(13)	Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

Loans

Fair values are estimated for portfolios with similar financial characteristics. Loans are segregated by type, such as commercial, real estate, and consumer. Each loan category is further segmented into fixed and variable interest rate categories. The fair value of loans is estimated by using the future value of discounted cash flows using comparable market rates for similar types of loan products and adjusted for market factors. The discount rates used are estimated using comparable market rates for similar types of loan products adjusted to be commensurate with the credit risk, overhead costs, and optionality of such instruments.

Investment Securities

A detailed description of the fair value measurement of the debt instruments in the available-for-sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

Federal Home Loan Bank (FHLB) Stock

Ownership of equity securities of FHLB is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

Federal Funds Sold, Cash, and Due from Banks

The carrying amounts of short-term federal funds sold, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold classified as short-term generally mature in 90 days or less.

Certificates of Deposit in other banks

Certificates of deposit are other investments made by the Company with other financial institutions that are carried at cost

Mortgage Servicing Rights

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees.

Cash Surrender Value - Life Insurance

The fair value of Bank owned life insurance (BOLI) approximates the carrying amount. Upon liquidation of these investments, the Company would receive the cash surrender value which equals the carrying amount.

Accrued Interest Receivable and Payable

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold under Agreements to Repurchase

For securities sold under agreements to repurchase, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

Subordinated Notes and Other Borrowings

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cash-flows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

A summary of the carrying amounts and fair values of the Company’s financial instruments at March 31, 2018 and December 31, 2017 is as follows:

					March 31, 2018
					Fair Value Measurements
					Quoted Prices
					in Active				Net
					Markets for		Other		Significant
	March 31, 2018				Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(in thousands)	amount		value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	15,955	$	15,955	$	15,955	$	0	$	0
Federal funds sold and overnight interest-bearing deposits		65,449		65,449		65,449		0		0
Certificates of deposit in other banks		4,812		4,812		4,812		0		0
Investment in available-for-sale securities		215,720		215,720		1,939		213,781		0
Loans, net		1,073,379		1,055,059		0		0		1,055,059
Investment in FHLB stock		5,078		5,078		0		5,078		0
Mortgage servicing rights		2,781		2,781		0		0		2,781
Cash surrender value - life insurance		2,499		2,499		0		2,499		0
Accrued interest receivable		5,330		5,330		5,330		0		0
	$	1,391,003	$	1,372,683	$	93,485	$	221,358	$	1,057,840
Liabilities:
Deposits:
Non-interest bearing demand	$	244,834	$	244,834	$	244,834	$	0	$	0
Savings, interest checking and money market		616,894		616,894		616,894		0		0
Time deposits		318,652		315,994		0		0		315,994
Federal funds purchased and securities sold under agreements to repurchase		34,795		34,795		34,795		0		0
Federal Home Loan Bank advances and other borrowings		84,327		83,944		0		83,944		0
Subordinated notes		49,486		42,166		0		42,166		0
Accrued interest payable		588		588		588		0		0
	$	1,349,576	$	1,339,215	$	897,111	$	126,110	$	315,994

					December 31, 2017
					Fair Value Measurements
					Quoted Prices
					in Active				Net
					Markets for		Other		Significant
	December 31, 2017				Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(in thousands)	amount		value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	23,325	$	23,325	$	23,325	$	0	$	0
Federal funds sold and overnight interest-bearing deposits		39,553		39,553		39,553		0		0
Certificates of deposit in other banks		3,460		3,460		3,460		0		0
Investment in available-for-sale securities		226,542		226,542		1,967		224,575		0
Loans, net		1,057,580		1,058,153		0		0		1,058,153
Investment in FHLB stock		6,390		6,390		0		6,390		0
Mortgage servicing rights		2,713		2,713		0		0		2,713
Cash surrender value - life insurance		2,484		2,484		0		2,484		0
Accrued interest receivable		5,627		5,627		5,627		0		0
	$	1,367,674	$	1,368,247	$	73,932	$	233,449	$	1,060,866
Liabilities:
Deposits:
Non-interest bearing demand	$	245,380	$	245,380	$	245,380	$	0	$	0
Savings, interest checking and money market		584,468		584,468		584,468		0		0
Time deposits		295,964		294,778		0		0		294,778
Federal funds purchased and securities sold under agreements to repurchase		27,560		27,560		27,560		0		0
Federal Home Loan Bank advances and other borrowings		121,382		121,291		0		121,291		0
Subordinated notes		49,486		39,692		0		39,692		0
Accrued interest payable		554		554		554		0		0
	$	1,324,794	$	1,313,723	$	857,962	$	160,983	$	294,778

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates.

Limitations

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are 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 precision. Changes in assumptions could significantly affect the fair value estimates.