LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2016

Summary of loan portfolio and allowance for loan losses

The following table summarizes the primary segments of the loan portfolio, as well as how those segments are analyzed within the allowance for loan losses as of December 31, 2016 and 2015 (in thousands):

2016	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	207,423	$	957	$	35	$	206,431
Commercial		252,577		5,742		1,969		244,866
Agricultural		123,624		3,346		738		119,540
Construction		25,441		-		-		25,441
Consumer		11,005		-		4		11,001
Other commercial loans		58,639		5,994		621		52,024
Other agricultural loans		23,388		1,654		-		21,734
State and political subdivision loans		97,514		-		-		97,514
Total		799,611		17,693		3,367		778,551
Less: Allowance for loan losses		8,886		487		-		8,399
Net loans	$	790,725	$	17,206	$	3,367	$	770,152

2015	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	203,407	$	304	$	35	$	203,068
Commercial		237,542		6,068		2,170		229,304
Agricultural		57,822		167		738		56,917
Construction		15,011		-		-		15,011
Consumer		11,543		-		9		11,534
Other commercial loans		57,549		5,640		866		51,043
Other agricultural loans		13,657		105				13,552
State and political subdivision loans		98,500		-		-		98,500
Total		695,031		12,284		3,818		678,929
Less: Allowance for loan losses		7,106		355		-		6,751
Net loans	$	687,925	$	11,929	$	3,818	$	672,178

Accretable yield for purchased credit impaired loans

Changes in the amortizable yield for PCI loans were as follows for the years ended December 31, 2016 and 2015 (in thousands):

	December 31, 2016			December 31, 2015
Balance at beginning of period	$	637		$	665
Accretion		(349	)		(28	)
Reclassification of non-accretable discount		101			-
Balance at end of period	$	389		$	637

Loans acquired with specific evidence of deterioration in credit quality

The following table presents additional information regarding PCI loans:

(In Thousands)	December 31, 2016		December 31, 2015
Outstanding balance	$	6,487	$	6,950
Carrying amount		3,367		3,818

Impaired financing receivables with associated allowance amount

The following table includes the recorded investment and unpaid principal balances for impaired loans by class, with the associated allowance amount as of December 31, 2016 and 2015, if applicable (in thousands):

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
2016	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	953	$	570	$	330	$	900	$	22
Home Equity		57		-		57		57		10
Commercial		7,958		5,697		45		5,742		45
Agricultural		3,347		2,000		1,347		3,347		54
Other commercial loans		6,159		5,135		859		5,994		326
Other agricultural loans		1,653		1,629		24		1,653		30
Total	$	20,127	$	15,031	$	2,662	$	17,693	$	487

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
2015	Balance		Allowance		Allowance		Investment		Allowance
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		-
Other commercial loans		5,535		4,653		987		5,640		256
Other agricultural loans		105		105		-		105		-
Total	$	14,803	$	10,882	$	1,402	$	12,284	$	355

The following table includes the average investment in impaired loans and the income recognized on impaired loans for 2016, 2015 and 2014 (in thousands):

					Interest
	Average		Interest		Income
	Recorded		Income		Recognized
2016	Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	590	$	13	$	-
Home Equity		59		4		-
Commercial		5,959		69		1
Agricultural		361		17		-
Consumer		-		-		-
Other commercial loans		5,715		87		6
Other agricultural loans		190		11		-
Total	$	12,874	$	201	$	7

2015
Real estate loans:
Mortgages	$	240	$	12	$	-
Home Equity		88		4		-
Commercial		5,683		63		5
Agricultural		56		2		-
Consumer		-		-		-
Other commercial loans		2,700		98		6
Other agricultural loans		37		1		-
Total	$	8,804	$	180	$	11

2014
Real estate loans:
Mortgages	$	198	$	9	$	-
Home Equity		130		4		-
Commercial		7,270		54		-
Agricultural		-		-		-
Consumer		10		-		-
Other commercial loans		2,031		79		-
Other agricultural loans		-		-		-
Total	$	9,639	$	146	$	-

Summary of financing receivable credit exposures by internally assigned grades

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

	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
2016
Real estate loans:
Commercial	$	225,185	$	14,045	$	13,347	$	-	$	-	$	252,577
Agricultural		110,785		8,231		4,608		-		-		123,624
Construction		25,441		-		-		-		-		25,441
Other commercial loans		51,396		2,049		5,105		89		-		58,639
Other agricultural loans		20,178		1,733		1,477		-		-		23,388
State and political
subdivision loans		83,620		13,066		828		-		-		97,514
Total	$	516,605	$	39,124	$	25,365	$	89	$	-	$	581,183

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 equities 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. The following table presents the recorded investment in those loan classes based on payment activity as of December 31, 2016 and 2015 (in thousands):

2016	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	147,047	$	1,648	$	35	$	148,730
Home Equity		58,438		255		-		58,693
Consumer		10,892		109		4		11,005
Total	$	216,377	$	2,012	$	39	$	218,428

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

Age analysis of past due financing receivables

The following table includes an aging analysis of the recorded investment of past due loans as of December 31, 2016 and 2015 (in thousands):

	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		90 Days and
2016	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	630	$	36	$	1,109	$	1,775	$	146,920	$	35	$	148,730	$	173
Home Equity		384		49		209		642		58,051		-		58,693		160
Commercial		1,757		58		4,302		6,117		244,491		1,969		252,577		-
Agricultural		-		-		1,145		1,145		121,741		738		123,624		-
Construction		-		-		-		-		25,441		-		25,441		-
Consumer		115		40		83		238		10,763		4		11,005		67
Other commercial loans		95		35		4,004		4,134		53,884		621		58,639		-
Other agricultural loans		43		34		5		82		23,306		-		23,388		5
State and political
subdivision loans		-		-		-		-		97,514		-		97,514		-
Total	$	3,024	$	252	$	10,857	$	14,133	$	782,111	$	3,367	$	799,611	$	405

Loans considered non-accrual	$	172	$	105	$	10,452	$	10,729	$	725	$	-	$	11,454
Loans still accruing		2,852		147		405		3,404		781,386		3,367		788,157
Total	$	3,024	$	252	$	10,857	$	14,133	$	782,111	$	3,367	$	799,611

	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		90 Days and
2015	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
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

Summary of financing receivables on nonaccrual status

The following table reflects the loans on nonaccrual status as of December 31, 2016 and 2015, respectively. The balances are presented by class of loan (in thousands):

	2016		2015
Real estate loans:
Mortgages	$	1,475	$	949
Home Equity		95		59
Commercial		4,445		4,422
Agricultural		1,340		34
Construction		-		-
Consumer		42		55
Other commercial loans		4,057		1,012
Other agricultural loans		-		-
State and political subdivision		-		-

	$	11,454	$	6,531

Summary of troubled debt restructurings on financing receivables

Loan modifications that are considered TDRs completed during the years ended December 31, 2016, 2015 and 2014 were as follows (dollars in thousands):

	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
2016
Real estate loans:
Commercial		-		4	$	-	$	1,188	$	-	$	1,188
Agricultural		-		5		-		1,956		-		1,956
Other commercial loans		-		3		-		3,076		-		3,076
Other agricultural loans		-		7		-		1,558		-		1,558
Total		-		19	$	-	$	7,778	$	-	$	7,778

2015
Real estate loans:
Mortgages		1		1	$	71	$	19	$	71	$	19
Total		1		1	$	71	$	19	$	71	$	19

2014
Real estate loans:
Commercial		-		2	$	-	$	153	$	-	$	153
Total		-		2	$	-	$	153	$	-	$	153

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, 2015 and 2014, respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	December 31, 2016				December 31, 2015				December 31, 2014
	Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment
Real estate loans:
Commercial		-	$	-		-	$	-		1	$	50
Total recidivism		-	$	-		-	$	-		1	$	50

Roll forward of allowance for loan losses by portfolio segment

The following tables roll forward the balance of the allowance for loan and lease losses for the years ended December 31, 2016, 2015 and 2014 and is segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2016, 2015 and 2014 (in thousands):

	Balance at December 31, 2015		Charge-offs			Recoveries		Provision			Balance at December 31, 2016		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	905	$	(85	)	$	-	$	244		$	1,064	$	32	$	1,032
Commercial		3,376		(100	)		479		(166	)		3,589		45		3,544
Agricultural		409		-			-		1,085			1,494		54		1,440
Construction		24		-			-		23			47		-		47
Consumer		102		(100	)		88		32			122		-		122
Other commercial loans		1,183		(55	)		33		166			1,327		326		1,001
Other agricultural loans		122		-			-		190			312		30		282
State and political
subdivision loans		593		-			-		240			833		-		833
Unallocated		392		-			-		(294	)		98		-		98
Total	$	7,106	$	(340	)	$	600	$	1,520		$	8,886	$	487	$	8,399

	Balance at December 31, 2014		Charge-offs			Recoveries		Provision			Balance at December 31, 2015		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	878	$	(66	)	$	-	$	93		$	905	$	37	$	868
Commercial		3,419		(84	)		14		27			3,376		62		3,314
Agricultural		451							(42	)		409		-		409
Construction		26		-			-		(2	)		24		-		24
Consumer		84		(47	)		33		32			102		-		102
Other commercial loans		1,007		(41	)		2		215			1,183		256		927
Other agricultural loans		217							(95	)		122				122
State and political									-
subdivision loans		545		-			-		48			593		-		593
Unallocated		188		-			-		204			392		-		392
Total	$	6,815	$	(238	)	$	49	$	480		$	7,106	$	355	$	6,751

	Balance at December 31, 2013		Charge-offs			Recoveries		Provision			Balance at December 31, 2014		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	946	$	(97	)	$	-	$	29		$	878	$	25	$	853
Commercial		3,983		(516	)		15		(63	)		3,419		72		3,347
Agricultural		575							(124	)		451				451
Construction		50		-			-		(24	)		26		-		26

Consumer		105		(47	)		27		(1	)		84		-		84
Other commercial loans		686		(250	)		-		571			1,007		1		1,006
Other agricultural loans		256							(39	)		217				217
State and political									-
subdivision loans		330		-			-		215			545		-		545
Unallocated		167		-			-		21			188		-		188
Total	$	7,098	$	(910	)	$	42	$	585		$	6,815	$	98	$	6,717