LOANS (Tables)

12 Months Ended

Dec. 31, 2016

Major classifications of loans at December 31 were as follows (in thousands):



	2016		2015
Commercial and industrial	$	41,878	45,275
Commercial, secured by real estate	477,275		419,633
Residential real estate	265,788		273,139
Consumer	19,173		18,510
Agricultural	14,802		13,479
Other loans, including deposit overdrafts	633		665
	819,549		770,701
Deferred origination costs, net	254		237
	819,803		770,938
Less allowance for loan losses	3,575		3,129
Loans-net	$	816,228	767,809

Schedule of Acquired Non Impaired Loans

The following table provides certain information at the acquisition date on loans acquired from BNB on April 30, 2015 and from Eaton National on January 24, 2014, not including loans considered to be impaired (in thousands):



	BNB		Eaton National
Contractually required principal at acquisition	$	32,174	102,483
Less fair value adjustment	199		1,347
Fair value of acquired loans	$	31,975	101,136

Contractual cash flows not expected to be collected	$	195	1,702

Acquired Loans Accounted for in Accordance with FASB ASC 310-30

The following table provides details on acquired impaired loans obtained through the mergers with BNB and Eaton National that are accounted for in accordance with FASB ASC 310-30 (in thousands):



	BNB			Eaton National
Contractually required principal at acquisition	$	3,511		23,414
Contractual cash flows not expected to be collected (nonaccretable difference)	(404		)	(6,088	)
Expected cash flows at acquisition	3,107			17,326
Interest component of expected cash flows (accretable discount)	(413		)	(2,163	)
Fair value of acquired impaired loans	$	2,694		15,163

Non-accrual, Past Due, and Accruing Restructured Loans

Non-accrual, past-due, and accruing restructured loans at December 31 were as follows (in thousands):



	2016			2015
Non-accrual loans:
Commercial and industrial	$	—		—
Commercial, secured by real estate	4,312			876
Agricultural	334			48
Residential real estate	1,079			799
Total non-accrual loans	5,725			1,723
Past-due 90 days or more and still accruing	23			559
Total non-accrual and past-due 90 days or more and still accruing	5,748			2,282
Accruing restructured loans	11,731			13,723
Total	$	17,479		16,005

Percentage of total non-accrual and past-due 90 days or more and still accruing to total loans	0.70		%	0.30	%

Percentage of total non-accrual, past-due 90 days or more and still accruing, and accruing restructured loans to total loans	2.13		%	2.08	%

Allowance for Loan Losses and Recorded Investments in Loans

The allowance for loan losses and recorded investment in loans for the years ended December 31 were as follows (in thousands):



	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
December 31, 2016
Allowance for loan losses:
Balance, beginning of year	$	244		1,908		854		54		66		3		3,129
Provision charged to expenses	314			358		106		74		(6	)	67		913
Losses charged off	(234		)	(185	)	(127	)	(85	)	—		(119	)	(750	)
Recoveries	26			98		52		53		—		54		283
Balance, end of year	$	350		2,179		885		96		60		5		3,575

Individually evaluated for impairment	$	9		55		100		13		—		—		177
Collectively evaluated for impairment	341			1,832		785		83		60		5		3,106
Acquired credit impaired loans	—			292		—		—		—		—		292
Balance, end of year	$	350		2,179		885		96		60		5		3,575

Loans:
Individually evaluated for impairment	$	337		12,580		1,518		52		334		—		14,821
Collectively evaluated for impairment	41,466			458,059		262,266		19,192		14,475		178		795,636
Acquired credit impaired loans	98			6,305		2,471		17		—		455		9,346
Balance, end of year	$	41,901		476,944		266,255		19,261		14,809		633		819,803

December 31, 2015
Allowance for loan losses:
Balance, beginning of year	$	129		1,990		926		63		11		2		3,121
Provision charged to expenses	208			955		125		(17	)	55		40		1,366
Losses charged off	(100		)	(1,133	)	(304	)	(52	)	(67	)	(74	)	(1,730	)
Recoveries	7			96		107		60		67		35		372
Balance, end of year	$	244		1,908		854		54		66		3		3,129

Individually evaluated for impairment	$	9		306		48		—		—		—		363
Collectively evaluated for impairment	235			1,602		806		54		66		3		2,766
Acquired credit impaired loans	—			—		—		—		—		—		—
Balance, end of year	$	244		1,908		854		54		66		3		3,129

Loans:
Individually evaluated for impairment	$	370		12,351		1,541		56		—		—		14,318
Collectively evaluated for impairment	43,726			399,092		269,001		18,516		13,438		179		743,952
Acquired credit impaired loans	1,191			7,877		3,039		27		48		486		12,668
Balance, end of year	$	45,287		419,320		273,581		18,599		13,486		665		770,938



	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural	Other		Total
December 31, 2014
Allowance for loan losses:
Balance, beginning of year	$	175		2,520		826		66		—	1		3,588
Provision charged to expenses	173			(20	)	712		18		11	36		930
Losses charged off	(261		)	(573	)	(652	)	(129	)	—	(79	)	(1,694	)
Recoveries	42			63		40		108		—	44		297
Balance, end of year	$	129		1,990		926		63		11	2		3,121

Individually evaluated for impairment	$	10		415		89		—		—	—		514
Collectively evaluated for impairment	119			1,273		836		63		11	2		2,304
Acquired credit impaired loans	—			302		1		—		—	—		303
Balance, end of year	$	129		1,990		926		63		11	2		3,121

Analysis of the Company's Loan Portfolio by Credit Quality Indicators

An analysis of the Company’s loan portfolio by credit quality indicators at December 31 is as follows (in thousands):



	Pass		OAEM	Substandard	Doubtful	Total
December 31, 2016
Commercial & industrial	$	41,178	304	419	—	41,901
Commercial, secured by real estate	443,781		5,479	27,684	—	476,944
Residential real estate	261,839		442	3,974	—	266,255
Consumer	19,182		—	79	—	19,261
Agricultural	13,311		—	1,498	—	14,809
Other	633		—	—	—	633
Total	$	779,924	6,225	33,654	—	819,803

December 31, 2015
Commercial & industrial	$	44,596	—	691	—	45,287
Commercial, secured by real estate	397,938		9,316	12,066	—	419,320
Residential real estate	267,567		1,935	4,079	—	273,581
Consumer	18,528		—	71	—	18,599
Agricultural	12,246		850	390	—	13,486
Other	665		—	—	—	665
Total	$	741,540	12,101	17,297	—	770,938

Loan Portfolio Aging Analysis

A loan portfolio aging analysis at December 31 is as follows (in thousands):



	30-59 Days Past Due		60-89 Days Past Due	Greater Than 90 Days	Total Past Due	Current	Total Loans Receivable	Total Loans Greater Than 90 Days and Accruing
December 31, 2016
Commercial & industrial	$	19	—	—	19	41,882	41,901	—
Commercial, secured by real estate	99		69	127	295	476,649	476,944	—
Residential real estate	686		80	727	1,493	264,762	266,255	20
Consumer	59		16	3	78	19,183	19,261	3
Agricultural	125		—	—	125	14,684	14,809	—
Other	115		—	—	115	518	633	—
Total	$	1,103	165	857	2,125	817,678	819,803	23

December 31, 2015
Commercial & industrial	$	—	—	—	—	45,287	45,287	—
Commercial, secured by real estate	73		81	876	1,030	418,290	419,320	—
Residential real estate	777		198	1,124	2,099	271,482	273,581	516
Consumer	62		7	43	112	18,487	18,599	43
Agricultural	—		—	—	—	13,486	13,486	—
Other	109		—	—	109	556	665	—
Total	$	1,021	286	2,043	3,350	767,588	770,938	559

Impaired Loans

Impaired loans for the years ended December 31 were as follows (in thousands):



	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
December 31, 2016
With no related allowance recorded:
Commercial & industrial	$	109	263	—	998	151
Commercial, secured by real estate	14,195		15,522	—	15,274	1,140
Residential real estate	3,238		4,286	—	3,736	369
Consumer	26		27	—	37	29
Agricultural	334		334	—	392	136
Other	455		629	—	481	77
Total	$	18,357	21,061	—	20,918	1,902

With an allowance recorded:
Commercial & industrial	$	326	326	9	341	19
Commercial, secured by real estate	4,690		4,946	347	4,194	257
Residential real estate	751		751	100	651	36
Consumer	43		43	13	43	3
Agricultural	—		—	—	—	—
Other	—		—	—	—	—
Total	$	5,810	6,066	469	5,229	315

Total:
Commercial & industrial	$	435	589	9	1,339	170
Commercial, secured by real estate	18,885		20,468	347	19,468	1,397
Residential real estate	3,989		5,037	100	4,387	405
Consumer	69		70	13	80	32
Agricultural	334		334	—	392	136
Other	455		629	—	481	77
Total	$	24,167	27,127	469	26,147	2,217



	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
December 31, 2015
With no related allowance recorded:
Commercial & industrial	$	1,205	1,500	—	1,467	206
Commercial, secured by real estate	16,345		18,335	—	18,575	2,229
Residential real estate	3,734		5,055	—	4,092	453
Consumer	81		109	—	106	25
Agricultural	48		151	—	81	487
Other	486		701	—	510	82
Total	$	21,899	25,851	—	24,831	3,482

With an allowance recorded:
Commercial & industrial	$	356	356	9	370	21
Commercial, secured by real estate	3,883		4,014	306	4,007	114
Residential real estate	846		958	48	864	37
Consumer	2		1	—	—	—
Agricultural	—		—	—	—	—
Other	—		—	—	—	—
Total	$	5,087	5,329	363	5,241	172

Total:
Commercial & industrial	$	1,561	1,856	9	1,837	227
Commercial, secured by real estate	20,228		22,349	306	22,582	2,343
Residential real estate	4,580		6,013	48	4,956	490
Consumer	83		110	—	106	25
Agricultural	48		151	—	81	487
Other	486		701	—	510	82
Total	$	26,986	31,180	363	30,072	3,654



	Average Recorded Investment	Interest Income Recognized
December 31, 2014
With no related allowance recorded:
Commercial & industrial	1,823	161
Commercial, secured by real estate	23,360	1,373
Residential real estate	4,645	379
Consumer	179	14
Agricultural	121	20
Other	550	43
Total	30,678	1,990

With an allowance recorded:
Commercial & industrial	319	19
Commercial, secured by real estate	4,108	117
Residential real estate	1,026	44
Consumer	18	2
Agricultural	—	—
Other	—	—
Total	5,471	182

Total:
Commercial & industrial	2,142	180
Commercial, secured by real estate	27,468	1,490
Residential real estate	5,671	423
Consumer	197	16
Agricultural	121	20
Other	550	43
Total	36,149	2,172

Loan Modification that were Classified as Troubled Debt Restructuring

Loan modifications that were classified as troubled debt restructurings during the years ended December 31 were as follows (dollars in thousands):



	2016					2015					2014
	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Commercial and industrial	—	$	—	$	—	—	$	—	$	—	8	$	658	$	340
Commercial, secured by real estate	4	2,142		2,215		1	75		74		2	896		1,214
Residential real estate	6	139		139		7	217		221		2	82		82
Consumer	3	39		39		2	9		9		3	40		40
	13	$	2,320	$	2,393	10	$	301	$	304	15	$	1,676	$	1,676

Troubled Debt Restructurings by Type of Modification

Post-modification balances of newly restructured troubled debt by type of modification for the years ended December 31 were as follows (dollars in thousands):



	Term Modification	Rate Modification	Interest Only	Combination	Total Modifications
December 31, 2016
Commercial & industrial	—	—	—	—	—
Commercial, secured by real estate	1,539	—	304	372	2,215
Residential real estate	38	47	—	54	139
Consumer	—	28	—	11	39
Total	1,577	75	304	437	2,393

December 31, 2015
Commercial & industrial	—	—	—	—	—
Commercial, secured by real estate	74	—	—	—	74
Residential real estate	221	—	—	—	221
Consumer	9	—	—	—	9
Total	304	—	—	—	304

December 31, 2014
Commercial & industrial	340	—	—	—	340
Commercial, secured by real estate	—	1,136	—	78	1,214
Residential real estate	82	—	—	—	82
Consumer	38	—	—	2	40
Total	460	1,136	—	80	1,676

Schedule of Activity in the Mortgage Servicing Rights Portfolio

Activity in the mortgage servicing rights portfolio during the years ended December 31 was as follows (in thousands):



	2016			2015		2014
Balance, beginning of year	$	488		591		498
Amount capitalized to mortgage servicing rights	109			78		292
Amortization of mortgage servicing rights	(169		)	(181	)	(199	)
Balance, end of year	$	428		488		591