Loans

9 Months Ended

Sep. 30, 2012

Loans [Abstract]

Loans

Note 5 – Loans

Loans were comprised of the following classifications at September 30, 2012 and December 31, 2011:

	September 30,			December 31,
	2012			2011
Commercial:
Commercial and Industrial Loans and Leases	$	328,058		$	293,172
Commercial Real Estate Loans		467,666			452,071
Agricultural Loans		165,198			167,693
Retail:
Home Equity Loans		73,828			77,070
Consumer Loans		42,652			47,409
Residential Mortgage Loans		90,744			86,134
Subtotal		1,168,146			1,123,549
Less: Unearned Income		(3,012	)		(2,556	)
Allowance for Loan Losses		(15,922	)		(15,312	)
Loans, Net	$	1,149,212		$	1,105,681

The following table presents the activity in the allowance for loan losses by portfolio class for the three months ending September 30, 2012 and 2011:

	Commercial
	and
	Industrial			Commercial					Home						Residential
	Loans and			Real Estate			Agricultural		Equity			Consumer			Mortgage
	Leases			Loans			Loans		Loans			Loans			Loans			Unallocated		Total
September 30, 2012
Beginning Balance	$	4,707		$	8,732		$	890	$	181		$	227		$	391		$	564	$	15,692
Provision for Loan Losses		193			376			21		21			12			(12	)		29		640
Recoveries		8			62			—		—			35			2			—		107
Loans Charged-off		(54	)		(351	)		—		(7	)		(63	)		(42	)		—		(517	)
Ending Balance	$	4,854		$	8,819		$	911	$	195		$	211		$	339		$	593	$	15,922

	Commercial
	and
	Industrial			Commercial						Home						Residential
	Loans and			Real Estate			Agricultural			Equity			Consumer			Mortgage
	Leases			Loans			Loans			Loans			Loans			Loans			Unallocated			Total
September 30, 2011
Beginning Balance	$	4,292		$	7,697		$	733		$	213		$	400		$	746		$	699		$	14,780
Provision for Loan Losses		90			1,120			(5	)		108			54			57			(124	)		1,300
Recoveries		90			28			—			2			37			—			—			157
Loans Charged-off		(82	)		(714	)		—			(29	)		(85	)		(161	)		—			(1,071	)
Ending Balance	$	4,390		$	8,131		$	728		$	294		$	406		$	642		$	575		$	15,166

The following table presents the activity in the allowance for loan losses by portfolio class for the nine months ending September 30, 2012 and 2011:

	Commercial
	and
	Industrial			Commercial						Home						Residential
	Loans and			Real Estate			Agricultural			Equity			Consumer			Mortgage
	Leases			Loans			Loans			Loans			Loans			Loans			Unallocated			Total
September 30, 2012
Beginning Balance	$	3,493		$	9,297		$	926		$	258		$	190		$	402		$	746		$	15,312
Provision for Loan Losses		1,466			232			(15	)		(9	)		141			59			(153	)		1,721
Recoveries		57			88			—			1			99			11			—			256
Loans Charged-off		(162	)		(798	)		—			(55	)		(219	)		(133	)		—			(1,367	)
Ending Balance	$	4,854		$	8,819		$	911		$	195		$	211		$	339		$	593		$	15,922

	Commercial
	and
	Industrial			Commercial						Home						Residential
	Loans and			Real Estate			Agricultural			Equity			Consumer			Mortgage
	Leases			Loans			Loans			Loans			Loans			Loans			Unallocated		Total
September 30, 2011
Beginning Balance	$	3,713		$	7,497		$	750		$	220		$	362		$	543		$	232	$	13,317
Provision for Loan Losses		845			2,007			(22	)		194			138			395			343		3,900
Recoveries		96			131			—			5			96			15			—		343
Loans Charged-off		(264	)		(1,504	)		—			(125	)		(190	)		(311	)		—		(2,394	)
Ending Balance	$	4,390		$	8,131		$	728		$	294		$	406		$	642		$	575	$	15,166

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of September 30, 2012 and December 31, 2011:

			Commercial
			and
			Industrial		Commercial				Home				Residential
			Loans and		Real Estate		Agricultural		Equity		Consumer		Mortgage
	Total		Leases		Loans		Loans		Loans		Loans		Loans		Unallocated
September 30, 2012
Allowance for Loan Losses:
Ending Allowance Balance
Attributable to Loans:
Individually Evaluated for Impairment	$	5,433	$	1,281	$	4,152	$	—	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment		10,392		3,497		4,646		911		195		211		339		593
Acquired with Deteriorated Credit Quality		97		76		21		—		—		—		—		—
Total Ending Allowance Balance	$	15,922	$	4,854	$	8,819	$	911	$	195	$	211	$	339	$	593
Loans:
Loans Individually Evaluated for Impairment	$	11,817	$	2,669	$	9,148	$	—	$	—	$	—	$	—	$	—
Loans Collectively Evaluated for Impairment		1,149,752		323,974		450,332		167,851		74,068		42,630		90,897		—
Loans Acquired with Deteriorated Credit Quality		11,940		2,324		9,313		—		—		152		151		—
Total Ending Loans Balance (1)	$	1,173,509	$	328,967	$	468,793	$	167,851	$	74,068	$	42,782	$	91,048	$	—

⁽¹⁾ Total recorded investment in loans includes $5,363 in accrued interest.

			Commercial
			and
			Industrial		Commercial				Home				Residential
			Loans and		Real Estate		Agricultural		Equity		Consumer		Mortgage
	Total		Leases		Loans		Loans		Loans		Loans		Loans		Unallocated
December 31, 2011
Allowance for Loan Losses:
Ending Allowance Balance
Attributable to Loans:
Individually Evaluated for Impairment	$	4,834	$	466	$	4,368	$	—	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment		10,401		3,027		4,852		926		258		190		402		746
Acquired with Deteriorated Credit Quality		77		—		77		—		—		—		—		—
Total Ending Allowance Balance	$	15,312	$	3,493	$	9,297	$	926	$	258	$	190	$	402	$	746
Loans:
Loans Individually Evaluated for Impairment	$	16,613	$	3,567	$	13,046	$	—	$	—	$	—	$	—	$	—
Loans Collectively Evaluated for Impairment		1,096,571		287,924		427,063		170,513		77,323		47,431		86,317		—
Loans Acquired with Deteriorated Credit Quality		16,121		2,596		13,209		—		—		164		152		—
Total Ending Loans Balance (1)	$	1,129,305	$	294,087	$	453,318	$	170,513	$	77,323	$	47,595	$	86,469	$	—

⁽¹⁾ Total recorded investment in loans includes $5,756 in accrued interest.

The following table presents loans individually evaluated for impairment by class of loans including purchase credit impaired loans that subsequently result in additional allowance for loan losses as of September 30, 2012 and December 31, 2011:

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance		Investment		Allocated
September 30, 2012
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	116	$	95	$	—
Commercial Real Estate Loans		2,116		2,066		—
Agricultural Loans		—		—		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,696		2,683		1,357
Commercial Real Estate Loans		7,123		7,110		4,173
Agricultural Loans		—		—		—
Total	$	12,051	$	11,954	$	5,530

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance		Investment		Allocated
December 31, 2011
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	1,084	$	1,066	$	—
Commercial Real Estate Loans		5,959		5,894		—
Agricultural Loans		—		—		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,502		2,501		466
Commercial Real Estate Loans		7,400		7,230		4,445
Agricultural Loans		—		—		—
Total	$	16,945	$	16,691	$	4,911

The following table presents loans individually evaluated for impairment by class of loans including purchase credit impaired loans that subsequently result in additional allowance for loan losses for the three month period ended September 30, 2012 and 2011:

	Average		Interest		Cash
	Recorded		Income		Basis
	Investment		Recognized		Recognized
September 30, 2012
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	139	$	1	$	1
Commercial Real Estate Loans		3,353		12		12
Agricultural Loans		—		—		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,749		4		3
Commercial Real Estate Loans		7,179		6		5
Agricultural Loans		—		—		—
Total	$	13,420	$	23	$	21

	Average		Interest		Cash
	Recorded		Income		Basis
	Investment		Recognized		Recognized
September 30, 2011
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	105	$	6	$	6
Commercial Real Estate Loans		4,362		14		14
Agricultural Loans		—		—		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		3,467		3		3
Commercial Real Estate Loans		7,777		14		13
Agricultural Loans		—		—		—
Total	$	15,711	$	37	$	36

The following table presents loans individually evaluated for impairment by class of loans including purchase credit impaired loans that subsequently result in additional allowance for loan losses for the nine month period ended September 30, 2012 and 2011:

	Average		Interest		Cash
	Recorded		Income		Basis
	Investment		Recognized		Recognized
September 30, 2012
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	298	$	3	$	3
Commercial Real Estate Loans		5,023		17		17
Agricultural Loans		49		2		2
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,795		7		6
Commercial Real Estate Loans		7,003		17		14
Agricultural Loans		—		—		—
Total	$	15,168	$	46	$	42

	Average		Interest		Cash
	Recorded		Income		Basis
	Investment		Recognized		Recognized
September 30, 2011
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	345	$	9	$	9
Commercial Real Estate Loans		3,603		46		46
Agricultural Loans		25		6		6
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		4,009		9		9
Commercial Real Estate Loans		10,046		50		47
Agricultural Loans		—		—		—
Total	$	18,028	$	120	$	117

The following tables present the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual by class of loans as of September 30, 2012 and December 31, 2011:

					Loans Past Due
					90 Days or More
	Non-Accrual				& Still Accruing
	2012		2011		2012		2011
Commercial and Industrial Loans and Leases	$	2,596	$	3,471	$	—	$	—
Commercial Real Estate Loans		8,847		13,289		—		—
Agricultural Loans		—		—		—		—
Home Equity Loans		111		90		—		—
Consumer Loans		168		259		—		—
Residential Mortgage Loans		422		748		—		—
Total	$	12,144	$	17,857	$	—	$	—

Non-accrual loans and loans past due 90 days or more still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans by class of loans as of September 30, 2012 and December 31, 2011:

							90 Days
			30-59 Days		60-89 Days		or More		Total		Loans Not
	Total		Past Due		Past Due		Past Due		Past Due		Past Due
September 30, 2012
Commercial and Industrial Loans and Leases	$	328,967	$	415	$	6	$	447	$	868	$	328,099
Commercial Real Estate Loans		468,793		145		—		3,237		3,382		465,411
Agricultural Loans		167,851		20		99		—		119		167,732
Home Equity Loans		74,068		497		160		110		767		73,301
Consumer Loans		42,782		218		56		8		282		42,500
Residential Mortgage Loans		91,048		2,496		507		421		3,424		87,624
Total (1)	$	1,173,509	$	3,791	$	828	$	4,223	$	8,842	$	1,164,667

⁽¹⁾ Total recorded investment in loans includes $5,363 in accrued interest.

							90 Days
			30-59 Days		60-89 Days		or More		Total		Loans Not
	Total		Past Due		Past Due		Past Due		Past Due		Past Due
December 31, 2011
Commercial and Industrial Loans and Leases	$	294,087	$	220	$	—	$	1,141	$	1,361	$	292,726
Commercial Real Estate Loans		453,318		381		148		5,920		6,449		446,869
Agricultural Loans		170,513		10		—		—		10		170,503
Home Equity Loans		77,323		176		6		90		272		77,051
Consumer Loans		47,595		287		117		221		625		46,970
Residential Mortgage Loans		86,469		2,752		893		748		4,393		82,076
Total (1)	$	1,129,305	$	3,826	$	1,164	$	8,120	$	13,110	$	1,116,195

⁽¹⁾ Total recorded investment in loans includes $5,756 in accrued interest.

Troubled Debt Restructurings:

The Company has allocated $195 of specific reserves on $375 in principal to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012. The Company had allocated $198 of specific reserves on $409 in principal to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2011. The Company has not committed to lending any additional amounts as of September 30, 2012 and December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

For the three and nine months ended September 30, 2012, no troubled debt restructurings occurred. For the three months ended September 30, 2011, no troubled debt restructurings occurred. For the nine months ended September 30, 2011, one troubled debt restructuring occurred. Pre-modification and post-modification outstanding recorded investment for this loan totaled $284 and $50, respectively. The modification of the terms of this loan included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The troubled debt restructurings resulted in no charge-offs for the three and nine months ended September 30, 2012. The troubled debt restructuring resulted in no charge-offs for the three months ended September 30, 2011 and $145 during the nine months ended September 30, 2011.

For the three and nine months ended September 30, 2012 and 2011, there were no payment defaults within the twelve months following modification for troubled debt restructurings.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Company’s internal underwriting policy.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company classifies loans as to credit risk by individually analyzing loans. This analysis includes commercial and industrial loans, commercial real estate loans, and agricultural loans with an outstanding balance greater than $100. This analysis is typically performed on at least an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
	Pass		Mention		Substandard		Doubtful		Total
September 30, 2012
Commercial and Industrial Loans and Leases	$	297,257	$	13,247	$	18,463	$	—	$	328,967
Commercial Real Estate Loans		425,660		20,082		23,051		—		468,793
Agricultural Loans		162,916		2,562		2,373		—		167,851
Total	$	885,833	$	35,891	$	43,887	$	—	$	965,611

			Special
	Pass		Mention		Substandard		Doubtful		Total
December 31, 2011
Commercial and Industrial Loans and Leases	$	264,037	$	16,188	$	13,862	$	—	$	294,087
Commercial Real Estate Loans		396,057		28,272		28,989		—		453,318
Agricultural Loans		165,153		2,744		2,616		—		170,513
Total	$	825,247	$	47,204	$	45,467	$	—	$	917,918

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For home equity, consumer and residential mortgage loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in home equity, consumer and residential mortgage loans based on payment activity as of September 30, 2012 and December 31, 2011:

	Home Equity		Consumer		Residential
	Loans		Loans		Mortgage Loans
September 30, 2012
Performing	$	73,957	$	42,614	$	90,626
Nonperforming		111		168		422
Total	$	74,068	$	42,782	$	91,048

	Home Equity		Consumer		Residential
	Loans		Loans		Mortgage Loans
December 31, 2011
Performing	$	77,233	$	47,336	$	85,721
Nonperforming		90		259		748
Total	$	77,323	$	47,595	$	86,469

The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The recorded investment of those loans is as follows:

	September 30, 2012
Commercial and Industrial Loans	$	2,324
Commercial Real Estate Loans		9,313
Home Equity Loans		—
Consumer Loans		152
Residential Mortgage Loans		151
Total	$	11,940
Carrying amount, Net of Allowance	$	11,843

	December 31, 2011
Commercial and Industrial Loans	$	2,596
Commercial Real Estate Loans		13,209
Home Equity Loans		—
Consumer Loans		164
Residential Mortgage Loans		152
Total	$	16,121
Carrying amount, Net of Allowance	$	16,044

Accretable yield, or income expected to be collected, is as follows:

	September  30, 2012			September  30, 2011
Balance at July 1	$	389		$	1,478
New Loans Purchased		—			—
Accretion of Income		(223	)		(359	)
Reclassifications from Non-accretable Difference		262			129
Charge-off of Accretable Yield		—			(74	)
Balance at September 30	$	428		$	1,174

	September 30, 2012			September  30, 2011
Balance at January 1	$	967		$	—
New Loans Purchased		—			2,042
Accretion of Income		(1,007	)		(923	)
Reclassifications from Non-accretable Difference		468			129
Charge-off of Accretable Yield		—			(74	)
Balance at September 30	$	428		$	1,174

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the three and nine months ended September 30, 2012. For those purchased loans disclosed above, the Company increased the allowance for loan losses by $96 and $171 during the three and nine months ended September 30, 2011. No allowances for loan losses were reversed during the same periods.