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
September 30, 2017 (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	$	193,270		$	193,270	$	-	$	-		$	193,270

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		3,169			-		3,169		-			3,169
U.S. Govt SBA		31,691			-		31,691		-			31,691
U.S. Treasury Notes		144,410			144,410		-		-			144,410
Mortgage Backed Securities		276,043			-		276,043		-			276,043
Other		1,010			200		310		500			1,010
Total Investment Securities Available-for-Sale		456,323			144,610		311,213		500			456,323

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		55,542			-		39,254		17,037			56,292
Total Investment Securities Held-to-Maturity		55,542			-		39,254		17,037			56,292

FHLB Stock		10,342			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		671,940			-		-		665,566			665,566
Agricultural Real Estate		459,342			-		-		446,684			446,684
Real Estate Construction		159,417			-		-		159,131			159,131
Residential 1st Mortgages		256,923			-		-		258,256			258,256
Home Equity Lines and Loans		31,089			-		-		31,869			31,869
Agricultural		251,767			-		-		249,995			249,995
Commercial		248,891			-		-		247,344			247,344
Consumer & Other		7,103			-		-		7,067			7,067
Leases		81,983			-		-		85,032			85,032
Unallocated Allowance		(2,420	)		-		-		(2,420	)		(2,420	)
Total Loans & Leases, Net of Deferred Fees & Allowance		2,166,035			-		-		2,148,524			2,148,524
Accrued Interest Receivable		11,498			-		11,498		-			11,498

Liabilities:
Deposits:
Demand		767,162			767,162		-		-			767,162
Interest Bearing Transaction		564,904			564,904		-		-			564,904
Savings and Money Market		827,588			827,588		-		-			827,588
Time		549,773			-		547,796		-			547,796
Total Deposits		2,709,427			2,159,654		547,796		-			2,707,450
Subordinated Debentures		10,310			-		6,589		-			6,589
Accrued Interest Payable		939			-		939		-			939

				Fair Value of Financial Instruments Using
December 31, 2016 (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	$	98,960		$	98,960	$	-	$	-		$	98,960

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		3,241			-		3,241		-			3,241
U.S. Govt SBA		36,314			-		36,314		-			36,314
U.S. Treasury Notes		134,428			134,428		-		-			134,428
Mortgage Backed Securities		273,270			-		273,270		-			273,270
Other		1,010			200		310		500			1,010
Total Investment Securities Available-for-Sale		448,263			134,628		313,135		500			448,263

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		58,109			-		40,415		17,993			58,408
Total Investment Securities Held-to-Maturity		58,109			-		40,415		17,993			58,408

FHLB Stock		8,872			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		656,936			-		-		651,877			651,877
Agricultural Real Estate		458,235			-		-		444,393			444,393
Real Estate Construction		173,239			-		-		172,682			172,682
Residential 1st Mortgages		241,382			-		-		241,174			241,174
Home Equity Lines and Loans		29,485			-		-		30,495			30,495
Agricultural		287,944			-		-		286,074			286,074
Commercial		209,062			-		-		207,215			207,215
Consumer & Other		6,713			-		-		6,706			6,706
Leases		68,135			-		-		67,893			67,893
Unallocated Allowance		(1,449	)		-		-		(1,449	)		(1,449	)
Total Loans & Leases, Net of Deferred Fees & Allowance		2,129,682			-		-		2,107,060			2,107,060
Accrued Interest Receivable		10,047			-		10,047		-			10,047

Liabilities:
Deposits:
Demand		756,236			756,236		-		-			756,236
Interest Bearing Transaction		495,063			495,063		-		-			495,063
Savings and Money Market		760,119			760,119		-		-			760,119
Time		570,293			-		569,183		-			569,183
Total Deposits		2,581,711			2,011,418		569,183		-			2,580,601
Subordinated Debentures		10,310			-		6,578		-			6,578
Accrued Interest Payable		852			-		852		-			852

				Fair Value of Financial Instruments Using
September 30, 2016 (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	$	99,303		$	99,303	$	-	$	-		$	99,303

Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		83,293			-		83,293		-			83,293
US Treasury Notes		85,681			85,681		-		-			85,681
Mortgage Backed Securities		188,873			-		188,873		-			188,873
Other		1,010			200		310		500			1,010
Total Investment Securities Available-for-Sale		358,857			85,881		272,476		500			358,857

Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		58,905			-		42,675		17,779			60,454
Total Investment Securities Held-to-Maturity		58,905			-		42,675		17,779			60,454

FHLB Stock		8,872			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		616,992			-		-		620,655			620,655
Agricultural Real Estate		430,601			-		-		422,056			422,056
Real Estate Construction		172,587			-		-		172,358			172,358
Residential 1st Mortgages		237,547			-		-		241,703			241,703
Home Equity Lines and Loans		30,318			-		-		31,397			31,397
Agricultural		268,482			-		-		267,101			267,101
Commercial		206,486			-		-		205,769			205,769
Consumer & Other		6,796			-		-		6,832			6,832
Leases		67,341							69,408			69,408
Unallocated Allowance		(1,926	)		-		-		(1,926	)		(1,926	)
Total Loans & Leases, Net of Deferred Fees & Allowance		2,035,224			-		-		2,035,353			2,035,353
Accrued Interest Receivable		10,116			-		10,116		-			10,116

Liabilities:
Deposits:
Demand		672,351			672,351		-		-			672,351
Interest Bearing Transaction		433,220			433,220		-		-			433,220
Savings and Money Market		702,441			702,441		-		-			702,441
Time		547,625			-		547,145		-			547,145
Total Deposits		2,355,637			1,808,012		547,145		-			2,355,157
Subordinated Debentures		10,310			-		6,606		-			6,606
Accrued Interest Payable		681			-		681		-			681

Fair value estimates presented herein are based on pertinent information available to management as of September 30, 2017, December 31, 2016, and September 30, 2016. 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.