Note 5 – Loans

The Company grants loans primarily to customers throughout north central and south central Pennsylvania and the southern tier New York. Although the Company had a diversified loan portfolio at March 31, 2016 and December 31, 2015, a substantial portion of its debtors' ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of March 31, 2016 and December 31, 2015 (in thousands):

March 31, 2016	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	201,988	$	523	$	33	$	201,432
Commercial and agricultural		299,633		6,438		2,761		290,434
Construction		8,699		-		-		8,699
Consumer		11,125		-		8		11,117
Other commercial and agricultural loans		69,197		6,277		681		62,239
State and political subdivision loans		109,061		-		-		109,061
Total		699,703		13,238		3,483		682,982
Allowance for loan losses		7,275		475		-		6,800
Net loans	$	692,428	$	12,763	$	3,483	$	676,182

December 31, 2015
Real estate loans:
Residential	$	203,407	$	304	$	35	$	203,068
Commercial and agricultural		295,364		6,235		2,908		286,221
Construction		15,011		-		-		15,011
Consumer		11,543		-		9		11,534
Other commercial and agricultural loans		71,206		5,745		866		64,595
State and political subdivision loans		98,500		-		-		98,500
Total		695,031		12,284		3,818		678,929
Allowance for loan losses		7,106		355		-		6,751
Net loans	$	687,925	$	11,929	$	3,818	$	672,178

Purchased loans acquired in the FNB acquisition are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

Upon acquisition, the Company evaluated whether an acquired loan was within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired loans (PCI) are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. There were no material increases or decreases in the expected cash flows of these loans between December 11, 2015 (the "acquisition date") and March 31, 2016. The fair value of purchased credit-impaired loans, on the acquisition date, was determined, primarily based on the fair value of loan collateral. The carrying value of purchased loans acquired with deteriorated credit quality was $3,483,000 and $3,818,000 at March 31, 2016 and December 31, 2015, respectively.

On the acquisition date, the preliminary estimate of the unpaid principal balance for all loans evidencing credit impairment acquired in the FNB acquisition was $6,969,000 and the estimated fair value of the loans was $3,809,000. Total contractually required payments on these loans, including interest, at the acquisition date was $9,913,000. However, the Company's preliminary estimate of expected cash flows was $4,474,000. At such date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from the customer nor liquidation of collateral) of $5,439,000 relating to these impaired loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $665,000 on the acquisition date relating to these impaired loans.

The carrying value of the loans acquired in the FNB acquisition with specific evidence of deterioration in credit quality was determined by projected discounted contractual cash flows.

Changes in the accretable yield for purchased credit-impaired loans were as follows for the three months ended March 31, 2016:

(In Thousands)	March 31, 2016
Balance at beginning of period	$ 637
Accretion		(86)
Balance at end of period	$ 551

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30:

(In Thousands)	March 31, 2016		December 31, 2015
Outstanding balance	$	6,516	$	6,950
Carrying amount		3,483		3,818

The segments of the Company's loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit with terms of 15 years or less secured by a mortgage which is often a second lien on residential real estate. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential or commercial real estate used during the construction phase of residential and commercial projects. Consumer loans are typically unsecured or primarily secured by assets other than real estate and overdraft lines of credit are typically secured by customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivision loans are loans to state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development.

Management considers commercial loans, other agricultural loans, state and political subdivision loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer's results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allocation of the allowance for loan losses or a charge-off to the allowance for loan losses.

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables by class, with the associated allowance amount, if applicable (in thousands):

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
March 31, 2016	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	504	$	115	$	348	$	463	$	38
Home Equity		60		-		60		60		11
Commercial		8,922		6,064		209		6,273		103
Agricultural		165		165		-		165		-
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		6,295		5,122		1,051		6,173		323
Other agricultural loans		104		104		-		104		-
State and political
subdivision loans		-		-		-		-		-
Total	$	16,050	$	11,570	$	1,668	$	13,238	$	475

December 31, 2015
Real estate loans:
Mortgages	$	281	$	114	$	129	$	243	$	26
Home Equity		61		-		61		61		11
Commercial		8,654		5,843		225		6,068		62
Agricultural		167		167		-		167		-
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		5,535		4,653		987		5,640		256
Other agricultural loans		105		105		-		105		-
State and political
subdivision loans		-		-		-		-		-
Total	$	14,803	$	10,882	$	1,402	$	12,284	$	355

The following table includes the average balance of impaired financing receivables by class and the income recognized on impaired loans for the three month periods ended March 31, 2016 and 2015(in thousands):

	For the Three Months Ended
	March 31, 2016						March 31, 2015
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	391	$	4	$	-	$	188	$	2	$	-
Home Equity		60		1		-		124		1		-
Commercial		6,179		26		-		6,023		13		-
Agricultural		165		2		-		-		-		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Other commercial loans		5,952		66		1		2,729		25		1
Other agricultural loans		105		1		-		-		-		-
State and political subdivision loans		-		-		-		-		-		-
Total	$	12,852	$	100	$	1	$	9,064	$	41	$	1

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor credit quality. The first five categories are considered not criticized and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

·	Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

·	Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

·	Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

·	Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

·	Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company's loan rating process includes several layers of internal and external oversight. The Company's loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management. All commercial and agricultural loans are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to 1) review a minimum of 55% of the dollar volume of the commercial loan portfolio on an annual basis, 2) review new loans originated for over $1.0 million in the last year, 3) review a majority of borrowers with commitments greater than or equal to $1.0 million, 4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate.

The following tables represent credit exposures by internally assigned grades as of March 31, 2016 and December 31, 2015 (in thousands):

March 31, 2016	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	220,649	$	4,258	$	16,097	$	30	$	-	$	241,034
Agricultural		53,867		3,844		888		-		-		58,599
Construction		8,699		-		-		-		-		8,699
Other commercial loans		49,353		594		5,524		134		-		55,605
Other agricultural loans		13,093		395		104		-		-		13,592
State and political
subdivision loans		109,061		-		-		-		-		109,061
Total	$	454,722	$	9,091	$	22,613	$	164	$	-	$	486,590

December 31, 2015
Real estate loans:
Commercial	$	217,544	$	4,150	$	15,816	$	32	$	-	$	237,542
Agricultural		53,695		2,865		1,262		-		-		57,822
Construction		14,422		589		-		-		-		15,011
Other commercial loans		51,297		446		5,669		137		-		57,549
Other agricultural loans		13,318		234		105		-		-		13,657
State and political
subdivision loans		98,500		-		-		-		-		98,500
Total	$	448,776	$	8,284	$	22,852	$	169	$	-	$	480,081

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of March 31, 2016 and December 31, 2015 (in thousands):

March 31, 2016	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	140,106	$	1,568	$	33	$	141,707
Home Equity		60,049		232		-		60,281
Consumer		11,055		62		8		11,125
Total	$	211,210	$	1,862	$	41	$	213,113


December 31, 2015	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	139,734	$	1,270	$	35	$	141,039
Home Equity		62,236		132		-	$	62,368
Consumer		11,470		64		9	$	11,543
Total	$	213,440	$	1,466	$	44	$	214,950

Aging Analysis of Past Due Financing Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due financing receivables as of March 31, 2016 and December 31, 2015 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
March 31, 2016	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	551	$	96	$	728	$	1,375	$	140,299	$	33	$	141,707	$	173
Home Equity		370		64		176		610		59,671		-		60,281		71
Commercial		1,550		204		4,289		6,043		232,953		2,038		241,034		222
Agricultural		36		164		-		200		57,676		723		58,599		-
Construction		-		-		-		-		8,699		-		8,699		-
Consumer		180		51		51		282		10,835		8		11,125		11
Other commercial loans		77		209		1,053		1,339		53,585		681		55,605		143
Other agricultural loans		496		84		-		580		13,012		-		13,592		-
State and political
subdivision loans		-		-		-		-		109,061		-		109,061		-
Total	$	3,260	$	872	$	6,297	$	10,429	$	685,791	$	3,483	$	699,703	$	620

Loans considered non-accrual	$	140	$	-	$	5,677	$	5,817	$	1,166	$	-	$	6,983
Loans still accruing		3,120		872		620		4,612		684,625		3,483		692,720
Total	$	3,260	$	872	$	6,297	$	10,429	$	685,791	$	3,483	$	699,703

December 31, 2015
Real estate loans:
Mortgages	$	487	$	283	$	687	$	1,457	$	139,547	$	35	$	141,039	$	321
Home Equity		630		15		121		766		61,602		-		62,368		73
Commercial		824		57		4,139		5,020		230,352		2,170		237,542		60
Agricultural		177		167		-		344		56,740		738		57,822		-
Construction		-		-		-		-		15,011		-		15,011		-
Consumer		239		37		49		325		11,209		9		11,543		9
Other commercial loans		143		214		1,010		1,367		55,316		866		57,549		160
Other agricultural loans		9		-		-		9		13,648		-		13,657		-
State and political
subdivision loans		-		-		-		-		98,500		-		98,500		-
Total	$	2,509	$	773	$	6,006	$	9,288	$	681,925	$	3,818	$	695,031	$	623

Loans considered non-accrual	$	54	$	171	$	5,383	$	5,608	$	923	$	-	$	6,531
Loans still accruing		2,455		602		623		3,680		681,002		3,818		688,500
Total	$	2,509	$	773	$	6,006	$	9,288	$	681,925	$	3,818	$	695,031

Nonaccrual Loans

Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

The following table reflects the financing receivables on non-accrual status as of March 31, 2016 and December 31, 2015, respectively. The balances are presented by class of financing receivable (in thousands):

	March 31, 2016		December 31, 2015
Real estate loans:
Mortgages	$	1,395	$	949
Home Equity		161		59
Commercial		4,265		4,422
Agricultural		32		34
Consumer		51		55
Other commercial loans		1,079		1,012
	$	6,983	$	6,531

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower's financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company's investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower's ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations. Based on this evaluation management would no longer consider a loan to be a TDR when the relevant facts support such a conclusion. As of March 31, 2016 and December 31, 2015, included within the allowance for loan losses are reserves of $35,000 and $37,000 respectively, that are associated with loans modified as TDRs.

There were no loan modifications that were considered TDRs during the three months ended March 31, 2016. Loan modifications that are considered TDRs completed during the three months ended March 31, 2015 were as follows (dollars in thousands):

	For the Three Months Ended March 31, 2015
	Interest Rate Modification
	Number of contracts		Pre-modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Mortgages		1	$	71	$	71
Total		1	$	71	$	71

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which begin January 1, 2016 and 2015 (three month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended
	March 31, 2016				March 31, 2015
	Number of contracts		Recorded investment		Number of contracts		Recorded investment
Real estate loans:
Commercial		-	$	-		1	$	124
Total recidivism		-	$	-		1	$	124

Allowance for Loan Losses

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2016 and December 31, 2015, respectively (in thousands):

	March 31, 2016						December 31, 2015
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	49	$	917	$	966	$	37	$	868	$	905
Commercial and agricultural		103		3,835		3,938		62		3,723		3,785
Construction		-		14		14		-		24		24
Consumer		-		96		96		-		102		102
Other commercial and agricultural loans		323		1,024		1,347		256		1,049		1,305
State and political
subdivision loans		-		666		666		-		593		593
Unallocated		-		248		248		-		392		392
Total	$	475	$	6,800	$	7,275	$	355	$	6,751	$	7,106

The following tables roll forward the balance of the ALLL by portfolio segment for the three month periods ended March 31, 2016 and 2015, respectively (in thousands):

	Balance at December 31, 2015		Charge-offs			Recoveries		Provision			Balance at March 31, 2016
Real estate loans:
Residential	$	905	$	-		$	-	$	61		$	966
Commercial and agricultural		3,785		-			4		149			3,938
Construction		24		-			-		(10	)		14
Consumer		102		(15	)		39		(30	)		96
Other commercial and agricultural loans		1,305		-			6		36			1,347
State and political									-
subdivision loans		593		-			-		73			666
Unallocated		392		-			-		(144	)		248
Total	$	7,106	$	(15	)	$	49	$	135		$	7,275

	Balance at December 31, 2014		Charge-offs			Recoveries		Provision			Balance at March 31, 2015
Real estate loans:
Residential	$	878	$	(17	)	$	-	$	62		$	923
Commercial and agricultural		3,870		-			4		(175	)		3,699
Construction		26		-			-		(15	)		11
Consumer		84		(7	)		8		(3	)		82
Other commercial and agricultural loans		1,224		(1	)		-		63			1,286
State and political									-
subdivision loans		545		-			-		27			572
Unallocated		188		-			-		161			349
Total	$	6,815	$	(25	)	$	12	$	120		$	6,922

The Company allocates the ALLL based on the factors described below, which conform to the Company's loan classification policy and credit quality measurements. In reviewing risk within the Company's loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) other commercial and agricultural loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:

·	Level of and trends in delinquencies and impaired/classified loans

§	Change in volume and severity of past due loans

§	Volume of non-accrual loans

§	Volume and severity of classified, adversely or graded loans;

·	Level of and trends in charge-offs and recoveries;

·	Trends in volume, terms and nature of the loan portfolio;

·	Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;

·	Changes in the quality of the Company's loan review system;

·	Experience, ability and depth of lending management and other relevant staff;

·	National, state, regional and local economic trends and business conditions

§	General economic conditions

§	Unemployment rates

§	Inflation rate/ Consumer Price Index

§	Changes in values of underlying collateral for collateral-dependent loans;

·	Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses;

·	Existence and effect of any credit concentrations, and changes in the level of such concentrations; and

·	Any change in the level of board oversight.

The Company also maintains an unallocated allowance to account for any factors or conditions that may cause a potential loss but are not specifically addressed in the process described above. The Company analyzes its loan portfolio each quarter to determine the appropriateness of its ALLL.

Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL.

We continually review the model utilized in calculating the required ALLL. The following qualitative factors experienced changes during the first three months of 2016:

·	The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans were increased for residential, consumer and commercial real estate due to an increase in past due, non-accrual and classified loans.

The qualitative factor for industry conditions, including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses was increased for agricultural related loans due to the decrease in the price received for product sold and the increase in feed costs that has occurred in 2016, which negatively affected customer earnings.

The following qualitative factors experienced changes during the three months ended March 31, 2015:

·	The qualitative factor for national, state, regional and local economic trends and business conditions was increased for all loan categories due to an increase in the unemployment rates in the local economy during the first quarter of 2015.

The qualitative factor for industry conditions, including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses was increased for agricultural related loans due to the decrease in the price received for product sold and the increase in feed costs, which negatively affected customer earnings that occurred in the first quarter of 2015.

·	The qualitative factor for levels of and trends in charge-offs and recoveries was increased for residential real estate loans due to the increase in charge-offs compared to historical norms for the Company.

·	The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans was decreased for other commercial loans due to the decrease in the amount of classified loans as of March 31, 2015.

·	The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans was increased for residential mortgages due to increases in the amount of delinquent loans as of March 31, 2015.

·	The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans was increased for agricultural related loans due to increases in the amount of loans past due as of March 31, 2015.

The primary factor that resulted in negative provision for commercial and agricultural loans for the three month period ended March 31, 2015 was the reduction in the amount of special mention and substandard loans since December 31, 2014.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of March 31, 2016 and December 31, 2015 included with other assets are $1,170,000 and $1,354,000, respectively, of foreclosed assets. As of March 31, 2016, included within the foreclosed assets is $307,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of March 31, 2016, the Company has initiated formal foreclosure proceedings on $1,308,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.