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 September 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 7,762,481 as of November 4, 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	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 4.	Controls and Procedures	60
PART II – OTHER INFORMATION		61
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 6.	Exhibits	62
SIGNATURES		63

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	OTTI: Other-than-temporary impairment
FASB: Financial Accounting Standards Board	PBO: Projected benefit obligation
FDI Act: Federal Deposit Insurance Act	PCAOB: Public Company Accounting Oversight Board
FDIC: Federal Deposit Insurance Corporation	Rabbi Trust: A trust established to fund the Directors Plan
FFIEC: Federal Financial Institutions Examinations Council	SEC: U.S. Securities & Exchange Commission
FRB: Federal Reserve Bank	SOX: Sarbanes-Oxley Act of 2002
FHLB: Federal Home Loan Bank	TDR: Troubled debt restructuring
Freddie Mac: Federal Home Loan Mortgage Corporation	XBRL: eXtensible Business Reporting Language
FTE: Fully taxable equivalent

3

PART I – FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	September 30 2014			December 31 2013
ASSETS
Cash and cash equivalents
Cash and demand deposits due from banks	$	22,431		$	21,755
Interest bearing balances due from banks	3,100			19,803
Total cash and cash equivalents	25,531			41,558
Certificates of deposit held in other financial institutions	580			580
Trading securities	—			525
AFS securities (amortized cost of $572,087 in 2014 and $517,614 in 2013)	575,080			512,062
Mortgage loans AFS	421			1,104
Loans
Commercial	416,824			392,104
Agricultural	101,795			92,589
Residential real estate	271,033			289,931
Consumer	32,647			33,413
Gross loans	822,299			808,037
Less allowance for loan and lease losses	10,400			11,500
Net loans	811,899			796,537
Premises and equipment	25,843			25,719
Corporate owned life insurance policies	24,957			24,401
Accrued interest receivable	6,906			5,442
Equity securities without readily determinable fair values	19,063			18,293
Goodwill and other intangible assets	46,168			46,311
Other assets	17,526			20,605
TOTAL ASSETS	$	1,553,974		$	1,493,137
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	175,634		$	158,428
NOW accounts	192,211			192,089
Certificates of deposit under $100 and other savings	468,909			455,547
Certificates of deposit over $100	245,136			237,702
Total deposits	1,081,890			1,043,766
Borrowed funds	290,438			279,326
Accrued interest payable and other liabilities	9,570			9,436
Total liabilities	1,381,898			1,332,528
Shareholders’ equity
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,741,530 shares (including 10,579 shares held in the Rabbi Trust) in 2014 and 7,723,023 shares (including 12,761 shares held in the Rabbi Trust) in 2013	138,023			137,580
Shares to be issued for deferred compensation obligations	4,129			4,148
Retained earnings	30,410			25,222
Accumulated other comprehensive income (loss)	(486		)	(6,341		)
Total shareholders’ equity	172,076			160,609
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,553,974		$	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   September 30					Nine Months Ended   September 30
	2014			2013		2014			2013
Interest income
Loans, including fees	$	9,863		$	10,330	$	29,413		$	30,940
AFS securities
Taxable	2,016			1,787		6,007			5,419
Nontaxable	1,485			1,275		4,428			3,753
Trading securities	—			7		6			30
Federal funds sold and other	119			106		384			331
Total interest income	13,483			13,505		40,238			40,473
Interest expense
Deposits	1,562			1,742		4,767			5,438
Borrowings	936			994		2,699			2,900
Total interest expense	2,498			2,736		7,466			8,338
Net interest income	10,985			10,769		32,772			32,135
Provision for loan losses	(162		)	351		(604		)	866
Net interest income after provision for loan losses	11,147			10,418		33,376			31,269
Noninterest income
Service charges and fees	1,366			1,700		4,120			4,426
Net gain on sale of mortgage loans	170			215		436			822
Earnings on corporate owned life insurance policies	182			185		556			544
Net gains (losses) on sale of AFS securities	97			72		97			171
Other	401			690		1,690			2,082
Total noninterest income	2,216			2,862		6,899			8,045
Noninterest expenses
Compensation and benefits	5,174			5,340		16,045			16,021
Furniture and equipment	1,348			1,303		3,835			3,684
Occupancy	697			676		2,115			1,982
Other	2,295			2,001		6,305			6,148
Total noninterest expenses	9,514			9,320		28,300			27,835
Income before federal income tax expense	3,849			3,960		11,975			11,479
Federal income tax expense	444			674		1,696			1,893
NET INCOME	$	3,405		$	3,286	$	10,279		$	9,586
Earnings per common share
Basic	$	0.44		$	0.43	$	1.33		$	1.25
Diluted	$	0.43		$	0.42	$	1.30		$	1.22
Cash dividends per common share	$	0.22		$	0.21	$	0.66		$	0.63

See notes to interim condensed consolidated financial statements.

5

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

	Three Months Ended   September 30						Nine Months Ended   September 30
	2014			2013			2014			2013
Net income	$	3,405		$	3,286		$	10,279		$	9,586
Unrealized gains (losses) on AFS securities
Unrealized gains (losses) arising during the period	(1,326		)	665			8,642			(13,293		)
Reclassification adjustment for net realized (gains) losses included in net income	(97		)	(72		)	(97		)	(171		)
Net unrealized gains (losses)	(1,423		)	593			8,545			(13,464		)
Tax effect (1)	469			(447		)	(2,690		)	4,455
Other comprehensive income (loss), net of tax	(954		)	146			5,855			(9,009		)
Comprehensive income (loss)	$	2,451		$	3,432		$	16,134		$	577

⁽¹⁾  See “Note 11 – 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)	—		—			—			9,586			(9,009		)	577
Issuance of common stock	111,904		2,754			—			—			—			2,754
Common stock issued for deferred compensation obligations	—		—			—			—			—			—
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—		122			(122		)	—			—			—
Share-based payment awards under equity compensation plan	—		—			423			—			—			423
Common stock purchased for deferred compensation obligations	—		(285		)	—			—			—			(285		)
Common stock repurchased pursuant to publicly announced repurchase plan	(73,969	)	(1,815		)	—			—			—			(1,815		)
Cash dividends ($0.63 per share)	—		—			—			(4,838		)	—			(4,838		)
Balance, September 30, 2013	7,709,781		$	137,356		$	4,035		$	23,916		$	(4,002	)	$	161,305
Balance, January 1, 2014	7,723,023		$	137,580		$	4,148		$	25,222		$	(6,341	)	$	160,609
Comprehensive income (loss)	—		—			—			10,279			5,855			16,134
Issuance of common stock	122,261		2,845			—			—			—			2,845
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	—		—			382			—			—			382
Common stock purchased for deferred compensation obligations	—		(253		)	—			—			—			(253		)
Common stock repurchased pursuant to publicly announced repurchase plan	(110,680	)	(2,550		)	—			—			—			(2,550		)
Cash dividends ($0.66 per share)	—		—			—			(5,091		)	—			(5,091		)
Balance, September 30, 2014	7,740,730		$	138,023		$	4,129		$	30,410		$	(486	)	$	172,076

See notes to interim condensed consolidated financial statements.

7

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Nine Months Ended   September 30
	2014			2013
OPERATING ACTIVITIES
Net income	$	10,279		$	9,586
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses	(604		)	866
Impairment of foreclosed assets	83			131
Depreciation	1,902			1,903
Amortization of OMSRs	206			453
Amortization of acquisition intangibles	143			171
Net amortization of AFS securities	1,382			1,595
Net (gains) losses on sale of AFS securities	(97		)	(171		)
Net unrealized (gains) losses on trading securities	5			23
Net gain on sale of mortgage loans	(436		)	(822		)
Increase in cash value of corporate owned life insurance policies	(556		)	(544		)
Share-based payment awards under equity compensation plan	382			423
Origination of loans held-for-sale	(21,746		)	(45,992		)
Proceeds from loan sales	22,865			49,735
Net changes in operating assets and liabilities which provided (used) cash:
Trading securities	520			805
Accrued interest receivable	(1,464		)	(1,357		)
Other assets	(958		)	319
Accrued interest payable and other liabilities	134			622
Net cash provided by (used in) operating activities	12,040			17,746
INVESTING ACTIVITIES
Net change in certificates of deposit held in other financial institutions	—			2,420
Activity in AFS securities
Sales	13,362			16,229
Maturities and calls	47,527			70,164
Purchases	(116,647		)	(98,328		)
Loan principal (originations) collections, net	(15,952		)	(37,385		)
Proceeds from sales of foreclosed assets	1,482			1,788
Purchases of premises and equipment	(2,026		)	(2,134		)
Purchases of corporate owned life insurance policies	—			(1,092		)
Proceeds from redemption of corporate owned life insurance policies	—			196
Net cash provided by (used in) investing activities	(72,254		)	(48,142		)

8

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

	Nine Months Ended   September 30
	2014			2013
FINANCING ACTIVITIES
Net increase (decrease) in deposits	38,124			6,264
Increase (decrease) in borrowed funds	11,112			25,000
Cash dividends paid on common stock	(5,091		)	(4,838		)
Proceeds from issuance of common stock	2,845			2,754
Common stock repurchased	(2,550		)	(1,815		)
Common stock purchased for deferred compensation obligations	(253		)	(285		)
Net cash provided by (used in) financing activities	44,187			27,080
Increase (decrease) in cash and cash equivalents	(16,027		)	(3,316		)
Cash and cash equivalents at beginning of period	41,558			24,920
Cash and cash equivalents at end of period	$	25,531		$	21,604
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid	$	7,536		$	8,376
Federal income taxes paid	979			1,333
SUPPLEMENTAL NONCASH INFORMATION:
Transfers of loans to foreclosed assets	$	1,194		$	1,087

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 nine month periods ended September 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   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Average number of common shares outstanding for basic calculation	7,733,362		7,698,066		7,725,706		7,689,350
Average potential effect of common shares in the Directors Plan (1)	170,897		170,420		170,955		168,020
Average number of common shares outstanding used to calculate diluted earnings per common share	7,904,259		7,868,486		7,896,661		7,857,370
Net income	$	3,405	$	3,286	$	10,279	$	9,586
Earnings per common share
Basic	$	0.44	$	0.43	$	1.33	$	1.25
Diluted	$	0.43	$	0.42	$	1.30	$	1.22

⁽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.

ASU No. 2014-14: “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)”

In August 2014, ASU No. 2014-14 amended ASC Topic 310, “Receivables” to provide specific guidance on how to classify and measure foreclosed loans that are government guaranteed. The update requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:

• The loan has a government guarantee that is not separable from the loan before foreclosure.

• At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim.

• At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.

Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. 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. 2014-15: “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”

In August 2014, ASU No. 2014-15 amended ASC Topic 205, “Presentation of Financial Statements” to provide guidance on how to determine whether to disclose relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, financial statements would continue to be prepared under the going concern assumption; however, disclosures may be necessary depending upon the conditions or events raising substantial doubt. Additionally, if identified substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). The new authoritative guidance is effective for annual periods beginning after December 15, 2016 and is not expected to impact our financial statement disclosures.

11

Note 4 – AFS Securities

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

	September 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,645	$	5	$	733	$	23,917
States and political subdivisions	217,195		7,337		987		223,545
Auction rate money market preferred	3,200		—		337		2,863
Preferred stocks	6,800		13		640		6,173
Mortgage-backed securities	171,856		1,144		2,233		170,767
Collateralized mortgage obligations	148,391		1,361		1,937		147,815
Total	$	572,087	$	9,860	$	6,867	$	575,080

	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 September 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	$	15,577	$	—	$	—	$	24,645
States and political subdivisions	16,838		52,050		98,035		50,272		—		217,195
Auction rate money market preferred	—		—		—		—		3,200		3,200
Preferred stocks	—		—		—		—		6,800		6,800
Mortgage-backed securities	—		—		—		—		171,856		171,856
Collateralized mortgage obligations	—		—		—		—		148,391		148,391
Total amortized cost	$	16,838	$	61,118	$	113,612	$	50,272	$	330,247	$	572,087
Fair value	$	16,883	$	63,150	$	116,389	$	51,040	$	327,618	$	575,080

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.

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

	Three Months Ended   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Proceeds from sales of AFS securities	$	13,362	$	6,372	$	13,362	$	16,229
Gross realized gains (losses)	$	97	$	72	$	97	$	171
Applicable income tax expense (benefit)	$	33	$	24	$	33	$	58

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 September 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:

	September 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	$	—	$	—	$	733	$	23,262	$	733
States and political subdivisions	106		10,836		881		21,430		987
Auction rate money market preferred	—		—		337		2,863		337
Preferred stocks	—		—		640		3,160		640
Mortgage-backed securities	165		33,358		2,068		62,800		2,233
Collateralized mortgage obligations	323		44,308		1,614		40,702		1,937
Total	$	594	$	88,502	$	6,273	$	154,217	$	6,867
Number of securities in an unrealized loss position:			77				96		173

	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 September 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

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their cost basis, we do not believe that the values of any AFS securities are other-than-temporarily impaired as of September 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. 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. 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 to Freddie Mac 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 Executive 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.

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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 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. 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 September 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
July 1, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700
Loans charged-off	(163		)	—			(180		)	(73		)	—		(416		)
Recoveries	171			—			68			39			—		278
Provision for loan losses	(704		)	(31		)	92			(47		)	528		(162		)
September 30, 2014	$	4,316		$	188		$	3,961		$	721		$	1,214	$	10,400

	Allowance for Loan Losses
	Nine Months Ended September 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	(434		)	(31		)	(557		)	(255		)	—		(1,277		)
Recoveries	477			—			190			114			—		781
Provision for loan losses	(1,775		)	(215		)	483			223			680		(604		)
September 30, 2014	$	4,316		$	188		$	3,961		$	721		$	1,214	$	10,400

	Allowance for Loan Losses and Recorded Investment in Loans
	September 30, 2014
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	1,318	$	—	$	2,335	$	1	$	—	$	3,654
Collectively evaluated for impairment	2,998		188		1,626		720		1,214		6,746
Total	$	4,316	$	188	$	3,961	$	721	$	1,214	$	10,400
Loans
Individually evaluated for impairment	$	11,955	$	1,625	$	12,925	$	69			$	26,574
Collectively evaluated for impairment	404,869		100,170		258,108		32,578				795,725
Total	$	416,824	$	101,795	$	271,033	$	32,647			$	822,299

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	Allowance for Loan Losses
	Three Months Ended September 30, 2013
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated			Total
July 1, 2013	$	6,472		$	335		$	3,676		$	647		$	570		$	11,700
Loans charged-off	(394		)	(12		)	(94		)	(102		)	—			(602		)
Recoveries	66			—			38			47			—			151
Provision for loan losses	69			108			127			74			(27		)	351
September 30, 2013	$	6,213		$	431		$	3,747		$	666		$	543		$	11,600

	Allowance for Loan Losses
	Nine Months Ended September 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	(839		)	(12		)	(681		)	(311		)	—		(1,843		)
Recoveries	289			—			152			200			—		641
Provision for loan losses	(99		)	36			649			111			169		866
September 30, 2013	$	6,213		$	431		$	3,747		$	666		$	543	$	11,600

	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 risk ratings as of:

	September 30, 2014
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	14,268	$	10,078	$	24,346	$	6,138	$	3,899	$	10,037
3 - High satisfactory	90,321		47,674		137,995		27,278		13,181		40,459
4 - Low satisfactory	186,866		41,368		228,234		30,556		16,908		47,464
5 - Special mention	9,859		1,343		11,202		1,729		68		1,797
6 - Substandard	12,139		137		12,276		1,658		265		1,923
7 - Vulnerable	2,579		179		2,758		115		—		115
8 - Doubtful	—		13		13		—		—		—
Total	$	316,032	$	100,792	$	416,824	$	67,474	$	34,321	$	101,795

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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 credit 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 credit 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:

	September 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	$	315	$	58	$	—	$	2,579	$	2,952	$	313,080	$	316,032
Commercial other	582		—		—		179		761		100,031		100,792
Total commercial	897		58		—		2,758		3,713		413,111		416,824
Agricultural
Agricultural real estate	—		—		—		115		115		67,359		67,474
Agricultural other	76		—		—		—		76		34,245		34,321
Total agricultural	76		—		—		115		191		101,604		101,795
Residential real estate
Senior liens	1,373		254		138		1,220		2,985		215,295		218,280
Junior liens	265		—		—		135		400		11,397		11,797
Home equity lines of credit	330		38		—		258		626		40,330		40,956
Total residential real estate	1,968		292		138		1,613		4,011		267,022		271,033
Consumer
Secured	86		—		—		10		96		28,303		28,399
Unsecured	12		—		26		—		38		4,210		4,248
Total consumer	98		—		26		10		134		32,513		32,647
Total	$	3,039	$	350	$	164	$	4,496	$	8,049	$	814,250	$	822,299

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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 unpaid principal 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:

	September 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	$	7,614	$	7,732	$	1,314	$	6,748	$	6,888	$	1,915
Commercial other	548		767		4		521		521		120
Agricultural real estate	—		—		—		90		90		30
Residential real estate senior liens	12,425		13,679		2,259		14,061		15,315		2,278
Residential real estate junior liens	241		251		50		48		64		9
Home equity lines of credit	259		659		26		—		—		—
Consumer secured	59		59		1		—		—		—
Total impaired loans with a valuation allowance	21,146		23,147		3,654		21,468		22,878		4,352
Impaired loans without a valuation allowance
Commercial real estate	3,480		3,958				5,622		6,499
Commercial other	313		324				925		1,035
Agricultural real estate	1,558		1,558				1,370		1,370
Agricultural other	67		187				78		198
Home equity lines of credit	—		—				193		493
Consumer secured	10		10				119		148
Total impaired loans without a valuation allowance	5,428		6,037				8,307		9,743
Impaired loans
Commercial	11,955		12,781		1,318		13,816		14,943		2,035
Agricultural	1,625		1,745		—		1,538		1,658		30
Residential real estate	12,925		14,589		2,335		14,302		15,872		2,287
Consumer	69		69		1		119		148		—
Total impaired loans	$	26,574	$	29,184	$	3,654	$	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 nine month periods ended:

	Three Months Ended   September 30, 2014					Nine Months Ended   September 30, 2014
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	7,063	$	106		$	6,822	$	291
Commercial other	589		11			746		40
Agricultural real estate	102		—			113		—
Agricultural other	—		—			—		—
Residential real estate senior liens	12,440		124			12,938		388
Residential real estate junior liens	167		(8		)	94		(7		)
Home equity lines of credit	310		2			220		13
Consumer secured	62		1			72		3
Total impaired loans with a valuation allowance	20,733		236			21,005		728
Impaired loans without a valuation allowance
Commercial real estate	4,594		69			5,396		262
Commercial other	314		5			397		12
Agricultural real estate	1,460		22			1,425		59
Agricultural other	43		1			112		29
Home equity lines of credit	—		—			32		—
Consumer secured	10		—			5		—
Total impaired loans without a valuation allowance	6,421		97			7,367		362
Impaired loans
Commercial	12,560		191			13,361		605
Agricultural	1,605		23			1,650		88
Residential real estate	12,917		118			13,284		394
Consumer	72		1			77		3
Total impaired loans	$	27,154	$	333		$	28,372	$	1,090

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	Three Months Ended   September 30, 2013				Nine Months Ended   September 30, 2013
	Average Outstanding Balance		Interest Income Recognized		Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	6,471	$	157	$	7,546	$	378
Commercial other	1,063		29		976		67
Agricultural real estate	91		2		91		4
Agricultural other	—		—		70		—
Residential real estate senior liens	10,865		230		10,595		439
Residential real estate junior liens	80		4		84		5
Home equity lines of credit	—		—		—		—
Consumer secured	—		—		—		—
Total impaired loans with a valuation allowance	18,570		422		19,362		893
Impaired loans without a valuation allowance
Commercial real estate	4,531		169		4,037		327
Commercial other	833		29		1,029		88
Agricultural real estate	231		15		144		19
Agricultural other	361		2		402		(2		)
Home equity lines of credit	173		8		178		17
Consumer secured	60		1		66		3
Total impaired loans without a valuation allowance	6,189		224		5,856		452
Impaired loans
Commercial	12,898		384		13,588		860
Agricultural	683		19		707		21
Residential real estate	11,118		242		10,857		461
Consumer	60		1		66		3
Total impaired loans	$	24,759	$	646	$	25,218	$	1,345

As of September 30, 2014 and December 31, 2013, we had committed to advance $65 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 loans with similar risk characteristics.

3. Forgiving principal.

4. Forgiving accrued interest.

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

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 for the:

	Three Months Ended September 30, 2014					Nine Months Ended September 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	2	$	23	$	23	7	$	386	$	386
Agricultural other	1	49		49		1	49		49
Residential real estate
Senior liens	2	144		144		14	805		805
Junior liens	1	40		40		2	81		81
Home equity lines of credit	—	—		—		1	160		160
Total residential real estate	3	184		184		17	1,046		1,046
Consumer unsecured	1	10		10		4	18		18
Total	7	$	266	$	266	29	$	1,499	$	1,499

	Three Months Ended September 30, 2013					Nine Months Ended September 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	3	$	159	$	159	10	$	3,313	$	3,116
Agricultural other	1	198		198		2	332		332
Residential real estate
Senior liens	15	1,176		1,176		30	2,611		2,595
Junior liens	1	20		20		1	20		20
Home equity lines of credit	—	—		—		—	—		—
Total residential real estate	16	1,196		1,196		31	2,631		2,615
Consumer unsecured	2	34		34		2	34		34
Total	22	$	1,587	$	1,587	45	$	6,310	$	6,097

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

	Three Months Ended September 30, 2014						Nine Months Ended September 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	2	$	23	—	$	—	6	$	378	1	$	8
Agricultural other	—	—		1	49		—	—		1	49
Residential real estate
Senior liens	—	—		2	144		3	98		11	707
Junior liens	—	—		1	40		—	—		2	81
Home equity lines of credit	—	—		—	—		1	160		—	—
Total residential real estate	—	—		3	184		4	258		13	788
Consumer unsecured	1	10		—	—		3	15		1	3
Total	3	$	33	4	$	233	13	$	651	16	$	848

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	Three Months Ended September 30, 2013						Nine Months Ended September 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	$	159	—	$	—	6	$	1,517	4	$	1,796
Agricultural other	1	198		—	—		2	332		—	—
Residential real estate
Senior liens	10	924		5	252		17	1,548		13	1,063
Junior liens	—	—		1	20		—	—		1	20
Home equity lines of credit	—	—		—	—		—	—		—	—
Total residential real estate	10	924		6	272		17	1,548		14	1,083
Consumer unsecured	1	16		1	18		1	16		1	18
Total	15	$	1,297	7	$	290	26	$	3,413	19	$	2,897

We did not restructure any loans by forgiving principal or accrued interest in the three and nine month periods ended September 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.

Following is a summary of loans that defaulted in the three and nine month periods ended September 30, 2014, which were modified within 12 months prior to the default date:

	Three Months Ended September 30, 2014							Nine Months Ended September 30, 2014
	Number of Loans	Pre- Default Recorded Investment		Charge-Off Recorded Upon Default		Post- Default Recorded Investment		Number of Loans	Pre- Default Recorded Investment		Charge-Off Recorded Upon Default		Post- Default Recorded Investment
Consumer unsecured	2	$	7	$	7	$	—	2	$	7	$	7	$	—

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

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

	September 30, 2014		December 31, 2013
TDRs	$	24,015	$	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:

	September 30 2014		December 31 2013
FHLB Stock	$	9,100	$	8,100
Corporate Settlement Solutions, LLC	6,743		6,970
FRB Stock	1,879		1,879
Valley Financial Corporation	1,000		1,000
Other	341		344
Total	$	19,063	$	18,293

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Note 7 – Borrowed Funds

Borrowed funds consist of the following obligations as of:

	September 30, 2014				December 31, 2013
	Amount		Rate		Amount		Rate
FHLB advances	$	182,000	1.94	%	$	162,000	2.02	%
Securities sold under agreements to repurchase without stated maturity dates	89,535		0.13	%	106,025		0.13	%
Securities sold under agreements to repurchase with stated maturity dates	1,203		4.24	%	11,301		3.30	%
Federal funds purchased	17,700		0.56	%	—		—
Total	$	290,438	1.31	%	$	279,326	1.35	%

FHLB advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans, AFS securities, and FHLB stock.

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

	September 30, 2014				December 31, 2013
	Amount		Rate		Amount		Rate
Fixed rate advances due 2014	$	10,000	0.48	%	$	10,000	0.48	%
Fixed rate advances due 2015	42,000		0.72	%	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 2021	10,000		2.37	%	—		—
Fixed rate advances due 2023	10,000		3.90	%	10,000		3.90	%
Total	$	182,000	1.94	%	$	162,000	2.02	%

Securities sold under agreements to repurchase are classified as secured borrowings and 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 $139,350 and $148,930 at September 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:

	September 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Repurchase agreements due 2014	$	750	4.89	%	$	10,876	3.30	%
Repurchase agreements due 2015	436		3.25	%	425		3.25	%
Repurchase agreements due 2018	17		1.00	%	—		—
Total	$	1,203	4.24	%	$	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 nine month periods ended:

	Three Months Ended September 30, 2014						Three Months Ended September 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	$	91,472	$	88,906	0.13	%	$	81,405	$	78,148	0.15	%
Federal funds purchased	17,700		2,252		0.48	%	6,300		5,052		0.62	%

	Nine Months Ended September 30, 2014						Nine Months Ended September 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	$	91,231	0.13	%	$	81,405	$	69,224	0.15	%
Federal funds purchased	17,700		4,939		0.48	%	13,700		4,133		0.57	%

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

	September 30 2014		December 31 2013
Pledged to secure borrowed funds	$	278,512	$	320,173
Pledged to secure repurchase agreements	139,350		148,930
Pledged for public deposits and for other purposes necessary or required by law	18,791		20,922
Total	$	436,653	$	490,025

As of September 30, 2014, we had the ability to borrow up to an additional $111,890, 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   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Marketing and community relations	$	512	$	271	$	966	$	945
FDIC insurance premiums	196		267		619		812
Directors fees	191		203		569		607
Audit and related fees	185		189		505		490
Education and travel	154		110		418		348
Postage and freight	105		103		303		296
Printing and supplies	89		106		278		291
Loan underwriting fees	83		97		270		336
Consulting fees	96		68		263		223
All other	684		587		2,114		1,800
Total other	$	2,295	$	2,001	$	6,305	$	6,148

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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   September 30						Nine Months Ended   September 30
	2014			2013			2014			2013
Income taxes at 34% statutory rate	$	1,309		$	1,347		$	4,072		$	3,903
Effect of nontaxable income
Interest income on tax exempt municipal securities	(501		)	(433		)	(1,498		)	(1,278		)
Earnings on corporate owned life insurance policies	(62		)	(63		)	(189		)	(185		)
Effect of tax credits	(187		)	(191		)	(575		)	(588		)
Other	(158		)	(27		)	(235		)	(79		)
Total effect of nontaxable income	(908		)	(714		)	(2,497		)	(2,130		)
Effect of nondeductible expenses	43			41			121			120
Federal income tax expense	$	444		$	674		$	1,696		$	1,893

Note 10 – 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.

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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:

	September 30, 2014
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 25%
		Equipment	30% - 40%
Discounted appraisal value	$8,535	Cash crop inventory	40%
		Other inventory	75%
		Accounts receivable	50%
		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.

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

	September 30, 2014
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,041	Real Estate	20% - 25%

	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.

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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 were as follows as of:

	September 30, 2014
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	25,531	$	25,531	$	25,531	$	—	$	—
Certificates of deposit held in other financial institutions	580		580		—		580		—
Mortgage loans AFS	421		434		—		434		—
Total loans	822,299		822,077		—		—		822,077
Less allowance for loan and lease losses	10,400		10,400		—		—		10,400
Net loans	811,899		811,677		—		—		811,677
Accrued interest receivable	6,906		6,906		6,906		—		—
Equity securities without readily determinable fair values (1)	19,063		19,063		—		—		—
OMSRs	2,577		2,655		—		2,655		—
LIABILITIES
Deposits without stated maturities	637,320		637,320		637,320		—		—
Deposits with stated maturities	444,570		445,129		—		445,129		—
Borrowed funds	290,438		293,881		—		293,881		—
Accrued interest payable	563		563		563		—		—

	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.

31

Financial Instruments Recorded at Fair Value

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

	September 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	23,917		—			23,917			—			23,745		—			23,745			—
States and political subdivisions	223,545		—			223,545			—			201,988		—			201,988			—
Auction rate money market preferred	2,863		—			2,863			—			2,577		—			2,577			—
Preferred stocks	6,173		6,173			—			—			5,827		5,827			—			—
Mortgage-backed securities	170,767		—			170,767			—			144,115		—			144,115			—
Collateralized mortgage obligations	147,815		—			147,815			—			133,810		—			133,810			—
Total AFS securities	575,080		6,173			568,907			—			512,062		5,827			506,235			—
Nonrecurring items
Impaired loans (net of the ALLL)	8,535		—			—			8,535			13,902		—			—			13,902
Foreclosed assets	1,041		—			—			1,041			1,412		—			—			1,412
Total	$	584,656	$	6,173		$	568,907		$	9,576		$	527,901	$	5,827		$	506,760		$	15,314
Percent of assets and liabilities measured at fair value			1.06		%	97.31		%	1.63		%			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 September 30
	2014								2013
	Trading Losses		Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	—	$	—		$	—		$	(5	)	$	—		$	(5	)
Nonrecurring items
Foreclosed assets	—		(20		)	(20		)				(39		)	(39		)
Total	$	—	$	(20	)	$	(20	)	$	(5	)	$	(39	)	$	(44	)

	Nine Months Ended September 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(5	)	$	—		$	(5	)	$	(23	)	$	—		$	(23	)
Nonrecurring items
Foreclosed assets	—			(83		)	(83		)	—			(131		)	(131		)
Total	$	(5	)	$	(83	)	$	(88	)	$	(23	)	$	(131	)	$	(154	)

32

Note 11 – Accumulated Other Comprehensive Income (Loss)

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

	Three Months Ended September 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, July 1	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)
OCI before reclassifications	(1,326		)	—			(1,326		)	665			—			665
Amounts reclassified from AOCI	(97		)	—			(97		)	(72		)	—			(72		)
Subtotal	(1,423		)	—			(1,423		)	593			—			593
Tax effect	469			—			469			(447		)	—			(447		)
OCI, net of tax	(954		)	—			(954		)	146			—			146
Balance, September 30	$	1,648		$	(2,134	)	$	(486	)	$	(331	)	$	(3,671	)	$	(4,002	)

	Nine Months Ended September 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	8,642			—			8,642			(13,293		)	—			(13,293		)
Amounts reclassified from AOCI	(97		)	—			(97		)	(171		)	—			(171		)
Subtotal	8,545			—			8,545			(13,464		)	—			(13,464		)
Tax effect	(2,690		)	—			(2,690		)	4,455			—			4,455
OCI, net of tax	5,855			—			5,855			(9,009		)	—			(9,009		)
Balance, September 30	$	1,648		$	(2,134	)	$	(486	)	$	(331	)	$	(3,671	)	$	(4,002	)

Included in OCI for the three and nine month periods ended September 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 September 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	$	253	$	(1,579	)	$	(1,326	)	$	(653	)	$	1,318		$	665
Reclassification adjustment for net realized (gains) losses included in net income	—		(97		)	(97		)	—			(72		)	(72		)
Net unrealized gains (losses)	253		(1,676		)	(1,423		)	(653		)	1,246			593
Tax effect	—		469			469			—			(447		)	(447		)
Unrealized gains (losses), net of tax	$	253	$	(1,207	)	$	(954	)	$	(653	)	$	799		$	146

33

	Nine Months Ended September 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	$	253	$	8,389		$	8,642		$	(358	)	$	(12,935	)	$	(13,293	)
Reclassification adjustment for net realized (gains) losses included in net income	—		(97		)	(97		)	—			(171		)	(171		)
Net unrealized gains (losses)	253		8,292			8,545			(358		)	(13,106		)	(13,464		)
Tax effect	—		(2,690		)	(2,690		)	—			4,455			4,455
Unrealized gains (losses), net of tax	$	253	$	5,602		$	5,855		$	(358	)	$	(8,651	)	$	(9,009	)

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 September 30				Nine Months Ended September 30
	2014		2013		2014		2013
Unrealized holding gains (losses) on AFS securities
	$	97	$	72	$	97	$	171	Net gains (losses) on sale of AFS securities
	97		72		97		171		Income before federal income tax expense
	33		24		33		58		Federal income tax expense
	$	64	$	48	$	64	$	113	Net income

34

Note 12 – Parent Company Only Financial Information

Interim Condensed Balance Sheets

	September 30 2014		December 31 2013
ASSETS
Cash on deposit at the Bank	$	2,353	$	529
AFS securities	3,279		3,542
Investments in subsidiaries	121,580		110,192
Premises and equipment	1,959		2,013
Other assets	54,604		54,223
TOTAL ASSETS	$	183,775	$	170,499
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities	$	11,699	$	9,890
Shareholders' equity	172,076		160,609
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	183,775	$	170,499

Interim Condensed Statements of Income

	Three Months Ended   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Income
Dividends from subsidiaries	$	1,750	$	1,500	$	4,750	$	4,500
Interest income	36		39		114		123
Management fee and other	717		637		1,945		1,704
Total income	2,503		2,176		6,809		6,327
Expenses
Compensation and benefits	866		680		2,470		2,061
Occupancy and equipment	293		132		514		362
Audit and related fees	109		98		278		256
Other	360		230		926		731
Total expenses	1,628		1,140		4,188		3,410
Income before income tax benefit and equity in undistributed earnings of subsidiaries	875		1,036		2,621		2,917
Federal income tax benefit	298		161		730		549
Income before equity in undistributed earnings of subsidiaries	1,173		1,197		3,351		3,466
Undistributed earnings of subsidiaries	2,232		2,089		6,928		6,120
Net income	$	3,405	$	3,286	$	10,279	$	9,586

35

Interim Condensed Statements of Cash Flows

	Nine Months Ended   September 30
	2014			2013
Operating activities
Net income	$	10,279		$	9,586
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(6,928		)	(6,120		)
Undistributed earnings of equity securities without readily determinable fair values	231			14
Share-based payment awards	382			423
Depreciation	109			136
Net amortization of AFS securities	1			1
Changes in operating assets and liabilities which provided (used) cash
Other assets	89			(65		)
Accrued interest and other liabilities	1,242			939
Net cash provided by (used in) operating activities	5,405			4,914
Investing activities
Maturities, calls, and sales of AFS securities	250			395
Purchases of premises and equipment	(23		)	(140		)
Advances to subsidiaries, net of repayments	641			(99		)
Net cash provided by (used in) investing activities	868			156
Financing activities
Net increase (decrease) in borrowed funds	600			(800		)
Cash dividends paid on common stock	(5,091		)	(4,838		)
Proceeds from the issuance of common stock	2,845			2,754
Common stock repurchased	(2,550		)	(1,815		)
Common stock purchased for deferred compensation obligations	(253		)	(285		)
Net cash provided by (used in) financing activities	(4,449		)	(4,984		)
Increase (decrease) in cash and cash equivalents	1,824			86
Cash and cash equivalents at beginning of period	529			332
Cash and cash equivalents at end of period	$	2,353		$	418

Note 13 – 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 September 30, 2014 and 2013 and each of the three and nine 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.

36

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 nine month periods ended September 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 nine month periods ended September 30, 2014, we reported record net income of $3,405 and $10,279 and earnings per common share of $0.44 and $1.33, respectively. Our continued strong earnings have primarily been the result of 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 $604 for the nine month period ended September 30, 2014. Net loans charged-off during the first nine months of 2014 were $496 as compared to $1,202 in the first nine 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, nonaccrual loans have increased since December 31, 2013. This increase was primarily the result of one loan being classified as nonaccrual in the first quarter of 2014. This loan is 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 nine months of 2014 by $24,720 without relaxing our underwriting standards. The growth in commercial and agricultural loans was partially offset by declines in both residential real estate and consumer loans, resulting in a net increase in total loans of $14,262 for the year. 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.

37

Results of Operations

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

	September 30 2014			June 30 2014			March 31 2014			December 31 2013			September 30 2013
INCOME STATEMENT DATA
Interest income	$	13,483		$	13,391		$	13,364		$	13,603		$	13,505
Interest expense	2,498			2,468			2,500			2,683			2,736
Net interest income	10,985			10,923			10,864			10,920			10,769
Provision for loan losses	(162		)	(200		)	(242		)	245			351
Noninterest income	2,216			2,434			2,249			2,130			2,862
Noninterest expenses	9,514			9,300			9,486			9,578			9,320
Federal income tax expense	444			692			560			303			674
Net Income	$	3,405		$	3,565		$	3,309		$	2,924		$	3,286
PER SHARE
Basic earnings	$	0.44		$	0.46		$	0.43		$	0.38		$	0.43
Diluted earnings	$	0.43		$	0.45		$	0.42		$	0.37		$	0.42
Dividends	$	0.22		$	0.22		$	0.22		$	0.21		$	0.21
Tangible book value*	$	16.33		$	16.08		$	15.82		$	15.62		$	15.43
Market value
High	$	24.00		$	23.50		$	23.94		$	24.84		$	25.50
Low	$	21.73		$	22.44		$	21.73		$	21.12		$	23.40
Close*	$	23.60		$	22.95		$	23.00		$	23.85		$	24.85
Common shares outstanding*	7,740,730			7,735,156			7,727,547			7,723,023			7,709,781
PERFORMANCE RATIOS (annualized)
Return on average total assets	0.89		%	0.95		%	0.88		%	0.80		%	0.91		%
Return on average shareholders' equity	7.91		%	8.43		%	8.04		%	7.18		%	8.27		%
Return on average tangible shareholders' equity	10.88		%	11.59		%	10.92		%	9.78		%	11.16		%
Net interest margin yield (FTE)	3.39		%	3.43		%	3.42		%	3.50		%	3.48		%
BALANCE SHEET DATA*
Gross loans	$	822,299		$	816,307		$	808,411		$	808,037		$	807,849
AFS securities	$	575,080		$	550,518		$	555,144		$	512,062		$	501,057
Total assets	$	1,553,974		$	1,522,135		$	1,513,371		$	1,493,137		$	1,459,341
Deposits	$	1,081,890		$	1,060,928		$	1,065,935		$	1,043,766		$	1,023,931
Borrowed funds	$	290,438		$	279,457		$	272,536		$	279,326		$	266,001
Shareholders' equity	$	172,076		$	171,099		$	165,971		$	160,609		$	161,305
Gross loans to deposits	76.01		%	76.94		%	75.84		%	77.42		%	78.90		%
ASSETS UNDER MANAGEMENT*
Loans sold with servicing retained	$	290,697		$	290,590		$	292,382		$	293,665		$	294,999
Assets managed by our Investment and Trust Services Department	$	374,878		$	374,092		$	358,811		$	351,420		$	351,505
Total assets under management	$	2,219,549		$	2,186,817		$	2,164,564		$	2,138,222		$	2,105,845
ASSET QUALITY*
Nonperforming loans to gross loans	0.57		%	0.58		%	0.65		%	0.42		%	0.53		%
Nonperforming assets to total assets	0.37		%	0.38		%	0.42		%	0.32		%	0.37		%
ALLL to gross loans	1.26		%	1.31		%	1.37		%	1.42		%	1.44		%
CAPITAL RATIOS*
Shareholders' equity to assets	11.07		%	11.24		%	10.97		%	10.76		%	11.05		%
Tier 1 capital to average assets	8.47		%	8.50		%	8.38		%	8.46		%	8.45		%
Tier 1 risk-based capital	13.86		%	13.84		%	13.88		%	13.67		%	13.75		%
Total risk-based capital	15.11		%	15.09		%	15.13		%	14.92		%	15.00		%

* At end of period

38

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

	September 30 2014			September 30 2013			September 30 2012			September 30 2011			September 30 2010
INCOME STATEMENT DATA
Interest income	$	40,238		$	40,473		$	42,556		$	43,439		$	42,677
Interest expense	7,466			8,338			10,372			12,224			12,987
Net interest income	32,772			32,135			32,184			31,215			29,690
Provision for loan losses	(604		)	866			1,100			2,383			3,231
Noninterest income	6,899			8,045			8,844			5,785			6,671
Noninterest expenses	28,300			27,835			27,889			25,879			25,249
Federal income tax expense	1,696			1,893			2,344			1,239			1,154
Net Income	$	10,279		$	9,586		$	9,695		$	7,499		$	6,727
PER SHARE
Basic earnings	$	1.33		$	1.25		$	1.28		$	0.99		$	0.89
Diluted earnings	$	1.30		$	1.22		$	1.24		$	0.97		$	0.87
Dividends	$	0.66		$	0.63		$	0.60		$	0.57		$	0.54
Tangible book value*	$	16.33		$	15.43		$	14.65		$	20.53		$	19.59
Market value
High	$	24.00		$	26.00		$	24.98		$	19.25		$	19.00
Low	$	21.73		$	21.55		$	22.30		$	17.10		$	15.75
Close*	$	23.60		$	24.85		$	22.50		$	18.75		$	17.39
Common shares outstanding*	7,740,730			7,709,781			7,611,350			7,578,257			7,532,859
PERFORMANCE RATIOS (annualized)
Return on average total assets	0.90		%	0.89		%	0.94		%	0.79		%	0.77		%
Return on average shareholders' equity	8.13		%	7.84		%	8.37		%	6.84		%	6.35		%
Return on average tangible shareholders' equity	10.95		%	11.02		%	11.96		%	10.17		%	9.54		%
Net interest margin yield (FTE)	3.41		%	3.50		%	3.72		%	3.90		%	4.04		%
BALANCE SHEET DATA*
Gross loans	$	822,299		$	807,849		$	766,751		$	750,163		$	726,069
AFS securities	$	575,080		$	501,057		$	467,414		$	415,879		$	302,212
Total assets	$	1,553,974		$	1,459,341		$	1,389,138		$	1,324,093		$	1,215,098
Deposits	$	1,081,890		$	1,023,931		$	989,491		$	942,441		$	861,066
Borrowed funds	$	290,438		$	266,001		$	226,580		$	216,888		$	198,895
Shareholders' equity	$	172,076		$	161,305		$	164,147		$	155,579		$	147,596
Gross loans to deposits	76.01		%	78.90		%	77.49		%	79.60		%	84.32		%
ASSETS UNDER MANAGEMENT*
Loans sold with servicing retained	$	290,697		$	294,999		$	304,523		$	303,063		$	313,102
Assets managed by our Investment and Trust Services Department	$	374,878		$	351,505		$	321,661		$	284,286		$	288,798
Total assets under management	$	2,219,549		$	2,105,845		$	2,015,322		$	1,911,442		$	1,816,998
ASSET QUALITY*
Nonperforming loans to gross loans	0.57		%	0.53		%	0.98		%	0.81		%	1.15		%
Nonperforming assets to total assets	0.37		%	0.37		%	0.68		%	0.61		%	0.86		%
ALLL to gross loans	1.26		%	1.44		%	1.57		%	1.65		%	1.79		%
CAPITAL RATIOS*
Shareholders' equity to assets	11.07		%	11.05		%	11.82		%	11.75		%	12.15		%
Tier 1 capital to average assets	8.47		%	8.45		%	8.27		%	8.10		%	8.28		%
Tier 1 risk-based capital	13.86		%	13.75		%	13.35		%	12.43		%	12.42		%
Total risk-based capital	15.11		%	15.00		%	14.60		%	13.68		%	13.67		%

* At end of period

39

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.

	Three Months Ended
	September 30, 2014							June 30, 2014							September 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	$	817,364		$	9,863	4.83	%	$	808,541		$	9,799	4.85	%	$	806,128		$	10,330	5.13	%
Taxable investment securities	358,547			2,016		2.25	%	353,878			1,993		2.25	%	330,832			1,787		2.16	%
Nontaxable investment securities	196,522			2,359		4.80	%	194,307			2,376		4.89	%	166,122			2,056		4.95	%
Trading account securities	—			—		—	%	172			2		4.65	%	815			11		5.40	%
Other	28,431			119		1.67	%	21,421			112		2.09	%	23,690			106		1.79	%
Total earning assets	1,400,864			14,357		4.10	%	1,378,319			14,282		4.14	%	1,327,587			14,290		4.31	%
NONEARNING ASSETS
Allowance for loan losses	(10,705		)					(11,208		)					(11,867		)
Cash and demand deposits due from banks	20,360							17,403							18,430
Premises and equipment	25,872							25,960							26,160
Accrued income and other assets	98,853							97,187							90,993
Total assets	$	1,535,244						$	1,507,661						$	1,451,303
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	193,659		40		0.08	%	$	192,798		39		0.08	%	$	183,795		40		0.09	%
Savings deposits	265,814			94		0.14	%	257,628			91		0.14	%	245,318			94		0.15	%
Time deposits	447,046			1,428		1.28	%	455,592			1,459		1.28	%	454,387			1,608		1.42	%
Borrowed funds	274,358			936		1.36	%	263,606			879		1.33	%	260,308			994		1.53	%
Total interest bearing liabilities	1,180,877			2,498		0.85	%	1,169,624			2,468		0.84	%	1,143,808			2,736		0.96	%
NONINTEREST BEARING LIABILITIES
Demand deposits	171,085							158,804							139,519
Other	11,114							10,166							9,117
Shareholders’ equity	172,168							169,067							158,859
Total liabilities and shareholders’ equity	$	1,535,244						$	1,507,661						$	1,451,303
Net interest income (FTE)				$	11,859						$	11,814						$	11,554
Net yield on interest earning assets (FTE)						3.39	%						3.43	%						3.48	%

40

	Nine Months Ended
	September 30, 2014							September 30, 2013
	Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate
INTEREST EARNING ASSETS
Loans	$	810,572		$	29,413	4.84	%	$	784,593		$	30,940	5.26	%
Taxable investment securities	355,146			6,007		2.26	%	338,527			5,419		2.13	%
Nontaxable investment securities	193,276			7,056		4.87	%	161,472			6,080		5.02	%
Trading account securities	232			9		5.17	%	1,180			45		5.08	%
Other	25,485			384		2.01	%	25,866			331		1.71	%
Total earning assets	1,384,711			42,869		4.13	%	1,311,638			42,815		4.35	%
NONEARNING ASSETS
ALLL	(11,182		)					(11,947		)
Cash and demand deposits due from banks	18,484							18,083
Premises and equipment	25,950							26,005
Accrued income and other assets	96,915							97,513
Total assets	$	1,514,878						$	1,441,292
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	194,744		120		0.08	%	$	183,879		121		0.09	%
Savings deposits	258,807			279		0.14	%	242,989			275		0.15	%
Time deposits	451,329			4,368		1.29	%	458,767			5,042		1.47	%
Borrowed funds	269,325			2,699		1.34	%	245,344			2,900		1.58	%
Total interest bearing liabilities	1,174,205			7,466		0.85	%	1,130,979			8,338		0.98	%
NONINTEREST BEARING LIABILITIES
Demand deposits	161,688							138,654
Other	10,380							8,631
Shareholders’ equity	168,605							163,028
Total liabilities and shareholders’ equity	$	1,514,878						$	1,441,292
Net interest income (FTE)				$	35,403						$	34,477
Net yield on interest earning assets (FTE)						3.41	%						3.50	%

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 nine month periods ended:

	Three Months Ended						Nine Months Ended
	September 30 2014		June 30 2014		September 30 2013		September 30 2014		September 30 2013
Loan fees	$	488	$	566	$	738	$	1,530	$	2,421

41

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   September 30, 2014 Compared to   June 30, 2014   Increase (Decrease) Due to									Three Months Ended   September 30, 2014 Compared to   September 30, 2013   Increase (Decrease) Due to									Nine Months Ended   September 30, 2014 Compared to   September 30, 2013   Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net			Volume			Rate			Net
Changes in interest income
Loans	$	107		$	(43	)	$	64		$	142		$	(609	)	$	(467	)	$	1,000		$	(2,527	)	$	(1,527	)
Taxable AFS securities	26			(3		)	23			154			75			229			273			315			588
Nontaxable AFS securities	27			(44		)	(17		)	367			(64		)	303			1,166			(190		)	976
Trading securities	(1		)	(1		)	(2		)	(5		)	(6		)	(11		)	(37		)	1			(36		)
Other	32			(25		)	7			20			(7		)	13			(5		)	58			53
Total changes in interest income	191			(116		)	75			678			(611		)	67			2,397			(2,343		)	54
Changes in interest expense
Interest bearing demand deposits	—			1			1			2			(2		)	—			7			(8		)	(1		)
Savings deposits	3			—			3			8			(8		)	—			17			(13		)	4
Time deposits	(27		)	(4		)	(31		)	(26		)	(154		)	(180		)	(81		)	(593		)	(674		)
Borrowed funds	36			21			57			52			(110		)	(58		)	267			(468		)	(201		)
Total changes in interest expense	12			18			30			36			(274		)	(238		)	210			(1,082		)	(872		)
Net change in interest margin (FTE)	$	179		$	(134	)	$	45		$	642		$	(337	)	$	305		$	2,187		$	(1,261	)	$	926

Our net yield on interest earning assets remains at historically low levels which is a direct result of FRB monetary policy. While we do anticipate that the FRB will increase short term interest rates in 2015, we do not expect any significant improvements in our net yield on interest earning assets as the rates paid on interest bearing liabilities will likely increase faster than those of interest earning assets. In the interim, net interest income will increase only through continued balance sheet growth.

	Average Yield / Rate for the Three Month Periods Ended:
	September 30 2014		June 30 2014		March 31 2014		December 31 2013		September 30 2013
Total earning assets	4.10	%	4.14	%	4.14	%	4.30	%	4.31	%
Total interest bearing liabilities	0.85	%	0.84	%	0.85	%	0.94	%	0.96	%
Net yield on interest earning assets (FTE)	3.39	%	3.43	%	3.42	%	3.50	%	3.48	%

42

	Quarter to Date Net Interest Income (FTE)
	September 30 2014		June 30 2014		March 31 2014		December 31 2013		September 30 2013
Total interest income (FTE)	$	14,357	$	14,282	$	14,242	$	14,441	$	14,290
Total interest expense	2,498		2,468		2,500		2,683		2,736
Net interest income (FTE)	$	11,859	$	11,814	$	11,742	$	11,758	$	11,554

One of the the primary contributors to the decline in the net yield on interest earning assets during 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 third quarter of 2013.

	September 30 2014			June 30 2014			March 31 2014			December 31 2013			September 30 2013
Net interest income (FTE)	$	11,859		$	11,814		$	11,742		$	11,758		$	11,554
Less loan fees	488			566			476			761			738
Net interest income excluding loan fees (FTE)	$	11,371		$	11,248		$	11,266		$	10,997		$	10,816
Net yield on interest earning assets excluding loan fees (FTE)	3.25		%	3.26		%	3.28		%	3.27		%	3.26		%

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 credit 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 that reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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

	Three Months Ended   September 30						Nine Months Ended   September 30
	2014			2013			2014			2013
ALLL at beginning of period	$	10,700		$	11,700		$	11,500		$	11,936
Loans charged-off
Commercial and agricultural	163			406			465			851
Residential real estate	180			94			557			681
Consumer	73			102			255			311
Total loans charged-off	416			602			1,277			1,843
Recoveries
Commercial and agricultural	171			66			477			289
Residential real estate	68			38			190			152
Consumer	39			47			114			200
Total recoveries	278			151			781			641
Net loans charged-off	138			451			496			1,202
Provision for loan losses	(162		)	351			(604		)	866
ALLL at end of period	$	10,400		$	11,600		$	10,400		$	11,600
Net loans charged-off to average loans outstanding	0.02		%	0.06		%	0.06		%	0.15		%

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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:

	September 30 2014			June 30 2014			March 31 2014			December 31 2013			September 30 2013
Total loans charged-off	$	416		$	411		$	450		$	497		$	602
Total recoveries	278			211			292			152			151
Net loans charged-off	138			200			158			345			451
Net loans charged-off to average loans outstanding	0.02		%	0.02		%	0.02		%	0.04		%	0.06		%
Provision for loan losses	$	(162	)	$	(200	)	$	(242	)	$	245		$	351
Provision for loan losses to average loans outstanding	(0.02		)%	(0.02		)%	(0.03		)%	0.03		%	0.04		%
ALLL	$	10,400		$	10,700		$	11,100		$	11,500		$	11,600
ALLL as a% of loans at end of period	1.26		%	1.31		%	1.37		%	1.42		%	1.44		%

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
	September 30 2014			June 30 2014			March 31 2014			December 31 2013			September 30 2013
Commercial and agricultural	$	3,904		$	5,045		$	4,986		$	3,621		$	5,371
Residential real estate	4,011			4,613			7,067			7,008			6,339
Consumer	134			98			113			259			152
Total	$	8,049		$	9,756		$	12,166		$	10,888		$	11,862
Total past due and nonaccrual loans to gross loans	0.98		%	1.20		%	1.50		%	1.35		%	1.47		%

Loans past due and nonaccrual have continued to decline during the third quarter of 2014. Overall, declines in past due and nonaccrual loans during 2014 are the result of strengthened loan performance, as the majority of the loans were current as of September 30, 2014.

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 September 30, 2014 or December 31, 2013.

44

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 analysis of 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 September 30, 2014
	Accruing Interest					Nonaccrual					Total
	Number of Loans		Balance			Number of Loans		Balance			Number of Loans		Balance
July 1, 2014	162		$	21,265		18		$	2,927		180		$	24,192
New modifications	7		266			—		—			7		266
Principal advances (payments)	—		(241		)	—		34			—		(207		)
Loans paid-off	(5	)	(101		)	(1	)	(2		)	(6	)	(103		)
Partial charge-off	—		—			—		(75		)	—		(75		)
Balances charged-off	(2	)	(7		)	(1	)	(51		)	(3	)	(58		)
Transfers to OREO	—		—			—		—			—		—
Transfers to accrual status	1		109			(1	)	(109		)	—		—
Transfers to nonaccrual status	(1	)	(55		)	1		55			—		—
September 30, 2014	162		$	21,236		16		$	2,779		178		$	24,015

	Nine Months Ended September 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	25		1,254			4		245			29		1,499
Principal advances (payments)	—		(1,323		)	—		(40		)	—		(1,363		)
Loans paid-off	(20	)	(1,371		)	(3	)	(90		)	(23	)	(1,461		)
Partial charge-off	—		(70		)	—		(193		)	—		(263		)
Balances charged-off	(3	)	(13		)	(1	)	(51		)	(4	)	(64		)
Transfers to OREO	—		—			(4	)	(198		)	(4	)	(198		)
Transfers to accrual status	4		429			(4	)	(429		)	—		—
Transfers to nonaccrual status	(9	)	(2,093		)	9		2,093			—		—
September 30, 2014	162		$	21,236		16		$	2,779		178		$	24,015

	Three Months Ended September 30, 2013
	Accruing Interest					Nonaccrual					Total
	Number of Loans		Balance			Number of Loans		Balance			Number of Loans		Balance
July 1, 2013	123		$	19,134		15		$	1,723		138		$	20,857
New modifications	18		1,262			4		326			22		1,588
Principal advances (payments)	—		(180		)	—		(22		)	—		(202		)
Loans paid-off	(4	)	(1,273		)	(1	)	(103		)	(5	)	(1,376		)
Partial charge-off	—		—			—		(197		)	—		(197		)
Balances charged-off	—		—			—		—			—		—
Transfers to OREO	—		—			(4	)	(333		)	(4	)	(333		)
Transfers to accrual status	—		—			—		—			—		—
Transfers to nonaccrual status	(3	)	(317		)	3		317			—		—
September 30, 2013	134		$	18,626		17		$	1,711		151		$	20,337

45

	Nine Months Ended September 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	40		5,673			5		424			45		6,097
Principal advances (payments)	—		(643		)	—		(265		)	—		(908		)
Loans paid-off	(14	)	(2,492		)	(6	)	(800		)	(20	)	(3,292		)
Partial charge-off	—		(15		)	—		(408		)	—		(423		)
Balances charged-off	(3	)	(147		)	—		—			(3	)	(147		)
Transfers to OREO	—		—			(5	)	(345		)	(5	)	(345		)
Transfers to accrual status	1		105			(1	)	(105		)	—		—
Transfers to nonaccrual status	(5	)	(386		)	5		386			—		—
September 30, 2013	134		$	18,626		17		$	1,711		151		$	20,337

The following table summarizes our TDRs as of:

	September 30, 2014						December 31, 2013
	Accruing Interest		Nonaccrual		Total		Accruing Interest		Nonaccrual		Total		Total Change
Current	$	20,410	$	868	$	21,278	$	21,690	$	1,189	$	22,879	$	(1,601	)
Past due 30-59 days	635		307		942		2,158		37		2,195		(1,253		)
Past due 60-89 days	191		4		195		575		—		575		(380		)
Past due 90 days or more	—		1,600		1,600		—		216		216		1,384
Total	$	21,236	$	2,779	$	24,015	$	24,423	$	1,442	$	25,865	$	(1,850	)

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

46

Impaired Loans

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

	September 30, 2014						December 31, 2013
	Outstanding Balance		Unpaid Principal Balance		Valuation Allowance		Outstanding Balance		Unpaid Principal Balance		Valuation Allowance
TDRs
Commercial real estate	$	10,254	$	10,614	$	1,303	$	10,663	$	11,193	$	1,585
Commercial other	778		1,008		4		1,310		1,340		62
Agricultural real estate	1,443		1,443		—		1,459		1,459		30
Agricultural other	67		187		—		79		199		—
Residential real estate senior liens	11,156		11,761		2,064		12,266		12,841		2,010
Residential real estate junior liens	99		99		20		20		20		4
Home equity lines of credit	159		459		16		—		—		—
Consumer secured	59		59		1		68		69		—
Total TDRs	24,015		25,630		3,408		25,865		27,121		3,691
Other impaired loans
Commercial real estate	841		1,077		11		1,707		2,193		330
Commercial other	82		82		—		136		217		58
Agricultural real estate	115		115		—		—		—		—
Agricultural other	—		—		—		—		—		—
Residential real estate senior liens	1,269		1,918		195		1,795		2,473		268
Residential real estate junior liens	142		152		30		28		45		5
Home equity lines of credit	100		200		10		193		493		—
Consumer secured	10		10		—		51		79		—
Total other impaired loans	2,559		3,554		246		3,910		5,500		661
Total impaired loans	$	26,574	$	29,184	$	3,654	$	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:

	September 30 2014			June 30 2014			March 31 2014			December 31 2013			September 30 2013
Nonaccrual loans	$	4,496		$	4,587		$	4,345		$	3,244		$	3,812
Accruing loans past due 90 days or more	164			119			893			142			457
Total nonperforming loans	4,660			4,706			5,238			3,386			4,269
Foreclosed assets	1,041			1,132			1,126			1,412			1,186
Total nonperforming assets	$	5,701		$	5,838		$	6,364		$	4,798		$	5,455
Nonperforming loans as a % of total loans	0.57		%	0.58		%	0.65		%	0.42		%	0.53		%
Nonperforming assets as a % of total assets	0.37		%	0.38		%	0.42		%	0.32		%	0.37		%

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.

47

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

	September 30 2014		December 31 2013
Commercial and agricultural	$	2,071	$	833
Residential real estate	708		609
Total	$	2,779	$	1,442

The following table lists individually significant commercial and agricultural loan relationships in nonaccrual status as of September 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.

	September 30, 2014					December 31, 2013
	Outstanding Balance		Specific Allocation			Outstanding Balance		Specific Allocation
Borrower 1	$	1,179	$	—	1	$	—	$	—
Others not individually significant	3,317					3,244
Total	$	4,496				$	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 September 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 September 30
						Change
	2014			2013		$			%
Service charges and fees
NSF and overdraft fees	$	565		$	601	$	(36	)	(5.99	)%
ATM and debit card fees	538			509		29			5.70	%
Freddie Mac servicing fee	178			183		(5		)	(2.73	)%
Service charges on deposit accounts	92			96		(4		)	(4.17	)%
Net OMSRs income (loss)	(41		)	278		(319		)	(114.75	)%
All other	34			33		1			3.03	%
Total service charges and fees	1,366			1,700		(334		)	(19.65	)%
Gain on sale of mortgage loans	170			215		(45		)	(20.93	)%
Earnings on corporate owned life insurance policies	182			185		(3		)	(1.62	)%
Gains (losses) on sale of AFS securities	97			72		25			34.72	%
Other
Trust and brokerage advisory fees	506			466		40			8.58	%
Other	(105		)	224		(329		)	(146.88	)%
Total other	401			690		(289		)	(41.88	)%
Total noninterest income	$	2,216		$	2,862	$	(646	)	(22.57	)%

	Nine Months Ended September 30
					Change
	2014		2013		$			%
Service charges and fees
NSF and overdraft fees	$	1,630	$	1,675	$	(45	)	(2.69	)%
ATM and debit card fees	1,559		1,453		106			7.30	%
Freddie Mac servicing fee	541		554		(13		)	(2.35	)%
Service charges on deposit accounts	267		281		(14		)	(4.98	)%
Net OMSRs income (loss)	22		374		(352		)	(94.12	)%
All other	101		89		12			13.48	%
Total service charges and fees	4,120		4,426		(306		)	(6.91	)%
Gain on sale of mortgage loans	436		822		(386		)	(46.96	)%
Earnings on corporate owned life insurance policies	556		544		12			2.21	%
Gains (losses) on sale of AFS securities	97		171		(74		)	(43.27	)%
Other
Trust and brokerage advisory fees	1,532		1,359		173			12.73	%
Other	158		723		(565		)	(78.15	)%
Total other	1,690		2,082		(392		)	(18.83	)%
Total noninterest income	$	6,899	$	8,045	$	(1,146	)	(14.24	)%

49

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.

• Offering rates on residential mortgage loans, as well as the decline in loan demand, are the most significant drivers behind fluctuations in the gain on sale of mortgage loans and net OMSRs income (loss). 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 2014 and 2013 that made economic sense to sell. We do not anticipate any significant investment sales for the remainder of 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 for the remainder of 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 September 30
					Change
	2014		2013		$			%
Compensation and benefits
Employee salaries	$	4,026	$	3,920	$	106		2.70	%
Employee benefits	1,148		1,420		(272		)	(19.15	)%
Total compensation and benefits	5,174		5,340		(166		)	(3.11	)%
Furniture and equipment
Service contracts	660		603		57			9.45	%
Depreciation	485		488		(3		)	(0.61	)%
ATM and debit card fees	188		191		(3		)	(1.57	)%
All other	15		21		(6		)	(28.57	)%
Total furniture and equipment	1,348		1,303		45			3.45	%
Occupancy
Outside services	168		168		—			—	%
Depreciation	175		166		9			5.42	%
Utilities	128		127		1			0.79	%
Property taxes	131		124		7			5.65	%
All other	95		91		4			4.40	%
Total occupancy	697		676		21			3.11	%
Other
Marketing and community relations	512		271		241			88.93	%
FDIC insurance premiums	196		267		(71		)	(26.59	)%
Directors fees	191		203		(12		)	(5.91	)%
Audit and related fees	185		189		(4		)	(2.12	)%
Education and travel	154		110		44			40.00	%
Postage and freight	105		103		2			1.94	%
Printing and supplies	89		106		(17		)	(16.04	)%
Loan underwriting fees	83		97		(14		)	(14.43	)%
Consulting fees	96		68		28			41.18	%
All other	684		587		97			16.52	%
Total other	2,295		2,001		294			14.69	%
Total noninterest expenses	$	9,514	$	9,320	$	194		2.08	%

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	Nine Months Ended September 30
					Change
	2014		2013		$			%
Compensation and benefits
Employee salaries	$	12,114	$	11,640	$	474		4.07	%
Employee benefits	3,931		4,381		(450		)	(10.27	)%
Total compensation and benefits	16,045		16,021		24			0.15	%
Furniture and equipment
Service contracts	1,871		1,673		198			11.84	%
Depreciation	1,379		1,411		(32		)	(2.27	)%
ATM and debit card fees	542		544		(2		)	(0.37	)%
All other	43		56		(13		)	(23.21	)%
Total furniture and equipment	3,835		3,684		151			4.10	%
Occupancy
Outside services	543		489		54			11.04	%
Depreciation	523		492		31			6.30	%
Utilities	403		382		21			5.50	%
Property taxes	396		393		3			0.76	%
All other	250		226		24			10.62	%
Total occupancy	2,115		1,982		133			6.71	%
Other
Marketing and community relations	966		945		21			2.22	%
FDIC insurance premiums	619		812		(193		)	(23.77	)%
Directors fees	569		607		(38		)	(6.26	)%
Audit and related fees	505		490		15			3.06	%
Education and travel	418		348		70			20.11	%
Postage and freight	303		296		7			2.36	%
Printing and supplies	278		291		(13		)	(4.47	)%
Loan underwriting fees	270		336		(66		)	(19.64	)%
Consulting fees	263		223		40			17.94	%
All other	2,114		1,800		314			17.44	%
Total other	6,305		6,148		157			2.55	%
Total noninterest expenses	$	28,300	$	27,835	$	465		1.67	%

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 $250 and $200 for the nine month periods ended September 30, 2014 and 2013, respectively.

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• FDIC insurance premiums were elevated 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

	September 30 2014		December 31 2013			$ Change			% Change (unannualized)
ASSETS
Cash and cash equivalents	$	25,531	$	41,558		$	(16,027	)	(38.57	)%
Certificates of deposit held in other financial institutions	580		580			—			—
Trading securities	—		525			(525		)	(100.00	)%
AFS securities
Amortized cost of AFS securities	572,087		517,614			54,473			10.52	%
Unrealized Gains (losses) on AFS securities	2,993		(5,552		)	8,545			N/M
AFS securities	575,080		512,062			63,018			12.31	%
Mortgage loans AFS	421		1,104			(683		)	(61.87	)%
Loans
Gross loans	822,299		808,037			14,262			1.77	%
Less allowance for loan and lease losses	10,400		11,500			(1,100		)	(9.57	)%
Net loans	811,899		796,537			15,362			1.93	%
Premises and equipment	25,843		25,719			124			0.48	%
Corporate owned life insurance policies	24,957		24,401			556			2.28	%
Accrued interest receivable	6,906		5,442			1,464			26.90	%
Equity securities without readily determinable fair values	19,063		18,293			770			4.21	%
Goodwill and other intangible assets	46,168		46,311			(143		)	(0.31	)%
Other assets	17,526		20,605			(3,079		)	(14.94	)%
TOTAL ASSETS	$	1,553,974	$	1,493,137		$	60,837		4.07	%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits	$	1,081,890	$	1,043,766		$	38,124		3.65	%
Borrowed funds	290,438		279,326			11,112			3.98	%
Accrued interest payable and other liabilities	9,570		9,436			134			1.42	%
Total liabilities	1,381,898		1,332,528			49,370			3.70	%
Shareholders’ equity	172,076		160,609			11,467			7.14	%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,553,974	$	1,493,137		$	60,837		4.07	%

The following table outlines the changes in loans:

	September 30 2014		December 31 2013		$ Change			% Change (unannualized)
Commercial	$	416,824	$	392,104	$	24,720		6.30	%
Agricultural	101,795		92,589		9,206			9.94	%
Residential real estate	271,033		289,931		(18,898		)	(6.52	)%
Consumer	32,647		33,413		(766		)	(2.29	)%
Total	$	822,299	$	808,037	$	14,262		1.77	%

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The following table displays loan balances as of:

	September 30 2014		June 30 2014		March 31 2014		December 31 2013		September 30 2013
Commercial	$	416,824	$	407,791	$	399,702	$	392,104	$	388,973
Agricultural	101,795		97,661		92,059		92,589		92,927
Residential real estate	271,033		278,545		284,586		289,931		291,825
Consumer	32,647		32,310		32,064		33,413		34,124
Total	$	822,299	$	816,307	$	808,411	$	808,037	$	807,849

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:

	September 30 2014		December 31 2013		$ Change			% Change (unannualized)
Noninterest bearing demand deposits	$	175,634	$	158,428	$	17,206		10.86	%
Interest bearing demand deposits	192,211		192,089		122			0.06	%
Savings deposits	269,475		243,237		26,238			10.79	%
Certificates of deposit	341,153		362,473		(21,320		)	(5.88	)%
Brokered certificates of deposit	74,132		56,329		17,803			31.61	%
Internet certificates of deposit	29,285		31,210		(1,925		)	(6.17	)%
Total	$	1,081,890	$	1,043,766	$	38,124		3.65	%

The following table displays deposit balances as of:

	September 30 2014		June 30 2014		March 31 2014		December 31 2013		September 30 2013
Noninterest bearing demand deposits	$	175,634	$	162,537	$	158,241	$	158,428	$	143,013
Interest bearing demand deposits	192,211		186,705		194,407		192,089		186,630
Savings deposits	269,475		260,038		261,444		243,237		245,217
Certificates of deposit	341,153		346,200		356,847		362,473		366,349
Brokered certificates of deposit	74,132		75,031		65,273		56,329		51,410
Internet certificates of deposit	29,285		30,417		29,723		31,210		31,312
Total	$	1,081,890	$	1,060,928	$	1,065,935	$	1,043,766	$	1,023,931

Overall, deposits have grown considerably since September 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. In addition to utilizing deposits, we also utilize borrowings and brokered deposits to fund earning assets. 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:

	September 30 2014		June 30 2014		March 31 2014		December 31 2013		September 30 2013
Government sponsored enterprises	$	23,917	$	24,104	$	23,883	$	23,745	$	24,155
States and political subdivisions	223,545		214,210		219,644		201,988		193,786
Auction rate money market preferred	2,863		2,867		2,755		2,577		2,639
Preferred stocks	6,173		6,214		6,053		5,827		6,144
Mortgage-backed securities	170,767		162,992		157,856		144,115		146,393
Collateralized mortgage obligations	147,815		140,131		144,953		133,810		127,940
Total	$	575,080	$	550,518	$	555,144	$	512,062	$	501,057

The following table displays borrowed funds balances as of:

	September 30 2014		June 30 2014		March 31 2014		December 31 2013		September 30 2013
FHLB advances	$	182,000	$	182,000	$	162,000	$	162,000	$	162,000
Securities sold under agreements to repurchase without stated maturity dates	89,535		87,058		94,741		106,025		81,405
Securities sold under agreements to repurchase with stated maturity dates	1,203		1,199		1,195		11,301		16,296
Federal funds purchased	17,700		9,200		14,600		—		6,300
Total	$	290,438	$	279,457	$	272,536	$	279,326	$	266,001

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 122,261 shares or $2,845 of common stock during the first nine months of 2014, as compared to 111,904 shares or $2,754 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 $382 and $423 during the nine month periods ended September 30, 2014 and 2013, respectively.

We have approved a publicly announced common stock repurchase plan. Pursuant to this plan, we repurchased 110,680 shares or $2,550 of common stock compared to 73,969 shares for $1,815 during the first nine months of 2014 and 2013, respectively. As of September 30, 2014, we were authorized to repurchase up to an additional 26,716 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 8.47% as of September 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:

	September 30 2014		December 31 2013		Required
Equity Capital	13.86	%	13.67	%	4.00	%
Secondary Capital	1.25	%	1.25	%	4.00	%
Total Capital	15.11	%	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 September 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:

	September 30 2014		December 31 2013
Unfunded commitments under lines of credit	$	108,071	$	121,959
Commercial and standby letters of credit	3,375		4,169
Commitments to grant loans	21,125		29,096
Total	$	132,571	$	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 10 – 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 $601,191 or 38.69% of assets as of September 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 AFS securities or loans as collateral. As of September 30, 2014, we had available lines of credit of $111,890.

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

	2014			2013			$ Variance
Net cash provided by (used in) operating activities	$	12,040		$	17,746		$	(5,706	)
Net cash provided by (used in) investing activities	(72,254		)	(48,142		)	(24,112		)
Net cash provided by (used in) financing activities	44,187			27,080			17,107
Increase (decrease) in cash and cash equivalents	(16,027		)	(3,316		)	(12,711		)
Cash and cash equivalents January 1	41,558			24,920			16,638
Cash and cash equivalents September 30	$	25,531		$	21,604		$	3,927

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.

57

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 September 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 September 30, 2015
Immediate basis point change assumption (short-term)	(100)		0	100		200		300		400
Percent change in net interest income vs. constant rates	(1.03	)%	—	(1.24	)%	(2.60	)%	(5.01	)%	(7.40	)%

	24 Months Ending September 30, 2016
Immediate basis point change assumption (short-term)	(100)		0	100		200		300		400
Percent change in net interest income vs. constant rates	(1.11	)%	—	(1.67	)%	(0.87	)%	(1.70	)%	(3.15	)%

	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 September 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.

58

	September 30, 2014
	2015			2016			2017			2018			2019			Thereafter			Total			Fair Value
Rate sensitive assets
Other interest bearing assets	$	3,580		$	—		$	100		$	—		$	—		$	—		$	3,680		$	3,680
Average interest rates	0.34		%	—			0.35		%	—			—			—			0.34		%
Trading securities	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Average interest rates	—			—			—			—			—			—			—
AFS securities	$	118,904		$	100,245		$	70,790		$	53,291		$	47,563		$	184,287		$	575,080		$	575,080
Average interest rates	2.28		%	2.13		%	2.48		%	2.40		%	2.48		%	2.55		%	2.39		%
Fixed interest rate loans (1)	$	106,995		$	99,861		$	122,666		$	97,838		$	73,782		$	146,046		$	647,188		$	646,966
Average interest rates	5.23		%	4.90		%	4.55		%	4.33		%	4.46		%	4.26		%	4.61		%
Variable interest rate loans (1)	$	69,853		$	27,196		$	20,875		$	14,689		$	14,727		$	27,771		$	175,111		$	175,111
Average interest rates	7.06		%	4.01		%	3.92		%	3.41		%	3.31		%	3.90		%	5.09		%
Rate sensitive liabilities
Borrowed funds	$	150,421		$	20,000		$	30,000		$	40,017		$	20,000		$	30,000		$	290,438		$	293,881
Average interest rates	0.32		%	1.69		%	1.95		%	2.35		%	3.10		%	2.75		%	1.30		%
Savings and NOW accounts	$	41,131		$	37,074		$	33,300		$	29,942		$	26,951		$	293,288		$	461,686		$	461,686
Average interest rates	0.12		%	0.12		%	0.12		%	0.12		%	0.12		%	0.12		%	0.12		%
Fixed interest rate certificates of deposit	$	219,928		$	76,618		$	61,472		$	56,442		$	22,813		$	6,200		$	443,473		$	444,032
Average interest rates	0.93		%	1.69		%	1.57		%	1.35		%	1.45		%	4.61		%	1.28		%
Variable interest rate certificates of deposit	$	748		$	349		$	—		$	—		$	—		$	—		$	1,097		$	1,097
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.

59

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 September 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 September 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.

60

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 22, 2014, to allow for the repurchase of an additional 150,000 shares of common stock after that date. 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 September 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, June 30					66,812
July 1 - 31	9,399	$	22.02	9,399	57,413
August 1 - 31	16,464	22.11		16,464	40,949
September 1 - 30	14,233	23.33		14,233	26,716
Balance, September 30	40,096	$	22.52	40,096	26,716

61

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.

62

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:	November 7, 2014		/s/ Jae A. Evans
			Jae A. Evans
			Chief Executive Officer
			(Principal Executive Officer)
Date:	November 7, 2014		/s/ Dennis P. Angner
			Dennis P. Angner
			President, Chief Financial Officer
			(Principal Financial Officer, Principal Accounting Officer)

63

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:	November 7, 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:	November 7, 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 September 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)

November 7, 2014

/s/ Dennis P. Angner

President, Chief Financial Officer

(Principal Financial Officer, Principal Accounting Officer)

November 7, 2014

XML

Loans and ALLL (Summary of recorded investment in loans by segments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Jun. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	$ 3,654		$ 4,352
Collectively evaluated for impairment, ALLL	6,746		7,148
Total, ALLL	10,400	10,700	11,500	11,600	11,700	11,936
Individually evaluated for impairment, Loans	26,574		29,775
Collectively evaluated for impairment, Loans	795,725		778,262
Total	822,299		808,037
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	1,318		2,035
Collectively evaluated for impairment, ALLL	2,998		4,013
Total, ALLL	4,316	5,012	6,048	6,213	6,472	6,862
Individually evaluated for impairment, Loans	11,955		13,816
Collectively evaluated for impairment, Loans	404,869		378,288
Total	416,824		392,104
Agricultural [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	0		30
Collectively evaluated for impairment, ALLL	188		404
Total, ALLL	188	219	434	431	335	407
Individually evaluated for impairment, Loans	1,625		1,538
Collectively evaluated for impairment, Loans	100,170		91,051
Total	101,795		92,589
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	2,335		2,287
Collectively evaluated for impairment, ALLL	1,626		1,558
Total, ALLL	3,961	3,981	3,845	3,747	3,676	3,627
Individually evaluated for impairment, Loans	12,925		14,302
Collectively evaluated for impairment, Loans	258,108		275,629
Total	271,033		289,931
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	1		0
Collectively evaluated for impairment, ALLL	720		639
Total, ALLL	721	802	639	666	647	666
Individually evaluated for impairment, Loans	69		119
Collectively evaluated for impairment, Loans	32,578		33,294
Total	32,647		33,413
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment, ALLL	0		0
Collectively evaluated for impairment, ALLL	1,214		534
Total, ALLL	$ 1,214	$ 686	$ 534	$ 543	$ 570	$ 374

XML

Other Noninterest Expenses (Expenses included in other noninterest expenses) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Summary of expenses included in other noninterest expenses
Marketing and community relations	$ 512	$ 271	$ 966	$ 945
FDIC insurance premiums	196	267	619	812
Directors fees	191	203	569	607
Audit and related fees	185	189	505	490
Education and travel	154	110	418	348
Postage and freight	105	103	303	296
Printing and supplies	89	106	278	291
Loan underwriting fees	83	97	270	336
Consulting fees	96	68	263	223
All other	684	587	2,114	1,800
Total other	$ 2,295	$ 2,001	$ 6,305	$ 6,148

XML

Borrowed Funds (Borrowed funds obligations) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Schedule of Debt [Line Items]
Borrowed funds	$ 290,438	$ 279,326
Borrowed funds, Rate	1.31%	1.35%
Securities Sold under Agreements to Repurchase [Member]
Schedule of Debt [Line Items]
Borrowed funds	89,535	106,025
Borrowed funds, Rate	0.13%	0.13%
Federal Funds Purchased [Member]
Schedule of Debt [Line Items]
Borrowed funds	17,700	0
Borrowed funds, Rate	0.56%	0.00%
Federal Home Loan Bank Advances [Member]
Schedule of Debt [Line Items]
Borrowed funds	182,000	162,000
Borrowed funds, Rate	1.94%	2.02%
Securities Sold under Agreements to Repurchase [Member]
Schedule of Debt [Line Items]
Borrowed funds	$ 1,203	$ 11,301
Borrowed funds, Rate	4.24%	3.30%

XML

Federal Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Income Tax Disclosure [Abstract]
Federal statutory tax rate	34.00%	34.00%	34.00%	34.00%
Income taxes at 34% statutory rate	$ 1,309	$ 1,347	$ 4,072	$ 3,903
Interest income on tax exempt municipal securities	(501)	(433)	(1,498)	(1,278)
Earnings on corporate owned life insurance policies	(62)	(63)	(189)	(185)
Effect of tax credits	(187)	(191)	(575)	(588)
Other	(158)	(27)	(235)	(79)
Total effect of nontaxable income	(908)	(714)	(2,497)	(2,130)
Effect of nondeductible expenses	43	41	121	120
Federal income tax expense	$ 444	$ 674	$ 1,696	$ 1,893

XML

Loans and ALLL (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 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	$ 65		$ 134
Number of Loans		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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Computation of Earnings Per Common Share (Schedule of Earnings Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Earnings Per Share [Abstract]
Average number of common shares outstanding for basic calculation	7,733,362		7,698,066		7,725,706		7,689,350
Average potential effect of common shares in the Directors Plan	170,897	[1]	170,420	[1]	170,955	[1]	168,020	[1]
Average number of common shares outstanding used to calculate diluted earnings per common share	7,904,259		7,868,486		7,896,661		7,857,370
Net income	$ 3,405		$ 3,286		$ 10,279		$ 9,586
Basic (in dollars per share)	$ 0.44		$ 0.43		$ 1.33		$ 1.25
Diluted (in dollars per share)	$ 0.43		$ 0.42		$ 1.30		$ 1.22

[1] Exclusive of shares held in the Rabbi Trust

XML

Fair Value (Quantitative information about impaired loans) (Details) (Discounted appraisal value [Member], Level 3 [Member], USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discounted appraisal value at fair value	$ 8,535	$ 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	25.00%	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	75.00%	75.00%
Accounts receivable [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	50.00%	75.00%
Liquor License [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	75.00%

XML

Loans and ALLL (Tables)

9 Months Ended

Sep. 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 September 30, 2013
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated			Total
July 1, 2013	$	6,472		$	335		$	3,676		$	647		$	570		$	11,700
Loans charged-off	(394		)	(12		)	(94		)	(102		)	—			(602		)
Recoveries	66			—			38			47			—			151
Provision for loan losses	69			108			127			74			(27		)	351
September 30, 2013	$	6,213		$	431		$	3,747		$	666		$	543		$	11,600

	Allowance for Loan Losses
	Nine Months Ended September 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	(839		)	(12		)	(681		)	(311		)	—		(1,843		)
Recoveries	289			—			152			200			—		641
Provision for loan losses	(99		)	36			649			111			169		866
September 30, 2013	$	6,213		$	431		$	3,747		$	666		$	543	$	11,600

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

	Allowance for Loan Losses
	Three Months Ended September 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
July 1, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700
Loans charged-off	(163		)	—			(180		)	(73		)	—		(416		)
Recoveries	171			—			68			39			—		278
Provision for loan losses	(704		)	(31		)	92			(47		)	528		(162		)
September 30, 2014	$	4,316		$	188		$	3,961		$	721		$	1,214	$	10,400

	Allowance for Loan Losses
	Nine Months Ended September 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	(434		)	(31		)	(557		)	(255		)	—		(1,277		)
Recoveries	477			—			190			114			—		781
Provision for loan losses	(1,775		)	(215		)	483			223			680		(604		)
September 30, 2014	$	4,316		$	188		$	3,961		$	721		$	1,214	$	10,400

Allowance for Loan Losses and Recorded Investment in Loans

	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

	Allowance for Loan Losses and Recorded Investment in Loans
	September 30, 2014
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	1,318	$	—	$	2,335	$	1	$	—	$	3,654
Collectively evaluated for impairment	2,998		188		1,626		720		1,214		6,746
Total	$	4,316	$	188	$	3,961	$	721	$	1,214	$	10,400
Loans
Individually evaluated for impairment	$	11,955	$	1,625	$	12,925	$	69			$	26,574
Collectively evaluated for impairment	404,869		100,170		258,108		32,578				795,725
Total	$	416,824	$	101,795	$	271,033	$	32,647			$	822,299

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 risk ratings as of:

	September 30, 2014
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	14,268	$	10,078	$	24,346	$	6,138	$	3,899	$	10,037
3 - High satisfactory	90,321		47,674		137,995		27,278		13,181		40,459
4 - Low satisfactory	186,866		41,368		228,234		30,556		16,908		47,464
5 - Special mention	9,859		1,343		11,202		1,729		68		1,797
6 - Substandard	12,139		137		12,276		1,658		265		1,923
7 - Vulnerable	2,579		179		2,758		115		—		115
8 - Doubtful	—		13		13		—		—		—
Total	$	316,032	$	100,792	$	416,824	$	67,474	$	34,321	$	101,795

	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:

	September 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	$	315	$	58	$	—	$	2,579	$	2,952	$	313,080	$	316,032
Commercial other	582		—		—		179		761		100,031		100,792
Total commercial	897		58		—		2,758		3,713		413,111		416,824
Agricultural
Agricultural real estate	—		—		—		115		115		67,359		67,474
Agricultural other	76		—		—		—		76		34,245		34,321
Total agricultural	76		—		—		115		191		101,604		101,795
Residential real estate
Senior liens	1,373		254		138		1,220		2,985		215,295		218,280
Junior liens	265		—		—		135		400		11,397		11,797
Home equity lines of credit	330		38		—		258		626		40,330		40,956
Total residential real estate	1,968		292		138		1,613		4,011		267,022		271,033
Consumer
Secured	86		—		—		10		96		28,303		28,399
Unsecured	12		—		26		—		38		4,210		4,248
Total consumer	98		—		26		10		134		32,513		32,647
Total	$	3,039	$	350	$	164	$	4,496	$	8,049	$	814,250	$	822,299

	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:

	September 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	$	7,614	$	7,732	$	1,314	$	6,748	$	6,888	$	1,915
Commercial other	548		767		4		521		521		120
Agricultural real estate	—		—		—		90		90		30
Residential real estate senior liens	12,425		13,679		2,259		14,061		15,315		2,278
Residential real estate junior liens	241		251		50		48		64		9
Home equity lines of credit	259		659		26		—		—		—
Consumer secured	59		59		1		—		—		—
Total impaired loans with a valuation allowance	21,146		23,147		3,654		21,468		22,878		4,352
Impaired loans without a valuation allowance
Commercial real estate	3,480		3,958				5,622		6,499
Commercial other	313		324				925		1,035
Agricultural real estate	1,558		1,558				1,370		1,370
Agricultural other	67		187				78		198
Home equity lines of credit	—		—				193		493
Consumer secured	10		10				119		148
Total impaired loans without a valuation allowance	5,428		6,037				8,307		9,743
Impaired loans
Commercial	11,955		12,781		1,318		13,816		14,943		2,035
Agricultural	1,625		1,745		—		1,538		1,658		30
Residential real estate	12,925		14,589		2,335		14,302		15,872		2,287
Consumer	69		69		1		119		148		—
Total impaired loans	$	26,574	$	29,184	$	3,654	$	29,775	$	32,621	$	4,352

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

	Three Months Ended   September 30, 2014					Nine Months Ended   September 30, 2014
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	7,063	$	106		$	6,822	$	291
Commercial other	589		11			746		40
Agricultural real estate	102		—			113		—
Agricultural other	—		—			—		—
Residential real estate senior liens	12,440		124			12,938		388
Residential real estate junior liens	167		(8		)	94		(7		)
Home equity lines of credit	310		2			220		13
Consumer secured	62		1			72		3
Total impaired loans with a valuation allowance	20,733		236			21,005		728
Impaired loans without a valuation allowance
Commercial real estate	4,594		69			5,396		262
Commercial other	314		5			397		12
Agricultural real estate	1,460		22			1,425		59
Agricultural other	43		1			112		29
Home equity lines of credit	—		—			32		—
Consumer secured	10		—			5		—
Total impaired loans without a valuation allowance	6,421		97			7,367		362
Impaired loans
Commercial	12,560		191			13,361		605
Agricultural	1,605		23			1,650		88
Residential real estate	12,917		118			13,284		394
Consumer	72		1			77		3
Total impaired loans	$	27,154	$	333		$	28,372	$	1,090

	Three Months Ended   September 30, 2013				Nine Months Ended   September 30, 2013
	Average Outstanding Balance		Interest Income Recognized		Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	6,471	$	157	$	7,546	$	378
Commercial other	1,063		29		976		67
Agricultural real estate	91		2		91		4
Agricultural other	—		—		70		—
Residential real estate senior liens	10,865		230		10,595		439
Residential real estate junior liens	80		4		84		5
Home equity lines of credit	—		—		—		—
Consumer secured	—		—		—		—
Total impaired loans with a valuation allowance	18,570		422		19,362		893
Impaired loans without a valuation allowance
Commercial real estate	4,531		169		4,037		327
Commercial other	833		29		1,029		88
Agricultural real estate	231		15		144		19
Agricultural other	361		2		402		(2		)
Home equity lines of credit	173		8		178		17
Consumer secured	60		1		66		3
Total impaired loans without a valuation allowance	6,189		224		5,856		452
Impaired loans
Commercial	12,898		384		13,588		860
Agricultural	683		19		707		21
Residential real estate	11,118		242		10,857		461
Consumer	60		1		66		3
Total impaired loans	$	24,759	$	646	$	25,218	$	1,345

Information pertaining to TDR's

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

	Three Months Ended September 30, 2014					Nine Months Ended September 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	2	$	23	$	23	7	$	386	$	386
Agricultural other	1	49		49		1	49		49
Residential real estate
Senior liens	2	144		144		14	805		805
Junior liens	1	40		40		2	81		81
Home equity lines of credit	—	—		—		1	160		160
Total residential real estate	3	184		184		17	1,046		1,046
Consumer unsecured	1	10		10		4	18		18
Total	7	$	266	$	266	29	$	1,499	$	1,499

	Three Months Ended September 30, 2013					Nine Months Ended September 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	3	$	159	$	159	10	$	3,313	$	3,116
Agricultural other	1	198		198		2	332		332
Residential real estate
Senior liens	15	1,176		1,176		30	2,611		2,595
Junior liens	1	20		20		1	20		20
Home equity lines of credit	—	—		—		—	—		—
Total residential real estate	16	1,196		1,196		31	2,631		2,615
Consumer unsecured	2	34		34		2	34		34
Total	22	$	1,587	$	1,587	45	$	6,310	$	6,097

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

	Three Months Ended September 30, 2014						Nine Months Ended September 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	2	$	23	—	$	—	6	$	378	1	$	8
Agricultural other	—	—		1	49		—	—		1	49
Residential real estate
Senior liens	—	—		2	144		3	98		11	707
Junior liens	—	—		1	40		—	—		2	81
Home equity lines of credit	—	—		—	—		1	160		—	—
Total residential real estate	—	—		3	184		4	258		13	788
Consumer unsecured	1	10		—	—		3	15		1	3
Total	3	$	33	4	$	233	13	$	651	16	$	848

	Three Months Ended September 30, 2013						Nine Months Ended September 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	$	159	—	$	—	6	$	1,517	4	$	1,796
Agricultural other	1	198		—	—		2	332		—	—
Residential real estate
Senior liens	10	924		5	252		17	1,548		13	1,063
Junior liens	—	—		1	20		—	—		1	20
Home equity lines of credit	—	—		—	—		—	—		—	—
Total residential real estate	10	924		6	272		17	1,548		14	1,083
Consumer unsecured	1	16		1	18		1	16		1	18
Total	15	$	1,297	7	$	290	26	$	3,413	19	$	2,897

Following is a summary of loans that defaulted in the three and nine month periods ended September 30, 2014, which were modified within 12 months prior to the default date:

	Three Months Ended September 30, 2014							Nine Months Ended September 30, 2014
	Number of Loans	Pre- Default Recorded Investment		Charge-Off Recorded Upon Default		Post- Default Recorded Investment		Number of Loans	Pre- Default Recorded Investment		Charge-Off Recorded Upon Default		Post- Default Recorded Investment
Consumer unsecured	2	$	7	$	7	$	—	2	$	7	$	7	$	—

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

	September 30, 2014		December 31, 2013
TDRs	$	24,015	$	25,865

XML

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	Sep. 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	$ 750
Repurchase agreements due 2014, Amount		10,876
Repurchase agreements due 2015, Amount	436	425
Repurchase agreements due 2018	17	0
Total, Amount	$ 1,203	$ 11,301
Long-term Debt, Maturities Summary, Average Interest Rate Of Amounts Due [Abstract]
Repurchase agreements due 2014, Rate	4.89%	3.30%
Repurchase agreements due 2015, Rate	3.25%	3.25%
Long-term Debt, Maturities Summary, Average Interest Rate, Four To Five Years From Balance Sheet Date	1.00%	0.00%
Total, Rate	4.24%	3.30%

XML

Loans and ALLL (Summary of information pertaining to impaired loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	$ 21,146		$ 21,146		$ 21,468
Impaired loans without a valuation allowance, Outstanding Balance	5,428		5,428		8,307
Impaired loans, Outstanding Balance	26,574		26,574		29,775
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	23,147		23,147		22,878
Impaired loans without a valuation allowance, Unpaid Principal Balance	6,037		6,037		9,743
Impaired loans, Unpaid Principal Balance	29,184		29,184		32,621
Impaired loans, Valuation Allowance	3,654		3,654		4,352
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	20,733	18,570	21,005	19,362
Impaired loans without a valuation allowance, Average Outstanding Balance	6,421	6,189	7,367	5,856
Impaired loans, Average Outstanding Balance	27,154	24,759	28,372	25,218
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	236	422	728	893
Impaired loans without a valuation allowance, Interest Income Recognized	97	224	362	452
Impaired loans, Interest Income Recognized	333	646	1,090	1,345
Total commercial [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans, Outstanding Balance	11,955		11,955		13,816
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans, Unpaid Principal Balance	12,781		12,781		14,943
Impaired loans, Valuation Allowance	1,318		1,318		2,035
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans, Average Outstanding Balance	12,560	12,898	13,361	13,588
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans, Interest Income Recognized	191	384	605	860
Commercial real estate [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	7,614		7,614		6,748
Impaired loans without a valuation allowance, Outstanding Balance	3,480		3,480		5,622
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	7,732		7,732		6,888
Impaired loans without a valuation allowance, Unpaid Principal Balance	3,958		3,958		6,499
Impaired loans, Valuation Allowance	1,314		1,314		1,915
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	7,063	6,471	6,822	7,546
Impaired loans without a valuation allowance, Average Outstanding Balance	4,594	4,531	5,396	4,037
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	106	157	291	378
Impaired loans without a valuation allowance, Interest Income Recognized	69	169	262	327
Commercial other [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	548		548		521
Impaired loans without a valuation allowance, Outstanding Balance	313		313		925
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	767		767		521
Impaired loans without a valuation allowance, Unpaid Principal Balance	324		324		1,035
Impaired loans, Valuation Allowance	4		4		120
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	589	1,063	746	976
Impaired loans without a valuation allowance, Average Outstanding Balance	314	833	397	1,029
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	11	29	40	67
Impaired loans without a valuation allowance, Interest Income Recognized	5	29	12	88
Total agricultural [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans, Outstanding Balance	1,625		1,625		1,538
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans, Unpaid Principal Balance	1,745		1,745		1,658
Impaired loans, Valuation Allowance	0		0		30
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans, Average Outstanding Balance	1,605	683	1,650	707
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans, Interest Income Recognized	23	19	88	21
Agricultural real estate [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	0		0		90
Impaired loans without a valuation allowance, Outstanding Balance	1,558		1,558		1,370
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	0		0		90
Impaired loans without a valuation allowance, Unpaid Principal Balance	1,558		1,558		1,370
Impaired loans, Valuation Allowance	0		0		30
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	102	91	113	91
Impaired loans without a valuation allowance, Average Outstanding Balance	1,460	231	1,425	144
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	0	2	0	4
Impaired loans without a valuation allowance, Interest Income Recognized	22	15	59	19
Agricultural other [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans without a valuation allowance, Outstanding Balance	67		67		78
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans without a valuation allowance, Unpaid Principal Balance	187		187		198
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	0	0	0	70
Impaired loans without a valuation allowance, Average Outstanding Balance	43	361	112	402
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	1	2	29	(2)
Total residential real estate [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans, Outstanding Balance	12,925		12,925		14,302
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans, Unpaid Principal Balance	14,589		14,589		15,872
Impaired loans, Valuation Allowance	2,335		2,335		2,287
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans, Average Outstanding Balance	12,917	11,118	13,284	10,857
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans, Interest Income Recognized	118	242	394	461
Residential real estate senior liens [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	12,425		12,425		14,061
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	13,679		13,679		15,315
Impaired loans, Valuation Allowance	2,259		2,259		2,278
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	12,440	10,865	12,938	10,595
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	124	230	388	439
Residential real estate junior liens [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	241		241		48
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans with a valuation allowance, Unpaid Principal Balance	251		251		64
Impaired loans, Valuation Allowance	50		50		9
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	167	80	94	84
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	(8)	4	(7)	5
Residential real estate home equity lines of credit [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	259		259		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	659		659		0
Impaired loans without a valuation allowance, Unpaid Principal Balance	0		0		493
Impaired loans, Valuation Allowance	26		26		0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Average Outstanding Balance	310	0	220	0
Impaired loans without a valuation allowance, Average Outstanding Balance	0	173	32	178
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	2	0	13	0
Impaired loans without a valuation allowance, Interest Income Recognized	0	8	0	17
Total consumer [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans, Outstanding Balance	69		69		119
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired loans, Unpaid Principal Balance	69		69		148
Impaired loans, Valuation Allowance	1		1		0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired loans, Average Outstanding Balance	72	60	77	66
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans, Interest Income Recognized	1	1	3	3
Consumer secured [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired loans with a valuation allowance, Outstanding Balance	59		59		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	59		59		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	62	0	72	0
Impaired loans without a valuation allowance, Average Outstanding Balance	10	60	5	66
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired loans with a valuation allowance, Interest Income Recognized	1	0	3	0
Impaired loans without a valuation allowance, Interest Income Recognized	$ 0	$ 1	$ 0	$ 3

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AFS Securities (AFS securities with gross unrealized losses) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014 Securities	Dec. 31, 2013 Securities
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	$ 594	$ 8,457
Fair Value, Less Than Twelve Months	88,502	251,760
Gross Unrealized Losses, Twelve Months or More	6,273	4,007
Fair Value, Twelve Months or More	154,217	33,161
Total Unrealized Losses	6,867	12,464
Number of Securities in an unrealized loss position, Less Than Twelve Months, Fair Value	77	182
Number of Securities in an unrealized loss position, Twelve Months or More, Fair Value	96	19
Number of Securities in an unrealized loss position, Total Unrealized Losses	173	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	733	0
Fair Value, Twelve Months or More	23,262	0
Total Unrealized Losses	733	1,122
States and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	106	2,566
Fair Value, Less Than Twelve Months	10,836	42,593
Gross Unrealized Losses, Twelve Months or More	881	981
Fair Value, Twelve Months or More	21,430	6,115
Total Unrealized Losses	987	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	337	623
Fair Value, Twelve Months or More	2,863	2,577
Total Unrealized Losses	337	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	640	993
Fair Value, Twelve Months or More	3,160	2,807
Total Unrealized Losses	640	993
Mortgage-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	165	2,424
Fair Value, Less Than Twelve Months	33,358	101,816
Gross Unrealized Losses, Twelve Months or More	2,068	1,410
Fair Value, Twelve Months or More	62,800	21,662
Total Unrealized Losses	2,233	3,834
Collateralized mortgage obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Losses, Less Than Twelve Months	323	2,345
Fair Value, Less Than Twelve Months	44,308	84,478
Gross Unrealized Losses, Twelve Months or More	1,614	0
Fair Value, Twelve Months or More	40,702	0
Total Unrealized Losses	$ 1,937	$ 2,345

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Borrowed Funds (Pledged financial instruments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Debt Disclosure [Abstract]
Pledged to secure borrowed funds	$ 278,512	$ 320,173
Pledged to secure repurchase agreements	139,350	148,930
Pledged for public deposits and for other purposes necessary or required by law	18,791	20,922
Total	$ 436,653	$ 490,025

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Parent Company Only Financial Information (Interim Condensed Statements of Cash Flows) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Operating activities
Net income	$ 10,279	$ 9,586
Adjustments to reconcile net income to cash provided by operations
Share-based payment awards	382	423
Depreciation	1,902	1,903
Net amortization of AFS securities	1,382	1,595
Changes in operating assets and liabilities which used cash
Other assets	(958)	319
Accrued interest and other liabilities	134	622
Net cash provided by (used in) operating activities	12,040	17,746
Investing activities
Purchases of equipment and premises	(2,026)	(2,134)
Net cash provided by (used in) investing activities	(72,254)	(48,142)
Financing activities
Net increase (decrease) in other borrowed funds	11,112	25,000
Cash dividends paid on common stock	(5,091)	(4,838)
Proceeds from the issuance of common stock	2,845	2,754
Common stock repurchased	(2,550)	(1,815)
Common stock purchased for deferred compensation obligations	(253)	(285)
Net cash provided by (used in) financing activities	44,187	27,080
Increase (decrease) in cash and cash equivalents	(16,027)	(3,316)
Cash and cash equivalents at beginning of period	41,558	24,920
Cash and cash equivalents at end of period	25,531	21,604
Parent Company [Member]
Operating activities
Net income	10,279	9,586
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(6,928)	(6,120)
Undistributed earnings of equity securities without readily determinable fair values	231	14
Share-based payment awards	382	423
Depreciation	109	136
Net amortization of AFS securities	1	1
Changes in operating assets and liabilities which used cash
Other assets	89	(65)
Accrued interest and other liabilities	1,242	939
Net cash provided by (used in) operating activities	5,405	4,914
Investing activities
Maturities, calls, and sales of AFS securities	250	395
Purchases of equipment and premises	(23)	(140)
Advances to subsidiaries, net of repayments	641	(99)
Net cash provided by (used in) investing activities	868	156
Financing activities
Net increase (decrease) in other borrowed funds	600	(800)
Cash dividends paid on common stock	(5,091)	(4,838)
Proceeds from the issuance of common stock	2,845	2,754
Common stock repurchased	(2,550)	(1,815)
Common stock purchased for deferred compensation obligations	(253)	(285)
Net cash provided by (used in) financing activities	(4,449)	(4,984)
Increase (decrease) in cash and cash equivalents	1,824	86
Cash and cash equivalents at beginning of period	529	332
Cash and cash equivalents at end of period	$ 2,353	$ 418

XML

Fair Value (Changes in fair value of assets and liabilities) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value, gain (loss), Trading securities			$ (5)	$ (23)
Changes in fair value, gain (loss), Total	(20)	(44)	(88)	(154)
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	0	(5)	(5)	(23)
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)	$ (39)	$ (83)	$ (131)

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Equity Securities Without Readily Determinable Fair Values (Equity securities without readily determinable fair values) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 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	19,063	18,293
Investment in Corporate Settlement Solutions [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investments	6,743	6,970
Investment in Valley Financial Corporation [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investments	$ 1,000	$ 1,000

XML

Basis of Presentation

9 Months Ended

Sep. 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 nine month periods ended September 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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Accumulated Other Comprehensive Income (Loss) (Changes in AOCI by component) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Beginning Balance	$ 468	$ (4,148)	$ (6,341)	$ 5,007
OCI before reclassifications	(1,326)	665	8,642	(13,293)
Amounts reclassified from AOCI	(97)	(72)	(97)	(171)
Net unrealized gains (losses)	(1,423)	593	8,545	(13,464)
Tax effect	469	(447)	(2,690)	4,455
Unrealized gains (losses), net of tax	(954)	146	5,855	(9,009)
Ending Balance	(486)	(4,002)	(486)	(4,002)
Unrealized Holding Gains (Losses) on AFS Securities [Member]
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Beginning Balance	2,602	(477)	(4,207)	8,678
OCI before reclassifications	(1,326)	665	8,642	(13,293)
Amounts reclassified from AOCI	(97)	(72)	(97)	(171)
Net unrealized gains (losses)	(1,423)	593	8,545	(13,464)
Tax effect	469	(447)	(2,690)	4,455
Unrealized gains (losses), net of tax	(954)	146	5,855	(9,009)
Ending Balance	1,648	(331)	1,648	(331)
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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Loans and ALLL (Summary of information pertaining to TDRs) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014 loan	Sep. 30, 2013 loan	Sep. 30, 2014 loan	Sep. 30, 2013 loan
Financing Receivable, Modifications [Line Items]
Number of Loans	7	22	29	45
Pre-Modification Recorded Investment	$ 266	$ 1,587	$ 1,499	$ 6,310
Post-Modification Recorded Investment	266	1,587	1,499	6,097
Commercial other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	2	3	7	10
Pre-Modification Recorded Investment	23	159	386	3,313
Post-Modification Recorded Investment	23	159	386	3,116
Agricultural other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	1	1	2
Pre-Modification Recorded Investment	49	198	49	332
Post-Modification Recorded Investment	49	198	49	332
Total residential real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	3	16	17	31
Pre-Modification Recorded Investment	184	1,196	1,046	2,631
Post-Modification Recorded Investment	184	1,196	1,046	2,615
Residential real estate senior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	2	15	14	30
Pre-Modification Recorded Investment	144	1,176	805	2,611
Post-Modification Recorded Investment	144	1,176	805	2,595
Residential real estate junior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	1	2	1
Pre-Modification Recorded Investment	40	20	81	20
Post-Modification Recorded Investment	40	20	81	20
Residential real estate home equity lines of credit [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	1	0
Pre-Modification Recorded Investment	0	0	160	0
Post-Modification Recorded Investment	0	0	160	0
Consumer unsecured [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	2	4	2
Pre-Modification Recorded Investment	10	34	18	34
Post-Modification Recorded Investment	10	34	18	34
Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	3	15	13	26
Pre-Modification Recorded Investment	33	1,297	651	3,413
Below Market Interest Rate [Member] | Commercial other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	2	3	6	6
Pre-Modification Recorded Investment	23	159	378	1,517
Below Market Interest Rate [Member] | Agricultural other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	1	0	2
Pre-Modification Recorded Investment	0	198	0	332
Below Market Interest Rate [Member] | Total residential real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	10	4	17
Pre-Modification Recorded Investment	0	924	258	1,548
Below Market Interest Rate [Member] | Residential real estate senior liens [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	10	3	17
Pre-Modification Recorded Investment	0	924	98	1,548
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	0	0	1	0
Pre-Modification Recorded Investment	0	0	160	0
Below Market Interest Rate [Member] | Consumer unsecured [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	1	3	1
Pre-Modification Recorded Investment	10	16	15	16
Below Market Interest Rate and Extension of Amortization Period [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	4	7	16	19
Pre-Modification Recorded Investment	233	290	848	2,897
Below Market Interest Rate and Extension of Amortization Period [Member] | Commercial other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	1	4
Pre-Modification Recorded Investment	0	0	8	1,796
Below Market Interest Rate and Extension of Amortization Period [Member] | Agricultural other [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	0	1	0
Pre-Modification Recorded Investment	49	0	49	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	6	13	14
Pre-Modification Recorded Investment	184	272	788	1,083
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	5	11	13
Pre-Modification Recorded Investment	144	252	707	1,063
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	1	2	1
Pre-Modification Recorded Investment	40	20	81	20
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	0	1	1	1
Pre-Modification Recorded Investment	$ 0	$ 18	$ 3	$ 18

XML

Federal Income Taxes (Tables)

9 Months Ended

Sep. 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   September 30						Nine Months Ended   September 30
	2014			2013			2014			2013
Income taxes at 34% statutory rate	$	1,309		$	1,347		$	4,072		$	3,903
Effect of nontaxable income
Interest income on tax exempt municipal securities	(501		)	(433		)	(1,498		)	(1,278		)
Earnings on corporate owned life insurance policies	(62		)	(63		)	(189		)	(185		)
Effect of tax credits	(187		)	(191		)	(575		)	(588		)
Other	(158		)	(27		)	(235		)	(79		)
Total effect of nontaxable income	(908		)	(714		)	(2,497		)	(2,130		)
Effect of nondeductible expenses	43			41			121			120
Federal income tax expense	$	444		$	674		$	1,696		$	1,893

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Other Noninterest Expenses (Tables)

9 Months Ended

Sep. 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   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Marketing and community relations	$	512	$	271	$	966	$	945
FDIC insurance premiums	196		267		619		812
Directors fees	191		203		569		607
Audit and related fees	185		189		505		490
Education and travel	154		110		418		348
Postage and freight	105		103		303		296
Printing and supplies	89		106		278		291
Loan underwriting fees	83		97		270		336
Consulting fees	96		68		263		223
All other	684		587		2,114		1,800
Total other	$	2,295	$	2,001	$	6,305	$	6,148

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Fair Value (Narrative) (Details Textual) (USD $)	9 Months Ended	12 Months Ended
	Sep. 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

XML

Loans and ALLL (Summary of Defaulted TDRs) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	3 Months Ended	9 Months Ended
	Sep. 30, 2013 loan	Sep. 30, 2014 Consumer unsecured loan	Sep. 30, 2014 Consumer unsecured loan
Financing Receivable, Modifications [Line Items]
Number of Loans	0	2	2
Pre- Default Recorded Investment		$ 7	$ 7
Charge-Off Recorded Upon Default		7	7
Post- Default Recorded Investment		$ 0	$ 0

XML

Fair Value (Tables)

9 Months Ended

Sep. 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:

	September 30, 2014
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,041	Real Estate	20% - 25%

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

	September 30, 2014
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 25%
		Equipment	30% - 40%
Discounted appraisal value	$8,535	Cash crop inventory	40%
		Other inventory	75%
		Accounts receivable	50%
		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 were as follows as of:

	September 30, 2014
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	25,531	$	25,531	$	25,531	$	—	$	—
Certificates of deposit held in other financial institutions	580		580		—		580		—
Mortgage loans AFS	421		434		—		434		—
Total loans	822,299		822,077		—		—		822,077
Less allowance for loan and lease losses	10,400		10,400		—		—		10,400
Net loans	811,899		811,677		—		—		811,677
Accrued interest receivable	6,906		6,906		6,906		—		—
Equity securities without readily determinable fair values (1)	19,063		19,063		—		—		—
OMSRs	2,577		2,655		—		2,655		—
LIABILITIES
Deposits without stated maturities	637,320		637,320		637,320		—		—
Deposits with stated maturities	444,570		445,129		—		445,129		—
Borrowed funds	290,438		293,881		—		293,881		—
Accrued interest payable	563		563		563		—		—

	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:

	September 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	23,917		—			23,917			—			23,745		—			23,745			—
States and political subdivisions	223,545		—			223,545			—			201,988		—			201,988			—
Auction rate money market preferred	2,863		—			2,863			—			2,577		—			2,577			—
Preferred stocks	6,173		6,173			—			—			5,827		5,827			—			—
Mortgage-backed securities	170,767		—			170,767			—			144,115		—			144,115			—
Collateralized mortgage obligations	147,815		—			147,815			—			133,810		—			133,810			—
Total AFS securities	575,080		6,173			568,907			—			512,062		5,827			506,235			—
Nonrecurring items
Impaired loans (net of the ALLL)	8,535		—			—			8,535			13,902		—			—			13,902
Foreclosed assets	1,041		—			—			1,041			1,412		—			—			1,412
Total	$	584,656	$	6,173		$	568,907		$	9,576		$	527,901	$	5,827		$	506,760		$	15,314
Percent of assets and liabilities measured at fair value			1.06		%	97.31		%	1.63		%			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 September 30
	2014								2013
	Trading Losses		Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	—	$	—		$	—		$	(5	)	$	—		$	(5	)
Nonrecurring items
Foreclosed assets	—		(20		)	(20		)				(39		)	(39		)
Total	$	—	$	(20	)	$	(20	)	$	(5	)	$	(39	)	$	(44	)

	Nine Months Ended September 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(5	)	$	—		$	(5	)	$	(23	)	$	—		$	(23	)
Nonrecurring items
Foreclosed assets	—			(83		)	(83		)	—			(131		)	(131		)
Total	$	(5	)	$	(83	)	$	(88	)	$	(23	)	$	(131	)	$	(154	)

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 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 September 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	$	253	$	(1,579	)	$	(1,326	)	$	(653	)	$	1,318		$	665
Reclassification adjustment for net realized (gains) losses included in net income	—		(97		)	(97		)	—			(72		)	(72		)
Net unrealized gains (losses)	253		(1,676		)	(1,423		)	(653		)	1,246			593
Tax effect	—		469			469			—			(447		)	(447		)
Unrealized gains (losses), net of tax	$	253	$	(1,207	)	$	(954	)	$	(653	)	$	799		$	146

	Nine Months Ended September 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	$	253	$	8,389		$	8,642		$	(358	)	$	(12,935	)	$	(13,293	)
Reclassification adjustment for net realized (gains) losses included in net income	—		(97		)	(97		)	—			(171		)	(171		)
Net unrealized gains (losses)	253		8,292			8,545			(358		)	(13,106		)	(13,464		)
Tax effect	—		(2,690		)	(2,690		)	—			4,455			4,455
Unrealized gains (losses), net of tax	$	253	$	5,602		$	5,855		$	(358	)	$	(8,651	)	$	(9,009	)

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

	Three Months Ended September 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, July 1	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)
OCI before reclassifications	(1,326		)	—			(1,326		)	665			—			665
Amounts reclassified from AOCI	(97		)	—			(97		)	(72		)	—			(72		)
Subtotal	(1,423		)	—			(1,423		)	593			—			593
Tax effect	469			—			469			(447		)	—			(447		)
OCI, net of tax	(954		)	—			(954		)	146			—			146
Balance, September 30	$	1,648		$	(2,134	)	$	(486	)	$	(331	)	$	(3,671	)	$	(4,002	)

	Nine Months Ended September 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	8,642			—			8,642			(13,293		)	—			(13,293		)
Amounts reclassified from AOCI	(97		)	—			(97		)	(171		)	—			(171		)
Subtotal	8,545			—			8,545			(13,464		)	—			(13,464		)
Tax effect	(2,690		)	—			(2,690		)	4,455			—			4,455
OCI, net of tax	5,855			—			5,855			(9,009		)	—			(9,009		)
Balance, September 30	$	1,648		$	(2,134	)	$	(486	)	$	(331	)	$	(3,671	)	$	(4,002	)

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 September 30				Nine Months Ended September 30
	2014		2013		2014		2013
Unrealized holding gains (losses) on AFS securities
	$	97	$	72	$	97	$	171	Net gains (losses) on sale of AFS securities
	97		72		97		171		Income before federal income tax expense
	33		24		33		58		Federal income tax expense
	$	64	$	48	$	64	$	113	Net income

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Interim Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
OPERATING ACTIVITIES
Net income	$ 10,279	$ 9,586
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses	(604)	866
Impairment of foreclosed assets	83	131
Depreciation	1,902	1,903
Amortization of OMSRs	206	453
Amortization of acquisition intangibles	143	171
Net amortization of AFS securities	1,382	1,595
Net (gains) losses on sale of AFS securities	(97)	(171)
Net unrealized (gains) losses on trading securities	5	23
Net gain on sale of mortgage loans	(436)	(822)
Increase in cash value of corporate owned life insurance policies	(556)	(544)
Share-based payment awards under equity compensation plan	382	423
Origination of loans held for sale	(21,746)	(45,992)
Proceeds from loan sales	22,865	49,735
Net changes in operating assets and liabilities which provided (used) cash:
Trading securities	520	805
Accrued interest receivable	(1,464)	(1,357)
Other assets	(958)	319
Accrued interest payable and other liabilities	134	622
Net cash provided by (used in) operating activities	12,040	17,746
INVESTING ACTIVITIES
Net change in certificates of deposit held in other financial institutions	0	2,420
Activity in AFS securities
Sales	13,362	16,229
Maturities and calls	47,527	70,164
Purchases	(116,647)	(98,328)
Loan principal (originations) collections, net	(15,952)	(37,385)
Proceeds from sales of foreclosed assets	1,482	1,788
Purchases of premises and equipment	(2,026)	(2,134)
Purchases of corporate owned life insurance policies	0	(1,092)
Proceeds from the redemption of corporate owned life insurance policies	0	196
Net cash provided by (used in) investing activities	(72,254)	(48,142)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	38,124	6,264
Increase in other borrowed funds	11,112	25,000
Cash dividends paid on common stock	(5,091)	(4,838)
Proceeds from issuance of common stock	2,845	2,754
Common stock repurchased	(2,550)	(1,815)
Common stock purchased for deferred compensation obligations	(253)	(285)
Net cash provided by (used in) financing activities	44,187	27,080
Increase (decrease) in cash and cash equivalents	(16,027)	(3,316)
Cash and cash equivalents at beginning of period	41,558	24,920
Cash and cash equivalents at end of period	25,531	21,604
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid	7,536	8,376
Federal income taxes paid	979	1,333
SUPPLEMENTAL NONCASH INFORMATION:
Transfers of loans to foreclosed assets	$ 1,194	$ 1,087

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Parent Company Only Financial Information (Tables)

9 Months Ended

Sep. 30, 2014

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Interim Condensed Balance Sheets

Interim Condensed Balance Sheets

	September 30 2014		December 31 2013
ASSETS
Cash on deposit at the Bank	$	2,353	$	529
AFS securities	3,279		3,542
Investments in subsidiaries	121,580		110,192
Premises and equipment	1,959		2,013
Other assets	54,604		54,223
TOTAL ASSETS	$	183,775	$	170,499
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities	$	11,699	$	9,890
Shareholders' equity	172,076		160,609
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	183,775	$	170,499

Interim Condensed Statements of Income

Interim Condensed Statements of Income

	Three Months Ended   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Income
Dividends from subsidiaries	$	1,750	$	1,500	$	4,750	$	4,500
Interest income	36		39		114		123
Management fee and other	717		637		1,945		1,704
Total income	2,503		2,176		6,809		6,327
Expenses
Compensation and benefits	866		680		2,470		2,061
Occupancy and equipment	293		132		514		362
Audit and related fees	109		98		278		256
Other	360		230		926		731
Total expenses	1,628		1,140		4,188		3,410
Income before income tax benefit and equity in undistributed earnings of subsidiaries	875		1,036		2,621		2,917
Federal income tax benefit	298		161		730		549
Income before equity in undistributed earnings of subsidiaries	1,173		1,197		3,351		3,466
Undistributed earnings of subsidiaries	2,232		2,089		6,928		6,120
Net income	$	3,405	$	3,286	$	10,279	$	9,586

Interim Condensed Statements of Cash Flows

Interim Condensed Statements of Cash Flows

	Nine Months Ended   September 30
	2014			2013
Operating activities
Net income	$	10,279		$	9,586
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(6,928		)	(6,120		)
Undistributed earnings of equity securities without readily determinable fair values	231			14
Share-based payment awards	382			423
Depreciation	109			136
Net amortization of AFS securities	1			1
Changes in operating assets and liabilities which provided (used) cash
Other assets	89			(65		)
Accrued interest and other liabilities	1,242			939
Net cash provided by (used in) operating activities	5,405			4,914
Investing activities
Maturities, calls, and sales of AFS securities	250			395
Purchases of premises and equipment	(23		)	(140		)
Advances to subsidiaries, net of repayments	641			(99		)
Net cash provided by (used in) investing activities	868			156
Financing activities
Net increase (decrease) in borrowed funds	600			(800		)
Cash dividends paid on common stock	(5,091		)	(4,838		)
Proceeds from the issuance of common stock	2,845			2,754
Common stock repurchased	(2,550		)	(1,815		)
Common stock purchased for deferred compensation obligations	(253		)	(285		)
Net cash provided by (used in) financing activities	(4,449		)	(4,984		)
Increase (decrease) in cash and cash equivalents	1,824			86
Cash and cash equivalents at beginning of period	529			332
Cash and cash equivalents at end of period	$	2,353		$	418

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Loans and ALLL (Credit quality indicators for commercial and agricultural credit exposures) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Total	$ 822,299	$ 808,037
Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	416,824	392,104
Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	316,032	291,860
Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	100,792	100,244
Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	101,795	92,589
Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	67,474	59,257
Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	34,321	33,332
2 - High quality [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	24,346	33,132
2 - High quality [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	14,268	18,671
2 - High quality [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	10,078	14,461
2 - High quality [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	10,037	6,762
2 - High quality [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	6,138	3,527
2 - High quality [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	3,899	3,235
3 - High satisfactory [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	137,995	130,726
3 - High satisfactory [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	90,321	91,323
3 - High satisfactory [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	47,674	39,403
3 - High satisfactory [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	40,459	43,015
3 - High satisfactory [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	27,278	26,015
3 - High satisfactory [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	13,181	17,000
4 - Low satisfactory [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	228,234	193,730
4 - Low satisfactory [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	186,866	149,921
4 - Low satisfactory [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	41,368	43,809
4 - Low satisfactory [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	47,464	37,776
4 - Low satisfactory [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	30,556	26,874
4 - Low satisfactory [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	16,908	10,902
5 - Special mention [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	11,202	15,590
5 - Special mention [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	9,859	13,747
5 - Special mention [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,343	1,843
5 - Special mention [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,797	2,531
5 - Special mention [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,729	1,609
5 - Special mention [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	68	922
6 - Substandard [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	12,276	17,447
6 - Substandard [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	12,139	16,974
6 - Substandard [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	137	473
6 - Substandard [Member] | Total agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,923	2,505
6 - Substandard [Member] | Agricultural real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,658	1,232
6 - Substandard [Member] | Agricultural other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	265	1,273
7 - Vulnerable [Member] | Total commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,758	1,279
7 - Vulnerable [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,579	1,041
7 - Vulnerable [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	179	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	13	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	13	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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Borrowed Funds (Narrative) (Details) (USD $) In Thousands, unless otherwise specified			9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Federal Funds Purchased [Member] Minimum [Member]	Sep. 30, 2014 Federal Funds Purchased [Member] Maximum [Member]	Sep. 30, 2014 Federal Reserve Bank Advances [Member] Minimum [Member]	Sep. 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
Carrying value of securities sold under agreements to repurchase	$ 139,350	$ 148,930
Fair value of securities sold under agreements to repurchase	139,350	148,930
Additional borrowing capacity	$ 111,890

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Interim Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Cash and cash equivalents
Cash and demand deposits due from banks	$ 22,431	$ 21,755
Interest bearing balances due from banks	3,100	19,803
Total cash and cash equivalents	25,531	41,558
Certificates of deposit held in other financial institutions	580	580
Trading securities	0	525
AFS securities (amortized cost of $572,087 in 2014 and $517,614 in 2013)	575,080	512,062
Mortgage loans AFS	421	1,104
Loans
Commercial	416,824	392,104
Agricultural	101,795	92,589
Residential real estate	271,033	289,931
Consumer	32,647	33,413
Gross loans	822,299	808,037
Less allowance for loan losses	10,400	11,500
Net loans	811,899	796,537
Premises and equipment	25,843	25,719
Corporate owned life insurance	24,957	24,401
Accrued interest receivable	6,906	5,442
Equity securities without readily determinable fair values	19,063	18,293
Goodwill and other intangible assets	46,168	46,311
Other assets	17,526	20,605
TOTAL ASSETS	1,553,974	1,493,137
Deposits
Noninterest bearing	175,634	158,428
NOW accounts	192,211	192,089
Certificates of deposit under $100 and other savings	468,909	455,547
Certificates of deposit over $100	245,136	237,702
Total deposits	1,081,890	1,043,766
Borrowed funds	290,438	279,326
Accrued interest payable and other liabilities	9,570	9,436
Total liabilities	1,381,898	1,332,528
Shareholders' equity
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,741,530 shares (including 10,579 shares held in the Rabbi Trust) in 2014 and 7,723,023 shares (including 12,761 shares held in the Rabbi Trust) in 2013	138,023	137,580
Shares to be issued for deferred compensation obligations	4,129	4,148
Retained earnings	30,410	25,222
Accumulated other comprehensive income	(486)	(6,341)
Total shareholders' equity	172,076	160,609
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,553,974	$ 1,493,137

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Loans and ALLL (Summary of TDR loan balances) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Receivables [Abstract]
Troubled debt restructurings	$ 24,015	$ 25,865

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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)	577			9,586	(9,009)
Issuance of common stock	2,754	2,754
Issuance of common stock, shares		111,904
Common stock issued for deferred compensation obligations	0
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	0	122	(122)
Share based payment awards under equity compensation plan	423		423
Common stock purchased for deferred compensation obligations	(285)	(285)
Common stock repurchased pursuant to publicly announced repurchase plan	(1,815)	(1,815)
Common stock repurchased pursuant to publicly announced repurchase plan, shares		(73,969)
Cash dividends	(4,838)			(4,838)
Ending balances at Sep. 30, 2013	161,305	137,356	4,035	23,916	(4,002)
Ending balances, shares at Sep. 30, 2013		7,709,781
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)	16,134			10,279	5,855
Issuance of common stock	2,845	2,845
Issuance of common stock, shares		122,261
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	382		382
Common stock purchased for deferred compensation obligations	(253)	(253)
Common stock repurchased pursuant to publicly announced repurchase plan	(2,550)	(2,550)
Common stock repurchased pursuant to publicly announced repurchase plan, shares		(110,680)
Cash dividends	(5,091)			(5,091)
Ending balances at Sep. 30, 2014	$ 172,076	$ 138,023	$ 4,129	$ 30,410	$ (486)
Ending balances, shares at Sep. 30, 2014	7,740,730	7,740,730

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Fair Value (Carrying amount and estimated fair value of financial instruments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Level 1 [Member]
ASSETS
Cash and cash equivalents	$ 25,531		$ 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	6,906		5,442
Equity securities without readily determinable fair values	0	[1]	0	[1]
Originated mortgage servicing rights	0		0
LIABILITIES
Deposits without stated maturities	637,320		593,754
Deposits with stated maturities	0		0
Borrowed funds	0		0
Accrued interest payable	563		633
Level 2 [Member]
ASSETS
Cash and cash equivalents	0		0
Certificates of deposit held in other financial institutions	580		582
Mortgage loans AFS	434		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	2,655		2,667
LIABILITIES
Deposits without stated maturities	0		0
Deposits with stated maturities	445,129		452,803
Borrowed funds	293,881		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	822,077		808,246
Less allowance for loan losses	10,400		11,500
Net loans	811,677		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	25,531		41,558
Certificates of deposit held in other financial institutions	580		580
Mortgage loans AFS	421		1,104
Total loans	822,299		808,037
Less allowance for loan losses	10,400		11,500
Net loans	811,899		796,537
Accrued interest receivable	6,906		5,442
Equity securities without readily determinable fair values	19,063	[1]	18,293	[1]
Originated mortgage servicing rights	2,577		2,555
LIABILITIES
Deposits without stated maturities	637,320		593,754
Deposits with stated maturities	444,570		450,012
Borrowed funds	290,438		279,326
Accrued interest payable	563		633
Estimated Fair Value [Member]
ASSETS
Cash and cash equivalents	25,531		41,558
Certificates of deposit held in other financial institutions	580		582
Mortgage loans AFS	434		1,123
Total loans	822,077		808,246
Less allowance for loan losses	10,400		11,500
Net loans	811,677		796,746
Accrued interest receivable	6,906		5,442
Equity securities without readily determinable fair values	19,063	[1]	18,293	[1]
Originated mortgage servicing rights	2,655		2,667
LIABILITIES
Deposits without stated maturities	637,320		593,754
Deposits with stated maturities	445,129		452,803
Borrowed funds	293,881		283,060
Accrued interest payable	$ 563		$ 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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AFS Securities (Amortized cost and fair value of AFS securities by contractual maturity) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less	$ 16,838
Maturing, After One Year But Within Five Years	61,118
Maturing, After Five Years But Within Ten Years	113,612
Maturing, After Ten Years	50,272
Securities With Variable Monthly Payments or Noncontractual Maturities	330,247
Amortized Cost	572,087	517,614
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Maturing, Due in One Year or Less, Fair value	16,883
Maturing, After One Year But Within Five Years, Fair value	63,150
Maturing, After Five Years But Within Ten Years, Fair value	116,389
Maturing, After Ten Years, Fair value	51,040
Securities With Variable Monthly Payments or Noncontractual Maturities, Fair value	327,618
Total, Fair value	575,080	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	15,577
Maturing, After Ten Years	0
Securities With Variable Monthly Payments or Noncontractual Maturities	0
Amortized Cost	24,645	24,860
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	23,917	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	16,838
Maturing, After One Year But Within Five Years	52,050
Maturing, After Five Years But Within Ten Years	98,035
Maturing, After Ten Years	50,272
Securities With Variable Monthly Payments or Noncontractual Maturities	0
Amortized Cost	217,195	200,323
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	223,545	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	2,863	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	6,173	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	171,856
Amortized Cost	171,856	147,292
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	170,767	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	148,391
Amortized Cost	148,391	135,139
Available-for-sale Securities, Debt Maturities, Fair Value, Rolling Maturity [Abstract]
Total, Fair value	$ 147,815	$ 133,810

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Parent Company Only Financial Information (Interim Condensed Balance Sheets) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Dec. 31, 2012
ASSETS
AFS securities	$ 575,080	$ 512,062
Premises and equipment	25,843	25,719
Other assets	17,526	20,605
TOTAL ASSETS	1,553,974	1,493,137
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity	172,076	160,609	161,305	164,489
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	1,553,974	1,493,137
Parent Company [Member]
ASSETS
Cash on deposit at subsidiary Bank	2,353	529
AFS securities	3,279	3,542
Investments in subsidiaries	121,580	110,192
Premises and equipment	1,959	2,013
Other assets	54,604	54,223
TOTAL ASSETS	183,775	170,499
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities	11,699	9,890
Shareholders' equity	172,076	160,609
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 183,775	$ 170,499

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Basis of Presentation (Policies)

9 Months Ended

Sep. 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 nine month periods ended September 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 September 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 to Freddie Mac 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 Executive 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. 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. 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 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. 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 credit 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 credit 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 unpaid principal 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 loans with similar risk characteristics.

3. Forgiving principal.

4. Forgiving accrued interest.

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

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).

XML

AFS Securities (Activity related to sales of AFS securities) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Investments, Debt and Equity Securities [Abstract]
Proceeds from sales of AFS of securities	$ 13,362	$ 6,372	$ 13,362	$ 16,229
Gross realized gains (losses)	97	72	97	171
Applicable income tax expense	$ 33	$ 24	$ 33	$ 58

XML

AFS Securities (Tables)

9 Months Ended

Sep. 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:

	September 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,645	$	5	$	733	$	23,917
States and political subdivisions	217,195		7,337		987		223,545
Auction rate money market preferred	3,200		—		337		2,863
Preferred stocks	6,800		13		640		6,173
Mortgage-backed securities	171,856		1,144		2,233		170,767
Collateralized mortgage obligations	148,391		1,361		1,937		147,815
Total	$	572,087	$	9,860	$	6,867	$	575,080

	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 September 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	$	15,577	$	—	$	—	$	24,645
States and political subdivisions	16,838		52,050		98,035		50,272		—		217,195
Auction rate money market preferred	—		—		—		—		3,200		3,200
Preferred stocks	—		—		—		—		6,800		6,800
Mortgage-backed securities	—		—		—		—		171,856		171,856
Collateralized mortgage obligations	—		—		—		—		148,391		148,391
Total amortized cost	$	16,838	$	61,118	$	113,612	$	50,272	$	330,247	$	572,087
Fair value	$	16,883	$	63,150	$	116,389	$	51,040	$	327,618	$	575,080

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 nine month periods ended:

	Three Months Ended   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Proceeds from sales of AFS securities	$	13,362	$	6,372	$	13,362	$	16,229
Gross realized gains (losses)	$	97	$	72	$	97	$	171
Applicable income tax expense (benefit)	$	33	$	24	$	33	$	58

Available-for-sale securities with gross unrealized losses

Information pertaining to AFS securities with gross unrealized losses at September 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:

	September 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	$	—	$	—	$	733	$	23,262	$	733
States and political subdivisions	106		10,836		881		21,430		987
Auction rate money market preferred	—		—		337		2,863		337
Preferred stocks	—		—		640		3,160		640
Mortgage-backed securities	165		33,358		2,068		62,800		2,233
Collateralized mortgage obligations	323		44,308		1,614		40,702		1,937
Total	$	594	$	88,502	$	6,273	$	154,217	$	6,867
Number of securities in an unrealized loss position:			77				96		173

	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

XML

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

XML

Interim Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Stockholders' Equity [Abstract]
Cash dividends per share (in dollars per share)	$ 0.22	$ 0.21	$ 0.66	$ 0.63

XML

Interim Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Available-for-sale securities, amortized cost	$ 572,087	$ 517,614
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	7,740,730	7,723,023
Common stock, shares outstanding	7,740,730	7,723,023
Common stock, shares held in Rabbi Trust	10,579	12,761

XML

Federal Income Taxes

9 Months Ended

Sep. 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   September 30						Nine Months Ended   September 30
	2014			2013			2014			2013
Income taxes at 34% statutory rate	$	1,309		$	1,347		$	4,072		$	3,903
Effect of nontaxable income
Interest income on tax exempt municipal securities	(501		)	(433		)	(1,498		)	(1,278		)
Earnings on corporate owned life insurance policies	(62		)	(63		)	(189		)	(185		)
Effect of tax credits	(187		)	(191		)	(575		)	(588		)
Other	(158		)	(27		)	(235		)	(79		)
Total effect of nontaxable income	(908		)	(714		)	(2,497		)	(2,130		)
Effect of nondeductible expenses	43			41			121			120
Federal income tax expense	$	444		$	674		$	1,696		$	1,893

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 04, 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	Sep. 30, 2014
Amendment Flag	false
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		7,762,481
Entity Filer Category	Accelerated Filer

XML

Fair Value

9 Months Ended

Sep. 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:

	September 30, 2014
Valuation Techniques	Fair Value	Unobservable Input	Range
		Discount applied to collateral appraisal:
		Real Estate	20% - 25%
		Equipment	30% - 40%
Discounted appraisal value	$8,535	Cash crop inventory	40%
		Other inventory	75%
		Accounts receivable	50%
		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:

	September 30, 2014
Valuation Techniques	Fair Value		Unobservable Input	Range
			Discount applied to collateral appraisal:
Discounted appraisal value	$	1,041	Real Estate	20% - 25%

	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 were as follows as of:

	September 30, 2014
	Carrying Value		Estimated Fair Value		(Level 1)		(Level 2)		(Level 3)
ASSETS
Cash and cash equivalents	$	25,531	$	25,531	$	25,531	$	—	$	—
Certificates of deposit held in other financial institutions	580		580		—		580		—
Mortgage loans AFS	421		434		—		434		—
Total loans	822,299		822,077		—		—		822,077
Less allowance for loan and lease losses	10,400		10,400		—		—		10,400
Net loans	811,899		811,677		—		—		811,677
Accrued interest receivable	6,906		6,906		6,906		—		—
Equity securities without readily determinable fair values (1)	19,063		19,063		—		—		—
OMSRs	2,577		2,655		—		2,655		—
LIABILITIES
Deposits without stated maturities	637,320		637,320		637,320		—		—
Deposits with stated maturities	444,570		445,129		—		445,129		—
Borrowed funds	290,438		293,881		—		293,881		—
Accrued interest payable	563		563		563		—		—

	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:

	September 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	23,917		—			23,917			—			23,745		—			23,745			—
States and political subdivisions	223,545		—			223,545			—			201,988		—			201,988			—
Auction rate money market preferred	2,863		—			2,863			—			2,577		—			2,577			—
Preferred stocks	6,173		6,173			—			—			5,827		5,827			—			—
Mortgage-backed securities	170,767		—			170,767			—			144,115		—			144,115			—
Collateralized mortgage obligations	147,815		—			147,815			—			133,810		—			133,810			—
Total AFS securities	575,080		6,173			568,907			—			512,062		5,827			506,235			—
Nonrecurring items
Impaired loans (net of the ALLL)	8,535		—			—			8,535			13,902		—			—			13,902
Foreclosed assets	1,041		—			—			1,041			1,412		—			—			1,412
Total	$	584,656	$	6,173		$	568,907		$	9,576		$	527,901	$	5,827		$	506,760		$	15,314
Percent of assets and liabilities measured at fair value			1.06		%	97.31		%	1.63		%			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 September 30
	2014								2013
	Trading Losses		Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	—	$	—		$	—		$	(5	)	$	—		$	(5	)
Nonrecurring items
Foreclosed assets	—		(20		)	(20		)				(39		)	(39		)
Total	$	—	$	(20	)	$	(20	)	$	(5	)	$	(39	)	$	(44	)

	Nine Months Ended September 30
	2014									2013
	Trading Losses			Other Gains (Losses)			Total			Trading Losses			Other Gains (Losses)			Total
Recurring items
Trading securities	$	(5	)	$	—		$	(5	)	$	(23	)	$	—		$	(23	)
Nonrecurring items
Foreclosed assets	—			(83		)	(83		)	—			(131		)	(131		)
Total	$	(5	)	$	(83	)	$	(88	)	$	(23	)	$	(131	)	$	(154	)

XML

Interim Condensed Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Interest income
Loans, including fees	$ 9,863	$ 10,330	$ 29,413	$ 30,940
AFS securities
Taxable	2,016	1,787	6,007	5,419
Nontaxable	1,485	1,275	4,428	3,753
Trading securities	0	7	6	30
Federal funds sold and other	119	106	384	331
Total interest income	13,483	13,505	40,238	40,473
Interest expense
Deposits	1,562	1,742	4,767	5,438
Borrowings	936	994	2,699	2,900
Total interest expense	2,498	2,736	7,466	8,338
Net interest income	10,985	10,769	32,772	32,135
Provision for loan losses	(162)	351	(604)	866
Net interest income after provision for loan losses	11,147	10,418	33,376	31,269
Noninterest income
Service charges and fees	1,366	1,700	4,120	4,426
Net gain on sale of mortgage loans	170	215	436	822
Earnings on corporate owned life insurance policies	182	185	556	544
Net gains (losses) on sale of AFS securities	97	72	97	171
Other	401	690	1,690	2,082
Total noninterest income	2,216	2,862	6,899	8,045
Noninterest expenses
Compensation and benefits	5,174	5,340	16,045	16,021
Furniture and equipment	1,348	1,303	3,835	3,684
Occupancy	697	676	2,115	1,982
Other	2,295	2,001	6,305	6,148
Total noninterest expenses	9,514	9,320	28,300	27,835
Income before federal income tax expense	3,849	3,960	11,975	11,479
Federal income tax expense	444	674	1,696	1,893
NET INCOME	$ 3,405	$ 3,286	$ 10,279	$ 9,586
Earnings per share
Basic (in dollars per share)	$ 0.44	$ 0.43	$ 1.33	$ 1.25
Diluted (in dollars per share)	$ 0.43	$ 0.42	$ 1.30	$ 1.22
Cash dividends per basic share (in dollars per share)	$ 0.22	$ 0.21	$ 0.66	$ 0.63

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AFS Securities

9 Months Ended

Sep. 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:

	September 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	24,645	$	5	$	733	$	23,917
States and political subdivisions	217,195		7,337		987		223,545
Auction rate money market preferred	3,200		—		337		2,863
Preferred stocks	6,800		13		640		6,173
Mortgage-backed securities	171,856		1,144		2,233		170,767
Collateralized mortgage obligations	148,391		1,361		1,937		147,815
Total	$	572,087	$	9,860	$	6,867	$	575,080

	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 September 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	$	15,577	$	—	$	—	$	24,645
States and political subdivisions	16,838		52,050		98,035		50,272		—		217,195
Auction rate money market preferred	—		—		—		—		3,200		3,200
Preferred stocks	—		—		—		—		6,800		6,800
Mortgage-backed securities	—		—		—		—		171,856		171,856
Collateralized mortgage obligations	—		—		—		—		148,391		148,391
Total amortized cost	$	16,838	$	61,118	$	113,612	$	50,272	$	330,247	$	572,087
Fair value	$	16,883	$	63,150	$	116,389	$	51,040	$	327,618	$	575,080

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 nine month periods ended:

	Three Months Ended   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Proceeds from sales of AFS securities	$	13,362	$	6,372	$	13,362	$	16,229
Gross realized gains (losses)	$	97	$	72	$	97	$	171
Applicable income tax expense (benefit)	$	33	$	24	$	33	$	58

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 September 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:

	September 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	$	—	$	—	$	733	$	23,262	$	733
States and political subdivisions	106		10,836		881		21,430		987
Auction rate money market preferred	—		—		337		2,863		337
Preferred stocks	—		—		640		3,160		640
Mortgage-backed securities	165		33,358		2,068		62,800		2,233
Collateralized mortgage obligations	323		44,308		1,614		40,702		1,937
Total	$	594	$	88,502	$	6,273	$	154,217	$	6,867
Number of securities in an unrealized loss position:			77				96		173

	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 September 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 September 30, 2014, or December 31, 2013.

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Pending Accounting Standards Updates

9 Months Ended

Sep. 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.

ASU No. 2014-14: “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)”

In August 2014, ASU No. 2014-14 amended ASC Topic 310, “Receivables” to provide specific guidance on how to classify and measure foreclosed loans that are government guaranteed. The update requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:

• The loan has a government guarantee that is not separable from the loan before foreclosure.

• At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim.

• At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.

Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. 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. 2014-15: “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”

In August 2014, ASU No. 2014-15 amended ASC Topic 205, “Presentation of Financial Statements” to provide guidance on how to determine whether to disclose relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, financial statements would continue to be prepared under the going concern assumption; however, disclosures may be necessary depending upon the conditions or events raising substantial doubt. Additionally, if identified substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). The new authoritative guidance is effective for annual periods beginning after December 15, 2016 and is not expected to impact our financial statement disclosures.

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Computation of Earnings Per Common Share (Tables)

9 Months Ended

Sep. 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   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Average number of common shares outstanding for basic calculation	7,733,362		7,698,066		7,725,706		7,689,350
Average potential effect of common shares in the Directors Plan (1)	170,897		170,420		170,955		168,020
Average number of common shares outstanding used to calculate diluted earnings per common share	7,904,259		7,868,486		7,896,661		7,857,370
Net income	$	3,405	$	3,286	$	10,279	$	9,586
Earnings per common share
Basic	$	0.44	$	0.43	$	1.33	$	1.25
Diluted	$	0.43	$	0.42	$	1.30	$	1.22

⁽¹⁾  Exclusive of shares held in the

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 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 September 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, July 1	$	2,602		$	(2,134	)	$	468		$	(477	)	$	(3,671	)	$	(4,148	)
OCI before reclassifications	(1,326		)	—			(1,326		)	665			—			665
Amounts reclassified from AOCI	(97		)	—			(97		)	(72		)	—			(72		)
Subtotal	(1,423		)	—			(1,423		)	593			—			593
Tax effect	469			—			469			(447		)	—			(447		)
OCI, net of tax	(954		)	—			(954		)	146			—			146
Balance, September 30	$	1,648		$	(2,134	)	$	(486	)	$	(331	)	$	(3,671	)	$	(4,002	)

	Nine Months Ended September 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	8,642			—			8,642			(13,293		)	—			(13,293		)
Amounts reclassified from AOCI	(97		)	—			(97		)	(171		)	—			(171		)
Subtotal	8,545			—			8,545			(13,464		)	—			(13,464		)
Tax effect	(2,690		)	—			(2,690		)	4,455			—			4,455
OCI, net of tax	5,855			—			5,855			(9,009		)	—			(9,009		)
Balance, September 30	$	1,648		$	(2,134	)	$	(486	)	$	(331	)	$	(3,671	)	$	(4,002	)

Included in OCI for the three and nine month periods ended September 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 September 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	$	253	$	(1,579	)	$	(1,326	)	$	(653	)	$	1,318		$	665
Reclassification adjustment for net realized (gains) losses included in net income	—		(97		)	(97		)	—			(72		)	(72		)
Net unrealized gains (losses)	253		(1,676		)	(1,423		)	(653		)	1,246			593
Tax effect	—		469			469			—			(447		)	(447		)
Unrealized gains (losses), net of tax	$	253	$	(1,207	)	$	(954	)	$	(653	)	$	799		$	146

	Nine Months Ended September 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	$	253	$	8,389		$	8,642		$	(358	)	$	(12,935	)	$	(13,293	)
Reclassification adjustment for net realized (gains) losses included in net income	—		(97		)	(97		)	—			(171		)	(171		)
Net unrealized gains (losses)	253		8,292			8,545			(358		)	(13,106		)	(13,464		)
Tax effect	—		(2,690		)	(2,690		)	—			4,455			4,455
Unrealized gains (losses), net of tax	$	253	$	5,602		$	5,855		$	(358	)	$	(8,651	)	$	(9,009	)

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 September 30				Nine Months Ended September 30
	2014		2013		2014		2013
Unrealized holding gains (losses) on AFS securities
	$	97	$	72	$	97	$	171	Net gains (losses) on sale of AFS securities
	97		72		97		171		Income before federal income tax expense
	33		24		33		58		Federal income tax expense
	$	64	$	48	$	64	$	113	Net income

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Borrowed Funds

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Borrowed Funds

Borrowed Funds

Borrowed funds consist of the following obligations as of:

	September 30, 2014				December 31, 2013
	Amount		Rate		Amount		Rate
FHLB advances	$	182,000	1.94	%	$	162,000	2.02	%
Securities sold under agreements to repurchase without stated maturity dates	89,535		0.13	%	106,025		0.13	%
Securities sold under agreements to repurchase with stated maturity dates	1,203		4.24	%	11,301		3.30	%
Federal funds purchased	17,700		0.56	%	—		—
Total	$	290,438	1.31	%	$	279,326	1.35	%

FHLB advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans, AFS securities, and FHLB stock.

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

	September 30, 2014				December 31, 2013
	Amount		Rate		Amount		Rate
Fixed rate advances due 2014	$	10,000	0.48	%	$	10,000	0.48	%
Fixed rate advances due 2015	42,000		0.72	%	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 2021	10,000		2.37	%	—		—
Fixed rate advances due 2023	10,000		3.90	%	10,000		3.90	%
Total	$	182,000	1.94	%	$	162,000	2.02	%

Securities sold under agreements to repurchase are classified as secured borrowings and 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 $139,350 and $148,930 at September 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:

	September 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Repurchase agreements due 2014	$	750	4.89	%	$	10,876	3.30	%
Repurchase agreements due 2015	436		3.25	%	425		3.25	%
Repurchase agreements due 2018	17		1.00	%	—		—
Total	$	1,203	4.24	%	$	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 nine month periods ended:

	Three Months Ended September 30, 2014						Three Months Ended September 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	$	91,472	$	88,906	0.13	%	$	81,405	$	78,148	0.15	%
Federal funds purchased	17,700		2,252		0.48	%	6,300		5,052		0.62	%

	Nine Months Ended September 30, 2014						Nine Months Ended September 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	$	91,231	0.13	%	$	81,405	$	69,224	0.15	%
Federal funds purchased	17,700		4,939		0.48	%	13,700		4,133		0.57	%

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

	September 30 2014		December 31 2013
Pledged to secure borrowed funds	$	278,512	$	320,173
Pledged to secure repurchase agreements	139,350		148,930
Pledged for public deposits and for other purposes necessary or required by law	18,791		20,922
Total	$	436,653	$	490,025

As of September 30, 2014, we had the ability to borrow up to an additional $111,890, 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 (Recorded amount of assets and liabilities measured at fair value) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
AFS Securities
AFS securities	$ 575,080	$ 512,062
Fair value, total	584,656	527,901
Level 1 [Member]
AFS Securities
Fair value, total	6,173	5,827
Percent of assets and liabilities measured at fair value	1.06%	1.10%
Level 2 [Member]
AFS Securities
Fair value, total	568,907	506,760
Percent of assets and liabilities measured at fair value	97.31%	96.00%
Level 3 [Member]
AFS Securities
Fair value, total	9,576	15,314
Percent of assets and liabilities measured at fair value	1.63%	2.90%
Recurring items [Member]
AFS Securities
AFS securities	575,080	512,062
Recurring items [Member] | Government sponsored enterprises [Member]
AFS Securities
AFS securities	23,917	23,745
Recurring items [Member] | States and political subdivisions [Member]
Trading securities
Trading securities States and political subdivisions	0	525
AFS Securities
AFS securities	223,545	201,988
Recurring items [Member] | Auction rate money market preferred [Member]
AFS Securities
AFS securities	2,863	2,577
Recurring items [Member] | Preferred stock [Member]
AFS Securities
AFS securities	6,173	5,827
Recurring items [Member] | Mortgage-backed securities [Member]
AFS Securities
AFS securities	170,767	144,115
Recurring items [Member] | Collateralized mortgage obligations [Member]
AFS Securities
AFS securities	147,815	133,810
Recurring items [Member] | Level 1 [Member]
AFS Securities
AFS securities	6,173	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	6,173	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	568,907	506,235
Recurring items [Member] | Level 2 [Member] | Government sponsored enterprises [Member]
AFS Securities
AFS securities	23,917	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	223,545	201,988
Recurring items [Member] | Level 2 [Member] | Auction rate money market preferred [Member]
AFS Securities
AFS securities	2,863	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	170,767	144,115
Recurring items [Member] | Level 2 [Member] | Collateralized mortgage obligations [Member]
AFS Securities
AFS securities	147,815	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)	8,535	13,902
Foreclosed assets	1,041	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)	8,535	13,902
Foreclosed assets	$ 1,041	$ 1,412

XML

Loans and ALLL

9 Months Ended

Sep. 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. 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. 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 to Freddie Mac 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 Executive 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 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. 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 September 30, 2014
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
July 1, 2014	$	5,012		$	219		$	3,981		$	802		$	686	$	10,700
Loans charged-off	(163		)	—			(180		)	(73		)	—		(416		)
Recoveries	171			—			68			39			—		278
Provision for loan losses	(704		)	(31		)	92			(47		)	528		(162		)
September 30, 2014	$	4,316		$	188		$	3,961		$	721		$	1,214	$	10,400

	Allowance for Loan Losses
	Nine Months Ended September 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	(434		)	(31		)	(557		)	(255		)	—		(1,277		)
Recoveries	477			—			190			114			—		781
Provision for loan losses	(1,775		)	(215		)	483			223			680		(604		)
September 30, 2014	$	4,316		$	188		$	3,961		$	721		$	1,214	$	10,400

	Allowance for Loan Losses and Recorded Investment in Loans
	September 30, 2014
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	1,318	$	—	$	2,335	$	1	$	—	$	3,654
Collectively evaluated for impairment	2,998		188		1,626		720		1,214		6,746
Total	$	4,316	$	188	$	3,961	$	721	$	1,214	$	10,400
Loans
Individually evaluated for impairment	$	11,955	$	1,625	$	12,925	$	69			$	26,574
Collectively evaluated for impairment	404,869		100,170		258,108		32,578				795,725
Total	$	416,824	$	101,795	$	271,033	$	32,647			$	822,299

	Allowance for Loan Losses
	Three Months Ended September 30, 2013
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated			Total
July 1, 2013	$	6,472		$	335		$	3,676		$	647		$	570		$	11,700
Loans charged-off	(394		)	(12		)	(94		)	(102		)	—			(602		)
Recoveries	66			—			38			47			—			151
Provision for loan losses	69			108			127			74			(27		)	351
September 30, 2013	$	6,213		$	431		$	3,747		$	666		$	543		$	11,600

	Allowance for Loan Losses
	Nine Months Ended September 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	(839		)	(12		)	(681		)	(311		)	—		(1,843		)
Recoveries	289			—			152			200			—		641
Provision for loan losses	(99		)	36			649			111			169		866
September 30, 2013	$	6,213		$	431		$	3,747		$	666		$	543	$	11,600

	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 risk ratings as of:

	September 30, 2014
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	14,268	$	10,078	$	24,346	$	6,138	$	3,899	$	10,037
3 - High satisfactory	90,321		47,674		137,995		27,278		13,181		40,459
4 - Low satisfactory	186,866		41,368		228,234		30,556		16,908		47,464
5 - Special mention	9,859		1,343		11,202		1,729		68		1,797
6 - Substandard	12,139		137		12,276		1,658		265		1,923
7 - Vulnerable	2,579		179		2,758		115		—		115
8 - Doubtful	—		13		13		—		—		—
Total	$	316,032	$	100,792	$	416,824	$	67,474	$	34,321	$	101,795

	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 credit 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 credit 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:

	September 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	$	315	$	58	$	—	$	2,579	$	2,952	$	313,080	$	316,032
Commercial other	582		—		—		179		761		100,031		100,792
Total commercial	897		58		—		2,758		3,713		413,111		416,824
Agricultural
Agricultural real estate	—		—		—		115		115		67,359		67,474
Agricultural other	76		—		—		—		76		34,245		34,321
Total agricultural	76		—		—		115		191		101,604		101,795
Residential real estate
Senior liens	1,373		254		138		1,220		2,985		215,295		218,280
Junior liens	265		—		—		135		400		11,397		11,797
Home equity lines of credit	330		38		—		258		626		40,330		40,956
Total residential real estate	1,968		292		138		1,613		4,011		267,022		271,033
Consumer
Secured	86		—		—		10		96		28,303		28,399
Unsecured	12		—		26		—		38		4,210		4,248
Total consumer	98		—		26		10		134		32,513		32,647
Total	$	3,039	$	350	$	164	$	4,496	$	8,049	$	814,250	$	822,299

	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 unpaid principal 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:

	September 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	$	7,614	$	7,732	$	1,314	$	6,748	$	6,888	$	1,915
Commercial other	548		767		4		521		521		120
Agricultural real estate	—		—		—		90		90		30
Residential real estate senior liens	12,425		13,679		2,259		14,061		15,315		2,278
Residential real estate junior liens	241		251		50		48		64		9
Home equity lines of credit	259		659		26		—		—		—
Consumer secured	59		59		1		—		—		—
Total impaired loans with a valuation allowance	21,146		23,147		3,654		21,468		22,878		4,352
Impaired loans without a valuation allowance
Commercial real estate	3,480		3,958				5,622		6,499
Commercial other	313		324				925		1,035
Agricultural real estate	1,558		1,558				1,370		1,370
Agricultural other	67		187				78		198
Home equity lines of credit	—		—				193		493
Consumer secured	10		10				119		148
Total impaired loans without a valuation allowance	5,428		6,037				8,307		9,743
Impaired loans
Commercial	11,955		12,781		1,318		13,816		14,943		2,035
Agricultural	1,625		1,745		—		1,538		1,658		30
Residential real estate	12,925		14,589		2,335		14,302		15,872		2,287
Consumer	69		69		1		119		148		—
Total impaired loans	$	26,574	$	29,184	$	3,654	$	29,775	$	32,621	$	4,352

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

	Three Months Ended   September 30, 2014					Nine Months Ended   September 30, 2014
	Average Outstanding Balance		Interest Income Recognized			Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	7,063	$	106		$	6,822	$	291
Commercial other	589		11			746		40
Agricultural real estate	102		—			113		—
Agricultural other	—		—			—		—
Residential real estate senior liens	12,440		124			12,938		388
Residential real estate junior liens	167		(8		)	94		(7		)
Home equity lines of credit	310		2			220		13
Consumer secured	62		1			72		3
Total impaired loans with a valuation allowance	20,733		236			21,005		728
Impaired loans without a valuation allowance
Commercial real estate	4,594		69			5,396		262
Commercial other	314		5			397		12
Agricultural real estate	1,460		22			1,425		59
Agricultural other	43		1			112		29
Home equity lines of credit	—		—			32		—
Consumer secured	10		—			5		—
Total impaired loans without a valuation allowance	6,421		97			7,367		362
Impaired loans
Commercial	12,560		191			13,361		605
Agricultural	1,605		23			1,650		88
Residential real estate	12,917		118			13,284		394
Consumer	72		1			77		3
Total impaired loans	$	27,154	$	333		$	28,372	$	1,090

	Three Months Ended   September 30, 2013				Nine Months Ended   September 30, 2013
	Average Outstanding Balance		Interest Income Recognized		Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	6,471	$	157	$	7,546	$	378
Commercial other	1,063		29		976		67
Agricultural real estate	91		2		91		4
Agricultural other	—		—		70		—
Residential real estate senior liens	10,865		230		10,595		439
Residential real estate junior liens	80		4		84		5
Home equity lines of credit	—		—		—		—
Consumer secured	—		—		—		—
Total impaired loans with a valuation allowance	18,570		422		19,362		893
Impaired loans without a valuation allowance
Commercial real estate	4,531		169		4,037		327
Commercial other	833		29		1,029		88
Agricultural real estate	231		15		144		19
Agricultural other	361		2		402		(2		)
Home equity lines of credit	173		8		178		17
Consumer secured	60		1		66		3
Total impaired loans without a valuation allowance	6,189		224		5,856		452
Impaired loans
Commercial	12,898		384		13,588		860
Agricultural	683		19		707		21
Residential real estate	11,118		242		10,857		461
Consumer	60		1		66		3
Total impaired loans	$	24,759	$	646	$	25,218	$	1,345

As of September 30, 2014 and December 31, 2013, we had committed to advance $65 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 loans with similar risk characteristics.

3. Forgiving principal.

4. Forgiving accrued interest.

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

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 for the:

	Three Months Ended September 30, 2014					Nine Months Ended September 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	2	$	23	$	23	7	$	386	$	386
Agricultural other	1	49		49		1	49		49
Residential real estate
Senior liens	2	144		144		14	805		805
Junior liens	1	40		40		2	81		81
Home equity lines of credit	—	—		—		1	160		160
Total residential real estate	3	184		184		17	1,046		1,046
Consumer unsecured	1	10		10		4	18		18
Total	7	$	266	$	266	29	$	1,499	$	1,499

	Three Months Ended September 30, 2013					Nine Months Ended September 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	3	$	159	$	159	10	$	3,313	$	3,116
Agricultural other	1	198		198		2	332		332
Residential real estate
Senior liens	15	1,176		1,176		30	2,611		2,595
Junior liens	1	20		20		1	20		20
Home equity lines of credit	—	—		—		—	—		—
Total residential real estate	16	1,196		1,196		31	2,631		2,615
Consumer unsecured	2	34		34		2	34		34
Total	22	$	1,587	$	1,587	45	$	6,310	$	6,097

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

	Three Months Ended September 30, 2014						Nine Months Ended September 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	2	$	23	—	$	—	6	$	378	1	$	8
Agricultural other	—	—		1	49		—	—		1	49
Residential real estate
Senior liens	—	—		2	144		3	98		11	707
Junior liens	—	—		1	40		—	—		2	81
Home equity lines of credit	—	—		—	—		1	160		—	—
Total residential real estate	—	—		3	184		4	258		13	788
Consumer unsecured	1	10		—	—		3	15		1	3
Total	3	$	33	4	$	233	13	$	651	16	$	848

	Three Months Ended September 30, 2013						Nine Months Ended September 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	$	159	—	$	—	6	$	1,517	4	$	1,796
Agricultural other	1	198		—	—		2	332		—	—
Residential real estate
Senior liens	10	924		5	252		17	1,548		13	1,063
Junior liens	—	—		1	20		—	—		1	20
Home equity lines of credit	—	—		—	—		—	—		—	—
Total residential real estate	10	924		6	272		17	1,548		14	1,083
Consumer unsecured	1	16		1	18		1	16		1	18
Total	15	$	1,297	7	$	290	26	$	3,413	19	$	2,897

We did not restructure any loans by forgiving principal or accrued interest in the three and nine month periods ended September 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.

Following is a summary of loans that defaulted in the three and nine month periods ended September 30, 2014, which were modified within 12 months prior to the default date:

	Three Months Ended September 30, 2014							Nine Months Ended September 30, 2014
	Number of Loans	Pre- Default Recorded Investment		Charge-Off Recorded Upon Default		Post- Default Recorded Investment		Number of Loans	Pre- Default Recorded Investment		Charge-Off Recorded Upon Default		Post- Default Recorded Investment
Consumer unsecured	2	$	7	$	7	$	—	2	$	7	$	7	$	—

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

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

	September 30, 2014		December 31, 2013
TDRs	$	24,015	$	25,865

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Equity Securities Without Readily Determinable Fair Values

9 Months Ended

Sep. 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:

	September 30 2014		December 31 2013
FHLB Stock	$	9,100	$	8,100
Corporate Settlement Solutions, LLC	6,743		6,970
FRB Stock	1,879		1,879
Valley Financial Corporation	1,000		1,000
Other	341		344
Total	$	19,063	$	18,293

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Other Noninterest Expenses

9 Months Ended

Sep. 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   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Marketing and community relations	$	512	$	271	$	966	$	945
FDIC insurance premiums	196		267		619		812
Directors fees	191		203		569		607
Audit and related fees	185		189		505		490
Education and travel	154		110		418		348
Postage and freight	105		103		303		296
Printing and supplies	89		106		278		291
Loan underwriting fees	83		97		270		336
Consulting fees	96		68		263		223
All other	684		587		2,114		1,800
Total other	$	2,295	$	2,001	$	6,305	$	6,148

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Accumulated Other Comprehensive Income (Loss) (Reclassification adjustments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Income before federal income tax expense	$ 3,849	$ 3,960	$ 11,975	$ 11,479
Federal income tax expense	444	674	1,696	1,893
NET INCOME	3,405	3,286	10,279	9,586
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	97	72	97	171
Income before federal income tax expense	97	72	97	171
Federal income tax expense	33	24	33	58
NET INCOME	$ 64	$ 48	$ 64	$ 113

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Parent Company Only Financial Information (Interim Condensed Statements of Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Expenses
Compensation and benefits	$ 5,174	$ 5,340	$ 16,045	$ 16,021
Occupancy and equipment	697	676	2,115	1,982
Audit and related fees	185	189	505	490
Other	2,295	2,001	6,305	6,148
Federal income tax benefit	(444)	(674)	(1,696)	(1,893)
NET INCOME	3,405	3,286	10,279	9,586
Parent Company [Member]
Income
Dividends from subsidiaries	1,750	1,500	4,750	4,500
Interest income	36	39	114	123
Management fee and other	717	637	1,945	1,704
Total income	2,503	2,176	6,809	6,327
Expenses
Compensation and benefits	866	680	2,470	2,061
Occupancy and equipment	293	132	514	362
Audit and related fees	109	98	278	256
Other	360	230	926	731
Total expenses	1,628	1,140	4,188	3,410
Income before income tax benefit and equity in undistributed earnings of subsidiaries	875	1,036	2,621	2,917
Federal income tax benefit	298	161	730	549
Income before equity in undistributed earnings of subsidiaries	1,173	1,197	3,351	3,466
Undistributed earnings of subsidiaries	2,232	2,089	6,928	6,120
NET INCOME	$ 3,405	$ 3,286	$ 10,279	$ 9,586

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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		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized gains (losses) arising during the period	$ (1,326)	$ 665	$ 8,642	$ (13,293)
Reclassification adjustment for net realized (gains) losses included in net income	(97)	(72)	(97)	(171)
Net unrealized gains (losses)	(1,423)	593	8,545	(13,464)
Tax effect	469	(447)	(2,690)	4,455
Unrealized gains (losses), net of tax	(954)	146	5,855	(9,009)
Unrealized Holding Gains (Losses) on AFS Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized gains (losses) arising during the period	(1,326)	665	8,642	(13,293)
Reclassification adjustment for net realized (gains) losses included in net income	(97)	(72)	(97)	(171)
Net unrealized gains (losses)	(1,423)	593	8,545	(13,464)
Tax effect	469	(447)	(2,690)	4,455
Unrealized gains (losses), net of tax	(954)	146	5,855	(9,009)
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	253	(653)	253	(358)
Reclassification adjustment for net realized (gains) losses included in net income	0	0	0	0
Net unrealized gains (losses)	253	(653)	253	(358)
Tax effect	0	0	0	0
Unrealized gains (losses), net of tax	253	(653)	253	(358)
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	(1,579)	1,318	8,389	(12,935)
Reclassification adjustment for net realized (gains) losses included in net income	(97)	(72)	(97)	(171)
Net unrealized gains (losses)	(1,676)	1,246	8,292	(13,106)
Tax effect	469	(447)	(2,690)	4,455
Unrealized gains (losses), net of tax	$ (1,207)	$ 799	$ 5,602	$ (8,651)

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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	Sep. 30, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 572,087	$ 517,614
Gross Unrealized Gains	9,860	6,912
Gross Unrealized Losses	6,867	12,464
AFS securities	575,080	512,062
Government sponsored enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	24,645	24,860
Gross Unrealized Gains	5	7
Gross Unrealized Losses	733	1,122
AFS securities	23,917	23,745
States and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	217,195	200,323
Gross Unrealized Gains	7,337	5,212
Gross Unrealized Losses	987	3,547
AFS securities	223,545	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	337	623
AFS securities	2,863	2,577
Preferred stocks [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	6,800	6,800
Gross Unrealized Gains	13	20
Gross Unrealized Losses	640	993
AFS securities	6,173	5,827
Mortgage-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	171,856	147,292
Gross Unrealized Gains	1,144	657
Gross Unrealized Losses	2,233	3,834
AFS securities	170,767	144,115
Collateralized mortgage obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	148,391	135,139
Gross Unrealized Gains	1,361	1,016
Gross Unrealized Losses	1,937	2,345
AFS securities	$ 147,815	$ 133,810

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Borrowed Funds (Short-term borrowings) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt [Line Items]
Maximum Month End Balance	$ 91,472	$ 81,405	$ 94,741	$ 81,405
Quarter to Date Average Balance	88,906	78,148	91,231	69,224
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	17,700	6,300	17,700	13,700
Quarter to Date Average Balance	$ 2,252	$ 5,052	$ 4,939	$ 4,133
Weighted Average Interest Rate During the Period	0.48%	0.62%	0.48%	0.57%

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Operating Segments

9 Months Ended

Sep. 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 September 30, 2014 and 2013 and each of the three and nine 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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Equity Securities Without Readily Determinable Fair Values (Tables)

9 Months Ended

Sep. 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:

	September 30 2014		December 31 2013
FHLB Stock	$	9,100	$	8,100
Corporate Settlement Solutions, LLC	6,743		6,970
FRB Stock	1,879		1,879
Valley Financial Corporation	1,000		1,000
Other	341		344
Total	$	19,063	$	18,293

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Borrowed Funds (Maturity and weighted average interest rates of FHLB advances) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	1.94%	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
Fixed Rate Advances Due 2015 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	0.72%	0.84%
FHLB fixed rate advances	42,000	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
Federal Home Loan Bank, Advances, Fixed Rate Due 2021 [Member]
Federal Home Loan Bank, Advances [Line Items]
FHLB advances, rate	2.37%	0.00%
FHLB fixed rate advances	10,000	0
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 (Past due and current loans) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	$ 3,039	$ 5,850
Accruing Interest and Past Due: 60-89 Days	350	1,652
Accruing Interest and Pass Due: 90 Days or More	164	142
Nonaccrual	4,496	3,244
Total Past Due and Nonaccrual	8,049	10,888
Current	814,250	797,149
Total	822,299	808,037
Total commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	897	1,594
Accruing Interest and Past Due: 60-89 Days	58	311
Accruing Interest and Pass Due: 90 Days or More	0	13
Nonaccrual	2,758	1,374
Total Past Due and Nonaccrual	3,713	3,292
Current	413,111	388,812
Total	416,824	392,104
Commercial real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	315	1,226
Accruing Interest and Past Due: 60-89 Days	58	296
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	2,579	1,136
Total Past Due and Nonaccrual	2,952	2,658
Current	313,080	289,202
Total	316,032	291,860
Commercial other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	582	368
Accruing Interest and Past Due: 60-89 Days	0	15
Accruing Interest and Pass Due: 90 Days or More	0	13
Nonaccrual	179	238
Total Past Due and Nonaccrual	761	634
Current	100,031	99,610
Total	100,792	100,244
Total agricultural [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	76	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	191	329
Current	101,604	92,260
Total	101,795	92,589
Agricultural real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	0	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	115	329
Current	67,359	58,928
Total	67,474	59,257
Agricultural other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	76	0
Accruing Interest and Past Due: 60-89 Days	0	0
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	0	0
Total Past Due and Nonaccrual	76	0
Current	34,245	33,332
Total	34,321	33,332
Total residential real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	1,968	4,030
Accruing Interest and Past Due: 60-89 Days	292	1,030
Accruing Interest and Pass Due: 90 Days or More	138	129
Nonaccrual	1,613	1,819
Total Past Due and Nonaccrual	4,011	7,008
Current	267,022	282,923
Total	271,033	289,931
Residential real estate senior liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	1,373	3,441
Accruing Interest and Past Due: 60-89 Days	254	986
Accruing Interest and Pass Due: 90 Days or More	138	129
Nonaccrual	1,220	1,765
Total Past Due and Nonaccrual	2,985	6,321
Current	215,295	229,865
Total	218,280	236,186
Residential real estate junior liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	265	408
Accruing Interest and Past Due: 60-89 Days	0	44
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	135	29
Total Past Due and Nonaccrual	400	481
Current	11,397	13,074
Total	11,797	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	330	181
Accruing Interest and Past Due: 60-89 Days	38	0
Accruing Interest and Pass Due: 90 Days or More	0	0
Nonaccrual	258	25
Total Past Due and Nonaccrual	626	206
Current	40,330	39,984
Total	40,956	40,190
Total consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	98	192
Accruing Interest and Past Due: 60-89 Days	0	16
Accruing Interest and Pass Due: 90 Days or More	26	0
Nonaccrual	10	51
Total Past Due and Nonaccrual	134	259
Current	32,513	33,154
Total	32,647	33,413
Consumer secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	86	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	96	228
Current	28,303	28,444
Total	28,399	28,672
Consumer unsecured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Accruing Interest and Past Due: 30-59 Days	12	25
Accruing Interest and Past Due: 60-89 Days	0	5
Accruing Interest and Pass Due: 90 Days or More	26	0
Nonaccrual	0	1
Total Past Due and Nonaccrual	38	31
Current	4,210	4,710
Total	$ 4,248	$ 4,741

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Interim Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 3,405		$ 3,286		$ 10,279		$ 9,586
Unrealized gains (losses) on AFS securities
Unrealized gains (losses) arising during the period	(1,326)		665		8,642		(13,293)
Reclassification adjustment for net realized (gains) losses included in net income	(97)		(72)		(97)		(171)
Net unrealized gains (losses)	(1,423)		593		8,545		(13,464)
Tax effect	469	[1]	(447)	[1]	(2,690)	[1]	4,455	[1]
Other comprehensive income (loss), net of tax	(954)		146		5,855		(9,009)
Comprehensive income (loss)	$ 2,451		$ 3,432		$ 16,134		$ 577

[1] See “Note 11 – Accumulated Other Comprehensive Income (Loss)” for tax effect reconciliation.

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Computation of Earnings Per Common Share

9 Months Ended

Sep. 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   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Average number of common shares outstanding for basic calculation	7,733,362		7,698,066		7,725,706		7,689,350
Average potential effect of common shares in the Directors Plan (1)	170,897		170,420		170,955		168,020
Average number of common shares outstanding used to calculate diluted earnings per common share	7,904,259		7,868,486		7,896,661		7,857,370
Net income	$	3,405	$	3,286	$	10,279	$	9,586
Earnings per common share
Basic	$	0.44	$	0.43	$	1.33	$	1.25
Diluted	$	0.43	$	0.42	$	1.30	$	1.22

⁽¹⁾  Exclusive of shares held in the Rabbi Trust

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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	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discounted appraisal value at fair value	$ 1,041	$ 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	25.00%	30.00%

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Borrowed Funds (Tables)

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Summary of borrowed funds

Borrowed funds consist of the following obligations as of:

	September 30, 2014				December 31, 2013
	Amount		Rate		Amount		Rate
FHLB advances	$	182,000	1.94	%	$	162,000	2.02	%
Securities sold under agreements to repurchase without stated maturity dates	89,535		0.13	%	106,025		0.13	%
Securities sold under agreements to repurchase with stated maturity dates	1,203		4.24	%	11,301		3.30	%
Federal funds purchased	17,700		0.56	%	—		—
Total	$	290,438	1.31	%	$	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:

	September 30, 2014				December 31, 2013
	Amount		Rate		Amount		Rate
Fixed rate advances due 2014	$	10,000	0.48	%	$	10,000	0.48	%
Fixed rate advances due 2015	42,000		0.72	%	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 2021	10,000		2.37	%	—		—
Fixed rate advances due 2023	10,000		3.90	%	10,000		3.90	%
Total	$	182,000	1.94	%	$	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:

	September 30 2014				December 31 2013
	Amount		Rate		Amount		Rate
Repurchase agreements due 2014	$	750	4.89	%	$	10,876	3.30	%
Repurchase agreements due 2015	436		3.25	%	425		3.25	%
Repurchase agreements due 2018	17		1.00	%	—		—
Total	$	1,203	4.24	%	$	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 nine month periods ended:

	Three Months Ended September 30, 2014						Three Months Ended September 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	$	91,472	$	88,906	0.13	%	$	81,405	$	78,148	0.15	%
Federal funds purchased	17,700		2,252		0.48	%	6,300		5,052		0.62	%

	Nine Months Ended September 30, 2014						Nine Months Ended September 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	$	91,231	0.13	%	$	81,405	$	69,224	0.15	%
Federal funds purchased	17,700		4,939		0.48	%	13,700		4,133		0.57	%

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:

	September 30 2014		December 31 2013
Pledged to secure borrowed funds	$	278,512	$	320,173
Pledged to secure repurchase agreements	139,350		148,930
Pledged for public deposits and for other purposes necessary or required by law	18,791		20,922
Total	$	436,653	$	490,025

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Loans and ALLL (Summary of changes in ALLL by segments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	$ 10,700	$ 11,700	$ 11,500	$ 11,936
Allowance for loan losses, Loans charged off	(416)	(602)	(1,277)	(1,843)
Allowance for loan losses, Recoveries	278	151	781	641
Allowance for loan losses, Provision for loan losses	(162)	351	(604)	866
Allowance for loan losses, Ending Balance	10,400	11,600	10,400	11,600
Commercial [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	5,012	6,472	6,048	6,862
Allowance for loan losses, Loans charged off	(163)	(394)	(434)	(839)
Allowance for loan losses, Recoveries	171	66	477	289
Allowance for loan losses, Provision for loan losses	(704)	69	(1,775)	(99)
Allowance for loan losses, Ending Balance	4,316	6,213	4,316	6,213
Agricultural [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	219	335	434	407
Allowance for loan losses, Loans charged off	0	(12)	(31)	(12)
Allowance for loan losses, Recoveries	0	0	0	0
Allowance for loan losses, Provision for loan losses	(31)	108	(215)	36
Allowance for loan losses, Ending Balance	188	431	188	431
Residential Real Estate [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	3,981	3,676	3,845	3,627
Allowance for loan losses, Loans charged off	(180)	(94)	(557)	(681)
Allowance for loan losses, Recoveries	68	38	190	152
Allowance for loan losses, Provision for loan losses	92	127	483	649
Allowance for loan losses, Ending Balance	3,961	3,747	3,961	3,747
Consumer [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	802	647	639	666
Allowance for loan losses, Loans charged off	(73)	(102)	(255)	(311)
Allowance for loan losses, Recoveries	39	47	114	200
Allowance for loan losses, Provision for loan losses	(47)	74	223	111
Allowance for loan losses, Ending Balance	721	666	721	666
Unallocated [Member]
Summary of changes in the ALLL and the recorded investment in loans by segments
Allowance for loan losses, Beginning Balance	686	570	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	528	(27)	680	169
Allowance for loan losses, Ending Balance	$ 1,214	$ 543	$ 1,214	$ 543

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Parent Company Only Financial Information

9 Months Ended

Sep. 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

	September 30 2014		December 31 2013
ASSETS
Cash on deposit at the Bank	$	2,353	$	529
AFS securities	3,279		3,542
Investments in subsidiaries	121,580		110,192
Premises and equipment	1,959		2,013
Other assets	54,604		54,223
TOTAL ASSETS	$	183,775	$	170,499
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities	$	11,699	$	9,890
Shareholders' equity	172,076		160,609
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	183,775	$	170,499

Interim Condensed Statements of Income

	Three Months Ended   September 30				Nine Months Ended   September 30
	2014		2013		2014		2013
Income
Dividends from subsidiaries	$	1,750	$	1,500	$	4,750	$	4,500
Interest income	36		39		114		123
Management fee and other	717		637		1,945		1,704
Total income	2,503		2,176		6,809		6,327
Expenses
Compensation and benefits	866		680		2,470		2,061
Occupancy and equipment	293		132		514		362
Audit and related fees	109		98		278		256
Other	360		230		926		731
Total expenses	1,628		1,140		4,188		3,410
Income before income tax benefit and equity in undistributed earnings of subsidiaries	875		1,036		2,621		2,917
Federal income tax benefit	298		161		730		549
Income before equity in undistributed earnings of subsidiaries	1,173		1,197		3,351		3,466
Undistributed earnings of subsidiaries	2,232		2,089		6,928		6,120
Net income	$	3,405	$	3,286	$	10,279	$	9,586

Interim Condensed Statements of Cash Flows

	Nine Months Ended   September 30
	2014			2013
Operating activities
Net income	$	10,279		$	9,586
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(6,928		)	(6,120		)
Undistributed earnings of equity securities without readily determinable fair values	231			14
Share-based payment awards	382			423
Depreciation	109			136
Net amortization of AFS securities	1			1
Changes in operating assets and liabilities which provided (used) cash
Other assets	89			(65		)
Accrued interest and other liabilities	1,242			939
Net cash provided by (used in) operating activities	5,405			4,914
Investing activities
Maturities, calls, and sales of AFS securities	250			395
Purchases of premises and equipment	(23		)	(140		)
Advances to subsidiaries, net of repayments	641			(99		)
Net cash provided by (used in) investing activities	868			156
Financing activities
Net increase (decrease) in borrowed funds	600			(800		)
Cash dividends paid on common stock	(5,091		)	(4,838		)
Proceeds from the issuance of common stock	2,845			2,754
Common stock repurchased	(2,550		)	(1,815		)
Common stock purchased for deferred compensation obligations	(253		)	(285		)
Net cash provided by (used in) financing activities	(4,449		)	(4,984		)
Increase (decrease) in cash and cash equivalents	1,824			86
Cash and cash equivalents at beginning of period	529			332
Cash and cash equivalents at end of period	$	2,353		$	418