18. 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
December 31, 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	$	59,446		$	59,446	$	-	$	-		$	59,446

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		33,251			-		33,251		-			33,251
U.S. Treasury Notes		72,884			72,884		-					72,884
Mortgage Backed Securities		262,493			-		262,493		-			262,493
Other		509			199		310		-			509
Total Investment Securities Available-for-Sale		369,137			73,083		296,054		-			369,137

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		61,396			-		44,675		17,713			62,388
Total Investment Securities Held-to-Maturity		61,396			-		44,675		17,713			62,388

FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		593,587			-		-		591,271			591,271
Agricultural Real Estate		417,153			-		-		405,295			405,295
Real Estate Construction		149,489			-		-		149,371			149,371
Residential 1st Mortgages		205,616			-		-		207,431			207,431
Home Equity Lines and Loans		30,910			-		-		32,360			32,360
Agricultural		287,658			-		-		285,733			285,733
Commercial		202,968			-		-		201,105			201,105
Consumer & Other		6,417			-		-		6,416			6,416
Leases		62,584			-		-		62,139			62,139
Unallocated Allowance		(1,546	)		-		-		(1,546	)		(1,546	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,954,836			-		-		1,939,575			1,939,575
Accrued Interest Receivable		9,240			-		9,240		-			9,240

Liabilities:
Deposits:
Demand		711,029			711,029		-		-			711,029
Interest Bearing Transaction		377,594			377,594		-		-			377,594
Savings and Money Market		707,885			707,885		-		-			707,885
Time		481,024			-		480,334		-			480,334
Total Deposits		2,277,532			1,796,508		480,334		-			2,276,842
Subordinated Debentures		10,310			-		6,424		-			6,424
Accrued Interest Payable		513			-		513		-			513

				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
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
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 estimates presented herein are based on pertinent information available to management as of December 31, 2015 and December 31, 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 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.