Note

21.

Fair Value

Accounting guidance on fair value measurements uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy includes

three

levels and is based upon the valuation techniques used to measure assets and liabilities. The

three

levels are as follows:

●

Level

– Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in markets;

●

Level

– Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

●

Level

– Inputs to the valuation methodology are unobservable and significant to the fair value measurement

Assets measured at fair value on a recurring basis comprised the following at

December

31,

2016

and

2015:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)

December 31, 2016:
Securities available for sale:
U.S. govt. sponsored agency securities	$	46,083,607	$	-	$	46,083,607	$	-
Residential mortgage-backed securities		147,702,127		-		147,702,127		-
Municipal securities		52,604,426		-		52,604,426		-
Other securities		4,722,979		1,361		4,721,618		-
Interest rate caps		576,527		-		576,527		-
Interest rate swaps - assets		2,338,281		-		2,338,281
Total assets measured at fair value	$	254,027,947	$	1,361	$	254,026,586	$	-

Interest rate swaps - liabilities	$	2,338,281	$	-	$	2,338,281	$	-
Total liabilities measured at fair value	$	2,338,281	$	-	$	2,338,281	$	-

December 31, 2015:
Securities available for sale:
U.S. govt. sponsored agency securities	$	213,537,379	$	-	$	213,537,379	$	-
Residential mortgage-backed securities		80,670,135		-		80,670,135		-
Municipal securities		27,578,588		-		27,578,588		-
Other securities		1,648,880		411		1,648,469		-
Interest rate caps		856,024		-		856,024		-
Interest rate swaps - assets		3,044,525		-		3,044,525
Total assets measured at fair value	$	327,335,531	$	411	$	327,335,120	$	-

Interest rate swaps - liabilities	$	3,044,525	$	-	$	3,044,525	$	-
Total liabilities measured at fair value	$	3,044,525	$	-	$	3,044,525	$	-

There were no transfers of assets or liabilities between Levels

and

of the fair value hierarchy during the years ended

December

31,

2016

2015.

A small portion of the securities available for sale portfolio consists of common stock issued by various unrelated bank holding companies and mutual funds. The fair values used by the Company are obtained from an independent pricing service, which represent quoted market prices for the identical securities (Level

inputs).

The remainder of the securities available for sale portfolio consists of securities whereby the Company obtains fair values from an independent pricing service. The fair values are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level

inputs).

Interest rate caps are used for the purpose of hedging interest rate risk. See Note

to the Consolidated Financial Statements for the details of these instruments. The fair values are determined by pricing models that consider observable market data for derivative instruments with similar structures (Level

inputs).

Interest rate swaps are executed for select commercial customers. The interest rate swaps are further described in Note

to the Consolidated Financial Statements. The fair values are determined by comparing the contractual rate on the swap with the then-current market rate for the remaining term of the transaction (Level

inputs).

Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Assets measured at fair value on a non-recurring basis comprised the following at

December

31,

2016

and

2015:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2016:
Impaired loans/leases	$	12,823,121	$	-	$	-	$	12,823,121
Other real estate owned		5,964,952		-		-		5,964,952
	$	18,788,073	$	-	$	-	$	18,788,073

December 31, 2015:
Impaired loans/leases	$	4,545,966	$	-	$	-	$	4,545,966
Other real estate owned		7,722,711		-		-		7,722,711
	$	12,268,677	$	-	$	-	$	12,268,677

Impaired loans/leases are evaluated and valued at the time the loan/lease is identified as impaired, at the lower of cost or fair value and are classified as a Level

in the fair value hierarchy. Fair value is measured based on the value of the collateral securing these loans/leases. Collateral

may

be real estate and/or business assets including equipment, inventory and/or accounts receivable and is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values

may

be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business.

Other real estate owned in the table above consists of property acquired through foreclosures and settlements of loans. Property acquired is carried at the estimated fair value of the property, less disposal costs, and is classified as a Level

in the fair value hierarchy. The estimated fair value of the property is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the property.

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level

inputs to determine fair value:

	Quantitative Information about Level Fair Value Measurements
	December 31, 2016 Fair Value		December 31, 2015 Fair Value		Valuation Technique	Unobservable Input	Range

Impaired loans/leases	$	12,823,121	$	4,545,966	Appraisal of collateral	Appraisal adjustments	-10.00%	to	-50.00%
Other real estate owned		5,964,952		7,722,711	Appraisal of collateral	Appraisal adjustments	0.00%	to	-35.00%

For impaired loans/leases and other real estate owned, the Company records carrying value at fair value less disposal or selling costs. The amounts reported in the tables above are fair values before the adjustment for disposal or selling costs.

There have been no changes in valuation techniques used for any assets measured at fair value during the years ended

December

31,

2016

2015.

The following table presents the carrying values and estimated fair values of financial assets and liabilities carried on the Company’s consolidated balance sheet, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis:

	Fair Value	As of December 31, 2016				As of December 31, 2015
	Hierarchy	Carrying		Estimated		Carrying		Estimated
	Level	Value		Fair Value		Value		Fair Value

Cash and due from banks	Level 1	$	70,569,993	$	70,569,993	$	41,742,321	$	41,742,321
Federal funds sold	Level 2		22,257,000		22,257,000		19,850,000		19,850,000
Interest-bearing deposits at financial institutions	Level 2		63,948,925		63,948,925		36,313,965		36,313,965
Investment securities:
HTM	Level 2		322,909,056		320,414,899		253,674,159		255,691,285
AFS	See Previous Table		251,113,139		251,113,139		323,434,982		323,434,982
Loans/leases receivable, net	Level 3		11,873,260		12,823,121		4,209,228		4,545,966
Loans/leases receivable, net	Level 2		2,362,856,277		2,344,462,740		1,767,672,541		1,764,178,772
Interest rate caps	Level 2		576,527		576,527		856,024		856,024
Interest rate swaps - assets	Level 2		2,338,281		2,338,281		3,044,525		3,044,525
Deposits:
Nonmaturity deposits	Level 2		2,188,683,349		2,188,683,349		1,516,599,081		1,516,599,081
Time deposits	Level 2		480,577,924		479,605,000		364,067,103		364,192,000
Short-term borrowings	Level 2		39,971,387		39,971,387		144,662,716		144,662,716
FHLB advances	Level 2		137,500,000		138,338,000		151,000,000		153,143,000
Other borrowings	Level 2		80,000,000		81,282,000		110,000,000		116,061,000
Junior subordinated debentures	Level 2		33,480,202		24,881,494		38,499,052		27,642,093
Interest rate swaps - liabilities	Level 2		2,338,281		2,338,281		3,044,525		3,044,525

The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include: cash and due from banks, federal funds sold, interest-bearing deposits at financial institutions, non-maturity deposits, and short-term borrowings. The Company used the following methods and assumptions in estimating the fair value of the following instruments:

Securities held to maturity

The fair values are estimated using pricing models that consider certain observable market data and some observable inputs, such as rate and term.

Loans/leases receivable

: The fair values for all types of loans/leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans/leases with similar terms to borrowers with similar credit quality. The fair value of loans held for sale is based on quoted market prices of similar loans sold in the

secondary

market.

Deposits

: The fair values disclosed for demand deposits equal their carrying amounts, which represent the amount payable on demand. Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregate expected monthly maturities on time deposits.

FHLB advances and junior subordinated debentures

: The fair value of these instruments is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Other borrowings

: The fair value for the wholesale repurchase agreements and fixed rate other borrowings is estimated using rates currently available for debt with similar terms and remaining maturities. The fair value for variable rate other borrowings is equal to its carrying value.

Commitments to extend credit

: The fair value of these commitments is not material.