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. Substandard loans 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.

As of March 31, 2017 and December 31, 2016, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
March 31, 2017
Originated loans:
Commercial real estate
Owner occupied	$	113,362	$	481	$	1,934	$	115,777
Non-owner occupied		164,806		508		159		165,473
Farmland		41,009		47		56		41,112
Other		76,529		363		264		77,156
Commercial
Commercial and industrial		174,556		2,332		929		177,817
Agricultural		26,348		252		44		26,644
Total originated loans	$	596,610	$	3,983	$	3,386	$	603,979
Acquired loans:
Commercial real estate
Owner occupied	$	57,248	$	493	$	1,635	$	59,376
Non-owner occupied		22,397		1,163		371		23,931
Farmland		50,451		0		864		51,315
Other		12,972		1,036		124		14,132
Commercial
Commercial and industrial		27,606		290		2,823		30,719
Agricultural		13,820		722		290		14,832
Total acquired loans	$	184,494	$	3,704	$	6,107	$	194,305
Total loans	$	781,104	$	7,687	$	9,493	$	798,284

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
December 31, 2016
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

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential, consumer indirect and direct loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. In the 1-4 family residential real estate portfolio at March 31, 2017, there were $381 thousand of other real estate owned properties and $813 thousand of properties in foreclosure. Other real estate owned and foreclosure properties were $357 thousand and $371 thousand at December 31, 2016, respectively.

The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of March 31, 2017 and December 31, 2016. Nonperforming loans are loans past due 90 days or more and still accruing interest and nonaccrual loans.

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
March 31, 2017
Originated loans:
Performing	$	234,979	$	62,350	$	166,199	$	28,029	$	7,499
Nonperforming		2,324		281		630		7		18
Total originated loans	$	237,303	$	62,631	$	166,829	$	28,036	$	7,517
Acquired loans:
Performing	$	106,978	$	33,448	$	0	$	19,368	$	156
Nonperforming		526		210		0		175		0
Total acquired loans		107,504		33,658		0		19,543		156
Total loans	$	344,807	$	96,289	$	166,829	$	47,579	$	7,673

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
December 31, 2016
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