FAIR VALUE (Tables)

12 Months Ended

Dec. 31, 2016

Carrying amounts and fair values of financial instruments

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

	Level in	December 31, 2016				December 31, 2015
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial Assets:
Cash and due from banks	Level 1	$	124,854	$	124,854	$	98,086	$	98,086
Federal Reserve and Federal Home Loan Bank stock and other investments	Level 2		4,524		4,524		10,756		10,756
Investment securities held to maturity	Level 2		18,780		19,259		61,309		63,272
Investment securities available for sale	Level 2		179,242		179,242		247,099		247,099
Loans held for sale	Level 2		-		-		1,666		1,666
Loans, net of allowance	Level 2, 3 (1)		1,656,447		1,623,380		1,645,762		1,628,169
Accrued interest and loan fees receivable	Level 2		5,742		5,742		5,859		5,859

Financial Liabilities:
Non-maturity deposits	Level 2		1,641,479		1,641,479		1,555,980		1,555,980
Time deposits	Level 2		196,703		196,080		224,643		224,408
Borrowings	Level 2		15,000		14,898		165,000		164,827
Accrued interest payable	Level 2		128		128		198		198
Derivatives	Level 3		752		752		752		752

(1)

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

Assets measured at fair value on a non-recurring basis

Assets measured at fair value on a non-recurring basis are as follows (in thousands):

Assets:	December 31, 2016		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	2,521	$	2,521
OREO		650		650
Total	$	3,171	$	3,171

Assets:	December 31, 2015		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	2,715	$	2,715
Total	$	2,715	$	2,715

Fair Value Inputs, Liabilities, Quantitative Information

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

	Fair Value at
Assets:	December 31, 2016		December 31, 2015		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:

Residential mortgages	$	2,225	$	2,311	Third party appraisal	Discount to appraised value		25	%	(1	)

Home equity		231		280	Third party appraisal	Discount to appraised value		25	%	(1	)

Consumer		65		124	Third party appraisal	Discount to appraised value		25	%	(2	)
Total	$	2,521	$	2,715

OREO	$	650	$	-	Third party appraisal	Estimated holding/selling costs		11	%

(1)	Of which estimated selling costs are approximately 9% - 15% of the total discount.

(2)	Of which estimated selling costs are approximately 10% - 12% of the total discount.

Valuation of financial instruments measured at fair value on recurring basis

The following presents fair value measurements on a recurring basis at December 31, 2016 and 2015 (in thousands):

			Fair Value Measurements Using
			Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	December 31, 2016		(Level 2)		(Level 3)
Obligations of states and political subdivisions	$	65,294	$	65,294	$	-
Collateralized mortgage obligations		17,452		17,452		-
Mortgage-backed securities		87,961		87,961		-
Corporate bonds		8,535		8,535		-
Total	$	179,242	$	179,242	$	-

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

			Fair Value Measurements Using
			Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	December 31, 2015		(Level 2)		(Level 3)
U.S. Government agency securities	$	28,516	$	28,516	$	-
Obligations of states and political subdivisions		104,682		104,682		-
Collateralized mortgage obligations		15,549		15,549		-
Mortgage-backed securities		92,442		92,442		-
Corporate bonds		5,910		5,910		-
Total	$	247,099	$	247,099	$	-

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

Changes in Level 3 assets and liabilities measured at fair value on a recurring basis

Reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follow (in thousands).

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Liabilities Derivatives
Balance at January 1, 2014	$	932
Net change		(180	)
Balance at December 31, 2014		752
Net change		-
Balance at December 31, 2015		752
Net change		-
Balance at December 31, 2016	$	752