NOTE 10.

FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“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 requires 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 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.

Securities Available for Sale and Held to Maturity. Securities available for sale are recorded at fair value on a recurring basis and securities held to maturity are carried at amortized cost. 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. For both Level 1 and Level 2 securities, management uses various methods and techniques to corroborate prices obtained from the pricing service, including but not limited to reference to dealer or other market quotes, and by reviewing valuations of comparable instruments. The Company’s Level 1 securities include equity securities and mutual funds. Level 2 securities include U.S. Government agency and instrumentality securities, U.S. Government agency and instrumentality mortgage-backed securities, municipal bonds, corporate debt securities and trust preferred securities. The Company had no Level 3 securities at December 31, 2015 or September 30, 2015.

The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or valuation based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model based valuation techniques for which significant assumptions are observable in the market (Level 2 inputs). The Company considers these valuations supplied by a third party provider which utilizes several sources for valuing fixed-income securities. These sources include Interactive Data Corporation, Reuters, Standard and Poor’s, Bloomberg Financial Markets, Street Software Technology, and the third party provider’s own matrix and desk pricing. The Company, no less than annually, reviews the third party’s methods and source’s methodology for reasonableness and to ensure an understanding of inputs utilized in determining fair value. Sources utilized by the third party provider include but are not limited to pricing models that vary based by asset class and include available trade, bid, and other market information. This methodology includes but is not limited to broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs. Monthly, the Company receives and compares prices provided by multiple securities dealers and pricing providers to validate the accuracy and reasonableness of prices received from the third party provider. On a monthly basis, the Investment Committee reviews mark-to-market changes in the securities portfolio for reasonableness.

The following table summarizes the fair values of securities available for sale and held to maturity at December 31, 2015 and September 30, 2015. Securities available for sale are measured at fair value on a recurring basis, while securities held to maturity are carried at amortized cost in the consolidated statements of financial condition.

	Fair Value At December 31, 2015
	Available For Sale								Held to Maturity
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Debt securities
Trust preferred securities	$	12,385	$	-	$	12,385	$	-	$	-	$	-	$	-	$	-
Small business administration securities		84,671		-		84,671		-		-		-		-		-
Obligations of states and political subdivisions		-		-		-		-		20,699		-		20,699		-
Non-bank qualified obligations of states and political subdivisions		663,500		-		663,500		-		323,159		-		323,159		-
Mortgage-backed securities		578,357		-		578,357		-		69,224		-		69,224		-
Total debt securities		1,338,913		-		1,338,913		-		413,082		-		413,082		-
Common equities and mutual funds		1,028		1,028		-		-		-		-		-		-
Total securities	$	1,339,941	$	1,028	$	1,338,913	$	-	$	413,082	$	-	$	413,082	$	-

	Fair Value At September 30, 2015
	Available For Sale								Held to Maturity
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Debt securities
Trust preferred and corporate securities	$	13,944	$	-	$	13,944	$	-	$	-	$	-	$	-	$	-
Small business administration securities		56,056		-		56,056		-		-		-		-		-
Obligations of states and political subdivisions		-		-		-		-		19,413		-		19,413		-
Non-bank qualified obligations of states and political subdivisions		608,590		-		608,590		-		261,330		-		261,330		-
Mortgage-backed securities		576,583		-		576,583		-		66,104		-		66,104		-
Total debt securities		1,255,173		-		1,255,173		-		346,847		-		346,847		-
Common equities and mutual funds		914		914		-		-		-		-		-		-
Total securities	$	1,256,087	$	914	$	1,255,173	$	-	$	346,847	$	-	$	346,847	$	-

Loans. The Company does not record loans at fair value on a recurring basis. However, if a loan is considered impaired, an allowance for loan losses is established. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, Receivables.

The following table summarizes the assets of the Company that are measured at fair value in the consolidated statements of financial condition on a non-recurring basis as of December 31, 2015 and September 30, 2015.

	Fair Value at December 31, 2015
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Impaired Loans, net
Commercial and multi-family real estate loans	$	663	$	-	$	-	$	663
Agricultural operating loans		1,218		-		-		1,218
Total	$	1,881	$	-	$	-	$	1,881

	Fair Value at September 30, 2015
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Impaired Loans, net
Commercial and multi-family real estate loans	$	663	$	-	$	-	$	663
Agricultural operating loans		1,880		-		-		1,880
Total	$	2,543	$	-	$	-	$	2,543

	Quantitative Information About Level 3 Fair Value Measurements
(Dollars in Thousands)	Fair Value at December 31, 2015		Valuation Technique	Unobservable Input

Impaired Loans, net	$	1,881	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%.

	Quantitative Information About Level 3 Fair Value Measurements
(Dollars in Thousands)	Fair Value at September 30, 2015		Valuation Technique	Unobservable Input

Impaired Loans, net	$	2,543	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 as of December 31, 2015 and September 30, 2015, 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, 2015 and September 30, 2015.

	December 31, 2015
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)
Financial assets
Cash and cash equivalents	$	293,147	$	293,147	$	293,147	$	-	$	-

Securities available for sale		1,339,941		1,339,941		1,028		1,338,913		-
Securities held to maturity		411,335		413,082		-		413,082		-
Total securities		1,751,276		1,753,023		1,028		1,751,995		-

Loans receivable:
One to four family residential mortgage loans		134,850		135,612		-		-		135,612
Commercial and multi-family real estate loans		322,125		328,503		-		-		328,503
Agricultural real estate loans		64,181		67,673		-		-		67,673
Consumer loans		34,868		34,590		-		-		34,590
Commercial operating loans		37,505		27,985		-		-		27,985
Agricultural operating loans		40,412		31,338		-		-		31,338
Premium finance loans		110,640		113,101		-		-		113,101
Total loans receivable		744,581		738,802		-		-		738,802

Federal Home Loan Bank stock		4,810		4,810		-		4,810		-
Accrued interest receivable		16,306		16,306		16,306		-		-

Financial liabilities
Noninterest bearing demand deposits		2,360,403		2,360,403		2,360,403		-		-
Interest bearing demand deposits, savings, and money markets		134,661		134,661		134,661		-		-
Certificates of deposit		73,979		73,408		-		73,408		-
Total deposits		2,569,043		2,568,472		2,495,064		73,408		-

Advances from Federal Home Loan Bank		57,000		58,228		-		58,228		-
Federal funds purchased		-		-				-
Securities sold under agreements to repurchase		2,007		2,007		-		2,007		-
Subordinated debentures		10,310		10,414		-		10,414		-
Accrued interest payable		229		229		229		-		-

	September 30, 2015
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)
Financial assets
Cash and cash equivalents	$	27,658	$	27,658	$	27,658	$	-	$	-

Securities available for sale		1,256,087		1,256,087		914		1,255,173		-
Securities held to maturity		345,744		346,847		-		346,847		-
Total securities		1,601,831		1,602,934		914		1,602,020		-

Loans receivable:
One to four family residential mortgage loans		125,021		121,385		-		-		121,385
Commercial and multi-family real estate loans		310,199		314,372		-		-		314,372
Agricultural real estate loans		64,316		66,682		-		-		66,682
Consumer loans		33,527		33,504		-		-		33,504
Commercial operating loans		29,893		23,245		-		-		23,245
Agricultural operating loans		43,626		40,003		-		-		40,003
Premium finance loans		106,505		108,583		-		-		108,583
Total loans receivable		713,087		707,774		-		-		707,774

Federal Home Loan Bank stock		24,410		24,410		-		24,410		-
Accrued interest receivable		13,352		13,352		13,352		-		-

Financial liabilities
Noninterest bearing demand deposits		1,449,101		1,369,672		1,369,672		-		-
Interest bearing demand deposits, savings, and money markets		117,262		115,204		115,204		-		-
Certificates of deposit		91,171		91,304		-		91,304		-
Total deposits		1,657,534		1,576,180		1,484,876		91,304		-

Advances from Federal Home Loan Bank		7,000		8,630		-		8,630		-
Federal funds purchased		540,000		540,000		-		540,000		-
Securities sold under agreements to repurchase		4,007		4,007		-		4,007		-
Subordinated debentures		10,310		10,416		-		10,416		-
Accrued interest payable		272		272		272		-		-

The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at December 31, 2015 and September 30, 2015.

CASH AND CASH EQUIVALENTS

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

SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

Securities available for sale are recorded at fair value on a recurring basis and securities held to maturity are carried at amortized cost. 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, NET

The fair value of loans is estimated using a historical or replacement cost basis concept (i.e. 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 and for similar remaining maturities. When using the discounting method to determine fair value, loans were grouped by homogeneous loans with similar terms and conditions and discounted at a target rate at which similar loans would be made to borrowers at December 31, 2015 or September 30, 2015. In addition, when computing the estimated fair value for all loans, allowances for loan losses have been subtracted from the calculated fair value as a result of the discounted cash flow which approximates the fair value adjustment for the credit quality component.

FEDERAL HOME LOAN BANK (“FHLB”) STOCK

The fair value of such stock is assumed to approximate book value since the Company is only 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 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.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND SUBORDINATED DEBENTURES

The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.

ACCRUED INTEREST PAYABLE

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

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.