Loans

3 Months Ended

Mar. 31, 2013

Loans [Abstract]

Loans

Note 5 – Loans

Loans were comprised of the following classifications at March 31, 2013 and December 31, 2012:

	March 31,			December 31,
	2013			2012
Commercial:
Commercial and Industrial Loans and Leases	$	332,142		$	335,373
Commercial Real Estate Loans		498,582			488,496
Agricultural Loans		164,903			179,906
Retail:
Home Equity Loans		72,935			74,437
Consumer Loans		41,780			41,103
Residential Mortgage Loans		86,276			88,586
Subtotal		1,196,618			1,207,901
Less:  Unearned Income		(2,871	)		(3,035	)
Allowance for Loan Losses		(15,734	)		(15,520	)
Loans, Net	$	1,178,013		$	1,189,346

The following table presents the activity in the allowance for loan losses by portfolio class for the three months ending March 31, 2013 and 2012:

	Commercial
	and
	Industrial		Commercial						Home						Residential
	Loans and		Real Estate			Agricultural			Equity			Consumer			Mortgage
	Leases		Loans			Loans			Loans			Loans			Loans			Unallocated		Total
March 31, 2013
Beginning Balance	$	4,555	$	8,931		$	989		$	141		$	214		$	186		$	504	$	15,520
Provision for Loan Losses		195		6			(223	)		41			(7	)		113			225		350
Recoveries		3		51			—			—			55			2			—		111
Loans Charged-off		—		(109	)		—			(64	)		(73	)		(1	)		—		(247	)
Ending Balance	$	4,753	$	8,879		$	766		$	118		$	189		$	300		$	729	$	15,734

	Commercial
	and
	Industrial			Commercial						Home						Residential
	Loans and			Real Estate			Agricultural			Equity			Consumer			Mortgage
	Leases			Loans			Loans			Loans			Loans			Loans			Unallocated			Total
March 31, 2012
Beginning Balance	$	3,493		$	9,297		$	926		$	258		$	190		$	402		$	746		$	15,312
Provision for Loan Losses		961			58			(175	)		(13	)		46			79			(266	)		690
Recoveries		45			19			—			1			31			2			—			98
Loans Charged-off		(39	)		(140	)		—			(42	)		(71	)		(42	)		—			(334	)
Ending Balance	$	4,460		$	9,234		$	751		$	204		$	196		$	441		$	480		$	15,766

In determining the adequacy of the allowance for loan loss, general allocations are made for other pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss. General allocations of the allowance are primarily made based on a three-year historical average for loan losses for these portfolios, judgmentally adjusted for economic factors and portfolio trends.For 2012, the Company utilized a 4 quarter rolling historical loan loss average. Beginning in 2013, management deemed a rolling 12 quarter historical loan loss average to be more indicative of the inherent losses in the Company’s loan portfolio in the current economic environment than the 4 quarter average. This change in methodology resulted in an increase to the required loan loss allowance of approximately $280.

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 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 March 31, 2013 and December 31, 2012:

			Commercial
			and
			Industrial		Commercial				Home				Residential
			Loans and		Real Estate		Agricultural		Equity		Consumer		Mortgage
	Total		Leases		Loans		Loans		Loans		Loans		Loans		Unallocated
March 31, 2013
Allowance for Loan Losses:
Ending Allowance Balance
Attributable to Loans:
Individually Evaluated for Impairment	$	4,974	$	1,016	$	3,958	$	—	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment		10,680		3,677		4,901		766		118		189		300		729
Acquired with Deteriorated Credit Quality		80		60		20		—		—		—		—		—
Total Ending Allowance Balance	$	15,734	$	4,753	$	8,879	$	766	$	118	$	189	$	300	$	729
Loans:
Loans Individually Evaluated for Impairment	$	12,202	$	2,443	$	7,344	$	2,415	$	—	$	—	$	—	$	—
Loans Collectively Evaluated for Impairment		1,178,919		328,495		484,238		164,870		73,175		41,747		86,394		—
Loans Acquired with Deteriorated Credit Quality		10,477		2,049		8,135		—		—		144		149		—
Total Ending Loans Balance (1)	$	1,201,598	$	332,987	$	499,717	$	167,285	$	73,175	$	41,891	$	86,543	$	—

⁽¹⁾ Total recorded investment in loans includes $4,980 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, 2012
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.

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2013 and December 31, 2012:

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance(1)		Investment		Allocated
March 31, 2013
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	87	$	84	$	—
Commercial Real Estate Loans		3,552		1,630		—
Agricultural Loans		2,397		2,414		—
Subtotal		6,036		4,128		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,545		2,480		1,076
Commercial Real Estate Loans		5,755		5,736		3,978
Agricultural Loans		—		—		—
Subtotal		8,300		8,216		5,054
Total	$	14,336	$	12,344	$	5,054
Loans Acquired With Deteriorated Credit Quality With No Related Allowance  Recorded (Included in the Total Above)	$	38	$	35	$	—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance  Recorded (Included in the Total Above)	$	146	$	107	$	80

⁽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, 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.

The following table presents loans individually evaluated for impairment by class of loans for the three month period ended March 31, 2013 and 2012:

	Average		Interest		Cash
	Recorded		Income		Basis
	Investment		Recognized		Recognized
March 31, 2013
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	110	$	—	$	1
Commercial Real Estate Loans		2,170		—		—
Agricultural Loans		2,422		48		16
Subtotal		4,702		48		17
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,533		1		1
Commercial Real Estate Loans		5,809		6		5
Agricultural Loans		—		—		—
Subtotal		8,342		7		6
Total	$	13,044	$	55	$	23
Loans Acquired With Deteriorated Credit Quality With No Related Allowance  Recorded (Included in the Total Above)	$	57	$	—	$	1
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance  Recorded (Included in the Total Above)	$	112	$	1	$	1

	Average		Interest		Cash
	Recorded		Income		Basis
	Investment		Recognized		Recognized
March 31, 2012
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	655	$	1	$	1
Commercial Real Estate Loans		5,550		4		4
Agricultural Loans		—		—		—
Subtotal		6,205		5		5
With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,841		1		1
Commercial Real Estate Loans		7,283		6		4
Agricultural Loans		—		—		—
Subtotal		10,124		7		5
Total	$	16,329	$	12	$	10
Loans Acquired With Deteriorated Credit Quality With No Related Allowance  Recorded (Included in the Total Above)	$	—	$	—	$	—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance  Recorded (Included in the Total Above)	$	205	$	—	$	—

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 March 31, 2013 and December 31, 2012:

					Loans Past Due
					90 Days or More
	Non-Accrual				& Still Accruing
	2013		2012		2013		2012
Commercial and Industrial Loans and Leases	$	2,504	$	2,480	$	—	$	—
Commercial Real Estate Loans		7,084		7,275		—		—
Agricultural Loans		14		—		—		—
Home Equity Loans		73		178		—		—
Consumer Loans		152		167		—		—
Residential Mortgage Loans		117		257		—		—
Total	$	9,944	$	10,357	$	—	$	—
Loans Acquired with Deteriorated Credit Quality (Included in the Total Above)	$	262	$	148	$	—	$	—

The following table presents the aging of the recorded investment in past due loans by class of loans as of March 31, 2013 and December 31, 2012:

							90 Days
			30-59 Days		60-89 Days		or More		Total		Loans Not
	Total		Past Due		Past Due		Past Due		Past Due		Past Due
March 31, 2013
Commercial and Industrial Loans and Leases	$	332,987	$	285	$	356	$	566	$	1,207	$	331,780
Commercial Real Estate Loans		499,717		560		23		2,364		2,947		496,770
Agricultural Loans		167,285		2,415		—		—		2,415		164,870
Home Equity Loans		73,175		364		232		73		669		72,506
Consumer Loans		41,891		184		28		9		221		41,670
Residential Mortgage Loans		86,543		1,774		—		117		1,891		84,652
Total (1)	$	1,201,598	$	5,582	$	639	$	3,129	$	9,350	$	1,192,248
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)	$	10,477	$	—	$	—	$	118	$	118	$	10,359

⁽¹⁾ Total recorded investment in loans includes $4,980 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, 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.

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 three months ended March 31, 2013, there were no loans modified as troubled debt restructurings. For the year ended December 31, 2012, 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 three months ended March 31, 2013 and the year ended December 31, 2012 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 March 31, 2013 and December 31, 2012:

	Total		Performing		Non-Accrual(1)
March 31, 2013
Commercial and Industrial Loans and Leases	$	2,361	$	57	$	2,304
Commercial Real Estate Loans		5,284		291		4,993
Total	$	7,645	$	348	$	7,297

	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

⁽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 March 31, 2013 and December 31, 2012 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 three months ending March 31, 2013 and 2012:

			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Loans		Investment		Investment
March 31, 2013
Commercial and Industrial Loans and Leases		—	$	—	$	—
Commercial Real Estate Loans		—		—		—
Total		—	$	—	$	—

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

The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the three months ending March 31, 2013 and 2012.

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 three months ending March 31, 2013 and 2012:

Troubled Debt Restructurings That Subsequently Defaulted:	Number of Loans		Recorded Investment
March 31, 2013
Commercial and Industrial Loans and Leases		—	$	—
Commercial Real Estate Loans		—		—
Total		—	$	—

The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and no charge-offs during the three months ending March 31, 2013.

Troubled Debt Restructurings That Subsequently Defaulted:	Number of Loans		Recorded Investment
March 31, 2012
Commercial and Industrial Loans and Leases		1	$	565
Commercial Real Estate Loans		1		292
Total		2	$	857

The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and charge-offs of $108 during the three months ending March 31, 2012.

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
March 31, 2013
Commercial and Industrial Loans and Leases	$	304,247	$	14,732	$	14,008	$	—	$	332,987
Commercial Real Estate Loans		458,396		21,617		19,704		—		499,717
Agricultural Loans		161,556		2,780		2,949		—		167,285
Total	$	924,199	$	39,129	$	36,661	$	—	$	999,989
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)	$	318	$	3,406	$	6,460	$	—	$	10,184

			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

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 March 31, 2013 and December 31, 2012:

	Home Equity		Consumer		Residential
	Loans		Loans		Mortgage Loans
March 31, 2013
Performing	$	73,102	$	41,739	$	86,426
Nonperforming		73		152		117
Total	$	73,175	$	41,891	$	86,543
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)	$	—	$	144	$	149

	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

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:

	March 31, 2013
Commercial and Industrial Loans	$	2,049
Commercial Real Estate Loans		8,135
Home Equity Loans		—
Consumer Loans		144
Residential Mortgage Loans		149
Total	$	10,477
Carrying amount, Net of Allowance	$	10,397

	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

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

	March 31, 2013			March 31, 2012
Balance at January 1	$	170		$	967
New Loans Purchased		—			—
Accretion of Income		(212	)		(543	)
Reclassifications from Non-accretable Difference		250			206
Charge-off of Accretable Yield		—			—
Balance at March 31	$	208		$	630

For those purchased loans disclosed above, the Company decreased the allowance for loan losses by $8 during the three months ended March 31, 2013. For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the three months ended March 31, 2012. No allowances for loan losses were reversed during the same periods.