NOTE 10.

FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and expands disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.

The fair value hierarchy is as follows:

Level 1 Inputs – Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.

Level 2 Inputs – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active markets and model-based valuation techniques for which significant assumptions are observable in the market.

Level 3 Inputs – Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities Available for Sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using an independent pricing service. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government and agency securities that are traded by dealers or brokers in active over-the-counter markets. The Company had no Level 1 or Level 3 securities at December 31, 2012 or September 30, 2012. Level 2 securities include agency mortgage-backed securities, asset-backed securities, callable agency securities, municipal bonds and corporate debt securities.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). The Company obtains, reviews and compares the valuations and methodologies from two third party providers. These third party providers utilize several sources for valuing fixed-income securities. Sources utilized by the third party provider include pricing models that vary based by asset class and include available trade, bid, and other market information. This methodology includes broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs.

The following table summarizes the assets of the Company for which fair values are determined on a recurring basis at December 31, 2012 and September 30, 2012.

	Fair Value at December 31, 2012
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Debt securities
Trust preferred and corporate securities	$	69,283	$	-	$	69,283	$	-
Agency securities		39,240		-		39,240		-
Small Business Administration securities		20,487		-		20,487		-
Obligations of states and political subdivisions		19,472		-		19,472		-
Non-bank qualified obligations of states and political subdivisions		416,555		-		416,555		-
Mortgage-backed securities		758,955		-		758,955		-
Securities available for sale	$	1,323,992	$	-	$	1,323,992	$	-

	Fair Value at September 30, 2012
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Debt securities
Trust preferred and corporate securities	$	65,497	$	-	$	65,497	$	-
Asset backed securities		41,324		-		41,324		-
Agency securities		39,467		-		39,467		-
Small Business Administration securities		19,914		-		19,914		-
Obligations of states and political subdivisions		13,153		-		13,153		-
Non-bank qualified obligations of states and political subdivisions		255,895		-		255,895		-
Mortgage-backed securities		681,442		-		681,442		-
Securities available for sale	$	1,116,692	$	-	$	1,116,692	$	-

The Company's management reviews the status and potential impairment of all securities in a loss position on a monthly basis. In its review, management considers duration of unrealized losses and reviews credit rating changes. Other factors, but not necessarily all, considered are: that the risk of loss is minimized and easier to determine due to the single-issuer, rather than pooled, nature of the individual securities, the financial condition of the issuer, and whether there have been any payment deferrals or defaults to-date. Such factors are subject to change over time.

Foreclosed Real Estate and Repossessed Assets. Real estate properties and repossessed assets are initially recorded at the fair value less selling costs at the date of foreclosure, establishing a new cost basis. Subsequent to initial recognition, the carrying amount represents the lower of the new cost basis or the fair value less selling costs.

Loans. The Company does not record loans at fair value on a recurring basis. However, if a loan is considered impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan in accordance with ASC 310, Receivables.

The following table summarizes the assets of the Company for which fair values are determined on a non-recurring basis at December 31, 2012 and September 30, 2012.

	Fair Value at December 31, 2012
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Impaired Loans, net
One to four family residential mortgage loans	$	96	$	-	$	-	$	96
Commercial and multi-family real estate loans		4,406		-		-		4,406
Total Impaired Loans		4,502		-		-		4,502
Foreclosed Assets, net		9		-		-		9
Total	$	4,511	$	-	$	-	$	4,511

	Fair Value at September 30, 2012
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Impaired Loans, net
One to four family residential mortgage loans	$	336	$	-	$	-	$	336
Commercial and multi-family real estate loans		8,469		-		-		8,469
Consumer loans		1		-		-		1
Commercial operating loans		16		-		-		16
Total Impaired Loans		8,822		-		-		8,822
Foreclosed Assets, net		838		-		-		838
Total	$	9,660	$	-	$	-	$	9,660

	Quantitative Information About Level 3 Fair Value Measurements
(Dollars in Thousands)	Fair Value at December 31, 2012		Valuation Technique	Unobservable Input

Impaired Loans, net	$	4,502	Market approach	Appraised values (1)
Foreclosed Assets, net		9	Market approach	Appraised values (1)

(1) The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimated selling costs in a range of 4% to 10%.

The following table discloses the Company's estimated fair value amounts of its financial instruments. It is management's belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company at December 31, 2012 and September 30, 2012, as more fully described below. The operations of the Company are managed from a going concern basis and not a liquidation basis. As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations. Additionally, a substantial portion of the Company's inherent value is the Bank's capitalization and franchise value. Neither of these components have been given consideration in the presentation of fair values below.

The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at December 31, 2012 and September 30, 2012. The information presented is subject to change over time based on a variety of factors.

	December 31, 2012
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)
Financial assets
Cash and cash equivalents	$	32,745	$	32,745	$	32,745	$	-	$	-
Securities available for sale		1,323,992		1,323,992		-		1,323,992		-
Loans receivable:
One to four family residential mortgage loans		55,964		53,914		-		-		53,914
Commercial and multi-family real estate loans		176,884		172,097		-		-		172,097
Agricultural real estate loans		23,446		23,888		-		-		23,888
Consumer loans		30,736		31,359		-		-		31,359
Commercial operating loans		13,569		14,496		-		-		14,496
Agricultural operating loans		20,926		22,487		-		-		22,487
Total loans receivable		321,525		318,241		-		-		318,241

FHLB stock		11,375		11,375		-		11,375		-
Accrued interest receivable		8,800		8,800		8,800		-		-

Financial liabilities
Noninterest bearing demand deposits		1,132,218		1,132,218		1,132,218		-		-
Interest bearing demand deposits, savings, and money markets		99,057		99,057		99,057		-		-
Certificates of deposit		84,983		85,818		-		85,818		-
Total deposits		1,316,258		1,317,093		1,231,275		85,818		-

Advances from FHLB		11,000		13,655		-		13,655		-
Federal funds purchased		208,000		208,000		-		208,000		-
Securities sold under agreements to repurchase		12,303		12,303		-		12,303		-
Subordinated debentures		10,310		10,316		-		10,316		-
Accrued interest payable		218		218		218		-		-

Off-balance-sheet instruments, loan commitments		-		-		-		-		-

	September 30, 2012
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)
Financial assets
Cash and cash equivalents	$	145,051	$	145,051	$	145,051	$	-	$	-
Securities available for sale		1,116,692		1,116,692		-		1,116,692		-
Loans receivable:
One to four family residential mortgage loans		49,134		49,936		-		-		49,936
Commercial and multi-family real estate loans		191,905		194,781		-		-		194,781
Agricultural real estate loans		19,861		21,033		-		-		21,033
Consumer loans		32,838		33,488		-		-		33,488
Commercial operating loans		16,452		15,396		-		-		15,396
Agricultural operating loans		20,981		22,714		-		-		22,714
Total loans receivable		331,171		337,348		-		-		337,348

FHLB stock		2,120		2,120		-		2,120		-
Accrued interest receivable		6,710		6,710		6,710		-		-

Financial liabilities
Noninterest bearing demand deposits		1,181,299		1,181,299		1,181,299		-		-
Interest bearing demand deposits, savings, and money markets		97,732		97,732		97,732		-		-
Certificates of deposit		100,763		101,701		-		101,701		-
Total deposits		1,379,794		1,380,732		1,279,031		101,701		-

Advances from FHLB		11,000		13,999		-		13,999		-
Securities sold under agreements to repurchase		26,400		26,400		-		26,400		-
Subordinated debentures		10,310		10,318		-		10,318		-
Accrued interest payable		177		177		177		-		-

Off-balance-sheet instruments, loan commitments		-		-		-		-		-

The following sets forth the methods and assumptions used in determining the fair value estimates for the Company's financial instruments at December 31, 2012 and September 30, 2012.

CASH AND CASH EQUIVALENTS

The carrying amount of cash and short-term investments is assumed to approximate the fair value.

SECURITIES AVAILABLE FOR SALE

Securities available for sale are recorded at fair value on a recurring basis. Fair values for investment securities are based on obtaining quoted prices on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities.

LOANS RECEIVABLE

The fair value of loans is estimated using an entrance price concept. The fair value of loans was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar remaining maturities. When using the discounting method to determine fair value, loans were gathered by homogeneous groups with similar terms and conditions and discounted at a target rate at which similar loans would be made to borrowers at December 31, 2012 and September 30, 2012. In addition, when computing the estimated fair value for all loans, allowances for loan losses have been subtracted from the calculated fair value for consideration of credit quality, which approximates fair value adjustments for credit quality considerations.

Loans held for sale are carried at the lower of cost or fair market value. The carrying value of these loans approximate fair market value as they are generally sold at par within days of their origination. At December 31, 2012 and September 30, 2012 there were no loans held for sale.

FEDERAL HOME LOAN BANK (THE "FHLB") STOCK

The fair value of such stock is assumed to approximate book value since the Company is able to redeem this stock at par value.

ACCRUED INTEREST RECEIVABLE

The carrying amount of accrued interest receivable is assumed to approximate the fair value.

DEPOSITS

The carrying values of non-interest bearing checking deposits, interest bearing checking deposits, savings, and money markets is assumed to approximate fair value, since such deposits are immediately withdrawable without penalty. The fair value of time certificates of deposit was estimated by discounting expected future cash flows by the current rates offered on certificates of deposit with similar remaining maturities.

In accordance with ASC 825, Financial Instruments, no value has been assigned to the Company's long-term relationships with its deposit customers (core value of deposits intangible) since such intangible is not a financial instrument as defined under ASC 825.

ADVANCES FROM FHLB

The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates at December 31, 2012 and September 30, 2012 for advances with similar terms and remaining maturities.

FEDERAL FUNDS PURCHASED

The carrying amount of federal funds purchased is assumed to approximate the fair value of such federal funds.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND SUBORDINATED DEBENTURES

The carrying amount of securities sold under agreements to repurchase is assumed to approximate fair value. The fair value of subordinated debentures was estimated by discounting the expected future cash flows using derived interest rates approximating market as of December 31, 2012 and September 30, 2012 over the contractual maturity of such borrowings.

ACCRUED INTEREST PAYABLE

The carrying amount of accrued interest payable is assumed to approximate the fair value.

LOAN COMMITMENTS

The commitments to originate and purchase loans have terms that are consistent with current market terms. Accordingly, the Company estimates that the fair values of these commitments are not significant.

LIMITATIONS

It must be noted that fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company's entire holdings of a particular financial instrument for sale at one time. Furthermore, since no market exists for certain of the Company's financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision. Changes in assumptions as well as tax considerations could significantly affect the estimates. Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.