LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2017

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, 2017 and 2016 (in thousands):

2017	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	214,479	$	1,065	$	33	$	213,381
Commercial		308,084		13,864		1,460		292,760
Agricultural		239,957		3,901		702		235,354
Construction		13,502		-		-		13,502
Consumer		9,944		8		-		9,936
Other commercial loans		72,013		4,197		443		67,373
Other agricultural loans		37,809		1,363		-		36,446
State and political subdivision loans		104,737		-		-		104,737
Total		1,000,525		24,398		2,638		973,489
Allowance for loan losses		11,190		410		-		10,780
Net loans	$	989,335	$	23,988	$	2,638	$	962,709

2016
Real estate loans:
Residential	$	207,423	$	957	$	35	$	206,431
Commercial		252,577		5,742		1,969		244,866
Agricultural		123,624		3,347		738		119,539
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		1,653		-		21,735
State and political subdivision loans		97,514		-		-		97,514
Total		799,611		17,693		3,367		778,551
Allowance for loan losses		8,886		487		-		8,399
Net loans	$	790,725	$	17,206	$	3,367	$	770,152

Accretable yield for purchased credit impaired loans

Changes in the amortizable yield for PCI loans were as follows for the years ended December 31, 2017 and 2016 (in thousands):

	December 31, 2017			December 31, 2016
Balance at beginning of period	$	389		$	637
Accretion		(632	)		(349	)
Reclassification of non-accretable discount		349			101
Balance at end of period	$	106		$	389

Loans acquired with specific evidence of deterioration in credit quality

The following table presents additional information regarding PCI loans (in thousands):

	December 31, 2017		December 31, 2016
Outstanding balance	$	5,295	$	6,487
Carrying amount		2,638		3,367

Impaired financing receivables with associated allowance amount

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
2017	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,055	$	273	$	700	$	973	$	47
Home Equity		92		40		52		92		9
Commercial		16,363		13,154		710		13,864		94
Agricultural		5,231		3,283		618		3,901		3
Consumer		10		2		6		8		-
Other commercial loans		4,739		3,766		431		4,197		231
Other agricultural loans		1,397		1,238		125		1,363		26
Total	$	28,887	$	21,756	$	2,642	$	24,398	$	410

2016
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

The following table includes the average investment in impaired loans and the income recognized on impaired loans for 2017, 2016 and 2015 (in thousands):

					Interest
	Average		Interest		Income
	Recorded		Income		Recognized
2017	Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	900	$	13	$	-
Home Equity		67		4		-
Commercial		11,567		385		7
Agricultural		3,574		131		-
Consumer		3		-		-
Other commercial loans		4,790		152		52
Other agricultural loans		1,491		65		-
Total	$	22,392	$	750	$	59

2016
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

					Interest
	Average		Interest		Income
	Recorded		Income		Recognized
2015	Investment		Recognized		Cash Basis
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

Summary of financing receivable credit exposures by internally assigned grades

2017	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	281,742	$	15,029	$	11,271	$	42	$	-	$	308,084
Agricultural		222,198		11,538		6,221		-		-		239,957
Construction		13,364		-		138		-		-		13,502
Other commercial loans		67,706		615		3,567		125		-		72,013
Other agricultural loans		34,914		1,325		1,570		-		-		37,809
State and political subdivision loans		94,125		-		10,612		-		-		104,737
Total	$	714,049	$	28,507	$	33,379	$	167	$	-	$	776,102

2016	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
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

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, 2017 and 2016 (in thousands):

2017	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	152,820	$	1,492	$	33	$	154,345
Home Equity		60,022		112		-		60,134
Consumer		9,895		49		-		9,944
Total	$	222,737	$	1,653	$	33	$	224,423

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

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, 2017 and 2016 (in thousands):

	30-59 Days		60-89 Days		90 Days		Total Past							Total Financing	90 Days and
2017	Past Due		Past Due		Or Greater		Due		Current		PCI			Receivables	Accruing
Real estate loans:
Mortgages	$	996	$	362	$	810	$	2,168	$	152,144	$	33	$	154,345	$	218
Home Equity		277		86		78		441		59,693		-		60,134		-
Commercial		1,353		1,010		3,865		6,228		300,396		1,460		308,084		162
Agricultural		242		-		205		447		238,808		702		239,957		30
Construction		-		-		133		133		13,369		-		13,502		-
Consumer		53		33		49		135		9,809		-		9,944		7
Other commercial loans		132		-		2,372		2,504		69,066		443		72,013		32
Other agricultural loans		-		42		106		148		37,661		-		37,809		106
State and political
subdivision loans		-		-		-		-		104,737		-		104,737		-
Total	$	3,053	$	1,533	$	7,618	$	12,204	$	985,683	$	2,638	$	1,000,525	$	555

Loans considered non-accrual	$	816	$	281	$	7,063	$	8,160	$	2,011	$	-	$	10,171
Loans still accruing		2,237		1,252		555		4,044		983,672		2,638		990,354
Total	$	3,053	$	1,533	$	7,618	$	12,204	$	985,683	$	2,638	$	1,000,525

2016
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

Summary of financing receivables on nonaccrual status

	2017		2016
Real estate loans:
Mortgages	$	1,274	$	1,475
Home Equity		112		95
Commercial		5,192		4,445
Agricultural		175		1,340
Construction		133		-
Consumer		42		42
Other commercial loans		2,637		4,057
Other agricultural loans		606		-
	$	10,171	$	11,454

Summary of troubled debt restructurings on financing receivables

	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
2017	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Home Equity		-		1	$	-	$	25	$	-	$	25
Commercial		-		5		-		7,021		-		7,021
Agricultural		-		4		-		1,475		-		1,475
Other commercial loans		-		1		-		9		-		9
Other agricultural loans		-		1		-		161		-		161
Total		-		12	$	-	$	8,691	$	-	$	8,691

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

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, 2017, 2016 and 2015, respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	December 31, 2017				December 31, 2016				December 31, 2015
	Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment

Other agricultural loans		2	$	632		-	$	-		-	$	-
Total recidivism		2	$	632		-	$	-		-	$	-

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, 2017, 2016 and 2015 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, 2017, 2016 and 2015 (in thousands):

	Balance at December 31, 2016		Charge-offs			Recoveries		Provision (Benefit)			Balance at December 31, 2017		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	1,064	$	(107	)	$	-	$	92		$	1,049	$	56	$	993
Commercial		3,589		(41	)		11		308			3,867		94		3,773
Agricultural		1,494		(30	)		-		1,679			3,143		3		3,140
Construction		47		-			-		(24	)		23		-		23
Consumer		122		(130	)		49		83			124		-		124
Other commercial loans		1,327		-			16		(71	)		1,272		231		1,041
Other agricultural loans		312		(5	)		1		184			492		26		466
State and political
subdivision loans		833		-			-		(17	)		816		-		816
Unallocated		98		-			-		306			404		-		404
Total	$	8,886	$	(313	)	$	77	$	2,540		$	11,190	$	410	$	10,780

	Balance at December 31, 2015		Charge-offs			Recoveries		Provision (Benefit)			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 (Benefit)			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