Note 14 – Fair Values of Financial Instruments

The estimated fair values approximate carrying amount for all items except those described in the following table. Investment security fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security. The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. During the years ended December 31, 2013, and 2012, the Company participated in multiple redemptions with the FHLBC and, using the redemption values as the carrying value, FHLBC stock is carried at a Level 2 fair value since December 31, 2012. The Company had redemptions of $1.2 million in the third quarter of 2014. These redemptions were the only redemptions processed by the Company in the first nine months of 2014. Fair values of loans were estimated for portfolios of loans with similar financial characteristics, such as type and fixed or variable interest rate terms. Cash flows were discounted using current rates at which similar loans would be made to borrowers with similar ratings and for similar maturities. The fair value of time deposits is estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities. The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities. The fair value of off balance sheet volume is not considered material.

The carrying amount and estimated fair values of financial instruments were as follows:



	September 30, 2014
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	33,260	$	33,260	$	33,260	$	-	$	-
Interest bearing deposits with financial institutions		10,797		10,797		10,797		-		-
Securities available-for-sale		362,243		362,243		1,532		276,805		83,906
Securities held-to-maturity		263,040		264,343		-		264,343		-
FHLBC and Reserve Bank Stock		9,058		9,058		-		9,058		-
Bank-owned life insurance		56,438		56,438		-		56,438		-
Loans held for sale		3,422		3,422		-		3,422		-
Loans, net		1,117,552		1,119,781		-		-		1,119,781
Accrued interest receivable		4,931		4,931		-		4,931		-

Financial liabilities:
Noninterest bearing deposits	$	380,687	$	380,687	$	380,687	$	-	$	-
Interest bearing deposits		1,276,068		1,275,036		-		1,275,036		-
Securities sold under repurchase agreements		29,438		29,438		-		29,438		-
Other short-term borrowings		40,000		40,000		-		40,000		-
Junior subordinated debentures		58,378		54,840		32,532		22,308		-
Subordinated debenture		45,000		38,691		-		38,691		-
Note payable and other borrowings		500		414		-		414		-
Borrowing interest payable		73		73		-		73		-
Deposit interest payable		518		518		-		518		-



	December 31, 2013
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	33,210	$	33,210	$	33,210	$	-	$	-
Interest bearing deposits with financial institutions		14,450		14,450		14,450		-		-
Securities available-for-sale		372,191		372,191		1,544		216,385		154,262
Securities held-to-maturity		256,571		254,328		-		254,328		-
FHLBC and Reserve Bank Stock		10,292		10,292		-		10,292		-
Bank-owned life insurance		55,410		55,410		-		55,410		-
Loans held-for-sale		3,822		3,822		-		3,822		-
Loans, net		1,073,975		1,072,837		-		-		1,072,837
Accrued interest receivable		4,248		4,248		-		4,248		-

Financial liabilities:
Noninterest bearing deposits	$	373,389	$	373,389	$	373,389	$	-	$	-
Interest bearing deposits		1,308,739		1,312,476		-		1,312,476		-
Securities sold under repurchase agreements		22,560		22,560		-		22,560		-
Other short-term borrowings		5,000		5,000		-		5,000		-
Junior subordinated debentures		58,378		67,053		39,777		27,276		-
Subordinated debenture		45,000		39,896		-		39,896		-
Note payable and other borrowings		500		423		-		423		-
Borrowing interest payable		17,037		17,037		10,122		6,915		-
Deposit interest payable		762		762		-		762		-