4. Fair Value of Financial Instruments

Generally accepted accounting principles require disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization.

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated:

				Fair Value of Financial Instruments Using
June 30, 2012 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	40,769		$	40,769	$	-	$	-		$	40,769

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		57,078			10,724		46,354		-			57,078
Obligations of States and Political Subdivisions		5,724			-		-		5,724			5,724
Mortgage Backed Securities		427,637			-		427,637		-			427,637
Corporate Bonds		8,995			-		8,995		-			8,995
Other		2,458			2,148		310		-			2,458
Total Investment Securities Available-for-Sale		501,892			12,872		483,296		5,724			501,892

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,159			-		61,820		7,786			69,606
Mortgage Backed Securities		806			-		831		-			831
Other		2,230			-		2,230		-			2,230
Total Investment Securities Held-to-Maturity		70,195			-		64,881		7,786			72,667

FHLB Stock		7,368			N/A		N/A		N/A			N/A
Loans, Net of Deferred Loan Fees & Allowance:
Commercial Real Estate		320,418			-		-		330,783			330,783
Agricultural Real Estate		282,997			-		-		292,152			292,152
Real Estate Construction		34,133			-		-		34,423			34,423
Residential 1st Mortgages		121,602			-		-		125,110			125,110
Home Equity Lines and Loans		42,770			-		-		45,809			45,809
Agricultural		202,946			-		-		202,991			202,991
Commercial		162,083			-		-		161,242			161,242
Consumer & Other		5,658			-		-		5,731			5,731
Unallocated Allowance		(1,711	)		-		-		(1,711	)		(1,711	)
Total Loans, Net of Deferred Loan Fees & Allowance		1,170,896			-		-		1,196,530			1,196,530
Accrued Interest Receivable		7,223			-		7,223		-			7,223

Liabilities:
Deposits:
Demand		360,290			360,290		-		-			360,290
Interest Bearing Transaction		223,343			223,343		-		-			223,343
Savings and Money Market		542,922			542,922		-		-			542,922
Time		505,670			-		506,638		-			506,638
Total Deposits		1,632,225			1,126,555		506,638		-			1,633,193
FHLB Advances & Securities Sold Under Agreement to Repurchase		50,998			-		51,065		-			51,065
Subordinated Debentures		10,310			-		5,841		-			5,841
Accrued Interest Payable		796			-		796		-			796

December 31, 2011	Carrying		Estimated
(in thousands)	Amount		Fair Value
Assets:
Cash and Cash Equivalents	$	101,660	$	101,660
Investment Securities Available-for-Sale		479,820		479,820
Investment Securities Held-to-Maturity		63,092		65,874
FHLB Stock		7,035		N/A
Loans, Net of Deferred Loan Fees & Allowance		1,130,061		1,162,261
Accrued Interest Receivable		6,368		6,368
Liabilities:
Deposits:
Demand		389,639		389,639
Interest-Bearing		1,236,558		1,237,849
FHLB Advances & Securities Sold Under Agreement to Repurchase		60,530		63,000
Subordinated Debentures		10,310		5,953
Accrued Interest Payable		911		911

June 30, 2011	Carrying		Estimated
(in thousands)	Amount		Fair Value
Assets:
Cash and Cash Equivalents	$	56,704	$	56,704
Investment Securities Available-for-Sale		423,915		423,915
Investment Securities Held-to-Maturity		63,584		65,613
FHLB Stock		7,035		N/A
Loans, Net of Deferred Loan Fees & Allowance		1,158,859		1,190,214
Accrued Interest Receivable		7,486		7,486
Liabilities:
Deposits:
Demand		324,371		324,371
Interest-Bearing		1,239,756		1,241,171
FHLB Advances & Securities Sold Under Agreement to Repurchase		60,561		64,723
Subordinated Debentures		10,310		4,373
Accrued Interest Payable		1,387		1,387

Fair value estimates presented herein are based on pertinent information available to management as of June 30, 2012, December 31, 2011, and June 30, 2011. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purpose of these financial statements since that date, and; therefore, current estimates of fair value may differ significantly from the amounts presented above. The methods and assumptions used to estimate the fair value of each class of financial instrument listed in the table above are explained below.

Cash and Cash Equivalents: The carrying amounts reported in the balance sheet for cash and due from banks, interest bearing deposits with banks, federal funds sold, and securities purchased under agreements to resell are a reasonable estimate of fair value. All cash and cash equivalents are classified as Level 1.

Investment Securities: Fair values for investment securities are based on quoted market prices or dealer quotes, where available. If quoted market prices or dealer quotes are not available, fair values are based on quoted market prices of comparable instruments. Based on the available market information the classification level could be 1, 2, or 3.

Federal Home Loan Bank Stock: It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans, Net of Deferred Loan Fees & Allowance: Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other 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 resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Deposit Liabilities: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed-maturity certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

FHLB Advances & Securities Sold Under Agreement to Repurchase: The fair value of federal funds purchased and other short-term borrowings is approximated by the book value resulting in a Level 2 classification. The fair value for Federal Home Loan Bank advances is determined using discounted future cash flows resulting in a Level 2 classification.

Subordinated Debentures: The fair values of the Company's Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued Interest Receivable and Payable: The carrying amount of accrued interest receivable and payable approximates their fair value resulting in a Level 2 classification.