FAIR VALUE MEASUREMENTS

The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at December 31, 2014 and 2013. There were no transfers between Level 1 and Level 2 for items measured at fair value on a recurring basis during the periods presented.



	December 31, 2014
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Securities available-for-sale:
U.S. Treasury securities	$	—	$	14,880	$	—	$	14,880
Obligations of U.S. government corporations and agencies	—		269,285		—		269,285
Collateralized mortgage obligations of U.S. government corporations and agencies	—		118,006		—		118,006
Residential mortgage-backed securities of U.S. government corporations and agencies	—		46,668		—		46,668
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		39,673		—		39,673
Obligations of states and political subdivisions	—		142,702		—		142,702
Marketable equity securities	178		8,881		—		9,059
Total securities available-for-sale	178		640,095		—		640,273
Trading securities held in a Rabbi Trust	3,456		—		—		3,456
Total securities	3,634		640,095		—		643,729
Derivative financial assets:
Interest rate swaps	—		12,981		—		12,981
Interest rate lock commitments	—		235		—		235
Total Assets	$	3,634	$	653,311	$	—	$	656,945
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	12,953	$	—	$	12,953
Forward sale contracts	—		57		—		57
Total Liabilities	$	—	$	13,010	$	—	$	13,010



	December 31, 2013
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Securities available-for-sale:
Obligations of U.S. government corporations and agencies	$	—	$	234,751	$	—	$	234,751
Collateralized mortgage obligations of U.S. government corporations and agencies	—		63,774		—		63,774
Residential mortgage-backed securities of U.S. government corporations and agencies	—		48,669		—		48,669
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		39,052		—		39,052
Obligations of states and political subdivisions	—		114,264		—		114,264
Marketable equity securities	202		8,713		—		8,915
Total securities available-for-sale	202		509,223		—		509,425
Trading securities held in a Rabbi Trust	2,864		—		—		2,864
Total securities	3,066		509,223		—		512,289
Derivative financial assets:
Interest rate swaps	—		13,698		—		13,698
Interest rate lock commitments	—		85		—		85
Forward sales contracts	—		34		—		34
Total Assets	$	3,066	$	523,040	$	—	$	526,106
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	—		13,647		—		13,647
Total Liabilities	$	—	$	13,647	$	—	$	13,647

We classify financial instruments as Level 3 when valuation models are used because significant inputs are not observable in the market. The following table presents the changes in assets measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine the fair value:



	Years ended December 31,
(dollars in thousands)	2014		2013
Balance at beginning of year	$	—	$	300
Total gains included in other comprehensive income (loss)⁽¹⁾	—		44
Net purchases, sales, issuances and settlements	—		—
Transfers out of Level 3	—		(344		)
Balance at End of Year	$	—	$	—


(1)	Changes in estimated fair value of available-for-sale investments are recorded in accumulated other comprehensive income (loss) while gains and losses from sales are recorded in security gains (losses), net in the Consolidated Statements of Net Income.

In the second quarter of 2013, $0.3 million was transferred out of Level 3 into Level 2 as a result of a security becoming listed on a national securities exchange. There were no Level 3 liabilities measured at fair value on a recurring basis for any of the periods presented.

We may be required to measure certain assets and liabilities on a nonrecurring basis. Nonrecurring assets are recorded at the lower of cost or fair value in our financial statements. There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2014 and 2013. The following table presents our assets that are measured at fair value on a nonrecurring basis by the fair value hierarchy level as of the dates presented:



	December 31, 2014								December 31, 2013
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS⁽¹⁾
Loans held for sale	$	—	$	—	$	—	$	—	$	—	$	—	$	1,516	$	1,516
Impaired loans	—		—		12,916		12,916		—		—		19,197		19,197
Other real estate owned	—		—		117		117		—		—		317		317
Mortgage servicing rights	—		—		2,934		2,934		—		—		1,025		1,025
Total Assets	$	—	$	—	$	15,967	$	15,967	$	—	$	—	$	22,055	$	22,055


(1)	This table presents only the nonrecurring items that are recorded at fair value in our financial statements.

The carrying values and fair values of our financial instruments at December 31, 2014 and 2013 are presented in the following tables:



			Fair Value Measurements at December 31, 2014
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	109,580	$	109,580	$	109,580	$	—	$	—
Securities available-for-sale	640,273		640,273		178		640,095		—
Loans held for sale	2,970		2,991		—		—		2,991
Portfolio loans, net of unearned income	3,868,746		3,827,634		—		—		3,827,634
Bank owned life insurance	62,252		62,252		—		62,252		—
FHLB and other restricted stock	15,135		15,135		—		—		15,135
Trading securities held in a Rabbi Trust	3,456		3,456		3,456		—		—
Mortgage servicing rights	2,817		2,934		—		—		2,934
Interest rate swaps	12,981		12,981		—		12,981		—
Interest rate lock commitments	235		235		—		235		—
LIABILITIES
Deposits	$	3,908,842	$	3,910,342	$	—	$	—	$	3,910,342
Securities sold under repurchase agreements	30,605		30,605		—		—		30,605
Short-term borrowings	290,000		290,000		—		—		290,000
Long-term borrowings	19,442		20,462		—		—		20,462
Junior subordinated debt securities	45,619		45,619		—		—		45,619
Interest rate swaps	12,953		12,953		—		12,953		—
Forward sale contracts	57		57				57


(1)	As reported in the Consolidated Balance Sheets



			Fair Value Measurements at December 31, 2013
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	108,356	$	108,356	$	108,356	$	—	$	—
Securities available-for-sale	509,425		509,425		202		509,223		—
Loans held for sale	2,136		2,139		—		—		2,139
Portfolio loans, net of unearned income	3,566,199		3,538,072		—		—		3,538,072
Bank owned life insurance	60,480		60,480		—		60,480		—
FHLB and other restricted stock	13,629		13,629		—		—		13,629
Trading securities held in a Rabbi Trust	2,864		2,864		2,864		—		—
Mortgage servicing rights	2,919		3,143		—		—		3,143
Interest rate swaps	13,698		13,698		—		13,698		—
Interest rate lock commitments	85		85		—		85		—
Forward sale contracts	34		34		—		34		—
LIABILITIES
Deposits	$	3,672,308	$	3,673,624	$	—	$	—	$	3,673,624
Securities sold under repurchase agreements	33,847		33,847		—		—		33,847
Short-term borrowings	140,000		140,000		—		—		140,000
Long-term borrowings	21,810		22,924		—		—		22,924
Junior subordinated debt securities	45,619		45,619		—		—		45,619
Interest rate swaps	13,647		13,647		—		13,647		—


(1)	As reported in the Consolidated Balance Sheets