10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

For the quarterly period ended September 30, 2017

Farmers Capital Bank Corporation

(Exact name of registrant as specified in its charter)

Kentucky	000-14412	61-1017851
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)

P.O. Box 309 202 West Main St. Frankfort, KY	40601
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code – (502) 227-1668

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes   ☒     No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☒     No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☒
Non-accelerated filer  ☐ (Do not check if a smaller reporting company)	Smaller reporting company  ☐
Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common stock, par value $0.125 per share

7,515,849 shares outstanding at November 1, 2017

1

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets	3
Unaudited Condensed Consolidated Statements of Income	4
Unaudited Condensed Consolidated Statements of Comprehensive Income	5
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity	6
Unaudited Condensed Consolidated Statements of Cash Flows	7
Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures About Market Risk	51
Item 4. Controls and Procedures	52
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6. Exhibits	52
SIGNATURES	55

2

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets
	September 30,			December 31,
(In thousands, except share data)	2017			2016
Assets
Cash and cash equivalents:
Cash and due from banks	$	24,361		$	25,666
Interest bearing deposits in other banks		65,493			62,696
Federal funds sold and securities purchased under agreements to resell		-			6,622
Money market mutual funds		27,754			18,550
Total cash and cash equivalents		117,608			113,534
Investment securities:
Available for sale, amortized cost of $448,995 (2017) and $486,038 (2016)		447,515			480,864
Held to maturity, fair value of $3,597 (2017) and $3,597 (2016)		3,448			3,488
Total investment securities		450,963			484,352
Loans, net of unearned income		995,111			970,975
Allowance for loan losses		(9,048	)		(9,344	)
Loans, net		986,063			961,631
Premises and equipment, net		31,357			31,900
Company-owned life insurance		30,607			30,914
Other real estate owned		6,106			10,673
Other assets		37,272			38,026
Total assets	$	1,659,976		$	1,671,030
Liabilities
Deposits:
Noninterest bearing	$	356,463		$	334,676
Interest bearing		1,005,361			1,035,231
Total deposits		1,361,824			1,369,907
Securities sold under agreements to repurchase		35,537			36,370
Federal Home Loan Bank advances		3,521			18,646
Subordinated notes payable to unconsolidated trusts		33,506			33,506
Dividends payable, common stock		751			751
Other liabilities		27,189			27,784
Total liabilities		1,462,328			1,486,964
Shareholders’ Equity
Common stock, par value $.125 per share; 14,608,000 shares authorized; 7,515,435 and 7,509,444 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		939			939
Capital surplus		52,120			51,885
Retained earnings		145,519			134,650
Accumulated other comprehensive loss		(930	)		(3,408	)
Total shareholders’ equity		197,648			184,066
Total liabilities and shareholders’ equity	$	1,659,976		$	1,671,030
See accompanying notes to unaudited condensed consolidated financial statements.

3

Unaudited Condensed Consolidated Statements of Income
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands, except per share data)	2017			2016			2017			2016
Interest Income
Interest and fees on loans	$	12,281		$	11,714		$	36,109		$	35,640
Interest on investment securities:
Taxable		1,857			2,159			5,741			7,095
Nontaxable		563			630			1,733			1,866
Interest on deposits in other banks		225			102			495			290
Interest on federal funds sold, securities purchased under agreements to resell, and money market mutual funds		57			14			114			31
Total interest income		14,983			14,619			44,192			44,922
Interest Expense
Interest on deposits		540			578			1,596			1,823
Interest on securities sold under agreements to repurchase		17			867			58			2,912
Interest on Federal Home Loan Bank advances		109			187			398			558
Interest on subordinated notes payable to unconsolidated trusts		227			177			638			534
Total interest expense		893			1,809			2,690			5,827
Net interest income		14,090			12,810			41,502			39,095
Provision for loan losses		(379	)		(190	)		(298	)		(819	)
Net interest income after provision for loan losses		14,469			13,000			41,800			39,914
Noninterest Income
Service charges and fees on deposits		2,041			2,046			6,011			5,840
Allotment processing fees		693			810			2,059			2,504
Other service charges, commissions, and fees		1,360			1,459			4,060			4,173
Trust income		724			715			2,054			2,034
Net gain (loss) on sales of available for sale investment securities		3			3,776			(7	)		3,990
Net gain on sales of cost method investment securities		82			-			82			-
Gains on sale of mortgage loans, net		172			273			515			695
Income from company-owned life insurance		467			229			923			785
Gain on debt extinguishment		-			-			-			4,050
Legal settlement		-			1,350			-			1,450
Other		85			114			283			314
Total noninterest income		5,627			10,772			15,980			25,835
Noninterest Expense
Salaries and employee benefits		7,309			7,810			22,572			23,444
Occupancy expenses, net		1,166			1,172			3,515			3,541
Equipment expenses		613			662			1,765			1,833
Data processing and communication expenses		1,119			1,085			3,505			3,411
Bank franchise tax		610			613			1,776			1,823
Deposit insurance expense		129			227			396			805
Other real estate expenses, net		316			454			716			1,466
Loss on debt extinguishment		-			3,776			-			3,776
Other		1,446			2,089			5,338			6,080
Total noninterest expense		12,708			17,888			39,583			46,179
Income before income taxes		7,388			5,884			18,197			19,570
Income tax expense		2,076			1,560			5,074			5,510
Net income	$	5,312		$	4,324		$	13,123		$	14,060
Per Common Share
Net income – basic and diluted	$	.71		$	.58		$	1.75		$	1.87
Cash dividends declared		.10			.07			.30			.21
Weighted Average Common Shares Outstanding
Basic and diluted		7,514			7,505			7,512			7,503
See accompanying notes to unaudited condensed consolidated financial statements.

4

Unaudited Condensed Consolidated Statements of Comprehensive Income
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2017			2016			2017		2016
Net Income	$	5,312		$	4,324		$	13,123	$	14,060
Other comprehensive income (loss):
Unrealized holding gain (loss) on available for sale securities arising during the period, net of tax of $64, $(824), $1,290 and $1,563, respectively		120			(1,531	)		2,397		2,905
Reclassification adjustment for net realized (gain) loss included in net income, net of tax of $1, $1,322, $(2) and $1,397, respectively		(2	)		(2,454	)		5		(2,593	)
Change in unfunded portion of postretirement benefit obligation, net of tax of $4, $4, $41 and $14, respectively		8			9			76		27
Other comprehensive income (loss)		126			(3,976	)		2,478		339
Comprehensive income	$	5,438		$	348		$	15,601	$	14,399
See accompanying notes to unaudited condensed consolidated financial statements.

5

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity
(In thousands, except per share data)										Accumulated
										Other			Total
Nine months ended	Common Stock				Capital		Retained			Comprehensive			Shareholders’
September 30, 2017 and 2016	Shares		Amount		Surplus		Earnings			(Loss) Income			Equity
Balance at January 1, 2017		7,509	$	939	$	51,885	$	134,650		$	(3,408	)	$	184,066
Net income		-		-		-		13,123			-			13,123
Other comprehensive income		-		-		-		-			2,478			2,478
Cash dividends declared – common, $.30 per share		-		-		-		(2,254	)		-			(2,254	)
Shares issued under director compensation plan		2		-		76		-			-			76
Shares issued pursuant to employee stock purchase plan		4		-		136		-			-			136
Expense related to employee stock purchase plan		-		-		23		-			-			23
Balance at September 30, 2017		7,515	$	939	$	52,120	$	145,519		$	(930	)	$	197,648
Balance at January 1, 2016		7,500	$	937	$	51,608	$	120,371		$	2,782		$	175,698
Net income		-		-		-		14,060			-			14,060
Other comprehensive income		-		-		-		-			339			339
Cash dividends declared – common, $.21 per share		-		-		-		(1,575	)		-			(1,575	)
Shares issued under director compensation plan		2		-		62		-			-			62
Shares issued pursuant to employee stock purchase plan		5		1		115		-			-			116
Expense related to employee stock purchase plan		-		-		24		-			-			24
Balance at September 30, 2016		7,507	$	938	$	51,809	$	132,856		$	3,121		$	188,724
See accompanying notes to unaudited condensed consolidated financial statements.

6

Unaudited Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, (In thousands)	2017			2016
Cash Flows from Operating Activities
Net income	$	13,123		$	14,060
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,630			2,712
Net premium amortization of investment securities:
Available for sale		2,633			3,054
Held to maturity		40			39
Provision for loan losses		(298	)		(819	)
Deferred income tax expense (benefit)		30			(76	)
Noncash employee stock purchase plan expense		23			24
Noncash director fee compensation		76			62
Mortgage loans originated for sale		(18,811	)		(26,399	)
Proceeds from sale of mortgage loans		20,891			27,650
Gain on sale of mortgage loans, net		(515	)		(695	)
Loss on disposal of premises and equipment, net		47			2
Net loss on sale and write downs of other real estate		490			1,301
Gain on extinguishment of subordinated notes payable to unconsolidated trusts		-			(4,050	)
Loss on extinguishment of long-term securities sold under agreements to repurchase		-			3,776
Net loss (gain) on sale of available for sale investment securities		7			(3,990	)
Net gain on sale of cost method investment securities		(82	)		-
Curtailment gain on postretirement benefits plan liability		(351	)		-
Increase in cash surrender value of company-owned life insurance		(658	)		(679	)
Death benefits in excess of cash surrender value on company-owned life insurance		(245	)		(81	)
Decrease in accrued interest receivable		324			873
Decrease in other assets		2,204			1,305
Increase (decrease) in accrued interest payable		23			(529	)
(Decrease) increase in other liabilities		(150	)		347
Net cash provided by operating activities		21,431			17,887
Cash Flows from Investing Activities
Proceeds from maturities and calls of available for sale investment securities		86,928			103,832
Proceeds from sale of available for sale investment securities		-			215,734
Purchase of available for sale investment securities		(52,592	)		(210,368	)
Proceeds from sale of cost method investment securities		132			-
Purchase of cost method investment securities		(3,445	)		(472	)
Loans originated for investment (greater) less than principal collected, net		(23,038	)		8,510
Purchase of loans held for investment		(2,129	)		(1,751	)
Principal collected on purchased loans		1,825			2,304
Proceeds from death benefits of company-owned life insurance		1,210			341
Purchase of premises and equipment		(1,967	)		(1,900	)
Proceeds from sale of other real estate		1,878			3,946
Net cash provided by investing activities		8,802			120,176
Cash Flows from Financing Activities
Net decrease in deposits		(8,083	)		(18,063	)
Net (decrease) increase in short-term securities sold under agreements to repurchase		(58	)		3,054
Proceeds from long-term securities sold under agreements to repurchase		7			9
Repayments of long-term securities sold under agreements to repurchase		(782	)		(103,977	)
Repayments of Federal Home Loan Bank advances		(15,125	)		(120	)
Cash paid to extinguish subordinated notes payable to unconsolidated trust		-			(10,950	)
Dividends paid, common stock		(2,254	)		(1,050	)
Shares issued under employee stock purchase plan		136			116
Net cash used in financing activities		(26,159	)		(130,981	)
Net increase in cash and cash equivalents		4,074			7,082
Cash and cash equivalents at beginning of year		113,534			120,493
Cash and cash equivalents at end of period	$	117,608		$	127,575

7

Unaudited Condensed Consolidated Statements of Cash Flows—(Continued)
Nine months ended September 30, (In thousands)	2017		2016
Supplemental Disclosures
Cash paid during the period for:
Interest	$	2,667	$	6,356
Income Taxes		3,035		3,850
Transfers from loans to other real estate		435		1,640
Sale and financing of other real estate		2,792		3,050
Cash dividends payable, common		751		525
Cancelation of investment in Farmers Capital Bank Trust II		-		464
Extinguishment of subordinated notes payable to Farmers Capital Bank Trust II		-		15,464
See accompanying notes to unaudited condensed consolidated financial statements.

8

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation and Nature of Operations

The condensed consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the “Company” or “Parent Company”), a bank holding company, and its wholly owned subsidiaries. The Company has one bank subsidiary, United Bank & Capital Trust Company (“United Bank”), and one nonbank subsidiary, FFKT Insurance Services, Inc. (“FFKT Insurance”). In February 2017, the Company merged three of its subsidiary banks (United Bank & Trust Company in Versailles, KY; First Citizens Bank, Inc. in Elizabethtown, KY; and Citizens Bank of Northern Kentucky, Inc. in Newport, KY) and its data processing subsidiary (FCB Services, Inc. in Frankfort, KY) into its subsidiary bank Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed under the merger to United Bank & Capital Trust Company. The Company accounted for the transfer of assets and liabilities of the merged subsidiaries at their respective historical cost amounts as of the date of the merger.

FFKT Insurance is a captive insurance company that provides property and casualty coverage to the Parent Company and its subsidiaries for risk management purposes or where insurance may not be available or economically feasible. The Company has two subsidiaries organized as Delaware statutory trusts that are not consolidated into its financial statements. These trusts were formed for the purpose of issuing trust preferred securities.

United Bank’s significant subsidiaries include EG Properties, Inc. and Farmers Capital Insurance Corporation (“Farmers Insurance”). EG Properties, Inc. is involved in real estate management and liquidation for certain repossessed properties of United Bank. Farmers Insurance is an insurance agency in Frankfort, KY.

The Company provides financial services at its 34 locations in 21 communities throughout Central and Northern Kentucky to individual, business, agricultural, governmental, and educational customers. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential mortgage, commercial lending, and consumer installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other services include, but are not limited to, cash management services, issuing letters of credit, safe deposit box rental, and providing funds transfer services. Other financial instruments, which potentially represent concentrations of credit risk, include deposit accounts in other financial institutions and federal funds sold.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the condensed financial statements are based on various factors including the current interest rate environment and the general strength of the local and state economy. Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the condensed financial statements. The allowance for loan losses, carrying value of other real estate owned, actuarial assumptions used to calculate postretirement benefits, and the fair values of financial instruments are estimates that are particularly subject to change.

The consolidated balance sheet as of December 31, 2016 has been derived from the audited financial statements of the Company as of that date. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2016 included in the Company’s annual report on Form 10-K. The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and the footnotes required by U.S. GAAP for complete statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such condensed financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany transactions and balances are eliminated in consolidation.

9

2. Reclassifications

Certain reclassifications have been made to the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications do not affect net income or total shareholders’ equity as previously reported.

3. Accumulated Other Comprehensive (Loss) Income

The following table presents changes in accumulated other comprehensive (loss) income by component, net of tax, for the periods indicated.

Three Months Ended September 30,	2017								2016
(In thousands)	Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation		Total			Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(1,079	)	$	23	$	(1,056	)	$	7,516		$	(419	)	$	7,097
Other comprehensive income (loss) before reclassifications		120			7		127			(1,531	)		-			(1,531	)
Amounts reclassified from accumulated other comprehensive income		(2	)		1		(1	)		(2,454	)		9			(2,445	)
Net current-period other comprehensive income (loss)		118			8		126			(3,985	)		9			(3,976	)
Ending balance	$	(961	)	$	31	$	(930	)	$	3,531		$	(410	)	$	3,121

Nine Months Ended September 30,		2017									2016
(In thousands)		Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total			Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(3,363	)	$	(45	)	$	(3,408	)	$	3,219		$	(437	)	$	2,782
Other comprehensive income before reclassifications		2,397			25			2,422			2,905			-			2,905
Amounts reclassified from accumulated other comprehensive income		5			51			56			(2,593	)		27			(2,566	)
Net current-period other comprehensive income		2,402			76			2,478			312			27			339
Ending balance	$	(961	)	$	31		$	(930	)	$	3,531		$	(410	)	$	3,121

10

The following table presents amounts reclassified out of accumulated other comprehensive income by component for the periods indicated. Line items in the statement of income affected by the reclassification are also presented.

	Amount Reclassified from Accumulated Other Comprehensive Income												Affected Line Item in the Statement Where Net Income is Presented
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2017			2016			2017			2016
Unrealized gains (losses) on available for sale investment securities	$	3		$	3,776		$	(7	)	$	3,990		Net gain (loss) on sales of available for sale investment securities
		(1	)		(1,322	)		2			(1,397	)	Income tax expense
	$	2		$	2,454		$	(5	)	$	2,593		Net of tax
Amortization related to postretirement benefits
Prior service costs	$	-		$	(12	)	$	(75	)	$	(37	)	Salaries and employee benefits
Actuarial losses		(1	)		(1	)		(4	)		(4	)	Salaries and employee benefits
		(1	)		(13	)		(79	)		(41	)	Total before tax
		-			4			28			14		Income tax expense
	$	(1	)	$	(9	)	$	(51	)	$	(27	)	Net of tax
Total reclassifications for the period	$	1		$	2,445		$	(56	)	$	2,566		Net of tax

4. Accounting Policy

Loans and Interest Income

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their unpaid principal amount outstanding adjusted for any charge-offs and deferred fees or costs on originated loans. Interest income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Interest income also includes amortization and accretion of any premiums or discounts over the expected life of acquired loans at the time of purchase or business acquisition. Loan origination fees, net of certain direct origination costs, are deferred and amortized as yield adjustments over the contractual term of the loans.

The Company disaggregates certain disclosure information related to loans, the related allowance for loan losses, and credit quality measures by either portfolio segment or by loan class. The Company segregates its loan portfolio segments based on similar risk characteristics as follows: real estate loans, commercial loans, and consumer loans. Portfolio segments are further disaggregated into classes for certain required disclosures as follows:

Portfolio Segment	Class
Real estate loans	Real estate mortgage – construction and land development Real estate mortgage – residential Real estate mortgage – farmland and other commercial enterprises
Commercial loans	Commercial and industrial Depository institutions Agriculture production and other loans to farmers States and political subdivisions Other
Consumer loans	Secured Unsecured

The Company has a loan policy in place that is amended and approved from time to time as needed to reflect current economic conditions and product offerings in its markets. The policy establishes written procedures concerning areas such as the lending authorities of loan officers, committee review and approval of certain credit requests, underwriting criteria, policy exceptions, appraisal requirements, and loan review. Credit is extended to borrowers based primarily on their ability to repay as demonstrated by income and cash flow analysis.

11

Loans secured by real estate make up the largest segment of the Company’s loan portfolio. If a borrower fails to repay a loan secured by real estate, the Company may liquidate the collateral in order to satisfy the amount owed. Determining the value of real estate is a key component to the lending process for real estate backed loans. If the fair value of real estate (less estimated cost to sell) securing a collateral dependent loan declines below the outstanding loan amount, the Company will write down the carrying value of the loan and thereby incur a loss. The Company uses independent third party state certified or licensed appraisers in accordance with its loan policy to mitigate risk when underwriting real estate loans. Cash flow analysis of the borrower, loan to value limits as adopted by loan policy, and other customary underwriting standards are also in place which are designed to maximize credit quality and mitigate risks associated with real estate lending.

Commercial loans are made to businesses and are secured mainly by assets such as inventory, accounts receivable, machinery, fixtures and equipment, or other business assets. Commercial lending involves significant risk, as loan repayments are more dependent on the successful operation or management of the business and its cash flows. Consumer lending includes loans to individuals mainly for personal autos, boats, or a variety of other personal uses and may be secured or unsecured. Loan repayment associated with consumer loans is highly dependent upon the borrower’s continuing financial stability, which is heavily influenced by local unemployment rates. The Company mitigates its risk exposure to each of its loan segments by analyzing the borrower’s repayment capacity, imposing restrictions on the amount it will loan compared to estimated collateral values, limiting the payback periods, and following other customary underwriting practices as adopted in its loan policy.

The accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for 90 days or more, unless such loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan. Interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Cash payments received on nonaccrual loans generally are applied to principal until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company’s policy for placing a loan on nonaccrual status or subsequently returning a loan to accrual status does not differ based on its portfolio class or segment.

Commercial and real estate loans delinquent in excess of 120 days and consumer loans delinquent in excess of 180 days are charged off, unless the collateral securing the debt is of such value that any loss appears to be unlikely. In all cases, loans are charged off at an earlier date if classified as loss under the Company’s loan grading process or as a result of regulatory examination. The Company’s charge-off policy for impaired loans does not differ from the charge-off policy for loans outside the definition of impaired.

Provision and Allowance for Loan Losses

The provision for loan losses represents charges or credits made to earnings to maintain an allowance for loan losses at a level considered adequate to provide for probable incurred credit losses at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company estimates the adequacy of the allowance using a risk-rated methodology which is based on the Company’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral securing loans, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires significant judgment and the use of estimates that may be susceptible to change.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current risk factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Actual loan losses could differ significantly from the amounts estimated by management.

12

The general portion of the Company’s loan portfolio is segregated into portfolio segments having similar risk characteristics identified as follows: real estate loans, commercial loans, and consumer loans. Each of these portfolio segments is assigned a loss percentage based on their respective rolling historical loss rates, adjusted for the qualitative risk factors summarized below. During the first quarter of 2017, the Company shortened the look-back period it uses to determine historical loss rates to the previous twelve quarters from sixteen quarters. The change in the look-back period is the result of the Company’s ongoing monitoring and evaluation of the adequacy of its allowance for loan losses. The shorter look-back period better reflects the Company’s loss estimates based on current market conditions. Shortening the look-back period increased the allowance for loan losses by $49 thousand compared to the previous sixteen quarter look-back period.

The qualitative risk factors used in the methodology are consistent with the guidance in the most recent Interagency Policy Statement on the Allowance for Loan Losses issued. Each factor is supported by a detailed analysis and is both measurable and supportable. Some factors include a minimum allocation in instances where loss levels are extremely low and it is determined to be prudent from a safety and soundness perspective. Qualitative risk factors that are used in the methodology include the following for each loan portfolio segment:

● Delinquency trends

● Trends in net charge-offs

● Trends in loan volume

● Lending philosophy risk

● Management experience risk

● Concentration of credit risk

● Economic conditions risk

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company accounts for impaired loans in accordance with Accounting Standards Codification (“ASC”) Topic 310, “Receivables.” ASC Topic 310 requires that impaired loans be measured at the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral if the loan is collateral dependent. Impaired loans may also be classified as nonaccrual. In many circumstances, however, the Company continues to accrue interest on an impaired loan. Cash receipts on accruing impaired loans are applied to the recorded investment in the loan, including any accrued interest receivable. Cash payments received on nonaccrual impaired loans generally are applied to principal until qualifying for return to accrual status. Loans that are part of a large group of smaller-balance homogeneous loans, such as residential mortgage, consumer, and smaller-balance commercial loans, are collectively evaluated for impairment. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception, or at the fair value of collateral. The Company determines the amount of reserve for troubled debt restructurings that subsequently default in accordance with its accounting policy for the allowance for loan losses.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequently issued several amendments to the standard during 2015 and 2016. The primary principle of ASU No. 2014-09 is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

As amended, ASU No. 2014-09 is effective for the Company in annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those reporting periods. Entities are permitted to apply the amendments either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. The Company plans to adopt ASU No. 2014-09 in the first quarter of 2018 using a full retrospective approach. The majority of the Company’s revenues earned are excluded from the scope of the new standard. Revenue streams within the scope of this ASU include services charges and fees on deposits, allotment processing fees, trust income, and components of other service charges, commission, and fees. Based on the completed contract reviews thus far, any potential changes in revenue recognition for those revenue streams are not expected to result in a material impact to the Company’s consolidated financial statements upon adoption. The Company is in the process of developing the additional quantitative and qualitative disclosures that may be required upon adoption of the new standard.

13

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

For public companies, ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company has identified a project team to review its leases and to assess the impact of ASU No. 2016-02 on its consolidated financial position, results of operations, and cash flows.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures, includingqualitative and quantitative requirements, which provide additional information about the amounts recorded in the financial statements.Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

ASU No. 2016-13 is effective for the Company in annual and interim reporting periods beginning after December 15, 2019. Although early adoption is permitted for fiscal years beginning after December 15, 2018, the Company does not plan to early adopt. The Company has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard. The Company has identified a project team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. The project team has developed a timeline for implementing the standard, has begun working with a third party software solution provider, and is in the process of identifying independent third party validation of the impending changes to our credit loss methodologies and processes.The team continues to assess the impact of the standard; however, the Company expects adopting this ASU will result in an increase in its allowance for loan losses. The amount of the increase in the allowance for loan losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date.

In March 2017, the FASB issued ASU NO. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that employers offering benefit plans accounted for under Topic 715 report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. This ASU is effective for the Company in annual and interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of ASU No. 2017-07 on its consolidated financial position, results of operations, or cash flows upon adoption.

14

In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. The ASU does not change the accounting for securities held at a discount; the discount will continue to be amortized to maturity. This ASU is effective for the Company in annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. Entities are required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.The Company is considering early adoption and is in the process of determining the impact on its consolidated financial position, results of operations, or cash flows upon adoption.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

5. Net Income Per Common Share

Basic net income per common share is determined by dividing net income by the weighted average total number of common shares issued and outstanding. There were no dilutive instruments at September 30, 2017 and 2016.

Net income per common share computations were as follows for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2017		2016		2017		2016
Net income, basic and diluted	$	5,312	$	4,324	$	13,123	$	14,060
Average common shares issued and outstanding, basic and diluted		7,514		7,505		7,512		7,503
Net income per common share, basic and diluted	$	.71	$	.58	$	1.75	$	1.87

15

6. Investment Securities

The following tables summarize the amortized costs and estimated fair value of the securities portfolio at September 30, 2017 and December 31, 2016.

September 30, 2017 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	72,945	$	132	$	337	$	72,740
Obligations of states and political subdivisions		121,403		1,021		837		121,587
Mortgage-backed securities – residential		200,058		1,360		1,819		199,599
Mortgage-backed securities – commercial		46,173		1		1,114		45,060
Corporate debt securities		7,576		51		3		7,624
Mutual funds and equity securities		840		65		-		905
Total securities – available for sale	$	448,995	$	2,630	$	4,110	$	447,515
Held To Maturity
Obligations of states and political subdivisions	$	3,448	$	149	$	-	$	3,597

December 31, 2016 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	71,941	$	213	$	460	$	71,694
Obligations of states and political subdivisions		134,055		773		2,536		132,292
Mortgage-backed securities – residential		225,489		1,505		2,687		224,307
Mortgage-backed securities – commercial		47,164		6		1,557		45,613
Corporate debt securities		6,565		1		441		6,125
Mutual funds and equity securities		824		20		11		833
Total securities – available for sale	$	486,038	$	2,518	$	7,692	$	480,864
Held To Maturity
Obligations of states and political subdivisions	$	3,488	$	109	$	-	$	3,597

Investment securities with a carrying value of $208 million and $191 million at September 30, 2017 and December 31, 2016, respectively, were pledged to secure public and trust deposits, repurchase agreements, and for other purposes.

The amortized cost and estimated fair value of the debt securities portfolio at September 30, 2017, by contractual maturity, are detailed below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mutual funds and equity securities in the available for sale portfolio consist of investments attributed to the Company’s captive insurance subsidiary. These securities have no stated maturity and are not included in the maturity schedule that follows.

Mortgage-backed securities are stated separately due to the nature of payment and prepayment characteristics of these securities, as principal is not due at a single date.

	Available For Sale				Held To Maturity
	Amortized		Estimated		Amortized		Estimated
September 30, 2017 (In thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	30,884	$	30,911	$	-	$	-
Due after one year through five years		71,412		71,703		-		-
Due after five years through ten years		76,611		76,197		1,302		1,402
Due after ten years		23,017		23,140		2,146		2,195
Mortgage-backed securities		246,231		244,659		-		-
Total	$	448,155	$	446,610	$	3,448	$	3,597

16

Gross realized gains and losses on the sale of available for sale investment securities were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2017		2016		2017			2016
Gross realized gains	$	3	$	3,829	$	3		$	4,181
Gross realized losses		-		53		10			191
Net realized gain (loss)	$	3	$	3,776	$	(7	)	$	3,990

Investment securities with unrealized losses at September 30, 2017 and December 31, 2016 not recognized in income are presented in the tables below. The tables segregate investment securities that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or more. The tables also include the fair value of the related securities.

	Less than 12 Months				12 Months or More				Total
September 30, 2017 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	42,246	$	191	$	11,570	$	146	$	53,816	$	337
Obligations of states and political subdivisions		26,809		162		32,799		675		59,608		837
Mortgage-backed securities – residential		93,192		642		55,308		1,177		148,500		1,819
Mortgage-backed securities – commercial		12,366		109		29,900		1,005		42,266		1,114
Corporate debt securities		2,992		3		-		-		2,992		3
Total	$	177,605	$	1,107	$	129,577	$	3,003	$	307,182	$	4,110

	Less than 12 Months				12 Months or More				Total
December 31, 2016 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	51,657	$	460	$	-	$	-	$	51,657	$	460
Obligations of states and political subdivisions		91,728		2,526		1,999		10		93,727		2,536
Mortgage-backed securities – residential		154,397		2,485		5,841		202		160,238		2,687
Mortgage-backed securities – commercial		43,309		1,557		-		-		43,309		1,557
Corporate debt securities		536		6		5,476		435		6,012		441
Mutual funds and equity securities		128		2		113		9		241		11
Total	$	341,755	$	7,036	$	13,429	$	656	$	355,184	$	7,692

Unrealized losses included in the tables above have not been recognized in income since they have been identified as temporary. The Company evaluates investment securities for other-than-temporary impairment (“OTTI”) at least quarterly, and more frequently when economic or market conditions warrant. Many factors are considered, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was effected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. The assessment of whether an OTTI charge exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at a point in time.

The Company attributes the unrealized losses in its investment securities portfolio to changes in market interest rates and volatility. Investment securities with unrealized losses at September 30, 2017 are performing according to their contractual terms, and the Company does not expect to incur a loss on these securities unless they are sold prior to maturity. The Company does not have the intent to sell these securities nor does it believe it is likely that it will be required to sell these securities prior to their anticipated recovery. The Company does not consider any of the securities to be impaired due to reasons of credit quality or other factors.

17

7. Loans and Allowance for Loan Losses

Major classifications of loans outstanding are summarized as follows:

(In thousands)	September 30, 2017		December 31, 2016
Real Estate
Real estate mortgage – construction and land development	$	112,005	$	120,230
Real estate mortgage – residential		342,350		350,295
Real estate mortgage – farmland and other commercial enterprises		427,575		400,367
Commercial
Commercial and industrial		63,853		48,607
States and political subdivisions		20,250		18,933
Other		20,308		23,308
Consumer
Secured		4,728		4,554
Unsecured		4,042		4,681
Total loans		995,111		970,975
Less unearned income		-		-
Total loans, net of unearned income	$	995,111	$	970,975

18

Activity in the allowance for loan losses by portfolio segment was as follows for the periods indicated:

(In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended September 30, 2017
Balance, beginning of period	$	7,961		$	900		$	361		$	9,222
Provision for loan losses		(376	)		25			(28	)		(379	)
Recoveries		259			44			27			330
Loans charged off		(16	)		(86	)		(23	)		(125	)
Balance, end of period	$	7,828		$	883		$	337		$	9,048
Nine months ended September 30, 2017
Balance, beginning of period	$	8,205		$	854		$	285		$	9,344
Provision for loan losses		(526	)		153			75			(298	)
Recoveries		674			110			46			830
Loans charged off		(525	)		(234	)		(69	)		(828	)
Balance, end of period	$	7,828		$	883		$	337		$	9,048

(In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended September 30, 2016
Balance, beginning of period	$	8,404		$	806		$	275		$	9,485
Provision for loan losses		(425	)		203			32			(190	)
Recoveries		31			52			9			92
Loans charged off		(88	)		(134	)		(19	)		(241	)
Balance, end of period	$	7,922		$	927		$	297		$	9,146
Nine months ended September 30, 2016
Balance, beginning period	$	9,173		$	820		$	322		$	10,315
Provision for loan losses		(1,025	)		193			13			(819	)
Recoveries		133			107			52			292
Loans charged off		(359	)		(193	)		(90	)		(642	)
Balance, end of period	$	7,922		$	927		$	297		$	9,146

The following tables present individually impaired loans by class of loans for the dates indicated.

September 30, 2017 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated
Real Estate
Real estate mortgage – construction and land development	$	4,569	$	2,003	$	1,962	$	3,965	$	385
Real estate mortgage – residential		9,985		2,807		7,207		10,014		1,650
Real estate mortgage – farmland and other commercial enterprises		19,961		4,342		15,494		19,836		313
Commercial
Commercial and industrial		400		-		401		401		219
Consumer
Unsecured		313		-		313		313		221
Total	$	35,228	$	9,152	$	25,377	$	34,529	$	2,788

19

December 31, 2016 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated
Real Estate
Real estate mortgage – construction and land development	$	9,076	$	2,599	$	3,800	$	6,399	$	759
Real estate mortgage – residential		9,930		4,388		5,590		9,978		1,503
Real estate mortgage – farmland and other commercial enterprises		25,045		9,699		15,235		24,934		304
Commercial
Commercial and industrial		435		20		418		438		236
Consumer
Unsecured		146		-		146		146		146
Total	$	44,632	$	16,706	$	25,189	$	41,895	$	2,948

Three Months Ended September 30,	2017						2016
(In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	5,932	$	52	$	28	$	7,838	$	88	$	88
Real estate mortgage – residential		10,199		139		134		9,214		136		136
Real estate mortgage – farmland and other commercial enterprises		19,166		224		223		26,401		292		292
Commercial
Commercial and industrial		401		6		6		409		4		2
Consumer
Unsecured		333		4		4		150		2		2
Total	$	36,031	$	425	$	395	$	44,012	$	522	$	520

Nine Months Ended September 30,	2017						2016
(In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	5,464	$	186	$	161	$	8,319	$	243	$	231
Real estate mortgage – residential		10,329		393		385		8,957		348		323
Real estate mortgage – farmland and other commercial enterprises		22,436		822		815		25,728		929		908
Commercial
Commercial and industrial		436		17		17		413		15		13
Other		8		-		-		-		-		-
Consumer
Unsecured		331		13		12		152		5		4
Total	$	39,004	$	1,431	$	1,390	$	43,569	$	1,540	$	1,479

20

The following tables present the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2017 and December 31, 2016.

September 30, 2017 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,348	$	219	$	221	$	2,788
Collectively evaluated for impairment		5,480		664		116		6,260
Total ending allowance balance	$	7,828	$	883	$	337	$	9,048
Loans
Loans individually evaluated for impairment	$	33,815	$	401	$	313	$	34,529
Loans collectively evaluated for impairment		848,115		104,010		8,457		960,582
Total ending loan balance, net of unearned income	$	881,930	$	104,411	$	8,770	$	995,111

December 31, 2016 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,566	$	236	$	146	$	2,948
Collectively evaluated for impairment		5,639		618		139		6,396
Total ending allowance balance	$	8,205	$	854	$	285	$	9,344
Loans
Loans individually evaluated for impairment	$	41,311	$	438	$	146	$	41,895
Loans collectively evaluated for impairment		829,581		90,410		9,089		929,080
Total ending loan balance, net of unearned income	$	870,892	$	90,848	$	9,235	$	970,975

The following tables present the recorded investment in nonperforming loans by class of loans as of September 30, 2017 and December 31, 2016.

September 30, 2017 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	380	$	1,957	$	-
Real estate mortgage – residential		1,490		5,356		-
Real estate mortgage – farmland and other commercial enterprises		1,908		14,461		-
Commercial
Commercial and industrial		-		372		-
Consumer
Unsecured		171		130		32
Total	$	3,949	$	22,276	$	32

21

December 31, 2016 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	712	$	3,637	$	-
Real estate mortgage – residential		2,316		4,006		-
Real estate mortgage – farmland and other commercial enterprises		3,383		14,787		-
Commercial
Commercial and industrial		-		377		-
Consumer
Secured		4		-		-
Unsecured		8		135		-
Total	$	6,423	$	22,942	$	-

The Company has allocated $1.8 million and $2.0 million of specific reserves as of September 30, 2017 and December 31, 2016, respectively, to customers whose loan terms have been modified in troubled debt restructurings and that are in compliance with those terms. The Company had no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at September 30, 2017 and December 31, 2016. The Company had no credits during the first nine months of 2017 or 2016 that were modified as troubled debt restructurings.

The tables below present an age analysis of past due loans 30 days or more by class of loans as of the dates indicated. Past due loans that are also classified as nonaccrual are included in their respective past due category.

September 30, 2017 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate
Real estate mortgage – construction and land development	$	15	$	314	$	329	$	111,676	$	112,005
Real estate mortgage – residential		763		476		1,239		341,111		342,350
Real estate mortgage – farmland and other commercial enterprises		-		1,090		1,090		426,485		427,575
Commercial
Commercial and industrial		-		-		-		63,853		63,853
States and political subdivisions		-		-		-		20,250		20,250
Other		-		-		-		20,308		20,308
Consumer
Secured		-		-		-		4,728		4,728
Unsecured		2		-		2		4,040		4,042
Total	$	780	$	1,880	$	2,660	$	992,451	$	995,111

22

December 31, 2016 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate
Real estate mortgage – construction and land development	$	393	$	227	$	620	$	119,610	$	120,230
Real estate mortgage – residential		1,935		798		2,733		347,562		350,295
Real estate mortgage – farmland and other commercial enterprises		-		2,483		2,483		397,884		400,367
Commercial
Commercial and industrial		-		-		-		48,607		48,607
States and political subdivisions		-		-		-		18,933		18,933
Other		24		-		24		23,284		23,308
Consumer
Secured		13		-		13		4,541		4,554
Unsecured		30		8		38		4,643		4,681
Total	$	2,395	$	3,516	$	5,911	$	965,064	$	970,975

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 and conditions. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes large-balance loans and non-homogeneous loans, such as commercial real estate and certain residential real estate loans. Loan rating grades, as described further below, are assigned based on a continuous process. The amount and adequacy of the allowance for loan loss is determined on a quarterly basis. The Company uses the following definitions for its 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 borrower’s repayment ability, weaken the collateral or inadequately protect the Company’s credit position at some future date. These credits pose elevated risk, but their weaknesses do not yet justify a substandard 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 Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent of 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.

23

Loans not meeting the criteria above which are analyzed individually as part of the above described process are considered to be pass rated loans and are considered to have a low risk of loss. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the dates indicated. Each of the following tables excludes immaterial amounts attributed to accrued interest receivable.

	Real Estate						Commercial
September 30, 2017 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage –Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	107,517	$	317,404	$	399,738	$	62,964	$	20,250	$	19,679
Special Mention		408		9,591		17,564		487		-		629
Substandard		4,080		15,355		10,273		402		-		-
Doubtful		-		-		-		-		-		-
Total	$	112,005	$	342,350	$	427,575	$	63,853	$	20,250	$	20,308

	Real Estate						Commercial
December 31, 2016 (In thousands)	Real Estate Mortgage –Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercia and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	112,435	$	323,300	$	363,448	$	47,254	$	18,933	$	23,308
Special Mention		1,413		12,147		21,088		764		-		-
Substandard		6,382		14,806		15,831		589		-		-
Doubtful		-		42		-		-		-		-
Total	$	120,230	$	350,295	$	400,367	$	48,607	$	18,933	$	23,308

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the consumer loans outstanding based on payment activity as of September 30, 2017 and December 31, 2016.

	September 30, 2017				December 31, 2016
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity
Performing	$	4,728	$	3,709	$	4,550	$	4,538
Nonperforming		-		333		4		143
Total	$	4,728	$	4,042	$	4,554	$	4,681

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. During the first quarter of 2017, the Company shortened the look-back period it uses to determine historical loss rates to the previous twelve quarters from sixteen quarters. No other significant changes were made to the loan risk grading system definitions and allowance for loan loss methodology during the past year.

24

8. Other Real Estate Owned

Other real estate owned (“OREO”) was as follows for the dates indicated:

(In thousands)	September 30, 2017		December 31, 2016
Construction and land development	$	4,526	$	7,996
Residential real estate		667		871
Farmland and other commercial enterprises		913		1,806
Total	$	6,106	$	10,673

OREO activity for the nine months ended September 30, 2017 and 2016 was as follows:

Nine months ended September 30, (In thousands)	2017			2016
Beginning balance	$	10,673		$	21,843
Transfers from loans and other increases		593			1,790
Proceeds from sales		(4,670	)		(6,996	)
Gain on sales, net		95			30
Write downs and other decreases, net		(585	)		(1,331	)
Ending balance	$	6,106		$	15,336

At September 30, 2017, the Company had a total of $875 thousand of loans secured by residential real estate mortgages that were in the process of foreclosure.

9. Securities Sold under Agreements to Repurchase

Securities sold under agreements to repurchase represent transactions where the Company sells certain of its investment securities and agrees to repurchase them at a specific date in the future. Securities sold under agreements to repurchase are accounted for as secured borrowing and reflect the amount of cash received in connection with the transaction.

Securities sold under agreements to repurchase are collateralized by U.S. government agency securities, primarily mortgage-backed securities. The Company may be required to provide additional collateral securing the borrowings in the event of principal pay downs or a decrease in the market value of the pledged securities. The Company mitigates this risk by monitoring the market value and liquidity of the collateral and ensuring that it holds a sufficient level of eligible securities to cover potential increases in collateral requirements.

The following tables represent the remaining maturity of repurchase agreements disaggregated by the class of securities pledged as of the dates indicated.

	Remaining Contractual Maturity of the Agreements
September 30, 2017 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	-	$	-	$	-	$	1,153	$	257	$	1,410
Mortgage-backed securities – residential		33,627		200		-		300		-		34,127
Total	$	33,627	$	200	$	-	$	1,453	$	257	$	35,537

25

	Remaining Contractual Maturity of the Agreements
December 31, 2016 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	5,596	$	301	$	-	$	258	$	1,027	$	7,182
Mortgage-backed securities – residential		28,086		902		-		200		-		29,188
Total	$	33,682	$	1,203	$	-	$	458	$	1,027	$	36,370

10. Postretirement Medical Benefits

The Company provides lifetime medical and dental benefits upon retirement for certain employees meeting the eligibility requirements as of December 31, 1989 (“Plan 1”). Additional participants are not eligible to be included in Plan 1 unless they met the requirements on this date. During 2003, the Company implemented an additional postretirement health insurance program (“Plan 2”). Under Plan 2, any employee meeting the service requirement of 20 years of full time service to the Company and is at least age 55 upon retirement is eligible to continue their health insurance coverage. Under both plans, retirees not yet eligible for Medicare have coverage identical to the coverage offered to active employees. Under both plans, Medicare-eligible retirees are provided with a Medicare Advantage plan. The Company pays 100% of the cost of Plan 1. The Company and the retirees each pay 50% of the cost under Plan 2. Both plans are unfunded. Employees hired on or after January 1, 2016 are not eligible for benefits under Plan 2.

The following disclosures of the net periodic benefit cost components of Plan 1 and Plan 2 were measured at January 1, 2017 and 2016.

	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands)	2017		2016		2017			2016
Service cost	$	137	$	159	$	420		$	478
Interest cost		164		171		496			512
Curtailment gain recognized		-		-		(351	)		-
Recognized prior service cost		-		12		8			37
Net periodic benefit cost	$	301	$	342	$	573		$	1,027

In connection with the merger of certain of its subsidiaries in February 2017, the Company recognized a curtailment gain of $351 thousand during the first quarter of 2017 as a result of revaluing its postretirement medical benefits plan liability due to a reduction in workforce. The gain is net of $67 thousand of prior service costs recognized due to the curtailment.

The Company expects benefit payments of $468 thousand for 2017, of which $262 thousand have been made during the first nine months of 2017.

11. Regulatory Matters

The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements will initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, banks must meet specific capital guidelines that involve quantitative measures of the bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and its subsidiary bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

26

The regulatory ratios of the consolidated Company and its subsidiary bank were as follows for the dates indicated:

	September 30, 2017												December 31, 2016
	Common Equity Tier 1 Risk-based Capital1			Tier 1 Risk- based Capital1			Total Risk- based Capital1			Tier 1 Leverage2			Common Equity Tier 1 Risk-based Capital1			Tier 1 Risk- based Capital1			Total Risk- based Capital1			Tier 1 Leverage2
Consolidated		17.09	%		19.88	%		20.66	%		13.83	%		16.43	%		19.28	%		20.10	%		13.20	%
United Bank & Capital Trust Company		15.29			15.29			16.08			10.75			*			*			*			*
Farmers Bank & Capital Trust Company		*			*			*			*			16.53			16.53			17.23			9.80
United Bank & Trust Company		*			*			*			*			15.54			15.54			16.47			12.38
First Citizens Bank		*			*			*			*			13.56			13.56			14.16			9.76
Citizens Bank of Northern Kentucky, Inc.		*			*			*			*			15.24			15.24			16.40			10.68
Regulatory minimum		4.50			6.00			8.00			4.00			4.50			6.00			8.00			4.00
Well-capitalized status		6.50			8.00			10.00			5.00			6.50			8.00			10.00			5.00

¹Common Equity Tier 1 Risked-based, Tier 1 Risk-based, and Total Risk-based Capital ratios are computed by dividing a bank’s Common Equity Tier 1, Tier 1 or Total Capital, as defined by regulation, by a risk-weighted sum of the bank’s assets, with the risk weighting determined by general standards established by regulation.

²Tier 1 Leverage ratio is computed by dividing a bank’s Tier 1 Capital by its total quarterly average assets, as defined by regulation.

*In February 2017, the Company mergedUnited Bank & Trust Company, First Citizens Bank, Inc., and Citizens Bank of Northern Kentucky, Inc. into Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed to United Bank & Capital Trust Company.

12. Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value, and sets forth disclosures about fair value measurements. ASC Topic 825, “Financial Instruments,” allows entities to choose to measure certain financial assets and liabilities at fair value. The Company has not elected the fair value option for any of its financial assets or liabilities.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This Topic describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions supported by little or no market activity about the assumptions that market participants would use in pricing the asset or liability.

Following is a description of the valuation method used for financial instruments measured at fair value on a recurring basis. For this disclosure, the Company only has available for sale investment securities and money market mutual funds classified as cash equivalents that meet the requirement. The carrying value of the $27.8 million and $18.6 million in money market mutual funds at September 30, 2017 and December 31, 2016, respectively, is equivalent to its fair value and based on Level 1 inputs.

27

Available for sale investment securities

Valued primarily by independent third party pricing services under the market valuation approach that include, but are not limited to, the following inputs:

● Mutual funds and equity securities are priced utilizing real-time data feeds from active market exchanges for identical securities and are considered Level 1 inputs.

● Government-sponsored agency debt securities, obligations of states and political subdivisions, mortgage-backed securities, corporate bonds, and other similar investment securities are priced with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources and are considered Level 2 inputs.

Fair value disclosure for available for sale investment securities as of September 30, 2017 and December 31, 2016 are as follows:

			Fair Value Measurements Using
(In thousands) Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2017
Obligations of U.S. government-sponsored entities	$	72,740	$	-	$	72,740	$	-
Obligations of states and political subdivisions		121,587		-		121,587		-
Mortgage-backed securities – residential		199,599		-		199,599		-
Mortgage-backed securities – commercial		45,060		-		45,060		-
Corporate debt securities		7,624		-		7,624		-
Mutual funds and equity securities		905		905		-		-
Total	$	447,515	$	905	$	446,610	$	-

			Fair Value Measurements Using
(In thousands) Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2016
Obligations of U.S. government-sponsored entities	$	71,694	$	-	$	71,694	$	-
Obligations of states and political subdivisions		132,292		-		132,292		-
Mortgage-backed securities – residential		224,307		-		224,307		-
Mortgage-backed securities – commercial		45,613		-		45,613		-
Corporate debt securities		6,125		-		6,125		-
Mutual funds and equity securities		833		833		-		-
Total	$	480,864	$	833	$	480,031	$	-

The Company is required to measure and disclose certain other assets and liabilities at fair value on a nonrecurring basis in periods following their initial recognition. The Company’s disclosure about assets and liabilities measured at fair value on a nonrecurring basis consists of collateral-dependent impaired loans and OREO.

28

Adjustments to the fair value of collateral-dependent loans are recorded by either direct loan charge-offs through the allowance for loan losses or an adjustment to the specific reserve through an increase or decrease to the provision for loan losses. The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is measured based on recent appraisals of the underlying collateral. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraisers take absorption rates into consideration and adjustments are routinely made in the appraisal process to identify differences between the comparable sales and income data available. Such adjustments consist mainly of estimated costs to sell that are not included in certain appraisals or to update appraised collateral values as a result of market declines of similar properties for which a newer appraisal is available. These adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value.

OREO includes properties acquired by the Company through, or in lieu of, actual loan foreclosures and is carried at fair value less estimated costs to sell. Fair value of OREO at acquisition is generally based on third party appraisals of the property that includes comparable sales data and is considered as Level 3 inputs. The carrying value of each OREO property is updated at least annually and more frequently when market conditions significantly impact the value of the property. If the carrying amount of the OREO exceeds fair value less estimated costs to sell, an impairment loss is recorded through noninterest expense.

The following table represents the carrying amount of assets measured at fair value on a nonrecurring basis and still held by the Company as of the dates indicated. The amounts in the table only represent assets whose carrying amount has been adjusted during the period in a manner as described above; therefore, these amounts will differ from the total amounts outstanding. With the exception of those calculated using the collateral valuation method, collateral-dependent impaired loan amounts in the tables below exclude restructured loans that are measured based on present value techniques, which are outside the scope of the fair value reporting framework.

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2017
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	1,324	$	-	$	-	$	1,324
Real estate mortgage – residential		769		-		-		769
Real estate mortgage – farmland and other commercial enterprises		962		-		-		962
Total	$	3,055	$	-	$	-	$	3,055
OREO
Construction and land development	$	3,118	$	-	$	-	$	3,118
Residential real estate		204		-		-		204
Farmland and other commercial enterprises		836		-		-		836
Total	$	4,158	$	-	$	-	$	4,158

29

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2016
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	2,909	$	-	$	-	$	2,909
Real estate mortgage – residential		3,137		-		-		3,137
Real estate mortgage – farmland and other commercial enterprises		351		-		-		351
Total	$	6,397	$	-	$	-	$	6,397
OREO
Construction and land development	$	4,883	$	-	$	-	$	4,883
Residential real estate		234		-		-		234
Farmland and other commercial enterprises		1,070		-		-		1,070
Total	$	6,187	$	-	$	-	$	6,187

The following table represents fair value adjustments recorded in earnings for the periods indicated on assets measured at fair value on a nonrecurring basis.

	Three months ended					Nine months ended
	September 30,					September 30,
(In thousands)	2017			2016		2017		2016
Net (increase) decrease in fair value:
Collateral-dependent impaired loans	$	(3	)	$	33	$	12	$	540
OREO		235			599		435		1,165
Total	$	232		$	632	$	447	$	1,705

The following table presents quantitative information about unobservable inputs for assets measured on a nonrecurring basis using Level 3 measurements. As described above, the fair value of real estate securing collateral-dependent impaired loans and OREO are based on current third party appraisals. It is sometimes necessary, however, for the Company to discount the appraisal amounts supporting its impaired loans and OREO. These discounts relate primarily to marketing and other holding costs that are not included in certain appraisals or to update values as a result of market declines of similar properties for which newer appraisals are available. Discounts may also result from contracts to sell properties entered into during the period. The range of discounts is presented in the table below for 2017 and 2016.

(In thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range			Average
September 30, 2017
Collateral-dependent impaired loans	$	3,055	Discounted appraisals	Marketability discount	1.1%	-	22.8%		9.7	%
OREO	$	4,158	Discounted appraisals	Marketability discount	0%	-	52.4%		17.5	%
December 31, 2016
Collateral-dependent impaired loans	$	6,397	Discounted appraisals	Marketability discount	0%	-	67.8%		3.5	%
OREO	$	6,187	Discounted appraisals	Marketability discount	0%	-	50.0%		11.2	%

30

Fair Value of Financial Instruments

The table that follows represents the estimated fair values of the Company’s financial instruments made in accordance with the requirements of ASC Topic 825, “Financial Instruments.” ASC Topic 825 requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet for which it is practicable to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and present value or other valuation techniques. These derived fair values are subjective in nature, involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. ASC Topic 825 excludes certain financial instruments and all nonfinancial instruments from the disclosure requirements. Accordingly, the aggregate fair value amounts presented are not intended to represent the underlying value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments not presented elsewhere for which it is practicable to estimate that value.

Cash and Cash Equivalents, Accrued Interest Receivable, and Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization or settlement.

Investment Securities Held to Maturity

Fair value is based on quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among other sources.

Loans

The fair value of loans is estimated by discounting expected future cash flows using current discount rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Expected future cash flows are projected based on contractual cash flows adjusted for estimated prepayments.

Federal Home Loan Bank and Federal Reserve Bank Stock

The fair value of Federal Home Loan Bank and Federal Reserve Bank stock is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Deposit Liabilities

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date and fair value approximates carrying value. The fair value of fixed maturity certificates of deposit is estimated by discounting the expected future cash flows using the rates currently offered for certificates of deposit with similar remaining maturities.

Federal Funds Purchased and Short-term Securities Sold Under Agreements to Repurchase

The carrying amount is the estimated fair value for these borrowings which reprice frequently in the near term.

Securities Sold Under Agreements to Repurchase, Subordinated Notes Payable, and Other Long-term Borrowings

The fair value of these borrowings is estimated by discounting the expected future cash flows using rates currently available for debt with similar terms and remaining maturities. For subordinated notes payable, the Company uses its best estimate to determine an appropriate discount rate since active markets for similar debt transactions are very limited.

31

Commitments to Extend Credit and Standby Letters of Credit

Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, compensating balance, and other covenants or requirements. Loan commitments generally have fixed expiration dates, variable interest rates and contain termination and other clauses that provide for relief from funding in the event there is a significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of the Company’s commitments to lend and standby letters of credit are competitive with others in the various markets in which the Company operates. There are no unamortized fees relating to these financial instruments, as such the carrying value and fair value are both zero.

The following table presents the estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016. Information for available for sale investment securities is presented within this footnote in greater detail above.

					Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2017
Assets
Cash and cash equivalents	$	117,608	$	117,608	$	117,608	$	-	$	-
Held to maturity investment securities		3,448		3,597		-		3,597		-
Loans, net		986,063		976,344		-		-		976,344
Accrued interest receivable		4,695		4,695		-		4,695		-
Federal Home Loan Bank and Federal Reserve Bank Stock		13,235		13,235		-		-		13,235
Liabilities
Deposits		1,361,824		1,361,653		1,128,645		-		233,008
Securities sold under agreements to repurchase		35,537		35,542		-		35,542		-
Federal Home Loan Bank advances		3,521		3,608		-		3,608		-
Subordinated notes payable to unconsolidated trusts		33,506		21,142		-		-		21,142
Accrued interest payable		344		344		-		344		-
December 31, 2016
Assets
Cash and cash equivalents	$	113,534	$	113,534	$	113,534	$	-	$	-
Held to maturity investment securities		3,488		3,597		-		3,597		-
Loans, net		961,631		962,437		-		-		962,437
Accrued interest receivable		5,019		5,019		-		5,019		-
Federal Home Loan Bank and Federal Reserve Bank Stock		9,840		9,840		-		-		9,840
Liabilities
Deposits		1,369,907		1,369,567		1,099,211		-		270,356
Securities sold under agreements to repurchase		36,370		36,381		-		36,381		-
Federal Home Loan Bank advances		18,646		19,114		-		19,114		-
Subordinated notes payable to unconsolidated trusts		33,506		21,234		-		-		21,234
Accrued interest payable		321		321		-		321		-

32

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements with the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Statements in this report that are not statements of historical fact are forward-looking statements. In general, forward-looking statements relate to a discussion of future financial results or projections, future economic performance, future operational plans and objectives, and statements regarding the underlying assumptions of such statements. Although management of Farmers Capital Bank Corporation (the “Company” or “Parent Company”) believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate.

Various risks and uncertainties may cause actual results to differ materially from those indicated by the Company’s forward-looking statements. In addition to the risks described under Part 1, Item 1A “Risk Factors” in the Company’s most recent annual report on Form 10-K, factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its subsidiaries operate) and lower interest margins; competition for the Company’s customers from other providers of financial services; deposit outflows or reduced demand for financial services and loan products; government legislation, regulation, and changes in monetary and fiscal policies (which changes from time to time and over which the Company has no control); changes in interest rates; changes in prepayment speeds of loans or investment securities; inflation; material unforeseen changes in the liquidity, results of operations, or financial condition of the Company’s customers; changes in the level of non-performing assets and charge-offs; changes in the number of common shares outstanding; the capability of the Company to successfully enter into a definitive agreement for, close, and realize the benefits of anticipated transactions; unexpected claims or litigation against the Company; expected insurance or other recoveries; technological or operational difficulties; the impact of new accounting pronouncements and changes in policies and practices that may be adopted by regulatory agencies; acts of war or terrorism; the ability of the Parent Company to receive dividends from its subsidiaries; the impact of larger or similar financial institutions encountering difficulties, which may adversely affect the banking industry or the Company; the Company or its subsidiary bank’s ability to maintain required capital levels and adequate funding sources and liquidity; and other risks or uncertainties detailed in the Company’s filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company.

The Company’s forward-looking statements are based on information available at the time such statements are made. The Company expressly disclaims any intent or obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or other changes.

33

RESULTS OF OPERATIONS

Net income for the third quarter of 2017 was $5.3 million, or $.71 per common share, an increase of 22.8% compared to $4.3 million, or $.58 per common share, for the third quarter of 2016. For the nine months ended September 30, 2017, net income was $13.1 million, or $1.75 per common share, a decline of 6.7% compared to $14.1 million, or $1.87 per common share, for the first nine months of 2016.

The current nine-months includes pre-tax expenses of $472 thousand ($307 thousand after tax), or $.04 per common share, related to the Company’s consolidation of its four bank subsidiaries and data processing subsidiary into one bank. For both the three and nine months ended September 30, 2016, net income includes pre-tax consolidation expenses of $259 thousand ($168 thousand after tax), or $.02 per common share. This consolidation was completed in February 2017.

Selected income statement amounts and related data are summarized in the table below.

	Three Months Ended September 30									Nine Months Ended September 30
(In thousands except per share data)	2017			2016			Increase (Decrease)			2017			2016			Increase (Decrease)
Interest income	$	14,983		$	14,619		$	364		$	44,192		$	44,922		$	(730	)
Interest expense		893			1,809			(916	)		2,690			5,827			(3,137	)
Net interest income		14,090			12,810			1,280			41,502			39,095			2,407
Provision for loan losses		(379	)		(190	)		(189	)		(298	)		(819	)		521
Net interest income after provision for loan losses		14,469			13,000			1,469			41,800			39,914			1,886
Noninterest income		5,627			10,772			(5,145	)		15,980			25,835			(9,855	)
Noninterest expenses		12,708			17,888			(5,180	)		39,583			46,179			(6,596	)
Income before income taxes		7,388			5,884			1,504			18,197			19,570			(1,373	)
Income tax expense		2,076			1,560			516			5,074			5,510			(436	)
Net income	$	5,312		$	4,324		$	988		$	13,123		$	14,060		$	(937	)
Basic and diluted net income per common share	$	.71		$	.58		$	.13		$	1.75		$	1.87		$	(.12	)
Cash dividends declared per common share		.10			.07			.03			.30			.21			.09
Weighted average common shares outstanding – basic and diluted		7,514			7,505			9			7,512			7,503			9
Return on average assets		1.26	%		.98	%	28 bp				1.05	%		1.07	%	(2) bp
Return on average equity		10.77	%		9.07	%	170 bp				9.20	%		10.14	%	(94) bp
bp – basis points.

The increase in net income in the quarterly comparison is attributed primarily to higher net interest income of $1.3 million, or 10.0%, and a higher credit to the provision for loan losses of $189 thousand. Noninterest income declined $5.1 million, or 47.8%, which was offset by a decrease in noninterest expenses of $5.2 million, or 29.0%. The primary drivers of the decline in net income in the nine-month comparison were lower noninterest income of $9.9 million, or 38.1%, and a decrease in the credit to the provision for loan losses of $521 thousand, partially offset by lower noninterest expenses of $6.6 million, or 14.3%. The decline in noninterest income is attributed primarily to a pretax gain during the first quarter of 2016 of $4.1 million related to the early extinguishment of $15.5 million of debt. Net interest income was up $2.4 million, or 6.2%, in the year-to-date comparison. Further information related to the more significant components making up the changes in net income follows.

Net Interest Income

The overall interest rate environment at September 30, 2017, as measured by the Treasury yield curve, remained at very low levels when compared with historical trends. During the quarter, the shape of the yield curve flattened as a result of yields on short-term maturities increasing more than yields on longer-term maturities. Yields for the two and three-year maturity periods were up 10 and 8 basis points, respectively, while yields on both the ten and thirty-year maturities increased 3 basis points. At September 30, 2017, the short-term federal funds target interest rate remained between 1.00% and 1.25%. The Federal Reserve Board has indicated that it will continue to assess realized and expected economic conditions relative to its objectives of maximum employment and two percent inflation when determining the timing and size of future adjustments to the target rate. At September 30, 2017, the national and Kentucky unemployment rates were 4.2% and 5.2%, respectively. The national inflation rate at September 30, 2017 was 2.2% based on the Consumer Price Index published by the Bureau of Labor Statistics, up from 2.1% at year-end 2016.

34

Net interest income increased $1.3 million, or 10.0%, and $2.4 million, or 6.2%, for the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. The increase in both comparisons was driven by overall lower average rates paid on borrowings and declines in the average balances of borrowings, as well as loan growth, partially offset by declines in investment securities balances. Net interest margin increased in both comparisons, reflecting the Company’s efforts to improve net interest income and net interest margin through loan growth combined with the balance sheet deleverage transaction and related repositioning of the Company’s investment securities portfolio during the second half of 2016, which is more fully described below.

As part of its strategy to improve net interest income and net interest margin, the Company completed a series of transactions during the last half of 2016 to deleverage its balance sheet and reposition its investment securities portfolio. The Company used a mixture of $10.4 million of excess cash and $93.4 million of proceeds from the sale of investment securities to prepay $100 million of high fixed-rate borrowings due to mature in November 2017. The Company incurred a prepayment fee of $3.8 million, which was offset by a gain in the same amount from the sale of investment securities. The average yield on the mix of cash and investment securities sold to fund the debt prepayment was 2.97%. The average cost of the fixed rate borrowings that were repaid was 3.95%. The Company also took action to reposition its investment securities portfolio by replacing approximately $78 million of certain lower-yielding, short-term investments with longer-term, higher-yielding investments consistent with a more normalized strategy and maturity periods. The lower-yielding, short-term investments were built up in anticipation of the November 2017 debt repayment. The average yield on the investments identified for the repositioning strategy was 0.85% compared to a targeted reinvestment yield of 1.85%. As a result, the average life of the securities portfolio at the time of the transaction increased to 4.0 years from 3.5 years.

Interest income on loans was up $567 thousand, or 4.8%, and $469 thousand, or 1.3%, in the three and nine-month comparisons, respectively, driven by a higher average loan balance outstanding in both comparisons. Average loans grew $42.8 million, or 4.5%, in the quarterly comparison and $27.9 million, or 2.9%, in the year-to-date comparison. Interest income on loans in the current quarter includes the collection of $120 thousand related to two nonaccrual loans that fully paid off during the quarter, which aided the average rate earned on loans by four basis points. For the first nine months of 2017, interest income on loans includes a $73 thousand prepayment fee and the collection of $158 thousand related to three nonaccrual loans that fully paid off during the period. The prior year nine-month period includes the collection of $236 thousand related to a nonaccrual loan that fully paid off during the year-ago first quarter. For both the nine months ended September 30, 2017 and 2016, the average rate earned on loans was boosted three basis points related to the collections of interest on the nonaccrual loans and the prepayment fee discussed above.

Interest income on investment securities is down $369 thousand, or 13.2%, and $1.5 million, or 16.6%, for the quarterly and year-to-date comparisons, respectively, primarily due to lower volume. Average investment securities decreased $102 million, or 17.7%, and $96.6 million, or 16.6%, for the third quarter and first nine months of 2017, respectively, from the same periods a year ago. Volume declines are mainly the result of the balance sheet deleverage transaction during 2016, which is more fully described above. The average rate earned on investment securities was up 12 basis points in the quarterly comparison and 3 basis points in the year-to-date comparison.

Interest expense on deposits was down $38 thousand, or 6.6%, and $227 thousand, or 12.5%, for the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. The decline in both comparisons was driven by rate declines and lower average outstanding balances related to time deposits.Interest expense on borrowed funds was down $878 thousand, or 71.3%, and $2.9 million, or 72.7%, for the quarterly and year-to-date comparisons, respectively, primarily due to the early repayment of $100 million of high fixed-rate borrowings during the third quarter of 2016 related to the deleveraging transaction discussed above.

Overall declines in the average rate earned from interest income on loans and average interest rate paid on deposits are the result of a slow growing economy and related low interest rate environment, competitive pressures, and the Company’s ongoing strategy of being more selective in pricing its loans and deposits. The goal of this strategy is to improve credit quality, net interest income, overall profitability, and capital position.

35

The Company is generally earning and paying less interest from its earning assets and funding sources as the average rates earned and paid have decreased. This includes repricing of variable and floating rate assets and liabilities that have reset to overall lower amounts since their previous repricing date, as well as activity related to new earning assets and funding sources in a low interest rate environment. The Company continues to reprice its higher-rate maturing time deposits downward to lower market rates or to allow them to mature without renewal, as liquidity has been adequate.

The Company has improved its mix of earning assets and interest bearing liabilities through growth in the loan portfolio over the past year combined with a significant decrease in lower-yielding investment securities and higher-rate borrowings. On an average basis, loans represented 63.4% of earning assets for the third quarter of 2017, an increase of 511 basis points compared to 58.3% for the third quarter of 2016. For the first nine months of 2017, average loans represented 63.1% of average earnings assets, up 460 basis points compared to 58.5% for the first nine months of 2016. Loans typically involve an increase in credit risk and higher yields when compared to investment securities.

For the current quarter, net interest margin on a taxable equivalent basis was 3.67%, an increase of 44 basis points compared with 3.23% a year earlier. Net interest spread increased 50 basis points to 3.57%, up from 3.07% in the year-ago quarter. Net interest margin and spread for the current quarter were positively impacted three basis points from the collection of $120 thousand related to two nonaccrual loans that fully paid off during the quarter.

For the first nine months of 2017, net interest margin on a taxable equivalent basis was 3.65%, an increase of 36 basis points from 3.29% in the comparable period a year ago. Net interest spread increased 42 basis points to 3.55%, up from 3.13% for the first nine months of 2016. For both the nine months ended September 30, 2017 and 2016, net interest margin and spread were positively impacted two basis points each related to the collection of interest on nonaccrual loans and a prepayment fee. During the current nine months, interest income on loans includes a $73 thousand prepayment fee and the collection of $158 thousand related to three nonaccrual loans that fully paid off during the period. The prior year nine-month period includes the collection of $236 thousand related to a nonaccrual loan that fully paid off during the year-ago first quarter

The Company expects its net interest margin to stay relatively flat in the near term according to internal modeling using expectations about future market interest rates, the maturity structure of the Company’s earning assets and liabilities, and other factors. Future results could be significantly different than current expectations.

36

The following tables present an analysis of net interest income for periods indicated.

Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential
Three Months Ended September 30,	2017									2016
(In thousands)	Average Balance			Interest			Average Rate			Average Balance			Interest			Average Rate
Earning Assets
Investment securities1
Taxable	$	359,207		$	1,857			2.05	%	$	451,199		$	2,159			1.90	%
Nontaxable2		114,974			847			2.92			124,820			941			3.00
Interest bearing deposits in banks, federal funds sold and securities purchased under agreements to resell, and money market mutual funds		97,458			282			1.15			102,021			116			.45
Loans2,3,4		991,579			12,357			4.94			948,734			11,792			4.94
Total earning assets		1,563,218		$	15,343			3.89	%		1,626,774		$	15,008			3.67	%
Allowance for loan losses		(9,261	)								(9,388	)
Total earning assets, net of allowance for loan losses		1,553,957									1,617,386
Nonearning Assets
Cash and due from banks		24,778									23,766
Premises and equipment, net		31,426									32,462
Other assets		60,543									80,147
Total assets	$	1,670,704								$	1,753,761
Interest Bearing Liabilities
Deposits
Interest bearing demand	$	360,949		$	177			.19	%	$	334,349		$	60			.07	%
Savings		417,337			108			.10			410,214			126			.12
Time		238,892			255			.42			289,327			392			.54
Federal funds purchased		-			-			-			141			-			-
Short-term securities sold under agreements to repurchase		34,679			15			.17			35,743			27			.30
Long-term securities sold under agreements to repurchase		696			2			1.14			83,505			840			4.00
Federal Home Loan Bank advances		11,312			109			3.82			19,260			187			3.86
Subordinated notes payable to unconsolidated trusts		33,506			227			2.69			33,506			177			2.10
Total interest bearing liabilities		1,097,371		$	893			.32	%		1,206,045		$	1,809			.60	%
Noninterest Bearing Liabilities
Demand deposits		350,058									328,351
Other liabilities		27,622									29,792
Total liabilities		1,475,051									1,564,188
Shareholders’ equity		195,653									189,573
Total liabilities and shareholders’ equity	$	1,670,704								$	1,753,761
Net interest income					14,450									13,199
TE basis adjustment					(360	)								(389	)
Net interest income				$	14,090								$	12,810
Net interest spread								3.57	%								3.07	%
Impact of noninterest bearing sources of funds								.10									.16
Net interest margin								3.67	%								3.23	%

¹Average yields on securities available for sale have been calculated based on amortized cost.

²Income and yield stated at a fully tax equivalent basis using the marginal corporate Federal tax rate of 35%.

³Loan balances include principal balances on nonaccrual loans.

⁴Loan fees included in interest income amounted to $272 thousand and $326 thousand in 2017 and 2016, respectively.

37

Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential
Nine Months Ended September 30,	2017									2016
(In thousands)	Average Balance			Interest			Average Rate			Average Balance			Interest			Average Rate
Earning Assets
Investment securities1
Taxable	$	366,281		$	5,741			2.10	%	$	459,125		$	7,095			2.06	%
Nontaxable2		119,263			2,605			2.92			122,970			2,783			3.02
Interest bearing deposits in banks, federal funds sold and securities purchased under agreements to resell, and money market mutual funds		90,601			609			.90			97,044			321			.44
Loans2,3,4		983,281			36,332			4.94			955,417			35,861			5.01
Total earning assets		1,559,426		$	45,287			3.88	%		1,634,556		$	46,060			3.76	%
Allowance for loan losses		(9,403	)								(9,756	)
Total earning assets, net of allowance for loan losses		1,550,023									1,624,800
Nonearning Assets
Cash and due from banks		23,749									22,947
Premises and equipment, net		31,734									32,590
Other assets		60,462									81,440
Total assets	$	1,665,968								$	1,761,777
Interest Bearing Liabilities
Deposits
Interest bearing demand	$	351,789		$	378			.14	%	$	333,457		$	191			.08	%
Savings		420,955			364			.12			406,639			387			.13
Time		251,539			854			.45			303,240			1,245			.55
Federal funds purchased		15			-			-			201			-			-
Short-term securities sold under agreements to repurchase		33,373			52			.21			34,407			70			.27
Long-term securities sold under agreements to repurchase		1,009			6			.80			95,373			2,842			3.98
Federal Home Loan Bank advances		13,631			398			.90			18,931			558			3.94
Subordinated notes payable to unconsolidated trusts		33,506			638			2.55			34,892			534			2.04
Total interest bearing liabilities		1,105,817		$	2,690			.33	%		1,227,140		$	5,827			.63	%
Noninterest Bearing Liabilities
Demand deposits		342,870									320,873
Other liabilities		26,525									28,502
Total liabilities		1,475,212									1,576,515
Shareholders’ equity		190,756									185,262
Total liabilities and shareholders’ equity	$	1,665,968								$	1,761,777
Net interest income					42,597									40,233
TE basis adjustment					(1,095	)								(1,138	)
Net interest income				$	41,502								$	39,095
Net interest spread								3.55	%								3.13	%
Impact of noninterest bearing sources of funds								.10									.16
Net interest margin								3.65	%								3.29	%

¹Average yields on securities available for sale have been calculated based on amortized cost.

²Income and yield stated at a fully tax equivalent basis using the marginal corporate Federal tax rate of 35%.

³Loan balances include principal balances on nonaccrual loans.

⁴Loan fees included in interest income amounted to $1.0 million in both 2017 and 2016.

38

Analysis of Changes in Net Interest Income (tax equivalent basis)
(In thousands)	Variance			Variance Attributed to
Three Months Ended September 30,	2017/20161			Volume			Rate
Interest Income
Taxable investment securities	$	(302	)	$	(1,194	)	$	892
Nontaxable investment securities2		(94	)		(70	)		(24	)
Interest bearing deposits in banks, federal funds sold and securities purchased under agreements to resell, and money market mutual funds		166			(36	)		202
Loans2		565			565			-
Total interest income		335			(735	)		1,070
Interest Expense
Interest bearing demand deposits		117			5			112
Savings deposits		(18	)		14			(32	)
Time deposits		(137	)		(60	)		(77	)
Federal funds purchased		-			-			-
Short-term securities sold under agreements to repurchase		(12	)		(1	)		(11	)
Long-term securities sold under agreements to repurchase		(838	)		(487	)		(351	)
Federal Home Loan Bank advances		(78	)		(76	)		(2	)
Subordinated notes payable to unconsolidated trusts		50			-			50
Total interest expense		(916	)		(605	)		(311	)
Net interest income	$	1,251		$	(130	)	$	1,381
Percentage change		100.0	%		(10.4	)%		110.4	%
(In thousands)	Variance			Variance Attributed to
Nine Months Ended September 30,	2017/20161			Volume			Rate
Interest Income
Taxable investment securities	$	(1,354	)	$	(1,571	)	$	217
Nontaxable investment securities2		(178	)		(85	)		(93	)
Interest bearing deposits in banks, federal funds sold and securities purchased under agreements to resell, and money market mutual funds		288			(36	)		324
Loans2		471			1,223			(752	)
Total interest income		(773	)		(469	)		(304	)
Interest Expense
Interest bearing demand deposits		187			13			174
Savings deposits		(23	)		19			(42	)
Time deposits		(391	)		(189	)		(202	)
Federal funds purchased		-			-			-
Short-term securities sold under agreements to repurchase		(18	)		(2	)		(16	)
Long-term securities sold under agreements to repurchase		(2,836	)		(1,569	)		(1,267	)
Federal Home Loan Bank advances		(160	)		(154	)		(6	)
Subordinated notes payable to unconsolidated trusts		104			(34	)		138
Total interest expense		(3,137	)		(1,916	)		(1,221	)
Net interest income	$	2,364		$	1,447		$	917
Percentage change		100.0	%		61.2	%		38.8	%

¹The changes that are not solely due to rate or volume are allocated on a percentage basis using the absolute values of rate and volume variances as a basis for allocation.

²Income stated at fully tax equivalent basis using the marginal corporate Federal tax rate of 35%.

39

Provision for Loan Losses

The provision for loan losses represents charges or credits to earnings that are necessary to maintain an allowance for loan losses at an adequate level to cover credit losses specifically identified in the loan portfolio, as well as management’s best estimate of incurred probable loan losses in the remainder of the portfolio at the balance sheet date. The credit quality of the Company’s loan portfolio continued recent trends of improvement during the current quarter, as certain credit quality metrics improved upon recent quarterly bests.

The Company recorded a credit to the provision for loan losses in the amount of $379 thousand and $190 thousand for the current and year-ago quarters, respectively. For the first nine months of 2017 and 2016, the Company recorded credits in the amount of $298 thousand and $819 thousand, respectively. The allowance for loan losses as a percentage of outstanding loans was 0.91% at September 30, 2017 compared to 0.96% at both year-end 2016 and September 30, 2016. The credit to the provision for the current quarter was driven by net recoveries of $205 thousand. For the first nine months of 2017, the credit to the provision was driven by lower historical loss rates and a decline in specific reserves on impaired loans of $160 thousand, or 5.4%. Net recoveries in the three and nine months ended September 30, 2017, include $230 thousand and $600 thousand, respectively, from a real estate development project. The Company recorded a total of $1.4 million in principal charge-offs between 2010 and 2012 related to this project and anticipates it could receive an additional $1.3 million in recoveries related to this credit. The timing and amount of these possible recoveries are subject to change and are dependent on the price and volume of lots sold by the developer, however, the Company expects to receive the recoveries over the next two to three quarters.

While historical loss rates continued to be low, the effect of the improvement in loss rates on the allowance for loan losses has diminished now that the higher levels experienced during 2008 through the first quarter of 2014 have already rolled out of the three year look-back period used when evaluating the allowance for loan losses. Overall credit quality metrics of the loan portfolio have continued to improve. Nonperforming loans, impaired loans, loans graded as substandard or below, and watch list loans have each declined when compared with a year earlier. For further information about improvements in the Company’s overall credit quality, please refer to the discussion under the captions “Allowance for Loan Losses” and “Nonperforming Loans” that follows.

Noninterest Income

The components of noninterest income are as follows for the periods indicated:

	Three months ended September 30									Nine months ended September 30
					Change											Change
(Dollars in thousands)		2017		2016		$		%			2017			2016		$		%
Service charges and fees on deposits	$	2,041	$	2,046	$	(5	)	(0.2	)%	$	6,011		$	5,840	$	171		2.9	%
Allotment processing fees		693		810		(117	)	(14.4	)		2,059			2,504		(445	)	(17.8	)
Other service charges, commissions, and fees		1,360		1,459		(99	)	(6.8	)		4,060			4,173		(113	)	(2.7	)
Trust income		724		715		9		1.3			2,054			2,034		20		1.0
Net gain (loss) on sales of available for sale investment securities		3		3,776		(3,773	)	(99.9	)		(7	)		3,990		(3,997	)	(100.2	)
Net gain on sales of cost method investment securities		82		-		82		NM			82			-		82		NM
Gain on sale of mortgage loans, net		172		273		(101	)	(37.0	)		515			695		(180	)	(25.9	)
Income from company-owned life insurance		467		229		238		103.9			923			785		138		17.6
Gain on debt extinguishment		-		-		-		-			-			4,050		(4,050	)	(100.0	)
Legal settlement		-		1,350		(1,350	)	(100.0	)		-			1,450		(1,450	)	(100.0	)
Other		85		114		(29	)	(25.4	)		283			314		(31	)	(9.9	)
Total noninterest income	$	5,627	$	10,772	$	(5,145	)	(47.8	)%	$	15,980		$	25,835	$	(9,855	)	(38.1	)%
NM – not meaningful.

40

The decrease in noninterest income in the quarterly comparison was driven by net gains on the sale of available for sale investment securities in the prior-year quarter of $3.8 million and a $1.4 million payment received during the third quarter of 2016 related to a litigation settlement. In the year-to-date comparison, the decline in noninterest income is mainly attributed to the $4.1 million pre-tax gain during the first quarter of 2016 related to the early extinguishment of debt, lower net gains on the sale of available for sale investment securities of $4.0 million, and $1.5 million in payments received during 2016 related to the litigation settlement. The gains on the sale of available for sale investment securities in the prior year relates primarily to the series of transactions to deleverage and reposition the balance sheet discussed earlier under the caption “Net Interest Income” above, which completely offset the related loss on the early repayment of long-term borrowings.

Service charges and fees on deposits increased in the nine-month comparison primarily due to higher service charges related to demand deposits and savings accounts of $136 thousand, or 19.6%, and $52 thousand, or 75.2%, respectively.Contributing to the overall increase in service charges are higher average balances of demand deposits and savings accounts compared to the prior year. Additionally, during the second quarter of 2016, the Company standardized and reduced the number of its deposit account product offerings throughout the corporation, which has contributed to an overall increase in service charges since completion.

The decline in allotment processing fees in both comparisons is primarily a result of lower processing volume stemming from the U.S. Department of Defense policy that went into effect on January 1, 2015 restricting the types of purchases that active duty service members are able to make using the military allotment system for payment. The rate of decline in allotment processing fees began to subside during 2017, as existing contracts for the types of purchases affected by the new policy have steadily decreased and the Company continues its efforts to diversify its customer base and expand its payment processing options.

The decrease in nondeposit service charges, commissions, and fees was driven by declines across multiple line items. Net gains on the sale of cost method investment securities during 2017 relates to the sale of stock held in connection with a correspondent banking relationship.

Net gains on the sale of mortgage loans were down in both comparisons mainly due to lower sales volume. Sales of mortgage loans decreased $3.4 million, or 32.8%, and $6.6 million, or 24.4%, for the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. The increase in income from company-owned life insurance in both comparisons is primarily due to a tax-free death benefit received in excess of the cash surrender value during the third quarter of 2017 of $245 thousand. In the year-to-date comparison, the increase was partially offset by a tax-free death benefit received in excess of the cash surrender value during the prior-year first quarter of $81 thousand.

Noninterest Expense

The components of noninterest expense are as follows for the periods indicated:

	Three Months Ended September 30										Nine Months Ended September 30
					Change										Change
(Dollars in thousands)	2017		2016		$			%			2017		2016		$			%
Salaries and employee benefits	$	7,309	$	7,810	$	(501	)		(6.4	)%	$	22,572	$	23,444	$	(872	)		(3.7	)%
Occupancy expenses, net		1,166		1,172		(6	)		(0.5	)		3,515		3,541		(26	)		(0.7	)
Equipment expenses		613		662		(49	)		(7.4	)		1,765		1,833		(68	)		(3.7	)
Data processing and communication expenses		1,119		1,085		34			3.1			3,505		3,411		94			2.8
Bank franchise tax		610		613		(3	)		(0.5	)		1,776		1,823		(47	)		(2.6	)
Deposit insurance expenses		129		227		(98	)		(43.2	)		396		805		(409	)		(50.8	)
Other real estate expenses, net		316		454		(138	)		(30.4	)		716		1,466		(750	)		(51.2	)
Loss on debt extinguishment		-		3,776		(3,776	)		(100.0	)		-		3,776		(3,776	)		(100.0	)
Other		1,446		2,089		(643	)		(30.8	)		5,338		6,080		(742	)		(12.2	)
Total noninterest expense	$	12,708	$	17,888	$	(5,180	)		(29.0	)%	$	39,583	$	46,179	$	(6,596	)		(14.3	)%

Noninterest expense includes $472 thousand for the current nine months and $259 thousand for both the third quarter and first nine months of 2016 related to the consolidation of the Company’s subsidiaries that was completed during the first quarter of 2017. The decline in noninterest expense in the both the quarterly and nine-month comparisons wasprimarily the result of the $3.8 million loss related to the early extinguishment of debt recorded in the third quarter of 2016.The loss was completely offset by the net gain on the sale of investment securities discussed under the “Noninterest Income” caption above. The Company has continued its efforts to reduce overall operating costs, primarily through the consolidation of its subsidiaries. In both the quarterly and year-to-date comparisons, the Company experienced declines nearly all components of noninterest expense, led by lower salaries and employee benefits expense and lower expenses related to repossessed real estate.

41

The decrease in salaries and employee benefits in both comparisons primarily reflects a reduction in workforce related to the subsidiary consolidation plan completed during the first quarter of 2017. The Company had 426 full time equivalent employees at September 30, 2017, down from 481 a year ago. Benefit expenses declined $338 thousand, or 22.8%, and $1.1 million, or 25.7%, for the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. In the quarterly comparison, benefit expenses were down primarily due to the reduced workforce which resulted in lower claims activity of the Company’s self-funded health insurance plan of $315 thousand. Benefit expenses declined in the year-to-date comparison due to lower claims activity of $654 thousandand a curtailment gain of $351 thousand recorded in the first quarter of 2017. The curtailment gain was the result of revaluing the Company’s postretirement medical benefits plan liability due to the workforce reduction.

Salaries and related payroll taxes decreased $163 thousand, or 2.6%, in the current quarter compared to the prior-year quarter and increased $200 thousand, or 1.0%, for the first nine months of 2017 compared to the same periods of 2016. In the quarterly comparison, the decline from the reduction in workforce was partially offset by incentive accruals of $257 thousand related to the Company’s Board-approved incentive payment plans put in place for 2017. These plans include the Company’s executive management team and certain other designated officers throughout the corporation. Salaries and related payroll taxes for the first nine months of 2017 include incentive pay accruals of $831 thousand, severance pay expense of $301 thousand, and retention payments during the second quarter of 2017 in the amount of $201 thousand to certain members of management. These expenses were partially offset by declines due to the reduced workforce in the nine-month comparison. There were no similar expenses during the first nine months of 2016.

Data processing and communication expense during the current nine months includes $127 thousand during the first quarter of 2017 related to the consolidation of subsidiaries. The reduction in deposit insurance expense in both the three and nine-month comparisons is primarily due to the Federal Deposit Insurance Corporation lowering assessment rates beginning in the third quarter of 2016.

The decline in expenses related to repossessed real estate was mainly the result of lower write-downs of $364 thousand, or 60.8%, in the quarterly comparison, and $746 thousand, or 56.0%, in the year-to-date comparison. Write-downs in the first nine months of the prior year include $620 thousand ($267 thousand during the third quarter) in the aggregate related to two commercial real estate properties written down to their estimated fair value less cost to sell that were subsequently sold in the fourth quarter of 2016 for a related loss of $256 thousand. The prior-year third quarter also includes write-downs of $124 thousand related to a residential real estate development property as a result of entering into a sales contract. For the quarterly comparisons, the decrease in write-downs in the current period were partially offset by a lower net gain on the sale of properties of $132 thousand and higher maintenance and operating costs of $94 thousand.

Other noninterest expenses include amounts related to the consolidation of the Company’s subsidiaries of $22 thousand for the first nine months of 2017 and $135 thousand for both the third quarter and first nine months of 2016. During the third quarter of 2017, the Company received a $197 thousand insurance payment as reimbursement for legal expenses previously incurred. Also contributing to the decline in other noninterest expenses were lower directors’ fees of $47 thousand, or 27.0% and $129 thousand, or 25.7%, for the three and nine-month comparisons, respectively, mainly attributable to having fewer boards of directors due to the consolidation of subsidiaries during the first quarter of 2017.

Income Taxes

Income tax expense was $2.1 million for the current quarter, an increase of $516 thousand, or 33.1%, compared to $1.6 million for the third quarter of 2016. The effective income tax rates were 28.1% and 26.5% for the current and year-ago quarters, respectively. The increase in the effective income tax rate is mainly attributed to higher pretax income and a higher mix of taxable versus tax-exempt sources of revenue in the quarterly comparison. For the first nine months of 2017, income tax expense was $5.1 million, a decrease of $436 thousand, or 7.9%, compared to $5.5 million for 2016. The effective income tax rates were 27.9% and 28.2% for the current and year-ago periods, respectively.

42

FINANCIAL CONDITION

Total assets were $1.7 billion at September 30, 2017, a decrease of $11.1 million, or 0.7%, from year-end 2016, led by a decline in investment securities of $33.4 million, partially offset by an increase in loans, net of allowance, of $24.4 million. Liabilities were down $24.6 million, or 1.7%, and equity increased $13.6 million, or 7.4%, in the comparison. Selected balance sheet amounts and related data are presented in the table below and discussion that follows.

(Dollars in thousands, except per share data)	September 30, 2017			December 31, 2016			Increase (Decrease)			%
Cash and cash equivalents	$	117,608		$	113,534		$	4,074			3.6	%
Investment securities		450,963			484,352			(33,389	)		(6.9	)
Loans, net of allowance of $9,048 and $9,344		986,063			961,631			24,432			2.5
Other real estate owned		6,106			10,673			(4,567	)		(42.8	)
Other assets		99,236			100,840			(1,604	)		(1.6	)
Total assets	$	1,659,976		$	1,671,030		$	(11,054	)		(0.7	)%
Deposits	$	1,361,824		$	1,369,907		$	(8,083	)		(0.6	)%
Securities sold under agreements to repurchase		35,537			36,370			(833	)		(2.3	)
Other borrowings		37,027			52,152			(15,125	)		(29.0	)
Other liabilities		27,940			28,535			(595	)		(2.1	)
Total liabilities		1,462,328			1,486,964			(24,636	)		(1.7	)
Common stock		939			939			-			-
Capital surplus		52,120			51,885			235			0.5
Retained earnings		145,519			134,650			10,869			8.1
Accumulated other comprehensive loss		(930	)		(3,408	)		2,478			72.7
Total shareholders’ equity		197,648			184,066			13,582			7.4
Total liabilities and shareholders’ equity	$	1,659,976		$	1,671,030		$	(11,054	)		(0.7	)%
End of period tangible book value per common share1	$	26.30		$	24.51		$	1.79			7.3	%
End of period per common share closing price		42.05			42.05			-			-

¹Represents total common equity less intangible assets divided by the number of common shares outstanding at the end of the period.

Investment securities are down as a result of net proceeds from sales, maturities, and calls, funding new loans, maturing borrowings, and the outflow of deposits. The increase in loans was driven mainly by commercial real estate lending, and commercial and industrial lending. OREO decreased primarily due to property sales and impairment charges.

The decline in total liabilities was driven by a reduction in other borrowings and lower deposits. The decrease in other borrowings was driven by principal payments during the period of $15.1 million related to Federal Home Loan Bank (“FHLB”) advances. Deposits were down primarily from lower time deposits and interest bearing demand deposits.

Shareholders’ equity was up primarily due to net income of $13.1 million and other comprehensive income of $2.5 million, partially offset by dividends declared on common stock of $2.3 million. Other comprehensive income was driven by an increase in the after-tax unrealized gain of $2.4 million related to the available for sale investment securities portfolio.

43

Temporary Investments

Temporary investments consist of interest bearing deposits in other banks, federal funds sold and securities purchased under agreements to resell, and money market mutual funds. The Company uses these funds in the management of liquidity and interest rate sensitivity, as a short-term holding prior to subsequent movement into other investments with higher yields, or for other purposes. At September 30, 2017, temporary investments were $93.2 million, an increase of $5.4 million, or 6.1%, from year-end 2016.

Investment Securities

The investment securities portfolio is comprised primarily of residential mortgage-backed securities, tax-exempt securities of states and political subdivisions, and debt securities issued by U.S. government-sponsored agencies. Substantially all of the Company’s investment securities are designated as available for sale. Proceeds received from maturing or called investment securities not needed to fund higher-earning loans are either reinvested in similar investments or used to manage liquidity, such as for deposit outflows or other payment obligations. Total investment securities had a carrying amount of $451 million at September 30, 2017, a decrease of $33.4 million, or 6.9%, compared to $484 million at year-end 2016.

The decline in investment securities was driven by net maturities, calls, and sales totaling $34.3 million and net premium amortization of $2.7 million, partially offset by higher pre-tax market values related to the available for sale portfolio of $3.7 million.

Loans

Loans were $995 million at September 30, 2017, an increase of $24.1 million, or 2.5%, compared to year-end 2016. While recent loan demand and near term prospects are encouraging, the Company continues a conservative approach to loan originations. After holding relatively steady during the second quarter of 2017, the loan portfolio grew again during the third quarter despite several early payoffs of larger-balance commercial real estate loans totaling $5.7 million in the aggregate.

From time to time the Company may purchase a limited amount of loans originated by otherwise nonaffiliated third parties. The Company performs its own risk assessment and makes the credit decision on each loan prior to purchase. The Company purchased smaller balance commercial loans totaling $2.1 million and $1.8 million in the aggregate during the first nine months of 2017 and 2016, respectively. The average amount of the purchased loans was $142 thousand for 2017 and $109 thousand for 2016.

The composition of the loan portfolio is summarized in the table below.

	September 30, 2017					December 31, 2016
(Dollars in thousands)	Amount		%			Amount		%
Real estate mortgage – construction and land development	$	112,005		11.2	%	$	120,230		12.4	%
Real estate mortgage – residential		342,350		34.4			350,295		36.1
Real estate mortgage – farmland and other commercial enterprises		427,575		43.0			400,367		41.2
Commercial, financial, and agriculture		104,411		10.5			90,848		9.4
Installment		8,770		.9			9,235		.9
Total	$	995,111		100.0	%	$	970,975		100.0	%

On an average basis, loans represented 63.1% of earning assets for the first nine months of 2017, an increase of 376 basis points compared to 59.3% for the full year of 2016. The increase in the level of loans as a percentage of earning assets reflects the overall growth in the loan portfolio over the past year combined with a significant decrease in investment securities as a result of unwinding the balance sheet leverage transaction. The increase in loans in recent periods has been funded by cash flows from investment securities and temporary investments. Loans typically involve an increase in credit risk and higher yields when compared to investment securities and temporary investment alternatives.

44

Allowance for Loan Losses

The allowance for loan losses is maintained at a level management believes is adequate to cover probable losses in the loan portfolio. The determination of the appropriate level of allowance for loan losses requires significant judgment in order to reflect credit losses specifically identified in the Company’s loan portfolio as well as management's best estimate of probable incurred credit losses in the loan portfolio at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses and the related provision for loan losses generally fluctuate as the relative level of nonperforming and impaired loans vary. However, other factors impact the amount of the allowance such as the Company’s historical loss experience, the financial condition of its borrowers, general economic conditions, and other qualitative risk factors as described in greater detail in the Company’s most recent annual report on Form 10-K.

The allowance for loan losses was $9.0 million, or 0.91% of outstanding loans, at September 30, 2017. This compares to $9.3 million, or 0.96% of loans outstanding, at year-end 2016. The decrease in the allowance as a percentage of loans outstanding from the prior year-end is a result of a credit to the provision for loan losses of $298 thousand combined with loan growth for the current nine-month period. As a percentage of nonperforming loans, the allowance for loan losses was 34.5% at September 30, 2017 compared to 31.8% at year-end 2016. The relatively low amount of the allowance for loan losses as a percentage of nonperforming loans is due mainly to the makeup of nonperforming loans as discussed further below.

Nonperforming loans include $22.3 million of accruing restructured loans, which represents 84.8% of total nonperforming loans at September 30, 2017. At year-end 2016, this amount was $22.9 million, or 78.1%. The allowance attributed to credits that are restructured with lower interest rates generally represents the difference in the present value of future cash flows calculated at the loan’s original effective interest rate and the new lower rate resulting from the restructuring. This typically results in a reserve for loan losses that is less severe than for other loans that are collateral dependent. The allowance specifically allocated to impaired loans, which includes restructured loans, was $2.8 million, or 8.1%, and $2.9 million, or 7.0% of such loans, at September 30, 2017 and year-end 2016, respectively. As a percentage of nonaccrual loans and loans past due 90 days or more and still accruing, the allowance for loan losses was 227% and 145% for the current quarter-end and year-end 2016, respectively.

The overall improvement in the credit quality of the loan portfolio experienced during 2016 continued during the first nine months of 2017. The specific reserve on total impaired loans declined $160 thousand, or 5.4%, from year-end 2016, while total impaired loans declined $7.4 million, or 17.6%. The resulting increase in the specific reserve as a percent of total impaired loans is due to the characteristics of the individual loans that are classified as impaired.

Certain credit quality measures are summarized in the table that follows for the periods indicated. Several of these measures are at or near the best level in the last three years.

(In thousands)	September 30, 2017		December 31, 2016		September 30, 2016		Three-year High1		Three-year Low1
Nonperforming loans	$	26,257	$	29,365	$	29,858	$	36,948	$	26,257
Nonaccrual loans		3,949		6,423		6,779		11,508		3,949
Loans past due 30-89 days and still accruing		826		2,259		695		2,719		588
Loans graded substandard or below		30,110		37,650		39,266		52,313		30,110
Impaired loans		34,529		41,895		43,395		45,574		34,529
Loans, net of unearned income		995,111		970,975		950,716		995,111		927,389

¹Based on quarter-end balances over the previous three years.

45

Nonperforming Loans

Nonperforming loans consist of nonaccrual loans, accruing restructured loans, and loans 90 days or more past due and still accruing interest. The accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for 90 days or more, unless such loan is well secured and in the process of collection.

Restructured loans occur when a lender, because of economic or legal reasons related to a borrower’s financial difficulty, grants a concession to the borrower that it would not otherwise consider. Restructured loans typically include a reduction of the stated interest rate or an extension of the maturity date, among other possible concessions. The Company gives careful consideration to identifying which of its challenged credits merit a restructuring of terms that it believes will result in maximum loan repayments and mitigation of possible losses. Cash flow projections are carefully scrutinized prior to restructuring any credits; past due credits are typically not granted concessions.

Nonperforming loans were $26.3 million at September 30, 2017, a decrease of $3.1 million or, 10.6%, compared to $29.4 million at year-end 2016. Nonaccrual loans and accruing restructured loans decreased $2.5 million, or 38.5%, and $666 thousand, or 2.9%, respectively. Loan payments include $1.7 million related to nonaccrual loans during the first nine months of 2017, which include two larger-balance credits totaling $805 thousand in the aggregate. One of these larger-balance credits also had a charge-off totaling $405 thousand and the remaining collateral securing the loan was repossessed and subsequently sold at a small gain. There are no further balances outstanding related to this credit.One larger-balance nonaccrual credit in the amount of $428 thousand secured by commercial real estate was upgraded to performing status during the second quarter of 2017 and was subsequently paid in full during the third quarter.

Accruing restructured loans make up $22.3 million, or 84.8%, of the Company’s nonperforming loans at September 30, 2017 compared with $3.9 million, or 15.0%, related to nonaccrual loans. Additionally, three larger balance credits account for $21.1 million, or 94.7%, of total restructured loans. Nonaccrual loans have decreased to the lowest level since the second quarter of 2007 and are down $59.8 million, or 93.8%, from their peak of $63.7 million in the second quarter of 2011.

46

Nonperforming loans, presented by class, were as follows for the periods indicated:

Nonperforming Loans
(In thousands)	September 30, 2017			December 31, 2016
Nonaccrual Loans
Real Estate
Real estate mortgage – construction and land development	$	380		$	712
Real estate mortgage – residential		1,490			2,316
Real estate mortgage – farmland and other commercial enterprises		1,908			3,383
Consumer
Secured		-			4
Unsecured		171			8
Total nonaccrual loans	$	3,949		$	6,423
Restructured Loans
Real Estate
Real estate mortgage – construction and land development	$	1,957		$	3,637
Real estate mortgage – residential		5,356			4,006
Real estate mortgage – farmland and other commercial enterprises		14,461			14,787
Commercial
Commercial and industrial		372			377
Consumer
Unsecured		130			135
Total restructured loans	$	22,276		$	22,942
Past Due 90 Days or More and Still Accruing
Consumer
Unsecured	$	32		$	-
Total past due 90 days or more and still accruing	$	32		$	-
Total nonperforming loans	$	26,257		$	29,365
Ratio of total nonperforming loans to total loans		2.6	%		3.0	%

The most significant components of nonperforming loans include nonaccrual and restructured loans. Activity during 2017 related to these two components was as follows:

(In thousands)	Nonaccrual Loans			Restructured Loans
Balance at December 31, 2016	$	6,423		$	22,942
Additions		742			-
Principal paydowns		(1,712	)		(666	)
Transfers to performing status		(428	)		-
Transfers to other real estate owned		(459	)		-
Charge-offs		(617	)		-
Balance at September 30, 2017	$	3,949		$	22,276

47

The Company’s comprehensive risk-grading and loan review program includes a review of loans to assess risk and assign a grade to those loans, a review of delinquencies, and an assessment of loans for needed charge-offs or placement on nonaccrual status. The Company had loans in the amount of $32.6 million and $44.0 million at September 30, 2017 and year-end 2016, respectively, which were performing but considered potential problem loans and are not included in the nonperforming loan totals in the table above. These loans, however, are considered in establishing an appropriate allowance for loan losses. The balance outstanding for potential problem credits is partially attributed to lingering strain from the recession on certain of the Company’s customers. Potential problem loans include a variety of borrowers and are secured primarily by various types of real estate including commercial, construction properties, and residential real estate developments. At September 30, 2017, the five largest potential problem credits were $9.7 million in the aggregate compared to $11.5 million at year-end 2016.

Potential problem loans are identified on the Company’s watch list and consist of loans that require close monitoring by management. Credits may be considered as a potential problem loan for reasons that are temporary or correctable, such as for a deficiency in loan documentation or absence of current financial statements of the borrower. Potential problem loans may also include credits where adverse circumstances are identified that may affect the borrower’s ability to comply with the contractual terms of the loan. Other factors which might indicate the existence of a potential problem loan include the delinquency of a scheduled loan payment, deterioration in a borrower’s financial condition identified in a review of periodic financial statements, a decrease in the value of the collateral securing the loan, or a change in the economic environment in which the borrower operates. Certain loans on the Company’s watch list are also considered impaired and specific allowances related to these loans are established in accordance with the appropriate accounting guidance.

Other Real Estate

OREO includes real estate properties acquired by the Company through, or in lieu of, actual foreclosure. At September 30, 2017, OREO was $6.1 million, a decrease of $4.6 million, or 42.8%, compared to $10.7 million at year-end 2016. The decrease was driven by sales activity, including the sale of a residential real estate development property that sold for $2.0 million with a related gain of $147 thousand and three larger-balance commercial real estate development properties sold for $1.4 million with a related net loss of $62 thousand in the aggregate. OREO has declined $46.4 million or 88.2% from its peak of $52.6 million, which occurred at year-end 2012. A summary of OREO activity for 2017 follows.

(In thousands)	Amount
Balance at December 31, 2016	$	10,673
Transfers from loans and other increases		593
Proceeds from sales		(4,670	)
Gain on sales, net		95
Write-downs		(585	)
Balance at September 30, 2017	$	6,106

Deposits

A summary of the Company’s deposits are as follows for the periods indicated:

	End of Period							Average
(In thousands)	September 30, 2017		December 31, 2016		Increase (Decrease)			Nine Months September 30, 2017		Twelve Months December 31, 2016		Increase (Decrease)
Noninterest Bearing	$	356,463	$	334,676	$	21,787		$	342,870	$	324,596	$	18,274
Interest Bearing
Demand		357,271		348,197		9,074			351,789		334,818		16,971
Savings		414,911		416,611		(1,700	)		420,955		407,353		13,602
Time		233,179		270,423		(37,244	)		251,539		296,258		(44,719	)
Total interest bearing		1,005,361		1,035,231		(29,870	)		1,024,283		1,038,429		(14,146	)
Total Deposits	$	1,361,824	$	1,369,907	$	(8,083	)	$	1,367,153	$	1,363,025	$	4,128

The decline in total end of period deposits was driven by lower time deposits and savings deposits of $37.2 million, or 13.8%, and $1.7 million, or 0.4%, respectively. Noninterest and interest bearing demand deposits increased $21.8 million, or 6.5%, and $9.1 million, or 2.6%, respectively. The decrease in time deposits is a result of the Company’s overall high liquidity position and a strategy to lower overall funding costs, mainly by allowing higher-rate certificates of deposit to roll off or reprice at lower interest rates. Many of those balances have been rolled into interest and noninterest bearing demand accounts or savings accounts by the customer. As rates have generally decreased throughout the deposit portfolio, many customers have opted to transfer funds from maturing time deposits or investments from other sources into short-term demand or savings accounts. The Company has not sought out or accepted brokered deposits in the past nor does it have plans to do so in the future.

48

Borrowed Funds

Total borrowed funds were $72.6 million at September 30, 2017, down $16.0 million, or 18.0%, from year-end 2016. The decline in borrowed funds was driven byprincipal payments during the period of $15.1 million related to FHLB advances. The Company had FHLB advances of $10.0 million with a fixed interest rate of 3.95% that matured in September, and $5.0 million with a fixed interest rate of 4.45% that matured in February.

Securities sold under agreements to repurchase were $35.5 million at quarter-end, down $833 thousand, or 2.3%, from year-end 2016. Securities sold under agreements to repurchase represent funds that have been swept out of the deposit accounts to facilitate the needs of certain qualifying customers, primarily commercial, into repurchase agreements. Such transactions are accounted for as secured borrowings by the Company.

LIQUIDITY

The primary source of funds for the Parent Company is the receipt of dividends from its subsidiary bank, United Bank & Capital Trust Company (“United Bank” or the “Bank”), balances of cash and cash equivalents maintained, and borrowings from nonaffiliated sources.Primary uses of cash include the payment of dividends to its shareholders, paying interest expense on borrowings, and payments to fund general operating expenses.

Payments of dividends to the Parent Company by the Bank are subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. A depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it is already undercapitalized. The federal banking agencies may prevent the payment of a dividend if they determine that the payment would be an unsafe and unsound banking practice. Moreover, the federal agencies have issued policy statements which provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. Capital ratios at the Bank exceed regulatory established “well-capitalized” status at September 30, 2017 under the prompt corrective action regulatory framework.

The Parent Company had cash and cash equivalents of $52.5 million and $44.3 million at September 30, 2017 and year-end 2016, respectively. Significant cash receipts for 2017 include dividend payments from United Bank of $13 million and management fees from subsidiaries of $551 thousand. Significant cash payments include $2.3 millionfor the payment of dividends on common stock; $1.5 million to the Bank in connection with the transfer of Parent Company personnel and related liabilities resulting from the consolidation of its subsidiaries; $1.4 million for salaries, payroll taxes, and employee benefits incurred prior to the consolidation of subsidiaries; and $548 thousand for the payment of interest on subordinated notes payable.

The Company's objective as it relates to liquidity is to ensure that the Bank has funds available to meet deposit withdrawals and credit demands without unduly penalizing profitability. In order to maintain a proper level of liquidity, the Bank has several sources of funds available on a daily basis. For assets, those sources of funds include liquid assets that are readily marketable or that can be pledged, or which mature in the near future. These assets primarily include cash and due from banks, federal funds sold, investment securities, and cash flow generated by the repayment of principal and interest on loans and investment securities. For liabilities, sources of funds primarily include the Bank’s core deposits, FHLB and other borrowings, and federal funds purchased and securities sold under agreements to repurchase. While maturities and scheduled amortization of loans and investment securities are generally a predictable source of funds, deposit outflows and mortgage prepayments are influenced significantly by general interest rates, economic conditions, and competition in our local markets.

As of September 30, 2017, the Company had $422 million of additional borrowing capacity under various FHLB, federal funds, and other borrowing agreements. However, there is no guarantee that these sources of funds will continue to be available to the Company, or that current borrowings can be refinanced upon maturity, although the Company is not aware of any events or uncertainties that are likely to cause a decrease in the Company’s liquidity from these sources. The Company’s borrowing capacity was $275 million at year-end 2016.

49

For the longer term, the liquidity position is managed by balancing the maturity structure of the balance sheet. This process allows for an orderly flow of funds over an extended period of time. The Company’s Asset and Liability Management Committee meets regularly and monitors the composition of the balance sheet to ensure comprehensive management of interest rate risk and liquidity.

Liquid assets consist of cash and cash equivalents and available for sale investment securities. At September 30, 2017, consolidated liquid assets were $565 million, down $29.3 million, or 4.9%, compared to $594 million at year-end 2016. Although liquid assets decreased in the comparison, the Company’s liquidity position remains elevated mainly as a result of the Company’s overall net funding position. The overall funding position of the Company changes as loan demand, deposit levels, and other sources and uses of funds fluctuate.

Net cash provided by operating activities was $21.4 million and $17.9 million for the first nine months of 2017 and 2016, respectively. This represents an increase of $3.5 million, or 19.8%. Net cash provided by investing activities was $8.8 million and $120 million for the first nine months of 2017 and 2016, respectively. The $111 million, or 92.7%, decline was primarily driven by investment securities activity and loan activity. The Company had net cash proceeds of $34.3 million related to investment securities for 2017, down $74.9 million compared with the year-ago period. Net cash inflows represent proceeds from the sale, maturity, and call of investment securities in excess of purchases. The decrease in net cash inflows related to investment securities was driven by the series of transactions during the last half of 2016 to deleverage the balance sheet and reposition the investment securities portfolio, as discussed in further detail under the “Net Interest Income” caption on page 36. For loans, the Company had cash outflow representing overall net principal advances of $23.3 million for 2017 compared to net principal collections of $9.1 million a year earlier.

Net cash used in financing activities was $26.2 million and $131 million for the first nine months of 2017 and 2016, respectively. This represents a decrease of $105 million, or 80.0%, driven primarily by cash paid in the prior year to extinguish long-term debt. During 2016, the Company paid $104 million to extinguish long-term securities sold under agreements to repurchase as part of the deleveraging transaction. The Company also paid $11.0 million during 2016 to purchase the trust preferred securities issued by Trust II and subsequently extinguished the subordinated debt issued to the trust. There was no similar transaction in the current year. For 2017, the Company had net repayments of FHLB advances of $15.1 million, up $15.0 million from $120 thousand in 2016.Deposits decreased $8.1 million during 2017, down $10.0 million compared to an $18.1 million reduction for the first nine months of 2016.

Commitments to extend credit are entered into with customers in the ordinary course of providing traditional banking services and are considered in addressing the Company’s liquidity management. The Company does not expect these commitments to significantly affect the liquidity position in future periods. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options, or similar instruments.

CAPITAL RESOURCES

Shareholders’ equity was $198 million at September 30, 2017, an increase of $13.6 million, or 7.4%, compared to $184 million at year-end 2016. The increase in shareholders’ equity was driven by net income of $13.1 million and higher accumulated other comprehensive income of $2.5 million, partially offset by dividends declared on common stock of $2.3 million. The increase in accumulated other comprehensive income is primarily due to a $2.4 million after-tax increase in the market value of the available for sale investment securities portfolio, which correlates with a general decline in long term market interest rates during the quarter. As market interest rates fall, the value of fixed rate investments generally increase.

At September 30, 2017, the Company’s tangible common equity ratio was 11.91%, an increase of 89 basis points compared to 11.02% at year-end 2016. The tangible common equity ratio represents tangible common equity as a percentage of tangible assets, which excludes intangible assets.

In July 2013, U.S. banking regulators adopted final rules related to standards on bank capital adequacy and liquidity (commonly referred to as “Basel III”). The new rules were effective for the Company beginning on January 1, 2015, subject to a phase-in period for certain provisions extending through January 1, 2019. The rules include a new common equity Tier 1 capital ratio, an increase to the minimum Tier 1 capital ratio, an increase to risk-weightings of certain assets, implementation of a new capital conservation buffer in excess of the required minimum (which began being phased in during 2016), and changes to how regulatory capital is defined. At September 30, 2017, the Company and the Bank met the minimum capital ratios and a fully phased-in capital conservation buffer under the new rules.

50

Consistent with the objective of operating a sound financial organization, the Company’s goal is to maintain capital ratios well above the regulatory minimum requirements. The capital ratios of the Company and its subsidiary bank are presented in the following table for the dates indicated.

	September 30, 2017												December 31, 2016
	Common Equity Tier 1 Risk- based Capital1			Tier 1 Risk- based Capital1			Total Risk- based Capital1			Tier 1 Leverage2			Common Equity Tier 1 Risk- based Capital1			Tier 1 Risk- based Capital1			Total Risk- based Capital1			Tier 1 Leverage2
Consolidated		17.09	%		19.88	%		20.66	%		13.83	%		16.43	%		19.28	%		20.10	%		13.20	%
United Bank & Capital Trust Company		15.29			15.29			16.08			10.75			*			*			*			*
Farmers Bank & Capital Trust Company		*			*			*			*			16.53			16.53			17.23			9.80
United Bank & Trust Company		*			*			*			*			15.54			15.54			16.47			12.38
First Citizens Bank		*			*			*			*			13.56			13.56			14.16			9.76
Citizens Bank of Northern Kentucky, Inc.		*			*			*			*			15.24			15.24			16.40			10.68
Regulatory minimum		4.50			6.00			8.00			4.00			4.50			6.00			8.00			4.00
Well-capitalized status		6.50			8.00			10.00			5.00			6.50			8.00			10.00			5.00

¹Common Equity Tier 1 Risked-based, Tier 1 Risk-based, and Total Risk-based Capital ratios are computed by dividing a bank’s Common Equity Tier 1, Tier 1 or Total Capital, as defined by regulation, by a risk-weighted sum of the bank’s assets, with the risk weighting determined by general standards established by regulation.

²Tier 1 Leverage ratio is computed by dividing a bank’s Tier 1 Capital by its total quarterly average assets, as defined by regulation.

*In February 2017, the Company mergedUnited Bank & Trust Company, First Citizens Bank, Inc., and Citizens Bank of Northern Kentucky, Inc. into Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed to United Bank & Capital Trust Company.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company uses a simulation model as a tool to monitor and evaluate interest rate risk exposure. The model is designed to measure the sensitivity of net interest income and net income to changing interest rates over future time periods. Forecasting net interest income and its sensitivity to changes in interest rates requires the Company to make assumptions about the volume and characteristics of many attributes, including assumptions relating to the replacement of maturing earning assets and liabilities. Other assumptions include, but are not limited to, projected prepayments, projected new volume, and the predicted relationship between changes in market interest rates and changes in customer account balances. These effects are combined with the Company’s estimate of the most likely rate environment to produce a forecast of net interest income and net income. The forecasted results are then adjusted for the effect of a gradual increase and decrease in market interest rates on the Company’s net interest income and net income. Because assumptions are inherently uncertain, the model cannot precisely estimate net interest income and net income or the effect of interest rate changes on net interest income and net income. Actual results could differ significantly from simulated results.

At September 30, 2017, the model indicated that if rates were to gradually increase by 75 basis points during the remainder of the calendar year, then net interest income and net income would decrease 0.08% and 0.20%, respectively, for the year ending December 31, 2017 when compared to the forecasted results for the most likely rate environment. The model indicated that if rates were to gradually decrease by 75 basis points over the same period, then net interest income and net income would decrease 0.18% and 0.46%, respectively.

In the current low interest rate environment, it is not practical or possible to reduce certain deposit rates by the same magnitude as rates on earning assets. The average rate paid on the Company’s deposits is presently below 0.75%. This situation magnifies the model’s predicted results when modeling a decrease in interest rates, as earning assets with higher yields have more of an opportunity to reprice at lower rates than lower-rate deposits.

51

Item 4. Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report, and have concluded that the Company’s disclosure controls and procedures were adequate and effective to ensure that all material information required to be disclosed in this report has been made known to them in a timely fashion.

The Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended September 30, 2017 in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

As of September 30, 2017, there were various pending legal actions and proceedings against the Company arising from the normal course of business and in which claims for damages are asserted. It is the opinion of management, after discussion with legal counsel, that the disposition or ultimate resolution of such claims and legal actions will not have a material effect upon the consolidated financial statements of the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During 2014, the Company changed the form of payment to its directors for board meeting and quarterly fees from 100% cash to 50% in cash and 50% in Company common stock. The shares are issued as part of a plan adopted by the Board of Directors. Each director has elected to participate by entering into an agreement with the Company to accept common stock in lieu of cash for 50% of the director’s board meeting and quarterly fees. As the shares are only issued to directors as part of a plan approved by the Board, the shares are exempt from the registration requirements of the Securities Act of 1933, as amended (the “1933 Act”), as a sale not involving any public offering under Section 4(2) of the 1933 Act. Attendance for committee meetings continues to be paid completely in cash. As employee directors are not paid director’s fees, only non-employee directors receive stock under this plan.

The Company issued a total of 755 shares and 1,949 shares of common stock to its non-employee directors under this plan in the three and nine months ended September 30, 2017, respectively, as compensation for director fees of $29 thousand and $76 thousand for those respective periods. The cash retained by the Company by issuing common stock in lieu of paying cash is used for general corporate purposes. There are no brokers involved in the issuance of stock to directors and no commissions or other broker fees are paid.

At various times, the Company’s Board of Directors has authorized the purchase of shares of the Company’s outstanding common stock. No stated expiration dates have been established under any of the previous authorizations. There were no shares of common stock repurchased by the Company during the quarter ended September 30, 2017. There are 84,971 shares that may still be purchased under the various authorizations, although no shares have been purchased since 2008.

Item 6. Exhibits

List of Exhibits

3.1	Second Amended and Restated Articles of Incorporation of Farmers Capital Bank Corporation (incorporated by reference to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 (File No. 000-14412)).
3.2	Articles of Amendment to Second Amended and Restated Articles of Incorporation of Farmers Capital Bank Corporation dated January 6, 2009 (incorporated by reference to the Current Report on Form 8-K dated January 13, 2009 (File No. 000-14412)).
3.3	Articles of Amendment to Second Amended and Restated Articles of Incorporation of Farmers Capital Bank Corporation dated November 16, 2009 (incorporated by reference to the Current Report on Form 8-K dated November 17, 2009 (File No. 000-14412)).

52

3.4	Amended and Restated Bylaws of Farmers Capital Bank Corporation (incorporated by reference to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 (File No. 000-14412)).
4.1*	Junior Subordinated Indenture, dated as of July 21, 2005, between Farmers Capital Bank Corporation and Wilmington Trust Company, as Trustee, relating to unsecured junior subordinated deferrable interest notes that mature in 2035.
4.2*	Amended and Restated Trust Agreement, dated as of July 21, 2005, among Farmers Capital Bank Corporation, as Depositor, Wilmington Trust Company, as Property and Delaware Trustee, the Administrative Trustees (as named therein), and the Holders (as defined therein).
4.3*	Guarantee Agreement, dated as of July 21, 2005, between Farmers Capital Bank Corporation, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.
4.4*	Junior Subordinated Indenture, dated as of July 26, 2005, between Farmers Capital Bank Corporation and Wilmington Trust Company, as Trustee, relating to unsecured junior subordinated deferrable interest notes that mature in 2035.
4.5*	Amended and Restated Trust Agreement, dated as of July 26, 2005, among Farmers Capital Bank Corporation, as Depositor, Wilmington Trust Company, as Property and Delaware Trustee, the Administrative Trustees (as named therein), and the Holders (as defined therein).
4.6*	Guarantee Agreement, dated as of July 26, 2005, between Farmers Capital Bank Corporation, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.
4.7*	Indenture, dated as of August 14, 2007 between Farmers Capital Bank Corporation, as Issuer, and Wilmington Trust Company, as Trustee, relating to fixed/floating rate junior subordinated debt due 2037.
4.8*	Amended and Restated Declaration of Trust, dated as of August 14, 2007, by Farmers Capital Bank Corporation, as Sponsor, Wilmington Trust Company, as Delaware and Institutional Trustee, the Administrative Trustees (as named therein), and the Holders (as defined therein).
4.9*	Guarantee Agreement, dated as of August 14, 2007, between Farmers Capital Bank Corporation, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.
10.1	Employee Stock Purchase Plan of Farmers Capital Bank Corporation (incorporated by reference to Form S-8 effective June 24, 2004 (File No. 333-116801)).
10.2	Nonqualified Stock Option Plan of Farmers Capital Bank Corporation (incorporated by reference to Form S-8 effective September 8, 1998 (File No. 333-63037)).
10.3	Employment agreement dated December 10, 2012 between Farmers Capital Bank Corporation and Lloyd C. Hillard, Jr. (incorporated by reference to Exhibit 10.1 to Form 8-K/A filed December 26, 2012 (File No. 000-14412)).
10.4	Amendment No. 1 to Employment agreement dated December 10, 2012 between Farmers Capital Bank Corporation and Lloyd C. Hillard, Jr. (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 30, 2013 (File No. 000-14412)).
10.5	Amendment No. 2 to Employment agreement dated December 10, 2012 between Farmers Capital Bank Corporation and Lloyd C. Hillard, Jr. (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 8, 2014 (File No. 000-14412)).
10.6	Amendment No. 3 to Employment agreement dated December 10, 2012 between Farmers Capital Bank Corporation and Lloyd C. Hillard, Jr. (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 9, 2015 (File No. 000-14412)).

53

10.7	Amendment No. 4 to Employment agreement dated December 10, 2012 between Farmers Capital Bank Corporation and Lloyd C. Hillard, Jr. (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 4, 2017).
10.8	Employment agreement dated December 17, 2013 between Farmers Capital Bank Corporation and Rickey D. Harp (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 30, 2013 (File No. 000-14412)).
10.9	Employment agreement dated October 28, 2014 between Farmers Capital Bank Corporation and Mark A. Hampton (incorporated by reference to Exhibit 10.1 to Form 8-K filed October 28, 2014 (File No. 000-14412)).
10.10	Employment agreement dated November 18, 2015 between Farmers Capital Bank Corporation and J. David Smith, Jr. (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 19, 2015 (File No. 000-14412)).
10.11	Executive Short-Term Incentive Plan January 1, 2017 (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 24, 2017).
31.1**	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32**	CEO & CFO Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	Interactive Data Files

* Exhibit not included pursuant to Item 601(b)(4)(iii) and (v) of Regulation S-K. The Company will provide a copy of such exhibit to the Securities and Exchange Commission upon request.

** Filed with this Quarterly Report on Form 10-Q.

54

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:	November 7, 2017	/s/ Lloyd C. Hillard, Jr.
		Lloyd C. Hillard, Jr.
		President and CEO
		(Principal Executive Officer)
Date:	November 7, 2017	/s/ Mark A. Hampton
		Mark A. Hampton
		Executive Vice President, CFO, and Secretary
		(Principal Financial and Accounting Officer)

55

EX-31.1

Exhibit 31.1

CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Lloyd C. Hillard, Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Farmers Capital Bank Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 7, 2017	/s/ Lloyd C. Hillard, Jr.
		Lloyd C. Hillard, Jr.
		President and CEO

EX-31.2

Exhibit 31.2

CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark A. Hampton, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Farmers Capital Bank Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 7, 2017	/s/ Mark A. Hampton
		Mark A. Hampton
		Executive Vice President, Secretary, and CFO

EX-32

Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the accompanying Quarterly Report of Farmers Capital Bank Corporation on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies in his capacity as officer of Farmers Capital Bank Corporation, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	November 7, 2017	/s/ Lloyd C. Hillard, Jr.
		Lloyd C. Hillard, Jr.
		President and CEO
Date:	November 7, 2017	/s/ Mark A. Hampton
		Mark A. Hampton
		Executive Vice President, CFO, and Secretary

A signed original of this written statement required by Section 906 has been provided to Farmers Capital Bank Corporation and will be retained by Farmers Capital Bank Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 01, 2017
Document Information [Line Items]
Entity Registrant Name	FARMERS CAPITAL BANK CORP
Entity Central Index Key	0000713095
Trading Symbol	ffkt
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		7,515,849
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Cash and cash equivalents:
Cash and due from banks	$ 24,361	$ 25,666
Interest bearing deposits in other banks	65,493	62,696
Federal funds sold and securities purchased under agreements to resell	0	6,622
Money market mutual funds	27,754	18,550
Total cash and cash equivalents	117,608	113,534
Investment securities:
Available for sale, amortized cost of $448,995 (2017) and $486,038 (2016)	447,515	480,864
Held to maturity, fair value of $3,597 (2017) and $3,597 (2016)	3,448	3,488
Total investment securities	450,963	484,352
Loans, net of unearned income	995,111	970,975
Allowance for loan losses	(9,048)	(9,344)
Loans, net	986,063	961,631
Premises and equipment, net	31,357	31,900
Company-owned life insurance	30,607	30,914
Other real estate owned	6,106	10,673
Other assets	37,272	38,026
Total assets	1,659,976	1,671,030
Deposits:
Noninterest bearing	356,463	334,676
Interest bearing	1,005,361	1,035,231
Total deposits	1,361,824	1,369,907
Securities sold under agreements to repurchase	35,537	36,370
Federal Home Loan Bank advances	3,521	18,646
Subordinated notes payable to unconsolidated trusts	33,506	33,506
Dividends payable, common stock	751	751
Other liabilities	27,189	27,784
Total liabilities	1,462,328	1,486,964
Shareholders’ Equity
Common stock, par value $.125 per share; 14,608,000 shares authorized; 7,515,435 and 7,509,444 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	939	939
Capital surplus	52,120	51,885
Retained earnings	145,519	134,650
Accumulated other comprehensive loss	(930)	(3,408)
Total shareholders’ equity	197,648	184,066
Total liabilities and shareholders’ equity	$ 1,659,976	$ 1,671,030

XML

Unaudited Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Available for sale, amortized cost	$ 448,995	$ 486,038
Held to maturity, fair value	$ 3,597	$ 3,597
Common stock, par value (in dollars per share)	$ 0.125	$ 0.125
Common stock, shares authorized (in shares)	14,608,000	14,608,000
Common stock, shares issued (in shares)	7,515,435	7,509,444
Common stock, shares outstanding (in shares)	7,515,435	7,509,444

XML

Unaudited Condensed Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Interest Income
Interest and fees on loans	$ 12,281	$ 11,714	$ 36,109	$ 35,640
Interest on investment securities:
Taxable	1,857	2,159	5,741	7,095
Nontaxable	563	630	1,733	1,866
Interest on deposits in other banks	225	102	495	290
Interest on federal funds sold, securities purchased under agreements to resell, and money market mutual funds	57	14	114	31
Total interest income	14,983	14,619	44,192	44,922
Interest Expense
Interest on deposits	540	578	1,596	1,823
Interest on securities sold under agreements to repurchase	17	867	58	2,912
Interest on Federal Home Loan Bank advances	109	187	398	558
Interest on subordinated notes payable to unconsolidated trusts	227	177	638	534
Total interest expense	893	1,809	2,690	5,827
Net interest income	14,090	12,810	41,502	39,095
Provision for loan losses	(379)	(190)	(298)	(819)
Net interest income after provision for loan losses	14,469	13,000	41,800	39,914
Noninterest Income
Service charges and fees on deposits	2,041	2,046	6,011	5,840
Allotment processing fees	693	810	2,059	2,504
Other service charges, commissions, and fees	1,360	1,459	4,060	4,173
Trust income	724	715	2,054	2,034
Net gain (loss) on sales of available for sale investment securities	3	3,776	(7)	3,990
Net gain on sales of cost method investment securities	82	0	82	0
Gains on sale of mortgage loans, net	172	273	515	695
Income from company-owned life insurance	467	229	923	785
Gain on debt extinguishment	0	0	0	4,050
Legal settlement	0	1,350	0	1,450
Other	85	114	283	314
Total noninterest income	5,627	10,772	15,980	25,835
Noninterest Expense
Salaries and employee benefits	7,309	7,810	22,572	23,444
Occupancy expenses, net	1,166	1,172	3,515	3,541
Equipment expenses	613	662	1,765	1,833
Data processing and communication expenses	1,119	1,085	3,505	3,411
Bank franchise tax	610	613	1,776	1,823
Deposit insurance expense	129	227	396	805
Other real estate expenses, net	316	454	716	1,466
Loss on debt extinguishment	0	3,776	0	3,776
Other	1,446	2,089	5,338	6,080
Total noninterest expense	12,708	17,888	39,583	46,179
Income before income taxes	7,388	5,884	18,197	19,570
Income tax expense	2,076	1,560	5,074	5,510
Net income	$ 5,312	$ 4,324	$ 13,123	$ 14,060
Per Common Share
Net income – basic and diluted (in dollars per share)	$ 0.71	$ 0.58	$ 1.75	$ 1.87
Cash dividends declared (in dollars per share)	$ 0.10	$ 0.07	$ 0.30	$ 0.21
Weighted Average Common Shares Outstanding
Basic and diluted (in shares)	7,514	7,505	7,512	7,503

XML

Unaudited Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net income	$ 5,312	$ 4,324	$ 13,123	$ 14,060
Other comprehensive income (loss):
Unrealized holding gain (loss) on available for sale securities arising during the period, net of tax of $64, $(824), $1,290 and $1,563, respectively	120	(1,531)	2,397	2,905
Reclassification adjustment for net realized (gain) loss included in net income, net of tax of $1, $1,322, $(2) and $1,397, respectively	(2)	(2,454)	5	(2,593)
Change in unfunded portion of postretirement benefit obligation, net of tax of $4, $4, $41 and $14, respectively	8	9	76	27
Net current-period other comprehensive income (loss)	126	(3,976)	2,478	339
Comprehensive income	$ 5,438	$ 348	$ 15,601	$ 14,399

XML

Unaudited Condensed Consolidated Statements of Comprehensive Income (Parentheticals) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Unrealized holding gain on available for sale securities arising during the period, tax	$ 64	$ (824)	$ 1,290	$ 1,563
Reclassification adjustment for net realized loss (gain) included in net income, tax	1	1,322	(2)	1,397
Change in unfunded portion of postretirement benefit obligation, tax	$ 4	$ 4	$ 41	$ 14

XML

Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2015	7,500
Beginning balance at Dec. 31, 2015	$ 937	$ 51,608	$ 120,371	$ 2,782	$ 175,698
Net income			14,060		14,060
Other comprehensive income				339	339
Cash dividends declared – common			(1,575)		(1,575)
Shares issued under director compensation plan (in shares)	2
Shares issued under director compensation plan		62			62
Shares issued pursuant to employee stock purchase plan (in shares)	5
Shares issued pursuant to employee stock purchase plan	$ 1	115			116
Expense related to employee stock purchase plan		24			24
Balance (in shares) at Sep. 30, 2016	7,507
Ending balance at Sep. 30, 2016	$ 938	51,809	132,856	3,121	188,724
Beginning balance at Jun. 30, 2016				7,097
Net income					4,324
Other comprehensive income				(3,976)	(3,976)
Balance (in shares) at Sep. 30, 2016	7,507
Ending balance at Sep. 30, 2016	$ 938	51,809	132,856	3,121	188,724
Balance (in shares) at Dec. 31, 2016	7,509
Beginning balance at Dec. 31, 2016	$ 939	51,885	134,650	(3,408)	184,066
Net income			13,123		13,123
Other comprehensive income				2,478	2,478
Cash dividends declared – common			(2,254)		(2,254)
Shares issued under director compensation plan (in shares)	2
Shares issued under director compensation plan		76			76
Shares issued pursuant to employee stock purchase plan (in shares)	4
Shares issued pursuant to employee stock purchase plan		136			136
Expense related to employee stock purchase plan		23			23
Balance (in shares) at Sep. 30, 2017	7,515
Ending balance at Sep. 30, 2017	$ 939	52,120	145,519	(930)	197,648
Beginning balance at Jun. 30, 2017				(1,056)
Net income					5,312
Other comprehensive income				126	126
Balance (in shares) at Sep. 30, 2017	7,515
Ending balance at Sep. 30, 2017	$ 939	$ 52,120	$ 145,519	$ (930)	$ 197,648

XML

Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity (Parentheticals) - $ / shares	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Retained Earnings [Member]
Cash dividends declared – common (in dollars per share)	$ 0.30	$ 0.21
Cash dividends declared – common (in dollars per share)	$ 0.30	$ 0.21

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash Flows from Operating Activities
Net income	$ 13,123	$ 14,060
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,630	2,712
Net premium amortization of investment securities:
Provision for loan losses	(298)	(819)
Deferred income tax expense (benefit)	30	(76)
Mortgage loans originated for sale	(18,811)	(26,399)
Proceeds from sale of mortgage loans	20,891	27,650
Gain on sale of mortgage loans, net	(515)	(695)
Loss on disposal of premises and equipment, net	47	2
Net loss on sale and write downs of other real estate	490	1,301
Gain on extinguishment of subordinated notes payable to unconsolidated trusts	0	(4,050)
Loss on extinguishment of long-term securities sold under agreements to repurchase	0	3,776
Net loss (gain) on sale of available for sale investment securities	7	(3,990)
Net gain on sale of cost method investment securities	(82)	0
Curtailment gain on postretirement benefits plan liability	(351)	0
Increase in cash surrender value of company-owned life insurance	(658)	(679)
Death benefits in excess of cash surrender value on company-owned life insurance	(245)	(81)
Decrease in accrued interest receivable	324	873
Decrease in other assets	2,204	1,305
Increase (decrease) in accrued interest payable	23	(529)
(Decrease) increase in other liabilities	(150)	347
Net cash provided by operating activities	21,431	17,887
Cash Flows from Investing Activities
Proceeds from maturities and calls of available for sale investment securities	86,928	103,832
Proceeds from sale of available for sale investment securities	0	215,734
Purchase of available for sale investment securities	(52,592)	(210,368)
Proceeds from sale of cost method investment securities	132	0
Purchase of cost method investment securities	(3,445)	(472)
Loans originated for investment (greater) less than principal collected, net	(23,038)	8,510
Purchase of loans held for investment	(2,129)	(1,751)
Principal collected on purchased loans	1,825	2,304
Proceeds from death benefits of company-owned life insurance	1,210	341
Purchase of premises and equipment	(1,967)	(1,900)
Proceeds from sale of other real estate	1,878	3,946
Net cash provided by investing activities	8,802	120,176
Cash Flows from Financing Activities
Net decrease in deposits	(8,083)	(18,063)
Net (decrease) increase in short-term securities sold under agreements to repurchase	(58)	3,054
Proceeds from long-term securities sold under agreements to repurchase	7	9
Repayments of long-term securities sold under agreements to repurchase	(782)	(103,977)
Repayments of Federal Home Loan Bank advances	(15,125)	(120)
Cash paid to extinguish subordinated notes payable to unconsolidated trust	0	(10,950)
Dividends paid, common stock	(2,254)	(1,050)
Shares issued under employee stock purchase plan	136	116
Net cash used in financing activities	(26,159)	(130,981)
Net increase in cash and cash equivalents	4,074	7,082
Cash and cash equivalents at beginning of year	113,534	120,493
Cash and cash equivalents at end of period	117,608	127,575
Supplemental Disclosures
Interest	2,667	6,356
Income Taxes	3,035	3,850
Transfers from loans to other real estate	435	1,640
Sale and financing of other real estate	2,792	3,050
Cash dividends payable, common	751	525
Cancelation of investment in Farmers Capital Bank Trust II	0	464
Extinguishment of subordinated notes payable to Farmers Capital Bank Trust II	0	15,464
Employee Stock Purchase Plan Expense [Member]
Net premium amortization of investment securities:
Noncash compensation expense	23	24
Director Fee Compensation [Member]
Net premium amortization of investment securities:
Noncash compensation expense	76	62
Available-for-sale Securities [Member]
Net premium amortization of investment securities:
Net premium amortization of investment securities	2,633	3,054
Held-to-maturity Securities [Member]
Net premium amortization of investment securities:
Net premium amortization of investment securities	$ 40	$ 39

XML

Note 1 - Basis of Presentation and Nature of Operations

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.

Basis of Presentation and Nature of Operations

The

condensed consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the “Company” or “Parent Company”), a bank holding company, and its wholly owned subsidiaries. The Company has

one

b

ank subsidiary, United Bank & Capital Trust Company (“United Bank”), and

one

nonbank subsidiary, FFKT Insurance Services, Inc. (“FFKT Insurance”). In

February 2017,

the Company merged

three

of its subsidiary banks (United Bank & Trust Company in Versailles, KY; First Citizens Bank, Inc. in Elizabethtown, KY; and Citizens Bank of Northern Kentucky, Inc. in Newport, KY) and its data processing subsidiary (FCB Services, Inc. in Frankfort, KY) into its subsidiary bank Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed under the merger to United Bank & Capital Trust Company. The Company accounted for the transfer of assets and liabilities of the merged subsidiaries at their respective historical cost amounts as of the date of the merger.

FFKT Insurance is a captive insurance company that provides property and casualty coverage to

the Parent Company and its subsidiaries for risk management purposes or where insurance

may

not

be available or economically feasible. The Company has

two

subsidiaries organized as Delaware statutory trusts that are

not

consolidated into its financial statements. These trusts were formed for the purpose of issuing trust preferred securities.

United

Bank’s significant subsidiaries include EG Properties, Inc. and Farmers Capital Insurance Corporation (“Farmers Insurance”). EG Properties, Inc. is involved in real estate management and liquidation for certain repossessed properties of United Bank. Farmers Insurance is an insurance agency in Frankfort, KY.

The Company

provides financial services at its

34

locations in

21

communities throughout Central and Northern Kentucky to individual, business, agricultural, governmental, and educational customers. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential mortgage, commercial lending, and consumer installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other services include, but are

not

limited to, cash management services, issuing letters of credit, safe deposit box rental, and providing funds transfer services. Other financial instruments, which potentially represent concentrations of credit risk, include deposit accounts in other financial institutions and federal funds sold.

The preparation of financial statements in conformity with

accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the condensed financial statements are based on various factors including the current interest rate environment and the general strength of the local and state economy. Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the condensed financial statements. The allowance for loan losses, carrying value of other real estate owned, actuarial assumptions used to calculate postretirement benefits, and the fair values of financial instruments are estimates that are particularly subject to change.

The consolidated balance sheet as of

December 31,

201

6

has been derived from the audited financial statements of the Company as of that date. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended

December 31, 2016

included in the Company’s annual report on Form

10

-K. The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form

10

-Q and Rule

10

-

01

of Regulation S-

X

and do

not

include all of the information and the footnotes required by U.S. GAAP for complete statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such condensed financial statements, have been included. The results of operations for the interim periods are

not

necessarily indicative of the results to be expected for the full year. All significant intercompany transactions and balances are eliminated in consolidation.

XML

Note 2 - Reclassifications

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Reclassifications [Text Block]

2

.

Reclassifications

Certain reclassifications have been made to the

condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications do

not

affect net income or total shareholders’ equity as previously reported.

XML

Note 3 - Accumulated Other Comprehensive Income

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

3

.

Accumulated Other Comprehensive

(Loss)

Income

The following table presents changes in accumulated other comprehensive

(loss) income by component, net of tax, for the periods indicated.

Three Months Ended September 30,	201 7								201 6
(In thousands)	Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation		Total			Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(1,079	)	$	23	$	(1,056	)	$	7,516		$	(419	)	$	7,097
Other comprehensive income (loss) before reclassifications		120			7		127			(1,531	)		-			(1,531	)
Amounts reclassified from accumulated other comprehensive income		(2	)		1		(1	)		(2,454	)		9			(2,445	)
Net current-period other comprehensive income (loss)		118			8		126			(3,985	)		9			(3,976	)
Ending balance	$	(961	)	$	31	$	(930	)	$	3,531		$	(410	)	$	3,121

Nine Months Ended September 30,		2017									2016
(In thousands)		Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total			Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(3,363	)	$	(45	)	$	(3,408	)	$	3,219		$	(437	)	$	2,782
Other comprehensive income before reclassifications		2,397			25			2,422			2,905			-			2,905
Amounts reclassified from accumulated other comprehensive income		5			51			56			(2,593	)		27			(2,566	)
Net current-period other comprehensive income		2,402			76			2,478			312			27			339
Ending balance	$	(961	)	$	31		$	(930	)	$	3,531		$	(410	)	$	3,121

The following table presents amounts reclassified out of accumulated other comprehensive

income by component for the periods indicated. Line items in the statement of income affected by the reclassification are also presented.

	Amount Reclassified from Accumulated Other Comprehensive Income												Affected Line Item in the Statement Where Net Income is Presented
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2017			2016			2017			2016
Unrealized gains (losses) on available for sale investment securities	$	3		$	3,776		$	(7	)	$	3,990		Net g ain (loss) on sales of available for sale investment securities
		(1	)		(1,322	)		2			(1,397	)	Income tax expense
	$	2		$	2,454		$	(5	)	$	2,593		Net of tax
Amortization related to postretirement benefits
Prior service costs	$	-		$	(12	)	$	(75	)	$	(37	)	Salaries and employee benefits
Actuarial losses		(1	)		(1	)		(4	)		(4	)	Salaries and employee benefits
		(1	)		(13	)		(79	)		(41	)	Total before tax
		-			4			28			14		Income tax expense
	$	(1	)	$	(9	)	$	(51	)	$	(27	)	Net of tax
Total reclassifications for the period	$	1		$	2,445		$	(56	)	$	2,566		Net of tax

XML

Note 4 - Accounting Policy

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

4

.

Accounting Policy

Loans and Interest Income

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their unpaid principal amount outstanding adjusted for any charge-offs and deferred fees or costs on originated loans. Interes

t income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Interest income also includes amortization and accretion of any premiums or discounts over the expected life of acquired loans at the time of purchase or business acquisition. Loan origination fees, net of certain direct origination costs, are deferred and amortized as yield adjustments over the contractual term of the loans.

The Company disaggregates certain d

isclosure information related to loans, the related allowance for loan losses, and credit quality measures by either portfolio segment or by loan class. The Company segregates its loan portfolio segments based on similar risk characteristics as follows: real estate loans, commercial loans, and consumer loans. Portfolio segments are further disaggregated into classes for certain required disclosures as follows:

Portfolio Segment	Class
Real estate loans	Real estate mortgage  – construction and land development Real estate mortgage  – residential Real estate mortgage  – farmland and other commercial enterprises
Commercial loans	Commercial and industrial Depository institutions Agriculture production and other loans to farmers States and political subdivisions Other
Consumer loans	Secured Unsecured

The Company has a loan policy in place that is amended and approved from time to time as needed to reflect current economic conditions and product offerings in its markets. The policy establishes

written procedures concerning areas such as the lending authorities of loan officers, committee review and approval of certain credit requests, underwriting criteria, policy exceptions, appraisal requirements, and loan review. Credit is extended to borrowers based primarily on their ability to repay as demonstrated by income and cash flow analysis.

Loans secured by real estate make up the largest segment of the Company

’s loan portfolio. If a borrower fails to repay a loan secured by real estate, the Company

may

liquidate the collateral in order to satisfy the amount owed. Determining the value of real estate is a key component to the lending process for real estate backed loans. If the fair value of real estate (less estimated cost to sell) securing a collateral dependent loan declines below the outstanding loan amount, the Company will write down the carrying value of the loan and thereby incur a loss. The Company uses independent

third

party state certified or licensed appraisers in accordance with its loan policy to mitigate risk when underwriting real estate loans. Cash flow analysis of the borrower, loan to value limits as adopted by loan policy, and other customary underwriting standards are also in place which are designed to maximize credit quality and mitigate risks associated with real estate lending.

Commercial loans are made to businesses and are secured mainly by assets such as inventory, accounts receivable, machinery, fixtures and equipment, or other business assets. Commercial lending involves

significant risk, as loan repayments are more dependent on the successful operation or management of the business and its cash flows. Consumer lending includes loans to individuals mainly for personal autos, boats, or a variety of other personal uses and

may

be secured or unsecured. Loan repayment associated with consumer loans is highly dependent upon the borrower’s continuing financial stability, which is heavily influenced by local unemployment rates. The Company mitigates its risk exposure to each of its loan segments by analyzing the borrower’s repayment capacity, imposing restrictions on the amount it will loan compared to estimated collateral values, limiting the payback periods, and following other customary underwriting practices as adopted in its loan policy.

T

he accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for

90

days or more, unless such loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan. Interest accrued but

not

received for a loan placed on nonaccrual status is reversed against interest income. Cash payments received on nonaccrual loans generally are applied to principal until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company’s policy for placing a loan on nonaccrual status or subsequently returning a loan to accrual status does

not

differ based on its portfolio class or segment.

Commercial and real estate l

oans delinquent in excess of

120

days and consumer loans delinquent in excess of

180

days are charged off

,

unless the collateral securing the debt is of such value that any loss appears to be unlikely. In all cases, loans are charged off at an earlier date if classified as loss under the Company’s loan grading process or as a result of regulatory examination. The Company’s charge-off policy for impaired loans does

not

differ from the charge-off policy for loans outside the definition of impaired

.

Provision and Allowance for Loan Losses

The provision for loan losses represents charges

or credits made to earnings to maintain an allowance for loan losses at a level considered adequate to provide for probable incurred credit losses at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company estimates the adequacy of the allowance using a risk-rated methodology which is based on the Company

’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that

may

affect the borrower’s ability to repay, the estimated value of any underlying collateral securing loans, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires significant judgment and the use of estimates that

may

be susceptible to change.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers

non-impaired loans and is based on historical loss experience adjusted for current risk factors. Allocations of the allowance

may

be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Actual loan losses could differ significantly from the amounts estimated by management.

The

general portion of the Company’s loan portfolio is segregated into portfolio segments having similar risk characteristics identified as follows: real estate loans, commercial loans, and consumer loans. Each of these portfolio segments is assigned a loss percentage based on their respective rolling historical loss rates, adjusted for the qualitative risk factors summarized below. During the

first

quarter of

2017,

the Company shortened the look-back period it uses to determine historical loss rates to the previous

twelve

quarters from

sixteen

quarters. The change in the look-back period is the result of the Company’s ongoing monitoring and evaluation of the adequacy of its allowance for loan losses. The shorter look-back period better reflects the Company’s loss estimates based on current market conditions. Shortening the look-back period increased the allowance for loan losses by

$49

thousand compared to the previous

sixteen

quarter look-back period

.

The qualitative risk factors used in the methodology are consistent with the guidance in the most recent Interagency Policy Statement on the Allowance for Loan Losses issued. Each factor is supported by a detailed analysis and is both measurable and supportable. Some factors include a minimum allocation in instances where loss levels are extremely low and it is determined to be prudent from a safety and soundness perspective. Qualitative risk factors that are used in the methodology include the following for each loan portfolio segment:

● Delinquency trends

● Trends in net charge-offs

● Trends in loan volume

● Lending philosophy risk

● Management experience risk

● Concentration of credit risk

● Economic conditions risk

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting

in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company accounts for impaired loans in accordance with

Accounting Standards Codification (“ASC”) Topic

310,

“Receivables

.

”

ASC Topic

310

requires that impaired loans be measured at the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral if the loan is collateral dependent. Impaired loans

may

also be classified as nonaccrual. In many circumstances, however, the Company continues to accrue interest on an impaired loan. Cash receipts on accruing impaired loans are applied to the recorded investment in the loan, including any accrued interest receivable. Cash payments received on nonaccrual impaired loans generally are applied to principal until qualifying for return to accrual status

.

Loans that are part of a large group of smaller-balance homogeneous loans, such as residential mortgage

,

consumer, and smaller-balance commercial loans, are collectively evaluated for impairment. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception, or at the fair value of collateral. The Company determines the amount of reserve for troubled debt restructurings that subsequently default in accordance with its accounting policy for the allowance for loan losses.

Recently Issued

Accounting

Standards

In

May 2014,

the Financial Accounting Standards Board (“FASB”)

issued

Accounting Standards Update (“ASU”)

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

, and subsequently issued several amendments to the standard during

2015

and

2016.

The primary principle of ASU

No.

2014

-

09

is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

As amended,

ASU

No.

2014

-

09

is effective for the Company in annual reporting periods beginning after

December 15, 2017,

including interim periods within that reporting period.

Earlier application is permitted, but only as of annual reporting periods beginning after

December 15, 2016,

including interim reporting periods within those reporting periods. Entities are permitted to apply the amendments either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. The Company

plans to adopt ASU

No.

2014

-

09

in the

first

quarter of

2018

using a full retrospective approach. The majority of the Company’s revenues earned are excluded from the scope of the new standard. Revenue streams within the scope of this ASU include services charges and fees on deposits, allotment processing fees, trust income, and components of other service charges, commission, and fees. Based on the completed contract reviews thus far, any potential changes in revenue recognition for those revenue streams are

not

expected to result in a material impact to the Company’s consolidated financial statements upon adoption. The Company is in the process of developing the additional quantitative and qualitative disclosures that

may

be required upon adoption of the new standard.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

“Leases (Topic

842

),”

to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than

twelve

months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic

606,

Revenue from Contracts with Customers

.

For public companies, ASU

No.

2016

-

02

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would

not

require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors

may

not

apply a full retrospective transition approach. The Company has identified a project team to review its leases and to assess the impact of ASU

No.

2016

-

02

on its consolidated financial position, results of operations, and cash flows.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

“

Financial Instruments—Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

,

”

to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures, including

qualitative and quantitative requirements

, which provide additional information about the amounts recorded in the financial statements.

Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

ASU

No.

2016

-

13

is effective for the Company in annual and interim reporting periods beginning after

December 15, 2019.

Although early adoption is permitted for fiscal years beginning after

December 15, 2018,

the Company does

not

plan to early adopt. The Company has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard. The Company has identified a project team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. The project team has developed a timeline for implementing the standard

, has begun working with a

third

party software solution provider, and is in the process of identifying independent

third

party validation of the impending changes to our credit loss methodologies and processes

.

The team continues to assess the impact of the standard; however, the Company expects adopting this ASU will result in an increase in its allowance for loan losses. The amount of the increase in the allowance for loan losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date.

In Marc

h

2017,

the FASB issued ASU

NO.

2017

-

07,

“Compensation

—

Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Perio

dic Postretirement Benefit Cost,

”

which requires that employers offering benefit plans accounted for under Topic

715

report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. If a separate line item or items are

not

used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. This ASU is effective for the Company in annual and interim reporting periods beginning after

December 15, 2017.

The Company is currently evaluating the impact of ASU

No.

2017

-

07

on its consolidated financial position, results of operations, or cash flows upon adoption.

In

March

201

7,

the FASB issued ASU

No.

2017

-

08,

“

Receivables

—

Nonrefundable Fees and Other Costs

(

Subt

opic

310

-

20

): P

remium Amortization on Purchased Callable Debt Securities

.

”

This ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. The ASU does

not

change the accounting for securities held at a discount; the discount will continue to be amortized to maturity. This ASU is effective for the Company in annual and interim reporting periods beginning after

December 15, 2018,

with early adoption permitted

. Entities are required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.

The Company is considering early adoption and is in the process of determining the impact on its consolidated financial position, results of operations, or cash flows upon adoption.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are

not

expected to have a material impact on the Company

’s financial position, results of operations or cash flows.

XML

Note 5 - Net Income Per Common Share

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

5

.

Net

Income Per Common Share

Basic net income per common share is determined by dividing net income by the weighted average total number of common shares issued and outstanding.

There were

no

dilutive instruments at

September 3

0,

2017

and

2016.

Net income

per common share computations were as follows for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2017		2016		2017		2016
Net income, basic and diluted	$	5,312	$	4,324	$	13,123	$	14,060
Average common shares issued and outstanding, basic and diluted		7,514		7,505		7,512		7,503
Net income per common share, basic and diluted	$	.71	$	.58	$	1.75	$	1.87

XML

Note 6 - Investment Securities

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

6

.

Investment Securities

The following tables summarize the amortized costs and estimated fair value of the securities portfolio at

September 30, 2017

and

December 31, 2016.

September 3 0 , 2017 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	72,945	$	132	$	337	$	72,740
Obligations of states and political subdivisions		121,403		1,021		837		121,587
Mortgage-backed securities – residential		200,058		1,360		1,819		199,599
Mortgage-backed securities – commercial		46,173		1		1,114		45,060
Corporate debt securities		7,576		51		3		7,624
Mutual funds and equity securities		840		65		-		905
Total securities – available for sale	$	448,995	$	2,630	$	4,110	$	447,515
Held To Maturity
Obligations of states and political subdivisions	$	3,448	$	149	$	-	$	3,597

December 31, 201 6 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	71,941	$	213	$	460	$	71,694
Obligations of states and political subdivisions		134,055		773		2,536		132,292
Mortgage-backed securities – residential		225,489		1,505		2,687		224,307
Mortgage-backed securities – commercial		47,164		6		1,557		45,613
Corporate debt securities		6,565		1		441		6,125
Mutual funds and equity securities		824		20		11		833
Total securities – available for sale	$	486,038	$	2,518	$	7,692	$	480,864
Held To Maturity
Obligations of states and political subdivisions	$	3,488	$	109	$	-	$	3,597

Investment securities with a carryin

g value of

$208

million and

$191

million at

September 30, 2017

and

December 31, 2016,

respectively, were pledged to secure public and trust deposits, repurchase agreements, and for other purposes

.

The amortized cost and estimated fair value of the

debt securities portfolio at

September 3

0

,

2017,

by contractual maturity, are detailed below. Expected maturities

may

differ from contractual maturities because borrowers

may

have the right to call or prepay obligations with or without call or prepayment penalties. Mutual funds and equity securities in the available for sale portfolio consist of investments attributed to the Company’s captive insurance subsidiary. These securities have

no

stated maturity and are

not

included in the maturity schedule that follows.

Mortgage-backed securities are stated s

eparately due to the nature of payment and prepayment characteristics of these securities, as principal is

not

due at a single date.

	Available For Sale				Held To Maturity
	Amortized		Estimated		Amortized		Estimated
September 3 0 , 2017 (In thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	30,884	$	30,911	$	-	$	-
Due after one year through five years		71,412		71,703		-		-
Due after five years through ten years		76,611		76,197		1,302		1,402
Due after ten years		23,017		23,140		2,146		2,195
Mortgage-backed securities		246,231		244,659		-		-
Total	$	448,155	$	446,610	$	3,448	$	3,597

Gross realized gains and losses on the sale of available for sale investment securities were as follows:

	Three Months Ended				Nine Months Ended
	September 30 ,				September 30,
(In thousands)	20 17		20 16		2017			2016
Gross realized gains	$	3	$	3,829	$	3		$	4,181
Gross realized losses		-		53		10			191
Net realized gain (loss)	$	3	$	3,776	$	(7	)	$	3,990

Investment securities with unrealized losses at

September 3

0,

2017

and

December 31, 2016

not

recognized in income are presented in the tables below. The tables segregate investment securities that have been in a continuous unrealized loss position for less than

twelve

months from those that have been in a continuous unrealized loss position for

twelve

months or more. The tables also include the fair value of the related securities.

	Less than 12 Months				12 Months or More				Total
September 3 0 , 2017 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	42,246	$	191	$	11,570	$	146	$	53,816	$	337
Obligations of states and political subdivisions		26,809		162		32,799		675		59,608		837
Mortgage-backed securities – residential		93,192		642		55,308		1,177		148,500		1,819
Mortgage-backed securities – commercial		12,366		109		29,900		1,005		42,266		1,114
Corporate debt securities		2,992		3		-		-		2,992		3
Total	$	177,605	$	1,107	$	129,577	$	3,003	$	307,182	$	4,110

	Less than 12 Months				12 Months or More				Total
December 31, 2016 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	51,657	$	460	$	-	$	-	$	51,657	$	460
Obligations of states and political subdivisions		91,728		2,526		1,999		10		93,727		2,536
Mortgage-backed securities – residential		154,397		2,485		5,841		202		160,238		2,687
Mortgage-backed securities – commercial		43,309		1,557		-		-		43,309		1,557
Corporate debt securities		536		6		5,476		435		6,012		441
Mutual funds and equity securities		128		2		113		9		241		11
Total	$	341,755	$	7,036	$	13,429	$	656	$	355,184	$	7,692

Unrealized losses included in the table

s above have

not

been recognized in income since they have been identified as temporary. The Company evaluates investment securities for other-than-temporary impairment (“OTTI”) at least quarterly, and more frequently when economic or market conditions warrant. Many factors are considered, including: (

1

) the length of time and the extent to which the fair value has been less than cost, (

2

)

the financial condition and near-term prospects of the issuer, (

3

)

whether the market decline was effected by macroeconomic conditions, and (

4

) whether the Company has the intent to sell the security or more likely than

not

will be required to sell the security before its anticipated recovery. The assessment of whether an OTTI charge exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at a point in time.

The

Company attributes the unrealized losses in its investment securities portfolio to changes in market interest rates and volatility. Investment securities with unrealized losses at

September 3

0

,

2017

are performing according to their contractual terms, and the Company does

not

expect to incur a loss on these securities unless they are sold prior to maturity. The Company does

not

have the intent to sell these securities nor does it believe it is likely that it will be required to sell these securities prior to their anticipated recovery. The Company does

not

consider any of the securities to be impaired due to reasons of credit quality or other factors.

XML

Note 7 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Financing Receivables [Text Block]

7.

Loans and Allowance for Loan Losses

Major classifications of loans outsta

nding are summarized as follows:

( In thousands)	September 30, 2017		December 31, 2016
Real Estate
Real estate mortgage – construction and land development	$	112,005	$	120,230
Real estate mortgage – residential		342,350		350,295
Real estate mortgage – farmland and other commercial enterprises		427,575		400,367
Commercial
Commercial and industrial		63,853		48,607
States and political subdivisions		20,250		18,933
Other		20,308		23,308
Consumer
Secured		4,728		4,554
Unsecured		4,042		4,681
Total loans		995,111		970,975
Less unearned income		-		-
Total loans, net of unearned income	$	995,111	$	970,975

Activity in the allowance for loan losses by portfolio segment was as follows

for the periods indicated:

( In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended September 30, 2017
Balance, beginning of period	$	7,961		$	900		$	361		$	9,222
Provision for loan losses		(376	)		25			(28	)		(379	)
Recoveries		259			44			27			330
Loans charged off		(16	)		(86	)		(23	)		(125	)
Balance, end of period	$	7,828		$	883		$	337		$	9,048
Nine months e nded September 30, 2017
Balance, beginning of period	$	8,205		$	854		$	285		$	9,344
Provision for loan losses		(526	)		153			75			(298	)
Recoveries		674			110			46			830
Loans charged off		(525	)		(234	)		(69	)		(828	)
Balance, end of period	$	7,828		$	883		$	337		$	9,048

( In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended September 30 , 2016
Balance, beginning of period	$	8,404		$	806		$	275		$	9,485
Provision for loan losses		(425	)		203			32			(190	)
Recoveries		31			52			9			92
Loans charged off		(88	)		(134	)		(19	)		(241	)
Balance, end of period	$	7,922		$	927		$	297		$	9,146
Nine months ended September 30, 2016
Balance, beginning period	$	9,173		$	820		$	322		$	10,315
Provision for loan losses		(1,025	)		193			13			(819	)
Recoveries		133			107			52			292
Loans charged off		(359	)		(193	)		(90	)		(642	)
Balance, end of period	$	7,922		$	927		$	297		$	9,146

The following table

s present individually impaired loans by class of loans for the dates indicated.

September 30, 2017 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated
Real Estate
Real estate mortgage – construction and land development	$	4,569	$	2,003	$	1,962	$	3,965	$	385
Real estate mortgage – residential		9,985		2,807		7,207		10,014		1,650
Real estate mortgage – farmland and other commercial enterprises		19,961		4,342		15,494		19,836		313
Commercial
Commercial and industrial		400		-		401		401		219
Consumer
Unsecured		313		-		313		313		221
Total	$	35,228	$	9,152	$	25,377	$	34,529	$	2,788

December 31, 2016 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated
Real Estate
Real estate mortgage – construction and land development	$	9,076	$	2,599	$	3,800	$	6,399	$	759
Real estate mortgage – residential		9,930		4,388		5,590		9,978		1,503
Real estate mortgage – farmland and other commercial enterprises		25,045		9,699		15,235		24,934		304
Commercial
Commercial and industrial		435		20		418		438		236
Consumer
Unsecured		146		-		146		146		146
Total	$	44,632	$	16,706	$	25,189	$	41,895	$	2,948

Three Months Ended September 30,	2017						2016
(In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	5,932	$	52	$	28	$	7,838	$	88	$	88
Real estate mortgage – residential		10,199		139		134		9,214		136		136
Real estate mortgage – farmland and other commercial enterprises		19,166		224		223		26,401		292		292
Commercial
Commercial and industrial		401		6		6		409		4		2
Consumer
Unsecured		333		4		4		150		2		2
Total	$	36,031	$	425	$	395	$	44,012	$	522	$	520

Nine Months Ended September 30,	2017						2016
(In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	5,464	$	186	$	161	$	8,319	$	243	$	231
Real estate mortgage – residential		10,329		393		385		8,957		348		323
Real estate mortgage – farmland and other commercial enterprises		22,436		822		815		25,728		929		908
Commercial
Commercial and industrial		436		17		17		413		15		13
Other		8		-		-		-		-		-
Consumer
Unsecured		331		13		12		152		5		4
Total	$	39,004	$	1,431	$	1,390	$	43,569	$	1,540	$	1,479

The following table

s present the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of

September 30, 2017

and

December 31, 2016.

September 3 0 , 2017 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,348	$	219	$	221	$	2,788
Collectively evaluated for impairment		5,480		664		116		6,260
Total ending allowance balance	$	7,828	$	883	$	337	$	9,048
Loans
Loans individually evaluated for impairment	$	33,815	$	401	$	313	$	34,529
Loans collectively evaluated for impairment		848,115		104,010		8,457		960,582
Total ending loan balance, net of unearned income	$	881,930	$	104,411	$	8,770	$	995,111

December 31, 2016 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,566	$	236	$	146	$	2,948
Collectively evaluated for impairment		5,639		618		139		6,396
Total ending allowance balance	$	8,205	$	854	$	285	$	9,344
Loans
Loans individually evaluated for impairment	$	41,311	$	438	$	146	$	41,895
Loans collectively evaluated for impairment		829,581		90,410		9,089		929,080
Total ending loan balance, net of unearned income	$	870,892	$	90,848	$	9,235	$	970,975

The following tables present the recorded investment in nonperforming loans by class of loans as of

September 3

0,

2017

and

December 31, 2016

.

September 3 0, 2017 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	380	$	1,957	$	-
Real estate mortgage – residential		1,490		5,356		-
Real estate mortgage – farmland and other commercial enterprises		1,908		14,461		-
Commercial
Commercial and industrial		-		372		-
Consumer
Unsecured		171		130		32
Total	$	3,949	$	22,276	$	32

December 31, 201 6 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	712	$	3,637	$	-
Real estate mortgage – residential		2,316		4,006		-
Real estate mortgage – farmland and other commercial enterprises		3,383		14,787		-
Commercial
Commercial and industrial		-		377		-
Consumer
Secured		4		-		-
Unsecured		8		135		-
Total	$	6,423	$	22,942	$	-

The Company has allocated

$1.8

million and

$2.0

million of specific reserves as of

September 30, 2017

and

December 31, 2016,

respectively, to customers whose loan terms have been modified in troubled debt restructurings and that are in compliance with those terms. The Company had

no

commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings at

September 30, 2017

and

December 31, 2016.

The Company had

no

credits during the

first

nine

months of

2017

or

2016

that were modified as troubled debt restructurings.

The table

s below present an age analysis of past due loans

30

days or more by class of loans as of the dates indicated. Past due loans that are also classified as nonaccrual are included in their respective past due category

.

September 3 0, 2017 (In thousands)	30-8 9 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate
Real estate mortgage – construction and land development	$	15	$	314	$	329	$	111,676	$	112,005
Real estate mortgage – residential		763		476		1,239		341,111		342,350
Real estate mortgage – farmland and other commercial enterprises		-		1,090		1,090		426,485		427,575
Commercial
Commercial and industrial		-		-		-		63,853		63,853
States and political subdivisions		-		-		-		20,250		20,250
Other		-		-		-		20,308		20,308
Consumer
Secured		-		-		-		4,728		4,728
Unsecured		2		-		2		4,040		4,042
Total	$	780	$	1,880	$	2,660	$	992,451	$	995,111

December 31, 201 6 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate
Real estate mortgage – construction and land development	$	393	$	227	$	620	$	119,610	$	120,230
Real estate mortgage – residential		1,935		798		2,733		347,562		350,295
Real estate mortgage – farmland and other commercial enterprises		-		2,483		2,483		397,884		400,367
Commercial
Commercial and industrial		-		-		-		48,607		48,607
States and political subdivisions		-		-		-		18,933		18,933
Other		24		-		24		23,284		23,308
Consumer
Secured		13		-		13		4,541		4,554
Unsecured		30		8		38		4,643		4,681
Total	$	2,395	$	3,516	$	5,911	$	965,064	$	970,975

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 and conditions. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes large-balance loans and non-homogeneous loans, such as commercial real estate and certain residential real estate loans. Loan rating grades, as described further below, are assigned based on a continuous process. The amount and adequacy of the allowance for loan loss is determined on a quarterly basis. The Company uses the following definitions for its 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 borrower’s repayment ability, weaken the collateral or inadequately protect the Company’s credit position at some future date. These credits pose elevated risk, but their weaknesses do

not

yet justify a substandard 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 Company will sustain some loss if the deficiencies are

not

corrected.

Doubtful.

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

and are considered to have a low risk of loss. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the dates indicated. Each of the following tables excludes immaterial amounts attributed to accrued interest receivable.

	Real Estate						Commercial
September 3 0, 2017 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage –Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	107,517	$	317,404	$	399,738	$	62,964	$	20,250	$	19,679
Special Mention		408		9,591		17,564		487		-		629
Substandard		4,080		15,355		10,273		402		-		-
Doubtful		-		-		-		-		-		-
Total	$	112,005	$	342,350	$	427,575	$	63,853	$	20,250	$	20,308

	Real Estate						Commercial
December 31, 201 6 (In thousands)	Real Estate Mortgage –Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercia and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	112,435	$	323,300	$	363,448	$	47,254	$	18,933	$	23,308
Special Mention		1,413		12,147		21,088		764		-		-
Substandard		6,382		14,806		15,831		589		-		-
Doubtful		-		42		-		-		-		-
Total	$	120,230	$	350,295	$	400,367	$	48,607	$	18,933	$	23,308

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the consumer loans outstanding based on payment activity as of

September 30, 2017

and

December 31, 2016.

	September 3 0 , 2017				December 31, 201 6
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity
Performing	$	4,728	$	3,709	$	4,550	$	4,538
Nonperforming		-		333		4		143
Total	$	4,728	$	4,042	$	4,554	$	4,681

The Company evaluates the loan risk grading system definitions and allowance for loan

loss methodology on an ongoing basis. During the

first

quarter of

2017,

the Company shortened the look-back period it uses to determine historical loss rates to the previous

twelve

quarters from

sixteen

quarters.

No

other significant changes were made to the loan risk grading system definitions and allowance for loan loss methodology during the past year.

XML

Note 8 - Other Real Estate Owned

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Real Estate Owned [Text Block]

8

.

Other Real Estate Owned

Other real estate owned (“

OREO”) was as follows for the dates indicated:

(In thousands)	September 3 0, 201 7		December 31, 201 6
Construction and land development	$	4,526	$	7,996
Residential real estate		667		871
Farmland and other commercial enterprises		913		1,806
Total	$	6,106	$	10,673

OREO activity for the

nine

months ended

September 3

0

,

2017

and

2016

was as follows:

Nine months ended September 30, (In thousands)	201 7			201 6
Beginning balance	$	10,673		$	21,843
Transfers from loans and other increases		593			1,790
Proceeds from sales		(4,670	)		(6,996	)
G ain on sales, net		95			30
Write downs and other decreases, net		(585	)		(1,331	)
Ending balance	$	6,106		$	15,336

At

September 3

0,

2017,

the Company had a total of

$875

thousand of loans secured by residential real estate mortgages that were in the process of foreclosure.

XML

Note 9 - Securities Sold Under Agreements to Repurchase

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Long-term Debt [Text Block]

9

.

Securities Sold under Agreements to Repurchase

Securities sold under agreements to repurchase represent transactions where the Company sells certain of its investment securities and agrees to repurchase them at a specific date in the future. Securities sold under agreements to repurchase a

re accounted for as secured borrowing and reflect the amount of cash received in connection with the transaction.

Securities sold under agreements to repurchase are collateralized by U.S. government agency securities, primarily mortgage-backed securities

. The Company

may

be required to provide additional collateral securing the borrowings in the event of principal pay downs or a decrease in the market value of the pledged securities. The Company mitigates this risk by monitoring the market value and liquidity of the collateral and ensuring that it holds a sufficient level of eligible securities to cover potential increases in collateral requirements.

The following tables represent the remaining maturity of repurchase agreements disaggregated by the class

of securities pledged as of the dates indicated.

	Remaining Contractual Maturity of the Agreements
September 3 0 , 2017 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	-	$	-	$	-	$	1,153	$	257	$	1,410
Mortgage-backed securities – residential		33,627		200		-		300		-		34,127
Total	$	33,627	$	200	$	-	$	1,453	$	257	$	35,537

	Remaining Contractual Maturity of the Agreements
December 31, 2016 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	5,596	$	301	$	-	$	258	$	1,027	$	7,182
Mortgage-backed securities – residential		28,086		902		-		200		-		29,188
Total	$	33,682	$	1,203	$	-	$	458	$	1,027	$	36,370

XML

Note 10 - Postretirement Medical Benefits

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

10

.

Postretirement Medical Benefits

T

he Company provides lifetime medical and dental benefits upon retirement for certain employees meeting the eligibility requirements as of

December 31, 1989 (

“Plan

1”

). Additional participants are

not

eligible to be included in Plan

1

unless they met the requirements on this date. During

2003,

the Company implemented an additional postretirement health insurance program (“Plan

2”

). Under Plan

2,

any employee meeting the service requirement of

20

years of full time service to the Company and is at least age

55

upon retirement is eligible to continue their health insurance coverage. Under both plans, retirees

not

yet eligible for Medicare have coverage identical to the coverage offered to active employees. Under both plans, Medicare-eligible retirees are provided with a Medicare Advantage plan. The Company pays

100%

of the cost of Plan

1.

The Company and the retirees each pay

50%

of the cost under Plan

2.

Both plans are unfunded

.

Employees hired on or after

January 1, 2016

are

not

eligible for benefits under Plan

2.

The following

disclosures of the net periodic benefit cost components of Plan

1

and Plan

2

were measured at

January 1, 2017

and

2016

.

	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands)	201 7		201 6		2017			2016
Service cost	$	137	$	159	$	420		$	478
Interest cost		164		171		496			512
Curtailment gain recognized		-		-		(351	)		-
Recognized prior service cost		-		12		8			37
Net periodic benefit cost	$	301	$	342	$	573		$	1,027

In connection with the

merger of certain of its subsidiaries in

February 2017,

the Company recognized a curtailment gain of

$351

thousand during the

first

quarter of

2017

as a result of revaluing its postretirement medical benefits plan liability due to a reduction in workforce. The gain is net of

$67

thousand of prior service costs recognized due to the curtailment.

The Company expects benefit payments of $

468

thousand for

2017,

of which

$262

thousand have been made during the

first

nine

months of

2017.

XML

Note 11 - Regulatory Matters

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

1

1

. Regulatory Matters

The Company and its subsidiary bank

are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements will initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, banks must meet specific capital guidelines that involve quantitative measures of the bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and its subsidiary bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The regulatory ratios of the consolidated Company and its subsidiary bank were as follows for the dates indicated

:

	September 3 0 , 2017												December 31, 201 6
	Common Equity Tier 1 Risk-based Capital 1			Tier 1 Risk- based Capital 1			Total Risk- based Capital 1			Tier 1 Leverage 2			Common Equity Tier 1 Risk-based Capital 1			Tier 1 Risk- based Capital 1			Total Risk- based Capital 1			Tier 1 Leverage 2
Consolidated		17.09	%		19.88	%		20.66	%		13.83	%		16.43	%		19.28	%		20.10	%		13.20	%
United Bank & Capital Trust Company		15.29			15.29			16.08			10.75			*			*			*			*
Farmers Bank & Capital Trust Company		*			*			*			*			16.53			16.53			17.23			9.80
United Bank & Trust Company		*			*			*			*			15.54			15.54			16.47			12.38
First Citizens Bank		*			*			*			*			13.56			13.56			14.16			9.76
Citizens Bank of Northern Kentucky, Inc.		*			*			*			*			15.24			15.24			16.40			10.68
Regulatory minimum		4.50			6.00			8.00			4.00			4.50			6.00			8.00			4.00
Well-capitalized status		6.50			8.00			10.00			5.00			6.50			8.00			10.00			5.00

1

Common Equity Tier

1

Risked-based, Tier

1

Risk-based, and Total Risk-based Capital ratios are computed by dividing a bank’s Common Equity Tier

1,

Tier

1

or Total Capital, as defined by regulation, by a risk-weighted sum of the bank’s assets, with the risk weighting determined by general standards established by regulation.

2

Tier

1

Leverage ratio is computed by dividing a bank’s Tier

1

Capital by its total quarterly average assets, as defined by regulation

.

*

In

February 2017,

the Company merged

United Bank & Trust Company

, First Citizens Bank, Inc.

, and Citizens Bank of Northern Kentucky, Inc. into Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed to United Bank & Capital Trust Company.

XML

Note 12 - Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

1

2

.

Fair Value Measurements

ASC Topic

820,

“Fair Value Measurements and Disclosures

,

”

defines fair value, establishes a framework for measuring fair value, and sets forth disclosures about fair value measurements. ASC Topic

825,

“Financial Instruments

,

”

allows entities to choose to measure certain financial assets and liabilities at fair value. The Company has

not

elected the fair value option for any of its financial assets or liabilities.

ASC Topic

820

defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This Topic describes

three

levels of inputs that

may

be used to measure fair value:

Level 1: Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions supported by little or no market activity about the assumptions that market participants would use in pricing the asset or liability.

Following is a description of the valuation method used for financial instruments measured at fair value on a recurring basis. For this disclosure, the Company only has available for sale investment securities

and money market mutual funds classified as cash equivalents that meet the requirement. The carrying value of the

$27.8

million and

$18.6

million in money market mutual funds at

September 30, 2017

and

December 31, 2016,

respectively, is equivalent to its fair value and based on Level

1

inputs.

Available for sale investment securities

Valued primarily by independent

third

party pricing services under the market valuation approach that include, but are

not

limited to, the following inputs:

● Mutual funds and equity securities are priced utilizing real-time data feeds from active market exchanges for identical securities and are considered Level 1 inputs.

● Government-sponsored agency debt securities, obligations of states and political subdivisions, mortgage-backed securities, corporate bonds, and other similar investment securities are priced with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources and are considered Level 2 inputs.

Fair value disclosure for a

vailable for sale investment securities as of

September 30, 2017

and

December 31, 2016

are as follows:

			Fair Value Measurements Using
(In thousands) Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 3 0 , 201 7
Obligations of U.S. government-sponsored entities	$	72,740	$	-	$	72,740	$	-
Obligations of states and political subdivisions		121,587		-		121,587		-
Mortgage-backed securities – residential		199,599		-		199,599		-
Mortgage-backed securities – commercial		45,060		-		45,060		-
Corporate debt securities		7,624		-		7,624		-
Mutual funds and equity securities		905		905		-		-
Total	$	447,515	$	905	$	446,610	$	-

			Fair Value Measurements Using
(In thousands) Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 6
Obligations of U.S. government-sponsored entities	$	71,694	$	-	$	71,694	$	-
Obligations of states and political subdivisions		132,292		-		132,292		-
Mortgage-backed securities – residential		224,307		-		224,307		-
Mortgage-backed securities – commercial		45,613		-		45,613		-
Corporate debt securities		6,125		-		6,125		-
Mutual funds and equity securities		833		833		-		-
Total	$	480,864	$	833	$	480,031	$	-

The Company is required to measure and disclose certain other assets and liabilities at fair value on a nonrecurring basis in periods following their initial recognition. The Company

’s disclosure about assets and liabilities measured at fair value on a nonrecurring basis consists of collateral-dependent impaired loans and OREO.

Adjustments to the fair value of

collateral-dependent loans are recorded by either direct loan charge-offs through the allowance for loan losses or an adjustment to the specific reserve through an increase or decrease to the provision for loan losses. The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is measured based on recent appraisals of the underlying collateral. These appraisals

may

utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraisers take absorption rates into consideration and adjustments are routinely made in the appraisal process to identify differences between the comparable sales and income data available. Such adjustments consist mainly of estimated costs to sell that are

not

included in certain appraisals or to update appraised collateral values as a result of market declines of similar properties for which a newer appraisal is available. These adjustments can be significant and typically result in a Level

3

classification of the inputs for determining fair value.

OREO

includes properties acquired by the Company through, or in lieu of, actual loan foreclosures and is carried at fair value less estimated costs to sell. Fair value of OREO at acquisition is generally based on

third

party appraisals of the property that includes comparable sales data and is considered as Level

3

inputs. The carrying value of each OREO property is updated at least annually and more frequently when market conditions significantly impact the value of the property. If the carrying amount of the OREO exceeds fair value less estimated costs to sell, an impairment loss is recorded through noninterest expense.

The following table represent

s the carrying amount of assets measured at fair value on a nonrecurring basis and still held by the Company as of the dates indicated. The amounts in the table only represent assets whose carrying amount has been adjusted during the period in a manner as described above; therefore, these amounts will differ from the total amounts outstanding. With the exception of those calculated using the collateral valuation method, collateral-dependent impaired loan amounts in the tables below exclude restructured loans that are measured based on present value techniques, which are outside the scope of the fair value reporting framework.

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 3 0 , 201 7
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	1,324	$	-	$	-	$	1,324
Real estate mortgage – residential		769		-		-		769
Real estate mortgage – farmland and other commercial enterprises		962		-		-		962
Total	$	3,055	$	-	$	-	$	3,055
OREO
C onstruction and land development	$	3,118	$	-	$	-	$	3,118
R esidential real estate		204		-		-		204
F armland and other commercial enterprises		836		-		-		836
Total	$	4,158	$	-	$	-	$	4,158

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 6
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	2,909	$	-	$	-	$	2,909
Real estate mortgage – residential		3,137		-		-		3,137
Real estate mortgage – farmland and other commercial enterprises		351		-		-		351
Total	$	6,397	$	-	$	-	$	6,397
OREO
Construction and land development	$	4,883	$	-	$	-	$	4,883
Residential real estate		234		-		-		234
Farmland and other commercial enterprises		1,070		-		-		1,070
Total	$	6,187	$	-	$	-	$	6,187

The following table represents

fair value adjustments recorded in earnings for the periods indicated on assets measured at fair value on a nonrecurring basis.

	Three months ended					Nine months ended
	September 30,					September 30,
(In thousands)	201 7			201 6		2017		2016
Net (increase) decrease in fair value:
Collateral-dependent i mpaired loans	$	(3	)	$	33	$	12	$	540
OREO		235			599		435		1,165
Total	$	232		$	632	$	447	$	1,705

The following table presents quantitative information about unobservable inputs for assets measured on a nonrecurring basis using Level

3

measurements.

As described above, the fair value of real estate securing collateral-dependent impaired loans and OREO are based on current

third

party appraisals. It is sometimes necessary, however, for the Company to discount the appraisal amounts supporting its impaired loans and OREO. These discounts relate primarily to marketing and other holding costs that are

not

included in certain appraisals or to update values as a result of market declines of similar properties for which newer appraisals are available. Discounts

may

also result from contracts to sell properties entered into during the period. The range of discounts is presented in the table below for

2017

and

2016.

(In thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range			Average
September 30, 2017
Collateral-dependent i mpaired loans	$	3,055	Discounted appraisals	Marketability discount	1.1%	-	22.8%		9.7	%
OREO	$	4,158	Discounted appraisals	Marketability discount	0%	-	52.4%		17.5	%
December 31, 201 6
Collateral-dependent impaired loans	$	6,397	Discounted appraisals	Marketability discount	0%	-	67.8%		3.5	%
OREO	$	6,187	Discounted appraisals	Marketability discount	0%	-	50.0%		11.2	%

Fair Value of Financial Instruments

The

table that follows represents the estimated fair values of the Company’s financial instruments made in accordance with the requirements of ASC Topic

825,

“Financial Instruments

.

”

ASC Topic

825

requires disclosure of fair value information about financial instruments, whether or

not

recognized in the balance sheet for which it is practicable to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and present value or other valuation techniques. These derived fair values are subjective in nature, involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. ASC Topic

825

excludes certain financial instruments and all nonfinancial instruments from the disclosure requirements. Accordingly, the aggregate fair value amounts presented are

not

intended to represent the underlying value of the Company

.

The following methods and assumptions were used to estimate the fair value of each class of financial i

nstruments

not

presented elsewhere for which it is practicable to estimate that value.

Cash and Cash Equivalents, Accrued Interest Receivable, and Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value

due to the relatively short time between the origination of the instrument and its expected realization or settlement.

Investment Securities Held to Maturity

F

air value is based on quoted market price, if available. If a quoted market price is

not

available, fair value is estimated using quoted market prices for similar securities or

with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among other sources.

Loans

The fair value of loans is estimated by discounting

expected future cash flows using current discount rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Expected future cash flows are projected based on contractual cash flows adjusted for estimated prepayments.

Federal Home Loan Bank and Federal Reserve Bank Stock

The f

air value of Federal Home Loan Bank and Federal Reserve Bank stock is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Deposit Liabilities

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting

date and fair value approximates carrying value. The fair value of fixed maturity certificates of deposit is estimated by discounting the expected future cash flows using the rates currently offered for certificates of deposit with similar remaining maturities.

Federal Funds Purchased and Short-term

Securities Sold Under Agreements to Repurchase

The carrying amount is the estimated fair value for these borrowings which reprice frequently in the near term.

Securities Sold Under Agreements to Repurchase, Su

bordinated Notes Payable, and Other Long-term Borrowings

The fair value of

these borrowings is estimated by discounting the expected future cash flows using rates currently available for debt with similar terms and remaining maturities. For subordinated notes payable, the Company uses its best estimate to determine an appropriate discount rate since active markets for similar debt transactions are very limited.

Commitments to Extend Credit and Standby Letters of Credit

Pricing of these financial

instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, compensating balance, and other covenants or requirements. Loan commitments generally have fixed expiration dates, variable interest rates and contain termination and other clauses that provide for relief from funding in the event there is a significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of the Company’s commitments to lend and standby letters of credit are competitive with others in the various markets in which the Company operates. There are

no

unamortized fees relating to these financial instruments, as such the carrying value and fair value are both zero.

The

following table presents the estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at

September 3

0

,

2017

and

December 31, 2016.

Information for available for sale investment securities is presented within this footnote in greater detail above.

					Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 3 0 , 201 7
Assets
Cash and cash equivalents	$	117,608	$	117,608	$	117,608	$	-	$	-
Held to maturity investment securities		3,448		3,597		-		3,597		-
Loans, net		986,063		976,344		-		-		976,344
Accrued interest receivable		4,695		4,695		-		4,695		-
Federal Home Loan Bank and Federal Reserve Bank Stock		13,235		13,235		-		-		13,235
Liabilities
Deposits		1,361,824		1,361,653		1,128,645		-		233,008
S ecurities sold under agreements to repurchase		35,537		35,542		-		35,542		-
Federal Home Loan Bank advances		3,521		3,608		-		3,608		-
Subordinated notes payable to unconsolidated trusts		33,506		21,142		-		-		21,142
Accrued interest payable		344		344		-		344		-
December 31, 201 6
Assets
Cash and cash equivalents	$	113,534	$	113,534	$	113,534	$	-	$	-
Held to maturity investment securities		3,488		3,597		-		3,597		-
Loans, net		961,631		962,437		-		-		962,437
Accrued interest receivable		5,019		5,019		-		5,019		-
Federal Home Loan Bank and Federal Reserve Bank Stock		9,840		9,840		-		-		9,840
Liabilities
Deposits		1,369,907		1,369,567		1,099,211		-		270,356
S ecurities sold under agreements to repurchase		36,370		36,381		-		36,381		-
Federal Home Loan Bank advances		18,646		19,114		-		19,114		-
Subordinated notes payable to unconsolidated trusts		33,506		21,234		-		-		21,234
Accrued interest payable		321		321		-		321		-

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Reclassification, Policy [Policy Text Block]

Certain reclassifications have been made to the

condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications do

not

affect net income or total shareholders’ equity as previously reported.

Finance, Loans and Leases Receivable, Policy [Policy Text Block]

Loans and Interest Income

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their unpaid principal amount outstanding adjusted for any charge-offs and deferred fees or costs on originated loans. Interes

t income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Interest income also includes amortization and accretion of any premiums or discounts over the expected life of acquired loans at the time of purchase or business acquisition. Loan origination fees, net of certain direct origination costs, are deferred and amortized as yield adjustments over the contractual term of the loans.

The Company disaggregates certain d

isclosure information related to loans, the related allowance for loan losses, and credit quality measures by either portfolio segment or by loan class. The Company segregates its loan portfolio segments based on similar risk characteristics as follows: real estate loans, commercial loans, and consumer loans. Portfolio segments are further disaggregated into classes for certain required disclosures as follows:

Portfolio Segment	Class
Real estate loans	Real estate mortgage  – construction and land development Real estate mortgage  – residential Real estate mortgage  – farmland and other commercial enterprises
Commercial loans	Commercial and industrial Depository institutions Agriculture production and other loans to farmers States and political subdivisions Other
Consumer loans	Secured Unsecured

The Company has a loan policy in place that is amended and approved from time to time as needed to reflect current economic conditions and product offerings in its markets. The policy establishes

written procedures concerning areas such as the lending authorities of loan officers, committee review and approval of certain credit requests, underwriting criteria, policy exceptions, appraisal requirements, and loan review. Credit is extended to borrowers based primarily on their ability to repay as demonstrated by income and cash flow analysis.

Loans secured by real estate make up the largest segment of the Company

’s loan portfolio. If a borrower fails to repay a loan secured by real estate, the Company

may

liquidate the collateral in order to satisfy the amount owed. Determining the value of real estate is a key component to the lending process for real estate backed loans. If the fair value of real estate (less estimated cost to sell) securing a collateral dependent loan declines below the outstanding loan amount, the Company will write down the carrying value of the loan and thereby incur a loss. The Company uses independent

third

party state certified or licensed appraisers in accordance with its loan policy to mitigate risk when underwriting real estate loans. Cash flow analysis of the borrower, loan to value limits as adopted by loan policy, and other customary underwriting standards are also in place which are designed to maximize credit quality and mitigate risks associated with real estate lending.

Commercial loans are made to businesses and are secured mainly by assets such as inventory, accounts receivable, machinery, fixtures and equipment, or other business assets. Commercial lending involves

significant risk, as loan repayments are more dependent on the successful operation or management of the business and its cash flows. Consumer lending includes loans to individuals mainly for personal autos, boats, or a variety of other personal uses and

may

be secured or unsecured. Loan repayment associated with consumer loans is highly dependent upon the borrower’s continuing financial stability, which is heavily influenced by local unemployment rates. The Company mitigates its risk exposure to each of its loan segments by analyzing the borrower’s repayment capacity, imposing restrictions on the amount it will loan compared to estimated collateral values, limiting the payback periods, and following other customary underwriting practices as adopted in its loan policy.

T

he accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for

90

days or more, unless such loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan. Interest accrued but

not

received for a loan placed on nonaccrual status is reversed against interest income. Cash payments received on nonaccrual loans generally are applied to principal until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company’s policy for placing a loan on nonaccrual status or subsequently returning a loan to accrual status does

not

differ based on its portfolio class or segment.

Commercial and real estate l

oans delinquent in excess of

120

days and consumer loans delinquent in excess of

180

days are charged off

,

unless the collateral securing the debt is of such value that any loss appears to be unlikely. In all cases, loans are charged off at an earlier date if classified as loss under the Company’s loan grading process or as a result of regulatory examination. The Company’s charge-off policy for impaired loans does

not

differ from the charge-off policy for loans outside the definition of impaired

.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Provision and Allowance for Loan Losses

The provision for loan losses represents charges

or credits made to earnings to maintain an allowance for loan losses at a level considered adequate to provide for probable incurred credit losses at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company estimates the adequacy of the allowance using a risk-rated methodology which is based on the Company

’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that

may

affect the borrower’s ability to repay, the estimated value of any underlying collateral securing loans, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires significant judgment and the use of estimates that

may

be susceptible to change.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers

non-impaired loans and is based on historical loss experience adjusted for current risk factors. Allocations of the allowance

may

be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Actual loan losses could differ significantly from the amounts estimated by management.

The

general portion of the Company’s loan portfolio is segregated into portfolio segments having similar risk characteristics identified as follows: real estate loans, commercial loans, and consumer loans. Each of these portfolio segments is assigned a loss percentage based on their respective rolling historical loss rates, adjusted for the qualitative risk factors summarized below. During the

first

quarter of

2017,

the Company shortened the look-back period it uses to determine historical loss rates to the previous

twelve

quarters from

sixteen

quarters. The change in the look-back period is the result of the Company’s ongoing monitoring and evaluation of the adequacy of its allowance for loan losses. The shorter look-back period better reflects the Company’s loss estimates based on current market conditions. Shortening the look-back period increased the allowance for loan losses by

$49

thousand compared to the previous

sixteen

quarter look-back period

.

The qualitative risk factors used in the methodology are consistent with the guidance in the most recent Interagency Policy Statement on the Allowance for Loan Losses issued. Each factor is supported by a detailed analysis and is both measurable and supportable. Some factors include a minimum allocation in instances where loss levels are extremely low and it is determined to be prudent from a safety and soundness perspective. Qualitative risk factors that are used in the methodology include the following for each loan portfolio segment:

● Delinquency trends

● Trends in net charge-offs

● Trends in loan volume

● Lending philosophy risk

● Management experience risk

● Concentration of credit risk

● Economic conditions risk

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting

in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company accounts for impaired loans in accordance with

Accounting Standards Codification (“ASC”) Topic

310,

“Receivables

.

”

ASC Topic

310

requires that impaired loans be measured at the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral if the loan is collateral dependent. Impaired loans

may

also be classified as nonaccrual. In many circumstances, however, the Company continues to accrue interest on an impaired loan. Cash receipts on accruing impaired loans are applied to the recorded investment in the loan, including any accrued interest receivable. Cash payments received on nonaccrual impaired loans generally are applied to principal until qualifying for return to accrual status

.

Loans that are part of a large group of smaller-balance homogeneous loans, such as residential mortgage

,

consumer, and smaller-balance commercial loans, are collectively evaluated for impairment. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception, or at the fair value of collateral. The Company determines the amount of reserve for troubled debt restructurings that subsequently default in accordance with its accounting policy for the allowance for loan losses.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued

Accounting

Standards

In

May 2014,

the Financial Accounting Standards Board (“FASB”)

issued

Accounting Standards Update (“ASU”)

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

, and subsequently issued several amendments to the standard during

2015

and

2016.

The primary principle of ASU

No.

2014

-

09

is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

As amended,

ASU

No.

2014

-

09

is effective for the Company in annual reporting periods beginning after

December 15, 2017,

including interim periods within that reporting period.

Earlier application is permitted, but only as of annual reporting periods beginning after

December 15, 2016,

including interim reporting periods within those reporting periods. Entities are permitted to apply the amendments either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. The Company

plans to adopt ASU

No.

2014

-

09

in the

first

quarter of

2018

using a full retrospective approach. The majority of the Company’s revenues earned are excluded from the scope of the new standard. Revenue streams within the scope of this ASU include services charges and fees on deposits, allotment processing fees, trust income, and components of other service charges, commission, and fees. Based on the completed contract reviews thus far, any potential changes in revenue recognition for those revenue streams are

not

expected to result in a material impact to the Company’s consolidated financial statements upon adoption. The Company is in the process of developing the additional quantitative and qualitative disclosures that

may

be required upon adoption of the new standard.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

“Leases (Topic

842

),”

to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than

twelve

months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic

606,

Revenue from Contracts with Customers

.

For public companies, ASU

No.

2016

-

02

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would

not

require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors

may

not

apply a full retrospective transition approach. The Company has identified a project team to review its leases and to assess the impact of ASU

No.

2016

-

02

on its consolidated financial position, results of operations, and cash flows.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

“

Financial Instruments—Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

,

”

to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures, including

qualitative and quantitative requirements

, which provide additional information about the amounts recorded in the financial statements.

Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

ASU

No.

2016

-

13

is effective for the Company in annual and interim reporting periods beginning after

December 15, 2019.

Although early adoption is permitted for fiscal years beginning after

December 15, 2018,

the Company does

not

plan to early adopt. The Company has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard. The Company has identified a project team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. The project team has developed a timeline for implementing the standard

, has begun working with a

third

party software solution provider, and is in the process of identifying independent

third

party validation of the impending changes to our credit loss methodologies and processes

.

The team continues to assess the impact of the standard; however, the Company expects adopting this ASU will result in an increase in its allowance for loan losses. The amount of the increase in the allowance for loan losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date.

In Marc

h

2017,

the FASB issued ASU

NO.

2017

-

07,

“Compensation

—

Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Perio

dic Postretirement Benefit Cost,

”

which requires that employers offering benefit plans accounted for under Topic

715

report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. If a separate line item or items are

not

used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. This ASU is effective for the Company in annual and interim reporting periods beginning after

December 15, 2017.

The Company is currently evaluating the impact of ASU

No.

2017

-

07

on its consolidated financial position, results of operations, or cash flows upon adoption.

In

March

201

7,

the FASB issued ASU

No.

2017

-

08,

“

Receivables

—

Nonrefundable Fees and Other Costs

(

Subt

opic

310

-

20

): P

remium Amortization on Purchased Callable Debt Securities

.

”

This ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. The ASU does

not

change the accounting for securities held at a discount; the discount will continue to be amortized to maturity. This ASU is effective for the Company in annual and interim reporting periods beginning after

December 15, 2018,

with early adoption permitted

. Entities are required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.

The Company is considering early adoption and is in the process of determining the impact on its consolidated financial position, results of operations, or cash flows upon adoption.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are

not

expected to have a material impact on the Company

’s financial position, results of operations or cash flows.

XML

Note 3 - Accumulated Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

Three Months Ended September 30,	201 7								201 6
(In thousands)	Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation		Total			Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(1,079	)	$	23	$	(1,056	)	$	7,516		$	(419	)	$	7,097
Other comprehensive income (loss) before reclassifications		120			7		127			(1,531	)		-			(1,531	)
Amounts reclassified from accumulated other comprehensive income		(2	)		1		(1	)		(2,454	)		9			(2,445	)
Net current-period other comprehensive income (loss)		118			8		126			(3,985	)		9			(3,976	)
Ending balance	$	(961	)	$	31	$	(930	)	$	3,531		$	(410	)	$	3,121

Nine Months Ended September 30,		2017									2016
(In thousands)		Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total			Unrealized Gains (Losses) on Available for Sale Investment Securities			Postretirement Benefit Obligation			Total
Beginning balance	$	(3,363	)	$	(45	)	$	(3,408	)	$	3,219		$	(437	)	$	2,782
Other comprehensive income before reclassifications		2,397			25			2,422			2,905			-			2,905
Amounts reclassified from accumulated other comprehensive income		5			51			56			(2,593	)		27			(2,566	)
Net current-period other comprehensive income		2,402			76			2,478			312			27			339
Ending balance	$	(961	)	$	31		$	(930	)	$	3,531		$	(410	)	$	3,121

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

	Amount Reclassified from Accumulated Other Comprehensive Income												Affected Line Item in the Statement Where Net Income is Presented
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2017			2016			2017			2016
Unrealized gains (losses) on available for sale investment securities	$	3		$	3,776		$	(7	)	$	3,990		Net g ain (loss) on sales of available for sale investment securities
		(1	)		(1,322	)		2			(1,397	)	Income tax expense
	$	2		$	2,454		$	(5	)	$	2,593		Net of tax
Amortization related to postretirement benefits
Prior service costs	$	-		$	(12	)	$	(75	)	$	(37	)	Salaries and employee benefits
Actuarial losses		(1	)		(1	)		(4	)		(4	)	Salaries and employee benefits
		(1	)		(13	)		(79	)		(41	)	Total before tax
		-			4			28			14		Income tax expense
	$	(1	)	$	(9	)	$	(51	)	$	(27	)	Net of tax
Total reclassifications for the period	$	1		$	2,445		$	(56	)	$	2,566		Net of tax

XML

Note 5 - Net Income Per Common Share (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2017		2016		2017		2016
Net income, basic and diluted	$	5,312	$	4,324	$	13,123	$	14,060
Average common shares issued and outstanding, basic and diluted		7,514		7,505		7,512		7,503
Net income per common share, basic and diluted	$	.71	$	.58	$	1.75	$	1.87

XML

Note 6 - Investment Securities (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of AFS and HTM Reconciliation [Table Text Block]

September 3 0 , 2017 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	72,945	$	132	$	337	$	72,740
Obligations of states and political subdivisions		121,403		1,021		837		121,587
Mortgage-backed securities – residential		200,058		1,360		1,819		199,599
Mortgage-backed securities – commercial		46,173		1		1,114		45,060
Corporate debt securities		7,576		51		3		7,624
Mutual funds and equity securities		840		65		-		905
Total securities – available for sale	$	448,995	$	2,630	$	4,110	$	447,515
Held To Maturity
Obligations of states and political subdivisions	$	3,448	$	149	$	-	$	3,597

December 31, 201 6 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available For Sale
Obligations of U.S. government-sponsored entities	$	71,941	$	213	$	460	$	71,694
Obligations of states and political subdivisions		134,055		773		2,536		132,292
Mortgage-backed securities – residential		225,489		1,505		2,687		224,307
Mortgage-backed securities – commercial		47,164		6		1,557		45,613
Corporate debt securities		6,565		1		441		6,125
Mutual funds and equity securities		824		20		11		833
Total securities – available for sale	$	486,038	$	2,518	$	7,692	$	480,864
Held To Maturity
Obligations of states and political subdivisions	$	3,488	$	109	$	-	$	3,597

Investments Classified by Contractual Maturity Date [Table Text Block]

	Available For Sale				Held To Maturity
	Amortized		Estimated		Amortized		Estimated
September 3 0 , 2017 (In thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	30,884	$	30,911	$	-	$	-
Due after one year through five years		71,412		71,703		-		-
Due after five years through ten years		76,611		76,197		1,302		1,402
Due after ten years		23,017		23,140		2,146		2,195
Mortgage-backed securities		246,231		244,659		-		-
Total	$	448,155	$	446,610	$	3,448	$	3,597

Realized Gain (Loss) on Investments [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30 ,				September 30,
(In thousands)	20 17		20 16		2017			2016
Gross realized gains	$	3	$	3,829	$	3		$	4,181
Gross realized losses		-		53		10			191
Net realized gain (loss)	$	3	$	3,776	$	(7	)	$	3,990

Schedule of Unrealized Loss on Investments [Table Text Block]

	Less than 12 Months				12 Months or More				Total
September 3 0 , 2017 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	42,246	$	191	$	11,570	$	146	$	53,816	$	337
Obligations of states and political subdivisions		26,809		162		32,799		675		59,608		837
Mortgage-backed securities – residential		93,192		642		55,308		1,177		148,500		1,819
Mortgage-backed securities – commercial		12,366		109		29,900		1,005		42,266		1,114
Corporate debt securities		2,992		3		-		-		2,992		3
Total	$	177,605	$	1,107	$	129,577	$	3,003	$	307,182	$	4,110

	Less than 12 Months				12 Months or More				Total
December 31, 2016 (In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored entities	$	51,657	$	460	$	-	$	-	$	51,657	$	460
Obligations of states and political subdivisions		91,728		2,526		1,999		10		93,727		2,536
Mortgage-backed securities – residential		154,397		2,485		5,841		202		160,238		2,687
Mortgage-backed securities – commercial		43,309		1,557		-		-		43,309		1,557
Corporate debt securities		536		6		5,476		435		6,012		441
Mutual funds and equity securities		128		2		113		9		241		11
Total	$	341,755	$	7,036	$	13,429	$	656	$	355,184	$	7,692

XML

Note 7 - Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

( In thousands)	September 30, 2017		December 31, 2016
Real Estate
Real estate mortgage – construction and land development	$	112,005	$	120,230
Real estate mortgage – residential		342,350		350,295
Real estate mortgage – farmland and other commercial enterprises		427,575		400,367
Commercial
Commercial and industrial		63,853		48,607
States and political subdivisions		20,250		18,933
Other		20,308		23,308
Consumer
Secured		4,728		4,554
Unsecured		4,042		4,681
Total loans		995,111		970,975
Less unearned income		-		-
Total loans, net of unearned income	$	995,111	$	970,975

Allowance for Credit Losses on Financing Receivables [Table Text Block]

( In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended September 30, 2017
Balance, beginning of period	$	7,961		$	900		$	361		$	9,222
Provision for loan losses		(376	)		25			(28	)		(379	)
Recoveries		259			44			27			330
Loans charged off		(16	)		(86	)		(23	)		(125	)
Balance, end of period	$	7,828		$	883		$	337		$	9,048
Nine months e nded September 30, 2017
Balance, beginning of period	$	8,205		$	854		$	285		$	9,344
Provision for loan losses		(526	)		153			75			(298	)
Recoveries		674			110			46			830
Loans charged off		(525	)		(234	)		(69	)		(828	)
Balance, end of period	$	7,828		$	883		$	337		$	9,048

( In thousands)	Real Estate			Commercial			Consumer			Total
Three months ended September 30 , 2016
Balance, beginning of period	$	8,404		$	806		$	275		$	9,485
Provision for loan losses		(425	)		203			32			(190	)
Recoveries		31			52			9			92
Loans charged off		(88	)		(134	)		(19	)		(241	)
Balance, end of period	$	7,922		$	927		$	297		$	9,146
Nine months ended September 30, 2016
Balance, beginning period	$	9,173		$	820		$	322		$	10,315
Provision for loan losses		(1,025	)		193			13			(819	)
Recoveries		133			107			52			292
Loans charged off		(359	)		(193	)		(90	)		(642	)
Balance, end of period	$	7,922		$	927		$	297		$	9,146

Impaired Financing Receivables [Table Text Block]

September 30, 2017 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated
Real Estate
Real estate mortgage – construction and land development	$	4,569	$	2,003	$	1,962	$	3,965	$	385
Real estate mortgage – residential		9,985		2,807		7,207		10,014		1,650
Real estate mortgage – farmland and other commercial enterprises		19,961		4,342		15,494		19,836		313
Commercial
Commercial and industrial		400		-		401		401		219
Consumer
Unsecured		313		-		313		313		221
Total	$	35,228	$	9,152	$	25,377	$	34,529	$	2,788

December 31, 2016 (In thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Allowance for Loan Losses Allocated
Real Estate
Real estate mortgage – construction and land development	$	9,076	$	2,599	$	3,800	$	6,399	$	759
Real estate mortgage – residential		9,930		4,388		5,590		9,978		1,503
Real estate mortgage – farmland and other commercial enterprises		25,045		9,699		15,235		24,934		304
Commercial
Commercial and industrial		435		20		418		438		236
Consumer
Unsecured		146		-		146		146		146
Total	$	44,632	$	16,706	$	25,189	$	41,895	$	2,948

Three Months Ended September 30,	2017						2016
(In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	5,932	$	52	$	28	$	7,838	$	88	$	88
Real estate mortgage – residential		10,199		139		134		9,214		136		136
Real estate mortgage – farmland and other commercial enterprises		19,166		224		223		26,401		292		292
Commercial
Commercial and industrial		401		6		6		409		4		2
Consumer
Unsecured		333		4		4		150		2		2
Total	$	36,031	$	425	$	395	$	44,012	$	522	$	520

Nine Months Ended September 30,	2017						2016
(In thousands)	Average		Interest Income Recognized		Cash Basis Interest Recognized		Average		Interest Income Recognized		Cash Basis Interest Recognized
Real Estate
Real estate mortgage – construction and land development	$	5,464	$	186	$	161	$	8,319	$	243	$	231
Real estate mortgage – residential		10,329		393		385		8,957		348		323
Real estate mortgage – farmland and other commercial enterprises		22,436		822		815		25,728		929		908
Commercial
Commercial and industrial		436		17		17		413		15		13
Other		8		-		-		-		-		-
Consumer
Unsecured		331		13		12		152		5		4
Total	$	39,004	$	1,431	$	1,390	$	43,569	$	1,540	$	1,479

Loans and ALL Disaggregated Impairment Method [Table Text Block]

September 3 0 , 2017 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,348	$	219	$	221	$	2,788
Collectively evaluated for impairment		5,480		664		116		6,260
Total ending allowance balance	$	7,828	$	883	$	337	$	9,048
Loans
Loans individually evaluated for impairment	$	33,815	$	401	$	313	$	34,529
Loans collectively evaluated for impairment		848,115		104,010		8,457		960,582
Total ending loan balance, net of unearned income	$	881,930	$	104,411	$	8,770	$	995,111

December 31, 2016 (In thousands)	Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,566	$	236	$	146	$	2,948
Collectively evaluated for impairment		5,639		618		139		6,396
Total ending allowance balance	$	8,205	$	854	$	285	$	9,344
Loans
Loans individually evaluated for impairment	$	41,311	$	438	$	146	$	41,895
Loans collectively evaluated for impairment		829,581		90,410		9,089		929,080
Total ending loan balance, net of unearned income	$	870,892	$	90,848	$	9,235	$	970,975

Non-performing Loans Including TDR's [Table Text Block]

September 3 0, 2017 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	380	$	1,957	$	-
Real estate mortgage – residential		1,490		5,356		-
Real estate mortgage – farmland and other commercial enterprises		1,908		14,461		-
Commercial
Commercial and industrial		-		372		-
Consumer
Unsecured		171		130		32
Total	$	3,949	$	22,276	$	32

December 31, 201 6 (In thousands)	Nonaccrual		Restructured Loans		Loans Past Due 90 Days or More and Still Accruing
Real Estate
Real estate mortgage – construction and land development	$	712	$	3,637	$	-
Real estate mortgage – residential		2,316		4,006		-
Real estate mortgage – farmland and other commercial enterprises		3,383		14,787		-
Commercial
Commercial and industrial		-		377		-
Consumer
Secured		4		-		-
Unsecured		8		135		-
Total	$	6,423	$	22,942	$	-

Past Due Financing Receivables [Table Text Block]

September 3 0, 2017 (In thousands)	30-8 9 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate
Real estate mortgage – construction and land development	$	15	$	314	$	329	$	111,676	$	112,005
Real estate mortgage – residential		763		476		1,239		341,111		342,350
Real estate mortgage – farmland and other commercial enterprises		-		1,090		1,090		426,485		427,575
Commercial
Commercial and industrial		-		-		-		63,853		63,853
States and political subdivisions		-		-		-		20,250		20,250
Other		-		-		-		20,308		20,308
Consumer
Secured		-		-		-		4,728		4,728
Unsecured		2		-		2		4,040		4,042
Total	$	780	$	1,880	$	2,660	$	992,451	$	995,111

December 31, 201 6 (In thousands)	30-89 Days Past Due		90 Days or More Past Due		Total		Current		Total Loans
Real Estate
Real estate mortgage – construction and land development	$	393	$	227	$	620	$	119,610	$	120,230
Real estate mortgage – residential		1,935		798		2,733		347,562		350,295
Real estate mortgage – farmland and other commercial enterprises		-		2,483		2,483		397,884		400,367
Commercial
Commercial and industrial		-		-		-		48,607		48,607
States and political subdivisions		-		-		-		18,933		18,933
Other		24		-		24		23,284		23,308
Consumer
Secured		13		-		13		4,541		4,554
Unsecured		30		8		38		4,643		4,681
Total	$	2,395	$	3,516	$	5,911	$	965,064	$	970,975

Financing Receivable Credit Quality Indicators [Table Text Block]

	Real Estate						Commercial
September 3 0, 2017 (In thousands)	Real Estate Mortgage – Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage –Farmland and Other Commercial Enterprises		Commercial and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	107,517	$	317,404	$	399,738	$	62,964	$	20,250	$	19,679
Special Mention		408		9,591		17,564		487		-		629
Substandard		4,080		15,355		10,273		402		-		-
Doubtful		-		-		-		-		-		-
Total	$	112,005	$	342,350	$	427,575	$	63,853	$	20,250	$	20,308

	Real Estate						Commercial
December 31, 201 6 (In thousands)	Real Estate Mortgage –Construction and Land Development		Real Estate Mortgage – Residential		Real Estate Mortgage – Farmland and Other Commercial Enterprises		Commercia and Industrial		States and Political Subdivisions		Other
Credit risk profile by internally assigned rating grades
Pass	$	112,435	$	323,300	$	363,448	$	47,254	$	18,933	$	23,308
Special Mention		1,413		12,147		21,088		764		-		-
Substandard		6,382		14,806		15,831		589		-		-
Doubtful		-		42		-		-		-		-
Total	$	120,230	$	350,295	$	400,367	$	48,607	$	18,933	$	23,308

Risk Category of Loans by Class-Consumer [Table Text Block]

	September 3 0 , 2017				December 31, 201 6
	Consumer				Consumer
(In thousands)	Secured		Unsecured		Secured		Unsecured
Credit risk profile based on payment activity
Performing	$	4,728	$	3,709	$	4,550	$	4,538
Nonperforming		-		333		4		143
Total	$	4,728	$	4,042	$	4,554	$	4,681

XML

Note 8 - Other Real Estate Owned (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

OREO Detail [Table Text Block]

(In thousands)	September 3 0, 201 7		December 31, 201 6
Construction and land development	$	4,526	$	7,996
Residential real estate		667		871
Farmland and other commercial enterprises		913		1,806
Total	$	6,106	$	10,673

OREO Activity [Table Text Block]

Nine months ended September 30, (In thousands)	201 7			201 6
Beginning balance	$	10,673		$	21,843
Transfers from loans and other increases		593			1,790
Proceeds from sales		(4,670	)		(6,996	)
G ain on sales, net		95			30
Write downs and other decreases, net		(585	)		(1,331	)
Ending balance	$	6,106		$	15,336

XML

Note 9 - Securities Sold Under Agreements to Repurchase (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Repurchase Agreements [Table Text Block]

	Remaining Contractual Maturity of the Agreements
September 3 0 , 2017 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	-	$	-	$	-	$	1,153	$	257	$	1,410
Mortgage-backed securities – residential		33,627		200		-		300		-		34,127
Total	$	33,627	$	200	$	-	$	1,453	$	257	$	35,537

	Remaining Contractual Maturity of the Agreements
December 31, 2016 (In thousands)	Overnight/ Continuous		Less Than 30 Days		30-89 Days		90 Days to One Year		Over One Year to Three Years		Total
Obligations of U.S. government-sponsored entities	$	5,596	$	301	$	-	$	258	$	1,027	$	7,182
Mortgage-backed securities – residential		28,086		902		-		200		-		29,188
Total	$	33,682	$	1,203	$	-	$	458	$	1,027	$	36,370

XML

Note 10 - Postretirement Medical Benefits (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands)	201 7		201 6		2017			2016
Service cost	$	137	$	159	$	420		$	478
Interest cost		164		171		496			512
Curtailment gain recognized		-		-		(351	)		-
Recognized prior service cost		-		12		8			37
Net periodic benefit cost	$	301	$	342	$	573		$	1,027

XML

Note 11 - Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

	September 3 0 , 2017												December 31, 201 6
	Common Equity Tier 1 Risk-based Capital 1			Tier 1 Risk- based Capital 1			Total Risk- based Capital 1			Tier 1 Leverage 2			Common Equity Tier 1 Risk-based Capital 1			Tier 1 Risk- based Capital 1			Total Risk- based Capital 1			Tier 1 Leverage 2
Consolidated		17.09	%		19.88	%		20.66	%		13.83	%		16.43	%		19.28	%		20.10	%		13.20	%
United Bank & Capital Trust Company		15.29			15.29			16.08			10.75			*			*			*			*
Farmers Bank & Capital Trust Company		*			*			*			*			16.53			16.53			17.23			9.80
United Bank & Trust Company		*			*			*			*			15.54			15.54			16.47			12.38
First Citizens Bank		*			*			*			*			13.56			13.56			14.16			9.76
Citizens Bank of Northern Kentucky, Inc.		*			*			*			*			15.24			15.24			16.40			10.68
Regulatory minimum		4.50			6.00			8.00			4.00			4.50			6.00			8.00			4.00
Well-capitalized status		6.50			8.00			10.00			5.00			6.50			8.00			10.00			5.00

XML

Note 12 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

			Fair Value Measurements Using
(In thousands) Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 3 0 , 201 7
Obligations of U.S. government-sponsored entities	$	72,740	$	-	$	72,740	$	-
Obligations of states and political subdivisions		121,587		-		121,587		-
Mortgage-backed securities – residential		199,599		-		199,599		-
Mortgage-backed securities – commercial		45,060		-		45,060		-
Corporate debt securities		7,624		-		7,624		-
Mutual funds and equity securities		905		905		-		-
Total	$	447,515	$	905	$	446,610	$	-

			Fair Value Measurements Using
(In thousands) Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 6
Obligations of U.S. government-sponsored entities	$	71,694	$	-	$	71,694	$	-
Obligations of states and political subdivisions		132,292		-		132,292		-
Mortgage-backed securities – residential		224,307		-		224,307		-
Mortgage-backed securities – commercial		45,613		-		45,613		-
Corporate debt securities		6,125		-		6,125		-
Mutual funds and equity securities		833		833		-		-
Total	$	480,864	$	833	$	480,031	$	-

Fair Value Measurements, Nonrecurring [Table Text Block]

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 3 0 , 201 7
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	1,324	$	-	$	-	$	1,324
Real estate mortgage – residential		769		-		-		769
Real estate mortgage – farmland and other commercial enterprises		962		-		-		962
Total	$	3,055	$	-	$	-	$	3,055
OREO
C onstruction and land development	$	3,118	$	-	$	-	$	3,118
R esidential real estate		204		-		-		204
F armland and other commercial enterprises		836		-		-		836
Total	$	4,158	$	-	$	-	$	4,158

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 201 6
Collateral-dependent Impaired Loans
Real estate mortgage – construction and land development	$	2,909	$	-	$	-	$	2,909
Real estate mortgage – residential		3,137		-		-		3,137
Real estate mortgage – farmland and other commercial enterprises		351		-		-		351
Total	$	6,397	$	-	$	-	$	6,397
OREO
Construction and land development	$	4,883	$	-	$	-	$	4,883
Residential real estate		234		-		-		234
Farmland and other commercial enterprises		1,070		-		-		1,070
Total	$	6,187	$	-	$	-	$	6,187

Asset Impairment Charges on Assets Nonrecurring [Table Text Block]

	Three months ended					Nine months ended
	September 30,					September 30,
(In thousands)	201 7			201 6		2017		2016
Net (increase) decrease in fair value:
Collateral-dependent i mpaired loans	$	(3	)	$	33	$	12	$	540
OREO		235			599		435		1,165
Total	$	232		$	632	$	447	$	1,705

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

(In thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range			Average
September 30, 2017
Collateral-dependent i mpaired loans	$	3,055	Discounted appraisals	Marketability discount	1.1%	-	22.8%		9.7	%
OREO	$	4,158	Discounted appraisals	Marketability discount	0%	-	52.4%		17.5	%
December 31, 201 6
Collateral-dependent impaired loans	$	6,397	Discounted appraisals	Marketability discount	0%	-	67.8%		3.5	%
OREO	$	6,187	Discounted appraisals	Marketability discount	0%	-	50.0%		11.2	%

Fair Value, by Balance Sheet Grouping [Table Text Block]

					Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 3 0 , 201 7
Assets
Cash and cash equivalents	$	117,608	$	117,608	$	117,608	$	-	$	-
Held to maturity investment securities		3,448		3,597		-		3,597		-
Loans, net		986,063		976,344		-		-		976,344
Accrued interest receivable		4,695		4,695		-		4,695		-
Federal Home Loan Bank and Federal Reserve Bank Stock		13,235		13,235		-		-		13,235
Liabilities
Deposits		1,361,824		1,361,653		1,128,645		-		233,008
S ecurities sold under agreements to repurchase		35,537		35,542		-		35,542		-
Federal Home Loan Bank advances		3,521		3,608		-		3,608		-
Subordinated notes payable to unconsolidated trusts		33,506		21,142		-		-		21,142
Accrued interest payable		344		344		-		344		-
December 31, 201 6
Assets
Cash and cash equivalents	$	113,534	$	113,534	$	113,534	$	-	$	-
Held to maturity investment securities		3,488		3,597		-		3,597		-
Loans, net		961,631		962,437		-		-		962,437
Accrued interest receivable		5,019		5,019		-		5,019		-
Federal Home Loan Bank and Federal Reserve Bank Stock		9,840		9,840		-		-		9,840
Liabilities
Deposits		1,369,907		1,369,567		1,099,211		-		270,356
S ecurities sold under agreements to repurchase		36,370		36,381		-		36,381		-
Federal Home Loan Bank advances		18,646		19,114		-		19,114		-
Subordinated notes payable to unconsolidated trusts		33,506		21,234		-		-		21,234
Accrued interest payable		321		321		-		321		-

XML

Note 3 - Accumulated Other Comprehensive Income - Changes in Accumulated Other Comprehensive Income by Component (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Beginning balance			$ 184,066	$ 175,698
Net current-period other comprehensive income (loss)	$ 126	$ (3,976)	2,478	339
Ending balance	197,648	188,724	197,648	188,724
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Beginning balance	(1,079)	7,516	(3,363)	3,219
Other comprehensive income (loss) before reclassifications	120	(1,531)	2,397	2,905
Amounts reclassified from accumulated other comprehensive income	(2)	(2,454)	5	(2,593)
Net current-period other comprehensive income (loss)	118	(3,985)	2,402	312
Ending balance	(961)	3,531	(961)	3,531
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Beginning balance	23	(419)	(45)	(437)
Other comprehensive income (loss) before reclassifications	7	0	25	0
Amounts reclassified from accumulated other comprehensive income	1	9	51	27
Net current-period other comprehensive income (loss)	8	9	76	27
Ending balance	31	(410)	31	(410)
AOCI Attributable to Parent [Member]
Beginning balance	(1,056)	7,097	(3,408)	2,782
Other comprehensive income (loss) before reclassifications	127	(1,531)	2,422	2,905
Amounts reclassified from accumulated other comprehensive income	(1)	(2,445)	56	(2,566)
Net current-period other comprehensive income (loss)	126	(3,976)	2,478	339
Ending balance	$ (930)	$ 3,121	$ (930)	$ 3,121

XML

Note 3 - Accumulated Other Comprehensive Income - Amounts Reclassified Out of Accumulated Other Comprehensive Income by Component (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income tax expense	$ (2,076)	$ (1,560)	$ (5,074)	$ (5,510)
Net income	5,312	4,324	13,123	14,060
Salaries and employee benefits	(7,309)	(7,810)	(22,572)	(23,444)
Total before tax	7,388	5,884	18,197	19,570
Reclassification out of Accumulated Other Comprehensive Income [Member]
Net income	1	2,445	(56)	2,566
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Unrealized gains (losses) on available for sale investment securities	3	3,776	(7)	3,990
Income tax expense	(1)	(1,322)	2	(1,397)
Net income	2	2,454	(5)	2,593
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment, Net Prior Service Attributable to Parent [Member]
Salaries and employee benefits		(12)	(75)	(37)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment, Net Gain (Loss) Attributable to Parent [Member]
Salaries and employee benefits	(1)	(1)	(4)	(4)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Income tax expense		4	28	14
Net income	(1)	(9)	(51)	(27)
Total before tax	$ (1)	$ (13)	$ (79)	$ (41)

XML

Note 4 - Accounting Policy (Details Textual) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2017 USD ($)	Dec. 31, 2016
Allowance for Loan Losses, Look-back Period	12	16
Allowance for Loan and Lease Losses, Adjustments, Other	$ 49

XML

Note 5 - Net Income Per Common Share (Details Textual) - shares shares in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Weighted Average Number Diluted Shares Outstanding Adjustment	0	0

XML

Note 5 - Net Income Per Common Share - Net Income Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net income, basic and diluted	$ 5,312	$ 4,324	$ 13,123	$ 14,060
Average common shares issued and outstanding, basic and diluted (in shares)	7,514	7,505	7,512	7,503
Net income per common share, basic and diluted (in dollars per share)	$ 0.71	$ 0.58	$ 1.75	$ 1.87

XML

Note 6 - Investment Securities (Details Textual) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Available-for-sale Securities Pledged as Collateral	$ 208	$ 191

XML

Note 6 - Investment Securities - Amortized Costs and Estimated Fair Value of the Securities Portfolio (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Available for Sale Securities - Amortized Cost	$ 448,995	$ 486,038
Available for Sale Securities - Gross Unrealized Gains	2,630	2,518
Available for Sale Securities - Gross Unrealized Losses	4,110	7,692
Available for Sale Securities - Estimated Fair Value	447,515	480,864
Held to Maturity Securities - Amortized Cost	3,448	3,488
Held to Maturity Securities - Estimated Fair Value	3,597	3,597
US Government-sponsored Enterprises Debt Securities [Member]
Available for Sale Securities - Amortized Cost	72,945	71,941
Available for Sale Securities - Gross Unrealized Gains	132	213
Available for Sale Securities - Gross Unrealized Losses	337	460
Available for Sale Securities - Estimated Fair Value	72,740	71,694
US States and Political Subdivisions Debt Securities [Member]
Available for Sale Securities - Amortized Cost	121,403	134,055
Available for Sale Securities - Gross Unrealized Gains	1,021	773
Available for Sale Securities - Gross Unrealized Losses	837	2,536
Available for Sale Securities - Estimated Fair Value	121,587	132,292
Held to Maturity Securities - Amortized Cost	3,448	3,488
Held to Maturity Securities - Gross Unrealized Gains	149	109
Held to Maturity Securities - Gross Unrealized Losses	0	0
Held to Maturity Securities - Estimated Fair Value	3,597	3,597
Residential Mortgage Backed Securities [Member]
Available for Sale Securities - Amortized Cost	200,058	225,489
Available for Sale Securities - Gross Unrealized Gains	1,360	1,505
Available for Sale Securities - Gross Unrealized Losses	1,819	2,687
Available for Sale Securities - Estimated Fair Value	199,599	224,307
Commercial Mortgage Backed Securities [Member]
Available for Sale Securities - Amortized Cost	46,173	47,164
Available for Sale Securities - Gross Unrealized Gains	1	6
Available for Sale Securities - Gross Unrealized Losses	1,114	1,557
Available for Sale Securities - Estimated Fair Value	45,060	45,613
Corporate Debt Securities [Member]
Available for Sale Securities - Amortized Cost	7,576	6,565
Available for Sale Securities - Gross Unrealized Gains	51	1
Available for Sale Securities - Gross Unrealized Losses	3	441
Available for Sale Securities - Estimated Fair Value	7,624	6,125
Mutual Funds and Equity Securities [Member]
Available for Sale Securities - Amortized Cost	840	824
Available for Sale Securities - Gross Unrealized Gains	65	20
Available for Sale Securities - Gross Unrealized Losses	0	11
Available for Sale Securities - Estimated Fair Value	$ 905	$ 833

XML

Note 6 - Investment Securities - Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Available-for-sale, amortized cost, due in one year or less	$ 30,884
Available-for-sale, estimated fair value, due in one year or less	30,911
Held-to-maturity, amortized cost, due in one year or less	0
Held-to-maturity, estimated fair value, due in one year or less	0
Available-for-sale, amortized cost, due after one year through five years	71,412
Available-for-sale, estimated fair value, due after one year through five years	71,703
Held-to-maturity, amortized cost, due after one year through five years	0
Held-to-maturity, estimated fair value, due after one year through five years	0
Available-for-sale, amortized cost, due after five years through ten years	76,611
Available-for-sale, estimated fair value, due after five years through ten years	76,197
Held-to-maturity, amortized cost, due after five years through ten years	1,302
Held-to-maturity, estimated fair value, due after five years through ten years	1,402
Available-for-sale, amortized cost, due after ten years	23,017
Available-for-sale, estimated fair value, due after ten years	23,140
Held-to-maturity, amortized cost, due after ten years	2,146
Held-to-maturity, estimated fair value, due after ten years	2,195
Available-for-sale, amortized cost, mortgage-backed securities	246,231
Available-for-sale, estimated fair value, mortgage-backed securities	244,659
Held-to-maturity, amortized cost, mortgage-backed securities	0
Held-to-maturity, estimated fair value, mortgage-backed securities	0
Available-for-sale, amortized cost	448,155
Available-for-sale, estimated fair value	446,610
Held-to-maturity, amortized cost	3,448	$ 3,488
Held-to-maturity, estimated fair value	$ 3,597	$ 3,597

XML

Note 6 - Investment Securities - Gross Realized Gains and Losses on the Sale of Available for Sale Investment Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Gross realized gains	$ 3	$ 3,829	$ 3	$ 4,181
Gross realized losses	0	53	10	191
Net realized gain (loss)	$ 3	$ 3,776	$ (7)	$ 3,990

XML

Note 6 - Investment Securities - Investment Securities With Unrealized Losses Not Recognized In Income (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Less than 12 Months Fair Value	$ 177,605	$ 341,755
Less than 12 Months Unrealized Losses	1,107	7,036
12 Months or More Fair Value	129,577	13,429
12 Months or More Unrealized Losses	3,003	656
Total Fair Value	307,182	355,184
Total Unrealized Losses	4,110	7,692
US Government-sponsored Enterprises Debt Securities [Member]
Less than 12 Months Fair Value	42,246	51,657
Less than 12 Months Unrealized Losses	191	460
12 Months or More Fair Value	11,570	0
12 Months or More Unrealized Losses	146	0
Total Fair Value	53,816	51,657
Total Unrealized Losses	337	460
US States and Political Subdivisions Debt Securities [Member]
Less than 12 Months Fair Value	26,809	91,728
Less than 12 Months Unrealized Losses	162	2,526
12 Months or More Fair Value	32,799	1,999
12 Months or More Unrealized Losses	675	10
Total Fair Value	59,608	93,727
Total Unrealized Losses	837	2,536
Residential Mortgage Backed Securities [Member]
Less than 12 Months Fair Value	93,192	154,397
Less than 12 Months Unrealized Losses	642	2,485
12 Months or More Fair Value	55,308	5,841
12 Months or More Unrealized Losses	1,177	202
Total Fair Value	148,500	160,238
Total Unrealized Losses	1,819	2,687
Commercial Mortgage Backed Securities [Member]
Less than 12 Months Fair Value	12,366	43,309
Less than 12 Months Unrealized Losses	109	1,557
12 Months or More Fair Value	29,900	0
12 Months or More Unrealized Losses	1,005	0
Total Fair Value	42,266	43,309
Total Unrealized Losses	1,114	1,557
Corporate Debt Securities [Member]
Less than 12 Months Fair Value	2,992	536
Less than 12 Months Unrealized Losses	3	6
12 Months or More Fair Value	0	5,476
12 Months or More Unrealized Losses	0	435
Total Fair Value	2,992	6,012
Total Unrealized Losses	$ 3	441
Mutual Funds and Equity Securities [Member]
Less than 12 Months Fair Value		128
Less than 12 Months Unrealized Losses		2
12 Months or More Fair Value		113
12 Months or More Unrealized Losses		9
Total Fair Value		241
Total Unrealized Losses		$ 11

XML

Note 7 - Loans and Allowance for Loan Losses (Details Textual) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016	Dec. 31, 2016 USD ($)
Allowance for Credit Losses, Change in Method of Calculating Impairment	$ 1,800		$ 2,000
Loans and Leases Receivable, Impaired, Commitment to Lend	$ 0		$ 0
Financing Receivable, Modifications, Number of Contracts	0	0
Allowance for Loan Losses, Look-back Period	12		16

XML

Note 7 - Loans and Allowance for Loan Losses - Major Classifications of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Loan receivable	$ 995,111	$ 970,975
Less unearned income	0	0
Loans, net of unearned income	995,111	970,975
Real Estate Portfolio Segment [Member]
Loans, net of unearned income	881,930	870,892
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loan receivable	112,005	120,230
Loans, net of unearned income	112,005	120,230
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loan receivable	342,350	350,295
Loans, net of unearned income	342,350	350,295
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loan receivable	427,575	400,367
Loans, net of unearned income	427,575	400,367
Commercial Portfolio Segment [Member]
Loans, net of unearned income	104,411	90,848
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loan receivable	63,853	48,607
Loans, net of unearned income	63,853	48,607
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loan receivable	20,250	18,933
Loans, net of unearned income	20,250	18,933
Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loan receivable	20,308	23,308
Loans, net of unearned income	20,308	23,308
Consumer Portfolio Segment [Member]
Loans, net of unearned income	8,770	9,235
Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loan receivable	4,728	4,554
Loans, net of unearned income	4,728	4,554
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loan receivable	4,042	4,681
Loans, net of unearned income	$ 4,042	$ 4,681

XML

Note 7 - Loans and Allowance for Loan Losses - Activity In the Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Balance, beginning of period	$ 9,222	$ 9,485	$ 9,344	$ 10,315
Provision for loan losses	(379)	(190)	(298)	(819)
Recoveries	330	92	830	292
Loans charged off	(125)	(241)	(828)	(642)
Balance, end of period	9,048	9,146	9,048	9,146
Real Estate Portfolio Segment [Member]
Balance, beginning of period	7,961	8,404	8,205	9,173
Provision for loan losses	(376)	(425)	(526)	(1,025)
Recoveries	259	31	674	133
Loans charged off	(16)	(88)	(525)	(359)
Balance, end of period	7,828	7,922	7,828	7,922
Commercial Portfolio Segment [Member]
Balance, beginning of period	900	806	854	820
Provision for loan losses	25	203	153	193
Recoveries	44	52	110	107
Loans charged off	(86)	(134)	(234)	(193)
Balance, end of period	883	927	883	927
Consumer Portfolio Segment [Member]
Balance, beginning of period	361	275	285	322
Provision for loan losses	(28)	32	75	13
Recoveries	27	9	46	52
Loans charged off	(23)	(19)	(69)	(90)
Balance, end of period	$ 337	$ 297	$ 337	$ 297

XML

Note 7 - Loans and Allowance for Loan Losses - Individually Impaired Loans by Class of Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Unpaid principal balance	$ 35,228		$ 35,228		$ 44,632
Recorded investment with no allowance	9,152		9,152		16,706
Recorded investment with allowance	25,377		25,377		25,189
Total recorded investment	34,529		34,529		41,895
Allowance for loan losses allocated	2,788		2,788		2,948
Average	36,031	$ 44,012	39,004	$ 43,569
Interest income recognized	425	522	1,431	1,540
Cash basis interest recognized	395	520	1,390	1,479
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Unpaid principal balance	4,569		4,569		9,076
Recorded investment with no allowance	2,003		2,003		2,599
Recorded investment with allowance	1,962		1,962		3,800
Total recorded investment	3,965		3,965		6,399
Allowance for loan losses allocated	385		385		759
Average	5,932	7,838	5,464	8,319
Interest income recognized	52	88	186	243
Cash basis interest recognized	28	88	161	231
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Unpaid principal balance	9,985		9,985		9,930
Recorded investment with no allowance	2,807		2,807		4,388
Recorded investment with allowance	7,207		7,207		5,590
Total recorded investment	10,014		10,014		9,978
Allowance for loan losses allocated	1,650		1,650		1,503
Average	10,199	9,214	10,329	8,957
Interest income recognized	139	136	393	348
Cash basis interest recognized	134	136	385	323
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Unpaid principal balance	19,961		19,961		25,045
Recorded investment with no allowance	4,342		4,342		9,699
Recorded investment with allowance	15,494		15,494		15,235
Total recorded investment	19,836		19,836		24,934
Allowance for loan losses allocated	313		313		304
Average	19,166	26,401	22,436	25,728
Interest income recognized	224	292	822	929
Cash basis interest recognized	223	292	815	908
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Unpaid principal balance	400		400		435
Recorded investment with no allowance	0		0		20
Recorded investment with allowance	401		401		418
Total recorded investment	401		401		438
Allowance for loan losses allocated	219		219		236
Average	401	409	436	413
Interest income recognized	6	4	17	15
Cash basis interest recognized	6	2	17	13
Commercial Portfolio Segment [Member] | Commercial Other [Member]
Average			8	0
Interest income recognized			0	0
Cash basis interest recognized			0	0
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Unpaid principal balance	313		313		146
Recorded investment with no allowance	0		0		0
Recorded investment with allowance	313		313		146
Total recorded investment	313		313		146
Allowance for loan losses allocated	221		221		$ 146
Average	333	150	331	152
Interest income recognized	4	2	13	5
Cash basis interest recognized	$ 4	$ 2	$ 12	$ 4

XML

Note 7 - Loans and Allowance for Loan Losses - Allowance for Loan Losses and the Recorded Investment In Loans by Impairment Method (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Jun. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015
Individually evaluated for impairment	$ 2,788		$ 2,948
Collectively evaluated for impairment	6,260		6,396
Total ending allowance balance	9,048	$ 9,222	9,344	$ 9,146	$ 9,485	$ 10,315
Loans individually evaluated for impairment	34,529		41,895
Loans collectively evaluated for impairment	960,582		929,080
Loans, net of unearned income	995,111		970,975
Real Estate Portfolio Segment [Member]
Individually evaluated for impairment	2,348		2,566
Collectively evaluated for impairment	5,480		5,639
Total ending allowance balance	7,828	7,961	8,205	7,922	8,404	9,173
Loans individually evaluated for impairment	33,815		41,311
Loans collectively evaluated for impairment	848,115		829,581
Loans, net of unearned income	881,930		870,892
Commercial Portfolio Segment [Member]
Individually evaluated for impairment	219		236
Collectively evaluated for impairment	664		618
Total ending allowance balance	883	900	854	927	806	820
Loans individually evaluated for impairment	401		438
Loans collectively evaluated for impairment	104,010		90,410
Loans, net of unearned income	104,411		90,848
Consumer Portfolio Segment [Member]
Individually evaluated for impairment	221		146
Collectively evaluated for impairment	116		139
Total ending allowance balance	337	$ 361	285	$ 297	$ 275	$ 322
Loans individually evaluated for impairment	313		146
Loans collectively evaluated for impairment	8,457		9,089
Loans, net of unearned income	$ 8,770		$ 9,235

XML

Note 7 - Loans and Allowance for Loan Losses - Recorded Investment In Nonperforming Loans by Class of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Nonaccrual	$ 3,949	$ 6,423
Restructured Loans	22,276	22,942
Loans Past Due 90 Days or More and Still Accruing	32	0
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Nonaccrual	380	712
Restructured Loans	1,957	3,637
Loans Past Due 90 Days or More and Still Accruing	0	0
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Nonaccrual	1,490	2,316
Restructured Loans	5,356	4,006
Loans Past Due 90 Days or More and Still Accruing	0	0
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Nonaccrual	1,908	3,383
Restructured Loans	14,461	14,787
Loans Past Due 90 Days or More and Still Accruing	0	0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Nonaccrual	0	0
Restructured Loans	372	377
Loans Past Due 90 Days or More and Still Accruing	0	0
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Nonaccrual	171	8
Restructured Loans	130	135
Loans Past Due 90 Days or More and Still Accruing	$ 32	0
Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Nonaccrual		4
Restructured Loans		0
Loans Past Due 90 Days or More and Still Accruing		$ 0

XML

Note 7 - Loans and Allowance for Loan Losses - Aging Analysis of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Loans, past due	$ 2,660	$ 5,911
Loans, current	992,451	965,064
Loans, net of unearned income	995,111	970,975
Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	780	2,395
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	1,880	3,516
Real Estate Portfolio Segment [Member]
Loans, net of unearned income	881,930	870,892
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, past due	329	620
Loans, current	111,676	119,610
Loans, net of unearned income	112,005	120,230
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	15	393
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	314	227
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, past due	1,239	2,733
Loans, current	341,111	347,562
Loans, net of unearned income	342,350	350,295
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	763	1,935
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	476	798
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, past due	1,090	2,483
Loans, current	426,485	397,884
Loans, net of unearned income	427,575	400,367
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	0	0
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	1,090	2,483
Commercial Portfolio Segment [Member]
Loans, net of unearned income	104,411	90,848
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, past due	0	0
Loans, current	63,853	48,607
Loans, net of unearned income	63,853	48,607
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	0	0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, past due	0	0
Loans, current	20,250	18,933
Loans, net of unearned income	20,250	18,933
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	0	0
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, past due	0	24
Loans, current	20,308	23,284
Loans, net of unearned income	20,308	23,308
Commercial Portfolio Segment [Member] | Commercial Other [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	0	24
Commercial Portfolio Segment [Member] | Commercial Other [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Consumer Portfolio Segment [Member]
Loans, net of unearned income	8,770	9,235
Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loans, past due	0	13
Loans, current	4,728	4,541
Loans, net of unearned income	4,728	4,554
Consumer Portfolio Segment [Member] | Consumer Secured [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	0	13
Consumer Portfolio Segment [Member] | Consumer Secured [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loans, past due	2	38
Loans, current	4,040	4,643
Loans, net of unearned income	4,042	4,681
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans, past due	2	30
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	$ 0	$ 8

XML

Note 7 - Loans and Allowance for Loan Losses - Risk Category of Non Consumer Loans by Class (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Loans, net of unearned income	$ 995,111	$ 970,975
Real Estate Portfolio Segment [Member]
Loans, net of unearned income	881,930	870,892
Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	112,005	120,230
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	342,350	350,295
Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	427,575	400,367
Commercial Portfolio Segment [Member]
Loans, net of unearned income	104,411	90,848
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	63,853	48,607
Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	20,250	18,933
Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	20,308	23,308
Pass [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	107,517	112,435
Pass [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	317,404	323,300
Pass [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	399,738	363,448
Pass [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	62,964	47,254
Pass [Member] | Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	20,250	18,933
Pass [Member] | Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	19,679	23,308
Special Mention [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	408	1,413
Special Mention [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	9,591	12,147
Special Mention [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	17,564	21,088
Special Mention [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	487	764
Special Mention [Member] | Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	0	0
Special Mention [Member] | Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	629	0
Substandard [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	4,080	6,382
Substandard [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	15,355	14,806
Substandard [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	10,273	15,831
Substandard [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	402	589
Substandard [Member] | Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	0	0
Substandard [Member] | Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Loans, net of unearned income	0	42
Doubtful [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | States and Political Subdivisions [Member]
Loans, net of unearned income	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Commercial Other [Member]
Loans, net of unearned income	$ 0	$ 0

XML

Note 7 - Loans and Allowance for Loan Losses - Risk Category of Consumer Loans by Class (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Loans, net of unearned income	$ 995,111	$ 970,975
Consumer Portfolio Segment [Member]
Loans, net of unearned income	8,770	9,235
Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loans, net of unearned income	4,728	4,554
Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loans, net of unearned income	4,042	4,681
Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loans, net of unearned income	4,728	4,550
Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loans, net of unearned income	3,709	4,538
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Consumer Secured [Member]
Loans, net of unearned income	0	4
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Consumer Unsecured [Member]
Loans, net of unearned income	$ 333	$ 143

XML

Note 8 - Other Real Estate Owned (Details Textual) $ in Thousands	Sep. 30, 2017 USD ($)
Mortgage Loans in Process of Foreclosure, Amount	$ 875

XML

Note 8 - Other Real Estate Owned - Other Real Estate Owned (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Other Real Estate Owned	$ 6,106	$ 10,673	$ 15,336	$ 21,843
Construction and Land Development OREO [Member]
Other Real Estate Owned	4,526	7,996
Residential Real Estate OREO [Member]
Other Real Estate Owned	667	871
Farmland and Other Commercial Enterprises OREO [Member]
Other Real Estate Owned	913	1,806
OREO [Member]
Other Real Estate Owned	$ 6,106	$ 10,673

XML

Note 8 - Other Real Estate Owned - OREO Activity (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Beginning balance	$ 10,673	$ 21,843
Transfers from loans and other increases	593	1,790
Proceeds from sales	(4,670)	(6,996)
Gain on sales, net	95	30
Write downs and other decreases, net	(585)	(1,331)
Ending balance	$ 6,106	$ 15,336

XML

Note 9 - Securities Sold Under Agreements to Repurchase - Maturity of Short and Long-term Repurchase Agreements (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Short and long-term purchase agreements	$ 35,537	$ 36,370
US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements	1,410	7,182
Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	34,127	29,188
Maturity Overnight [Member]
Short and long-term purchase agreements	33,627	33,682
Maturity Overnight [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements	0	5,596
Maturity Overnight [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	33,627	28,086
Maturity Less than 30 Days [Member]
Short and long-term purchase agreements	200	1,203
Maturity Less than 30 Days [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements	0	301
Maturity Less than 30 Days [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	200	902
Maturity 30 to 90 Days [Member]
Short and long-term purchase agreements	0	0
Maturity 30 to 90 Days [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements	0	0
Maturity 30 to 90 Days [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	0	0
Maturity 90 Days to One Year [Member]
Short and long-term purchase agreements	1,453	458
Maturity 90 Days to One Year [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements	1,153	258
Maturity 90 Days to One Year [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	300	200
Maturity Over One Year to Four Years [Member]
Short and long-term purchase agreements	257	1,027
Maturity Over One Year to Four Years [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Short and long-term purchase agreements	257	1,027
Maturity Over One Year to Four Years [Member] | Residential Mortgage Backed Securities [Member]
Short and long-term purchase agreements	$ 0	$ 0

XML

Note 10 - Postretirement Medical Benefits (Details Textual) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Mar. 31, 2017	Sep. 30, 2017	Sep. 30, 2016
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Curtailment	$ 351	$ 351	$ 0
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Prior Service Costs Recognized Due to Curtailment	$ 67
Defined Benefit Plan, Expected Future Employer Contributions, Current Fiscal Year		468
Payment for Other Postretirement Benefits		$ 262
Plan 2 [Member]
Employee Service Requirement		20 years
Employee Age Requirement		55 years
Contributions Plan 2		50.00%
Plan 1 [Member]
Company Contributions Plan 1		100.00%

XML

Note 10 - Postretirement Medical Benefits - Net Periodic Benefit Cost (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2017	Mar. 31, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Curtailment gain on postretirement benefits plan liability		$ (351)		$ (351)	$ 0
Postretirement Health Coverage [Member]
Service cost	$ 137		$ 159	420	478
Interest cost	164		171	496	512
Curtailment gain on postretirement benefits plan liability	0		0	(351)	0
Recognized prior service cost	0		12	8	37
Net periodic benefit cost	$ 301		$ 342	$ 573	$ 1,027

XML

Note 11 - Regulatory Matters - Regulatory Ratios of the Consolidated Company and Its Subsidiary Banks (Details)		Sep. 30, 2017		Dec. 31, 2016
Common Equity Tier 1 Risk-based Capital	[1]	17.09%		16.43%
Tier 1 Risk-based Capital	[1]	19.88%		19.28%
Total Risk-based Capital	[1]	20.66%		20.10%
Tier 1 Leverage	[2]	13.83%		13.20%
Common Equity Tier 1 Risk-based Capital, regulatory minimum	[1]	4.50%		4.50%
Tier 1 Risk-based Capital, regulatory minimum	[1]	6.00%		6.00%
Total Risk-based Capital , regulatory minimum	[1]	8.00%		8.00%
Tier 1 Leverage, regulatory minimum	[2]	4.00%		4.00%
Common Equity Tier 1 Risk-based Capital, well-capitalized status	[1]	6.50%		6.50%
Tier 1 Risk-based Capital, well-capitalized status	[1]	8.00%		8.00%
Total Risk-based Capital , well-capitalized status	[1]	10.00%		10.00%
Tier 1 Leverage, well-capitalized status	[2]	5.00%		5.00%
United Bank and Capital Trust Company [Member]
Common Equity Tier 1 Risk-based Capital	[1]	15.29%			[3]
Tier 1 Risk-based Capital	[1]	15.29%			[3]
Total Risk-based Capital	[1]	16.08%			[3]
Tier 1 Leverage	[2]	10.75%			[3]
Farmers Bank and Capital Trust Company [Member]
Common Equity Tier 1 Risk-based Capital	[1]		[3]	16.53%
Tier 1 Risk-based Capital	[1]		[3]	16.53%
Total Risk-based Capital	[1]		[3]	17.23%
Tier 1 Leverage	[2]		[3]	9.80%
United Bank and Trust Company [Member]
Common Equity Tier 1 Risk-based Capital	[1]		[3]	15.54%
Tier 1 Risk-based Capital	[1]		[3]	15.54%
Total Risk-based Capital	[1]		[3]	16.47%
Tier 1 Leverage	[2]		[3]	12.38%
First Citizens Bank [Member]
Common Equity Tier 1 Risk-based Capital	[1]		[3]	13.56%
Tier 1 Risk-based Capital	[1]		[3]	13.56%
Total Risk-based Capital	[1]		[3]	14.16%
Tier 1 Leverage	[2]		[3]	9.76%
Citizens Bank of Northern Kentucky, Inc [Member]
Common Equity Tier 1 Risk-based Capital	[1]		[3]	15.24%
Tier 1 Risk-based Capital	[1]		[3]	15.24%
Total Risk-based Capital	[1]		[3]	16.40%
Tier 1 Leverage	[2]		[3]	10.68%

[1] Common Equity Tier 1 Risked-based, Tier 1 Risk-based, and Total Risk-based Capital ratios are computed by dividing a bank's Common Equity Tier 1, Tier 1 or Total Capital, as defined by regulation, by a risk-weighted sum of the bank's assets, with the risk weighting determined by general standards established by regulation.

[2] Tier 1 Leverage ratio is computed by dividing a bank's Tier 1 Capital by its total quarterly average assets, as defined by regulation.

[3] In February 2017, the Company merged United Bank & Trust Company, First Citizens Bank, Inc., and Citizens Bank of Northern Kentucky, Inc. into Farmers Bank & Capital Trust Company in Frankfort, KY, the name of which was immediately changed to United Bank & Capital Trust Company.

XML

Note 12 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Money Market Funds, at Carrying Value	$ 27,754	$ 18,550
Loans and Leases Receivable, Deferred Income	0	0
Commitments to Extend Credit [Member]
Loans and Leases Receivable, Deferred Income	0
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Liability	0
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure	27,800	$ 18,600
Financial Standby Letter of Credit [Member]
Loans and Leases Receivable, Deferred Income	0
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Liability	$ 0

XML

Note 12 - Fair Value Measurements - Available for Sale Investment Securities Measured At Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Available for Sale Securities - Estimated Fair Value	$ 447,515	$ 480,864
Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	905	833
Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	446,610	480,031
Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
US Government-sponsored Enterprises Debt Securities [Member]
Available for Sale Securities - Estimated Fair Value	72,740	71,694
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	72,740	71,694
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
US States and Political Subdivisions Debt Securities [Member]
Available for Sale Securities - Estimated Fair Value	121,587	132,292
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	121,587	132,292
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Residential Mortgage Backed Securities [Member]
Available for Sale Securities - Estimated Fair Value	199,599	224,307
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	199,599	224,307
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Commercial Mortgage Backed Securities [Member]
Available for Sale Securities - Estimated Fair Value	45,060	45,613
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	45,060	45,613
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Corporate Debt Securities [Member]
Available for Sale Securities - Estimated Fair Value	7,624	6,125
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	7,624	6,125
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Mutual Funds and Equity Securities [Member]
Available for Sale Securities - Estimated Fair Value	905	833
Mutual Funds and Equity Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for Sale Securities - Estimated Fair Value	905	833
Mutual Funds and Equity Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for Sale Securities - Estimated Fair Value	0	0
Mutual Funds and Equity Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for Sale Securities - Estimated Fair Value	$ 0	$ 0

XML

Note 12 - Fair Value Measurements - Assets Measured At Fair Value On a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Impaired Loans [Member]
Assets fair value, nonrecurring	$ 3,055	$ 6,397
Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	3,055	6,397
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Assets fair value, nonrecurring	1,324	2,909
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	1,324	2,909
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Assets fair value, nonrecurring	769	3,137
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	769	3,137
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Assets fair value, nonrecurring	962	351
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
Impaired Loans [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	962	351
OREO [Member]
Assets fair value, nonrecurring	4,158	6,187
OREO [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	4,158	6,187
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member]
Assets fair value, nonrecurring	3,118	4,883
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Construction and Land Development [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	3,118	4,883
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member]
Assets fair value, nonrecurring	204	234
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Residential [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	204	234
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member]
Assets fair value, nonrecurring	836	1,070
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Assets fair value, nonrecurring	0	0
OREO [Member] | Real Estate Portfolio Segment [Member] | Real Estate Mortgage Farmland and Other Commercial Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Assets fair value, nonrecurring	$ 836	$ 1,070

XML

Note 12 - Fair Value Measurements - Fair Value Adjustments for Assets Measured On a Nonrecurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net (increase) decrease in fair value:
Fair value adjustments	$ 232	$ 632	$ 447	$ 1,705
Impaired Loans [Member]
Net (increase) decrease in fair value:
Fair value adjustments	(3)	33	12	540
OREO [Member]
Net (increase) decrease in fair value:
Fair value adjustments	$ 235	$ 599	$ 435	$ 1,165

XML

Note 12 - Fair Value Measurements - Quantitative Information About Unobservable Inputs for Assets Measured on a Nonrecurring Basis Using Level 3 Measurements (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Impaired Loans [Member]
Fair Value	$ 3,055	$ 6,397
OREO [Member]
Fair Value	4,158	6,187
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member]
Fair Value	3,055	6,397
Fair Value, Inputs, Level 3 [Member] | OREO [Member]
Fair Value	4,158	6,187
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | Impaired Loans [Member]
Fair Value	$ 3,055	$ 6,397
Valuation Technique	Discounted appraisals	Discounted appraisals
Unobservable Inputs	Marketability discount	Marketability discount
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | Impaired Loans [Member] | Minimum [Member]
Marketability Discount	1.10%	0.00%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | Impaired Loans [Member] | Maximum [Member]
Marketability Discount	22.80%	67.80%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | Impaired Loans [Member] | Weighted Average [Member]
Marketability Discount	9.70%	3.50%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | OREO [Member]
Fair Value	$ 4,158	$ 6,187
Valuation Technique	Discounted appraisals	Discounted appraisals
Unobservable Inputs	Marketability discount	Marketability discount
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | OREO [Member] | Minimum [Member]
Marketability Discount	0.00%	0.00%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | OREO [Member] | Maximum [Member]
Marketability Discount	52.40%	50.00%
Fair Value, Inputs, Level 3 [Member] | Income Approach Valuation Technique [Member] | OREO [Member] | Weighted Average [Member]
Marketability Discount	17.50%	11.20%

XML

Note 12 - Fair Value Measurements - Carrying Amounts and Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Assets
Held to maturity investment securities	$ 3,597	$ 3,597
Reported Value Measurement [Member]
Assets
Cash and cash equivalents	117,608	113,534
Held to maturity investment securities	3,448	3,488
Loans, net	986,063	961,631
Accrued interest receivable	4,695	5,019
Federal Home Loan Bank and Federal Reserve Bank Stock	13,235	9,840
Liabilities
Deposits	1,361,824	1,369,907
Securities sold under agreements to repurchase	35,537	36,370
Federal Home Loan Bank advances	3,521	18,646
Subordinated notes payable to unconsolidated trusts	33,506	33,506
Accrued interest payable	344	321
Estimate of Fair Value Measurement [Member]
Assets
Cash and cash equivalents	117,608	113,534
Held to maturity investment securities	3,597	3,597
Loans, net	976,344	962,437
Accrued interest receivable	4,695	5,019
Federal Home Loan Bank and Federal Reserve Bank Stock	13,235	9,840
Liabilities
Deposits	1,361,653	1,369,567
Securities sold under agreements to repurchase	35,542	36,381
Federal Home Loan Bank advances	3,608	19,114
Subordinated notes payable to unconsolidated trusts	21,142	21,234
Accrued interest payable	344	321
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Assets
Cash and cash equivalents	117,608	113,534
Held to maturity investment securities	0	0
Loans, net	0	0
Accrued interest receivable	0	0
Federal Home Loan Bank and Federal Reserve Bank Stock	0	0
Liabilities
Deposits	1,128,645	1,099,211
Securities sold under agreements to repurchase	0	0
Federal Home Loan Bank advances	0	0
Subordinated notes payable to unconsolidated trusts	0	0
Accrued interest payable	0	0
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Assets
Cash and cash equivalents	0	0
Held to maturity investment securities	3,597	3,597
Loans, net	0	0
Accrued interest receivable	4,695	5,019
Federal Home Loan Bank and Federal Reserve Bank Stock	0	0
Liabilities
Deposits	0	0
Securities sold under agreements to repurchase	35,542	36,381
Federal Home Loan Bank advances	3,608	19,114
Subordinated notes payable to unconsolidated trusts	0	0
Accrued interest payable	344	321
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Assets
Cash and cash equivalents	0	0
Held to maturity investment securities	0	0
Loans, net	976,344	962,437
Accrued interest receivable	0	0
Federal Home Loan Bank and Federal Reserve Bank Stock	13,235	9,840
Liabilities
Deposits	233,008	270,356
Securities sold under agreements to repurchase	0	0
Federal Home Loan Bank advances	0	0
Subordinated notes payable to unconsolidated trusts	21,142	21,234
Accrued interest payable	$ 0	$ 0