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
June 30, 2014 (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	$	48,001		$	48,001		$	-		$	-		$	48,001

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		18,424			13,412			5,012			-			18,424
Mortgage Backed Securities		326,335			-			326,335			-			326,335
Corporate Securities		54,661			8,982			45,679			-			54,661
Other		2,312			2,002			310			-			2,312
Total Investment Securities Available-for-Sale		401,732			24,396			377,336			-			401,732

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,866			-			54,736			13,723			68,459
Other		2,474			-			2,474			-			2,474
Total Investment Securities Held-to-Maturity		70,340			-			57,210			13,723			70,933

FHLB Stock		7,677			N/	A		N/	A		N/	A		N/	A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		421,538			-			-			421,007			421,007
Agricultural Real Estate		355,256			-			-			358,283			358,283
Real Estate Construction		80,357			-			-			80,700			80,700
Residential 1st Mortgages		159,324			-			-			163,038			163,038
Home Equity Lines and Loans		31,716			-			-			33,854			33,854
Agricultural		220,454			-			-			219,426			219,426
Commercial		172,571			-			-			172,661			172,661
Consumer & Other		4,688			-			-			4,747			4,747
Leases		21,047									20,743			20,743
Unallocated Allowance		(1,532	)		-			-			(1,532	)		(1,532	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,465,419			-			-			1,472,927			1,472,927
Accrued Interest Receivable		7,684			-			7,684			-			7,684

Liabilities:
Deposits:
Demand		499,133			499,133			-			-			499,133
Interest Bearing Transaction		313,879			313,878			-			-			313,878
Savings and Money Market		630,194			630,195			-			-			630,195
Time		418,829			-			418,969			-			418,969
Total Deposits		1,862,035			1,443,206			418,969			-			1,862,175
FHLB Advances & Securities Sold Under Agreement to Repurchase		12,000			-			12,000			-			12,000
Subordinated Debentures		10,310			-			6,222			-			6,222
Accrued Interest Payable		349			-			349			-			349

				Fair Value of Financial Instruments Using
December 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	$	83,677		$	83,677		$	-		$	-		$	83,677

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		28,436			23,394			5,042			-			28,436
Mortgage Backed Securities		324,929			-			324,929			-			324,929
Corporate Securities		49,380			8,191			41,189			-			49,380
Other		1,894			1,584			310			-			1,894
Total Investment Securities Available-for-Sale		404,639			33,169			371,470			-			404,639

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		65,685			-			51,563			14,307			65,870
Mortgage Backed Securities		45			-			45			-			45
Other		2,775			-			2,775			-			2,775
Total Investment Securities Held-to-Maturity		68,505			-			54,383			14,307			68,690

FHLB Stock		7,187			N/	A		N/	A		N/	A		N/	A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		402,336			-			-			403,790			403,790
Agricultural Real Estate		324,688			-			-			328,704			328,704
Real Estate Construction		40,438			-			-			40,800			40,800
Residential 1st Mortgages		150,184			-			-			153,352			153,352
Home Equity Lines and Loans		32,710			-			-			35,250			35,250
Agricultural		244,209			-			-			242,950			242,950
Commercial		144,701			-			-			145,131			145,131
Consumer & Other		4,876			-			-			4,912			4,912
Leases		12,094			-			-			11,851			11,851
Unallocated Allowance		(2,274	)		-			-			(2,274	)		(2,274	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,353,962			-			-			1,364,466			1,364,466
Accrued Interest Receivable		6,941			-			6,941			-			6,941

Liabilities:
Deposits:
Demand		495,963			495,963			-			-			495,963
Interest Bearing Transaction		291,795			291,795			-			-			291,795
Savings and Money Market		589,511			589,511			-			-			589,511
Time		430,422			-			430,752			-			430,752
Total Deposits		1,807,691			1,377,269			430,752			-			1,808,021
Subordinated Debentures		10,310			-			6,224			-			6,224
Accrued Interest Payable		352			-			352			-			352

				Fair Value of Financial Instruments Using
June 30, 2013 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	$	45,306		$	45,306		$	-		$	-		$	45,306

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		26,482			21,416			5,066			-			26,482
Obligations of States and Political Subdivisions		5,612			-			-			5,612			5,612
Mortgage Backed Securities		392,574						392,574			-			392,574
Corporate Securities		49,560			8,122			41,438			-			49,560
Other		1,186			876			310			-			1,186
Total Investment Securities Available-for-Sale		475,414			30,414			439,388			5,612			475,414

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		64,648			-			58,009			7,360			65,369
Mortgage Backed Securities		217			-			220			-			220
Other		2,194			-			2,194			-			2,194
Total Investment Securities Held-to-Maturity		67,059			-			60,423			7,360			67,783

FHLB Stock		7,187			N/	A		N/	A		N/	A		N/	A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		387,427			-			-			387,017			387,017
Agricultural Real Estate		309,107			-			-			310,902			310,902
Real Estate Construction		31,741			-			-			31,901			31,901
Residential 1st Mortgages		135,436			-			-			137,951			137,951
Home Equity Lines and Loans		34,514			-			-			37,225			37,225
Agricultural		204,203			-			-			201,957			201,957
Commercial		150,572			-			-			149,593			149,593
Consumer & Other		5,378			-			-			5,400			5,400
Leases		2,667			-			-			2,667			2,667
Unallocated Allowance		(224	)		-			-			(224	)		(224	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,260,821			-			-			1,264,389			1,264,389
Accrued Interest Receivable		7,609			-			7,609			-			7,609

Liabilities:
Deposits:
Demand		429,526			429,526			-			-			429,526
Interest Bearing Transaction		248,447			248,447			-			-			248,447
Savings and Money Market		588,009			588,009			-			-			588,009
Time		444,175			-			444,579			-			444,579
Total Deposits		1,710,157			1,265,982			444,579			-			1,710,561
FHLB Advances & Securities Sold Under Agreement to Repurchase		43,300			-			43,300			-			43,300
Subordinated Debentures		10,310			-			5,665			-			5,665
Accrued Interest Payable		438			-			438			-			438

Fair value estimates presented herein are based on pertinent information available to management as of June 30, 2014, December 31, 2013, and June 30, 2013. 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 & Leases, Net of Deferred Fees & Allowance - Fair values of loans & leases 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 & leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans & leases with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans & leases are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans & leases 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.