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, 2016 (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	$	73,716		$	73,716	$	-	$	-		$	73,716

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		63,346			-		63,346		-			63,346
US Treasury Notes		65,788			65,788		-					65,788
Mortgage Backed Securities		212,127					212,127		-			212,127
Other		510			200		310		-			510
Total Investment Securities Available-for-Sale		341,771			65,988		275,783		-			341,771

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		61,535			-		50,436		12,456			62,892
Total Investment Securities Held-to-Maturity		61,535			-		50,436		12,456			62,892

FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		601,412			-		-		604,707			604,707
Agricultural Real Estate		423,119			-		-		414,223			414,223
Real Estate Construction		163,861			-		-		163,917			163,917
Residential 1st Mortgages		211,409			-		-		214,885			214,885
Home Equity Lines and Loans		29,575			-		-		30,806			30,806
Agricultural		247,751			-		-		246,626			246,626
Commercial		205,754			-		-		204,828			204,828
Consumer & Other		6,879			-		-		6,938			6,938
Leases		61,541							62,459			62,459
Unallocated Allowance		(2,359	)		-		-		(2,359	)		(2,359	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,948,942			-		-		1,947,030			1,947,030
Accrued Interest Receivable		8,118			-		8,118		-			8,118

Liabilities:
Deposits:
Demand		637,140			637,140		-		-			637,140
Interest Bearing Transaction		409,360			409,361		-		-			409,361
Savings and Money Market		725,823			725,822		-		-			725,822
Time		484,141			-		483,789		-			483,789
Total Deposits		2,256,464			1,772,323		483,789		-			2,256,112
Subordinated Debentures		10,310			-		6,437		-			6,437
Accrued Interest Payable		471			-		471		-			471

				Fair Value of Financial Instruments Using
December 31, 2015 (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	$	59,446		$	59,446		$	-		$	-		$	59,446

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		33,251			-			33,251			-			33,251
U.S. Treasury Notes		72,884			72,884			-						72,884
Mortgage Backed Securities		262,493			-			262,493			-			262,493
Other		509			199			310			-			509
Total Investment Securities Available-for-Sale		369,137			73,083			296,054			-			369,137

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		61,396			-			44,675			17,713			62,388
Total Investment Securities Held-to-Maturity		61,396			-			44,675			17,713			62,388

FHLB Stock		7,795			N/	A		N/	A		N/	A		N/	A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		593,587			-			-			591,271			591,271
Agricultural Real Estate		417,153			-			-			405,295			405,295
Real Estate Construction		149,489			-			-			149,371			149,371
Residential 1st Mortgages		205,616			-			-			207,431			207,431
Home Equity Lines and Loans		30,910			-			-			32,360			32,360
Agricultural		287,658			-			-			285,733			285,733
Commercial		202,968			-			-			201,105			201,105
Consumer & Other		6,417			-			-			6,416			6,416
Leases		62,584			-			-			62,139			62,139
Unallocated Allowance		(1,546	)		-			-			(1,546	)		(1,546	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,954,836			-			-			1,939,575			1,939,575
Accrued Interest Receivable		9,240			-			9,240			-			9,240

Liabilities:
Deposits:
Demand		711,029			711,029			-			-			711,029
Interest Bearing Transaction		377,594			377,594			-			-			377,594
Savings and Money Market		707,885			707,885			-			-			707,885
Time		481,024			-			480,334			-			480,334
Total Deposits		2,277,532			1,796,508			480,334			-			2,276,842
Subordinated Debentures		10,310			-			6,424			-			6,424
Accrued Interest Payable		513			-			513			-			513

				Fair Value of Financial Instruments Using
March 31, 2015 (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	$	143,936		$	143,936		$	-		$	-		$	143,936

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		68,132			-			68,132			-			68,132
US Treasury Notes		19,966						19,966						19,966
Mortgage Backed Securities		276,601						276,601			-			276,601
Other		485			175			310			-			485
Total Investment Securities Available-for-Sale		365,184			175			365,009			-			365,184

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		61,324			-			48,583			13,496			62,079
Other		2,139			-			2,139			-			2,139
Total Investment Securities Held-to-Maturity		63,463			-			50,722			13,496			64,218

FHLB Stock		7,677			N/	A		N/	A		N/	A		N/	A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		521,596			-			-			519,698			519,698
Agricultural Real Estate		344,965			-			-			346,742			346,742
Real Estate Construction		99,700			-			-			99,861			99,861
Residential 1st Mortgages		181,758			-			-			185,210			185,210
Home Equity Lines and Loans		29,628			-			-			31,332			31,332
Agricultural		211,629			-			-			210,769			210,769
Commercial		227,200			-			-			224,783			224,783
Consumer & Other		4,703			-			-			4,747			4,747
Leases		48,347									48,779			48,779
Unallocated Allowance		(3,146	)		-			-			(3,146	)		(3,146	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,666,380			-			-			1,668,775			1,668,775
Accrued Interest Receivable		7,324			-			7,324			-			7,324

Liabilities:
Deposits:
Demand		578,820			578,820			-			-			578,820
Interest Bearing Transaction		340,045			340,045			-			-			340,045
Savings and Money Market		699,308			699,308			-			-			699,308
Time		493,600			-			493,600			-			493,600
Total Deposits		2,111,773			1,618,173			493,600			-			2,111,773
Subordinated Debentures		10,310			-			6,250			-			6,250
Accrued Interest Payable		433			-			433			-			433

Fair value estimates presented herein are based on pertinent information available to management as of March 31, 2016, December 31, 2015, and March 31, 2015. 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 Loan & Lease 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 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.

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.