5. Fair Value of Financial Instruments

U.S. GAAP requires 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
March 31, 2013 (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	$	43,533		$	43,533	$	-	$	-		$	43,533

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		26,692			21,612		5,080		-			26,692
Obligations of States and Political Subdivisions		5,643			-		-		5,643			5,643
Mortgage Backed Securities		432,285					432,285		-			432,285
Corporate Securities		50,128			9,373		40,755		-			50,128
Other		825			515		310		-			825
Total Investment Securities Available-for-Sale		515,573			31,500		478,430		5,643			515,573

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		65,165			-		59,757		7,282			67,039
Mortgage Backed Securities		341			-		349		-			349
Other		2,202			-		2,202		-			2,202
Total Investment Securities Held-to-Maturity		67,708			-		62,308		7,282			69,590

FHLB Stock		7,368			N/A		N/A		N/A			N/A
Loans, Net of Deferred Loan Fees & Allowance:
Commercial Real Estate		354,222			-		-		358,684			358,684
Agricultural Real Estate		315,028			-		-		321,212			321,212
Real Estate Construction		31,712			-		-		32,070			32,070
Residential 1st Mortgages		144,159			-		-		149,062			149,062
Home Equity Lines and Loans		36,932			-		-		39,477			39,477
Agricultural		172,313			-		-		171,562			171,562
Commercial		134,149			-		-		133,299			133,299
Consumer & Other		4,735			-		-		4,769			4,769
Unallocated Allowance		(810	)		-		-		(810	)		(810	)
Total Loans, Net of Deferred Loan Fees & Allowance		1,192,440			-		-		1,209,325			1,209,325
Accrued Interest Receivable		6,661			-		6,661		-			6,661

Liabilities:
Deposits:
Demand		417,341			417,341		-		-			417,341
Interest Bearing Transaction		257,171			257,171		-		-			257,171
Savings and Money Market		590,323			590,323		-		-			590,323
Time		450,331			-		451,084		-			451,084
Total Deposits		1,715,166			1,264,835		451,084		-			1,715,919
FHLB Advances & Securities Sold Under Agreement to Repurchase		-			-		-		-			-
Subordinated Debentures		10,310			-		5,758		-			5,758
Accrued Interest Payable		427			-		427		-			427

				Fair Value of Financial Instruments Using
December 31, 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	$	129,426		$	129,426	$	-	$	-		$	129,426

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		26,823			21,731		5,092		-			26,823
Obligations of States and Political Subdivisions		5,665			-		-		5,665			5,665
Mortgage Backed Securities		352,772			-		352,772		-			352,772
Corporate Securities		22,558			4,020		18,538		-			22,558
Other		10,173			9,863		310		-			10,173
Total Investment Securities Available-for-Sale		417,991			35,614		376,712		5,665			417,991

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		65,694			-		60,177		7,810			67,987
Mortgage Backed Securities		484			-		496		-			496
Other		2,214			-		2,214		-			2,214
Total Investment Securities Held-to-Maturity		68,392			-		62,887		7,810			70,697

FHLB Stock		7,368			N/A		N/A		N/A			N/A
Loans, Net of Deferred Loan Fees & Allowance:
Commercial Real Estate		344,084			-		-		349,524			349,524
Agricultural Real Estate		309,115			-		-		316,302			316,302
Real Estate Construction		31,694			-		-		32,024			32,024
Residential 1st Mortgages		139,038			-		-		144,203			144,203
Home Equity Lines and Loans		38,807			-		-		41,419			41,419
Agricultural		210,595			-		-		209,578			209,578
Commercial		135,330			-		-		134,647			134,647
Consumer & Other		4,876			-		-		4,847			4,847
Unallocated Allowance		(854	)		-		-		(854	)		(854	)
Total Loans, Net of Deferred Loan Fees & Allowance		1,212,685			-		-		1,231,690			1,231,690
Accrued Interest Receivable		6,389			-		-		6,389			6,389

Liabilities:
Deposits:
Demand		462,251			462,251		-		-			462,251
Interest Bearing Transaction		259,141			259,141		-		-			259,141
Savings and Money Market		541,526			541,526		-		-			541,526
Time		459,108			-		459,993		-			459,993
Total Deposits		1,722,026			1,262,918		459,993		-			1,722,911
Subordinated Debentures		10,310			-		5,750		-			5,750
Accrued Interest Payable		498			-		498		-			498

				Fair Value of Financial Instruments Using
March 31, 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	$	85,705		$	85,705	$	-	$	-		$	85,705

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		67,342			20,970		46,372		-			67,342
Obligations of States and Political Subdivisions		5,753			-		-		5,753			5,753
Mortgage Backed Securities		448,311			-		448,311		-			448,311
Corporate Securities		344			-		344		-			344
Other		10,067			9,657		410		-			10,067
Total Investment Securities Available-for-Sale		531,817			30,627		495,437		5,753			531,817

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		63,174			-		57,327		8,412			65,739
Mortgage Backed Securities		1,003			-		1,040		-			1,040
Other		2,239			-		2,239		-			2,239
Total Investment Securities Held-to-Maturity		66,416			-		60,606		8,412			69,018

FHLB Stock		7,035			N/A		N/A		N/A			N/A
Loans, Net of Deferred Loan Fees & Allowance:
Commercial Real Estate		316,718			-		-		326,891			326,891
Agricultural Real Estate		274,856			-		-		283,685			283,685
Real Estate Construction		29,835			-		-		30,029			30,029
Residential 1st Mortgages		110,365			-		-		114,402			114,402
Home Equity Lines and Loans		45,542			-		-		48,863			48,863
Agricultural		191,277			-		-		192,031			192,031
Commercial		151,429			-		-		151,175			151,175
Consumer & Other		6,439			-		-		6,560			6,560
Unallocated Allowance		(1,120	)		-		-		(1,120	)		(1,120	)
Total Loans, Net of Deferred Loan Fees & Allowance		1,125,341			-		-		1,152,516			1,152,516
Accrued Interest Receivable		6,463			-		6,463		-			6,463

Liabilities:
Deposits:
Demand		371,760			371,760		-		-			371,760
Interest Bearing Transaction		230,323			230,323		-		-			230,323
Savings and Money Market		528,527			528,527		-		-			528,527
Time		513,432			-		514,503		-			514,503
Total Deposits		1,644,042			1,130,610		514,503		-			1,645,113
FHLB Advances & Securities Sold Under Agreement to Repurchase		60,514			-		62,643		-			62,643
Subordinated Debentures		10,310			-		5,895		-			5,895
Accrued Interest Payable		842			-		842		-			842

Fair value estimates presented herein are based on pertinent information available to management as of March 31, 2013, December 31, 2012, and March 31, 2012. 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 consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things. 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.