Loans

12 Months Ended

Dec. 31, 2012

Loans [Abstract]

Loans

NOTE 4 – Loans

Loans were comprised of the following classifications at December 31:

	2012			2011
Commercial:
Commercial and Industrial Loans and Leases	$	335,373		$	293,172
Commercial Real Estate Loans		488,496			452,071
Agricultural Loans		179,906			167,693
Retail:
Home Equity Loans		74,437			77,070
Consumer Loans		41,103			47,409
Residential Mortgage Loans		88,586			86,134
Subtotal		1,207,901			1,123,549
Less: Unearned Income		(3,035	)		(2,556	)
Allowance for Loan Losses		(15,520	)		(15,312	)
Loans, net	$	1,189,346		$	1,105,681

The following tables present the activity in the allowance for loan losses by portfolio class for the years ended December 31, 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
December 31, 2012
Beginning Balance	$	3,493		$	9,297		$	926	$	258		$	190		$	402		$	746		$	15,312
Provision for Loan Losses		1,150			1,326			63		(32	)		194			(47	)		(242	)		2,412
Recoveries		74			97			—		2			123			30			—			326
Loans Charged-off		(162	)		(1,789	)		—		(87	)		(293	)		(199	)		—			(2,530	)
Ending Balance	$	4,555		$	8,931		$	989	$	141		$	214		$	186		$	504		$	15,520

	Commercial
	and
	Industrial			Commercial					Home						Residential
	Loans and			Real Estate			Agricultural		Equity			Consumer			Mortgage
	Leases			Loans			Loans		Loans			Loans			Loans			Unallocated		Total
December 31, 2011
Beginning Balance	$	3,713		$	7,497		$	750	$	220		$	362		$	543		$	232	$	13,317
Provision for Loan Losses		1,195			4,265			176		287			23			340			514		6,800
Recoveries		98			139			—		6			125			16			—		384
Loans Charged-off		(1,513	)		(2,604	)		—		(255	)		(320	)		(497	)		—		(5,189	)
Ending Balance	$	3,493		$	9,297		$	926	$	258		$	190		$	402		$	746	$	15,312

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2010:

	2010
Beginning Balance	$	11,016
Provision for Loan Losses		5,225
Loans Charged-off		(4,214	)
Recoveries		1,290
Ending Balance	$	13,317

Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality. For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

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

			Commercial
			and
			Industrial		Commercial				Home				Residential
			Loans and		Real Estate		Agricultural		Equity		Consumer		Mortgage
December 31, 2012	Total		Leases		Loans		Loans		Loans		Loans		Loans		Unallocated
Allowance for Loan Losses:
Ending Allowance Balance
Attributable to Loans:
Individually Evaluated for Impairment	$	5,323	$	1,279	$	3,894	$	150	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment		10,109		3,208		5,017		839		141		214		186		504
Acquired with Deteriorated
Credit Quality		88		68		20		—		—		—		—		—
Total Ending Allowance
Balance	$	15,520	$	4,555	$	8,931	$	989	$	141	$	214	$	186	$	504
Loans:
Loans Individually
Evaluated for Impairment	$	12,520	$	2,547	$	7,550	$	2,423	$	—	$	—	$	—	$	—
Loans Collectively
Evaluated for Impairment		1,189,729		331,920		473,209		180,152		74,699		41,083		88,666		—
Loans Acquired with Deteriorated
Credit Quality		11,174		1,840		9,037		—		—		148		149		—
Total Ending Loans Balance (1)	$	1,213,423	$	336,307	$	489,796	$	182,575	$	74,699	$	41,231	$	88,815	$	—

⁽¹⁾ Total recorded investment in loans includes $5,522 in accrued interest.

			Commercial
			and
			Industrial		Commercial				Home				Residential
			Loans and		Real Estate		Agricultural		Equity		Consumer		Mortgage
December 31, 2011	Total		Leases		Loans		Loans		Loans		Loans		Loans		Unallocated
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 as of December 31, 2012 and 2011:

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance(1)		Investment		Allocated
December 31, 2012
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	108	$	87	$	—
Commercial Real Estate Loans		4,312		2,154		—
Agricultural Loans		2,126		2,137		—
Subtotal		6,546		4,378		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,642		2,581		1,347
Commercial Real Estate Loans		5,579		5,418		3,914
Agricultural Loans		285		286		150
Subtotal		8,506		8,285		5,411
Total	$	15,052	$	12,663	$	5,411
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded
(Included in the Total Above)	$	45	$	25	$	—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded
(Included in the Total Above)	$	155	$	118	$	88

⁽¹⁾ Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance(1)		Investment		Allocated
December 31, 2011
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	1,731	$	1,066	$	—
Commercial Real Estate Loans		6,991		5,894		—
Agricultural Loans		—		—		—
Subtotal		8,722		6,960		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,502		2,501		466
Commercial Real Estate Loans		7,587		7,230		4,445
Agricultural Loans		—		—		—
Subtotal		10,089		9,731		4,911
Total	$	18,811	$	16,691	$	4,911
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded
(Included in the Total Above)	$	48	$	28	$	—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded
(Included in the Total Above)	$	205	$	77	$	77

⁽¹⁾ Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012 and 2011:

	Average		Interest		Cash
	Recorded		Income		Basis
	Investment		Recognized		Recognized
December 31, 2012
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	252	$	3	$	3
Commercial Real Estate Loans		4,506		18		18
Agricultural Loans		535		2		2
Subtotal		5,293		23		23
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,726		9		8
Commercial Real Estate Loans		6,660		23		19
Agricultural Loans		74		—		—
Subtotal		9,460		32		27
Total	$	14,753	$	55	$	50
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded
(Included in the Total Above)	$	26	$	2	$	2
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded
(Included in the Total Above)	$	154	$	6	$	4

	Average		Interest		Cash
	Recorded		Income		Basis
	Investment		Recognized		Recognized
December 31, 2011
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	1,107	$	9	$	9
Commercial Real Estate Loans		4,438		75		75
Agricultural Loans		19		6		6
Subtotal		5,564		90		90
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		3,642		11		11
Commercial Real Estate Loans		9,390		37		34
Agricultural Loans		—		—		—
Subtotal		13,032		48		45
Total	$	18,596	$	138	$	135
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded
(Included in the Total Above)	$	28	$	4	$	4
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded
(Included in the Total Above)	$	77	$	1	$	1

The following table presents information for loans individually evaluated for impairment for the year ended December 31, 2010:

	2010
Average Balance of Impaired Loans During the Year	$	10,166
Interest Income Recognized During Impairment		78
Interest Income Recognized on Cash Basis		78

All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan. Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.

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

					Loans Past Due
					90 Days or More
	Non-Accrual				& Still Accruing
	2012		2011		2012		2011
Commercial and Industrial Loans and Leases	$	2,480	$	3,471	$	—	$	—
Commercial Real Estate Loans		7,275		13,289		—		—
Agricultural Loans		—		—		—		—
Home Equity Loans		178		90		—		—
Consumer Loans		167		259		—		—
Residential Mortgage Loans		257		748		—		—
Total	$	10,357	$	17,857	$	—	$	—
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)	$	148	$	859	$	—	$	—

The following table presents the aging of the recorded investment in past due loans by class of loans as of December 31, 2012 and 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
December 31, 2012
Commercial and Industrial Loans and Leases	$	336,307	$	436	$	133	$	448	$	1,017	$	335,290
Commercial Real Estate Loans		489,796		1,352		—		2,063		3,415		486,381
Agricultural Loans		182,575		42		14		—		56		182,519
Home Equity Loans		74,699		177		48		178		403		74,296
Consumer Loans		41,231		431		23		18		472		40,759
Residential Mortgage Loans		88,815		2,070		495		257		2,822		85,993
Total (1)	$	1,213,423	$	4,508	$	713	$	2,964	$	8,185	$	1,205,238
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)	$	11,174	$	—	$	120	$	—	$	120	$	11,054

⁽¹⁾ Total recorded investment in loans includes $5,522 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
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)	$	16,121	$	248	$	56	$	554	$	858	$	15,263

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

Troubled Debt Restructurings:

In certain instances, the Company may choose to restructure the contractual terms of loans. A troubled debt restructuring occurs when the Bank grants a concession to the borrower that it would not otherwise consider due to a borrower’s financial difficulty. 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. The Company uses the same methodology for loans acquired with deteriorated credit quality as for all other loans when determining whether the loan is a troubled debt restructuring.

During the years ending December 31, 2012 and 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. There were no troubled debt restructurings for the years ended December 31, 2012 and 2011 for loans acquired with deteriorated credit quality at the time of acquisition.

The following table presents the recorded investment of troubled debt restructurings by class of loans as of December 31, 2012 and 2011:

	Total		Performing		Non-Accrual(1)
December 31, 2012
Commercial and Industrial Loans and Leases	$	2,461	$	66	$	2,395
Commercial Real Estate Loans		6,031		304		5,727
Total	$	8,492	$	370	$	8,122

	Total		Performing		Non-Accrual(1)
December 31, 2011
Commercial and Industrial Loans and Leases	$	3,391	$	98	$	3,293
Commercial Real Estate Loans		9,088		315		8,773
Total	$	12,479	$	413	$	12,066

⁽¹⁾ The non-accrual troubled debt restructurings are included in the Non-Accrual Loan table presented on previous page.

The Company has not committed to lending any additional amounts as of December 31, 2012 and 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ending December 31, 2012 and 2011:

			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Loans		Investment		Investment
December 31, 2012
Commercial and Industrial Loans and Leases		2	$	9	$	9
Commercial Real Estate Loans		—		—		—
Total		2	$	9	$	9

The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the year ending December 31, 2012.

			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Loans		Investment		Investment
December 31, 2011
Commercial and Industrial Loans and Leases		4	$	4,541	$	4,499
Commercial Real Estate Loans		6		7,099		6,850
Total		10	$	11,640	$	11,349

The troubled debt restructurings described above increased the allowance for loan losses by $1,945 and resulted in charge-offs of $834 during the year ending December 31, 2011.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ending December 31, 2012 and 2011:

Troubled Debt Restructurings That Subsequently Defaulted:	Number of Loans		Recorded Investment
December 31, 2012
Commercial and Industrial Loans and Leases		1	$	565
Commercial Real Estate Loans		3		1,377
Total		4	$	1,942

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $12 and resulted in charge-offs of $306 during the year ending December 31, 2012.

Troubled Debt Restructurings That Subsequently Defaulted:	Number of Loans		Recorded Investment
December 31, 2011
Commercial and Industrial Loans and Leases		1	$	527
Commercial Real Estate Loans		—		—
Total		1	$	527

The troubled debt restructurings that subsequently defaulted described above decreased the allowance for loan losses by $500 and resulted in charge-offs of $500 during the year ending December 31, 2011.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

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
December 31, 2012
Commercial and Industrial Loans and Leases	$	307,997	$	14,441	$	13,869	$	—	$	336,307
Commercial Real Estate Loans		446,639		21,338		21,819		—		489,796
Agricultural Loans		176,730		2,855		2,990		—		182,575
Total	$	931,366	$	38,634	$	38,678	$	—	$	1,008,678
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)	$	319	$	3,220	$	7,338	$	—	$	10,877

			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
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)	$	—	$	2,804	$	13,001	$	—	$	15,805

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 December 31, 2012 and 2011:

	Home Equity		Consumer		Residential
	Loans		Loans		Mortgage Loans
December 31, 2012
Performing	$	74,521	$	41,064	$	88,558
Nonperforming		178		167		257
Total	$	74,699	$	41,231	$	88,815
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)	$	—	$	148	$	149

	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
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)	$	—	$	164	$	152

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:

	December 31, 2012
Commercial and Industrial Loans	$	1,840
Commercial Real Estate Loans		9,037
Home Equity Loans		—
Consumer Loans		148
Residential Mortgage Loans		149
Total	$	11,174
Carrying Amount, Net of Allowance	$	11,086

	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:

	December 31, 2012			December 31, 2011
Balance at January 1	$	967		$	—
New Loans Purchased		—			2,042
Accretion of Income		(1,265	)		(1,130	)
Reclassifications from Non-accretable Difference		468			129
Charge-off of Accretable Yield		—			(74	)
Balance at December 31	$	170		$	967

For those purchased loans disclosed above, the Company increased the allowance for loan losses by $88 and $77 for the years ended December 31, 2012 and 2011. No allowances for loan losses were reversed during the same period.

Certain directors, executive officers, and principal shareholders of the Company, including their immediate families and companies in which they are principal owners, were loan customers of the Company during 2012. A summary of the activity of these loans follows:

Balance				Changes							Balance
January 1,				in Persons		Deductions					December 31,
2012		Additions		Included		Collected			Charged-off		2012
$	6,994	$	7,419	$	119	$	(5,530	)	$	—	$	9,002