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, 2017 (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	$	164,512		$	164,512	$	-	$	-		$	164,512

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		3,217			-		3,217		-			3,217
U.S. Govt SBA		34,734			-		34,734		-			34,734
U.S. Treasury Notes		104,419			104,419		-		-			104,419
Mortgage Backed Securities		309,462			-		309,462		-			309,462
Other		1,010			200		310		500			1,010
Total Investment Securities Available-for-Sale		452,842			104,619		347,723		500			452,842

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		57,281			-		39,991		17,682			57,673
Total Investment Securities Held-to-Maturity		57,281			-		39,991		17,682			57,673

FHLB Stock		8,872			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		664,862			-		-		659,332			659,332
Agricultural Real Estate		454,252			-		-		441,295			441,295
Real Estate Construction		161,845			-		-		161,377			161,377
Residential 1st Mortgages		248,748			-		-		248,733			248,733
Home Equity Lines and Loans		29,692			-		-		30,586			30,586
Agricultural		259,499			-		-		257,909			257,909
Commercial		200,705			-		-		198,873			198,873
Consumer & Other		6,921			-		-		6,891			6,891
Leases		73,445			-		-		73,589			73,589
Unallocated Allowance		(2,337	)		-		-		(2,337	)		(2,337	)
Total Loans & Leases, Net of Deferred Fees & Allowance		2,097,632			-		-		2,076,248			2,076,248
Accrued Interest Receivable		7,962			-		7,962		-			7,962

Liabilities:
Deposits:
Demand		709,908			709,908		-		-			709,908
Interest Bearing Transaction		503,678			503,678		-		-			503,678
Savings and Money Market		804,383			804,383		-		-			804,383
Time		589,644			-		587,811		-			587,811
Total Deposits		2,607,613			2,017,969		587,811		-			2,605,780
Subordinated Debentures		10,310			-		6,581		-			6,581
Accrued Interest Payable		882			-		882		-			882

				Fair Value of Financial Instruments Using
December 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	$	98,960		$	98,960	$	-	$	-		$	98,960

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		3,241			-		3,241		-			3,241
U.S. Govt SBA		36,314			-		36,314		-			36,314
U.S. Treasury Notes		134,428			134,428		-		-			134,428
Mortgage Backed Securities		273,270			-		273,270		-			273,270
Other		1,010			200		310		500			1,010
Total Investment Securities Available-for-Sale		448,263			134,628		313,135		500			448,263

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		58,109			-		40,415		17,993			58,408
Total Investment Securities Held-to-Maturity		58,109			-		40,415		17,993			58,408

FHLB Stock		8,872			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		656,936			-		-		651,877			651,877
Agricultural Real Estate		458,235			-		-		444,393			444,393
Real Estate Construction		173,239			-		-		172,682			172,682
Residential 1st Mortgages		241,382			-		-		241,174			241,174
Home Equity Lines and Loans		29,485			-		-		30,495			30,495
Agricultural		287,944			-		-		286,074			286,074
Commercial		209,062			-		-		207,215			207,215
Consumer & Other		6,713			-		-		6,706			6,706
Leases		68,135			-		-		67,893			67,893
Unallocated Allowance		(1,449	)		-		-		(1,449	)		(1,449	)
Total Loans & Leases, Net of Deferred Fees & Allowance		2,129,682			-		-		2,107,060			2,107,060
Accrued Interest Receivable		10,047			-		10,047		-			10,047

Liabilities:
Deposits:
Demand		756,236			756,236		-		-			756,236
Interest Bearing Transaction		495,063			495,063		-		-			495,063
Savings and Money Market		760,119			760,119		-		-			760,119
Time		570,293			-		569,183		-			569,183
Total Deposits		2,581,711			2,011,418		569,183		-			2,580,601
Subordinated Debentures		10,310			-		6,578		-			6,578
Accrued Interest Payable		852			-		852		-			852

				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 estimates presented herein are based on pertinent information available to management as of March 31, 2017, December 31, 2016, and March 31, 2016. 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.