10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2017

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-14412

Farmers Capital Bank Corporation

(Exact name of registrant as specified in its charter)

Kentucky	61-1017851
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

P.O. Box 309 202 West Main St.
Frankfort, Kentucky	40601
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (502) 227-1668

Securities registered pursuant to Section 12(b) of the Act:

Common Stock - $.125 per share Par Value	The NASDAQ Global Select Market
(Title of each class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☒
Non-accelerated filer  ☐ (Do not check if a smaller reporting company)	Smaller reporting company  ☐
Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐ No ☒

The aggregate market value of the registrant’s outstanding voting stock held by non-affiliates on June 30, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter) was $274 million based on the closing price per share of the registrant’s common stock reported on the NASDAQ.

As of March 1, 2018, there were 7,517,893 shares of common stock outstanding.

Documents incorporated by reference:

Portions of the Registrant’s Proxy Statement relating to the Registrant’s 2018 Annual Meeting of Shareholders are incorporated by reference into Part III.

An index of exhibits filed with this Form 10-K can be found on page 124.

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FARMERS CAPITAL BANK CORPORATION

FORM 10-K

INDEX

		Page
	Part I
Item 1.	Business	4
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	29
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
	Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Selected Financial Data	34
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 8.	Financial Statements and Supplementary Data	68
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	119
Item 9A.	Controls and Procedures	119
Item 9B.	Other Information	120
	Part III
Item 10.	Directors, Executive Officers and Corporate Governance	120
Item 11.	Executive Compensation	120
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	120
Item 13.	Certain Relationships and Related Transactions, and Director Independence	120
Item 14.	Principal Accounting Fees and Services	120
	Part IV
Item 15.	Exhibits, Financial Statement Schedules	121
Signatures		123
Index of Exhibits		124

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PART I

Item 1. Business

The disclosures set forth in this item are qualified by Item 1A (“Risk Factors”) beginning on page 19 and the section captioned “Forward-Looking Statements” in Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) beginning on page 35 of this report and other cautionary statements contained elsewhere in this report.

Organization

Farmers Capital Bank Corporation (the “Registrant,” “Company,” “we,” “us,” or “Parent Company”) is a financial holding company which had one wholly-owned subsidiary bank, United Bank & Capital Trust Company (“United Bank” or the “Bank”) in Frankfort, KY, at year-end 2017. The Registrant was originally formed as a bank holding company under the Bank Holding Company Act of 1956, as amended, on October 28, 1982 under the laws of the Commonwealth of Kentucky (“Commonwealth”).During 2016, the Company elected financial holding company status. The Company’s bank subsidiary, United Bank, provides a wide range of banking and bank-related services to customers throughout Central and Northern Kentucky. In February 2017, the Company merged three of its subsidiary banks (United Bank & Trust Company [“United Versailles”] in Versailles, KY; First Citizens Bank, Inc. [“First Citizens”] in Elizabethtown, KY; and Citizens Bank of Northern Kentucky, Inc. [“Citizens Northern”] in Newport, KY) and its data processing subsidiary (FCB Services, Inc. [“FCB Services”] in Frankfort, KY) into its subsidiary bank Farmers Bank & Capital Trust Company (“Farmers Bank”) in Frankfort, KY, the name of which was immediately changed under the merger to United Bank & Capital Trust Company.

At year-end 2017 the Company had the following wholly-owned nonbank subsidiaries: FFKT Insurance Services, Inc., (“FFKT Insurance”), Farmers Capital Bank Trust I (“Trust I”), and Farmers Capital Bank Trust III (“Trust III”). FFKT Insurance is a captive property and casualty insurance company in Frankfort, Kentucky. Trust I and Trust III are unconsolidated trusts established to complete the private offering of trust preferred securities. For Trust I and Farmers Capital Bank Trust II (“Trust II”), the proceeds of the offerings were used to finance the cash portion of the acquisition in 2005 of Citizens Bancorp Inc. (“Citizens Bancorp”), the former parent company of Citizens Northern. In January 2016, the Company terminated Trust II as a result of the early extinguishment of debt. For Trust III, the proceeds of the offering were used to finance the cost of acquiring Company shares under a share repurchase program during 2007.

The Company provides a broad range of financial services at its 34 locations in 21 communities throughout Central and Northern Kentucky to individual, business, agriculture, governmental, and educational customers. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential mortgage, commercial lending, and consumer installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other services provided by the Company include, but are not limited to, cash management services, issuing letters of credit, safe deposit box rental, and providing funds transfer services. The Company has other financial instruments, including deposit accounts in other financial institutions and federal funds sold, which could potentially represent a concentration of credit risk.

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment. As of December 31, 2017, the Company had $1.7 billion in consolidated total assets.

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Organization Chart

Subsidiaries of Farmers Capital Bank Corporation at December 31, 2017 are indicated in the table that follows. Percentages reflect the ownership interest held by the parent company of each of the subsidiaries. Tier 2 subsidiaries are direct subsidiaries of Farmers Capital Bank Corporation. Tier 3 subsidiaries are direct subsidiaries of the Tier 2 subsidiary listed immediately above them.

Tier	Entity
1	Farmers Capital Bank Corporation, Frankfort, KY (Parent Company)
2		United Bank & Capital Trust Company, Frankfort, KY 100%
3			Farmers Bank Realty Co., Frankfort, KY 100%
3			EG Properties, Inc., Frankfort, KY 100%
3			Farmers Capital Insurance Corporation, Frankfort, KY 100%
2		FFKT Insurance Services, Inc., Frankfort, KY 100%
2		Farmers Capital Bank Trust I, Frankfort, KY 100%
2		Farmers Capital Bank Trust III, Frankfort, KY 100%

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United Bank

United Bank is a state chartered bank originally organized in 1850.In February 2017, the Company merged United Versailles, First Citizens, Citizens Northern, and FCB Services into Farmers Bank, the name of which was immediately changed to United Bank & Capital Trust Company. United Bank is engaged in a wide range of commercial and personal banking activities, which include accepting savings, time and demand deposits; making secured and unsecured loans to corporations, individuals and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services. The bank's lending activities include making commercial, construction, mortgage, and personal loans and lines of credit. The bank serves as an agent in providing credit card loans. It acts as trustee of personal trusts, as executor of estates, as trustee for employee benefit trusts and to a limited extent as registrar, transfer agent and paying agent for bond issues.

United Bank conducts business at its principal office and four branches in Frankfort, the capital of Kentucky, as well as branches in the following counties in Kentucky: Anderson, Boone, Bullitt, Campbell, Fayette, Hardin, Jessamine, Kenton, Mercer, Scott, and Woodford Counties. It is the largest bank operating in Anderson, Franklin and Scott Counties based on total bank deposits. The market served by United Bank is diverse, and includes government, commerce, finance, industry, medicine, education, and agriculture. On December 31, 2017, it had total consolidated assets of $1.6 billion, including loans of $1.0 billion. On the same date, total deposits were $1.4 billion and shareholders' equity totaled $162 million.

United Bank also provides bill payment services under the name of FirstNet. This service specializes in federal benefit and military allotment processing. United Bank processes payments to unaffiliated third parties, including those that are initiated under the U.S. military’s allotment system. It processes payments by active duty and retired service members and civilians made to third party lenders. The Company does not provide credit to individuals under the program. Over the last several years it has diversified its customer base to include nonmilitary payment processing, such as for unrelated insurance companies and other service providers.

The military discretionary allotment system in place prior to 2015 allowed service members to automatically direct a portion of their paycheck to financial institutions or individuals of their choosing to pay for various items or services. As announced by the U.S. Department of Defense (“DOD”), active duty service members are no longer able to enter into new contracts to purchase, lease, or rent tangible consumer items such as vehicles, appliances, and electronics using the military allotment system for payment as of January 1, 2015. Contracts existing prior to January 1, 2015 were not affected. Payments for the purpose of savings, insurance premiums, mortgage and rent payments, support for dependents, or investments were also not affected. The restrictions do not apply to military retirees or civilians.

As previously disclosed by the Company, military allotment processing volumes and related revenue began to decline in 2015 as a result of the new DOD policy. This decline has been partially offset by United Bank’s efforts to expand its base of nonmilitary customers.

United Bank had three active direct subsidiaries at year-end 2017: Farmers Bank Realty Co. ("Farmers Realty"), Farmers Capital Insurance Corporation (“Farmers Insurance”), and EG Properties, Inc. (“EG Properties”).

Farmers Realty was incorporated in 1978 for the purpose of owning certain real estate used by the Company and United Bank in the ordinary course of business. Farmers Realty had total assets of $3.2 million on December 31, 2017.

Farmers Insurance was organized in 1988 to engage in insurance activities permitted to the Company under federal and state law. United Bank capitalized this corporation in December 1998. Farmers Insurance acts as an agent for an otherwise unrelated title insurance company and offers title insurance coverage on property financed by the Company. At year-end 2017, it had total assets of $597 thousand.

EG Properties was incorporated in November 2002 and is involved in real estate management and liquidation for certain properties repossessed by United Bank. In May 2017, the Company merged the nonbank subsidiaries of each of its pre-merger subsidiary banks (EGT Properties, Inc. [“EGT Properties”], HBJ Properties, LLC [“HBJ Properties”], and ENKY Properties, Inc. [“ENKY”]) into EG Properties. EG Properties previously held a 93.4% interest in WCO, LLC (“WCO”), which was formed during 2012 to hold certain real estate repossessed by United Bank and United Versailles. WCO was dissolved during September 2016. EG Properties had total assets of $36.6 million at year-end 2017.

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Leasing One Corporation (“Leasing One”) was incorporated in August 1993 to operate as a commercial equipment leasing company. Activity at Leasing One declined significantly as a result of its board deciding in 2010 to reduce staff and curtail new lending. The extent of its activity had been to service existing loans and terming out residuals until it was dissolved effective at year-end 2015.

United Bank previously was a limited partner in Austin Park Apartments, LTD and Frankfort Apartments II, LTD, two low income housing tax credit partnerships located in Frankfort, Kentucky. These investments provided federal income tax credits to the Company over a 10 year period which have since been fully exhausted; however, the Company maintained its investment in these partnerships over a 15 year compliance period in order to avoid possible recapture of the tax credits. The compliance period has since ended and United Bank liquidated its investments in these partnerships during 2016.

United Versailles

On February 15, 1985, the Company acquired United Versailles, a state chartered bank originally organized in 1880. In February 2017, United Versailles was merged into Farmers Bank, the name of which was immediately changed to United Bank & Capital Trust Company.

United Versailles had one direct subsidiary, EGT Properties. EGT Properties was created in March 2008 and was involved in real estate management and liquidation for certain repossessed properties of United Versailles. EGT Properties was merged into EG Properties in May 2017. EGT Properties held a 6.6% interest in WCO, which was dissolved during September 2016. EGT Properties held an 83% interest in NUBT Properties, LLC (“NUBT”), the parent company of Flowing Creek Realty, LLC (“Flowing Creek”). Flowing Creek held certain real estate repossessed by United Versailles and Citizens Northern along with parties unrelated to the Company. NUBT held a 67% interest in Flowing Creek and unrelated financial institutions held the remaining 33% interest. NUBT and Flowing Creek were dissolved during November 2015.

First Citizens

On March 31, 1986, the Company acquired First Citizens, a state chartered bank originally organized in 1964. In February 2017, First Citizens was merged into Farmers Bank, the name of which was immediately changed to United Bank & Capital Trust Company. First Citizens incorporated HBJ Properties during 2012 to hold, manage, and liquidate certain properties repossessed by First Citizens. HBJ Properties was merged into EG Properties in May 2017.

Citizens Northern

On December 6, 2005, the Company acquired Citizens Bancorp in Newport, Kentucky, a state chartered bank organized in 1993. Citizens Bancorp was subsequently merged into Citizens Acquisition, a former bank holding company subsidiary of the Company. During January 2007, Citizens Acquisition was merged into the Company, leaving Citizens Northern as a direct subsidiary of the Parent Company. In February 2017, Citizens Northern was merged into Farmers Bank, the name of which was immediately changed to United Bank & Capital Trust Company.

In March 2008, Citizens Northern incorporated ENKY. ENKY was established to manage and liquidate certain real estate properties repossessed by Citizens Northern. ENKY was merged into EG Properties in May 2017. ENKY held a 17% interest in NUBT, the parent company of Flowing Creek. Flowing Creek held real estate repossessed by Citizens Northern and United Versailles along with parties unrelated to the Company. NUBT held a 67% interest in Flowing Creek and unrelated financial institutions held the remaining 33% interest. NUBT and Flowing Creek were dissolved during November 2015.

Nonbank Subsidiaries

FFKT Insurance was incorporated during 2005. It is a captive insurance company that provides property and casualty coverage to the Parent Company and its subsidiaries for risk management purposes or where insurance may not be available or economically feasible. FFKT Insurance had total assets of $5.6 million at December 31, 2017.

Trust I, Trust II, and Trust III are each separate Delaware statutory business trusts sponsored by the Company. The Company completed two private offerings of trust preferred securities during 2005 through Trust I and Trust II totaling $25.0 million. During 2007, the Company completed a private offering of trust preferred securities through Trust III totaling $22.5 million. The Company owns all of the common securities of Trust I and Trust III. The Company does not consolidate the Trusts into its financial statements consistent with applicable accounting standards. In January 2016, the Company terminated Trust II as a result of the early extinguishment of debt issued by Trust II.

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FCB Services was organized in 1992 in Frankfort, Kentucky and provided data processing services and support for the Company and its subsidiaries. It also provided data processing services for nonaffiliated entities. In February 2017, FCB Services was merged into Farmers Bank, the name of which was immediately changed to United Bank & Capital Trust Company. United Bank no longer provides data processing services for nonaffiliated entities.

Lending Summary

A significant part of the Company’s operating activities include originating loans, approximately 89% of which are secured by real estate at December 31, 2017. Real estate lending primarily includes loans secured by owner and non-owner occupied one-to-four family residential properties as well as commercial real estate mortgage loans to developers and owners of other commercial real estate. Real estate lending primarily includes both variable and adjustable rate products. Loan rates on variable rate loans generally adjust upward or downward immediately based on changes in the loan’s index, normally prime rate as published by the Wall Street Journal. Rates on adjustable rate loans move upward or downward after an initial fixed term of normally one, three, five, or seven years. Rate adjustments on adjustable rate loans are made annually after the initial fixed term expires and are indexed mainly to shorter-term Treasury indexes. Generally, variable and adjustable rate loans contain provisions that cap the amount of interest rate increases of up to 600 basis points and rate decreases of up to 100 basis points over the life of the loan. In recent years, it has been increasingly common for the Company to set a floor equal to the initial rate without further downward adjustments. In addition to the lifetime caps and floors on rate adjustments, loans secured by residential real estate typically contain provisions that limit annual increases at a maximum of 100 basis points. There is typically no annual limit applied to loans secured by commercial real estate.

The Company also makes fixed rate commercial real estate loans to a lesser extent with repayment periods generally ranging from three to seven years. The Bank makes first and second residential mortgage loans secured by real estate not to exceed 90% loan to value without seeking third party guarantees. Commercial real estate loans are made primarily to small and mid-sized businesses, secured by real estate not exceeding 80% loan to value. Other commercial loans are asset based loans secured by equipment and lines of credit secured by receivables and include lending across a diverse range of business types.

Commercial lending and real estate construction lending, including commercial leasing, generally includes a higher degree of credit risk than other loans, such as residential mortgage loans. Commercial loans, like other loans, are evaluated at the time of approval to determine the adequacy of repayment sources and collateral requirements. Collateral requirements vary to some degree among borrowers and depend on the borrower’s financial strength, the terms and amount of the loan, and collateral available to secure the loan. Credit risk results from the decreased ability or willingness to pay by a borrower. Credit risk also results when a liquidation of collateral occurs and there is a shortfall in collateral value as compared to a loan’s outstanding balance. For construction loans, inaccurate initial estimates of a project’s costs or the property’s completed value could weaken the Company’s position and lead to the property having a value that is insufficient to satisfy full payment of the amount of funds advanced for the property. Secured and unsecured direct consumer lending generally is made for automobiles, boats, and other motor vehicles. The Company does not presently engage in indirect consumer lending. The Bank’s credit card portfolio was sold during the fourth quarter of 2017. In most cases loans are restricted to the Bank’s general market area.

Loan Policy

The Company has a lending policy in place that is amended and approved from time to time as needed to reflect current economic conditions, law and regulatory changes, and product offerings in its markets. The policy has established minimum standards that its bank subsidiary must adopt. Additionally, the policy is subject to amendment based on positive and negative trends observed within the lending portfolio as a whole. For example, the loan to value limits and amortization terms contained within the policy were reduced during the most recent economic and related real estate market decline. While new appraisals now reflect that decline, appraisal reviews and downward adjustments are a continuing area of focus when evaluating credit risk. The lending policy is evaluated for underwriting criteria by the Company’s internal audit department in its loan review capacity as well as by the Bank’s Chief Credit Officer and its regulatory authorities. Suggested revisions from these groups are taken into account, analyzed, and implemented by management where improvements are warranted.

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The Bank’s Chief Credit Officer oversees all lending at the institution where the size and risk of individual credits are deemed significant to the Company. This position also monitors trends in asset quality, portfolio composition, concentrations of credit, reports of examinations, internal audit reports, work-out strategies for large credits, and other responsibilities as matters evolve.

Procedures

The lending policy lists the products and credit services offered by the Bank. Each product and service has an established written procedure to adhere to when transacting business with a customer. The lending policy also establishes pre-determined lending authorities for loan officers commensurate with their abilities and experience. Further, the policy establishes committees to review and approve or deny credit requests at various lending amounts. This includes subcommittees of the Bank’s board of directors and, at certain lending levels, the entire bank board.

For loan relationships of $2.5 million to $7.5 million, either a subcommittee of the Bank’s board of directors or the board of directors will be presented with the loan request. For loan relationships of $7.5 million and above, the Bank’s full board of directors will be presented with the loan request. This only occurs when the potential credit has first been recommended by the loan officer and the Chief Credit Officer. When loan requests are within policy guidelines and the amount requested is within their lending authority, lenders are permitted to approve and close the transaction. A review of the loan file and documentation takes place within 30 days to ensure policy and procedures are being followed. Approval authorities are under regular review for adjustment by affiliate management and the Parent Company. Loan requests outside of standard policy may be made on a case by case basis when justified, documented, and approved by either the board of directors of the subsidiary bank, committee, or other authorized person as determined by the size of the transaction. Procedures are in place which require ongoing monitoring subsequent to loan approval. For example, updated financial statements are required periodically for certain types of credits and risk ratings are re-evaluated at least annually for credit relationships in excess of $500 thousand, which includes analyzing updated cash flows and loan to value ratios. Certain types of credit relationships of $1.0 million or above receive annual site visits.

Underwriting

Underwriting criteria for all types of loans are prescribed within the lending policy.

Residential Real Estate

Residential real estate mortgage lending made up 34% of the loan portfolio at year-end 2017. Underwriting criteria and procedures for residential real estate mortgage loans include:

● Monthly debt payments of the borrower to gross monthly income should not exceed 45% with stable employment;

● Interest rate shocks are applied for variable rate loans to determine repayment capabilities at elevated rates;

● Loan to value limits of up to 90%. Loan to value ratios exceeding 90% require additional third party guarantees;

● A thorough credit investigation using the three nationally available credit repositories;

● Incomes and employment is verified;

● Insurance is required in an amount to fully replace the improvements with the lending bank named as loss payee/mortgagee;

● Flood certifications are procured to ensure the improvements are not in a flood plain or are insured if they are within the flood plain boundaries;

● Collateral is investigated using current appraisals and is supplemented by the loan officer’s knowledge of the locale and salient factors of the local market. Only appraisers which are state certified or licensed and on the bank’s approved list are utilized to perform this service;

● Title attorneys and closing agents are required to maintain malpractice liability insurance and be on the bank’s approved list;

● Secondary market mortgages must meet the underwriting criteria of the purchasers, which is generally the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation;

● Adjustable rate owner occupied home loans are tied to market based rates such as are published by the Federal Reserve Board (“Federal Reserve” or “FRB”), commonly the one year constant maturity Treasury bill is used; and

● Residential real estate mortgage loans are made for terms not to exceed 30 years.

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The Company strives to offer qualified mortgages as defined by the Consumer Financial Protection Bureau. However, the Company will also allow non-qualified mortgages with the review and approval of the appropriate loan committee of the Bank. The qualified mortgage rule applies to home loans and is designed to ensure that borrowers can afford to repay loans by prohibiting or limiting certain high risk products and features such as charging excessive upfront points and fees, prohibiting interest-only loans, negative amortizing loans, loans exceeding repayment terms of 30 years, and, in most cases, balloon loans. Qualified mortgages also limit the borrower’s debt to income ratio to 43%.

Commercial Real Estate

Commercial real estate lending made up 42% of the loan portfolio at year-end 2017. Commercial real estate lending underwriting criteria is documented in the lending policy and includes loans secured by office buildings, retail stores, warehouses, hotels, and other commercial properties. Underwriting criteria and procedures for commercial real estate loans include:

● Procurement of Federal income tax returns and financial statements for the past three years and related supplemental information deemed relevant;

● Detailed financial and credit analysis is performed and presented to various committees;

● Cash investment from the applicant in an amount equal to 20% of cost (loan to value ratio not to exceed 80%). Additional collateral may be taken in lieu of a full 20% investment in limited circumstances;

● Cash flows from the project financed and global cash flow of the principals and their entities must produce a minimum debt coverage ratio of 1.25:1;

● For non-profits, including churches, a 1.0:1 debt coverage minimum ratio;

● Past experience of the customer with the bank;

● Experience of the investor in commercial real estate;

● Tangible net worth analysis;

● Interest rate shocks for variable rate loans;

● General and local commercial real estate conditions;

● Alternative uses of the security in the event of a default;

● Thorough analysis of appraisals;

● References and resumes are procured for background knowledge of the principals/guarantors;

● Credit enhancements are utilized when necessary and/or desirable such as assignments of life insurance and the use of guarantors and firm take-out commitments;

● Frequent financial reporting is required for income generating real estate such as: rent rolls, tenant listings, average daily rates and occupancy rates for hotels;

● Commercial real estate loans are made with amortization terms generally not to exceed 20 years; and

● For lending arrangements determined to be more complex, loan agreements with financial and collateral representations and warranties are employed to ensure the ongoing viability of the borrower.

Real Estate Construction

At year-end 2017, real estate construction lending comprised approximately 13% of the total loan portfolio. Real estate construction lending underwriting criteria is documented in the lending policy and includes loans to individuals for home construction, loans to businesses primarily for the construction of owner-occupied commercial real estate, and for land development activities. Underwriting criteria and procedures for such lending include:

● 20% capital injection from the applicant (loan to value ratio not to exceed 80%);

● 25% capital injection for land acquisition for development (loan to value ratio not to exceed 75%);

● Pre-sell, pre-lease, and take-out commitments are procured and evaluated/verified;

● Draw requests require documentation of expenses;

● On site progress inspections are completed to protect the lending bank affiliate;

● Control procedures are in place to minimize risk on construction projects such as conducting lien searches and requiring affidavits;

● Lender on site visits and periodic financial discussions with owners/operators; and

● Real estate construction loans are generally made for terms not to exceed 12 months and 18 months for residential and commercial purposes, respectively.

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Commercial, Financial, and Agriculture

Commercial, financial, and agriculture lending underwriting criteria is documented in the lending policy and includes loans to small and medium sized businesses secured by business assets, loans to financial institutions, and loans to farmers and for the production of agriculture. At year-end 2017, these loans made up approximately 11% of the total loan portfolio. Underwriting criteria and procedures for such loans are detailed below.

For commercial loans secured by business assets, the following loan to value ratios and debt coverage are required by policy:

● Inventory 50%;

● Accounts receivable less than 90 days past due 75%;

● Furniture, fixtures, and equipment 60%;

● Borrowing-base certificates are required for monitoring asset based loans;

● Stocks, bonds, and mutual funds are often pledged by business owners. Marketability and volatility is taken into account when valuing these types of collateral and lending is generally limited to 60% of their value;

● Debt coverage ratios from cash flows must meet the policy minimum of 1.25:1. This coverage applies to global cash flow and guarantors, if any; and

● Commercial loans secured by business assets are made for terms to match the economic useful lives of the asset securing the loan. Loans secured by furniture, fixtures, and equipment are made for terms not to exceed seven years. Lien searches are performed to ensure lien priority for credits exceeding certain thresholds.

Loans to financial institutions are generally secured by the capital stock of the financial institution with a loan to value ratio not to exceed 60% and repayment terms not exceeding 10 years. Capital stock values of non-public companies are determined by common metrics such as a multiple of tangible book value or by obtaining third party estimates. Financial covenants are also obtained that require the borrower to maintain certain levels of asset quality, capital adequacy, liquidity, profitability, and regulatory compliance. At year-end 2017, loans to financial institutions were zero.

Agricultural lending, such as for tobacco or corn, is limited to 75% of expected sales proceeds while lending for cattle and farm equipment is capped at 80% loan to value.

Interest Only Loans

Interest only loans are limited to construction lending and properties recently completed and undergoing an occupancy stabilization period. These loans are short-term in nature, usually with maturities of less than one year.

Installment Loans

Installment lending is a small component of the Company’s portfolio mix, reflecting approximately 1% of outstanding loans at year-end 2017. These loans predominantly are direct loans to established bank customers and primarily include the financing of automobiles, boats, and other consumer goods. The character, capacity, collateral, and conditions are evaluated using policy restraints. Installment loans are made for terms of up to five years.

Installment lending underwriting criteria and procedures for such financing include:

● Required financial statement of the applicant for loans in excess of $20,000;

● Past experience of the customer with the bank and other creditors of the applicant;

● Monthly debt payments of the borrower to gross monthly income should not exceed 45% with stable employment;

● Secured and unsecured loans are made with a definite repayment plan which coincides with the purpose of the loan;

● Borrower’s unsecured debt must not exceed 25% of the borrower’s net worth; and

● Verification of borrower’s credit and income.

Lease Financing

The Company has no lease receivables as of December 31, 2017. The Company’s leasing subsidiary, Leasing One, was dissolved effective year-end 2015.

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Hybrid Loans

The Company and the Bank have a policy of not underwriting, originating, selling or holding hybrid loans. The Company does not currently hold hybrid loans. Hybrid loans include payment option adjustable rate mortgages, negative amortization loans, and stated income/stated asset loans.

Appraisals

The Company uses appraisals to value the collateral securing loans and to help manage credit risk, particularly related to loans secured by real estate. The Company uses independent third party state certified or licensed appraisers. These appraisers take into account local market conditions when preparing their estimate of a property’s fair value. The Company evaluates appraisals it receives from independent third parties subsequent to the appraisal date by monitoring transactions in its markets and comparing them to its other projects that are similar in nature. The Company’s internal audit department reviews appraisals on a test basis to determine that assumptions used in appraisals remain valid and are not stale. New appraisals are obtained if market conditions significantly impact collateral values for those loans that are identified as impaired. Internal audit reviews appraisals related to all of the Company’s impaired loans and repossessed properties at least annually.

The Company considers appraisals it receives on one property as a means to extrapolate the estimated value for other collateral of similar characteristics if that property may not otherwise have a need for an appraisal. Should a borrower’s financial condition continue to deteriorate, an updated appraisal on that specific collateral will be obtained.

Appraisals obtained for construction and development lending purposes are performed by state licensed or state certified appraisers who are credentialed and on the Company’s approved list. Plans and specifications are provided to the appraiser by bank personnel not directly involved in the credit approval process. The appraisals conform to the standards of appraisal practices established by the Appraisal Standards Board in effect at the time of the appraisal. This includes net present value accounting for construction and development loans on an “as completed” and “as is” basis.

Appraisal reviews are conducted internally by bank personnel familiar with the local market and who are not directly involved in the credit approval process and externally by state licensed and certified appraisers. Bank personnel do not increase the valuation from the appraisal but may, in some instances, make a reduction. Upon completion, a follow up site visit by the appraiser is completed to verify the property was improved in accordance with the original plans and specifications and recertify, if appropriate, the original estimate of “as completed” market value. Circumstances where management may make adjustments to appraisals include the following:

As discussed above, construction and development appraisals are on an “as completed” basis. If work remains to be completed on a financed project, management will reduce the estimated value in the appraisal by the estimated cost to complete the work and, if required by the loan balance, establish reserves allocated to the loan or write down the loan based on the need to complete such work.

If an appraisal for given collateral is still valid (e.g. less than one year old, etc.), but due to market conditions and the bank’s familiarity with comparable property sales in the market the appraised value appears high, management may adjust downward from the last appraisal its estimate of the value of the collateral and, in turn, establish reserves allocated to the loan or write down the loan to reflect this downward adjustment.

Certain appraisals, such as for subdivision development and for other projects expected to take over one year to liquidate, are required to include estimated costs to sell. For others, management adjusts the appraised value by the estimated selling costs when they are either absent or not required. Additional reserves or direct write downs are made to the loan to reflect these adjustments.

Loan to value ratios are typically well under 100% at inception, which gives the Company a cushion if collateral values fall. However, when updated appraisals reveal collateral exposure (i.e. the value of the collateral for a nonperforming loan is less than originally estimated and no longer supports the outstanding loan amount), negotiations ensue with the borrower aimed at providing additional collateral support for the credit. This may be in many forms as determined by the financial holdings of the borrower. If not available, third party support for the credit is pursued (e.g., guarantors or equity investors). If negotiations fail to provide additional adequate collateral support, reserves are allocated to the loan or the loan is written down to the fair value of the collateral less the estimated costs to sell.

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When a construction loan or development loan is downgraded, a new appraisal is ordered contemporaneously with the downgrade. The appraisers are instructed to give a fair value based upon both an “as is” basis and an “as completed” basis. The twofold purpose is to facilitate management’s decision making process in determining the cost benefits of completing a project compared with marketing the project “as is.”

The carrying value of a downgraded loan or nonperforming asset wherein the underlying collateral is an incomplete project is based on an updated appraisal at the “as is” value. The current appraisal is a compilation of the most recent sales available and therefore includes the risk premium established by market conditions. When comparable sales are not deemed to be reliable or the adjustments are not satisfactory, management will make appropriate adjustments to the fair value which includes a risk premium (discount) deducted using the discounted cash flow framework. The reserve or write down is expended upon completion of the appraisal and other relevant information assessment.

Interest Reserves

Interest reserves represent funds loaned to a borrower for the payment of interest during the development phase on certain construction and development loans. Interest reserves were a common industry practice when banks were more actively lending and the predictability of a sale or stabilization of the project had a high probability. The interest reserve is a component of the loan proceeds which is determined at the loan’s inception after a full evaluation of the sources and uses of funds for the project, and is intended to match the project’s debt service requirements with its expected cash flows. In all construction lending projects, the Company monitors the project to determine if it is being completed as planned and if sales/stabilization projections are being met.

For present and future construction and development loan requests, borrowers must show sufficient cash reserves and significant excess cash flow from all sources in addition to other underwriting criteria measures. A project’s viability is a major consideration as well, along with the probability of its stabilization and/or sale. Interest reserves are primarily used for construction on large commercial, income producing property. Interest reserves on development loans are not commonplace due to the general lack of risk-appropriate opportunities currently in our markets combined with our low desire for this segment of the lending portfolio.

Supervision and Regulation

The Company and its subsidiaries are subject to comprehensive supervision and regulation that affect virtually all aspects of their operations. The laws and regulations are primarily intended for the protection of depositors, borrowers, and federal deposit insurance funds, and, to a lesser extent, for the protection of stockholders and creditors. Changes in applicable laws, regulations, or in the policies of banking and other government regulators may have a material adverse effect on our current or future business. The following discussion is a summary of certain of the more important aspects of the relevant statutory and regulatory provisions and does not purport to be complete nor does it address all applicable statutes and regulations.

Supervisory Authorities

The Company is a financial holding company, registered with and regulated by the Federal Reserve. Its subsidiary bank, United Bank, is a Kentucky state-chartered bank and a member of the Federal Reserve Bank of St. Louis. The Company and the Bank are subject to supervision, regulation, and examination by the Federal Reserve, Federal Deposit Insurance Corporation (“FDIC”), and the Kentucky Department of Financial Institutions (“KDFI”). The Company and the Bank are required to file regular reports with the FRB, the FDIC, and the KDFI. The regulatory authorities routinely examine the Company and the Bank to monitor compliance with laws and regulations, financial condition, adequacy of capital and reserves, quality and documentation of loans, payment of dividends, adequacy of systems and controls, credit underwriting, asset liability management, and the establishment of branches.

The Company is also subject to disclosure and other regulatory requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934 (as amended), as administered by the Securities and Exchange Commission. Regulatory authorities may initiate enforcement proceeding against the Company for violations of laws or regulations, or for engaging in unsafe and unsound practices. Enforcement powers available to the regulatory agencies include the ability to assess civil monetary penalties, issuing cease and desist and similar orders, and initiating injunctive actions.

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Capital

The FRB, the FDIC, and the KDFI require the Company and United Bank to meet certain ratios of capital to assets in order to conduct their activities. Current risk-based capital standards are based on the Basel Committee on Banking Supervision final rules issued in December 2010 related to global regulatory standards on bank capital adequacy and liquidity (commonly referred to as “Basel III”) previously agreed on by the Group of Governors and Heads of Supervision (the oversight body of the Basel Committee). U.S. federal banking agencies adopted final rules during 2013 to bring U.S. banking organizations into compliance with Basel III. Under the current rules, which were effective January 1, 2015, the Company is subject to capital requirements that include: (i) creation of a required ratio for common equity Tier 1 (“CET1”) capital, (ii) an increase to the minimum Tier 1 Risk-based Capital ratio, (iii) changes to risk-weightings of certain assets for purposes of the risk-based capital ratios, (iv) creation of an additional capital conservation buffer in excess of the required minimum capital ratios, and (v) changes to what qualifies as capital for purposes of meeting these capital requirements.

Under Basel III, the Company is required to maintain a minimum CET1 ratio of 4.5% of risk-weighted assets. CET1 consists of common stock, related surplus, and retained earnings less certain deductions that primarily include goodwill, other intangible assets, and deferred tax assets. The deductions to CET1 are being phased-in over a four-year period beginning at 40% on January 1, 2015 and an additional 20% per year thereafter.

The Company is required to maintain a minimum Tier 1 Risk-based Capital ratio of 6%, a Total Risk-based Capital ratio of 8%, and a Tier 1 Leverage ratio of 4%. Tier 1 Capital consists of common equity and related surplus, retained earnings, and a limited amount of qualifying preferred stock, less goodwill (net of certain deferred tax liabilities) and certain core deposit intangibles. Tier 2 Capital consists of non-qualifying preferred stock, certain types of debt and a limited amount of other items. Total Capital is the sum of Tier 1 and Tier 2 Capital. Under the capital rules effective January 1, 2015, the effects of certain accumulated other comprehensive income items (primarily unrealized gains and losses on available for sale investment securities) are not excluded from capital; however, non-advanced approaches banking organizations, including the Company, could make a one-time permanent election to continue excluding these items comparable to their previous treatment. The Company made this election in order to avoid potentially significant fluctuations in its capital levels which can occur from the impact of changing market interest rates on the fair value of the Company’s investment securities portfolio.

Capital rules prohibit including certain hybrid and preferred securities in Tier 1 capital. Non-qualifying capital instruments under the final rule include trust preferred securities and cumulative perpetual preferred stock. The rules grandfather these non-qualifying capital instruments that were issued before May 19, 2010 (subject to 25% of Tier 1 capital) for bank holding companies with total consolidated assets of less than $15 billion as of December 31, 2009, including the Company. As of January 1, 2015, the Company’s non-qualifying capital instruments are subject to a limit of 25% of Tier 1 capital elements, excluding the non-qualifying capital instruments and after all regulatory capital deductions and adjustments applied to Tier 1 capital. Non-qualifying capital instruments excluded from Tier 1 capital under the 25% limitation may be included as a component of Tier 2 capital.

In measuring the adequacy of capital, assets are generally weighted for risk. Certain assets, such as cash and U.S. government securities, have a risk weighting of zero. Others, such as commercial and consumer loans, are generally risk weighted at 100%. Changes to risk-weighted assets that went into effect January 1, 2015 include: i) 150% risk weighting for non-residential mortgage loans past due more than 90 days or classified as nonaccrual; ii) 150% risk weighting (from 100%) for certain high volatility commercial real estate acquisition, development, and construction loans; iii) a 20% (from 0%) credit conversion factor for the unused portion of commitments with an original maturity of one year or less (except those unconditionally cancellable by the Company); and, iv) a 250% (from 100%) risk weighting for mortgage servicing and deferred tax assets that are not deducted from CET1. Risk weightings are also assigned for off-balance sheet items such as loan commitments. The various items are multiplied by the appropriate risk-weighting to determine risk-adjusted assets for the capital calculations. For the leverage ratio mentioned above, average quarterly assets (as defined) are used and are not risk-weighted.

In order to avoid restrictions on distributions, including dividend payments and discretionary bonus payments to its executives, the Company is required to maintain a capital conservation buffer of an additional 2.5% of risk-weighted assets once fully phased in. The capital conservation buffer is designed to create incentives for banking organizations to conserve capital during periods of economic stress. The addition of the capital conservation buffer, once fully phased in, effectively results in minimum ratios of 7%, 8.5%, and 10.5% for CET1, Tier 1 capital, and total capital, respectively, in order to avoid the restrictions on distributions and discretionary bonus payments to executives. The capital conservation buffer is being phased in over a four year period that began in 2016 by increments of 0.625% annually until reaching 2.5%. At year-end 2017, the Company meets the minimum capital ratios and a fully phased-in capital conservation buffer.

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If an institution fails to remain well-capitalized, it will be subject to a series of restrictions that increase as the capital condition worsens. For instance, federal law generally prohibits a depository institution from making any capital distribution, including the payment of a dividend or paying any management fee to its holding company, if the depository institution would be undercapitalized as a result. Undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to growth limitations, and are required to submit a capital restoration plan for approval, which must be guaranteed by the institution’s parent holding company. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. The Company is well-capitalized under the current rules, which require a CET1 ratio of 6.5%, a Tier 1 Risk-based Capital ratio of 8%, a Total Capital ratio of 10%, and a Tier 1 Leverage ratio of 5%.

Expansion and Activity Limitations

With prior regulatory approval, the Company may acquire other banks or bank holding companies and its subsidiaries may merge with other banks. Acquisitions of banks located in other states may be subject to certain deposit-percentage, age, or other restrictions. In addition, as a financial holding company, the Company and its subsidiaries are permitted to acquire or engage in activities that are not permitted for bank holding companies such as insurance underwriting, securities underwriting and distribution, travel agency activities, broad insurance agency activities, merchant banking, and other activities that the FRB determines to be financial in nature or complementary to these activities. The FRB normally requires some form of notice or application to engage in or acquire companies engaged in such activities. Under the Bank Holding Company Act, the Company is generally prohibited from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in activities that are deemed not closely related to banking.

Limitations on Acquisitions of Bank Holding Companies

In general, other companies seeking to acquire control of a financial holding company such as the Company would require the approval of the FRB under the Bank Holding Company Act. In addition, individuals or groups of individuals seeking to acquire control of a financial holding company would need to file a prior notice with the FRB (which the FRB may disapprove under certain circumstances) under the Change in Bank Control Act. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control may exist under the Change in Bank Control Act if the individual or company acquires 10% or more of any class of voting securities of the bank holding company and no shareholder holds a larger percentage of the subject class of voting securities.

Deposit Insurance

The Company’s subsidiary bank is a member of the FDIC, and its deposits are insured by the FDIC’s Deposit Insurance Fund (“DIF”) up to prescribed limits of $250 thousand per depositor. The Company’s subsidiary bank is subject to quarterly FDIC deposit insurance assessments to maintain the DIF. The FDIC utilizes a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory rating.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) required changes to a number of components of the FDIC insurance assessment that was effective April 1, 2011. The Dodd-Frank Act required the FDIC to adopt a new DIF restoration plan to increase its reserve ratio to 1.35% from 1.15% of insured deposits by 2020. Under the restoration plan, the FDIC adopted regulations that redefined the assessment base as average consolidated assets less average tangible equity (as defined) during the assessment period. Since this resulted in a larger overall base when compared to the previous domestic deposits base methodology, overall assessment rates were lowered and the secured liability adjustment was eliminated from the rate calculation in an attempt to make the new assessments revenue neutral. At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increase or decrease assessment rates. In establishing assessments, the FDIC is required to offset the effect of the higher reserve ratio against insured depository institutions with total consolidated assets of less than $10 billion.

To determine the Company’s deposit insurance premiums, the Bank computes its assessment base, composed of average consolidated assets less average tangible equity (as defined), then applies the appropriate assessment rate. Graduated assessment rate decreases are set to phase in when the DIF reserve ratio exceeds 1.15%, 2.0%, and 2.5%. On June 30, 2016, the DIF reserve ratio surpassed the goal of 1.15%. As a result, assessment rates were lowered and the risk categories used in determining assessment rates were eliminated and assessment rates were established based on supervisory ratings (“CAMELS ratings”). Effective July 1, 2016, assessment rates range from 1.5 to 16 basis points for banks designated in the lowest risk category and between 11 to 30 basis points for banks designated in the highest risk category. The range of assessment rates applicable to each category varies depending on the level of the banks unsecured debt and brokered deposits.

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The FDIC may terminate insurance for depository institutions upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound financial condition, or has violated an applicable law, rule, regulation, order, or condition imposed by the FDIC.

In addition to deposit insurance assessments, all FDIC insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), a mixed-ownership government corporation established by the Competitive Equality Banking Act of 1987 possessing assessment powers in addition to the FDIC. The FDIC acts as a collection agent for FICO, whose sole purpose was to function as a financing vehicle for the now defunct Federal Savings & Loan Insurance Corporation. FICO assessment rates are determined quarterly and will continue until the FICO bonds mature through 2019.

Other Statutes and Regulations

The Company and the Bank are subject to numerous other statutes and regulations affecting their activities. Some of the more important are summarized below.

Anti-Money Laundering. Financial institutions are required to establish anti-money laundering programs that must include the development of internal policies, procedures, and controls; the designation of a compliance officer; an ongoing employee training program; and an independent audit function to test the performance of the programs. The Company and the Bank are also subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships in order to guard against money laundering and to report any suspicious transactions. Recent laws provide law enforcement authorities with increased access to financial information maintained by banks.

Sections 23A and 23B of the Federal Reserve Act. The Bank is limited in its ability to lend funds or engage in transactions with the Company or other nonbank affiliates of the Company, and all transactions must be on an arm’s-length basis and on terms at least as favorable to the Bank as prevailing at the time for transactions with unaffiliated companies.

Dividends. The Parent Company’s principal source of cash flow, including cash flow to pay dividends to its shareholders, is the dividends that it receives from United Bank. Statutory and regulatory limitations apply to the Bank’s payments of dividends to the Parent Company as well as to the Parent Company’s payment of dividends to its shareholders. A depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. The federal banking agencies may prevent the payment of a dividend if they determine that the payment would be an unsafe and unsound banking practice. Moreover, the federal agencies have issued policy statements that provide financial holding companies and insured banks should generally only pay dividends out of current operating earnings.

Community Reinvestment Act. United Bank is subject to the provisions of the Community Reinvestment Act of 1977 (“CRA”), as amended, and the federal banking agencies’ related regulations, stating that all banks have a continuing and affirmative obligation, consistent with safe and sound operations, to help meet the credit needs of the communities they serve. The CRA requires a depository institution’s primary federal regulator, in connection with its examination of the institution or its evaluation of certain regulatory applications, to evaluate the institution’s record in assessing and meeting the credit needs of the community served by that institution, including low and moderate-income neighborhoods. The regulatory agency’s assessment of the institution’s record is made available to the public. Failure of an institution to receive at least a “satisfactory” rating on a CRA examination could prevent a bank or its parent company from engaging in certain activities such as establishing de novo branches and branch relocations or acquiring other financial institutions.

Insurance Regulation. The Company’s subsidiaries that may underwrite or sell insurance products are subject to regulation by the Kentucky Department of Insurance.

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Consumer Regulation. The activities of the Company and the Bank are subject to a variety of statutes and regulations designed to protect consumers. These laws and regulations:

● limit the interest and other charges collected or contracted for by the Bank;

● govern disclosures of credit terms to consumer borrowers;

● require financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

● prohibit discrimination on the basis of race, creed, or other prohibited factors in extending credit;

● require the Bank to safeguard the personal non-public information of its customers, provide annual notices to consumers regarding the usage and sharing of such information and limit disclosure of such information to third parties except under specific circumstances; and

● govern the manner in which consumer debts may be collected by collection agencies.

The deposit operations of the Bank are also subject to laws and regulations that:

● require disclosure of the interest rate and other terms of consumer deposit accounts;

● impose a duty to maintain the confidentiality of consumer financial records and prescribe procedures for complying with administrative subpoenas of financial records; and

● govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Emergency Economic Stabilization Act of 2008 (“EESA”). EESA was signed into law during 2008 as a measure to stabilize and provide liquidity to the U.S. financial markets. Under EESA, the Troubled Asset Relief Program (“TARP”) was created. TARP granted the U.S. Treasury (“Treasury”) authority to, among other things, invest in financial institutions and purchase troubled assets in an aggregate amount up to $700 billion.

In connection with TARP, the Capital Purchase Program (“CPP”) was launched on October 14, 2008. Under the CPP, the Treasury announced a plan to use up to $250 billion of TARP funds to purchase equity stakes in certain eligible financial institutions, including the Company. The Company received $30.0 million of equity capital under the CPP in January 2009. In the transaction, the Company issued 30,000 shares of fixed-rate cumulative perpetual preferred stock to the Treasury. The terms of the preferred shares required the Company to pay a 5% cumulative dividend during the first five years the shares were outstanding, resetting to 9% thereafter, and includes certain restrictions on dividend payments of lower ranking equity. The Company repurchased 20,000 of its outstanding preferred shares during 2014 for $20.0 million and repurchased the remaining 10,000 shared during 2015 for $10.0 million. No additional debt or equity was issued in connection with any of the shares redeemed.

During June 2012, the Treasury conducted an auction as part of ongoing efforts to wind down and recover its remaining CPP investments. The auction included preferred stock positions held by the Treasury of seven banks participating in the CPP, including the $30.0 million investment in the Company’s Series A preferred stock. The Treasury was successful in selling all of its investment in the Company’s Series A preferred stock to private investors through a registered public offering. The Company received no proceeds as part of the transaction.

Dodd-Frank Act. The Dodd-Frank Act was signed into law in July 2010. The Dodd-Frank Act implements far-reaching changes to the regulation of the financial services industry, including provisions that:

● centralize responsibility for consumer financial protection by creating the Consumer Financial Protection Bureau, a new agency responsible for implementing, examining, and enforcing compliance with federal consumer financial laws;

● apply the same leverage and risk-based capital requirements that apply to insured depository institutions to bank holding companies;

● require the federal banking regulators to seek to make their capital requirements countercyclical, so that capital requirements increase in times of economic expansion and decreases in times of economic contraction;

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● change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital;

● provide for new disclosure and other requirements relating to executive compensation and corporate governance;

● make permanent the $250 thousand limit for federal deposit insurance;

● repeal the federal prohibitions on the payment of interest on commercial demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

● increase the authority of the Federal Reserve to examine non-bank subsidiaries; and

● codify and expand the “source of strength” doctrine as a statutory requirement. The source of strength doctrine represents the long held policy view by the Federal Reserve that a bank holding company should serve as a source of financial strength for its subsidiary banks. The Parent Company, under this requirement, is expected to commit resources to support a distressed subsidiary bank.

Volcker Rule. The Dodd-Frank Act prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits certain ownership interests in and relationships with private equity and hedge funds (commonly referred to as the “Volcker Rule”). On December 10, 2013, U.S. financial regulators, including the Federal Reserve, adopted final rules to implement the Volcker Rule. The final rules were effective April 1, 2014, but the conformance period to bring activities and investments into compliance was extended to July 21, 2015. The Company currently does not have any impermissible holdings under the rule.

Competition

The Company faces vigorous competition for banking services from various types of businesses other than commercial banks and savings and loan associations. These include, but are not limited to, credit unions, mortgage lenders, finance companies, insurance companies, stock and bond brokers, financial planning firms, and department stores, which compete for one or more lines of banking business. The Company also competes for commercial and retail business not only with banks in Central and Northern Kentucky, but with banking organizations from Ohio, Indiana, Tennessee, Pennsylvania, and North Carolina which have banking subsidiaries located in Kentucky. These competing businesses may possess greater resources and offer a greater number of branch locations, higher lending limits, and may offer other services not provided by the Company. In addition, the Company’s competitors that are not depository institutions are generally not subject to the extensive regulations that apply to the Company and its subsidiary bank.As financial services become increasingly dependent on technology, permitting transactions to be conducted by telephone, mobile banking, and the internet, non-depository institutions are able to attract funds and provide lending and other financial services without offices located in our market area. The Company has attempted to offset some of the advantages of its competitors by arranging participations with other banks for loans above its legal lending limits, expanding into additional markets and product lines, and entering into third party arrangements to better compete for its targeted customer base. Competition from other providers of financial services may reduce or limit the Company’s profitability and market share.

The Company competes primarily on the basis of quality of services, interest rates and fees charged on loans, and the rates of interest paid on deposit funds. The business of the Company is not dependent upon any one customer or on a few customers, and the loss of any one or a few customers would not have a material adverse effect on the Company.

No material portion of the business of the Company is seasonal. No material portion of the business of the Company is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government, though certain contracts are subject to such renegotiation or termination.

The Company is not engaged in operations in foreign countries.

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Employees

As of December 31, 2017, the Company had 426 full-time equivalent employees. Employees are offered a variety of benefits. A salary savings plan, group life insurance, hospitalization, dental, vision, and major medical insurance along with postretirement health insurance benefits are available to eligible personnel. The Company maintains two postretirement health insurance benefit plans. Employees hired on or after January 1, 2016 are not eligible for the benefits related to those plans. Employees are not represented by a union. Management and employee relations are considered good.

The Company previously granted certain eligible employees the option to purchase a limited number of the Company’s common stock under a Stock Option Plan (“Plan”) approved by its shareholders in 1998. The Plan included the conditions and terms that the grantee must meet in order to exercise the options. No options have been granted under the Plan since 2004 and all unexercised options granted under the Plan expired during 2014. The Company has no current intention to grant any additional options under the Plan.

In 2004, the Company’s Board of Directors adopted an Employee Stock Purchase Plan (“ESPP”). The ESPP was subsequently approved by the Company’s shareholders and became effective July 1, 2004. Under the ESPP, at the discretion of the Board of Directors, employees of the Company and its subsidiaries can purchase Company common stock at a discounted price and without payment of brokerage costs or other fees and in the process benefit from the favorable tax treatment afforded such plans pursuant to Section 423 of the Internal Revenue Code.

Available Information

The Company makes available free of charge through its website (www.farmerscapital.com) its Code of Ethics and other filings with the Securities and Exchange Commission (“SEC”), including its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing such material with the SEC. Any amendments to the Code of Ethics and any waiver applicable to the Company’s chief executive officer and chief financial officer are also posted on the website.

Item 1A. Risk Factors

Investing in the Company’s common stock is subject to risks inherent to the Company’s business. The material risks and uncertainties that management believes affect the Company are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations. This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the market price of the Company’s common stock could decline significantly, and shareholders could lose all or part of their investment.

The Company operates in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations.

The Company is subject to extensive regulation, supervision, and examination by federal and state banking authorities. Any change in applicable regulations or laws could have a substantial adverse impact on the Company and its operations. Additional legislation and regulations that could significantly affect the Company’s powers, authority, and operations may be enacted or adopted in the future, which could have a material adverse effect on the Company’s results of operations and financial condition. Further, in the performance of their supervisory duties and enforcement powers, the Company’s banking regulators have significant discretion and authority to prevent or remedy practices they deem as unsafe or unsound or violations of law. The exercise of regulatory authority may have a negative impact on the Company’s operations, which may be material to its results of operations and financial condition.

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The Company in the future may become subject to supervisory actions and/or enhanced regulation that could have a material negative effect on its business, operating flexibility, financial condition and the value of its common stock.

Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, the KDFI (for state-chartered banks), the Federal Reserve (for bank holding companies), and the FDIC as the insurer of bank deposits, have the authority to compel or restrict certain actions on the Company’s part if they determine that the Company has insufficient capital or is otherwise operating in a manner that may be deemed to be inconsistent with safe and sound banking practices. Under this authority, bank regulators can require the Company to enter into informal or formal enforcement orders, including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant to which the Company would be required to take identified corrective actions to address cited concerns and to refrain from taking certain actions.

If the Company is unable to comply with the terms of future regulatory orders to which it may become subject, then it could become subject to additional, heightened supervisory actions and orders, possibly including cease and desist orders, prompt corrective actions, and/or other regulatory enforcement actions. If the Company’s regulators were to take such additional supervisory actions, then we could, among other things, become subject to significant restrictions on our ability to develop any new business, as well as restrictions on our existing business, and we could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed period of time, or both. If the Company’s bank is unable to comply with regulatory requirements, it could ultimately face failure. The terms of any such supervisory action could have a material negative effect on our business, operating flexibility, financial condition and the value of our common stock.

Our nonperforming assets adversely affect our results of operations and financial condition and take significant management time to resolve.

Nonperforming assets are made up of nonperforming loans, other real estate owned, and other foreclosed assets. Nonperforming loans include nonaccrual loans, performing restructured loans, andloans 90 days or more past due and still accruing interest. Nonperforming assets adversely affect the Company’s net income in several ways. The Company does not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting interest income. When the Company repossesses collateral in foreclosures and similar proceedings, it is required to record the property at its fair value less estimated selling costs, which typically decreases net income. The Company’s level of nonperforming assets have improved considerably in the last few years. At year-end 2017, nonperforming assets are $20.9 million, the lowest level since the third quarter of 2007. As a percent of total assets, nonperforming assets are 1.2% at year-end 2017.

Nonperforming loans and other real estate owned also increase our risk profile and the amount of capital the Company’s regulators believe is appropriate in light of such risks. While the Company seeks to limit its problem loans through workouts, restructurings, and otherwise, decreases in the value of these assets, the underlying collateral, or our borrowers’ performance or financial conditions have adversely affected, and may continue to adversely affect, the Company’s results of operations and financial condition. Moreover, the resolution of nonperforming assets requires significant time commitments from management of our bank, which can be detrimental to the performance of their other responsibilities. There can be no assurance that the Company will not experience further increases in nonperforming loans in the future. If economic conditions do not improve or worsen in our markets, the Company could continue to incur additional losses relating to an increase in nonperforming assets.

Losses from loan defaults may exceed the allowance established for that purpose, which will have an adverse effect on the Company’s financial condition.

Volatility and deterioration in the broader economy increase the Company’s risk of credit losses, which could have a material adverse effect on its operating results. If a significant number of loans in the Company’s portfolio are not repaid, it would have an adverse effect on its earnings and overall financial condition. The Company’s bank subsidiary maintains an allowance for loan losses to provide for losses inherent in the loan portfolio. The allowance for loan losses reflects management’s best estimate of probable incurred credit losses in their loan portfolio at the balance sheet date. This evaluation is primarily based upon a review of the bank’s historical loan loss experience, known risks contained in the bank’s loan portfolio, composition and growth of the bank’s loan portfolio, and other economic and qualitative factors. Additionally, the bank’s regulators may require additional provision for the loan portfolio in connection with their examinations, agreements, or orders. The determination of an appropriate level of loan loss allowance is an inherently difficult process and is based on numerous assumptions. As a result, the Company’s allowance for loan losses may be inadequate to cover actual losses in its loan portfolio. Consequently, the Company risks having additional future provision for loan losses that may materially affect its earnings.

20

If the Company’s local markets experience a prolonged recession or economic downturn, it may be required to make further increases in its allowance for loan losses and to charge off additional loans, which would adversely affect its results of operations and capital.

Substantially all of the Company’s loans are to businesses and individuals located in Kentucky. A downturn or prolonged decline in the Central and Northern Kentucky economies could negatively impact demand for the Company’s products and services, the ability of customers to repay their loans, collateral values securing loans, and the stability of funding sources. This could result in a material adverse effect on the Company’s financial condition, results of operations and prospects. Further, approximately 62% of the Company’s investments in municipal bonds are issued by political subdivisions or agencies located in Kentucky.

Generally, the Company’s nonperforming loans and assets reflect operating difficulties of individual borrowers. Deterioration in real estate and other financial markets could adversely impact the Company’s financial performance. If trends in the housing and real estate markets worsen, the Company could experience an increase in delinquencies and credit losses. As a result, the Company may be required to increase its provision for loan losses and charge off additional loans in the future, which could adversely affect the Company’s financial condition and results of operations, perhaps materially. If additional provisions and charge-offs cause the Company to experience losses, it may be required to contribute additional capital to the bank to maintain capital ratios required by regulators.

The Company’s exposure to credit risk is increased by its real estate development lending.

Real estate development lending has historically been considered to be higher credit risk than that of other types of lending, such as for single-family residential properties. At year-end 2017, $3.7 million or 3% of the outstanding balance of our real estate development loans was classified as impaired. Real estate development loans typically involve larger loan balances to a single borrower or related borrowers. These loans can be affected by adverse conditions in real estate markets or the economy in general because commercial real estate borrowers’ ability to repay their loans depends on successful development and, in most cases, sale of the underlying property. These loans also involve greater risk because they generally are not fully amortized over the loan period, but have a balloon payment due at maturity of the loan. A borrower’s ability to make a balloon payment typically depends on being able to either refinance the loan or timely sell the underlying property. If the real estate markets were to worsen or not improve, the Company likely will experience increased credit losses and require additional provisions to our allowance for loan losses, which would adversely impact the Company’s earnings and financial condition.

Changes in consumer use of banks and changes in consumer spending and saving habits could adversely affect our financial results.

Technology and other changes now allow many consumers to complete financial transactions without using banks. For example, consumers can pay bills and transfer funds directly without going through a bank. This “disintermediation” could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits. In addition, changes in consumer spending and saving habits could adversely affect the Company’s operations, and it may be unable to timely develop competitive new products and services in response to these changes that are accepted by new and existing customers.

Maintaining or increasing the Company’s market share may depend on lowering prices and market acceptance of new products and services.

The Company’s success depends, in part, on its ability to adapt products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices. Lower prices can reduce net interest margin and revenues from fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, could require the Company to make substantial expenditures to modify or adapt existing products and services. Also, these and other capital investments may not produce expected growth in earnings anticipated at the time of the expenditure. The Company might not be successful in introducing new products and services, achieving market acceptance of its products and services, or developing and maintaining loyal customers.

21

The Company’s investment securities portfolio is comparatively larger than other community banks and it is more dependent on its investment portfolio to generate net income.

The Company relies more heavily on its investment securities portfolio as a source of interest income than many other community banks because its loan portfolio makes up a smaller proportion of its earning assets. If the Company is not able to successfully manage the interest rate spread on the investment portfolio, its net interest income will decrease, which would adversely affect its results of operations and negatively impact net income. Investment securities tend to have a lower risk than loans, and as such, generally provide a lower yield. For 2017, average investment securities made up 28.7% of the Company’s average total assets. Interest income on investment securities accounted for 16.9% of total interest income for 2017.

The Company periodically sells investment securities at irregular intervals in the normal course of business to execute its current asset/liability management strategies. This will result in the realization of either a net gain or loss. Moreover, proceeds from sales may be reinvested in investment securities with lower yields, which could reduce future earnings from investment securities. The Company monitors its investment securities portfolio for deteriorating values and for other-than-temporary impairment.Uncertainty surrounding the credit risk associated with mortgage collateral or guarantors may cause material discrepancies in valuation estimates obtained from third parties. Volatile market conditions may reduce the valuations of investment securities due to the perception of heightened credit and liquidity risks in addition to interest rate risk. There can be no assurance that declines in market value associated with these disruptions will not result in material impairments of these assets, which could have an adverse effect on the Company’s results of operations and could lead to additional losses.

The Company is exposed to risk of environmental liability when it takes title to properties.

In the course of its business, the Company may foreclose on and take title to real estate. As a result, it could be subject to environmental liabilities with respect to these properties. The Company may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. Additionally, if the Company is the owner or former owner of a contaminated site, it may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination stemming from the property. If the Company becomes subject to significant environmental liabilities, it could have a material adverse effect on its business, results of operations, and financial condition.

The Company may not realize the anticipated benefits of merging its subsidiary banks and data processing company into one bank.

On February 20, 2017, the Company merged its four subsidiary banks and data processing subsidiary into one bank. The Company experienced a decline in overall operating costs as a result of the merger. However, further cost reductions may differ materially from expectations, which could have an adverse impact on the Company’s financial condition.

The Company cannot accurately predict the effect of the current economy on its future results of operations or the market price of its stock.

The Company cannot accurately predict the timing, severity, or duration of an economic slowdown, which can adversely impact its performance and the markets it serves. Any deterioration in the economies of the nation as a whole or in the Company’s local markets would have an adverse effect, which could be material, on the Company’s financial condition, results of operations, and prospects and could also cause the market price of the Company’s stock to decline. While it is impossible to predict how long these conditions may exist, economic uncertainty could continue to present risks for some time for our industry and the Company.

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Interest rate volatility could significantly harm the Company’s results of operations.

The Company’s results of operations are affected by the monetary and fiscal policies of the federal government, the policies of its regulators, and the prevailing interest rates in the United States and the Company’s markets. In addition, it is increasingly common for the Company’s competitors, who may be aggressively seeking to attract deposits as a result of liquidity concerns arising from changing economic or other conditions, to pay rates on deposits that are much higher than normal market rates. A significant component of the Company’s earnings is net interest income, which is the difference between the income from interest earning assets, such as loans, and the expense on interest bearing liabilities, such as deposits. A change in market interest rates could adversely affect the Company’s earnings if market interest rates change such that the interest it pays on deposits and borrowings increases faster than the interest it collects on loans and investments; or, alternatively, if interest rates earned on earning assets decline faster than those rates paid on interest paying liabilities. Consequently, as with most financial institutions, the Company is sensitive to interest rate fluctuations. Changes in market interest rates may also affect the level of voluntary prepayments on loans and mortgage-back investment securities resulting in the receipt of funds that may be reinvested at a lower rate.

The FDIC periodically amends its deposit insurance rate assessment structure, which can increase costs to the Company.

Under the Federal Deposit Insurance Act, as amended by the Dodd-Frank Act, the FDIC must establish and implement a plan to restore the deposit insurance fund’s designated reserve ratio to 1.35% of insured deposits by 2020. The FDIC must continue to assess and consider the appropriate level of the reserve ratio annually by considering each of the following: risk of loss to the insurance fund; economic conditions affecting the banking industry; the prevention of sharp swings in the assessment rates; and any other factors the FDIC deems important. The FDIC’s current fund management strategy includes a targeted long-term reserve ratio of 2.0%.

The Dodd-Frank Act required changes to a number of components of the FDIC insurance assessment. While these changes have resulted in a lower amount of deposit insurance assessments for the Company, future changes in assessment rates or methodology could adversely impact the Company’s future earnings and liquidity in a material amount.

Changes in the corporate federal, state or local income tax laws may adversely impact the Company’s results of operations.

The Company is subject to changes in tax law that could increase its effective tax rates. These changes may be retroactive to previous periods and as a result could negatively affect the Company’s current and future financial performance. On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (“Tax Act”) that significantly reforms the Internal Revenue Code of 1986, as amended. The Tax Act could have both positive and negative effects on our financial performance. The new legislation, among other things, includes a reduction in the federal corporate tax rate from 35% to 21% beginning in 2018, which will have a favorable impact on the Company’s results of operations. However, under accounting principles generally accepted in the United States of America, the Company recorded tax expense of $5.9 million in the fourth quarter of 2017 due to revaluing its net deferred tax assets as a result of the lower corporate tax rate. The Company’s customers are likely to experience varying effects from both the individual and business tax provisions of the Tax Act, which could adversely impact demand for the Company’s products and services. The Company continues to examine the impact this tax reform legislation may have on its financial condition and results of operations.

Transactions between the Company and its captive insurance subsidiary (the “Captive”) may be subject to certain IRS responsibilities and penalties.

The Company’s Captive is a Kentucky-based, wholly-owned insurance subsidiary of the Company that provides property and casualty insurance coverage to its subsidiaries for risk management purposes or where insurance may not be available or economically feasible. The Treasury Department of the United States and the IRS by way of Notice 2016-66 have stated that transactions believed similar in nature to transactions between the Captive and the Company’s other subsidiaries may have the potential for tax avoidance or evasion and may be deemed by the IRS as an abusive tax structure subject to significant penalties, interest and possible criminal prosecution.

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Any future losses may require the Company to raise additional capital; however, such capital may not be available to us on favorable terms or at all.

The Company is required by federal and state regulatory authorities to maintain certain levels of capital to support its operations. While the Company’s current capital levels materially exceed regulatory requirements, the Company’s ability to raise additional capital, if ever needed, will depend on conditions in the capital markets at that time and on the Company’s future financial condition and performance. Accordingly, the Company cannot make assurances with respect to its ability to raise additional capital on favorable terms, or at all. If the Company cannot raise additional capital when needed, its ability to further expand its operations through internal growth and acquisitions could be materially impaired and its financial condition and liquidity could be materially and adversely affected. The Company is currently under no directive by its regulators to raise any additional capital.

The tightening of available liquidity could limit the Company’s ability to replace deposits and fund loan demand, which could adversely affect its earnings and capital levels.

Liquidity is crucial to the Company’s business. While the Company’s liquidity materially exceeds regulatory requirements, a tightening of the credit and liquidity markets and the Company’s inability to obtain adequate funding to replace deposits may negatively affect its earnings and capital levels. In addition to deposit growth, maturity of investment securities, and loan payments from borrowers, the Company relies from time to time on advances from the Federal Home Loan Bank and other wholesale funding sources to fund loans and replace deposits. In the event of a downturn in the economy, these additional funding sources could be negatively affected which could limit the funds available to the Company. The Company’s liquidity position could be significantly constrained if it were unable to access funds from the Federal Home Loan Bank or other wholesale funding sources.

The Company’s financial condition and outlook may be adversely affected by damage to its reputation.

The Company’s financial condition and outlook is highly dependent upon perceptions of its business practices and reputation. Its ability to attract and retain customers and employees could be adversely affected to the extent its reputation is damaged. Negative public opinion could result from its actual or alleged conduct in any number of activities, including regulatory actions taken against the Company, lending practices, corporate governance, regulatory compliance, mergers of its subsidiaries, or sharing or inadequate protection of customer information. Damage to the Company’s reputation could give rise to loss of customers and legal risks, which could have an adverse impact on its financial condition.

The Company faces strong competition from financial services companies and other companies that offer banking services.

The Company conducts most of its operations in Central and Northern Kentucky. The banking and financial services businesses in these areas are highly competitive and increased competition in its primary market areas may adversely impact the level of its loans and deposits. Ultimately, the Company may not be able to compete successfully against current and future competitors. These competitors include national banks, regional banks, and other community banks. The Company also faces competition from other types of financial institutions, including savings and loan associations, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks, and other financial intermediaries. The Company’s competitors include major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous locations and mount extensive promotional and advertising campaigns. Areas of competition include interest rates for loans and deposits, efforts to obtain loan and deposit customers, and the range of products and services provided, including new technology-driven products and services. If the Company is unable to attract and retain banking customers, it may be unable to increase its loans and level of deposits.

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The price of the Company’s common stock may fluctuate significantly, and this may make it difficult to resell the stock when you want or at prices you find attractive.

The Company cannot predict how its common stock will trade in the future. The market value of its common stock will likely continue to fluctuate in response to a number of factors including the following, most of which are beyond our control, as well as the other factors described in this “Risk Factors” section:

● general economic conditions and conditions in the financial markets;

● changes in global financial markets, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility, and other geopolitical events;

● conditions in our local and national credit, mortgage, and housing markets;

● developments with respect to financial institutions generally, including government regulation;

● our dividend practice;

● actual and anticipated quarterly fluctuations in our operating results and earnings;

● recommendations by securities analysts;

● operating and stock price performance of other companies that investors deem comparable to us;

● news reporting relating to trends, concerns and other issues in the financial services industry; and

● perceptions in the marketplace regarding us and/or our competitors.

The market value of the Company’s common stock may also be impacted by conditions affecting the financial markets in general, including price and trading fluctuations. These conditions may result in: (1) volatility in the level of, and fluctuations in, the market prices of stocks generally and, in turn, the Company’s common stock and (2) sales of substantial amounts of the Company’s common stock in the market, in each case that could be unrelated or disproportionate to changes in the Company’s operating performance. These broad market fluctuations may adversely affect the market value of the Company’s common stock.

There may be future sales of additional common stock or other dilution of the Company’s equity, which may adversely affect the market price of the Company’s common stock.

The Company is not restricted from issuing additional common or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market price of the Company’s common stock could decline as a result of sales by the Company of a large number of shares of common stock or preferred stock or similar securities in the market or from the perception that such sales could occur.

The Company’s board of directors is authorized generally to cause it to issue additional common and preferred stock without any action on the part of the Company’s shareholders, except as may be required under the listing requirements of the NASDAQ Stock Market. In addition, the board has the power, without shareholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences, and other terms. This could include preferences over the common stock with respect to dividends or upon liquidation. If the Company issues preferred stock in the future that has a preference over the common stock with respect to the payment of dividends or upon liquidation, or if the Company issues preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the market price of the common stock could be adversely affected.

You may not receive dividends on the Company’s common stock.

Holders of the Company’s common stock are entitled to receive dividends only when, as, and if its board of directors declares them and as permitted by its regulators.Although we have recently declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividends in the future. This could adversely affect the market price of our common stock. Also, the Company’s ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve Board regarding capital adequacy and dividends.

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The Company’s ability to pay dividends depends upon the results of operations of its subsidiary bank and certain regulatory considerations.

The Parent Company is a financial holding company that conducts substantially all of its operations through its subsidiary bank. As a result, the Company’s ability to make dividend payments on its common stock depends primarily on certain federal and state regulatory considerations and the receipt of dividends and other distributions from its bank subsidiary.

The trading volume in the Company’s common stock is less than that of many other similar companies.

The Company’s common stock is listed for trading on the NASDAQ Global Select Stock Market. As of December 31, 2017, the 50-day average trading volume of the Company’s common stock on NASDAQ was 13,158 shares or .18% of the total common shares outstanding of 7,517,446. An efficient public trading market is dependent upon the existence in the marketplace of willing buyers and willing sellers of a stock at any given time. The Company has no control over such individual decisions of investors and general economic and market conditions. Given the lower trading volume of the Company’s common stock, larger sales volumes of its common stock could cause the value of its common stock to decrease. Moreover, due to its lower trading volume, it may take longer to liquidate your position in the Company’s common stock without detrimentally affecting the price.

The Company’s common stock constitutes equity and is subordinate to its existing and future indebtedness, and is effectively subordinated to all the indebtedness and other non-common equity claims against its subsidiaries.

Shares of the Company’s common stock represent equity interests in the Company and do not constitute indebtedness. Accordingly, the shares of the Company’s common stock rank junior to all of its indebtedness and to other non-equity claims on Farmers Capital Bank Corporation with respect to assets available to satisfy such claims.

The Company’s right to participate in any distribution of assets of any of its subsidiaries upon the subsidiary’s liquidation or otherwise, and thus the ability of the Company’s common stockholders to benefit indirectly from such distribution, will be subject to the prior claims of creditors of that subsidiary. As a result, holders of the Company’s common stock are effectively subordinated to all existing and future liabilities and obligations of its subsidiaries, including claims of bank depositors.

Market volatility could adversely impact the Company’s results of operations, liquidity position, and access to additional capital.

The capital and credit markets experienced heavy volatility and disruptions during much of the most recent economic downturn, with unprecedented levels of volatility and other disruptions. In many cases, this led to downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If similar market disruptions and volatility recur, the Company may experience a material adverse effect on its results of operations and liquidity position or on its ability to access additional capital.

Risks associated with unpredictable economic and political conditions may be amplified as a result of our limited market area.

Commercial banks and other financial institutions, including the Company, are affected by economic and political conditions, both domestic and international, and by governmental monetary policies. These conditions and other factors beyond the Company’s control may adversely affect profitability. In addition, almost all of the Company’s primary business area is located in Central and Northern Kentucky. Significant downturns in this economic region may result in a deterioration of the Company’s credit quality, reduce demand for credit, and may harm the financial stability of the Company’s customers. Due to the Company’s regional market area, these negative conditions may have a more noticeable effect on the Company than would be experienced by an institution with a larger, more diverse market area.

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The Company’s results of operations are significantly affected by the ability of its borrowers to repay their loans.

Lending money is an essential part of the banking business. However, borrowers do not always repay their loans. The risk of non-payment is affected by:

● unanticipated declines in borrower income or cash flow;

● changes in economic and industry conditions;

● the duration of the loan; and

● in the case of a collateralized loan, uncertainties as to the future value of the collateral.

Due to the fact that the outstanding principal balances can be larger for commercial loans than other types of loans, such loans present a greater risk to the Company than other types of loans when non-payment by a borrower occurs.

Consumer loans typically have shorter terms and lower balances with higher yields compared to real estate mortgage loans, but generally carry higher risks of default than real estate mortgage and commercial loans. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans.

Inability to hire or retain certain key professionals, management, and staff could adversely affect the Company’s revenues and net income.

The Company relies on key personnel to manage and operate its business, including major revenue-generating functions such as its loan and deposit portfolios. The loss of key staff may adversely affect the Company’s ability to maintain and manage these portfolios effectively, which could negatively affect our revenues. In addition, loss of key personnel could result in increased recruiting and hiring expenses, which could cause a decrease in our net income.

The Company’s controls and procedures may fail or be circumvented.

The Company’s management regularly reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well-designed and operated, can provide only reasonable, not absolute, assurances that the objectives of the system of controls are met. Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material and adverse effect on the Company’s business, results of operations, and financial condition.

Because the nature of the financial services business involves a high volume of transactions, the Company faces significant operational risks.

Operational risk is the risk of loss resulting from operations, including, but not limited to, the risk of fraud by employees or persons outside of the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and business continuation and disaster recovery. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. In the event of a breakdown in the internal control system, improper operation of systems or improper employee actions, the Company could suffer financial loss, face regulatory action and suffer damage to its reputation.

A failure in or breach, including cyber attacks, of the Company’s operational or security systems, or those of its third party vendors and other service providers, could disrupt its businesses, result in the disclosure or misuse of confidential or proprietary information, damage its reputation, increase its costs and cause losses.

As a financial institution, the Company is susceptible to fraudulent activity that may be committed against it or its customers and that may result in financial losses to the Company or its customers, privacy breaches against its customers, or damage to the Company’s reputation. Such fraudulent activity may be in various forms, including check fraud, electronic fraud, wire fraud, phishing, and other dishonest acts. In recent periods, there has been a rise in electronic fraudulent activity within the financial services industry, especially in the commercial banking sector, due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, the Company has also experienced an increase in attempted electronic fraudulent activity.

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In addition, the Company’s operations rely on the secure processing, storage and transmission of confidential and other information on its computer systems and networks. Although the Company takes protective measures to maintain the confidentiality, integrity, and availability of its and its customers’ information, and modifies these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, the Company’s computer systems, software and networks and those of its customers may be vulnerable to unauthorized access, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber attacks and other events that could have an adverse security impact and result in significant losses by the Company and its customers. Despite the defensive measures the Company takes to manage its internal technological and operational infrastructure, these threats may originate externally from third parties, such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or the threats may originate from within the Company. Given the increasingly high volume of transactions, certain errors may be repeated or compounded before they can be discovered and remedied.

The Company also faces the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate its business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries. Such parties could also be the source of an attack on, or breach of, the Company’s operational systems, data or infrastructure. In addition, as interconnectivity with its customers grows, the Company increasingly faces the risk of operational failure with respect to its customers’ electronic systems.

Although to date the Company has not experienced any material losses relating to cyber attacks or other information security breaches, there can be no assurance that it will not suffer such losses in the future. The Company’s risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of some of the Company’s business operations, and the continued uncertain global economic environment. As cyber threats continue to evolve, the Company may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities.

The Company maintains an insurance policy which it believes provides sufficient coverage at a manageable expense for an institution of its size and scope with similar technological systems. However, the Company cannot assure that this policy will afford coverage for all possible losses or would be sufficient to cover all financial losses, damages, or penalties, including lost revenues, should it experience any one or more of its or a third party’s systems failing or experiencing an attack.

The Company’s operations rely on certain external vendors.

The Company utilizes certain external vendors to provide products and services necessary to maintain its day-to-day operations. The Company is exposed to the risk that such vendors fail to perform under these arrangements. This could result in disruption to the Company’s business and have a material adverse impact on the Company’s results of operations and financial condition. There can be no assurance that the Company’s policies and procedures designed to monitor and mitigate vendor risks will be effective in preventing or limiting the effect of vendor non-performance.

Significant legal actions could subject the Company to substantial uninsured liabilities.

From time to time the Company is subject to claims related to its operations. These claims and legal actions, including supervisory actions by regulators, could involve large monetary claims and significant costs to defend. To protect the Company from the cost of these claims, it maintains insurance coverage in amounts and with deductibles that are believed to be appropriate for its operations. However, the insurance coverage may not cover all claims against the Company or continue to be available at a reasonable cost. As a result, the Company may be exposed to substantial uninsured liabilities, which could have a material adverse effect on the Company’s business, results of operations, and financial condition.

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The Company is subject to claims and litigation pertaining to fiduciary responsibility.

Customers or others may make claims and take legal action against the Company related to fiduciary responsibilities. If claims and legal action against the Company are not resolved in a favorable manner to the Company, it could result in a material financial liability or damage to our reputation.

The Dodd-Frank Act has increased the Company’s costs of operations which could adversely impact the Company's results of operations, financial condition or liquidity

The goals of the Dodd-Frank Act include restoring public confidence in the financial system, preventing another financial crisis, and allowing regulators to identify failings in the system before another crisis can occur. As part of the reform, the Dodd-Frank Act created the Financial Stability Oversight Council, with oversight authority for monitoring and regulating systemic risk, and the Consumer Financial Protection Bureau, which has broad regulatory and enforcement powers over consumer financial products and services. The Dodd-Frank Act also changes the responsibilities of the current federal banking regulators, imposes additional corporate governance and disclosure requirements in areas such as executive compensation and proxy access, and limits or prohibits proprietary trading, hedge fund, and private equity activities of banks. It also impacts areas such as deposit insurance, mortgage lending, capital requirements, securitizations, and insurance.

The scope of the Dodd-Frank Act impacts many aspects of the financial services industry and requires the development and adoption of numerous implementing regulations, some of which have yet to be finalized. Consequently, the effects of the Dodd-Frank Act on the financial services industry and the Company will depend, in large part, upon the extent to which regulators exercise the authority granted to them and the approaches taken to implement the regulations. The Company continually assesses the impact of the Dodd-Frank Act on its business and operations and believes that compliance with these new laws and regulations has resulted in higher costs, but the probable impact cannot be measured with a high degree of certainty. Compliance with the new laws and regulations could adversely impact the Company’s results of operations, financial condition, or liquidity, any of which may impact the market price of the Company’s common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company owns or leases buildings that are used in the normal course of its business. The corporate headquarters is located at 202 W. Main Street, Frankfort, Kentucky, in a building owned by the Company. The Company’s subsidiaries own or lease various other offices in the counties and cities in which they operate. See the Notes to Consolidated Financial Statements contained in Item 8, “Financial Statement and Supplementary Data,” of this Form 10-K for information with respect to the amounts at which bank premises and equipment are carried and commitments under long-term leases.

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Unless otherwise indicated, the properties listed below are owned by the Company and its subsidiaries as of December 31, 2017.

Corporate Headquarters

202 – 208 W. Main Street, Frankfort, KY

Banking Offices

Bourbon Region:

125 W. Main Street, Frankfort, KY

555 Versailles Road, Frankfort, KY

1401 Louisville Road, Frankfort, KY

154 Versailles Road, Frankfort, KY

1301 US 127 South, Frankfort, KY (leased)

128 S. Main Street, Lawrenceburg, KY

201 West Park Shopping Center, Lawrenceburg, KY

838 N. College Street, Harrodsburg, KY

Bluegrass Region:

100 United Drive, Versailles, KY

146 N. Locust Street, Versailles, KY

206 N. Gratz, Midway, KY

200 E. Main Street, Georgetown, KY

100 Farmers Bank Drive, Georgetown, KY (leased)

100 N. Bradford Lane, Georgetown, KY

3285 Main Street, Stamping Ground, KY

2509 Sir Barton Way, Lexington, KY

3098 Harrodsburg Road, Lexington, KY (leased)

201 N. Main Street, Nicholasville, KY

995 S. Main Street (Kroger Store), Nicholasville, KY (leased)

986 N. Main Street, Nicholasville, KY

106 S. Lexington Avenue, Wilmore, KY

Heartland Region:

425 W. Dixie Avenue, Elizabethtown, KY

3030 Ring Road, Elizabethtown, KY

111 Towne Drive (Kroger Store), Elizabethtown, KY (leased)

645 S. Dixie Blvd., Radcliff, KY

4810 N. Preston Highway, Shepherdsville, KY

157 Eastbrooke Court, Mt. Washington, KY

Riverfront Region:

103 Churchill Drive, Newport, KY

7300 Alexandria Pike, Alexandria, KY

164 Fairfield Avenue, Bellevue, KY

8730 US Highway 42, Florence, KY

34 N. Ft. Thomas Avenue, Ft. Thomas, KY

2911 Alexandria Pike, Highland Heights, KY

2774 Town Center Blvd., Crestview Hills, KY (leased)

Service Support Center

102 Bypass Plaza, Frankfort, KY

Other

201 W. Main Street, Frankfort, KY

The Company considers its properties to be suitable and adequate based on its present needs.

30

Item 3. Legal Proceedings

As of December 31, 2017, there were various pending legal actions and proceedings against the Company arising from the normal course of business and in which claims for damages are asserted. It is the opinion of management, after discussion with legal counsel, that the disposition or ultimate resolution of such claims and legal actions will not have a material effect upon the consolidated financial statements of the Company.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Beginning January 1, 2014, the Company changed the payment form of its board meeting fees and quarterly fees from 100% cash to 50% in cash and 50% in Company common stock. The shares are issued as part of a plan adopted by the board of directors. Each director has elected to participate by entering an agreement with the Company to accept common stock in lieu of cash for 50% of the director’s board meeting and quarterly fees. As the shares are only issued to directors as part of a plan approved by the board, the shares are exempt from the registration requirements of the Securities Act of 1933, as amended (the “1933 Act”), as a sale not involving any public offering under Section 4(2) of the 1933 Act. The value of the shares issued in payment is determined by the closing price of the Company’s common stock on the NASDAQ Global Select Market on the business trading day immediately preceding the meeting day for board meeting fees and the business trading day immediately preceding the first meeting of the quarter for each quarterly fee. Attendance for committee meetings continue to be paid completely in cash. As employee directors are not paid director’s fees, only non-employee directors receive stock under this plan.

During 2017, the Company issued a total of 2,635 shares of common stock to its non-employee directors under this plan as compensation for $105 thousand of director fees. The cash retained by the Company by issuing common stock in lieu of paying cash is used for general corporate purposes. There are no brokers involved in the issuance of stock to directors and no commissions or other broker fees are paid.

At various times, the Company’s Board of Directors has authorized the purchase of shares of the Company’s outstanding common stock. No stated expiration dates have been established under any of the previous authorizations. There were no shares of common stock repurchased by the Company during the quarter ended December 31, 2017. There are 84,971 shares that may still be purchased under the various authorizations, though no shares have been purchased since 2008.

Performance Graph

The following graph sets forth a comparison of the five-year cumulative total returns among the shares of Company Common Stock, the NASDAQ Composite Index ("broad market index"), and Southeastern Banks Under $1 Billion Market-Capitalization ("peer group index"). Cumulative shareholder return is computed by dividing the sum of the cumulative amount of dividends for the measurement period and the difference between the share price at the end and the beginning of the measurement period by the share price at the beginning of the measurement period.

The broad market index includes over 3,000 domestic and international based common shares listed on The NASDAQ Stock Market. The peer group index consists of 23 banking companies in the Southeastern United States. The Company is included among those in the peer group index.

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	2012		2013		2014		2015		2016		2017
Farmers Capital Bank Corporation	$	100.00	$	177.55	$	190.12	$	221.31	$	346.85	$	321.02
NASDAQ Composite		100.00		141.63		162.09		173.33		187.19		242.29
Southeastern Banks Under $1 Billion Market-Capitalization		100.00		144.38		164.09		196.89		251.71		240.67

Corporate Address

The headquarters of Farmers Capital Bank Corporation is located at:

202 West Main Street

Frankfort, Kentucky 40601

Direct correspondence to:

Farmers Capital Bank Corporation

P.O. Box 309

Frankfort, Kentucky 40602-0309

Phone: (502) 227-1668

www.farmerscapital.com

Annual Meeting

The annual meeting of shareholders of Farmers Capital Bank Corporation will be held Tuesday, May 8, 2018 at 11:00 a.m. at the main office of United Bank & Capital Trust Company, 125 West Main Street, Frankfort, Kentucky.

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Form 10-K

For a free copy of Farmers Capital Bank Corporation's Annual Report on Form 10-K filed with the Securities and Exchange Commission, please write:

Mark A. Hampton, Executive Vice President, Chief Financial Officer, and Secretary

Farmers Capital Bank Corporation

P.O. Box 309

Frankfort, Kentucky 40602-0309

Phone: (502) 227-1668

Web Site Access to Filings

All reports filed electronically by the Company with the United States Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available at no cost on the Company’s website at www.farmerscapital.com.

NASDAQ Market Participants

J.J.B. Hilliard, W.L. Lyons, LLC

(502) 588-8400

(800) 444-1854

Raymond James & Associates, Inc.

(800) 248-8863

UBS Securities, LLC

(859) 269-6900

(502) 420-7600

The Transfer Agent and Registrar for Farmers Capital Bank Corporation is American Stock Transfer & Trust Company, LLC.

American Stock Transfer & Trust Company, LLC

Shareholder Relations

6201 15^th Avenue

Brooklyn, NY 11219

Phone: (800) 937-5449

Fax: (718) 236-2641

Email: Info@amstock.com

Website: www.amstock.com

Additional information is set forth under the captions “Shareholder Information” and “Common Stock Price” on page 65 under Part II, Item 7 and Note 18 “Regulatory Matters” in the notes to the Company's 2017 audited consolidated financial statements on pages 109 to 110 of this Form 10-K and is hereby incorporated by reference.

33

Item 6. Selected Financial Data

Selected Financial Highlights
December 31, (In thousands, except per share data)	2017			2016			2015			2014			2013
Results of Operations
Interest income	$	59,286		$	59,371		$	61,236		$	64,352		$	66,733
Interest expense		3,510			6,755			8,641			10,153			11,995
Net interest income		55,776			52,616			52,595			54,199			54,738
Provision for loan losses		(211	)		(644	)		(3,429	)		(4,364	)		(2,600	)
Noninterest income		21,165			31,186			22,211			23,273			22,116
Noninterest expense		52,823			61,400			57,950			59,278			61,573
Income tax expense		12,641			6,441			5,293			6,099			4,435
Net income		11,688			16,605			14,992			16,459			13,446
Dividends and accretion on preferred shares		-			-			395			1,927			1,951
Net income available to common shareholders		11,688			16,605			14,597			14,532			11,495
Per Common Share Data
Basic and diluted net income	$	1.56		$	2.21		$	1.95		$	1.94		$	1.54
Cash dividends declared		.425			.31			-			-			-
Book value		25.72			24.51			23.43			21.75			18.73
Tangible book value1		25.72			24.51			23.43			21.69			18.61
Selected Ratios
Percentage of net income to:
Average shareholders’ equity (ROE)		6.07	%		8.94	%		8.61	%		9.30	%		7.97	%
Average total assets (ROA)		.70			.96			.84			.92			.74
Percentage of common dividends declared to net income		27.24			14.01			-			-			-
Percentage of average shareholders’ equity to average total assets		11.56			10.68			9.77			9.84			9.34
Total shareholders’ equity	$	193,353		$	184,066		$	175,698		$	172,929		$	170,055
Total assets		1,673,872			1,671,030			1,775,950			1,782,606			1,809,555
Long term borrowings2		37,496			53,437			169,250			168,694			176,850
Senior perpetual preferred stock		-			-			-			10,000			29,988
Weighted average common shares outstanding - basic and diluted		7,513			7,504			7,494			7,483			7,474

¹Represents total common equity less intangible assets divided by the number of common shares outstanding at the end of the period.

²Based on original term at time of borrowing.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Glossary of Financial Terms

Allowance for loan losses

A valuation allowance to offset credit losses specifically identified in the loan portfolio, as well as management’s best estimate of probable incurred losses in the remainder of the portfolio at the balance sheet date. Management estimates the allowance balance required using past loan loss experience, an assessment of the financial condition of individual borrowers, a determination of the value and adequacy of underlying collateral, the condition of the local economy, an analysis of the levels and trends of the loan portfolio, and a review of delinquent and classified loans. Actual losses could differ significantly from the amounts estimated by management.

Dividend payout ratio

Cash dividends declared on common shares, divided by net income.

Basis points

Each basis point is equal to one hundredth of one percent. Basis points are calculated by multiplying percentage points times 100. For example: 3.7 percentage points equals 370 basis points.

Interest rate sensitivity

The relationship between interest sensitive earning assets and interest bearing liabilities.

Net charge-offs

The amount of total loans charged off net of recoveries of loans that have been previously charged off.

Net interest income

Total interest income less total interest expense.

Net interest margin

Taxable equivalent net interest income expressed as a percentage of average earning assets.

Net interest spread

The difference between the taxable equivalent yield on earning assets and the rate paid on interest bearing funds.

Other real estate owned

Real estate not used for banking purposes. For example, real estate acquired through foreclosure.

Provision for loan losses

The charge against current income needed to maintain an adequate allowance for loan losses.

Return on average assets (ROA)

Net income (loss) divided by average total assets. Measures the relative profitability of the resources utilized by the Company.

Return on average equity (ROE)

Net income (loss) divided by average shareholders’ equity. Measures the relative profitability of the shareholders' investment in the Company.

Tax equivalent basis (TE)

Income from tax-exempt loans and investment securities has been increased by an amount equivalent to the taxes that would have been paid if this income were taxable at statutory rates. In order to provide comparisons of yields and margins for all earning assets, the interest income earned on tax-exempt assets is increased to make them fully equivalent to other taxable interest income investments.

Weighted average number of common shares outstanding

The number of shares determined by relating (a) the portion of time within a reporting period that common shares have been outstanding to (b) the total time in that period.

35

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following pages present management’s discussion and analysis of the consolidated financial condition and results of operations of Farmers Capital Bank Corporation (the “Company” or “Parent Company”), a financial holding company, its bank subsidiary, United Bank & Capital Trust Company (“United Bank” or the “Bank”) in Frankfort, Kentucky, and nonbank subsidiary, FFKT Insurance Services, Inc. (“FFKT Insurance”). In February 2017, the Company merged three of its subsidiary banks (United Bank & Trust Company [“United Versailles”] in Versailles, KY; First Citizens Bank, Inc. [“First Citizens”] in Elizabethtown, KY; and Citizens Bank of Northern Kentucky, Inc. [“Citizens Northern”] in Newport, KY) and its data processing subsidiary (FCB Services, Inc. [“FCB Services”] in Frankfort, KY) into its subsidiary bank Farmers Bank & Capital Trust Company (“Farmers Bank”) in Frankfort, KY, the name of which was immediately changed under the merger to United Bank & Capital Trust Company.All significant intercompany transactions and balances are eliminated in consolidation.

At year-end 2017, United Bank had two primary subsidiaries, which include EG Properties, Inc., and Farmers Capital Insurance Corporation (“Farmers Insurance”). EG Properties, Inc. is involved in real estate management and liquidation for certain repossessed properties of United Bank. Farmers Insurance is an insurance agency in Frankfort, KY. In May 2017, the Company merged the nonbank subsidiaries of each of its pre-merger subsidiary banks (EGT Properties, Inc. [“EGT Properties”], HBJ Properties, LLC [“HBJ Properties”], and ENKY Properties, Inc. [“ENKY”]) into EG Properties.

The Company had one active nonbank subsidiary at year-end 2017, FFKT Insurance, a captive insurance companythat provides property and casualty coverage to its subsidiaries for risk management purposes or where insurance may not be available or economically feasible. The Company has two subsidiaries organized as Delaware statutory trusts that were not consolidated into its financial statements. These trusts were formed for the purpose of issuing trust preferred securities.

For a complete list of the Company’s subsidiaries, please refer to the discussion under the heading “Organization” included in Part 1, Item 1 of this Form 10-K. The following discussion should be read in conjunction with the audited consolidated financial statements and related footnotes that follow.

Forward-Looking Statements

This report contains forward-looking statements with the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Statements in this report that are not statements of historical fact are forward-looking statements. In general, forward-looking statements relate to a discussion of future financial results or projections, future economic performance, the financial impact of the Tax Cuts and Jobs Act (“Tax Act”) on the Company’s results of operations, future operational plans and objectives, and statements regarding the underlying assumptions of such statements. Although management of the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate.

Various risks and uncertainties may cause actual results to differ materially from those indicated by the Company’s forward-looking statements. In addition to the risks described under Part 1, Item 1A “Risk Factors” in this report, factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its subsidiaries operate) and lower interest margins; competition for the Company’s customers from other providers of financial services; deposit outflows or reduced demand for financial services and loan products; government legislation, regulation, and changes in monetary and fiscal policies (which changes from time to time and over which the Company has no control); unanticipated effects from the Tax Act may limit its benefits; changes in interest rates; changes in prepayment speeds of loans or investment securities; inflation; material unforeseen changes in the liquidity, results of operations, or financial condition of the Company’s customers; changes in the level of non-performing assets and charge-offs; changes in the number of common shares outstanding; the capability of the Company to successfully enter into a definitive agreement for, close, and realize the benefits of anticipated transactions; unexpected claims or litigation against the Company; expected insurance or other recoveries; technological or operational difficulties; technological changes; changes in the reliability of our vendors, internal control systems or information systems; the impact of new accounting pronouncements and changes in policies and practices that may be adopted by regulatory agencies; political instability; acts of war or terrorism; the ability of the Parent Company to receive dividends from its subsidiaries; the impact of larger or similar financial institutions encountering difficulties, which may adversely affect the banking industry or the Company; the Company or its United Bank’s ability to maintain required capital levels and adequate funding sources and liquidity; and other risks or uncertainties detailed in the Company’s filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company.

36

The Company’s forward-looking statements are based on information available at the time such statements are made. The Company expressly disclaims any intent or obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or other changes.

Application of Critical Accounting Policies

The Company’s audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices applicable to the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility between reporting periods. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

The most significant accounting policies followed by the Company are presented in Note 1 of the Company’s 2017 audited consolidated financial statements. These policies, along with the disclosures presented in other financial statement notes and in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

Allowance for Loan Losses

The allowance for loan losses represents credit losses specifically identified in the loan portfolio, as well as management's estimate of probable incurred credit losses in the loan portfolio at the balance sheet date. Determining the amount of the allowance for loan losses and the related provision for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant changes. The loan portfolio also represents the largest asset group on the consolidated balance sheets. Additional information related to the allowance for loan losses that describes the methodology and risk factors can be found under the captions “Asset Quality” and “Nonperforming Assets” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as Notes 1 and 4 of the Company’s 2017 audited consolidated financial statements.

37

Fair Value Measurements

The carrying value of certain financial assets and liabilities of the Company is impacted by the application of fair value measurements, either directly or indirectly. Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In certain cases, an asset or liability is measured and reported at fair value on a recurring basis, such as investment securities classified as available for sale and money market mutual funds. In other cases, management must rely on estimates or judgments to determine if an asset or liability not measured at fair value warrants an impairment write-down or whether a valuation reserve should be established.

The Company estimates the fair value of a financial instrument using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. Active markets are those where transaction volumes are sufficient to provide objective pricing information with reasonably narrow bid/ask spreads and where quoted prices do not vary widely. When the financial instruments are not actively traded, other observable market inputs such as quoted prices of securities with similar characteristics may be used, if available, to determine fair value. Inactive markets are characterized by low transaction volumes, price quotations that vary substantially among market participants, or in which minimal information is released publicly.

When observable market prices do not exist, the Company estimates fair value primarily by using cash flow and other financial modeling methods. The valuation methods may also consider factors such as liquidity and concentration concerns. Other factors such as model assumptions, market dislocations, and unexpected correlations can affect estimates of fair value. Changes in these underlying factors, assumptions, or estimates in any of these areas could materially impact the amount of revenue or loss recorded.

Additional information regarding fair value measurements can be found in Notes 1 and 19 of the Company’s 2017 audited consolidated financial statements. The following is a summary of the Company’s more significant assets that may be affected by fair value measurements, as well as a brief description of the current accounting practices and valuation methodologies employed by the Company:

Available For Sale Investment Securities and Money Market Mutual Funds

Investment securities classified as available for sale and money market mutual funds are measured and reported at fair value on a recurring basis. These instruments are valued primarily by independent third party pricing services under the market valuation approach that include, but are not limited to, the following inputs:

● Mutual funds and equity securities are priced utilizing real-time data feeds from active market exchanges for identical securities; and

● Government-sponsored agency debt securities, obligations of states and political subdivisions, mortgage-backed securities, corporate bonds, and other similar investment securities are priced with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources.

At December 31, 2017, all of the Company’s available for sale investment securities and money market mutual funds were measured using observable market data.

Other Real Estate Owned

Other real estate owned (“OREO”) includes properties acquired by the Company through, or in lieu of, actual loan foreclosures and initially carried at fair value less estimated costs to sell. Fair value is generally based on third party appraisals of the property that includes comparable sales data. The carrying value of each OREO property is updated at least annually and more frequently when market conditions significantly impact the value of the property. If the carrying amount exceeds fair value less estimated costs to sell, an impairment loss is recorded through expense. OREO is subsequently accounted for at the lower of carrying amount or fair value less estimated costs to sell. At December 31, 2017, OREO was $5.5 million compared to $10.7 million at year-end 2016.

38

Impaired Loans

Loans are considered impaired when it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Impaired loans are measured at the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral based on recent appraisals if the loan is collateral dependent. If the value of an impaired loan is less than the unpaid balance, the difference is credited to the allowance for loan losses with a corresponding charge to provision for loan losses. Loan losses are charged against the allowance for loan losses when management believes the uncollectibility of a loan is confirmed.

Appraisals used in connection with valuing collateral-dependent loans may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraisers take absorption rates into consideration and adjustments are routinely made in the appraisal process to identify differences between the comparable sales and income data available. Such adjustments consist mainly of estimated costs to sell that are not included in certain appraisals or to update appraised collateral values as a result of market declines of similar properties for which a newer appraisal is available. These adjustments can be significant. Impaired loans were $23.1 million and $41.9 million at year-end 2017 and 2016, respectively.

EXECUTIVE LEVEL OVERVIEW

The Company offers a variety of financial products and services at its 34 banking locations in 21 communities throughout Central and Northern Kentucky. During the first quarter 2017, the Company completed the consolidation of its subsidiary banks and data processing subsidiary into one chartered commercial bank, United Bank. While benefiting from the resources of a large bank, United Bank continues to operate under a community banking philosophy. This philosophy focuses primarily on understanding the banking needs of those in our local and surrounding communities and providing them with competitively priced products and a high level of personalized service. The most significant products and services the Company offers include consumer and business lending, checking, savings, and other deposit accounts, automated teller machines, electronic bill payments, and providing trust services and other traditional banking products and services. The primary goals of the Company are to continually improve profitability and shareholder value, increase and maintain a strong capital position, provide excellent service to our customers through our community banking structure, and to provide a challenging and rewarding work environment for our employees.

During 2017, the Company focused on increasing productivity and lowering operating costs to increase profitability and value for its shareholders. As a result of the merger of the Company’s subsidiaries, salaries and employee benefits expenses declined $2.0 million, or 6.2%, to $30.3 million for the year. The decline is net of $1.4 million the Company reinvested into incentive plans and related payroll taxes for employees who met the qualifications of their plan.

The Company generates a significant amount of its revenue, cash flows, and net income from interest income and net interest income. The ability to properly manage net interest income under changing market environments is crucial to the success of the Company. During 2017, the Company took initiatives to improve its interest income and net interest income and build on the positive momentum of the initiatives taken during 2016. The series of transactions to deleverage the balance sheet during the last half of 2016 drove the increase in net interest margin in 2017. Average loans grew $31.4 million during the year and, as a percent of earnings assets, increased 400 basis points to 63.3%. The Company repositioned its investment securities portfolio in the fourth quarter of 2017 which, in addition to repositioning during the last half of 2016, drove an increase in the average yield of 9 basis points.

The Company’s loan portfolio increased for the third year in a row. Although loan balances increased, the Company continues its commitment to strong credit underwriting standards which has resulted in steady improvement in the overall credit quality of the portfolio and a decrease to the allowance for loan losses as a percent of the portfolio. Nonperforming loans are at the lowest level since the third quarter of 2007 and are down $92.5 million or 85.8% since peaking at $108 million in the first quarter of 2010.

Net income for 2017 declined compared to the prior yeardriven by an income tax expense adjustment of $5.9 million recorded during the fourth quarter of 2017 related to the Tax Act signed into law during December. The Tax Act lowered the corporate Federal income tax rate from 35% to 21% effective January 1, 2018.Accounting principles generally accepted in the United States of America (“GAAP”) require the Company to revalue its net deferred tax assets using the new rate and record the adjustment through income tax expense. While the reduced tax rates resulted in lower net income for the year, the Company expects to benefit from the lower rate in future periods.

39

For 2018, the Company will focus on stability and growth to increase profitability and shareholder value. In the coming year, the Company plans to fine tune operations at the newly consolidated subsidiary bank, increasing productivity and lowering operating costs. The overall economic and business environment outlook for 2018 is positive. In 2018, the Company intends to build on its recent loan growth and continue to reduce nonperforming assets. 

RESULTS OF OPERATIONS

The Company reported net income of $11.7 million or $1.56 per common share for 2017, a decrease of $4.9 million or 29.6% compared to $16.6 million or $2.21 per common share for 2016. Non-GAAP adjusted net income was $17.9 million or $2.38 per common share, an increase of $562 thousand or 3.2% compared to non-GAAP adjusted net income of $17.3 million or $2.31 per common share for 2016.

Non-GAAP adjusted net income for the current year excludes an income tax expense adjustment of $5.9 million recorded in the fourth quarter related to the Tax Act.The adjustment relates to revaluing its net deferred tax assets using the new lower corporate Federal income tax rate of 21% effective January 1, 2018, a reduction from the current rate of 35%. Non-GAAP adjusted net income also excludes pre-tax expenses of $472 thousand ($307 thousand after tax) in 2017 and $1.1 million ($697 thousand after tax) in 2016 related to the Company’s consolidation of its subsidiaries. Refer to the heading captioned “Use of Non-GAAP Financial Measures” for a reconciliation of non-GAAP financial measures.

Selected income statement amounts and related information is presented in the table below.

(In thousands, except per share data) Years Ended December 31,	2017			2016			Increase (Decrease)
Interest income	$	59,286		$	59,371		$	(85	)
Interest expense		3,510			6,755			(3,245	)
Net interest income		55,776			52,616			3,160
Provision for loan losses		(211	)		(644	)		433
Net interest income after provision for loan losses		55,987			53,260			2,727
Noninterest income		21,165			31,186			(10,021	)
Noninterest expenses		52,823			61,400			(8,577	)
Income before income taxes		24,329			23,046			1,283
Income tax expense		12,641			6,441			6,200
Net income	$	11,688		$	16,605		$	(4,917	)
Basic and diluted net income per common share	$	1.56		$	2.21		$	(.65	)
Cash dividends declared per common share		.425			.31			.115
Weighted average common shares outstanding – basic and diluted		7,513			7,504			9
Return on average assets		.70	%		.96	%		(26	) bp
Return on average equity		6.07	%		8.94	%		(287	) bp

bp – basis points.

The more significant components related to the Company’s results of operations are included below.

40

Use of Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with GAAP, the financial information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains non-GAAP financial measures, including adjusted net income and adjusted net income per common share. Adjusted net income and adjusted net income per common share reflect adjustments for expenses incurred in connection with the Company’s consolidation and integration of its subsidiaries announced during the third quarter of 2016. Additionally, adjusted net income and adjusted net income per common share exclude the income tax expense adjustment during the fourth quarter of 2017 of $5.9 million related to the Tax Act that was signed into law during December. Management believes providing these non-GAAP adjusted financial measures, combined with the primary GAAP presentation of net income and net income per common share, to be useful for investors to understand the Company’s results of operations in comparison to prior periods. It also considers them to be important supplemental measures of the Company’s performance. The non-GAAP financial measures should not be considered superior to, or a substitute for, financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP adjusted net income and non-GAAP adjusted net income per common share is included in the tables below.

The Company’s methods for determining these non-GAAP financial measures may differ from the methods used by other companies for these or similar non-GAAP financial measures. Accordingly, these non-GAAP financial measures may not be comparable to methods used by other companies.

Reconcilement of Non-GAAP Financial Measures

	Twelve Months Ended
(In thousands, except per share data)	December 31, 2017		December 31, 2016
Net income	$	11,688	$	16,605
Adjustments:
Noninterest expense1
Severance costs		195		391
Data processing and systems integration		95		187
Other		17		119
Income tax expense related to 2017 Tax Act		5,869		-
Adjusted net income	$	17,864	$	17,302
Basic and diluted net income per common share	$	1.56	$	2.21
Adjustments:
Noninterest expense1
Severance costs		.03		.05
Data processing and systems integration		.01		.03
Other		-		.02
Income tax expense related to 2017 Tax Act		.78		-
Adjusted basic and diluted net income per common share	$	2.38	$	2.31

¹All noninterest expense adjustments are net of tax using the 2017 marginal corporate Federal tax rate of 35%.

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Interest Income

Interest income results from interest earned on earning assets, which primarily includes loans and investment securities. Interest income is affected by volume (average balance), the composition of earning assets, and the related rates earned on those assets. Total interest income for 2017 was $59.3 million, a decrease of $85 thousand or 0.1% compared to $59.4 million for 2016. The decrease in interest income was driven by lower interest from investment securities of $1.4 million or 12.1%, partially offset by an increase in interest income on loans of $813 thousand or 1.7%. While the average rate earned on investment securities was up 9 basis points, the effect on interest income was more than offset by the negative impact of a decline in the average balance of $82.9 million. The increase in interest income on loans was driven by a higher average loan balance outstanding of $31.4 million, partially offset by lower average rate earned of seven basis points to 4.93%.

The overall interest rate environment at year-end 2017, as measured by the Treasury yield curve, remains at very low levels when compared with historical trends. During the year,the shape of the yield curve flattened as a result of yields on short-term maturities increasing while yields on longer-term maturities declined. The most significant change was a 92 basis point increase in the yield for the six-month maturity period. The two and three-year maturities increased 70 and 52 basis points, respectively, while yields on the ten and thirty-year maturities decreased 4 and 33 basis points, respectively. At year-end 2017, the short-term federal funds interest rate target range was between 1.25% and 1.50%, which increased 75 basis points during the year (25 basis points in each of March, June, and December) from the target at year-end 2016 of 0.50% to 0.75%. The Federal Reserve Board (“Federal Reserve”) has indicated that it will continue to assess realized and expected economic conditions relative to its objective of maximum employment and two percent inflation when determining the timing and size of future adjustments to the target rate. At December 31, 2017, the national and Kentucky unemployment rates were 4.1% and 4.4%, respectively. While the national inflation rate was 2.1% at both year-end 2017 and 2016, the average inflation rate for 2017 was also 2.1%, up from 1.3% in 2016, based on the Consumer Price Index published by the Bureau of Labor Statistics.

Interest Expense

Interest expense results from interest bearing liabilities, which are made up of interest bearing deposits, federal funds purchased, securities sold under agreements to repurchase, and other borrowed funds. Interest expense is affected by volume, composition of interest bearing liabilities, and the related rates paid on those liabilities. Total interest expense was $3.5 million for 2017, a decrease of $3.2 million or 48.0% compared to $6.8 million for 2016. The decrease in interest expense is attributed primarily to lower interest on securities sold under agreements to repurchase of $2.9 million or 97.4%, primarily due to the early repayment of $100 million of high fixed-rate borrowings during the third quarter of 2016 and, to a lesser extent, the maturity of $15.0 million of Federal Home Loan Bank advances during the year. Interest expense on deposits declined $219 thousand or 9.3%. Lower volume and rates on time deposits drove the decrease, which was partially offset by an increase in rates paid on interest bearing demand deposits of eight basis points. The Company has continued to aggressively reprice higher-rate maturing time deposits downward to lower market rates or to allow them to mature without renewal.

Net Interest Income

Net interest income is the most significant component of the Company’s operating earnings. Net interest income is the excess of the interest income earned on earning assets over the interest paid for funds to support those assets. The two most common metrics used to analyze net interest income are net interest spread and net interest margin. Net interest spread represents the difference between the taxable equivalent yields on earning assets and the rates paid on interest bearing liabilities. Net interest margin represents the percentage of taxable equivalent net interest income to average earning assets. Net interest margin will exceed net interest spread because of the existence of noninterest bearing sources of funds, principally demand deposits and shareholders’ equity, which are also available to fund earning assets.

Changes in net interest income and margin result from the interaction between the volume and composition of earning assets, their related yields, and the associated cost and composition of the interest bearing liabilities. Accordingly, portfolio size, composition, and the related yields earned and the average rates paid have a significant impact on net interest spread and margin. The table following this discussion represents the major components of interest earning assets and interest bearing liabilities on a tax equivalent basis. To compare the tax-exempt asset yields to taxable yields, amounts in the table are adjusted to pretax equivalents based on the 2017 marginal corporate Federal tax rate of 35%.

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Tax equivalent net interest income was $57.2 million for 2017, an increase of $3.1 million or 5.7% compared to $54.1 million for 2016. Net interest margin was 3.67% for 2017, up 31 basis points from 3.36% for the prior year. Net interest spread increased 36 basis point to 3.57% for 2017 from 3.21% for 2016. The increase in net interest margin and spread was due mainly to a 24 basis point decline in cost of funds to 0.32%.

As part of its strategy to improve net interest income and net interest margin, the Company completed a series of transactions during the last half of 2016 to deleverage its balance sheet and reposition its investment securities portfolio. The Company used a mixture of $10.4 million of excess cash and $93.4 million of proceeds from the sale of investment securities to prepay $100 million of high fixed-rate borrowings that were due to mature in November 2017. The Company incurred a prepayment fee of $3.8 million, which was offset by a gain in the same amount on the sale of investment securities. The average yield on the mix of cash and investment securities sold to fund the debt prepayment was 2.97%. The average cost of the fixed rate borrowings that were repaid was 3.95%. The Company also took action during the last half of 2016 to reposition its investment securities portfolio by replacing approximately $78 million of certain lower yielding, short-term investments with longer-term, higher-yielding investments consistent with a more normalized strategy and maturity periods. The lower yielding short-term investments had been built up in anticipation of the November 2017 debt repayment. The average yield on the investments identified for the repositioning strategy was 0.85% compared to a targeted reinvestment yield of 1.85%.

During the fourth quarter of 2017, the Company again refined the investment portfolio, replacing $76.5 million of lower-yielding investment securities. The sale of investment securities resulted in a net loss of $3 thousand. However, this increased the yield on the investments portfolio by 11 basis points.

The Company actively monitors and proactively manages the rate sensitive components of both its assets and liabilities in a continuously changing and difficult market environment. Competition in the Company’s market areas continues to be intense, and market interest rates remain very low by historical measures. During 2017, the Federal Reserve increased the short-term federal funds target rate 75 basis points, compared to a 25 basis point increase during each of 2016 and 2015. The Federal Reserve has indicated that it continues to expect only gradual adjustments in its stance on monetary policy relative to longer term expectations.

Similar to the short-term federal funds target rate, the prime interest rate rose 75 basis points during 2017 (25 basis points in each of March, June, and December). The Company uses the prime interest rate as part of its pricing model primarily on variable rate commercial real estate loans. The prime interest rate can have a significant impact on the Company’s interest income from loans that reprice based on changes to this rate. The Company’s variable interest rate loans contain provisions that limit the amount of increase or decrease in the interest rate during the life of a loan. This will limit the increase or decrease in interest income on loans that have interest rates tied to the prime interest rate. For 2017, the average yield earned on loans was 4.93%, which exceeded the prime interest rate of 4.50% at year-end. Predicting the direction and timing of future interest rates is uncertain.

For 2017, the average rate of the Company’s most significant component of interest income, loans, and the most significant component of interest expense, time deposits, both declined. The average rate earned on the Company’s loan portfolio for 2017 declined seven basis points to 4.93% and the average rate paid on time deposits decreased nine basis points to 0.45% compared to 2016. The Company expects its net interest margin to trend slightly upward in 2018 as compared to 2017 according to internal modeling using expectations about future market interest rates, loan volume, the maturity structure of the Company’s earning assets and liabilities, and other factors. Future results, however, could be significantly different than expectations.

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Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential

Years Ended December 31,	2017									2016									2015
	Average						Average			Average						Average			Average						Average
(In thousands)	Balance			Interest			Rate			Balance			Interest			Rate			Balance			Interest			Rate
Earning Assets
Investment securities1
Taxable	$	362,748		$	7,787			2.15	%	$	438,106		$	8,969			2.05	%	$	493,594		$	10,468			2.12	%
Nontaxable2		115,319			3,386			2.94			122,820			3,660			2.98			130,548			3,974			3.04
Interest bearing deposits with banks, federal funds sold and securities purchased under agreements to resell, and money market mutual funds		94,878			899			.95			95,629			418			.44			90,135			192			.21
Loans 2,3,4		987,877			48,666			4.93			956,463			47,831			5.00			933,260			48,257			5.17
Total earning assets		1,560,822		$	60,738			3.89	%		1,613,018		$	60,878			3.77	%		1,647,537		$	62,891			3.82	%
Allowance for loan losses		(9,389	)								(9,593	)								(12,255	)
Total earning assets, net of allowance for loan losses		1,551,433									1,603,425									1,635,282
Nonearning Assets
Cash and due from banks		24,020									23,275									23,639
Premises and equipment, net		31,594									32,491									34,145
Other assets		59,707									78,616									89,854
Total assets	$	1,666,754								$	1,737,807								$	1,782,920
Interest Bearing Liabilities
Deposits
Interest bearing demand	$	356,023		$	576			.16	%	$	334,818		$	256			.08	%	$	334,281		$	200			.06	%
Savings		418,507			467			.11			407,353			506			.12			385,932			496			.13
Time		245,215			1,093			.45			296,258			1,593			.54			356,419			2,265			.64
Federal funds purchased		19			-			-			153			1			.65			24			-			-
Short-term securities sold under agreements to repurchase		34,180			70			.20			35,328			98			.28			30,380			50			.16
Long-term securities sold under agreements to repurchase		883			7			.79			71,851			2,843			3.96			101,171			4,012			3.97
Federal Home Loan Bank advances		11,098			427			3.85			18,863			735			3.90			18,883			752			3.98
Subordinated notes payable to unconsolidated trusts		33,506			870			2.60			34,545			723			2.09			48,970			866			1.77
Total interest bearing liabilities		1,099,431		$	3,510			.32	%		1,199,169		$	6,755			.56	%		1,276,060		$	8,641			.68	%
Noninterest Bearing Liabilities
Demand deposits		347,355									324,596									304,516
Other liabilities		27,343									28,374									28,220
Total liabilities		1,474,129									1,552,139									1,608,796
Shareholders’ equity		192,625									185,668									174,124
Total liabilities and shareholders’ equity	$	1,666,754								$	1,737,807								$	1,782,920
Net interest income					57,228									54,123									54,250
TE basis adjustment					(1,452	)								(1,507	)								(1,655	)
Net interest income				$	55,776								$	52,616								$	52,595
Net interest spread								3.57	%								3.21	%								3.14	%
Impact of noninterest bearing sources of funds								.10									.15									.15
Net interest margin								3.67	%								3.36	%								3.29	%

¹Average yields on securities available for sale have been calculated based on amortized cost.

²Income and yield stated at a fully tax equivalent basis using the marginal corporate Federal tax rate of 35%.

³Loan balances include principal balances on nonaccrual loans.

⁴Loan fees included in interest income amounted to $1.3 million, $1.4 million, and $1.3 million for 2017, 2016, and 2015.

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The following table is an analysis of the change in net interest income.

Analysis of Changes in Net Interest Income (tax equivalent basis)

	Variance			Variance Attributed to						Variance			Variance Attributed to
(In thousands)	2017/20161			Volume			Rate			2016/20151			Volume			Rate
Interest Income
Taxable investment securities	$	(1,182	)	$	(1,603	)	$	421		$	(1,499	)	$	(1,158	)	$	(341	)
Nontaxable investment securities2		(274	)		(225	)		(49	)		(314	)		(236	)		(78	)
Interest bearing deposits with banks, federal funds sold and securities purchased under agreements to resell, and money market mutual funds		481			(3	)		484			226			12			214
Loans2		835			1,525			(690	)		(426	)		1,183			(1,609	)
Total interest income		(140	)		(306	)		166			(2,013	)		(199	)		(1,814	)
Interest Expense
Interest bearing demand deposits		320			19			301			56			-			56
Savings deposits		(39	)		10			(49	)		10			37			(27	)
Time deposits		(500	)		(254	)		(246	)		(672	)		(349	)		(323	)
Federal funds purchased		(1	)		-			(1	)		1			-			1
Short-term securities sold under agreements to repurchase		(28	)		(3	)		(25	)		48			9			39
Long-term securities sold under agreements to repurchase		(2,836	)		(1,566	)		(1,270	)		(1,169	)		(1,159	)		(10	)
Federal Home Loan Bank advances		(308	)		(299	)		(9	)		(17	)		(1	)		(16	)
Subordinated notes payable to unconsolidated trusts		147			(23	)		170			(143	)		(283	)		140
Total interest expense		(3,245	)		(2,116	)		(1,129	)		(1,886	)		(1,746	)		(140	)
Net interest income	$	3,105		$	1,810		$	1,295		$	(127	)	$	1,547		$	(1,674	)
Percentage change		100.0	%		58.3	%		41.7	%		100.0	%		(1,218.1	)%		1,318.1	%

¹The changes which are not solely due to rate or volume are allocated on a percentage basis using the absolute values of rate and volume variances as a basis for allocation.

²Income stated at fully tax equivalent basis using the marginal corporate Federal tax rate of 35%.

Provision for Loan Losses

The Company recorded a credit to the provision for loan losses in the amount of $211 thousand and $644 thousand for 2017 and 2016, respectively. The lower credit is due to greater improvement in historical loss rates in the prior year compared to the current year and the increase in specific reserves allocated to impaired loans during the current year, partially offset by net recoveries. While historical loss rates continued to be low, the effect of the improvement in loss rates on the allowance for loan losses has diminished now that the higher levels experienced during 2008 through the first quarter of 2014 have already rolled out of the three year look-back period used when evaluating the allowance for loan losses. Although impaired loans declined $18.8 million during 2017, the specific reserves on impaired loans increased $234 thousand primarily due to a single credit relationship secured by a combination of real estate development and residential real estate properties.

Net recoveries were $650 thousand for 2017 compared to net charge-offs of $327 thousand for 2016. Net recoveries were 0.07% of average loans outstanding for 2017 compared to 0.03% for the net charge-offs in the prior year. Net recoveries during 2017, include $1.3 million from a real estate development project. The Company recorded a total of $2.1 million in principal charge-offs between 2010 and 2012 related to this project and anticipates it could receive an additional $575 thousand in recoveries related to this credit. The timing and amount of these possible recoveries are subject to change and are dependent on the price and volume of lots sold by the developer, however, the Company expects to receive the recoveries during the first half of 2018.

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The allowance for loan losses as a percentage of outstanding loans was 0.94% at December 31, 2017 compared to 0.96% at year-end 2016. Further information about improvements in the Company’s overall credit quality is included under the captions “Allowance for Loan Losses” and “Nonperforming Loans” that follows.

Noninterest Income

The components of noninterest income are as follows for the periods indicated:

(Dollars in thousands) Years Ended December 31,	2017		2016		Increase (Decrease)			%
Service charges and fees on deposits	$	7,987	$	7,856	$	131			1.7	%
Allotment processing fees		2,716		3,232		(516	)		(16.0	)
Other service charges, commissions, and fees		5,347		5,558		(211	)		(3.8	)
Trust income		2,704		2,664		40			1.5
Net gain on sales of available for sale investment securities		20		3,998		(3,978	)		(99.5	)
Net gain on sales of cost method investment securities		82		-		82			NM
Gain on sale of mortgage loans, net		662		942		(280	)		(29.7	)
Income from company-owned life insurance		1,138		1,016		122			12.0
Gain on debt extinguishment		-		4,050		(4,050	)		(100.0	)
Legal settlement		-		1,450		(1,450	)		(100.0	)
Other		509		420		89			21.2
Total noninterest income	$	21,165	$	31,186	$	(10,021	)		(32.1	)%

NM – not meaningful.

The more significant items impacting noninterest income in the annual comparison are included below.

● Service charges and fees on deposits increased primarily due to higher service charges related to demand deposits and savings accounts of $126 thousand or 12.9% and $62 thousand or 65.5%, respectively, partially offset by lower dormant account fees of $56 thousand or 2.1%. During the second quarter of 2016, the Company standardized and reduced the number of its deposit account product offerings throughout each of its markets. This has contributed to higher overall service charges since completion.

● Allotment processing fees are down 16.0% in the comparison primarily due to lower volume stemming from the U.S. Department of Defense policy that became effective January 1, 2015, restricting the types of purchases active service members are able to make using the military allotment system for payment.The rate of decline in allotment processing fees began to subside during 2017, as existing contracts for the types of purchases affected by the new policy have steadily decreased and the Company continues its efforts to diversify its customer base and expand its payment processing options.

● The net gain on investment securities in the prior year relates primarily to the series of transactions during the last half of 2016 to deleverage and reposition the balance sheet discussed earlier under the caption “Net Interest Income” above, which completely offset the related loss during 2016 on the early repayment of long-term borrowings.

● Net gains on the sale of cost method investment securities during 2017 relates to the sale of stock held in connection with a correspondent banking relationship that ended during 2017.

● Net gains on the sale of mortgage loans were down mainly due to lower sales volume of $12.2 million or 33.3%.

● The increase in income from company-owned life insurance was driven by a $245 thousand tax-free death benefit that exceeded the cash surrender value during the current year, partially offset by a similar benefit received during the prior-year first quarter of $81 thousand.

● The gain on debt extinguishment during the prior year relates to the early extinguishment of $15.5 million of debt under favorable market conditions to the Company during the first quarter of 2016.

● During 2016, the Company received $1.5 million related to a litigation settlement; no similar transaction occurred in the current year.

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Noninterest Expense

The components of noninterest expense are as follows for the periods indicated:

(Dollars in thousands) Years Ended December 31,	2017		2016		Increase (Decrease)			%
Salaries and employee benefits	$	30,296	$	32,296	$	(2,000	)		(6.2	)%
Occupancy expenses, net		4,672		4,742		(70	)		(1.5	)
Equipment expenses		2,379		2,403		(24	)		(1.0	)
Data processing and communication expenses		4,571		4,596		(25	)		(0.5	)
Bank franchise tax		2,325		2,421		(96	)		(4.0	)
Deposit insurance expense		520		841		(321	)		(38.2	)
Other real estate expenses, net		845		2,189		(1,344	)		(61.4	)
Legal expenses		86		474		(388	)		(81.9	)
Loss on debt extinguishment		-		3,776		(3,776	)		(100.0	)
Other		7,129		7,662		(533	)		(7.0	)
Total noninterest expense	$	52,823	$	61,400	$	(8,577	)		(14.0	)%

The more significant items impacting noninterest expenses in the annual comparison are included below.

● Employee benefits decreased $1.5 million or 26.7%, primarily due to lower claims activity related to the Company’s self-funded health insurance plan of $951 thousand or 17.9% and a curtailment gain of $351 thousand as a result of revaluing the Company’s postretirement benefits plan liability, each due to a reduction in workforce occurring in the first quarter of 2017. The reduced workforce also drove the decline in salaries and related payroll taxes of $1.6 million or 6.0%. Severance pay accruals related to the consolidation were $301 thousand for 2017, down $301 thousand or 50.0% from 2016. These declines were partially offset by $1.4 million of incentive pay accruals in the current year. The Company had 426 full time equivalent employees at year-end 2017, down from 472 a year earlier.

● The decline in occupancy expenses was driven by lower depreciation expense of $70 thousand or 2.7%.

● Bank franchise tax expense declined due to a lower assessment base, which is based primarily on the five-year average of the Bank’s capital, net of certain deductions.

● The decrease to deposit insurance expense for 2017 is primarily the result of the Federal Deposit Insurance Corporation (“FDIC”) lowering assessment rates beginning in the third quarter of 2016.

● Other real estate expenses declined as a combination of a net gain on property sales of $208 thousand in 2017 compared to a net loss of $473 thousand in 2016, and lower impairment charges of $658 thousand or 45.3%.

● The decrease in legal expenses was led by the receipt of a $197 thousand insurance payment during the third quarter of 2017 as reimbursement for expenses previously incurred.

● The $3.8 million loss related to the early extinguishment of debt during the third quarter of 2016 was completely offset by the net gain on the sale of investment securities discussed under the “Noninterest Income” caption above. No similar transactions occurred in the current year.

● Included in other noninterest expense is $504 thousand of directors’ fees in 2017, down $183 thousand or 26.7% compared to 2016. The decline is mainly attributable to having fewer boards of directors due to the consolidation of subsidiaries during the first quarter of 2017. Other noninterest expenses include amounts related to the consolidation of the Company’s subsidiaries of $22 thousand for 2017, down $161 thousand or 88.0% from $183 thousand in 2016.

Income Taxes

Income tax expense was $12.6 million for 2017, an increase of $6.2 million compared to $6.4 million for 2016. For 2017, income tax expense includes $5.9 million related to the 2017 Tax Act, which increased the effective income tax rate by 24.1 percentage points. The effective income tax rate for the current year was 52.0% compared to 27.9% for 2016. The effective income tax rate for 2016 is lower than the U.S. statutory federal rate of 35% primarily as a result of tax-exempt interest income from loans and investment securities, income from life insurance policies, and premium income associated with the Company’s captive insurance subsidiary.

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FINANCIAL CONDITION

Total assets of the Company were $1.7 billion at year-end 2017, up $2.8 million or 0.2% compared with year-end 2016. The Company’s overall financial condition continued to improve in the current year with loan growth of $64.3 million or 6.6% to $1.0 billion at year-end 2017. Total nonperforming assets were $20.9 million and $40.0 million at year-end 2017 and 2016, respectively. Nonperforming assets have declined $114 million or 84.5% from their peak of $135 million in the first quarter of 2010. Loan quality metrics continued to improve throughout 2017, and regulatory capital levels remain significantly above the “well-capitalized” threshold.

Temporary Investments

Temporary investments consist of interest bearing deposits in other banks, federal funds sold and securities purchased under agreements to resell, and money market mutual funds. The Company uses these funds in the management of liquidity and interest rate sensitivity or as a short-term holding prior to subsequent movement into other investments with higher yields or for other purposes. At December 31, 2017, temporary investments were $94.8 million, an increase of $7.0 million or 7.9% compared to $87.9 million at year-end 2016.

Investment Securities

The investment securities portfolio is comprised primarily of residential mortgage-backed securities, tax-exempt securities of states and political subdivisions, and debt securities issued by U.S. government-sponsored agencies. Substantially all of the Company’s investment securities are designated as available for sale. Total investment securities had a carrying amount of $428 million at year-end 2017, a decrease of $56.7 million or 11.7% compared to $484 million at year-end 2016.

The decrease in investment securities was driven by loan demand as net proceeds from maturities, calls, and sales in excess of purchases were used to fund higher-earning loans. Maturities, calls, and sales of $188 million in the aggregate outpaced purchases totaling $134 million. The remainder of the decrease in investment securities was due to $3.4 million of net premium amortization, partially offset by a $732 thousand decline in the net unrealized loss on securities classified as available for sale. The decrease in the amount of net unrealized loss on available for sale securities is attributed to the decline in longer-term market interest rates, which was more impactful than the increase in shorter-term interest rates.In general, as market interest rates fall, the value of fixed rate investments increase. The smaller portfolio also contributed to the decline in net unrealized loss.

At year-end 2017, the net unrealized loss on investment securities was $4.3 million, an improvement of $737 thousand or 14.6% from $5.1 million at year-end 2016. The Company attributes the unrealized losses in the investment securities portfolio to changes in market interest rates and volatility, and thus identifies them as temporary. As discussed further above, market interest rates generally increased throughout 2017. Investment securities with an unrealized loss at December 31, 2017 are performing according to their contractual terms, and the Company does not expect to incur a loss on these securities unless they are sold prior to maturity. The Company does not have the intent to sell these securities nor does it believe it is likely that it will be required to sell these securities prior to their anticipated recovery. The Company does not consider any of the securities to be impaired due to reasons of credit quality or other factors.All investment securities in the Company’s portfolio are currently performing.

Proceeds received from maturing or called investment securities are used to fund higher-earning loans, reinvested in similar investments or used to manage liquidity, such as for deposit outflows or other payment obligations. The Company periodically sells investment securities in response to its overall asset/liability management strategy to lock in gains, increase yield, restructure expected future cash flows, and/or enhance its capital position. The purchase of nontaxable obligations of states and political subdivisions is one of the primary means of managing the Company’s tax position. The Company does not have direct exposure to the subprime mortgage market. The Company does not originate subprime mortgages nor has it invested in bonds that are secured by such mortgages.

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The following table summarizes the carrying values of investment securities on December 31, 2017, 2016, and 2015. Available for sale securities are carried at estimated fair value and held to maturity securities are carried at amortized cost. Corporate debt securities consist primarily of debt issued by a large global financial services firm. Mutual funds and equity securities are attributed to the Company’s captive insurance subsidiary.

December 31,	2017				2016				2015
(In thousands)	Available for Sale		Held to Maturity		Available for Sale		Held to Maturity		Available for Sale		Held to Maturity
Obligations of U.S. government-sponsored entities	$	43,208	$	-	$	71,694	$	-	$	106,906	$	-
Obligations of states and political subdivisions		114,249		3,364		132,292		3,488		150,266		3,611
Mortgage-backed securities – residential		193,393		-		224,307		-		297,861		-
Mortgage-backed securities – commercial		49,352		-		45,613		-		20,584		-
Asset-backed securities		15,574		-		-		-		-		-
Corporate debt securities		7,542		-		6,125		-		5,840		-
Mutual funds and equity securities		935		-		833		-		745		-
Total	$	424,253	$	3,364	$	480,864	$	3,488	$	582,202	$	3,611

The following table presents an analysis of the contractual maturity and tax equivalent weighted average interest rates of investment securities at December 31, 2017. Available for sale securities are stated at estimated fair value and held to maturity securities are stated at amortized cost. Mortgage-backed securities are included in maturity categories based on their stated maturity dates. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mutual funds and equity securities have no stated maturity date and are not included in the table.

Available for Sale

	Within One Year					After One But Within Five Years					After Five But Within Ten Years					After Ten Years
(In thousands)	Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate
Obligations of U.S. government-sponsored entities	$	14,081		1.1	%	$	5,233		1.6	%	$	22,412		2.0	%	$	1,482		2.2	%
Obligations of states and political subdivisions		12,194		3.3			44,955		2.8			39,509		3.0			17,591		3.5
Mortgage-backed securities – residential		-		-			7,331		1.6			25,498		1.7			160,564		2.5
Mortgage-backed securities – commercial		-		-			6,241		1.4			24,333		1.9			18,778		2.8
Asset-backed securities		-		-			-		-			376		1.9			15,198		2.1
Corporate debt securities		1,001		1.2			488		2.0			154		2.9			5,899		2.9
Total	$	27,276		2.1	%	$	64,248		2.4	%	$	112,282		2.3	%	$	219,512		2.5	%

Held to Maturity

						After One But					After Five But
	Within One Year					Within Five Years					Within Ten Years					After Ten Years
(In thousands)	Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate
Obligations of states and political subdivisions	$	-		-	%	$	-		-	%	$	1,322		4.7	%	$	2,156		3.3	%

The calculation of the weighted average interest rates for each category is based on the weighted average amortized cost of the securities. The weighted average tax rates on exempt state and political subdivisions are computed based on the 2017 marginal corporate Federal tax rate of 35%.

49

Loans

Loans, net of unearned income, were $1.0 billion at December 31, 2017, an increase of $64.3 million or 6.6% compared to year-end 2016. While recent loan demand and near term prospects are encouraging, the Company continues a conservative approach to loan originations. The loan portfolio grew in three of the four quarters in 2017, with the majority of the growth occurring during the fourth quarter. Loan payments during the year include $2.3 million related to nonaccrual loans and $725 thousand related to performing restructured loans.

From time to time the Company may purchase a limited amount of loans originated by otherwise nonaffiliated third parties. The Company performs its own risk assessment and makes the credit decision on each loan prior to purchase. The Company purchased smaller balance commercial loans totaling $2.8 million and $2.5 million in the aggregate during 2017 and 2016, respectively. The average individual balance of the purchased loans was $123 thousand for 2017 and $120 thousand for 2016.

The composition of the loan portfolio is summarized in the table that follows. Based on economic forecasts and other available information, the Company expects continued gradual improvements to the local and regional economy during the coming year. An improving economy, particularly where the labor force participation rates increase, could lead to continued growth in the loan portfolio.

December 31, (In thousands)	2017		%			2016		%			2015		%			2014		%			2013		%
Real estate mortgage – construction and land development	$	129,181		12.5	%	$	120,230		12.4	%	$	115,516		12.0	%	$	97,045		10.4	%	$	101,352		10.1	%
Real estate mortgage – residential		355,304		34.3			350,295		36.1			355,134		37.0			361,022		38.7			371,582		37.2
Real estate mortgage – farmland and other commercial enterprises		432,321		41.8			400,367		41.2			386,386		40.3			375,277		40.3			418,147		41.8
Commercial, financial, and agricultural		110,542		10.7			90,848		9.4			89,820		9.4			85,028		9.1			92,827		9.3
Installment		7,915		.7			9,235		.9			12,419		1.3			13,413		1.5			15,092		1.5
Lease financing		-		-			-		-			-		-			158		-			883		.1
Total	$	1,035,263		100.0	%	$	970,975		100.0	%	$	959,275		100.0	%	$	931,943		100.0	%	$	999,883		100.0	%

On an average basis, loans represented 63.3% of earning assets for 2017, an increase of 400 basis points compared to 59.3% for 2016. As loan demand changes, available funds are reallocated between temporary investments or investment securities, which typically involve lower credit risk and yields. The Company does not have direct exposure to the subprime mortgage market. The Company does not originate subprime mortgages nor has it invested in bonds that are secured by such mortgages. Subprime mortgage lending is defined by the Company generally as lending to a borrower that would not qualify for a mortgage loan at prevailing market rates or whereby the underwriting decision is based on limited or no documentation of the ability to repay.

The following table presents the amount of commercial, financial, and agricultural loans and loans secured by real estate outstanding at December 31, 2017 which, based on remaining scheduled repayments of principal, are due in the periods indicated.

Loan Maturities

(In thousands)	Within One Year		After One But Within Five Years		After Five Years		Total
Real estate mortgage – construction and land development	$	42,697	$	51,408	$	35,076	$	129,181
Real estate mortgage – residential		22,493		57,496		275,315		355,304
Real estate mortgage – farmland and other commercial enterprises		27,886		158,058		246,377		432,321
Commercial, financial, and agricultural		42,265		38,765		29,512		110,542
Total	$	135,341	$	305,727	$	586,280	$	1,027,348

50

The table below presents the amount of commercial, financial, and agricultural loans and loans secured by real estate outstanding at December 31, 2017 that are due after one year, classified according to sensitivity to changes in interest rates.

Interest Sensitivity

	Fixed		Variable
(In thousands)	Rate		Rate
Due after one but within five years	$	245,791	$	59,936
Due after five years		144,622		441,658
Total	$	390,413	$	501,594

Asset Quality

The Company’s loan portfolio is subject to varying degrees of credit risk. Credit risk is mitigated by diversification within the portfolio, limiting exposure to any single customer or industry, rigorous lending policies and underwriting criteria, and collateral requirements. The Company maintains policies and procedures to ensure that the granting of credit is done in a sound and consistent manner. The Company’s internal audit department performs loan reviews during the year to evaluate loan administration, credit quality, documentation, compliance with Company loan standards, and the adequacy of the allowance for loan losses.

The provision for loan losses represents charges or credits made to earnings to maintain an allowance for loan losses at a level considered adequate to provide for probable incurred credit losses at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses and related provision for loan losses generally fluctuate relative to the level of nonperforming and impaired loans, but other factors impact the amount of the allowance. The Company estimates the adequacy of the allowance using a risk-rated methodology based on the Company’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral securing loans, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires significant judgment and the use of estimates that may be susceptible to change.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current risk factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Actual loan losses could differ significantly from the amounts estimated by management.

The general portfolio is segregated into portfolio segments having similar risk characteristics identified as follows: real estate loans, commercial loans, and consumer loans. Each of these portfolio segments is assigned a loss percentage based on their respective rolling historical loss rates, adjusted for the qualitative risk factors summarized below. During the first quarter of 2017, the Company shortened the look-back period it uses to determine historical loss rates to the previous twelve quarters from sixteen quarters. The change in the look-back period is the result of the Company’s ongoing monitoring and evaluation of the adequacy of its allowance for loan losses. The shorter look-back period better reflects the Company’s loss estimates based on current market conditions. Shortening the look-back period increased the allowance for loan losses by $49 thousand compared to the previous sixteen quarter look-back period.

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The qualitative risk factors used in the methodology are consistent with the guidance in the most recent Interagency Policy Statement on the Allowance for Loan Losses issued. Each factor is supported by a detailed analysis and is both measureable and supportable. Some factors include a minimum allocation in instances where loss levels are extremely low and it is determined to be prudent from a safety and soundness perspective. Qualitative risk factors that are used in the methodology include the following for each loan portfolio segment:

●	Delinquency trends	●	Management experience risk
●	Trends in net charge-offs	●	Concentration of credit risk
●	Trends in loan volume	●	Economic conditions risk
●	Lending philosophy risk

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

While the overall economy experienced further improvement in 2017, the Company continued its steady progress in reducing its level of nonperforming assets. The recessionary period between 2007 and 2009 (the “Recession”) resulted in an accumulation of nonperforming assets and significant deterioration in the Company’s credit quality and collateral values, primarily in residential real estate lending. Credit quality has improved significantly over the last few years, as loan underwriting standards have been strengthened. Additionally, nonperforming asset levels have declined 85% from the peak that occurred in 2010. Overall economic growth is improving and key economic measures have largely recovered from the Recession. In Kentucky, housing starts continue to gradually increase and foreclosure rates are at the lowest rate since 2007. At year-end 2017, the national and Kentucky unemployment rate was 4.1% and 4.4%, respectively.

With the continued improvement in the credit quality of the loan portfolio, the level of nonperforming assets are at the lowest level since the third quarter of 2007. Nonperforming loans were $15.4 million at year-end, a decrease of $14.0 million for the year and $92.5 million or 85.8% since peaking at $108 million in the first quarter of 2010. The Company includes accruing restructured loans as a component of its nonperforming loans. Such loans were $11.5 million at year-end 2017 and account for 74.7% of nonperforming loans. Of the $11.5 million in accruing restructured loans, $10.3 million consist of two larger-balance credit relationships secured by various types of real estate collateral.Restructured loans declined $11.5 million or 50.0% during 2017, primarily due to a $10.7 million credit secured by commercial real estate that refinanced during the fourth quarter of 2017 and was upgraded to performing status. Nonaccrual loans were $3.9 million at year-end 2017, down $2.5 million or 39.5% for the year.

Nonperforming assets as a percent of total assets fell 115 basis points to 1.2%. High levels of nonperforming assets generally result in loan charge-offs, provisions for loan losses, and impairment charges on repossessed real estate. The Company works with its loan customers on an individual case-by-case basis in order to maximize loan repayments on its challenged credits and typically does not restructure those that are past due.

Impaired loans are those in which the Company does not expect to receive full payment under the contractual terms. Impaired loans are measured at the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral taking into consideration estimated costs to sell if the loan is collateral dependent. Collateral values are updated in accordance with policy guidelines by obtaining independent third party appraisals and monitoring sales activity of similar properties in our market area.

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The allowance specifically allocated to impaired loans was $3.2 million or 13.8% of such loans at year-end 2017 compared with $2.9 million or 7.0% a year earlier. Of the $3.2 million, $2.1 million or 66.6% is attributed to a group of loans to a single creditor with an outstanding balance of $7.5 million secured by a combination of a real estate development and residential real estate properties. This group of collateral dependent loans is classified as performing restructured loans at year-end 2017.

The allowance for loan losses was $9.8 million, or 0.94% of outstanding loans at year-end 2017. This compares to $9.3 million, or 0.96% of loans outstanding at year-end 2016. The decline in the allowance as a percentage of loans outstanding from the prior year is the result of a credit to the provision for loan losses of $211 thousand and net recoveries of $650 thousand combined with loan growth during the current year.

As a percentage of nonperforming loans, the allowance for loan losses was 63.7% and 31.8% at year-end 2017 and 2016, respectively. The allowance for loan losses as a percentage of nonaccrual loans increased to 252% at year-end 2017 compared with 145% at year-end 2016. The relatively low amount of the allowance for loan losses as a percentage of nonperforming loans is due mainly to the makeup of nonperforming loans, where performing restructured loans represent 74.7% of total nonperforming loans outstanding at year-end 2017. The allowance attributed to credits that are restructured with lower interest rates generally represents the difference in the present value of future cash flows calculated at the loan’s original effective interest rate and the new lower rate. This typically results in a reserve for loan losses that is less severe than for other loans that are collateral dependent.

Net recoveries during 2017 include $1.3 million from a real estate development project. The Company recorded a total of $2.1 million in principal charge-offs between 2010 and 2012 related to this project and anticipates it could receive an additional $575 thousand in recoveries related to this credit. The timing and amount of these possible recoveries are subject to change and are dependent on the price and volume of lots sold by the developer, however, the Company expects to receive the recoveries during the first half of 2018.

Historical loss rates continued to be low, the effect of the improvement in loss rates on the allowance for loan losses has diminished now that the higher levels experienced during 2008 through the first quarter of 2014 have already rolled out of the three year look-back period used when evaluating the allowance for loan losses. The decrease in historical loss rates and charge-off activity is due primarily to stabilizing real estate values, which serves as collateral for 89% of the Company’s loan portfolio. The rapid declines in real estate values experienced beginning in 2008 and continuing through 2011 have leveled off significantly, and the allowance for loan losses reflects this improvement. The Company has also implemented stronger credit underwriting standards in recent years, which has improved overall credit quality measures.

While historical loss rates may continue improving in the near term due to elevated charge-offs falling out of the look-back period, this improvement may not necessarily correlate to a lower provision for loan losses. Other qualitative factors, such as changes in loan volume, the overall makeup of the portfolio, economic conditions, and other risk factors applied to historical loss rates may offset to some degree the impact of decreases to the historical loss rates. Certain credit quality measures are summarized in the table that follows for the periods indicated. Several of these measures are at or near the best level in the last three years.

(In thousands) December 31,	2017		2016		2015		Three-year High1		Three-year Low1
Nonperforming loans	$	15,369	$	29,365	$	32,211	$	36,948	$	15,369
Nonaccrual loans		3,887		6,423		8,380		11,113		3,887
Loans past due 30-89 days and still accruing		2,099		2,259		588		2,719		588
Loans graded substandard or below		30,121		37,650		44,220		50,518		30,110
Impaired loans		23,141		41,895		37,182		45,574		23,141
Loans, net of unearned income		1,035,263		970,975		959,275		1,035,263		927,389

¹Based on quarter-end balances over the previous three years.

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The table below summarizes the loan loss experience for the past five years.

Allowance For Loan Losses

Years Ended December 31, (In thousands)	2017			2016			2015			2014			2013
Balance of allowance for loan losses at beginning of year	$	9,344		$	10,315		$	13,968		$	20,577		$	24,445
Loans charged off:
Real estate mortgage – construction and land development		-			-			37			50			251
Real estate mortgage – residential		139			276			696			956			908
Real estate mortgage – farmland and other commercial enterprises		406			131			-			870			274
Commercial, financial, and agricultural		279			219			91			1,630			257
Installment		106			114			182			214			281
Lease financing		-			-			3			32			-
Total loans charged off		930			740			1,009			3,752			1,971
Recoveries of loans previously charged off:
Real estate mortgage – construction and land development		1,296			51			261			292			70
Real estate mortgage – residential		70			63			155			185			200
Real estate mortgage – farmland and other commercial enterprises		20			27			47			147			57
Commercial, financial, and agricultural		138			180			78			782			143
Installment		55			69			112			97			221
Lease financing		1			23			132			4			12
Total recoveries		1,580			413			785			1,507			703
Net loan (recoveries) charge-offs		(650	)		327			224			2,245			1,268
Amount credited to provision for loan losses		(211	)		(644	)		(3,429	)		(4,364	)		(2,600	)
Balance at end of year	$	9,783		$	9,344		$	10,315		$	13,968		$	20,577
Average loans net of unearned income	$	987,877		$	956,463		$	933,260		$	968,489		$	1,006,662
Ratio of net (recoveries) charge-offs during year to average loans, net of unearned income		(.07	)%		.03	%		.02	%		0.23	%		0.13	%

The following table presents an estimate of the allocation of the allowance for loan losses by type for the dates indicated. Although specific allocations exist, the entire allowance is available to absorb losses in any particular category.

December 31, (In thousands)	2017					2016					2015					2014					2013
	Amount		% of Respective Loan Category			Amount		% of Respective Loan Category			Amount		% of Respective Loan Category			Amount		% of Respective Loan Category			Amount		% of Respective Loan Category
Real estate mortgage – construction and land development	$	1,361		1.05	%	$	2,059		1.71	%	$	1,554		1.35	%	$	1,809		1.86	%	$	2,567		2.53	%
Real estate mortgage – residential		3,638		1.02			3,422		.98			3,723		1.05			4,778		1.32			6,200		1.67
Real estate mortgage – farmland and other commercial enterprises		3,510		.81			2,724		.68			3,896		1.01			5,955		1.59			9,949		2.38
Commercial, financial, and agricultural		951		.86			854		.94			820		.91			1,146		1.35			1,389		1.50
Installment		323		4.08			285		3.09			322		2.59			273		2.04			452		2.99
Lease financing		-		-			-		-			-		-			7		4.43			20		2.27
Total	$	9,783		.94	%	$	9,344		.96	%	$	10,315		1.08	%	$	13,968		1.50	%	$	20,577		2.06	%

Additional information concerning the Company’s asset quality is presented under the caption “Nonperforming Assets” which follows and “Investment Securities” beginning on page 48.

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Nonperforming Assets

The Company’s nonperforming assets consist of nonperforming loans, OREO, and other foreclosed assets. Nonperforming loans include nonaccrual loans, performing restructured loans, and loans 90 days or more past due and still accruing interest. Nonaccrual loans are considered to be an indicator of potential losses. The accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for 90 days or more, unless such loan is well secured and in the process of collection. Restructured loans occur when a lender, because of economic or legal reasons related to a borrower’s financial difficulty, grants a concession to the borrower that it would not otherwise consider. Restructured loans typically include a reduction of the stated interest rate or an extension of the maturity date. The Company gives careful consideration to identifying which of its challenged credits merit a restructuring of terms that it believes will result in maximum loan repayments and mitigate possible losses. Cash flow projections are carefully scrutinized prior to restructuring any credits; past due credits are typically not granted concessions.

Nonperforming assets were $20.9 million at year-end 2017, a decrease of $19.2 million or 47.9% compared to $40.0 million at year-end 2016. Such assets have been reduced to the lowest level since peaking at $135 million in the first quarter of 2010. Nonperforming assets increased sharply during 2009 mainly as a result of prolonged weaknesses in the overall economy.

Nonperforming assets by category are presented in the table below for the dates indicated.

December 31, (In thousands)	2017			2016			2015			2014			2013
Loans accounted for on nonaccrual basis	$	3,887		$	6,423		$	8,380		$	11,508		$	23,838
Loans past due 90 days or more and still accruing		-			-			-			-			444
Restructured loans		11,482			22,942			23,831			24,429			26,255
Total nonperforming loans		15,369			29,365			32,211			35,937			50,537
Other real estate owned		5,489			10,673			21,843			31,960			37,826
Other foreclosed assets		-			-			-			52			-
Total nonperforming assets	$	20,858		$	40,038		$	54,054		$	67,949		$	88,363
Ratio of total nonperforming loans to total loans (net of unearned income)		1.5	%		3.0	%		3.4	%		3.9	%		5.1	%
Ratio of total nonperforming assets to total assets		1.2			2.4			3.0			3.8			4.9

55

Additional details related to nonperforming loans were as follows at year-end 2017 and 2016:

Nonperforming Loans
December 31, (In thousands)	2017		2016
Nonaccrual Loans
Real estate mortgage – construction and land development	$	151	$	712
Real estate mortgage – residential		1,763		2,316
Real estate mortgage – farmland and other commercial enterprises		1,752		3,383
Commercial, financial, and agriculture		53		-
Installment		168		12
Total nonaccrual loans	$	3,887	$	6,423
Restructured Loans
Real estate mortgage – construction and land development	$	1,955	$	3,637
Real estate mortgage – residential		5,326		4,006
Real estate mortgage – farmland and other commercial enterprises		3,703		14,787
Commercial, financial, and agriculture		370		377
Installment		128		135
Total restructured loans	$	11,482	$	22,942
Past Due 90 Days or More and Still Accruing	$	-	$	-
Total nonperforming loans	$	15,369	$	29,365

Nonperforming loan activity during 2017 was as follows:

(In thousands)	Nonaccrual Loans			Restructured Loans
Balance at December 31, 2016	$	6,423		$	22,942
Additions		1,541			-
Principal paydowns		(2,283	)		(725	)
Transfers to performing status		(469	)		(10,735	)
Transfers to other real estate owned		(687	)		-
Charge-offs		(638	)		-
Balance at December 31, 2017	$	3,887		$	11,482

Restructured loans transferred to performing status consists of a single larger-balance credit secured by commercial real estate that was upgraded as a result of the underwriting and approval of a new loan during the fourth quarter of 2017.

The Company gives careful consideration to identifying which of its challenged credits merit a restructuring of terms that it believes will result in maximum loan repayments and mitigate possible losses. From time to time the Company may modify a customer’s loan, but such modifications may or may not meet the criteria for classification as a restructured troubled debt. Modifications that do not meet the criteria of a troubled debt include:

● repricing a loan to a current market rate of interest to a borrower with good credit and adequate collateral value in order to retain the customer;

● changing the payment frequency from monthly to quarterly, semi-annually, or annually where the loan is performing, the borrower has good credit and adequate collateral value, and the Company believes valid reasons exist for the change; or

● extending the interest only payment period of a performing loan where the borrower has good credit and adequate collateral value in instances where a project may still be in a phase of development or leasing-up, and where the Company believes completion will occur in the near future, or such extension is otherwise in the Company’s best interest.

56

As modifications are made, management evaluates whether the modification meets the criteria to be classified as a troubled debt. These criteria include two components:

1. The bank makes a concession on the loan terms that it would not otherwise consider, and

2. The borrower is experiencing financial difficulty.

The Company’s loan policy provides guidance to its lending personnel regarding restructured loans to ensure those that are troubled debt are properly identified. Additional attention is given to restructured loans through the oversight of the Chief Credit Officer to ensure that modifications meeting criteria for restructured loans are identified and properly reported.

The Company has not engaged in loan splitting. Loan splitting is a practice that may occur in work-out situations whereby a loan is divided into two parts – a performing part and a nonperforming part. This benefits a lender by potentially replacing one impaired loan by one smaller good loan and one smaller bad loan. Overall charge-offs and reserve amounts are potentially reduced and the effects of adverse loan classifications may be diminished.

The Company’s comprehensive risk-grading and loan review program includes a review of loans to assess risk and assign a grade to those loans, a review of delinquencies, and an assessment of loans for needed charge-offs or placement on nonaccrual status. The Company had loans in the amount of $32.7 million and $44.0 million at year-end 2017 and year-end 2016, respectively, which were performing but considered potential problem loans and are not included in the nonperforming loan totals in the tables above. These loans, however, are considered in establishing an appropriate allowance for loan losses. Potential problem loans include a variety of borrowers and are secured primarily by various types of real estate including commercial, construction properties, and residential real estate developments. The $11.3 million or 25.7% decrease during the year in the level of potential problem loans is attributed primarily to an overall improvement in credit quality similar to that of the overall portfolio. At December 31, 2017, the five largest potential problem credits were $9.3 million in the aggregate compared to $11.5 million at year-end 2016.

Potential problem loans are identified on the Company’s watch list and consist of loans that require close monitoring by management. Credits may be considered as a potential problem loan for reasons that are temporary or correctable, such as for a deficiency in loan documentation or absence of current financial statements of the borrower. Potential problem loans may also include credits where adverse circumstances are identified that may affect the borrower’s ability to comply with the contractual terms of the loan. Other factors which might indicate the existence of a potential problem loan include the delinquency of a scheduled loan payment, deterioration in a borrower’s financial condition identified in a review of periodic financial statements, a decrease in the value of the collateral securing the loan, or a change in the economic environment in which the borrower operates. Certain loans on the Company’s watch list are also considered impaired and specific allowances related to these loans are established in accordance with the appropriate accounting guidance.

Other real estate owned includes real estate properties acquired by the Company through, or in lieu of, actual loan foreclosures. At year-end 2017, OREO was $5.5 million, a decrease of $5.2 million or 48.6% compared to $10.7 million at year-end 2016. OREO has declined $47.1 million or 89.6% from its peak of $52.6 million, which occurred at year-end 2012.

OREO activity for 2017 was as follows:

(In thousands)	Amount
Balance at December 31, 2016	$	10,673
Transfers from loans and other increases		821
Proceeds from sales		(5,419	)
Gain on sales, net		208
Write downs and other decreases, net		(794	)
Balance at December 31, 2017	$	5,489

The reduction in OREO was driven by sales activity and impairment charges of $5.2 million and $794 thousand, respectively, which more than offset new acquisitions. Property sales during the year include the sale of two residential real estate development property that sold for $2.0 million with a related gain of $147 thousand in the aggregate and three larger-balance commercial real estate development properties which sold for $1.4 million at a related net loss of $62 thousand. Sales of OREO during 2017 include $2.9 million financed by the Company.

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Deposits

The Company’s primary source of funding for its lending and investment activities results from its customer deposits, which consist of noninterest and interest bearing demand, savings, and time deposits. A summary of the Company’s deposits is presented in the table that follows. The decrease in time deposits is a result of the Company’s strong liquidity position and its strategy to lower overall funding costs, mainly by allowing higher-rate certificates of deposit to roll off or reprice at lower interest rates. Many of those balances have been moved into noninterest bearing demand or lower-rate interest bearing demand or savings accounts by the customer. The Company has not sought out or accepted brokered deposits in the past nor does it have plans to do so in the future.

A summary of the Company’s deposits is as follows for the dates indicated:

December 31, (In thousands)	2017		2016		Increase (Decrease)
Noninterest Bearing	$	361,855	$	334,676	$	27,179
Interest Bearing
Demand		379,027		348,197		30,830
Savings		416,163		416,611		(448	)
Time		222,858		270,423		(47,565	)
Total interest bearing		1,018,048		1,035,231		(17,183	)
Total deposits	$	1,379,903	$	1,369,907	$	9,996

A summary of average balances for deposits by type and the related weighted average rates paid is as follows for the periods presented:

Years Ended December 31,	2017					2016					2015
(In thousands)	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
Noninterest bearing demand	$	347,355		-	%	$	324,596		-	%	$	304,516		-	%
Interest bearing demand		356,023		.16			334,818		.08			334,281		.06
Savings		418,507		.11			407,353		.12			385,932		.13
Time		245,215		.45			296,258		.54			356,419		.64
Total interest bearing		1,019,745		.21			1,038,429		.23			1,076,632		.28
Total	$	1,367,100		.16	%	$	1,363,025		.17	%	$	1,381,148		.21	%

Maturities of time deposits of $100,000 or more outstanding at December 31, 2017 are summarized as follows:

(In thousands)	Amount
3 months or less	$	8,831
Over 3 through 6 months		11,553
Over 6 through 12 months		21,903
Over 12 months		23,305
Total	$	65,592

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Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase represent transactions where the Company sells certain of its investment securities and agrees to repurchase them at a specific date in the future. Securities sold under agreements to repurchase are accounted for as secured borrowings and reflect the amount of cash received in connection with the transaction. Information on securities sold under agreements to repurchase is as follows:

(In thousands)	2017			2016			2015
Amount outstanding at year-end	$	34,252		$	36,370		$	135,827
Maximum month-end balance during the year		38,079			140,218			139,474
Average outstanding		35,063			107,179			131,551
Weighted average rate during the year		.22	%		2.74	%		3.09	%
Weighted average rate at year-end		.22			.36			2.97

The Company entered into a balance sheet leverage transaction in 2007 whereby it borrowed $200 million through multiple fixed rate repurchase agreements with an initial weighted average cost of 3.95% and used the proceeds to purchase fixed rate Government National Mortgage Association (“GNMA”) bonds which were pledged as collateral. During September 2016, the Company prepaid the remaining balance of $100 million on the repurchase agreements, which were due to mature in November 2017.

Other Borrowings

Other borrowings consist of long-term Federal Home Loan Bank (“FHLB”) advances and subordinated notes payable to unconsolidated trusts.At times the Company’s short-term borrowings include federal funds purchased and FHLB advances. At year-end 2017 and 2016, short-term borrowings consist entirely of securities sold under agreements to repurchase

FHLB advances to the Company are secured by restricted holdings of FHLB stock which participating banks are required to own as well as certain qualifying mortgage loans as required by the FHLB, consisting primarily of 1-4 family first mortgage loans. FHLB advances are made pursuant to several different credit programs, which have their own interest rates and range of maturities. Interest rates on FHLB advances are fixed and range between 2.99% and 5.81% at year-end 2017, with a weighted average rate of 3.27%. Remaining maturities of FHLB advances extend over multiple time periods through 2020, with a weighted average remaining term of 0.9 years. FHLB advances are generally used to increase the Company’s lending activities and to aid the efforts of its asset and liability management by utilizing various repayment options offered by the FHLB. Long-term advances from the FHLB totaled $3.5 million and $18.6 million at December 31, 2017 and 2016, respectively. This represents a decrease of $15.2 million or 81.3% and is attributed to scheduled repayment activity.The Company had FHLB advances of $10.0 million with a fixed interest rate of 3.95% that matured in September, and $5.0 million with a fixed interest rate of 4.45% that matured in February. The Company has not initiated any long-term FHLB borrowings since 2008.

In 2005 and 2007, the Company completed a total of three private offerings of trust preferred securities through separate Delaware statutory trusts (the “Trusts”) sponsored by the Company in the aggregate amount of $47.5 million. The combined $25.0 million proceeds from the first two trusts (“Trusts I and II”) established in 2005 were used to fund the acquisition of Citizens Bancorp, Inc. Proceeds from the third trust (“Trust III”) were used primarily to acquire Company shares through a tender offer during 2007. The Company owns all of the common securities of each of Trusts I and Trust III. During 2016, the Company terminated Trust II as a result of the early extinguishment of debt issued by the trust.

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The Trusts used the proceeds from the sale of preferred securities, plus capital of $1.5 million contributed by the Company to establish the trusts, to purchase the Company’s subordinated notes in amounts and bearing terms that parallel the amounts and terms of the respective preferred securities. Amounts and general terms related to the Trusts at year-end 2017 are summarized in the table below.

(Dollars in thousands)	Trust I			Trust III
Subordinated notes payable	$	10,310		$	23,196
Interest rate terms	3-month LIBOR +150 BP			3-month LIBOR +132 BP
Interest rate in effect at year-end		3.19	%		2.70	%
Stated maturity date	September 30, 2035			November 1, 2037

The subordinated notes of the Trusts are redeemable in whole or in part, without penalty, at the Company’s option and are junior in right of payment of all present and future senior indebtedness of the Company. The weighted average interest rate in effect as of the last determination date in 2017 and 2016 was 2.85% and 2.30%, respectively.

Contractual Obligations

The Company’s contractual obligations to make future payments as of December 31, 2017 are as follows:

	Payments Due by Period
Contractual Obligations (In thousands)	Total		One Year or Less		Over One Year to Three Years		Over Three Years to Five Years		More Than Five Years
Time deposits	$	222,858	$	143,185	$	57,048	$	17,215	$	5,410
Long-term FHLB debt		3,479		3,000		479		-		-
Subordinated notes payable		33,506		-		-		-		33,506
Long-term securities sold under agreements to repurchase		511		254		257		-		-
Unfunded postretirement benefit obligations		17,811		517		1,105		1,259		14,930
Operating leases		1,833		408		629		298		498
Employment agreements		3,242		1,462		1,780		-		-
Total	$	283,240	$	148,826	$	61,298	$	18,772	$	54,344

Long-term FHLB debt represents advances pursuant to several different credit programs. Long-term FHLB debt, subordinated notes payable, and securities sold under agreements to repurchase are more fully described under the captions “Securities Sold Under Agreements to Repurchase” and “Other Borrowings” above and in Notes 8 and 9 of the Company’s 2017 audited consolidated financial statements. Payments for borrowings in the table above do not include interest. Postretirement benefit obligations are determined by actuaries and estimated based on various assumptions with payouts projected in the time periods identified above. Estimates can vary significantly each year due to changes in significant assumptions. Operating leases include standard business equipment used in the Company’s day-to-day business as well as the lease of certain branch sites. Operating lease terms generally range from one to five years, with the ability to extend certain branch site leases at the Company’s option. Payments related to leases are based on actual payments specified in the contracts. Employment agreements represent annual minimum base salary amounts payable by the Company to six employees. The Company has employment agreements with its Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, and three other key officers.

Guarantees

During 2007, the Parent Company entered into a guarantee agreement whereby it agreed to become unconditionally and irrevocably the guarantor of the obligations of three of its previous subsidiary banks in connection with the $200 million balance sheet leverage transaction. The borrowings were required to be secured by GNMA bonds valued at 106% of the amount outstanding, although the banks typically maintained an amount in excess of the required minimum. During September 2016, the Company prepaid the remaining balance of $100 million of the obligation which was due to mature in 2017. Since the debt has been repaid, the Parent Company is no longer obligated as guarantor.

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Effects of Inflation

The majority of the Company’s assets and liabilities are monetary in nature. Therefore, the Company differs greatly from most commercial and industrial companies that have significant investments in nonmonetary assets, such as fixed assets and inventories. However, inflation does have an important impact on the growth of assets in the banking industry and on the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation also affects other noninterest expense, which tends to rise during periods of general inflation.

Market Risk Management

Market risk is the risk of loss arising from adverse changes in market prices and rates. The Company’s market risk is comprised primarily of interest rate risk created by its core banking activities of extending loans and receiving deposits. The Company’s success is largely dependent upon its ability to manage this risk. Interest rate risk is defined as the exposure of the Company’s net interest income to adverse movements in interest rates. Although the Company manages other risks, such as credit and liquidity risk, management considers interest rate risk to be its most significant risk, which could potentially have the largest and a material effect on the Company’s financial condition and results of operations. A sudden and substantial change in interest rates may adversely impact the Company’s earnings to the extent that the interest rates earned on assets and paid on liabilities do not change at the same speed, to the same extent, or on the same basis. Other events that could have an adverse impact on the Company’s performance include changes in general economic and financial conditions, general movements in market interest rates, and changes in consumer preferences. The Company’s primary purpose in managing interest rate risk is to effectively invest the Company’s capital and to manage and preserve the value created by its core banking business.

Management believes the most significant impact on financial and operating results is the Company’s ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities in order to protect against the effects of wide interest rate fluctuations. The Company has an Asset and Liability Management Committee (“ALCO”) which monitors the composition of the balance sheet to ensure comprehensive management of interest rate risk and liquidity.

The Company uses a simulation model as a tool to monitor and evaluate interest rate risk exposure. The model is designed to measure the sensitivity of net interest income and net income to changing interest rates over future periods. Forecasting net interest income and its sensitivity to changes in interest rates requires the Company to make assumptions about the volume and characteristics of many attributes, including assumptions relating to the replacement of maturing earning assets and liabilities. Other assumptions include, but are not limited to, projected prepayments, projected new volume, and the predicted relationship between changes in market interest rates and changes in customer account balances. These effects are combined with the Company’s estimate of the most likely rate environment to produce a forecast for the next twelve months. The forecasted results are then compared to the effect of a gradual 200 basis point increase and decrease in market interest rates on the Company’s net interest income and net income. Because assumptions are inherently uncertain, the model cannot precisely estimate net interest income and net income or the effect of interest rate changes on net interest income and net income. Actual results could differ significantly from simulated results.

At December 31, 2017, the model indicated that if rates were to gradually increase by 200 basis points over the next twelve months, then net interest income (TE) and net income would increase 0.84% and 1.99%, respectively, compared to forecasted results. The model indicated that if rates were to gradually decrease by 200 basis points over the next twelve months, then net interest income (TE) and net income would decrease 2.79% and 6.49%, respectively, compared to forecasted results.

In the current low interest rate environment, it is not practical or possible to reduce certain deposit rates by the same magnitude as rates on earning assets. The average rate paid on the Company’s deposits is already below 2%. This situation magnifies the model’s predicted results when modeling a decrease in interest rates, as earning assets with higher yields have more of an opportunity to reprice at lower rates than lower-rate deposits.

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LIQUIDITY

Liquidity measures the ability to meet current and future cash flow needs as they become due. For financial institutions, liquidity reflects the capacity to meet loan demand, accommodate possible outflows in deposits, and to react and capitalize on interest rate market opportunities. A financial institution’s ability to meet its current financial obligations is dependent upon the structure of its balance sheet, its ability to liquidate assets, and its access to alternative sources of funds. The Company’s goal is to meet its near-term funding needs by maintaining a level of liquid funds through its asset/liability management. For the longer term, the liquidity position is managed by balancing the maturity structure of the balance sheet. This process allows for an orderly flow of funds over an extended period of time. The Company’s ALCO meets regularly and monitors the composition of the balance sheet to ensure comprehensive management of interest rate risk and liquidity.

The Company's objective as it relates to liquidity is to ensure that it has funds available to meet deposit withdrawals and credit demands without unduly penalizing profitability. In order to maintain a proper level of liquidity, the Bank has several sources of funds available on a daily basis. For assets, those sources of funds include liquid assets that are readily marketable or that can be pledged, or which mature in the near future. These assets primarily include cash and due from banks, federal funds sold, investment securities, and cash flow generated by the repayment of principal and interest on loans and investment securities. For liabilities, sources of funds primarily include the Bank’s core deposits, FHLB and other borrowings, and federal funds purchased and securities sold under agreements to repurchase. While maturities and scheduled amortization of loans and investment securities are generally a predictable source of funds, deposit outflows and mortgage prepayments are influenced significantly by general interest rates, economic conditions, and competition in our local markets.

The Company uses a liquidity ratio metric, which is monitored by ALCO, to help measure its ability to meet its cash flow needs. The liquidity ratio is based on current and projected levels of sources and uses of funds. This measure is useful in analyzing cash needs and formulating strategies to achieve desired results. For example, a low liquidity ratio could indicate that the Company’s ability to fund loans might become more difficult. A high liquidity ratio could indicate that the Company may have a disproportionate amount of funds in low yielding assets, which is more likely to occur during periods of sluggish loan demand or economic difficulties. The Company’s liquidity position, as measured by its liquidity ratio, declined at year-end 2017 when compared to year-end 2016, but is within its ALCO guidelines. The Company’s liquidity ratio, although lower than a year ago, remains well above its policy minimum as a result of its overall net funding position and, until more recently, having relatively slow, quality loan demand.

As of December 31, 2017, the Company had $406 million of additional borrowing capacity under various FHLB, federal funds, and other agreements. However, there is no guarantee that these sources of funds will continue to be available to the Company, or that current borrowings can be refinanced upon maturity, although the Company is not aware of any events or uncertainties that are likely to cause a decrease in the Company’s liquidity from these sources.

Liquidity at the Parent Company level is primarily affected by the receipt of dividends from United Bank, cash and cash equivalents maintained, and borrowings from nonaffiliated sources. Payment of dividends by the Company’s subsidiary bank is subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. Capital ratios at the Company’s subsidiary bank exceed regulatory established “well-capitalized” status at December 31, 2017 under the prompt corrective action regulatory framework. The Parent Company’s primary uses of cash include the payment of dividends to its common shareholders, injecting capital into subsidiaries, paying interest expense on borrowings, and payments for general operating expenses.

The Parent Company had cash and cash equivalents of $61.6 million at year-end 2017, an increase of $17.3 million or 39.1% compared to $44.3 million at year-end 2016. Significant cash receipts of the Parent Company for 2017 include dividend payments from United Bank of $23 million and management fees from subsidiaries of $551 thousand. Significant cash payments by the Parent Company in 2017 include $3.0 million for the payment of dividends on common stock; $1.5 million to the Bank in connection with the transfer of Parent Company personnel and related liabilities resulting from the consolidation of its subsidiaries; $1.4 million for salaries, payroll taxes, and employee benefits incurred prior to the consolidation of subsidiaries; and $851 thousand for the payment of interest on subordinated notes payable.

Liquid assets consist of cash and cash equivalents and available for sale investment securities. At December 31, 2017, consolidated liquid assets were $545 million, a decrease of $49.7 million or 8.4% from year-end 2016. The decrease in liquid assets was driven by lower available for sale investment securities of $56.6 million or 11.8%, partially offset by higher money market mutual funds of $18.1 million or 97.7%. Although liquid assets decreased in the comparison, they remain elevated mainly as a result of the Company’s overall net funding position and unsteady, high-quality loan demand. The overall funding position of the Company changes as loan demand, deposit levels, and other sources and uses of funds fluctuate.

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Net cash provided by operating activities was $28.0 million and $20.7 million for 2017 and 2016, respectively. This represents an increase of $7.3 million or 35.2%. Net cash used in investing activities was $11.1 million compared to net cash provided of $87.2 million for 2016. This represents a change of $98.2 million, driven by loan and net investment securities activity.The Company had net cash outflow related to loans representing overall net principal advances in the current period of $63.2 million compared with $6.0 million for 2016. For investment securities, the Company had net cash proceeds of $53.9 million for 2017, down $37.2 million compared to a year earlier. Net cash inflows represent proceeds from the sale, maturity, and call of investment securities in excess of purchases. The decrease in net cash inflows related to investment securities was driven by additional proceeds related to the series of transactions during the last half of 2016 to deleverage the balance sheet and reposition the investment securities portfolio, as discussed in further detail under the “Net Interest Income” captions on page 42.

Net cash used in financing activities was $10.1 million for 2017, a decrease of $105 million from $115 million for 2016. The decline was drivenprimarily by cash payments in the prior year to extinguish long-term debt. During 2016, the Company paid $104 million to extinguish long-term securities sold under agreements to repurchase as part of a balance sheet deleveraging transaction. The Company also paid $11.0 million during 2016 to purchase the preferred securities issued by Trust II and subsequently extinguished the subordinated debt issued by the trust. There was no similar transaction in the current year. For 2017, the Company had net repayments of FHLB advances of $15.2 million, up $15.0 million from $160 thousand in 2016. Deposits increased $10.0 million during 2017, compared to an increase of $913 thousand in 2016.

Information relating to commitments to extend credit is disclosed in Note 15 of the Company’s 2017 audited consolidated financial statements. These transactions are entered into in the ordinary course of providing traditional banking services and are considered in managing the Company’s liquidity position. The Company does not expect these commitments to significantly affect the liquidity position in future periods. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options, or similar instruments.

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CAPITAL RESOURCES

Shareholders’ equity was $193 million at year-end 2017, an increase of $9.3 million or 5.0% compared to $184 million at year-end 2016. Net income and other comprehensive income for the period increased shareholders’ equity by $11.7 million and $475 thousand, respectively, partially offset by dividends declared on common stock of $3.2 million. Other comprehensive income includes a $489 thousand decrease in the after-tax amount of the unrealized loss on available for sale investment securities. The decrease in the unrealized loss on available for sale investment securities is attributed to the decline in longer-term market interest rates combined with the overall decline in the outstanding balance of the investment portfolio due to loan demand.Generally, as market interest rates fall, the value of fixed rate investments such as those held by the Company, increases.

On January 9, 2009, the Company issued 30,000 shares of Series A, no par value cumulative perpetual preferred stock. The Company redeemed 20,000 of the preferred shares during 2014. In June 2015, the Company redeemed the final 10,000 shares at the stated liquidation value of $1,000 per share, plus accrued dividends of $58 thousand. There was no additional debt or equity issued by the Company in connection with any of the shares redeemed.

At December 31, 2017 and 2016, the Company’s tangible common equity ratio was 11.55% and 11.02%, respectively. The tangible common equity ratio is defined as tangible common equity as a percentage of tangible assets. The 53 basis point increase in the tangible common equity ratio is the result of an increase in tangible common equity of $9.3 million in the comparison. Tangible assets were relatively unchanged.

Consistent with the objective of operating a sound financial organization, the Company’s goal is to maintain capital ratios well above the regulatory minimum requirements. The Company's capital ratios as of December 31, 2017 and the regulatory minimums were as follows:

	Farmers Capital Bank Corporation			Regulatory Minimum
Common Equity Tier 1 Risk-based Capital1		16.56	%		4.50	%
Tier 1 Risk-based Capital1		19.30			6.00
Total Risk-based Capital1		20.12			8.00
Tier 1 Leverage Capital2		13.75			4.00

¹Common Equity Tier 1 (“CET1”) Risk-based, Tier 1 Risk-based, and Total Risk-based Capital ratios are computed by dividing Common Equity Tier 1, Tier 1, or Total Capital, as defined by regulation, by a risk-weighted sum of the assets, with the risk weighting determined by general standards established by regulation.

²Tier 1 Leverage ratio is computed by dividing Tier 1 Capital by total quarterly average assets, as defined by regulation.

In July 2013, banking regulators issued final rules to bring U.S. banking organizations into compliance with the Basel III capital framework effective in 2015. The Company remains well-capitalized under the current rules, including meeting the effective minimum capital ratios with a fully phased-in capital conservation buffer. For further information, see discussion in Part I, Item 1 under the caption “Capital” beginning on page 14 of this Form 10-K.

The table below represents an analysis of dividend payout ratios and equity to asset ratios for the previous five years.

Years Ended December 31,	2017			2016			2015			2014			2013
Percentage of common dividends declared to net income		27.24	%		14.01	%		-	%		-	%		-	%
Percentage of average shareholders’ equity to average total assets		11.56			10.68			9.77			9.84			9.34

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Subsidiary Bank

United Bank is subject to capital-based regulatory requirements which place banks in one of five categories based upon their capital levels and other supervisory criteria. These five categories are: (1) well-capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly undercapitalized, and (5) critically undercapitalized. To be well-capitalized, a bank must have a CET1 Risk-based Capital ratio of at least 6.5%, a Tier 1 Risk-based Capital ratio of 8%, a Total Risk-based Capital ratio of at least 10%, and a Tier 1 Leverage ratio of at least 5%. As of December 31, 2017, the Company’s subsidiary bank had the following capital ratios for regulatory purposes:

	Common Equity Tier 1 Risk-based Capital Ratio			Tier 1 Risk- based Capital Ratio			Total Risk- based Capital Ratio			Tier 1 Leverage Capital Ratio
United Bank		14.05	%		14.05	%		14.88	%		10.13	%

Share Buy Back Program

At various times, the Company’s Board of Directors has authorized the purchase of shares of the Company’s outstanding common stock. No stated expiration dates have been established under any of the previous authorizations. There are 84,971 shares that may still be purchased under the various authorizations, though no shares have been purchased since 2008.

Shareholder Information

As of February 20, 2018, the Company had 2,949 shareholders of record, which includes individual participants in securities positions listings.

Common Stock Price

The Company’s common stock is traded on the NASDAQ Stock Market LLC exchange in the Global Select Market tier, with sales prices reported under the symbol: FFKT. The table below lists the high and low sales prices of the Company’s common stock for 2017 and 2016, along with dividends declared in each of those periods.

	High		Low		Dividends Declared
2017
Fourth Quarter	$	44.30	$	38.45	$	.125
Third Quarter		43.45		36.10		.10
Second Quarter		42.80		37.20		.10
First Quarter		44.25		34.05		.10
2016
Fourth Quarter	$	44.65	$	29.24	$	.10
Third Quarter		30.98		26.63		.07
Second Quarter		29.00		24.71		.07
First Quarter		27.31		24.65		.07

The closing price per share of the Company’s common stock on December 30, 2017, the last trading day of the Company’s fiscal year, was $38.50.

Recently Issued Accounting Standards

See Note 1 – “Summary of Significant Accounting Policies,” under the caption “Recently Issued But Not Yet Effective Accounting Standards,” in the Company’s 2017 audited consolidated financial statements for further information about recently issued accounting pronouncements and their expected impact on the Company’s financial statements.

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2016 Compared to 2015

The Company reported net income of $16.6 million or $2.21 per common share in 2016 compared to $15.0 million or $1.95 per common share for 2015. This represents an increase in net income of $1.6 million or 10.8%. On a per common share basis, net income was up $.26 or 13.3%. The increase in net income is primarily attributed to greater noninterest income of $9.0 million or 40.4%, partially offset by an increase in noninterest expense of $3.5 million or 6.0%, and a lower credit to the provision for loan losses of $2.8 million. Non-GAAP adjusted net income, which excludes after-tax consolidation expenses of $697 thousand related to the merger of subsidiaries, was $17.3 million or $2.31 per common share for 2016.

For 2016, net interest income was relatively unchanged from 2015. Interest income declined $1.9 million or 3.0%, but was offset by a decrease in interest expense of $1.9 million or 21.8%. Interest income on loans and investment securities decreased $373 thousand or 0.8% and $1.7 million or 13.1%, respectively. Interest expense on deposits and borrowed funds decreased $606 thousand or 20.5% and $1.3 million or 22.5%, respectively. As part of its strategy to improve net interest income and net interest margin, the Company completed a series of transactions during the last half of the year to deleverage its balance sheet and reposition its investment securities portfolio. The Company used a mixture of $10.4 million of excess cash and $93.4 million of proceeds from the sale of investment securities to prepay $100 million of high fixed-rate borrowings that were due to mature in November 2017. The Company incurred a prepayment fee of $3.8 million, which was offset by a gain in the same amount on the sale of investment securities.

Interest on deposits decreased due to both rate declines and lower volume, with a significant amount of the decrease related to time deposits. The Company continued to reprice its higher-rate maturing time deposits downward to lower market interest rates or allowing them to mature without renewing. Net interest margin was 3.36% for 2016 compared to 3.29% for 2015. Net interest spread was 3.21% and 3.14%, up seven basis points compared to 2015. Overall cost of funds decreased 12 basis points to 0.56%.

The Company recorded a credit to the provision for loan losses in the amount of $644 thousand and $3.4 million for 2016 and 2015, respectively.The credit to the provision for loan losses is attributed to continued improvement in the credit quality of the loan portfolio. The decrease in the credit to the provision is mainly driven by a smaller rate of improvement in historical loss rates during 2016 compared to 2015.

Nonperforming loans decreased $2.8 million or 8.8% in 2016, primarily as a result of lower nonaccrual loans of $2.0 million or 23.4%.Nonperforming loans, watch list loans, and loans graded as substandard or below each improved in the yearly comparison. The ratio of nonperforming loans to total loans at year-end 2016 was 3.0% compared to 3.4% at year-end 2015. The allowance for loan losses was $9.3 million and $10.3 million at year-end 2016 and 2015, respectively. As a percentage of loans, the allowance for loan losses decreased 12 basis points to 0.96% at year-end 2016 compared to 1.08% a year earlier.

Noninterest income for 2016 was $31.2 million, an increase of $9.0 million or 40.4% from 2015. This was driven by a $4.1 million gain on the early extinguishment of debt and higher net gains on the sale of investment securities of $3.8 million related to a balance sheet deleveraging transaction. Noninterest income also includes $1.5 million in payments related to a litigation settlement. These were partially offset by a decrease in allotment processing fees of $1.1 million or 25.2% from lower processing volume. Other significant components of the increase in noninterest income include higher trust income of $291 thousand or 12.3%. Service charges and fees on deposits were up $266 thousand or 3.5%, driven by higher service charges of $329 thousand or 71.9% and higher dormant account fees of $226 thousand or 9.5%, partially offset by lower overdraft fees of $259 thousand or 6.1%.During the second quarter of 2016, the Company standardized and reduced the number of its deposit account product offerings throughout each of its markets. This contributed to an overall increase in service charges during the year. Net gains on the sale of mortgage loans increased $118 thousand or 14.3% despite lower sales volume of $3.0 million or 7.6%. The decline in sales volume is mainly due to two larger-balance commercial loans with an aggregate balance of $12.3 million sold during 2015.

Total noninterest expenses were $61.4 million for 2016, an increase of $3.5 million or 6.0% compared to $58.0 million a year earlier. The increase in noninterest expenses was mainly attributed to a $3.8 million loss related to the early extinguishment of debt during 2016 and $1.1 million related to the consolidation of the Company’s subsidiaries. Expenses related to repossessed real estate were up $481 thousand or 28.2%, driven by higher impairment charges of $351 thousand or 31.9% and a higher net loss from property sales of $285 thousand, partially offset by lower development, operating, and maintenance expenses of $155 thousand.

66

Deposit insurance expense was down $695 thousand or 45.2% mainly due to a combination of lower risk ratings for the Company’s subsidiary banks and lower assessment rates. Amortization of intangible assets declined $449 thousand or 100% as a result of being fully amortized at year-end 2015. Legal expenses declined $369 thousand or 43.8% mainly due to fees related to a legal settlement during the first quarter of 2015. Salaries and employee benefits were up $288 thousand or 0.9%, which included $601 thousand of severance pay accruals related to the consolidation of subsidiaries. Employee benefits decreased $499 thousand or 8.0%, mainly from lower claims activity related to the Company’s self-funded health insurance plan and lower actuary-determined postretirement benefit expense. Salaries and related payroll taxes were up $185 thousand or 0.7%. Data processing and communication expense increased $348 thousand or 8.1% mainly due to expenses of $165 thousand in 2016 related to the consolidation of subsidiaries and $137 thousand related to a change in card vendor.

Income tax expense was $6.4 million for 2016, an increase of $1.1 million or 21.7% compared to $5.3 million for 2015. The effective income tax rates were 27.9% and 26.1% for 2016 and 2015, respectively. The increase in income tax expense and the effective tax rate for 2016 is attributed to a higher mix of taxable versus tax-exempt sources of revenue, driven by the gain on early extinguishment of debt and the legal settlement.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is incorporated by reference to Part II, Item 7 under the caption “Market Risk Management” beginning on page 61 of this Form 10-K.

67

Item 8. Financial Statements and Supplementary Data

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The management of Farmers Capital Bank Corporation has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include amounts that are based on management’s best estimates and judgments. Management also prepared other information in the annual report and is responsible for its accuracy and consistency with the financial statements.

The Company’s 2017 consolidated financial statements have been audited by BKD, LLP (“BKD”) independent accountants. Management has made available to BKD all financial records and related data, as well as the minutes of Boards of Directors’ meetings. Management believes that all representations made to BKD during the audit were valid and appropriate.

Lloyd C. Hillard, Jr.	Mark A. Hampton
President and Chief Executive Officer	Executive Vice President, Chief Financial Officer, and Secretary
March 12, 2018

68

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors
   and Audit Committee

Farmers Capital Bank Corporation

Frankfort, Kentucky

Opinion on the Internal Control Over Financial Reporting

We have audited Farmers Capital Bank Corporation’s (Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company and our report dated March 12, 2018, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board (United States).

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained, in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definitions and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Louisville, Kentucky

March 12, 2018

69

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors
   and Audit Committee

Farmers Capital Bank Corporation

Frankfort, Kentucky

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Farmers Capital Bank Corporation (Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 12, 2018, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board (United States).

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2012.

Louisville, Kentucky

March 12, 2018

70

Consolidated Balance Sheets

December 31, (In thousands, except share and per share data)	2017			2016
Assets
Cash and cash equivalents:
Cash and due from banks	$	25,581		$	25,666
Interest bearing deposits in other banks		58,154			62,696
Federal funds sold and securities purchased under agreements to resell		-			6,622
Money market mutual funds		36,673			18,550
Total cash and cash equivalents		120,408			113,534
Investment securities:
Available for sale, amortized cost of $428,695 (2017) and $486,038 (2016)		424,253			480,864
Held to maturity, fair value of $3,478 (2017) and $3,597 (2016)		3,364			3,488
Total investment securities		427,617			484,352
Loans, net of unearned income		1,035,263			970,975
Allowance for loan losses		(9,783	)		(9,344	)
Loans, net		1,025,480			961,631
Premises and equipment, net		30,928			31,900
Company-owned life insurance		30,817			30,914
Other real estate owned		5,489			10,673
Other assets		33,133			38,026
Total assets	$	1,673,872		$	1,671,030
Liabilities
Deposits:
Noninterest bearing	$	361,855		$	334,676
Interest bearing		1,018,048			1,035,231
Total deposits		1,379,903			1,369,907
Securities sold under agreements to repurchase		34,252			36,370
Federal Home Loan Bank advances		3,479			18,646
Subordinated notes payable to unconsolidated trusts		33,506			33,506
Dividends payable, common stock		939			751
Other liabilities		28,440			27,784
Total liabilities		1,480,519			1,486,964
Commitments and contingencies (Notes 15 and 17)
Shareholders’ Equity
Common stock, par value $.125 per share; 14,608,000 shares authorized; 7,517,446 and 7,509,444 shares issued and outstanding at December 31, 2017 and 2016, respectively		940			939
Capital surplus		52,201			51,885
Retained earnings		143,778			134,650
Accumulated other comprehensive loss		(3,566	)		(3,408	)
Total shareholders’ equity		193,353			184,066
Total liabilities and shareholders’ equity	$	1,673,872		$	1,671,030

See accompanying notes to consolidated financial statements.

71

Consolidated Statements of Income

(In thousands, except per share data)
Years Ended December 31,	2017			2016			2015
Interest Income
Interest and fees on loans	$	48,347		$	47,534		$	47,907
Interest on investment securities:
Taxable		7,787			8,969			10,468
Nontaxable		2,253			2,450			2,669
Interest on deposits in other banks		715			372			182
Interest on federal funds sold, securities purchased under agreements to resell, and money market mutual funds		184			46			10
Total interest income		59,286			59,371			61,236
Interest Expense
Interest on deposits		2,136			2,355			2,961
Interest on federal funds purchased		-			1			-
Interest on securities sold under agreements to repurchase		77			2,941			4,062
Interest on Federal Home Loan Bank advances		427			735			752
Interest on subordinated notes payable to unconsolidated trusts		870			723			866
Total interest expense		3,510			6,755			8,641
Net interest income		55,776			52,616			52,595
Provision for loan losses		(211	)		(644	)		(3,429	)
Net interest income after provision for loan losses		55,987			53,260			56,024
Noninterest Income
Service charges and fees on deposits		7,987			7,856			7,590
Allotment processing fees		2,716			3,232			4,321
Other service charges, commissions, and fees		5,347			5,558			5,545
Trust income		2,704			2,664			2,373
Net gain on sales of available for sale investment securities		20			3,998			171
Net gain on sales of cost method investment securities		82			-			-
Gains on sale of mortgage loans, net		662			942			824
Income from company-owned life insurance		1,138			1,016			937
Gain on debt extinguishment		-			4,050			-
Legal settlement		-			1,450			-
Other		509			420			450
Total noninterest income		21,165			31,186			22,211
Noninterest Expense
Salaries and employee benefits		30,296			32,296			32,008
Occupancy expenses, net		4,672			4,742			4,776
Equipment expenses		2,379			2,403			2,106
Data processing and communications expenses		4,571			4,596			4,377
Bank franchise tax		2,325			2,421			2,426
Amortization of intangibles		-			-			449
Deposit insurance expense		520			841			1,536
Other real estate expenses, net		845			2,189			1,708
Legal expenses		86			474			843
Loss on debt extinguishment		-			3,776			-
Other		7,129			7,662			7,721
Total noninterest expense		52,823			61,400			57,950
Income before income taxes		24,329			23,046			20,285
Income tax expense		12,641			6,441			5,293
Net income		11,688			16,605			14,992
Less preferred stock dividends and discount accretion		-			-			395
Net income available to common shareholders	$	11,688		$	16,605		$	14,597
Per Common Share
Net income – basic and diluted	$	1.56		$	2.21		$	1.95
Cash dividends declared		.425			.31			-
Weighted Average Common Shares Outstanding
Basic and diluted		7,513			7,504			7,494

See accompanying notes to consolidated financial statements.

72

Consolidated Statements of Comprehensive Income

(In thousands)
Years Ended December 31,	2017			2016			2015
Net income	$	11,688		$	16,605		$	14,992
Other comprehensive income (loss):
Unrealized holding gain (loss) on available for sale securities arising during the period, net of tax of $263, $(2,146), and $(992), respectively		489			(3,983	)		(1,844	)
Reclassification adjustment for net realized gain included in net income, net of tax of $7, $1,399, and $60, respectively		(13	)		(2,599	)		(111	)
Change in unfunded portion of postretirement benefit obligations, net of tax of $(1), $211, and $(74), respectively		(1	)		392			(138	)
Other comprehensive income (loss)		475			(6,190	)		(2,093	)
Comprehensive income	$	12,163		$	10,415		$	12,899

See accompanying notes to consolidated financial statements.

73

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except per share data)													Accumulated Other			Total
Years Ended	Preferred			Common Stock				Capital		Retained			Comprehensive			Shareholders’
December 31, 2017, 2016, and 2015	Stock			Shares		Amount		Surplus		Earnings			Income (Loss)			Equity
Balance at January 1, 2015	$	10,000			7,489	$	936	$	51,344	$	105,774		$	4,875		$	172,929
Net income		-			-		-		-		14,992			-			14,992
Other comprehensive loss		-			-		-		-		-			(2,093	)		(2,093	)
Cash dividends declared – preferred, $39.50 per share		-			-		-		-		(395	)		-			(395	)
Redemption of preferred stock		(10,000	)		-		-		-		-			-			(10,000	)
Shares issued under director compensation plan		-			4		-		104		-			-			104
Shares issued pursuant to employee stock purchase plan		-			7		1		129		-			-			130
Expense related to employee stock purchase plan		-			-		-		31		-			-			31
Balance at December 31, 2015		-			7,500		937		51,608		120,371			2,782			175,698
Net income		-			-		-		-		16,605			-			16,605
Other comprehensive loss		-			-		-		-		-			(6,190	)		(6,190	)
Cash dividends declared – common, $.31 per share		-			-		-		-		(2,326	)		-			(2,326	)
Shares issued under director compensation plan		-			3		1		91		-			-			92
Shares issued pursuant to employee stock purchase plan		-			6		1		154		-			-			155
Expense related to employee stock purchase plan		-			-		-		32		-			-			32
Balance at December 31, 2016		-			7,509		939		51,885		134,650			(3,408	)		184,066
Net income		-			-		-		-		11,688			-			11,688
Other comprehensive income		-			-		-		-		-			475			475
Adoption of Accounting Standards Update 2018-02		-			-		-		-		633			(633	)		-
Cash dividends declared – common, $.425 per share		-			-		-		-		(3,193	)		-			(3,193	)
Shares issued under director compensation plan		-			3		-		105		-			-			105
Shares issued pursuant to employee stock purchase plan		-			5		1		178		-			-			179
Expense related to employee stock purchase plan		-			-		-		33		-			-			33
Balance at December 31, 2017	$	-			7,517	$	940	$	52,201	$	143,778		$	(3,566	)	$	193,353

See accompanying notes to consolidated financial statements.

74

Consolidated Statements of Cash Flows

Years Ended December 31, (In thousands)	2017			2016			2015
Cash Flows from Operating Activities
Net income	$	11,688		$	16,605		$	14,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,507			3,649			4,155
Net premium amortization of investment securities:
Available for sale		3,307			4,020			5,570
Held to maturity		54			53			52
Provision for loan losses		(211	)		(644	)		(3,429	)
Deferred income tax expense		6,139			885			1,631
Noncash employee stock purchase plan expense		33			32			31
Noncash director fee compensation		105			92			104
Mortgage loans originated for sale		(22,764	)		(37,692	)		(40,027	)
Proceeds from sale of mortgage loans		25,141			37,627			40,513
Gains on sale of mortgage loans, net		(662	)		(942	)		(824	)
(Gain) loss on disposal of premises and equipment, net		(17	)		22			20
Net loss on sale and write downs of other real estate		586			1,925			1,289
Gain on extinguishment of subordinated notes payable to unconsolidated trusts		-			(4,050	)		-
Loss on extinguishment of long-term securities sold under agreements to repurchase		-			3,776			-
Net gain on sale of available for sale investment securities		(20	)		(3,998	)		(171	)
Net gain on sale of cost method investment securities		(82	)		-			-
Curtailment gain on postretirement benefits plan liability		(351	)		-			-
Increase in cash surrender value of company-owned life insurance		(868	)		(905	)		(906	)
Death benefits in excess of cash surrender value on company-owned life insurance		(245	)		(81	)		-
Decrease in accrued interest receivable		84			373			233
Decrease (increase) in other assets		1,613			(739	)		400
Decrease in accrued interest payable		(60	)		(530	)		(93	)
Increase in other liabilities		1,065			1,262			2,390
Net cash provided by operating activities		28,042			20,740			25,930
Cash Flows from Investing Activities
Proceeds from maturities and calls of investment securities:
Available for sale		106,015			123,712			133,886
Held to maturity		70			70			65
Proceeds from sale of available for sale investment securities		81,823			219,181			11,570
Purchase of available for sale investment securities		(133,961	)		(251,822	)		(109,675	)
Proceeds from sale of cost method investment securities		132			-			-
Purchase of cost method investment securities		(3,445	)		(472	)		-
Loans originated for investment greater than principal collected, net		(63,180	)		(7,059	)		(22,237	)
Purchase of loans held for investment		(2,830	)		(2,512	)		(8,613	)
Principal collected on purchased loans		2,855			3,588			2,638
Proceeds from death benefits of company-owned life insurance		1,210			341			-
Purchases of premises and equipment		(2,395	)		(2,245	)		(1,721	)
Proceeds from sale of other real estate		2,558			4,367			9,939
Proceeds from disposals of premises and equipment		95			2			23
Net cash (used in) provided by investing activities		(11,053	)		87,151			15,875
Cash Flows from Financing Activities
Net increase (decrease) in deposits		9,996			913			(18,167	)
Net increase (decrease) short-term securities sold under agreements to repurchase		(1,344	)		732			5,763
Proceeds from long-term securities sold under agreements to repurchase		8			11			711
Repayments of long-term securities sold under agreements to repurchase		(782	)		(103,976	)		-
Repayments of Federal Home Loan Bank advances		(15,167	)		(160	)		(155	)
Cash paid to extinguish subordinated notes payable to unconsolidated trusts		-			(10,950	)		-
Dividends paid, common stock		(3,005	)		(1,575	)		-
Redemption of preferred stock		-			-			(10,000	)
Dividends paid, preferred stock		-			-			(508	)
Shares issued under employee stock purchase plan		179			155			130
Net cash used in financing activities		(10,115	)		(114,850	)		(22,226	)
Net increase (decrease) in cash and cash equivalents		6,874			(6,959	)		19,579
Cash and cash equivalents at beginning of year		113,534			120,493			100,914
Cash and cash equivalents at end of year	$	120,408		$	113,534		$	120,493

75

Consolidated Statements of Cash Flows—(Continued)

Years Ended December 31, (In thousands)	2017		2016		2015
Supplemental Disclosures
Cash paid during the year for:
Interest	$	3,570	$	7,285	$	8,734
Income taxes		5,135		5,600		2,718
Transfers from loans to other real estate		663		1,885		1,397
Sale and financing of other real estate		2,861		6,922		403
Cancelation of investment in Farmers Capital Bank Trust II		-		464		-
Extinguishment of subordinated notes payable to Farmers Capital Bank Trust II		-		15,464		-

See accompanying notes to consolidated financial statements.

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

The accounting and reporting policies of Farmers Capital Bank Corporation and subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and general practices applicable to the banking industry. Significant accounting policies are summarized below.

Principles of Consolidation and Nature of Operations

The consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the “Company” or “Parent Company”), a financial holding company, its wholly-owned subsidiaries bank subsidiary, United Bank & Capital Trust Company (“United Bank” or the “Bank”) in Frankfort, KY, and its wholly-owned nonbank subsidiary, FFKT Insurance Services, Inc. (“FFKT Insurance”). In February 2017, the Company merged three of its subsidiary banks (United Bank & Trust Company in Versailles, KY; First Citizens Bank, Inc. in Elizabethtown, KY; and Citizens Bank of Northern Kentucky, Inc. in Newport, KY) and its data processing subsidiary (FCB Services, Inc. in Frankfort, KY) into its subsidiary bank Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed under the merger to United Bank & Capital Trust Company. The Company accounted for the transfer of assets and liabilities of the merged subsidiaries at their respective historical cost amounts as of the date of the merger.

FFKT Insurance is a captive insurance company in Frankfort, KY that provides property and casualty coverage to the Parent Company and its subsidiaries for risk management purposes or where insurance may not be available or economically feasible. The Company has two subsidiaries organized as Delaware statutory trusts that are not consolidated into its financial statements. These trusts were formed in 2005 and 2007 for the purpose of issuing trust preferred securities.

United Bank’s significant subsidiaries include EG Properties, Inc. and Farmers Capital Insurance Corporation (“Farmers Insurance”). EG Properties, Inc. is involved in real estate management and liquidation for certain repossessed properties of United Bank. Farmers Insurance is an insurance agency in Frankfort, KY.

The Company provides financial services at its 34 locations in 21 communities throughout Central and Northern Kentucky to individual, business, agriculture, government, and educational customers. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential mortgage, commercial lending, and consumer installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other services include, but are not limited to, cash management services, issuing letters of credit, safe deposit box rental, and providing funds transfer services. Other financial instruments, which could potentially represent concentrations of credit risk, include deposit accounts in other financial institutions and federal funds sold.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy. Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the financial statements. The allowance for loan losses, carrying value of other real estate owned, actuarial assumptions used to calculate postretirement benefits, and the fair values of financial instruments are estimates that are particularly subject to change.

Reclassifications

Certain amounts in the accompanying consolidated financial statements presented for prior years have been reclassified to conform to the 2017 presentation. These reclassifications do not affect net income or total shareholders’ equity as previously reported.

77

Segment Information

The Company provides a broad range of financial services to individuals, corporations, and others through its 34 banking locations throughout Central and Northern Kentucky. These services primarily include the activities of lending, receiving deposits, providing cash management services, safe deposit box rental, and trust activities. While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment.

Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include the following: cash on hand, deposits from other financial institutions that have an initial maturity of less than 90 days when acquired by the Company, federal funds sold and securities purchased under agreements to resell, and money market mutual funds. Generally, federal funds sold and securities purchased under agreements to resell are purchased and sold for one-day periods. Net cash flows are reported for loan, deposit, and short-term borrowing transactions.

Investment Securities

Investments in debt and equity securities are classified into three categories. Securities that management has the positive intent and ability to hold until maturity are classified as held to maturity. Securities that are bought and held specifically for the purpose of selling them in the near term are classified as trading securities. The Company had no securities classified as trading during 2017, 2016, or 2015. All other securities are classified as available for sale. Securities are designated as available for sale if they might be sold before maturity. Securities classified as available for sale are carried at estimated fair value. Unrealized holding gains and losses for available for sale securities are reported net of deferred income taxes in other comprehensive income. Investments classified as held to maturity are carried at amortized cost. Amortized cost basis for investment securities includes adjustments made to the cost for previous other-than-temporary impairment (“OTTI”) recognized in earnings, amortization, accretion, and collection of cash.

Interest income includes amortization and accretion of purchase premiums or discounts. Premiums and discounts on securities are amortized using the interest method over the expected life of the securities without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Realized gains and losses on the sales of securities are recorded on the trade date and computed on the basis of specific identification of the adjusted cost of each security and are included in noninterest income.

The Company evaluates investment securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. A decline in the market value of investment securities below cost that is deemed other-than-temporary results in a charge to earnings and the establishment of a new cost basis for the security. Substantially all of the Company’s investment securities are debt securities. In estimating OTTI for debt securities, management considers each of the following: (1) the length of time and extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery in fair value. The assessment of whether an OTTI charge exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at a point in time. The Company had no OTTI losses during any year in each of the three years in the period ended December 31, 2017.

Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under Financial Accounting Standard Board (“FASB”) Accounting Standards Codification^TM (“ASC”) Topic 320, “Investments-Debt and Equity Securities.” In determining OTTI under ASC Topic 320 the Company considers many factors, including those enumerated above. When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether the Company intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If the Company intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis, OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less OTTI recognized in earnings becomes the new amortized cost basis of the investment.

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Federal Home Loan Bank and Federal Reserve Bank Stock

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank stock is carried at cost and recognized in other assets on the consolidated balance sheets under the caption “Other assets.” These stocks are classified as restricted securities and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. The amount outstanding at December 31, 2017 and 2016 was $13.2 million and $9.8 million, respectively.

Loans and Interest Income

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their unpaid principal amount outstanding adjusted for any charge-offs, deferred fees or costs on originated loans, and unamortized premiums and discounts on purchased loans. Interest income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Interest income also includes amortization and accretion of any premiums or discounts over the expected life of acquired loans at the time of purchase or business acquisition. Loan origination fees, net of certain direct origination costs, are deferred and amortized as yield adjustments over the contractual term of the loans.

The Company disaggregates certain disclosure information related to loans, the related allowance for loan losses, and credit quality measures by either portfolio segment or by loan class. The Company segregates its loan portfolio segments based on similar risk characteristics as follows: real estate loans, commercial loans, and consumer loans. Portfolio segments are further disaggregated into classes for certain required disclosures as follows:

Portfolio Segment	Class
Real estate loans	Real estate mortgage – construction and land development Real estate mortgage – residential Real estate mortgage – farmland and other commercial enterprises
Commercial loans	Commercial and industrial Depository institutions Agriculture production and other loans to farmers States and political subdivisions Other
Consumer loans	Secured Unsecured

Loan disclosures include presenting certain disaggregated information based on recorded investment. The recorded investment in a loan includes its principal amount outstanding adjusted for certain items that include net deferred loan costs or fees, unamortized premiums or discounts, charge offs, and accrued interest. The Company had a total of $83 thousand of net deferred loan fees at year-end 2017 and $301 thousand of net deferred loan costs at year-end 2016, included in the carrying amount of loans on the balance sheet, which represents .01% and .03% of loans outstanding at year-end 2017 and 2016, respectively. The amount of net deferred loans costs and fees are not material and are omitted from the computation of the recorded investment included in Note 4 that follows. Similarly, accrued interest receivable on loans was $3.1 million and $2.8 million at year-end 2017 and 2016, respectively, or 0.3% of loans for both years and has also been omitted from certain information presented in Note 4.

The Company has a loan policy in place that is amended and approved from time to time as needed to reflect current economic conditions and product offerings in its markets. The policy establishes written procedures concerning areas such as the lending authorities of loan officers, committee review and approval of certain credit requests, underwriting criteria, policy exceptions, appraisal requirements, and loan review. Credit is extended to borrowers based primarily on their ability to repay as demonstrated by income and cash flow analysis.

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Loans secured by real estate make up the largest segment of the Company’s loan portfolio. If a borrower fails to repay a loan secured by real estate, the Company may liquidate the collateral in order to satisfy the amount owed. Determining the value of real estate is a key component to the lending process for real estate backed loans. If the fair value of real estate (less estimated cost to sell) securing a collateral dependent loan declines below the outstanding loan amount, the Company will write down the carrying value of the loan and thereby incur a loss. The Company uses independent third party state certified or licensed appraisers in accordance with its loan policy to mitigate risk when underwriting real estate loans. Cash flow analysis of the borrower, loan to value limits as adopted by loan policy, and other customary underwriting standards are also in place which are designed to maximize credit quality and mitigate risks associated with real estate lending.

Commercial loans are made to businesses and are secured mainly by assets such as inventory, accounts receivable, machinery, fixtures and equipment, or other business assets. Commercial lending involves significant risk, as loan repayments are more dependent on the successful operation or management of the business and its cash flows. Consumer lending includes loans to individuals mainly for personal autos, boats, or a variety of other personal uses and may be secured or unsecured. Loan repayment associated with consumer loans is highly dependent upon the borrower’s continuing financial stability, which is heavily influenced by local unemployment rates. The Company mitigates its risk exposure to each of its loan segments by analyzing the borrower’s repayment capacity, imposing restrictions on the amount it will loan compared to estimated collateral values, limiting the payback periods, and following other customary underwriting practices as adopted in its loan policy.

The accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for 90 days or more, unless such loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan. Interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Cash payments received on nonaccrual loans generally are applied to principal until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company’s policy for placing a loan on nonaccrual status or subsequently returning a loan to accrual status does not differ based on its portfolio class or segment.

Commercial and real estate loans delinquent in excess of 120 days and consumer loans delinquent in excess of 180 days are charged off, unless the collateral securing the debt is of such value that any loss appears to be unlikely. In all cases, loans are charged off at an earlier date if classified as loss under the Company’s loan grading process or as a result of regulatory examination. The Company’s charge-off policy for impaired loans does not differ from the charge-off policy for loans outside the definition of impaired.

Loans Held for Sale

Mortgage banking activities include the origination of fixed-rate residential mortgage loans for sale to various third-party investors. Mortgage loans originated and intended for sale in the secondary market, principally under programs with the Federal National Mortgage Association, are carried at the lower of cost or estimated fair value determined in the aggregate and included in net loans on the balance sheet until sold. These loans are sold with the related servicing rights either retained or released by the Company depending on the economic conditions present at the time of origination. The Company had no mortgage loans held for sale at December 31, 2017. Mortgage loans held for sale included in net loans at December 31, 2016 totaled $1.7 million. Mortgage banking revenues, including origination fees, servicing fees, net gains on sales of mortgage loans, and other fee income were 1.4%, 1.6%, and 1.6% of the Company’s total revenue for the years ended December 31, 2017, 2016, and 2015, respectively.

Provision and Allowance for Loan Losses

The provision for loan losses represents charges or credits made to earnings to maintain an allowance for loan losses at a level considered adequate to provide for probable incurred credit losses at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company estimates the adequacy of the allowance using a risk-rated methodology which is based on the Company’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral securing loans, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires significant judgment and the use of estimates that may be susceptible to change.

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The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current risk factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Actual loan losses could differ significantly from the amounts estimated by management.

The general portion of the Company’s loan portfolio is segregated into portfolio segments having similar risk characteristics identified as follows: real estate loans, commercial loans, and consumer loans. Each of these portfolio segments is assigned a loss percentage based on their respective rolling historical loss rates, adjusted for the qualitative risk factors summarized below. During the first quarter of 2017, the Company shortened the look-back period it uses to determine historical loss rates to the previous twelve quarters from sixteen quarters. The change in the look-back period is the result of the Company’s ongoing monitoring and evaluation of the adequacy of its allowance for loan losses. The shorter look-back period better reflects the Company’s loss estimates based on current market conditions. Shortening the look-back period increased the allowance for loan losses by $49 thousand compared to the previous sixteen quarter look-back period.

The qualitative risk factors used in the methodology are consistent with the guidance in the most recent Interagency Policy Statement on the Allowance for Loan Losses issued. Each factor is supported by a detailed analysis and is both measureable and supportable. Some factors include a minimum allocation in instances where loss levels are extremely low and it is determined to be prudent from a safety and soundness perspective. Qualitative risk factors that are used in the methodology include the following for each loan portfolio segment:

● Delinquency trends

● Trends in net charge-offs

● Trends in loan volume

● Lending philosophy risk

● Management experience risk

● Concentration of credit risk

● Economic conditions risk

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company accounts for impaired loans in accordance with ASC Topic 310, “Receivables.” ASC Topic 310 requires that impaired loans be measured at the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral if the loan is collateral dependent. Impaired loans may also be classified as nonaccrual. In many circumstances, however, the Company continues to accrue interest on an impaired loan. Cash receipts on accruing impaired loans are applied to the recorded investment in the loan, including any accrued interest receivable. Cash payments received on nonaccrual impaired loans generally are applied to principal until qualifying for return to accrual status. Loans that are part of a large group of smaller-balance homogeneous loans, such as residential mortgage, consumer, and smaller-balance commercial loans, are collectively evaluated for impairment. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception, or at the fair value of collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of the allowance in accordance with its accounting policy for the allowance for loan losses on loans individually identified as impaired.

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Mortgage Servicing Rights

Mortgage servicing rights are recognized in other assets on the Company’s consolidated balance sheet at their initial fair value on loans sold with servicing retained. Fair value is based on market prices for comparable mortgage servicing contracts when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. Mortgage servicing rights are subsequently measured using the amortization method in which the mortgage servicing right is expensed in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Impairment is evaluated based on the fair value of the rights, grouping the underlying loans by interest rates. Impairment of a grouping is reported as a valuation allowance. Capitalized mortgage servicing rights were $719 thousand and $731 thousand at December 31, 2017 and 2016, respectively. No impairment of the asset was determined to exist on either of these dates. Mortgage loans serviced for others totaled $198 million and $202 million at December 31, 2017 and 2016, respectively. Mortgage loans serviced for others are not included in the Company’s balance sheets.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 19. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, which are issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Intangible Assets

Intangible assets consist of core deposit and customer relationship intangible assets arising from business acquisitions. Intangible assets are initially measured at fair value and then amortized on an accelerated method over their estimated useful lives, which range between seven and ten years. Such assets are evaluated for impairment whenever changes in circumstances indicate that such an evaluation is necessary. The Company had no core deposit or customer relationship intangible assets recorded at any of the years ending December 31, 2017, 2016, or 2015.

Other Real Estate Owned

Other real estate owned (“OREO”) and held for sale in the accompanying consolidated balance sheets includes properties acquired by the Company through, or in lieu of, actual loan foreclosures. OREO is initially carried at fair value less estimated costs to sell. Fair value is generally based on third party appraisals of the property that includes comparable sales data. If the carrying amount exceeds fair value less estimated costs to sell, an impairment loss is recorded through expense. These assets are subsequently accounted for at the lower of carrying amount or fair value less estimated costs to sell. Operating costs after acquisition are expensed.

Income Taxes

Income tax expense is the total of current year income tax due or refundable and the change in deferred tax assets and liabilities, except for the deferred tax assets and liabilities related to business combinations or components of other comprehensive income. Deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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The Company files a consolidated federal income tax return with its subsidiaries. Federal income tax expense or benefit has been allocated to subsidiaries on a separate return basis. The Company’s policy is to record the accrual of interest and/or penalties relative to income tax matters, if any, in income tax expense.

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on the straight-line method over the estimated useful lives generally ranging from two to seven years for furniture and equipment and generally ten to 40 years for buildings and related components. Leasehold improvements are amortized over the shorter of the estimated useful lives or terms of the related leases on the straight-line method. Maintenance, repairs, and minor improvements are charged to operating expenses as incurred and major improvements are capitalized. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in noninterest income. Land is carried at cost.

Company-owned Life Insurance

The Company has purchased life insurance policies on certain key employees with their knowledge and written consent. Company-owned life insurance is recorded on the consolidated balance sheet at its cash surrender value, which is the amount that can be realized under the insurance contract at the balance sheet date. The related change in cash surrender value and proceeds received under the policies are reported on the consolidated statements of income under the caption “Income from company-owned life insurance.”

Related Party Transactions

In the ordinary course of business, the Company offers loan and deposit products to its directors, executive officers, and principal shareholders – including affiliated companies of which they are principal owners (“Related Parties”). These products are offered on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties, and these receivables and deposits are included in loans and deposits in the Company’s consolidated balance sheets. Additional information related to these transactions can be found in Note 4 and Note 7.

The Company makes payments to Related Parties in the normal course of business for various services, primarily related to legal fees. For example, certain directors of the Parent Company and its subsidiary bank are partners in law firms that act as counsel to the Company. The following table represents the amount and type of payments to Related Parties, other than director fees, for the periods indicated:

(In thousands) Years Ended December 31,	2017		2016		2015
Legal fees	$	139	$	257	$	221
Commissions and fees related to the sale of repossessed commercial real estate and property management		-		-		9
Insurance premiums/commissions		-		-		1
Other		27		2		5
Total	$	166	$	259	$	236

Retirement Plans

The Company maintains a 401(k) salary savings plan and records expense based on the amount of its matching contributions of employee deferrals. The Company also has a nonqualified supplemental retirement plan for certain key employees that it acquired in connection with the Citizens Bank of Northern Kentucky, Inc. acquisition. Supplemental retirement plan expense allocates the benefits over years of service.

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Net Income Per Common Share

Basic net income per common share is determined by dividing net income available to common shareholders by the weighted average total number of common shares issued and outstanding. Net income available to common shareholders represents net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock issuances, and cumulative dividends related to the current dividend period that have not been declared as of the end of the period. There were no dilutive instruments atyear-end 2017, 2016, and 2015.

Net income per common share computations were as follows for the years ended December 31, 2017, 2016, and 2015.

(In thousands, except per share data) Years Ended December 31,	2017		2016		2015
Net income, basic and diluted	$	11,688	$	16,605	$	14,992
Less preferred stock dividends and discount accretion		-		-		395
Net income available to common shareholders, basic and diluted	$	11,688	$	16,605	$	14,597
Average common shares issued and outstanding, basic and diluted		7,513		7,504		7,494
Net income per common share, basic and diluted	$	1.56	$	2.21	$	1.95

Comprehensive Income

Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. For the Company this includes net income, the after tax effect of changes in the net unrealized gains and losses on available for sale investment securities, and the after tax changes to the funded status of postretirement benefit plans.

Dividend Restrictions

Banking regulations require maintaining certain capital levels which limit the amount of dividends paid to the Company by its bank subsidiary. Generally, capital distributions are limited to undistributed net income for the current and prior two years.

Restrictions on Cash

The Company is required to maintain funds in cash and/or on deposit with the Federal Reserve Bank in accordance with reserve requirements specified by the Federal Reserve Board of Governors. The required reserve was $17.3 million and $18.0 million at December 31, 2017 and 2016, respectively.

Equity

Outstanding common shares purchased by the Company are retired. When common shares are purchased, the Company allocates a portion of the purchase price of the common shares that are retired to each of the following balance sheet line items: common stock, capital surplus, and retained earnings. The Company did not purchase any of its outstanding common shares during 2017 or 2016.

Trust Assets

Assets of the Company’s trust department, other than cash on deposit by trust customers at the Bank, are not included in the accompanying financial statements because they are not assets of the Company.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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Long-term Assets

Premises and equipment, core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Stock-Based Compensation

The Company recognizes compensation cost for its Employee Stock Purchase Plan (“ESPP”) based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of shares issued under the ESPP. Compensation cost is recognized over the required service period, generally defined as the vesting period, on a straight-line basis.

The ESPP was approved by the Company’s shareholders in 2004. The purpose of the ESPP is to provide a means by which eligible employees may purchase, at a discount, shares of the Company’s common stock through payroll withholding. The purchase price of the shares is equal to 85% of their fair market value on specified dates as defined in the plan. The ESPP was effective beginning July 1, 2004. There were 5,367, 6,631, and 6,329 shares issued under the plan during 2017, 2016, and 2015, respectively. Compensation expense related to the ESPP included in the accompanying statements of income was $33 thousand, $32 thousand, and $31 thousand in 2017, 2016, and 2015, respectively.

Following are the weighted average assumptions used and estimated fair market value for the ESPP, which is considered a compensatory plan under ASC Topic 718, “Compensation-Stock Compensation.”

	ESPP
	2017			2016			2015
Expected volatility		23.2	%		26.3	%		32.6	%
Dividend yield		1.04			.83			-
Risk-free interest rate		.85			.26			.02
Expected life (in years)		.25			.25			.25
Fair value	$	7.43		$	5.31		$	5.08

Recently Issued But Not Yet Effective Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequently issued several amendments to the standard during 2015, 2016, and 2017. The primary principle of ASU No. 2014-09 is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

As amended, ASU No. 2014-09 is effective for the Company in annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those reporting periods. The majority of the Company’s revenues earned are excluded from the scope of the new standard. Revenue streams within the scope of this ASU include services charges and fees on deposits, allotment processing fees, trust income, and components of other service charges, commission, and fees. The Company adopted ASU No. 2014-09 effective January 1, 2018 using a modified retrospective approach with no material impact to the Company’s consolidated financial statements. The Company is in the process of finalizing the additional disclosures required by the new standard.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and, in February 2018, issued an amendment for technical corrections and improvements related to this ASU. The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). In addition, this ASU eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. Public business entities will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted ASU No. 2016-01 effective January 1, 2018 with no material impact to the Company’s consolidated financial statements.

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In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

For public companies, ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company has identified a project team to review its leases and to assess the impact of ASU No. 2016-02 on its consolidated financial position, results of operations, and cash flows.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures, includingqualitative and quantitative requirements, which provide additional information about the amounts recorded in the financial statements.Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

ASU No. 2016-13 is effective for the Company in annual and interim reporting periods beginning after December 15, 2019. Although early adoption is permitted for fiscal years beginning after December 15, 2018, the Company does not plan to early adopt. The Company has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard. The Company has identified a project team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. The project team has developed a timeline for implementing the standard, has begun working with a third party software solution provider, and has identified an independent third party for validation of the impending changes to our credit loss methodologies and processes.The team continues to assess the impact of the standard; however, the Company expects adopting this ASU will result in an increase in its allowance for loan losses. The amount of the increase in the allowance for loan losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date. A cumulative effect adjustment will be made to retained earnings for the impact of the standard at the beginning of the period the standard is adopted.

In March 2017, the FASB issued ASU NO. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that employers offering benefit plans accounted for under Topic 715 report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. This ASU is effective for the Company in annual and interim reporting periods beginning after December 15, 2017. The Company does not expect ASU No. 2017-07 to have a material impact on its consolidated financial position, results of operations, or cash flows upon adoption.

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In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. The ASU does not change the accounting for securities held at a discount; the discount will continue to be amortized to maturity. This ASU is effective for the Company in annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. The Company early adopted this standard with no material impact on its consolidated financial position, results of operations, or cash flows.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows entities to reclassify the stranded tax effects caused by theTax Cuts and Jobs Act (“Tax Act”), which was enacted in December 2017, from accumulated other comprehensive income (“AOCI”) to retained earnings. This ASU will be effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company early adopted this standard, resulting in the reclassification of $633 thousand from AOCI to retained earnings for the year ended December 31, 2017. There was no impact on total equity. Additional information related to the reclassification can be found in Note 2.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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2. Accumulated Other Comprehensive Income

The following table presents changes in AOCI by component, net of tax, for the periods indicated. The table also includes a total of $633 thousand reclassified from AOCI to retained earnings related to the adoption of ASU 2018-02. The Tax Act, among other things, reduced the US Federal corporate tax rate from 35% to 21% effective January 1, 2018. As a result, under U.S. GAAP, the Company was required to remeasure its net deferred tax assets at the new tax rate and recognize the adjustment through income tax expense. The adjustment through income tax expense leaves items presented in AOCI, for which the related income tax effects were originally recognized in other comprehensive income, unadjusted for the new tax rate. ASU 2018-02 allows the Company to reclassify the effect of the change in the tax rate from AOCI to retained earnings, which results in AOCI reflecting the new tax rate. Additional information related to the Company’s income tax expense and net deferred tax assets can be found in Note 10.

Year Ended December 31,	2017									2016
(In thousands)	Unrealized Gains and Losses on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total			Unrealized Gains and Losses on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(3,363	)	$	(45	)	$	(3,408	)	$	3,219		$	(437	)	$	2,782
Other comprehensive income (loss) before reclassifications		489			(53	)		436			(3,983	)		356			(3,627	)
Amounts reclassified from accumulated other comprehensive income		(13	)		52			39			(2,599	)		36			(2,563	)
Net current-period other comprehensive income (loss)	$	476		$	(1	)	$	475		$	(6,582	)	$	392		$	(6,190	)
Adoption of Accounting Standards Update 2018-02		(623	)		(10	)		(633	)		-			-			-
Ending balance	$	(3,510	)	$	(56	)	$	(3,566	)	$	(3,363	)	$	(45	)	$	(3,408	)

The following table presents amounts reclassified out of accumulated other comprehensive income by component for the period indicated. Line items in the statement of income affected by the reclassification are also presented.

(In thousands)	Amount Reclassified from Accumulated Other Comprehensive Income									Affected Line Item in the Statement Where Net Income is Presented
Year Ended December 31,	2017			2016			2015
Unrealized gains on available for sale investment securities	$	20		$	3,998		$	171		Net gain on sales of available for sale investment securities
		(7	)		(1,399	)		(60	)	Income tax expense
	$	13		$	2,599		$	111		Net of tax
Amortization related to postretirement benefits
Prior service costs	$	(75	)	$	(50	)	$	(51	)	Salaries and employee benefits
Actuarial losses		(5	)		(5	)		(42	)	Salaries and employee benefits
		(80	)		(55	)		(93	)	Total before tax
		28			19			33		Income tax expense
	$	(52	)	$	(36	)	$	(60	)	Net of tax
Total reclassifications for the period	$	(39	)	$	2,563		$	51		Net of tax

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3. Investment Securities

The following tables summarize the amortized cost and estimated fair values of the securities portfolio at December 31, 2017 and 2016.

December 31, 2017 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	43,601	$	44	$	437	$	43,208
Obligations of states and political subdivisions		114,960		562		1,273		114,249
Mortgage-backed securities – residential		195,605		523		2,735		193,393
Mortgage-backed securities – commercial		50,518		42		1,208		49,352
Asset-backed securities		15,569		9		4		15,574
Corporate debt securities		7,578		1		37		7,542
Mutual funds and equity securities		864		71		-		935
Total securities – available for sale	$	428,695	$	1,252	$	5,694	$	424,253
Held To Maturity
Obligations of states and political subdivisions	$	3,364	$	114	$	-	$	3,478

December 31, 2016 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	71,941	$	213	$	460	$	71,694
Obligations of states and political subdivisions		134,055		773		2,536		132,292
Mortgage-backed securities – residential		225,489		1,505		2,687		224,307
Mortgage-backed securities – commercial		47,164		6		1,557		45,613
Corporate debt securities		6,565		1		441		6,125
Mutual funds and equity securities		824		20		11		833
Total securities – available for sale	$	486,038	$	2,518	$	7,692	$	480,864
Held To Maturity
Obligations of states and political subdivisions	$	3,488	$	109	$	-	$	3,597

Investment securities with a carrying value of $214 million and $191 million at December 31, 2017 and 2016, respectively, were pledged to secure public and trust deposits, repurchase agreements, and for other purposes.

At year-end 2017 and 2016, the Company held no investment securities of any single issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

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The amortized cost and estimated fair value of the debt securities portfolio at December 31, 2017, by contractual maturity, are detailed below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mutual funds and equity securities in the available for sale portfolio at December 31, 2017 consist of investments by the Company’s captive insurance subsidiary. These securities have no stated maturity and are not included in the maturity schedule that follows.

Mortgage-backed securities are stated separately due to the nature of payment and prepayment characteristics of these securities, as principal is not due at a single date.

	Available For Sale				Held To Maturity
December 31, 2017 (In thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	27,301	$	27,276	$	-	$	-
Due after one year through five years		50,953		50,676		-		-
Due after five years through ten years		63,345		62,451		1,232		1,322
Due after ten years		40,109		40,170		2,132		2,156
Mortgage-backed securities		246,123		242,745		-		-
Total	$	427,831	$	423,318	$	3,364	$	3,478

Gross realized gains and losses on the sale of available for sale investment securities were as follows for the year indicated.

(In thousands)	2017		2016		2015
Gross realized gains	$	501	$	4,191	$	224
Gross realized losses		481		193		53
Net realized gain	$	20	$	3,998	$	171
Income tax provision related to net realized gain	$	7	$	1,399	$	60

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Investment securities with unrealized losses at year-end 2017 and 2016 not recognized in income are presented in the tables below. The tables segregate investment securities that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or more. The table also includes the fair value of the related securities.

	Less than 12 Months				12 Months or More				Total
December 31, 2017 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	11,544	$	43	$	25,298	$	394	$	36,842	$	437
Obligations of states and political subdivisions		40,402		413		33,965		860		74,367		1,273
Mortgage-backed securities – residential		77,312		481		99,986		2,254		177,298		2,735
Mortgage-backed securities – commercial		7,758		62		34,139		1,146		41,897		1,208
Asset-backed securities		1,166		4		-		-		1,166		4
Corporate debt securities		7,251		36		200		1		7,451		37
Total	$	145,433	$	1,039	$	193,588	$	4,655	$	339,021	$	5,694

	Less than 12 Months				12 Months or More				Total
December 31, 2016 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	51,657	$	460	$	-	$	-	$	51,657	$	460
Obligations of states and political subdivisions		91,728		2,526		1,999		10		93,727		2,536
Mortgage-backed securities – residential		154,397		2,485		5,841		202		160,238		2,687
Mortgage-backed securities – commercial		43,309		1,557		-		-		43,309		1,557
Corporate debt securities		536		6		5,476		435		6,012		441
Mutual funds and equity securities		128		2		113		9		241		11
Total	$	341,755	$	7,036	$	13,429	$	656	$	355,184	$	7,692

Unrealized losses included in the tables above have not been recognized in income since they have been identified as temporary. The Company attributes the unrealized losses in its investment securities portfolio to changes in market interest rates and volatility. Investment securities with unrealized losses at December 31, 2017 are performing according to their contractual terms, and the Company does not expect to incur a loss on these securities unless they are sold prior to maturity. The Company does not have the intent to sell these securities nor does it believe it is likely that it will be required to sell these securities prior to their anticipated recovery. The Company does not consider any of the securities to be impaired due to reasons of credit quality or other factors.

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4. Loans and Allowance for Loan Losses

Major classifications of loans are summarized in the following table.

December 31, (In thousands)	2017		2016
Real Estate
Real estate mortgage – construction and land development	$	129,181	$	120,230
Real estate mortgage – residential		355,304		350,295
Real estate mortgage – farmland and other commercial enterprises		432,321		400,367
Commercial
Commercial and industrial		63,417		48,607
States and political subdivisions		27,209		18,933
Other		19,916		23,308
Consumer
Secured		4,853		4,554
Unsecured		3,062		4,681
Total loans		1,035,263		970,975
Less unearned income		-		-
Total loans, net of unearned income	$	1,035,263	$	970,975

From time to time the Company may purchase a limited amount of loans originated by otherwise nonaffiliated third parties. The Company performs its own risk assessment and makes the credit decision on each loan prior to purchase. The Company purchased smaller balance commercial loans totaling $2.8 million and $2.5 million in the aggregate during 2017 and 2016, respectively. The average individual balance of the purchased loans was $123 thousand for 2017 and $120 thousand for 2016.

Loans to directors, executive officers, and principal shareholders of the Company and its subsidiaries (including loans to affiliated companies of which they are principal owners) and loans to members of the immediate family of such persons were $13.1 million at December 31, 2017. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectability. An analysis of the activity with respect to these loans is presented in the table below.

(In thousands)	Amount
Balance at December 31, 2016	$	13,499
New loans		11,549
Repayments		(5,693	)
Loans no longer meeting disclosure requirements, new loans meeting disclosure requirements, and other adjustments, net		(6,231	)
Balance at December 31, 2017	$	13,124

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Activity in the allowance for loan losses by portfolio segment was as follows for each of the three years in the period ended December 31, 2017:

(In thousands)	Real Estate			Commercial			Consumer			Total
2017
Balance at beginning of period	$	8,205		$	854		$	285		$	9,344
Provision for loan losses		(537	)		237			89			(211	)
Recoveries		1,386			139			55			1,580
Loans charged off		(545	)		(279	)		(106	)		(930	)
Balance at end of period	$	8,509		$	951		$	323		$	9,783
2016
Balance at beginning of period	$	9,173		$	820		$	322		$	10,315
Provision for loan losses		(702	)		50			8			(644	)
Recoveries		141			203			69			413
Loans charged off		(407	)		(219	)		(114	)		(740	)
Balance at end of period	$	8,205		$	854		$	285		$	9,344
2015
Balance at beginning of period	$	12,542		$	1,153		$	273		$	13,968
Provision for loan losses		(3,099	)		(449	)		119			(3,429	)
Recoveries		463			210			112			785
Loans charged off		(733	)		(94	)		(182	)		(1,009	)
Balance at end of period	$	9,173		$	820		$	322		$	10,315

The following tables present individually impaired loans by class of loans for the dates indicated.

As of and for the Year Ended December 31, 2017 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	4,076	$	1,746	$	1,955	$	3,701	$	402	$	5,124	$	239	$	239
Real estate mortgage – residential		10,112		3,233		6,877		10,110		1,973		10,337		525		521
Real estate mortgage – farmland and other commercial enterprises		8,737		2,203		6,367		8,570		319		19,139		917		908
Commercial
Commercial and industrial		448		-		448		448		270		440		25		25
Other		-		-		-		-		-		6		-		-
Consumer
Unsecured		312		-		312		312		218		329		17		17
Total	$	23,685	$	7,182	$	15,959	$	23,141	$	3,182	$	35,375	$	1,723	$	1,710

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As of and for the Year Ended December 31, 2016 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	9,076	$	2,599	$	3,800	$	6,399	$	759	$	7,706	$	310	$	298
Real estate mortgage – residential		9,930		4,388		5,590		9,978		1,503		9,146		491		465
Real estate mortgage – farmland and other commercial enterprises		25,045		9,699		15,235		24,934		304		25,557		1,197		1,153
Commercial
Commercial and industrial		435		20		418		438		236		419		23		21
Consumer
Unsecured		146		-		146		146		146		151		7		6
Total	$	44,632	$	16,706	$	25,189	$	41,895	$	2,948	$	42,979	$	2,028	$	1,943

Year Ended December 31, 2015 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	9,409	$	343	$	337
Real estate mortgage – residential		9,810		448		438
Real estate mortgage – farmland and other commercial enterprises		22,439		890		887
Commercial
Commercial and industrial		523		16		16
Consumer
Unsecured		127		6		6
Total	$	42,308	$	1,703	$	1,684

The following tables present the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of December 31, 2017 and 2016.

December 31, 2017 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,694	$	270	$	218	$	3,182
Collectively evaluated for impairment		5,815		681		105		6,601
Total ending allowance balance	$	8,509	$	951	$	323	$	9,783
Loans
Loans individually evaluated for impairment	$	22,381	$	448	$	312	$	23,141
Loans collectively evaluated for impairment		894,425		110,094		7,603		1,012,122
Total ending loan balance, net of unearned income	$	916,806	$	110,542	$	7,915	$	1,035,263

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December 31, 2016 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,566	$	236	$	146	$	2,948
Collectively evaluated for impairment		5,639		618		139		6,396
Total ending allowance balance	$	8,205	$	854	$	285	$	9,344
Loans
Loans individually evaluated for impairment	$	41,311	$	438	$	146	$	41,895
Loans collectively evaluated for impairment		829,581		90,410		9,089		929,080
Total ending loan balance, net of unearned income	$	870,892	$	90,848	$	9,235	$	970,975

The following tables present the recorded investment in nonperforming loans by class of loans as of December 31, 2017 and 2016.

December 31, 2017 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	151	$	1,955	$	-
Real estate mortgage – residential		1,763		5,326		-
Real estate mortgage – farmland and other commercial enterprises		1,752		3,703		-
Commercial
Commercial and industrial		53		370		-
Consumer
Unsecured		168		128		-
Total	$	3,887	$	11,482	$	-

December 31, 2016 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	712	$	3,637	$	-
Real estate mortgage – residential		2,316		4,006		-
Real estate mortgage – farmland and other commercial enterprises		3,383		14,787		-
Commercial
Commercial and industrial		-		377		-
Consumer
Secured		4		-		-
Unsecured		8		135		-
Total	$	6,423	$	22,942	$	-

The Company has allocated $1.8 million and $2.0 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings and that are in compliance with those terms as of December 31, 2017 and 2016, respectively. The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at December 31, 2017 and 2016. There were no loans modified as troubled debt restructurings during 2017 or 2016.

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The tables below present an age analysis of loans past due 30 days or more by class of loans as of the dates indicated. Past due loans that are also classified as nonaccrual are included in their respective past due category.

December 31, 2017 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate
Real estate mortgage – construction and land development	$	15	$	87	$	102	$	129,079	$	129,181	$	-	$	151
Real estate mortgage – residential		1,160		538		1,698		353,606		355,304		-		1,763
Real estate mortgage – farmland and other commercial enterprises		966		948		1,914		430,407		432,321		-		1,752
Commercial
Commercial and industrial		62		-		62		63,355		63,417		-		53
States and political subdivisions		-		-		-		27,209		27,209		-		-
Other		21		-		21		19,895		19,916		-		-
Consumer
Secured		-		-		-		4,853		4,853		-		-
Unsecured		9		-		9		3,053		3,062		-		168
Total	$	2,233	$	1,573	$	3,806	$	1,031,457	$	1,035,263	$	-	$	3,887

December 31, 2016 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate
Real estate mortgage – construction and land development	$	393	$	227	$	620	$	119,610	$	120,230	$	-	$	712
Real estate mortgage – residential		1,935		798		2,733		347,562		350,295		-		2,316
Real estate mortgage – farmland and other commercial enterprises		-		2,483		2,483		397,884		400,367		-		3,383
Commercial
Commercial and industrial		-		-		-		48,607		48,607		-		-
States and political subdivisions		-		-		-		18,933		18,933		-		-
Other		24		-		24		23,284		23,308		-		-
Consumer
Secured		13		-		13		4,541		4,554		-		4
Unsecured		30		8		38		4,643		4,681		-		8
Total	$	2,395	$	3,516	$	5,911	$	965,064	$	970,975	$	-	$	6,423

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends and conditions. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes large-balance loans and non-homogeneous loans, such as commercial real estate and certain residential real estate loans. Loan rating grades, as described further below, are assigned based on a continuous process. The amount and adequacy of the allowance for loan loss is determined on a quarterly basis. The Company uses the following definitions for its risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the borrower’s repayment ability, weaken the collateral, or inadequately protect the Company’s credit position at some future date. These credits pose elevated risk, but their weaknesses do not yet justify a substandard classification.

96

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent of those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above which are analyzed individually as part of the above described process are considered to be pass rated loans and are considered to have a low risk of loss. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the dates indicated.

	Real Estate						Commercial
December 31, 2017 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	124,926	$	330,401	$	414,663	$	62,490	$	27,209	$	19,898
Special Mention		396		9,196		7,556		474		-		18
Substandard		3,859		15,707		10,102		453		-		-
Doubtful		-		-		-		-		-		-
Total	$	129,181	$	355,304	$	432,321	$	63,417	$	27,209	$	19,916

	Real Estate						Commercial
December 31, 2016 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	112,435	$	323,300	$	363,448	$	47,254	$	18,933	$	23,308
Special Mention		1,413		12,147		21,088		764		-		-
Substandard		6,382		14,806		15,831		589		-		-
Doubtful		-		42		-		-		-		-
Total	$	120,230	$	350,295	$	400,367	$	48,607	$	18,933	$	23,308

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The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the consumer loans outstanding based on payment activity as of December 31, 2017 and 2016.

	December 31, 2017				December 31, 2016
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity
Performing	$	4,853	$	2,766	$	4,550	$	4,538
Nonperforming		-		296		4		143
Total	$	4,853	$	3,062	$	4,554	$	4,681

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. During the first quarter of 2017, the Company shortened the look-back period it uses to determine historical loss rates to the previous twelve quarters from sixteen quarters. No other significant changes were made to the loan risk grading system definitions or allowance for loan loss methodology during the past year.

5. Premises and Equipment

Premises and equipment consist of the following:

December 31, (In thousands)	2017		2016
Land, buildings, and leasehold improvements	$	60,980	$	60,399
Furniture and equipment		19,020		18,188
Total premises and equipment		80,000		78,587
Less accumulated depreciation and amortization		49,072		46,687
Premises and equipment, net	$	30,928	$	31,900

Depreciation and amortization of premises and equipment was $3.3 million, $3.4 million, and $3.5 million for 2017, 2016, and 2015, respectively.

6. Other Real Estate Owned

OREO was as follows as of the date indicated:

December 31, (In thousands)	2017		2016
Construction and land development	$	4,433	$	7,996
Residential real estate		157		871
Farmland and other commercial enterprises		899		1,806
Total	$	5,489	$	10,673

OREO activity for 2017 and 2016 was as follows:

(In thousands)	2017			2016
Beginning balance	$	10,673		$	21,843
Transfers from loans and other increases		821			2,044
Proceeds from sales		(5,419	)		(11,289	)
Gain (loss) on sales, net		208			(473	)
Write downs and other decreases, net		(794	)		(1,452	)
Ending balance	$	5,489		$	10,673

At December 31, 2017, the Company had a total of $886 thousand of loans secured by residential real estate mortgages that were in the process of foreclosure.

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7. Deposit Liabilities

Major classifications of deposits are summarized as follows for the dates indicated:

December 31, (In thousands)	2017		2016
Noninterest Bearing	$	361,855	$	334,676
Interest Bearing
Demand		379,027		348,197
Savings		416,163		416,611
Time		222,858		270,423
Total interest bearing		1,018,048		1,035,231
Total Deposits	$	1,379,903	$	1,369,907

At December 31, 2017, the scheduled maturities of time deposits were as follows:

(In thousands)	Amount
2018	$	143,185
2019		37,422
2020		19,626
2021		12,887
2022		4,328
Thereafter		5,410
Total	$	222,858

Time deposits that meet or exceed the Federal Deposit Insurance Corporation (“FDIC”) limit of $250 thousand were $14.8 million and $18.6 million at December 31, 2017 and 2016, respectively.

Deposits from directors, executive officers, and principal shareholders of the Parent Company and its subsidiaries (including deposits from affiliated companies of which they are principal owners) and deposits from members of the immediate family of such persons were $19.3 million and $28.6 million at December 31, 2017 and 2016, respectively. Such deposits were accepted in the normal course of business on substantially the same terms as those prevailing at the time for comparable transactions with other customers.

8. Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase represent transactions where the Company sells certain of its investment securities and agrees to repurchase them at a specific date in the future. Securities sold under agreements to repurchase are accounted for as secured borrowings and reflect the amount of cash received in connection with the transaction. Information on securities sold under agreements to repurchase is as follows:

December 31, (Dollars in thousands)	2017			2016
Securities sold under agreements to repurchase
Amount outstanding at year-end	$	34,252		$	36,370
Average balance during the year		35,063			107,179
Maximum month-end balance during the year		38,079			140,218
Average interest rate during the year		.22	%		2.74	%
Average interest rate at year-end		.22			.36

Securities sold under agreements to repurchase are collateralized by U.S. government agency securities, primarily mortgage-backed securities. The Company may be required to provide additional collateral securing the borrowings in the event of principal pay downs or a decrease in the market value of the pledged securities. The Company mitigates this risk by monitoring the market value and liquidity of the collateral and ensuring that it holds a sufficient level of eligible securities to cover potential increases in collateral requirements.

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The following table represents the remaining maturity of repurchase agreements disaggregated by the class of securities pledged as of the dates indicated.

	Remaining Contractual Maturity of the Agreements
December 31, 2017 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Mortgage-backed securities – residential	$	32,341	$	1,200	$	-	$	454	$	257	$	34,252
Total	$	32,341	$	1,200	$	-	$	454	$	257	$	34,252

	Remaining Contractual Maturity of the Agreements
December 31, 2016 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	5,596	$	301	$	-	$	258	$	1,027	$	7,182
Mortgage-backed securities – residential		28,086		902		-		200		-		29,188
Total	$	33,682	$	1,203	$	-	$	458	$	1,027	$	36,370

The Company entered into a balance sheet leverage transaction in 2007 whereby it borrowed $200 million in multiple fixed rate term repurchase agreements with an initial weighted average cost of 3.95% and invested the proceeds in Government National Mortgage Association (“GNMA”) bonds, which were pledged as collateral. During September 2016, the Company prepaid the remaining balance of $100 million on the repurchase agreements, which were due to mature in November 2017.

9. Other Borrowings

Other borrowings consist of long-term FHLB advances and subordinated notes payable to the Company’s unconsolidated trusts. The table below displays a summary of the ending balance and average rate for such borrowed funds on the dates indicated.

			Average					Average
December 31, (Dollars in thousands)	2017		Rate			2016		Rate
Federal Home Loan Bank advances	$	3,479		3.27	%	$	18,646		3.97	%
Subordinated notes payable		33,506		2.85			33,506		2.30
Total FHLB advances and subordinated notes payable	$	36,985		2.89	%	$	52,152		2.89	%

At times the Company’s short-term borrowings include federal funds purchased and FHLB advances. At year-end 2017 and 2016, short-term borrowings consist entirely of securities sold under agreements to repurchase which are discussed further in Note 8.

FHLB advances are made pursuant to several different credit programs, which have their own interest rates and range of maturities. At December 31, 2017, interest rates on all FHLB advances are fixed and range between 2.99% and 5.81%, averaging 3.27% over a remaining weighted average maturity period of 0.9 years. At December 31, 2016, interest rates on FHLB advances ranged between 2.99% and 5.81%, averaging 3.97% over a remaining weighted average maturity period of 0.8 years. Long-term FHLB borrowings of $3.0 million and $18.0 million at year-end 2017 and 2016, respectively, were callable quarterly. None of the long-term FHLB advances are convertible to a floating interest rate.

For FHLB advances, the Company pledges FHLB stock and certain qualifying mortgage loans as collateral. Pledged loans consist primarily of fully disbursed, otherwise unencumbered, 1-4 family first mortgage loans. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to an additional $135 million from the FHLB at year-end 2017.

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Loans with a carrying value of $612 million and $416 million at December 31, 2017 and December 31, 2016, respectively, were pledged to secure borrowings and lines of credit. Such borrowings primarily include FHLB advances and short-term borrowing arrangements with the Federal Reserve.

During 2005, the Company completed two private offerings of trust preferred securities through two separate Delaware statutory trusts sponsored by the Company. Farmers Capital Bank Trust I (“Trust I”) sold $10.0 million of preferred securities and Farmers Capital Bank Trust II (“Trust II”) sold $15.0 million of preferred securities. The proceeds from the offerings were used to fund the cash portion of the acquisition of Citizens Bancorp, Inc., the former parent company of Citizens Northern. The preferred securities issued by Trust I mature September 30, 2035 and are redeemable at any time by the Trust at par.

In January 2016, the Company terminated Trust II as a result of the early extinguishment of debt issued to the trustand recorded a pretax gain of $4.1 million. The Company became aware that all $15 million of the trust preferred securities issued by Trust II would be auctioned off as part of the liquidation of a larger pooled collateralized debt obligation. The Company placed a bid of $11.0 million for the securities, which was accepted by the trustee. The Company then canceled the preferred and common securities issued by the trust and extinguished the debentures, which totaled $15.5 million.

Farmers Capital Bank Trust III (“Trust III”), a Delaware statutory trust sponsored by the Company, was formed during 2007. Trust III sold $22.5 million of preferred securities for the purpose of financing the cost of acquiring Company shares under a share repurchase program. The preferred securities mature on November 1, 2037 and are redeemable at any time by the Trust at par. Trust I and Trust III are hereafter collectively referred to as the “Trusts.”

The Trusts used the proceeds from the sale of preferred securities, plus capital contributed to establish the trusts, to purchase the Company’s subordinated notes in amounts and bearing terms that parallel the amounts and terms of the respective preferred securities. The subordinated notes to Trust I and Trust III mature in 2035 and 2037, respectively, and bear a floating interest rate (current three-month LIBOR plus 150 basis points in the case of the notes held by Trust I and current three-month LIBOR plus 132 basis points in the case of the notes held by Trust III). Interest on the notes is payable quarterly. Interest payments to the Trusts and distributions to preferred shareholders by the Trusts may be deferred for 20 consecutive quarterly periods. There have been no deferrals of interest payments during the life of the Trusts.

The subordinated notes are redeemable in whole or in part, without penalty, at the Company’s option. The notes are junior in right of payment of all present and future senior indebtedness. At December 31, 2017 and 2016 the balance of the subordinated notes payable to Trust I and Trust III was $10.3 million and $23.2 million, respectively. The interest rates in effect as of the last determination date for 2017 were 3.19% and 2.70% for Trust I and Trust III, respectively. For 2016 these rates were 2.50% and 2.21% for Trust I and Trust III, respectively.

The Company is not considered the primary beneficiary of the Trusts; therefore the Trusts are not consolidated into its financial statements. Accordingly, the Company does not report the securities issued by the Trusts as liabilities, but instead reports as liabilities the subordinated notes issued by the Company and held by the Trusts. The Company, which owns all of the common securities of the Trusts, accounts for its investment in each of the Trusts as other assets. The Company records interest expense on the corresponding notes issued to the Trusts on its statements of income.

The subordinated notes, net of the Company’s investment in the Trusts, may be included in Tier 1 capital (with certain limitations applicable) under current regulatory capital guidelines and interpretations. The net amount of subordinated notes in excess of the limit may be included in Tier 2 capital, subject to restrictions. At year-end 2017and 2016, the Company’s Tier 1 capital included $32.5 million, which represents the full amount of the subordinated notes net of the Company’s investment in the Trusts at those dates.

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Maturities of FHLB advances and subordinated notes payable at December 31, 2017 are as follows:

(In thousands)	Amount
2018	$	3,000
2019		5
2020		474
2021		-
2022		-
Thereafter		33,506
Total	$	36,985

10. Income Taxes

The components of income tax expense from operations are as follows:

December 31, (In thousands)	2017		2016		2015
Currently payable	$	6,502	$	5,556	$	3,662
Revaluation of deferred income taxes resulting from change in statutory tax rates		5,869		-		-
Deferred		270		885		1,631
Total income tax expense	$	12,641	$	6,441	$	5,293

An analysis of the difference between the effective income tax rates and the statutory federal income tax rate follows.

December 31,	2017			2016			2015
Federal statutory rate		35.0	%		35.0	%		35.0	%
Changes from statutory rates resulting from:
Revaluation of deferred income taxes resulting from changes in statutory tax rates		24.1			-			-
Tax-exempt interest		(4.1	)		(4.6	)		(5.8	)
Nondeductible interest to carry tax-exempt obligations		.1			.2			.2
Premium income not subject to tax		(1.4	)		(1.3	)		(1.5	)
Company-owned life insurance		(1.6	)		(1.5	)		(1.6	)
Other, net		(.1	)		.1			(.2	)
Effective tax rate on pretax income		52.0	%		27.9	%		26.1	%

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The tax effects of the significant temporary differences that comprise deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows:

December 31, (In thousands)	2017		2016
Assets
Allowance for loan losses	$	2,058	$	3,285
Deferred compensation		135		236
Postretirement benefit obligations		3,605		5,825
Other real estate owned		621		1,303
Self-funded insurance		114		232
Paid time off		472		815
Depreciation		1,059		1,630
Intangibles		806		1,878
Unrealized loss on available for sale investment securities, net		933		1,811
Other		147		239
Total deferred tax assets		9,950		17,254
Liabilities
Prepaid expenses		-		153
Federal Home Loan Bank stock dividends		621		1,035
Deferred loan fees		523		846
Other		31		52
Total deferred tax liabilities		1,175		2,086
Net deferred tax asset	$	8,775	$	15,168

The Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017. Among other changes, the Tax Act reduces the US Federal corporate tax rate from 35% to 21%. At December 31, 2017, the Company has substantially completed its accounting for the tax effects of enactment of the Tax Act. For deferred tax assets and liabilities, amounts were remeasured based on the rates expected to reverse in the future, which is now 21%. The Company continues to analyze certain aspects of the Tax Act and further refinements are possible, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts, although management does not expect these adjustments to materially impact the financial statements.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences at December 31, 2017.

The Company had no unrecognized tax benefits at year-end 2017, 2016, and 2015 and did not recognize any increase in unrecognized benefits during 2017 relative to any tax position taken in 2017. The Company’s policy is to record the accrual of interest or penalties relative to unrecognized tax benefits, if any, in its income tax expense accounts. There was no amount accrued for interest at December 31, 2017 and 2016. No penalties were accrued or recorded during any year in the three years ended December 31, 2017.

The Company files U.S. federal and various state income tax returns. The Company is no longer subject to income tax examinations by taxing authorities for the years before 2014.

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11. Retirement Plans

The Company maintains a salary savings plan that covers substantially all of its employees. In 2017, 2016, and 2015, the Company matched voluntary tax deferred employee contributions at 50% of eligible deferrals up to a maximum of 6% of the participants’ compensation. Effective January 1, 2018, the match will increase to 66.667% applied to eligible contributions that do not exceed 6% of the participants’ compensation with a maximum employer matching contribution of 4%. The Company may, at the discretion of its Board, contribute an additional amount based upon a percentage of covered employees’ salaries. The Company did not make a discretionary contribution during 2017, 2016, or 2015. Discretionary contributions are allocated among participants in the ratio that each participant’s compensation bears to all participants’ compensation.

Eligible employees are presented with numerous investment alternatives related to the salary savings plan. Those alternatives include various stock and bond mutual funds ranging from traditional growth funds to more stable income funds as well as an option to invest in bank certificates of deposits. Company shares are not an available investment alternative in the salary savings plan. Total retirement plan expense for 2017, 2016, and 2015 was $522 thousand, $563 thousand, and $531 thousand, respectively.

In connection with its acquisition of Citizens Bank of Northern Kentucky, Inc., the Company acquired nonqualified supplemental retirement plans for certain key employees. Benefits provided under these plans are unfunded, and payments to plan participants are made by the Company.

The following schedules set forth a reconciliation of the changes in the supplemental retirement plans’ benefit obligation and funded status for the years ended December 31, 2017 and 2016.

(In thousands)	2017			2016
Change in Benefit Obligation
Obligation at beginning of year	$	718		$	600
Service cost		22			19
Interest cost		23			24
Actuarial (gain) loss		(180	)		111
Benefit payments		(36	)		(36	)
Obligation at end of year	$	547		$	718

The following table provides disclosure of the net periodic benefit cost as of December 31 for the years indicated.

(In thousands)	2017			2016
Service cost	$	22		$	19
Interest cost		23			24
Recognized net actuarial loss		5			5
Net periodic benefit cost	$	50		$	48
Major assumptions:
Discount rate used to determine net period benefit cost		3.31	%		3.39	%
Discount rate used to determine benefit obligation at year end		2.86			3.31
Rate of compensation increase		4.00			4.00

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The following table presents estimated future benefit payments in the period indicated.

(In thousands)	Supplemental Retirement Plan
2018	$	58
2019		60
2020		60
2021		60
2022		56
2023-2027		219
Total	$	513

Amounts recognized in accumulated other comprehensive income as of December 31, 2017 and 2016 are as follows:

(In thousands)	2017			2016
Unrecognized net actuarial (gain) loss	$	(98	)	$	87
Total	$	(98	)	$	87

The estimated cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is as follows:

(In thousands)	Supplemental Retirement Plan
Unrecognized net actuarial gain	$	(5	)
Total	$	(5	)

12. Common Stock Options

During 1997, the Company’s Board of Directors approved a nonqualified stock option plan (the “Plan”), subsequently approved by the Company’s shareholders, that provided for the granting of stock options to key employees and officers of the Company. The Plan provided for the granting of options to purchase up to 450,000 shares of the Company’s common stock at a price equal to the fair value of the Company’s common stock on the date the option was granted. The options expired after ten years from the grant date and had to be held for a minimum of one year before they could be exercised. Forfeited options were available for the granting of additional stock options under the Plan.

Options forfeited from the initial grant in 1997 were used to grant options during 2000 and 2004. Total options granted were 450,000, 54,000, and 40,049 in the years 1997, 2000, and 2004, respectively. All unexercised options granted under the Plan expired during 2014 and the Company no longer grants options under the Plan. There were no options exercised or granted in any year in the three-year periods ending December 31, 2017, nor were there any modifications or cash paid to settle stock option awards during those periods.

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13. Postretirement Medical Benefits

The Company provides lifetime medical and dental benefits upon retirement for certain employees meeting the eligibility requirements as of December 31, 1989 (“Plan 1”). Additional participants are not eligible to be included in Plan 1 unless they met the requirements on this date. During 2003, the Company implemented an additional postretirement health insurance program (“Plan 2”). Under Plan 2, any employee meeting the service requirement of 20 years of full time service to the Company and is at least age 55 upon retirement is eligible to continue their health insurance coverage. Under both plans, retirees not yet eligible for Medicare have coverage identical to the coverage offered to active employees. Under both plans, Medicare-eligible retirees are provided with a Medicare Advantage plan. The Company pays 100% of the cost of Plan 1. The Company and the retirees each pay 50% of the cost under Plan 2. Both plans are unfunded. Employees hired on or after January 1, 2016 are not eligible for benefits under Plan 2. The following schedules set forth a reconciliation of the changes to the benefit obligation and funded status of the plans for the years ended December 31, 2017 and 2016.

In connection with the merger of certain of its subsidiaries in February 2017, the Company recognized a curtailment gain of $417 thousand and prior service costs of $66 thousand, for a net gain of $351 thousand at the time of curtailment. This gain is a result of revaluing its postretirement medical benefits plan liability due to a reduction in workforce during the first quarter of 2017.

(In thousands)	2017			2016
Change in Benefit Obligation
Obligation at beginning of year	$	16,555		$	16,204
Service cost		557			637
Interest cost		660			683
Curtailment gain recognized		(417	)		-
Actuarial loss (gain)		263			(660	)
Participant contributions		196			153
Benefit payments		(550	)		(462	)
Obligation at end of year	$	17,264		$	16,555

The Company’s contributions were $354 thousand and $309 thousand for 2017 and 2016, respectively. The Company expects benefit payments of $459 thousand for 2018. The following table provides disclosure of the net periodic benefit cost as of December 31 for the years indicated.

(In thousands)	2017			2016
Service cost	$	557		$	637
Interest cost		660			683
Curtailment gain recognized		(417	)		-
Recognized prior service cost		75			50
Net periodic benefit cost	$	875		$	1,370
Major assumptions:
Discount rate used to determine net periodic benefit cost		4.12	%		4.34	%
Discount rate used to determine benefit obligation as of year end		3.58			4.12
Retiree participation rate (Plan 1)		100.00			100.00
Retiree participation rate (Plan 2)		72.00			72.00

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Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. For measurement purposes, the rate of increase in pre-Medicare medical care claims costs was 6.5%, 6.0%, and 5.5% for 2018, 2019, and 2020, respectively, then grading down by .25% annually to 4.75% for 2023 and thereafter. For dental claims cost, it was 5% for 2018 and thereafter. A 1% change in the assumed health care cost trend rates would have the following incremental effects:

(In thousands)	1% Increase		1% Decrease
Effect on total of service and interest cost components of net periodic postretirement health care benefit cost	$	295	$	(247	)
Effect on accumulated postretirement benefit obligation		3,530		(2,733	)

The following table presents estimated future benefit payments in the period indicated.

(In thousands)	Postretirement Medical Benefits
2018	$	459
2019		477
2020		508
2021		551
2022		592
2023-2027		3,439
Total	$	6,026

Amounts recognized in accumulated other comprehensive income as of December 31, 2017 and 2016 are as follows:

(In thousands)	2017		2016
Unrecognized net actuarial loss (gain)	$	169	$	(93	)
Unrecognized prior service cost		-		75
Total	$	169	$	(18	)

There are no estimated costs that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year.

14. Leases

The Company leases certain branch sites and banking equipment under various operating leases. Branch site leases have renewal options of varying lengths and terms. The following table presents estimated future minimum rental commitments under these leases for the period indicated.

(In thousands)	Operating Leases
2018	$	408
2019		343
2020		286
2021		218
2022		80
Thereafter		498
Total	$	1,833

Rent expense was $408 thousand, $434 thousand, and $419 thousand for 2017, 2016, and 2015, respectively.

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15. Financial Instruments With Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The financial instruments include commitments to extend credit in the form of unused lines of credit and standby letters of credit.

These financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Total commitments to extend credit were $220 million and $188 million at December 31, 2017 and 2016, respectively. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit, if deemed necessary by the Company, is based on management’s credit evaluation of the counter-party. Collateral held varies, but may include accounts receivable, marketable securities, inventory, premises and equipment, residential real estate, and income producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that received when extending credit to customers. The fair value of these instruments is not considered material for disclosure. The Company had $2.9 million and $4.1 million in irrevocable letters of credit outstanding at December 31, 2017 and 2016, respectively.

The contractual amount of financial instruments with off-balance sheet risk was as follows at year-end:

December 31,	2017				2016
(In thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to extend credit, including unused lines of credit	$	108,269	$	111,603	$	71,369	$	116,926
Standby letters of credit		1,722		1,154		2,284		1,769
Total	$	109,991	$	112,757	$	73,653	$	118,695

16. Concentration of Credit Risk

The Company’s subsidiary bank actively engages in lending, primarily in its home counties around Central and Northern Kentucky and adjacent areas. Collateral is received to support these loans as deemed necessary. The more significant categories of collateral include cash on deposit with the Company’s bank, marketable securities, income producing properties, commercial real estate, home mortgages, and consumer durables. Loans outstanding, commitments to make loans, and letters of credit range across a large number of industries and individuals. The obligations are significantly diverse and reflect no material concentration in one or more areas, other than most of the Company’s loans are in Kentucky and secured by real estate and thus significantly affected by changes in the Kentucky economy.

17. Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. As of December 31, 2017, there were various pending legal actions and proceedings against the Company arising from the normal course of business and in which claims for damages are asserted. It is the opinion of management, after discussion with legal counsel, that the disposition or ultimate resolution of such claims and legal actions will not have a material effect upon the consolidated financial statements of the Company.

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18. Regulatory Matters

The Company and United Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements will initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and its subsidiary bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

U.S. banking regulators adopted final rules related to standards on bank capital adequacy and liquidity (commonly referred to “Basel III”) that were effective for the Company beginning on January 1, 2015, subject to a phase-in period for certain provisions extending through January 1, 2019. To ensure capital adequacy, the Company and its subsidiary bank are required to maintain minimum capital amounts and risk-based capital ratios (set forth in the tables below) as well as a capital conservation buffer in excess of the required minimum. The capital conservation buffer is being phasing in from 0.0% in 2015 to 2.50% by 2019. For 2017, the capital conservation buffer is 1.25%. The Company and the Bank met the minimum capital ratios and a fully phased-in capital conservation buffer under the new rules at year-end 2017.

As of December 31, 2017, the most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum Common Equity Tier 1 Risk-based, Tier 1 Risk-based, Total Risk-based, and Tier 1 Leverage ratios as set forth in the tables below. There are no conditions or events since that notification that management believes have changed the institutions’ category.

The regulatory capital amounts and ratios of the consolidated Company and its subsidiary bank are presented in the following tables for the dates indicated. The minimums presented below are before the capital conservation buffer which was 1.25% and 0.625% at December 31, 2017 and 2016, respectively.

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
December 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common Equity Tier 1 Risk-based Capital1
Consolidated	$	196,919		16.56	%	$	53,500		4.50	%		N/A		N/A
United Bank*		165,488		14.05			53,004		4.50		$	76,561		6.50	%
Tier 1 Risk-based Capital1
Consolidated	$	229,419		19.30	%	$	71,334		6.00	%		N/A		N/A
United Bank*		165,488		14.05			70,671		6.00		$	94,229		8.00	%
Total Risk-based Capital 1
Consolidated	$	239,234		20.12	%	$	95,112		8.00	%		N/A		N/A
United Bank*		175,271		14.88			94,229		8.00		$	117,786		10.00	%
Tier 1 Leverage Capital 2
Consolidated	$	229,419		13.75	%	$	66,763		4.00	%		N/A		N/A
United Bank*		165,488		10.13			65,365		4.00		$	81,706		5.00	%

109

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
December 31, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common Equity Tier 1 Risk-based Capital1
Consolidated	$	187,474		16.43	%	$	51,349		4.50	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		16.53			17,425		4.50		$	25,170		6.50	%
United Bank & Trust Company*		58,180		15.54			16,848		4.50			24,337		6.50
First Citizens Bank*		28,324		13.56			9,401		4.50			13,580		6.50
Citizens Bank of Northern Kentucky, Inc.*		24,661		15.24			7,280		4.50			10,516		6.50
Tier 1 Risk-based Capital1
Consolidated	$	219,974		19.28	%	$	68,466		6.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		16.53			23,234		6.00		$	30,978		8.00	%
United Bank & Trust Company*		58,180		15.54			22,465		6.00			29,953		8.00
First Citizens Bank*		28,324		13.56			12,535		6.00			16,714		8.00
Citizens Bank of Northern Kentucky, Inc.*		24,661		15.24			9,707		6.00			12,942		8.00
Total Risk-based Capital 1
Consolidated	$	229,318		20.10	%	$	91,288		8.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		66,720		17.23			30,978		8.00		$	38,723		10.00	%
United Bank & Trust Company*		61,680		16.47			29,953		8.00			37,441		10.00
First Citizens Bank*		29,590		14.16			16,714		8.00			20,892		10.00
Citizens Bank of Northern Kentucky, Inc.*		26,534		16.40			12,942		8.00			16,178		10.00
Tier 1 Leverage Capital 2
Consolidated	$	219,974		13.20	%	$	66,656		4.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		9.80			26,121		4.00		$	32,651		5.00	%
United Bank & Trust Company*		58,180		12.38			18,798		4.00			23,497		5.00
First Citizens Bank*		28,324		9.76			11,606		4.00			14,507		5.00
Citizens Bank of Northern Kentucky, Inc.*		24,661		10.68			9,234		4.00			11,543		5.00

¹Common Equity Tier 1 Risk-based, Tier 1 Risk-based, and Total Risk-based Capital ratios are computed by dividing a bank’s Common Equity Tier 1, Tier 1, or Total Capital, as defined by regulation, by a risk-weighted sum of the bank’s assets, with the risk weighting determined by general standards established by regulation.

²Tier 1 Leverage ratio is computed by dividing a bank’s Tier 1 Capital by its total quarterly average assets, as defined by regulation.

*In February 2017, the Company mergedUnited Bank & Trust Company, First Citizens Bank, Inc., and Citizens Bank of Northern Kentucky, Inc. into Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed to United Bank & Capital Trust Company.

Payment of dividends by the Bank is subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. Generally, capital distributions are limited to undistributed net income for the current and prior two years, subject to the capital requirements as summarized above.

19. Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value, and sets forth disclosures about fair value measurements. ASC Topic 825, “Financial Instruments,” allows entities to choose to measure certain financial assets and liabilities at fair value. The Company has not elected the fair value option for any of its financial assets or liabilities.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This Topic describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

110

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions supported by little or no market activity, about the assumptions that market participants would use in pricing the asset or liability.

Following is a description of the valuation method used for instruments measured at fair value on a recurring basis. For this disclosure, the Company only has available for sale investment securities and money market mutual funds classified as cash equivalents that meet the requirement. The carrying value of the $36.7 and $18.6 million in money market mutual funds at December 31, 2017 and 2016, respectively, is equivalent to its fair value and based on Level 1 inputs.

Available for sale investment securities

Valued primarily by independent third party pricing services under the market valuation approach that include, but are not limited to, the following inputs:

● Mutual funds and equity securities are priced utilizing real-time data feeds from active market exchanges for identical securities and are considered Level 1 inputs.

● Government-sponsored agency debt securities, obligations of states and political subdivisions, mortgage-backed securities, corporate bonds, and other similar investment securities are priced with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources and are considered Level 2 inputs.

Fair value disclosures for available for sale investment securities as of December 31, 2017 and 2016 are as follows:

			Fair Value Measurements Using
(In thousands)   Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2017
Obligations of U.S. government-sponsored entities	$	43,208	$	-	$	43,208	$	-
Obligations of states and political subdivisions		114,249		-		114,249		-
Mortgage-backed securities – residential		193,393		-		193,393		-
Mortgage-backed securities – commercial		49,352		-		49,352		-
Asset-backed securities		15,574		-		15,574		-
Corporate debt securities		7,542		-		7,542		-
Mutual funds and equity securities		935		935		-		-
Total	$	424,253	$	935	$	423,318	$	-
December 31, 2016
Obligations of U.S. government-sponsored entities	$	71,694	$	-	$	71,694	$	-
Obligations of states and political subdivisions		132,292		-		132,292		-
Mortgage-backed securities – residential		224,307		-		224,307		-
Mortgage-backed securities – commercial		45,613		-		45,613		-
Corporate debt securities		6,125		-		6,125		-
Mutual funds and equity securities		833		833		-		-
Total	$	480,864	$	833	$	480,031	$	-

111

The Company is required to measure and disclose certain other assets and liabilities at fair value on a nonrecurring basis in periods following their initial recognition. The Company’s disclosure about assets and liabilities measured at fair value on a nonrecurring basis consists of collateral-dependent impaired loans and OREO.

Adjustments to the fair value of collateral-dependent loans are recorded by either direct loan charge-offs through the allowance for loan losses or an adjustment to the specific reserve through an increase or decrease to the provision for loan losses. The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is measured based on recent appraisals of the underlying collateral. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraisers take absorption rates into consideration and adjustments are routinely made in the appraisal process to identify differences between the comparable sales and income data available. Such adjustments consist mainly of estimated costs to sell that are not included in certain appraisals or to update appraised collateral values as a result of market declines of similar properties for which a newer appraisal is available. These adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value.

OREO includes properties acquired by the Company through, or in lieu of, actual loan foreclosures and is carried at fair value less estimated costs to sell. Fair value of OREO at acquisition is generally based on third party appraisals of the property that includes comparable sales data and is considered as Level 3 inputs. The carrying value of each OREO property is updated at least annually and more frequently when market conditions significantly impact the value of the property. If the carrying amount of the OREO exceeds fair value less estimated costs to sell, an impairment loss is recorded through noninterest expense.

The following table represents the carrying amount of assets measured at fair value on a nonrecurring basis and still held by the Company as of the dates indicated. The amounts in the table only represent assets whose carrying amount has been adjusted during the period in a manner as described above; therefore, these amounts will differ from the total amounts outstanding. With the exception of those calculated using the collateral valuation method, collateral-dependent impaired loan amounts in the tables below exclude restructured loans that are measured based on present value techniques, which are outside the scope of the fair value reporting framework.

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2017
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	1,553	$	-	$	-	$	1,553
Real estate mortgage – residential		4,687		-		-		4,687
Real estate mortgage – farmland and other commercial enterprises		2,645		-		-		2,645
Total	$	8,885	$	-	$	-	$	8,885
OREO
Construction and land development	$	3,468	$	-	$	-	$	3,468
Residential real estate		157		-		-		157
Farmland and other commercial enterprises		821		-		-		821
Total	$	4,446	$	-	$	-	$	4,446

112

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2016
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	2,909	$	-	$	-	$	2,909
Real estate mortgage – residential		3,137		-		-		3,137
Real estate mortgage – farmland and other commercial enterprises		351		-		-		351
Total	$	6,397	$	-	$	-	$	6,397
OREO
Construction and land development	$	4,883	$	-	$	-	$	4,883
Residential real estate		234		-		-		234
Farmland and other commercial enterprises		1,070		-		-		1,070
Total	$	6,187	$	-	$	-	$	6,187

The following table represents fair value adjustments recorded in earnings for the periods indicated on assets measured at fair value on a nonrecurring basis.

(In thousands) Years Ended December 31,	2017		2016
Net decrease in fair value:
Collateral-dependent impaired loans	$	386	$	858
OREO		597		634
Total	$	983	$	1,492

The following table presents quantitative information about unobservable inputs for assets measured on a nonrecurring basis using Level 3 measurements. As described above, the fair value of real estate securing collateral-dependent impaired loans and OREO are based on current third party appraisals. It is sometimes necessary, however, for the Company to discount the appraisal amounts supporting its impaired loans and OREO. These discounts relate primarily to marketing and other holding costs that are not included in certain appraisals or to update values as a result of market declines of similar properties for which newer appraisals are available. Discounts may also result from contracts to sell properties entered into during the period. The range of discounts is presented in the table below for 2017 and 2016. The upper end of the range identified in the table related to OREO for each year is the result of write-downs on relatively small properties. The weighted average column represents a better indicator of the discounts applied to the appraisals.

(In thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range				Weighted Average
December 31, 2017
Collateral-dependent impaired loans	$	8,885	Discounted appraisals	Marketability discount		0%	-	22.8%		3.1	%
OREO	$	4,446	Discounted appraisals	Marketability discount		0%	-	71.7%		4.05	%
December 31, 2016
Collateral-dependent impaired loans	$	6,397	Discounted appraisals	Marketability discount		0%	-	67.8%		3.5	%
OREO	$	6,187	Discounted appraisals	Marketability discount		0%	-	50.0%		11.2	%

113

Fair Value of Financial Instruments

The table that follows represents the estimated fair values of the Company’s financial instruments made in accordance with the requirements of ASC Topic 825, “Financial Instruments.” ASC Topic 825 requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and present value or other valuation techniques. These derived fair values are subjective in nature, involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. ASC Topic 825 excludes certain financial instruments and all nonfinancial instruments from the disclosure requirements. Accordingly, the aggregate fair value amounts presented are not intended to represent the underlying value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments not presented elsewhere for which it is practicable to estimate that value.

Cash and Cash Equivalents, Accrued Interest Receivable, and Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization or settlement.

Investment Securities Held to Maturity

Fair value is based on quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources.

Loans

The fair value of loans is estimated by discounting expected future cash flows using current discount rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Expected future cash flows are projected based on contractual cash flows adjusted for estimated prepayments.

Federal Home Loan Bank and Federal Reserve Bank Stock

It is not practical to determine the fair value of Federal Home Loan Bank and Federal Reserve Bank stock due to restrictions placed on its transferability.

Deposit Liabilities

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date and fair value approximates carrying value. The fair value of fixed maturity certificates of deposit is estimated by discounting the expected future cash flows using the rates currently offered for certificates of deposit with similar remaining maturities.

Federal Funds Purchased and Short-term Securities Sold Under Agreements to Repurchase

The carrying amount is the estimated fair value for these borrowings which reprice frequently in the near term.

Securities Sold Under Agreements to Repurchase, Subordinated Notes Payable, and Other Long-term Borrowings

The fair value of these borrowings is estimated by discounting the expected future cash flows using rates currently available for debt with similar terms and remaining maturities. For subordinated notes payable, the Company uses its best estimate to determine an appropriate discount rate since active markets for similar debt transactions are limited.

114

Commitments to Extend Credit and Standby Letters of Credit

Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, compensating balance, and other covenants or requirements. Loan commitments generally have fixed expiration dates, variable interest rates and contain termination and other clauses that provide for relief from funding in the event there is a significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of the Company’s commitments to lend and standby letters of credit are competitive with others in the various markets in which the Company operates. There are no unamortized fees relating to these financial instruments, as such the carrying value and fair value are both zero.

The following table presents the estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2017 and 2016. Information for available for sale investment securities is presented within this footnote in greater detail above.

					Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2017
Assets
Cash and cash equivalents	$	120,408	$	120,408	$	120,408	$	-	$	-
Held to maturity investment securities		3,364		3,478		-		3,478		-
Loans, net		1,025,480		1,012,959		-		-		1,012,959
Accrued interest receivable		4,935		4,935		-		4,935		-
Federal Home Loan Bank and Federal Reserve Bank Stock		13,235		13,235		-		-		13,235
Liabilities
Deposits		1,379,903		1,380,122		1,157,045		-		223,077
Securities sold under agreements to repurchase		34,252		34,257		-		34,257		-
Federal Home Loan Bank advances		3,479		3,546		-		3,546		-
Subordinated notes payable to unconsolidated trusts		33,506		22,709		-		-		22,709
Accrued interest payable		261		261		-		261		-
December 31, 2016
Assets
Cash and cash equivalents	$	113,534	$	113,534	$	113,534	$	-	$	-
Held to maturity investment securities		3,488		3,597		-		3,597		-
Loans, net		961,631		962,437		-		-		962,437
Accrued interest receivable		5,019		5,019		-		5,019		-
Federal Home Loan Bank and Federal Reserve Bank Stock		9,840		9,840		-		-		9,840
Liabilities
Deposits		1,369,907		1,369,567		1,099,211		-		270,356
Securities sold under agreements to repurchase		36,370		36,381		-		36,381		-
Federal Home Loan Bank advances		18,646		19,114		-		19,114		-
Subordinated notes payable to unconsolidated trusts		33,506		21,234		-		-		21,234
Accrued interest payable		321		321		-		321		-

115

20. Parent Company Financial Statements

Condensed Balance Sheets

December 31, (In thousands)	2017			2016
Assets
Cash and cash equivalents	$	61,604		$	44,286
Investment in subsidiaries		166,183			175,935
Other assets		302			1,378
Total assets	$	228,089		$	221,599
Liabilities
Dividends payable, common stock	$	939		$	751
Subordinated notes payable to unconsolidated trusts		33,506			33,506
Other liabilities		291			3,276
Total liabilities		34,736			37,533
Shareholders’ Equity
Common stock		940			939
Capital surplus		52,201			51,885
Retained earnings		143,778			134,650
Accumulated other comprehensive loss		(3,566	)		(3,408	)
Total shareholders’ equity		193,353			184,066
Total liabilities and shareholders’ equity	$	228,089		$	221,599

Condensed Statements of Income and Comprehensive Income

Years Ended December 31, (In thousands)	2017			2016			2015
Income
Dividends from subsidiaries	$	23,026		$	24,820		$	14,426
Interest		191			39			12
Gain on debt extinguishment		-			4,050			-
Other noninterest income		363			2,442			2,555
Total income		23,580			31,351			16,993
Expense
Interest expense – subordinated notes payable to unconsolidated trusts		870			723			866
Noninterest expense		1,751			5,050			4,938
Total expense		2,621			5,773			5,804
Income before income tax benefit and equity in undistributed income of subsidiaries		20,959			25,578			11,189
Income tax (benefit) expense		(747	)		273			(1,076	)
Income before equity in undistributed income of subsidiaries		21,706			25,305			12,265
Equity in undistributed (loss) income of subsidiaries		(10,018	)		(8,700	)		2,727
Net income		11,688			16,605			14,992
Other comprehensive income (loss)		475			(6,190	)		(2,093	)
Comprehensive income	$	12,163		$	10,415		$	12,899

116

Condensed Statements of Cash Flows

Years Ended December 31, (In thousands)	2017			2016			2015
Cash Flows From Operating Activities
Net income	$	11,688		$	16,605		$	14,992
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed loss (income) of subsidiaries		10,018			8,700			(2,727	)
Noncash employee stock purchase plan expense		1			7			4
Noncash director fee compensation		105			92			104
Change in other assets and liabilities, net		(2,408	)		(1,116	)		582
Deferred income tax expense (benefit)		740			(46	)		(54	)
Gain on extinguishment of subordinated notes payable to unconsolidated trusts		-			(4,050	)		-
Net cash provided by operating activities		20,144			20,192			12,901
Cash Flows From Investing Activities
Return of equity from nonbank subsidiary		-			500			1,355
Net cash provided by investing activities		-			500			1,355
Cash Flows From Financing Activities
Cash paid to extinguish subordinated notes payable to unconsolidated trusts		-			(10,950	)		-
Dividends paid, common stock		(3,005	)		(1,575	)		-
Redemption of preferred stock		-			-			(10,000	)
Dividends paid, preferred stock		-			-			(508	)
Shares issued under employee stock purchase plan		179			155			130
Net cash used in financing activities		(2,826	)		(12,370	)		(10,378	)
Net increase in cash and cash equivalents		17,318			8,322			3,878
Cash and cash equivalents at beginning of year		44,286			35,964			32,086
Cash and cash equivalents at end of year	$	61,604		$	44,286		$	35,964

21. Quarterly Financial Data (Unaudited)

(In thousands, except per share data)
Quarters Ended 2017	March 31		June 30			Sept. 30			Dec. 31
Interest income	$	14,379	$	14,830		$	14,983		$	15,094
Interest expense		916		881			893			820
Net interest income		13,463		13,949			14,090			14,274
Provision for loan losses		580		(499	)		(379	)		87
Net interest income after provision for loan losses		12,883		14,448			14,469			14,187
Noninterest income		5,251		5,102			5,627			5,185
Noninterest expense		13,529		13,346			12,708			13,240
Income before income taxes		4,605		6,204			7,388			6,132
Income tax expense		1,276		1,722			2,076			7,567	1
Net income (loss)	$	3,329	$	4,482		$	5,312		$	(1,435	)
Net income (loss) per common share, basic and diluted	$	.44	$	.60		$	.71		$	(.19	)
Weighted average common shares outstanding, basic and diluted		7,510		7,512			7,514			7,516

¹Income tax expense includes $5.9 million related to the remeasurement of the Company’s net deferred tax assets due to the change in Federal tax rates.

117

(In thousands, except per share data)
Quarters Ended 2016	March 31			June 30			Sept. 30			Dec. 31
Interest income	$	15,330		$	14,973		$	14,619		$	14,449
Interest expense		2,043			1,975			1,809			928
Net interest income		13,287			12,998			12,810			13,521
Provision for loan losses		(473	)		(156	)		(190	)		175
Net interest income after provision for loan losses		13,760			13,154			13,000			13,346
Noninterest income		9,542	1		5,521			10,772	2		5,351
Noninterest expense		14,407			13,884			17,888	2		15,221
Income before income taxes		8,895			4,791			5,884			3,476
Income tax expense		2,715			1,235			1,560			931
Net income	$	6,180		$	3,556		$	4,324		$	2,545
Net income per common share, basic and diluted	$	.82		$	.47		$	.58		$	.34
Weighted average common shares outstanding, basic and diluted		7,500			7,502			7,505			7,508

¹Noninterest income includes $4.1 million related to the gain on the early extinguishment of subordinated notes payable.

²Noninterest income includes $3.8 million of gain on the sale of investment securities and noninterest expense includes $3.8 million of loss on the early extinguishment of debt, both related to a series of transactions to deleverage the balance sheet.

The quarterly financial information in the tables above reflects all adjustments which are necessary for a fair statement of results of the interim period.

22. Intangible Assets

Intangible assets were zero as of year-end 2017 and 2016. Customer relationship intangibles in the amount of $2.4 million recorded in connection with a prior business acquisition during 2004 were fully amortized at year-end 2014. Acquired core deposit intangibles in the amount of $4.5 million were fully amortized at year-end 2015. Aggregate amortization expense of core deposit and customer relationship intangible assets was zero for 2017 and 2016, and $449 thousand for 2015.

23. Preferred Stock

On January 9, 2009, as part of the U.S. Department of Treasury’s (“Treasury”) Capital Purchase Program (“CPP”), the Company issued 30,000 shares of Series A, no par value cumulative perpetual preferred stock to the Treasury for $30.0 million. The Company also issued a warrant to the Treasury as part of the CPP. In June 2012, the Treasury conducted an auction in which it sold all of its investment in the Company’s Series A preferred stock to private investors. The Company received no proceeds as part of the transaction. In July 2012, the Company repurchased the warrant it issued to the Treasury. Upon settlement of the warrant repurchase, the Treasury had no remaining equity stake in the Company.

The Company redeemed 20,000 shares of its outstanding preferred stock during 2014 at its stated liquidation value of $1 thousand per share, plus accrued dividends. The shares were approved and redeemed in two separate partial redemptions of 10,000 shares each, one of which occurred in second quarter and the other in the fourth quarter.

On June 8, 2015, the Company redeemed the final 10,000 shares of its Series A preferred stock. The shares were redeemed at the stated liquidation value of $1 thousand per share, plus accrued dividends. The redemption was the third and final partial redemption of the original shares issued. No additional debt or equity was issued in connection with any of the shares redeemed. 

118

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures and internal control over financial reporting are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

The Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no changes in the Company’s internal control over financial reporting or in other factors that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting or any corrective actions with regard to significant deficiencies and material weaknesses in internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management Responsibility. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the presentation of published financial statements. However, all internal control systems, no matter how well designed, have inherent limitations.

General Description of Internal Control over Financial Reporting. Internal control over financial reporting refers to a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

● Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Company assets;

● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with the authorization of the Company’s management and members of the Company’s Board of Directors; and

● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, uses or dispositions of Company assets that could have a material effect on the Company’s financial statements.

Inherent Limitations in Internal Control over Financial Reporting. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented or overridden by collusion or other improper activities. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

119

Management’s Assessment of the Company’s Internal Control over Financial Reporting. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In making this assessment, the Company’s management used the criteria for effective internal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

As a result of our assessment of the Company’s internal control over financial reporting, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

BKD, LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. The audit report on the effectiveness of the Company’s internal control over financial reporting is included in this Annual Report on page 69.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Executive Officer1	Age	Positions and Offices With the Registrant	Years of Service With the Registrant
Lloyd C. Hillard, Jr.	71	President and Chief Executive Officer, Director2	253

¹R. Terry Bennett, Chairman of the Company’s board of directors, and David Y. Phelps, Vice Chairman, are considered executive officers in name only for purposes of Regulation O.

²Also a director of United Bank, Farmers Insurance (Chairman), FFKT Insurance, EG Properties, and an administrative trustee of Farmers Capital Bank Trust I and Farmers Capital Bank Trust III.

³Includes years of service with the Parent Company and its subsidiaries.

The Company has adopted a Code of Ethics that applies to the Company’s directors, officers, and employees, including the Company’s chief executive officer and chief financial officer. The Company makes available its Code of Ethics on its Internet website at www.farmerscapital.com. Any amendments to the Code of Ethics and any waiver applicable to the Company’s chief executive officer and chief financial officer will also be posted on the website.

Additional information required by Item 10 is hereby incorporated by reference from the Company's definitive proxy statement in connection with its annual meeting of shareholders scheduled for May 8, 2018, which will be filed with the Commission on or about April 2, 2018, pursuant to Regulation 14A.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

The information required by Items 11 through 14 is hereby incorporated by reference from the Company's definitive proxy statement in connection with its annual meeting of shareholders scheduled for May 8, 2018, which will be filed with the Commission on or about April 2, 2018, pursuant to Regulation 14A.

120

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)1. Financial Statements

The following consolidated financial statements and report of independent registered public accounting firm of the Company is included in Part II, Item 8 on pages 68 through 118:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(a)2. Financial Statement Schedules

All schedules are omitted for the reason they are not required, or are not applicable, or the required information is disclosed elsewhere in the financial statements and related notes thereto.

(a)3. Exhibits:

3.1	Second Amended and Restated Articles of Incorporation of Farmers Capital Bank Corporation (incorporated by reference to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 (File No. 000-14412)).
3.2	Articles of Amendment to Second Amended and Restated Articles of Incorporation of Farmers Capital Bank Corporation dated January 6, 2009 (incorporated by reference to the Current Report on Form 8-K dated January 13, 2009 (File No. 000-14412)).
3.3	Articles of Amendment to Second Amended and Restated Articles of Incorporation of Farmers Capital Bank Corporation dated November 16, 2009 (incorporated by reference to the Current Report on Form 8-K dated November 17, 2009 (File No. 000-14412)).
3.4	Amended and Restated Bylaws of Farmers Capital Bank Corporation (incorporated by reference to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 (File No. 000-14412)).
4.1*	Junior Subordinated Indenture, dated as of July 21, 2005, between Farmers Capital Bank Corporation and Wilmington Trust Company, as Trustee, relating to unsecured junior subordinated deferrable interest notes that mature in 2035.
4.2*	Amended and Restated Trust Agreement, dated as of July 21, 2005, among Farmers Capital Bank Corporation, as Depositor, Wilmington Trust Company, as Property and Delaware Trustee, the Administrative Trustees (as named therein), and the Holders (as defined therein).
4.3*	Guarantee Agreement, dated as of July 21, 2005, between Farmers Capital Bank Corporation, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.
4.4*	Junior Subordinated Indenture, dated as of July 26, 2005, between Farmers Capital Bank Corporation and Wilmington Trust Company, as Trustee, relating to unsecured junior subordinated deferrable interest notes that mature in 2035.
4.5*	Amended and Restated Trust Agreement, dated as of July 26, 2005, among Farmers Capital Bank Corporation, as Depositor, Wilmington Trust Company, as Property and Delaware Trustee, the Administrative Trustees (as named therein), and the Holders (as defined therein).
4.6*	Guarantee Agreement, dated as of July 26, 2005, between Farmers Capital Bank Corporation, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.
4.7*	Indenture, dated as of August 14, 2007 between Farmers Capital Bank Corporation, as Issuer, and Wilmington Trust Company, as Trustee, relating to fixed/floating rate junior subordinated debt due 2037.

121

4.8*	Amended and Restated Declaration of Trust, dated as of August 14, 2007, by Farmers Capital Bank Corporation, as Sponsor, Wilmington Trust Company, as Delaware and Institutional Trustee, the Administrative Trustees (as named therein), and the Holders (as defined therein).
4.9*	Guarantee Agreement, dated as of August 14, 2007, between Farmers Capital Bank Corporation, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.
4.10	Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to the Current Report on Form 8-K dated January 13, 2009 (File No. 000-14412)).
4.11	Letter Agreement, dated January 9, 2009, between Farmers Capital Bank Corporation and the United States Treasury, with respect to the issuance and sale of the Series A preferred stock and the Warrant, and Securities Purchase Agreement-Standard Terms attached thereto as Exhibit A (incorporated by reference to the Current Report on Form 8-K dated January 13, 2009 (File No. 000-14412)).
10.1	Employee Stock Purchase Plan of Farmers Capital Bank Corporation (incorporated by reference to Form S-8 effective June 24, 2004 (File No. 333-116801)).
10.2	Nonqualified Stock Option Plan of Farmers Capital Bank Corporation (incorporated by reference to Form S-8 effective September 8, 1998 (File No. 333-63037)).
10.3	Employment agreement dated December 17, 2013 between Farmers Capital Bank Corporation and Rickey D. Harp (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 30, 2013).
10.4	Employment agreement dated November 18, 2015 between Farmers Capital Bank Corporation and J. David Smith, Jr. (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 19, 2015).
10.5	Executive Short-Term Incentive Plan January 1, 2017 (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 24, 2017).
10.6	Executive Short-Term Incentive Plan January 1, 2018 (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 6, 2017).
10.7	Employment agreement dated December 4, 2017 between Farmers Capital Bank Corporation and Lloyd C. Hillard, Jr. (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 8, 2017).
10.8	Employment agreement dated December 4, 2017 between Farmers Capital Bank Corporation and Mark A. Hampton (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 8, 2017).
21**	Subsidiaries of the Registrant
23.1**	Consent of Independent Registered Public Accounting Firm
31.1**	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32**	CEO and CFO Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	Interactive Data Files

* Exhibit not included pursuant to Item 601(b)(4)(iii) and (v) of Regulation S-K. The Company will provide a copy of such exhibit to the Securities and Exchange Commission upon request.

** Filed with this Annual Report on Form 10-K.

122

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FARMERS CAPITAL BANK CORPORATION
By:	/s/ Lloyd C. Hillard, Jr.
	Lloyd C. Hillard, Jr.
	President and Chief Executive Officer
Date:	March 12, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Lloyd C. Hillard, Jr.	President, Chief Executive Officer	March 12, 2018
Lloyd C. Hillard, Jr.	and Director (principal executive
	officer of the Registrant)
/s/ R. Terry Bennett	Chairman	February 26, 2018
R. Terry Bennett
/s/ David Y. Phelps	Vice Chairman	March 7, 2018
David Y. Phelps
/s/ J. Barry Banker	Director	March 7, 2018
J. Barry Banker
/s/ Michael J. Crawford	Director	March 7, 2018
Michael J. Crawford
/s/ William C. Nash	Director	March 2, 2018
Dr. William C. Nash
/s/ David R. O’Bryan	Director	February 27, 2018
David R. O’Bryan
/s/ Fred N. Parker	Director	February 25, 2018
Fred N. Parker
/s/ John C. Roach	Director	February 28, 2018
John C. Roach
/s/ Marvin E. Strong, Jr.	Director	February 27, 2018
Marvin E. Strong, Jr.
/s/ Fred Sutterlin	Director	February 26, 2018
Fred Sutterlin
/s/ Judy Worth	Director	March 1, 2018
Judy Worth
/s/ Mark A. Hampton	Executive Vice President, Chief	March 12, 2018
Mark A. Hampton	Financial Officer, and Secretary (principal financial and accounting officer)

123

INDEX OF EXHIBITS

Exhibit		Page
21	Subsidiaries of the Registrant	125
23.1	Consent of Independent Registered Public Accounting Firm	126
31.1	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	127
31.2	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	128
32	CEO and CFO Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	129

124

EX-21

Exhibit 21

Subsidiaries of the Registrant

The following table provides a listing of the direct and indirect operating subsidiaries of the Registrant as of December 31, 2017, the percent of voting stock held by the Registrant, and the jurisdiction of incorporation or organization in which each subsidiary was incorporated or organized.

Subsidiaries of the Registrant	Jurisdiction of Incorporation or Organization	Percentage Voting Stock Held by Registrant
United Bank & Capital Trust Company	Kentucky	100%
FFKT Insurance Services, Inc.	Kentucky	100%
Farmers Capital Bank Trust I	Delaware	100%
Farmers Capital Bank Trust III	Delaware	100%
Farmers Bank Realty Co.1	Kentucky
EG Properties, Inc.1	Kentucky
Farmers Capital Insurance Corporation1	Kentucky

¹A wholly-owned subsidiary of United Bank.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statement Numbers 333-63037, 333-116801, 333-157143, 333-157144 and 333-162411 on Forms S-8 and S-3 of Farmers Capital Bank Corporation (Company) of our report dated March 12, 2018, on our audits of the consolidated financial statements of the Company as of December 31, 2017 and 2016, and for each of the years in the three-year period ended December 31, 2017, which report is included in this annual report on Form 10-K. We also consent to the incorporation by reference of our report dated March 12, 2018, on our audit of the internal control over financial reporting of the Company as of December 31, 2017, which report is included in this annual report on Form 10-K.

Louisville, Kentucky

March 12, 2018

EX-31.1

Exhibit 31.1

CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Lloyd C. Hillard, Jr., certify that:

1. I have reviewed this annual report on Form 10-K of Farmers Capital Bank Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	March 12, 2018	/s/ Lloyd C. Hillard, Jr.
		Lloyd C. Hillard, Jr.
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark A. Hampton, certify that:

1. I have reviewed this annual report on Form 10-K of Farmers Capital Bank Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	March 12, 2018	/s/ Mark A. Hampton
		Mark A. Hampton
		Executive Vice President, Chief Financial Officer, and Secretary

EX-32

Exhibit 32

CEO and CFO Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the accompanying Annual Report of Farmers Capital Bank Corporation on Form 10-K for the period ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies in his capacity as officer of Farmers Capital Bank Corporation, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	March 12, 2018	/s/ Lloyd C. Hillard, Jr.
		Lloyd C. Hillard, Jr.
		President and Chief Executive Officer
Date:	March 12, 2018	/s/ Mark A. Hampton
		Mark A. Hampton
		Executive Vice President, Chief Financial Officer, and Secretary

A signed original of this written statement required by Section 906 has been provided to Farmers Capital Bank Corporation and will be retained by Farmers Capital Bank Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Mar. 01, 2018	Jun. 30, 2017
Document Information [Line Items]
Entity Registrant Name	FARMERS CAPITAL BANK CORP
Entity Central Index Key	0000713095
Trading Symbol	ffkt
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		7,517,893
Entity Public Float			$ 274
Document Type	10-K
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Cash and cash equivalents:
Cash and due from banks	$ 25,581	$ 25,666
Interest bearing deposits in other banks	58,154	62,696
Federal funds sold and securities purchased under agreements to resell	0	6,622
Money market mutual funds	36,673	18,550
Total cash and cash equivalents	120,408	113,534
Investment securities:
Available for sale, amortized cost of $428,695 (2017) and $486,038 (2016)	424,253	480,864
Held to maturity, fair value of $3,478 (2017) and $3,597 (2016)	3,364	3,488
Total investment securities	427,617	484,352
Loans, net of unearned income	1,035,263	970,975
Allowance for loan losses	(9,783)	(9,344)
Loans, net	1,025,480	961,631
Premises and equipment, net	30,928	31,900
Company-owned life insurance	30,817	30,914
Other real estate owned	5,489	10,673
Other assets	33,133	38,026
Total assets	1,673,872	1,671,030
Deposits:
Noninterest Bearing	361,855	334,676
Interest bearing	1,018,048	1,035,231
Total deposits	1,379,903	1,369,907
Securities sold under agreements to repurchase	34,252	36,370
Federal Home Loan Bank advances	3,479	18,646
Subordinated notes payable	33,506	33,506
Dividends payable, common stock	939	751
Other liabilities	28,440	27,784
Total liabilities	1,480,519	1,486,964
Commitments and contingencies (Notes 15 and 17)
Shareholders’ Equity
Common stock, par value $.125 per share; 14,608,000 shares authorized; 7,517,446 and 7,509,444 shares issued and outstanding at December 31, 2017 and 2016, respectively	940	939
Capital surplus	52,201	51,885
Retained earnings	143,778	134,650
Accumulated other comprehensive loss	(3,566)	(3,408)
Total shareholders’ equity	193,353	184,066
Total liabilities and shareholders’ equity	$ 1,673,872	$ 1,671,030

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available for sale, amortized cost	$ 428,695	$ 486,038
Held to maturity, fair value	$ 3,478	$ 3,597
Common stock, par value (in dollars per share)	$ 0.125	$ 0.125
Common stock, shares authorized (in shares)	14,608,000	14,608,000
Common stock, shares issued (in shares)	7,517,446	7,509,444
Common stock, shares outstanding (in shares)	7,517,446	7,509,444

XML

Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest Income
Interest and fees on loans	$ 48,347	$ 47,534	$ 47,907
Interest on investment securities:
Taxable	7,787	8,969	10,468
Nontaxable	2,253	2,450	2,669
Interest on deposits in other banks	715	372	182
Interest on federal funds sold, securities purchased under agreements to resell, and money market mutual funds	184	46	10
Total interest income	59,286	59,371	61,236
Interest Expense
Interest on deposits	2,136	2,355	2,961
Interest on federal funds purchased		1
Interest on securities sold under agreements to repurchase	77	2,941	4,062
Interest on Federal Home Loan Bank advances	427	735	752
Interest on subordinated notes payable to unconsolidated trusts	870	723	866
Total interest expense	3,510	6,755	8,641
Net interest income	55,776	52,616	52,595
Provision for loan losses	(211)	(644)	(3,429)
Net interest income after provision for loan losses	55,987	53,260	56,024
Noninterest Income
Service charges and fees on deposits	7,987	7,856	7,590
Allotment processing fees	2,716	3,232	4,321
Other service charges, commissions, and fees	5,347	5,558	5,545
Trust income	2,704	2,664	2,373
Net gain on sales of available for sale investment securities	20	3,998	171
Net gain on sales of cost method investment securities	82	0
Gains on sale of mortgage loans, net	662	942	824
Income from company-owned life insurance	1,138	1,016	937
Gain on debt extinguishment	0	4,050	0
Legal settlement	0	1,450	0
Other	509	420	450
Total noninterest income	21,165	31,186	22,211
Noninterest Expense
Salaries and employee benefits	30,296	32,296	32,008
Occupancy expenses, net	4,672	4,742	4,776
Equipment expenses	2,379	2,403	2,106
Data processing and communications expenses	4,571	4,596	4,377
Bank franchise tax	2,325	2,421	2,426
Amortization of intangibles	0	0	449
Deposit insurance expense	520	841	1,536
Other real estate expenses, net	845	2,189	1,708
Legal fees	86	474	843
Loss on debt extinguishment	0	3,776
Other	7,129	7,662	7,721
Total noninterest expense	52,823	61,400	57,950
Income before income taxes	24,329	23,046	20,285
Income tax expense	12,641	6,441	5,293
Net income	11,688	16,605	14,992
Less preferred stock dividends and discount accretion			395
Net income available to common shareholders	$ 11,688	$ 16,605	$ 14,597
Per Common Share
Net income – basic and diluted (in dollars per share)	$ 1.56	$ 2.21	$ 1.95
Cash dividends declared (in dollars per share)	$ 0.425	$ 0.31
Weighted Average Common Shares Outstanding
Basic and diluted (in shares)	7,513	7,504	7,494

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net income	$ 11,688	$ 16,605	$ 14,992
Other comprehensive income (loss):
Unrealized holding gain (loss) on available for sale securities arising during the period, net of tax of $263, $(2,146), and $(992), respectively	489	(3,983)	(1,844)
Reclassification adjustment for net realized gain included in net income, net of tax of $7, $1,399, and $60, respectively	(13)	(2,599)	(111)
Change in unfunded portion of postretirement benefit obligations, net of tax of $(1), $211, and $(74), respectively	(1)	392	(138)
Other comprehensive income (loss)	475	(6,190)	(2,093)
Comprehensive income	$ 12,163	$ 10,415	$ 12,899

XML

Consolidated Statements of Comprehensive Income (Parentheticals) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Unrealized holding gain on available for sale securities arising during the period, tax	$ 263	$ (2,146)	$ (992)
Reclassification adjustment for net realized loss (gain) included in net income, tax	7	1,399	60
Change in unfunded portion of postretirement benefit obligation, tax	$ (1)	$ 211	$ (74)

XML

Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance at Dec. 31, 2014	$ 10,000	$ 936	$ 51,344	$ 105,774	$ 4,875	$ 172,929
Balance (in shares) at Dec. 31, 2014		7,489,000
Net income				14,992		14,992
Other comprehensive loss					(2,093)	(2,093)
Cash dividends declared – preferred				(395)		(395)
Redemption of preferred stock	(10,000)					(10,000)
Redemption of preferred stock (in shares)
Shares issued under director compensation plan			104			104
Shares issued under director compensation plan (in shares)		4,000
Shares issued pursuant to employee stock purchase plan		$ 1	129			$ 130
Shares issued pursuant to employee stock purchase plan (in shares)		7,000				6,329
Expense related to employee stock purchase plan			31			$ 31
Balance at Dec. 31, 2015		$ 937	51,608	120,371	2,782	175,698
Balance (in shares) at Dec. 31, 2015		7,500,000
Net income				16,605		16,605
Other comprehensive loss					(6,190)	(6,190)
Shares issued under director compensation plan		$ 1	91			92
Shares issued under director compensation plan (in shares)		3,000
Shares issued pursuant to employee stock purchase plan		$ 1	154			$ 155
Shares issued pursuant to employee stock purchase plan (in shares)		6,000				6,631
Expense related to employee stock purchase plan			32			$ 32
Cash dividends declared – common				(2,326)		(2,326)
Adoption of Accounting Standards Update 2018-02
Balance at Dec. 31, 2016		$ 939	51,885	134,650	(3,408)	184,066
Balance (in shares) at Dec. 31, 2016		7,509,000
Net income				11,688		11,688
Other comprehensive loss					475	475
Shares issued under director compensation plan			105			105
Shares issued under director compensation plan (in shares)		3,000
Shares issued pursuant to employee stock purchase plan		$ 1	178			$ 179
Shares issued pursuant to employee stock purchase plan (in shares)		5,000				5,367
Expense related to employee stock purchase plan			33			$ 33
Cash dividends declared – common				(3,193)		(3,193)
Adoption of Accounting Standards Update 2018-02				633	(633)
Balance at Dec. 31, 2017		$ 940	$ 52,201	$ 143,778	$ (3,566)	$ 193,353
Balance (in shares) at Dec. 31, 2017		7,517,000

XML

Consolidated Statements of Changes in Shareholders' Equity (Parentheticals) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Retained Earnings [Member]
Cash dividends declared – preferred, per share (in dollars per share)			$ 39.50
Cash dividends declared – common, per share (in dollars per share)	$ 0.425	$ 0.31
Cash dividends declared – common, per share (in dollars per share)	$ 0.425	$ 0.31

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash Flows from Operating Activities
Net income	$ 11,688	$ 16,605	$ 14,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,507	3,649	4,155
Net premium amortization of investment securities:
Provision for loan losses	(211)	(644)	(3,429)
Deferred income tax expense	6,139	885	1,631
Mortgage loans originated for sale	(22,764)	(37,692)	(40,027)
Proceeds from sale of mortgage loans	25,141	37,627	40,513
Gains on sale of mortgage loans, net	(662)	(942)	(824)
(Gain) loss on disposal of premises and equipment, net	(17)	22	20
Net loss on sale and write downs of other real estate	586	1,925	1,289
Gain on extinguishment of subordinated notes payable to unconsolidated trusts	0	(4,050)
Loss on extinguishment of long-term securities sold under agreements to repurchase	0	3,776
Net gain on sale of available for sale investment securities	(20)	(3,998)	(171)
Net gain on sale of cost method investment securities	(82)	0
Curtailment gain on postretirement benefits plan liability	(351)	0
Increase in cash surrender value of company-owned life insurance	(868)	(905)	(906)
Death benefits in excess of cash surrender value on company-owned life insurance	(245)	(81)
Decrease in accrued interest receivable	84	373	233
Decrease (increase) in other assets	1,613	(739)	400
Decrease in accrued interest payable	(60)	(530)	(93)
Increase in other liabilities	1,065	1,262	2,390
Net cash provided by operating activities	28,042	20,740	25,930
Cash Flows from Investing Activities
Available for sale	106,015	123,712	133,886
Held to maturity	70	70	65
Proceeds from sale of available for sale investment securities	81,823	219,181	11,570
Purchase of available for sale investment securities	(133,961)	(251,822)	(109,675)
Proceeds from sale of cost method investment securities	132	0
Purchase of cost method investment securities	(3,445)	(472)
Loans originated for investment greater than principal collected, net	(63,180)	(7,059)	(22,237)
Purchase of loans held for investment	(2,830)	(2,512)	(8,613)
Principal collected on purchased loans	2,855	3,588	2,638
Proceeds from death benefits of company-owned life insurance	1,210	341
Purchases of premises and equipment	(2,395)	(2,245)	(1,721)
Proceeds from sale of other real estate	2,558	4,367	9,939
Proceeds from disposals of premises and equipment	95	2	23
Net cash (used in) provided by investing activities	(11,053)	87,151	15,875
Cash Flows from Financing Activities
Net increase (decrease) in deposits	9,996	913	(18,167)
Net increase (decrease) short-term securities sold under agreements to repurchase	(1,344)	732	5,763
Proceeds from long-term securities sold under agreements to repurchase	8	11	711
Repayments of long-term securities sold under agreements to repurchase	(782)	(103,976)
Repayments of Federal Home Loan Bank advances	(15,167)	(160)	(155)
Cash paid to extinguish subordinated notes payable to unconsolidated trusts		(10,950)
Dividends paid, common stock	(3,005)	(1,575)
Redemption of preferred stock			(10,000)
Dividends paid, preferred stock			(508)
Shares issued under employee stock purchase plan	179	155	130
Net cash used in financing activities	(10,115)	(114,850)	(22,226)
Net increase (decrease) in cash and cash equivalents	6,874	(6,959)	19,579
Cash and cash equivalents at beginning of year	113,534	120,493	100,914
Cash and cash equivalents at end of year	120,408	113,534	120,493
Supplemental Disclosures
Interest	3,570	7,285	8,734
Income taxes	5,135	5,600	2,718
Transfers from loans to other real estate	663	1,885	1,397
Sale and financing of other real estate	2,861	6,922	403
Cancelation of investment in Farmers Capital Bank Trust II	0	464
Extinguishment of subordinated notes payable to Farmers Capital Bank Trust II	0	15,464
Employee Stock Purchase Plan Expense [Member]
Net premium amortization of investment securities:
Noncash compensation expense	33	32	31
Director Fee Compensation [Member]
Net premium amortization of investment securities:
Noncash compensation expense	105	92	104
Available-for-sale Securities [Member]
Net premium amortization of investment securities:
Net premium amortization of investment securities	3,307	4,020	5,570
Held-to-maturity Securities [Member]
Net premium amortization of investment securities:
Net premium amortization of investment securities	$ 54	$ 53	$ 52

XML

Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

1. Summary of Significant Accounting Policies

The accounting and reporting policies of Farmers Capital Bank Corporation and subsidiaries conform to accounting principles generally accepted in the United States of America

(“U.S. GAAP”) and general practices applicable to the banking industry. Significant accounting policies are summarized below.

Principles of Consolidation and Nature of Operations

The consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the “

Company” or “Parent Company”), a financial holding company, its wholly

-owned subsidiaries bank subsidiary, United Bank & Capital Trust Company (“United Bank” or the “Bank”) in Frankfort, KY, and its wholly-owned nonbank subsidiary, FFKT Insurance Services, Inc. (“FFKT Insurance”).

In

February 2017,

the Company merged

three

of its subsidiary banks (United Bank & Trust Company in Versailles, KY; First Citizens Bank, Inc. in Elizabethtown, KY; and Citizens Bank of Northern Kentucky, Inc. in Newport, KY) and its data processing subsidiary (FCB Services, Inc. in Frankfort, KY) into its subsidiary bank Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed under the merger to United Bank & Capital Trust Company. The Company accounted for the transfer of assets and liabilities of the merged subsidiaries at their respective historical cost amounts as of the date of the merger.

FFKT Insurance is a captive insurance company

in Frankfort, KY that provides property and casualty coverage to the Parent Company and its subsidiaries for risk management purposes or where insurance

may

not

be available or economically feasible. The Company has

two

subsidiaries organized as Delaware statutory trusts that are

not

consolidated into its financial statements. These trusts were formed in

2005

and

2007

for the purpose of issuing trust preferred securities.

United

Bank’s significant subsidiaries include EG Properties, Inc. and Farmers Capital Insurance Corporation (“Farmers Insurance”). EG Properties, Inc. is involved in real estate management and liquidation for certain repossessed properties of United Bank. Farmers Insurance is an insurance agency in Frankfort, KY.

The Company provides financial services at its

3

4

locations in

21

communities throughout Central and Northern Kentucky to individual, business, agriculture, government, and educational customers. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential mortgage, commercial lending, and consumer installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other services include, but are

not

limited to, cash management services, issuing letters of credit, safe deposit box rental, and providing funds transfer services. Other financial instruments, which could potentially represent concentrations of credit risk, include deposit accounts in other financial institutions and federal funds sold.

Use of Estimates

The preparation of financial statements in conformity with

U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy. Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the financial statements. The allowance for loan losses, carrying value of other real estate owned, actuarial assumptions used to calculate postretirement benefits, and the fair values of financial instruments are estimates that are particularly subject to change.

Reclassifications

Certain amounts in the accompanying consolidated financial statements presented for prior years have been rec

lassified to conform to the

2017

presentation. These reclassifications do

not

affect net income or total shareholders’ equity as previously reported.

Segment Information

The Company provides a broad range of financial services to individuals, corporations, and others through its

34

banking locations throughout Central and Northern Kentucky. These services primarily include the activities of lending, receiving deposits, providing cash management services, safe deposit box rental, and trust activities.

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into

one

as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in

one

reportable segment.

Cash Flows

For purposes of

reporting cash flows, cash and cash equivalents include the following: cash on hand, deposits from other financial institutions that have an initial maturity of less than

90

days when acquired by the Company, federal funds sold and securities purchased under agreements to resell, and money market mutual funds. Generally, federal funds sold and securities purchased under agreements to resell are purchased and sold for

one

-day periods. Net cash flows are reported for loan

,

deposit, and short-term borrowing transactions.

Investment Securities

Investments in debt and equity securities are classified into

three

categories. Securities that management has the positive intent and ability to hold until maturity are classified as held to maturity. Securities that ar

e bought and held specifically for the purpose of selling them in the near term are classified as trading securities. The Company had

no

securities classified as trading during

2017,

2016,

or

2015.

All other securities are classified as available for sale. Securities are designated as available for sale if they might be sold before maturity. Securities classified as available for sale are carried at estimated fair value. Unrealized holding gains and losses for available for sale securities are reported net of deferred income taxes in other comprehensive income. Investments classified as held to maturity are carried at amortized cost. Amortized cost basis for investment securities includes adjustments made to the cost for previous other-than-temporary impairment (“OTTI”) recognized in earnings, amortization, accretion, and collection of cash.

Interest income includes amortization and accretion of purchase premiums or discounts. Premiums and discounts on securities are amortized

using the interest method over the expected life of the securities

without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Realized gains and losses on the sales of securities are recorded on the trade date and computed on the basis of specific identification of the adjusted cost of each security and are included in noninterest income.

The Company evaluates investment securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such a

n evaluation. A decline in the market value of investment securities below cost that is deemed other

-than

-temporary results in a charge to earnings and the establishment of a new cost basis for the security. Substantially all of the Company’s investment securities are debt securities.

In estimating OTTI for debt securities, management considers each of the following: (

1

) the length of time and extent to which fair value has been less than cost, (

2

) the financial condition and near-term prospects of the issuer, (

3

) whether market decline was affected by macroeconomic conditions, and (

4

) whether the Company has the intent to sell the debt security or more likely than

not

will be required to sell the debt security before its anticipated recovery in fair value. The assessment of whether an OTTI charge exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at a point in time. The Company had

no

OTTI losses during any year in each of the

three

years in the period ended

December 31, 2017.

Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under

Financial Accounting Standard Board (“

FASB”) Accounting Standards Codification

TM

(“ASC”) Topic

320,

“

Investments-Debt and Equity Securities

.

”

In determining OTTI under ASC Topic

320

the Company considers many factors, including those enumerated above. When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether the Company intends to sell the security or it is more likely than

not

it will be required to sell the security before recovery of its amortized cost basis. If the Company intends to sell or it is more likely than

not

it will be required to sell the security before recovery of its amortized cost basis, OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does

not

intend to sell the security and it is

not

more likely than

not

that it will be required to sell the security before recovery of its amortized cost basis, OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Federal Home Loan Bank and Federal Reserve

Bank

Stock

Federal Home Loan Bank (“

FHLB”) and Federal Reserve Bank stock is carried at cost and recognized in other assets on the consolidated balance sheets under the caption “Other assets

.” These stocks are classified as restricted securities and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. The amount outstanding at

December 31, 2017

and

2016

was

$13.2

million and

$9.8

million, respectively

.

Loans and Interest Income

Loans that management has the intent and ability to hold for the foreseeable future or

until maturity or pay-off are reported at their unpaid principal amount outstanding adjusted for any charge-offs

,

deferred fees or costs on originated loans, and unamortized premiums and discounts on purchased loans. Interest income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Interest income also includes amortization and accretion of any premiums or discounts over the expected life of acquired loans at the time of purchase or business acquisition. Loan origination fees, net of certain direct origination costs

,

are deferred and amortized as yield adjustments over the contractual term of the loans.

The Company disaggregates

certain disclosure information related to loans, the related allowance for loan losses, and credit quality measures by either portfolio segment or by loan class. The Company segregates its loan portfolio segments based on similar risk characteristics as follows: real estate loans, commercial loans, and consumer loans. Portfolio segments are further disaggregated into classes for certain required disclosures as follows:

Portfolio Segment	Class
Real estate loans	Real estate mortgage  – construction and land development Real estate mortgage  – residential Real estate mortgage – farmland and other commercial enterprises
Commercial loans	Commercial and industrial Depository institutions Agriculture production and other loans to farmers States and political subdivisions Other
Consumer loans	Secured Unsecured

L

oan disclosures include presenting certain disaggregated information based on recorded investment. The recorded investment in a loan includes its principal amount outstanding adjusted for certain items that include net deferred loan costs or fees, unamortized premiums or discounts, charge offs, and accrued interest. The Company had a total of

$83

thousand of net deferred loan fees at year-end

2017

and

$301

thousand of net deferred loan costs at year-end

2016

,

included in the carrying amount of loans on the balance sheet, which represents

.01%

and

.03%

of loans outstanding at year-end

2017

and

2016,

respectively. The amount of net deferred loans costs and fees are

not

material and are omitted from the computation of the recorded investment included in Note

4

that follows. Similarly, accrued interest receivable on loans was

$3.1

million and

$2.8

million at year-end

2017

and

2016,

respectively, or

0

.3%

of loans for both years and has also been omitted from certain information presented in Note

4

.

The Company has a loan policy in place that is amended and approved from time to time as needed to reflect current economic conditions and product offerings in its markets. The policy

establishes written procedures concerning areas such as the lending authorities of loan officers, committee review and approval of certain credit requests, underwriting criteria, policy exceptions, appraisal requirements, and loan review. Credit is extended to borrowers based primarily on their ability to repay as demonstrated by income and cash flow analysis.

Loans secured by real estate make up the largest segment of the Company

’s loan portfolio. If a borrower fails to repay a loan secured by real estate, the Company

may

liquidate the collateral in order to satisfy the amount owed. Determining the value of real estate is a key component to the lending process for real estate backed loans. If the fair value of real estate (less estimated cost to sell) securing a collateral dependent loan declines below the outstanding loan amount, the Company will write down the carrying value of the loan and thereby incur a loss. The Company uses independent

third

party state certified or licensed appraisers in accordance with its loan policy to mitigate risk when underwriting real estate loans. Cash flow analysis of the borrower, loan to value limits as adopted by loan policy, and other customary underwriting standards are also in place which are designed to maximize credit quality and mitigate risks associated with real estate lending.

Commercial loans are made to businesses and are secured mainly by assets such as inventory, accounts receivable,

machinery, fixtures and equipment, or other business assets. Commercial lending involves significant risk, as loan repayments are more dependent on the successful operation or management of the business and its cash flows. Consumer lending includes loans to individuals mainly for personal autos, boats, or a variety of other personal uses and

may

be secured or unsecured. Loan repayment associated with consumer loans is highly dependent upon the borrower’s continuing financial stability, which is heavily influenced by local unemployment rates. The Company mitigates its risk exposure to each of its loan segments by analyzing the borrower’s repayment capacity, imposing restrictions on the amount it will loan compared to estimated collateral values, limiting the payback periods, and following other customary underwriting practices as adopted in its loan policy.

T

he accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for

90

days or more, unless such loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan. Interest accrued but

not

received for a loan placed on nonaccrual status is reversed against interest income. Cash payments received on nonaccrual loans generally are applied to principal until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company’s policy for placing a loan on nonaccrual status or subsequently returning a loan to accrual status does

not

differ based on its portfolio class or segment.

Commercial and real estate l

oans delinquent in excess of

120

days and consumer loans delinquent in excess of

180

days are charged off

,

unless the collateral securing the debt is of such value that any loss appears to be unlikely. In all cases, loans are charged off at an earlier date if classified as loss under the Company’s loan grading process or as a result of regulatory examination. The Company’s charge-off policy for impaired loans does

not

differ from the charge-off policy for loans outside the definition of impaired

.

Loans Held for Sale

Mortgage banking activitie

s include the origination of fixed-rate residential mortgage loans for sale to various

third

-party investors. Mortgage loans originated and intended for sale in the secondary market, principally under programs with the Federal National Mortgage Association

,

are carried at the lower of cost or estimated fair value determined in the aggregate and included in net loans on the balance sheet until sold. These loans are sold with the related servicing rights either retained or released by the Company depending on the economic conditions present at the time of origination. The Company had

no

mortgage loans held for sale at

December 31, 2017.

Mortgage loans held for sale included in net loans at

December 31, 2016

totaled

$1.7

million. Mortgage banking revenues, including origination fees, servicing fees, net gains on sales of mortgage loans, and other fee income were

1.4%,

1.6%,

and

1.6%

of

the Company’s total revenue for the years ended

December 31, 2017,

2016,

and

2015,

respectively

.

Provision and Allowance for

Loan Losses

The provision for loan losses represents charges

or credits made to earnings to maintain an allowance for loan losses at a level considered adequate to provide for probable incurred credit losses at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company estimates the adequacy of the allowance using a risk-rated methodology which is based on the Company

’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that

may

affect the borrower’s ability to repay, the estimated value of any underlying collateral securing loans, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires significant judgment and the use of estimates that

may

be susceptible to change.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general compo

nent covers non-impaired loans and is based on historical loss experience adjusted for current risk factors. Allocations of the allowance

may

be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Actual loan losses could differ significantly from the amounts estimated by management.

The

general portion of the Company’s loan portfolio is segregated into portfolio segments having similar risk characteristics identified as follows: real estate loans, commercial loans, and consumer loans. Each of these portfolio segments is assigned a loss percentage based on their respective rolling historical loss rates, adjusted for the qualitative risk factors summarized below. During the

first

quarter of

2017,

the Company shortened the look-back period it uses to determine historical loss rates to the previous

twelve

quarters from

sixteen

quarters. The change in the look-back period is the result of the Company’s ongoing monitoring and evaluation of the adequacy of its allowance for loan losses. The shorter look-back period better reflects the Company’s loss estimates based on current market conditions. Shortening the look-back period increased the allowance for loan losses by

$49

thousand compared to the previous

sixteen

quarter look-back period

.

The qualitative risk factors used in the methodology are consistent with the guidance in the most recent Interagency Policy Statement on the Allowance for Loan Losses issued. Each factor is supported by a detailed analysis and is both measureable and supportable. Some factors include a minimum allocation in instances where loss levels are extremely low and it is determined to be prudent from a safety and soundness perspective. Qualitative risk factors that are used in the methodology include the following for each loan portfolio segment:

● Delinquency trends

● Trends in net charge-offs

● Trends in loan volume

● Lending philosophy risk

● Management experience risk

● Concentration of credit risk

● Economic conditions risk

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modif

ied resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company accounts for impaired loans in accordance with

ASC Topic

310,

“Receivables

.

”

ASC Topic

310

requires that impaired loans be measured at the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral if the loan is collateral dependent. Impaired loans

may

also be classified as nonaccrual. In many circumstances, however, the Company continues to accrue interest on an impaired loan. Cash receipts on accruing impaired loans are applied to the recorded investment in the loan, including any accrued interest receivable. Cash payments received on nonaccrual impaired loans generally are applied to principal until qualifying for return to accrual status

.

Loans that are part of a large group of smaller-balance homogeneous loans, such as residential mortgage

,

consumer, and smaller-balance commercial loans, are collectively evaluated for impairment. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception, or at the fair value of collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of the allowance in accordance with its accounting policy for the allowance for loan losses on loans individually identified as impaired

.

Mortgage Servicing Rights

Mortgage servicing rights are recognized

in other assets on the Company’s consolidated balance sheet at their initial fair value on loans sold with servicing retained. Fair value is based on market prices for comparable mortgage servicing contracts when available

,

or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. Mortgage servicing rights are subsequently measured using the amortization method in which the mortgage servicing right is expensed in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Impairment is evaluated based on the fair value of the rights, grouping the underlying loans by interest rates. Impairment of a grouping is reported as a valuation allowance. Capitalized mortgage servicing rights were

$719

thousand and

$731

thousand at

December 31, 2017

and

2016,

respectively.

No

impairment of the asset was determined to exist on either of these dates. Mortgage loans serviced for others totaled

$198

million and

$202

million at

December 31, 2017

and

2016,

respectively. Mortgage loans serviced for others are

not

included in the Company’s balance sheets.

Fair Value of Financial Instruments

Fair values of financial

instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note

19.

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Loan Commitments and Related Financial Instruments

Financial instruments include off

-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, which are issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Intangible Assets

Intangible assets

consist of core deposit and customer relationship intangible assets arising from business acquisitions. Intangible assets are initially measured at fair value and then amortized on an accelerated method over their estimated useful lives, which range between

seven

and

ten

years. Such assets are evaluated for impairment whenever changes in circumstances indicate that such an evaluation is necessary

.

The Company had

no

core deposit or customer relationship intangible assets recorded at any of the years ending

December 31, 2017,

2016,

or

2015

.

Other Real Estate

Owned

Other real estate owned

(“OREO”) and held for sale in the accompanying consolidated balance sheets includes properties acquired by the Company through, or in lieu of, actual loan foreclosures. OREO is initially carried at fair value less estimated costs to sell. Fair value is generally based on

third

party appraisals of the property that includes comparable sales data. If the carrying amount exceeds fair value less estimated costs to sell, an impairment loss is recorded through expense. These assets are subsequently accounted for at the lower of carrying amount or fair value less estimated costs to sell. Operating costs after acquisition are expensed.

Income Taxes

Income tax expense is the total of current year income ta

x

due or refundable and the change in deferred tax assets and liabilities, except for the deferred tax assets and liabilities related to business combinations or components of other comprehensive income.Deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than

not”

that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than

50%

likely of being realized on examination. For tax positions

not

meeting the “more likely than

not”

test,

no

tax benefit is recorded.

The Company files a consolidated federal income tax return with its subsidiaries. Federal income tax expense or benefit has been allocated to subsidiaries on a separate return basis.

The Company’s policy is to record the accrual of interest and/or penalties relative to income tax matters, if any, in income tax expense

.

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on the straight-line method over the estimated useful lives generally ranging from

two

to

seven

years for

furniture and equipment and generally

ten

to

40

years for buildings and related components. Leasehold improvements are amortized over the shorter of the estimated useful lives or terms of the related leases on the straight-line method. Maintenance, repairs, and minor improvements are charged to operating expenses as incurred and major improvements are capitalized. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in noninterest income. Land is carried at cost.

Company-owned Life Insurance

The Company has purchased life insurance policies on certain key employees with their knowledge and

written consent. Company-owned life insurance is recorded on the consolidated balance sheet at its cash surrender value, which is the amount that can be realized under the insurance contract at the balance sheet date. The related change in cash surrender value and proceeds received under the policies are reported on the consolidated statements of income under the caption “Income from company-owned life insurance.”

Related Party Transactions

In the ordinary course of business, the Company offers loan

and deposit products to its directors, executive officers, and principal shareholders – including affiliated companies of which they are principal owners (“Related Parties”). These products are offered on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties, and these receivables and deposits are included in loans and deposits in the Company’s consolidated balance sheets. Additional information related to these transactions can be found in Note

4

and Note

7.

The Company makes payments to Related Parties in the normal course of business

for various services, primarily related to legal fees. For example, certain directors of the Parent Company and its subsidiary bank are partners in law firms that act as counsel to the Company. The following table represents the amount and type of payments to Related Parties, other than director fees, for the periods indicated:

(In thousands) Years Ended December 31,	201 7		201 6		201 5
Legal fees	$	139	$	257	$	221
Commissions and fees related to the sale of repossessed commercial real estate and property management		-		-		9
Insurance premiums/commissions		-		-		1
Other		27		2		5
Total	$	166	$	259	$	236

Retirement Plans

The Company maintains a

401

(k) salary savings plan and records expense based on the amount of its matching contributions of employee deferrals. The Company also has a nonqualified supplemental retirement plan for certain key employees that it acquired in connection with the Citizens Bank of Northern Kentucky, Inc. acquisition. Supplemental retirement plan expense allocates the benefits over years of service.

Net Income Per Common Share

Basic net income per common share is determined by dividing net income available to common sh

areholders by the weighted average total number of common shares issued and outstanding. Net income available to common shareholders represents net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock issuances, and cumulative dividends related to the current dividend period that have

not

been declared as of the end of the period. There were

no

dilutive instruments at

year-end

2017,

2016,

and

2015.

Net income per common share computations were as follows

for the years ended

December 31, 2017,

2016,

and

2015

.

(In thousands, except per share data) Years Ended December 31,	201 7		201 6		201 5
Net income, basic and diluted	$	11,688	$	16,605	$	14,992
Less p referred stock dividends and discount accretion		-		-		395
Net income available to common shareholders, basic and diluted	$	11,688	$	16,605	$	14,597
Average common shares issued and outstanding, basic and diluted		7,513		7,504		7,494
Net income per common share, basic and diluted	$	1.56	$	2.21	$	1.95

Comprehensive Income

Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner

sources. For the Company this includes net income

,

the after tax effect of changes in the net unrealized gains and losses on available for sale investment securities, and the after tax changes to the funded status of postretirement benefit plans

.

Dividend Restrictions

Banking regulations require maintaining certain capital levels

which limit the amount of dividends paid to the Company by its bank subsidiary. Generally, capital distributions are limited to undistributed net income for the current and prior

two

years.

Restrictions on Cash

The Company

is required to maintain funds in cash and/or on deposit with the Federal Reserve Bank in accordance with reserve requirements specified by the Federal Reserve Board of Governors. The required reserve was

$17.3

million and

$18.0

million at

December 31, 2017

and

2016,

respectively

.

Equity

Outstanding common shares purchased by the Company are retired. When common shares are purchased, the Company allocates a portion of the purchase price of the common shares that are retired to each of the following balance sheet line items: common stock, capital surplus, and retained earnings.

The Company did

not

purchase any of its outstanding common shares during

2017

or

2016.

Trust

 Assets

Assets of the

Company’s trust department, other than cash on deposit by trust customers at the Bank, are

not

included in the accompanying financial statements because they are

not

assets of the Company.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does

not

maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Long-term Assets

Premises and equipment,

core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount

may

not

be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Stock-Based Compensation

The Company recognizes c

ompensation cost for its Employee Stock Purchase Plan (“ESPP”) based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of shares issued under the ESPP. Compensation cost is recognized over the required service period, generally defined as the vesting period, on a straight-line basis.

The ESPP was approved by

the Company’s shareholders in

2004.

The purpose of the ESPP is to provide a means by which eligible employees

may

purchase, at a discount, shares of the Company’s common stock through payroll withholding. The purchase price of the shares is equal to

85%

of their fair market value on specified dates as defined in the plan. The ESPP was effective beginning

July 1, 2004.

There were

5,367,

6,631,

and

6,329

shares issued under the plan during

2017,

2016,

and

2015,

respectively. Compensation expense related to the ESPP included in the accompanying statements of income was

$33

thousand,

$32

thousand, and

$31

thousand in

2017,

2016,

and

2015,

respectively.

F

ollowing are the weighted average assumptions used and estimated fair market value for the ESPP, which is considered a compensatory plan under ASC Topic

718,

“

Compensation-Stock Compensation

.

”

	ESPP
	201 7			201 6			201 5
Expected volatility		23.2	%		26.3	%		32.6	%
Dividend yield		1.04			.83			-
Risk-free interest rate		.85			.26			.02
Expected life (in years)		.25			.25			.25
Fair value	$	7.43		$	5.31		$	5.08

Recen

t

ly Issued But

Not

Yet Effective Accounting Standards

In

May 2014,

the FASB

issued

Accounting Standards Update (“ASU”)

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

, and subsequently issued several amendments to the standard during

2015,

2016,

and

2017.

The primary principle of ASU

No.

2014

-

09

is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

As amended,

ASU

No.

2014

-

09

is effective for the Company in annual reporting periods beginning after

December 15, 2017,

including interim periods within that reporting period.

Earlier application is permitted, but only as of annual reporting periods beginning after

December 15, 2016,

including interim reporting periods within those reporting periods. The majority of the Company’s revenues earned are excluded from the scope of the new standard. Revenue streams within the scope of this ASU include services charges and fees on deposits, allotment processing fees, trust income, and components of other service charges, commission, and fees. The Company adopted

ASU

No.

2014

-

09

effective

January 1, 2018

using a modified retrospective approach with

no

material impact to the Company’s consolidated financial statements. The Company is in the process of finalizing the additional disclosures required by the new standard.

In

January 2016,

the FASB issued ASU

No.

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

)

: Recognition and

Measurement of Financial

Assets and Financial Liabilities

and, in

February 2018,

issued an amendment for technical corrections and improvements related to this ASU. The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). In addition, this ASU eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. Public business entities will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. For public business entities, the amendments in this ASU are effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted

ASU

No.

2016

-

01

effective

January 1, 2018

with

no

material impact to the Company’s consolidated financial statements.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

“Leases (Topic

842

),”

to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than

twelve

months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic

606,

Revenue from Contracts with Customers

.

For public companies, ASU

No.

2016

-

02

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would

not

require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors

may

not

apply a full retrospective transition approach. The Company has identified a project team to review its leases and to assess the impact of ASU

No.

2016

-

02

on its consolidated financial position, results of operations, and cash flows.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

“Financial Instruments—Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments,”

to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures, including

qualitative and quantitative requirements, which provide additional information about the amounts recorded in the financial statements.

Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

ASU

No.

2016

-

13

is effective for the Company in annual and interim reporting periods beginning after

December 15, 2019.

Although early adoption is permitted for fiscal years beginning after

December 15, 2018,

the Company does

not

plan to early adopt. The

Company has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard. The Company has identified a project team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. The project team has developed a timeline for implementing the standard, has begun working with a

third

party software solution provider, and has identified an independent

third

party for validation of the impending changes to our credit loss methodologies and processes.

The team continues to assess the impact of the standard; however, the Company expects adopting this ASU will result in an increase in its allowance for loan losses. The amount of the increase in the allowance for loan losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date. A cumulative effect adjustment will be made to retained earnings for the impact of the standard at the beginning of the period the standard is adopted.

In

March 2017,

the FASB issued ASU

NO.

2017

-

07,

“Compensation—Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,”

which requires that employers offering benefit plans accounted for under Topic

715

report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. If a separate line item or items are

not

used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. This ASU is effective for the Company in annual and interim reporting periods beginning after

December 15, 2017.

The Company does

not

expect ASU

No.

2017

-

07

to have a material impact on its consolidated financial position, results of operations, or cash flows upon adoption.

In

March 2017,

the FASB issued ASU

No.

2017

-

08,

“Receivables—Nonrefundable Fees and Other Costs (Subtopic

310

-

20

): Premium Amortization on Purchased Callable Debt Securities.”

This ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. The ASU does

not

change the accounting for securities held at a discount; the discount will continue to be amortized to maturity. This ASU is effective for the Company in annual and interim reporting periods beginning after

December 15, 2018,

with early adoption permitted. The Company early adopted this standard with

no

material impact on its consolidated financial position, results of operations, or cash flows.

In

February 2018,

the FASB issued ASU

No.

2018

-

02,

“

Income Statement—Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

,

”

which allows entities to reclassify the stranded tax effects caused by the

Tax Cuts and Jobs Act (“Tax Act”), which was enacted in

December 2017,

from

accumulated other comprehensive income (“AOCI”) to retained earnings. This ASU will be effective for annual and interim periods beginning after

December 15, 2018,

with early adoption permitted. The Company early adopted this standard

, resulting in the reclassification of

$633

thousand from AOCI to retained earnings for the year ended

December 31, 2017.

There was

no

impact on total equity. Additional information related to the reclassification can be found in Note

2.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are

not

expected to have a material impact on the Company

’s financial position, results of operations or cash flows.

XML

Note 2 - Accumulated Other Comprehensive Income

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

2

.

Accumulated Other Comprehensive Income

The following table presents changes in

AOCI by component, net of tax, for the periods indicated. The table also includes a total of

$633

thousand reclassified from AOCI to retained earnings related to the adoption of ASU

2018

-

02.

The Tax Act, among other things, reduced the US Federal corporate tax rate from

35%

to

21%

effective

January 1, 2018.

As a result, under U.S. GAAP, the Company was required to remeasure its net deferred tax assets at the new tax rate and recognize the adjustment through income tax expense. The adjustment through income tax expense leaves items presented in AOCI, for which the related income tax effects were originally recognized in other comprehensive income, unadjusted for the new tax rate. ASU

2018

-

02

allows the Company to reclassify the effect of the change in the tax rate from AOCI to retained earnings, which results in AOCI reflecting the new tax rate. Additional information related to the Company’s income tax expense and net deferred tax assets can be found in Note

10.

Year Ended December 31,	201 7									201 6
(In thousands)	Unrealized Gains and Losses on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total			Unrealized Gains and Losses on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(3,363	)	$	(45	)	$	(3,408	)	$	3,219		$	(437	)	$	2,782
Other comprehensive income (loss) before reclassifications		489			(53	)		436			(3,983	)		356			(3,627	)
Amounts reclassified from accumulated other comprehensive income		(13	)		52			39			(2,599	)		36			(2,563	)
Net current-period other comprehensive income (loss)	$	476		$	(1	)	$	475		$	(6,582	)	$	392		$	(6,190	)
Adoption of Accounting Standards Update 2018- 02		(623	)		(10	)		(633	)		-			-			-
Ending balance	$	(3,510	)	$	(56	)	$	(3,566	)	$	(3,363	)	$	(45	)	$	(3,408	)

The following table presents amounts reclassified out of accumulated other comprehensive income by component for the period indicated. Line items in the statement of income affected by the reclassification are also presented.

(In thousands)	Amount Reclassified from Accumulated Other Comprehensive Income									Affected Line Item in the Statement Where Net Income is Presented
Year Ended December 31,	201 7			201 6			201 5
Unrealized gains on available for sale investment securities	$	20		$	3,998		$	171		Net gain on sales of available for sale investment securities
		(7	)		(1,399	)		(60	)	Income tax expense
	$	13		$	2,599		$	111		Net of tax
Amortization related to postretirement benefits
Prior service costs	$	(75	)	$	(50	)	$	(51	)	Salaries and employee benefits
Actuarial losses		(5	)		(5	)		(42	)	Salaries and employee benefits
		(80	)		(55	)		(93	)	Total before tax
		28			19			33		Income tax expense
	$	(52	)	$	(36	)	$	(60	)	Net of tax
Total reclassifications for the period	$	(39	)	$	2,563		$	51		Net of tax

XML

Note 3 - Investment Securities

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

3

.

Investment Securities

The following

tables summarize the amortized cost and estimated fair values of the securities portfolio at

December 31, 2017

and

2016

.

December 31, 2017 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	43,601	$	44	$	437	$	43,208
Obligations of states and political subdivisions		114,960		562		1,273		114,249
Mortgage-backed securities – residential		195,605		523		2,735		193,393
Mortgage-backed securities – commercial		50,518		42		1,208		49,352
Asset-backed securities		15,569		9		4		15,574
Corporate debt securities		7,578		1		37		7,542
Mutual funds and equity securities		864		71		-		935
Total securities – available for sale	$	428,695	$	1,252	$	5,694	$	424,253
Held To Maturity
Obligations of states and political subdivisions	$	3,364	$	114	$	-	$	3,478

December 31, 201 6 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	71,941	$	213	$	460	$	71,694
Obligations of states and political subdivisions		134,055		773		2,536		132,292
Mortgage-backed securities – residential		225,489		1,505		2,687		224,307
Mortgage-backed securities – commercial		47,164		6		1,557		45,613
Corporate debt securities		6,565		1		441		6,125
Mutual funds and equity securities		824		20		11		833
Total securities – available for sale	$	486,038	$	2,518	$	7,692	$	480,864
Held To Maturity
Obligations of states and political subdivisions	$	3,488	$	109	$	-	$	3,597

Investment securities with a carrying value of

$214

million and

$191

million at

December 31, 2017

and

2016,

respectively, were pledged to secure public and trust deposits, repurchase agreements, and for other purposes.

At year-end

201

7

and

2016,

the Company held

no

investment securities of any single issuer, other than the U.S. Government and its agencies, in an amount greater than

10%

of shareholders’ equity.

The amortized cost and estimated fair value of the

debt securities portfolio at

December 31, 2017,

by contractual maturity, are detailed below. Expected maturities

may

differ from contractual maturities because issuers

may

have the right to call or prepay obligations with or without call or prepayment penalties. Mutual funds and equity securities in the available for sale portfolio at

December 31, 2017

consist of investments by the Company’s captive insurance subsidiary. These securities have

no

stated maturity and are

not

included in the maturity schedule that follows.

Mortgage-backed securities are stated separately due to the nature of payment and prepayment characteristics of these securities

, as principal is

not

due at a single date.

	Available For Sale				Held To Maturity
December 31, 2017 (In thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	27,301	$	27,276	$	-	$	-
Due after one year through five years		50,953		50,676		-		-
Due after five years through ten years		63,345		62,451		1,232		1,322
Due after ten years		40,109		40,170		2,132		2,156
Mortgage-backed securities		246,123		242,745		-		-
Total	$	427,831	$	423,318	$	3,364	$	3,478

Gross realized gains and

losses on the sale of available for sale investment securities were as follows for the year indicated.

(In thousands)	201 7		201 6		201 5
Gross realized gains	$	501	$	4,191	$	224
Gross realized losses		481		193		53
Net realized gain	$	20	$	3,998	$	171
Income tax provision related to net realized gain	$	7	$	1,399	$	60

Investment securities with unrealized losses at year-end

2017

and

2016

not

recognized in income are presented in the tables below. The tables segregate investment securities that have been in a continuous unrealized loss position for less than

twelve

months from those that have been in a continuous unrealized loss position for

twelve

months or more. The table also includes the fair value of the related securities.

	Less than 12 Months				12 Months or More				Total
December 31 , 2017 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	11,544	$	43	$	25,298	$	394	$	36,842	$	437
Obligations of states and political subdivisions		40,402		413		33,965		860		74,367		1,273
Mortgage-backed securities – residential		77,312		481		99,986		2,254		177,298		2,735
Mortgage-backed securities – commercial		7,758		62		34,139		1,146		41,897		1,208
Asset-backed securities		1,166		4		-		-		1,166		4
Corporate debt securities		7,251		36		200		1		7,451		37
Total	$	145,433	$	1,039	$	193,588	$	4,655	$	339,021	$	5,694

	Less than 12 Months				12 Months or More				Total
December 31, 2016 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	51,657	$	460	$	-	$	-	$	51,657	$	460
Obligations of states and political subdivisions		91,728		2,526		1,999		10		93,727		2,536
Mortgage-backed securities – residential		154,397		2,485		5,841		202		160,238		2,687
Mortgage-backed securities – commercial		43,309		1,557		-		-		43,309		1,557
Corporate debt securities		536		6		5,476		435		6,012		441
Mutual funds and equity securities		128		2		113		9		241		11
Total	$	341,755	$	7,036	$	13,429	$	656	$	355,184	$	7,692

Unrealized losses included in the tables above have

not

been recognized in income since they have been identified as temporary.

The Company attributes the unrealized losses in its investment securities portfolio to changes in market interest rates and volatility. Investment securities with unrealized losses at

December 31, 2017

are performing according to their contractual terms, and the Company does

not

expect to incur a loss on these securities unless they are sold prior to maturity. The Company does

not

have the intent to sell these securities nor does it believe it is likely that it will be required to sell these securities prior to their anticipated recovery. The Company does

not

consider any of the securities to be impaired due to reasons of credit quality or other factors.

XML

Note 4 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Financing Receivables [Text Block]

4

.

Loans

and Allowance for Loan Losses

Major classifications of loans are summarized

in the following table

.

December 31, (In thousands)	201 7		201 6
Real Estate
Real estate mortgage – construction and land development	$	129,181	$	120,230
Real estate mortgage – residential		355,304		350,295
Real estate mortgage – farmland and other commercial enterprises		432,321		400,367
Commercial
Commercial and industrial		63,417		48,607
States and political subdivisions		27,209		18,933
Other		19,916		23,308
Consumer
Secured		4,853		4,554
Unsecured		3,062		4,681
Total loans		1,035,263		970,975
Less unearned income		-		-
Total loans, net of unearned income	$	1,035,263	$	970,975

From time to time the Company

may

purchase a limited amount of loans originated by otherwise nonaffiliated

third

parties. The Company performs its own risk assessment and makes the credit decision on each loan prior to purchase. The Company purchased smal

ler balance commercial loans totaling

$2.8

million and

$2.5

million in the aggregate during

2017

and

2016,

respectively. The average individual balance of the purchased loans was

$123

thousand for

2017

and

$120

thousand for

2016

.

Loans to directors, execut

ive officers, and principal shareholders of the Company and its subsidiaries (including loans to affiliated companies of which they are principal owners) and loans to members of the immediate family of such persons were

$13.1

million at

December 31, 2017.

Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did

not

involve more than the normal risk of collectability

. An analysis of the activity with respect to these loans is presented in the table below.

(In thousands)	Amount
Balance at December 31, 201 6	$	13,499
New loans		11,549
Repayments		(5,693	)
Loans no longer meeting disclosure requirements, new loans meeting disclosure requirements, and other adjustments, net		(6,231	)
Balance at December 31, 2017	$	13,124

Activity in

the allowance for loan losses by portfolio segment was as follows for each of the

three

years in the period ended

December 31, 2017:

( In thousands)	Real Estate			Commercial			Consumer			Total
201 7
Balance at beginning of period	$	8,205		$	854		$	285		$	9,344
Provision for loan losses		(537	)		237			89			(211	)
Recoveries		1,386			139			55			1,580
Loans charged off		(545	)		(279	)		(106	)		(930	)
Balance at end of period	$	8,509		$	951		$	323		$	9,783
201 6
Balance at beginning of period	$	9,173		$	820		$	322		$	10,315
Provision for loan losses		(702	)		50			8			(644	)
Recoveries		141			203			69			413
Loans charged off		(407	)		(219	)		(114	)		(740	)
Balance at end of period	$	8,205		$	854		$	285		$	9,344
201 5
Balance at beginning of period	$	12,542		$	1,153		$	273		$	13,968
Provision for loan losses		(3,099	)		(449	)		119			(3,429	)
Recoveries		463			210			112			785
Loans charged off		(733	)		(94	)		(182	)		(1,009	)
Balance at end of period	$	9,173		$	820		$	322		$	10,315

The following table

s present individually impaired loans by class of loans for the dates indicated.

As of and for the Year Ended December 31, 2017 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	4,076	$	1,746	$	1,955	$	3,701	$	402	$	5,124	$	239	$	239
Real estate mortgage – residential		10,112		3,233		6,877		10,110		1,973		10,337		525		521
Real estate mortgage – farmland and other commercial enterprises		8,737		2,203		6,367		8,570		319		19,139		917		908
Commercial
Commercial and industrial		448		-		448		448		270		440		25		25
Other		-		-		-		-		-		6		-		-
Consumer
Unsecured		312		-		312		312		218		329		17		17
Total	$	23,685	$	7,182	$	15,959	$	23,141	$	3,182	$	35,375	$	1,723	$	1,710

As of and for the Year Ended December 31, 2016 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	9,076	$	2,599	$	3,800	$	6,399	$	759	$	7,706	$	310	$	298
Real estate mortgage – residential		9,930		4,388		5,590		9,978		1,503		9,146		491		465
Real estate mortgage – farmland and other commercial enterprises		25,045		9,699		15,235		24,934		304		25,557		1,197		1,153
Commercial
Commercial and industrial		435		20		418		438		236		419		23		21
Consumer
Unsecured		146		-		146		146		146		151		7		6
Total	$	44,632	$	16,706	$	25,189	$	41,895	$	2,948	$	42,979	$	2,028	$	1,943

Year Ended December 31, 2015 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	9,409	$	343	$	337
Real estate mortgage – residential		9,810		448		438
Real estate mortgage – farmland and other commercial enterprises		22,439		890		887
Commercial
Commercial and industrial		523		16		16
Consumer
Unsecured		127		6		6
Total	$	42,308	$	1,703	$	1,684

The following table

s present the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of

December 31, 2017

and

2016.

December 31, 2017 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,694	$	270	$	218	$	3,182
Collectively evaluated for impairment		5,815		681		105		6,601
Total ending allowance balance	$	8,509	$	951	$	323	$	9,783
Loans
Loans individually evaluated for impairment	$	22,381	$	448	$	312	$	23,141
Loans collectively evaluated for impairment		894,425		110,094		7,603		1,012,122
Total ending loan balance, net of unearned income	$	916,806	$	110,542	$	7,915	$	1,035,263

December 31, 2016 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,566	$	236	$	146	$	2,948
Collectively evaluated for impairment		5,639		618		139		6,396
Total ending allowance balance	$	8,205	$	854	$	285	$	9,344
Loans
Loans individually evaluated for impairment	$	41,311	$	438	$	146	$	41,895
Loans collectively evaluated for impairment		829,581		90,410		9,089		929,080
Total ending loan balance, net of unearned income	$	870,892	$	90,848	$	9,235	$	970,975

The following table

s present the recorded investment in nonperforming loans by class of loans as of

December 31, 2017

and

2016

.

December 31, 2017 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	151	$	1,955	$	-
Real estate mortgage – residential		1,763		5,326		-
Real estate mortgage – farmland and other commercial enterprises		1,752		3,703		-
Commercial
Commercial and industrial		53		370		-
Consumer
Unsecured		168		128		-
Total	$	3,887	$	11,482	$	-

December 31, 2016 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	712	$	3,637	$	-
Real estate mortgage – residential		2,316		4,006		-
Real estate mortgage – farmland and other commercial enterprises		3,383		14,787		-
Commercial
Commercial and industrial		-		377		-
Consumer
Secured		4		-		-
Unsecured		8		135		-
Total	$	6,423	$	22,942	$	-

The Company has

allocated

$1.8

million and

$2.0

million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings and that are in compliance with those terms as of

December 31, 2017

and

2016,

respectively. The Company had

no

commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at

December 31, 2017

and

2016.

There were

no

loans modified as troubled debt restructurings during

2017

or

2016

.

The table

s below present an age analysis of loans past due

30

days or more by class of loans as of the dates indicated. Past due loans that are also classified as nonaccrual are included in their respective past due category

.

December 31, 201 7 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate
Real estate mortgage – construction and land development	$	15	$	87	$	102	$	129,079	$	129,181	$	-	$	151
Real estate mortgage – residential		1,160		538		1,698		353,606		355,304		-		1,763
Real estate mortgage – farmland and other commercial enterprises		966		948		1,914		430,407		432,321		-		1,752
Commercial
Commercial and industrial		62		-		62		63,355		63,417		-		53
States and political subdivisions		-		-		-		27,209		27,209		-		-
Other		21		-		21		19,895		19,916		-		-
Consumer
Secured		-		-		-		4,853		4,853		-		-
Unsecured		9		-		9		3,053		3,062		-		168
Total	$	2,233	$	1,573	$	3,806	$	1,031,457	$	1,035,263	$	-	$	3,887

December 31, 201 6 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate
Real estate mortgage – construction and land development	$	393	$	227	$	620	$	119,610	$	120,230	$	-	$	712
Real estate mortgage – residential		1,935		798		2,733		347,562		350,295		-		2,316
Real estate mortgage – farmland and other commercial enterprises		-		2,483		2,483		397,884		400,367		-		3,383
Commercial
Commercial and industrial		-		-		-		48,607		48,607		-		-
States and political subdivisions		-		-		-		18,933		18,933		-		-
Other		24		-		24		23,284		23,308		-		-
Consumer
Secured		13		-		13		4,541		4,554		-		4
Unsecured		30		8		38		4,643		4,681		-		8
Total	$	2,395	$	3,516	$	5,911	$	965,064	$	970,975	$	-	$	6,423

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends and conditions. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes large-balance loans and non-homogeneous loans, such as commercial real estate and certain residential real estate loans. Loan rating grades, as described further below, are assigned based on a continuous process. The amount and adequacy of the allowance for loan loss is determined on a quarterly basis. The Company uses the following definitions for its risk ratings:

Special Mention.

Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses

may

result in deterioration of the borrower’s repayment ability, weaken the collateral, or inadequately protect the Company’s credit position at some future date. These credits pose elevated risk, but their weaknesses do

not

yet justify a substandard classification.

Substandard.

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are

not

corrected.

Doubtful.

Loans classified as doubtful have all the weaknesses inherent of those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans

not

meeting the criteria above which are analyzed individually as part of the above described process are considered to be pass rated loans

and are considered to have a low risk of loss. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the dates indicated.

	Real Estate						Commercial
December 31, 2017 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	124,926	$	330,401	$	414,663	$	62,490	$	27,209	$	19,898
Special Mention		396		9,196		7,556		474		-		18
Substandard		3,859		15,707		10,102		453		-		-
Doubtful		-		-		-		-		-		-
Total	$	129,181	$	355,304	$	432,321	$	63,417	$	27,209	$	19,916

	Real Estate						Commercial
December 31, 2016 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	112,435	$	323,300	$	363,448	$	47,254	$	18,933	$	23,308
Special Mention		1,413		12,147		21,088		764		-		-
Substandard		6,382		14,806		15,831		589		-		-
Doubtful		-		42		-		-		-		-
Total	$	120,230	$	350,295	$	400,367	$	48,607	$	18,933	$	23,308

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by

payment activity. The following table presents the consumer loans outstanding based on payment activity as of

December 31, 2017

and

2016.

	December 31, 2017				December 31, 2016
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity
Performing	$	4,853	$	2,766	$	4,550	$	4,538
Nonperforming		-		296		4		143
Total	$	4,853	$	3,062	$	4,554	$	4,681

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. During the

first

quarter of

2017,

the Company shortened the look-back period it uses to determine historical loss rates to the prev

ious

twelve

quarters from

sixteen

quarters.

No

other significant changes were made to the loan risk grading system definitions or allowance for loan loss methodology during the past year.

XML

Note 5 - Premises and Equipment

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

5

.

Premises and Equipment

Premises and equipment consist of the

following:

December 31, (In thousands)	201 7		201 6
Land, buildings, and leasehold improvements	$	60,980	$	60,399
Furniture and equipment		19,020		18,188
Total premises and equipment		80,000		78,587
Less accumulated depreciation and amortization		49,072		46,687
Premises and equipment, net	$	30,928	$	31,900

Depreciation and amortization of premises and equipment was

$3.3

million,

$3.4

million, and

$3.5

million for

2017,

2016,

and

2015,

respectively.

XML

Note 6 - Other Real Estate Owned

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Real Estate Owned [Text Block]

6

.

Other Real Estate Owned

OREO was as follows as of

the date indicated:

December 31, (In thousands)	201 7		201 6
Construction and land development	$	4,433	$	7,996
Residential real estate		157		871
Farmland and other commercial enterprises		899		1,806
Total	$	5,489	$	10,673

OREO activity for

2017

and

2016

was as follows:

(In thousands)	201 7			201 6
Beginning balance	$	10,673		$	21,843
Transfers from loans and other increases		821			2,044
Proceeds from sales		(5,419	)		(11,289	)
Gain (l oss) on sales, net		208			(473	)
Write downs and other decreases, net		(794	)		(1,452	)
Ending balance	$	5,489		$	10,673

At

December 31,

2017,

the Company had a total of

$886

thousand of loans secured by residential real estate mortgages that were in the process of foreclosure.

XML

Note 7 - Deposit Liabilities

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Deposit Liabilities Disclosures [Text Block]

7

.

Deposit Liabilities

Major classifications of deposits are summarized as follows for the dates indicated:

December 31, (In thousands)	201 7		201 6
Noninterest Bearing	$	361,855	$	334,676
Interest Bearing
Demand		379,027		348,197
Savings		416,163		416,611
Time		222,858		270,423
Total interest bearing		1,018,048		1,035,231
Total Deposits	$	1,379,903	$	1,369,907

At

December 31,

2017

,

the scheduled maturities of time deposits were as follows

:

(In thousands)	Amount
201 8	$	143,185
201 9		37,422
20 20		19,626
20 21		12,887
20 22		4,328
Thereafter		5,410
Total	$	222,858

Time deposits that meet or exceed the Federal Deposit Insurance Corporation (“

FDIC”) limit of

$250

thousand were

$14.8

million and

$18.6

million at

December 31, 2017

and

2016,

respectively.

Deposits from directors, executive officers, and princ

ipal shareholders of the Parent Company and its subsidiaries (including deposits from affiliated companies of which they are principal owners) and deposits from members of the immediate family of such persons were

$19.3

million and

$28.6

million at

December 31, 2017

and

2016,

respectively. Such deposits were accepted in the normal course of business on substantially the same terms as those prevailing at the time for comparable transactions with other customers.

XML

Note 8 - Securities Sold Under Agreements to Repurchase

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Long-term Debt [Text Block]

8

.

Securities Sold Under Agreements to Repurchase

S

ecurities sold under agreements to repurchase represent transactions where the Company sells certain of its investment securities and agrees to repurchase them at a specific date in the future. Securities sold under agreements to repurchase are accounted for as secured borrowings and reflect the amount of cash received in connection with the transaction. Information on securities sold under agreements to repurchase is as follows:

December 31, (Dollars in thousands)	201 7			201 6
S ecurities sold under agreements to repurchase
Amount outstanding at y ear-end	$	34,252		$	36,370
Average balance during the year		35,063			107,179
Maximum month-end balance during the year		38,079			140,218
Average interest rate during the year		.22	%		2.74	%
Average interest rate at year-end		.22			.36

Securities sold under agreements to repurchase are collateralized by U.S. government agency securities, primarily mortgage-backed securities. The Company

may

be required to provide additional collateral sec

uring the borrowings in the event of principal pay downs or a decrease in the market value of the pledged securities. The Company mitigates this risk by monitoring the market value and liquidity of the collateral and ensuring that it holds a sufficient level of eligible securities to cover potential increases in collateral requirements.

The following table represents the remaining maturity of

repurchase agreements disaggregated by the class of securities pledged as of the dates indicated

.

	Remaining Contractual Maturity of the Agreements
December 31 , 2017 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Mortgage-backed securities – residential	$	32,341	$	1,200	$	-	$	454	$	257	$	34,252
Total	$	32,341	$	1,200	$	-	$	454	$	257	$	34,252

	Remaining Contractual Maturity of the Agreements
December 31 , 2016 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	5,596	$	301	$	-	$	258	$	1,027	$	7,182
Mortgage-backed securities – residential		28,086		902		-		200		-		29,188
Total	$	33,682	$	1,203	$	-	$	458	$	1,027	$	36,370

The Company entered into a balance sheet leverage

transaction in

2007

whereby it borrowed

$200

million in multiple fixed rate term repurchase agreements with an initial weighted average cost of

3.95%

and invested the proceeds in Government National Mortgage Association (“GNMA”) bonds, which were pledged as collateral. During

September 2016,

the Company prepaid the remaining balance of

$100

million on the repurchase agreements, which were due to mature in

November 2017.

XML

Note 9 - Other Borrowings

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Other Borrowings [Text Block}

9

. Other Borrowings

O

ther borrowings consist of long-term FHLB advances and subordinated notes payable to the Company’s unconsolidated trusts. The table below displays a summary of the ending balance and average rate for such borrowed funds on the dates indicated.

			Average					Average
December 31, (Dollars in thousands)	201 7		Rate			201 6		Rate
Federal Home Loan Bank advances	$	3,479		3.27	%	$	18,646		3.97	%
Subordinated notes payable		33,506		2.85			33,506		2.30
Total FHLB advances and subordinated notes payable	$	36,985		2.89	%	$	52,152		2.89	%

At times the Company

’s short-term borrowings include federal funds purchased and FHLB advances. At year-end

2017

and

2016,

short-term borrowings consist entirely of securities sold under agreements to repurchase which are discussed further in Note

8.

FHLB advances are made pursuant to several different credit programs, which have their own interest rates and range of maturities.

At

December 31, 2017,

interest rates on all FHLB advances are fixed and range between

2.99%

and

5.81%,

averaging

3.27%

over a remaining weighted average maturity period of

0.

9

years. At

December 31, 2016,

interest rates on FHLB advances ranged between

2.99%

and

5.81%,

averaging

3.97%

over a remaining weighted average maturity period of

0.

8

years. Long-term FHLB borrowings of

$3.0

million and

$18.0

million at year-end

2017

and

2016,

respectively, were callable quarterly.

None

of the long-term FHLB advances are convertible to a floating interest rate.

For FHLB advances, the

Company pledges FHLB stock and certain qualifying mortgage loans as collateral

.

Pledged loans consist primarily of fully disbursed, otherwise unencumbered,

1

-

4

family

first

mortgage loans. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to an additional

$135

million from the FHLB at year-end

2017

.

Loans with a carrying value of $

612

million and

$416

million at

December 31, 2017

and

December 31, 2016,

respectively, were pledged to secure borrowings and lines of credit. Such borrowings primarily include FHLB advances and short-term borrowing arrangements with the Federal Reserve.

During

2005

, the Company completed

two

private offerings of trust preferred securities through

two

separate Delaware statutory trusts sponsored by the Company. Farmers Capital Bank Trust I (“Trust I”) sold

$10.0

million of preferred securities and Farmers Capital Bank Trust II (“Trust II”) sold

$15.0

million of preferred securities. The proceeds from the offerings were used to fund the cash portion of the acquisition of Citizens Bancorp, Inc., the former parent company of Citizens Northern. The preferred securities issued by Trust I mature

September 30, 2035

and are redeemable at any time by the Trust at par.

In

January 2016

, the Company terminated Trust II as a result of the early extinguishment of debt issued to the trust

and recorded a pretax gain of

$4.1

million. The Company became aware that all

$15

million of the trust preferred securities issued by Trust II would be auctioned off as part of the liquidation of a larger pooled collateralized debt obligation. The Company placed a bid of

$11.0

million for the securities, which was accepted by the trustee. The Company then canceled the preferred and common securities issued by the trust and extinguished the debentures, which totaled

$15.5

million.

Farmers Capital Bank Trust III (“Trust III”), a Delaware statutory trust sponsored by the Company, was formed during

2007

. Trust III sold

$22.5

million of preferred securities for the purpose of financing the cost of acquiring Company shares under a share repurchase program. The preferred securities mature on

November 1, 2037

and are redeemable at any time by the Trust at par. Trust I and Trust III are hereafter collectively referred to as the “Trusts.”

The Trusts used the proceeds from the sale of preferred securities, plus capital contributed to establish the trusts, to purchase the Company

’s subordinated notes in amounts and bearing terms that parallel the amounts and terms of the respective preferred securities. The subordinated notes to Trust I and Trust III mature in

2035

and

2037,

respectively, and bear a floating interest rate (current

three

-month LIBOR plus

150

basis points in the case of the notes held by Trust I and current

three

-month LIBOR plus

132

basis points in the case of the notes held by Trust III). Interest on the notes is payable quarterly. Interest payments to the Trusts and distributions to preferred shareholders by the Trusts

may

be deferred for

20

consecutive quarterly periods. There have been

no

deferrals of interest payments during the life of the Trusts.

The subordinated notes are redeemable in whole or in part, without penalty, at the Company

’s option. The notes are junior in right of payment of all present and future senior indebtedness. At

December 31, 2017

and

2016

the balance of the subordinated notes payable to Trust I and Trust III was

$10.3

million and

$23.2

million, respectively. The interest rates in effect as of the last determination date for

2017

were

3.19%

and

2.70%

for Trust I and Trust III, respectively. For

2016

these rates were

2.50%

and

2.21%

for Trust I and Trust III, respectively.

The Company is

not

considered the primary beneficiary of the Trusts; therefore the Trusts are

not

consolidated into its financial statements. Accordingly, the Company does

not

report the securities issued by the Trusts as liabilities, but instead reports as liabilities the subordinated notes issued by the Company and held by the Trusts. The Company, which owns all of the common securities of the Trusts, accounts for its investment in each of the Trusts as

other assets. The Company records interest expense on the corresponding notes issued to the Trusts on its statements of income.

The subordinated notes

, net of the Company’s investment in the Trusts,

may

be included in Tier

1

capital (with certain limitations applicable) under current regulatory capital guidelines and interpretations. The net amount of subordinated notes in excess of the limit

may

be included in Tier

2

capital, subject to restrictions. At year-end

2017and

2016,

the Company’s Tier

1

capital included

$32.5

million, which represents the full amount of the subordinated notes net of the Company’s investment in the Trusts at those dates.

Maturities of

FHLB advances and subordinated notes payable at

December 31, 2017

are as follows:

(In thousands)	Amount
201 8	$	3,000
201 9		5
20 20		474
20 21		-
20 22		-
Thereafter		33,506
Total	$	36,985

XML

Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10

. Income Taxes

The components of income tax expense

from operations are as follows:

December 31, (In thousands)	20 17		201 6		201 5
Currently payable	$	6,502	$	5,556	$	3,662
Revaluation of deferred income taxes resulting from change in statutory tax rates		5,869		-		-
Deferred		270		885		1,631
Total income tax expense	$	12,641	$	6,441	$	5,293

An analysis of the difference between the effective income tax rates and the statutory federal income tax rate follows.

December 31,	201 7			201 6			201 5
Federal statutory rate		35.0	%		35.0	%		35.0	%
Changes from statutory rates resulting from:
Revaluation of deferred income taxes resulting from changes in statutory tax rates		24.1			-			-
Tax-exempt interest		(4.1	)		(4.6	)		(5.8	)
Nondeductible interest to carry tax-exempt obligations		.1			.2			.2
Premium income not subject to tax		(1.4	)		(1.3	)		(1.5	)
Company-owned life insurance		(1.6	)		(1.5	)		(1.6	)
Other, net		(.1	)		.1			(.2	)
Effective tax rate on pretax income		52.0	%		27.9	%		26.1	%

The tax effects of the significant temporary differences that comprise deferred tax assets and liabilities at

December 31,

2017

and

2016

are as follows:

December 31, (In thousands)	201 7		201 6
Assets
Allowance for loan losses	$	2,058	$	3,285
Deferred compensation		135		236
Postretirement benefit obligations		3,605		5,825
Other real estate owned		621		1,303
Self-funded insurance		114		232
Paid time off		472		815
Depreciation		1,059		1,630
Intangibles		806		1,878
Unrealized loss on available for sale investment securities, net		933		1,811
Other		147		239
Total deferred tax assets		9,950		17,254
Liabilities
Prepaid expenses		-		153
Federal Home Loan Bank stock dividends		621		1,035
Deferred loan fees		523		846
Other		31		52
Total deferred tax liabilities		1,175		2,086
Net deferred tax asset	$	8,775	$	15,168

The Tax Cuts and Jobs Act ("Tax Act") was enacted on

December 22, 2017.

Among other changes, the Tax Act reduces the US Federal corporate tax rate from

35%

to

21%.

At

December 31, 2017,

the Company has substantially

completed its accounting for the tax effects of enactment of the Tax Act. For deferred tax assets and liabilities, amounts were remeasured based on the rates expected to reverse in the future, which is now

21%.

The Company continues to analyze certain aspects of the Tax Act and further refinements are possible, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts, although management does

not

expect these adjustments to materially impact the financial statements.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized. The ultimate realization of deferred tax asse

ts is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than

not

the Company will realize the benefits of these deductible differences at

December 31, 2017.

The Company had

no

unrecognized tax benefits at year-end

2017,

2016,

and

2015

and did

not

recognize any increase in unrecognized benefits during

2017

relative to any tax

position taken in

2017.

The Company’s policy is to record the accrual of interest or penalties relative to unrecognized tax benefits, if any, in its income tax expense accounts. There was

no

amount accrued for interest at

December 31, 2017

and

2016.

No

penalties were accrued or recorded during any year in the

three

years ended

December 31, 2017.

The Company files U.S. federal and various state income tax returns. The Company is

no

longer subject to income tax examinations by taxing authorities for the year

s before

2014.

XML

Note 11 - Retirement Plans

12 Months Ended

Dec. 31, 2017

Supplemental Employee Retirement Plan [Member]

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

11

.

Retirement Plans

The Company

maintains a salary savings plan that covers substantially all of its employees. In

2017,

2016,

and

2015,

the Company matched voluntary tax deferred employee contributions at

50%

of eligible deferrals up to a maximum of

6%

of the participants’ compensation. Effective

January 1, 2018,

the match will increase to

66.667%

applied to eligible contributions that do

not

exceed

6%

of the participants’ compensation with a maximum employer matching contribution of

4%.

The Company

may,

at the discretion of its Board, contribute an additional amount based upon a percentage of covered employees’ salaries. The Company did

not

make a discretionary contribution during

2017,

2016,

or

2015.

Discretionary contributions are allocated among participants in the ratio that each participant’s compensation bears to all participants’ compensation.

Eligible employees are presented with

numerous investment alternatives related to the salary savings plan. Those alternatives include various stock and bond mutual funds ranging from traditional growth funds to more stable income funds as well as an option to invest in bank certificates of deposits. Company shares are

not

an available investment alternative in the salary savings plan. Total retirement plan expense for

2017,

2016,

and

2015

was

$522

thousand,

$563

thousand, and

$531

thousand

,

respectively.

In connection with

its acquisition of Citizens Bank of Northern Kentucky, Inc., the Company acquired nonqualified supplemental retirement plans for certain key employees. Benefits provided under these plans are unfunded, and payments to plan participants are made by the Company.

The following schedules set forth a reconciliation of the changes in the

supplemental retirement plans’ benefit obligation and funded status for the years ended

December 31, 2017

and

2016

.

(In thousands)	201 7			201 6
Change in Benefit Obligation
Obligation at beginning of year	$	718		$	600
Service cost		22			19
Interest cost		23			24
Actuarial (gain) loss		(180	)		111
Benefit payments		(36	)		(36	)
Obligation at end of year	$	547		$	718

The following table provides disclosure of the net periodic benefit cost as of

December 31

for the years indicated

.

(In thousands)	201 7			201 6
Service cost	$	22		$	19
Interest cost		23			24
Recognized net actuarial loss		5			5
Net periodic benefit cost	$	50		$	48
Major assumptions:
Discount rate used to determine net period benefit cost		3.31	%		3.39	%
Discount rate used to determine benefit obligation at year end		2.86			3.31
Rate of compensation increase		4.00			4.00

The following table presents estimated future benefit payments in the period indicated.

(In thousands)	Supplemental Retirement Plan
201 8	$	58
201 9		60
20 20		60
20 21		60
20 22		56
2023-2027		219
Total	$	513

Amounts recognized in accumulated other

comprehensive income as of

December 31, 2017

and

2016

are as follows:

(In thousands)	201 7			201 6
Unrecognized net actuarial (gain) loss	$	(98	)	$	87
Total	$	(98	)	$	87

The estimated cost that will be amortized from accumulated other comprehensive income into net periodic

benefit cost over the next fiscal year is as follows:

(In thousands)	Supplemental Retirement Plan
Unrecognized net actuarial gain	$	(5	)
Total	$	(5	)

XML

Note 12 - Common Stock Options

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

12

. Common Stock Options

During

1997

, the Company’s Board of Directors approved a nonqualified stock option plan (the “Plan”), subsequently approved by the Company’s shareholders, that provided for the granting of stock options to key employees and officers of the Company. The Plan provided for the granting of options to purchase up to

450,000

shares of the Company’s common stock at a price equal to the fair value of the Company’s common stock on the date the option was granted. The options expired after

ten

years from the grant date and had to be held for a minimum of

one

year before they could be exercised. Forfeited options were available for the granting of additional stock options under the Plan.

Options forfeited from the initial grant in

1997

were used to grant options during

2000

and

2004.

Total options granted were

450,000,

54,000,

and

40,049

in the years

1997,

2000,

and

2004,

respectively. All unexercised options granted under the Plan expired during

2014

and the Company

no

longer grants options under the Plan

. There were

no

options exercised or granted in any year in the

three

-year periods ending

December 31, 2017,

nor were there any modifications or cash paid to settle stock option awards during those periods.

XML

Note 13 - Postretirement Medical Benefits

12 Months Ended

Dec. 31, 2017

Postretirement Health Coverage [Member]

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

13

. Postretirement Medical Benefits

T

he Company provides lifetime medical and dental benefits upon retirement for certain employees meeting the eligibility requirements as of

December 31, 1989 (

“Plan

1”

). Additional participants are

not

eligible to be included in Plan

1

unless they met the requirements on this date. During

2003,

the Company implemented an additional postretirement health insurance program (“Plan

2”

). Under Plan

2

, any employee meeting the service requirement of

20

years of full time service to the Company and is at least age

55

upon retirement is eligible to continue their health insurance coverage. Under both plans, retirees

not

yet eligible for Medicare have coverage identical to the coverage offered to active employees. Under both plans, Medicare-eligible retirees are provided with a Medicare Advantage plan. The Company pays

100%

of the cost of Plan

1.

The Company and the retirees each pay

50%

of the cost under Plan

2.

Both plans are unfunded

. Employees hired on or after

January 1, 2016

are

not

eligible for benefits under Plan

2.

The following schedules set forth a reconciliation of the changes to the benefit obligation and funded status of the plans for the years ended

December 31, 2017

and

2016

.

In connection with the merger of certain of its subsidiaries in

February 2017,

the Company recognized a curtailment gain of $

417

thousand and prior service costs of

$66

thousand, for a net gain of

$351

thousand at the time of curtailment. This gain is a result of revaluing its postretirement medical benefits plan liability due to a reduction in workforce during the

first

quarter of

2017

.

(In thousands)	201 7			201 6
Change in Benefit Obligation
Obligation at beginning of year	$	16,555		$	16,204
Service cost		557			637
Interest cost		660			683
Curtailment gain recognized		(417	)		-
Actuarial loss (gain)		263			(660	)
Participant contributions		196			153
Benefit payments		(550	)		(462	)
Obligation at end of year	$	17,264		$	16,555

The Company

’s contributions were

$354

thousand and

$309

thousand for

2017

and

2016,

respectively. The Company expects benefit payments of

$459

thousand for

2018

.

The following table provides disclosure of the net periodic benefit cost as of

December 31

for the years indicated

.

(In thousands)	201 7			201 6
Service cost	$	557		$	637
Interest cost		660			683
Curtailment gain recognized		(417	)		-
Recognized prior service cost		75			50
Net periodic benefit cost	$	875		$	1,370
Major assumptions:
Discount rate used to determine net periodic benefit cost		4.12	%		4.34	%
Discount rate used to determine benefit obligation as of year end		3.58			4.12
Retiree participation rate (Plan 1)		100.00			100.00
Retiree participation rate (Plan 2)		72.00			72.00

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. For

measurement purposes, the rate of increase in pre-Medicare medical care claims costs was

6.5%,

6.0%,

and

5.5%

for

2018,

2019,

and

2020,

respectively, then grading down by

.25%

annually to

4.75%

for

2023

and thereafter. For dental claims cost, it was

5%

for

2018

and thereafter. A

1%

change in the assumed health care cost trend rates would have the following incremental effects:

(In thousands)	1% Increase		1% Decrease
Effect on total of service and interest cost components of net periodic postretirement health care benefit cost	$	295	$	(247	)
Effect on accumulated postretirement benefit obligation		3,530		(2,733	)

The

following table presents estimated future benefit payments in the period indicated.

(In thousands)	Postretirement Medical Benefits
201 8	$	459
201 9		477
20 20		508
20 21		551
20 22		592
202 3-2027		3,439
Total	$	6,026

Amounts recognized in accumulated other comprehensive income as of

December 31,

2017

and

2016

are as follows:

(In thousands)	201 7		201 6
Unrecognized net actuarial loss (gain)	$	169	$	(93	)
Unrecognized prior service cost		-		75
Total	$	169	$	(18	)

The

re are

no

estimated costs that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year

.

XML

Note 14 - Leases

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

1

4

.

Leases

The Company leases certain branch sites and banking equipment under various operating leases.

Branch site leases have renewal options of varying lengths and terms. The following table presents estimated future minimum rental commitments under these leases for the period indicated.

(In thousands)	Operating Leases
201 8	$	408
201 9		343
20 20		286
20 21		218
20 22		80
Thereafter		498
Total	$	1,833

Rent

expense was

$408

thousand,

$434

thousand

,

and

$419

thousand for

2017

,

2016,

and

2015,

respectively.

XML

Note 15 - Financial Instruments With Off-balance Sheet Risk

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Financial Instruments With Off-balance Sheet Risk [Text Block]

15 . Financial Instruments With Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The financial instruments include commitments to extend credit

in the form of unused lines of credit and standby letters of credit.

These financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the e

xtent of involvement the Company has in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is

no

violation of any condition established in the contract. Commitments generally hav

e fixed expiration dates or other termination clauses and

may

require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does

not

necessarily represent future cash requirements. Total commitments to extend credit were

$220

million and

$188

million at

December 31, 2017

and

2016,

respectively. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit, if deemed necessary by the Company, is based on management’s credit evaluation of the counter

-

party. Collateral held varies, but

may

include accounts receivable, marketable securities, inventory, premises and equipment, residential real estate, and income producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a

third

party. Since many of the commitments are expected to expire without being drawn upon, the to

tal commitment amount does

not

necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that received when extending credit to customers. The fair value of these instruments is

not

considered material for disclosure

.

The Company had

$2.9

million and

$4.1

million in irrevocable letters of credit outstanding at

December 31, 2017

and

2016,

respectively.

The contractual amount of financial instruments with off-balance sheet risk was as

follows at year-end:

December 31,	201 7				201 6
(In thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to extend credit, including unused lines of credit	$	108,269	$	111,603	$	71,369	$	116,926
Standby letters of credit		1,722		1,154		2,284		1,769
Total	$	109,991	$	112,757	$	73,653	$	118,695

XML

Note 16 - Concentration of Credit Risk

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

16

.

Concentration of Credit Risk

The Company

’s subsidiary bank actively engages in lending, primarily in its home counties around Central and Northern Kentucky and adjacent areas. Collateral is received to support these loans as deemed necessary. The more significant categories of collateral include cash on deposit with the Company’s bank, marketable securities, income producing properties, commercial real estate, home mortgages, and consumer durables. Loans outstanding, commitments to make loans, and letters of credit range across a large number of industries and individuals. The obligations are significantly diverse and reflect

no

material concentration in

one

or more areas, other than most of the Company’s loans are in Kentucky and secured by real estate and thus significantly affected by changes in the Kentucky economy.

XML

Note 17 - Loss Contingencies

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Contingencies Disclosure [Text Block]

17 . Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. As of

December 31,

2017,

there were various pending legal actions and proceedings against the Company arising from the normal course of business and in which claims for damages are asserted. It is the opinion of management, after discussion with legal counsel, that the disposition or ultimate resolution of such claims and legal actions will

not

have a material effect upon the consolidated financial statements of the Company.

XML

Note 18 - Regulatory Matters

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

18 . Regulatory Matters

The Company and

United Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements will initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and its subsidiary bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

U.S. banking regulators adopted final rules related to standards on bank capital adequacy and liquidity (commonly referred to “

Basel III”) that were effective for the Company beginning on

January 1, 2015,

subject to a phase-in period for certain provisions extending through

January 1, 2019.

To ensure capital adequacy

,

the Company and its subsidiary bank are required to maintain minimum capital amounts and risk-based capital ratios (set forth in the tables below) as well as a capital conservation buffer in excess of the required minimum. The capital conservation buffer is being phasing in from

0.0%

in

2015

to

2.50%

by

2019.

For

2017,

the capital conservation buffer is

1.25%.

The Company and the Bank met the minimum capital ratios and a fully phased-in capital conservation buffer under the new rules at year-end

2017

.

As of

December 31,

2017,

the most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum Common Equity Tier

1

Risk-based, Tier

1

Risk-based, Total Risk-based, and Tier

1

Leverage ratios as set forth in the tables below. There are

no

conditions or events since that notification that management believes have changed the institutions’ category.

The

regulatory capital amounts and ratios of the consolidated Company and its subsidiary bank are presented in the following tables for the dates indicated. The minimums presented below are before the capital conservation buffer which was

1.25%

and

0.625%

at

December 31, 2017

and

2016,

respectively.

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
December 31, 201 7	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common Equity Tier 1 Risk-based Capital 1
Consolidated	$	196,919		16.56	%	$	53,500		4.50	%		N/A		N/A
United Bank*		165,488		14.05			53,004		4.50		$	76,561		6.50	%
Tier 1 Risk-based Capital 1
Consolidated	$	229,419		19.30	%	$	71,334		6.00	%		N/A		N/A
United Bank*		165,488		14.05			70,671		6.00		$	94,229		8.00	%
Total Risk-based Capital 1
Consolidated	$	239,234		20.12	%	$	95,112		8.00	%		N/A		N/A
United Bank*		175,271		14.88			94,229		8.00		$	117,786		10.00	%
Tier 1 Leverage Capital 2
Consolidated	$	229,419		13.75	%	$	66,763		4.00	%		N/A		N/A
United Bank*		165,488		10.13			65,365		4.00		$	81,706		5.00	%

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
December 31, 201 6	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common Equity Tier 1 Risk-based Capital 1
Consolidated	$	187,474		16.43	%	$	51,349		4.50	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		16.53			17,425		4.50		$	25,170		6.50	%
United Bank & Trust Company*		58,180		15.54			16,848		4.50			24,337		6.50
First Citizens Bank*		28,324		13.56			9,401		4.50			13,580		6.50
Citizens Bank of Northern Kentucky, Inc.*		24,661		15.24			7,280		4.50			10,516		6.50
Tier 1 Risk-based Capital 1
Consolidated	$	219,974		19.28	%	$	68,466		6.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		16.53			23,234		6.00		$	30,978		8.00	%
United Bank & Trust Company*		58,180		15.54			22,465		6.00			29,953		8.00
First Citizens Bank*		28,324		13.56			12,535		6.00			16,714		8.00
Citizens Bank of Northern Kentucky, Inc.*		24,661		15.24			9,707		6.00			12,942		8.00
Total Risk-based Capital 1
Consolidated	$	229,318		20.10	%	$	91,288		8.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		66,720		17.23			30,978		8.00		$	38,723		10.00	%
United Bank & Trust Company*		61,680		16.47			29,953		8.00			37,441		10.00
First Citizens Bank*		29,590		14.16			16,714		8.00			20,892		10.00
Citizens Bank of Northern Kentucky, Inc.*		26,534		16.40			12,942		8.00			16,178		10.00
Tier 1 Leverage Capital 2
Consolidated	$	219,974		13.20	%	$	66,656		4.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		9.80			26,121		4.00		$	32,651		5.00	%
United Bank & Trust Company*		58,180		12.38			18,798		4.00			23,497		5.00
First Citizens Bank*		28,324		9.76			11,606		4.00			14,507		5.00
Citizens Bank of Northern Kentucky, Inc.*		24,661		10.68			9,234		4.00			11,543		5.00

1

Common Equity Tier

1

Risk-based, Tier

1

Risk-based, and Total Risk-based Capital ratios are computed by dividing a bank’s Common Equity Tier

1,

Tier

1,

or Total Capital, as defined by regulation, by a risk-weighted sum of the bank’s assets, with the risk weighting determined by general standards established by regulation.

2

Tier

1

Leverage ratio is computed by dividing a bank’s Tier

1

Capital by its total quarterly average assets, as defined by regulation.

*

In

February 2017,

the Company merged

United Bank & Trust Company, First Citizens Bank, Inc., and Citizens Bank of Northern Kentucky, Inc. into Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed to United Bank & Capital Trust Company.

Payment of dividends by the

Bank is subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. Generally, capital distributions are limited to undistributed net income for the current and prior

two

years, subject to the capital requirements as summarized above

.

XML

Note 19 - Fair Value Measurements

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

19

.

Fair Value

Measurements

ASC Topic

820,

“Fair Value Measurements and Disclosures

,

”

defines fair value, establishes a framework for measuring fair value, and sets forth disclosures about fair value measurements. ASC Topic

825,

“Financial Instruments

,

”

allows entities to choose to measure certain financial assets and liabilities at fair value. The Company has

not

elected the fair value option for any of its financial assets or liabilities.

ASC Topic

820

defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This Topic describes

three

levels of inputs that

may

be used to measure fair value:

Level 1: Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions supported by little or no market activity, about the assumptions that market participants would use in pricing the asset or liability.

Following is a description of the valuation method used for instruments measured at fair value on a recurring basis. For this disclosure, the Company only has available for sale investment securities

and money market mutual funds classified as cash equivalents that meet the requirement. The carrying value of the

$36.7

and

$18.6

million in money market mutual funds at

December 31, 2017

and

2016,

respectively, is equivalent to its fair value and based on Level

1

inputs.

Available for sale investment securities

Valued primarily by independent

third

party pricing services under the market valuation approach that include, but

are

not

limited to, the following inputs:

● Mutual funds and equity securities are priced utilizing real-time data feeds from active market exchanges for identical securities and are considered Level 1 inputs.

● Government-sponsored agency debt securities, obligations of states and political subdivisions, mortgage-backed securities, corporate bonds, and other similar investment securities are priced with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources and are considered Level 2 inputs.

Fair value

disclosures for available for sale investment securities as of

December 31, 2017

and

2016

are as follows:

			Fair Value Measurements Using
(In thousands)   Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 7
Obligations of U.S. government-sponsored entities	$	43,208	$	-	$	43,208	$	-
Obligations of states and political subdivisions		114,249		-		114,249		-
Mortgage-backed securities – residential		193,393		-		193,393		-
Mortgage-backed securities – commercial		49,352		-		49,352		-
Asset-backed securities		15,574		-		15,574		-
Corporate debt securities		7,542		-		7,542		-
Mutual funds and equity securities		935		935		-		-
Total	$	424,253	$	935	$	423,318	$	-
December 31, 201 6
Obligations of U.S. government-sponsored entities	$	71,694	$	-	$	71,694	$	-
Obligations of states and political subdivisions		132,292		-		132,292		-
Mortgage-backed securities – residential		224,307		-		224,307		-
Mortgage-backed securities – commercial		45,613		-		45,613		-
Corporate debt securities		6,125		-		6,125		-
Mutual funds and equity securities		833		833		-		-
Total	$	480,864	$	833	$	480,031	$	-

The Company is required to measure and disclose certain other assets and liabilities at fair value on a nonrecurring basis in periods following their initial recognition. The Company

’s disclosure about assets and liabilities measured at fair value on a nonrecurring basis consists of collateral-dependent impaired loans and OREO.

Adjustments to the fair value of collateral-dependent loans are recorded by either direct loan charge-offs through the allowance for loan losses or an adjustment to the specific reserve through an increase or decrease to the provision for loan losses.

The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is measured based on recent appraisals of the underlying collateral. These appraisals

may

utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraisers take absorption rates into consideration and adjustments are routinely made in the appraisal process to identify differences between the comparable sales and income data available. Such adjustments consist mainly of estimated costs to sell that are

not

included in certain appraisals or to update appraised collateral values as a result of market declines of similar properties for which a newer appraisal is available. These adjustments can be significant and typically result in a Level

3

classification of the inputs for determining fair value.

OREO

includes properties acquired by the Company through, or in lieu of, actual loan foreclosures and is carried at fair value less estimated costs to sell. Fair value of OREO at acquisition is generally based on

third

party appraisals of the property that includes comparable sales data and is considered as Level

3

inputs. The carrying value of each OREO property is updated at least annually and more frequently when market conditions significantly impact the value of the property. If the carrying amount of the OREO exceeds fair value less estimated costs to sell, an impairment loss is recorded through noninterest expense.

The following table represent

s the carrying amount of assets measured at fair value on a nonrecurring basis and still held by the Company as of the dates indicated. The amounts in the table only represent assets whose carrying amount has been adjusted during the period in a manner as described above; therefore, these amounts will differ from the total amounts outstanding. With the exception of those calculated using the collateral valuation method, collateral-dependent impaired loan amounts in the tables below exclude restructured loans that are measured based on present value techniques, which are outside the scope of the fair value reporting framework.

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 7
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	1,553	$	-	$	-	$	1,553
Real estate mortgage – residential		4,687		-		-		4,687
Real estate mortgage – farmland and other commercial enterprises		2,645		-		-		2,645
Total	$	8,885	$	-	$	-	$	8,885
OREO
Construction and land development	$	3,468	$	-	$	-	$	3,468
Residential real estate		157		-		-		157
Farmland and other commercial enterprises		821		-		-		821
Total	$	4,446	$	-	$	-	$	4,446

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 6
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	2,909	$	-	$	-	$	2,909
Real estate mortgage – residential		3,137		-		-		3,137
Real estate mortgage – farmland and other commercial enterprises		351		-		-		351
Total	$	6,397	$	-	$	-	$	6,397
OREO
Construction and land development	$	4,883	$	-	$	-	$	4,883
Residential real estate		234		-		-		234
Farmland and other commercial enterprises		1,070		-		-		1,070
Total	$	6,187	$	-	$	-	$	6,187

The following table represents

fair value adjustments recorded in earnings for the periods indicated on assets measured at fair value on a nonrecurring basis.

(In thousands) Years Ended December 31,	201 7		201 6
Net decrease in fair value :
Collateral-dependent i mpaired loans	$	386	$	858
OREO		597		634
Total	$	983	$	1,492

The following table presents quantitative information about unobservable inputs for assets measured on a nonrecurring basis using Level

3

measurements.

As described above, the fair value of real estate securing collateral-dependent impaired loans and OREO are based on current

third

party appraisals. It is sometimes necessary, however, for the Company to discount the appraisal amounts supporting its impaired loans and OREO. These discounts relate primarily to marketing and other holding costs that are

not

included in certain appraisals or to update values as a result of market declines of similar properties for which newer appraisals are available. Discounts

may

also result from contracts to sell properties entered into during the period. The range of discounts is presented in the table below for

2017

and

2016.

The upper end of the range identified in the table related to OREO for each year is the result of write-downs on relatively small properties. The weighted average column represents a better indicator of the discounts applied to the appraisals.

(In thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range				Weighted Average
December 31, 201 7
Collateral-dependent i mpaired loans	$	8,885	Discounted appraisals	Marketability discount		0%	-	22.8%		3.1	%
OREO	$	4,446	Discounted appraisals	Marketability discount		0%	-	71.7%		4.05	%
December 31, 201 6
Collateral-dependent i mpaired loans	$	6,397	Discounted appraisals	Marketability discount		0%	-	67.8%		3.5	%
OREO	$	6,187	Discounted appraisals	Marketability discount		0%	-	50.0%		11.2	%

Fair Value of Financial Instruments

The

table that follows represents the estimated fair values of the Company’s financial instruments made in accordance with the requirements of ASC Topic

825,

“Financial Instruments

.

”

ASC Topic

825

requires disclosure of fair value information about financial instruments, whether or

not

recognized in the balance sheet

,

for which it is practicable to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and present value or other valuation techniques. These derived fair values are subjective in nature, involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. ASC Topic

825

excludes certain financial instruments and all nonfinancial instruments from the disclosure requirements. Accordingly, the aggregate fair value amounts presented are

not

intended to represent the underlying value of the Company

.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments

not

presented elsewhere for which it is practicable to estimate that value.

Cash and Cash Equivalents, Accrued Interest

Receivable, and Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value

due to the relatively short time between the origination of the instrument and its expected realization or settlement.

Investment Securities Held to

Maturity

Fair value is based on quoted market price, if available. If a quoted market price is

not

available, fair value is estimated using quoted market prices for similar securities or

with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources.

Loans

The fair value of loans is estimated by discounting

expected future cash flows using current discount rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Expected future cash flows are projected based on contractual cash flows adjusted for estimated prepayments.

Federal Home Loan Bank and Federal Reserve Bank Stock

It is

not

practical to determine the fair value of

Federal Home Loan Bank and Federal Reserve Bank stock due to restrictions placed on its transferability

.

Deposit Liabilities

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date

and fair value approximates carrying value. The fair value of fixed maturity certificates of deposit is estimated by discounting the expected future cash flows using the rates currently offered for certificates of deposit with similar remaining maturities.

Federal Funds Purchased and

S

hort-term

Securities Sold Under A

greements

to R

epurchase

The carrying amount is the estimated fair value for these borrowings which reprice frequently in the near term.

Securities Sold Under Agreements to Repurchase, Subordina

ted Notes Payable, and Other Long-term Borrowings

The fair value of

these borrowings is estimated by discounting the expected future cash flows using rates currently available for debt with similar terms and remaining maturities. For subordinated notes payable, the Company uses its best estimate to determine an appropriate discount rate since active markets for similar debt transactions are limited.

Commitments to Extend Credit and Standby Letters of Credit

Pricing of these financial instruments is

based on the credit quality and relationship, fees, interest rates, probability of funding, compensating balance, and other covenants or requirements. Loan commitments generally have fixed expiration dates, variable interest rates and contain termination and other clauses that provide for relief from funding in the event there is a significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of the Company’s commitments to lend and standby letters of credit are competitive with others in the various markets in which the Company operates. There are

no

unamortized fees relating to these financial instruments, as such the carrying value and fair value are both zero.

The

following table presents the estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at

December 31, 2017

and

2016.

Information for available for sale investment securities is presented within this footnote in greater detail above.

					Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31 , 201 7
Assets
Cash and cash equivalents	$	120,408	$	120,408	$	120,408	$	-	$	-
Held to maturity investment securities		3,364		3,478		-		3,478		-
Loans, net		1,025,480		1,012,959		-		-		1,012,959
Accrued interest receivable		4,935		4,935		-		4,935		-
Federal Home Loan Bank and Federal Reserve Bank Stock		13,235		13,235		-		-		13,235
Liabilities
Deposits		1,379,903		1,380,122		1,157,045		-		223,077
S ecurities sold under agreements to repurchase		34,252		34,257		-		34,257		-
Federal Home Loan Bank advances		3,479		3,546		-		3,546		-
Subordinated notes payable to unconsolidated trusts		33,506		22,709		-		-		22,709
Accrued interest payable		261		261		-		261		-
December 31, 201 6
Assets
Cash and cash equivalents	$	113,534	$	113,534	$	113,534	$	-	$	-
Held to maturity investment securities		3,488		3,597		-		3,597		-
Loans, net		961,631		962,437		-		-		962,437
Accrued interest receivable		5,019		5,019		-		5,019		-
Federal Home Loan Bank and Federal Reserve Bank Stock		9,840		9,840		-		-		9,840
Liabilities
Deposits		1,369,907		1,369,567		1,099,211		-		270,356
Se curities sold under agreements to repurchase		36,370		36,381		-		36,381		-
Federal Home Loan Bank advances		18,646		19,114		-		19,114		-
Subordinated notes payable to unconsolidated trusts		33,506		21,234		-		-		21,234
Accrued interest payable		321		321		-		321		-

XML

Note 20 - Parent Company Financial Statements

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Condensed Financial Information of Parent Company Only Disclosure [Text Block]

20

. Parent Company Financial Statements

Condensed Balance Sheets

December 31, (In thousands)	201 7			201 6
Assets
Cash and cash equivalents	$	61,604		$	44,286
Investment in subsidiaries		166,183			175,935
Other assets		302			1,378
Total assets	$	228,089		$	221,599
Liabilities
Dividends payable , common stock	$	939		$	751
Subordinated notes payable to unconsolidated trusts		33,506			33,506
Other liabilities		291			3,276
Total liabilities		34,736			37,533
Shareholders ’ Equity
Common stock		940			939
Capital surplus		52,201			51,885
Retained earnings		143,778			134,650
Accumulated other comprehensive loss		(3,566	)		(3,408	)
Total shareholders ’ equity		193,353			184,066
Total liabilities and shareholders ’ equity	$	228,089		$	221,599

Condensed Statements of

Income

and Comprehensive Income

Years Ended December 31, (In thousands)	201 7			201 6			201 5
Income
Dividends from subsidiaries	$	23,026		$	24,820		$	14,426
Interest		191			39			12
Gain on debt extinguishment		-			4,050			-
Other noninterest income		363			2,442			2,555
Total income		23,580			31,351			16,993
Expense
Interest expense – subordinated notes payable to unconsolidated trusts		870			723			866
Noninterest expense		1,751			5,050			4,938
Total expense		2,621			5,773			5,804
Income before income tax benefit and equity in undistributed income of subsidiaries		20,959			25,578			11,189
Income tax (benefit) expense		(747	)		273			(1,076	)
Income before equity in undistributed income of subsidiaries		21,706			25,305			12,265
Equity in undistributed (loss) income of subsidiaries		(10,018	)		(8,700	)		2,727
Net income		11,688			16,605			14,992
Other comprehensive income (loss)		475			(6,190	)		(2,093	)
Comprehensive income	$	12,163		$	10,415		$	12,899

Condensed Statements of Cash Flows

Years Ended December 31, (In thousands)	201 7			201 6			201 5
Cash Flows From Operating Activities
Net income	$	11,688		$	16,605		$	14,992
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed loss (income) of subsidiaries		10,018			8,700			(2,727	)
Noncash employee stock purchase plan exp ense		1			7			4
Noncash director fee compensation		105			92			104
Change in other assets and liabilities, net		(2,408	)		(1,116	)		582
Deferred income tax expense (benefit)		740			(46	)		(54	)
Gain on extinguishment of subordinated notes payable to unconsolidated trusts		-			(4,050	)		-
Net cash provided by operating activities		20,144			20,192			12,901
Cash Flows From Investing Activities
Return of equity from nonbank subsidiary		-			500			1,355
Net cash provided by investing activities		-			500			1,355
Cash Flows From Financing Activities
Cash paid to extinguish subordinated notes payable to unconsolidated trusts		-			(10,950	)		-
Dividends paid, common stock		(3,005	)		(1,575	)		-
Redemption of preferred stock		-			-			(10,000	)
Dividends paid, preferred stock		-			-			(508	)
Shares issued under employee stock purchase plan		179			155			130
Net cash used in financing activities		(2,826	)		(12,370	)		(10,378	)
Net increase in cash and cash equivalents		17,318			8,322			3,878
Cash and cash equivalents at beginning of year		44,286			35,964			32,086
Cash and cash equivalents at end of year	$	61,604		$	44,286		$	35,964

XML

Note 21 - Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Quarterly Financial Information [Text Block]

21 . Quarterly Financial Data (Unaudited)

(In thousands, except per share data)
Quarters Ended 2017	March 31		June 30			Sept. 30			Dec. 31
Interest income	$	14,379	$	14,830		$	14,983		$	15,094
Interest expense		916		881			893			820
Net interest income		13,463		13,949			14,090			14,274
Provision for loan losses		580		(499	)		(379	)		87
Net interest income after provision for loan losses		12,883		14,448			14,469			14,187
Noninterest income		5,251		5,102			5,627			5,185
Noninterest expense		13,529		13,346			12,708			13,240
Income before income taxes		4,605		6,204			7,388			6,132
Income tax expense		1,276		1,722			2,076			7,567	1
Net income (loss)	$	3,329	$	4,482		$	5,312		$	(1,435	)
Net income (loss) per common share, basic and diluted	$	.44	$	.60		$	.71		$	(.19	)
Weighted average common shares outstanding, basic and diluted		7,510		7,512			7,514			7,516

1

Income tax expense includes

$5.9

million related to the remeasurement of the Company’s net deferred tax assets due to the change in Federal tax rates.

(In thousands, except per share data)
Quarters Ended 201 6	March 31			June 30			Sept. 30			Dec. 31
Interest income	$	15,330		$	14,973		$	14,619		$	14,449
Interest expense		2,043			1,975			1,809			928
Net interest income		13,287			12,998			12,810			13,521
Provision for loan losses		(473	)		(156	)		(190	)		175
Net interest income after provision for loan losses		13,760			13,154			13,000			13,346
Noninterest income		9,542	1		5,521			10,772	2		5,351
Noninterest expense		14,407			13,884			17,888	2		15,221
Income before income taxes		8,895			4,791			5,884			3,476
Income tax expense		2,715			1,235			1,560			931
Net income	$	6,180		$	3,556		$	4,324		$	2,545
Net income per common share, basic and diluted	$	.82		$	.47		$	.58		$	.34
Weighted average common shares outstanding, basic and diluted		7,500			7,502			7,505			7,508

1

Noninterest income includes

$4.1

million related to the gain on the early extinguishment of subordinated notes payable.

2

Noninterest income includes

$3.8

million of gain on the sale of investment securities and noninterest expense includes

$3.8

million of loss on the early extinguishment of debt, both related to a series of transactions to deleverage the balance sheet.

The

quarterly financial information in the tables above reflects all adjustments which are necessary for a fair statement of results of the interim period.

XML

Note 22 - Intangible Assets

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

22

. Intangible Assets

Intangible assets were

zero

as of year-end

201

7

and

2016.

Customer relationship intangibles in the amount of

$2.4

million recorded in connection with a prior business acquisition during

2004

were fully amortized at year-end

2014.

Acquired core deposit intangibles in the amount of

$4.5

million were fully amortized at year-end

2015

.

Aggregate amortization expense of core deposit and customer relationship intangible assets was

zero

for

2017

and

2016

,

and

$449

thousand for

2015.

XML

Note 23 - Preferred Stock

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Preferred Stock [Text Block]

23

. Preferred Stock

On

January 9, 2009,

as part of the U.S. Department of Treasury

’s (“Treasury”) Capital Purchase Program (“CPP”), the Company issued

30,000

shares of Series A,

no

par value cumulative perpetual preferred stock to the Treasury for

$30.0

million. The Company also issued a warrant to the Treasury as part of the CPP. In

June 2012,

the Treasury conducted an auction in which it sold all of its investment in the Company’s Series A preferred stock to private investors. The Company received

no

proceeds as part of the transaction. In

July 2012,

the Company repurchased the warrant it issued to the Treasury.

Upon settlement of the warrant repurchase, the Treasury had

no

remaining equity stake in the Company.

The Company redeemed

20,000

shares of its outstanding preferred stock during

2014

at its stated liquidation value of

$1

thousand per share, plus accrued dividends.

The shares were approved and redeemed in

two

separate partial redemptions of

10,000

shares each,

one

of which occurred in

second

quarter and the other in the

fourth

quarter.

On

June 8, 2015,

the Company redeemed the final

10,000

shares of its Series A preferred stock. The shares were redeemed at the stated liquidation value of

$1

thousand per share, plus accrued dividends. The redemption was the

third

and final partial redemption of the original shares issued.

No

additional debt or equity was issued in connection with any of the shares redeemed. 

XML

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation and Nature of Operations

The consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the “

Company” or “Parent Company”), a financial holding company, its wholly

-owned subsidiaries bank subsidiary, United Bank & Capital Trust Company (“United Bank” or the “Bank”) in Frankfort, KY, and its wholly-owned nonbank subsidiary, FFKT Insurance Services, Inc. (“FFKT Insurance”).

In

February 2017,

the Company merged

three

of its subsidiary banks (United Bank & Trust Company in Versailles, KY; First Citizens Bank, Inc. in Elizabethtown, KY; and Citizens Bank of Northern Kentucky, Inc. in Newport, KY) and its data processing subsidiary (FCB Services, Inc. in Frankfort, KY) into its subsidiary bank Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed under the merger to United Bank & Capital Trust Company. The Company accounted for the transfer of assets and liabilities of the merged subsidiaries at their respective historical cost amounts as of the date of the merger.

FFKT Insurance is a captive insurance company

in Frankfort, KY that provides property and casualty coverage to the Parent Company and its subsidiaries for risk management purposes or where insurance

may

not

be available or economically feasible. The Company has

two

subsidiaries organized as Delaware statutory trusts that are

not

consolidated into its financial statements. These trusts were formed in

2005

and

2007

for the purpose of issuing trust preferred securities.

United

Bank’s significant subsidiaries include EG Properties, Inc. and Farmers Capital Insurance Corporation (“Farmers Insurance”). EG Properties, Inc. is involved in real estate management and liquidation for certain repossessed properties of United Bank. Farmers Insurance is an insurance agency in Frankfort, KY.

The Company provides financial services at its

3

4

locations in

21

communities throughout Central and Northern Kentucky to individual, business, agriculture, government, and educational customers. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential mortgage, commercial lending, and consumer installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other services include, but are

not

limited to, cash management services, issuing letters of credit, safe deposit box rental, and providing funds transfer services. Other financial instruments, which could potentially represent concentrations of credit risk, include deposit accounts in other financial institutions and federal funds sold.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with

U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy. Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the financial statements. The allowance for loan losses, carrying value of other real estate owned, actuarial assumptions used to calculate postretirement benefits, and the fair values of financial instruments are estimates that are particularly subject to change.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain amounts in the accompanying consolidated financial statements presented for prior years have been rec

lassified to conform to the

2017

presentation. These reclassifications do

not

affect net income or total shareholders’ equity as previously reported.

Segment Reporting, Policy [Policy Text Block]

Segment Information

The Company provides a broad range of financial services to individuals, corporations, and others through its

34

banking locations throughout Central and Northern Kentucky. These services primarily include the activities of lending, receiving deposits, providing cash management services, safe deposit box rental, and trust activities.

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into

one

as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in

one

reportable segment.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Flows

For purposes of

reporting cash flows, cash and cash equivalents include the following: cash on hand, deposits from other financial institutions that have an initial maturity of less than

90

days when acquired by the Company, federal funds sold and securities purchased under agreements to resell, and money market mutual funds. Generally, federal funds sold and securities purchased under agreements to resell are purchased and sold for

one

-day periods. Net cash flows are reported for loan

,

deposit, and short-term borrowing transactions.

Marketable Securities, Policy [Policy Text Block]

Investment Securities

Investments in debt and equity securities are classified into

three

categories. Securities that management has the positive intent and ability to hold until maturity are classified as held to maturity. Securities that ar

e bought and held specifically for the purpose of selling them in the near term are classified as trading securities. The Company had

no

securities classified as trading during

2017,

2016,

or

2015.

All other securities are classified as available for sale. Securities are designated as available for sale if they might be sold before maturity. Securities classified as available for sale are carried at estimated fair value. Unrealized holding gains and losses for available for sale securities are reported net of deferred income taxes in other comprehensive income. Investments classified as held to maturity are carried at amortized cost. Amortized cost basis for investment securities includes adjustments made to the cost for previous other-than-temporary impairment (“OTTI”) recognized in earnings, amortization, accretion, and collection of cash.

Interest income includes amortization and accretion of purchase premiums or discounts. Premiums and discounts on securities are amortized

using the interest method over the expected life of the securities

without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Realized gains and losses on the sales of securities are recorded on the trade date and computed on the basis of specific identification of the adjusted cost of each security and are included in noninterest income.

The Company evaluates investment securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such a

n evaluation. A decline in the market value of investment securities below cost that is deemed other

-than

-temporary results in a charge to earnings and the establishment of a new cost basis for the security. Substantially all of the Company’s investment securities are debt securities.

In estimating OTTI for debt securities, management considers each of the following: (

1

) the length of time and extent to which fair value has been less than cost, (

2

) the financial condition and near-term prospects of the issuer, (

3

) whether market decline was affected by macroeconomic conditions, and (

4

) whether the Company has the intent to sell the debt security or more likely than

not

will be required to sell the debt security before its anticipated recovery in fair value. The assessment of whether an OTTI charge exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at a point in time. The Company had

no

OTTI losses during any year in each of the

three

years in the period ended

December 31, 2017.

Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under

Financial Accounting Standard Board (“

FASB”) Accounting Standards Codification

TM

(“ASC”) Topic

320,

“

Investments-Debt and Equity Securities

.

”

In determining OTTI under ASC Topic

320

the Company considers many factors, including those enumerated above. When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether the Company intends to sell the security or it is more likely than

not

it will be required to sell the security before recovery of its amortized cost basis. If the Company intends to sell or it is more likely than

not

it will be required to sell the security before recovery of its amortized cost basis, OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does

not

intend to sell the security and it is

not

more likely than

not

that it will be required to sell the security before recovery of its amortized cost basis, OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Federal Home Loan Bank and Federal Reserve Board Stock, Policy [Policy Text Block]

Federal Home Loan Bank and Federal Reserve

Bank

Stock

Federal Home Loan Bank (“

FHLB”) and Federal Reserve Bank stock is carried at cost and recognized in other assets on the consolidated balance sheets under the caption “Other assets

.” These stocks are classified as restricted securities and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. The amount outstanding at

December 31, 2017

and

2016

was

$13.2

million and

$9.8

million, respectively

.

Finance, Loans and Leases Receivable, Policy [Policy Text Block]

Loans and Interest Income

Loans that management has the intent and ability to hold for the foreseeable future or

until maturity or pay-off are reported at their unpaid principal amount outstanding adjusted for any charge-offs

,

deferred fees or costs on originated loans, and unamortized premiums and discounts on purchased loans. Interest income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Interest income also includes amortization and accretion of any premiums or discounts over the expected life of acquired loans at the time of purchase or business acquisition. Loan origination fees, net of certain direct origination costs

,

are deferred and amortized as yield adjustments over the contractual term of the loans.

The Company disaggregates

certain disclosure information related to loans, the related allowance for loan losses, and credit quality measures by either portfolio segment or by loan class. The Company segregates its loan portfolio segments based on similar risk characteristics as follows: real estate loans, commercial loans, and consumer loans. Portfolio segments are further disaggregated into classes for certain required disclosures as follows:

Portfolio Segment	Class
Real estate loans	Real estate mortgage  – construction and land development Real estate mortgage  – residential Real estate mortgage – farmland and other commercial enterprises
Commercial loans	Commercial and industrial Depository institutions Agriculture production and other loans to farmers States and political subdivisions Other
Consumer loans	Secured Unsecured

L

oan disclosures include presenting certain disaggregated information based on recorded investment. The recorded investment in a loan includes its principal amount outstanding adjusted for certain items that include net deferred loan costs or fees, unamortized premiums or discounts, charge offs, and accrued interest. The Company had a total of

$83

thousand of net deferred loan fees at year-end

2017

and

$301

thousand of net deferred loan costs at year-end

2016

,

included in the carrying amount of loans on the balance sheet, which represents

.01%

and

.03%

of loans outstanding at year-end

2017

and

2016,

respectively. The amount of net deferred loans costs and fees are

not

material and are omitted from the computation of the recorded investment included in Note

4

that follows. Similarly, accrued interest receivable on loans was

$3.1

million and

$2.8

million at year-end

2017

and

2016,

respectively, or

0

.3%

of loans for both years and has also been omitted from certain information presented in Note

4

.

The Company has a loan policy in place that is amended and approved from time to time as needed to reflect current economic conditions and product offerings in its markets. The policy

establishes written procedures concerning areas such as the lending authorities of loan officers, committee review and approval of certain credit requests, underwriting criteria, policy exceptions, appraisal requirements, and loan review. Credit is extended to borrowers based primarily on their ability to repay as demonstrated by income and cash flow analysis.

Loans secured by real estate make up the largest segment of the Company

’s loan portfolio. If a borrower fails to repay a loan secured by real estate, the Company

may

liquidate the collateral in order to satisfy the amount owed. Determining the value of real estate is a key component to the lending process for real estate backed loans. If the fair value of real estate (less estimated cost to sell) securing a collateral dependent loan declines below the outstanding loan amount, the Company will write down the carrying value of the loan and thereby incur a loss. The Company uses independent

third

party state certified or licensed appraisers in accordance with its loan policy to mitigate risk when underwriting real estate loans. Cash flow analysis of the borrower, loan to value limits as adopted by loan policy, and other customary underwriting standards are also in place which are designed to maximize credit quality and mitigate risks associated with real estate lending.

Commercial loans are made to businesses and are secured mainly by assets such as inventory, accounts receivable,

machinery, fixtures and equipment, or other business assets. Commercial lending involves significant risk, as loan repayments are more dependent on the successful operation or management of the business and its cash flows. Consumer lending includes loans to individuals mainly for personal autos, boats, or a variety of other personal uses and

may

be secured or unsecured. Loan repayment associated with consumer loans is highly dependent upon the borrower’s continuing financial stability, which is heavily influenced by local unemployment rates. The Company mitigates its risk exposure to each of its loan segments by analyzing the borrower’s repayment capacity, imposing restrictions on the amount it will loan compared to estimated collateral values, limiting the payback periods, and following other customary underwriting practices as adopted in its loan policy.

T

he accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for

90

days or more, unless such loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan. Interest accrued but

not

received for a loan placed on nonaccrual status is reversed against interest income. Cash payments received on nonaccrual loans generally are applied to principal until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company’s policy for placing a loan on nonaccrual status or subsequently returning a loan to accrual status does

not

differ based on its portfolio class or segment.

Commercial and real estate l

oans delinquent in excess of

120

days and consumer loans delinquent in excess of

180

days are charged off

,

unless the collateral securing the debt is of such value that any loss appears to be unlikely. In all cases, loans are charged off at an earlier date if classified as loss under the Company’s loan grading process or as a result of regulatory examination. The Company’s charge-off policy for impaired loans does

not

differ from the charge-off policy for loans outside the definition of impaired

.

Finance, Loan and Lease Receivables, Held-for-sale, Policy [Policy Text Block]

Loans Held for Sale

Mortgage banking activitie

s include the origination of fixed-rate residential mortgage loans for sale to various

third

-party investors. Mortgage loans originated and intended for sale in the secondary market, principally under programs with the Federal National Mortgage Association

,

are carried at the lower of cost or estimated fair value determined in the aggregate and included in net loans on the balance sheet until sold. These loans are sold with the related servicing rights either retained or released by the Company depending on the economic conditions present at the time of origination. The Company had

no

mortgage loans held for sale at

December 31, 2017.

Mortgage loans held for sale included in net loans at

December 31, 2016

totaled

$1.7

million. Mortgage banking revenues, including origination fees, servicing fees, net gains on sales of mortgage loans, and other fee income were

1.4%,

1.6%,

and

1.6%

of

the Company’s total revenue for the years ended

December 31, 2017,

2016,

and

2015,

respectively

.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Provision and Allowance for

Loan Losses

The provision for loan losses represents charges

or credits made to earnings to maintain an allowance for loan losses at a level considered adequate to provide for probable incurred credit losses at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company estimates the adequacy of the allowance using a risk-rated methodology which is based on the Company

’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that

may

affect the borrower’s ability to repay, the estimated value of any underlying collateral securing loans, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires significant judgment and the use of estimates that

may

be susceptible to change.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general compo

nent covers non-impaired loans and is based on historical loss experience adjusted for current risk factors. Allocations of the allowance

may

be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Actual loan losses could differ significantly from the amounts estimated by management.

The

general portion of the Company’s loan portfolio is segregated into portfolio segments having similar risk characteristics identified as follows: real estate loans, commercial loans, and consumer loans. Each of these portfolio segments is assigned a loss percentage based on their respective rolling historical loss rates, adjusted for the qualitative risk factors summarized below. During the

first

quarter of

2017,

the Company shortened the look-back period it uses to determine historical loss rates to the previous

twelve

quarters from

sixteen

quarters. The change in the look-back period is the result of the Company’s ongoing monitoring and evaluation of the adequacy of its allowance for loan losses. The shorter look-back period better reflects the Company’s loss estimates based on current market conditions. Shortening the look-back period increased the allowance for loan losses by

$49

thousand compared to the previous

sixteen

quarter look-back period

.

The qualitative risk factors used in the methodology are consistent with the guidance in the most recent Interagency Policy Statement on the Allowance for Loan Losses issued. Each factor is supported by a detailed analysis and is both measureable and supportable. Some factors include a minimum allocation in instances where loss levels are extremely low and it is determined to be prudent from a safety and soundness perspective. Qualitative risk factors that are used in the methodology include the following for each loan portfolio segment:

● Delinquency trends

● Trends in net charge-offs

● Trends in loan volume

● Lending philosophy risk

● Management experience risk

● Concentration of credit risk

● Economic conditions risk

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modif

ied resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company accounts for impaired loans in accordance with

ASC Topic

310,

“Receivables

.

”

ASC Topic

310

requires that impaired loans be measured at the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral if the loan is collateral dependent. Impaired loans

may

also be classified as nonaccrual. In many circumstances, however, the Company continues to accrue interest on an impaired loan. Cash receipts on accruing impaired loans are applied to the recorded investment in the loan, including any accrued interest receivable. Cash payments received on nonaccrual impaired loans generally are applied to principal until qualifying for return to accrual status

.

Loans that are part of a large group of smaller-balance homogeneous loans, such as residential mortgage

,

consumer, and smaller-balance commercial loans, are collectively evaluated for impairment. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception, or at the fair value of collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of the allowance in accordance with its accounting policy for the allowance for loan losses on loans individually identified as impaired

.

Mortgage Servicing Rights, Policy [Policy Text Block]

Mortgage Servicing Rights

Mortgage servicing rights are recognized

in other assets on the Company’s consolidated balance sheet at their initial fair value on loans sold with servicing retained. Fair value is based on market prices for comparable mortgage servicing contracts when available

,

or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. Mortgage servicing rights are subsequently measured using the amortization method in which the mortgage servicing right is expensed in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Impairment is evaluated based on the fair value of the rights, grouping the underlying loans by interest rates. Impairment of a grouping is reported as a valuation allowance. Capitalized mortgage servicing rights were

$719

thousand and

$731

thousand at

December 31, 2017

and

2016,

respectively.

No

impairment of the asset was determined to exist on either of these dates. Mortgage loans serviced for others totaled

$198

million and

$202

million at

December 31, 2017

and

2016,

respectively. Mortgage loans serviced for others are

not

included in the Company’s balance sheets.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

Fair values of financial

instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note

19.

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Off-Balance-Sheet Credit Exposure, Policy [Policy Text Block]

Loan Commitments and Related Financial Instruments

Financial instruments include off

-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, which are issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Intangible Assets

Intangible assets

consist of core deposit and customer relationship intangible assets arising from business acquisitions. Intangible assets are initially measured at fair value and then amortized on an accelerated method over their estimated useful lives, which range between

seven

and

ten

years. Such assets are evaluated for impairment whenever changes in circumstances indicate that such an evaluation is necessary

.

The Company had

no

core deposit or customer relationship intangible assets recorded at any of the years ending

December 31, 2017,

2016,

or

2015

.

Loans and Leases Receivable, Real Estate Acquired Through Foreclosure, Policy [Policy Text Block]

Other Real Estate

Owned

Other real estate owned

(“OREO”) and held for sale in the accompanying consolidated balance sheets includes properties acquired by the Company through, or in lieu of, actual loan foreclosures. OREO is initially carried at fair value less estimated costs to sell. Fair value is generally based on

third

party appraisals of the property that includes comparable sales data. If the carrying amount exceeds fair value less estimated costs to sell, an impairment loss is recorded through expense. These assets are subsequently accounted for at the lower of carrying amount or fair value less estimated costs to sell. Operating costs after acquisition are expensed.

Income Tax, Policy [Policy Text Block]

Income Taxes

Income tax expense is the total of current year income ta

x

due or refundable and the change in deferred tax assets and liabilities, except for the deferred tax assets and liabilities related to business combinations or components of other comprehensive income.Deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than

not”

that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than

50%

likely of being realized on examination. For tax positions

not

meeting the “more likely than

not”

test,

no

tax benefit is recorded.

The Company files a consolidated federal income tax return with its subsidiaries. Federal income tax expense or benefit has been allocated to subsidiaries on a separate return basis.

The Company’s policy is to record the accrual of interest and/or penalties relative to income tax matters, if any, in income tax expense

.

Property, Plant and Equipment, Policy [Policy Text Block]

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on the straight-line method over the estimated useful lives generally ranging from

two

to

seven

years for

furniture and equipment and generally

ten

to

40

years for buildings and related components. Leasehold improvements are amortized over the shorter of the estimated useful lives or terms of the related leases on the straight-line method. Maintenance, repairs, and minor improvements are charged to operating expenses as incurred and major improvements are capitalized. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in noninterest income. Land is carried at cost.

Company-owned Life Insurance, Policy [Policy Text Block]

Company-owned Life Insurance

The Company has purchased life insurance policies on certain key employees with their knowledge and

written consent. Company-owned life insurance is recorded on the consolidated balance sheet at its cash surrender value, which is the amount that can be realized under the insurance contract at the balance sheet date. The related change in cash surrender value and proceeds received under the policies are reported on the consolidated statements of income under the caption “Income from company-owned life insurance.”

Related Party Transactions, Policy [Policy Text Block]

Related Party Transactions

In the ordinary course of business, the Company offers loan

and deposit products to its directors, executive officers, and principal shareholders – including affiliated companies of which they are principal owners (“Related Parties”). These products are offered on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties, and these receivables and deposits are included in loans and deposits in the Company’s consolidated balance sheets. Additional information related to these transactions can be found in Note

4

and Note

7.

The Company makes payments to Related Parties in the normal course of business

for various services, primarily related to legal fees. For example, certain directors of the Parent Company and its subsidiary bank are partners in law firms that act as counsel to the Company. The following table represents the amount and type of payments to Related Parties, other than director fees, for the periods indicated:

(In thousands) Years Ended December 31,	201 7		201 6		201 5
Legal fees	$	139	$	257	$	221
Commissions and fees related to the sale of repossessed commercial real estate and property management		-		-		9
Insurance premiums/commissions		-		-		1
Other		27		2		5
Total	$	166	$	259	$	236

Pension and Other Postretirement Plans, Policy [Policy Text Block]

Retirement Plans

The Company maintains a

401

(k) salary savings plan and records expense based on the amount of its matching contributions of employee deferrals. The Company also has a nonqualified supplemental retirement plan for certain key employees that it acquired in connection with the Citizens Bank of Northern Kentucky, Inc. acquisition. Supplemental retirement plan expense allocates the benefits over years of service.

Earnings Per Share, Policy [Policy Text Block]

Net Income Per Common Share

Basic net income per common share is determined by dividing net income available to common sh

areholders by the weighted average total number of common shares issued and outstanding. Net income available to common shareholders represents net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock issuances, and cumulative dividends related to the current dividend period that have

not

been declared as of the end of the period. There were

no

dilutive instruments at

year-end

2017,

2016,

and

2015.

Net income per common share computations were as follows

for the years ended

December 31, 2017,

2016,

and

2015

.

(In thousands, except per share data) Years Ended December 31,	201 7		201 6		201 5
Net income, basic and diluted	$	11,688	$	16,605	$	14,992
Less p referred stock dividends and discount accretion		-		-		395
Net income available to common shareholders, basic and diluted	$	11,688	$	16,605	$	14,597
Average common shares issued and outstanding, basic and diluted		7,513		7,504		7,494
Net income per common share, basic and diluted	$	1.56	$	2.21	$	1.95

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner

sources. For the Company this includes net income

,

the after tax effect of changes in the net unrealized gains and losses on available for sale investment securities, and the after tax changes to the funded status of postretirement benefit plans

.

Dividend Restrictions, Policy [Policy Text Block]

Dividend Restrictions

Banking regulations require maintaining certain capital levels

which limit the amount of dividends paid to the Company by its bank subsidiary. Generally, capital distributions are limited to undistributed net income for the current and prior

two

years.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restrictions on Cash

The Company

is required to maintain funds in cash and/or on deposit with the Federal Reserve Bank in accordance with reserve requirements specified by the Federal Reserve Board of Governors. The required reserve was

$17.3

million and

$18.0

million at

December 31, 2017

and

2016,

respectively

.

Stockholders' Equity, Policy [Policy Text Block]

Equity

Outstanding common shares purchased by the Company are retired. When common shares are purchased, the Company allocates a portion of the purchase price of the common shares that are retired to each of the following balance sheet line items: common stock, capital surplus, and retained earnings.

The Company did

not

purchase any of its outstanding common shares during

2017

or

2016.

Trust Assets, Policy [Policy Text Block]

Trust

 Assets

Assets of the

Company’s trust department, other than cash on deposit by trust customers at the Bank, are

not

included in the accompanying financial statements because they are

not

assets of the Company.

Transfers and Servicing of Financial Assets, Policy [Policy Text Block]

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does

not

maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

Long-term Assets

Premises and equipment,

core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount

may

not

be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The Company recognizes c

ompensation cost for its Employee Stock Purchase Plan (“ESPP”) based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of shares issued under the ESPP. Compensation cost is recognized over the required service period, generally defined as the vesting period, on a straight-line basis.

The ESPP was approved by

the Company’s shareholders in

2004.

The purpose of the ESPP is to provide a means by which eligible employees

may

purchase, at a discount, shares of the Company’s common stock through payroll withholding. The purchase price of the shares is equal to

85%

of their fair market value on specified dates as defined in the plan. The ESPP was effective beginning

July 1, 2004.

There were

5,367,

6,631,

and

6,329

shares issued under the plan during

2017,

2016,

and

2015,

respectively. Compensation expense related to the ESPP included in the accompanying statements of income was

$33

thousand,

$32

thousand, and

$31

thousand in

2017,

2016,

and

2015,

respectively.

F

ollowing are the weighted average assumptions used and estimated fair market value for the ESPP, which is considered a compensatory plan under ASC Topic

718,

“

Compensation-Stock Compensation

.

”

	ESPP
	201 7			201 6			201 5
Expected volatility		23.2	%		26.3	%		32.6	%
Dividend yield		1.04			.83			-
Risk-free interest rate		.85			.26			.02
Expected life (in years)		.25			.25			.25
Fair value	$	7.43		$	5.31		$	5.08

New Accounting Pronouncements, Policy [Policy Text Block]

Recen

t

ly Issued But

Not

Yet Effective Accounting Standards

In

May 2014,

the FASB

issued

Accounting Standards Update (“ASU”)

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

, and subsequently issued several amendments to the standard during

2015,

2016,

and

2017.

The primary principle of ASU

No.

2014

-

09

is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

As amended,

ASU

No.

2014

-

09

is effective for the Company in annual reporting periods beginning after

December 15, 2017,

including interim periods within that reporting period.

Earlier application is permitted, but only as of annual reporting periods beginning after

December 15, 2016,

including interim reporting periods within those reporting periods. The majority of the Company’s revenues earned are excluded from the scope of the new standard. Revenue streams within the scope of this ASU include services charges and fees on deposits, allotment processing fees, trust income, and components of other service charges, commission, and fees. The Company adopted

ASU

No.

2014

-

09

effective

January 1, 2018

using a modified retrospective approach with

no

material impact to the Company’s consolidated financial statements. The Company is in the process of finalizing the additional disclosures required by the new standard.

In

January 2016,

the FASB issued ASU

No.

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

)

: Recognition and

Measurement of Financial

Assets and Financial Liabilities

and, in

February 2018,

issued an amendment for technical corrections and improvements related to this ASU. The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). In addition, this ASU eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. Public business entities will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. For public business entities, the amendments in this ASU are effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted

ASU

No.

2016

-

01

effective

January 1, 2018

with

no

material impact to the Company’s consolidated financial statements.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

“Leases (Topic

842

),”

to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than

twelve

months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic

606,

Revenue from Contracts with Customers

.

For public companies, ASU

No.

2016

-

02

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would

not

require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors

may

not

apply a full retrospective transition approach. The Company has identified a project team to review its leases and to assess the impact of ASU

No.

2016

-

02

on its consolidated financial position, results of operations, and cash flows.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

“Financial Instruments—Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments,”

to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures, including

qualitative and quantitative requirements, which provide additional information about the amounts recorded in the financial statements.

Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

ASU

No.

2016

-

13

is effective for the Company in annual and interim reporting periods beginning after

December 15, 2019.

Although early adoption is permitted for fiscal years beginning after

December 15, 2018,

the Company does

not

plan to early adopt. The

Company has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard. The Company has identified a project team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. The project team has developed a timeline for implementing the standard, has begun working with a

third

party software solution provider, and has identified an independent

third

party for validation of the impending changes to our credit loss methodologies and processes.

The team continues to assess the impact of the standard; however, the Company expects adopting this ASU will result in an increase in its allowance for loan losses. The amount of the increase in the allowance for loan losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date. A cumulative effect adjustment will be made to retained earnings for the impact of the standard at the beginning of the period the standard is adopted.

In

March 2017,

the FASB issued ASU

NO.

2017

-

07,

“Compensation—Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,”

which requires that employers offering benefit plans accounted for under Topic

715

report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. If a separate line item or items are

not

used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. This ASU is effective for the Company in annual and interim reporting periods beginning after

December 15, 2017.

The Company does

not

expect ASU

No.

2017

-

07

to have a material impact on its consolidated financial position, results of operations, or cash flows upon adoption.

In

March 2017,

the FASB issued ASU

No.

2017

-

08,

“Receivables—Nonrefundable Fees and Other Costs (Subtopic

310

-

20

): Premium Amortization on Purchased Callable Debt Securities.”

This ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. The ASU does

not

change the accounting for securities held at a discount; the discount will continue to be amortized to maturity. This ASU is effective for the Company in annual and interim reporting periods beginning after

December 15, 2018,

with early adoption permitted. The Company early adopted this standard with

no

material impact on its consolidated financial position, results of operations, or cash flows.

In

February 2018,

the FASB issued ASU

No.

2018

-

02,

“

Income Statement—Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

,

”

which allows entities to reclassify the stranded tax effects caused by the

Tax Cuts and Jobs Act (“Tax Act”), which was enacted in

December 2017,

from

accumulated other comprehensive income (“AOCI”) to retained earnings. This ASU will be effective for annual and interim periods beginning after

December 15, 2018,

with early adoption permitted. The Company early adopted this standard

, resulting in the reclassification of

$633

thousand from AOCI to retained earnings for the year ended

December 31, 2017.

There was

no

impact on total equity. Additional information related to the reclassification can be found in Note

2.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are

not

expected to have a material impact on the Company

’s financial position, results of operations or cash flows.

XML

Note 1 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Related Party Transactions [Table Text Block]

(In thousands) Years Ended December 31,	201 7		201 6		201 5
Legal fees	$	139	$	257	$	221
Commissions and fees related to the sale of repossessed commercial real estate and property management		-		-		9
Insurance premiums/commissions		-		-		1
Other		27		2		5
Total	$	166	$	259	$	236

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

(In thousands, except per share data) Years Ended December 31,	201 7		201 6		201 5
Net income, basic and diluted	$	11,688	$	16,605	$	14,992
Less p referred stock dividends and discount accretion		-		-		395
Net income available to common shareholders, basic and diluted	$	11,688	$	16,605	$	14,597
Average common shares issued and outstanding, basic and diluted		7,513		7,504		7,494
Net income per common share, basic and diluted	$	1.56	$	2.21	$	1.95

Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions [Table Text Block]

	ESPP
	201 7			201 6			201 5
Expected volatility		23.2	%		26.3	%		32.6	%
Dividend yield		1.04			.83			-
Risk-free interest rate		.85			.26			.02
Expected life (in years)		.25			.25			.25
Fair value	$	7.43		$	5.31		$	5.08

XML

Note 2 - Accumulated Other Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

Year Ended December 31,	201 7									201 6
(In thousands)	Unrealized Gains and Losses on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total			Unrealized Gains and Losses on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(3,363	)	$	(45	)	$	(3,408	)	$	3,219		$	(437	)	$	2,782
Other comprehensive income (loss) before reclassifications		489			(53	)		436			(3,983	)		356			(3,627	)
Amounts reclassified from accumulated other comprehensive income		(13	)		52			39			(2,599	)		36			(2,563	)
Net current-period other comprehensive income (loss)	$	476		$	(1	)	$	475		$	(6,582	)	$	392		$	(6,190	)
Adoption of Accounting Standards Update 2018- 02		(623	)		(10	)		(633	)		-			-			-
Ending balance	$	(3,510	)	$	(56	)	$	(3,566	)	$	(3,363	)	$	(45	)	$	(3,408	)

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

(In thousands)	Amount Reclassified from Accumulated Other Comprehensive Income									Affected Line Item in the Statement Where Net Income is Presented
Year Ended December 31,	201 7			201 6			201 5
Unrealized gains on available for sale investment securities	$	20		$	3,998		$	171		Net gain on sales of available for sale investment securities
		(7	)		(1,399	)		(60	)	Income tax expense
	$	13		$	2,599		$	111		Net of tax
Amortization related to postretirement benefits
Prior service costs	$	(75	)	$	(50	)	$	(51	)	Salaries and employee benefits
Actuarial losses		(5	)		(5	)		(42	)	Salaries and employee benefits
		(80	)		(55	)		(93	)	Total before tax
		28			19			33		Income tax expense
	$	(52	)	$	(36	)	$	(60	)	Net of tax
Total reclassifications for the period	$	(39	)	$	2,563		$	51		Net of tax

XML

Note 3 - Investment Securities (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of AFS and HTM Reconciliation [Table Text Block]

December 31, 2017 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	43,601	$	44	$	437	$	43,208
Obligations of states and political subdivisions		114,960		562		1,273		114,249
Mortgage-backed securities – residential		195,605		523		2,735		193,393
Mortgage-backed securities – commercial		50,518		42		1,208		49,352
Asset-backed securities		15,569		9		4		15,574
Corporate debt securities		7,578		1		37		7,542
Mutual funds and equity securities		864		71		-		935
Total securities – available for sale	$	428,695	$	1,252	$	5,694	$	424,253
Held To Maturity
Obligations of states and political subdivisions	$	3,364	$	114	$	-	$	3,478

December 31, 201 6 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	71,941	$	213	$	460	$	71,694
Obligations of states and political subdivisions		134,055		773		2,536		132,292
Mortgage-backed securities – residential		225,489		1,505		2,687		224,307
Mortgage-backed securities – commercial		47,164		6		1,557		45,613
Corporate debt securities		6,565		1		441		6,125
Mutual funds and equity securities		824		20		11		833
Total securities – available for sale	$	486,038	$	2,518	$	7,692	$	480,864
Held To Maturity
Obligations of states and political subdivisions	$	3,488	$	109	$	-	$	3,597

Investments Classified by Contractual Maturity Date [Table Text Block]

	Available For Sale				Held To Maturity
December 31, 2017 (In thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	27,301	$	27,276	$	-	$	-
Due after one year through five years		50,953		50,676		-		-
Due after five years through ten years		63,345		62,451		1,232		1,322
Due after ten years		40,109		40,170		2,132		2,156
Mortgage-backed securities		246,123		242,745		-		-
Total	$	427,831	$	423,318	$	3,364	$	3,478

Realized Gain (Loss) on Investments [Table Text Block]

(In thousands)	201 7		201 6		201 5
Gross realized gains	$	501	$	4,191	$	224
Gross realized losses		481		193		53
Net realized gain	$	20	$	3,998	$	171
Income tax provision related to net realized gain	$	7	$	1,399	$	60

Schedule of Unrealized Loss on Investments [Table Text Block]

	Less than 12 Months				12 Months or More				Total
December 31 , 2017 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	11,544	$	43	$	25,298	$	394	$	36,842	$	437
Obligations of states and political subdivisions		40,402		413		33,965		860		74,367		1,273
Mortgage-backed securities – residential		77,312		481		99,986		2,254		177,298		2,735
Mortgage-backed securities – commercial		7,758		62		34,139		1,146		41,897		1,208
Asset-backed securities		1,166		4		-		-		1,166		4
Corporate debt securities		7,251		36		200		1		7,451		37
Total	$	145,433	$	1,039	$	193,588	$	4,655	$	339,021	$	5,694

	Less than 12 Months				12 Months or More				Total
December 31, 2016 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	51,657	$	460	$	-	$	-	$	51,657	$	460
Obligations of states and political subdivisions		91,728		2,526		1,999		10		93,727		2,536
Mortgage-backed securities – residential		154,397		2,485		5,841		202		160,238		2,687
Mortgage-backed securities – commercial		43,309		1,557		-		-		43,309		1,557
Corporate debt securities		536		6		5,476		435		6,012		441
Mutual funds and equity securities		128		2		113		9		241		11
Total	$	341,755	$	7,036	$	13,429	$	656	$	355,184	$	7,692

XML

Note 4 - Loans and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

December 31, (In thousands)	201 7		201 6
Real Estate
Real estate mortgage – construction and land development	$	129,181	$	120,230
Real estate mortgage – residential		355,304		350,295
Real estate mortgage – farmland and other commercial enterprises		432,321		400,367
Commercial
Commercial and industrial		63,417		48,607
States and political subdivisions		27,209		18,933
Other		19,916		23,308
Consumer
Secured		4,853		4,554
Unsecured		3,062		4,681
Total loans		1,035,263		970,975
Less unearned income		-		-
Total loans, net of unearned income	$	1,035,263	$	970,975

Schedule of Related Party Transactions [Table Text Block]

(In thousands) Years Ended December 31,	201 7		201 6		201 5
Legal fees	$	139	$	257	$	221
Commissions and fees related to the sale of repossessed commercial real estate and property management		-		-		9
Insurance premiums/commissions		-		-		1
Other		27		2		5
Total	$	166	$	259	$	236

Allowance for Credit Losses on Financing Receivables [Table Text Block]

( In thousands)	Real Estate			Commercial			Consumer			Total
201 7
Balance at beginning of period	$	8,205		$	854		$	285		$	9,344
Provision for loan losses		(537	)		237			89			(211	)
Recoveries		1,386			139			55			1,580
Loans charged off		(545	)		(279	)		(106	)		(930	)
Balance at end of period	$	8,509		$	951		$	323		$	9,783
201 6
Balance at beginning of period	$	9,173		$	820		$	322		$	10,315
Provision for loan losses		(702	)		50			8			(644	)
Recoveries		141			203			69			413
Loans charged off		(407	)		(219	)		(114	)		(740	)
Balance at end of period	$	8,205		$	854		$	285		$	9,344
201 5
Balance at beginning of period	$	12,542		$	1,153		$	273		$	13,968
Provision for loan losses		(3,099	)		(449	)		119			(3,429	)
Recoveries		463			210			112			785
Loans charged off		(733	)		(94	)		(182	)		(1,009	)
Balance at end of period	$	9,173		$	820		$	322		$	10,315

Impaired Financing Receivables [Table Text Block]

As of and for the Year Ended December 31, 2017 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	4,076	$	1,746	$	1,955	$	3,701	$	402	$	5,124	$	239	$	239
Real estate mortgage – residential		10,112		3,233		6,877		10,110		1,973		10,337		525		521
Real estate mortgage – farmland and other commercial enterprises		8,737		2,203		6,367		8,570		319		19,139		917		908
Commercial
Commercial and industrial		448		-		448		448		270		440		25		25
Other		-		-		-		-		-		6		-		-
Consumer
Unsecured		312		-		312		312		218		329		17		17
Total	$	23,685	$	7,182	$	15,959	$	23,141	$	3,182	$	35,375	$	1,723	$	1,710

As of and for the Year Ended December 31, 2016 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	9,076	$	2,599	$	3,800	$	6,399	$	759	$	7,706	$	310	$	298
Real estate mortgage – residential		9,930		4,388		5,590		9,978		1,503		9,146		491		465
Real estate mortgage – farmland and other commercial enterprises		25,045		9,699		15,235		24,934		304		25,557		1,197		1,153
Commercial
Commercial and industrial		435		20		418		438		236		419		23		21
Consumer
Unsecured		146		-		146		146		146		151		7		6
Total	$	44,632	$	16,706	$	25,189	$	41,895	$	2,948	$	42,979	$	2,028	$	1,943

Year Ended December 31, 2015 (In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	9,409	$	343	$	337
Real estate mortgage – residential		9,810		448		438
Real estate mortgage – farmland and other commercial enterprises		22,439		890		887
Commercial
Commercial and industrial		523		16		16
Consumer
Unsecured		127		6		6
Total	$	42,308	$	1,703	$	1,684

Loans and ALL Disaggregated Impairment Method [Table Text Block]

December 31, 2017 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,694	$	270	$	218	$	3,182
Collectively evaluated for impairment		5,815		681		105		6,601
Total ending allowance balance	$	8,509	$	951	$	323	$	9,783
Loans
Loans individually evaluated for impairment	$	22,381	$	448	$	312	$	23,141
Loans collectively evaluated for impairment		894,425		110,094		7,603		1,012,122
Total ending loan balance, net of unearned income	$	916,806	$	110,542	$	7,915	$	1,035,263

December 31, 2016 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,566	$	236	$	146	$	2,948
Collectively evaluated for impairment		5,639		618		139		6,396
Total ending allowance balance	$	8,205	$	854	$	285	$	9,344
Loans
Loans individually evaluated for impairment	$	41,311	$	438	$	146	$	41,895
Loans collectively evaluated for impairment		829,581		90,410		9,089		929,080
Total ending loan balance, net of unearned income	$	870,892	$	90,848	$	9,235	$	970,975

Non-performing Loans Including TDR's [Table Text Block]

December 31, 2017 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	151	$	1,955	$	-
Real estate mortgage – residential		1,763		5,326		-
Real estate mortgage – farmland and other commercial enterprises		1,752		3,703		-
Commercial
Commercial and industrial		53		370		-
Consumer
Unsecured		168		128		-
Total	$	3,887	$	11,482	$	-

December 31, 2016 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	712	$	3,637	$	-
Real estate mortgage – residential		2,316		4,006		-
Real estate mortgage – farmland and other commercial enterprises		3,383		14,787		-
Commercial
Commercial and industrial		-		377		-
Consumer
Secured		4		-		-
Unsecured		8		135		-
Total	$	6,423	$	22,942	$	-

Past Due Financing Receivables [Table Text Block]

December 31, 201 7 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate
Real estate mortgage – construction and land development	$	15	$	87	$	102	$	129,079	$	129,181	$	-	$	151
Real estate mortgage – residential		1,160		538		1,698		353,606		355,304		-		1,763
Real estate mortgage – farmland and other commercial enterprises		966		948		1,914		430,407		432,321		-		1,752
Commercial
Commercial and industrial		62		-		62		63,355		63,417		-		53
States and political subdivisions		-		-		-		27,209		27,209		-		-
Other		21		-		21		19,895		19,916		-		-
Consumer
Secured		-		-		-		4,853		4,853		-		-
Unsecured		9		-		9		3,053		3,062		-		168
Total	$	2,233	$	1,573	$	3,806	$	1,031,457	$	1,035,263	$	-	$	3,887

December 31, 201 6 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans		Loans Past Due 90 Days or More and Still Accruing		Nonaccrual Loans
Real Estate
Real estate mortgage – construction and land development	$	393	$	227	$	620	$	119,610	$	120,230	$	-	$	712
Real estate mortgage – residential		1,935		798		2,733		347,562		350,295		-		2,316
Real estate mortgage – farmland and other commercial enterprises		-		2,483		2,483		397,884		400,367		-		3,383
Commercial
Commercial and industrial		-		-		-		48,607		48,607		-		-
States and political subdivisions		-		-		-		18,933		18,933		-		-
Other		24		-		24		23,284		23,308		-		-
Consumer
Secured		13		-		13		4,541		4,554		-		4
Unsecured		30		8		38		4,643		4,681		-		8
Total	$	2,395	$	3,516	$	5,911	$	965,064	$	970,975	$	-	$	6,423

Financing Receivable Credit Quality Indicators [Table Text Block]

	Real Estate						Commercial
December 31, 2017 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	124,926	$	330,401	$	414,663	$	62,490	$	27,209	$	19,898
Special Mention		396		9,196		7,556		474		-		18
Substandard		3,859		15,707		10,102		453		-		-
Doubtful		-		-		-		-		-		-
Total	$	129,181	$	355,304	$	432,321	$	63,417	$	27,209	$	19,916

	Real Estate						Commercial
December 31, 2016 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	112,435	$	323,300	$	363,448	$	47,254	$	18,933	$	23,308
Special Mention		1,413		12,147		21,088		764		-		-
Substandard		6,382		14,806		15,831		589		-		-
Doubtful		-		42		-		-		-		-
Total	$	120,230	$	350,295	$	400,367	$	48,607	$	18,933	$	23,308

Risk Category of Loans by Class-Consumer [Table Text Block]

	December 31, 2017				December 31, 2016
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity
Performing	$	4,853	$	2,766	$	4,550	$	4,538
Nonperforming		-		296		4		143
Total	$	4,853	$	3,062	$	4,554	$	4,681

Loans to Related Parties Made in Ordinary Course of Business [Member]

Notes Tables

Schedule of Related Party Transactions [Table Text Block]

(In thousands)	Amount
Balance at December 31, 201 6	$	13,499
New loans		11,549
Repayments		(5,693	)
Loans no longer meeting disclosure requirements, new loans meeting disclosure requirements, and other adjustments, net		(6,231	)
Balance at December 31, 2017	$	13,124

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Note 5 - Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

December 31, (In thousands)	201 7		201 6
Land, buildings, and leasehold improvements	$	60,980	$	60,399
Furniture and equipment		19,020		18,188
Total premises and equipment		80,000		78,587
Less accumulated depreciation and amortization		49,072		46,687
Premises and equipment, net	$	30,928	$	31,900

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Note 6 - Other Real Estate Owned (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

OREO Detail [Table Text Block]

December 31, (In thousands)	201 7		201 6
Construction and land development	$	4,433	$	7,996
Residential real estate		157		871
Farmland and other commercial enterprises		899		1,806
Total	$	5,489	$	10,673

OREO Activity [Table Text Block]

(In thousands)	201 7			201 6
Beginning balance	$	10,673		$	21,843
Transfers from loans and other increases		821			2,044
Proceeds from sales		(5,419	)		(11,289	)
Gain (l oss) on sales, net		208			(473	)
Write downs and other decreases, net		(794	)		(1,452	)
Ending balance	$	5,489		$	10,673

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Note 7 - Deposit Liabilities (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Deposit Liabilities [Table Text Block]

December 31, (In thousands)	201 7		201 6
Noninterest Bearing	$	361,855	$	334,676
Interest Bearing
Demand		379,027		348,197
Savings		416,163		416,611
Time		222,858		270,423
Total interest bearing		1,018,048		1,035,231
Total Deposits	$	1,379,903	$	1,369,907

Schedule of Maturities of Time Deposits [Table Text Block]

(In thousands)	Amount
201 8	$	143,185
201 9		37,422
20 20		19,626
20 21		12,887
20 22		4,328
Thereafter		5,410
Total	$	222,858

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Note 8 - Securities Sold Under Agreements to Repurchase (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Short-term Debt [Table Text Block]

December 31, (Dollars in thousands)	201 7			201 6
S ecurities sold under agreements to repurchase
Amount outstanding at y ear-end	$	34,252		$	36,370
Average balance during the year		35,063			107,179
Maximum month-end balance during the year		38,079			140,218
Average interest rate during the year		.22	%		2.74	%
Average interest rate at year-end		.22			.36

Schedule of Repurchase Agreements [Table Text Block]

	Remaining Contractual Maturity of the Agreements
December 31 , 2017 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Mortgage-backed securities – residential	$	32,341	$	1,200	$	-	$	454	$	257	$	34,252
Total	$	32,341	$	1,200	$	-	$	454	$	257	$	34,252

	Remaining Contractual Maturity of the Agreements
December 31 , 2016 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	5,596	$	301	$	-	$	258	$	1,027	$	7,182
Mortgage-backed securities – residential		28,086		902		-		200		-		29,188
Total	$	33,682	$	1,203	$	-	$	458	$	1,027	$	36,370

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Note 9 - Other Borrowings (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

			Average					Average
December 31, (Dollars in thousands)	201 7		Rate			201 6		Rate
Federal Home Loan Bank advances	$	3,479		3.27	%	$	18,646		3.97	%
Subordinated notes payable		33,506		2.85			33,506		2.30
Total FHLB advances and subordinated notes payable	$	36,985		2.89	%	$	52,152		2.89	%

Schedule of Maturities of Long-term Debt [Table Text Block]

(In thousands)	Amount
201 8	$	3,000
201 9		5
20 20		474
20 21		-
20 22		-
Thereafter		33,506
Total	$	36,985

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Note 10 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

December 31, (In thousands)	20 17		201 6		201 5
Currently payable	$	6,502	$	5,556	$	3,662
Revaluation of deferred income taxes resulting from change in statutory tax rates		5,869		-		-
Deferred		270		885		1,631
Total income tax expense	$	12,641	$	6,441	$	5,293

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

December 31,	201 7			201 6			201 5
Federal statutory rate		35.0	%		35.0	%		35.0	%
Changes from statutory rates resulting from:
Revaluation of deferred income taxes resulting from changes in statutory tax rates		24.1			-			-
Tax-exempt interest		(4.1	)		(4.6	)		(5.8	)
Nondeductible interest to carry tax-exempt obligations		.1			.2			.2
Premium income not subject to tax		(1.4	)		(1.3	)		(1.5	)
Company-owned life insurance		(1.6	)		(1.5	)		(1.6	)
Other, net		(.1	)		.1			(.2	)
Effective tax rate on pretax income		52.0	%		27.9	%		26.1	%

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

December 31, (In thousands)	201 7		201 6
Assets
Allowance for loan losses	$	2,058	$	3,285
Deferred compensation		135		236
Postretirement benefit obligations		3,605		5,825
Other real estate owned		621		1,303
Self-funded insurance		114		232
Paid time off		472		815
Depreciation		1,059		1,630
Intangibles		806		1,878
Unrealized loss on available for sale investment securities, net		933		1,811
Other		147		239
Total deferred tax assets		9,950		17,254
Liabilities
Prepaid expenses		-		153
Federal Home Loan Bank stock dividends		621		1,035
Deferred loan fees		523		846
Other		31		52
Total deferred tax liabilities		1,175		2,086
Net deferred tax asset	$	8,775	$	15,168

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Note 11 - Retirement Plans (Tables) - Supplemental Employee Retirement Plan [Member]

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Changes in Projected Benefit Obligations [Table Text Block]

(In thousands)	201 7			201 6
Change in Benefit Obligation
Obligation at beginning of year	$	718		$	600
Service cost		22			19
Interest cost		23			24
Actuarial (gain) loss		(180	)		111
Benefit payments		(36	)		(36	)
Obligation at end of year	$	547		$	718

Schedule of Net Benefit Costs [Table Text Block]

(In thousands)	201 7			201 6
Service cost	$	22		$	19
Interest cost		23			24
Recognized net actuarial loss		5			5
Net periodic benefit cost	$	50		$	48
Major assumptions:
Discount rate used to determine net period benefit cost		3.31	%		3.39	%
Discount rate used to determine benefit obligation at year end		2.86			3.31
Rate of compensation increase		4.00			4.00

Schedule of Expected Benefit Payments [Table Text Block]

(In thousands)	Supplemental Retirement Plan
201 8	$	58
201 9		60
20 20		60
20 21		60
20 22		56
2023-2027		219
Total	$	513

Schedule of Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

(In thousands)	201 7			201 6
Unrecognized net actuarial (gain) loss	$	(98	)	$	87
Total	$	(98	)	$	87

Schedule of Amounts in Accumulated Other Comprehensive Income (Loss) to be Recognized over Next Fiscal Year [Table Text Block]

(In thousands)	Supplemental Retirement Plan
Unrecognized net actuarial gain	$	(5	)
Total	$	(5	)

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Note 13 - Postretirement Medical Benefits (Tables) - Postretirement Health Coverage [Member]

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Changes in Projected Benefit Obligations [Table Text Block]

(In thousands)	201 7			201 6
Change in Benefit Obligation
Obligation at beginning of year	$	16,555		$	16,204
Service cost		557			637
Interest cost		660			683
Curtailment gain recognized		(417	)		-
Actuarial loss (gain)		263			(660	)
Participant contributions		196			153
Benefit payments		(550	)		(462	)
Obligation at end of year	$	17,264		$	16,555

Schedule of Net Benefit Costs [Table Text Block]

(In thousands)	201 7			201 6
Service cost	$	557		$	637
Interest cost		660			683
Curtailment gain recognized		(417	)		-
Recognized prior service cost		75			50
Net periodic benefit cost	$	875		$	1,370
Major assumptions:
Discount rate used to determine net periodic benefit cost		4.12	%		4.34	%
Discount rate used to determine benefit obligation as of year end		3.58			4.12
Retiree participation rate (Plan 1)		100.00			100.00
Retiree participation rate (Plan 2)		72.00			72.00

Schedule of Effect of One-Percentage-Point Change in Assumed Health Care Cost Trend Rates [Table Text Block]

(In thousands)	1% Increase		1% Decrease
Effect on total of service and interest cost components of net periodic postretirement health care benefit cost	$	295	$	(247	)
Effect on accumulated postretirement benefit obligation		3,530		(2,733	)

Schedule of Expected Benefit Payments [Table Text Block]

(In thousands)	Postretirement Medical Benefits
201 8	$	459
201 9		477
20 20		508
20 21		551
20 22		592
202 3-2027		3,439
Total	$	6,026

Schedule of Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

(In thousands)	201 7		201 6
Unrecognized net actuarial loss (gain)	$	169	$	(93	)
Unrecognized prior service cost		-		75
Total	$	169	$	(18	)

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Note 14 - Leases (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

(In thousands)	Operating Leases
201 8	$	408
201 9		343
20 20		286
20 21		218
20 22		80
Thereafter		498
Total	$	1,833

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Note 15 - Financial Instruments With Off-balance Sheet Risk (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

December 31,	201 7				201 6
(In thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to extend credit, including unused lines of credit	$	108,269	$	111,603	$	71,369	$	116,926
Standby letters of credit		1,722		1,154		2,284		1,769
Total	$	109,991	$	112,757	$	73,653	$	118,695

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Note 18 - Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
December 31, 201 7	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common Equity Tier 1 Risk-based Capital 1
Consolidated	$	196,919		16.56	%	$	53,500		4.50	%		N/A		N/A
United Bank*		165,488		14.05			53,004		4.50		$	76,561		6.50	%
Tier 1 Risk-based Capital 1
Consolidated	$	229,419		19.30	%	$	71,334		6.00	%		N/A		N/A
United Bank*		165,488		14.05			70,671		6.00		$	94,229		8.00	%
Total Risk-based Capital 1
Consolidated	$	239,234		20.12	%	$	95,112		8.00	%		N/A		N/A
United Bank*		175,271		14.88			94,229		8.00		$	117,786		10.00	%
Tier 1 Leverage Capital 2
Consolidated	$	229,419		13.75	%	$	66,763		4.00	%		N/A		N/A
United Bank*		165,488		10.13			65,365		4.00		$	81,706		5.00	%

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
December 31, 201 6	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common Equity Tier 1 Risk-based Capital 1
Consolidated	$	187,474		16.43	%	$	51,349		4.50	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		16.53			17,425		4.50		$	25,170		6.50	%
United Bank & Trust Company*		58,180		15.54			16,848		4.50			24,337		6.50
First Citizens Bank*		28,324		13.56			9,401		4.50			13,580		6.50
Citizens Bank of Northern Kentucky, Inc.*		24,661		15.24			7,280		4.50			10,516		6.50
Tier 1 Risk-based Capital 1
Consolidated	$	219,974		19.28	%	$	68,466		6.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		16.53			23,234		6.00		$	30,978		8.00	%
United Bank & Trust Company*		58,180		15.54			22,465		6.00			29,953		8.00
First Citizens Bank*		28,324		13.56			12,535		6.00			16,714		8.00
Citizens Bank of Northern Kentucky, Inc.*		24,661		15.24			9,707		6.00			12,942		8.00
Total Risk-based Capital 1
Consolidated	$	229,318		20.10	%	$	91,288		8.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		66,720		17.23			30,978		8.00		$	38,723		10.00	%
United Bank & Trust Company*		61,680		16.47			29,953		8.00			37,441		10.00
First Citizens Bank*		29,590		14.16			16,714		8.00			20,892		10.00
Citizens Bank of Northern Kentucky, Inc.*		26,534		16.40			12,942		8.00			16,178		10.00
Tier 1 Leverage Capital 2
Consolidated	$	219,974		13.20	%	$	66,656		4.00	%		N/A		N/A
Farmers Bank & Capital Trust Company*		64,016		9.80			26,121		4.00		$	32,651		5.00	%
United Bank & Trust Company*		58,180		12.38			18,798		4.00			23,497		5.00
First Citizens Bank*		28,324		9.76			11,606		4.00			14,507		5.00
Citizens Bank of Northern Kentucky, Inc.*		24,661		10.68			9,234		4.00			11,543		5.00

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Note 19 - Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

			Fair Value Measurements Using
(In thousands)   Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 7
Obligations of U.S. government-sponsored entities	$	43,208	$	-	$	43,208	$	-
Obligations of states and political subdivisions		114,249		-		114,249		-
Mortgage-backed securities – residential		193,393		-		193,393		-
Mortgage-backed securities – commercial		49,352		-		49,352		-
Asset-backed securities		15,574		-		15,574		-
Corporate debt securities		7,542		-		7,542		-
Mutual funds and equity securities		935		935		-		-
Total	$	424,253	$	935	$	423,318	$	-
December 31, 201 6
Obligations of U.S. government-sponsored entities	$	71,694	$	-	$	71,694	$	-
Obligations of states and political subdivisions		132,292		-		132,292		-
Mortgage-backed securities – residential		224,307		-		224,307		-
Mortgage-backed securities – commercial		45,613		-		45,613		-
Corporate debt securities		6,125		-		6,125		-
Mutual funds and equity securities		833		833		-		-
Total	$	480,864	$	833	$	480,031	$	-

Fair Value Measurements, Nonrecurring [Table Text Block]

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 7
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	1,553	$	-	$	-	$	1,553
Real estate mortgage – residential		4,687		-		-		4,687
Real estate mortgage – farmland and other commercial enterprises		2,645		-		-		2,645
Total	$	8,885	$	-	$	-	$	8,885
OREO
Construction and land development	$	3,468	$	-	$	-	$	3,468
Residential real estate		157		-		-		157
Farmland and other commercial enterprises		821		-		-		821
Total	$	4,446	$	-	$	-	$	4,446

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 6
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	2,909	$	-	$	-	$	2,909
Real estate mortgage – residential		3,137		-		-		3,137
Real estate mortgage – farmland and other commercial enterprises		351		-		-		351
Total	$	6,397	$	-	$	-	$	6,397
OREO
Construction and land development	$	4,883	$	-	$	-	$	4,883
Residential real estate		234		-		-		234
Farmland and other commercial enterprises		1,070		-		-		1,070
Total	$	6,187	$	-	$	-	$	6,187

Asset Impairment Charges on Assets Nonrecurring [Table Text Block]

(In thousands) Years Ended December 31,	201 7		201 6
Net decrease in fair value :
Collateral-dependent i mpaired loans	$	386	$	858
OREO		597		634
Total	$	983	$	1,492

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

(In thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range				Weighted Average
December 31, 201 7
Collateral-dependent i mpaired loans	$	8,885	Discounted appraisals	Marketability discount		0%	-	22.8%		3.1	%
OREO	$	4,446	Discounted appraisals	Marketability discount		0%	-	71.7%		4.05	%
December 31, 201 6
Collateral-dependent i mpaired loans	$	6,397	Discounted appraisals	Marketability discount		0%	-	67.8%		3.5	%
OREO	$	6,187	Discounted appraisals	Marketability discount		0%	-	50.0%		11.2	%

Fair Value, by Balance Sheet Grouping [Table Text Block]

					Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31 , 201 7
Assets
Cash and cash equivalents	$	120,408	$	120,408	$	120,408	$	-	$	-
Held to maturity investment securities		3,364		3,478		-		3,478		-
Loans, net		1,025,480		1,012,959		-		-		1,012,959
Accrued interest receivable		4,935		4,935		-		4,935		-
Federal Home Loan Bank and Federal Reserve Bank Stock		13,235		13,235		-		-		13,235
Liabilities
Deposits		1,379,903		1,380,122		1,157,045		-		223,077
S ecurities sold under agreements to repurchase		34,252		34,257		-		34,257		-
Federal Home Loan Bank advances		3,479		3,546		-		3,546		-
Subordinated notes payable to unconsolidated trusts		33,506		22,709		-		-		22,709
Accrued interest payable		261		261		-		261		-
December 31, 201 6
Assets
Cash and cash equivalents	$	113,534	$	113,534	$	113,534	$	-	$	-
Held to maturity investment securities		3,488		3,597		-		3,597		-
Loans, net		961,631		962,437		-		-		962,437
Accrued interest receivable		5,019		5,019		-		5,019		-
Federal Home Loan Bank and Federal Reserve Bank Stock		9,840		9,840		-		-		9,840
Liabilities
Deposits		1,369,907		1,369,567		1,099,211		-		270,356
Se curities sold under agreements to repurchase		36,370		36,381		-		36,381		-
Federal Home Loan Bank advances		18,646		19,114		-		19,114		-
Subordinated notes payable to unconsolidated trusts		33,506		21,234		-		-		21,234
Accrued interest payable		321		321		-		321		-

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Note 20 - Parent Company Financial Statements (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Condensed Balance Sheet [Table Text Block]

December 31, (In thousands)	201 7			201 6
Assets
Cash and cash equivalents	$	61,604		$	44,286
Investment in subsidiaries		166,183			175,935
Other assets		302			1,378
Total assets	$	228,089		$	221,599
Liabilities
Dividends payable , common stock	$	939		$	751
Subordinated notes payable to unconsolidated trusts		33,506			33,506
Other liabilities		291			3,276
Total liabilities		34,736			37,533
Shareholders ’ Equity
Common stock		940			939
Capital surplus		52,201			51,885
Retained earnings		143,778			134,650
Accumulated other comprehensive loss		(3,566	)		(3,408	)
Total shareholders ’ equity		193,353			184,066
Total liabilities and shareholders ’ equity	$	228,089		$	221,599

Condensed Income Statement [Table Text Block]

Years Ended December 31, (In thousands)	201 7			201 6			201 5
Income
Dividends from subsidiaries	$	23,026		$	24,820		$	14,426
Interest		191			39			12
Gain on debt extinguishment		-			4,050			-
Other noninterest income		363			2,442			2,555
Total income		23,580			31,351			16,993
Expense
Interest expense – subordinated notes payable to unconsolidated trusts		870			723			866
Noninterest expense		1,751			5,050			4,938
Total expense		2,621			5,773			5,804
Income before income tax benefit and equity in undistributed income of subsidiaries		20,959			25,578			11,189
Income tax (benefit) expense		(747	)		273			(1,076	)
Income before equity in undistributed income of subsidiaries		21,706			25,305			12,265
Equity in undistributed (loss) income of subsidiaries		(10,018	)		(8,700	)		2,727
Net income		11,688			16,605			14,992
Other comprehensive income (loss)		475			(6,190	)		(2,093	)
Comprehensive income	$	12,163		$	10,415		$	12,899

Condensed Cash Flow Statement [Table Text Block]

Years Ended December 31, (In thousands)	201 7			201 6			201 5
Cash Flows From Operating Activities
Net income	$	11,688		$	16,605		$	14,992
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed loss (income) of subsidiaries		10,018			8,700			(2,727	)
Noncash employee stock purchase plan exp ense		1			7			4
Noncash director fee compensation		105			92			104
Change in other assets and liabilities, net		(2,408	)		(1,116	)		582
Deferred income tax expense (benefit)		740			(46	)		(54	)
Gain on extinguishment of subordinated notes payable to unconsolidated trusts		-			(4,050	)		-
Net cash provided by operating activities		20,144			20,192			12,901
Cash Flows From Investing Activities
Return of equity from nonbank subsidiary		-			500			1,355
Net cash provided by investing activities		-			500			1,355
Cash Flows From Financing Activities
Cash paid to extinguish subordinated notes payable to unconsolidated trusts		-			(10,950	)		-
Dividends paid, common stock		(3,005	)		(1,575	)		-
Redemption of preferred stock		-			-			(10,000	)
Dividends paid, preferred stock		-			-			(508	)
Shares issued under employee stock purchase plan		179			155			130
Net cash used in financing activities		(2,826	)		(12,370	)		(10,378	)
Net increase in cash and cash equivalents		17,318			8,322			3,878
Cash and cash equivalents at beginning of year		44,286			35,964			32,086
Cash and cash equivalents at end of year	$	61,604		$	44,286		$	35,964

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Note 21 - Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Quarterly Financial Information [Table Text Block]

(In thousands, except per share data)
Quarters Ended 2017	March 31		June 30			Sept. 30			Dec. 31
Interest income	$	14,379	$	14,830		$	14,983		$	15,094
Interest expense		916		881			893			820
Net interest income		13,463		13,949			14,090			14,274
Provision for loan losses		580		(499	)		(379	)		87
Net interest income after provision for loan losses		12,883		14,448			14,469			14,187
Noninterest income		5,251		5,102			5,627			5,185
Noninterest expense		13,529		13,346			12,708			13,240
Income before income taxes		4,605		6,204			7,388			6,132
Income tax expense		1,276		1,722			2,076			7,567	1
Net income (loss)	$	3,329	$	4,482		$	5,312		$	(1,435	)
Net income (loss) per common share, basic and diluted	$	.44	$	.60		$	.71		$	(.19	)
Weighted average common shares outstanding, basic and diluted		7,510		7,512			7,514			7,516

(In thousands, except per share data)
Quarters Ended 201 6	March 31			June 30			Sept. 30			Dec. 31
Interest income	$	15,330		$	14,973		$	14,619		$	14,449
Interest expense		2,043			1,975			1,809			928
Net interest income		13,287			12,998			12,810			13,521
Provision for loan losses		(473	)		(156	)		(190	)		175
Net interest income after provision for loan losses		13,760			13,154			13,000			13,346
Noninterest income		9,542	1		5,521			10,772	2		5,351
Noninterest expense		14,407			13,884			17,888	2		15,221
Income before income taxes		8,895			4,791			5,884			3,476
Income tax expense		2,715			1,235			1,560			931
Net income	$	6,180		$	3,556		$	4,324		$	2,545
Net income per common share, basic and diluted	$	.82		$	.47		$	.58		$	.34
Weighted average common shares outstanding, basic and diluted		7,500			7,502			7,505			7,508

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Note 1 - Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Number of Operating Segments	1
Number of Reportable Segments	1
Trading Securities	$ 0	$ 0	$ 0
Other than Temporary Impairment Losses, Investments	0	0	0
Federal Home Loan Bank Stock and Federal Reserve Bank Stock	13,200	9,800
Unamortized Loan Commitment and Origination Fees and Unamortized Discounts or Premiums	$ 83	$ 301
Net Deferred Loan Costs, Percent of Average Loans Outstanding	0.01%	0.03%
Interest Receivable, Percent of Average Loans Outstanding	0.30%	0.30%
Unrecognized Tax Benefits	$ 0	$ 0	$ 0
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Mortgage	$ 0	$ 1,700
Mortgage Banking Revenues, Percent of Total Revenue	1.40%	(1.60%)	1.60%
Allowance for Loan and Lease Losses, Period Increase (Decrease)	$ 49
Servicing Asset at Fair Value, Amount	719	$ 731
Servicing Asset at Amortized Cost, Other than Temporary Impairments	0	0
Mortgage Loans Serviced for Others	198,000	202,000
Finite-Lived Intangible Assets, Net	$ 0	$ 0
Weighted Average Number Diluted Shares Outstanding Adjustment	0	0	0
Cash Reserve Deposit Required and Made	$ 17,300	$ 18,000
Stock Repurchased During Period, Shares	0	0
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent	85.00%
Stock Issued During Period, Shares, Employee Stock Purchase Plans	5,367	6,631	6,329
Adjustments to Additional Paid in Capital, Share-based Compensation, Employee Stock Purchase Program, Requisite Service Period Recognition	$ 33	$ 32	$ 31
Reclassification of Tax Effects from AOCI
Retained Earnings [Member]
Adjustments to Additional Paid in Capital, Share-based Compensation, Employee Stock Purchase Program, Requisite Service Period Recognition
Reclassification of Tax Effects from AOCI	633
AOCI Attributable to Parent [Member]
Adjustments to Additional Paid in Capital, Share-based Compensation, Employee Stock Purchase Program, Requisite Service Period Recognition
Reclassification of Tax Effects from AOCI	(633)
ASU 2018-02 [Member] | Retained Earnings [Member]
Reclassification of Tax Effects from AOCI	633
ASU 2018-02 [Member] | AOCI Attributable to Parent [Member]
Reclassification of Tax Effects from AOCI	(633)
Customer Relationships [Member]
Finite-Lived Intangible Assets, Net	0	0	0
Core Deposits [Member]
Finite-Lived Intangible Assets, Net	$ 0	0	$ 0
Minimum [Member]
Finite-Lived Intangible Asset, Useful Life	7 years
Minimum [Member] | Furniture and Fixtures [Member]
Property, Plant and Equipment, Useful Life	2 years
Minimum [Member] | Building and Building Improvements [Member]
Property, Plant and Equipment, Useful Life	10 years
Maximum [Member]
Finite-Lived Intangible Asset, Useful Life	10 years
Maximum [Member] | Furniture and Fixtures [Member]
Property, Plant and Equipment, Useful Life	7 years
Maximum [Member] | Building and Building Improvements [Member]
Property, Plant and Equipment, Useful Life	40 years
Loans Receivable [Member]
Interest Receivable	$ 3,100	$ 2,800

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Note 1 - Summary of Significant Accounting Policies - Payments to Related Parties (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Legal fees	$ 86	$ 474	$ 843
Other	7,129	7,662	7,721
Payments to Related Parties for Services Made in Ordinary Course of Business [Member]
Legal fees	139	257	221
Commissions and fees related to the sale of repossessed commercial real estate and property management			9
Insurance premiums/commissions			1
Other	27	2	5
Total	$ 166	$ 259	$ 236

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Note 1 - Summary of Significant Accounting Policies - Net Income Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net income, basic and diluted	$ (1,435)	$ 5,312	$ 4,482	$ 3,329	$ 2,545	$ 4,324	$ 3,556	$ 6,180	$ 11,688	$ 16,605	$ 14,992
Less preferred stock dividends and discount accretion											395
Net income available to common shareholders, basic and diluted									$ 11,688	$ 16,605	$ 14,597
Average common shares issued and outstanding, basic and diluted (in shares)	7,516	7,514	7,512	7,510	7,508	7,505	7,502	7,500	7,513	7,504	7,494
Net income per common share, basic and diluted (in dollars per share)	$ (0.19)	$ 0.71	$ 0.60	$ 0.44	$ 0.34	$ 0.58	$ 0.47	$ 0.82	$ 1.56	$ 2.21	$ 1.95

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Note 1 - Summary of Significant Accounting Policies - Estimated Fair Market Value Assumptions - ESPP (Details) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 1997
Expected volatility	23.20%	26.30%	32.60%
Dividend yield	1.04%	0.83%	0.00%
Risk-free interest rate	0.85%	0.26%	0.02%
Expected life (Year)	91 days	91 days	91 days	10 years
Fair value (in dollars per share)	$ 7.43	$ 5.31	$ 5.08

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Note 2 - Accumulated Other Comprehensive Income (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Reclassification of Tax Effects from AOCI
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent		35.00%	35.00%	35.00%
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%
Retained Earnings [Member]
Reclassification of Tax Effects from AOCI		$ 633
AOCI Attributable to Parent [Member]
Reclassification of Tax Effects from AOCI		(633)
ASU 2018-02 [Member] | Retained Earnings [Member]
Reclassification of Tax Effects from AOCI		633
ASU 2018-02 [Member] | AOCI Attributable to Parent [Member]
Reclassification of Tax Effects from AOCI		$ (633)

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Note 2 - Accumulated Other Comprehensive Income - Changes in Accumulated Other Comprehensive Income by Component (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Balance	$ 184,066	$ 175,698	$ 172,929
Other comprehensive income (loss)	475	(6,190)	(2,093)
Adoption of Accounting Standards Update 2018-02
Balance	193,353	184,066	175,698
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Balance	(3,363)	3,219
Other comprehensive income (loss) before reclassifications	489	(3,983)
Amounts reclassified from accumulated other comprehensive income	(13)	(2,599)
Other comprehensive income (loss)	476	(6,582)
Adoption of Accounting Standards Update 2018-02	(623)
Balance	(3,510)	(3,363)	3,219
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Balance	(45)	(437)
Other comprehensive income (loss) before reclassifications	(53)	356
Amounts reclassified from accumulated other comprehensive income	52	36
Other comprehensive income (loss)	(1)	392
Adoption of Accounting Standards Update 2018-02	(10)
Balance	(56)	(45)	(437)
AOCI Attributable to Parent [Member]
Balance	(3,408)	2,782	4,875
Other comprehensive income (loss) before reclassifications	436	(3,627)
Amounts reclassified from accumulated other comprehensive income	39	(2,563)
Other comprehensive income (loss)	475	(6,190)	(2,093)
Adoption of Accounting Standards Update 2018-02	(633)
Balance	$ (3,566)	$ (3,408)	$ 2,782

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Note 2 - Accumulated Other Comprehensive Income - Amounts Reclassified Out of Accumulated Other Comprehensive Income by Component (Details) - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Dec. 31, 2017		Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Unrealized gains on available for sale investment securities							$ 3,800
Income tax expense	$ (7,567)	[1]	$ (2,076)	$ (1,722)	$ (1,276)	$ (931)	(1,560)	$ (1,235)	$ (2,715)	$ (12,641)	$ (6,441)	$ (5,293)
Net income	$ (1,435)		$ 5,312	$ 4,482	$ 3,329	$ 2,545	$ 4,324	$ 3,556	$ 6,180	11,688	16,605	14,992
Salaries and employee benefits										(30,296)	(32,296)	(32,008)
Total before tax										24,329	23,046	20,285
Reclassification out of Accumulated Other Comprehensive Income [Member]
Net income										(39)	2,563	51
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Unrealized gains on available for sale investment securities										20	3,998	171
Income tax expense										(7)	(1,399)	(60)
Net income										13	2,599	111
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment, Net Prior Service Attributable to Parent [Member]
Salaries and employee benefits										(75)	(50)	(51)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment, Net Gain (Loss) Attributable to Parent [Member]
Salaries and employee benefits										(5)	(5)	(42)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Income tax expense										28	19	33
Net income										(52)	(36)	(60)
Total before tax										$ (80)	$ (55)	$ (93)

[1] Income tax expense includes $5.9 million related to the remeasurement of the Company's net deferred tax assets due to the change in Federal tax rates.

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Note 3 - Investment Securities (Details Textual) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale Securities Pledged as Collateral	$ 214	$ 191

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Note 3 - Investment Securities - Amortized Costs and Estimated Fair Value of the Securities Portfolio (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available for Sale Securities - Amortized Cost	$ 428,695	$ 486,038
Available for Sale Securities - Gross Unrealized Gains	1,252	2,518
Available for Sale Securities - Gross Unrealized Losses	5,694	7,692
Available for Sale Securities - Estimated Fair Value	424,253	480,864
Held to Maturity Securities - Amortized Cost	3,364	3,488
Held to Maturity Securities - Estimated Fair Value	3,478	3,597
US Government-sponsored Enterprises Debt Securities [Member]
Available for Sale Securities - Amortized Cost	43,601	71,941
Available for Sale Securities - Gross Unrealized Gains	44	213
Available for Sale Securities - Gross Unrealized Losses	437	460
Available for Sale Securities - Estimated Fair Value	43,208	71,694
US States and Political Subdivisions Debt Securities [Member]
Available for Sale Securities - Amortized Cost	114,960	134,055
Available for Sale Securities - Gross Unrealized Gains	562	773
Available for Sale Securities - Gross Unrealized Losses	1,273	2,536
Available for Sale Securities - Estimated Fair Value	114,249	132,292
Held to Maturity Securities - Amortized Cost	3,364	3,488
Held to Maturity Securities - Gross Unrealized Gains	114	109
Held to Maturity Securities - Gross Unrealized Losses	0	0
Held to Maturity Securities - Estimated Fair Value	3,478	3,597
Residential Mortgage Backed Securities [Member]
Available for Sale Securities - Amortized Cost	195,605	225,489
Available for Sale Securities - Gross Unrealized Gains	523	1,505
Available for Sale Securities - Gross Unrealized Losses	2,735	2,687
Available for Sale Securities - Estimated Fair Value	193,393	224,307
Commercial Mortgage Backed Securities [Member]
Available for Sale Securities - Amortized Cost	50,518	47,164
Available for Sale Securities - Gross Unrealized Gains	42	6
Available for Sale Securities - Gross Unrealized Losses	1,208	1,557
Available for Sale Securities - Estimated Fair Value	49,352	45,613
Asset-backed Securities [Member]
Available for Sale Securities - Amortized Cost	15,569
Available for Sale Securities - Gross Unrealized Gains	9
Available for Sale Securities - Gross Unrealized Losses	4
Available for Sale Securities - Estimated Fair Value	15,574
Corporate Debt Securities [Member]
Available for Sale Securities - Amortized Cost	7,578	6,565
Available for Sale Securities - Gross Unrealized Gains	1	1
Available for Sale Securities - Gross Unrealized Losses	37	441
Available for Sale Securities - Estimated Fair Value	7,542	6,125
Mutual Funds and Equity Securities [Member]
Available for Sale Securities - Amortized Cost	864	824
Available for Sale Securities - Gross Unrealized Gains	71	20
Available for Sale Securities - Gross Unrealized Losses	0	11
Available for Sale Securities - Estimated Fair Value	$ 935	$ 833

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Note 3 - Investment Securities - Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale, amortized cost, due in one year or less	$ 27,301
Available-for-sale, estimated fair value, due in one year or less	27,276
Held-to-maturity, amortized cost, due in one year or less	0
Held-to-maturity, estimated fair value, due in one year or less	0
Available-for-sale, amortized cost, due after one year through five years	50,953
Available-for-sale, estimated fair value, due after one year through five years	50,676
Held-to-maturity, amortized cost, due after one year through five years	0
Held-to-maturity, estimated fair value, due after one year through five years	0
Available-for-sale, amortized cost, due after five years through ten years	63,345
Available-for-sale, estimated fair value, due after five years through ten years	62,451
Held-to-maturity, amortized cost, due after five years through ten years	1,232
Held-to-maturity, estimated fair value, due after five years through ten years	1,322
Available-for-sale, amortized cost, due after ten years	40,109
Available-for-sale, estimated fair value, due after ten years	40,170
Held-to-maturity, amortized cost, due after ten years	2,132
Held-to-maturity, estimated fair value, due after ten years	2,156
Available-for-sale, amortized cost, mortgage-backed securities	246,123
Available-for-sale, estimated fair value, mortgage-backed securities	242,745
Held-to-maturity, amortized cost, mortgage-backed securities	0
Held-to-maturity, estimated fair value, mortgage-backed securities	0
Available-for-sale, amortized cost	427,831
Available-for-sale, estimated fair value	423,318
Held-to-maturity, amortized cost	3,364	$ 3,488
Held-to-maturity, estimated fair value	$ 3,478	$ 3,597

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Note 3 - Investment Securities - Gross Realized Gains and Losses on the Sale of Available for Sale Investment Securities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Gross realized gains	$ 501	$ 4,191	$ 224
Gross realized losses	481	193	53
Net realized gain	20	3,998	171
Income tax provision related to net realized gain	$ 7	$ 1,399	$ 60

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Note 3 - Investment Securities - Investment Securities With Unrealized Losses Not Recognized In Income (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Less than 12 Months Fair Value	$ 145,433	$ 341,755
Less than 12 Months Unrealized Losses	1,039	7,036
12 Months or More Fair Value	193,588	13,429
12 Months or More Unrealized Losses	4,655	656
Total Fair Value	339,021	355,184
Total Unrealized Losses	5,694	7,692
US Government-sponsored Enterprises Debt Securities [Member]
Less than 12 Months Fair Value	11,544	51,657
Less than 12 Months Unrealized Losses	43	460
12 Months or More Fair Value	25,298	0
12 Months or More Unrealized Losses	394	0
Total Fair Value	36,842	51,657
Total Unrealized Losses	437	460
US States and Political Subdivisions Debt Securities [Member]
Less than 12 Months Fair Value	40,402	91,728
Less than 12 Months Unrealized Losses	413	2,526
12 Months or More Fair Value	33,965	1,999
12 Months or More Unrealized Losses	860	10
Total Fair Value	74,367	93,727
Total Unrealized Losses	1,273	2,536
Residential Mortgage Backed Securities [Member]
Less than 12 Months Fair Value	77,312	154,397
Less than 12 Months Unrealized Losses	481	2,485
12 Months or More Fair Value	99,986	5,841
12 Months or More Unrealized Losses	2,254	202
Total Fair Value	177,298	160,238
Total Unrealized Losses	2,735	2,687
Commercial Mortgage Backed Securities [Member]
Less than 12 Months Fair Value	7,758	43,309
Less than 12 Months Unrealized Losses	62	1,557
12 Months or More Fair Value	34,139	0
12 Months or More Unrealized Losses	1,146	0
Total Fair Value	41,897	43,309
Total Unrealized Losses	1,208	1,557
Asset-backed Securities [Member]
Less than 12 Months Fair Value	1,166
Less than 12 Months Unrealized Losses	4
12 Months or More Fair Value
12 Months or More Unrealized Losses
Total Fair Value	1,166
Total Unrealized Losses	4
Corporate Debt Securities [Member]
Less than 12 Months Fair Value	7,251	536
Less than 12 Months Unrealized Losses	36	6
12 Months or More Fair Value	200	5,476
12 Months or More Unrealized Losses	1	435
Total Fair Value	7,451	6,012
Total Unrealized Losses	$ 37	441
Mutual Funds and Equity Securities [Member]
Less than 12 Months Fair Value		128
Less than 12 Months Unrealized Losses		2
12 Months or More Fair Value		113
12 Months or More Unrealized Losses		9
Total Fair Value		241
Total Unrealized Losses		$ 11

XML

Note 4 - Loans and Allowance for Loan Losses (Details Textual) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Payments to Acquire Loans Receivable	$ 2,830	$ 2,512	$ 8,613
Loans Receivable Acquired, Average Amount Outstanding	123	120
Loans and Leases Receivable, Related Parties	13,124	13,499
Allowance for Credit Losses, Change in Method of Calculating Impairment	1,800	2,000
Loans and Leases Receivable, Impaired, Commitment to Lend	$ 0	$ 0
Financing Receivable, Modifications, Number of Contracts	0	0
Allowance for Loan Losses, Look-back Period	12	16
Directors, Executive Officers, Principal Shareholders, and Immediate Family Members [Member]
Loans and Leases Receivable, Related Parties	$ 13,100

XML

Note 4 - Loans and Allowance for Loan Losses - Major Classifications of Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loan receivable	$ 1,035,263	$ 970,975
Less unearned income	0	0
Loans, net of unearned income	1,035,263	970,975
Real Estate Portfolio Segment [Member]
Loans, net of unearned income	916,806	870,892
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loan receivable	129,181	120,230
Loans, net of unearned income	129,181	120,230
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loan receivable	355,304	350,295
Loans, net of unearned income	355,304	350,295
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loan receivable	432,321	400,367
Loans, net of unearned income	432,321	400,367
Commercial Portfolio Segment [Member]
Loans, net of unearned income	110,542	90,848
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loan receivable	63,417	48,607
Loans, net of unearned income	63,417	48,607
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loan receivable	27,209	18,933
Loans, net of unearned income	27,209	18,933
Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loan receivable	19,916	23,308
Loans, net of unearned income	19,916	23,308
Consumer Portfolio Segment [Member]
Loans, net of unearned income	7,915	9,235
Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loan receivable	4,853	4,554
Loans, net of unearned income	4,853	4,554
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loan receivable	3,062	4,681
Loans, net of unearned income	$ 3,062	$ 4,681

XML

Note 4 - Loans and Allowance for Loan Losses - Activity of Loan Balances - Directors, Executive Officers, and Principal Shareholders (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($)
Balance	$ 13,499
New loans	11,549
Repayments	(5,693)
Loans no longer meeting disclosure requirements, new loans meeting disclosure requirements, and other adjustments, net	(6,231)
Balance	$ 13,124

XML

Note 4 - Loans and Allowance for Loan Losses - Activity In the Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Balance at beginning of period				$ 9,344				$ 10,315	$ 9,344	$ 10,315	$ 13,968
Provision for loan losses	$ 87	$ (379)	$ (499)	580	$ 175	$ (190)	$ (156)	(473)	(211)	(644)	(3,429)
Recoveries									1,580	413	785
Loans charged off									(930)	(740)	(1,009)
Balance at end of period	9,783				9,344				9,783	9,344	10,315
Real Estate Portfolio Segment [Member]
Balance at beginning of period				8,205				9,173	8,205	9,173	12,542
Provision for loan losses									(537)	(702)	(3,099)
Recoveries									1,386	141	463
Loans charged off									(545)	(407)	(733)
Balance at end of period	8,509				8,205				8,509	8,205	9,173
Commercial Portfolio Segment [Member]
Balance at beginning of period				854				820	854	820	1,153
Provision for loan losses									237	50	(449)
Recoveries									139	203	210
Loans charged off									(279)	(219)	(94)
Balance at end of period	951				854				951	854	820
Consumer Portfolio Segment [Member]
Balance at beginning of period				$ 285				$ 322	285	322	273
Provision for loan losses									89	8	119
Recoveries									55	69	112
Loans charged off									(106)	(114)	(182)
Balance at end of period	$ 323				$ 285				$ 323	$ 285	$ 322

XML

Note 4 - Loans and Allowance for Loan Losses - Individually Impaired Loans by Class of Loans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Unpaid Principal Balance	$ 23,685	$ 44,632
Recorded Investment With No Allowance	7,182	16,706
Recorded Investment With Allowance	15,959	25,189
Total Recorded Investment	23,141	41,895
Allowance for Loan Losses Allocated	3,182	2,948
Average	35,375	42,979	$ 42,308
Interest Income Recognized	1,723	2,028	1,703
Cash Basis Interest Recognized	1,710	1,943	1,684
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Unpaid Principal Balance	4,076	9,076
Recorded Investment With No Allowance	1,746	2,599
Recorded Investment With Allowance	1,955	3,800
Total Recorded Investment	3,701	6,399
Allowance for Loan Losses Allocated	402	759
Average	5,124	7,706	9,409
Interest Income Recognized	239	310	343
Cash Basis Interest Recognized	239	298	337
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Unpaid Principal Balance	10,112	9,930
Recorded Investment With No Allowance	3,233	4,388
Recorded Investment With Allowance	6,877	5,590
Total Recorded Investment	10,110	9,978
Allowance for Loan Losses Allocated	1,973	1,503
Average	10,337	9,146	9,810
Interest Income Recognized	525	491	448
Cash Basis Interest Recognized	521	465	438
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Unpaid Principal Balance	8,737	25,045
Recorded Investment With No Allowance	2,203	9,699
Recorded Investment With Allowance	6,367	15,235
Total Recorded Investment	8,570	24,934
Allowance for Loan Losses Allocated	319	304
Average	19,139	25,557	22,439
Interest Income Recognized	917	1,197	890
Cash Basis Interest Recognized	908	1,153	887
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Unpaid Principal Balance	448	435
Recorded Investment With No Allowance		20
Recorded Investment With Allowance	448	418
Total Recorded Investment	448	438
Allowance for Loan Losses Allocated	270	236
Average	440	419	523
Interest Income Recognized	25	23	16
Cash Basis Interest Recognized	25	21	16
Commercial Portfolio Segment [Member] | Commercial Other [Member]
Unpaid Principal Balance
Recorded Investment With No Allowance
Recorded Investment With Allowance
Total Recorded Investment
Allowance for Loan Losses Allocated
Average	6
Interest Income Recognized
Cash Basis Interest Recognized
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Unpaid Principal Balance	312	146
Recorded Investment With No Allowance
Recorded Investment With Allowance	312	146
Total Recorded Investment	312	146
Allowance for Loan Losses Allocated	218	146
Average	329	151	127
Interest Income Recognized	17	7	6
Cash Basis Interest Recognized	$ 17	$ 6	$ 6

XML

Note 4 - Loans and Allowance for Loan Losses - Allowance for Loan Losses and the Recorded Investment In Loans by Impairment Method (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Individually evaluated for impairment	$ 3,182	$ 2,948
Collectively evaluated for impairment	6,601	6,396
Total ending allowance balance	9,783	9,344	$ 10,315	$ 13,968
Loans individually evaluated for impairment	23,141	41,895
Loans collectively evaluated for impairment	1,012,122	929,080
Loans, net of unearned income	1,035,263	970,975
Real Estate Portfolio Segment [Member]
Individually evaluated for impairment	2,694	2,566
Collectively evaluated for impairment	5,815	5,639
Total ending allowance balance	8,509	8,205	9,173	12,542
Loans individually evaluated for impairment	22,381	41,311
Loans collectively evaluated for impairment	894,425	829,581
Loans, net of unearned income	916,806	870,892
Commercial Portfolio Segment [Member]
Individually evaluated for impairment	270	236
Collectively evaluated for impairment	681	618
Total ending allowance balance	951	854	820	1,153
Loans individually evaluated for impairment	448	438
Loans collectively evaluated for impairment	110,094	90,410
Loans, net of unearned income	110,542	90,848
Consumer Portfolio Segment [Member]
Individually evaluated for impairment	218	146
Collectively evaluated for impairment	105	139
Total ending allowance balance	323	285	$ 322	$ 273
Loans individually evaluated for impairment	312	146
Loans collectively evaluated for impairment	7,603	9,089
Loans, net of unearned income	$ 7,915	$ 9,235

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Note 4 - Loans and Allowance for Loan Losses - Recorded Investment In Nonperforming Loans by Class of Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Nonaccrual	$ 3,887	$ 6,423
Restructured Loans	11,482	22,942
Loans Past Due 90 Days or More and Still Accruing	0	0
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Nonaccrual	151	712
Restructured Loans	1,955	3,637
Loans Past Due 90 Days or More and Still Accruing	0	0
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Nonaccrual	1,763	2,316
Restructured Loans	5,326	4,006
Loans Past Due 90 Days or More and Still Accruing	0	0
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Nonaccrual	1,752	3,383
Restructured Loans	3,703	14,787
Loans Past Due 90 Days or More and Still Accruing	0	0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Nonaccrual	53	0
Restructured Loans	370	377
Loans Past Due 90 Days or More and Still Accruing	0	0
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Nonaccrual	168	8
Restructured Loans	128	135
Loans Past Due 90 Days or More and Still Accruing	0	0
Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Nonaccrual	0	4
Restructured Loans		0
Loans Past Due 90 Days or More and Still Accruing	$ 0	$ 0

XML

Note 4 - Loans and Allowance for Loan Losses - Aging Analysis of Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loans, past due	$ 3,806	$ 5,911
Loans, current	1,031,457	965,064
Loans, net of unearned income	1,035,263	970,975
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	3,887	6,423
Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	2,233	2,395
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	1,573	3,516
Real Estate Portfolio Segment [Member]
Loans, net of unearned income	916,806	870,892
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, past due	102	620
Loans, current	129,079	119,610
Loans, net of unearned income	129,181	120,230
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	151	712
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	15	393
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	87	227
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, past due	1,698	2,733
Loans, current	353,606	347,562
Loans, net of unearned income	355,304	350,295
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	1,763	2,316
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	1,160	1,935
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	538	798
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, past due	1,914	2,483
Loans, current	430,407	397,884
Loans, net of unearned income	432,321	400,367
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	1,752	3,383
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	966	0
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	948	2,483
Commercial Portfolio Segment [Member]
Loans, net of unearned income	110,542	90,848
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, past due	62	0
Loans, current	63,355	48,607
Loans, net of unearned income	63,417	48,607
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	53	0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	62	0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, past due	0	0
Loans, current	27,209	18,933
Loans, net of unearned income	27,209	18,933
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	0	0
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	0	0
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, past due	21	24
Loans, current	19,895	23,284
Loans, net of unearned income	19,916	23,308
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	0	0
Commercial Portfolio Segment [Member] | Commercial Other [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	21	24
Commercial Portfolio Segment [Member] | Commercial Other [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Consumer Portfolio Segment [Member]
Loans, net of unearned income	7,915	9,235
Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loans, past due	0	13
Loans, current	4,853	4,541
Loans, net of unearned income	4,853	4,554
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	0	4
Consumer Portfolio Segment [Member] | Consumer Secured [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	0	13
Consumer Portfolio Segment [Member] | Consumer Secured [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loans, past due	9	38
Loans, current	3,053	4,643
Loans, net of unearned income	3,062	4,681
Loans Past Due 90 Days or More and Still Accruing	0	0
Nonaccrual	168	8
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	9	30
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	$ 0	$ 8

XML

Note 4 - Loans and Allowance for Loan Losses - Risk Category of Non Consumer Loans by Class (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loans, net of unearned income	$ 1,035,263	$ 970,975
Real Estate Portfolio Segment [Member]
Loans, net of unearned income	916,806	870,892
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	129,181	120,230
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	355,304	350,295
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	432,321	400,367
Commercial Portfolio Segment [Member]
Loans, net of unearned income	110,542	90,848
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	63,417	48,607
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	27,209	18,933
Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	19,916	23,308
Pass [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	124,926	112,435
Pass [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	330,401	323,300
Pass [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	414,663	363,448
Pass [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	62,490	47,254
Pass [Member] | Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	27,209	18,933
Pass [Member] | Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	19,898	23,308
Special Mention [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	396	1,413
Special Mention [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	9,196	12,147
Special Mention [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	7,556	21,088
Special Mention [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	474	764
Special Mention [Member] | Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	0	0
Special Mention [Member] | Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	18	0
Substandard [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	3,859	6,382
Substandard [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	15,707	14,806
Substandard [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	10,102	15,831
Substandard [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	453	589
Substandard [Member] | Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	0	0
Substandard [Member] | Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	0	42
Doubtful [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	$ 0	$ 0

XML

Note 4 - Loans and Allowance for Loan Losses - Risk Category of Consumer Loans by Class (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loans, net of unearned income	$ 1,035,263	$ 970,975
Consumer Portfolio Segment [Member]
Loans, net of unearned income	7,915	9,235
Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loans, net of unearned income	4,853	4,554
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loans, net of unearned income	3,062	4,681
Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loans, net of unearned income	4,853	4,550
Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loans, net of unearned income	2,766	4,538
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loans, net of unearned income	0	4
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loans, net of unearned income	$ 296	$ 143

XML

Note 5 - Premises and Equipment (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Depreciation, Depletion and Amortization	$ 3.3	$ 3.4	$ 3.5

XML

Note 5 - Premises and Equipment - Premises and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Land, buildings, and leasehold improvements	$ 60,980	$ 60,399
Furniture and equipment	19,020	18,188
Total premises and equipment	80,000	78,587
Less accumulated depreciation and amortization	49,072	46,687
Premises and equipment, net	$ 30,928	$ 31,900

XML

Note 6 - Other Real Estate Owned (Details Textual) $ in Thousands	Dec. 31, 2017 USD ($)
Mortgage Loans in Process of Foreclosure, Amount	$ 886

XML

Note 6 - Other Real Estate Owned - Other Real Estate Owned (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Other Real Estate Owned	$ 5,489	$ 10,673	$ 21,843
Construction and Land Development OREO [Member]
Other Real Estate Owned	4,433	7,996
Residential Real Estate OREO [Member]
Other Real Estate Owned	157	871
Farmland and Other Commercial Enterprises OREO [Member]
Other Real Estate Owned	$ 899	$ 1,806

XML

Note 6 - Other Real Estate Owned - OREO Activity (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Beginning balance	$ 10,673	$ 21,843
Transfers from loans and other increases	821	2,044
Proceeds from sales	(5,419)	(11,289)
Gain (loss) on sales, net	208	(473)
Write downs and other decreases, net	(794)	(1,452)
Ending balance	$ 5,489	$ 10,673

XML

Note 7 - Deposit Liabilities (Details Textual) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Time Deposits, at or Above FDIC Insurance Limit	$ 14.8	$ 18.6
Related Party Deposit Liabilities	$ 19.3	$ 28.6

XML

Note 7 - Deposit Liabilities - Deposits (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Noninterest Bearing	$ 361,855	$ 334,676
Interest Bearing
Demand	379,027	348,197
Savings	416,163	416,611
Time	222,858	270,423
Total interest bearing	1,018,048	1,035,231
Total Deposits	$ 1,379,903	$ 1,369,907

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Note 7 - Deposit Liabilities - Scheduled Maturities of Time Deposits (Details) $ in Thousands	Dec. 31, 2017 USD ($)
2018	$ 143,185
2019	37,422
2020	19,626
2021	12,887
2022	4,328
Thereafter	5,410
Total	$ 222,858

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Note 8 - Securities Sold Under Agreements to Repurchase (Details Textual) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2007
Securities Sold under Agreements to Repurchase	$ 34,252	$ 36,370
Long-term Repurchase Agreements, Leverage Transaction [Member]
Securities Sold under Agreements to Repurchase			$ 100,000	$ 200,000
Assets Sold under Agreements to Repurchase, Interest Rate				3.95%

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Note 8 - Securities Sold Under Agreements to Repurchase - Federal Funds Purchased and Other Short-term Borrowings (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Securities sold under agreements to repurchase	$ 34,252	$ 36,370
Average balance during the year	35,063	107,179
Maximum month-end balance during the year	$ 38,079	$ 140,218
Average interest rate during the year	0.22%	2.74%
Average interest rate at year-end	0.22%	0.36%

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Note 8 - Securities Sold Under Agreements to Repurchase - Maturity of Short and Long-term Repurchase Agreements (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Short and long-term purchase agreements	$ 34,252	$ 36,370
Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	34,252	29,188
US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements		7,182
Maturity Overnight [Member]
Short and long-term purchase agreements	32,341	33,682
Maturity Overnight [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	32,341	28,086
Maturity Overnight [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements		5,596
Maturity Less than 30 Days [Member]
Short and long-term purchase agreements	1,200	1,203
Maturity Less than 30 Days [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	1,200	902
Maturity Less than 30 Days [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements		301
Maturity 30 to 90 Days [Member]
Short and long-term purchase agreements	0	0
Maturity 30 to 90 Days [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	0	0
Maturity 30 to 90 Days [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements		0
Maturity 90 Days to One Year [Member]
Short and long-term purchase agreements	454	458
Maturity 90 Days to One Year [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	454	200
Maturity 90 Days to One Year [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements		258
Maturity Over One Year to Four Years [Member]
Short and long-term purchase agreements	257	1,027
Maturity Over One Year to Four Years [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	$ 257	0
Maturity Over One Year to Four Years [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements		$ 1,027

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Note 9 - Other Borrowings (Details Textual) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Jan. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2007	Dec. 31, 2005
Federal Home Loan Bank, Advances, Activity for Year, Average Interest Rate for Year		3.27%	3.97%
Federal Home Loan Bank Advances, General Debt Obligations, Remaining Maturity Period		328 days	292 days
Long-term Federal Home Loan Bank Advances		$ 3,479	$ 18,646
Federal Home Loan Bank, Advances, General Debt Obligations, Amount of Available, Unused Funds		135,000
Loans Pledged as Collateral		612,000	416,000
Gain (Loss) on Extinguishment of Debt		0	4,050	$ 0
Preferred Trust Securities Sold, Carrying Amount	$ 15,500
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust		33,506	33,506
Amount Allowable in Tier 1 Capital [Member]
Proceeds from Issuance of Trust Preferred Securities		32,500	$ 32,500
Trust Preferred Securities [Member]
Gain (Loss) on Extinguishment of Debt	4,100
Preferred Trust Securities Sold, Carrying Amount	15,000
Payments for Repurchase of Trust Preferred Securities	$ 11,000
Farmers Capital Bank Trust I [Member]
Proceeds from Issuance of Trust Preferred Securities						$ 10,000
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust		$ 10,300
Debt Instrument, Interest Rate, Effective Percentage		3.19%	2.50%
Farmers Capital Bank Trust I [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			1.50%
Farmers Capital Bank Trust II [Member]
Proceeds from Issuance of Trust Preferred Securities						$ 15,000
Farmers Capital Bank Trust III [Member]
Proceeds from Issuance of Trust Preferred Securities					$ 22,500
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust			$ 23,200
Debt Instrument, Interest Rate, Effective Percentage		2.70%	2.21%
Farmers Capital Bank Trust III [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			1.32%
Minimum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End		2.99%	2.99%
Maximum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End		5.81%	5.81%

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Note 9 - Other Borrowings - Long-term Borrowings (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Federal Home Loan Bank advances	$ 3,479	$ 18,646
Federal Home Loan Bank advances, average rate	3.27%	3.97%
Subordinated notes payable	$ 33,506	$ 33,506
Subordinated notes payable, average rate	2.85%	2.30%
Total FHLB advances and subordinated notes payable	$ 36,985	$ 52,152
Total FHLB advances and subordinated notes payable, average rate	2.89%	2.89%

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Note 9 - Other Borrowings - Maturities of Long-term Borrowings (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
2018	$ 3,000
2019	5
2020	474
2021
2022
Thereafter	33,506
Total	$ 36,985	$ 52,152

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Note 10 - Income Taxes (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent		35.00%	35.00%	35.00%
Unrecognized Tax Benefits		$ 0	$ 0	$ 0
Unrecognized Tax Benefits, Period Increase (Decrease)		0
Unrecognized Tax Benefits, Interest on Income Taxes Accrued		0	0
Unrecognized Tax Benefits, Income Tax Penalties Accrued		$ 0	$ 0	$ 0
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%

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Note 10 - Income Taxes - Income Tax Expense (Details) - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Dec. 31, 2017		Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Currently payable										$ 6,502	$ 5,556	$ 3,662
Revaluation of deferred income taxes resulting from change in statutory tax rates	$ 5,900									5,869
Deferred										270	885	1,631
Total income tax expense	$ 7,567	[1]	$ 2,076	$ 1,722	$ 1,276	$ 931	$ 1,560	$ 1,235	$ 2,715	$ 12,641	$ 6,441	$ 5,293

[1] Income tax expense includes $5.9 million related to the remeasurement of the Company's net deferred tax assets due to the change in Federal tax rates.

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Note 10 - Income Taxes - Income Tax Reconciliation (Details)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Federal statutory rate	35.00%	35.00%	35.00%
Changes from statutory rates resulting from:
Revaluation of deferred income taxes resulting from changes in statutory tax rates	24.10%
Company-owned life insurance	(1.60%)	(1.50%)	(1.60%)
Other, net	(0.10%)	0.10%	(0.20%)
Effective tax rate on pretax income	52.00%	27.90%	26.10%
Interest Income [Member]
Changes from statutory rates resulting from:
Tax-exempt interest	(4.10%)	(4.60%)	(5.80%)
Interest to Carry Tax-exempt Obligations [Member]
Changes from statutory rates resulting from:
Nondeductible interest to carry tax-exempt obligations	0.10%	0.20%	0.20%
Other Income [Member]
Changes from statutory rates resulting from:
Tax-exempt interest	(1.40%)	(1.30%)	(1.50%)

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Note 10 - Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Allowance for loan losses	$ 2,058	$ 3,285
Deferred compensation	135	236
Postretirement benefit obligations	3,605	5,825
Other real estate owned	621	1,303
Self-funded insurance	114	232
Paid time off	472	815
Depreciation	1,059	1,630
Intangibles	806	1,878
Unrealized loss on available for sale investment securities, net	933	1,811
Other	147	239
Total deferred tax assets	9,950	17,254
Prepaid expenses		153
Federal Home Loan Bank stock dividends	621	1,035
Deferred loan fees	523	846
Other	31	52
Total deferred tax liabilities	1,175	2,086
Net deferred tax asset	$ 8,775	$ 15,168

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Note 11 - Retirement Plans (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Contribution Plan, Employer Matching Contribution, Percent of Match		50.00%	50.00%	50.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay		6.00%	6.00%	6.00%
Defined Contribution Plan, Employer Discretionary Contribution Amount		$ 0	$ 0	$ 0
Defined Contribution Plan, Cost		$ 522	$ 563	$ 531
Scenario, Forecast [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	66.667%
Defined Contribution Plan, Maximum Employer Matching Contribution Percentage	4.00%

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Note 11 - Retirement Plans - Changes in Supplemental Retirement Plans' Benefit Obligation (Details) - Supplemental Employee Retirement Plan [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Change in Benefit Obligation
Obligation at beginning of year	$ 718	$ 600
Service cost	22	19
Interest cost	23	24
Actuarial (gain) loss	(180)	111
Benefit payments	(36)	(36)
Obligation at end of year	$ 547	$ 718

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Note 11 - Retirement Plans - Net Periodic Benefit Cost (Details) - Supplemental Employee Retirement Plan [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Service cost	$ 22	$ 19
Interest cost	23	24
Recognized net actuarial loss	5	5
Net periodic benefit cost	$ 50	$ 48
Discount rate used to determine net period benefit cost	3.31%	3.39%
Discount rate used to determine benefit obligation at year end	2.86%	3.31%
Rate of compensation increase	4.00%	4.00%

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Note 11 - Retirement Plans - Estimated Future Benefit Payments (Details) - Supplemental Employee Retirement Plan [Member] $ in Thousands	Dec. 31, 2017 USD ($)
2018	$ 58
2019	60
2020	60
2021	60
2022	56
2023-2027	219
Total	$ 513

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Note 11 - Retirement Plans - Amounts Recognized in Accumulated Other Comprehensive Income (Details) - Supplemental Employee Retirement Plan [Member] - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Unrecognized net actuarial (gain) loss	$ (98)	$ 87
Total	$ (98)	$ 87

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Note 11 - Retirement Plans - Estimated Cost Amortized From Accumulated Other Comprehensive Income Into Net Periodic Cost (Details) - Supplemental Employee Retirement Plan [Member] $ in Thousands	Dec. 31, 2017 USD ($)
Unrecognized net actuarial gain	$ (5)
Total	$ (5)

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Note 12 - Common Stock Options (Details Textual) - shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2004	Dec. 31, 2000	Dec. 31, 1997
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized						450,000
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term	91 days	91 days	91 days			10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period						1 year
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0	0	0	40,049	54,000	450,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0	0	0

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Note 13 - Postretirement Medical Benefits (Details Textual) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Curtailment	$ 417
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Prior Service Costs Recognized Due to Curtailment	66
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Curtailment, Net of Prior Service Costs Recognized	$ 351	$ 351	$ 0
Defined Benefit Plan, Plan Assets, Contributions by Employer		354	$ 309
Defined Benefit Plan, Expected Future Employer Contributions, Next Fiscal Year		$ 459
Defined Benefit Plan, Health Care Cost Trend Rate Assumed, Next Fiscal Year		6.50%
Defined Benefit Plan, Health Care Cost Trend Rate Assumed, Year Two		6.00%
Defined Benefit Plan, Health Care Cost Trend Rate Assumed, Year Three		5.50%
Defined Benefit Plan, Change in Health Care Cost Trend Rate Assumed		(0.25%)
Defined Benefit Plan, Health Care Cost Trend Rate Assumed, Five Fiscal Years Thereafter		4.75%
Defined Benefit Plan, Dental Care Cost Trend Rate Assumed, Next Fiscal Year and Thereafter		5.00%
Plan 2 [Member]
Employee Service Requirement		20 years
Employee Age Requirement		55 years
Contributions Plan 2		50.00%
Plan 1 [Member]
Company Contributions Plan 1		100.00%

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Note 13 - Postretirement Medical Benefits - Plans Benefit Obligation (Details) - Postretirement Health Coverage [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Obligation at beginning of year	$ 16,555	$ 16,204
Service cost	557	637
Interest cost	660	683
Curtailment gain recognized	(417)
Actuarial loss (gain)	263	(660)
Participant contributions	196	153
Benefit payments	(550)	(462)
Obligation at end of year	$ 17,264	$ 16,555

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Note 13 - Postretirement Medical Benefits - Net Periodic Benefit Cost (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2017	Dec. 31, 2016
Curtailment gain recognized	$ (417)
Postretirement Health Coverage [Member]
Service cost		$ 557	$ 637
Interest cost		660	683
Curtailment gain recognized		(417)
Recognized prior service cost		75	50
Net periodic benefit cost		$ 875	$ 1,370
Discount rate used to determine net periodic benefit cost		4.12%	4.34%
Discount rate used to determine benefit obligation as of year end		3.58%	4.12%
Retiree participation rate (Plan 1)		100.00%	100.00%
Retiree participation rate (Plan 2)		72.00%	72.00%

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Note 13 - Postretirement Medical Benefits - Incremental Effects From a One Percent Change in Assumed Health Care Cost (Details) - Postretirement Health Coverage [Member] $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($)
Effect on total of service and interest cost components of net periodic postretirement health care benefit cost, 1% Increase	$ 295
Effect on total of service and interest cost components of net periodic postretirement health care benefit cost, 1% Decrease	(247)
Effect on accumulated postretirement benefit obligation, 1% Increase	3,530
Effect on accumulated postretirement benefit obligation, 1% Decrease	$ (2,733)

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Note 13 - Postretirement Medical Benefits - Estimated Future Benefit Payments (Details) - Postretirement Health Coverage [Member] $ in Thousands	Dec. 31, 2017 USD ($)
2018	$ 459
2019	477
2020	508
2021	551
2022	592
2023-2027	3,439
Total	$ 6,026

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Note 13 - Postretirement Medical Benefits - Amounts Recognized in Accumulated Other Comprehensive Income (Details) - Postretirement Health Coverage [Member] - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Unrecognized net actuarial (gain) loss	$ 169	$ (93)
Unrecognized prior service cost		75
Total	$ 169	$ (18)

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Note 14 - Leases (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Operating Leases, Rent Expense	$ 408	$ 434	$ 419

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Note 14 - Leases - Estimated Future Minimum Rental Commitments (Details) $ in Thousands	Dec. 31, 2017 USD ($)
2018	$ 408
2019	343
2020	286
2021	218
2022	80
Thereafter	498
Total	$ 1,833

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Note 15 - Financial Instruments With Off-balance Sheet Risk (Details Textual) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Standby Letters of Credit [Member]
Fair Value Disclosure, Off-balance Sheet Risks, Face Amount, Liability	$ 2.9	$ 4.1
Commitments to Extend Credit [Member]
Fair Value Disclosure, Off-balance Sheet Risks, Face Amount, Liability	$ 220.0	$ 188.0

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Note 15 - Financial Instruments With Off-balance Sheet Risk - Contractual Amount of Financial Instruments with Off-balance Sheet Risk (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Standby Letters of Credit [Member]
Financial instruments with off-balance sheet risk	$ 2,900	$ 4,100
Commitments to Extend Credit [Member]
Financial instruments with off-balance sheet risk	220,000	188,000
Fixed Rate [Member]
Financial instruments with off-balance sheet risk	109,991	73,653
Fixed Rate [Member] | Standby Letters of Credit [Member]
Financial instruments with off-balance sheet risk	1,722	2,284
Fixed Rate [Member] | Commitments to Extend Credit [Member]
Financial instruments with off-balance sheet risk	108,269	71,369
Variable Rate [Member]
Financial instruments with off-balance sheet risk	112,757	118,695
Variable Rate [Member] | Standby Letters of Credit [Member]
Financial instruments with off-balance sheet risk	1,154	1,769
Variable Rate [Member] | Commitments to Extend Credit [Member]
Financial instruments with off-balance sheet risk	$ 111,603	$ 116,926

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Note 18 - Regulatory Matters (Details Textual)	Dec. 31, 2019	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Capital Conservation Buffer		1.25%	0.625%	0.00%
Scenario, Forecast [Member]
Capital Conservation Buffer	2.50%

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Note 18 - Regulatory Matters - Regulatory Ratios of the Consolidated Company and Its Subsidiary Banks (Details) - USD ($) $ in Thousands		Dec. 31, 2017	Dec. 31, 2016
Common Equity Tier 1 Risk-based Capital, actual, amount	[1]	$ 196,919	$ 187,474
Common Equity Tier 1 Risk-based Capital, actual, ratio	[1]	16.56%	16.43%
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1]	$ 53,500	$ 51,349
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1]	4.50%	4.50%
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, amount
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, ratio
Tier 1 Risk-based Capital, actual, amount	[1]	$ 229,419	$ 219,974
Tier 1 Risk-based Capital, actual, ratio	[1]	19.30%	19.28%
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1]	$ 71,334	$ 68,466
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1]	6.00%	6.00%
Tier 1 Risk-based Capital, to Be Well-capitalized, amount
Tier 1 Risk-based Capital, to Be Well-capitalized, ratio
Total Risk-based Capital, actual, amount	[1]	$ 239,234	$ 229,318
Total Risk-based Capital, actual, ratio	[1]	20.12%	20.10%
Total Risk-based Capital, for Capital Adequacy Purposes, amount	[1]	$ 95,112	$ 91,288
Total Risk-based Capital, for Capital Adequacy Purposes, ratio	[1]	8.00%	8.00%
Total Risk-based Capital, to Be Well-capitalized, amount
Total Risk-based Capital, to Be Well-capitalized, ratio
Tier 1 Leverage Capital, actual, amount	[2]	$ 229,419	$ 219,974
Tier 1 Leverage Capital, actual, ratio	[2]	13.75%	13.20%
Tier 1 Leverage Capital, for Capital Adequacy Purposes, amount	[2]	$ 66,763	$ 66,656
Tier 1 Leverage Capital, for Capital Adequacy Purposes, ratio	[2]	4.00%	4.00%
Ter 1 Leverage Capital, to Be Well-capitalized, amount
Tier 1 Leverage Capital, to Be Well-capitalized, ratio
United Bank [Member]
Common Equity Tier 1 Risk-based Capital, actual, amount	[1],[3]	$ 165,488
Common Equity Tier 1 Risk-based Capital, actual, ratio	[1],[3]	14.05%
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]	$ 53,004
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]	4.50%
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]	$ 76,561
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]	6.50%
Tier 1 Risk-based Capital, actual, amount	[1],[3]	$ 165,488
Tier 1 Risk-based Capital, actual, ratio	[1],[3]	14.05%
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]	$ 70,671
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]	6.00%
Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]	$ 94,229
Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]	8.00%
Total Risk-based Capital, actual, amount	[1],[3]	$ 175,271
Total Risk-based Capital, actual, ratio	[1],[3]	14.88%
Total Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]	$ 94,229
Total Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]	8.00%
Total Risk-based Capital, to Be Well-capitalized, amount	[1],[3]	$ 117,786
Total Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]	10.00%
Tier 1 Leverage Capital, actual, amount	[2],[3]	$ 165,488
Tier 1 Leverage Capital, actual, ratio	[2],[3]	10.13%
Tier 1 Leverage Capital, for Capital Adequacy Purposes, amount	[2],[3]	$ 65,365
Tier 1 Leverage Capital, for Capital Adequacy Purposes, ratio	[2],[3]	4.00%
Ter 1 Leverage Capital, to Be Well-capitalized, amount	[2],[3]	$ 81,706
Tier 1 Leverage Capital, to Be Well-capitalized, ratio	[2],[3]	5.00%
Farmers Bank and Capital Trust Company [Member]
Common Equity Tier 1 Risk-based Capital, actual, amount	[1],[3]		$ 64,016
Common Equity Tier 1 Risk-based Capital, actual, ratio	[1],[3]		16.53%
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 17,425
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		4.50%
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 25,170
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		6.50%
Tier 1 Risk-based Capital, actual, amount	[1],[3]		$ 64,016
Tier 1 Risk-based Capital, actual, ratio	[1],[3]		16.53%
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 23,234
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		6.00%
Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 30,978
Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		8.00%
Total Risk-based Capital, actual, amount	[1],[3]		$ 66,720
Total Risk-based Capital, actual, ratio	[1],[3]		17.23%
Total Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 30,978
Total Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		8.00%
Total Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 38,723
Total Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		10.00%
Tier 1 Leverage Capital, actual, amount	[2],[3]		$ 64,016
Tier 1 Leverage Capital, actual, ratio	[2],[3]		9.80%
Tier 1 Leverage Capital, for Capital Adequacy Purposes, amount	[2],[3]		$ 26,121
Tier 1 Leverage Capital, for Capital Adequacy Purposes, ratio	[2],[3]		4.00%
Ter 1 Leverage Capital, to Be Well-capitalized, amount	[2],[3]		$ 32,651
Tier 1 Leverage Capital, to Be Well-capitalized, ratio	[2],[3]		5.00%
United Bank and Trust Company [Member]
Common Equity Tier 1 Risk-based Capital, actual, amount	[1],[3]		$ 58,180
Common Equity Tier 1 Risk-based Capital, actual, ratio	[1],[3]		15.54%
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 16,848
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		4.50%
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 24,337
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		6.50%
Tier 1 Risk-based Capital, actual, amount	[1],[3]		$ 58,180
Tier 1 Risk-based Capital, actual, ratio	[1],[3]		15.54%
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 22,465
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		6.00%
Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 29,953
Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		8.00%
Total Risk-based Capital, actual, amount	[1],[3]		$ 61,680
Total Risk-based Capital, actual, ratio	[1],[3]		16.47%
Total Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 29,953
Total Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		8.00%
Total Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 37,441
Total Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		10.00%
Tier 1 Leverage Capital, actual, amount	[2],[3]		$ 58,180
Tier 1 Leverage Capital, actual, ratio	[2],[3]		12.38%
Tier 1 Leverage Capital, for Capital Adequacy Purposes, amount	[2],[3]		$ 18,798
Tier 1 Leverage Capital, for Capital Adequacy Purposes, ratio	[2],[3]		4.00%
Ter 1 Leverage Capital, to Be Well-capitalized, amount	[2],[3]		$ 23,497
Tier 1 Leverage Capital, to Be Well-capitalized, ratio	[2],[3]		5.00%
First Citizens Bank [Member]
Common Equity Tier 1 Risk-based Capital, actual, amount	[1],[3]		$ 28,324
Common Equity Tier 1 Risk-based Capital, actual, ratio	[1],[3]		13.56%
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 9,401
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		4.50%
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 13,580
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		6.50%
Tier 1 Risk-based Capital, actual, amount	[1],[3]		$ 28,324
Tier 1 Risk-based Capital, actual, ratio	[1],[3]		13.56%
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 12,535
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		6.00%
Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 16,714
Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		8.00%
Total Risk-based Capital, actual, amount	[1],[3]		$ 29,590
Total Risk-based Capital, actual, ratio	[1],[3]		14.16%
Total Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 16,714
Total Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		8.00%
Total Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 20,892
Total Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		10.00%
Tier 1 Leverage Capital, actual, amount	[2],[3]		$ 28,324
Tier 1 Leverage Capital, actual, ratio	[2],[3]		9.76%
Tier 1 Leverage Capital, for Capital Adequacy Purposes, amount	[2],[3]		$ 11,606
Tier 1 Leverage Capital, for Capital Adequacy Purposes, ratio	[2],[3]		4.00%
Ter 1 Leverage Capital, to Be Well-capitalized, amount	[2],[3]		$ 14,507
Tier 1 Leverage Capital, to Be Well-capitalized, ratio	[2],[3]		5.00%
Citizens Bank of Northern Kentucky, Inc [Member]
Common Equity Tier 1 Risk-based Capital, actual, amount	[1],[3]		$ 24,661
Common Equity Tier 1 Risk-based Capital, actual, ratio	[1],[3]		15.24%
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 7,280
Common Equity Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		4.50%
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 10,516
Common Equity Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		6.50%
Tier 1 Risk-based Capital, actual, amount	[1],[3]		$ 24,661
Tier 1 Risk-based Capital, actual, ratio	[1],[3]		15.24%
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 9,707
Tier 1 Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		6.00%
Tier 1 Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 12,942
Tier 1 Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		8.00%
Total Risk-based Capital, actual, amount	[1],[3]		$ 26,534
Total Risk-based Capital, actual, ratio	[1],[3]		16.40%
Total Risk-based Capital, for Capital Adequacy Purposes, amount	[1],[3]		$ 12,942
Total Risk-based Capital, for Capital Adequacy Purposes, ratio	[1],[3]		8.00%
Total Risk-based Capital, to Be Well-capitalized, amount	[1],[3]		$ 16,178
Total Risk-based Capital, to Be Well-capitalized, ratio	[1],[3]		10.00%
Tier 1 Leverage Capital, actual, amount	[2],[3]		$ 24,661
Tier 1 Leverage Capital, actual, ratio	[2],[3]		10.68%
Tier 1 Leverage Capital, for Capital Adequacy Purposes, amount	[2],[3]		$ 9,234
Tier 1 Leverage Capital, for Capital Adequacy Purposes, ratio	[2],[3]		4.00%
Ter 1 Leverage Capital, to Be Well-capitalized, amount	[2],[3]		$ 11,543
Tier 1 Leverage Capital, to Be Well-capitalized, ratio	[2],[3]		5.00%

[1] Common Equity Tier 1 Risk-based, Tier 1 Risk-based, and Total Risk-based Capital ratios are computed by dividing a bank's Common Equity Tier 1, Tier 1, or Total Capital, as defined by regulation, by a risk-weighted sum of the bank's assets, with the risk weighting determined by general standards established by regulation.

[2] Tier 1 Leverage ratio is computed by dividing a bank's Tier 1 Capital by its total quarterly average assets, as defined by regulation.

[3] In February 2017, the Company merged United Bank & Trust Company, First Citizens Bank, Inc., and Citizens Bank of Northern Kentucky, Inc. into Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed to United Bank & Capital Trust Company.

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Note 19 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Money Market Funds, at Carrying Value	$ 36,673	$ 18,550
Financial Standby Letter of Credit [Member]
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Liability	0	0
Commitments to Extend Credit [Member]
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Liability	0	0
Fair Value, Inputs, Level 1 [Member]
Money Market Funds, at Carrying Value	$ 36,700	$ 18,600

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Note 19 - Fair Value Measurements - Available for Sale Investment Securities Measured At Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available for Sale Securities - Estimated Fair Value	$ 424,253	$ 480,864
Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	935	833
Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	423,318	480,031
Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
US Government-sponsored Enterprises Debt Securities [Member]
Available for Sale Securities - Estimated Fair Value	43,208	71,694
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	43,208	71,694
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
US States and Political Subdivisions Debt Securities [Member]
Available for Sale Securities - Estimated Fair Value	114,249	132,292
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	114,249	132,292
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Residential Mortgage Backed Securities [Member]
Available for Sale Securities - Estimated Fair Value	193,393	224,307
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	193,393	224,307
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Commercial Mortgage Backed Securities [Member]
Available for Sale Securities - Estimated Fair Value	49,352	45,613
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	49,352	45,613
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Asset-backed Securities [Member]
Available for Sale Securities - Estimated Fair Value	15,574
Asset-backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0
Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	15,574
Asset-backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0
Corporate Debt Securities [Member]
Available for Sale Securities - Estimated Fair Value	7,542	6,125
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	7,542	6,125
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Mutual Funds and Equity Securities [Member]
Available for Sale Securities - Estimated Fair Value	935	833
Mutual Funds and Equity Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	935	833
Mutual Funds and Equity Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Mutual Funds and Equity Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	$ 0	$ 0

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Note 19 - Fair Value Measurements - Assets Measured At Fair Value On a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Impaired Loans [Member]
Assets fair value, nonrecurring	$ 8,885	$ 6,397
Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	8,885	6,397
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Assets fair value, nonrecurring	1,553	2,909
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	1,553	2,909
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Assets fair value, nonrecurring	4,687	3,137
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	4,687	3,137
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Assets fair value, nonrecurring	2,645	351
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	2,645	351
OREO [Member]
Assets fair value, nonrecurring	4,446	6,187
OREO [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	4,446	6,187
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Assets fair value, nonrecurring	3,468	4,883
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	3,468	4,883
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Assets fair value, nonrecurring	157	234
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	157	234
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Assets fair value, nonrecurring	821	1,070
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	$ 821	$ 1,070

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Note 19 - Fair Value Measurements - Fair Value Adjustments for Assets Measured On a Nonrecurring Basis (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Fair value adjustments	$ 983	$ 1,492
Impaired Loans [Member]
Fair value adjustments	386	858
OREO [Member]
Fair value adjustments	$ 597	$ 634

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Note 19 - Fair Value Measurements - Quantitative Information About Unobservable Inputs for Assets Measured on a Nonrecurring Basis Using Level 3 Measurements (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Impaired Loans [Member]
Fair Value	$ 8,885	$ 6,397
OREO [Member]
Fair Value	4,446	6,187
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member]
Fair Value	8,885	6,397
Fair Value, Inputs, Level 3 [Member] | OREO [Member]
Fair Value	4,446	6,187
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | Impaired Loans [Member]
Fair Value	$ 8,885	$ 6,397
Valuation Technique	Discounted appraisals	Discounted appraisals
Unobservable Inputs	Marketability discount	Marketability discount
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | Impaired Loans [Member] | Minimum [Member]
Marketability Discount	0.00%	0.00%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | Impaired Loans [Member] | Maximum [Member]
Marketability Discount	22.80%	67.80%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | Impaired Loans [Member] | Weighted Average [Member]
Marketability Discount	3.10%	3.50%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | OREO [Member]
Fair Value	$ 4,446	$ 6,187
Valuation Technique	Discounted appraisals	Discounted appraisals
Unobservable Inputs	Marketability discount	Marketability discount
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | OREO [Member] | Minimum [Member]
Marketability Discount	0.00%	0.00%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | OREO [Member] | Maximum [Member]
Marketability Discount	71.70%	50.00%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | OREO [Member] | Weighted Average [Member]
Marketability Discount	4.05%	11.20%

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Note 19 - Fair Value Measurements - Carrying Amounts and Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Assets
Held to maturity investment securities	$ 3,478	$ 3,597
Reported Value Measurement [Member]
Assets
Cash and cash equivalents	120,408	113,534
Held to maturity investment securities	3,364	3,488
Loans, net	1,025,480	961,631
Accrued interest receivable	4,935	5,019
Federal Home Loan Bank and Federal Reserve Bank Stock	13,235	9,840
Liabilities
Deposits	1,379,903	1,369,907
Securities sold under agreements to repurchase	34,252	36,370
Federal Home Loan Bank advances	3,479	18,646
Subordinated notes payable to unconsolidated trusts	33,506	33,506
Accrued interest payable	261	321
Estimate of Fair Value Measurement [Member]
Assets
Cash and cash equivalents	120,408	113,534
Held to maturity investment securities	3,478	3,597
Loans, net	1,012,959	962,437
Accrued interest receivable	4,935	5,019
Federal Home Loan Bank and Federal Reserve Bank Stock	13,235	9,840
Liabilities
Deposits	1,380,122	1,369,567
Securities sold under agreements to repurchase	34,257	36,381
Federal Home Loan Bank advances	3,546	19,114
Subordinated notes payable to unconsolidated trusts	22,709	21,234
Accrued interest payable	261	321
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Assets
Cash and cash equivalents	120,408	113,534
Held to maturity investment securities	0	0
Loans, net	0	0
Accrued interest receivable	0	0
Federal Home Loan Bank and Federal Reserve Bank Stock	0	0
Liabilities
Deposits	1,157,045	1,099,211
Securities sold under agreements to repurchase	0	0
Federal Home Loan Bank advances	0	0
Subordinated notes payable to unconsolidated trusts	0	0
Accrued interest payable	0	0
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Assets
Cash and cash equivalents	0	0
Held to maturity investment securities	3,478	3,597
Loans, net	0	0
Accrued interest receivable	4,935	5,019
Federal Home Loan Bank and Federal Reserve Bank Stock	0	0
Liabilities
Deposits	0	0
Securities sold under agreements to repurchase	34,257	36,381
Federal Home Loan Bank advances	3,546	19,114
Subordinated notes payable to unconsolidated trusts	0	0
Accrued interest payable	261	321
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Assets
Cash and cash equivalents	0	0
Held to maturity investment securities	0	0
Loans, net	1,012,959	962,437
Accrued interest receivable	0	0
Federal Home Loan Bank and Federal Reserve Bank Stock	13,235	9,840
Liabilities
Deposits	223,077	270,356
Securities sold under agreements to repurchase	0	0
Federal Home Loan Bank advances	0	0
Subordinated notes payable to unconsolidated trusts	22,709	21,234
Accrued interest payable	$ 0	$ 0

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Note 20 - Parent Company Financial Statements - Condensed Balance Sheets (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash and cash equivalents	$ 120,408	$ 113,534	$ 120,493	$ 100,914
Other assets	33,133	38,026
Total assets	1,673,872	1,671,030
Dividends payable, common stock	939	751
Subordinated notes payable	33,506	33,506
Other liabilities	28,440	27,784
Total liabilities	1,480,519	1,486,964
Common stock	940	939
Capital surplus	52,201	51,885
Retained earnings	143,778	134,650
Accumulated other comprehensive loss	(3,566)	(3,408)
Total liabilities and shareholders’ equity	1,673,872	1,671,030
Parent Company [Member]
Cash and cash equivalents	61,604	44,286	$ 35,964	$ 32,086
Investment in subsidiaries	166,183	175,935
Other assets	302	1,378
Total assets	228,089	221,599
Dividends payable, common stock	939	751
Subordinated notes payable	33,506	33,506
Other liabilities	291	3,276
Total liabilities	34,736	37,533
Common stock	940	939
Capital surplus	52,201	51,885
Retained earnings	143,778	134,650
Accumulated other comprehensive loss	(3,566)	(3,408)
Total shareholders’ equity	193,353	184,066
Total liabilities and shareholders’ equity	$ 228,089	$ 221,599

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Note 20 - Parent Company Financial Statements - Condensed Statements of Income and Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended										12 Months Ended
	Dec. 31, 2017		Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016		Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Gain on debt extinguishment											$ 0	$ 4,050	$ 0
Other noninterest income											509	420	450
Interest on subordinated notes payable to unconsolidated trusts											870	723	866
Noninterest expense	$ 13,240		$ 12,708	$ 13,346	$ 13,529	$ 15,221	$ 17,888	$ 13,884	[1]	$ 14,407	52,823	61,400	57,950
Income before income taxes	6,132		7,388	6,204	4,605	3,476	5,884	4,791		8,895
Income tax expense	7,567	[2]	2,076	1,722	1,276	931	1,560	1,235		2,715	12,641	6,441	5,293
Net income	$ (1,435)		$ 5,312	$ 4,482	$ 3,329	$ 2,545	$ 4,324	$ 3,556		$ 6,180	11,688	16,605	14,992
Other comprehensive loss											475	(6,190)	(2,093)
Comprehensive income											12,163	10,415	12,899
Parent Company [Member]
Dividends from subsidiaries											23,026	24,820	14,426
Interest											191	39	12
Gain on debt extinguishment												4,050
Other noninterest income											363	2,442	2,555
Total income											23,580	31,351	16,993
Interest on subordinated notes payable to unconsolidated trusts											870	723	866
Noninterest expense											1,751	5,050	4,938
Total expense											2,621	5,773	5,804
Income before income taxes											20,959	25,578	11,189
Income tax expense											(747)	273	(1,076)
Income before equity in undistributed income of subsidiaries											21,706	25,305	12,265
Equity in undistributed (loss) income of subsidiaries											(10,018)	(8,700)	2,727
Net income											11,688	16,605	14,992
Other comprehensive loss											475	(6,190)	(2,093)
Comprehensive income											$ 12,163	$ 10,415	$ 12,899

[1] Noninterest income includes $3.8 million of gain on the sale of investment securities and noninterest expense includes $3.8 million of loss on the early extinguishment of debt, both related to a series of transactions to deleverage the balance sheet.

[2] Income tax expense includes $5.9 million related to the remeasurement of the Company's net deferred tax assets due to the change in Federal tax rates.

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Note 20 - Parent Company Financial Statements - Condensed Statements of Cash Flows (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net income	$ (1,435)	$ 5,312	$ 4,482	$ 3,329	$ 2,545	$ 4,324	$ 3,556	$ 6,180	$ 11,688	$ 16,605	$ 14,992
Deferred income tax expense (benefit)									270	885	1,631
Gain on extinguishment of subordinated notes payable to unconsolidated trusts									0	(4,050)	0
Net cash provided by operating activities									28,042	20,740	25,930
Net cash provided by investing activities									(11,053)	87,151	15,875
Cash paid to extinguish subordinated notes payable to unconsolidated trusts										(10,950)
Dividends paid, common stock									(3,005)	(1,575)
Redemption of preferred stock											(10,000)
Dividends paid, preferred stock											(508)
Shares issued under employee stock purchase plan									179	155	130
Net cash used in financing activities									(10,115)	(114,850)	(22,226)
Net increase in cash and cash equivalents									6,874	(6,959)	19,579
Cash and cash equivalents at beginning of year				113,534				120,493	113,534	120,493	100,914
Cash and cash equivalents at end of year	120,408				113,534				120,408	113,534	120,493
Employee Stock Purchase Plan Expense [Member]
Noncash compensation expense									33	32	31
Director Fee Compensation [Member]
Noncash compensation expense									105	92	104
Parent Company [Member]
Net income									11,688	16,605	14,992
Equity in undistributed loss (income) of subsidiaries									10,018	8,700	(2,727)
Change in other assets and liabilities, net									(2,408)	(1,116)	582
Deferred income tax expense (benefit)									740	(46)	(54)
Gain on extinguishment of subordinated notes payable to unconsolidated trusts										(4,050)
Net cash provided by operating activities									20,144	20,192	12,901
Return of equity from nonbank subsidiary										500	1,355
Net cash provided by investing activities										500	1,355
Cash paid to extinguish subordinated notes payable to unconsolidated trusts										(10,950)
Dividends paid, common stock									(3,005)	(1,575)
Redemption of preferred stock											(10,000)
Dividends paid, preferred stock											(508)
Shares issued under employee stock purchase plan									179	155	130
Net cash used in financing activities									(2,826)	(12,370)	(10,378)
Net increase in cash and cash equivalents									17,318	8,322	3,878
Cash and cash equivalents at beginning of year				$ 44,286				$ 35,964	44,286	35,964	32,086
Cash and cash equivalents at end of year	$ 61,604				$ 44,286				61,604	44,286	35,964
Parent Company [Member] | Employee Stock Purchase Plan Expense [Member]
Noncash compensation expense									1	7	4
Parent Company [Member] | Director Fee Compensation [Member]
Noncash compensation expense									$ 105	$ 92	$ 104

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Note 21 - Quarterly Financial Data (Unaudited) (Details Textual) - USD ($) $ in Thousands	3 Months Ended			12 Months Ended
	Dec. 31, 2017	Sep. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability	$ 5,900			$ 5,869
Gain on Extinguishment of Debt				0	4,050
Gain (Loss) on Sale of Securities, Net		$ 3,800
Loss on Extinguishment of Debt		$ 3,800		$ 0	$ 3,776
Subordinated Debt [Member]
Gain on Extinguishment of Debt			$ 4,100

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Note 21 - Quarterly Financial Data - Quarterly Financial Data (Unaudited) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended											12 Months Ended
	Dec. 31, 2017		Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016		Mar. 31, 2016		Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest income	$ 15,094		$ 14,983	$ 14,830	$ 14,379	$ 14,449	$ 14,619	$ 14,973		$ 15,330		$ 59,286	$ 59,371	$ 61,236
Interest expense	820		893	881	916	928	1,809	1,975		2,043		3,510	6,755	8,641
Net interest income	14,274		14,090	13,949	13,463	13,521	12,810	12,998		13,287		55,776	52,616	52,595
Provision for loan losses	87		(379)	(499)	580	175	(190)	(156)		(473)		(211)	(644)	(3,429)
Net interest income after provision for loan losses	14,187		14,469	14,448	12,883	13,346	13,000	13,154		13,760		55,987	53,260	56,024
Noninterest income	5,185		5,627	5,102	5,251	5,351	10,772	5,521	[1]	9,542	[2]	21,165	31,186	22,211
Noninterest expense	13,240		12,708	13,346	13,529	15,221	17,888	13,884	[1]	14,407		52,823	61,400	57,950
Income before income taxes	6,132		7,388	6,204	4,605	3,476	5,884	4,791		8,895
Income tax expense	7,567	[3]	2,076	1,722	1,276	931	1,560	1,235		2,715		12,641	6,441	5,293
Net income	$ (1,435)		$ 5,312	$ 4,482	$ 3,329	$ 2,545	$ 4,324	$ 3,556		$ 6,180		$ 11,688	$ 16,605	$ 14,992
Net income per common share, basic and diluted (in dollars per share)	$ (0.19)		$ 0.71	$ 0.60	$ 0.44	$ 0.34	$ 0.58	$ 0.47		$ 0.82		$ 1.56	$ 2.21	$ 1.95
Average common shares issued and outstanding, basic and diluted (in shares)	7,516		7,514	7,512	7,510	7,508	7,505	7,502		7,500		7,513	7,504	7,494

[1] Noninterest income includes $3.8 million of gain on the sale of investment securities and noninterest expense includes $3.8 million of loss on the early extinguishment of debt, both related to a series of transactions to deleverage the balance sheet.

[2] Noninterest income includes $4.1 million related to the gain on the early extinguishment of subordinated notes payable.

[3] Income tax expense includes $5.9 million related to the remeasurement of the Company's net deferred tax assets due to the change in Federal tax rates.

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Note 22 - Intangible Assets (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Finite-Lived Intangible Assets, Net	$ 0	$ 0
Amortization of Intangible Assets	0	0	$ 449
Customer Relationships [Member]
Finite-Lived Intangible Assets, Net	$ 0	$ 0	0
Finite-Lived Intangible Assets, Accumulated Amortization				$ 2,400
Fully Amortized [Member]
Finite-Lived Core Deposits, Gross			$ 4,500

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Note 23 - Preferred Stock (Details Textual) - Series A Preferred Stock [Member] - USD ($) $ / shares in Units, $ in Millions			3 Months Ended		12 Months Ended
	Jun. 08, 2015	Jan. 09, 2009	Dec. 31, 2014	Jun. 30, 2014	Dec. 31, 2014
Stock Issued During Period, Shares, New Issues		30,000
Preferred Stock, Par or Stated Value Per Share		$ 0
Proceeds from Issuance of Preferred Stock and Preference Stock		$ 30
Stock Redeemed or Called During Period, Shares	10,000		10,000	10,000	20,000
Preferred Stock, Liquidation Preference Per Share	$ 1,000		$ 1,000		$ 1,000