NOTE 4 - LOANS

Loans at year end were as follows:

	2016			2015
Originated loans:
Commercial real estate
Owner occupied	$	109,750		$	97,644
Non-owner occupied		165,861			139,502
Farmland		34,155			15,737
Other		70,823			50,855
Commercial
Commercial and industrial		171,145			148,732
Agricultural		24,598			8,715
Residential real estate
1-4 family residential		224,222			179,436
Home equity lines of credit		59,642			41,171
Consumer
Indirect		156,633			127,335
Direct		26,663			17,325
Other		7,611			4,508
Total originated loans	$	1,051,103		$	830,960
Acquired loans:
Commercial real estate
Owner occupied	$	60,928		$	69,858
Non-owner occupied		24,949			28,045
Farmland		54,204			62,193
Other		14,665			23,423
Commercial
Commercial and industrial		33,626			51,110
Agricultural		16,024			22,510
Residential real estate
1-4 family residential		112,015			133,570
Home equity lines of credit		34,795			40,796
Consumer
Direct		21,681			31,465
Other		247			204
Total acquired loans		373,134			463,174
Net deferred loan costs		3,398			2,731
Allowance for loan losses		(10,852	)		(8,978	)
Net loans	$	1,416,783		$	1,287,887

Purchased credit impaired loans

As part of the NBOH acquisition during 2015 the Company acquired various loans that displayed evidence of deterioration of credit quality since origination and which was probable that all contractually required payments would not be collected. The carrying amounts and contractually required payments of these loans which are included in the loan balances above are summarized in the following tables:

	2016		2015
Commercial real estate
Owner occupied	$	689	$	986
Non-owner occupied		436		501
Commercial
Commercial and industrial		1,213		1,576
Total outstanding balance	$	2,338	$	3,063
Carrying amount, net of allowance of $0 in 2016 and $31 in 2015	$	2,181	$	2,184

Accretable yield, or income expected to be collected, is shown in the table below:

	2016			2015
Beginning balance	$	323		$	0
New loans purchased		0			361
Accretion of income		(76	)		(38	)
Ending balance	$	247		$	323

The key assumptions considered include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income and principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. There were no adjustments to forecasted cash flows that impacted the allowance for loan losses for the years ended December 31, 2016 and 2015.

The following tables present the activity in the allowance for loan losses by portfolio segment for years ended December 31, 2016, 2015 and 2014:

December 31, 2016	Commercial Real Estate			Commercial			Residential Real Estate			Consumer			Unallocated			Total
Allowance for loan losses
Beginning balance	$	3,127		$	1,373		$	1,845		$	2,160		$	473		$	8,978
Provision for loan losses		784			701			436			1,992			(43	)		3,870
Loans charged off		(349	)		(245	)		(188	)		(2,019	)		0			(2,801	)
Recoveries		15			45			112			633			0			805
Total ending allowance balance	$	3,577		$	1,874		$	2,205		$	2,766		$	430		$	10,852

December 31, 2015	Commercial Real Estate			Commercial			Residential Real Estate			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	2,676		$	1,420		$	1,689		$	1,663		$	184	$	7,632
Provision for loan losses		857			234			354			1,776			289		3,510
Loans charged off		(536	)		(290	)		(320	)		(2,058	)		0		(3,204	)
Recoveries		130			9			122			779			0		1,040
Total ending allowance balance	$	3,127		$	1,373		$	1,845		$	2,160		$	473	$	8,978

December 31, 2014	Commercial Real Estate			Commercial			Residential Real Estate			Consumer			Unallocated			Total
Allowance for loan losses
Beginning balance	$	2,752		$	1,219		$	1,964		$	1,419		$	214		$	7,568
Provision for loan losses		(50	)		357			233			1,370			(30	)		1,880
Loans charged off		(151	)		(185	)		(585	)		(2,213	)		0			(3,134	)
Recoveries		125			29			77			1,087			0			1,318
Total ending allowance balance	$	2,676		$	1,420		$	1,689		$	1,663		$	184		$	7,632

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2016 and 2015. The recorded investment in loans includes the unpaid principal balance and unamortized loan origination fees and costs, but excludes accrued interest receivable which is not considered to be material.

December 31, 2016	Commercial Real Estate		Commercial		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	44	$	4	$	48	$	0	$	0	$	96
Collectively evaluated for impairment		3,491		1,763		2,153		2,766		430		10,603
Acquired loans		42		107		4		0		0	$	153
Acquired with deteriorated credit quality		0		0		0		0		0		0
Total ending allowance balance	$	3,577	$	1,874	$	2,205	$	2,766	$	430	$	10,852

Loans:
Loans individually evaluated for impairment	$	3,457	$	477	$	3,308	$	96	$	0	$	7,338
Loans collectively evaluated for impairment		376,632		195,146		280,215		196,081		0		1,048,074
Acquired loans		153,228		48,536		146,672		21,923		0		370,359
Acquired with deteriorated credit quality		968		896		0		0		0		1,864
Total ending loans balance	$	534,285	$	245,055	$	430,195	$	218,100	$	0	$	1,427,635

December 31, 2015	Commercial Real Estate		Commercial		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	429	$	5	$	63	$	0	$	0	$	497
Collectively evaluated for impairment		2,698		1,337		1,782		2,160		473		8,450
Acquired loans		0		0		0		0		0		0
Acquired with deteriorated credit quality		0		31		0		0		0		31
Total ending allowance balance	$	3,127	$	1,373	$	1,845	$	2,160	$	473	$	8,978

Loans:
Loans individually evaluated for impairment	$	5,853	$	712	$	3,414	$	103	$	0	$	10,082
Loans collectively evaluated for impairment		297,087		156,415		216,802		153,305		0		823,609
Acquired loans		182,251		72,673		174,366		31,669		0		460,959
Acquired with deteriorated credit quality		1,267		948		0		0		0		2,215
Total ending loans balance	$	486,458	$	230,748	$	394,582	$	185,077	$	0	$	1,296,865

The following tables present information related to impaired loans by class of loans as of and for years ended December 31, 2016, 2015 and 2014. The recorded investment in loans excludes accrued interest receivable due to immateriality.

December 31, 2016	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate
Owner occupied	$	1,974	$	1,456	$	0	$	1,601	$	70
Non-owner occupied		332		331		0		334		5
Commercial
Commercial and industrial		205		184		0		641		15
Residential real estate
1-4 family residential		2,650		2,403		0		2,302		145
Home equity lines of credit		195		179		0		221		10
Consumer		205		96		0		97		13
Subtotal		5,561		4,649		0		5,196		258

With an allowance recorded:
Commercial real estate
Owner occupied		173		173		14		874		29
Non-owner occupied		1,118		1,118		30		1,283		67
Farmland		380		379		42		127		0
Commercial
Commercial and industrial		75		75		4		103		4
Agricultural		219		218		107		73		0
Residential real estate
1-4 family residential		661		642		51		828		36
Home equity lines of credit		84		84		1		85		4
Consumer		0		0		0		1		0
Subtotal		2,710		2,689		249		3,374		140
Total	$	8,271	$	7,338	$	249	$	8,570	$	398

December 31, 2015	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate
Owner occupied	$	2,956	$	2,436	$	0	$	2,080	$	106
Non-owner occupied		343		342		0		372		30
Commercial
Commercial and industrial		834		631		0		433		23
Residential real estate
1-4 family residential		2,575		2,310		0		2,174		147
Home equity lines of credit		283		268		0		260		15
Consumer		214		103		0		81		14
Subtotal		7,205		6,090		0		5,400		335

With an allowance recorded:
Commercial real estate
Owner occupied		1,597		1,595		379		2,008		70
Non-owner occupied		1,480		1,480		50		1,511		79
Commercial
Commercial and industrial		81		81		5		540		4
Residential real estate
1-4 family residential		769		749		61		919		39
Home equity lines of credit		87		87		2		96		4
Subtotal		4,014		3,992		497		5,074		196
Total	$	11,219	$	10,082	$	497	$	10,474	$	531

December 31, 2014	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate
Owner occupied	$	2,448	$	2,318	$	0	$	1,860	$	46
Non-owner occupied		391		391		0		653		20
Commercial
Commercial and industrial		531		511		0		1,273		22
Residential real estate
1-4 family residential		2,421		2,156		0		1,804		79
Home equity lines of credit		476		251		0		263		13
Consumer		185		93		0		166		4
Subtotal		6,452		5,720		0		6,019		184

With an allowance recorded:
Commercial real estate
Owner occupied		2,882		2,882		446		2,104		94
Non-owner occupied		1,548		1,548		68		1,570		81
Commercial
Commercial and industrial		1,444		1,429		272		818		2
Residential real estate
1-4 family residential		944		928		85		1,207		41
Home equity lines of credit		90		90		3		113		5
Consumer		0		0		0		2		0
Subtotal		6,908		6,877		874		5,814		223
Total	$	13,360	$	12,597	$	874	$	11,833	$	407

Cash basis interest income recognized and interest income recognized was materially equal for 2016, 2015 and 2014.

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2016 and 2015:

	2016				2015
	Nonaccrual		Loans Past Due 90 Days or More Still Accruing		Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Originated loans:
Commercial real estate
Owner occupied	$	958	$	0	$	3,240	$	0
Non-owner occupied		343		0		345		0
Farmland		58		0		73		0
Commercial
Commercial and industrial		400		0		541		73
Agricultural		12		0		0		0
Residential real estate
1-4 family residential		1,929		295		2,406		336
Home equity lines of credit		202		118		127		112
Consumer
Indirect		298		438		266		297
Direct		9		65		30		3
Other		0		16		0		24
Total originated loans	$	4,209	$	932	$	7,028	$	845
Acquired loans:
Commercial real estate
Owner occupied	$	85	$	0	$	126	$	18
Other		24		0		92		0
Farmland		380		0		0		0
Commercial
Commercial and industrial		961		0		1,068		0
Agricultural		236		0		0		0
Residential real estate
1-4 family residential		386		545		458		467
Home equity lines of credit		119		109		125		7
Consumer
Direct		89		95		161		50
Total acquired loans	$	2,280	$	749	$	2,030	$	542
Total loans	$	6,489	$	1,681	$	9,058	$	1,387

The following tables present the aging of the recorded investment in past due loans as of December 31, 2016 and 2015 by class of loans:

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Nonaccrual		Total Past Due		Loans Not Past Due		Total
Originated loans:
Commercial real estate
Owner occupied	$	0	$	0	$	958	$	958	$	108,475	$	109,433
Non-owner occupied		0		0		343		343		165,105		165,448
Farmland		0		0		58		58		34,057		34,115
Other		0		0		0		0		70,542		70,542
Commercial
Commercial and industrial		90		0		400		490		170,242		170,732
Agricultural		0		29		12		41		24,632		24,673
Residential real estate
1-4 family residential		3,368		356		2,224		5,948		217,752		223,700
Home equity lines of credit		77		37		320		434		59,248		59,682
Consumer
Indirect		2,844		696		736		4,276		157,437		161,713
Direct		744		213		74		1,031		25,815		26,846
Other		92		28		16		136		7,476		7,612
Total originated loans:	$	7,215	$	1,359	$	5,141	$	13,715	$	1,040,781	$	1,054,496
Acquired loans:
Commercial real estate
Owner occupied	$	8	$	205	$	85	$	298	$	60,630	$	60,928
Non-owner occupied		134		0		0		134		24,815		24,949
Farmland		83		0		380		463		53,741		54,204
Other		0		0		24		24		14,642		14,666
Commercial
Commercial and industrial		278		0		961		1,239		32,387		33,626
Agricultural		21		0		236		257		15,767		16,024
Residential real estate
1-4 family residential		1,556		504		931		2,991		109,027		112,018
Home equity lines of credit		152		9		228		389		34,406		34,795
Consumer
Direct		938		184		184		1,306		20,376		21,682
Other		100		0		0		100		147		247
Total acquired loans	$	3,270	$	902	$	3,029	$	7,201	$	365,938	$	373,139
Total loans	$	10,485	$	2,261	$	8,170	$	20,916	$	1,406,719	$	1,427,635

December 31, 2015	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Nonaccrual		Total Past Due		Loans Not Past Due		Total
Originated loans:
Commercial real estate
Owner occupied	$	34	$	0	$	3,240	$	3,274	$	94,095	$	97,369
Non-owner occupied		0		0		345		345		138,824		139,169
Farmland		0		0		73		73		15,658		15,731
Other		112		0		0		112		50,559		50,671
Commercial
Commercial and industrial		0		0		614		614		147,732		148,346
Agricultural		0		0		0		0		8,781		8,781
Residential real estate
1-4 family residential		1,694		402		2,742		4,838		174,155		178,993
Home equity lines of credit		62		5		239		306		40,917		41,223
Consumer
Indirect		2,059		525		563		3,147		128,280		131,427
Direct		311		5		33		349		17,124		17,473
Other		13		10		24		47		4,461		4,508
Total originated loans:	$	4,285	$	947	$	7,873	$	13,105	$	820,586	$	833,691
Acquired loans:
Commercial real estate
Owner occupied	$	669	$	0	$	144	$	813	$	69,045	$	69,858
Non-owner occupied		0		0		0		0		28,045		28,045
Farmland		0				0		0		62,193		62,193
Other		0		0		92		92		23,330		23,422
Commercial
Commercial and industrial		211		2		1,068		1,281		49,830		51,111
Agricultural		65		0		0		65		22,445		22,510
Residential real estate
1-4 family residential		1,994		244		925		3,163		130,407		133,570
Home equity lines of credit		78		11		132		221		40,575		40,796
Consumer
Direct		567		56		211		834		30,631		31,465
Other		0		0		0		0		204		204
Total acquired loans	$	3,584	$	313	$	2,572	$	6,469	$	456,705	$	463,174
Total loans	$	7,869	$	1,260	$	10,445	$	19,574	$	1,277,291	$	1,296,865

Troubled Debt Restructurings:

Total troubled debt restructurings were $7.0 million and $9.3 million at December 31, 2016 and 2015 respectively. The Company has allocated $101 thousand and $528 thousand of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2016 and 2015, respectively. There were no commitments to lend additional amounts to borrowers with loans that were classified as troubled debt restructurings at December 31, 2016 and 2015.

During the years ending December 31, 2016, 2015 and 2014, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a permanent reduction of the recorded investment in the loan; a deferral of principal payments; or a legal concession.

Troubled debt restructuring modifications involved a reduction of the notes stated interest rate in the range of 0.38% to 11.51%. There were also extensions of the maturity dates on these and other troubled debt restructurings in the range of nine months to 122 months.

The following tables present loans by class modified as troubled debt restructurings that occurred during the years ending December 31, 2016, 2015 and 2014:

			Pre- Modification		Post- Modification
December 31, 2016	Number of		Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings:	Loans		Investment		Investment
Originated loans:
Residential real estate
1-4 family residential		15	$	436	$	437
Home equity lines of credit		1		40		40
Indirect		26		182		182
Consumer		2		12		12
Total originated loans		44	$	670	$	671
Acquired loans:
Residential real estate
1-4 family residential		4		153		153
Home equity lines of credit		1		18		18
Consumer		2		40		40
Total acquired loans		7	$	211	$	211
Total loans		51	$	881	$	882

The troubled debt restructurings described above increased the allowance for loan losses by $43 thousand and resulted in charge offs of $344 thousand during the year ended December 31, 2016.

			Pre- Modification		Post- Modification
December 31, 2015	Number of		Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings:	Loans		Investment		Investment
Originated loans:
Commercial real estate
Owner occupied		2	$	801	$	801
Commercial
Commercial and industrial		1		8		8
Residential real estate
1-4 family residential		13		760		760
Home equity lines of credit		2		60		60
Indirect		12		104		104
Consumer		1		8		8
Total originated loans		31	$	1,741	$	1,741
Acquired loans:
Commercial
Commercial and industrial		2		957		957
Total loans		33	$	2,698	$	2,698

The troubled debt restructurings described above increased the allowance for loan losses by $101 thousand and resulted in charge offs of $129 thousand during the year ended December 31, 2015.

			Pre- Modification		Post- Modification
December 31, 2014	Number of		Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings:	Loans		Investment		Investment
Commercial real estate
Owner occupied		1	$	303	$	316
Non-owner occupied		2		408		408
Residential real estate
1-4 family residential		21		1,042		1,059
Home equity lines of credit		5		128		128
Indirect		2		37		37
Consumer		1		11		11
Total loans		32	$	1,929	$	1,959

The troubled debt restructurings described above increased the allowance for loan losses by $11 thousand and resulted in charge offs of $42 thousand during the year ended December 31, 2014.

There were two commercial real estate loans for $1.2 million, one residential real estate loan for $1 thousand and one home equity line of credit for $10 thousand modified as troubled debt restructurings for which there were payment defaults within twelve months following the modification during the year December 31, 2016. None of the loans were past due at December 31, 2016. There was no effect on the provision for loan losses as a result of this default during 2016.

There was one commercial real estate loan for $40 thousand, one residential real estate loan for $1 thousand and one home equity line of credit for $11 thousand modified as troubled debt restructurings for which there were payment defaults within twelve months following the modification during the year December 31, 2015. All three loans were past due at December 31, 2015. There was no effect on the provision for loan losses as a result of this default during 2015.

There were four residential real estate loans for which there were payment defaults within twelve months following the modification of the troubled debt restructuring during the year ending December 31, 2014. Only one of the four loans was past due at December 31, 2014. There was no effect on the provision for loan losses as a result of this default during 2014.

Credit Quality Indicators:

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, among other factors. The Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $750 thousand management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for the loans and leases in their respective portfolios on an annual basis. The Company uses the following definitions for 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 repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse 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 institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in 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 that are analyzed individually as part of the above described process are considered to be pass rated loans.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

December 31, 2016	Pass		Special Mention		Sub standard		Total
Originated loans:
Commercial real estate
Owner occupied	$	106,448	$	490	$	2,495	$	109,433
Non-owner occupied		162,465		522		2,461		165,448
Farmland		34,057		0		58		34,115
Other		69,947		325		270		70,542
Commercial
Commercial and industrial		167,062		2,720		950		170,732
Agricultural		24,395		253		25		24,673
Total originated loans	$	564,374	$	4,310	$	6,259	$	574,943
Acquired loans:
Commercial real estate
Owner occupied	$	58,655	$	707	$	1,566	$	60,928
Non-owner occupied		23,577		1,195		177		24,949
Farmland		53,039		0		1,165		54,204
Other		14,060		464		142		14,666
Commercial
Commercial and industrial		30,543		311		2,772		33,626
Agricultural		14,856		685		483		16,024
Total acquired loans	$	194,730	$	3,362	$	6,305	$	204,397
Total loans	$	759,104	$	7,672	$	12,564	$	779,340

December 31, 2015	Pass		Special Mention		Sub standard		Total
Originated loans:
Commercial real estate
Owner occupied	$	91,785	$	1,069	$	4,515	$	97,369
Non-owner occupied		135,847		461		2,861		139,169
Farmland		15,658		0		73		15,731
Other		50,376		0		295		50,671
Commercial
Commercial and industrial		145,513		860		1,973		148,346
Agricultural		8,702		79				8,781
Total originated loans	$	447,881	$	2,469	$	9,717	$	460,067
Acquired loans:
Commercial real estate
Owner occupied	$	68,213	$	0	$	1,645	$	69,858
Non-owner occupied		26,141		1,340		564		28,045
Farmland		62,193		0		0		62,193
Other		22,729		476		217		23,422
Commercial
Commercial and industrial		47,381		635		3,095		51,111
Agricultural		22,292		0		218		22,510
Total acquired loans	$	248,949	$	2,451	$	5,739	$	257,139
Total loans	$	696,830	$	4,920	$	15,456	$	717,206

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential, consumer and indirect 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 recorded investment in residential, consumer and indirect auto loans based on payment activity. Nonperforming loans are loans past due 90 days and still accruing interest and nonaccrual loans.

	Residential Real Estate				Consumer
December 31, 2016	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
Originated loans:
Performing	$	221,476	$	59,362	$	160,977	$	26,772	$	7,596
Nonperforming		2,224		320		736		74		16
Total originated loans	$	223,700	$	59,682	$	161,713	$	26,846	$	7,612
Acquired loans:
Performing		111,087		34,567		0		21,498		247
Nonperforming		931		228		0		184		0
Total acquired loans	$	112,018	$	34,795	$	0	$	21,682	$	247
Total loans	$	335,718	$	94,477	$	161,713	$	48,528	$	7,859

	Residential Real Estate				Consumer
December 31, 2015	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
Originated loans:
Performing	$	176,251	$	40,984	$	130,864	$	17,440	$	4,484
Nonperforming		2,742		239		563		33		24
Total originated loans	$	178,993	$	41,223	$	131,427	$	17,473	$	4,508
Acquired loans:
Performing		132,645		40,664		0		31,254		204
Nonperforming		925		132		0		211		0
Total acquired loans	$	133,570	$	40,796	$	0	$	31,465	$	204
Total loans	$	312,563	$	82,019	$	131,427	$	48,938	$	4,712