NOTE

– FAIR VALUE

Accounting guidance on fair value measurement 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

and liabilities measured at fair value on a recurring basis comprise the following at

March

31,

2017

and

December

31,

2016:

			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)

March 31, 2017:
Securities AFS:
U.S. govt. sponsored agency securities	$	47,556,081	$	-	$	47,556,081	$	-
Residential mortgage-backed and related securities		147,503,987		-		147,503,987		-
Municipal securities		51,131,874		-		51,131,874		-
Other securities		4,760,079		1,345		4,758,734		-
Interest rate caps		531,325		-		531,325		-
Interest rate swaps - assets		2,034,898		-		2,034,898		-
Total assets measured at fair value	$	253,518,244	$	1,345	$	253,516,899	$	-

Interest rate swaps - liabilities	$	2,034,898	$	-	$	2,034,898	$	-
Total liabilities measured at fair value	$	2,034,898	$	-	$	2,034,898	$	-


December 31, 2016 :
Securities AFS:
U.S. govt. sponsored agency securities	$	46,083,607	$	-	$	46,083,607	$	-
Residential mortgage-backed and related 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	$	-

There were no transfers of assets or liabilities between Levels

and

of the fair value hierarchy for the

three

months ended

March

31,

2017

2016.

A small portion of the securities available for sale

portfolio consists of common stock issued by various unrelated bank holding companies. The fair values used by the Company are obtained from an independent pricing service and 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).

nterest rate caps are used for the purpose of hedging interest rate risk. 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

of the Company

’s annual report filed on form

-K as of

December

31,

2016.

The fair values are determined by comparing the contract 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 comprise the following at

March

31,

2017

and

December

31,

2016:

			Fair Value Measurements at Reporting Date Using
	Fair Value		Level 1		Level 2		Level 3
March 31, 2017:
Impaired loans/leases	$	12,581,982	$	-	$	-	$	12,581,982
OREO		6,075,392		-		-		6,075,392
	$	18,657,374	$	-	$	-	$	18,657,374

December 31, 2016:
Impaired loans/leases	$	12,823,121	$	-	$	-	$	12,823,121
OREO		5,964,952		-		-		5,964,952
	$	18,788,073	$	-	$	-	$	18,788,073

Impaired loans/leases are evaluated and valued at the time the loan/lease is id

entified as impaired, at the lower of cost or fair value, and are classified as 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 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 client and client’s business.

OREO

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 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
	Fair Value March 31, 2017		Fair Value December 31, 2016		Valuation Technique	Unobservable Input	Range

Impaired loans/leases	$	12,581,982	$	12,823,121	Appraisal of collateral	Appraisal adjustments	-10.00%	to	-50.00%
OREO		6,075,392		5,964,952	Appraisal of collateral	Appraisal adjustments	0.00%	to	-35.00%

For the impaired loans/leases and

OREO, 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

three

months ended

March

31,

2017

and

2016.

The following table presents the carrying values and estimated fair values of financial assets and liabilities carried on the Company

’s consolidated balance sheets, 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 March 31, 2017				As of December 31, 2016
	Hierarchy	Carrying		Estimated		Carrying		Estimated
	Level	Value		Fair Value		Value		Fair Value

Cash and due from banks	Level 1	$	56,325,969	$	56,325,969	$	70,569,993	$	70,569,993
Federal funds sold	Level 2		15,798,000		15,798,000		22,257,000		22,257,000
Interest-bearing deposits at financial institutions	Level 2		157,420,706		157,420,706		63,948,925		63,948,925
Investment securities:
HTM	Level 2		306,694,063		304,197,006		322,909,056		320,414,899
AFS	See Previous Table		250,952,021		250,952,021		251,113,139		251,113,139
Loans/leases receivable, net	Level 3		11,649,983		12,581,982		11,873,260		12,823,121
Loans/leases receivable, net	Level 2		2,392,141,282		2,368,029,017		2,362,856,277		2,344,462,740
Interest rate caps	Level 2		531,325		531,325		576,527		576,527
Interest rate swaps - assets	Level 2		2,034,898		2,034,898		2,338,281		2,338,281
Deposits:
Nonmaturity deposits	Level 2		2,288,265,733		2,288,265,733		2,188,683,349		2,188,683,349
Time deposits	Level 2		517,665,766		519,873,000		480,577,924		479,605,000
Short-term borrowings	Level 2		19,470,096		19,470,096		39,971,387		39,971,387
FHLB advances	Level 2		106,550,000		107,283,000		137,500,000		138,338,000
Other borrowings	Level 2		72,000,000		73,108,000		80,000,000		81,282,000
Junior subordinated debentures	Level 2		33,513,509		25,075,065		33,480,202		24,881,494
Interest rate swaps - liabilities	Level 2		2,034,898		2,034,898		2,338,281		2,338,281