		$	1,139
Average interest rates	0.04		%	0.40		%	—			—			—			—			0.16		%

⁽¹⁾ The fair value reported is exclusive of the allocation of the ALLL.

We do not believe that there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss. As of the date of this report, we do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near term. As of the date of this report, we do not expect to make material changes in those methods in the near term. We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.

60

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information presented in the section captioned “Market Risk” in Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

Item 4. Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of June 30, 2014, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of June 30, 2014, were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the most recent fiscal quarter, no change occurred in our internal control over financial reporting that materially affected, or is likely to materially effect, our internal control over financial reporting.

61

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any material legal proceedings. We are involved in ordinary, routine litigation incidental to our business; however, no such routine proceedings are expected to result in any material adverse effect on operations, earnings, financial condition, or cash flows.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(A) None

(B) None

(C) Repurchases of Common Stock

We have adopted and publicly announced a common stock repurchase plan. The plan was last amended on October 23, 2013, to allow for the repurchase of an additional 150,000 shares of common stock. These authorizations do not have expiration dates. As shares are repurchased under this plan, they are retired and revert back to the status of authorized, but unissued shares.

The following table provides information for the three month period ended June 30, 2014, with respect to this plan:

	Shares Repurchased			Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
	Number	Average Price Per Share
Balance, March 31					99,981
April 1 - 30	10,389	$	22.91	10,389	89,592
May 1 - 31	12,969	22.75		12,969	76,623
June 1 - 30	9,811	22.83		9,811	66,812
Balance, June 30	33,169	$	22.82	33,169	66,812

62

Item 6. Exhibits

(a)	Exhibits
31(a)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Principal Executive Officer
31(b)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Principal Financial Officer
32	Section 1350 Certification of Principal Executive Officer and Principal Financial Officer
101.1*	101.INS (XBRL Instance Document)
	101.SCH (XBRL Taxonomy Extension Schema Document)
	101.CAL (XBRL Calculation Linkbase Document)
	101.LAB (XBRL Taxonomy Label Linkbase Document)
	101.DEF (XBRL Taxonomy Linkbase Document)
	101.PRE (XBRL Taxonomy Presentation Linkbase Document)

• In accordance with Rule 406T of Regulations S-T, the XBRL related information shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

63

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Isabella Bank Corporation
Date:	August 8, 2014		/s/ Jae A. Evans
			Jae A. Evans
			Chief Executive Officer
			(Principal Executive Officer)
Date:	August 8, 2014		/s/ Dennis P. Angner
			Dennis P. Angner
			President, Chief Financial Officer
			(Principal Financial Officer, Principal Accounting Officer)

64

EX-31.A

Exhibit 31(a)

I, Jae A. Evans, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Isabella Bank Corporation (the “registrant”).

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 8, 2014	/s/ Jae A. Evans
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.B

Exhibit 31(b)

I, Dennis P. Angner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Isabella Bank Corporation (the “registrant”).

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 8, 2014	/s/ Dennis P. Angner
		President, Chief Financial Officer
		(Principal Financial Officer, Principal Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Isabella Bank Corporation (the “Corporation”) on Form 10-Q for the quarterly period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jae A. Evans, Chief Executive Officer and Dennis P. Angner, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Jae A. Evans

Chief Executive Officer

(Principal Executive Officer)

August 8, 2014

/s/ Dennis P. Angner

President, Chief Financial Officer

(Principal Financial Officer, Principal Accounting Officer)

August 8, 2014

XML

AFS Securities (AFS securities with gross unrealized losses) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014 Securities	Dec. 31, 2013 Securities
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	$ 358	$ 8,457
Fair Value, Less Than Twelve Months	48,197	251,760
Gross Unrealized Losses, Twelve Months or More	5,583	4,007
Fair Value, Twelve Months or More	164,480	33,161
Total Unrealized Losses	5,941	12,464
Number of Securities in an unrealized loss position, Less Than Twelve Months, Fair Value	123	182
Number of Securities in an unrealized loss position, Twelve Months or More, Fair Value	116	19
Number of Securities in an unrealized loss position, Total Unrealized Losses	239	201
Government sponsored enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	0	1,122
Fair Value, Less Than Twelve Months	0	22,873
Gross Unrealized Losses, Twelve Months or More	607	0
Fair Value, Twelve Months or More	23,389	0
Total Unrealized Losses	607	1,122
States and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	259	2,566
Fair Value, Less Than Twelve Months	15,190	42,593
Gross Unrealized Losses, Twelve Months or More	1,057	981
Fair Value, Twelve Months or More	27,852	6,115
Total Unrealized Losses	1,316	3,547
Auction rate money market preferred [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	0	0
Fair Value, Less Than Twelve Months	0	0
Gross Unrealized Losses, Twelve Months or More	333	623
Fair Value, Twelve Months or More	2,167	2,577
Total Unrealized Losses	333	623
Preferred stocks [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	0	0
Fair Value, Less Than Twelve Months	0	0
Gross Unrealized Losses, Twelve Months or More	592	993
Fair Value, Twelve Months or More	3,208	2,807
Total Unrealized Losses	592	993
Mortgage-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	17	2,424
Fair Value, Less Than Twelve Months	9,268	101,816
Gross Unrealized Losses, Twelve Months or More	1,672	1,410
Fair Value, Twelve Months or More	65,346	21,662
Total Unrealized Losses	1,689	3,834
Collateralized mortgage obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	82	2,345
Fair Value, Less Than Twelve Months	23,739	84,478
Gross Unrealized Losses, Twelve Months or More	1,322	0
Fair Value, Twelve Months or More	42,518	0
Total Unrealized Losses	$ 1,404	$ 2,345

XML

Borrowed Funds (Narrative) (Details) (USD $) In Thousands, unless otherwise specified			6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 Securities Sold under Agreements to Repurchase [Member] Minimum [Member]	Jun. 30, 2014 Securities Sold under Agreements to Repurchase [Member] Maximum [Member]	Jun. 30, 2014 Federal Funds Purchased [Member] Minimum [Member]	Jun. 30, 2014 Federal Funds Purchased [Member] Maximum [Member]	Jun. 30, 2014 Federal Reserve Bank Advances [Member] Minimum [Member]	Jun. 30, 2014 Federal Reserve Bank Advances [Member] Maximum [Member]
Short-term Debt [Line Items]
Debt instrument, term			1 day	4 days	1 day	4 days	1 day	4 days
Carrying value of securities sold under agreements to repurchase	$ 144,683	$ 148,930
Fair value of securities sold under agreements to repurchase	144,683	148,930
Additional borrowing capacity	$ 84,668

XML

Equity Securities Without Readily Determinable Fair Values (Equity securities without readily determinable fair values) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Equity Method And Other Investments [Abstract]
FHLB Stock	$ 9,100	$ 8,100
FRB Stock	1,879	1,879
Other	341	344
Total	19,303	18,293
Investment in Corporate Settlement Solutions [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investments	6,983	6,970
Investment in Valley Financial Corporation [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investments	$ 1,000	$ 1,000

XML

Operating Segments (Narrative) (Details)	Jun. 30, 2014	Jun. 30, 2013
Segment Reporting [Abstract]
Percentage of reportable segments total assets and operating results, or more	90.00%	90.00%

XML

Other Noninterest Expenses (Expenses included in other noninterest expenses) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Summary of expenses included in other noninterest expenses
Marketing and community relations	$ 211	$ 432	$ 454	$ 674
FDIC insurance premiums	221	273	423	545
Directors fees	183	205	378	404
Audit and related fees	182	162	320	301
Education and travel	143	116	264	238
Postage and freight	90	94	198	193
Printing and supplies	87	99	189	185
Loan underwriting fees	92	123	187	239
Consulting fees	76	83	167	155
All other	735	668	1,430	1,213
Total other	$ 2,020	$ 2,255	$ 4,010	$ 4,147

XML

Loans and ALLL (Summary of TDR loan balances) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Receivables [Abstract]
Troubled debt restructurings	$ 24,192	$ 25,865

XML

Accumulated Other Comprehensive Income (Loss) (Tables)

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Summary of the components of accumulated other comprehensive income

A summary of the components of unrealized holding gains on AFS securities included in OCI follows for the:

	Three Months Ended June 30
	2014								2013
	Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total			Auction Rate Money Market Preferred and Preferred Stocks			All Other AFS Securities			Total
Unrealized gains (losses) arising during the period	$	298	$	4,150		$	4,448		$	(363	)	$	(11,634	)	$	(11,997	)
Reclassification adjustment for net realized (gains) losses included in net income	—		—			—			—			—			—
Net unrealized gains (losses)	298		4,150			4,448			(363		)	(11,634		)	(11,997		)
Tax effect	—		(1,420		)	(1,420		)	—			3,979			3,979
Unrealized gains (losses), net of tax	$	298	$	2,730		$	3,028		$	(363	)	$	(7,655	)	$	(8,018	)

	Six Months Ended June 30
	2014								2013
	Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total			Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total
Unrealized gains (losses) arising during the period	$	298	$	9,670		$	9,968		$	295	$	(14,253	)	$	(13,958	)
Reclassification adjustment for net realized (gains) losses included in net income	—		—			—			—		(99		)	(99		)
Net unrealized gains (losses)	298		9,670			9,968			295		(14,352		)	(14,057		)
Tax effect	—		(3,159		)	(3,159		)	—		4,902			4,902
Unrealized gains (losses), net of tax	$	298	$	6,511		$	6,809		$	295	$	(9,450	)	$	(9,155	)

The following table summarizes the changes in AOCI by component for the:

	Three Months Ended June 30
	2014									2013
	Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total			Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total
Balance, April 1	$	(426	)	$	(2,134	)	$	(2,560	)	$	7,541		$	(3,671	)	$	3,870
OCI before reclassifications	4,448			—			4,448			(11,997		)	—			(11,997		)
Amounts reclassified from AOCI	—			—			—			—			—			—
Subtotal	4,448			—			4,448			(11,997		)	—			(11,997		)
Tax effect	(1,420		)	—			(1,420		)	3,979			—			3,979
OCI, net of tax	3,028			—			3,028			(8,018		)	—			(8,018		)
Balance, June 30	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)

	Six Months Ended June 30
	2014									2013
	Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total			Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total
Balance, January 1	$	(4,207	)	$	(2,134	)	$	(6,341	)	$	8,678		$	(3,671	)	$	5,007
OCI before reclassifications	9,968			—			9,968			(13,958		)	—			(13,958		)
Amounts reclassified from AOCI	—			—			—			(99		)	—			(99		)
Subtotal	9,968			—			9,968			(14,057		)	—			(14,057		)
Tax effect	(3,159		)	—			(3,159		)	4,902			—			4,902
OCI, net of tax	6,809			—			6,809			(9,155		)	—			(9,155		)
Balance, June 30	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)

Details about accumulated other comprehensive income components

The following table details reclassification adjustments and the related affected line items on our interim condensed consolidated statements of income for the noted periods:

Details about AOCI components	Amount Reclassified from AOCI								Affected Line Item in the Interim Condensed Consolidated Statements of Income
	Three Months Ended June 30				Six Months Ended June 30
	2014		2013		2014		2013
Unrealized holding gains (losses) on AFS securities
	$	—	$	—	$	—	$	99	Net gains (losses) on sale of AFS securities
	—		—		—		99		Income before federal income tax expense
	—		—		—		34		Federal income tax expense
	$	—	$	—	$	—	$	65	Net income

XML

Defined Benefit Pension Plan (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Compensation and Retirement Disclosure [Abstract]
Estimated future employer contributions in current fiscal year			$ 0
Plan Contributions	0	0	0	215,000
Interest cost on benefit obligation	121,000	112,000	243,000	225,000
Expected return on plan assets	(154,000)	(144,000)	(308,000)	(287,000)
Amortization of unrecognized actuarial net loss	43,000	82,000	85,000	165,000
Net periodic benefit cost	$ 10,000	$ 50,000	$ 20,000	$ 103,000

XML

AFS Securities (Tables)

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Amortized cost and fair value of available-for-sale securities

The amortized cost and fair value of AFS securities, with gross unrealized gains and losses, are as follows at:

	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,706	$	5	$	607	$	24,104
States and political subdivisions	208,564		6,962		1,316		214,210
Auction rate money market preferred	3,200		—		333		2,867
Preferred stocks	6,800		6		592		6,214
Mortgage-backed securities	162,949		1,732		1,689		162,992
Collateralized mortgage obligations	139,883		1,652		1,404		140,131
Total	$	546,102	$	10,357	$	5,941	$	550,518

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,860	$	7	$	1,122	$	23,745
States and political subdivisions	200,323		5,212		3,547		201,988
Auction rate money market preferred	3,200		—		623		2,577
Preferred stocks	6,800		20		993		5,827
Mortgage-backed securities	147,292		657		3,834		144,115
Collateralized mortgage obligations	135,139		1,016		2,345		133,810
Total	$	517,614	$	6,912	$	12,464	$	512,062

Amortized cost and fair value of available-for-sale securities by contractual maturity

The amortized cost and fair value of AFS securities by contractual maturity at June 30, 2014 are as follows:

	Maturing								Securities with Variable Monthly Payments or Noncontractual Maturities
	Due in One Year or Less		After One Year But Within Five Years		After Five Years But Within Ten Years		After Ten Years				Total
Government sponsored enterprises	$	—	$	9,068	$	15,638	$	—	$	—	$	24,706
States and political subdivisions	10,714		49,186		99,791		48,873		—		208,564
Auction rate money market preferred	—		—		—		—		3,200		3,200
Preferred stocks	—		—		—		—		6,800		6,800
Mortgage-backed securities	—		—		—		—		162,949		162,949
Collateralized mortgage obligations	—		—		—		—		139,883		139,883
Total amortized cost	$	10,714	$	58,254	$	115,429	$	48,873	$	312,832	$	546,102
Fair value	$	10,812	$	60,195	$	118,057	$	49,250	$	312,204	$	550,518

Summary of the activity related to sales of available-for-sale securities

A summary of the sales activity of AFS securities was as follows for the three and six month periods ended:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Proceeds from sales of AFS securities	$	—	$	—	$	—	$	9,857
Gross realized gains (losses)	$	—	$	—	$	—	$	99
Applicable income tax expense (benefit)	$	—	$	—	$	—	$	34

Available-for-sale securities with gross unrealized losses

Information pertaining to AFS securities with gross unrealized losses at June 30, 2014 and December 31, 2013, respectively, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	June 30, 2014
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
Government sponsored enterprises	$	—	$	—	$	607	$	23,389	$	607
States and political subdivisions	259		15,190		1,057		27,852		1,316
Auction rate money market preferred	—		—		333		2,167		333
Preferred stocks	—		—		592		3,208		592
Mortgage-backed securities	17		9,268		1,672		65,346		1,689
Collateralized mortgage obligations	82		23,739		1,322		42,518		1,404
Total	$	358	$	48,197	$	5,583	$	164,480	$	5,941
Number of securities in an unrealized loss position:			123				116		239

	December 31, 2013
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
Government sponsored enterprises	$	1,122	$	22,873	$	—	$	—	$	1,122
States and political subdivisions	2,566		42,593		981		6,115		3,547
Auction rate money market preferred	—		—		623		2,577		623
Preferred stocks	—		—		993		2,807		993
Mortgage-backed securities	2,424		101,816		1,410		21,662		3,834
Collateralized mortgage obligations	2,345		84,478		—		—		2,345
Total	$	8,457	$	251,760	$	4,007	$	33,161	$	12,464
Number of securities in an unrealized loss position:			182				19		201

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Borrowed Funds (Maturity and weighted average interest rates of FHLB advances) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	1.84%	2.02%
FHLB advances	$ 182,000	$ 162,000
Fixed Rate Advances Due 2014 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	0.48%	0.48%
FHLB fixed rate advances	10,000	10,000
Variable Rate Advances Due 2014 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	0.42%	0.00%
FHLB variable rate advances	20,000	0
Fixed Rate Advances Due 2015 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	0.84%	0.84%
FHLB fixed rate advances	32,000	32,000
Fixed Rate Advances Due 2016 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	2.15%	2.15%
FHLB fixed rate advances	10,000	10,000
Fixed Rate Advances Due 2017 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	1.95%	1.95%
FHLB fixed rate advances	30,000	30,000
Fixed Rate Advances Due 2018 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	2.35%	2.35%
FHLB fixed rate advances	40,000	40,000
Fixed Rate Advances Due 2019 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	3.11%	3.11%
FHLB fixed rate advances	20,000	20,000
Fixed Rate Advances Due 2020 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	1.98%	1.98%
FHLB fixed rate advances	10,000	10,000
Fixed Rate Advances Due 2023 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	3.90%	3.90%
FHLB fixed rate advances	$ 10,000	$ 10,000

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Loans and ALLL (Credit quality indicators for commercial and agricultural credit exposures) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Total	$ 816,307	$ 808,037
Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	407,791	392,104
Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	299,185	291,860
Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	108,606	100,244
Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	97,661	92,589
Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	64,693	59,257
Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	32,968	33,332
2 - High quality [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	31,402	33,132
2 - High quality [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	15,038	18,671
2 - High quality [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	16,364	14,461
2 - High quality [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	9,436	6,762
2 - High quality [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	5,619	3,527
2 - High quality [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	3,817	3,235
3 - High satisfactory [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	140,149	130,726
3 - High satisfactory [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	92,014	91,323
3 - High satisfactory [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	48,135	39,403
3 - High satisfactory [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	38,683	43,015
3 - High satisfactory [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	25,840	26,015
3 - High satisfactory [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	12,843	17,000
4 - Low satisfactory [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	208,716	193,730
4 - Low satisfactory [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	166,155	149,921
4 - Low satisfactory [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	42,561	43,809
4 - Low satisfactory [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	45,265	37,776
4 - Low satisfactory [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	29,461	26,874
4 - Low satisfactory [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	15,804	10,902
5 - Special mention [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	10,969	15,590
5 - Special mention [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	9,816	13,747
5 - Special mention [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,153	1,843
5 - Special mention [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,128	2,531
5 - Special mention [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,810	1,609
5 - Special mention [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	318	922
6 - Substandard [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	13,702	17,447
6 - Substandard [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	13,557	16,974
6 - Substandard [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	145	473
6 - Substandard [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,034	2,505
6 - Substandard [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,848	1,232
6 - Substandard [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	186	1,273
7 - Vulnerable [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,839	1,279
7 - Vulnerable [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,605	1,041
7 - Vulnerable [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	234	238
7 - Vulnerable [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	115	0
7 - Vulnerable [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	115	0
7 - Vulnerable [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	0	0
8 - Doubtful [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	14	200
8 - Doubtful [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	0	183
8 - Doubtful [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	14	17
8 - Doubtful [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	0	0
8 - Doubtful [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	0	0
8 - Doubtful [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	$ 0	$ 0

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AFS Securities (Amortized cost and fair value of AFS securities by contractual maturity) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less	$ 10,714
Maturing, After One Year But Within Five Years	58,254
Maturing, After Five Years But Within Ten Years	115,429
Maturing, After Ten Years	48,873
Securities With Variable Monthly Payments or Noncontractual Maturities	312,832
Amortized Cost	546,102	517,614
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less, Fair value	10,812
Maturing, After One Year But Within Five Years, Fair value	60,195
Maturing, After Five Years But Within Ten Years, Fair value	118,057
Maturing, After Ten Years, Fair value	49,250
Securities With Variable Monthly Payments or Noncontractual Maturities, Fair value	312,204
Total, Fair value	550,518	512,062
Government sponsored enterprises [Member]
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less	0
Maturing, After One Year But Within Five Years	9,068
Maturing, After Five Years But Within Ten Years	15,638
Maturing, After Ten Years	0
Securities With Variable Monthly Payments or Noncontractual Maturities	0
Amortized Cost	24,706	24,860
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	24,104	23,745
States and political subdivisions [Member]
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less	10,714
Maturing, After One Year But Within Five Years	49,186
Maturing, After Five Years But Within Ten Years	99,791
Maturing, After Ten Years	48,873
Securities With Variable Monthly Payments or Noncontractual Maturities	0
Amortized Cost	208,564	200,323
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	214,210	201,988
Auction rate money market preferred [Member]
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less	0
Maturing, After One Year But Within Five Years	0
Maturing, After Five Years But Within Ten Years	0
Maturing, After Ten Years	0
Securities With Variable Monthly Payments or Noncontractual Maturities	3,200
Amortized Cost	3,200	3,200
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	2,867	2,577
Preferred stocks [Member]
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Rolling Maturity [Abstract]
Securities With Variable Monthly Payments or Noncontractual Maturities	6,800
Amortized Cost	6,800	6,800
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	6,214	5,827
Mortgage-backed securities [Member]
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less	0
Maturing, After One Year But Within Five Years	0
Maturing, After Five Years But Within Ten Years	0
Maturing, After Ten Years	0
Securities With Variable Monthly Payments or Noncontractual Maturities	162,949
Amortized Cost	162,949	147,292
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	162,992	144,115
Collateralized mortgage obligations [Member]
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less	0
Maturing, After One Year But Within Five Years	0
Maturing, After Five Years But Within Ten Years	0
Maturing, After Ten Years	0
Securities With Variable Monthly Payments or Noncontractual Maturities	139,883
Amortized Cost	139,883	135,139
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	$ 140,131	$ 133,810

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Borrowed Funds (Short-term borrowings) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt [Line Items]
Maximum Month End Balance	$ 90,813	$ 71,668	$ 94,741	$ 71,668
Quarter to Date Average Balance	90,484	69,692	92,412	65,363
Weighted Average Interest Rate During the Period	0.13%	0.15%	0.13%	0.15%
Federal Funds Purchased [Member]
Short-term Debt [Line Items]
Maximum Month End Balance	16,500	13,700	16,500	13,700
Quarter to Date Average Balance	$ 6,849	$ 6,022	$ 6,305	$ 3,646
Weighted Average Interest Rate During the Period	0.48%	0.57%	0.47%	0.56%

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Parent Company Only Financial Information (Interim Condensed Balance Sheets) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2013	Dec. 31, 2012
ASSETS
AFS securities	$ 550,518	$ 512,062
Premises and equipment	25,701	25,719
Other assets	16,267	20,605
TOTAL ASSETS	1,522,135	1,493,137
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity	171,099	160,609	159,288	164,489
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	1,522,135	1,493,137
Parent Company [Member]
ASSETS
Cash on deposit at subsidiary Bank	961	529
AFS securities	3,522	3,542
Investments in subsidiaries	121,714	110,192
Premises and equipment	1,954	2,013
Other assets	54,274	54,223
TOTAL ASSETS	182,425	170,499
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities	11,326	9,890
Shareholders' equity	171,099	160,609
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 182,425	$ 170,499

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Fair Value (Carrying amount and estimated fair value of financial instruments) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013
Level 1 [Member]
ASSETS
Cash and cash equivalents	$ 27,380		$ 41,558
Certificates of deposit held in other financial institutions	0		0
Mortgage loans AFS	0		0
Total loans	0		0
Less allowance for loan losses	0		0
Net loans	0		0
Accrued interest receivable	5,448		5,442
Equity securities without readily determinable fair values	0	[1]	0	[1]
Originated mortgage servicing rights	0		0
LIABILITIES
Deposits without stated maturities	609,280		593,754
Deposits with stated maturities	0		0
Borrowed funds	0		0
Accrued interest payable	527		633
Level 2 [Member]
ASSETS
Cash and cash equivalents	0		0
Certificates of deposit held in other financial institutions	580		582
Mortgage loans AFS	357		1,123
Total loans	0		0
Less allowance for loan losses	0		0
Net loans	0		0
Accrued interest receivable	0		0
Equity securities without readily determinable fair values	0	[1]	0	[1]
Originated mortgage servicing rights	2,703		2,667
LIABILITIES
Deposits without stated maturities	0		0
Deposits with stated maturities	453,458		452,803
Borrowed funds	263,604		283,060
Accrued interest payable	0		0
Level 3 [Member]
ASSETS
Cash and cash equivalents	0		0
Certificates of deposit held in other financial institutions	0		0
Mortgage loans AFS	0		0
Total loans	802,848		808,246
Less allowance for loan losses	10,700		11,500
Net loans	792,148		796,746
Accrued interest receivable	0		0
Equity securities without readily determinable fair values	0	[1]	0	[1]
Originated mortgage servicing rights	0		0
LIABILITIES
Deposits without stated maturities	0		0
Deposits with stated maturities	0		0
Borrowed funds	0		0
Accrued interest payable	0		0
Carrying Value [Member]
ASSETS
Cash and cash equivalents	27,380		41,558
Certificates of deposit held in other financial institutions	580		580
Mortgage loans AFS	340		1,104
Total loans	816,307		808,037
Less allowance for loan losses	10,700		11,500
Net loans	805,607		796,537
Accrued interest receivable	5,448		5,442
Equity securities without readily determinable fair values	19,303	[1]	18,293	[1]
Originated mortgage servicing rights	2,618		2,555
LIABILITIES
Deposits without stated maturities	609,280		593,754
Deposits with stated maturities	451,648		450,012
Borrowed funds	279,457		279,326
Accrued interest payable	527		633
Estimated Fair Value [Member]
ASSETS
Cash and cash equivalents	27,380		41,558
Certificates of deposit held in other financial institutions	580		582
Mortgage loans AFS	357		1,123
Total loans	802,848		808,246
Less allowance for loan losses	10,700		11,500
Net loans	792,148		796,746
Accrued interest receivable	5,448		5,442
Equity securities without readily determinable fair values	19,303	[1]	18,293	[1]
Originated mortgage servicing rights	2,703		2,667
LIABILITIES
Deposits without stated maturities	609,280		593,754
Deposits with stated maturities	453,458		452,803
Borrowed funds	263,604		283,060
Accrued interest payable	$ 527		$ 633

[1] Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. If we were to record an impairment adjustment related to these securities, such amount would be classified as a nonrecurring Level 3 fair value adjustment.

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Loans and ALLL (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014 loan	Jun. 30, 2013 loan	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Threshold period of continuous performance to return loans to accrual status	6 months
Financing receivable, amortization term threshold triggering probable sale to Freddie Mac	15 years
Migration analysis of loan portfolio period	5 years
Advance in connection with impaired loans	$ 36		$ 134
Financing Receivable Modifications Default Number of Contracts	0	0
Minimum [Member] | 4 - Low satisfactory [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	10 days
Minimum [Member] | 5 - Special mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	30 days
Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable, amortization term	30 years
Maximum [Member] | 4 - Low satisfactory [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	30 days
Maximum [Member] | 5 - Special mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	60 days
Commercial, Agricultural, and Residential Portfolio Segments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of days past due (or more), accrual of interest discontinued	90 days
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Maximum days of consumer loan charged off	180 days
Consumer [Member] | Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable, amortization term	12 years
Commercial and Agricultural [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Maximum percentage of loan	0.80
Commercial and Agricultural [Member] | Customer Concentration Risk [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Maximum amount of loans	15,000
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Maximum percentage of loan	0.95
Maximum percentage of principal, interest, taxes and hazard insurance on property over gross income	0.28
Maximum percentage of debt servicing over gross income	0.36
Maximum amount without corporation approval	$ 500
Residential, Privately Insured, Financing Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Maximum percentage of loan	0.80

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Basis of Presentation

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

As used in these notes as well as in Management's Discussion and Analysis of Financial Condition and Results of Operations, references to “Isabella,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiaries. Isabella Bank Corporation refers solely to the parent holding company, and Isabella Bank refers to Isabella Bank Corporation’s subsidiary, Isabella Bank.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Our accounting policies are materially the same as those discussed in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

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Fair Value (Recorded amount of assets and liabilities measured at fair value) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
AFS Securities
AFS securities	$ 550,518	$ 512,062
Fair value, total	565,002	527,901
Level 1 [Member]
AFS Securities
Fair value, total	6,214	5,827
Percent of assets and liabilities measured at fair value	1.10%	1.10%
Level 2 [Member]
AFS Securities
Fair value, total	544,304	506,760
Percent of assets and liabilities measured at fair value	96.34%	96.00%
Level 3 [Member]
AFS Securities
Fair value, total	14,484	15,314
Percent of assets and liabilities measured at fair value	2.56%	2.90%
Recurring items [Member]
AFS Securities
AFS securities	550,518	512,062
Recurring items [Member] | Government sponsored enterprises [Member]
AFS Securities
AFS securities	24,104	23,745
Recurring items [Member] | States and political subdivisions [Member]
Trading securities
Trading securities States and political subdivisions	0	525
AFS Securities
AFS securities	214,210	201,988
Recurring items [Member] | Auction rate money market preferred [Member]
AFS Securities
AFS securities	2,867	2,577
Recurring items [Member] | Preferred stock [Member]
AFS Securities
AFS securities	6,214	5,827
Recurring items [Member] | Mortgage-backed securities [Member]
AFS Securities
AFS securities	162,992	144,115
Recurring items [Member] | Collateralized mortgage obligations [Member]
AFS Securities
AFS securities	140,131	133,810
Recurring items [Member] | Level 1 [Member]
AFS Securities
AFS securities	6,214	5,827
Recurring items [Member] | Level 1 [Member] | Government sponsored enterprises [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 1 [Member] | States and political subdivisions [Member]
Trading securities
Trading securities States and political subdivisions	0	0
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 1 [Member] | Auction rate money market preferred [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 1 [Member] | Preferred stock [Member]
AFS Securities
AFS securities	6,214	5,827
Recurring items [Member] | Level 1 [Member] | Mortgage-backed securities [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 1 [Member] | Collateralized mortgage obligations [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 2 [Member]
AFS Securities
AFS securities	544,304	506,235
Recurring items [Member] | Level 2 [Member] | Government sponsored enterprises [Member]
AFS Securities
AFS securities	24,104	23,745
Recurring items [Member] | Level 2 [Member] | States and political subdivisions [Member]
Trading securities
Trading securities States and political subdivisions	0	525
AFS Securities
AFS securities	214,210	201,988
Recurring items [Member] | Level 2 [Member] | Auction rate money market preferred [Member]
AFS Securities
AFS securities	2,867	2,577
Recurring items [Member] | Level 2 [Member] | Preferred stock [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 2 [Member] | Mortgage-backed securities [Member]
AFS Securities
AFS securities	162,992	144,115
Recurring items [Member] | Level 2 [Member] | Collateralized mortgage obligations [Member]
AFS Securities
AFS securities	140,131	133,810
Recurring items [Member] | Level 3 [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 3 [Member] | Government sponsored enterprises [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 3 [Member] | States and political subdivisions [Member]
Trading securities
Trading securities States and political subdivisions	0	0
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 3 [Member] | Auction rate money market preferred [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 3 [Member] | Preferred stock [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 3 [Member] | Mortgage-backed securities [Member]
AFS Securities
AFS securities	0	0
Recurring items [Member] | Level 3 [Member] | Collateralized mortgage obligations [Member]
AFS Securities
AFS securities	0	0
Nonrecurring items [Member]
AFS Securities
Impaired loans (net of the allowance for loan losses)	13,352	13,902
Foreclosed assets	1,132	1,412
Nonrecurring items [Member] | Level 1 [Member]
AFS Securities
Impaired loans (net of the allowance for loan losses)	0	0
Foreclosed assets	0	0
Nonrecurring items [Member] | Level 2 [Member]
AFS Securities
Impaired loans (net of the allowance for loan losses)	0	0
Foreclosed assets	0	0
Nonrecurring items [Member] | Level 3 [Member]
AFS Securities
Impaired loans (net of the allowance for loan losses)	13,352	13,902
Foreclosed assets	$ 1,132	$ 1,412

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Loans and ALLL (Past due and current loans) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	$ 3,833	$ 5,850
Accruing Interest and Past Due: 60-89 Days	1,217	1,652
Accruing Interest and Pass Due: 90 Days or More	119	142
Nonaccrual	4,587	3,244
Total Past Due and Nonaccrual	9,756	10,888
Current	806,551	797,149
Total	816,307	808,037
Total commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	1,114	1,594
Accruing Interest and Past Due: 60-89 Days	345	311
Accruing Interest and Pass Due: 90 Days or More	28	13
Nonaccrual	2,839	1,374
Total Past Due and Nonaccrual	4,326	3,292
Current	403,465	388,812
Total	407,791	392,104
Commercial real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	857	1,226
Accruing Interest and Past Due: 60-89 Days	332	296
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	2,605	1,136
Total Past Due and Nonaccrual	3,794	2,658
Current	295,391	289,202
Total	299,185	291,860
Commercial other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	257	368
Accruing Interest and Past Due: 60-89 Days	13	15
Accruing Interest and Pass Due: 90 Days or More	28	13
Nonaccrual	234	238
Total Past Due and Nonaccrual	532	634
Current	108,074	99,610
Total	108,606	100,244
Total agricultural [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	520	34
Accruing Interest and Past Due: 60-89 Days	84	295
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	115	0
Total Past Due and Nonaccrual	719	329
Current	96,942	92,260
Total	97,661	92,589
Agricultural real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	208	34
Accruing Interest and Past Due: 60-89 Days	0	295
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	115	0
Total Past Due and Nonaccrual	323	329
Current	64,370	58,928
Total	64,693	59,257
Agricultural other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	312	0
Accruing Interest and Past Due: 60-89 Days	84	0
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	0	0
Total Past Due and Nonaccrual	396	0
Current	32,572	33,332
Total	32,968	33,332
Total residential real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	2,115	4,030
Accruing Interest and Past Due: 60-89 Days	784	1,030
Accruing Interest and Pass Due: 90 Days or More	91	129
Nonaccrual	1,623	1,819
Total Past Due and Nonaccrual	4,613	7,008
Current	273,932	282,923
Total	278,545	289,931
Residential real estate senior liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	1,558	3,441
Accruing Interest and Past Due: 60-89 Days	766	986
Accruing Interest and Pass Due: 90 Days or More	91	129
Nonaccrual	1,239	1,765
Total Past Due and Nonaccrual	3,654	6,321
Current	222,355	229,865
Total	226,009	236,186
Residential real estate junior liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	311	408
Accruing Interest and Past Due: 60-89 Days	18	44
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	23	29
Total Past Due and Nonaccrual	352	481
Current	11,984	13,074
Total	12,336	13,555
Residential real estate home equity lines of credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	246	181
Accruing Interest and Past Due: 60-89 Days	0	0
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	361	25
Total Past Due and Nonaccrual	607	206
Current	39,593	39,984
Total	40,200	40,190
Total consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	84	192
Accruing Interest and Past Due: 60-89 Days	4	16
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	10	51
Total Past Due and Nonaccrual	98	259
Current	32,212	33,154
Total	32,310	33,413
Consumer secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	46	167
Accruing Interest and Past Due: 60-89 Days	0	11
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	10	50
Total Past Due and Nonaccrual	56	228
Current	27,827	28,444
Total	27,883	28,672
Consumer unsecured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	38	25
Accruing Interest and Past Due: 60-89 Days	4	5
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	0	1
Total Past Due and Nonaccrual	42	31
Current	4,385	4,710
Total	$ 4,427	$ 4,741

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Other Noninterest Expenses (Tables)

6 Months Ended

Jun. 30, 2014

Other Income and Expenses [Abstract]

Summary of expenses included in other noninterest expenses

A summary of expenses included in other noninterest expenses is as follows for the:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Marketing and community relations	$	211	$	432	$	454	$	674
FDIC insurance premiums	221		273		423		545
Directors fees	183		205		378		404
Audit and related fees	182		162		320		301
Education and travel	143		116		264		238
Postage and freight	90		94		198		193
Printing and supplies	87		99		189		185
Loan underwriting fees	92		123		187		239
Consulting fees	76		83		167		155
All other	735		668		1,430		1,213
Total other	$	2,020	$	2,255	$	4,010	$	4,147

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Borrowed Funds (Tables)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Summary of borrowed funds

Borrowed funds consist of the following obligations as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
FHLB advances	$	182,000	1.84	%	$	162,000	2.02	%
Securities sold under agreements to repurchase without stated maturity dates	87,058		0.13	%	106,025		0.13	%
Securities sold under agreements to repurchase with stated maturity dates	1,199		4.27	%	11,301		3.30	%
Federal funds purchased	9,200		0.39	%	—		—
Total	$	279,457	1.27	%	$	279,326	1.35	%

Federal Home Loan Bank, Advances

The following table lists the maturity and weighted average interest rates of FHLB advances as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Fixed rate advances due 2014	$	10,000	0.48	%	$	10,000	0.48	%
Variable rate advances due 2014	20,000		0.42	%	—		—
Fixed rate advances due 2015	32,000		0.84	%	32,000		0.84	%
Fixed rate advances due 2016	10,000		2.15	%	10,000		2.15	%
Fixed rate advances due 2017	30,000		1.95	%	30,000		1.95	%
Fixed rate advances due 2018	40,000		2.35	%	40,000		2.35	%
Fixed rate advances due 2019	20,000		3.11	%	20,000		3.11	%
Fixed rate advances due 2020	10,000		1.98	%	10,000		1.98	%
Fixed rate advances due 2023	10,000		3.90	%	10,000		3.90	%
Total	$	182,000	1.84	%	$	162,000	2.02	%

Schedule of maturity and weighted average interest rates

The following table lists the maturity and weighted average interest rates of securities sold under agreements to repurchase with stated maturity dates as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Repurchase agreements due 2014	$	767	4.84	%	$	10,876	3.30	%
Repurchase agreements due 2015	432		3.25	%	425		3.25	%
Total	$	1,199	4.27	%	$	11,301	3.30	%

Summary of short term borrowings

The following table provides a summary of securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances borrowings for the three and six month periods ended:

	Three Months Ended June 30, 2014						Three Months Ended June 30, 2013
	Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period		Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates	$	90,813	$	90,484	0.13	%	$	71,668	$	69,692	0.15	%
Federal funds purchased	16,500		6,849		0.48	%	13,700		6,022		0.57	%

	Six Months Ended June 30, 2014						Six Months Ended June 30, 2013
	Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period		Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates	$	94,741	$	92,412	0.13	%	$	71,668	$	65,363	0.15	%
Federal funds purchased	16,500		6,305		0.47	%	13,700		3,646		0.56	%

Summary of pledged financial instruments

We had pledged trading securities, AFS securities, and 1-4 family residential real estate loans in the following amounts at:

	June 30 2014		December 31 2013
Pledged to secure borrowed funds	$	295,175	$	320,173
Pledged to secure repurchase agreements	144,683		148,930
Pledged for public deposits and for other purposes necessary or required by law	18,446		20,922
Total	$	458,304	$	490,025

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Federal Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Income Tax Disclosure [Abstract]
Federal statutory tax rate	34.00%	34.00%	34.00%	34.00%
Income taxes at 34% statutory rate	$ 1,448	$ 1,311	$ 2,763	$ 2,556
Interest income on tax exempt municipal securities	(503)	(424)	(997)	(845)
Earnings on corporate owned life insurance policies	(64)	(65)	(127)	(122)
Effect of tax credits	(191)	(196)	(388)	(397)
Other	(43)	(26)	(77)	(52)
Total effect of nontaxable income	(801)	(711)	(1,589)	(1,416)
Effect of nondeductible expenses	45	43	78	79
Federal income tax expense	$ 692	$ 643	$ 1,252	$ 1,219

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Loans and ALLL (Summary of information pertaining to impaired loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	$ 20,315		$ 20,315		$ 21,468
Impaired loans without a valuation allowance, Outstanding Balance	7,412		7,412		8,307
Impaired loans, Outstanding Balance	27,727		27,727		29,775
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	22,325		22,325		22,878
Impaired loans without a valuation allowance, Unpaid Principal Balance	8,191		8,191		9,743
Impaired loans, Unpaid Principal Balance	30,516		30,516		32,621
Impaired loans, Valuation Allowance	3,940		3,940		4,352
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	20,825	19,396	21,141	19,790
Impaired loans without a valuation allowance, Average Outstanding Balance	7,646	5,807	7,839	5,655
Impaired loans, Average Outstanding Balance	28,471	25,203	28,980	25,445
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	239	251	492	473
Impaired loans without a valuation allowance, Interest Income Recognized	113	101	265	226
Impaired loans, Interest Income Recognized	352	352	757	699
Total commercial [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans, Outstanding Balance	13,164		13,164		13,816
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans, Unpaid Principal Balance	14,250		14,250		14,943
Impaired loans, Valuation Allowance	1,633		1,633		2,035
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans, Average Outstanding Balance	13,601	13,728	13,761	13,932
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans, Interest Income Recognized	194	243	414	476
Commercial real estate [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	6,512		6,512		6,748
Impaired loans without a valuation allowance, Outstanding Balance	5,708		5,708		5,622
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	6,720		6,720		6,888
Impaired loans without a valuation allowance, Unpaid Principal Balance	6,326		6,326		6,499
Impaired loans, Valuation Allowance	1,621		1,621		1,915
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	6,644	7,990	6,701	8,084
Impaired loans without a valuation allowance, Average Outstanding Balance	5,819	3,954	5,797	3,790
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	91	102	185	221
Impaired loans without a valuation allowance, Interest Income Recognized	91	85	193	158
Commercial other [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	629		629		521
Impaired loans without a valuation allowance, Outstanding Balance	315		315		925
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	848		848		521
Impaired loans without a valuation allowance, Unpaid Principal Balance	356		356		1,035
Impaired loans, Valuation Allowance	12		12		120
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	852	764	825	932
Impaired loans without a valuation allowance, Average Outstanding Balance	286	1,020	438	1,126
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	11	37	29	38
Impaired loans without a valuation allowance, Interest Income Recognized	1	19	7	59
Total agricultural [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans, Outstanding Balance	1,583		1,583		1,538
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans, Unpaid Principal Balance	1,703		1,703		1,658
Impaired loans, Valuation Allowance	36		36		30
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans, Average Outstanding Balance	1,683	682	1,671	719
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans, Interest Income Recognized	20	(8)	65	2
Agricultural real estate [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	204		204		90
Impaired loans without a valuation allowance, Outstanding Balance	1,361		1,361		1,370
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	204		204		90
Impaired loans without a valuation allowance, Unpaid Principal Balance	1,361		1,361		1,370
Impaired loans, Valuation Allowance	36		36		30
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	147	91	118	124
Impaired loans without a valuation allowance, Average Outstanding Balance	1,405	133	1,407	67
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	(1)	1	0	4
Impaired loans without a valuation allowance, Interest Income Recognized	21	2	37	2
Agricultural other [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans without a valuation allowance, Outstanding Balance	18		18		78
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans without a valuation allowance, Unpaid Principal Balance	138		138		198
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	0	0	0	105
Impaired loans without a valuation allowance, Average Outstanding Balance	131	458	146	423
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	0	0	0	0
Impaired loans without a valuation allowance, Interest Income Recognized	0	(11)	28	(4)
Total residential real estate [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans, Outstanding Balance	12,906		12,906		14,302
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans, Unpaid Principal Balance	14,489		14,489		15,872
Impaired loans, Valuation Allowance	2,270		2,270		2,287
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans, Average Outstanding Balance	13,119	10,730	13,468	10,726
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans, Interest Income Recognized	137	116	276	219
Residential real estate senior liens [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	12,454		12,454		14,061
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	13,727		13,727		15,315
Impaired loans, Valuation Allowance	2,242		2,242		2,278
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	12,786	10,466	13,188	10,460
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	126	110	264	209
Residential real estate junior liens [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	92		92		48
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	102		102		64
Impaired loans, Valuation Allowance	19		19		9
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	68	85	57	85
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	1	1	1	1
Residential real estate home equity lines of credit [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	360		360		0
Impaired loans without a valuation allowance, Outstanding Balance	0		0		193
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	660		660		0
Impaired loans without a valuation allowance, Unpaid Principal Balance	0		0		493
Impaired loans, Valuation Allowance	9		9		0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	265	0	175	0
Impaired loans without a valuation allowance, Average Outstanding Balance	0	179	48	181
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	10	0	11	0
Impaired loans without a valuation allowance, Interest Income Recognized	0	5	0	9
Total consumer [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans, Outstanding Balance	74		74		119
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans, Unpaid Principal Balance	74		74		148
Impaired loans, Valuation Allowance	1		1		0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans, Average Outstanding Balance	68	63	80	68
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans, Interest Income Recognized	1	1	2	2
Consumer secured [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	64		64		0
Impaired loans without a valuation allowance, Outstanding Balance	10		10		119
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	64		64		0
Impaired loans without a valuation allowance, Unpaid Principal Balance	10		10		148
Impaired loans, Valuation Allowance	1		1		0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	63	0	77	0
Impaired loans without a valuation allowance, Average Outstanding Balance	5	63	3	68
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	1	0	2	0
Impaired loans without a valuation allowance, Interest Income Recognized	$ 0	$ 1	$ 0	$ 2

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Federal Income Taxes (Tables)

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Summary of federal income tax expense

The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of 34% of income before federal income tax expense is as follows for the:

	Three Months Ended   June 30						Six Months Ended   June 30
	2014			2013			2014			2013
Income taxes at 34% statutory rate	$	1,448		$	1,311		$	2,763		$	2,556
Effect of nontaxable income
Interest income on tax exempt municipal securities	(503		)	(424		)	(997		)	(845		)
Earnings on corporate owned life insurance policies	(64		)	(65		)	(127		)	(122		)
Effect of tax credits	(191		)	(196		)	(388		)	(397		)
Other	(43		)	(26		)	(77		)	(52		)
Total effect of nontaxable income	(801		)	(711		)	(1,589		)	(1,416		)
Effect of nondeductible expenses	45			43			78			79
Federal income tax expense	$	692		$	643		$	1,252		$	1,219

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Defined Benefit Pension Plan (Tables)

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Schedule of contributions

We contributed the following to the plan during the three and six month periods ended:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Plan Contributions	$	—	$	—	$	—	$	215

Components of net periodic benefit cost

Following are the components of net periodic benefit cost for the:

	Three Months Ended   June 30						Six Months Ended   June 30
	2014			2013			2014			2013
Interest cost on benefit obligation	$	121		$	112		$	243		$	225
Expected return on plan assets	(154		)	(144		)	(308		)	(287		)
Amortization of unrecognized actuarial net loss	43			82			85			165
Net periodic benefit cost	$	10		$	50		$	20		$	103

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Interim Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
OPERATING ACTIVITIES
Net income	$ 6,874	$ 6,300
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses	(442)	515
Impairment of foreclosed assets	63	92
Depreciation	1,242	1,249
Amortization of OMSRs	139	210
Amortization of acquisition intangibles	95	114
Net amortization of AFS securities	920	1,131
Net (gains) losses on sale of AFS securities	0	(99)
Net unrealized (gains) losses on trading securities	5	18
Net gain on sale of mortgage loans	(266)	(607)
Increase in cash value of corporate owned life insurance policies	(374)	(359)
Share-based payment awards under equity compensation plan	237	258
Origination of loans held for sale	(12,878)	(35,014)
Proceeds from loan sales	13,908	38,511
Net changes in operating assets and liabilities which provided (used) cash:
Trading securities	520	605
Accrued interest receivable	(6)	(5)
Other assets	(250)	914
Accrued interest payable and other liabilities	1,215	761
Net cash provided by (used in) operating activities	11,002	14,594
INVESTING ACTIVITIES
Net change in certificates of deposit held in other financial institutions	0	2,655
Activity in AFS securities
Sales	0	9,857
Maturities and calls	32,354	46,780
Purchases	(61,762)	(67,140)
Loan principal (originations) collections, net	(9,551)	(32,185)
Proceeds from sales of foreclosed assets	1,140	1,556
Purchases of premises and equipment	(1,224)	(1,314)
Purchases of corporate owned life insurance policies	0	(1,092)
Proceeds from the redemption of corporate owned life insurance policies	0	123
Net cash provided by (used in) investing activities	(39,043)	(40,760)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	17,162	3,757
Increase in other borrowed funds	131	21,459
Cash dividends paid on common stock	(3,394)	(3,224)
Proceeds from issuance of common stock	1,778	1,900
Common stock repurchased	(1,648)	(1,114)
Common stock purchased for deferred compensation obligations	(166)	(166)
Net cash provided by (used in) financing activities	13,863	22,612
Increase (decrease) in cash and cash equivalents	(14,178)	(3,554)
Cash and cash equivalents at beginning of period	41,558	24,920
Cash and cash equivalents at end of period	27,380	21,366
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid	5,074	5,667
Federal income taxes paid	715	702
SUPPLEMENTAL NONCASH INFORMATION:
Transfers of loans to foreclosed assets	$ 923	$ 735

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Fair Value (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Quantitative information about assets measured utilizing Level 3 fair value measurement

The table below lists the quantitative fair value information related to foreclosed assets as of:

	June 30, 2014
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,132	Real Estate	20% - 30%

	December 31, 2013
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,412	Real Estate	20% - 30%

The following tables list the quantitative fair value information about impaired loans as of:

	June 30, 2014
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 30%
		Equipment	30% - 40%
Discounted appraisal value	$13,352	Cash crop inventory	40%
		Other inventory	50%
		Accounts receivable	50% - 75%
		Liquor license	75%

	December 31, 2013
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 30%
		Equipment	50%
Discounted appraisal value	$13,902	Livestock	50%
		Cash crop inventory	50%
		Other inventory	75%
		Accounts receivable	75%

Carrying amount and estimated fair value of financial instruments not recorded at fair value

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on our consolidated balance sheets are as follows as of:

	June 30, 2014
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	27,380	$	27,380	$	27,380	$	—	$	—
Certificates of deposit held in other financial institutions	580		580		—		580		—
Mortgage loans AFS	340		357		—		357		—
Total loans	816,307		802,848		—		—		802,848
Less allowance for loan and lease losses	10,700		10,700		—		—		10,700
Net loans	805,607		792,148		—		—		792,148
Accrued interest receivable	5,448		5,448		5,448		—		—
Equity securities without readily determinable fair values (1)	19,303		19,303		—		—		—
OMSRs	2,618		2,703		—		2,703		—
LIABILITIES
Deposits without stated maturities	609,280		609,280		609,280		—		—
Deposits with stated maturities	451,648		453,458		—		453,458		—
Borrowed funds	279,457		263,604		—		263,604		—
Accrued interest payable	527		527		527		—		—

	December 31, 2013
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	41,558	$	41,558	$	41,558	$	—	$	—
Certificates of deposit held in other financial institutions	580		582		—		582		—
Mortgage loans AFS	1,104		1,123		—		1,123		—
Total loans	808,037		808,246		—		—		808,246
Less allowance for loan and lease losses	11,500		11,500		—		—		11,500
Net loans	796,537		796,746		—		—		796,746
Accrued interest receivable	5,442		5,442		5,442		—		—
Equity securities without readily determinable fair values (1)	18,293		18,293		—		—		—
OMSRs	2,555		2,667		—		2,667		—
LIABILITIES
Deposits without stated maturities	593,754		593,754		593,754		—		—
Deposits with stated maturities	450,012		452,803		—		452,803		—
Borrowed funds	279,326		283,060		—		283,060		—
Accrued interest payable	633		633		633		—		—

⁽¹⁾  Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. If we were to record an impairment adjustment related to these securities, such amount would be classified as a nonrecurring Level 3 fair value adjustment.

Assets and liabilities measured at fair value

The table below presents the recorded amount of assets and liabilities measured at fair value on:

	June 30, 2014											December 31, 2013
	Total		(Level 1)			(Level 2)			(Level 3)			Total		(Level 1)			(Level 2)			(Level 3)
Recurring items
Trading securities
States and political subdivisions	$	—	$	—		$	—		$	—		$	525	$	—		$	525		$	—
AFS securities
Government-sponsored enterprises	24,104		—			24,104			—			23,745		—			23,745			—
States and political subdivisions	214,210		—			214,210			—			201,988		—			201,988			—
Auction rate money market preferred	2,867		—			2,867			—			2,577		—			2,577			—
Preferred stocks	6,214		6,214			—			—			5,827		5,827			—			—
Mortgage-backed securities	162,992		—			162,992			—			144,115		—			144,115			—
Collateralized mortgage obligations	140,131		—			140,131			—			133,810		—			133,810			—
Total AFS securities	550,518		6,214			544,304			—			512,062		5,827			506,235			—
Nonrecurring items
Impaired loans (net of the ALLL)	13,352		—			—			13,352			13,902		—			—			13,902
Foreclosed assets	1,132		—			—			1,132			1,412		—			—			1,412
Total	$	565,002	$	6,214		$	544,304		$	14,484		$	527,901	$	5,827		$	506,760		$	15,314
Percent of assets and liabilities measured at fair value			1.10		%	96.34		%	2.56		%			1.10		%	96.00		%	2.90		%

The following table provides a summary of the changes in fair value of assets and liabilities recorded at fair value through earnings on a recurring basis and changes in assets and liabilities recorded at fair value on a nonrecurring basis, for which gains or losses were recognized in the:

	Three Months Ended June 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(1	)	$	—		$	(1	)	$	(8	)	$	—		$	(8	)
Nonrecurring items
Foreclosed assets	—			(20		)	(20		)	—			(68		)	(68		)
Total	$	(1	)	$	(20	)	$	(21	)	$	(8	)	$	(68	)	$	(76	)

	Six Months Ended June 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(5	)	$	—		$	(5	)	$	(18	)	$	—		$	(18	)
Nonrecurring items
Foreclosed assets	—			(63		)	(63		)	—			(92		)	(92		)
Total	$	(5	)	$	(63	)	$	(68	)	$	(18	)	$	(92	)	$	(110	)

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Loans and ALLL (Summary of changes in ALLL by segments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	$ 11,100	$ 11,909	$ 11,500	$ 11,936
Allowance for loan losses, Loans charged off	(411)	(719)	(861)	(1,241)
Allowance for loan losses, Recoveries	211	295	503	490
Allowance for loan losses, Provision for loan losses	(200)	215	(442)	515
Allowance for loan losses, Ending Balance	10,700	11,700	10,700	11,700
Commercial [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	4,814	6,897	6,048	6,862
Allowance for loan losses, Loans charged off	(79)	(234)	(271)	(445)
Allowance for loan losses, Recoveries	92	166	306	223
Allowance for loan losses, Provision for loan losses	185	(357)	(1,071)	(168)
Allowance for loan losses, Ending Balance	5,012	6,472	5,012	6,472
Agricultural [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	425	321	434	407
Allowance for loan losses, Loans charged off	0	0	(31)	0
Allowance for loan losses, Recoveries	0	0	0	0
Allowance for loan losses, Provision for loan losses	(206)	14	(184)	(72)
Allowance for loan losses, Ending Balance	219	335	219	335
Residential Real Estate [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	4,727	3,634	3,845	3,627
Allowance for loan losses, Loans charged off	(264)	(397)	(377)	(587)
Allowance for loan losses, Recoveries	86	61	122	114
Allowance for loan losses, Provision for loan losses	(568)	378	391	522
Allowance for loan losses, Ending Balance	3,981	3,676	3,981	3,676
Consumer [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	630	732	639	666
Allowance for loan losses, Loans charged off	(68)	(88)	(182)	(209)
Allowance for loan losses, Recoveries	33	68	75	153
Allowance for loan losses, Provision for loan losses	207	(65)	270	37
Allowance for loan losses, Ending Balance	802	647	802	647
Unallocated [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	504	325	534	374
Allowance for loan losses, Loans charged off	0	0	0	0
Allowance for loan losses, Recoveries	0	0	0	0
Allowance for loan losses, Provision for loan losses	182	245	152	196
Allowance for loan losses, Ending Balance	$ 686	$ 570	$ 686	$ 570

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Borrowed Funds (Pledged financial instruments) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Debt Disclosure [Abstract]
Pledged to secure borrowed funds	$ 295,175	$ 320,173
Pledged to secure repurchase agreements	144,683	148,930
Pledged for public deposits and for other purposes necessary or required by law	18,446	20,922
Total	$ 458,304	$ 490,025

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Interim Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Cash and cash equivalents
Cash and demand deposits due from banks	$ 26,484	$ 21,755
Interest bearing balances due from banks	896	19,803
Total cash and cash equivalents	27,380	41,558
Certificates of deposit held in other financial institutions	580	580
Trading securities	0	525
AFS securities (amortized cost of $546,102 in 2014 and $517,614 in 2013)	550,518	512,062
Mortgage loans AFS	340	1,104
Loans
Commercial	407,791	392,104
Agricultural	97,661	92,589
Residential real estate	278,545	289,931
Consumer	32,310	33,413
Gross loans	816,307	808,037
Less allowance for loan losses	10,700	11,500
Net loans	805,607	796,537
Premises and equipment	25,701	25,719
Corporate owned life insurance	24,775	24,401
Accrued interest receivable	5,448	5,442
Equity securities without readily determinable fair values	19,303	18,293
Goodwill and other intangible assets	46,216	46,311
Other assets	16,267	20,605
TOTAL ASSETS	1,522,135	1,493,137
Deposits
Noninterest bearing	162,537	158,428
NOW accounts	186,705	192,089
Certificates of deposit under $100 and other savings	463,497	455,547
Certificates of deposit over $100	248,189	237,702
Total deposits	1,060,928	1,043,766
Borrowed funds	279,457	279,326
Accrued interest payable and other liabilities	10,651	9,436
Total liabilities	1,351,036	1,332,528
Shareholders' equity
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,735,156 shares (including 6,697 shares held in the Rabbi Trust) in 2014 and 7,723,023 shares (including 12,761 shares held in the Rabbi Trust) in 2013	137,945	137,580
Shares to be issued for deferred compensation obligations	3,984	4,148
Retained earnings	28,702	25,222
Accumulated other comprehensive income	468	(6,341)
Total shareholders' equity	171,099	160,609
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,522,135	$ 1,493,137

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Loans and ALLL (Summary of information pertaining to TDRs) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014 loan	Jun. 30, 2013 loan	Jun. 30, 2014 loan	Jun. 30, 2013 loan
Financing Receivable, Modifications [Line Items]
Number of Loans	8	14	22	23
Pre-Modification Recorded Investment	$ 387	$ 3,788	$ 1,233	$ 4,722
Post-Modification Recorded Investment	387	3,592	1,233	4,509
Commercial other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	7	5	7
Pre-Modification Recorded Investment	8	3,153	363	3,153
Post-Modification Recorded Investment	8	2,957	363	2,957
Agricultural other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	1
Pre-Modification Recorded Investment	0	0	0	134
Post-Modification Recorded Investment	0	0	0	134
Total residential real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	5	7	14	15
Pre-Modification Recorded Investment	371	635	862	1,435
Post-Modification Recorded Investment	371	635	862	1,418
Residential real estate senior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	3	7	12	15
Pre-Modification Recorded Investment	170	635	661	1,435
Post-Modification Recorded Investment	170	635	661	1,418
Residential real estate junior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	0	1	0
Pre-Modification Recorded Investment	41	0	41	0
Post-Modification Recorded Investment	41	0	41	0
Residential real estate home equity lines of credit [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	0	1	0
Pre-Modification Recorded Investment	160	0	160	0
Post-Modification Recorded Investment	160	0	160	0
Consumer unsecured [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	2	0	3	0
Pre-Modification Recorded Investment	8	0	8	0
Post-Modification Recorded Investment	8	0	8	0
Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	3	7	10	11
Pre-Modification Recorded Investment	213	1,771	618	2,116
Below Market Interest Rate [Member] | Commercial other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	3	4	3
Pre-Modification Recorded Investment	0	1,357	355	1,357
Below Market Interest Rate [Member] | Agricultural other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	1
Pre-Modification Recorded Investment	0	0	0	134
Below Market Interest Rate [Member] | Total residential real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	2	4	4	7
Pre-Modification Recorded Investment	208	414	258	625
Below Market Interest Rate [Member] | Residential real estate senior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	4	3	7
Pre-Modification Recorded Investment	48	414	98	625
Below Market Interest Rate [Member] | Residential real estate junior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	0
Pre-Modification Recorded Investment	0	0	0	0
Below Market Interest Rate [Member] | Residential real estate home equity lines of credit [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	0	1	0
Pre-Modification Recorded Investment	160	0	160	0
Below Market Interest Rate [Member] | Consumer unsecured [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	0	2	0
Pre-Modification Recorded Investment	5	0	5	0
Below Market Interest Rate and Extension of Amortization Period [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	5	7	12	12
Pre-Modification Recorded Investment	174	2,017	615	2,606
Below Market Interest Rate and Extension of Amortization Period [Member] | Commercial other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	4	1	4
Pre-Modification Recorded Investment	8	1,796	8	1,796
Below Market Interest Rate and Extension of Amortization Period [Member] | Agricultural other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	0
Pre-Modification Recorded Investment	0	0	0	0
Below Market Interest Rate and Extension of Amortization Period [Member] | Total residential real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	3	3	10	8
Pre-Modification Recorded Investment	163	221	604	810
Below Market Interest Rate and Extension of Amortization Period [Member] | Residential real estate senior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	2	3	9	8
Pre-Modification Recorded Investment	122	221	563	810
Below Market Interest Rate and Extension of Amortization Period [Member] | Residential real estate junior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	0	1	0
Pre-Modification Recorded Investment	41	0	41	0
Below Market Interest Rate and Extension of Amortization Period [Member] | Residential real estate home equity lines of credit [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	0
Pre-Modification Recorded Investment	0	0	0	0
Below Market Interest Rate and Extension of Amortization Period [Member] | Consumer unsecured [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	0	1	0
Pre-Modification Recorded Investment	$ 3	$ 0	$ 3	$ 0

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Interim Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock	Shares to be Issued for Deferred Compensation Obligations	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
Beginning balances at Dec. 31, 2012	$ 164,489	$ 136,580	$ 3,734	$ 19,168	$ 5,007
Beginning balances, shares at Dec. 31, 2012		7,671,846
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Comprehensive income (loss)	(2,855)			6,300	(9,155)
Issuance of common stock	1,900	1,900
Issuance of common stock, shares		77,568
Common stock issued for deferred compensation obligations	0
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	0	121	(121)
Share based payment awards under equity compensation plan	258		258
Common stock purchased for deferred compensation obligations	(166)	(166)
Common stock repurchased pursuant to publicly announced repurchase plan	(1,114)	(1,114)
Common stock repurchased pursuant to publicly announced repurchase plan, shares		(45,825)
Cash dividends	(3,224)			(3,224)
Ending balances at Jun. 30, 2013	159,288	137,321	3,871	22,244	(4,148)
Ending balances, shares at Jun. 30, 2013		7,703,589
Beginning balances at Dec. 31, 2013	160,609	137,580	4,148	25,222	(6,341)
Beginning balances, shares at Dec. 31, 2013	7,723,023	7,723,023
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Comprehensive income (loss)	13,683			6,874	6,809
Issuance of common stock	1,778	1,778
Issuance of common stock, shares		76,341
Common stock issued for deferred compensation obligations	0	143	(143)
Common stock issued for deferred compensation obligations, shares		6,126
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	0	258	(258)
Share based payment awards under equity compensation plan	237		237
Common stock purchased for deferred compensation obligations	(166)	(166)
Common stock repurchased pursuant to publicly announced repurchase plan	(1,648)	(1,648)
Common stock repurchased pursuant to publicly announced repurchase plan, shares		(70,334)
Cash dividends	(3,394)			(3,394)
Ending balances at Jun. 30, 2014	$ 171,099	$ 137,945	$ 3,984	$ 28,702	$ 468
Ending balances, shares at Jun. 30, 2014	7,735,156	7,735,156

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Fair Value (Quantitative information about impaired loans) (Details) (Discounted appraisal value [Member], Level 3 [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discounted appraisal value at fair value	$ 13,352	$ 13,902
Real Estate [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	20.00%	20.00%
Real Estate [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	30.00%	30.00%
Equipment [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate		50.00%
Equipment [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	30.00%
Equipment [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	40.00%
Livestock [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate		50.00%
Cash crop inventory [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	40.00%	50.00%
Other inventory [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	50.00%	75.00%
Accounts receivable [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate		75.00%
Accounts receivable [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	50.00%
Accounts receivable [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	75.00%
Liquor License [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	75.00%

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Computation of Earnings Per Common Share (Schedule of Earnings Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Earnings Per Share [Abstract]
Average number of common shares outstanding for basic calculation	7,722,367		7,701,042		7,721,814		7,689,092
Average potential effect of common shares in the Directors Plan	168,715	[1]	168,323	[1]	170,984	[1]	166,800	[1]
Average number of common shares outstanding used to calculate diluted earnings per common share	7,891,082		7,869,365		7,892,798		7,855,892
Net income	$ 3,565		$ 3,213		$ 6,874		$ 6,300
Basic (in dollars per share)	$ 0.46		$ 0.42		$ 0.89		$ 0.82
Diluted (in dollars per share)	$ 0.45		$ 0.41		$ 0.87		$ 0.80

[1] Exclusive of shares held in the Rabbi Trust

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Accumulated Other Comprehensive Income (Loss) (Components of unrealized holding gains on AFS securities) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized gains (losses) arising during the period	$ 4,448	$ (11,997)	$ 9,968	$ (13,958)
Reclassification adjustment for net realized (gains) losses included in net income	0	0	0	(99)
Net unrealized gains (losses)	4,448	(11,997)	9,968	(14,057)
Tax effect	(1,420)	3,979	(3,159)	4,902
Unrealized gains (losses), net of tax	3,028	(8,018)	6,809	(9,155)
Unrealized Holding Gains (Losses) on AFS Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized gains (losses) arising during the period	4,448	(11,997)	9,968	(13,958)
Reclassification adjustment for net realized (gains) losses included in net income	0	0	0	(99)
Net unrealized gains (losses)	4,448	(11,997)	9,968	(14,057)
Tax effect	(1,420)	3,979	(3,159)	4,902
Unrealized gains (losses), net of tax	3,028	(8,018)	6,809	(9,155)
Unrealized Holding Gains (Losses) on AFS Securities [Member] | Auction Rate Money Market Preferred and Preferred Stocks [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized gains (losses) arising during the period	298	(363)	298	295
Reclassification adjustment for net realized (gains) losses included in net income	0	0	0	0
Net unrealized gains (losses)	298	(363)	298	295
Tax effect	0	0	0	0
Unrealized gains (losses), net of tax	298	(363)	298	295
Unrealized Holding Gains (Losses) on AFS Securities [Member] | All Other AFS Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized gains (losses) arising during the period	4,150	(11,634)	9,670	(14,253)
Reclassification adjustment for net realized (gains) losses included in net income	0	0	0	(99)
Net unrealized gains (losses)	4,150	(11,634)	9,670	(14,352)
Tax effect	(1,420)	3,979	(3,159)	4,902
Unrealized gains (losses), net of tax	$ 2,730	$ (7,655)	$ 6,511	$ (9,450)

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Operating Segments

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Operating Segments

Operating Segments

Our reportable segments are based on legal entities that account for at least 10% of net operating results. The operations of the Bank as of June 30, 2014 and 2013 and each of the three and six month periods then ended, represent approximately 90% or more of our consolidated total assets and operating results. As such, no additional segment reporting is presented.

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AFS Securities (Amortized cost and fair value of AFS securities, with gross unrealized gains and losses) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 546,102	$ 517,614
Gross Unrealized Gains	10,357	6,912
Gross Unrealized Losses	5,941	12,464
AFS securities	550,518	512,062
Government sponsored enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	24,706	24,860
Gross Unrealized Gains	5	7
Gross Unrealized Losses	607	1,122
AFS securities	24,104	23,745
States and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	208,564	200,323
Gross Unrealized Gains	6,962	5,212
Gross Unrealized Losses	1,316	3,547
AFS securities	214,210	201,988
Auction rate money market preferred [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,200	3,200
Gross Unrealized Gains	0	0
Gross Unrealized Losses	333	623
AFS securities	2,867	2,577
Preferred stocks [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	6,800	6,800
Gross Unrealized Gains	6	20
Gross Unrealized Losses	592	993
AFS securities	6,214	5,827
Mortgage-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	162,949	147,292
Gross Unrealized Gains	1,732	657
Gross Unrealized Losses	1,689	3,834
AFS securities	162,992	144,115
Collateralized mortgage obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	139,883	135,139
Gross Unrealized Gains	1,652	1,016
Gross Unrealized Losses	1,404	2,345
AFS securities	$ 140,131	$ 133,810

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Computation of Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Computation of earnings per common share

Earnings per common share have been computed based on the following:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Average number of common shares outstanding for basic calculation	7,722,367		7,701,042		7,721,814		7,689,092
Average potential effect of common shares in the Directors Plan (1)	168,715		168,323		170,984		166,800
Average number of common shares outstanding used to calculate diluted earnings per common share	7,891,082		7,869,365		7,892,798		7,855,892
Net income	$	3,565	$	3,213	$	6,874	$	6,300
Earnings per common share
Basic	$	0.46	$	0.42	$	0.89	$	0.82
Diluted	$	0.45	$	0.41	$	0.87	$	0.80

⁽¹⁾  Exclusive of shares held in the

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Parent Company Only Financial Information (Interim Condensed Statements of Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Expenses
Compensation and benefits	$ 5,385	$ 5,236	$ 10,871	$ 10,681
Occupancy and equipment	676	641	1,418	1,306
Audit and related fees	182	162	320	301
Other	2,020	2,255	4,010	4,147
Federal income tax benefit	(692)	(643)	(1,252)	(1,219)
NET INCOME	3,565	3,213	6,874	6,300
Parent Company [Member]
Income
Dividends from subsidiaries	1,500	1,500	3,000	3,000
Interest income	39	41	78	84
Management fee and other	722	559	1,228	1,067
Total income	2,261	2,100	4,306	4,151
Expenses
Compensation and benefits	772	669	1,604	1,381
Occupancy and equipment	107	119	221	230
Audit and related fees	98	93	169	158
Other	298	297	566	501
Total expenses	1,275	1,178	2,560	2,270
Income before income tax benefit and equity in undistributed earnings of subsidiaries	986	922	1,746	1,881
Federal income tax benefit	178	199	432	388
Income before equity in undistributed earnings of subsidiaries	1,164	1,121	2,178	2,269
Undistributed earnings of subsidiaries	2,401	2,092	4,696	4,031
NET INCOME	$ 3,565	$ 3,213	$ 6,874	$ 6,300

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Interim Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Statement of Stockholders' Equity [Abstract]
Cash dividends per share (in dollars per share)	$ 0.22	$ 0.21	$ 0.44	$ 0.42

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Interim Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Available-for-sale securities, amortized cost	$ 546,102	$ 517,614
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	7,735,156	7,723,023
Common stock, shares outstanding	7,735,156	7,723,023
Common stock, shares held in Rabbi Trust	6,697	12,761

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Federal Income Taxes

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Federal Income Taxes

Federal Income Taxes

The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of 34% of income before federal income tax expense is as follows for the:

	Three Months Ended   June 30						Six Months Ended   June 30
	2014			2013			2014			2013
Income taxes at 34% statutory rate	$	1,448		$	1,311		$	2,763		$	2,556
Effect of nontaxable income
Interest income on tax exempt municipal securities	(503		)	(424		)	(997		)	(845		)
Earnings on corporate owned life insurance policies	(64		)	(65		)	(127		)	(122		)
Effect of tax credits	(191		)	(196		)	(388		)	(397		)
Other	(43		)	(26		)	(77		)	(52		)
Total effect of nontaxable income	(801		)	(711		)	(1,589		)	(1,416		)
Effect of nondeductible expenses	45			43			78			79
Federal income tax expense	$	692		$	643		$	1,252		$	1,219

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 06, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	ISABELLA BANK CORP
Entity Central Index Key	0000842517
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		7,750,559
Entity Filer Category	Accelerated Filer

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Defined Benefit Pension Plan

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Defined Benefit Pension Plan

Defined Benefit Pension Plan

We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. As a result of the curtailment, future salary increases are no longer considered (the projected benefit obligation is equal to the accumulated benefit obligation), and plan benefits are based on years of service and the individual employee’s five highest consecutive years of compensation out of the last ten years of service through March 1, 2007. We do not anticipate any contributions to the plan in 2014. We contributed the following to the plan during the three and six month periods ended:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Plan Contributions	$	—	$	—	$	—	$	215

Following are the components of net periodic benefit cost for the:

	Three Months Ended   June 30						Six Months Ended   June 30
	2014			2013			2014			2013
Interest cost on benefit obligation	$	121		$	112		$	243		$	225
Expected return on plan assets	(154		)	(144		)	(308		)	(287		)
Amortization of unrecognized actuarial net loss	43			82			85			165
Net periodic benefit cost	$	10		$	50		$	20		$	103

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Interim Condensed Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Interest income
Loans, including fees	$ 9,799	$ 10,280	$ 19,550	$ 20,610
AFS securities
Taxable	1,993	1,798	3,991	3,632
Nontaxable	1,486	1,244	2,943	2,478
Trading securities	1	9	6	23
Federal funds sold and other	112	109	265	225
Total interest income	13,391	13,440	26,755	26,968
Interest expense
Deposits	1,589	1,822	3,205	3,696
Borrowings	879	959	1,763	1,906
Total interest expense	2,468	2,781	4,968	5,602
Net interest income	10,923	10,659	21,787	21,366
Provision for loan losses	(200)	215	(442)	515
Net interest income after provision for loan losses	11,123	10,444	22,229	20,851
Noninterest income
Service charges and fees	1,360	1,445	2,754	2,726
Net gain on sale of mortgage loans	151	249	266	607
Earnings on corporate owned life insurance policies	190	190	374	359
Net gains (losses) on sale of AFS securities	0	0	0	99
Other	733	852	1,289	1,392
Total noninterest income	2,434	2,736	4,683	5,183
Noninterest expenses
Compensation and benefits	5,385	5,236	10,871	10,681
Furniture and equipment	1,219	1,192	2,487	2,381
Occupancy	676	641	1,418	1,306
Other	2,020	2,255	4,010	4,147
Total noninterest expenses	9,300	9,324	18,786	18,515
Income before federal income tax expense	4,257	3,856	8,126	7,519
Federal income tax expense	692	643	1,252	1,219
NET INCOME	$ 3,565	$ 3,213	$ 6,874	$ 6,300
Earnings per share
Basic (in dollars per share)	$ 0.46	$ 0.42	$ 0.89	$ 0.82
Diluted (in dollars per share)	$ 0.45	$ 0.41	$ 0.87	$ 0.80
Cash dividends per basic share (in dollars per share)	$ 0.22	$ 0.21	$ 0.44	$ 0.42

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AFS Securities

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

AFS Securities

AFS Securities

The amortized cost and fair value of AFS securities, with gross unrealized gains and losses, are as follows at:

	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,706	$	5	$	607	$	24,104
States and political subdivisions	208,564		6,962		1,316		214,210
Auction rate money market preferred	3,200		—		333		2,867
Preferred stocks	6,800		6		592		6,214
Mortgage-backed securities	162,949		1,732		1,689		162,992
Collateralized mortgage obligations	139,883		1,652		1,404		140,131
Total	$	546,102	$	10,357	$	5,941	$	550,518

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,860	$	7	$	1,122	$	23,745
States and political subdivisions	200,323		5,212		3,547		201,988
Auction rate money market preferred	3,200		—		623		2,577
Preferred stocks	6,800		20		993		5,827
Mortgage-backed securities	147,292		657		3,834		144,115
Collateralized mortgage obligations	135,139		1,016		2,345		133,810
Total	$	517,614	$	6,912	$	12,464	$	512,062

The amortized cost and fair value of AFS securities by contractual maturity at June 30, 2014 are as follows:

	Maturing								Securities with Variable Monthly Payments or Noncontractual Maturities
	Due in One Year or Less		After One Year But Within Five Years		After Five Years But Within Ten Years		After Ten Years				Total
Government sponsored enterprises	$	—	$	9,068	$	15,638	$	—	$	—	$	24,706
States and political subdivisions	10,714		49,186		99,791		48,873		—		208,564
Auction rate money market preferred	—		—		—		—		3,200		3,200
Preferred stocks	—		—		—		—		6,800		6,800
Mortgage-backed securities	—		—		—		—		162,949		162,949
Collateralized mortgage obligations	—		—		—		—		139,883		139,883
Total amortized cost	$	10,714	$	58,254	$	115,429	$	48,873	$	312,832	$	546,102
Fair value	$	10,812	$	60,195	$	118,057	$	49,250	$	312,204	$	550,518

Expected maturities for government sponsored enterprises and states and political subdivisions may differ from contractual maturities because issuers may have the right to call or prepay obligations.

As the auction rate money market preferred and preferred stocks have continual call dates, they are not reported by a specific maturity group. Because of their variable monthly payments, mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group.

A summary of the sales activity of AFS securities was as follows for the three and six month periods ended:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Proceeds from sales of AFS securities	$	—	$	—	$	—	$	9,857
Gross realized gains (losses)	$	—	$	—	$	—	$	99
Applicable income tax expense (benefit)	$	—	$	—	$	—	$	34

The cost basis used to determine the realized gains or losses of AFS securities sold was the amortized cost of the individual investment security as of the trade date.

Information pertaining to AFS securities with gross unrealized losses at June 30, 2014 and December 31, 2013, respectively, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	June 30, 2014
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
Government sponsored enterprises	$	—	$	—	$	607	$	23,389	$	607
States and political subdivisions	259		15,190		1,057		27,852		1,316
Auction rate money market preferred	—		—		333		2,167		333
Preferred stocks	—		—		592		3,208		592
Mortgage-backed securities	17		9,268		1,672		65,346		1,689
Collateralized mortgage obligations	82		23,739		1,322		42,518		1,404
Total	$	358	$	48,197	$	5,583	$	164,480	$	5,941
Number of securities in an unrealized loss position:			123				116		239

	December 31, 2013
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
Government sponsored enterprises	$	1,122	$	22,873	$	—	$	—	$	1,122
States and political subdivisions	2,566		42,593		981		6,115		3,547
Auction rate money market preferred	—		—		623		2,577		623
Preferred stocks	—		—		993		2,807		993
Mortgage-backed securities	2,424		101,816		1,410		21,662		3,834
Collateralized mortgage obligations	2,345		84,478		—		—		2,345
Total	$	8,457	$	251,760	$	4,007	$	33,161	$	12,464
Number of securities in an unrealized loss position:			182				19		201

As of June 30, 2014 and December 31, 2013, we conducted an analysis to determine whether any securities currently in an unrealized loss position should be other-than-temporarily impaired. Such analyses considered, among other factors, the following criteria:

• Has the value of the investment declined more than what is deemed to be reasonable based on a risk and maturity adjusted discount rate?

• Is the investment credit rating below investment grade?

• Is it probable the issuer will be unable to pay the amount when due?

• Is it more likely than not that we will have to sell the security before recovery of its cost basis?

• Has the duration of the investment been extended?

Based on our analyses, the fact that we have asserted that we do not have the intent to sell AFS securities in an unrealized loss position, and considering it is unlikely that we will have to sell AFS securities in an unrealized loss position before recovery of their cost basis, we do not believe that the values of any AFS securities are other-than-temporarily impaired as of June 30, 2014, or December 31, 2013.

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Pending Accounting Standards Updates

6 Months Ended

Jun. 30, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Pending Accounting Standards Updates

Pending Accounting Standards Updates

ASU No. 2014-01: “Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)”

In January 2014, ASU No. 2014-01 amended ASC Topic 323, “Investments" to allow investors in low income housing tax credits to use the proportional amortization method if the following criteria are met:

• It is probable that the tax credits allocable to the investor will be available.

• The investor does not have the ability to exercise significant influence over the operating and financial policies of the limited liability entity.

• Substantially all of the projected benefits are from tax credits and other tax benefits (e.g., operating losses).

• The investor’s projected yield is based solely on the cash flows from the tax credits and other tax benefits are positive.

• The investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the investor’s liability is limited to its capital investment.

Investors that do not meet the above criteria must utilize the cost method or equity method in accordance with previously issued authoritative accounting guidance. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2014 and is not expected to have a significant impact on our operations.

ASU No. 2014-04: “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)”

In January 2014, ASU No. 2014-04 amended ASC Topic 310, “Receivables” to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2014 and is not expected to have a significant impact on our operations.

ASU No. 2014-11: “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”

In June 2014, ASU No. 2014-11 amended ASC Topic 860, “Transfers and Servicing” to address concerns that current accounting guidance distinguishes between repurchase agreements that settle at the same time as the maturity of the transferred financial asset and those that settle any time before maturity. The update changes the accounting for repurchase-to-maturity transactions to secured borrowing accounting and, for repurchase financing arrangements, separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2014 and is not expected to impact our financial statement disclosures.

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Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Consolidation

As used in these notes as well as in Management's Discussion and Analysis of Financial Condition and Results of Operations, references to “Isabella,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiaries. Isabella Bank Corporation refers solely to the parent holding company, and Isabella Bank refers to Isabella Bank Corporation’s subsidiary, Isabella Bank.

Basis of Accounting

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Earnings Per Share

Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan.

Available-for-sale Securities

The cost basis used to determine the realized gains or losses of AFS securities sold was the amortized cost of the individual investment security as of the trade date.

As of June 30, 2014 and December 31, 2013, we conducted an analysis to determine whether any securities currently in an unrealized loss position should be other-than-temporarily impaired. Such analyses considered, among other factors, the following criteria:

• Has the value of the investment declined more than what is deemed to be reasonable based on a risk and maturity adjusted discount rate?

• Is the investment credit rating below investment grade?

• Is it probable the issuer will be unable to pay the amount when due?

• Is it more likely than not that we will have to sell the security before recovery of its cost basis?

• Has the duration of the investment been extended?

Loans Receivable

Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, farmland and agricultural production, and states and political subdivisions. Repayment of these loans is often dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of credit exposure to any one borrower to $15,000. Borrowers with credit needs of more than $15,000 are serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans generally require loan-to-value limits of less than 80%. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, and property and equipment. Personal guarantees are generally required from the owners of closely held corporations, partnerships, and sole proprietorships. In addition, we require annual financial statements, prepare cash flow analyses, and review credit reports as deemed necessary.

We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which typically have amortization periods up to a maximum of 30 years. Fixed rate residential real estate loans with an amortization of greater than 15 years are generally sold upon origination to Freddie Mac. Fixed rate residential real estate loans with an amortization of 15 years or less may be held in our portfolio or sold upon origination. We consider the direction of interest rates, the sensitivity of our balance sheet to changes in interest rates, and overall loan demand to determine whether or not to sell these loans to Freddie Mac.

Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 95% of the lower of the appraised value of the property or the purchase price, with the condition that private mortgage insurance is required on loans with loan-to-value ratios in excess of 80%. Substantially all loans upon origination have a loan to value ratio of less than 80%. Underwriting criteria for residential real estate loans include: evaluation of the borrower’s ability to make monthly payments, the value of the property securing the loan, ensuring the payment of principal, interest, taxes, and hazard insurance does not exceed 28% of a borrower’s gross income, all debt servicing does not exceed 36% of income, acceptable credit reports, verification of employment, income, and financial information. Appraisals are performed by independent appraisers and reviewed internally. All mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market automated underwriting system; loans in excess of $500 require the approval of our Internal Loan Committee, the Board of Directors’ Loan Committee, or the Board of Directors.

Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 12 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market.

Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs, the ALLL, and any deferred fees or costs. Interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the level yield method.

Nonaccrual Loan Status

The accrual of interest on commercial, agricultural, and residential real estate loans is typically discontinued at the time the loan is 90 days or more past due unless the credit is well-secured and in the process of collection. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

For loans that are placed on nonaccrual status or charged-off, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ALLL. Loans are typically returned to accrual status after six months of continuous performance. For impaired loans not classified as nonaccrual, interest income continues to be accrued over the term of the loan based on the principal amount outstanding.

Allowance for Loan Losses

The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the ALLL when we believe the uncollectability of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the ALLL.

The ALLL is evaluated on a regular basis and is based upon a periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The primary factors behind the determination of the level of the ALLL are specific allocations for impaired loans, historical loss percentages, as well as unallocated components. Specific allocations for impaired loans are primarily determined based on the difference between the net realizable value of the loan’s underlying collateral or the net present value of the projected payment stream and our recorded investment. Historical loss allocations were calculated at the loan class and segment levels based on a migration analysis of the loan portfolio over the preceding five years. An unallocated component is maintained to cover uncertainties that we believe affect our estimate of probable losses based on qualitative factors. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Internal Credit Risk Ratings

Internally assigned risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned risk ratings for commercial and agricultural loans are as follows:

1. EXCELLENT – Substantially Risk Free

Credit has strong financial condition and solid earnings history, characterized by:

• High liquidity, strong cash flow, low leverage.

• Unquestioned ability to meet all obligations when due.

• Experienced management, with management succession in place.

• Secured by cash.

2. HIGH QUALITY – Limited Risk

Credit with sound financial condition and has a positive trend in earnings supplemented by:

• Favorable liquidity and leverage ratios.

• Ability to meet all obligations when due.

• Management with successful track record.

• Steady and satisfactory earnings history.

• If loan is secured, collateral is of high quality and readily marketable.

• Access to alternative financing.

• Well defined primary and secondary source of repayment.

• If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident.

3.HIGH SATISFACTORY – Reasonable Risk

Credit with satisfactory financial condition and further characterized by:

• Working capital adequate to support operations.

• Cash flow sufficient to pay debts as scheduled.

• Management experience and depth appear favorable.

• Loan performing according to terms.

• If loan is secured, collateral is acceptable and loan is fully protected.

4. LOW SATISFACTORY – Acceptable Risk

Credit with bankable risks, although some signs of weaknesses are shown:

• Would include most start-up businesses.

• Occasional instances of trade slowness or repayment delinquency – may have been 10-30 days slow within the past year.

• Management’s abilities are apparent, yet unproven.

• Weakness in primary source of repayment with adequate secondary source of repayment.

• Loan structure generally in accordance with policy.

• If secured, loan collateral coverage is marginal.

• Adequate cash flow to service debt, but coverage is low.

To be classified as less than satisfactory, only one of the following criteria must be met.

5. SPECIAL MENTION – Criticized

Credit constitutes an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific loan:

• Downward trend in sales, profit levels, and margins.

• Impaired working capital position.

• Cash flow is strained in order to meet debt repayment.

• Loan delinquency (30-60 days) and overdrafts may occur.

• Shrinking equity cushion.

• Diminishing primary source of repayment and questionable secondary source.

• Management abilities are questionable.

• Weak industry conditions.

• Litigation pending against the borrower.

• Collateral or guaranty offers limited protection.

• Negative debt service coverage, however the credit is well collateralized and payments are current.

6. SUBSTANDARD – Classified

Credit where the borrower’s current net worth, paying capacity, and value of the collateral pledged is inadequate. There is a distinct possibility that we will implement collection procedures if the loan deficiencies are not corrected. In addition, the following characteristics may apply:

• Sustained losses have severely eroded the equity and cash flow.

• Deteriorating liquidity.

• Serious management problems or internal fraud.

• Original repayment terms liberalized.

• Likelihood of bankruptcy.

• Inability to access other funding sources.

• Reliance on secondary source of repayment.

• Litigation filed against borrower.

• Collateral provides little or no value.

• Requires excessive attention of the loan officer.

• Borrower is uncooperative with loan officer.

7.VULNERABLE – Classified

Credit is considered “Substandard” and warrants placing on nonaccrual. Risk of loss is being evaluated and exit strategy options are under review. Other characteristics that may apply:

• Insufficient cash flow to service debt.

• Minimal or no payments being received.

• Limited options available to avoid the collection process.

• Transition status, expect action will take place to collect loan without immediate progress being made.

8. DOUBTFUL – Workout

Credit has all the weaknesses inherent in a “Substandard” loan with the added characteristic that collection and/or liquidation is pending. The possibility of a loss is extremely high, but its classification as a loss is deferred until liquidation procedures are completed, or reasonably estimable. Other characteristics that may apply:

• Normal operations are severely diminished or have ceased.

• Seriously impaired cash flow.

• Original repayment terms materially altered.

• Secondary source of repayment is inadequate.

• Survivability as a “going concern” is impossible.

• Collection process has begun.

• Bankruptcy petition has been filed.

• Judgments have been filed.

• Portion of the loan balance has been charged-off.

Impaired Loans

Loans may be classified as impaired if they meet one or more of the following criteria:

1. There has been a charge-off of its principal balance (in whole or in part),

2. The loan has been classified as a TDR, or

3. The loan is in nonaccrual status.

Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell, if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Impairment is measured on a loan-by-loan basis for residential real estate and consumer loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate.

We do not recognize interest income on impaired loans in nonaccrual status. For impaired loans not in nonaccrual status, interest income is recognized daily, as earned, according to the terms of the loan agreement.

Troubled Debt Restructurings

Loan modifications are considered to be TDRs when the modification includes terms outside of normal lending practices to a borrower who is experiencing financial difficulties.

Typical concessions granted include, but are not limited to:

1. Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.

2. Extending the amortization period beyond typical lending guidelines for debt with similar risk characteristics.

3. Forgiving principal.

4. Forgiving accrued interest.

To determine if a borrower is experiencing financial difficulties, we consider if:

1. The borrower is currently in default on any of their debt.

2. The borrower would likely default on any of their debt if the concession was not granted.

3. The borrower’s cash flow was insufficient to service all of their debt if the concession was not granted.

4. The borrower has declared, or is in the process of declaring, bankruptcy.

5. The borrower is unlikely to continue as a going concern (if the entity is a business).

Defined Benefit Pension Plan

We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. As a result of the curtailment, future salary increases are no longer considered (the projected benefit obligation is equal to the accumulated benefit obligation), and plan benefits are based on years of service and the individual employee’s five highest consecutive years of compensation out of the last ten years of service through March 1, 2007.

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Fair Value

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value

Fair Value

Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.

Cash and cash equivalents: The carrying amounts of cash and demand deposits due from banks and interest bearing balances due from banks approximate fair values. As such, we classify cash and cash equivalents as Level 1.

Certificates of deposit held in other financial institutions: Certificates of deposit held in other financial institutionsinclude certificates of deposit and other short term interest bearing balances that mature within 3 years. Fair value is determined using prices for similar assets with similar characteristics. As such, we classify certificates of deposits held in other financial institutions as Level 2.

AFS and trading securities:AFS and trading securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources.

Mortgage loans AFS:Mortgage loans AFS are carried at the lower of cost or fair value. The fair value of Mortgage loans AFS are based on what price secondary markets are currently offering for portfolios with similar characteristics. As such, we classify Mortgage loans AFS subject to nonrecurring fair value adjustments as Level 2.

Loans: For variable rate loans with no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. As such, we classify loans as Level 3 assets.

We do not record loans at fair value on a recurring basis. However, from time-to-time, loans are classified as impaired and a specific allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will be significantly different than the contractual terms of the original loan agreement are considered impaired. Once a loan is identified as impaired, we measure the estimated impairment. The fair value of impaired loans is estimated using one of several methods, including the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell, if the loan is collateral dependent. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

We review the net realizable values of the underlying collateral for collateral dependent impaired loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to carry and sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated.

The following tables list the quantitative fair value information about impaired loans as of:

	June 30, 2014
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 30%
		Equipment	30% - 40%
Discounted appraisal value	$13,352	Cash crop inventory	40%
		Other inventory	50%
		Accounts receivable	50% - 75%
		Liquor license	75%

	December 31, 2013
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 30%
		Equipment	50%
Discounted appraisal value	$13,902	Livestock	50%
		Cash crop inventory	50%
		Other inventory	75%
		Accounts receivable	75%

Discount factors with ranges are based on the age of the independent appraisal, broker price opinion, or internal evaluations.

Accrued interest receivable: The carrying amounts of accrued interest receivable approximate fair value. As such, we classify accrued interest receivable as Level 1.

Equity securities without readily determinable fair values: Included in equity securities without readily determinable fair values are FHLB stock and FRB stock as well as our ownership interests in Corporate Settlement Solutions, LLC and Valley Financial Corporation. The investment in Corporate Settlement Solutions, LLC, a title insurance company, was made in the first quarter 2008. We are not the managing entity of Corporate Settlement Solutions, LLC, and therefore, we account for our investment under the equity method of accounting. Valley Financial Corporation is the parent company of 1st State Bank in Saginaw, Michigan, which is a community bank that opened in 2005. We made investments in Valley Financial Corporation in 2004 and in 2007.

The lack of an active market, or other independent sources to validate fair value estimates coupled with the impact of future capital calls and transfer restrictions, is an inherent limitation in the valuation process. As the fair values of these investments are not readily determinable, they are not disclosed under a specific fair value hierarchy; however, they are reviewed quarterly for impairment. If we were to record an impairment adjustment related to these securities, it would be classified as a nonrecurring Level 3 fair value adjustment. During 2014 and 2013, there were no impairments recorded on equity securities without readily determinable fair values.

Foreclosed assets: Upon transfer from the loan portfolio, foreclosed assets (which are included in other assets) are adjusted to and subsequently carried at the lower of carrying value or fair value less costs to sell. Net realizable value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. Due to the inherent level of estimation in the valuation process, we record foreclosed assets as nonrecurring Level 3.

The table below lists the quantitative fair value information related to foreclosed assets as of:

	June 30, 2014
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,132	Real Estate	20% - 30%

	December 31, 2013
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,412	Real Estate	20% - 30%

Discount factors with ranges are based on the age of the independent appraisal, broker price opinion, or internal evaluations.

Goodwill and other intangible assets: Acquisition intangibles and goodwill are evaluated for potential impairment on at least an annual basis. Acquisition intangibles and goodwill are typically qualitatively evaluated to determine if it is more likely than not that the carrying balance is impaired. If it is determined that the carrying balance of acquisition intangibles or goodwill is more likely than not to be impaired, we perform a cash flow valuation to determine the extent of the potential impairment. If the testing resulted in impairment, we would classify goodwill and other acquisition intangibles subjected to nonrecurring fair value adjustments as Level 3. During 2014 and 2013, there were no impairments recorded on goodwill and other acquisition intangibles.

OMSRs:OMSRs (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSRs are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSRs subject to nonrecurring fair value adjustments as Level 2.

Deposits: The fair value of demand, savings, and money market deposits are, by definition, equal their carrying amounts and are classified as Level 1. Fair values for variable rate certificates of deposit approximate their carrying value. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. As such, fixed rate certificates of deposit are classified as Level 2.

Borrowed funds: The carrying amounts of federal funds purchased, borrowings under overnight repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values. The fair values of other borrowed funds are estimated using discounted cash flow analyses based on current incremental borrowing arrangements. As such, borrowed funds are classified as Level 2.

Accrued interest payable: The carrying amounts of accrued interest payable approximate fair value. As such, we classify accrued interest payable as Level 1.

Commitments to extend credit, standby letters of credit, and undisbursed loans: Our commitments to extend credit, standby letters of credit, and undisbursed funds have no carrying amount and are estimated to have no realizable fair value. Historically, a majority of the unused commitments to extend credit have not been drawn upon and, generally, we do not receive fees in connection with these commitments other than standby letter of credit fees, which are not significant.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis

Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on our consolidated balance sheets are as follows as of:

	June 30, 2014
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	27,380	$	27,380	$	27,380	$	—	$	—
Certificates of deposit held in other financial institutions	580		580		—		580		—
Mortgage loans AFS	340		357		—		357		—
Total loans	816,307		802,848		—		—		802,848
Less allowance for loan and lease losses	10,700		10,700		—		—		10,700
Net loans	805,607		792,148		—		—		792,148
Accrued interest receivable	5,448		5,448		5,448		—		—
Equity securities without readily determinable fair values (1)	19,303		19,303		—		—		—
OMSRs	2,618		2,703		—		2,703		—
LIABILITIES
Deposits without stated maturities	609,280		609,280		609,280		—		—
Deposits with stated maturities	451,648		453,458		—		453,458		—
Borrowed funds	279,457		263,604		—		263,604		—
Accrued interest payable	527		527		527		—		—

	December 31, 2013
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	41,558	$	41,558	$	41,558	$	—	$	—
Certificates of deposit held in other financial institutions	580		582		—		582		—
Mortgage loans AFS	1,104		1,123		—		1,123		—
Total loans	808,037		808,246		—		—		808,246
Less allowance for loan and lease losses	11,500		11,500		—		—		11,500
Net loans	796,537		796,746		—		—		796,746
Accrued interest receivable	5,442		5,442		5,442		—		—
Equity securities without readily determinable fair values (1)	18,293		18,293		—		—		—
OMSRs	2,555		2,667		—		2,667		—
LIABILITIES
Deposits without stated maturities	593,754		593,754		593,754		—		—
Deposits with stated maturities	450,012		452,803		—		452,803		—
Borrowed funds	279,326		283,060		—		283,060		—
Accrued interest payable	633		633		633		—		—

⁽¹⁾  Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. If we were to record an impairment adjustment related to these securities, such amount would be classified as a nonrecurring Level 3 fair value adjustment.

Financial Instruments Recorded at Fair Value

The table below presents the recorded amount of assets and liabilities measured at fair value on:

	June 30, 2014											December 31, 2013
	Total		(Level 1)			(Level 2)			(Level 3)			Total		(Level 1)			(Level 2)			(Level 3)
Recurring items
Trading securities
States and political subdivisions	$	—	$	—		$	—		$	—		$	525	$	—		$	525		$	—
AFS securities
Government-sponsored enterprises	24,104		—			24,104			—			23,745		—			23,745			—
States and political subdivisions	214,210		—			214,210			—			201,988		—			201,988			—
Auction rate money market preferred	2,867		—			2,867			—			2,577		—			2,577			—
Preferred stocks	6,214		6,214			—			—			5,827		5,827			—			—
Mortgage-backed securities	162,992		—			162,992			—			144,115		—			144,115			—
Collateralized mortgage obligations	140,131		—			140,131			—			133,810		—			133,810			—
Total AFS securities	550,518		6,214			544,304			—			512,062		5,827			506,235			—
Nonrecurring items
Impaired loans (net of the ALLL)	13,352		—			—			13,352			13,902		—			—			13,902
Foreclosed assets	1,132		—			—			1,132			1,412		—			—			1,412
Total	$	565,002	$	6,214		$	544,304		$	14,484		$	527,901	$	5,827		$	506,760		$	15,314
Percent of assets and liabilities measured at fair value			1.10		%	96.34		%	2.56		%			1.10		%	96.00		%	2.90		%

The following table provides a summary of the changes in fair value of assets and liabilities recorded at fair value through earnings on a recurring basis and changes in assets and liabilities recorded at fair value on a nonrecurring basis, for which gains or losses were recognized in the:

	Three Months Ended June 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(1	)	$	—		$	(1	)	$	(8	)	$	—		$	(8	)
Nonrecurring items
Foreclosed assets	—			(20		)	(20		)	—			(68		)	(68		)
Total	$	(1	)	$	(20	)	$	(21	)	$	(8	)	$	(68	)	$	(76	)

	Six Months Ended June 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(5	)	$	—		$	(5	)	$	(18	)	$	—		$	(18	)
Nonrecurring items
Foreclosed assets	—			(63		)	(63		)	—			(92		)	(92		)
Total	$	(5	)	$	(63	)	$	(68	)	$	(18	)	$	(92	)	$	(110	)

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Borrowed Funds

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Borrowed Funds

Borrowed Funds

Borrowed funds consist of the following obligations as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
FHLB advances	$	182,000	1.84	%	$	162,000	2.02	%
Securities sold under agreements to repurchase without stated maturity dates	87,058		0.13	%	106,025		0.13	%
Securities sold under agreements to repurchase with stated maturity dates	1,199		4.27	%	11,301		3.30	%
Federal funds purchased	9,200		0.39	%	—		—
Total	$	279,457	1.27	%	$	279,326	1.35	%

FHLB advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans and certain mortgage-backed securities and collateralized mortgage obligations. FHLB advances are also secured by our holdings of FHLB stock.

The following table lists the maturity and weighted average interest rates of FHLB advances as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Fixed rate advances due 2014	$	10,000	0.48	%	$	10,000	0.48	%
Variable rate advances due 2014	20,000		0.42	%	—		—
Fixed rate advances due 2015	32,000		0.84	%	32,000		0.84	%
Fixed rate advances due 2016	10,000		2.15	%	10,000		2.15	%
Fixed rate advances due 2017	30,000		1.95	%	30,000		1.95	%
Fixed rate advances due 2018	40,000		2.35	%	40,000		2.35	%
Fixed rate advances due 2019	20,000		3.11	%	20,000		3.11	%
Fixed rate advances due 2020	10,000		1.98	%	10,000		1.98	%
Fixed rate advances due 2023	10,000		3.90	%	10,000		3.90	%
Total	$	182,000	1.84	%	$	162,000	2.02	%

Securities sold under agreements to repurchase are classified as secured borrowings. Securities sold under agreements to repurchase without stated maturity dates generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. The securities underlying the agreements have a carrying value and a fair value of $144,683 and $148,930 at June 30, 2014 and December 31, 2013, respectively. Such securities remain under our control. We may be required to provide additional collateral based on the fair value of underlying securities.

The following table lists the maturity and weighted average interest rates of securities sold under agreements to repurchase with stated maturity dates as of:

	June 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Repurchase agreements due 2014	$	767	4.84	%	$	10,876	3.30	%
Repurchase agreements due 2015	432		3.25	%	425		3.25	%
Total	$	1,199	4.27	%	$	11,301	3.30	%

Securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances generally mature within one to four days from the transaction date. The following table provides a summary of securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances borrowings for the three and six month periods ended:

	Three Months Ended June 30, 2014						Three Months Ended June 30, 2013
	Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period		Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates	$	90,813	$	90,484	0.13	%	$	71,668	$	69,692	0.15	%
Federal funds purchased	16,500		6,849		0.48	%	13,700		6,022		0.57	%

	Six Months Ended June 30, 2014						Six Months Ended June 30, 2013
	Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period		Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates	$	94,741	$	92,412	0.13	%	$	71,668	$	65,363	0.15	%
Federal funds purchased	16,500		6,305		0.47	%	13,700		3,646		0.56	%

We had pledged trading securities, AFS securities, and 1-4 family residential real estate loans in the following amounts at:

	June 30 2014		December 31 2013
Pledged to secure borrowed funds	$	295,175	$	320,173
Pledged to secure repurchase agreements	144,683		148,930
Pledged for public deposits and for other purposes necessary or required by law	18,446		20,922
Total	$	458,304	$	490,025

As of June 30, 2014, we had the ability to borrow up to an additional $84,668, based on assets pledged as collateral. We had no investment securities that are restricted to be pledged for specific purposes.

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Fair Value (Quantitative information related to foreclosed assets) (Details) (Discounted appraisal value [Member], Level 3 [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discounted appraisal value at fair value	$ 1,132	$ 1,412
Real Estate [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	20.00%	20.00%
Real Estate [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	30.00%	30.00%

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Loans and ALLL

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Loans and ALLL

Loans and ALLL

We grant commercial, agricultural, residential real estate, and consumer loans to customers situated primarily in Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of the borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, light manufacturing, retail, gaming, tourism, higher education, and general economic conditions of this region. Substantially all of our consumer and residential real estate loans are secured by various items of property, while commercial loans are secured primarily by real estate, business assets, and personal guarantees; a portion of loans are unsecured.

Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs, the ALLL, and any deferred fees or costs. Interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the level yield method.

The accrual of interest on commercial, agricultural, and residential real estate loans is typically discontinued at the time the loan is 90 days or more past due unless the credit is well-secured and in the process of collection. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

For loans that are placed on nonaccrual status or charged-off, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ALLL. Loans are typically returned to accrual status after six months of continuous performance. For impaired loans not classified as nonaccrual, interest income continues to be accrued over the term of the loan based on the principal amount outstanding.

Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, farmland and agricultural production, and states and political subdivisions. Repayment of these loans is often dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of credit exposure to any one borrower to $15,000. Borrowers with credit needs of more than $15,000 are serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans generally require loan-to-value limits of less than 80%. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, and property and equipment. Personal guarantees are generally required from the owners of closely held corporations, partnerships, and sole proprietorships. In addition, we require annual financial statements, prepare cash flow analyses, and review credit reports as deemed necessary.

We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which typically have amortization periods up to a maximum of 30 years. Fixed rate residential real estate loans with an amortization of greater than 15 years are generally sold upon origination to Freddie Mac. Fixed rate residential real estate loans with an amortization of 15 years or less may be held in our portfolio or sold upon origination. We consider the direction of interest rates, the sensitivity of our balance sheet to changes in interest rates, and overall loan demand to determine whether or not to sell these loans to Freddie Mac.

Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 95% of the lower of the appraised value of the property or the purchase price, with the condition that private mortgage insurance is required on loans with loan-to-value ratios in excess of 80%. Substantially all loans upon origination have a loan to value ratio of less than 80%. Underwriting criteria for residential real estate loans include: evaluation of the borrower’s ability to make monthly payments, the value of the property securing the loan, ensuring the payment of principal, interest, taxes, and hazard insurance does not exceed 28% of a borrower’s gross income, all debt servicing does not exceed 36% of income, acceptable credit reports, verification of employment, income, and financial information. Appraisals are performed by independent appraisers and reviewed internally. All mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market automated underwriting system; loans in excess of $500 require the approval of our Internal Loan Committee, the Board of Directors’ Loan Committee, or the Board of Directors.

Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 12 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market.

The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the ALLL when we believe the uncollectability of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the ALLL.

The ALLL is evaluated on a regular basis and is based upon a periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The primary factors behind the determination of the level of the ALLL are specific allocations for impaired loans, historical loss percentages, as well as unallocated components. Specific allocations for impaired loans are primarily determined based on the difference between the net realizable value of the loan’s underlying collateral or the net present value of the projected payment stream and our recorded investment. Historical loss allocations were calculated at the loan class and segment levels based on a migration analysis of the loan portfolio over the preceding five years. An unallocated component is maintained to cover uncertainties that we believe affect our estimate of probable losses based on qualitative factors. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A summary of changes in the ALLL and the recorded investment in loans by segments follows:

	Allowance for Loan Losses
	Three Months Ended June 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
April 1, 2014	$	4,814		$	425		$	4,727		$	630		$	504	$	11,100
Loans charged-off	(79		)	—			(264		)	(68		)	—		(411		)
Recoveries	92			—			86			33			—		211
Provision for loan losses	185			(206		)	(568		)	207			182		(200		)
June 30, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700

	Allowance for Loan Losses
	Six Months Ended June 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2014	$	6,048		$	434		$	3,845		$	639		$	534	$	11,500
Loans charged-off	(271		)	(31		)	(377		)	(182		)	—		(861		)
Recoveries	306			—			122			75			—		503
Provision for loan losses	(1,071		)	(184		)	391			270			152		(442		)
June 30, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700

	Allowance for Loan Losses and Recorded Investment in Loans
	June 30, 2014
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	1,633	$	36	$	2,270	$	1	$	—	$	3,940
Collectively evaluated for impairment	3,379		183		1,711		801		686		6,760
Total	$	5,012	$	219	$	3,981	$	802	$	686	$	10,700
Loans
Individually evaluated for impairment	$	13,164	$	1,583	$	12,906	$	74			$	27,727
Collectively evaluated for impairment	394,627		96,078		265,639		32,236				788,580
Total	$	407,791	$	97,661	$	278,545	$	32,310			$	816,307

	Allowance for Loan Losses
	Three Months Ended June 30, 2013
	Commercial			Agricultural		Residential Real Estate			Consumer			Unallocated		Total
April 1, 2013	$	6,897		$	321	$	3,634		$	732		$	325	$	11,909
Loans charged-off	(234		)	—		(397		)	(88		)	—		(719		)
Recoveries	166			—		61			68			—		295
Provision for loan losses	(357		)	14		378			(65		)	245		215
June 30, 2013	$	6,472		$	335	$	3,676		$	647		$	570	$	11,700

	Allowance for Loan Losses
	Six Months Ended June 30, 2013
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2013	$	6,862		$	407		$	3,627		$	666		$	374	$	11,936
Loans charged-off	(445		)	—			(587		)	(209		)	—		(1,241		)
Recoveries	223			—			114			153			—		490
Provision for loan losses	(168		)	(72		)	522			37			196		515
June 30, 2013	$	6,472		$	335		$	3,676		$	647		$	570	$	11,700

	Allowance for Loan Losses and Recorded Investment in Loans
	December 31, 2013
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	2,035	$	30	$	2,287	$	—	$	—	$	4,352
Collectively evaluated for impairment	4,013		404		1,558		639		534		7,148
Total	$	6,048	$	434	$	3,845	$	639	$	534	$	11,500
Loans
Individually evaluated for impairment	$	13,816	$	1,538	$	14,302	$	119			$	29,775
Collectively evaluated for impairment	378,288		91,051		275,629		33,294				778,262
Total	$	392,104	$	92,589	$	289,931	$	33,413			$	808,037

The following table displays the credit quality indicators for commercial and agricultural credit exposures based on internally assigned credit ratings as of:

	June 30, 2014
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	15,038	$	16,364	$	31,402	$	5,619	$	3,817	$	9,436
3 - High satisfactory	92,014		48,135		140,149		25,840		12,843		38,683
4 - Low satisfactory	166,155		42,561		208,716		29,461		15,804		45,265
5 - Special mention	9,816		1,153		10,969		1,810		318		2,128
6 - Substandard	13,557		145		13,702		1,848		186		2,034
7 - Vulnerable	2,605		234		2,839		115		—		115
8 - Doubtful	—		14		14		—		—		—
Total	$	299,185	$	108,606	$	407,791	$	64,693	$	32,968	$	97,661

	December 31, 2013
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	18,671	$	14,461	$	33,132	$	3,527	$	3,235	$	6,762
3 - High satisfactory	91,323		39,403		130,726		26,015		17,000		43,015
4 - Low satisfactory	149,921		43,809		193,730		26,874		10,902		37,776
5 - Special mention	13,747		1,843		15,590		1,609		922		2,531
6 - Substandard	16,974		473		17,447		1,232		1,273		2,505
7 - Vulnerable	1,041		238		1,279		—		—		—
8 - Doubtful	183		17		200		—		—		—
Total	$	291,860	$	100,244	$	392,104	$	59,257	$	33,332	$	92,589

Internally assigned risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned risk ratings for commercial and agricultural loans are as follows:

1. EXCELLENT – Substantially Risk Free

Credit has strong financial condition and solid earnings history, characterized by:

• High liquidity, strong cash flow, low leverage.

• Unquestioned ability to meet all obligations when due.

• Experienced management, with management succession in place.

• Secured by cash.

2. HIGH QUALITY – Limited Risk

Credit with sound financial condition and has a positive trend in earnings supplemented by:

• Favorable liquidity and leverage ratios.

• Ability to meet all obligations when due.

• Management with successful track record.

• Steady and satisfactory earnings history.

• If loan is secured, collateral is of high quality and readily marketable.

• Access to alternative financing.

• Well defined primary and secondary source of repayment.

• If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident.

3.HIGH SATISFACTORY – Reasonable Risk

Credit with satisfactory financial condition and further characterized by:

• Working capital adequate to support operations.

• Cash flow sufficient to pay debts as scheduled.

• Management experience and depth appear favorable.

• Loan performing according to terms.

• If loan is secured, collateral is acceptable and loan is fully protected.

4. LOW SATISFACTORY – Acceptable Risk

Credit with bankable risks, although some signs of weaknesses are shown:

• Would include most start-up businesses.

• Occasional instances of trade slowness or repayment delinquency – may have been 10-30 days slow within the past year.

• Management’s abilities are apparent, yet unproven.

• Weakness in primary source of repayment with adequate secondary source of repayment.

• Loan structure generally in accordance with policy.

• If secured, loan collateral coverage is marginal.

• Adequate cash flow to service debt, but coverage is low.

To be classified as less than satisfactory, only one of the following criteria must be met.

5. SPECIAL MENTION – Criticized

Credit constitutes an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific loan:

• Downward trend in sales, profit levels, and margins.

• Impaired working capital position.

• Cash flow is strained in order to meet debt repayment.

• Loan delinquency (30-60 days) and overdrafts may occur.

• Shrinking equity cushion.

• Diminishing primary source of repayment and questionable secondary source.

• Management abilities are questionable.

• Weak industry conditions.

• Litigation pending against the borrower.

• Collateral or guaranty offers limited protection.

• Negative debt service coverage, however the credit is well collateralized and payments are current.

6. SUBSTANDARD – Classified

Credit where the borrower’s current net worth, paying capacity, and value of the collateral pledged is inadequate. There is a distinct possibility that we will implement collection procedures if the loan deficiencies are not corrected. In addition, the following characteristics may apply:

• Sustained losses have severely eroded the equity and cash flow.

• Deteriorating liquidity.

• Serious management problems or internal fraud.

• Original repayment terms liberalized.

• Likelihood of bankruptcy.

• Inability to access other funding sources.

• Reliance on secondary source of repayment.

• Litigation filed against borrower.

• Collateral provides little or no value.

• Requires excessive attention of the loan officer.

• Borrower is uncooperative with loan officer.

7.VULNERABLE – Classified

Credit is considered “Substandard” and warrants placing on nonaccrual. Risk of loss is being evaluated and exit strategy options are under review. Other characteristics that may apply:

• Insufficient cash flow to service debt.

• Minimal or no payments being received.

• Limited options available to avoid the collection process.

• Transition status, expect action will take place to collect loan without immediate progress being made.

8. DOUBTFUL – Workout

Credit has all the weaknesses inherent in a “Substandard” loan with the added characteristic that collection and/or liquidation is pending. The possibility of a loss is extremely high, but its classification as a loss is deferred until liquidation procedures are completed, or reasonably estimable. Other characteristics that may apply:

• Normal operations are severely diminished or have ceased.

• Seriously impaired cash flow.

• Original repayment terms materially altered.

• Secondary source of repayment is inadequate.

• Survivability as a “going concern” is impossible.

• Collection process has begun.

• Bankruptcy petition has been filed.

• Judgments have been filed.

• Portion of the loan balance has been charged-off.

Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due aging. The following tables summarize the past due and current loans as of:

	June 30, 2014
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	857	$	332	$	—	$	2,605	$	3,794	$	295,391	$	299,185
Commercial other	257		13		28		234		532		108,074		108,606
Total commercial	1,114		345		28		2,839		4,326		403,465		407,791
Agricultural
Agricultural real estate	208		—		—		115		323		64,370		64,693
Agricultural other	312		84		—		—		396		32,572		32,968
Total agricultural	520		84		—		115		719		96,942		97,661
Residential real estate
Senior liens	1,558		766		91		1,239		3,654		222,355		226,009
Junior liens	311		18		—		23		352		11,984		12,336
Home equity lines of credit	246		—		—		361		607		39,593		40,200
Total residential real estate	2,115		784		91		1,623		4,613		273,932		278,545
Consumer
Secured	46		—		—		10		56		27,827		27,883
Unsecured	38		4		—		—		42		4,385		4,427
Total consumer	84		4		—		10		98		32,212		32,310
Total	$	3,833	$	1,217	$	119	$	4,587	$	9,756	$	806,551	$	816,307

	December 31, 2013
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	1,226	$	296	$	—	$	1,136	$	2,658	$	289,202	$	291,860
Commercial other	368		15		13		238		634		99,610		100,244
Total commercial	1,594		311		13		1,374		3,292		388,812		392,104
Agricultural
Agricultural real estate	34		295		—		—		329		58,928		59,257
Agricultural other	—		—		—		—		—		33,332		33,332
Total agricultural	34		295		—		—		329		92,260		92,589
Residential real estate
Senior liens	3,441		986		129		1,765		6,321		229,865		236,186
Junior liens	408		44		—		29		481		13,074		13,555
Home equity lines of credit	181		—		—		25		206		39,984		40,190
Total residential real estate	4,030		1,030		129		1,819		7,008		282,923		289,931
Consumer
Secured	167		11		—		50		228		28,444		28,672
Unsecured	25		5		—		1		31		4,710		4,741
Total consumer	192		16		—		51		259		33,154		33,413
Total	$	5,850	$	1,652	$	142	$	3,244	$	10,888	$	797,149	$	808,037

Impaired Loans

Loans may be classified as impaired if they meet one or more of the following criteria:

1. There has been a charge-off of its principal balance (in whole or in part),

2. The loan has been classified as a TDR, or

3. The loan is in nonaccrual status.

Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell, if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Impairment is measured on a loan-by-loan basis for residential real estate and consumer loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate.

We do not recognize interest income on impaired loans in nonaccrual status. For impaired loans not in nonaccrual status, interest income is recognized daily, as earned, according to the terms of the loan agreement. The following is a summary of information pertaining to impaired loans as of:

	June 30, 2014						December 31, 2013
	Outstanding Balance		Unpaid Principal Balance		Valuation Allowance		Outstanding Balance		Unpaid Principal Balance		Valuation Allowance
Impaired loans with a valuation allowance
Commercial real estate	$	6,512	$	6,720	$	1,621	$	6,748	$	6,888	$	1,915
Commercial other	629		848		12		521		521		120
Agricultural real estate	204		204		36		90		90		30
Residential real estate senior liens	12,454		13,727		2,242		14,061		15,315		2,278
Residential real estate junior liens	92		102		19		48		64		9
Home equity lines of credit	360		660		9		—		—		—
Consumer secured	64		64		1		—		—		—
Total impaired loans with a valuation allowance	20,315		22,325		3,940		21,468		22,878		4,352
Impaired loans without a valuation allowance
Commercial real estate	5,708		6,326				5,622		6,499
Commercial other	315		356				925		1,035
Agricultural real estate	1,361		1,361				1,370		1,370
Agricultural other	18		138				78		198
Home equity lines of credit	—		—				193		493
Consumer secured	10		10				119		148
Total impaired loans without a valuation allowance	7,412		8,191				8,307		9,743
Impaired loans
Commercial	13,164		14,250		1,633		13,816		14,943		2,035
Agricultural	1,583		1,703		36		1,538		1,658		30
Residential real estate	12,906		14,489		2,270		14,302		15,872		2,287
Consumer	74		74		1		119		148		—
Total impaired loans	$	27,727	$	30,516	$	3,940	$	29,775	$	32,621	$	4,352

The following is a summary of information pertaining to impaired loans for the three and six month periods ended:

	Three Months Ended   June 30, 2014					Six Months Ended   June 30, 2014
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	6,644	$	91		$	6,701	$	185
Commercial other	852		11			825		29
Agricultural real estate	147		(1		)	118		—
Agricultural other	—		—			—		—
Residential real estate senior liens	12,786		126			13,188		264
Residential real estate junior liens	68		1			57		1
Home equity lines of credit	265		10			175		11
Consumer secured	63		1			77		2
Total impaired loans with a valuation allowance	20,825		239			21,141		492
Impaired loans without a valuation allowance
Commercial real estate	5,819		91			5,797		193
Commercial other	286		1			438		7
Agricultural real estate	1,405		21			1,407		37
Agricultural other	131		—			146		28
Home equity lines of credit	—		—			48		—
Consumer secured	5		—			3		—
Total impaired loans without a valuation allowance	7,646		113			7,839		265
Impaired loans
Commercial	13,601		194			13,761		414
Agricultural	1,683		20			1,671		65
Residential real estate	13,119		137			13,468		276
Consumer	68		1			80		2
Total impaired loans	$	28,471	$	352		$	28,980	$	757

	Three Months Ended   June 30, 2013					Six Months Ended   June 30, 2013
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	7,990	$	102		$	8,084	$	221
Commercial other	764		37			932		38
Agricultural real estate	91		1			124		4
Agricultural other	—		—			105		—
Residential real estate senior liens	10,466		110			10,460		209
Residential real estate junior liens	85		1			85		1
Home equity lines of credit	—		—			—		—
Consumer secured	—		—			—		—
Total impaired loans with a valuation allowance	19,396		251			19,790		473
Impaired loans without a valuation allowance
Commercial real estate	3,954		85			3,790		158
Commercial other	1,020		19			1,126		59
Agricultural real estate	133		2			67		2
Agricultural other	458		(11		)	423		(4		)
Home equity lines of credit	179		5			181		9
Consumer secured	63		1			68		2
Total impaired loans without a valuation allowance	5,807		101			5,655		226
Impaired loans
Commercial	13,728		243			13,932		476
Agricultural	682		(8		)	719		2
Residential real estate	10,730		116			10,726		219
Consumer	63		1			68		2
Total impaired loans	$	25,203	$	352		$	25,445	$	699

As of June 30, 2014 and December 31, 2013, we had committed to advance $36 and $134, respectively, in connection with impaired loans, which include TDRs.

Troubled Debt Restructurings

Loan modifications are considered to be TDRs when the modification includes terms outside of normal lending practices to a borrower who is experiencing financial difficulties.

Typical concessions granted include, but are not limited to:

1. Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.

2. Extending the amortization period beyond typical lending guidelines for debt with similar risk characteristics.

3. Forgiving principal.

4. Forgiving accrued interest.

To determine if a borrower is experiencing financial difficulties, we consider if:

1. The borrower is currently in default on any of their debt.

2. The borrower would likely default on any of their debt if the concession was not granted.

3. The borrower’s cash flow was insufficient to service all of their debt if the concession was not granted.

4. The borrower has declared, or is in the process of declaring, bankruptcy.

5. The borrower is unlikely to continue as a going concern (if the entity is a business).

The following is a summary of information pertaining to TDRs granted in the:

	Three Months Ended June 30, 2014					Six Months Ended June 30, 2014
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	1	$	8	$	8	5	$	363	$	363
Agricultural other	—	—		—		—	—		—
Residential real estate
Senior liens	3	170		170		12	661		661
Junior liens	1	41		41		1	41		41
Home equity lines of credit	1	160		160		1	160		160
Total residential real estate	5	371		371		14	862		862
Consumer unsecured	2	8		8		3	8		8
Total	8	$	387	$	387	22	$	1,233	$	1,233

	Three Months Ended June 30, 2013					Six Months Ended June 30, 2013
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	7	$	3,153	$	2,957	7	$	3,153	$	2,957
Agricultural other	—	—		—		1	134		134
Residential real estate
Senior liens	7	635		635		15	1,435		1,418
Junior liens	—	—		—		—	—		—
Home equity lines of credit	—	—		—		—	—		—
Total residential real estate	7	635		635		15	1,435		1,418
Consumer unsecured	—	—		—		—	—		—
Total	14	$	3,788	$	3,592	23	$	4,722	$	4,509

The following tables summarize concessions we granted to borrowers in financial difficulty for the:

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
	Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period			Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period
	Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment
Commercial other	—	$	—	1	$	8	4	$	355	1	$	8
Agricultural other	—	—		—	—		—	—		—	—
Residential real estate
Senior liens	1	48		2	122		3	98		9	563
Junior liens	—	—		1	41		—	—		1	41
Home equity lines of credit	1	160		—	—		1	160		—	—
Total residential real estate	2	208		3	163		4	258		10	604
Consumer unsecured	1	5		1	3		2	5		1	3
Total	3	$	213	5	$	174	10	$	618	12	$	615

	Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
	Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period			Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period
	Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment
Commercial other	3	$	1,357	4	$	1,796	3	$	1,357	4	$	1,796
Agricultural other	—	—		—	—		1	134		—	—
Residential real estate
Senior liens	4	414		3	221		7	625		8	810
Junior liens	—	—		—	—		—	—		—	—
Home equity lines of credit	—	—		—	—		—	—		—	—
Total residential real estate	4	414		3	221		7	625		8	810
Consumer unsecured	—	—		—	—		—	—		—	—
Total	7	$	1,771	7	$	2,017	11	$	2,116	12	$	2,606

We did not restructure any loans by forgiving principal or accrued interest in the three and six month periods ended June 30, 2014 or 2013.

Based on our historical loss experience, losses associated with TDRs are not significantly different than other impaired loans within the same loan segment. As such, TDRs, including TDRs that have been modified in the past 12 months that subsequently defaulted, are analyzed in the same manner as other impaired loans within their respective loan segment.

We had no loans that defaulted in the three and six month periods ended June 30, 2014 or 2013, which were modified within 12 months prior to the default date.

The following is a summary of TDR loan balances as of:

	June 30, 2014		December 31, 2013
TDRs	$	24,192	$	25,865

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Equity Securities Without Readily Determinable Fair Values

6 Months Ended

Jun. 30, 2014

Equity Method And Other Investments [Abstract]

Equity Securities Without Readily Determinable Fair Values

Equity Securities Without Readily Determinable Fair Values

Included in equity securities without readily determinable fair values are restricted securities, which are carried at cost, and investments in unconsolidated entities accounted for under the equity method of accounting.

Equity securities without readily determinable fair values consist of the following as of:

	June 30 2014		December 31 2013
FHLB Stock	$	9,100	$	8,100
Corporate Settlement Solutions, LLC	6,983		6,970
FRB Stock	1,879		1,879
Valley Financial Corporation	1,000		1,000
Other	341		344
Total	$	19,303	$	18,293

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Other Noninterest Expenses

6 Months Ended

Jun. 30, 2014

Other Income and Expenses [Abstract]

Other Noninterest Expenses

Other Noninterest Expenses

A summary of expenses included in other noninterest expenses is as follows for the:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Marketing and community relations	$	211	$	432	$	454	$	674
FDIC insurance premiums	221		273		423		545
Directors fees	183		205		378		404
Audit and related fees	182		162		320		301
Education and travel	143		116		264		238
Postage and freight	90		94		198		193
Printing and supplies	87		99		189		185
Loan underwriting fees	92		123		187		239
Consulting fees	76		83		167		155
All other	735		668		1,430		1,213
Total other	$	2,020	$	2,255	$	4,010	$	4,147

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Accumulated Other Comprehensive Income (Loss) (Changes in AOCI by component) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Beginning Balance	$ (2,560)	$ 3,870	$ (6,341)	$ 5,007
OCI before reclassifications	4,448	(11,997)	9,968	(13,958)
Amounts reclassified from AOCI	0	0	0	(99)
Net unrealized gains (losses)	4,448	(11,997)	9,968	(14,057)
Tax effect	(1,420)	3,979	(3,159)	4,902
Unrealized gains (losses), net of tax	3,028	(8,018)	6,809	(9,155)
Ending Balance	468	(4,148)	468	(4,148)
Unrealized Holding Gains (Losses) on AFS Securities [Member]
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Beginning Balance	(426)	7,541	(4,207)	8,678
OCI before reclassifications	4,448	(11,997)	9,968	(13,958)
Amounts reclassified from AOCI	0	0	0	(99)
Net unrealized gains (losses)	4,448	(11,997)	9,968	(14,057)
Tax effect	(1,420)	3,979	(3,159)	4,902
Unrealized gains (losses), net of tax	3,028	(8,018)	6,809	(9,155)
Ending Balance	2,602	(477)	2,602	(477)
Defined Benefit Pension Plan [Member]
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Beginning Balance	(2,134)	(3,671)	(2,134)	(3,671)
OCI before reclassifications	0	0	0	0
Amounts reclassified from AOCI	0	0	0	0
Net unrealized gains (losses)	0	0	0	0
Tax effect	0	0	0	0
Unrealized gains (losses), net of tax	0	0	0	0
Ending Balance	$ (2,134)	$ (3,671)	$ (2,134)	$ (3,671)

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Accumulated Other Comprehensive Income (Loss) (Reclassification adjustments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Income before federal income tax expense	$ 4,257	$ 3,856	$ 8,126	$ 7,519
Federal income tax expense	692	643	1,252	1,219
NET INCOME	3,565	3,213	6,874	6,300
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Holding Gains (Losses) on AFS Securities [Member]
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Net gains (losses) on sale of AFS securities	0	0	0	99
Income before federal income tax expense	0	0	0	99
Federal income tax expense	0	0	0	34
NET INCOME	$ 0	$ 0	$ 0	$ 65

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Fair Value (Changes in fair value of assets and liabilities) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value, gain (loss), Trading securities			$ (5)	$ (18)
Changes in fair value, gain (loss), Total	(21)	(76)	(68)	(110)
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value, gain (loss), Trading securities	(1)	(8)	(5)	(18)
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value, gain (loss), Foreclosed assets	$ (20)	$ (68)	$ (63)	$ (92)

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Parent Company Only Financial Information (Tables)

6 Months Ended

Jun. 30, 2014

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Interim Condensed Balance Sheets

Interim Condensed Balance Sheets

	June 30 2014		December 31 2013
ASSETS
Cash on deposit at the Bank	$	961	$	529
AFS securities	3,522		3,542
Investments in subsidiaries	121,714		110,192
Premises and equipment	1,954		2,013
Other assets	54,274		54,223
TOTAL ASSETS	$	182,425	$	170,499
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities	$	11,326	$	9,890
Shareholders' equity	171,099		160,609
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	182,425	$	170,499

Interim Condensed Statements of Income

Interim Condensed Statements of Income

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Income
Dividends from subsidiaries	$	1,500	$	1,500	$	3,000	$	3,000
Interest income	39		41		78		84
Management fee and other	722		559		1,228		1,067
Total income	2,261		2,100		4,306		4,151
Expenses
Compensation and benefits	772		669		1,604		1,381
Occupancy and equipment	107		119		221		230
Audit and related fees	98		93		169		158
Other	298		297		566		501
Total expenses	1,275		1,178		2,560		2,270
Income before income tax benefit and equity in undistributed earnings of subsidiaries	986		922		1,746		1,881
Federal income tax benefit	178		199		432		388
Income before equity in undistributed earnings of subsidiaries	1,164		1,121		2,178		2,269
Undistributed earnings of subsidiaries	2,401		2,092		4,696		4,031
Net income	$	3,565	$	3,213	$	6,874	$	6,300

Interim Condensed Statements of Cash Flows

Interim Condensed Statements of Cash Flows

	Six Months Ended   June 30
	2014			2013
Operating activities
Net income	$	6,874		$	6,300
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(4,696		)	(4,031		)
Undistributed earnings of equity securities without readily determinable fair values	(10		)	125
Share-based payment awards	237			258
Depreciation	65			77
Net amortization of AFS securities	2			1
Changes in operating assets and liabilities which provided (used) cash
Other assets	(40		)	(26		)
Accrued interest and other liabilities	836			211
Net cash provided by (used in) operating activities	3,268			2,915
Investing activities
Maturities, calls, and sales of AFS securities	—			395
Purchases of premises and equipment	(6		)	(127		)
Advances to subsidiaries, net of repayments	—			101
Net cash provided by (used in) investing activities	(6		)	369
Financing activities
Net increase (decrease) in borrowed funds	600			(200		)
Cash dividends paid on common stock	(3,394		)	(3,224		)
Proceeds from the issuance of common stock	1,778			1,900
Common stock repurchased	(1,648		)	(1,114		)
Common stock purchased for deferred compensation obligations	(166		)	(166		)
Net cash provided by (used in) financing activities	(2,830		)	(2,804		)
Increase (decrease) in cash and cash equivalents	432			480
Cash and cash equivalents at beginning of period	529			332
Cash and cash equivalents at end of period	$	961		$	812

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Borrowed Funds (Maturity and weighted average interest rates of Repurchase Agreements) (Details) (Securities Sold under Agreements to Repurchase [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Securities Sold under Agreements to Repurchase [Member]
Long-term Debt, Fiscal Year Maturity [Abstract]
Repurchase agreements due 2014, Remainder of year, Amount	$ 767
Repurchase agreements due 2014, Amount		10,876
Repurchase agreements due 2015, Amount	432	425
Total, Amount	$ 1,199	$ 11,301
Long-term Debt, Maturities Summary, Average Interest Rate Of Amounts Due [Abstract]
Repurchase agreements due 2014, Rate	4.84%	3.30%
Repurchase agreements due 2015, Rate	3.25%	3.25%
Total, Rate	4.27%	3.30%

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Parent Company Only Financial Information

6 Months Ended

Jun. 30, 2014

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Parent Company Only Financial Information

Parent Company Only Financial Information

Interim Condensed Balance Sheets

	June 30 2014		December 31 2013
ASSETS
Cash on deposit at the Bank	$	961	$	529
AFS securities	3,522		3,542
Investments in subsidiaries	121,714		110,192
Premises and equipment	1,954		2,013
Other assets	54,274		54,223
TOTAL ASSETS	$	182,425	$	170,499
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities	$	11,326	$	9,890
Shareholders' equity	171,099		160,609
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	182,425	$	170,499

Interim Condensed Statements of Income

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Income
Dividends from subsidiaries	$	1,500	$	1,500	$	3,000	$	3,000
Interest income	39		41		78		84
Management fee and other	722		559		1,228		1,067
Total income	2,261		2,100		4,306		4,151
Expenses
Compensation and benefits	772		669		1,604		1,381
Occupancy and equipment	107		119		221		230
Audit and related fees	98		93		169		158
Other	298		297		566		501
Total expenses	1,275		1,178		2,560		2,270
Income before income tax benefit and equity in undistributed earnings of subsidiaries	986		922		1,746		1,881
Federal income tax benefit	178		199		432		388
Income before equity in undistributed earnings of subsidiaries	1,164		1,121		2,178		2,269
Undistributed earnings of subsidiaries	2,401		2,092		4,696		4,031
Net income	$	3,565	$	3,213	$	6,874	$	6,300

Interim Condensed Statements of Cash Flows

	Six Months Ended   June 30
	2014			2013
Operating activities
Net income	$	6,874		$	6,300
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(4,696		)	(4,031		)
Undistributed earnings of equity securities without readily determinable fair values	(10		)	125
Share-based payment awards	237			258
Depreciation	65			77
Net amortization of AFS securities	2			1
Changes in operating assets and liabilities which provided (used) cash
Other assets	(40		)	(26		)
Accrued interest and other liabilities	836			211
Net cash provided by (used in) operating activities	3,268			2,915
Investing activities
Maturities, calls, and sales of AFS securities	—			395
Purchases of premises and equipment	(6		)	(127		)
Advances to subsidiaries, net of repayments	—			101
Net cash provided by (used in) investing activities	(6		)	369
Financing activities
Net increase (decrease) in borrowed funds	600			(200		)
Cash dividends paid on common stock	(3,394		)	(3,224		)
Proceeds from the issuance of common stock	1,778			1,900
Common stock repurchased	(1,648		)	(1,114		)
Common stock purchased for deferred compensation obligations	(166		)	(166		)
Net cash provided by (used in) financing activities	(2,830		)	(2,804		)
Increase (decrease) in cash and cash equivalents	432			480
Cash and cash equivalents at beginning of period	529			332
Cash and cash equivalents at end of period	$	961		$	812

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Loans and ALLL (Tables)

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Summary of changes in the ALLL and the recorded investment in loans by segments

	Allowance for Loan Losses
	Three Months Ended June 30, 2013
	Commercial			Agricultural		Residential Real Estate			Consumer			Unallocated		Total
April 1, 2013	$	6,897		$	321	$	3,634		$	732		$	325	$	11,909
Loans charged-off	(234		)	—		(397		)	(88		)	—		(719		)
Recoveries	166			—		61			68			—		295
Provision for loan losses	(357		)	14		378			(65		)	245		215
June 30, 2013	$	6,472		$	335	$	3,676		$	647		$	570	$	11,700

	Allowance for Loan Losses
	Six Months Ended June 30, 2013
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2013	$	6,862		$	407		$	3,627		$	666		$	374	$	11,936
Loans charged-off	(445		)	—			(587		)	(209		)	—		(1,241		)
Recoveries	223			—			114			153			—		490
Provision for loan losses	(168		)	(72		)	522			37			196		515
June 30, 2013	$	6,472		$	335		$	3,676		$	647		$	570	$	11,700

A summary of changes in the ALLL and the recorded investment in loans by segments follows:

	Allowance for Loan Losses
	Three Months Ended June 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
April 1, 2014	$	4,814		$	425		$	4,727		$	630		$	504	$	11,100
Loans charged-off	(79		)	—			(264		)	(68		)	—		(411		)
Recoveries	92			—			86			33			—		211
Provision for loan losses	185			(206		)	(568		)	207			182		(200		)
June 30, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700

	Allowance for Loan Losses
	Six Months Ended June 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2014	$	6,048		$	434		$	3,845		$	639		$	534	$	11,500
Loans charged-off	(271		)	(31		)	(377		)	(182		)	—		(861		)
Recoveries	306			—			122			75			—		503
Provision for loan losses	(1,071		)	(184		)	391			270			152		(442		)
June 30, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700

Allowance for Loan Losses and Recorded Investment in Loans

	Allowance for Loan Losses and Recorded Investment in Loans
	June 30, 2014
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	1,633	$	36	$	2,270	$	1	$	—	$	3,940
Collectively evaluated for impairment	3,379		183		1,711		801		686		6,760
Total	$	5,012	$	219	$	3,981	$	802	$	686	$	10,700
Loans
Individually evaluated for impairment	$	13,164	$	1,583	$	12,906	$	74			$	27,727
Collectively evaluated for impairment	394,627		96,078		265,639		32,236				788,580
Total	$	407,791	$	97,661	$	278,545	$	32,310			$	816,307

	Allowance for Loan Losses and Recorded Investment in Loans
	December 31, 2013
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	2,035	$	30	$	2,287	$	—	$	—	$	4,352
Collectively evaluated for impairment	4,013		404		1,558		639		534		7,148
Total	$	6,048	$	434	$	3,845	$	639	$	534	$	11,500
Loans
Individually evaluated for impairment	$	13,816	$	1,538	$	14,302	$	119			$	29,775
Collectively evaluated for impairment	378,288		91,051		275,629		33,294				778,262
Total	$	392,104	$	92,589	$	289,931	$	33,413			$	808,037

Credit quality indicators for commercial and agricultural credit exposures

The following table displays the credit quality indicators for commercial and agricultural credit exposures based on internally assigned credit ratings as of:

	June 30, 2014
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	15,038	$	16,364	$	31,402	$	5,619	$	3,817	$	9,436
3 - High satisfactory	92,014		48,135		140,149		25,840		12,843		38,683
4 - Low satisfactory	166,155		42,561		208,716		29,461		15,804		45,265
5 - Special mention	9,816		1,153		10,969		1,810		318		2,128
6 - Substandard	13,557		145		13,702		1,848		186		2,034
7 - Vulnerable	2,605		234		2,839		115		—		115
8 - Doubtful	—		14		14		—		—		—
Total	$	299,185	$	108,606	$	407,791	$	64,693	$	32,968	$	97,661

	December 31, 2013
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	18,671	$	14,461	$	33,132	$	3,527	$	3,235	$	6,762
3 - High satisfactory	91,323		39,403		130,726		26,015		17,000		43,015
4 - Low satisfactory	149,921		43,809		193,730		26,874		10,902		37,776
5 - Special mention	13,747		1,843		15,590		1,609		922		2,531
6 - Substandard	16,974		473		17,447		1,232		1,273		2,505
7 - Vulnerable	1,041		238		1,279		—		—		—
8 - Doubtful	183		17		200		—		—		—
Total	$	291,860	$	100,244	$	392,104	$	59,257	$	33,332	$	92,589

Summary of past due and current loans

The following tables summarize the past due and current loans as of:

	June 30, 2014
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	857	$	332	$	—	$	2,605	$	3,794	$	295,391	$	299,185
Commercial other	257		13		28		234		532		108,074		108,606
Total commercial	1,114		345		28		2,839		4,326		403,465		407,791
Agricultural
Agricultural real estate	208		—		—		115		323		64,370		64,693
Agricultural other	312		84		—		—		396		32,572		32,968
Total agricultural	520		84		—		115		719		96,942		97,661
Residential real estate
Senior liens	1,558		766		91		1,239		3,654		222,355		226,009
Junior liens	311		18		—		23		352		11,984		12,336
Home equity lines of credit	246		—		—		361		607		39,593		40,200
Total residential real estate	2,115		784		91		1,623		4,613		273,932		278,545
Consumer
Secured	46		—		—		10		56		27,827		27,883
Unsecured	38		4		—		—		42		4,385		4,427
Total consumer	84		4		—		10		98		32,212		32,310
Total	$	3,833	$	1,217	$	119	$	4,587	$	9,756	$	806,551	$	816,307

	December 31, 2013
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	1,226	$	296	$	—	$	1,136	$	2,658	$	289,202	$	291,860
Commercial other	368		15		13		238		634		99,610		100,244
Total commercial	1,594		311		13		1,374		3,292		388,812		392,104
Agricultural
Agricultural real estate	34		295		—		—		329		58,928		59,257
Agricultural other	—		—		—		—		—		33,332		33,332
Total agricultural	34		295		—		—		329		92,260		92,589
Residential real estate
Senior liens	3,441		986		129		1,765		6,321		229,865		236,186
Junior liens	408		44		—		29		481		13,074		13,555
Home equity lines of credit	181		—		—		25		206		39,984		40,190
Total residential real estate	4,030		1,030		129		1,819		7,008		282,923		289,931
Consumer
Secured	167		11		—		50		228		28,444		28,672
Unsecured	25		5		—		1		31		4,710		4,741
Total consumer	192		16		—		51		259		33,154		33,413
Total	$	5,850	$	1,652	$	142	$	3,244	$	10,888	$	797,149	$	808,037

Information pertaining to impaired loans

The following is a summary of information pertaining to impaired loans as of:

	June 30, 2014						December 31, 2013
	Outstanding Balance		Unpaid Principal Balance		Valuation Allowance		Outstanding Balance		Unpaid Principal Balance		Valuation Allowance
Impaired loans with a valuation allowance
Commercial real estate	$	6,512	$	6,720	$	1,621	$	6,748	$	6,888	$	1,915
Commercial other	629		848		12		521		521		120
Agricultural real estate	204		204		36		90		90		30
Residential real estate senior liens	12,454		13,727		2,242		14,061		15,315		2,278
Residential real estate junior liens	92		102		19		48		64		9
Home equity lines of credit	360		660		9		—		—		—
Consumer secured	64		64		1		—		—		—
Total impaired loans with a valuation allowance	20,315		22,325		3,940		21,468		22,878		4,352
Impaired loans without a valuation allowance
Commercial real estate	5,708		6,326				5,622		6,499
Commercial other	315		356				925		1,035
Agricultural real estate	1,361		1,361				1,370		1,370
Agricultural other	18		138				78		198
Home equity lines of credit	—		—				193		493
Consumer secured	10		10				119		148
Total impaired loans without a valuation allowance	7,412		8,191				8,307		9,743
Impaired loans
Commercial	13,164		14,250		1,633		13,816		14,943		2,035
Agricultural	1,583		1,703		36		1,538		1,658		30
Residential real estate	12,906		14,489		2,270		14,302		15,872		2,287
Consumer	74		74		1		119		148		—
Total impaired loans	$	27,727	$	30,516	$	3,940	$	29,775	$	32,621	$	4,352

The following is a summary of information pertaining to impaired loans for the three and six month periods ended:

	Three Months Ended   June 30, 2014					Six Months Ended   June 30, 2014
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	6,644	$	91		$	6,701	$	185
Commercial other	852		11			825		29
Agricultural real estate	147		(1		)	118		—
Agricultural other	—		—			—		—
Residential real estate senior liens	12,786		126			13,188		264
Residential real estate junior liens	68		1			57		1
Home equity lines of credit	265		10			175		11
Consumer secured	63		1			77		2
Total impaired loans with a valuation allowance	20,825		239			21,141		492
Impaired loans without a valuation allowance
Commercial real estate	5,819		91			5,797		193
Commercial other	286		1			438		7
Agricultural real estate	1,405		21			1,407		37
Agricultural other	131		—			146		28
Home equity lines of credit	—		—			48		—
Consumer secured	5		—			3		—
Total impaired loans without a valuation allowance	7,646		113			7,839		265
Impaired loans
Commercial	13,601		194			13,761		414
Agricultural	1,683		20			1,671		65
Residential real estate	13,119		137			13,468		276
Consumer	68		1			80		2
Total impaired loans	$	28,471	$	352		$	28,980	$	757

	Three Months Ended   June 30, 2013					Six Months Ended   June 30, 2013
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	7,990	$	102		$	8,084	$	221
Commercial other	764		37			932		38
Agricultural real estate	91		1			124		4
Agricultural other	—		—			105		—
Residential real estate senior liens	10,466		110			10,460		209
Residential real estate junior liens	85		1			85		1
Home equity lines of credit	—		—			—		—
Consumer secured	—		—			—		—
Total impaired loans with a valuation allowance	19,396		251			19,790		473
Impaired loans without a valuation allowance
Commercial real estate	3,954		85			3,790		158
Commercial other	1,020		19			1,126		59
Agricultural real estate	133		2			67		2
Agricultural other	458		(11		)	423		(4		)
Home equity lines of credit	179		5			181		9
Consumer secured	63		1			68		2
Total impaired loans without a valuation allowance	5,807		101			5,655		226
Impaired loans
Commercial	13,728		243			13,932		476
Agricultural	682		(8		)	719		2
Residential real estate	10,730		116			10,726		219
Consumer	63		1			68		2
Total impaired loans	$	25,203	$	352		$	25,445	$	699

Information pertaining to TDR's

The following is a summary of TDR loan balances as of:

	June 30, 2014		December 31, 2013
TDRs	$	24,192	$	25,865

The following is a summary of information pertaining to TDRs granted in the:

	Three Months Ended June 30, 2014					Six Months Ended June 30, 2014
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	1	$	8	$	8	5	$	363	$	363
Agricultural other	—	—		—		—	—		—
Residential real estate
Senior liens	3	170		170		12	661		661
Junior liens	1	41		41		1	41		41
Home equity lines of credit	1	160		160		1	160		160
Total residential real estate	5	371		371		14	862		862
Consumer unsecured	2	8		8		3	8		8
Total	8	$	387	$	387	22	$	1,233	$	1,233

	Three Months Ended June 30, 2013					Six Months Ended June 30, 2013
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	7	$	3,153	$	2,957	7	$	3,153	$	2,957
Agricultural other	—	—		—		1	134		134
Residential real estate
Senior liens	7	635		635		15	1,435		1,418
Junior liens	—	—		—		—	—		—
Home equity lines of credit	—	—		—		—	—		—
Total residential real estate	7	635		635		15	1,435		1,418
Consumer unsecured	—	—		—		—	—		—
Total	14	$	3,788	$	3,592	23	$	4,722	$	4,509

The following tables summarize concessions we granted to borrowers in financial difficulty for the:

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
	Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period			Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period
	Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment
Commercial other	—	$	—	1	$	8	4	$	355	1	$	8
Agricultural other	—	—		—	—		—	—		—	—
Residential real estate
Senior liens	1	48		2	122		3	98		9	563
Junior liens	—	—		1	41		—	—		1	41
Home equity lines of credit	1	160		—	—		1	160		—	—
Total residential real estate	2	208		3	163		4	258		10	604
Consumer unsecured	1	5		1	3		2	5		1	3
Total	3	$	213	5	$	174	10	$	618	12	$	615

	Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
	Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period			Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period
	Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment
Commercial other	3	$	1,357	4	$	1,796	3	$	1,357	4	$	1,796
Agricultural other	—	—		—	—		1	134		—	—
Residential real estate
Senior liens	4	414		3	221		7	625		8	810
Junior liens	—	—		—	—		—	—		—	—
Home equity lines of credit	—	—		—	—		—	—		—	—
Total residential real estate	4	414		3	221		7	625		8	810
Consumer unsecured	—	—		—	—		—	—		—	—
Total	7	$	1,771	7	$	2,017	11	$	2,116	12	$	2,606

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Borrowed Funds (Borrowed funds obligations) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Schedule of Debt [Line Items]
Borrowed funds	$ 279,457	$ 279,326
Borrowed funds, Rate	1.27%	1.35%
Securities Sold under Agreements to Repurchase [Member]
Schedule of Debt [Line Items]
Borrowed funds	87,058	106,025
Borrowed funds, Rate	0.13%	0.13%
Federal Funds Purchased [Member]
Schedule of Debt [Line Items]
Borrowed funds	9,200	0
Borrowed funds, Rate	0.39%	0.00%
Federal Home Loan Bank Advances [Member]
Schedule of Debt [Line Items]
Borrowed funds	182,000	162,000
Borrowed funds, Rate	1.84%	2.02%
Securities Sold under Agreements to Repurchase [Member]
Schedule of Debt [Line Items]
Borrowed funds	$ 1,199	$ 11,301
Borrowed funds, Rate	4.27%	3.30%

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Loans and ALLL (Summary of recorded investment in loans by segments) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	$ 3,940		$ 4,352
Collectively evaluated for impairment, ALLL	6,760		7,148
Total, ALLL	10,700	11,100	11,500	11,700	11,909	11,936
Individually evaluated for impairment, Loans	27,727		29,775
Collectively evaluated for impairment, Loans	788,580		778,262
Total	816,307		808,037
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	1,633		2,035
Collectively evaluated for impairment, ALLL	3,379		4,013
Total, ALLL	5,012	4,814	6,048	6,472	6,897	6,862
Individually evaluated for impairment, Loans	13,164		13,816
Collectively evaluated for impairment, Loans	394,627		378,288
Total	407,791		392,104
Agricultural [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	36		30
Collectively evaluated for impairment, ALLL	183		404
Total, ALLL	219	425	434	335	321	407
Individually evaluated for impairment, Loans	1,583		1,538
Collectively evaluated for impairment, Loans	96,078		91,051
Total	97,661		92,589
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	2,270		2,287
Collectively evaluated for impairment, ALLL	1,711		1,558
Total, ALLL	3,981	4,727	3,845	3,676	3,634	3,627
Individually evaluated for impairment, Loans	12,906		14,302
Collectively evaluated for impairment, Loans	265,639		275,629
Total	278,545		289,931
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	1		0
Collectively evaluated for impairment, ALLL	801		639
Total, ALLL	802	630	639	647	732	666
Individually evaluated for impairment, Loans	74		119
Collectively evaluated for impairment, Loans	32,236		33,294
Total	32,310		33,413
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	0		0
Collectively evaluated for impairment, ALLL	686		534
Total, ALLL	$ 686	$ 504	$ 534	$ 570	$ 325	$ 374

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Interim Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 3,565		$ 3,213		$ 6,874		$ 6,300
Unrealized gains (losses) on AFS securities
Unrealized gains (losses) arising during the period	4,448		(11,997)		9,968		(13,958)
Reclassification adjustment for net realized (gains) losses included in net income	0		0		0		(99)
Net unrealized gains (losses)	4,448		(11,997)		9,968		(14,057)
Tax effect	(1,420)	[1]	3,979	[1]	(3,159)	[1]	4,902	[1]
Other comprehensive income (loss), net of tax	3,028		(8,018)		6,809		(9,155)
Comprehensive income (loss)	$ 6,593		$ (4,805)		$ 13,683		$ (2,855)

[1] See “Note 12 – Accumulated Other Comprehensive Income (Loss)” for tax effect reconciliation.

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Computation of Earnings Per Common Share

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Computation of Earnings Per Common Share

Computation of Earnings Per Common Share

Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan.

Earnings per common share have been computed based on the following:

	Three Months Ended   June 30				Six Months Ended   June 30
	2014		2013		2014		2013
Average number of common shares outstanding for basic calculation	7,722,367		7,701,042		7,721,814		7,689,092
Average potential effect of common shares in the Directors Plan (1)	168,715		168,323		170,984		166,800
Average number of common shares outstanding used to calculate diluted earnings per common share	7,891,082		7,869,365		7,892,798		7,855,892
Net income	$	3,565	$	3,213	$	6,874	$	6,300
Earnings per common share
Basic	$	0.46	$	0.42	$	0.89	$	0.82
Diluted	$	0.45	$	0.41	$	0.87	$	0.80

⁽¹⁾  Exclusive of shares held in the Rabbi Trust

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Fair Value (Narrative) (Details Textual) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Maturity dates of Interest bearing balances	3 years
Federal Funds Purchased, Securities Sold Under Agreements To Repurchase, And Other Borrowings [Member] | Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt instrument, term	90 days
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impairments recorded on equity securities without readily determinable fair values	$ 0	$ 0
Impairments recorded on goodwill and other acquisition intangibles	$ 0	$ 0

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Parent Company Only Financial Information (Interim Condensed Statements of Cash Flows) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Operating activities
Net income	$ 6,874	$ 6,300
Adjustments to reconcile net income to cash provided by operations
Share-based payment awards	237	258
Depreciation	1,242	1,249
Net amortization of AFS securities	920	1,131
Changes in operating assets and liabilities which used cash
Other assets	(250)	914
Accrued interest and other liabilities	1,215	761
Net cash provided by (used in) operating activities	11,002	14,594
Investing activities
Purchases of equipment and premises	(1,224)	(1,314)
Net cash provided by (used in) investing activities	(39,043)	(40,760)
Financing activities
Net increase (decrease) in other borrowed funds	131	21,459
Cash dividends paid on common stock	(3,394)	(3,224)
Proceeds from the issuance of common stock	1,778	1,900
Common stock repurchased	(1,648)	(1,114)
Common stock purchased for deferred compensation obligations	(166)	(166)
Net cash provided by (used in) financing activities	13,863	22,612
Increase (decrease) in cash and cash equivalents	(14,178)	(3,554)
Cash and cash equivalents at beginning of period	41,558	24,920
Cash and cash equivalents at end of period	27,380	21,366
Parent Company [Member]
Operating activities
Net income	6,874	6,300
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(4,696)	(4,031)
Undistributed earnings of equity securities without readily determinable fair values	(10)	125
Share-based payment awards	237	258
Depreciation	65	77
Net amortization of AFS securities	2	1
Changes in operating assets and liabilities which used cash
Other assets	(40)	(26)
Accrued interest and other liabilities	836	211
Net cash provided by (used in) operating activities	3,268	2,915
Investing activities
Maturities, calls, and sales of AFS securities	0	395
Purchases of equipment and premises	(6)	(127)
Advances to subsidiaries, net of repayments	0	101
Net cash provided by (used in) investing activities	(6)	369
Financing activities
Net increase (decrease) in other borrowed funds	600	(200)
Cash dividends paid on common stock	(3,394)	(3,224)
Proceeds from the issuance of common stock	1,778	1,900
Common stock repurchased	(1,648)	(1,114)
Common stock purchased for deferred compensation obligations	(166)	(166)
Net cash provided by (used in) financing activities	(2,830)	(2,804)
Increase (decrease) in cash and cash equivalents	432	480
Cash and cash equivalents at beginning of period	529	332
Cash and cash equivalents at end of period	$ 961	$ 812

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Equity Securities Without Readily Determinable Fair Values (Tables)

6 Months Ended

Jun. 30, 2014

Equity Method And Other Investments [Abstract]

Schedule of equity method and other investments

Equity securities without readily determinable fair values consist of the following as of:

	June 30 2014		December 31 2013
FHLB Stock	$	9,100	$	8,100
Corporate Settlement Solutions, LLC	6,983		6,970
FRB Stock	1,879		1,879
Valley Financial Corporation	1,000		1,000
Other	341		344
Total	$	19,303	$	18,293

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AFS Securities (Activity related to sales of AFS securities) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Investments, Debt and Equity Securities [Abstract]
Proceeds from sales of AFS of securities	$ 0	$ 0	$ 0	$ 9,857
Gross realized gains (losses)	0	0	0	99
Applicable income tax expense	$ 0	$ 0	$ 0	$ 34

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Accumulated Other Comprehensive Income (Loss)

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in AOCI by component for the:

	Three Months Ended June 30
	2014									2013
	Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total			Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total
Balance, April 1	$	(426	)	$	(2,134	)	$	(2,560	)	$	7,541		$	(3,671	)	$	3,870
OCI before reclassifications	4,448			—			4,448			(11,997		)	—			(11,997		)
Amounts reclassified from AOCI	—			—			—			—			—			—
Subtotal	4,448			—			4,448			(11,997		)	—			(11,997		)
Tax effect	(1,420		)	—			(1,420		)	3,979			—			3,979
OCI, net of tax	3,028			—			3,028			(8,018		)	—			(8,018		)
Balance, June 30	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)

	Six Months Ended June 30
	2014									2013
	Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total			Unrealized Holding Gains (Losses) on AFS Securities			Defined Benefit Pension Plan			Total
Balance, January 1	$	(4,207	)	$	(2,134	)	$	(6,341	)	$	8,678		$	(3,671	)	$	5,007
OCI before reclassifications	9,968			—			9,968			(13,958		)	—			(13,958		)
Amounts reclassified from AOCI	—			—			—			(99		)	—			(99		)
Subtotal	9,968			—			9,968			(14,057		)	—			(14,057		)
Tax effect	(3,159		)	—			(3,159		)	4,902			—			4,902
OCI, net of tax	6,809			—			6,809			(9,155		)	—			(9,155		)
Balance, June 30	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)

Included in OCI for the three and six month periods ended June 30, 2014 and 2013 are changes in unrealized holding gains and losses related to auction rate money market preferred and preferred stocks. For federal income tax purposes, these securities are considered equity investments. As such, no deferred federal income taxes related to unrealized holding gains or losses are expected or recorded.

A summary of the components of unrealized holding gains on AFS securities included in OCI follows for the:

	Three Months Ended June 30
	2014								2013
	Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total			Auction Rate Money Market Preferred and Preferred Stocks			All Other AFS Securities			Total
Unrealized gains (losses) arising during the period	$	298	$	4,150		$	4,448		$	(363	)	$	(11,634	)	$	(11,997	)
Reclassification adjustment for net realized (gains) losses included in net income	—		—			—			—			—			—
Net unrealized gains (losses)	298		4,150			4,448			(363		)	(11,634		)	(11,997		)
Tax effect	—		(1,420		)	(1,420		)	—			3,979			3,979
Unrealized gains (losses), net of tax	$	298	$	2,730		$	3,028		$	(363	)	$	(7,655	)	$	(8,018	)

	Six Months Ended June 30
	2014								2013
	Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total			Auction Rate Money Market Preferred and Preferred Stocks		All Other AFS Securities			Total
Unrealized gains (losses) arising during the period	$	298	$	9,670		$	9,968		$	295	$	(14,253	)	$	(13,958	)
Reclassification adjustment for net realized (gains) losses included in net income	—		—			—			—		(99		)	(99		)
Net unrealized gains (losses)	298		9,670			9,968			295		(14,352		)	(14,057		)
Tax effect	—		(3,159		)	(3,159		)	—		4,902			4,902
Unrealized gains (losses), net of tax	$	298	$	6,511		$	6,809		$	295	$	(9,450	)	$	(9,155	)

The following table details reclassification adjustments and the related affected line items on our interim condensed consolidated statements of income for the noted periods:

Details about AOCI components	Amount Reclassified from AOCI								Affected Line Item in the Interim Condensed Consolidated Statements of Income
	Three Months Ended June 30				Six Months Ended June 30
	2014		2013		2014		2013
Unrealized holding gains (losses) on AFS securities
	$	—	$	—	$	—	$	99	Net gains (losses) on sale of AFS securities
	—		—		—		99		Income before federal income tax expense
	—		—		—		34		Federal income tax expense
	$	—	$	—	$	—	$	65	Net income