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
June 30, 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	$	91,339		$	91,339	$	-	$	-		$	91,339

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		11,121			-		11,121		-			11,121
U.S. Treasury Notes		80,238			-		80,238		-			80,238
Mortgage Backed Securities		259,580			-		259,580		-			259,580
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		351,424			175		351,249		-			351,424

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		65,270			-		47,321		18,014			65,335
Other		2,131			-		2,131		-			2,131
Total Investment Securities Held-to-Maturity		67,401			-		49,452		18,014			67,466

FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		561,582			-		-		559,550			559,550
Agricultural Real Estate		366,052			-		-		362,035			362,035
Real Estate Construction		114,806			-		-		114,984			114,984
Residential 1st Mortgages		188,308			-		-		191,266			191,266
Home Equity Lines and Loans		29,254			-		-		31,021			31,021
Agricultural		220,749			-		-		219,967			219,967
Commercial		247,508			-		-		245,825			245,825
Consumer & Other		4,767			-		-		4,803			4,803
Leases		48,099							47,595			47,595
Unallocated Allowance		(1,520	)		-		-		(1,520	)		(1,520	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,779,605			-		-		1,775,526			1,775,526
Accrued Interest Receivable		9,024			-		9,024		-			9,024

Liabilities:
Deposits:
Demand		613,042			613,041		-		-			613,041
Interest Bearing Transaction		349,404			349,404		-		-			349,404
Savings and Money Market		706,121			706,122		-		-			706,122
Time		494,569			-		494,724		-			494,724
Total Deposits		2,163,136			1,668,567		494,724		-			2,163,291
Subordinated Debentures		10,310			-		6,252		-			6,252
Accrued Interest Payable		556			-		556		-			556

				Fair Value of Financial Instruments Using
December 31, 2014 (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	$	77,125		$	77,125	$	-	$	-		$	77,125

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		78,109			10,005		68,104		-			78,109
Mortgage Backed Securities		287,948			-		287,948		-			287,948
Corporate Securities									-			-
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		366,542			10,180		356,362		-			366,542

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		61,716			-		49,085		13,403			62,488
Mortgage Backed Securities					-				-			-
Other		2,147			-		2,147		-			2,147
Total Investment Securities Held-to-Maturity		63,863			-		51,232		13,403			64,635

FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		484,061			-		-		481,037			481,037
Agricultural Real Estate		353,022			-		-		353,288			353,288
Real Estate Construction		94,850			-		-		95,022			95,022
Residential 1st Mortgages		170,858			-		-		173,916			173,916
Home Equity Lines and Loans		30,591			-		-		32,456			32,456
Agricultural		275,859			-		-		274,195			274,195
Commercial		222,624			-		-		222,175			222,175
Consumer & Other		4,501			-		-		4,535			4,535
Leases		42,006			-		-		40,298			40,298
Unallocated Allowance		(1,529	)		-		-		(1,529	)		(1,529	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,676,843			-		-		1,675,393			1,675,393
Accrued Interest Receivable		7,797			-		7,797		-			7,797

Liabilities:
Deposits:
Demand		610,133			610,133		-		-			610,133
Interest Bearing Transaction		341,397			341,397		-		-			341,397
Savings and Money Market		644,260			644,260		-		-			644,260
Time		468,283			-		468,161		-			468,161
Total Deposits		2,064,073			1,595,790		468,161		-			2,063,951
Subordinated Debentures		10,310			-		6,227		-			6,227
Accrued Interest Payable		378			-		378		-			378

				Fair Value of Financial Instruments Using
June 30, 2014 (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	$	48,001		$	48,001	$	-	$	-		$	48,001

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		18,424			13,412		5,012		-			18,424
Obligations of States and Political Subdivisions		-			-		-		-			-
Mortgage Backed Securities		326,335			-		326,335		-			326,335
Corporate Securities		54,661			8,982		45,679		-			54,661
Other		2,312			2,002		310		-			2,312
Total Investment Securities Available-for-Sale		401,732			24,396		377,336		-			401,732

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,866			-		54,736		13,723			68,459
Mortgage Backed Securities		-			-		-		-			-
Other		2,474			-		2,474		-			2,474
Total Investment Securities Held-to-Maturity		70,340			-		57,210		13,723			70,933

FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		421,538			-		-		421,007			421,007
Agricultural Real Estate		355,256			-		-		358,283			358,283
Real Estate Construction		80,357			-		-		80,700			80,700
Residential 1st Mortgages		159,324			-		-		163,038			163,038
Home Equity Lines and Loans		31,716			-		-		33,854			33,854
Agricultural		220,454			-		-		219,426			219,426
Commercial		172,571			-		-		172,661			172,661
Consumer & Other		4,688			-		-		4,747			4,747
Leases		21,047							20,743			20,743
Unallocated Allowance		(1,532	)		-		-		(1,532	)		(1,532	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,465,419			-		-		1,472,927			1,472,927
Accrued Interest Receivable		7,684			-		7,684		-			7,684

Liabilities:
Deposits:
Demand		499,133			499,133		-		-			499,133
Interest Bearing Transaction		313,879			313,878		-		-			313,878
Savings and Money Market		630,194			630,195		-		-			630,195
Time		418,829			-		418,969		-			418,969
Total Deposits		1,862,035			1,443,206		418,969		-			1,862,175
FHLB Advances & Securities Sold Under Agreement to Repurchase		12,000			-		12,000		-			12,000
Subordinated Debentures		10,310			-		6,222		-			6,222
Accrued Interest Payable		349			-		349		-			349

Fair value estimates presented herein are based on pertinent information available to management as of June 30, 2015, December 31, 2014, and June 30, 2014. 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 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 & leases 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.

FHLB Advances & Securities Sold Under Agreement to Repurchase - The fair value of federal funds purchased and other short-term borrowings is approximated by the book value resulting in a Level 2 classification. The fair value for Federal Home Loan Bank advances is determined using discounted future cash flows 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.