10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

Or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from_____________________ to ___________________

Commission file number 0‑13222

CITIZENS FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA                               23‑2265045

(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

15 South Main Street

Mansfield, Pennsylvania 16933

(Address of principal executive offices)(Zip Code)

Registrant's telephone number, including area code: (570) 662‑2121

N/A

(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 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 __X__ 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 (§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 __X__ No_____

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

Large accelerated filer ____   Accelerated filer _X__

Non-accelerated filer ____   Smaller reporting company ____

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes____ No __X__

The number of outstanding shares of the Registrant's Common Stock, as of October 25, 2016, was 3,349,841.

Citizens Financial Services, Inc.

Form 10-Q

INDEX

		PAGE
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheet as of September 30,2016 and December 31, 2015	1
	Consolidated Statement of Income for the Three and Nine Months Ended September 30, 2016 and 2015	2
	Consolidated Statement of Comprehensive Income for the Three and Nine months ended September 30, 2016 and 2015	3
	Consolidated Statement of Cash Flows for the Nine Months ended September 30, 2016 and 2015	4
	Notes to Consolidated Financial Statements	5-32
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33-55
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	55-56
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56-57
Item 5.	Other Information	57
Item 6.	Exhibits	57
	Signatures	58

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
	September 30			December 31
(in thousands except share data)	2016			2015
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	15,459		$	14,088
Interest-bearing		912			10,296
Total cash and cash equivalents		16,371			24,384
Interest bearing time deposits with other banks		6,955			7,696
Available-for-sale securities		349,154			359,737
Loans held for sale		576			603
Loans (net of allowance for loan losses:
2016, $8,194 and 2015, $7,106)		743,099			687,925
Premises and equipment		17,143			17,263
Accrued interest receivable		3,988			4,211
Goodwill		21,089			21,089
Bank owned life insurance		26,050			25,535
Other intangibles		2,059			2,437
Other assets		11,170			12,104
TOTAL ASSETS	$	1,197,654		$	1,162,984
LIABILITIES:
Deposits:
Noninterest-bearing	$	149,848		$	150,960
Interest-bearing		858,899			837,071
Total deposits		1,008,747			988,031
Borrowed funds		51,859			41,631
Accrued interest payable		636			734
Other liabilities		10,862			12,828
TOTAL LIABILITIES		1,072,104			1,043,224
STOCKHOLDERS' EQUITY:
Preferred Stock
$1.00 par value; authorized 3,000,000 shares September 30, 2016 and December 31, 2015;
none issued in 2016 or 2015		-			-
Common stock
$1.00 par value; authorized 15,000,000 shares; issued 3,704,375 at September 30, 2016 and
3,671,751 at December 31, 2015		3,704			3,672
Additional paid-in capital		42,241			40,715
Retained earnings		89,501			85,790
Accumulated other comprehensive income (loss)		1,390			(236	)
Treasury stock, at cost:  358,811 shares at September 30, 2016
and 335,876 shares at December 31, 2015		(11,286	)		(10,181	)
TOTAL STOCKHOLDERS' EQUITY		125,550			119,760
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,197,654		$	1,162,984
The accompanying notes are an integral part of these unaudited consolidated financial statements.

1

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands, except share and per share data)	2016			2015		2016		2015
INTEREST INCOME:
Interest and fees on loans	$	9,204		$	7,248	$	26,387	$	21,416
Interest-bearing deposits with banks		50			33		185		103
Investment securities:
Taxable		897			798		2,800		2,317
Nontaxable		733			749		2,259		2,398
Dividends		64			35		205		168
TOTAL INTEREST INCOME		10,948			8,863		31,836		26,402
INTEREST EXPENSE:
Deposits		1,048			1,044		3,194		3,088
Borrowed funds		188			174		554		521
TOTAL INTEREST EXPENSE		1,236			1,218		3,748		3,609
NET INTEREST INCOME		9,712			7,645		28,088		22,793
Provision for loan losses		500			120		770		360
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		9,212			7,525		27,318		22,433
NON-INTEREST INCOME:
Service charges		1,115			1,054		3,345		3,058
Trust		161			149		539		523
Brokerage and insurance		211			181		578		563
Gains on loans sold		109			85		225		183
Investment securities gains, net		-			129		155		430
Earnings on bank owned life insurance		174			158		515		464
Other		138			109		450		327
TOTAL NON-INTEREST INCOME		1,908			1,865		5,807		5,548
NON-INTEREST EXPENSES:
Salaries and employee benefits		4,285			3,069		12,067		9,118
Occupancy		485			347		1,385		1,064
Furniture and equipment		164			108		492		323
Professional fees		283			202		836		614
FDIC insurance		175			116		492		348
Pennsylvania shares tax		240			201		630		602
Amortization of intangibles		82			-		246		-
Merger and acquisition		-			282		-		405
ORE expenses (recovery)		(71	)		328		234		686
Other		1,557			1,199		5,031		3,455
TOTAL NON-INTEREST EXPENSES		7,200			5,852		21,413		16,615
Income before provision for income taxes		3,920			3,538		11,712		11,366
Provision for income taxes		767			681		2,245		2,200
NET INCOME	$	3,153		$	2,857	$	9,467	$	9,166
PER COMMON SHARE DATA:
Net Income - Basic	$	0.94		$	0.94	$	2.83	$	3.00
Net Income - Diluted	$	0.94		$	0.94	$	2.83	$	3.00
Cash Dividends Paid	$	0.421		$	0.503	$	1.250	$	1.304
Number of shares used in computation - basic		3,339,962			3,044,311		3,346,623		3,051,826
Number of shares used in computation - diluted		3,341,656			3,045,775		3,348,321		3,053,294
The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME				`
(UNAUDITED)
	Three Months Ended										Nine months Ended
	September 30,										September 30,
(in thousands)				2016					2015					2016				2015
Net income				$	3,153				$	2,857				$	9,467			$	9,166
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities		(1,049	)				1,094					2,439				390
Income tax effect		357					(372	)				(830	)			(132	)
Change in unrecognized pension cost		61					51					181				153
Income tax effect		(21	)				(17	)				(62	)			(52	)
Less:  Reclassification adjustment for investment
security gains included in net income		-					(129	)				(155	)			(430	)
Income tax effect		-					44					53				146
Other comprehensive income (loss), net of tax					(652	)				671					1,626				75
Comprehensive income				$	2,501				$	3,528				$	11,093			$	9,241
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)	Nine Months Ended
	September 30,
(in thousands)	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,467		$	9,166
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses		770			360
Provision for off-balance sheet items		30			-
Depreciation and amortization		265			370
Amortization and accretion of investment securities		1,750			1,521
Deferred income taxes		141			(39	)
Investment securities gains, net		(155	)		(430	)
Earnings on bank owned life insurance		(515	)		(464	)
Originations of loans held for sale		(15,698	)		(13,510	)
Proceeds from sales of loans held for sale		15,950			12,942
Realized gains on loans sold		(225	)		(183	)
Decrease in accrued interest receivable		223			78
Decrease in accrued interest payable		(98	)		(63	)
Other, net		(1,137	)		(842	)
Net cash provided by operating activities		10,768			8,906
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities:
Proceeds from sales		12,077			18,393
Proceeds from maturity and principal repayments		43,759			39,472
Purchase of securities		(44,567	)		(58,667	)
Purchase of interest bearing time deposits with other banks		-			(500	)
Proceeds from matured interest bearing time deposits with other banks		744			-
Proceeds from redemption of regulatory stock		459			2,150
Purchase of regulatory stock		(1,138	)		(2,097	)
Net increase in loans		(55,846	)		(29,148	)
Purchase of premises and equipment		(500	)		(633	)
Proceeds from sale of foreclosed assets held for sale		900			340
Net cash used in investing activities		(44,112	)		(30,690	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		20,716			23,915
Proceeds from long-term borrowings		541			5,288
Repayments of long-term borrowings		(534	)		(700	)
Net increase (decrease) in short-term borrowed funds		10,221			(1,730	)
Purchase of treasury and restricted stock		(1,713	)		(2,315	)
Dividends paid		(3,900	)		(3,783	)
Net cash provided by financing activities		25,331			20,675
Net decrease in cash and cash equivalents		(8,013	)		(1,109	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		24,384			11,423
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	16,371		$	10,314
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	3,846		$	3,672
Income taxes paid	$	1,700		$	2,425
Loans transferred to foreclosed property	$	633		$	241
Investments sold and not settled	$	-		$	5,187
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

 CITIZENS FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the "Company") is a Pennsylvania corporation organized as the holding company of its wholly owned subsidiary, First Citizens Community Bank (the "Bank"), and the Bank's wholly owned subsidiary, First Citizens Insurance Agency, Inc. ("First Citizens Insurance"). On December 11, 2015, the Company completed its acquisition of The First National Bank of Fredericksburg (FNB) by merging FNB into the Bank.

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission ("SEC") and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders' equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim financial statements at September 30, 2016 and for the periods ended September 30, 2016 and 2015 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. The financial performance reported for the Company for the nine month period ended September 30, 2016 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Note 2 - Earnings per Share

The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.

	Three months ended				Nine months ended
	September 30,				September 30,
	2016		2015		2016		2015
Net income applicable to common stock	$	3,153,000	$	2,857,000	$	9,467,000	$	9,166,000
Basic earnings per share computation
Weighted average common shares outstanding		3,339,962		3,044,311		3,346,623		3,051,826
Earnings per share - basic	$	0.94	$	0.94	$	2.83	$	3.00
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,339,962		3,044,311		3,346,623		3,051,826
Add: Dilutive effects of restricted stock		1,694		1,464		1,698		1,468
Weighted average common shares outstanding for dilutive earnings per share		3,341,656		3,045,775		3,348,321		3,053,294
Earnings per share - diluted	$	0.94	$	0.94	$	2.83	$	3.00

For the three months ended September 30, 2016 and 2015, there were 3,804 and 2,696 shares, respectively, related to the restricted stock plan that were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $46.69-$53.15 for the three month period ended September 30, 2016 and per share prices ranging from $44.50-$53.15 for the three month period ended September 30, 2015. For the nine months ended September 30, 2016 and 2015, 3,804 and 2,696 shares, respectively, related to the restricted stock plan were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $46.69-$53.15 for the nine month period ended September 30, 2016 and per share prices ranging from $44.50-$53.15 for the nine month period ended September 30, 2015.

5

Note 3 - Income Tax Expense

Income tax expense is less than the amount calculated using the statutory tax rate, primarily as a result of tax-exempt income earned from state and municipal securities and loans and investments in affordable housing tax credits.

Investments in Qualified Affordable Housing Projects

As of September 30, 2016 and December 31, 2015, the Company was invested in four partnerships that provide affordable housing. The balance of the investments, which is included within other assets in the Consolidated Balance Sheet, was $765,000 and $959,000 as of September 30, 2016 and December 31, 2015, respectively. Investments purchased prior to January 1, 2015, are accounted for utilizing the effective yield method. As of September 30, 2016, the Company had $895,000 of tax credits remaining that will be recognized over 6.25 years. Tax credits of $50,000 were recognized as a reduction of tax expense during the three months ended September 30, 2016 and 2015. Tax credits of $149,000 were recognized as a reduction of tax expense during the nine months ended September 30, 2016 and 2015.

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2016 and December 31, 2015 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2016	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	188,936	$	1,839	$	(9	)	$	190,766
U.S. treasury securities		5,013		7		-			5,020
Obligations of state and
political subdivisions		99,557		2,702		(37	)		102,222
Corporate obligations		14,359		17		-			14,376
Mortgage-backed securities in
government sponsored entities		33,665		420		(33	)		34,052
Equity securities in financial
institutions		2,002		716		-			2,718
Total available-for-sale securities	$	343,532	$	5,701	$	(79	)	$	349,154
December 31, 2015
Available-for-sale securities:
U.S. agency securities	$	199,749	$	369	$	(527	)	$	199,591
U.S. treasury securities		10,103		-		(21	)		10,082
Obligations of state and
political subdivisions		99,856		3,080		(73	)		102,863
Corporate obligations		14,583		68		(86	)		14,565
Mortgage-backed securities in
government sponsored entities		30,107		186		(89	)		30,204
Equity securities in financial institutions		2,001		436		(5	)		2,432
Total available-for-sale securities	$	356,399	$	4,139	$	(801	)	$	359,737

The following table shows the Company's gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015 (in thousands). As of September 30, 2016, the Company owned 24 securities whose fair value was less than their cost basis.

6

September 30, 2016	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	6,998	$	(9	)	$	-	$	-		$	6,998	$	(9	)
Obligations of state and
political subdivisions		9,244		(37	)		-		-			9,244		(37	)
Mortgage-backed securities in
government sponsored entities		3,568		(18	)		1,855		(15	)		5,423		(33	)
Total securities	$	19,810	$	(64	)	$	1,855	$	(15	)	$	21,665	$	(79	)
December 31, 2015
U.S. agency securities	$	123,591	$	(527	)	$	-	$	-		$	123,591	$	(527	)
U.S. treasury securities		10,082		(21	)		-		-			10,082		(21	)
Obligations of states and
political subdivisions		7,023		(57	)		2,914		(16	)		9,937		(73	)
Corporate obligations		5,822		(61	)		2,138		(25	)		7,960		(86	)
Mortgage-backed securities in
government sponsored entities		9,830		(77	)		227		(12	)		10,057		(89	)
Equity securities in financial institutions		106		(5	)		-		-			106		(5	)
Total securities	$	156,454	$	(748	)	$	5,279	$	(53	)	$	161,733	$	(801	)

As of September 30, 2016, the Company's investment securities portfolio contained unrealized losses on agency securities issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, obligations of states and political subdivisions and mortgage backed securities issued by government sponsored entities. For fixed maturity investments management considers whether the present value of cash flows expected to be collected are less than the security's amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company's intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of the security's amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. For equity securities where the fair value has been significantly below cost for one year, the Company's policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other than temporary and a recovery period can be predicted.  The Company has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and is the result of interest rate changes, sector credit rating changes, or issuer-specific rating changes that are not expected to result in the non-collection of principal and interest during the period.

Proceeds from sales of securities available-for-sale for the nine months ended September 30, 2016 and 2015 were $12,077,000 and $18,393,000, respectively. There were no sales of available for sale securities during the three months ended September 30, 2016.  For the three months ended September 30, 2015 there were sales of $5,187,000 of available-for-sale securities. The gross gains and losses were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Gross gains	$	-	$	129	$	155	$	441
Gross losses		-		-		-		(11	)
Net gains	$	-	$	129	$	155	$	430

7

Investment securities with an approximate carrying value of $224.9 million and $203.8 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public funds and certain other deposits.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.   The amortized cost and fair value of debt securities at September 30, 2016, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	49,510	$	49,724
Due after one year through five years		173,075		175,690
Due after five years through ten years		41,247		42,129
Due after ten years		77,698		78,893
Total	$	341,530	$	346,436

Note 5 – Loans

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York.  Although the Company had a diversified loan portfolio at September 30, 2016 and December 31, 2015, a substantial portion of its debtors' ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	205,092	$	969	$	35	$	204,088
Commercial and agricultural		339,704		5,567		2,748		331,389
Construction		18,774		-		-		18,774
Consumer		11,226		-		4		11,222
Other commercial and agricultural loans		78,258		5,428		778		72,052
State and political subdivision loans		98,239		-		-		98,239
Total		751,293		11,964		3,565		735,764
Allowance for loan losses		8,194		482		-		7,712
Net loans	$	743,099	$	11,482	$	3,565	$	728,052
December 31, 2015
Real estate loans:
Residential	$	203,407	$	304	$	35	$	203,068
Commercial and agricultural		295,364		6,235		2,908		286,221
Construction		15,011		-		-		15,011
Consumer		11,543		-		9		11,534
Other commercial and agricultural loans		71,206		5,745		866		64,595
State and political subdivision loans		98,500		-		-		98,500
Total		695,031		12,284		3,818		678,929
Allowance for loan losses		7,106		355		-		6,751
Net loans	$	687,925	$	11,929	$	3,818	$	672,178

Purchased loans acquired in the FNB acquisition were recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

Upon acquisition, the Company evaluated whether an acquired loan was within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired ("PCI") loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Based upon management's review, there were no material increases or decreases in the expected cash flows of these loans between December 11, 2015 (the "acquisition date") and September 30, 2016. The fair value of PCI loans, on the acquisition date, was determined, primarily based on the fair value of the loans' collateral. The carrying value of PCI loans was $3,565,000 and $3,818,000 at September 30, 2016 and December 31, 2015, respectively.

8

On the acquisition date, the unpaid principal balance for all PCI loans was $6,969,000 and the estimated fair value of the loans was $3,809,000. Total contractually required payments on these loans, including interest, at the acquisition date was $9,913,000. However, the Company's preliminary estimate of expected cash flows was $4,474,000. At such date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from the customer nor liquidation of collateral) of $5,439,000 relating to these PCI loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows and established an accretable discount of $665,000 on the acquisition date relating to these PCI loans.

The carrying value of the PCI loans was determined by projected discounted contractual cash flows.

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2016 (in thousands):

	Three Months Ended			Nine months Ended
Balance at beginning of period	$	464		$	637
Accretion		(88	)		(261	)
Balance at end of period	$	376		$	376

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2016		December 31, 2015
Outstanding balance	$	6,774	$	6,950
Carrying amount		3,565		3,818

The segments of the Company's loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit with terms of 15 years or less secured by a mortgage which is often a second lien on residential real estate. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential or commercial real estate used during the construction phase of residential and commercial projects. Consumer loans are typically unsecured or primarily secured by assets other than real estate and overdraft lines of credit are typically secured by customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivision loans are loans to state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development.

Management considers commercial loans, other agricultural loans, state and political subdivision loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer's results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allocation of the allowance for loan losses or a charge-off to the allowance for loan losses.

9

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
September 30, 2016	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	959	$	574	$	337	$	911	$	28
Home Equity		58		-		58		58		11
Commercial		7,722		5,437		130		5,567		46
Agricultural		-		-		-		-		-
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		5,591		4,494		934		5,428		397
Other agricultural loans		-		-		-		-		-
State and political
subdivision loans		-		-		-		-		-
Total	$	14,330	$	10,505	$	1,459	$	11,964	$	482
December 31, 2015
Real estate loans:
Mortgages	$	281	$	114	$	129	$	243	$	26
Home Equity		61		-		61		61		11
Commercial		8,654		5,843		225		6,068		62
Agricultural		167		167		-		167		-
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		5,535		4,653		987		5,640		256
Other agricultural loans		105		105		-		105		-
State and political
subdivision loans		-		-		-		-		-
Total	$	14,803	$	10,882	$	1,402	$	12,284	$	355

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2016 and 2015(in thousands):

10

	For the Nine Months ended
	September 30, 2016						September 30, 2015
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	486	$	10	$	-	$	239	$	8	$	5
Home Equity		59		3		-		97		3		-
Commercial		6,088		87		-		5,728		46		-
Agricultural		110		7		-		19		1		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Other commercial loans		5,743		187		5		2,488		64		4
Other agricultural loans		70		3		-		13		1		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	12,556	$	297	$	5	$	8,584	$	123	$	9
	For the Three Months Ended
	September 30, 2016						September 30, 2015
Real estate loans:
Mortgages	$	607	$	1	$	-	$	269	$	4	$	-
Home Equity		58		1		-		62		1		-
Commercial		5,980		35		-		5,462		14		-
Agricultural		-		2		-		57		1		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Other commercial loans		5,298		53		2		2,107		15		1
Other agricultural loans		-		-		-		38		1		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	11,943	$	92	$	2	$	7,995	$	36	$	1

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor credit quality. The first five categories are considered not criticized and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

· Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

· Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

· Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

· Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

11

· Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company's loan rating process includes several layers of internal and external oversight. The Company's loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management.  All commercial and agricultural loans are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to 1) review a minimum of 55% of the dollar volume of the commercial loan portfolio on an annual basis, 2) review new loans originated for over $1.0 million in the last year, 3) review a majority of borrowers with commitments greater than or equal to $1.0 million,  4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate.

The following tables represent credit exposures by internally assigned grades as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	221,715	$	13,935	$	15,471	$	28	$	-	$	251,149
Agricultural		76,500		8,969		3,086		-		-		88,555
Construction		18,774		-		-		-		-		18,774
Other commercial loans		49,987		1,964		4,980		131		-		57,062
Other agricultural loans		17,383		2,350		1,463		-		-		21,196
State and political
subdivision loans		84,541		13,698		-		-		-		98,239
Total	$	468,900	$	40,916	$	25,000	$	159	$	-	$	534,975
December 31, 2015
Real estate loans:
Commercial	$	217,544	$	4,150	$	15,816	$	32	$	-	$	237,542
Agricultural		53,695		2,865		1,262		-		-		57,822
Construction		14,422		589		-		-		-		15,011
Other commercial loans		51,297		446		5,669		137		-		57,549
Other agricultural loans		13,318		234		105		-		-		13,657
State and political
subdivision loans		98,500		-		-		-		-		98,500
Total	$	448,776	$	8,284	$	22,852	$	169	$	-	$	480,081

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	144,249	$	1,846	$	35	$	146,130
Home Equity		58,845		117		-		58,962
Consumer		11,146		76		4		11,226
Total	$	214,240	$	2,039	$	39	$	216,318

12

December 31, 2015	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	139,734	$	1,270	$	35	$	141,039
Home Equity		62,236		132		-	$	62,368
Consumer		11,470		64		9	$	11,543
Total	$	213,440	$	1,466	$	44	$	214,950

Aging Analysis of Past Due Financing Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due financing receivables as of September 30, 2016 and December 31, 2015 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
September 30, 2016	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	720	$	153	$	1,128	$	2,001	$	144,094	$	35	$	146,130	$	173
Home Equity		398		15		67		480		58,482		-		58,962		17
Commercial		2,151		251		4,065		6,467		242,675		2,007		251,149		259
Agricultural		2,415		177		58		2,650		85,164		741		88,555		58
Construction		-		-		-		-		18,774		-		18,774		-
Consumer		149		42		52		243		10,979		4		11,226		34
Other commercial loans		303		-		4,015		4,318		51,966		778		57,062		-
Other agricultural loans		1,151		260		-		1,411		19,785		-		21,196		-
State and political
subdivision loans		-		-		-		-		98,239		-		98,239		-
Total	$	7,287	$	898	$	9,385	$	17,570	$	730,158	$	3,565	$	751,293	$	541
Loans considered non-accrual	$	331	$	19	$	8,844	$	9,194	$	837	$	-	$	10,031
Loans still accruing		6,956		879		541		8,376		729,321		3,565		741,262
Total	$	7,287	$	898	$	9,385	$	17,570	$	730,158	$	3,565	$	751,293
December 31, 2015
Real estate loans:
Mortgages	$	487	$	283	$	687	$	1,457	$	139,547	$	35	$	141,039	$	321
Home Equity		630		15		121		766		61,602		-		62,368		73
Commercial		824		57		4,139		5,020		230,352		2,170		237,542		60
Agricultural		177		167		-		344		56,740		738		57,822		-
Construction		-		-		-		-		15,011		-		15,011		-
Consumer		239		37		49		325		11,209		9		11,543		9
Other commercial loans		143		214		1,010		1,367		55,316		866		57,549		160
Other agricultural loans		9		-		-		9		13,648		-		13,657		-
State and political
subdivision loans		-		-		-		-		98,500		-		98,500		-
Total	$	2,509	$	773	$	6,006	$	9,288	$	681,925	$	3,818	$	695,031	$	623
Loans considered non-accrual	$	54	$	171	$	5,383	$	5,608	$	923	$	-	$	6,531
Loans still accruing		2,455		602		623		3,680		681,002		3,818		688,500
Total	$	2,509	$	773	$	6,006	$	9,288	$	681,925	$	3,818	$	695,031

Nonaccrual Loans

Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

13

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of September 30, 2016 and December 31, 2015, respectively. The balances are presented by class of financing receivable (in thousands):

	September 30, 2016		December 31, 2015
Real estate loans:
Mortgages	$	1,673	$	949
Home Equity		100		59
Commercial		4,056		4,422
Agricultural		26		34
Consumer		42		55
Other commercial loans		4,134		1,012
	$	10,031	$	6,531

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower's financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company's investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower's ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations.  Based on this evaluation management would no longer consider a loan to be a TDR when the relevant facts support such a conclusion. As of September 30, 2016 and December 31, 2015, included within the allowance for loan losses are reserves of $31,000 and $37,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2016 and for the nine months ended September 30, 2015 were as follows (dollars in thousands). There were no loan modifications that were considered TDRs during the three months ended September 30, 2015:

	For the Three Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	750	$	-	$	750
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		4	$	-	$	3,826	$	-	$	3,826

14

	For the Nine Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest  Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		4	$	-	$	1,188	$	-	$	1,188
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		7	$	-	$	4,264	$	-	$	4,264

	For the Nine months Ended September 30, 2015
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest  Modification		Term Modification
Real estate loans:
Mortgages		1		1	$	71	$	19	$	71	$	19
Total		1		1	$	71	$	19	$	71	$	19

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. There were no loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2016 and 2015 (nine month periods) and July 1, 2016 and 2015 (3 month periods), respectively, that subsequently defaulted during these reporting periods.

Allowance for Loan Losses

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2016 and December 31, 2015, respectively (in thousands):

	September 30, 2016						December 31, 2015
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for  impairment		Total
Real estate loans:
Residential	$	39	$	974	$	1,013	$	37	$	868	$	905
Commercial and agricultural		46		4,560		4,606		62		3,723		3,785
Construction		-		34		34		-		24		24
Consumer		-		109		109		-		102		102
Other commercial and agricultural loans		397		1,245		1,642		256		1,049		1,305
State and political
subdivision loans		-		771		771		-		593		593
Unallocated		-		19		19		-		392		392
Total	$	482	$	7,712	$	8,194	$	355	$	6,751	$	7,106

15

The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine month periods ended September 30, 2016 and 2015, respectively (in thousands):

	For the three months ended September 30, 2016
	Balance at June 30, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	990	$	(9	)	$	-	$	32		$	1,013
Commercial and agricultural		3,919		(100	)		467		320			4,606
Construction		18		-			-		16			34
Consumer		104		(27	)		16		16			109
Other commercial and agricultural loans		1,564		(37	)		25		90			1,642
State and political									-
subdivision loans		764		-			-		7			771
Unallocated		-		-			-		19			19
Total	$	7,359	$	(173	)	$	508	$	500		$	8,194
	For the three months ended September 30, 2015
	Balance at June 30, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2015
Real estate loans:
Residential	$	931	$	-		$	-	$	(18	)	$	913
Commercial and agricultural		3,679		-			4		120			3,803
Construction		14		-			-		3			17
Consumer		89		(11	)		13		-			91
Other commercial and agricultural loans		1,502		(40	)		-		(17	)		1,445
State and political									-
subdivision loans		568		-			-		18			586
Unallocated		176		-			-		14			190
Total	$	6,959	$	(51	)	$	17	$	120		$	7,045
	For the nine months ended September 30, 2016
	Balance at December 31, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	905	$	(52	)	$	-	$	160		$	1,013
Commercial and agricultural		3,785		(100	)		475		446			4,606
Construction		24		-			-		10			34
Consumer		102		(65	)		84		(12	)		109
Other commercial and agricultural loans		1,305		(55	)		31		361			1,642
State and political									-
subdivision loans		593		-			-		178			771
Unallocated		392		-			-		(373	)		19
Total	$	7,106	$	(272	)	$	590	$	770		$	8,194
	For the nine months ended September 30, 2015
	Balance at December 31, 2014		Charge-offs			Recoveries		Provision			Balance at September 30, 2015
Real estate loans:
Residential	$	878	$	(34	)	$	-	$	69		$	913
Commercial and agricultural		3,870		(56	)		11		(22	)		3,803
Construction		26		-			-		(9	)		17
Consumer		84		(35	)		25		17			91
Other commercial and agricultural loans		1,224		(41	)		-		262			1,445
State and political									-
subdivision loans		545		-			-		41			586
Unallocated		188		-			-		2			190
Total	$	6,815	$	(166	)	$	36	$	360		$	7,045

16

The Company allocates the ALLL based on the factors described below, which conform to the Company's loan classification policy and credit quality measurements. In reviewing risk within the Company's loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) other commercial and agricultural loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:

· Level of and trends in delinquencies and impaired/classified loans

§ Change in volume and severity of past due loans

§ Volume of non-accrual loans

§ Volume and severity of classified, adversely or graded loans;

· Level of and trends in charge-offs and recoveries;

· Trends in volume, terms and nature of the loan portfolio;

· Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;

· Changes in the quality of the Company's loan review system;

· Experience, ability and depth of lending management and other relevant staff;

· National, state, regional and local economic trends and business conditions

§ General economic conditions

§ Unemployment rates

§ Inflation rate/ Consumer Price Index

§ Changes in values of underlying collateral for collateral-dependent loans;

· Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses;

· Existence and effect of any credit concentrations, and changes in the level of such concentrations; and

· Any change in the level of board oversight.

The Company analyzes its loan portfolio each quarter to determine the adequacy of its ALLL.

Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL.

We continually review the model utilized in calculating the required ALLL. The following qualitative factors experienced changes during the first nine months of 2016:

· The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans were increased for residential, consumer and agricultural related loans due to an increase in past due, non-accrual and classified loans due to increase in the number of accounts past due.  We did not increase this factor for other commercial loans due to the increase being caused by one relationship instreat of a larger trend.

· The qualitative factor for industry conditions, including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses, was increased for and segment that includes agricultural related loans due to the decrease in the price received for product sold and the increase in feed costs that has occurred in 2016, which negatively affected customer earnings.

17

· The qualitative factor for national, state, regional and local economic trends and business conditions was increased for all loan categories due to an increase in the unemployment rates in the local economy during the first nine months of 2016.

· The qualitative factors for changes in quality of the institutions loan review system were increased for commercial and agricultural loans due to the addition of new staff and processes.

· The qualitative factors for trends in volume, terms and nature of the loan portfolio were increased for all segments that include agricultural loans due to growth in these loan categories.

· The qualitative factors for trends in volume, terms and nature of the loan portfolio were decreased for municipal loans due to this loan segment making up a smaller portion of the Bank's overall loan portfolio as we continue to grow commercial and agricultural loans.

· The qualitative factors for experience, ability. and depth of lending management was decreased for municipal loans due to employees gaining additional experience and the use of a third party in reviewing loan information.

The following qualitative factors experienced changes during the three months ended September 30, 2016:

· The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans were increased for all segments that agricultural related loans due to an increase in past due, non-accrual and classified loans.

· The qualitative factors for changes in quality of the institutions loan review system were increased for commercial and agricultural loans due to the addition of new staff and processes.

· The qualitative factors for trends in volume, terms and nature of the loan portfolio were increased for agricultural loans due to growth in these loan categories.

· The qualitative factors for trends in volume, terms and nature of the loan portfolio were decreased for municipal loans due to this loan segment making up a smaller portion of the Bank's overall loan portfolio.

· The qualitative factors for experience, ability, and depth of lending management was decreased for municipal loans due to employees gaining additional experience and the use of a third party in reviewing loan information.

The increase in loan recoveries during the third quarter was primarily due to one customer that paid off a loan that was partially charged off in 2014 for $463,000. The increase in the overall provision for 2016 was due to loan growth, an increase in special mention and substandard loans and increases in delinquency.

The following qualitative factors experienced changes during the first nine months of 2015:

· The qualitative factor for national, state, regional and local economic trends and business conditions was increased for all loan categories due to an increase in the unemployment rates in the local economy during the first nine months of 2015.

· The qualitative factors for changes in levels of and trends in delinquencies and impaired/classified loans were decreased for commercial and agricultural real estate due to the decrease in the amount of loans classified as substandard. While there has been an increase in delinquencies of commercial and agricultural real estate loans, the qualitative factor was not increased. The increase in delinquencies is attributable to one relationship, which is classified as impaired and management does not believe that this delinquency is a reflection of a further decrease in the credit quality of the commercial and agricultural real estate loan portfolio.

· The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans were increased for other commercial and agricultural loans due to an increase in the amount of loans classified as substandard.

· The qualitative factor for levels of and trends in charge-offs and recoveries was decreased for commercial and agricultural real estate and other commercial and agricultural loans due to the decrease in charge-offs compared to the prior year as charge-offs returned to historical norms for the Bank.

18

· The qualitative factor for experience, ability and depth of lending management and other relevant staff was decreased for commercial real estate, agricultural real estate, other commercial and other agricultural loans due to the length of time employees involved throughout the loan process have been in their positions.

· The qualitative factor for industry conditions, including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses, was increased for commercial and agricultural related loans due to the decrease in the price received for product sold and the increase in feed costs that has occurred in 2015, which negatively affected customer earnings.

· The qualitative factor for levels of and trends in charge-offs and recoveries was increased for residential real estate loans due to the increase in charge-offs compared to historical norms for the Company.

· The qualitative factors for changes in levels of and trends in delinquencies and impaired/classified loans was increased for residential mortgages due to increases in the amount of non-performing loans.

The following qualitative factors experienced changes during the three months ended September 30, 2015:

· The qualitative factors for changes in levels of and trends in delinquencies and impaired/classified loans were increased for other agricultural loans due to an increase in the amount of classified loans.

· The qualitative factor for levels of and trends in charge-offs and recoveries was increased for other commercial loans due to the increase in charge-offs during the quarter.

The primary factor that resulted in negative provision for commercial and agricultural loans for the nine month period ended September 30, 2015 was the reduction in the amount of special mention and substandard loans since December 31, 2014.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2016 and December 31, 2015 included with other assets are $1,198,000 and $1,354,000, respectively, of foreclosed assets. As of September 30, 2016, included within the foreclosed assets are $325,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of September 30, 2016, the Company has initiated formal foreclosure proceedings on $1,265,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.

Note 6 – Goodwill and Other Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016							December 31, 2015
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortizing intangible assets (1):
Mortgage servicing rights	$	1,336	$	(770	)	$	566	$	1,336	$	(638	)	$	698
Core deposit intangibles		1,641		(247	)		1,394		1,641		(25	)		1,616
Covenant not to compete		125		(26	)		99		125		(2	)		123
Total amortized intangible assets	$	3,102	$	(1,043	)	$	2,059	$	3,102	$	(665	)	$	2,437
Non-amortized intangible assets:
Goodwill	$	21,089						$	21,089
(1) Excludes fully amortized intangible assets

19

The following table provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing asset balances at September 30, 2016. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Nine months ended September 30, 2016 (actual)	$	132	$	222	$	24	$	378
Three months ended September 30, 2016 (actual)		42		74		8		124
Estimate for year ended December 31,
Remaining 2016		41		74		7		122
2017		142		266		31		439
2018		113		236		31		380
2019		88		206		30		324
2020		66		177		-		243

Note 7 – Federal Home Loan Bank Stock

The Bank is a member of the FHLB of Pittsburgh and, as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. As of September 30, 2016 and December 31, 2015, the Bank's investment in FHLB stock was $3,375,000 and $2,800,000, respectively. The stock does not have a readily determinable fair value and, as such, is classified as restricted stock, carried at cost and evaluated by management.  The stock's value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) a significant decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.  Management considered that the FHLB's regulatory capital ratios are sufficient, liquidity appears adequate, new shares of FHLB stock continue to exchange hands at the $100 par value and the FHLB has repurchased shares of excess capital stock from its members and has paid a quarterly cash dividend.

Note 8 – Repurchase Agreements

We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

The value of the collateral segmented by the remaining contractual maturity of the repurchase agreements in the Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 is presented in the following tables (in thousands):

20

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
September 30, 2016	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	16,934	$	-	$	-	$	2,122	$	19,056
Total carrying value of collateral pledged	$	16,934	$	-	$	-	$	2,122	$	19,056
Total liability recognized for repurchase agreements									$	15,091
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
December 31, 2015	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,144	$	-	$	-	$	2,049	$	20,193
Total carrying value of collateral pledged	$	18,144	$	-	$	-	$	2,049	$	20,193
Total liability recognized for repurchase agreements									$	16,008

Note 9 - Employee Benefit Plans

For additional detailed disclosure on the Company's pension and employee benefits plans, please refer to Note 11 of the Company's Consolidated Financial Statements included in the 2015 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a noncontributory defined benefit pension plan ("Pension Plan") covering employees and officers that were hired prior to January 1, 2007.Additionally, the Bank assumed the noncontributory defined benefit pension plan of FNB when it was acquired during 2015. The FNB plan was frozen prior to the acquisition and therefore, no additional benefits will accrue for employees covered under that plan. These two plans are collectively referred to herein as "the Plans." The Bank's funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plans' actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan. In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee's base compensation.  The contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment.  Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the Pension Plan.

The following sets forth the components of net periodic benefit costs of the Pension Plan for the three and nine months ended September 30, 2016 and 2015, respectively (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Service cost	$	90		$	110		$	269		$	242
Interest cost		172			128			517			281
Expected return on plan assets		(260	)		(243	)		(780	)		(533	)
Net amortization and deferral		61			65			182			141
Net periodic benefit cost	$	63		$	60		$	188		$	131

As of September 30, 2016, the Company had contributed $818,000 to the Pension Plans in 2016.

21

Defined Contribution Plan

The Company sponsors a voluntary 401(k) savings plan which eligible employees can elect to contribute up to the maximum amount allowable not to exceed the limits of IRS Code Sections 401(k).  Under the plan, the Company also makes required contributions on behalf of the eligible employees.  The Company's contributions vest immediately. Contributions by the Company totaled $269,000 and $215,000 for the nine months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 and 2015, contributions by the Company totaled $89,000 and $60,000, respectively.

Directors' Deferred Compensation Plan

The Company's directors may elect to defer all or portions of their fees until their retirement or termination from service.  Amounts deferred under the plan earn interest based upon the highest current rate offered to certificate of deposit customers.  Amounts deferred under the plan are not guaranteed and represent a general liability of the Company.  At September 30, 2016 and December 31, 2015, an obligation of $934,000 and $958,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Amounts included in interest expense on the deferred amounts totaled $3,000 and $5,000 for each of the three months ended September 30, 2016 and 2015, respectively. For the nine months ended September 30, 2016 and 2015, amounts included in interest expense on the deferred amounts totaled $11,000 and $17,000, respectively.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the "Plan") whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements.  Awards granted under the Plan are in the form of the Company's common stock and are subject to certain vesting requirements including continuous employment or service with the Company.  The plan was renewed in 2016, and currently includes a total of 150,000 shares of the Company's common stock that have been authorized under the Plan. As of September 30, 2016, 146,350 shares remain available to be issued under the Plan.  The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.

The following table details the vesting, awarding and forfeiting of restricted shares during the three and nine month periods ended September 30, 2016:

	Three months				Nine months
			Weighted					Weighted
	Unvested		Average		Unvested			Average
	Shares		Market Price		Shares			Market Price
Outstanding, beginning of period		8,603	$	48.88		8,269		$	49.98
Granted		-		-		3,650			47.81
Forfeited		-		-		-			-
Vested		-		-		(3,316	)		50.45
Outstanding, end of period		8,603	$	48.88		8,603		$	48.88

Compensation cost related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. Compensation expense related to restricted stock was $142,000 and $129,000 for the nine months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 and 2015, compensation expense totaled $50,000 and $44,000, respectively. At September 30, 2016, the total compensation cost related to nonvested awards that has not yet been recognized was $421,000, which is expected to be recognized over the next 2.50 years.

Supplemental Executive Retirement Plan

The Company maintains a non-qualified supplemental executive retirement plan ("SERP") for certain executives to compensate those executive participants in the Company's noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. At September 30, 2016 and December 31, 2015, an obligation of $1,430,000 and $1,339,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Expenses related to this plan totaled $91,000 and $106,000 for the nine months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 and 2015, expenses totaled $30,000 and $35,000, respectively.

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Salary Continuation Plan

The Company maintains a salary continuation plan for certain employees retained through the acquisition of FNB or that were formerly employed by FNB.  At September 30, 2016 and December 31 2015, an obligation of $719,000 and $710,000 was included in other liabilities for this plan in the Consolidated Balance Sheet.  Expenses related to this plan totaled $17,000 for the three months ended September 30, 2016. For the nine months ended September 30, 2016, expenses related to this plan totaled $49,000.

Continuation of Life Insurance Plan

The Company, as part of the acquisition of FNB, has promised a continuation of certain split-dollar life insurance policies that provide coverage to certain persons post-retirement. U.S. generally accepted accounting principles require the recording of post-retirement costs and a liability equal to the present value of the cost of post-retirement insurance during the person's term of service. The estimated present value of future benefits to be paid totaled $574,000 at both September 30, 2016 and December 31, 2015, which is included in other liabilities in the Consolidated Balance Sheet.

Note 9 – Accumulated Comprehensive Income

The following tables present the changes in accumulated other comprehensive income by component net of tax for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2016	$	4,403		$	(2,361	)	$	2,042
Other comprehensive loss before reclassifications (net of tax)		(692	)		-			(692	)
Amounts reclassified from accumulated other
comprehensive income  (net of tax)		-			40			40
Net current period other comprehensive income (loss)		(692	)		40			(652	)
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Nine months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2015	$	2,204		$	(2,440	)	$	(236	)
Other comprehensive income before reclassifications (net of tax)		1,609			-			1,609
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(102	)		119			17
Net current period other comprehensive income		1,507			119			1,626
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Three months ended September 30, 2015
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2015	$	2,430		$	(2,259	)	$	171
Other comprehensive income before reclassifications (net of tax)		722			-			722
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(85	)		34			(51	)
Net current period other comprehensive income		637			34			671
Balance as of September 30, 2015	$	3,067		$	(2,225	)	$	842

23

	Nine months ended September 30, 2015
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2014	$	3,093		$	(2,326	)	$	767
Other comprehensive income before reclassifications (net of tax)		258			-			258
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(284	)		101			(183	)
Net current period other comprehensive income (loss)		(26	)		101			75
Balance as of September 30, 2015	$	3,067		$	(2,225	)	$	842
(a) Amounts in parentheses indicate debits to the Consolidated Balance Sheet

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2016 and 2015 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the  Consolidated Statement of Income
	Three Months Ended September 30,
	2016			2015
Unrealized gains and losses on available for sale securities
	$	-		$	129		Investment securities gains, net
		-			(44	)	Provision for income taxes
	$	-		$	85		Net of tax
Defined benefit pension items
	$	(61	)	$	(51	)	Salaries and employee benefits
		21			17		Provision for income taxes
	$	(40	)	$	(34	)	Net of tax
Total reclassifications	$	(40	)	$	51
	Nine Months Ended September 30,
		2016			2015
Unrealized gains and losses on available for sale securities
	$	155		$	430		Investment securities gains, net
		(53	)		(146	)	Provision for income taxes
	$	102		$	284		Net of tax
Defined benefit pension items
	$	(181	)	$	(153	)	Salaries and employee benefits
		62			52		Provision for income taxes
	$	(119	)	$	(101	)	Net of tax
Total reclassifications	$	(17	)	$	183
(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

Note 10 – Fair Value Measurements

The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

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A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's monthly and/or quarterly valuation process.

Financial Instruments Recorded at Fair Value on a Recurring Basis

The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2016 and December 31, 2015 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2016	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Securities available for sale:
U.S. Agency securities	$	-	$	190,766	$	-	$	190,766
U.S. Treasury securities		5,020		-		-		5,020
Obligations of state and
political subdivisions		-		102,222		-		102,222
Corporate obligations		-		14,376		-		14,376
Mortgage-backed securities in
government sponsored entities		-		34,052		-		34,052
Equity securities in financial institutions		2,718		-		-		2,718
December 31, 2015
Fair value measurements on a recurring basis:
Securities available for sale:
U.S. Agency securities	$	-	$	199,591	$	-	$	199,591
U.S. Treasuries securities		10,082		-		-		10,082
Obligations of state and
political subdivisions		-		102,863		-		102,863
Corporate obligations		-		14,565		-		14,565
Mortgage-backed securities in
government sponsored entities		-		30,204		-		30,204
Equity securities in financial institutions		2,432		-		-		2,432

25

Financial Instruments, Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during 2016 and 2015 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense.

Assets measured at fair value on a nonrecurring basis as of September 30, 2016 and December 31, 2015 are included in the table below (in thousands):

September 30, 2016	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	830	$	830
Other real estate owned		-		-		799		799
December 31, 2015
Impaired Loans	$	-	$	-	$	894	$	894
Other real estate owned		-		-		1,197		1,197

· Impaired Loans - The Company has measured impairment on impaired loans generally based on the fair value of the loan's collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.   Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value.  If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level III measurement.  If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. The fair values above excluded estimated selling costs of $104,000 and $91,000 at September 30, 2016 and December 31, 2015, respectively.

· Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, which is measured at the date foreclosure.  If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement.  In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.  In these cases, the loans are categorized in the above table as Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

26

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

Quantitative Information about Level III Fair Value Measurements
September 30, 2016	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	830	Appraised Collateral Values	Discount to appraised value		0-75	%		40.43	%
				Selling costs		5%-10	%		8.11	%
				Holding period	6 - 12 months			10 months
Other real estate owned		799	Appraised Collateral Values	Discount to appraised value		0-37	%		25.90	%
December 31, 2015	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		894	Appraised Collateral Values	Discount to appraised value		0-70	%		46.50	%
				Selling costs		4%-10	%		7.75	%
				Holding period	0 - 12 months			10 months
Other real estate owned		1,197	Appraised Collateral Values	Discount to appraised value		0-75	%		25	%

The fair values of the Company's financial instruments are as follows (in thousands):

	Carrying
September 30, 2016	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	16,371	$	16,371	$	16,371	$	-	$	-
Interest bearing time deposits with other banks		6,955		6,961		-		-		6,961
Available-for-sale securities		349,154		349,154		7,738		341,416
Loans held for sale		576		576		576
Net loans		743,099		764,383		-		-		764,383
Bank owned life insurance		26,050		26,050		26,050		-		-
Regulatory stock		4,139		4,139		4,139		-		-
Accrued interest receivable		3,988		3,988		3,988		-		-
Financial liabilities:
Deposits	$	1,008,747	$	1,009,877	$	742,676	$	-	$	267,201
Borrowed funds		51,859		50,674		12,740		-		37,934
Accrued interest payable		636		636		636		-		-
	Carrying
December 31, 2015	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	24,384	$	24,384	$	24,384	$	-	$	-
Interest bearing time deposits with other banks		7,696		7,705		-		-		7,705
Available-for-sale securities		359,737		359,737		12,514		347,223		-
Loans held for sale		603		603		603
Net loans		687,925		712,524		-		-		712,524
Bank owned life insurance		25,535		25,535		25,535		-		-
Regulatory stock		3,459		3,459		3,459		-		-
Accrued interest receivable		4,211		4,211		4,211		-		-
Financial liabilities:
Deposits	$	988,031	$	987,542	$	706,121	$	-	$	281,421
Borrowed funds		41,631		38,863		1,598		-		37,265
Accrued interest payable		734		734		734		-

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Fair value is determined based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates.

Fair values have been determined by the Company using historical data, as generally provided in the Company's regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company's fair value estimates, methods and assumptions are set forth below for the Company's other financial instruments.

Cash and Cash Equivalents:

The carrying amounts for cash and cash equivalents approximate fair value because they have original maturities of 90 days or less and do not present unanticipated credit concerns.

Accrued Interest Receivable and Payable:

The carrying amounts for accrued interest receivable and payable approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns.

Interest bearing time deposits with other banks:

The fair value of interest bearing time deposits with other banks is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Available-For-Sale Securities:

The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

Loans held-for-sale:

The carrying amount for loans held for sale approximates fair value as the loans are only held for less than a week from origination.

Loans:

Fair values are estimated for portfolios of loans with similar financial characteristics.  The fair value of performing loans has been estimated by discounting expected future cash flows. The discount rate used in these calculations is derived from the Treasury yield curve adjusted for credit quality, operating expense and prepayment option price, and is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company's historical experience with repayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions.

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Bank Owned Life Insurance:

The carrying value of bank owned life insurance approximates fair value based on applicable redemption provisions.

Regulatory Stock:

The carrying value of regulatory stock approximates fair value based on applicable redemption provisions.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

The deposits' fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Borrowed Funds:

Rates available to the Company for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds.

Note 11 – Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of 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. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards.  To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.  For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company's financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contract with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year.  Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.  The Company is evaluating the effect of adopting this new accounting Update.

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In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805).  The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

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In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity's ordinary activities) in exchange for consideration. The amendments in this update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its  stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance.  The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

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In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company's financial statements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which changes the impairment model for most financial assets. This ASU is intended 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 underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company's statement of cash flows.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

We have made forward-looking statements in this document, and in documents that we incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or expected future results of operations of Citizens Financial Services, Inc., First Citizens Community Bank, First Citizens Insurance Agency, Inc. or the combined Company. When we use words such as "believes," "expects," "anticipates," or similar expressions, we are making forward-looking statements. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements.  The Company cautions readers that the following important factors, among others, could in the future affect the Company's actual results and could cause the Company's actual results for subsequent periods to differ materially from those expressed in any forward-looking statement:

· Interest rates could change more rapidly or more significantly than we expect.

· The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.

· The financial markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.

· It could take us longer than we anticipate to implement strategic initiatives designed to increase revenues or manage expenses, or we may be unable to implement those initiatives at all.

· We may not be able to successfully integrate businesses we acquire or be able to fully realize the expected financial and other benefits from acquisitions.

· Acquisitions and dispositions of assets could affect us in ways that management has not anticipated.

· We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition or operating results.

· We may become subject to new and unanticipated accounting, tax, or regulatory practices or requirements.

· We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition.  We could also experience greater losses than expected due to the ever increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.

· We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge.

· The agricultural economy is subject to extreme swings in both the costs of resources and the prices received from the sale of products, which could negatively impact our customers.

· Delays in passing a budget by the Commonwealth of Pennsylvania could impact our asset values, liquidity and profitability.

· Companies providing support services related to the exploration and drilling of the natural gas reserves in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality. Additionally, the activities of the companies providing support services related to the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas.  As a result, decreases in the market price of natural gas could also negatively impact these companies, our customers.

Additional factors that may affect our results are discussed under "Part II – Item 1A – Risk Factors" in this report and in the Company's 2015 Annual Report on Form 10-K under "Item 1.A/ Risk Factors."  Except as required by applicable law and regulation, we assume no obligation to update or revise any forward-looking statements after the date on which they are made.

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Introduction

The following is management's discussion and analysis of the financial condition and results of operations at the dates and for the periods presented in the accompanying consolidated financial statements for the Company.  Our consolidated financial condition and results of operations consist almost entirely of the Bank's financial condition and results of operations. Management's discussion and analysis should be read in conjunction with the preceding financial statements presented under Part I.  The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results you may expect for the full year.

The Company currently engages in the general business of banking throughout our service area of Potter, Tioga, Clinton and Bradford counties in north central Pennsylvania, Lebanon, Lancaster, Berks and Schuylkill counties in south central Pennsylvania and Allegany county in southern New York. We maintain our central office in Mansfield, Pennsylvania. Presently we operate 27 banking facilities, 25 of which operate as bank branches.  In Pennsylvania, these offices are located in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy, Sayre, Canton, Gillett, Millerton, LeRaysville, Towanda, Rome, the Mansfield Wal-Mart Super Center, Mill Hall, Schuylkill Haven, Friedensburg, Mt. Aetna, Fredericksburg, Mount Joy and three branches near the city of Lebanon, Pennsylvania. In New York, our office is in Wellsville. We have a loan production office in Winfield, Pennsylvania, which primarily serves agricultural customers in the central Pennsylvania market.

Risk Management

Risk identification and management are essential elements for the successful management of the Company.  In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, liquidity, reputational and regulatory risk.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in interest rates.  Interest rate risk results from various re-pricing frequencies and the maturity structure of the financial instruments owned by the Company.  The Company uses its asset/liability and funds management policy to control and manage interest rate risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms.  Credit risk results from loans with customers and the purchasing of securities.  The Company's primary credit risk is in the loan portfolio.  The Company manages credit risk by adhering to an established credit policy and through a disciplined evaluation of the adequacy of the allowance for loan losses.  Also, the investment policy limits the amount of credit risk that may be taken in the investment portfolio.

Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors.  The Company has established guidelines within its asset/liability and funds management policy to manage liquidity risk.  These guidelines include, among other things, contingent funding alternatives.

Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion, could result from our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information. We expend significant resources to comply with regulatory requirements. Failure to comply could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely affect our ability to retain and attract new customers, and adversely impact our earnings and liquidity.

Regulatory risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company.  We cannot predict what legislation might be enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations.

34

Competition

The banking industry in the Bank's service areas continue to be extremely competitive, both among commercial banks and with financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, insurance companies, credit unions, agricultural cooperatives and internet entities.  The increased competition  in the north central Pennsylvania market has resulted from changes in the legal and regulatory guidelines as well as from economic conditions in this market and the limited loan growth opportunities in the north central market and surrounding areas. Due to the larger populations in our central and south central Pennsylvania, competition continues to increase. Mortgage banking firms, financial companies, financial affiliates of industrial companies, brokerage firms, retirement fund management firms and even government agencies provide additional competition for loans and other financial services.  The Bank is generally competitive with all competing financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans.

Trust and Investment Services; Oil and Gas Services

Our Investment and Trust Services Division offers professional trust administration, investment management services, estate planning and administration, and custody of securities.  Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the Consolidated Financial Statements since such items are not assets of the Company.  Revenues and fees of the Trust Department are reflected in trust income in the Consolidated Statement of Income. As of September 30, 2016 and December 31, 2015, the Trust Department had $110.7 million and $110.2 million of assets under management, respectively.

Our Investment Representatives offer full service brokerage services and financial planning throughout the Bank's market area. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc.  The assets associated with these products are not included in the Consolidated Financial Statements since such items are not assets of the Company. Assets owned and invested by customers of the Bank through the Bank's Investment Representatives increased from $119.7 million at December 31, 2015 to $134.4 million at September 30, 2016. Fee income from the sale of these products is reflected in brokerage and insurance income in the Consolidated Statement of Income. Management believes that there are opportunities to increase non-interest income through these products and services, and as such, has added additional resources to support these opportunities.

In addition to the trust and investment services offered we have a mineral management division, which serves as a network of experts to assist our customers through various oil and gas specific leasing matters from lease negotiations to establishing a successful approach to personal wealth management. As of September 30, 2016, customers owning 5,955 acres have signed agreements with the Bank that provide for the Bank to manage oil and gas matters related to the customers land, which may include negotiating lease payments and royalty percentages, resolving leasing issues, accounting for and ensuring the accuracy of royalty checks, distributing revenue to satisfy investment objectives and providing customized reports outlining payment and distribution information.

Results of Operations

Overview of the Income Statement

The Company had net income of $9,467,000 for the first nine months of 2016 compared to $9,166,000 for last year's comparable period, an increase of $301,000. Basic earnings per share for the first nine months of 2016 were $2.83, compared to $3.00 last year, representing a 5.7% decrease.  Annualized return on assets and return on equity for the nine months of 2016 were 1.06% and 10.28%, respectively, compared with 1.31% and 11.93% for last year's comparable period.

Net income for the three months ended September 30, 2016 was $3,153,000 compared to $2,857,000 in the comparable 2015 period, an increase of $296,000 or 10.4%. Basic earnings per share for the three months ended September 30, 2016 and 2015 were $0.94. Annualized return on assets and return on equity for the quarter ended September 30, 2016 was 1.06% and 10.17%, respectively, compared with 1.21% and 11.00% for the same 2015 period.

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Net Interest Income

Net interest income, the most significant component of the Company's earnings, is the amount by which interest income generated from interest-earning assets exceeds interest expense on interest-bearing liabilities.

Net interest income for the first nine months of 2016 was $28,088,000, an increase of $5,295,000, or 23.2%, compared to the same period in 2015.  For the first nine months of 2016, the provision for loan losses totaled $770,000, an increase of $410,000 over the comparable period in 2015.  Consequently, net interest income after the provision for loan losses was $27,318,000 compared to $22,433,000 during the first nine months of 2015.

For the three months ended September 30, 2016, net interest income was $9,712,000 compared to $7,645,000, an increase of $2,067,000, or 27.0% over the comparable period in 2015. The provision for loan losses this quarter was $500,000 compared to $120,000 for last year's third quarter.  Consequently, net interest income after the provision for loan losses was $9,212,000 for the quarter ended September 30, 2016 compared to $7,525,000 in 2015.

The following table sets forth the average balances of, and the interest earned or incurred on, for each principal category of assets, liabilities and stockholders' equity, the related rates, net interest income and interest rate spread created for the nine months and three months ended September 30, 2016 and 2015 on a tax equivalent basis (dollars in thousands):

36

	Analysis of Average Balances and Interest Rates (1)
	Nine Months Ended
	September 30, 2016							September 30, 2015
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Short-term investments:
Interest-bearing deposits at banks		27,765		81		0.39			12,469		14		0.15
Total short-term investments		27,765		81		0.39			12,469		14		0.15
Interest bearing time deposits at banks		7,326		105		1.91			6,037		89		1.97
Investment securities:
Taxable		259,172		3,004		1.55			199,122		2,485		1.66
Tax-exempt (3)		100,594		3,423		4.54			98,291		3,633		4.93
Total investment securities		359,766		6,427		2.38			297,413		6,118		2.74
Loans:
Residential mortgage loans		203,387		8,038		5.28			182,662		7,559		5.53
Construction		12,304		471		5.11			7,433		285		5.12
Commercial & agricultural loans		380,190		15,004		5.27			285,134		11,195		5.25
Loans to state & political subdivisions		102,583		3,250		4.23			83,901		2,800		4.46
Other loans		11,075		682		8.23			8,143		487		8.00
Loans, net of discount (2)(3)(4)		709,539		27,445		5.17			567,273		22,326		5.26
Total interest-earning assets		1,104,396		34,058		4.12			883,192		28,547		4.32
Cash and due from banks		7,431							3,922
Bank premises and equipment		17,249							12,581
Other assets		57,653							35,840
Total non-interest earning assets		82,333							52,343
Total assets		1,186,729							935,535
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		301,885		687		0.30			229,886		604		0.35
Savings accounts		173,108		139		0.11			114,682		105		0.12
Money market accounts		118,252		392		0.44			97,830		352		0.48
Certificates of deposit		273,007		1,976		0.97			249,516		2,027		1.09
Total interest-bearing deposits		866,252		3,194		0.49			691,914		3,088		0.60
Other borrowed funds		39,801		554		1.86			34,000		521		2.05
Total interest-bearing liabilities		906,053		3,748		0.55			725,914		3,609		0.66
Demand deposits		145,663							98,929
Other liabilities		12,258							8,285
Total non-interest-bearing liabilities		157,921							107,214
Stockholders' equity		122,755							102,407
Total liabilities & stockholders' equity		1,186,729							935,535
Net interest income				30,310							24,938
Net interest spread (5)						3.57	%						3.66	%
Net interest income as a percentage
of average interest-earning assets						3.67	%						3.78	%
Ratio of interest-earning assets
to interest-bearing liabilities						122	%						122	%
(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
a statutory federal income tax rate of 34%.
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.

37

	Analysis of Average Balances and Interest Rates (1)
	Three Months Ended
	September 30, 2016							September 30, 2015
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Short-term investments:
Interest-bearing deposits at banks		17,864		16		0.36			8,804		3		0.14
Total short-term investments		17,864		16		0.36			8,804		3		0.14
Interest bearing time deposits at banks		6,956		34		1.92			6,188		30		1.98
Investment securities:
Taxable		244,044		961		1.58			200,888		833		1.66
Tax-exempt (3)		100,255		1,110		4.43			95,077		1,135		4.78
Total investment securities		344,299		2,071		2.41			295,965		1,968		2.66
Loans:
Residential mortgage loans		204,522		2,702		5.26			180,370		2,502		5.50
Construction		14,396		185		5.11			9,636		124		5.12
Commercial & farm loans		398,318		5,377		5.37			293,613		3,818		5.16
Loans to state & political subdivisions		100,359		1,048		4.16			85,565		948		4.39
Other loans		11,021		233		8.41			8,192		165		7.98
Loans, net of discount (2)(3)(4)		728,616		9,545		5.21			577,376		7,557		5.19
Total interest-earning assets		1,097,735		11,666		4.23			888,333		9,558		4.27
Cash and due from banks		7,587							3,901
Bank premises and equipment		17,220							12,585
Other assets		65,369							42,133
Total non-interest earning assets		90,176							58,619
Total assets		1,187,911							946,952
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		299,091		219		0.29			227,487		197		0.34
Savings accounts		171,064		46		0.11			118,514		37		0.12
Money market accounts		125,718		136		0.43			104,433		133		0.51
Certificates of deposit		267,235		647		0.96			248,828		677		1.08
Total interest-bearing deposits		863,108		1,048		0.48			699,262		1,044		0.59
Other borrowed funds		40,397		188		1.85			34,782		174		1.98
Total interest-bearing liabilities		903,505		1,236		0.54			734,044		1,218		0.66
Demand deposits		148,563							101,743
Other liabilities		11,803							7,248
Total non-interest-bearing liabilities		160,366							108,991
Stockholders' equity		124,040							103,917
Total liabilities & stockholders' equity		1,187,911							946,952
Net interest income				10,430							8,340
Net interest spread (5)						3.69	%						3.61	%
Net interest income as a percentage
of average interest-earning assets						3.78	%						3.73	%
Ratio of interest-earning assets
to interest-bearing liabilities						121	%						121	%
(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
a statutory federal income tax rate of 34%.
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.

38

Tax exempt revenue is shown on a tax-equivalent basis for proper comparison using a statutory, federal income tax rate of 34%.  For purposes of the comparison, as well as the discussion that follows, this presentation facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Company's 34% Federal statutory rate.  The following table represents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the periods ended September 30, 2016 and 2015 (in thousands):

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2016		2015		2016		2015
Interest and dividend income from investment securities
and interest bearing deposits at banks (non-tax adjusted)	$	1,744	$	1,615	$	5,449	$	4,986
Tax equivalent adjustment		377		386		1,164		1,235
Interest and dividend income from investment securities
and interest bearing deposits at banks (tax equivalent basis)	$	2,121	$	2,001	$	6,613	$	6,221
Interest and fees on loans (non-tax adjusted)	$	9,204	$	7,248	$	26,387	$	21,416
Tax equivalent adjustment		341		309		1,058		910
Interest and fees on loans (tax equivalent basis)	$	9,545	$	7,557	$	27,445	$	22,326
Total interest income	$	10,948	$	8,863	$	31,836	$	26,402
Total interest expense		1,236		1,218		3,748		3,609
Net interest income		9,712		7,645		28,088		22,793
Total tax equivalent adjustment		718		695		2,222		2,145
Net interest income (tax equivalent basis)	$	10,430	$	8,340	$	30,310	$	24,938

The following table shows the tax-equivalent effect of changes in volume and rate on interest income and expense (in thousands):

	Three months ended September 30, 2016 vs. 2015 (1)								Nine months ended September 30, 2016 vs. 2015 (1)
	Change in		Change			Total			Change in		Change			Total
	Volume		in Rate			Change			Volume		in Rate			Change
Interest Income:
Short-term investments:
Interest-bearing deposits at banks	$	5	$	8		$	13		$	29	$	38		$	67
Interest bearing time deposits at banks		5		(1	)		4			18		(2	)		16
Investment securities:
Taxable		167		(39	)		128			680		(161	)		519
Tax-exempt		75		(100	)		(25	)		88		(298	)		(210	)
Total investments		242		(139	)		103			768		(459	)		309
Loans:
Residential mortgage loans		305		(105	)		200			799		(320	)		479
Construction		61		-			61			186		-			186
Commercial & agricultural loans		1,397		162			1,559			3,762		47			3,809
Loans to state & political subdivisions		148		(48	)		100			585		(135	)		450
Other loans		59		9			68			180		15			195
Total loans, net of discount		1,970		18			1,988			5,512		(393	)		5,119
Total Interest Income		2,222		(114	)		2,108			6,327		(816	)		5,511
Interest Expense:
Interest-bearing deposits:
NOW accounts		43		(21	)		22			145		(62	)		83
Savings accounts		13		(4	)		9			45		(11	)		34
Money Market accounts		12		(9	)		3			64		(24	)		40
Certificates of deposit		60		(90	)		(30	)		321		(372	)		(51	)
Total interest-bearing deposits		128		(124	)		4			575		(469	)		106
Other borrowed funds		24		(10	)		14			71		(38	)		33
Total interest expense		152		(134	)		18			646		(507	)		139
Net interest income	$	2,070	$	20		$	2,090		$	5,681	$	(309	)	$	5,372
(1) The portion of the total change attributable to both volume and rate changes, which cannot be separated, has been allocated proportionally to the change due to volume and the change due to rate prior to allocation.

39

Tax equivalent net interest income increased from $24,938,000 for the nine month period ended September 30, 2015 to $30,310,000 for the nine month period ended September 30, 2016, an increase of $5,372,000. The tax equivalent net interest margin decreased from 3.78% for the first nine months of 2015 to 3.67% for the comparable period in 2016.

Total tax equivalent interest income for the 2016 nine month period increased $5,511,000 as compared to the 2015 nine month period. This increase was primarily a result of an increase of $6,327,000 due to a change in volume as interest bearing assets increased $221.2 million. This increase was offset by a decrease of $816,000 as a result of a decrease in the average yield on interest earning assets of 20 basis points from 4.32% to 4.12% for the comparable periods. The Bank was able to add a significant amount of interest earning assets as a result the acquisition of FNB; however, these assets are priced at lower rates. In addition to the acquisition of FNB, the Company was able to grow loans in its historical markets during 2015 and 2016 and has experienced loan demand in its central and south central Pennsylvania markets in 2016, which contributed to the volume increase experienced in interest earning assets.

Tax equivalent investment income for the nine months ended September 30, 2016 increased $309,000 over the same period last year. The primary cause of the increase was an increase in the average outstanding balance of taxable securities.

· The average balance of taxable securities increased by $60.1 million which resulted in an increase in investment income of $680,000. The increase in the average balance of taxable securities was due to the acquisition of FNB and purchases made to utilize some of the excess liquidity acquired as part of the acquisition. The yield on taxable securities decreased 11 basis points from 1.66% to 1.55% as a result of purchases made in this low rate environment, which included securities acquired as part of the FNB acquisition.

· The yield on tax-exempt securities decreased 39 basis points from 4.93% to 4.54%, which corresponds to a decrease in interest income of $298,000. The yield decrease was due to the amount of purchases we made in the current low interest rate environment. For a discussion of the Company's current investment strategy, see the "Financial Condition – Investments". Offsetting this decrease in yield, the average balance of tax-exempt securities increased $2.3 million resulting in an increase in investment income of $88,000.

The purchase of tax-exempt securities, along with municipal loans and investment tax credits, allows us to manage and reduce our effective tax rate as well as increase the overall after-tax yield on our interest earning assets.

Total loan interest income increased $5,119,000 for the nine months ended September 30, 2016 compared to the same period last year, primarily as a result of the acquisition of FNB and loan growth that occurred in 2015 and 2016 in our historical markets and the new central and south central Pennsylvania markets.

· The average balance of commercial and agricultural loans increased $95.1 million from a year ago. This had a positive impact of $3,762,000 on total interest income due to volume. In addition, there was a $47,000 increase due to rate, as the yield earned increased from 5.25% to 5.27%.

· The average balance of state and political subdivision loans increased $18.7 million from a year ago as a result of the FNB acquisition. This had a positive impact of $585,000 on total interest income due to volume. Offsetting this increase, the yield decreased 23 basis points to 4.23%, which decreased loan interest income $135,000.

· Interest income on residential mortgage loans increased $479,000. The average balance of residential loans increased $20.7 million from a year ago due to the FNB acquisition, which resulted in an increase in loan interest income of $799,000. Offsetting the increase, the yield earned on residential loans decreased 25 basis points compared to 2015, which corresponds to a decrease in interest income of $320,000.

40

Total interest expense increased $139,000 for the nine months ended September 30, 2016 compared with last year primarily as a result of an increase in deposits associated with the acquisition of FNB. Interest expense increased $646,000 as a result of volume as the average balance of interest bearing liabilities increased $180.1 million. Offsetting this increase was a decrease of $507,000 due to rate as a result of a decrease in the average rate paid from 0.66% to 0.55%. The low interest rate environment prompted by the Federal Reserve had the effect of decreasing our rates paid on certificates of deposit. While the Company's rates on deposit products are below its historical averages, we believe they are competitive with rates paid by other institutions in the marketplace.

· The average balance of interest bearing deposits increased $174.3 million from September 30, 2015 to September 30, 2016. Increases were experienced in NOW accounts of $72.0 million, savings accounts of $58.4 million, money market accounts of $20.4 million and certificates of deposit of $23.5 million. The cumulative effect of these increases was an increase in interest expense of $575,000, which was primarily driven by the FNB acquisition. (see also "Financial Condition – Deposits").

· There was a decrease in the average rate on certificates of deposit from 1.09% to 0.97% resulting in a decrease in interest expense of $372,000.

Tax equivalent net interest income for the three months ended September 30, 2016 was $10,430,000 which compares to $8,340,000 for the same period last year.  This represents an increase of $2,090,000 or 25.1%. The tax equivalent net interest margin increased from 3.73% for the three months ended September 30, 2015 to 3.78% for the comparable period in 2016 as a result of non-accrual loan pay-off that resulted in the collection of additional interest income.

Total tax equivalent interest income was $11,666,000 for the three month period ended September 30, 2016, compared to $9,558,000 for the comparable period last year, an increase of $2,108,000. This primary driver of this increase was an increase of $2,222,000 due to a change in volume as interest bearing assets increased $209.4 million as a result of the FNB acquisition and loan growth in all the Bank's market areas in 2016. This increase was offset by a decrease of $114,000 as a result of a decrease in the average yield on interest earning assets of 4 basis points from 4.27% to 4.23% for the comparable periods.

·      Total investment income increased by $103,000 compared to same period last year.  The primary cause of the increase was an increase of $43.2 million in the average outstanding balance of taxable securities, which equates to an increase of $167,000. Offsetting this increase, there was a 35 point decrease in rate on tax exempt investments from 4.78% to 4.43%, which equates to a $100,000 decrease in income.

·      Total loan interest income increased $1,988,000 compared to the same period last year. This was primarily due to an increase in volume of $151.2 million, which corresponds to a $1,970,000 increase in interest income.

Total interest expense increased $18,000 for the three months ended September 30, 2016 compared with last year as a result of the increase in the average balance of interest bearing liabilities of $169.5 million, accounting for a $152,000 increase in interest expense. The average rate on interest-bearing liabilities decreased 12 basis points from 0.66% to 0.54%, which reduced interest expense $134,000.

Provision for Loan Losses

For the nine month period ending September 30, 2016, we recorded a provision for loan losses of $770,000, which represents an increase of $410,000 from the $360,000 provision recorded in the corresponding nine months of last year. The provision was higher in 2016 than 2015 due to the loan growth that occurred in 2016, which was primarily in the third quarter and an increase in past due loans, special mention loans and substandard loans. (see "Financial Condition – Allowance for Loan Losses and Credit Quality Risk").

For the three months ending September 30, 2016, we recorded a provision of $500,000 compared to $120,000 in 2015 as a result of the loan growth and increase in special mention and substandard loans.

41

Non-interest Income

The following table shows the breakdown of non-interest income for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine months ended September 30,				Change
	2016		2015		Amount			%
Service charges	$	3,345	$	3,058	$	287			9.4
Trust		539		523		16			3.1
Brokerage and insurance		578		563		15			2.7
Gains on loans sold		225		183		42			23.0
Investment securities gains, net		155		430		(275	)		(64.0	)
Earnings on bank owned life insurance		515		464		51			11.0
Other		450		327		123			37.6
Total	$	5,807	$	5,548	$	259			4.7
	Three months ended September 30,				Change
		2016		2015	Amount			%
Service charges	$	1,115	$	1,054	$	61			5.8
Trust		161		149		12			8.1
Brokerage and insurance		211		181		30			16.6
Gains on loans sold		109		85		24			28.2
Investment securities gains, net		-		129		(129	)		(100.0	)
Earnings on bank owned life insurance		174		158		16			10.1
Other		138		109		29			26.6
Total	$	1,908	$	1,865	$	43			2.3

Non-interest income for the nine months ended September 30, 2016 totaled $5,807,000, an increase of $259,000 when compared to the same period in 2015. During the first nine months of 2016, net investment securities gains amounted to $155,000 compared to gains of $430,000 last year. We sold two US treasury securities and one agency security for gains totaling $27,000 and $48,000, respectively, as a result of interest rates at the time of the sale. We also sold four municipal securities for gains totaling $80,000. In 2015, we sold five agency securities for gains totaling $196,000, five mortgage backed securities in government sponsored entities for gains totaling $70,000, seven municipal bonds for gains totaling $99,000, a financial institution equity holding for a gain of $76,000 and a US Treasury note for a loss of $11,000 due to interest rate market conditions.

For the first nine months of 2016, account service charges totaled $3,345,000, an increase of $287,000 or 9.4%, when compared to the same period in 2015. The increase was associated with a $44,000 increase attributable to fees charged to customers for non-sufficient funds, a $219,000 increase in interchange revenue and a $24,000 increase in ATM income. Each of these increases was primarily attributable to the acquisition of FNB. The increase in earnings on bank owned life insurance of $52,000 is due to additional insurance obtained as part of the FNB acquisition. The increase in other income is attributable to the acquisition and includes increases in safe deposit rents and loan servicing fees.

For the three month period ended September 30, 2016, the changes experienced from the prior year related to service charges, earnings on bank owned life insurance and other income correspond to the changes experienced for the nine month period, which was the result of the acquisition.

42

Non-interest Expense

The following tables reflect the breakdown of non-interest expense for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine months ended
	September 30,					Change
	2016			2015		Amount			%
Salaries and employee benefits	$	12,067		$	9,118	$	2,949			32.3
Occupancy		1,385			1,064		321			30.2
Furniture and equipment		492			323		169			52.3
Professional fees		836			614		222			36.2
FDIC insurance		492			348		144			41.4
Pennsylvania shares tax		630			602		28			4.7
Amortization of intangibles		246			-		246		NA
Merger and acquisition		-			405		(405	)		(100.0	)
ORE expenses		234			686		(452	)		(65.9	)
Other		5,031			3,455		1,576			45.6
Total	$	21,413		$	16,615	$	4,798			28.9
	Three months ended
	September 30,					Change
		2016			2015	Amount			%
Salaries and employee benefits	$	4,285		$	3,069	$	1,216			39.6
Occupancy		485			347		138			39.8
Furniture and equipment		164			108		56			51.9
Professional fees		283			202		81			40.1
FDIC insurance		175			116		59			50.9
Pennsylvania shares tax		240			201		39			19.4
Amortization of intangibles		82			-		82		NA
Merger and acquisition		-			282		(282	)	NA
ORE expenses (recovery)		(71	)		328		(399	)		(121.6	)
Other		1,557			1,199		358			29.9
Total	$	7,200		$	5,852	$	1,348			23.0

Non-interest expenses increased $4,798,000 for the nine months ended September 30, 2016 compared to the same period in 2015, with the primary driver being the acquisition of FNB, which resulted in the Bank acquiring seven new branches and the associated employee base. Additionally, we have hired nine additional commercial and agricultural loan officers, as well as support staff in our south central and central Pennsylvania markets. Salaries and employee benefits increased $2,949,000 or 32.3%. Merit increases effective at the beginning of 2016 and an increase in full time equivalent employees of 58.5 as a result of the acquisition and the hiring of the additional lenders and support staff accounted for an increase in salaries and employee benefits of approximately $2,242,000. Health insurance related expenses increased $413,000 as a result of covering additional employees obtained as part of the acquisition. Retirement and profit sharing plan expenses, which include pension plans, profit sharing, SERP and salary continuation plans increased $239,000 in 2016 compared to the 2015 nine month period.

The primary cause of the increases in occupancy and furniture and fixtures is due to the acquisition of FNB. The increase in other expenses was driven primarily by three items.

· The first was a general expense increase due to the acquisition of FNB and its seven branches.

· The second was an increase in contributions of $100,000 made as part of the Pennsylvania Educational Improvement Tax Credit Program. The contribution was to be made in the fourth quarter of 2015, but due to the Pennsylvania budget impasse, the contribution was delayed until the first quarter of 2016.

· The final increase of $300,000 was associated with charges as a result of customers' accounts being compromised and experiencing fraudulent charges.

43

The increase in professional fees is associated with legal fees as the Company looked to exit certain contracts and has closed a branch in 2016 and consulting fees associated with system upgrades, which include the issuances of new debit cards in the third quarter of 2016. The new cards include additional security features, which we anticipate will reduce our fraudulent card experience. The decrease in merger and acquisition expense is due to the acquisition that occurred in 2015 with no corresponding activity in 2016. The decrease in ORE expenses is the result of a non-accrual loan paying off in the third quarter of 2016, which resulted in the reimbursement of $240,000 of previously paid real estate taxes and legal fees. Additionally, in 2015, there were two large OREO write-downs in the third that totaled $262,000.

For the three months ended, September 30, 2016, non-interest expenses increased $1,348,000 when compared to the same period in 2015. The increases for the quarter are consistent with the increases for the nine month period and are primarily driven by the acquisition of FNB.

Provision for Income Taxes

The provision for income taxes was $2,245,000 for the nine month period ended September 30, 2016 compared to $2,200,000 for the same period in 2015.  The increase is attributable to the increase in income before the provision for income taxes. Through management of our municipal loan and bond portfolios, management is focused on minimizing our effective tax rate.  Our effective tax rate was 19.2% and 19.4% for the first nine months of 2016 and 2015, respectively, compared to the statutory rate of 34%.

For the three months ended September 30, 2016, the provision for income taxes was $767,000 compared to $681,000 for the same period in 2015. The increase is attributable to the increase in income before the provision for income taxes of $382,000. Our effective tax rate was 19.6% and 19.3% for the three months ended September 30, 2016 and 2015, respectively, compared to the statutory rate of 34%.

We are invested in four limited partnership agreements that have established low-income housing projects in our market areas. We anticipate recognizing an aggregate of $895,000 of tax credits over the next 6.3 years, with an additional $49,000 anticipated to be recognized during 2016.

Financial Condition

Total assets were $1.198 billion at September 30, 2016, an increase of $34.7 million, or 3.0%, from $1.163 billion at December 31, 2015.  Cash and cash equivalents decreased $8.0 million to $16.4 million, which occurred in the third quarter of 2016 as a result of loan growth. Investment securities decreased $10.6 million and net loans increased to $55.2 million to $743.1 million at September 30, 2016.  Total deposits increased $20.7 million to $1.009 billion since year-end 2015, while borrowed funds increased $10.2 million to $51.9 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled $16.4 million at September 30, 2016 compared to $24.4 million at December 31, 2015, a decrease of $8.0 million, which was used to fund loan growth.Management actively measures and evaluates its liquidity position through our Asset–Liability Committee and believes its liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources including the Bank's core deposits, Federal Home Loan Bank financing, federal funds lines with correspondent banks, brokered certificates of deposit and the portion of the investment and loan portfolios that mature within one year.  Management expects that these sources of funds will permit us to meet cash obligations and off-balance sheet commitments as they come due.

44

Investments

The following table shows the composition of the investment portfolio as of September 30, 2016 and December 31, 2015 (dollars in thousands):

	September 30, 2016				December 31, 2015
	Amount		%		Amount		%
Available-for-sale:
U. S. Agency securities	$	190,766		54.6	$	199,591		55.5
U. S. Treasury notes		5,020		1.4		10,082		2.8
Obligations of state & political
subdivisions		102,222		29.3		102,863		28.6
Corporate obligations		14,376		4.1		14,565		4.0
Mortgage-backed securities in
government sponsored entities		34,052		9.8		30,204		8.4
Equity securities in financial
institutions		2,718		0.8		2,432		0.7
Total	$	349,154		100.0	$	359,737		100.0

	September 30, 2016/
	December 31, 2015
	Change
	Amount			%
Available-for-sale:
U. S. Agency securities	$	(8,825	)		(4.4	)
U. S. Treasury notes		(5,062	)		(50.2	)
Obligations of state & political
subdivisions		(641	)		(0.6	)
Corporate obligations		(189	)		(1.3	)
Mortgage-backed securities in
government sponsored entities		3,848			12.7
Equity securities in financial
institutions		286			11.8
Total	$	(10,583	)		(2.9	)

Our investment portfolio decreased by $10.6 million, or 2.9%, from December 31, 2015 to September 30, 2016. This was primarily due the loan growth that was experienced in the third quarter as we used the cash proceeds from principal, maturities and calls to fund the loan demand. During 2016, we purchased approximately $23.6 million of U.S. agency obligations, $9.8 million of state and local obligations, a $3.0 million corporate subordinated debt and $8.1 million of the mortgage backed securities in government sponsored entities, which helped offset the $4.4 million of principal repayments and $39.4 million of calls and maturities that occurred during the nine month period. We also sold $12.1 million of various securities at a gain of $155,000. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve for liquidity purposes, our investment portfolio for the nine month period ended September 30, 2016 yielded 2.38%, compared to 2.74% in the comparable period in 2015 on a tax equivalent basis.

With the additional liquidity obtained as part of the acquisition of FNB, and volatility in the interest rate market, purchases in 2016 have focused on cash flow and purchasing securities that fill positions in the Company's investment cashflow ladder for the next four years. We continually monitor interest rate trading ranges and try to focus purchases to times when rates are in the top third of the trading range. Our primary focus in investments continues to be to purchase agency securities with maturities of less than five years and high quality municipal bonds with high coupons. The Bank believes its investment strategy has appropriately mitigated its interest rate risk exposure in the event of rising interest rates while providing sufficient cashflows to fund loan growth expected as a result of the acquisition and other lending growth initiatives.

45

Management continues to monitor the earnings performance and the liquidity of the investment portfolio on a regular basis.  Through active balance sheet management and analysis of the securities portfolio, the Company believes it maintains sufficient liquidity to satisfy depositor requirements and various credit needs of its customers.

Loans

The following table shows the composition of the loan portfolio as of September 30, 2016 and December 31, 2015 (dollars in thousands):

	September 30,				December 31,
	2016				2015
	Amount		%		Amount		%
Real estate:
Residential	$	205,092		27.3	$	203,407		29.3
Commercial		251,149		33.4		237,542		34.2
Agricultural		88,555		11.8		57,822		8.3
Construction		18,774		2.5		15,011		2.2
Consumer		11,226		1.5		11,543		1.7
Other commercial and agricultural loans		78,258		10.4		71,206		10.2
State & political subdivision loans		98,239		13.1		98,500		14.1
Total loans		751,293		100.0		695,031		100.0
Less allowance for loan losses		8,194				7,106
Net loans	$	743,099			$	687,925

	September 30, 2016/
	December 31, 2015
	Change
	Amount			%
Real estate:
Residential	$	1,685			0.8
Commercial		13,607			5.7
Agricultural		30,733			53.2
Construction		3,763			25.1
Consumer		(317	)		(2.7	)
Other commercial and agricultural loans		7,052			9.9
State & political subdivision loans		(261	)		(0.3	)
Total loans	$	56,262			8.1

The Bank's lending efforts have historically focused on north central Pennsylvania and southern New York. With the acquisition of FNB, this focus now includes opportunities in the Lebanon, Lancaster, Schuylkill and Berks County markets of south central, Pennsylvania. In addition, in 2016, we opened an office in Winfield, Pennsylvania, that focuses on agricultural customers in central Pennsylvania. We also opened an office in Mount Joy, Pennsylvania to better serve our Lancaster County customers. We originate loans primarily through direct loans to our existing customer base, with new customers generated through the strong relationships our new lending teams have with their customers, as well as by referrals from real estate brokers, building contractors, attorneys, accountants, corporate and advisory board members, existing customers and the Bank's website.  The Bank offers a variety of loans although historically most of our lending has focused on real estate loans including residential, commercial, agricultural, and construction loans.  All lending is governed by a lending policy that is developed and administered by management and approved by the Board of Directors.

During the first nine months of 2016, the primary driver of growth in the loan portfolio was in commercial and agricultural and was primarily driven by the agricultural team hired for the Winfield location in central Pennsylvania and the agricultural lenders hired for our south central Pennsylvania market. We look at commercial relationships as a way to grow our loan portfolio and obtain deposits from farmers, small businesses and municipalities throughout our market area. The addition of the central and south central Pennsylvania agricultural teams has resulted in an increase in demand for agricultural loans that was recorded in the third quarter and we expect further growth in the fourth quarter of 2016. Commercial loan demand is subject to significant competitive pressures, the yield curve, and the strength of the overall national, regional and local economies.

46

Activity associated with exploration for natural gas remains limited in 2016 due to the low price of natural gas produced in our area. While the Bank has loaned to companies that service the exploration activities, the Bank has not originated any loans to companies performing the actual drilling and exploration activities. Loans made by the Company are to service industry customers which include trucking companies, stone quarries and other support businesses. We also have originated loans to businesses and individuals for restaurants, hotels and apartment rentals that have been developed and expanded to meet the housing and living needs of the gas workers. Due to our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities have been originated in accordance with specific policies and procedures for lending to these entities, which include lower loan to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity.

Residential real estate loans increased $1.7 million during the first nine months of 2016. Loan demand for conforming mortgages, which the Company typically sells on the secondary market has increased in 2016 when compared to 2015, some of which is attributable to the acquisition of FNB. For loans sold on the secondary market, the Company recognizes fee income for servicing these sold loans, which is included in non-interest income.  Management continues to build technologies which make it easier and more efficient for customers to choose the Company for their mortgage needs.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level which in management's judgment is adequate to absorb probable future loan losses inherent in the loan portfolio.  The provision for loan losses is charged against current income.  Loans deemed not collectable are charged-off against the allowance while subsequent recoveries increase the allowance.  The following table presents an analysis of the allowance for loan losses and non-performing loans and assets as of and for the nine months ended September 30, 2016 and for the years ended December 31, 2015, 2014, 2013 and 2012 (dollars in thousands):

	September 30,			December 31,
	2016			2015			2014			2013			2012
Balance at beginning of period	$	7,106		$	6,815		$	7,098		$	6,784		$	6,487
Charge-offs:
Real estate:
Residential		52			66			97			17			95
Commercial		100			84			516			62			2
Consumer		65			47			47			54			54
Other commercial and agricultural loans		55			41			250			1			21
Total loans charged-off		272			238			910			134			172
Recoveries:
Real estate:
Residential		-			-			-			5			-
Commercial		475			14			15			5			9
Consumer		84			33			27			33			33
Other commercial and agricultural loans		31			2			-			-			7
Total loans recovered		590			49			42			43			49
Net loans (recovered) charged-off		(318	)		189			868			91			123
Provision charged to expense		770			480			585			405			420
Balance at end of year	$	8,194		$	7,106		$	6,815		$	7,098		$	6,784
Loans outstanding at end of period	$	751,293		$	695,031		$	554,105		$	540,612		$	502,463
Average loans outstanding, net	$	709,539		$	577,992		$	540,541		$	516,748		$	496,822
Non-performing assets:
Non-accruing loans	$	10,031		$	6,531		$	6,599		$	8,097		$	8,067
Accrual loans - 90 days or more past due		541			623			836			697			506
Total non-performing loans	$	10,572		$	7,154		$	7,435		$	8,794		$	8,573
Foreclosed assets held for sale		1,198			1,354			1,792			1,360			616
Total non-performing assets	$	11,770		$	8,508		$	9,227		$	10,154		$	9,189
Annualized net charge-offs (recovery) to average loans		(0.06	%)		0.03	%		0.16	%		0.02	%		0.02	%
Allowance to total loans		1.09	%		1.02	%		1.23	%		1.31	%		1.35	%
Allowance to total non-performing loans		77.51	%		99.33	%		91.66	%		80.71	%		79.13	%
Non-performing loans as a percent of loans
net of unearned income		1.41	%		1.03	%		1.34	%		1.63	%		1.71	%
Non-performing assets as a percent of loans
net of unearned income		1.57	%		1.22	%		1.67	%		1.88	%		1.83	%

47

Management believes it uses the best information available when estimating the allowance for loan losses and that the allowance for loan losses is adequate as of September 30, 2016.  However, future adjustments could be required if circumstances differ substantially from assumptions and estimates used in making the initial determination.  A prolonged downturn in the economy, high unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, loan loss provisions and reduction in income. Additionally, bank regulatory agencies periodically examine the Bank's allowance for loan losses.  The banking agencies could require the recognition of additions to the allowance for loan losses based upon their judgment of information available to them at the time of their examination.

On a monthly basis, problem loans are identified and updated primarily using internally prepared past due reports.  Based on data surrounding the collection process of each identified loan, the loan may be added or deleted from the monthly watch list.  The watch list includes loans graded special mention, substandard, doubtful, and loss, as well as additional loans that management may choose to include.  Watch list loans are continually monitored going forward until satisfactory conditions exist that allow management to upgrade and remove the loan.  In certain cases, loans may be placed on non-accrual status or charged-off based upon management's evaluation of the borrower's ability to pay.  All commercial loans, which include commercial real estate, agricultural real estate, state and political subdivision loans and other commercial and agricultural loans, on non-accrual are evaluated quarterly for impairment.

The allowance for loan losses was $8,194,000 or 1.09% of total loans as of September 30, 2016 as compared to $7,106,000 or 1.02% of loans as of December 31, 2015. The decrease as a percent of loans compared to year end 2014, 2013 and 2012 is attributable to the increase in loans as part of the acquisition of FNB and the associated purchase accounting adjustments that were applied to the FNB loan portfolio.  The $1,088,000 increase in the allowance during 2016 is a result of a $770,000 provision for the first nine months of 2016 and net recoveries of loans previously charged off of $318,000. In the third quarter of 2016, a loan paid off that included a partial charge off of $463,000, which is the reason for the net recoveries in 2016. The following table shows the distribution of the allowance for loan losses and the percentage of loans compared to total loans by loan category as of September 30, 2016 and December 31, 2015, 2014, 2013 and 2012 (dollars in thousands):

	September 30,				December 31
	2016				2015				2014				2013				2012
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Real estate loans:
Residential	$	1,013		27.3	$	905		29.3	$	878		33.5	$	946		34.6	$	875		35.4
Commercial, agricultural		4,606		45.2		3,785		42.5		3,870		38.9		4,558		39.8		4,437		38.8
Construction		34		2.5		24		2.2		26		1.1		50		1.7		38		2.4
Consumer		109		1.5		102		1.7		84		1.5		105		1.7		119		2.1
Other commercial and agricultural loans		1,642		10.4		1,305		10.2		1,224		10.6		942		10.0		728		9.5
State & political subdivision loans		771		13.1		593		14.1		545		14.4		330		12.2		271		11.8
Unallocated		19		N/A		392		N/A		188		N/A		167		N/A		316		N/A
Total allowance for loan losses	$	8,194		100.0	$	7,106		100.0	$	6,815		100.0	$	7,098		100.0	$	6,784		100.0

48

As a result of previous loss experiences and other risk factors utilized in determining the allowance, the Bank's allocation of the allowance does not directly correspond to the actual balances of the loan portfolio. While commercial and agricultural real estate total 45.2% of the loan portfolio, 56.2% of the allowance is assigned to this segment of the loan portfolio as these loans have more inherent risks than residential real estate or loans to state and political subdivisions.

The following table identifies amounts of loans contractually past due 30 to 89 days and non-performing loans by loan category, as well as the change from December 31, 2015 to September 30, 2016 in non-performing loans(dollars in thousands). Non-performing loans include accruing loans that are contractually past due 90 days or more and non-accrual loans. Interest does not accrue on non-accrual loans.  Subsequent cash payments received are applied to the outstanding principal balance or recorded as interest income, depending upon management's assessment of its ultimate ability to collect principal and interest.

	September 30, 2016								December 31, 2015
			Non-Performing Loans								Non-Performing Loans
	30 - 89 Days								30 - 89 Days
	Past Due		90 Days Past		Non-		Total Non-		Past Due		90 Days Past		Non-		Total Non-
(in thousands)	Accruing		Due Accruing		accrual		Performing		Accruing		Due Accruing		accrual		Performing
Real estate:
Residential	$	1,223	$	190	$	1,773	$	1,963	$	1,273	$	394	$	1,008	$	1,402
Commercial		2,229		259		4,056		4,315		859		60		4,422		4,482
Agricultural		2,592		58		26		84		344		-		34		34
Construction		-		-		-		-		-		-		-		-
Consumer		166		34		42		76		262		9		55		64
Other commercial and
agricultural loans		1,625		-		4,134		4,134		319		160		1,012		1,172
Total nonperforming loans	$	7,835	$	541	$	10,031	$	10,572	$	3,057	$	623	$	6,531	$	7,154

	Change in Non-Performing Loans
	September 30, 2016 /December 31, 2015
(in thousands)	Amount			%
Real estate:
Residential	$	561			40.0
Commercial		(167	)		(3.7	)
Agricultural		50			147.1
Construction		-			N/A
Consumer		12			18.8
Other commercial and
agricultural loans		2,962			252.7
Total nonperforming loans	$	3,418			47.8

For the nine month period ended September 30, 2016, we recorded a provision for loan losses of $770,000, which compares to $360,000 for the same time period in 2015. Non-performing loans increased $3.4 million or 47.8%, from December 31, 2015 to September 30, 2016, primarily due to one commercial relationship with a balance of $3.7 million that was placed on non-accrual status in the second quarter of 2016. Approximately 68.1% of the Bank's non-performing loans at September 30, 2016 are associated with the following three customer relationships:

· A commercial customer with a total loan relationship of $3.7 million secured by undeveloped land, stone quarries and equipment was on non-accrual status as of September 30, 2016. The slowdown in the exploration for natural gas has significantly impacted the cash flows of the customer, who provides excavation services and stone for pad construction related to these activities. Management reviewed the collateral information on hand and determined that no specific reserve was required as of September 30, 2016.

49

· A commercial customer with a total loan relationship of $3.0 million secured by approximately 160 residential properties was on non-accrual status as of September 30, 2016. In the first quarter of 2011, the Company and borrower entered into a forbearance agreement to restructure the debt. In July of 2013, the customer filed for bankruptcy under Chapter 11 and a Trustee was appointed in January of 2014. In 2015, the Trustee decreased the loan payments below what was agreed to in the forbearance agreement. This decrease is currently being litigated in bankruptcy court. As a result of the decrease, the relationship has become more than 90 days past due. In the second quarter of 2016, the Company began the process of appraising the underlying collateral. As of September 30, 2016, all the appraisals have been received. The appraisals indicated a slight decrease in collateral values compared to the appraisals ordered for the loan origination, however, the loan is still considered well secured on a loan to value basis. We continue to monitor the bankruptcy proceedings to identify potential changes in the customer's operations and the impact these would have on the loan payments for our loans to the customer and the underlying collateral that supports these loans. As of September 30, 2016, there is no specific reserve for this relationship.

· A commercial customer with a relationship of approximately $420,000 secured by vacant real estate and accounts receivable was on non-accrual status as of September 30, 2016. The slowdown in the exploration for natural gas has significantly impacted the cash flows of the customer, who provided trucking services related to these activities. Management reviewed the collateral and determined that a specific reserve of $197,000 was required as of September 30, 2016.

Management of the Bank believes that the allowance for loan losses is adequate as of September 30, 2016, which is based on the following factors:

· Two loan relationships comprise 64.1% of the non-performing loan balance, whose debt is considered well collateralized as of September 30, 2016.

· Net and gross charge-offs returned to their low historical rate of .03% in 2015. Furthermore in 2016, we have experienced a net recovery of previously charged off loans.

· Real estate values in the Bank's primary market areas have only decreased slightly with the decrease in the market price for natural gas.

Bank Owned Life Insurance

The Company holds bank owned life insurance policies to offset future employee benefit costs. These policies provide the Bank with an asset that generates earnings to partially offset the current costs of benefits, and eventually (at the death of the insureds) provide partial recovery of cash outflows associated with the benefits.  As of September 30, 2016 and December 31, 2015, the cash surrender value of the life insurance was $26.1 million and $25.5 million, respectively.  The change in cash surrender value, net of purchases and amounts acquired through acquisitions, is recognized in the results of operations.  The amounts recorded as non-interest income totaled $515,000 and $464,000 for the nine month periods ended September 30, 2016 and 2015, respectively. The Company evaluates annually the risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers' credit ratings.

The Company agreements that were purchased directly from insurance companies are structured so that any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy.  Under these agreements, the employee's beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds.  The net amount at risk is the total death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of the acquisition of FNB provide a fixed split-dollar benefit for the beneficiaries estate, which is dependent on several factors including whether the covered individual was a Director of FNB or an employee of FNB and their salary level.

50

Premises and Equipment

Premises and equipment decreased $120,000 to $17.1 million as of September 30, 2016 from December 31, 2015. This occurred primarily as a result of normal depreciation expense recorded in the first nine months of 2016.

Deposits

The following table shows the composition of deposits as of September 30, 2016 and December 31, 2015 (dollars in thousands):

	September 30,				December 31,
	2016				2015
	Amount		%		Amount		%
Non-interest-bearing deposits	$	149,848		14.9	$	150,960		15.3
NOW accounts		298,965		29.6		279,655		28.3
Savings deposits		170,377		16.9		170,277		17.2
Money market deposit accounts		123,486		12.2		105,229		10.7
Certificates of deposit		266,071		26.4		281,910		28.5
Total	$	1,008,747		100.0	$	988,031		100.0

	September 30, 2016/
	December 31, 2015
	Change
	Amount			%
Non-interest-bearing deposits	$	(1,112	)		(0.7	)
NOW accounts		19,310			6.9
Savings deposits		100			0.1
Money market deposit accounts		18,257			17.3
Certificates of deposit		(15,839	)		(5.6	)
Total	$	20,716			2.1

Deposits increased $20.7 million since December 31, 2015. The largest driver of this increase was due to deposits from local municipalities, as they increased across various product types. This growth was driven by the Pennsylvania budget impasse for 2015 being resolved during the first quarter of 2016, which resulted in funds flowing to local school district and municipalities from the Commonwealth. Certificates of deposits decreased $15.8 million in 2016. During 2016 the Company continued to pay historically low rates on certificates of deposits which are less attractive to the Company's customers. The rates paid on certificates of deposit by the Company remain competitive with rates paid by our competition. Certain customers who typically utilize certificate of deposits as a means of generating income or as a longer term investment option, are moving funds into money market that still paid interest in order to maintain flexibility for potentially rising interest rates. As of September 30, 2016, the Bank did not have any outstanding brokered certificates of deposit.

Borrowed Funds

      Borrowed funds increased $10.2 million during the first nine months of 2016. The increase was the result of an additional $11.1 million of overnight advances from the FHLB that were utilized to fund the Company's loan growth. Additionally, there was a decrease of approximately $917,000 in the balances outstanding under repurchase agreements. The Bank's current strategy for borrowings is to consider terms and structures to manage interest rate risk and liquidity in a potential rising interest rate environment. The Company's daily cash requirements or short-term investments are primarily met by using the financial instruments available through the Federal Home Loan Bank of Pittsburgh.

51

In December 2003, the Company formed a special purpose entity, Citizens Financial Statutory Trust I ("the Entity"), to issue $7,500,000 of floating rate obligated mandatory redeemable securities as part of a pooled offering.  The rate is determined quarterly based on the 3 month LIBOR, plus 2.80%.  The Entity may redeem the securities, in whole or in part, at face value at any time.  The Company borrowed the proceeds of the issuance from the Entity in December 2003 in the form of a $7,500,000 note payable, which is included within "Borrowed Funds" in the liabilities section of the Company's balance sheet. Under current accounting rules, the Company's minority interest in the Entity was recorded at the initial investment amount and is included in the other assets section of the balance sheet.  The Entity is not consolidated as part of the Company's Consolidated Financial Statements.

Stockholders' Equity

We evaluate stockholders' equity in relation to total assets and the risks associated with those assets.  The greater the capital resource, the more likely a corporation will meet its cash obligations and absorb unforeseen losses.  For these reasons, capital adequacy has been, and will continue to be, of paramount importance. As such, the Company has implemented policies and procedures to ensure that it has adequate capital levels. As part of this process, we routinely stress test our capital levels and identify potential risk and alternative sources of additional capital should the need arise.

Total stockholders' equity was $125.6 million at September 30, 2016 compared to $119.8 million at December 31, 2015, an increase of $5.8 million or 4.8%.  Excluding accumulated other comprehensive income stockholders' equity increased $4.2 million, or 3.5%. The Company purchased 35,603 shares of treasury stock at a weighted average cost of $48.09 per share. The Company reissued 1,608 shares as part of the dividend reinvestment program at a weighted average cost of $47.40 per share, 3,650 shares as part of the restricted stock program at a weighted average cost of $47.84 per share and 1,016 shares as part of an incentive program at a weighted average cost of $47.65 per share. The Company reissued 372 shares as service awards for Company employees, at a weighted average cost of $47.95 per share. The Company reissued 5,522 shares through the employee stock ownership plan, at a weighted average cost of $47.82. Finally, 500 shares of treasury stock were reissued to members of executive management as additional compensation during 2016 at a weighted average of $48.00 per share. In the first nine months of 2016, the Company had net income of $9.5 million and declared cash dividends of $4.2 million, or $1.25 per share, representing a cash dividend payout ratio of 44.2%. We also issued a one percent stock dividend to the Company's shareholders, which had a market value of $1.6 million at its issuance.

All of the Company's investment securities are classified as available-for-sale, making this portion of the Company's balance sheet more sensitive to the changing market value of investments. As a result of changes in the interest rate environment, accumulated other comprehensive income associated with the change in investment securities increased $1.6 million from December 31, 2015.

The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can 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, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company and Bank's assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements, and regulatory capital standards. The Company and Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios  of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), common equity Tier 1 capital (as defined) to total risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2016 and December 31, 2015, that the Company and Bank meet all capital adequacy requirements to which they are subject.

As of September 30, 2016 and December 31, 2015, the Company and Bank are categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based capital, Tier 1 risk-based capital, common equity Tier 1 risk-based capital, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.

52

The Company and Bank's computed risk‑based capital ratios are as follows (dollars in thousands):

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
September 30, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets):
Company	$	119,918		15.72	%	$	61,031		8.00	%	$	76,289		10.00	%
Bank	$	114,734		15.09	%	$	60,840		8.00	%	$	76,050		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company	$	111,526		14.62	%	$	45,773		6.00	%	$	61,031		8.00	%
Bank	$	106,343		13.98	%	$	45,630		6.00	%	$	60,840		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company	$	104,026		13.64	%	$	34,330		4.50	%	$	49,588		6.50	%
Bank	$	106,343		13.98	%	$	34,223		4.50	%	$	49,433		6.50	%
Tier 1 Capital (to Average Assets):
Company	$	111,526		9.55	%	$	46,714		4.00	%	$	58,393		5.00	%
Bank	$	106,343		9.12	%	$	46,621		4.00	%	$	58,276		5.00	%

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2015	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets):
Company	$	114,886		16.23	%	$	56,630		8.00	%	$	70,787		10.00	%
Bank	$	108,232		15.34	%	$	56,443		8.00	%	$	70,554		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company	$	107,612		15.20	%	$	42,472		6.00	%	$	56,630		8.00	%
Bank	$	100,958		14.31	%	$	42,332		6.00	%	$	56,443		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company	$	100,112		14.14	%	$	31,854		4.50	%	$	46,012		6.50	%
Bank	$	100,958		14.31	%	$	31,749		4.50	%	$	45,860		6.50	%
Tier 1 Capital (to Average Assets):
Company	$	107,612		11.01	%	$	39,083		4.00	%	$	48,854		5.00	%
Bank	$	100,958		10.35	%	$	39,006		4.00	%	$	48,757		5.00	%

53

Off-Balance Sheet Activities

Some financial instruments, such as loan commitments, credit lines, and letters of credit, are issued to meet customer financing needs.  The contractual amount of financial instruments with off-balance sheet risk was as follows at September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016		December 31, 2015
Commitments to extend credit	$	181,087	$	143,134
Standby letters of credit		14,099		13,751
	$	195,186	$	156,885

We also offer limited overdraft protection as a non-contractual courtesy which is available to demand deposit accounts in good standing. Overdraft charges as a result of ATM withdrawals and one time point of sale (non-recurring) transactions require prior approval of the customer. The non-contractual amount of financial instruments with off-balance sheet risk at September 30, 2016 and December 31, 2015 was $9,102,000 and $12,485,000, respectively. The Company reserves the right to discontinue this service without prior notice.

Liquidity

Liquidity is a measure of the Company's ability to efficiently meet normal cash flow requirements of both borrowers and depositors.  To maintain proper liquidity, we use funds management policies, which include liquidity target ratios, along with our investment policies to assure we can meet our financial obligations to depositors, credit customers and stockholders.  Liquidity is needed to meet depositors' withdrawal demands, extend credit to meet borrowers' needs, provide funds for normal operating expenses and cash dividends, and to fund other capital expenditures.

Cash generated by operating activities, investing activities and financing activities influences liquidity management. Our Company's historical activity in this area can be seen in the Consolidated Statement of Cash Flows.  The most important source of funds is core deposits.  Repayment of principal on outstanding loans and cash flows created from the investment portfolio are also factors in liquidity management.  Other sources of funding include brokered certificates of deposit and the sale of loans or investments, if needed.

The Company's use of funds is shown in the investing activity section of the Consolidated Statement of Cash Flows, where the net loan activity is presented.  Other significant uses of funds include purchasing stock from the Federal Home Loan Bank (FHLB) of Pittsburgh, as well as capital expenditures.  Capital expenditures (including software purchases), during the first nine months of 2016 were $500,000 compared to $633,000 during the same time period in 2015.

Short-term debt from the FHLB supplements the Bank's availability of funds.  The Bank achieves liquidity primarily from temporary or short‑term investments in the Federal Reserve and the FHLB.  The Bank has a maximum borrowing capacity at the FHLB of approximately $321.6 million, of which $29.3 million was outstanding at September 30, 2016. Additionally, we have a Federal funds line totaling $10.0 million from a third party bank at market rates.  This line is not drawn upon. We also have a borrower in custody line with the Federal Reserve Bank of approximately $4.5 million, which also is not drawn upon as of September 30, 2016. The Company continues to evaluate its liquidity needs and as necessary finds additional sources.

Citizens Financial Services, Inc. is a separate legal entity from the Bank and must provide for its own liquidity.  In addition to its operating expenses, Citizens Financial is responsible for paying any dividends declared to its shareholders.  Citizens Financial also has repurchased shares of its common stock.  Citizens Financial's primary source of income is dividends received from the Bank.  Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. In particular, the Bank may not, as a state-chartered bank which is a member of the Federal Reserve System, declare a dividend without approval of the Federal Reserve, unless the dividend to be declared by the Bank's Board of Directors does not exceed the total of:  (i) the Bank's net profits for the current year to date, plus (ii) its retained net profits for the preceding two current years, less any required transfers to surplus.  The Federal Reserve Board and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions.  The Prompt Corrective Action Rules, described above, further limit the ability of banks to pay dividends, because banks which are not classified as well capitalized or adequately capitalized may not pay dividends and no dividend may be paid which would make the Bank undercapitalized after the dividend.  At September 30, 2016, Citizens Financial Services, Inc. on an unconsolidated basis) had liquid assets of $3.6 million.

54

Interest Rate and Market Risk Management

      The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances and the market value risk of assets and liabilities.

      Because of the nature of our operations, we are not subject to foreign currency exchange or commodity price risk and, because we have no trading portfolio, we are not subject to trading risk. Currently, the Company has equity securities that represent only 0.8% of its investment portfolio and, therefore, equity risk is not significant.

The primary components of interest-sensitive assets include adjustable-rate loans and investments, loan repayments, investment maturities and money market investments.  The primary components of interest-sensitive liabilities include maturing certificates of deposit, IRA certificates of deposit and short-term borrowings.  Savings deposits, NOW accounts and money market investor accounts are considered core deposits and are not short-term interest sensitive (except for the top-tier money market investor accounts, typically help by local governments, which are paid current market interest rates).

      Gap analysis, one of the methods used by us to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on our Company's net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures.  In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels.  We have not experienced the kind of earnings volatility that might be indicated from gap analysis.

The Company currently uses a computer simulation model to better measure the impact of interest rate changes on net interest income. We use the model as part of our risk management and asset liability management processes that we believe will effectively identify, measure, and monitor the Company's risk exposure.  In this analysis, the Company examines the results of movements in interest rates with additional assumptions made concerning prepayment speeds on mortgage loans and mortgage securities.   Shock scenarios, which assume a parallel shift in interest rates and is instantaneous, typically have the greatest impact on net interest income. The following is a rate shock analysis and the impact on net interest income as of September 30, 2016 (dollars in thousands):

			Change In			% Change In
	Prospective One-Year		Prospective			Prospective
Changes in Rates	Net Interest Income		Net Interest Income			Net Interest Income
-100 Shock	$	36,642	$	(777	)		(2.08	)
Base		37,419		-			-
+100 Shock		36,804		(615	)		(1.64	)
+200 Shock		36,248		(1,171	)		(3.13	)
+300 Shock		35,575		(1,844	)		(4.93	)
+400 Shock		34,711		(2,708	)		(7.24	)

The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage backed securities, call activity of other investment securities, and deposit selection, re-pricing and maturity structure.  Because of these assumptions, actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change on net interest income. Additionally, the changes above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. It should be noted that the changes in net interest income noted above are in line with Company policy for interest rate risk.

Item 3-Quantitative and Qualitative Disclosure about Market Risk

     In the normal course of conducting business activities, the Company is exposed to market risk, principally interest rate risk, through the operations of its banking subsidiary.  Interest rate risk arises from market driven fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments and was discussed previously in this Form 10-Q.  Management and a committee of the Board of Directors manage interest rate risk (see also "Interest Rate and Market Risk Management").

55

Item 4-Control and Procedures

(a) Disclosure Controls and Procedures

     The Company's management, including the Company's principal executive officer and principal financial officer, have evaluated the effectiveness of the Company's "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the "Exchange Act").  Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes to Internal Control over Financial Reporting

     There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonable likely to materially affect, the Company's internal control over financial reporting.

PART II ‑ OTHER INFORMATION

Item 1 ‑ Legal Proceedings

      Management is not aware of any pending or threatened litigation that would have a material adverse effect on the consolidated financial position of the Company.  Any pending proceedings are ordinary, routine litigation incidental to the business of the Company and its subsidiary.  In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company and its subsidiary by government authorities.

Item 1A – Risk Factors

      In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1.A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect our business, financial condition or future results. At September 30, 2016 the risk factors of the Company have not changed materially from those reported in our Annual Report on Form 10-K.  However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares (or units Purchased)		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans of Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
7/1/16 to 7/31/16		-	$	0.00		-		142,622
8/1/16 to 8/31/16		4,389	$	49.42		4,389		138,233
9/1/16 to 9/30/16		300	$	48.50		300		137,933
Total		4,689	$	49.36		4,689		137,933

56

(1) On October 20, 2015, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 150,000 shares.  The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors.  No time limit was placed on the duration of the share repurchase program.  Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

Item 3 ‑ Defaults Upon Senior Securities

Not applicable.

Item 4 – Mine Safety Disclosure

Not applicable.

Item 5 ‑ Other Information

None

Item 6 ‑ Exhibits

(a)  The following documents are filed as a part of this report:

3.1	Articles of Incorporation of Citizens Financial Services, Inc., as amended (1)
3.2	Bylaws of Citizens Financial Services, Inc.(2)
4.1	Form of Common Stock Certificate.(3)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101 **	The following materials from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet (unaudited), (ii) the Consolidated Statement of Income (unaudited), (iii) the Consolidated Statement of Comprehensive Income (unaudited), (iv) the Consolidated Statement of Cash Flows (unaudited) and (v) related notes (unaudited).

⁽¹⁾ Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as filed with the Commission on May 12, 2010.

⁽²⁾Incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, as filed with the Commission on December 24, 2009.

⁽³⁾Incorporated by reference to Exhibit 4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as filed with the Commission on March 14, 2006.

** Furnished, not filed.

57

     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.

	Citizens Financial Services, Inc. (Registrant)
November 9, 2016	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

November 9, 2016	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Accounting Officer)

58

59

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, Randall E. Black, certify that:

1.    I have reviewed this Form 10-Q of Citizens Financial Services, Inc.;

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(s) 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(s) 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.

November 9, 2016	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Mickey L. Jones, certify that:

1.    I have reviewed this Form 10-Q of Citizens Financial Services, Inc.;

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(s) 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(s) 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.

November 9, 2016	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

Section 1350 Certification

of Chief Executive Officer and

Chief Financial Officer

In connection with the Quarterly Report of Citizens Financial Services, Inc. (the "Company") on Form 10-Q (the "Report") for the period ending September 30, 2016 as filed with the Securities and Exchange Commission, the undersigned certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, 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 Company as of the dates and for the periods covered in the Report.

November 9, 2016	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

November 9, 2016	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Accounting Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 25, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	CITIZENS FINANCIAL SERVICES INC
Entity Central Index Key	0000739421
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		3,349,841
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Cash and due from banks:
Noninterest-bearing	$ 15,459	$ 14,088
Interest-bearing	912	10,296
Total cash and cash equivalents	16,371	24,384
Interest bearing time deposits with other banks	6,955	7,696
Available-for-sale securities	349,154	359,737
Loans held for sale	576	603
Loans (net of allowance for loan losses: 2016, $8,194 and 2015, $7,106)	743,099	687,925
Premises and equipment	17,143	17,263
Accrued interest receivable	3,988	4,211
Goodwill	21,089	21,089
Bank owned life insurance	26,050	25,535
Other intangibles	2,059	2,437
Other assets	11,170	12,104
TOTAL ASSETS	1,197,654	1,162,984
Deposits:
Noninterest-bearing	149,848	150,960
Interest-bearing	858,899	837,071
Total deposits	1,008,747	988,031
Borrowed funds	51,859	41,631
Accrued interest payable	636	734
Other liabilities	10,862	12,828
TOTAL LIABILITIES	1,072,104	1,043,224
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 par value; authorized 3,000,000 shares September 30, 2016 and December 31, 2015; none issued in 2016 or 2015	0	0
Common stock $1.00 par value; authorized 15,000,000 shares; issued 3,704,375 at September 30, 2016 and 3,671,751 at December 31, 2015	3,704	3,672
Additional paid-in capital	42,241	40,715
Retained earnings	89,501	85,790
Accumulated other comprehensive income (loss)	1,390	(236)
Treasury stock, at cost: 358,811 shares at September 30, 2016 and 335,876 shares at December 31, 2015	(11,286)	(10,181)
TOTAL STOCKHOLDERS' EQUITY	125,550	119,760
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,197,654	$ 1,162,984

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS:
Loans, allowance for loan losses	$ 8,194	$ 7,106
STOCKHOLDERS' EQUITY:
Preferred Stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred Stock, authorized (in shares)	3,000,000	3,000,000
Preferred Stock, issued (in shares)	0	0
Common Stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common Stock, authorized (in shares)	15,000,000	15,000,000
Common Stock, issued (in shares)	3,704,375	3,671,751
Treasury stock, shares (in shares)	358,811	335,876

XML

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
INTEREST INCOME:
Interest and fees on loans	$ 9,204	$ 7,248	$ 26,387	$ 21,416
Interest-bearing deposits with banks	50	33	185	103
Investment securities:
Taxable	897	798	2,800	2,317
Nontaxable	733	749	2,259	2,398
Dividends	64	35	205	168
TOTAL INTEREST INCOME	10,948	8,863	31,836	26,402
INTEREST EXPENSE:
Deposits	1,048	1,044	3,194	3,088
Borrowed funds	188	174	554	521
TOTAL INTEREST EXPENSE	1,236	1,218	3,748	3,609
NET INTEREST INCOME	9,712	7,645	28,088	22,793
Provision for loan losses	500	120	770	360
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	9,212	7,525	27,318	22,433
NON-INTEREST INCOME:
Service charges	1,115	1,054	3,345	3,058
Trust	161	149	539	523
Brokerage and insurance	211	181	578	563
Gains on loans sold	109	85	225	183
Investment securities gains, net	0	129	155	430
Earnings on bank owned life insurance	174	158	515	464
Other	138	109	450	327
TOTAL NON-INTEREST INCOME	1,908	1,865	5,807	5,548
NON-INTEREST EXPENSES:
Salaries and employee benefits	4,285	3,069	12,067	9,118
Occupancy	485	347	1,385	1,064
Furniture and equipment	164	108	492	323
Professional fees	283	202	836	614
FDIC insurance	175	116	492	348
Pennsylvania shares tax	240	201	630	602
Amortization of intangibles	82	0	246	0
Merger and acquisition	0	282	0	405
ORE expenses (recovery)	(71)	328	234	686
Other	1,557	1,199	5,031	3,455
TOTAL NON-INTEREST EXPENSES	7,200	5,852	21,413	16,615
Income before provision for income taxes	3,920	3,538	11,712	11,366
Provision for income taxes	767	681	2,245	2,200
NET INCOME	$ 3,153	$ 2,857	$ 9,467	$ 9,166
PER COMMON SHARE DATA:
Net Income - Basic (in dollars per share)	$ 0.94	$ 0.94	$ 2.83	$ 3.00
Net Income - Diluted (in dollars per share)	0.94	0.94	2.83	3.00
Cash Dividends Paid (in dollars per share)	$ 0.421	$ 0.503	$ 1.250	$ 1.304
Number of shares used in computation - basic (in shares)	3,339,962	3,044,311	3,346,623	3,051,826
Number of shares used in computation - diluted (in shares)	3,341,656	3,045,775	3,348,321	3,053,294

XML

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 3,153	$ 2,857	$ 9,467	$ 9,166
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities	(1,049)	1,094	2,439	390
Income tax effect	357	(372)	(830)	(132)
Change in unrecognized pension cost	61	51	181	153
Income tax effect	(21)	(17)	(62)	(52)
Less: Reclassification adjustment for investment security gains included in net income	0	(129)	(155)	(430)
Income tax effect	0	44	53	146
Other comprehensive income (loss), net of tax	(652)	671	1,626	75
Comprehensive income	$ 2,501	$ 3,528	$ 11,093	$ 9,241

XML

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 9,467	$ 9,166
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	770	360
Provision for off-balance sheet items	30	0
Depreciation and amortization	265	370
Amortization and accretion of investment securities	1,750	1,521
Deferred income taxes	141	(39)
Investment securities gains, net	(155)	(430)
Earnings on bank owned life insurance	(515)	(464)
Originations of loans held for sale	(15,698)	(13,510)
Proceeds from sales of loans held for sale	15,950	12,942
Realized gains on loans sold	(225)	(183)
Decrease in accrued interest receivable	223	78
Decrease in accrued interest payable	(98)	(63)
Other, net	(1,137)	(842)
Net cash provided by operating activities	10,768	8,906
Available-for-sale securities:
Proceeds from sales	12,077	18,393
Proceeds from maturity and principal repayments	43,759	39,472
Purchase of securities	(44,567)	(58,667)
Purchase of interest bearing time deposits with other banks	0	(500)
Proceeds from matured interest bearing time deposits with other banks	744	0
Proceeds from redemption of regulatory stock	459	2,150
Purchase of regulatory stock	(1,138)	(2,097)
Net increase in loans	(55,846)	(29,148)
Purchase of premises and equipment	(500)	(633)
Proceeds from sale of foreclosed assets held for sale	900	340
Net cash used in investing activities	(44,112)	(30,690)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	20,716	23,915
Proceeds from long-term borrowings	541	5,288
Repayments of long-term borrowings	(534)	(700)
Net increase (decrease) in short-term borrowed funds	10,221	(1,730)
Purchase of treasury and restricted stock	(1,713)	(2,315)
Dividends paid	(3,900)	(3,783)
Net cash provided by financing activities	25,331	20,675
Net decrease in cash and cash equivalents	(8,013)	(1,109)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	24,384	11,423
CASH AND CASH EQUIVALENTS AT END OF PERIOD	16,371	10,314
Supplemental Disclosures of Cash Flow Information:
Interest paid	3,846	3,672
Income taxes paid	1,700	2,425
Loans transferred to foreclosed property	633	241
Investments sold and not settled	$ 0	$ 5,187

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Basis of Presentation

9 Months Ended

Sep. 30, 2016

Basis of Presentation [Abstract]

Basis of Presentation

Note 1 - Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the "Company") is a Pennsylvania corporation organized as the holding company of its wholly owned subsidiary, First Citizens Community Bank (the "Bank"), and the Bank's wholly owned subsidiary, First Citizens Insurance Agency, Inc. ("First Citizens Insurance"). On December 11, 2015, the Company completed its acquisition of The First National Bank of Fredericksburg (FNB) by merging FNB into the Bank.

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission ("SEC") and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders' equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim financial statements at September 30, 2016 and for the periods ended September 30, 2016 and 2015 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. The financial performance reported for the Company for the nine month period ended September 30, 2016 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

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Earnings per Share

9 Months Ended

Sep. 30, 2016

Earnings per Share [Abstract]

Earnings per Share

Note 2 - Earnings per Share

The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.

	Three months ended				Nine months ended
	September 30,				September 30,
	2016		2015		2016		2015
Net income applicable to common stock	$	3,153,000	$	2,857,000	$	9,467,000	$	9,166,000
Basic earnings per share computation
Weighted average common shares outstanding		3,339,962		3,044,311		3,346,623		3,051,826
Earnings per share - basic	$	0.94	$	0.94	$	2.83	$	3.00
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,339,962		3,044,311		3,346,623		3,051,826
Add: Dilutive effects of restricted stock		1,694		1,464		1,698		1,468
Weighted average common shares outstanding for dilutive earnings per share		3,341,656		3,045,775		3,348,321		3,053,294
Earnings per share - diluted	$	0.94	$	0.94	$	2.83	$	3.00

For the three months ended September 30, 2016 and 2015, there were 3,804 and 2,696 shares, respectively, related to the restricted stock plan that were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $46.69-$53.15 for the three month period ended September 30, 2016 and per share prices ranging from $44.50-$53.15 for the three month period ended September 30, 2015. For the nine months ended September 30, 2016 and 2015, 3,804 and 2,696 shares, respectively, related to the restricted stock plan were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $46.69-$53.15 for the nine month period ended September 30, 2016 and per share prices ranging from $44.50-$53.15 for the nine month period ended September 30, 2015.

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Income Tax Expense

9 Months Ended

Sep. 30, 2016

Income Tax Expense [Abstract]

Income Tax Expense

Note 3 - Income Tax Expense

Income tax expense is less than the amount calculated using the statutory tax rate, primarily as a result of tax-exempt income earned from state and municipal securities and loans and investments in affordable housing tax credits.

Investments in Qualified Affordable Housing Projects

As of September 30, 2016 and December 31, 2015, the Company was invested in four partnerships that provide affordable housing. The balance of the investments, which is included within other assets in the Consolidated Balance Sheet, was $765,000 and $959,000 as of September 30, 2016 and December 31, 2015, respectively. Investments purchased prior to January 1, 2015, are accounted for utilizing the effective yield method. As of September 30, 2016, the Company had $895,000 of tax credits remaining that will be recognized over 6.25 years. Tax credits of $50,000 were recognized as a reduction of tax expense during the three months ended September 30, 2016 and 2015. Tax credits of $149,000 were recognized as a reduction of tax expense during the nine months ended September 30, 2016 and 2015.

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Investments

9 Months Ended

Sep. 30, 2016

Investments [Abstract]

Investments

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2016 and December 31, 2015 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2016	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	188,936	$	1,839	$	(9	)	$	190,766
U.S. treasury securities		5,013		7		-			5,020
Obligations of state and
political subdivisions		99,557		2,702		(37	)		102,222
Corporate obligations		14,359		17		-			14,376
Mortgage-backed securities in
government sponsored entities		33,665		420		(33	)		34,052
Equity securities in financial
institutions		2,002		716		-			2,718
Total available-for-sale securities	$	343,532	$	5,701	$	(79	)	$	349,154
December 31, 2015
Available-for-sale securities:
U.S. agency securities	$	199,749	$	369	$	(527	)	$	199,591
U.S. treasury securities		10,103		-		(21	)		10,082
Obligations of state and
political subdivisions		99,856		3,080		(73	)		102,863
Corporate obligations		14,583		68		(86	)		14,565
Mortgage-backed securities in
government sponsored entities		30,107		186		(89	)		30,204
Equity securities in financial institutions		2,001		436		(5	)		2,432
Total available-for-sale securities	$	356,399	$	4,139	$	(801	)	$	359,737

The following table shows the Company's gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015 (in thousands). As of September 30, 2016, the Company owned 24 securities whose fair value was less than their cost basis.

September 30, 2016	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	6,998	$	(9	)	$	-	$	-		$	6,998	$	(9	)
Obligations of state and
political subdivisions		9,244		(37	)		-		-			9,244		(37	)
Mortgage-backed securities in
government sponsored entities		3,568		(18	)		1,855		(15	)		5,423		(33	)
Total securities	$	19,810	$	(64	)	$	1,855	$	(15	)	$	21,665	$	(79	)
December 31, 2015
U.S. agency securities	$	123,591	$	(527	)	$	-	$	-		$	123,591	$	(527	)
U.S. treasury securities		10,082		(21	)		-		-			10,082		(21	)
Obligations of states and
political subdivisions		7,023		(57	)		2,914		(16	)		9,937		(73	)
Corporate obligations		5,822		(61	)		2,138		(25	)		7,960		(86	)
Mortgage-backed securities in
government sponsored entities		9,830		(77	)		227		(12	)		10,057		(89	)
Equity securities in financial institutions		106		(5	)		-		-			106		(5	)
Total securities	$	156,454	$	(748	)	$	5,279	$	(53	)	$	161,733	$	(801	)

As of September 30, 2016, the Company's investment securities portfolio contained unrealized losses on agency securities issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, obligations of states and political subdivisions and mortgage backed securities issued by government sponsored entities. For fixed maturity investments management considers whether the present value of cash flows expected to be collected are less than the security's amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company's intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of the security's amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. For equity securities where the fair value has been significantly below cost for one year, the Company's policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other than temporary and a recovery period can be predicted.  The Company has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and is the result of interest rate changes, sector credit rating changes, or issuer-specific rating changes that are not expected to result in the non-collection of principal and interest during the period.

Proceeds from sales of securities available-for-sale for the nine months ended September 30, 2016 and 2015 were $12,077,000 and $18,393,000, respectively. There were no sales of available for sale securities during the three months ended September 30, 2016.  For the three months ended September 30, 2015 there were sales of $5,187,000 of available-for-sale securities. The gross gains and losses were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Gross gains	$	-	$	129	$	155	$	441
Gross losses		-		-		-		(11	)
Net gains	$	-	$	129	$	155	$	430

Investment securities with an approximate carrying value of $224.9 million and $203.8 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public funds and certain other deposits.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.   The amortized cost and fair value of debt securities at September 30, 2016, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	49,510	$	49,724
Due after one year through five years		173,075		175,690
Due after five years through ten years		41,247		42,129
Due after ten years		77,698		78,893
Total	$	341,530	$	346,436

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Loans

9 Months Ended

Sep. 30, 2016

Loans [Abstract]

Loans

Note 5 – Loans

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York.  Although the Company had a diversified loan portfolio at September 30, 2016 and December 31, 2015, a substantial portion of its debtors' ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	205,092	$	969	$	35	$	204,088
Commercial and agricultural		339,704		5,567		2,748		331,389
Construction		18,774		-		-		18,774
Consumer		11,226		-		4		11,222
Other commercial and agricultural loans		78,258		5,428		778		72,052
State and political subdivision loans		98,239		-		-		98,239
Total		751,293		11,964		3,565		735,764
Allowance for loan losses		8,194		482		-		7,712
Net loans	$	743,099	$	11,482	$	3,565	$	728,052
December 31, 2015
Real estate loans:
Residential	$	203,407	$	304	$	35	$	203,068
Commercial and agricultural		295,364		6,235		2,908		286,221
Construction		15,011		-		-		15,011
Consumer		11,543		-		9		11,534
Other commercial and agricultural loans		71,206		5,745		866		64,595
State and political subdivision loans		98,500		-		-		98,500
Total		695,031		12,284		3,818		678,929
Allowance for loan losses		7,106		355		-		6,751
Net loans	$	687,925	$	11,929	$	3,818	$	672,178

Purchased loans acquired in the FNB acquisition were recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

Upon acquisition, the Company evaluated whether an acquired loan was within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired ("PCI") loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Based upon management's review, there were no material increases or decreases in the expected cash flows of these loans between December 11, 2015 (the "acquisition date") and September 30, 2016. The fair value of PCI loans, on the acquisition date, was determined, primarily based on the fair value of the loans' collateral. The carrying value of PCI loans was $3,565,000 and $3,818,000 at September 30, 2016 and December 31, 2015, respectively.

On the acquisition date, the unpaid principal balance for all PCI loans was $6,969,000 and the estimated fair value of the loans was $3,809,000. Total contractually required payments on these loans, including interest, at the acquisition date was $9,913,000. However, the Company's preliminary estimate of expected cash flows was $4,474,000. At such date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from the customer nor liquidation of collateral) of $5,439,000 relating to these PCI loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows and established an accretable discount of $665,000 on the acquisition date relating to these PCI loans.

The carrying value of the PCI loans was determined by projected discounted contractual cash flows.

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2016 (in thousands):

	Three Months Ended			Nine months Ended
Balance at beginning of period	$	464		$	637
Accretion		(88	)		(261	)
Balance at end of period	$	376		$	376

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2016		December 31, 2015
Outstanding balance	$	6,774	$	6,950
Carrying amount		3,565		3,818

The segments of the Company's loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit with terms of 15 years or less secured by a mortgage which is often a second lien on residential real estate. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential or commercial real estate used during the construction phase of residential and commercial projects. Consumer loans are typically unsecured or primarily secured by assets other than real estate and overdraft lines of credit are typically secured by customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivision loans are loans to state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development.

Management considers commercial loans, other agricultural loans, state and political subdivision loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer's results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allocation of the allowance for loan losses or a charge-off to the allowance for loan losses.

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
September 30, 2016	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	959	$	574	$	337	$	911	$	28
Home Equity		58		-		58		58		11
Commercial		7,722		5,437		130		5,567		46
Agricultural		-		-		-		-		-
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		5,591		4,494		934		5,428		397
Other agricultural loans		-		-		-		-		-
State and political
subdivision loans		-		-		-		-		-
Total	$	14,330	$	10,505	$	1,459	$	11,964	$	482
December 31, 2015
Real estate loans:
Mortgages	$	281	$	114	$	129	$	243	$	26
Home Equity		61		-		61		61		11
Commercial		8,654		5,843		225		6,068		62
Agricultural		167		167		-		167		-
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		5,535		4,653		987		5,640		256
Other agricultural loans		105		105		-		105		-
State and political
subdivision loans		-		-		-		-		-
Total	$	14,803	$	10,882	$	1,402	$	12,284	$	355

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2016 and 2015(in thousands):

	For the Nine Months ended
	September 30, 2016						September 30, 2015
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	486	$	10	$	-	$	239	$	8	$	5
Home Equity		59		3		-		97		3		-
Commercial		6,088		87		-		5,728		46		-
Agricultural		110		7		-		19		1		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Other commercial loans		5,743		187		5		2,488		64		4
Other agricultural loans		70		3		-		13		1		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	12,556	$	297	$	5	$	8,584	$	123	$	9
	For the Three Months Ended
	September 30, 2016						September 30, 2015
Real estate loans:
Mortgages	$	607	$	1	$	-	$	269	$	4	$	-
Home Equity		58		1		-		62		1		-
Commercial		5,980		35		-		5,462		14		-
Agricultural		-		2		-		57		1		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Other commercial loans		5,298		53		2		2,107		15		1
Other agricultural loans		-		-		-		38		1		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	11,943	$	92	$	2	$	7,995	$	36	$	1

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor credit quality. The first five categories are considered not criticized and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

· Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

· Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

· Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

· Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

· Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company's loan rating process includes several layers of internal and external oversight. The Company's loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management.  All commercial and agricultural loans are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to 1) review a minimum of 55% of the dollar volume of the commercial loan portfolio on an annual basis, 2) review new loans originated for over $1.0 million in the last year, 3) review a majority of borrowers with commitments greater than or equal to $1.0 million,  4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate.

The following tables represent credit exposures by internally assigned grades as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	221,715	$	13,935	$	15,471	$	28	$	-	$	251,149
Agricultural		76,500		8,969		3,086		-		-		88,555
Construction		18,774		-		-		-		-		18,774
Other commercial loans		49,987		1,964		4,980		131		-		57,062
Other agricultural loans		17,383		2,350		1,463		-		-		21,196
State and political
subdivision loans		84,541		13,698		-		-		-		98,239
Total	$	468,900	$	40,916	$	25,000	$	159	$	-	$	534,975
December 31, 2015
Real estate loans:
Commercial	$	217,544	$	4,150	$	15,816	$	32	$	-	$	237,542
Agricultural		53,695		2,865		1,262		-		-		57,822
Construction		14,422		589		-		-		-		15,011
Other commercial loans		51,297		446		5,669		137		-		57,549
Other agricultural loans		13,318		234		105		-		-		13,657
State and political
subdivision loans		98,500		-		-		-		-		98,500
Total	$	448,776	$	8,284	$	22,852	$	169	$	-	$	480,081

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	144,249	$	1,846	$	35	$	146,130
Home Equity		58,845		117		-		58,962
Consumer		11,146		76		4		11,226
Total	$	214,240	$	2,039	$	39	$	216,318

December 31, 2015	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	139,734	$	1,270	$	35	$	141,039
Home Equity		62,236		132		-	$	62,368
Consumer		11,470		64		9	$	11,543
Total	$	213,440	$	1,466	$	44	$	214,950

Aging Analysis of Past Due Financing Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due financing receivables as of September 30, 2016 and December 31, 2015 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
September 30, 2016	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	720	$	153	$	1,128	$	2,001	$	144,094	$	35	$	146,130	$	173
Home Equity		398		15		67		480		58,482		-		58,962		17
Commercial		2,151		251		4,065		6,467		242,675		2,007		251,149		259
Agricultural		2,415		177		58		2,650		85,164		741		88,555		58
Construction		-		-		-		-		18,774		-		18,774		-
Consumer		149		42		52		243		10,979		4		11,226		34
Other commercial loans		303		-		4,015		4,318		51,966		778		57,062		-
Other agricultural loans		1,151		260		-		1,411		19,785		-		21,196		-
State and political
subdivision loans		-		-		-		-		98,239		-		98,239		-
Total	$	7,287	$	898	$	9,385	$	17,570	$	730,158	$	3,565	$	751,293	$	541
Loans considered non-accrual	$	331	$	19	$	8,844	$	9,194	$	837	$	-	$	10,031
Loans still accruing		6,956		879		541		8,376		729,321		3,565		741,262
Total	$	7,287	$	898	$	9,385	$	17,570	$	730,158	$	3,565	$	751,293
December 31, 2015
Real estate loans:
Mortgages	$	487	$	283	$	687	$	1,457	$	139,547	$	35	$	141,039	$	321
Home Equity		630		15		121		766		61,602		-		62,368		73
Commercial		824		57		4,139		5,020		230,352		2,170		237,542		60
Agricultural		177		167		-		344		56,740		738		57,822		-
Construction		-		-		-		-		15,011		-		15,011		-
Consumer		239		37		49		325		11,209		9		11,543		9
Other commercial loans		143		214		1,010		1,367		55,316		866		57,549		160
Other agricultural loans		9		-		-		9		13,648		-		13,657		-
State and political
subdivision loans		-		-		-		-		98,500		-		98,500		-
Total	$	2,509	$	773	$	6,006	$	9,288	$	681,925	$	3,818	$	695,031	$	623
Loans considered non-accrual	$	54	$	171	$	5,383	$	5,608	$	923	$	-	$	6,531
Loans still accruing		2,455		602		623		3,680		681,002		3,818		688,500
Total	$	2,509	$	773	$	6,006	$	9,288	$	681,925	$	3,818	$	695,031

Nonaccrual Loans

Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of September 30, 2016 and December 31, 2015, respectively. The balances are presented by class of financing receivable (in thousands):

	September 30, 2016		December 31, 2015
Real estate loans:
Mortgages	$	1,673	$	949
Home Equity		100		59
Commercial		4,056		4,422
Agricultural		26		34
Consumer		42		55
Other commercial loans		4,134		1,012
	$	10,031	$	6,531

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower's financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company's investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower's ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations.  Based on this evaluation management would no longer consider a loan to be a TDR when the relevant facts support such a conclusion. As of September 30, 2016 and December 31, 2015, included within the allowance for loan losses are reserves of $31,000 and $37,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2016 and for the nine months ended September 30, 2015 were as follows (dollars in thousands). There were no loan modifications that were considered TDRs during the three months ended September 30, 2015:

	For the Three Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	750	$	-	$	750
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		4	$	-	$	3,826	$	-	$	3,826

	For the Nine Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest  Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		4	$	-	$	1,188	$	-	$	1,188
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		7	$	-	$	4,264	$	-	$	4,264

	For the Nine months Ended September 30, 2015
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest  Modification		Term Modification
Real estate loans:
Mortgages		1		1	$	71	$	19	$	71	$	19
Total		1		1	$	71	$	19	$	71	$	19

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. There were no loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2016 and 2015 (nine month periods) and July 1, 2016 and 2015 (3 month periods), respectively, that subsequently defaulted during these reporting periods.

Allowance for Loan Losses

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2016 and December 31, 2015, respectively (in thousands):

	September 30, 2016						December 31, 2015
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for  impairment		Total
Real estate loans:
Residential	$	39	$	974	$	1,013	$	37	$	868	$	905
Commercial and agricultural		46		4,560		4,606		62		3,723		3,785
Construction		-		34		34		-		24		24
Consumer		-		109		109		-		102		102
Other commercial and agricultural loans		397		1,245		1,642		256		1,049		1,305
State and political
subdivision loans		-		771		771		-		593		593
Unallocated		-		19		19		-		392		392
Total	$	482	$	7,712	$	8,194	$	355	$	6,751	$	7,106

The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine month periods ended September 30, 2016 and 2015, respectively (in thousands):

	For the three months ended September 30, 2016
	Balance at June 30, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	990	$	(9	)	$	-	$	32		$	1,013
Commercial and agricultural		3,919		(100	)		467		320			4,606
Construction		18		-			-		16			34
Consumer		104		(27	)		16		16			109
Other commercial and agricultural loans		1,564		(37	)		25		90			1,642
State and political									-
subdivision loans		764		-			-		7			771
Unallocated		-		-			-		19			19
Total	$	7,359	$	(173	)	$	508	$	500		$	8,194
	For the three months ended September 30, 2015
	Balance at June 30, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2015
Real estate loans:
Residential	$	931	$	-		$	-	$	(18	)	$	913
Commercial and agricultural		3,679		-			4		120			3,803
Construction		14		-			-		3			17
Consumer		89		(11	)		13		-			91
Other commercial and agricultural loans		1,502		(40	)		-		(17	)		1,445
State and political									-
subdivision loans		568		-			-		18			586
Unallocated		176		-			-		14			190
Total	$	6,959	$	(51	)	$	17	$	120		$	7,045
	For the nine months ended September 30, 2016
	Balance at December 31, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	905	$	(52	)	$	-	$	160		$	1,013
Commercial and agricultural		3,785		(100	)		475		446			4,606
Construction		24		-			-		10			34
Consumer		102		(65	)		84		(12	)		109
Other commercial and agricultural loans		1,305		(55	)		31		361			1,642
State and political									-
subdivision loans		593		-			-		178			771
Unallocated		392		-			-		(373	)		19
Total	$	7,106	$	(272	)	$	590	$	770		$	8,194
	For the nine months ended September 30, 2015
	Balance at December 31, 2014		Charge-offs			Recoveries		Provision			Balance at September 30, 2015
Real estate loans:
Residential	$	878	$	(34	)	$	-	$	69		$	913
Commercial and agricultural		3,870		(56	)		11		(22	)		3,803
Construction		26		-			-		(9	)		17
Consumer		84		(35	)		25		17			91
Other commercial and agricultural loans		1,224		(41	)		-		262			1,445
State and political									-
subdivision loans		545		-			-		41			586
Unallocated		188		-			-		2			190
Total	$	6,815	$	(166	)	$	36	$	360		$	7,045

The Company allocates the ALLL based on the factors described below, which conform to the Company's loan classification policy and credit quality measurements. In reviewing risk within the Company's loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) other commercial and agricultural loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:

· Level of and trends in delinquencies and impaired/classified loans

§ Change in volume and severity of past due loans

§ Volume of non-accrual loans

§ Volume and severity of classified, adversely or graded loans;

· Level of and trends in charge-offs and recoveries;

· Trends in volume, terms and nature of the loan portfolio;

· Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;

· Changes in the quality of the Company's loan review system;

· Experience, ability and depth of lending management and other relevant staff;

· National, state, regional and local economic trends and business conditions

§ General economic conditions

§ Unemployment rates

§ Inflation rate/ Consumer Price Index

§ Changes in values of underlying collateral for collateral-dependent loans;

· Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses;

· Existence and effect of any credit concentrations, and changes in the level of such concentrations; and

· Any change in the level of board oversight.

The Company analyzes its loan portfolio each quarter to determine the adequacy of its ALLL.

Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL.

We continually review the model utilized in calculating the required ALLL. The following qualitative factors experienced changes during the first nine months of 2016:

· The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans were increased for residential, consumer and agricultural related loans due to an increase in past due, non-accrual and classified loans due to increase in the number of accounts past due.  We did not increase this factor for other commercial loans due to the increase being caused by one relationship instreat of a larger trend.

· The qualitative factor for industry conditions, including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses, was increased for and segment that includes agricultural related loans due to the decrease in the price received for product sold and the increase in feed costs that has occurred in 2016, which negatively affected customer earnings.

· The qualitative factor for national, state, regional and local economic trends and business conditions was increased for all loan categories due to an increase in the unemployment rates in the local economy during the first nine months of 2016.

· The qualitative factors for changes in quality of the institutions loan review system were increased for commercial and agricultural loans due to the addition of new staff and processes.

· The qualitative factors for trends in volume, terms and nature of the loan portfolio were increased for all segments that include agricultural loans due to growth in these loan categories.

· The qualitative factors for trends in volume, terms and nature of the loan portfolio were decreased for municipal loans due to this loan segment making up a smaller portion of the Bank's overall loan portfolio as we continue to grow commercial and agricultural loans.

· The qualitative factors for experience, ability. and depth of lending management was decreased for municipal loans due to employees gaining additional experience and the use of a third party in reviewing loan information.

The following qualitative factors experienced changes during the three months ended September 30, 2016:

· The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans were increased for all segments that agricultural related loans due to an increase in past due, non-accrual and classified loans.

· The qualitative factors for changes in quality of the institutions loan review system were increased for commercial and agricultural loans due to the addition of new staff and processes.

· The qualitative factors for trends in volume, terms and nature of the loan portfolio were increased for agricultural loans due to growth in these loan categories.

· The qualitative factors for trends in volume, terms and nature of the loan portfolio were decreased for municipal loans due to this loan segment making up a smaller portion of the Bank's overall loan portfolio.

· The qualitative factors for experience, ability, and depth of lending management was decreased for municipal loans due to employees gaining additional experience and the use of a third party in reviewing loan information.

The increase in loan recoveries during the third quarter was primarily due to one customer that paid off a loan that was partially charged off in 2014 for $463,000. The increase in the overall provision for 2016 was due to loan growth, an increase in special mention and substandard loans and increases in delinquency.

The following qualitative factors experienced changes during the first nine months of 2015:

· The qualitative factor for national, state, regional and local economic trends and business conditions was increased for all loan categories due to an increase in the unemployment rates in the local economy during the first nine months of 2015.

· The qualitative factors for changes in levels of and trends in delinquencies and impaired/classified loans were decreased for commercial and agricultural real estate due to the decrease in the amount of loans classified as substandard. While there has been an increase in delinquencies of commercial and agricultural real estate loans, the qualitative factor was not increased. The increase in delinquencies is attributable to one relationship, which is classified as impaired and management does not believe that this delinquency is a reflection of a further decrease in the credit quality of the commercial and agricultural real estate loan portfolio.

· The qualitative factors for changes in levels of and trends in delinquencies, impaired/classified loans were increased for other commercial and agricultural loans due to an increase in the amount of loans classified as substandard.

· The qualitative factor for levels of and trends in charge-offs and recoveries was decreased for commercial and agricultural real estate and other commercial and agricultural loans due to the decrease in charge-offs compared to the prior year as charge-offs returned to historical norms for the Bank.

· The qualitative factor for experience, ability and depth of lending management and other relevant staff was decreased for commercial real estate, agricultural real estate, other commercial and other agricultural loans due to the length of time employees involved throughout the loan process have been in their positions.

· The qualitative factor for industry conditions, including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses, was increased for commercial and agricultural related loans due to the decrease in the price received for product sold and the increase in feed costs that has occurred in 2015, which negatively affected customer earnings.

· The qualitative factor for levels of and trends in charge-offs and recoveries was increased for residential real estate loans due to the increase in charge-offs compared to historical norms for the Company.

· The qualitative factors for changes in levels of and trends in delinquencies and impaired/classified loans was increased for residential mortgages due to increases in the amount of non-performing loans.

The following qualitative factors experienced changes during the three months ended September 30, 2015:

· The qualitative factors for changes in levels of and trends in delinquencies and impaired/classified loans were increased for other agricultural loans due to an increase in the amount of classified loans.

· The qualitative factor for levels of and trends in charge-offs and recoveries was increased for other commercial loans due to the increase in charge-offs during the quarter.

The primary factor that resulted in negative provision for commercial and agricultural loans for the nine month period ended September 30, 2015 was the reduction in the amount of special mention and substandard loans since December 31, 2014.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2016 and December 31, 2015 included with other assets are $1,198,000 and $1,354,000, respectively, of foreclosed assets. As of September 30, 2016, included within the foreclosed assets are $325,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of September 30, 2016, the Company has initiated formal foreclosure proceedings on $1,265,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2016

Goodwill and Other Intangible Assets [Abstract]

Goodwill and Other Intangible Assets

Note 6 – Goodwill and Other Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016							December 31, 2015
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortizing intangible assets (1):
Mortgage servicing rights	$	1,336	$	(770	)	$	566	$	1,336	$	(638	)	$	698
Core deposit intangibles		1,641		(247	)		1,394		1,641		(25	)		1,616
Covenant not to compete		125		(26	)		99		125		(2	)		123
Total amortized intangible assets	$	3,102	$	(1,043	)	$	2,059	$	3,102	$	(665	)	$	2,437
Non-amortized intangible assets:
Goodwill	$	21,089						$	21,089
(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing asset balances at September 30, 2016. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Nine months ended September 30, 2016 (actual)	$	132	$	222	$	24	$	378
Three months ended September 30, 2016 (actual)		42		74		8		124
Estimate for year ended December 31,
Remaining 2016		41		74		7		122
2017		142		266		31		439
2018		113		236		31		380
2019		88		206		30		324
2020		66		177		-		243

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Federal Home Loan Bank Stock

9 Months Ended

Sep. 30, 2016

Federal Home Loan Bank Stock [Abstract]

Federal Home Loan Bank Stock

Note 7 – Federal Home Loan Bank Stock

The Bank is a member of the FHLB of Pittsburgh and, as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. As of September 30, 2016 and December 31, 2015, the Bank's investment in FHLB stock was $3,375,000 and $2,800,000, respectively. The stock does not have a readily determinable fair value and, as such, is classified as restricted stock, carried at cost and evaluated by management.  The stock's value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) a significant decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.  Management considered that the FHLB's regulatory capital ratios are sufficient, liquidity appears adequate, new shares of FHLB stock continue to exchange hands at the $100 par value and the FHLB has repurchased shares of excess capital stock from its members and has paid a quarterly cash dividend.

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Repurchase Agreements

9 Months Ended

Sep. 30, 2016

Repurchase Agreements [Abstract]

Repurchase Agreements

Note 8 – Repurchase Agreements

We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

The value of the collateral segmented by the remaining contractual maturity of the repurchase agreements in the Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 is presented in the following tables (in thousands):

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
September 30, 2016	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	16,934	$	-	$	-	$	2,122	$	19,056
Total carrying value of collateral pledged	$	16,934	$	-	$	-	$	2,122	$	19,056
Total liability recognized for repurchase agreements									$	15,091
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
December 31, 2015	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,144	$	-	$	-	$	2,049	$	20,193
Total carrying value of collateral pledged	$	18,144	$	-	$	-	$	2,049	$	20,193
Total liability recognized for repurchase agreements									$	16,008

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2016

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 9 - Employee Benefit Plans

For additional detailed disclosure on the Company's pension and employee benefits plans, please refer to Note 11 of the Company's Consolidated Financial Statements included in the 2015 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a noncontributory defined benefit pension plan ("Pension Plan") covering employees and officers that were hired prior to January 1, 2007.Additionally, the Bank assumed the noncontributory defined benefit pension plan of FNB when it was acquired during 2015. The FNB plan was frozen prior to the acquisition and therefore, no additional benefits will accrue for employees covered under that plan. These two plans are collectively referred to herein as "the Plans." The Bank's funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plans' actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan. In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee's base compensation.  The contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment.  Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the Pension Plan.

The following sets forth the components of net periodic benefit costs of the Pension Plan for the three and nine months ended September 30, 2016 and 2015, respectively (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Service cost	$	90		$	110		$	269		$	242
Interest cost		172			128			517			281
Expected return on plan assets		(260	)		(243	)		(780	)		(533	)
Net amortization and deferral		61			65			182			141
Net periodic benefit cost	$	63		$	60		$	188		$	131

As of September 30, 2016, the Company had contributed $818,000 to the Pension Plans in 2016.

Defined Contribution Plan

The Company sponsors a voluntary 401(k) savings plan which eligible employees can elect to contribute up to the maximum amount allowable not to exceed the limits of IRS Code Sections 401(k).  Under the plan, the Company also makes required contributions on behalf of the eligible employees.  The Company's contributions vest immediately. Contributions by the Company totaled $269,000 and $215,000 for the nine months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 and 2015, contributions by the Company totaled $89,000 and $60,000, respectively.

Directors' Deferred Compensation Plan

The Company's directors may elect to defer all or portions of their fees until their retirement or termination from service.  Amounts deferred under the plan earn interest based upon the highest current rate offered to certificate of deposit customers.  Amounts deferred under the plan are not guaranteed and represent a general liability of the Company.  At September 30, 2016 and December 31, 2015, an obligation of $934,000 and $958,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Amounts included in interest expense on the deferred amounts totaled $3,000 and $5,000 for each of the three months ended September 30, 2016 and 2015, respectively. For the nine months ended September 30, 2016 and 2015, amounts included in interest expense on the deferred amounts totaled $11,000 and $17,000, respectively.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the "Plan") whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements.  Awards granted under the Plan are in the form of the Company's common stock and are subject to certain vesting requirements including continuous employment or service with the Company.  The plan was renewed in 2016, and currently includes a total of 150,000 shares of the Company's common stock that have been authorized under the Plan. As of September 30, 2016, 146,350 shares remain available to be issued under the Plan.  The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.

The following table details the vesting, awarding and forfeiting of restricted shares during the three and nine month periods ended September 30, 2016:

	Three months				Nine months
			Weighted					Weighted
	Unvested		Average		Unvested			Average
	Shares		Market Price		Shares			Market Price
Outstanding, beginning of period		8,603	$	48.88		8,269		$	49.98
Granted		-		-		3,650			47.81
Forfeited		-		-		-			-
Vested		-		-		(3,316	)		50.45
Outstanding, end of period		8,603	$	48.88		8,603		$	48.88

Compensation cost related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. Compensation expense related to restricted stock was $142,000 and $129,000 for the nine months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 and 2015, compensation expense totaled $50,000 and $44,000, respectively. At September 30, 2016, the total compensation cost related to nonvested awards that has not yet been recognized was $421,000, which is expected to be recognized over the next 2.50 years.

Supplemental Executive Retirement Plan

The Company maintains a non-qualified supplemental executive retirement plan ("SERP") for certain executives to compensate those executive participants in the Company's noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. At September 30, 2016 and December 31, 2015, an obligation of $1,430,000 and $1,339,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Expenses related to this plan totaled $91,000 and $106,000 for the nine months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 and 2015, expenses totaled $30,000 and $35,000, respectively.

Salary Continuation Plan

The Company maintains a salary continuation plan for certain employees retained through the acquisition of FNB or that were formerly employed by FNB.  At September 30, 2016 and December 31 2015, an obligation of $719,000 and $710,000 was included in other liabilities for this plan in the Consolidated Balance Sheet.  Expenses related to this plan totaled $17,000 for the three months ended September 30, 2016. For the nine months ended September 30, 2016, expenses related to this plan totaled $49,000.

Continuation of Life Insurance Plan

The Company, as part of the acquisition of FNB, has promised a continuation of certain split-dollar life insurance policies that provide coverage to certain persons post-retirement. U.S. generally accepted accounting principles require the recording of post-retirement costs and a liability equal to the present value of the cost of post-retirement insurance during the person's term of service. The estimated present value of future benefits to be paid totaled $574,000 at both September 30, 2016 and December 31, 2015, which is included in other liabilities in the Consolidated Balance Sheet.

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Accumulated Comprehensive Income

9 Months Ended

Sep. 30, 2016

Accumulated Comprehensive Income [Abstract]

Accumulated Comprehensive Income

Note 10 – Accumulated Comprehensive Income

The following tables present the changes in accumulated other comprehensive income by component net of tax for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2016	$	4,403		$	(2,361	)	$	2,042
Other comprehensive loss before reclassifications (net of tax)		(692	)		-			(692	)
Amounts reclassified from accumulated other
comprehensive income  (net of tax)		-			40			40
Net current period other comprehensive income (loss)		(692	)		40			(652	)
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Nine months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2015	$	2,204		$	(2,440	)	$	(236	)
Other comprehensive income before reclassifications (net of tax)		1,609			-			1,609
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(102	)		119			17
Net current period other comprehensive income		1,507			119			1,626
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Three months ended September 30, 2015
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2015	$	2,430		$	(2,259	)	$	171
Other comprehensive income before reclassifications (net of tax)		722			-			722
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(85	)		34			(51	)
Net current period other comprehensive income		637			34			671
Balance as of September 30, 2015	$	3,067		$	(2,225	)	$	842

	Nine months ended September 30, 2015
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2014	$	3,093		$	(2,326	)	$	767
Other comprehensive income before reclassifications (net of tax)		258			-			258
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(284	)		101			(183	)
Net current period other comprehensive income (loss)		(26	)		101			75
Balance as of September 30, 2015	$	3,067		$	(2,225	)	$	842
(a) Amounts in parentheses indicate debits to the Consolidated Balance Sheet

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2016 and 2015 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the  Consolidated Statement of Income
	Three Months Ended September 30,
	2016			2015
Unrealized gains and losses on available for sale securities
	$	-		$	129		Investment securities gains, net
		-			(44	)	Provision for income taxes
	$	-		$	85		Net of tax
Defined benefit pension items
	$	(61	)	$	(51	)	Salaries and employee benefits
		21			17		Provision for income taxes
	$	(40	)	$	(34	)	Net of tax
Total reclassifications	$	(40	)	$	51
	Nine Months Ended September 30,
		2016			2015
Unrealized gains and losses on available for sale securities
	$	155		$	430		Investment securities gains, net
		(53	)		(146	)	Provision for income taxes
	$	102		$	284		Net of tax
Defined benefit pension items
	$	(181	)	$	(153	)	Salaries and employee benefits
		62			52		Provision for income taxes
	$	(119	)	$	(101	)	Net of tax
Total reclassifications	$	(17	)	$	183
(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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Fair Value Measurements

9 Months Ended

Sep. 30, 2016

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 11 – Fair Value Measurements

The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's monthly and/or quarterly valuation process.

Financial Instruments Recorded at Fair Value on a Recurring Basis

The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2016 and December 31, 2015 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2016	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Securities available for sale:
U.S. Agency securities	$	-	$	190,766	$	-	$	190,766
U.S. Treasury securities		5,020		-		-		5,020
Obligations of state and
political subdivisions		-		102,222		-		102,222
Corporate obligations		-		14,376		-		14,376
Mortgage-backed securities in
government sponsored entities		-		34,052		-		34,052
Equity securities in financial institutions		2,718		-		-		2,718
December 31, 2015
Fair value measurements on a recurring basis:
Securities available for sale:
U.S. Agency securities	$	-	$	199,591	$	-	$	199,591
U.S. Treasuries securities		10,082		-		-		10,082
Obligations of state and
political subdivisions		-		102,863		-		102,863
Corporate obligations		-		14,565		-		14,565
Mortgage-backed securities in
government sponsored entities		-		30,204		-		30,204
Equity securities in financial institutions		2,432		-		-		2,432

Financial Instruments, Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during 2016 and 2015 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense.

Assets measured at fair value on a nonrecurring basis as of September 30, 2016 and December 31, 2015 are included in the table below (in thousands):

September 30, 2016	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	830	$	830
Other real estate owned		-		-		799		799
December 31, 2015
Impaired Loans	$	-	$	-	$	894	$	894
Other real estate owned		-		-		1,197		1,197

· Impaired Loans - The Company has measured impairment on impaired loans generally based on the fair value of the loan's collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.   Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value.  If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level III measurement.  If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. The fair values above excluded estimated selling costs of $104,000 and $91,000 at September 30, 2016 and December 31, 2015, respectively.

· Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, which is measured at the date foreclosure.  If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement.  In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.  In these cases, the loans are categorized in the above table as Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

Quantitative Information about Level III Fair Value Measurements
September 30, 2016	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	830	Appraised Collateral Values	Discount to appraised value		0-75	%		40.43	%
				Selling costs		5%-10	%		8.11	%
				Holding period	6 - 12 months			10 months
Other real estate owned		799	Appraised Collateral Values	Discount to appraised value		0-37	%		25.90	%
December 31, 2015	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		894	Appraised Collateral Values	Discount to appraised value		0-70	%		46.50	%
				Selling costs		4%-10	%		7.75	%
				Holding period	0 - 12 months			10 months
Other real estate owned		1,197	Appraised Collateral Values	Discount to appraised value		0-75	%		25	%

The fair values of the Company's financial instruments are as follows (in thousands):

	Carrying
September 30, 2016	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	16,371	$	16,371	$	16,371	$	-	$	-
Interest bearing time deposits with other banks		6,955		6,961		-		-		6,961
Available-for-sale securities		349,154		349,154		7,738		341,416
Loans held for sale		576		576		576
Net loans		743,099		764,383		-		-		764,383
Bank owned life insurance		26,050		26,050		26,050		-		-
Regulatory stock		4,139		4,139		4,139		-		-
Accrued interest receivable		3,988		3,988		3,988		-		-
Financial liabilities:
Deposits	$	1,008,747	$	1,009,877	$	742,676	$	-	$	267,201
Borrowed funds		51,859		50,674		12,740		-		37,934
Accrued interest payable		636		636		636		-		-
	Carrying
December 31, 2015	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	24,384	$	24,384	$	24,384	$	-	$	-
Interest bearing time deposits with other banks		7,696		7,705		-		-		7,705
Available-for-sale securities		359,737		359,737		12,514		347,223		-
Loans held for sale		603		603		603
Net loans		687,925		712,524		-		-		712,524
Bank owned life insurance		25,535		25,535		25,535		-		-
Regulatory stock		3,459		3,459		3,459		-		-
Accrued interest receivable		4,211		4,211		4,211		-		-
Financial liabilities:
Deposits	$	988,031	$	987,542	$	706,121	$	-	$	281,421
Borrowed funds		41,631		38,863		1,598		-		37,265
Accrued interest payable		734		734		734		-

Fair value is determined based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates.

Fair values have been determined by the Company using historical data, as generally provided in the Company's regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company's fair value estimates, methods and assumptions are set forth below for the Company's other financial instruments.

Cash and Cash Equivalents:

The carrying amounts for cash and cash equivalents approximate fair value because they have original maturities of 90 days or less and do not present unanticipated credit concerns.

Accrued Interest Receivable and Payable:

The carrying amounts for accrued interest receivable and payable approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns.

Interest bearing time deposits with other banks:

The fair value of interest bearing time deposits with other banks is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Available-For-Sale Securities:

The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

Loans held-for-sale:

The carrying amount for loans held for sale approximates fair value as the loans are only held for less than a week from origination.

Loans:

Fair values are estimated for portfolios of loans with similar financial characteristics.  The fair value of performing loans has been estimated by discounting expected future cash flows. The discount rate used in these calculations is derived from the Treasury yield curve adjusted for credit quality, operating expense and prepayment option price, and is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company's historical experience with repayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions.

Bank Owned Life Insurance:

The carrying value of bank owned life insurance approximates fair value based on applicable redemption provisions.

Regulatory Stock:

The carrying value of regulatory stock approximates fair value based on applicable redemption provisions.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

The deposits' fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Borrowed Funds:

Rates available to the Company for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2016

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 12 – Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of 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. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards.  To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.  For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company's financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contract with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year.  Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.  The Company is evaluating the effect of adopting this new accounting Update.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805).  The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity's ordinary activities) in exchange for consideration. The amendments in this update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606).  The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its  stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance.  The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company's financial statements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which changes the impairment model for most financial assets. This ASU is intended 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 underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company's statement of cash flows.

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Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2016

Earnings per Share [Abstract]

Computation of earnings per share

The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.

	Three months ended				Nine months ended
	September 30,				September 30,
	2016		2015		2016		2015
Net income applicable to common stock	$	3,153,000	$	2,857,000	$	9,467,000	$	9,166,000
Basic earnings per share computation
Weighted average common shares outstanding		3,339,962		3,044,311		3,346,623		3,051,826
Earnings per share - basic	$	0.94	$	0.94	$	2.83	$	3.00
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,339,962		3,044,311		3,346,623		3,051,826
Add: Dilutive effects of restricted stock		1,694		1,464		1,698		1,468
Weighted average common shares outstanding for dilutive earnings per share		3,341,656		3,045,775		3,348,321		3,053,294
Earnings per share - diluted	$	0.94	$	0.94	$	2.83	$	3.00

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Investments (Tables)

9 Months Ended

Sep. 30, 2016

Investments [Abstract]

Summary of amortized cost, gross unrealized gains and losses, and fair value of investment securities

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2016 and December 31, 2015 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2016	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	188,936	$	1,839	$	(9	)	$	190,766
U.S. treasury securities		5,013		7		-			5,020
Obligations of state and
political subdivisions		99,557		2,702		(37	)		102,222
Corporate obligations		14,359		17		-			14,376
Mortgage-backed securities in
government sponsored entities		33,665		420		(33	)		34,052
Equity securities in financial
institutions		2,002		716		-			2,718
Total available-for-sale securities	$	343,532	$	5,701	$	(79	)	$	349,154
December 31, 2015
Available-for-sale securities:
U.S. agency securities	$	199,749	$	369	$	(527	)	$	199,591
U.S. treasury securities		10,103		-		(21	)		10,082
Obligations of state and
political subdivisions		99,856		3,080		(73	)		102,863
Corporate obligations		14,583		68		(86	)		14,565
Mortgage-backed securities in
government sponsored entities		30,107		186		(89	)		30,204
Equity securities in financial institutions		2,001		436		(5	)		2,432
Total available-for-sale securities	$	356,399	$	4,139	$	(801	)	$	359,737

Unrealized losses and fair value of investments

The following table shows the Company's gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015 (in thousands). As of September 30, 2016, the Company owned 24 securities whose fair value was less than their cost basis.

September 30, 2016	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	6,998	$	(9	)	$	-	$	-		$	6,998	$	(9	)
Obligations of state and
political subdivisions		9,244		(37	)		-		-			9,244		(37	)
Mortgage-backed securities in
government sponsored entities		3,568		(18	)		1,855		(15	)		5,423		(33	)
Total securities	$	19,810	$	(64	)	$	1,855	$	(15	)	$	21,665	$	(79	)
December 31, 2015
U.S. agency securities	$	123,591	$	(527	)	$	-	$	-		$	123,591	$	(527	)
U.S. treasury securities		10,082		(21	)		-		-			10,082		(21	)
Obligations of states and
political subdivisions		7,023		(57	)		2,914		(16	)		9,937		(73	)
Corporate obligations		5,822		(61	)		2,138		(25	)		7,960		(86	)
Mortgage-backed securities in
government sponsored entities		9,830		(77	)		227		(12	)		10,057		(89	)
Equity securities in financial institutions		106		(5	)		-		-			106		(5	)
Total securities	$	156,454	$	(748	)	$	5,279	$	(53	)	$	161,733	$	(801	)

Gross gains and losses on available-for-sale securities

The gross gains and losses were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Gross gains	$	-	$	129	$	155	$	441
Gross losses		-		-		-		(11	)
Net gains	$	-	$	129	$	155	$	430

Summary of amortized cost and fair value of debt securities by contractual maturity

The amortized cost and fair value of debt securities at September 30, 2016, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	49,510	$	49,724
Due after one year through five years		173,075		175,690
Due after five years through ten years		41,247		42,129
Due after ten years		77,698		78,893
Total	$	341,530	$	346,436

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Loans (Tables)

9 Months Ended

Sep. 30, 2016

Loans [Abstract]

Summary of loan portfolio and allowance for loan losses

The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	205,092	$	969	$	35	$	204,088
Commercial and agricultural		339,704		5,567		2,748		331,389
Construction		18,774		-		-		18,774
Consumer		11,226		-		4		11,222
Other commercial and agricultural loans		78,258		5,428		778		72,052
State and political subdivision loans		98,239		-		-		98,239
Total		751,293		11,964		3,565		735,764
Allowance for loan losses		8,194		482		-		7,712
Net loans	$	743,099	$	11,482	$	3,565	$	728,052
December 31, 2015
Real estate loans:
Residential	$	203,407	$	304	$	35	$	203,068
Commercial and agricultural		295,364		6,235		2,908		286,221
Construction		15,011		-		-		15,011
Consumer		11,543		-		9		11,534
Other commercial and agricultural loans		71,206		5,745		866		64,595
State and political subdivision loans		98,500		-		-		98,500
Total		695,031		12,284		3,818		678,929
Allowance for loan losses		7,106		355		-		6,751
Net loans	$	687,925	$	11,929	$	3,818	$	672,178

Accretable yield for purchased credit impaired loans

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2016 (in thousands):

	Three Months Ended			Nine months Ended
Balance at beginning of period	$	464		$	637
Accretion		(88	)		(261	)
Balance at end of period	$	376		$	376

Loans acquired with specific evidence of deterioration in credit quality

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2016		December 31, 2015
Outstanding balance	$	6,774	$	6,950
Carrying amount		3,565		3,818

Impaired financing receivables with associated allowance amount

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
September 30, 2016	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	959	$	574	$	337	$	911	$	28
Home Equity		58		-		58		58		11
Commercial		7,722		5,437		130		5,567		46
Agricultural		-		-		-		-		-
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		5,591		4,494		934		5,428		397
Other agricultural loans		-		-		-		-		-
State and political
subdivision loans		-		-		-		-		-
Total	$	14,330	$	10,505	$	1,459	$	11,964	$	482
December 31, 2015
Real estate loans:
Mortgages	$	281	$	114	$	129	$	243	$	26
Home Equity		61		-		61		61		11
Commercial		8,654		5,843		225		6,068		62
Agricultural		167		167		-		167		-
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		5,535		4,653		987		5,640		256
Other agricultural loans		105		105		-		105		-
State and political
subdivision loans		-		-		-		-		-
Total	$	14,803	$	10,882	$	1,402	$	12,284	$	355

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2016 and 2015(in thousands):

	For the Nine Months ended
	September 30, 2016						September 30, 2015
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	486	$	10	$	-	$	239	$	8	$	5
Home Equity		59		3		-		97		3		-
Commercial		6,088		87		-		5,728		46		-
Agricultural		110		7		-		19		1		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Other commercial loans		5,743		187		5		2,488		64		4
Other agricultural loans		70		3		-		13		1		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	12,556	$	297	$	5	$	8,584	$	123	$	9
	For the Three Months Ended
	September 30, 2016						September 30, 2015
Real estate loans:
Mortgages	$	607	$	1	$	-	$	269	$	4	$	-
Home Equity		58		1		-		62		1		-
Commercial		5,980		35		-		5,462		14		-
Agricultural		-		2		-		57		1		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Other commercial loans		5,298		53		2		2,107		15		1
Other agricultural loans		-		-		-		38		1		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	11,943	$	92	$	2	$	7,995	$	36	$	1

Summary of financing receivable credit exposures by internally assigned grades

The following tables represent credit exposures by internally assigned grades as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	221,715	$	13,935	$	15,471	$	28	$	-	$	251,149
Agricultural		76,500		8,969		3,086		-		-		88,555
Construction		18,774		-		-		-		-		18,774
Other commercial loans		49,987		1,964		4,980		131		-		57,062
Other agricultural loans		17,383		2,350		1,463		-		-		21,196
State and political
subdivision loans		84,541		13,698		-		-		-		98,239
Total	$	468,900	$	40,916	$	25,000	$	159	$	-	$	534,975
December 31, 2015
Real estate loans:
Commercial	$	217,544	$	4,150	$	15,816	$	32	$	-	$	237,542
Agricultural		53,695		2,865		1,262		-		-		57,822
Construction		14,422		589		-		-		-		15,011
Other commercial loans		51,297		446		5,669		137		-		57,549
Other agricultural loans		13,318		234		105		-		-		13,657
State and political
subdivision loans		98,500		-		-		-		-		98,500
Total	$	448,776	$	8,284	$	22,852	$	169	$	-	$	480,081

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	144,249	$	1,846	$	35	$	146,130
Home Equity		58,845		117		-		58,962
Consumer		11,146		76		4		11,226
Total	$	214,240	$	2,039	$	39	$	216,318

December 31, 2015	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	139,734	$	1,270	$	35	$	141,039
Home Equity		62,236		132		-	$	62,368
Consumer		11,470		64		9	$	11,543
Total	$	213,440	$	1,466	$	44	$	214,950

Aging analysis of past due financing receivables

The following table includes an aging analysis of the recorded investment of past due financing receivables as of September 30, 2016 and December 31, 2015 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
September 30, 2016	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	720	$	153	$	1,128	$	2,001	$	144,094	$	35	$	146,130	$	173
Home Equity		398		15		67		480		58,482		-		58,962		17
Commercial		2,151		251		4,065		6,467		242,675		2,007		251,149		259
Agricultural		2,415		177		58		2,650		85,164		741		88,555		58
Construction		-		-		-		-		18,774		-		18,774		-
Consumer		149		42		52		243		10,979		4		11,226		34
Other commercial loans		303		-		4,015		4,318		51,966		778		57,062		-
Other agricultural loans		1,151		260		-		1,411		19,785		-		21,196		-
State and political
subdivision loans		-		-		-		-		98,239		-		98,239		-
Total	$	7,287	$	898	$	9,385	$	17,570	$	730,158	$	3,565	$	751,293	$	541
Loans considered non-accrual	$	331	$	19	$	8,844	$	9,194	$	837	$	-	$	10,031
Loans still accruing		6,956		879		541		8,376		729,321		3,565		741,262
Total	$	7,287	$	898	$	9,385	$	17,570	$	730,158	$	3,565	$	751,293
December 31, 2015
Real estate loans:
Mortgages	$	487	$	283	$	687	$	1,457	$	139,547	$	35	$	141,039	$	321
Home Equity		630		15		121		766		61,602		-		62,368		73
Commercial		824		57		4,139		5,020		230,352		2,170		237,542		60
Agricultural		177		167		-		344		56,740		738		57,822		-
Construction		-		-		-		-		15,011		-		15,011		-
Consumer		239		37		49		325		11,209		9		11,543		9
Other commercial loans		143		214		1,010		1,367		55,316		866		57,549		160
Other agricultural loans		9		-		-		9		13,648		-		13,657		-
State and political
subdivision loans		-		-		-		-		98,500		-		98,500		-
Total	$	2,509	$	773	$	6,006	$	9,288	$	681,925	$	3,818	$	695,031	$	623
Loans considered non-accrual	$	54	$	171	$	5,383	$	5,608	$	923	$	-	$	6,531
Loans still accruing		2,455		602		623		3,680		681,002		3,818		688,500
Total	$	2,509	$	773	$	6,006	$	9,288	$	681,925	$	3,818	$	695,031

Summary of financing receivables on nonaccrual status

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of September 30, 2016 and December 31, 2015, respectively. The balances are presented by class of financing receivable (in thousands):

	September 30, 2016		December 31, 2015
Real estate loans:
Mortgages	$	1,673	$	949
Home Equity		100		59
Commercial		4,056		4,422
Agricultural		26		34
Consumer		42		55
Other commercial loans		4,134		1,012
	$	10,031	$	6,531

Summary of troubled debt restructurings on financing receivables

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2016 and for the nine months ended September 30, 2015 were as follows (dollars in thousands). There were no loan modifications that were considered TDRs during the three months ended September 30, 2015:

	For the Three Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	750	$	-	$	750
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		4	$	-	$	3,826	$	-	$	3,826

	For the Nine Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest  Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		4	$	-	$	1,188	$	-	$	1,188
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		7	$	-	$	4,264	$	-	$	4,264

	For the Nine months Ended September 30, 2015
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest  Modification		Term Modification
Real estate loans:
Mortgages		1		1	$	71	$	19	$	71	$	19
Total		1		1	$	71	$	19	$	71	$	19

Allowance for loan losses by impairment method

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2016 and December 31, 2015, respectively (in thousands):

	September 30, 2016						December 31, 2015
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for  impairment		Total
Real estate loans:
Residential	$	39	$	974	$	1,013	$	37	$	868	$	905
Commercial and agricultural		46		4,560		4,606		62		3,723		3,785
Construction		-		34		34		-		24		24
Consumer		-		109		109		-		102		102
Other commercial and agricultural loans		397		1,245		1,642		256		1,049		1,305
State and political
subdivision loans		-		771		771		-		593		593
Unallocated		-		19		19		-		392		392
Total	$	482	$	7,712	$	8,194	$	355	$	6,751	$	7,106

Roll forward of allowance for loan losses by portfolio segment

The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine month periods ended September 30, 2016 and 2015, respectively (in thousands):

	For the three months ended September 30, 2016
	Balance at June 30, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	990	$	(9	)	$	-	$	32		$	1,013
Commercial and agricultural		3,919		(100	)		467		320			4,606
Construction		18		-			-		16			34
Consumer		104		(27	)		16		16			109
Other commercial and agricultural loans		1,564		(37	)		25		90			1,642
State and political									-
subdivision loans		764		-			-		7			771
Unallocated		-		-			-		19			19
Total	$	7,359	$	(173	)	$	508	$	500		$	8,194
	For the three months ended September 30, 2015
	Balance at June 30, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2015
Real estate loans:
Residential	$	931	$	-		$	-	$	(18	)	$	913
Commercial and agricultural		3,679		-			4		120			3,803
Construction		14		-			-		3			17
Consumer		89		(11	)		13		-			91
Other commercial and agricultural loans		1,502		(40	)		-		(17	)		1,445
State and political									-
subdivision loans		568		-			-		18			586
Unallocated		176		-			-		14			190
Total	$	6,959	$	(51	)	$	17	$	120		$	7,045
	For the nine months ended September 30, 2016
	Balance at December 31, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	905	$	(52	)	$	-	$	160		$	1,013
Commercial and agricultural		3,785		(100	)		475		446			4,606
Construction		24		-			-		10			34
Consumer		102		(65	)		84		(12	)		109
Other commercial and agricultural loans		1,305		(55	)		31		361			1,642
State and political									-
subdivision loans		593		-			-		178			771
Unallocated		392		-			-		(373	)		19
Total	$	7,106	$	(272	)	$	590	$	770		$	8,194
	For the nine months ended September 30, 2015
	Balance at December 31, 2014		Charge-offs			Recoveries		Provision			Balance at September 30, 2015
Real estate loans:
Residential	$	878	$	(34	)	$	-	$	69		$	913
Commercial and agricultural		3,870		(56	)		11		(22	)		3,803
Construction		26		-			-		(9	)		17
Consumer		84		(35	)		25		17			91
Other commercial and agricultural loans		1,224		(41	)		-		262			1,445
State and political									-
subdivision loans		545		-			-		41			586
Unallocated		188		-			-		2			190
Total	$	6,815	$	(166	)	$	36	$	360		$	7,045

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2016

Goodwill and Other Intangible Assets [Abstract]

Schedule of gross carrying value and accumulated amortization of intangible assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016							December 31, 2015
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortizing intangible assets (1):
Mortgage servicing rights	$	1,336	$	(770	)	$	566	$	1,336	$	(638	)	$	698
Core deposit intangibles		1,641		(247	)		1,394		1,641		(25	)		1,616
Covenant not to compete		125		(26	)		99		125		(2	)		123
Total amortized intangible assets	$	3,102	$	(1,043	)	$	2,059	$	3,102	$	(665	)	$	2,437
Non-amortized intangible assets:
Goodwill	$	21,089						$	21,089
(1) Excludes fully amortized intangible assets

Schedule of future amortization expense for amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing asset balances at September 30, 2016. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Nine months ended September 30, 2016 (actual)	$	132	$	222	$	24	$	378
Three months ended September 30, 2016 (actual)		42		74		8		124
Estimate for year ended December 31,
Remaining 2016		41		74		7		122
2017		142		266		31		439
2018		113		236		31		380
2019		88		206		30		324
2020		66		177		-		243

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Repurchase Agreements (Tables)

9 Months Ended

Sep. 30, 2016

Repurchase Agreements [Abstract]

Remaining contractual maturity of the repurchase agreements

The value of the collateral segmented by the remaining contractual maturity of the repurchase agreements in the Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 is presented in the following tables (in thousands):

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
September 30, 2016	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	16,934	$	-	$	-	$	2,122	$	19,056
Total carrying value of collateral pledged	$	16,934	$	-	$	-	$	2,122	$	19,056
Total liability recognized for repurchase agreements									$	15,091
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
December 31, 2015	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,144	$	-	$	-	$	2,049	$	20,193
Total carrying value of collateral pledged	$	18,144	$	-	$	-	$	2,049	$	20,193
Total liability recognized for repurchase agreements									$	16,008

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Employee Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2016

Employee Benefit Plans [Abstract]

Components of net periodic benefit costs

The following sets forth the components of net periodic benefit costs of the Pension Plan for the three and nine months ended September 30, 2016 and 2015, respectively (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Service cost	$	90		$	110		$	269		$	242
Interest cost		172			128			517			281
Expected return on plan assets		(260	)		(243	)		(780	)		(533	)
Net amortization and deferral		61			65			182			141
Net periodic benefit cost	$	63		$	60		$	188		$	131

Schedule of restricted stock activity

The following table details the vesting, awarding and forfeiting of restricted shares during the three and nine month periods ended September 30, 2016:

	Three months				Nine months
			Weighted					Weighted
	Unvested		Average		Unvested			Average
	Shares		Market Price		Shares			Market Price
Outstanding, beginning of period		8,603	$	48.88		8,269		$	49.98
Granted		-		-		3,650			47.81
Forfeited		-		-		-			-
Vested		-		-		(3,316	)		50.45
Outstanding, end of period		8,603	$	48.88		8,603		$	48.88

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Accumulated Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2016

Accumulated Comprehensive Income [Abstract]

Changes in accumulated other comprehensive income by component, net of tax

The following tables present the changes in accumulated other comprehensive income by component net of tax for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2016	$	4,403		$	(2,361	)	$	2,042
Other comprehensive loss before reclassifications (net of tax)		(692	)		-			(692	)
Amounts reclassified from accumulated other
comprehensive income  (net of tax)		-			40			40
Net current period other comprehensive income (loss)		(692	)		40			(652	)
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Nine months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2015	$	2,204		$	(2,440	)	$	(236	)
Other comprehensive income before reclassifications (net of tax)		1,609			-			1,609
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(102	)		119			17
Net current period other comprehensive income		1,507			119			1,626
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Three months ended September 30, 2015
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2015	$	2,430		$	(2,259	)	$	171
Other comprehensive income before reclassifications (net of tax)		722			-			722
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(85	)		34			(51	)
Net current period other comprehensive income		637			34			671
Balance as of September 30, 2015	$	3,067		$	(2,225	)	$	842

	Nine months ended September 30, 2015
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2014	$	3,093		$	(2,326	)	$	767
Other comprehensive income before reclassifications (net of tax)		258			-			258
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(284	)		101			(183	)
Net current period other comprehensive income (loss)		(26	)		101			75
Balance as of September 30, 2015	$	3,067		$	(2,225	)	$	842
(a) Amounts in parentheses indicate debits to the Consolidated Balance Sheet

Significant amounts reclassified out of each component of accumulated other comprehensive income

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2016 and 2015 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the  Consolidated Statement of Income
	Three Months Ended September 30,
	2016			2015
Unrealized gains and losses on available for sale securities
	$	-		$	129		Investment securities gains, net
		-			(44	)	Provision for income taxes
	$	-		$	85		Net of tax
Defined benefit pension items
	$	(61	)	$	(51	)	Salaries and employee benefits
		21			17		Provision for income taxes
	$	(40	)	$	(34	)	Net of tax
Total reclassifications	$	(40	)	$	51
	Nine Months Ended September 30,
		2016			2015
Unrealized gains and losses on available for sale securities
	$	155		$	430		Investment securities gains, net
		(53	)		(146	)	Provision for income taxes
	$	102		$	284		Net of tax
Defined benefit pension items
	$	(181	)	$	(153	)	Salaries and employee benefits
		62			52		Provision for income taxes
	$	(119	)	$	(101	)	Net of tax
Total reclassifications	$	(17	)	$	183
(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Measurements [Abstract]

Summary of assets measured at fair value on a recurring basis

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2016 and December 31, 2015 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2016	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Securities available for sale:
U.S. Agency securities	$	-	$	190,766	$	-	$	190,766
U.S. Treasury securities		5,020		-		-		5,020
Obligations of state and
political subdivisions		-		102,222		-		102,222
Corporate obligations		-		14,376		-		14,376
Mortgage-backed securities in
government sponsored entities		-		34,052		-		34,052
Equity securities in financial institutions		2,718		-		-		2,718
December 31, 2015
Fair value measurements on a recurring basis:
Securities available for sale:
U.S. Agency securities	$	-	$	199,591	$	-	$	199,591
U.S. Treasuries securities		10,082		-		-		10,082
Obligations of state and
political subdivisions		-		102,863		-		102,863
Corporate obligations		-		14,565		-		14,565
Mortgage-backed securities in
government sponsored entities		-		30,204		-		30,204
Equity securities in financial institutions		2,432		-		-		2,432

Summary of assets measured at fair value on non-recurring basis

Assets measured at fair value on a nonrecurring basis as of September 30, 2016 and December 31, 2015 are included in the table below (in thousands):

September 30, 2016	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	830	$	830
Other real estate owned		-		-		799		799
December 31, 2015
Impaired Loans	$	-	$	-	$	894	$	894
Other real estate owned		-		-		1,197		1,197

Significant unobservable inputs used in fair value measurement process

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

Quantitative Information about Level III Fair Value Measurements
September 30, 2016	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	830	Appraised Collateral Values	Discount to appraised value		0-75	%		40.43	%
				Selling costs		5%-10	%		8.11	%
				Holding period	6 - 12 months			10 months
Other real estate owned		799	Appraised Collateral Values	Discount to appraised value		0-37	%		25.90	%
December 31, 2015	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		894	Appraised Collateral Values	Discount to appraised value		0-70	%		46.50	%
				Selling costs		4%-10	%		7.75	%
				Holding period	0 - 12 months			10 months
Other real estate owned		1,197	Appraised Collateral Values	Discount to appraised value		0-75	%		25	%

Fair value of financial instruments

The fair values of the Company's financial instruments are as follows (in thousands):

	Carrying
September 30, 2016	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	16,371	$	16,371	$	16,371	$	-	$	-
Interest bearing time deposits with other banks		6,955		6,961		-		-		6,961
Available-for-sale securities		349,154		349,154		7,738		341,416
Loans held for sale		576		576		576
Net loans		743,099		764,383		-		-		764,383
Bank owned life insurance		26,050		26,050		26,050		-		-
Regulatory stock		4,139		4,139		4,139		-		-
Accrued interest receivable		3,988		3,988		3,988		-		-
Financial liabilities:
Deposits	$	1,008,747	$	1,009,877	$	742,676	$	-	$	267,201
Borrowed funds		51,859		50,674		12,740		-		37,934
Accrued interest payable		636		636		636		-		-
	Carrying
December 31, 2015	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	24,384	$	24,384	$	24,384	$	-	$	-
Interest bearing time deposits with other banks		7,696		7,705		-		-		7,705
Available-for-sale securities		359,737		359,737		12,514		347,223		-
Loans held for sale		603		603		603
Net loans		687,925		712,524		-		-		712,524
Bank owned life insurance		25,535		25,535		25,535		-		-
Regulatory stock		3,459		3,459		3,459		-		-
Accrued interest receivable		4,211		4,211		4,211		-		-
Financial liabilities:
Deposits	$	988,031	$	987,542	$	706,121	$	-	$	281,421
Borrowed funds		41,631		38,863		1,598		-		37,265
Accrued interest payable		734		734		734		-

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Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings per share basic and diluted [Abstract]
Net income applicable to common stock	$ 3,153	$ 2,857	$ 9,467	$ 9,166
Basic earnings per share computation [Abstract]
Weighted average common shares outstanding (in shares)	3,339,962	3,044,311	3,346,623	3,051,826
Earnings per share - basic (in dollars per share)	$ 0.94	$ 0.94	$ 2.83	$ 3.00
Diluted earnings per share computation [Abstract]
Weighted average common shares outstanding for basic earnings per share (in shares)	3,339,962	3,044,311	3,346,623	3,051,826
Add: Dilutive effects of restricted stock (in shares)	1,694	1,464	1,698	1,468
Weighted average common shares outstanding for dilutive earnings per share (in shares)	3,341,656	3,045,775	3,348,321	3,053,294
Earnings per share - diluted (in dollars per share)	$ 0.94	$ 0.94	$ 2.83	$ 3.00
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive restricted stock excluded from net income per share calculations (in shares)	3,804	2,696	3,804	2,696
Restricted Stock [Member] | Minimum [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive stock share price range (in dollars per share)	$ 46.69	$ 44.50	$ 46.69	$ 44.50
Restricted Stock [Member] | Maximum [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive stock share price range (in dollars per share)	$ 53.15	$ 53.15	$ 53.15	$ 53.15

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Income Tax Expense (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) Partnership	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) Partnership
Income Tax Expense [Abstract]
Investments in number of partnerships | Partnership			4		4
Investment amount in partnerships	$ 765,000		$ 765,000		$ 959,000
Investment Tax Credit Carryforward [Member]
Tax Credit Carryforward [Line Items]
Investment tax credits	895,000		$ 895,000
Tax credits recognition period			6 years 3 months
Tax credits recognized as reduction of tax expense amount	$ 50,000	$ 50,000	$ 149,000	$ 149,000

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Investments (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) Security	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) Security	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized Cost	$ 343,532		$ 343,532		$ 356,399
Gross Unrealized Gains	5,701		5,701		4,139
Gross Unrealized Losses	(79)		(79)		(801)
Fair Value	$ 349,154		$ 349,154		359,737
Number of securities owned with fair value less than cost | Security	24		24
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than Twelve Months, Fair Value	$ 19,810		$ 19,810		156,454
Twelve Months or Greater, Fair Value	1,855		1,855		5,279
Total, Fair Value	21,665		21,665		161,733
Less than Twelve Months, Gross Unrealized Losses	(64)		(64)		(748)
Twelve Months or Greater, Gross Unrealized Losses	(15)		(15)		(53)
Total, Gross Unrealized Losses	(79)		$ (79)		(801)
Duration securities impaired, minimum			1 year
Proceeds from sale of securities available-for-sale	0	$ 5,187	$ 12,077	$ 18,393
Realized investment gains (losses) [Abstract]
Gross gains	0	129	155	441
Gross losses	0	0	0	(11)
Net gains	0	$ 129	155	$ 430
Investment securities pledged as collateral	224,900		224,900		203,800
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Due in one year or less	49,510		49,510
Due after one year through five years	173,075		173,075
Due after five years through ten years	41,247		41,247
Due after ten years	77,698		77,698
Total	341,530		341,530
Available-for-Sale Debt Securities, Fair Value [Abstract]
Due in one year or less	49,724		49,724
Due after one year through five years	175,690		175,690
Due after five years through ten years	42,129		42,129
Due after ten years	78,893		78,893
Total	346,436		346,436
U.S. Agency Securities [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized Cost	188,936		188,936		199,749
Gross Unrealized Gains	1,839		1,839		369
Gross Unrealized Losses	(9)		(9)		(527)
Fair Value	190,766		190,766		199,591
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than Twelve Months, Fair Value	6,998		6,998		123,591
Twelve Months or Greater, Fair Value	0		0		0
Total, Fair Value	6,998		6,998		123,591
Less than Twelve Months, Gross Unrealized Losses	(9)		(9)		(527)
Twelve Months or Greater, Gross Unrealized Losses	0		0		0
Total, Gross Unrealized Losses	(9)		(9)		(527)
U.S. Treasury Securities [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized Cost	5,013		5,013		10,103
Gross Unrealized Gains	7		7		0
Gross Unrealized Losses	0		0		(21)
Fair Value	5,020		5,020		10,082
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than Twelve Months, Fair Value					10,082
Twelve Months or Greater, Fair Value					0
Total, Fair Value					10,082
Less than Twelve Months, Gross Unrealized Losses					(21)
Twelve Months or Greater, Gross Unrealized Losses					0
Total, Gross Unrealized Losses					(21)
Obligations of State and Political Subdivisions [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized Cost	99,557		99,557		99,856
Gross Unrealized Gains	2,702		2,702		3,080
Gross Unrealized Losses	(37)		(37)		(73)
Fair Value	102,222		102,222		102,863
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than Twelve Months, Fair Value	9,244		9,244		7,023
Twelve Months or Greater, Fair Value	0		0		2,914
Total, Fair Value	9,244		9,244		9,937
Less than Twelve Months, Gross Unrealized Losses	(37)		(37)		(57)
Twelve Months or Greater, Gross Unrealized Losses	0		0		(16)
Total, Gross Unrealized Losses	(37)		(37)		(73)
Corporate Obligations [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized Cost	14,359		14,359		14,583
Gross Unrealized Gains	17		17		68
Gross Unrealized Losses	0		0		(86)
Fair Value	14,376		14,376		14,565
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than Twelve Months, Fair Value					5,822
Twelve Months or Greater, Fair Value					2,138
Total, Fair Value					7,960
Less than Twelve Months, Gross Unrealized Losses					(61)
Twelve Months or Greater, Gross Unrealized Losses					(25)
Total, Gross Unrealized Losses					(86)
Mortgage-backed Securities in Government Sponsored Entities [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized Cost	33,665		33,665		30,107
Gross Unrealized Gains	420		420		186
Gross Unrealized Losses	(33)		(33)		(89)
Fair Value	34,052		34,052		30,204
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than Twelve Months, Fair Value	3,568		3,568		9,830
Twelve Months or Greater, Fair Value	1,855		1,855		227
Total, Fair Value	5,423		5,423		10,057
Less than Twelve Months, Gross Unrealized Losses	(18)		(18)		(77)
Twelve Months or Greater, Gross Unrealized Losses	(15)		(15)		(12)
Total, Gross Unrealized Losses	(33)		(33)		(89)
Equity Securities in Financial Institutions [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized Cost	2,002		2,002		2,001
Gross Unrealized Gains	716		716		436
Gross Unrealized Losses	0		0		(5)
Fair Value	$ 2,718		$ 2,718		2,432
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than Twelve Months, Fair Value					106
Twelve Months or Greater, Fair Value					0
Total, Fair Value					106
Less than Twelve Months, Gross Unrealized Losses					(5)
Twelve Months or Greater, Gross Unrealized Losses					0
Total, Gross Unrealized Losses					$ (5)

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Loans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Dec. 31, 2015	Dec. 11, 2015
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables					$ 751,293,000	$ 695,031,000
Individually evaluated for impairment					11,964,000	12,284,000
Loans acquired with deteriorated credit quality					3,565,000	3,818,000
Collectively evaluated for impairment					735,764,000	678,929,000
Allowance for loan losses					8,194,000	7,106,000
Allowance for loan losses related to individually evaluated for impairment					482,000	355,000
Allowance for loan losses related to loans acquired with deteriorated credit quality					0	0
Allowance for loan losses related to collectively evaluated for impairment					7,712,000	6,751,000
Net loans					743,099,000	687,925,000
Net loans, individually evaluated for impairment					11,482,000	11,929,000
Net loans, loans acquired with deteriorated credit quality					3,565,000	3,818,000
Net loans, collectively evaluated for impairment					728,052,000	672,178,000
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment					482,000	355,000
Collectively evaluated for impairment					7,712,000	6,751,000
Total	$ 8,194,000	$ 6,959,000	$ 7,106,000	$ 6,815,000	8,194,000	7,106,000
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	7,359,000	6,959,000	7,106,000	6,815,000
Charge-offs	(173,000)	(51,000)	(272,000)	(166,000)
Recoveries	508,000	17,000	590,000	36,000
Provision	500,000	120,000	770,000	360,000
Balance at end of period	8,194,000	7,045,000	$ 8,194,000	7,045,000
Minimum [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Number of days past for loan to be considered impaired, Minimum			90 days
First Mortgage [Member] | Minimum [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Period of mortgage on real estate			15 years
First Mortgage [Member] | Maximum [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Period of mortgage on real estate			30 years
Second Mortgage [Member] | Maximum [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Period of mortgage on real estate			15 years
Residential Real Estate Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables					205,092,000	203,407,000
Individually evaluated for impairment					969,000	304,000
Loans acquired with deteriorated credit quality					35,000	35,000
Collectively evaluated for impairment					204,088,000	203,068,000
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment					39,000	37,000
Collectively evaluated for impairment					974,000	868,000
Total	1,013,000	931,000	$ 1,013,000	878,000	1,013,000	905,000
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	990,000	931,000	905,000	878,000
Charge-offs	(9,000)	0	(52,000)	(34,000)
Recoveries	0	0	0	0
Provision	32,000	(18,000)	160,000	69,000
Balance at end of period	1,013,000	913,000	1,013,000	913,000
Commercial and Agricultural Real Estate Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables					339,704,000	295,364,000
Individually evaluated for impairment					5,567,000	6,235,000
Loans acquired with deteriorated credit quality					2,748,000	2,908,000
Collectively evaluated for impairment					331,389,000	286,221,000
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment					46,000	62,000
Collectively evaluated for impairment					4,560,000	3,723,000
Total	4,606,000	3,679,000	3,785,000	3,870,000	4,606,000	3,785,000
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	3,919,000	3,679,000	3,785,000	3,870,000
Charge-offs	(100,000)	0	(100,000)	(56,000)
Recoveries	467,000	4,000	475,000	11,000
Provision	320,000	120,000	446,000	(22,000)
Balance at end of period	4,606,000	3,803,000	4,606,000	3,803,000
Construction Real Estate Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables					18,774,000	15,011,000
Individually evaluated for impairment					0	0
Loans acquired with deteriorated credit quality					0	0
Collectively evaluated for impairment					18,774,000	15,011,000
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment					0	0
Collectively evaluated for impairment					34,000	24,000
Total	34,000	14,000	34,000	26,000	34,000	24,000
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	18,000	14,000	24,000	26,000
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	16,000	3,000	10,000	(9,000)
Balance at end of period	34,000	17,000	34,000	17,000
Consumer [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables					11,226,000	11,543,000
Individually evaluated for impairment					0	0
Loans acquired with deteriorated credit quality					4,000	9,000
Collectively evaluated for impairment					11,222,000	11,534,000
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment					0	0
Collectively evaluated for impairment					109,000	102,000
Total	109,000	89,000	109,000	84,000	109,000	102,000
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	104,000	89,000	102,000	84,000
Charge-offs	(27,000)	(11,000)	(65,000)	(35,000)
Recoveries	16,000	13,000	84,000	25,000
Provision	16,000	0	(12,000)	17,000
Balance at end of period	109,000	91,000	109,000	91,000
Other Commercial and Agricultural Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables					78,258,000	71,206,000
Individually evaluated for impairment					5,428,000	5,745,000
Loans acquired with deteriorated credit quality					778,000	866,000
Collectively evaluated for impairment					72,052,000	64,595,000
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment					397,000	256,000
Collectively evaluated for impairment					1,245,000	1,049,000
Total	1,642,000	1,502,000	1,642,000	1,224,000	1,642,000	1,305,000
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,564,000	1,502,000	1,305,000	1,224,000
Charge-offs	(37,000)	(40,000)	(55,000)	(41,000)
Recoveries	25,000	0	31,000	0
Provision	90,000	(17,000)	361,000	262,000
Balance at end of period	1,642,000	1,445,000	1,642,000	1,445,000
State and Political Subdivision Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables					98,239,000	98,500,000
Individually evaluated for impairment					0	0
Loans acquired with deteriorated credit quality					0	0
Collectively evaluated for impairment					98,239,000	98,500,000
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment					0	0
Collectively evaluated for impairment					771,000	593,000
Total	771,000	568,000	771,000	545,000	771,000	593,000
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	764,000	568,000	593,000	545,000
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	7,000	18,000	178,000	41,000
Balance at end of period	771,000	586,000	771,000	586,000
Unallocated [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment					0	0
Collectively evaluated for impairment					19,000	392,000
Total	19,000	176,000	19,000	188,000	19,000	392,000
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	0	176,000	392,000	188,000
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	19,000	14,000	(373,000)	2,000
Balance at end of period	19,000	$ 190,000	19,000	$ 190,000
First National Bank of Fredericksburg [Member]
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Unpaid principal balance amount							$ 6,969,000
Estimated fair value							3,809,000
Contractually required principal and interest at acquisition							9,913,000
Expected cash flows							4,474,000
Non-accretable discount							5,439,000
Accretable discount	464,000		637,000		376,000	637,000	$ 665,000
Changes in the accretable yield for purchased credit-impaired loans [Roll Forward]
Balance at beginning of period	464,000		637,000
Accretion	(88,000)		(261,000)
Balance at end of period	$ 376,000		$ 376,000
Loans acquired with specific evidence of deterioration in credit quality [Abstract]
Outstanding balance					6,774,000	6,950,000
Carrying amount					$ 3,565,000	$ 3,818,000

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Loans, Impaired Financing Receivable (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	$ 14,330		$ 14,330		$ 14,803
Recorded Investment With No Allowance	10,505		10,505		10,882
Recorded Investment With Allowance	1,459		1,459		1,402
Total Recorded Investment	11,964		11,964		12,284
Related Allowance	482		482		355
Average Recorded Investment	11,943	$ 7,995	12,556	$ 8,584
Interest Income Recognized	92	36	297	123
Interest Income Recognized Cash Basis	2	1	5	9
Real Estate Loans [Member] | Mortgages [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	959		959		281
Recorded Investment With No Allowance	574		574		114
Recorded Investment With Allowance	337		337		129
Total Recorded Investment	911		911		243
Related Allowance	28		28		26
Average Recorded Investment	607	269	486	239
Interest Income Recognized	1	4	10	8
Interest Income Recognized Cash Basis	0	0	0	5
Real Estate Loans [Member] | Home Equity [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	58		58		61
Recorded Investment With No Allowance	0		0		0
Recorded Investment With Allowance	58		58		61
Total Recorded Investment	58		58		61
Related Allowance	11		11		11
Average Recorded Investment	58	62	59	97
Interest Income Recognized	1	1	3	3
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Commercial [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	7,722		7,722		8,654
Recorded Investment With No Allowance	5,437		5,437		5,843
Recorded Investment With Allowance	130		130		225
Total Recorded Investment	5,567		5,567		6,068
Related Allowance	46		46		62
Average Recorded Investment	5,980	5,462	6,088	5,728
Interest Income Recognized	35	14	87	46
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Agricultural [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0		167
Recorded Investment With No Allowance	0		0		167
Recorded Investment With Allowance	0		0		0
Total Recorded Investment	0		0		167
Related Allowance	0		0		0
Average Recorded Investment	0	57	110	19
Interest Income Recognized	2	1	7	1
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Construction [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0		0
Recorded Investment With No Allowance	0		0		0
Recorded Investment With Allowance	0		0		0
Total Recorded Investment	0		0		0
Related Allowance	0		0		0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Interest Income Recognized Cash Basis	0	0	0	0
Consumer [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0		0
Recorded Investment With No Allowance	0		0		0
Recorded Investment With Allowance	0		0		0
Total Recorded Investment	0		0		0
Related Allowance	0		0		0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Interest Income Recognized Cash Basis	0	0	0	0
Other Commercial Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	5,591		5,591		5,535
Recorded Investment With No Allowance	4,494		4,494		4,653
Recorded Investment With Allowance	934		934		987
Total Recorded Investment	5,428		5,428		5,640
Related Allowance	397		397		256
Average Recorded Investment	5,298	2,107	5,743	2,488
Interest Income Recognized	53	15	187	64
Interest Income Recognized Cash Basis	2	1	5	4
Other Agricultural Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0		105
Recorded Investment With No Allowance	0		0		105
Recorded Investment With Allowance	0		0		0
Total Recorded Investment	0		0		105
Related Allowance	0		0		0
Average Recorded Investment	0	38	70	13
Interest Income Recognized	0	1	3	1
Interest Income Recognized Cash Basis	0	0	0	0
State and Political Subdivision Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0		0
Recorded Investment With No Allowance	0		0		0
Recorded Investment With Allowance	0		0		0
Total Recorded Investment	0		0		0
Related Allowance	0		0		$ 0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Interest Income Recognized Cash Basis	$ 0	$ 0	$ 0	$ 0

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Loans, Credit Quality Indicator (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable by credit exposure [Abstract]
Total	$ 216,318,000	$ 214,950,000
Minimum [Member]
Financing Receivable, Recorded Investment [Line Items]
Percentage of dollar volume of commercial loan portfolio to be reviewed	55.00%
Amount over which all new loans to be reviewed	$ 1,000,000
Amount over which all relationships to be reviewed	1,000,000
Amount which is 30 days past due to be reviewed for all aggregate loan relationships	750,000
Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	251,149,000	237,542,000
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	88,555,000	57,822,000
Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	18,774,000	15,011,000
Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	146,130,000	141,039,000
Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	58,962,000	62,368,000
Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	11,226,000	11,543,000
Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	57,062,000	57,549,000
Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	21,196,000	13,657,000
State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	98,239,000	98,500,000
Pass [Member]
Financing Receivable by credit exposure [Abstract]
Total	468,900,000	448,776,000
Pass [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	221,715,000	217,544,000
Pass [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	76,500,000	53,695,000
Pass [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	18,774,000	14,422,000
Pass [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	49,987,000	51,297,000
Pass [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	17,383,000	13,318,000
Pass [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	84,541,000	98,500,000
Special Mention [Member]
Financing Receivable by credit exposure [Abstract]
Total	40,916,000	8,284,000
Special Mention [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	13,935,000	4,150,000
Special Mention [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	8,969,000	2,865,000
Special Mention [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	589,000
Special Mention [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,964,000	446,000
Special Mention [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	2,350,000	234,000
Special Mention [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	13,698,000	0
Substandard [Member]
Financing Receivable by credit exposure [Abstract]
Total	25,000,000	22,852,000
Substandard [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	15,471,000	15,816,000
Substandard [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	3,086,000	1,262,000
Substandard [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Substandard [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	4,980,000	5,669,000
Substandard [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,463,000	105,000
Substandard [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Doubtful [Member]
Financing Receivable by credit exposure [Abstract]
Total	159,000	169,000
Doubtful [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	28,000	32,000
Doubtful [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Doubtful [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Doubtful [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	131,000	137,000
Doubtful [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Doubtful [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Internally Assigned Grade [Member]
Financing Receivable by credit exposure [Abstract]
Total	534,975,000	480,081,000
Performing [Member]
Financing Receivable by credit exposure [Abstract]
Total	214,240,000	213,440,000
Performing [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	144,249,000	139,734,000
Performing [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	58,845,000	62,236,000
Performing [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	11,146,000	11,470,000
Nonperforming [Member]
Financing Receivable by credit exposure [Abstract]
Total	2,039,000	1,466,000
Nonperforming [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,846,000	1,270,000
Nonperforming [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	117,000	132,000
Nonperforming [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	76,000	64,000
PCI [Member]
Financing Receivable by credit exposure [Abstract]
Total	39,000	44,000
PCI [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	35,000	35,000
PCI [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
PCI [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	$ 4,000	$ 9,000

XML

Loans, Past Due (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Recorded investment of past due [Abstract]
Total Past Due	$ 17,570	$ 9,288
Current	730,158	681,925
PCI	3,565	3,818
Total financing receivables	751,293	695,031
90 Days or Greater and Accruing	541	623
Financing receivables on nonaccrual status [Abstract]
Total Past Due And Non-accrual	9,194	5,608
Current And Non-accrual	837	923
PCI Loans considered non accrual	0	0
Financing receivable nonaccrual status	10,031	6,531
Financing receivables on accrual status [Abstract]
Total Past Due And Still Accruing	8,376	3,680
Current And Still Accruing	729,321	681,002
PCI Loans still accruing	3,565	3,818
Total Financing Receivables And Still Accruing	$ 741,262	688,500
Minimum [Member]
Financing receivables on nonaccrual status [Abstract]
Period of past due after which loans considered as non accrual	90 days
30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	$ 7,287	2,509
Financing receivables on nonaccrual status [Abstract]
Total Past Due And Non-accrual	331	54
Financing receivables on accrual status [Abstract]
Total Past Due And Still Accruing	6,956	2,455
60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	898	773
Financing receivables on nonaccrual status [Abstract]
Total Past Due And Non-accrual	19	171
Financing receivables on accrual status [Abstract]
Total Past Due And Still Accruing	879	602
90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	9,385	6,006
Financing receivables on nonaccrual status [Abstract]
Total Past Due And Non-accrual	8,844	5,383
Financing receivables on accrual status [Abstract]
Total Past Due And Still Accruing	541	623
Real Estate Loans [Member] | Mortgages [Member]
Recorded investment of past due [Abstract]
Total Past Due	2,001	1,457
Current	144,094	139,547
PCI	35	35
Total financing receivables	146,130	141,039
90 Days or Greater and Accruing	173	321
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	1,673	949
Real Estate Loans [Member] | Mortgages [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	720	487
Real Estate Loans [Member] | Mortgages [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	153	283
Real Estate Loans [Member] | Mortgages [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	1,128	687
Real Estate Loans [Member] | Home Equity [Member]
Recorded investment of past due [Abstract]
Total Past Due	480	766
Current	58,482	61,602
PCI	0	0
Total financing receivables	58,962	62,368
90 Days or Greater and Accruing	17	73
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	100	59
Real Estate Loans [Member] | Home Equity [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	398	630
Real Estate Loans [Member] | Home Equity [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	15	15
Real Estate Loans [Member] | Home Equity [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	67	121
Real Estate Loans [Member] | Commercial [Member]
Recorded investment of past due [Abstract]
Total Past Due	6,467	5,020
Current	242,675	230,352
PCI	2,007	2,170
Total financing receivables	251,149	237,542
90 Days or Greater and Accruing	259	60
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	4,056	4,422
Real Estate Loans [Member] | Commercial [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	2,151	824
Real Estate Loans [Member] | Commercial [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	251	57
Real Estate Loans [Member] | Commercial [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	4,065	4,139
Real Estate Loans [Member] | Agricultural [Member]
Recorded investment of past due [Abstract]
Total Past Due	2,650	344
Current	85,164	56,740
PCI	741	738
Total financing receivables	88,555	57,822
90 Days or Greater and Accruing	58	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	26	34
Real Estate Loans [Member] | Agricultural [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	2,415	177
Real Estate Loans [Member] | Agricultural [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	177	167
Real Estate Loans [Member] | Agricultural [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	58	0
Real Estate Loans [Member] | Construction [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	0
Current	18,774	15,011
PCI	0	0
Total financing receivables	18,774	15,011
90 Days or Greater and Accruing	0	0
Real Estate Loans [Member] | Construction [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	0
Real Estate Loans [Member] | Construction [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	0
Real Estate Loans [Member] | Construction [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	0
Consumer [Member]
Recorded investment of past due [Abstract]
Total Past Due	243	325
Current	10,979	11,209
PCI	4	9
Total financing receivables	11,226	11,543
90 Days or Greater and Accruing	34	9
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	42	55
Consumer [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	149	239
Consumer [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	42	37
Consumer [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	52	49
Other Commercial Loans [Member]
Recorded investment of past due [Abstract]
Total Past Due	4,318	1,367
Current	51,966	55,316
PCI	778	866
Total financing receivables	57,062	57,549
90 Days or Greater and Accruing	0	160
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	4,134	1,012
Other Commercial Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	303	143
Other Commercial Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	214
Other Commercial Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	4,015	1,010
Other Agricultural Loans [Member]
Recorded investment of past due [Abstract]
Total Past Due	1,411	9
Current	19,785	13,648
PCI	0	0
Total financing receivables	21,196	13,657
90 Days or Greater and Accruing	0	0
Other Agricultural Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	1,151	9
Other Agricultural Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	260	0
Other Agricultural Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	0
State and Political Subdivision Loans [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	0
Current	98,239	98,500
PCI	0	0
Total financing receivables	98,239	98,500
90 Days or Greater and Accruing	0	0
State and Political Subdivision Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	0
State and Political Subdivision Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total Past Due	0	0
State and Political Subdivision Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total Past Due	$ 0	$ 0

XML

Loans, Trouble Debt Restructuring (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($) Contract	Sep. 30, 2015 USD ($) Contract	Sep. 30, 2016 USD ($) Contract	Sep. 30, 2015 USD ($) Contract	Dec. 31, 2014 USD ($)	Dec. 31, 2015 USD ($)
Loans [Abstract]
Reserves of allowance for loan losses	$ 31,000		$ 31,000			$ 37,000
Financing receivable modifications [Abstract]
Number of contracts | Contract		0
Number of contract, subsequently defaults | Contract	0	0	0	0
Partially charged off	$ 173,000	$ 51,000	$ 272,000	$ 166,000
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	$ 1,198,000		$ 1,198,000			$ 1,354,000
Customer One [Member]
Financing receivable modifications [Abstract]
Partially charged off					$ 463,000
Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0		0	1
Pre-modification Outstanding Recorded Investment	$ 0		$ 0	$ 71,000
Post-Modification Outstanding Recorded Investment	$ 0		$ 0	$ 71,000
Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	4		7	1
Pre-modification Outstanding Recorded Investment	$ 3,826,000		$ 4,264,000	$ 19,000
Post-Modification Outstanding Recorded Investment	$ 3,826,000		$ 4,264,000	$ 19,000
Real Estate Loans [Member] | Mortgages [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract				1
Pre-modification Outstanding Recorded Investment				$ 71,000
Post-Modification Outstanding Recorded Investment				$ 71,000
Real Estate Loans [Member] | Mortgages [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract				1
Pre-modification Outstanding Recorded Investment				$ 19,000
Post-Modification Outstanding Recorded Investment				$ 19,000
Real Estate Loans [Member] | Commercial [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0		0
Pre-modification Outstanding Recorded Investment	$ 0		$ 0
Post-Modification Outstanding Recorded Investment	$ 0		$ 0
Real Estate Loans [Member] | Commercial [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	1		4
Pre-modification Outstanding Recorded Investment	$ 750,000		$ 1,188,000
Post-Modification Outstanding Recorded Investment	$ 750,000		$ 1,188,000
Other Commercial Loans [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0		0
Pre-modification Outstanding Recorded Investment	$ 0		$ 0
Post-Modification Outstanding Recorded Investment	$ 0		$ 0
Other Commercial Loans [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	3		3
Pre-modification Outstanding Recorded Investment	$ 3,076,000		$ 3,076,000
Post-Modification Outstanding Recorded Investment	3,076,000		3,076,000
Consumer Residential Mortgages [Member]
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	325,000		325,000
Formal foreclosure proceedings on potential foreclosure assets	$ 1,265,000		$ 1,265,000

XML

Goodwill and Other Intangible Assets (Details) - USD ($) $ in Thousands		3 Months Ended	9 Months Ended
		Sep. 30, 2016	Sep. 30, 2016	Dec. 31, 2015
Amortizing intangible assets [Abstract]
Gross carrying value	[1]	$ 3,102	$ 3,102	$ 3,102
Accumulated amortization	[1]	(1,043)	(1,043)	(665)
Net carrying value	[1]	2,059	2,059	2,437
Non-amortized intangible assets [Abstract]
Goodwill		21,089	21,089	21,089
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		124	378
Estimated Amortization Expense [Abstract]
Remaining 2016		122	122
2017		439	439
2018		380	380
2019		324	324
2020		243	243
Mortgage Servicing Rights [Member]
Amortizing intangible assets [Abstract]
Gross carrying value	[1]	1,336	1,336	1,336
Accumulated amortization	[1]	(770)	(770)	(638)
Net carrying value	[1]	566	566	698
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		42	132
Estimated Amortization Expense [Abstract]
Remaining 2016		41	41
2017		142	142
2018		113	113
2019		88	88
2020		66	66
Core Deposit Intangibles [Member]
Amortizing intangible assets [Abstract]
Gross carrying value	[1]	1,641	1,641	1,641
Accumulated amortization	[1]	(247)	(247)	(25)
Net carrying value	[1]	1,394	1,394	1,616
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		74	222
Estimated Amortization Expense [Abstract]
Remaining 2016		74	74
2017		266	266
2018		236	236
2019		206	206
2020		177	177
Covenant not to Compete [Member]
Amortizing intangible assets [Abstract]
Gross carrying value	[1]	125	125	125
Accumulated amortization	[1]	(26)	(26)	(2)
Net carrying value	[1]	99	99	$ 123
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		8	24
Estimated Amortization Expense [Abstract]
Remaining 2016		7	7
2017		31	31
2018		31	31
2019		30	30
2020		$ 0	$ 0

[1] Excludes fully amortized intangible assets

XML

Federal Home Loan Bank Stock (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Federal Home Loan Bank Stock [Abstract]
Federal home loan bank stock	$ 3,375,000	$ 2,800,000
FHLB Stock, at par value (in dollars per share)	$ 100

XML

Repurchase Agreements (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	$ 19,056	$ 20,193
Total liability recognized for repurchase agreements	15,091	16,008
U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	19,056	20,193
Overnight and Continuous [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	16,934	18,144
Overnight and Continuous [Member] | U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	16,934	18,144
Up to 30 Days [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	0	0
Up to 30 Days [Member] | U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	0	0
30 - 90 Days [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	0	0
30 - 90 Days [Member] | U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	0	0
Greater than 90 Days [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	2,122	2,049
Greater than 90 Days [Member] | U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	$ 2,122	$ 2,049

XML

Employee Benefit Plans (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) Plan $ / shares shares	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Employee Benefit Plans [Abstract]
Number of plans | Plan			2
Defined Contribution Plan [Abstract]
Employer contribution to 401 (k) defined contribution plan	$ 89,000	$ 60,000	$ 269,000	$ 215,000
Directors [Member]
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Deferred compensation liability	934,000		934,000		$ 958,000
Deferred interest expense	3,000	5,000	11,000	17,000
Pension Plan [Member]
Components of net periodic benefit cost [Abstract]
Service cost	90,000	110,000	269,000	242,000
Interest cost	172,000	128,000	517,000	281,000
Expected return on plan assets	(260,000)	(243,000)	(780,000)	(533,000)
Net amortization and deferral	61,000	65,000	182,000	141,000
Net periodic benefit cost	63,000	60,000	188,000	131,000
Defined Benefit Plans Other Disclosure [Abstract]
Employer contribution to pension plan			818,000
Supplemental Executive Retirement Plans [Member]
Defined Benefit Plans Other Disclosure [Abstract]
Obligation included in other liabilities	1,430,000		1,430,000		1,339,000
Cost recognized	30,000	35,000	91,000	106,000
Continuation of Life Insurance Plan [Member]
Defined Benefit Plans Other Disclosure [Abstract]
Obligation included in other liabilities	574,000		574,000		574,000
Salary Continuation Plan [Member]
Defined Benefit Plans Other Disclosure [Abstract]
Obligation included in other liabilities	719,000		719,000		$ 710,000
Cost recognized	$ 17,000		$ 49,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares) | shares	150,000		150,000
Number of shares available for grant (in shares) | shares	146,350		146,350
Restricted stock activity [Roll Forward]
Outstanding, beginning of period (in shares) | shares	8,603		8,269
Granted (in shares) | shares	0		3,650
Forfeited (in shares) | shares	0		0
Vested (in shares) | shares	0		(3,316)
Outstanding, end of period (in shares) | shares	8,603		8,603
Weighted average market price [Roll Forward]
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 48.88		$ 49.98
Granted (in dollars per share) | $ / shares	0		47.81
Forfeited (in dollars per share) | $ / shares	0		0
Vested (in dollars per share) | $ / shares	0		50.45
Outstanding, end of period (in dollars per share) | $ / shares	$ 48.88		$ 48.88
Additional General Disclosures [Abstract]
Share-based compensation expense	$ 50,000	$ 44,000	$ 142,000	$ 129,000
Compensation cost related to nonvested awards that has not yet been recognized	$ 421,000		$ 421,000
Period over which compensation cost is expected to be recognized			2 years 6 months

XML

Accumulated Comprehensive Income (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance				$ 119,760
Other comprehensive income (loss) before reclassifications (net of tax)		$ (692)	$ 722	1,609	$ 258
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		40	(51)	17	(183)
Other comprehensive income (loss), net of tax		(652)	671	1,626	75
Ending Balance		125,550		125,550
Accumulated Other Comprehensive Income [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance		2,042	171	(236)	767
Ending Balance		1,390	842	1,390	842
Unrealized Gains (Loss) on Available for Sale Securities [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	[1]	4,403	2,430	2,204	3,093
Other comprehensive income (loss) before reclassifications (net of tax)	[1]	(692)	722	1,609	258
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	[1]	0	(85)	(102)	(284)
Other comprehensive income (loss), net of tax	[1]	(692)	637	1,507	(26)
Ending Balance	[1]	3,711	3,067	3,711	3,067
Defined Benefit Pension Items [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	[1]	(2,361)	(2,259)	(2,440)	(2,326)
Other comprehensive income (loss) before reclassifications (net of tax)	[1]	0	0	0	0
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	[1]	40	34	119	101
Other comprehensive income (loss), net of tax	[1]	40	34	119	101
Ending Balance	[1]	$ (2,321)	$ (2,225)	$ (2,321)	$ (2,225)

[1] Amounts in parentheses indicate debits to the Consolidated Balance Sheet

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Accumulated Comprehensive Income, Reclassification (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Investment securities gains, net		$ 0	$ 129	$ 155	$ 430
Salaries and employee benefits		(4,285)	(3,069)	(12,067)	(9,118)
Provision for income taxes		(767)	(681)	(2,245)	(2,200)
NET INCOME		3,153	2,857	9,467	9,166
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
NET INCOME	[1]	(40)	51	(17)	183
Unrealized Gains (Loss) on Available for Sale Securities [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Investment securities gains, net	[1]	0	129	155	430
Provision for income taxes	[1]	0	(44)	(53)	(146)
NET INCOME	[1]	0	85	102	284
Defined Benefit Pension Items [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	[1]	(61)	(51)	(181)	(153)
Provision for income taxes	[1]	21	17	62	52
NET INCOME	[1]	$ (40)	$ (34)	$ (119)	$ (101)

[1] Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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Fair Value Measurements, Measured On A Recurring And Nonrecurring Basis (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired loans, estimated selling cost	$ 104,000	$ 91,000
Recurring [Member]
Securities available for sale [Abstract]
U.S. Agency securities	190,766,000	199,591,000
U.S. Treasuries securities	5,020,000	10,082,000
Obligations of state and political subdivisions	102,222,000	102,863,000
Corporate obligations	14,376,000	14,565,000
Mortgage-backed securities in government sponsored entities	34,052,000	30,204,000
Equity securities in financial institutions	2,718,000	2,432,000
Recurring [Member] | Level I [Member]
Securities available for sale [Abstract]
U.S. Agency securities	0	0
U.S. Treasuries securities	5,020,000	10,082,000
Obligations of state and political subdivisions	0	0
Corporate obligations	0	0
Mortgage-backed securities in government sponsored entities	0	0
Equity securities in financial institutions	2,718,000	2,432,000
Recurring [Member] | Level II [Member]
Securities available for sale [Abstract]
U.S. Agency securities	190,766,000	199,591,000
U.S. Treasuries securities	0	0
Obligations of state and political subdivisions	102,222,000	102,863,000
Corporate obligations	14,376,000	14,565,000
Mortgage-backed securities in government sponsored entities	34,052,000	30,204,000
Equity securities in financial institutions	0	0
Recurring [Member] | Level III [Member]
Securities available for sale [Abstract]
U.S. Agency securities	0	0
U.S. Treasuries securities	0	0
Obligations of state and political subdivisions	0	0
Corporate obligations	0	0
Mortgage-backed securities in government sponsored entities	0	0
Equity securities in financial institutions	0	0
Nonrecurring [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	830,000	894,000
Other real estate owned	799,000	1,197,000
Nonrecurring [Member] | Level I [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	0	0
Other real estate owned	0	0
Nonrecurring [Member] | Level II [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	0	0
Other real estate owned	0	0
Nonrecurring [Member] | Level III [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	830,000	894,000
Other real estate owned	$ 799,000	$ 1,197,000

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Fair Value Measurements, Quantitative Information (Details) - Appraised Collateral Values [Member] - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 830	$ 894
Valuation Technique(s)	Appraised Collateral Values	Appraised Collateral Values
Impaired Loans [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount to appraised value	0.00%	0.00%
Selling costs	5.00%	4.00%
Holding period	6 months	0 months
Impaired Loans [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount to appraised value	75.00%	70.00%
Selling costs	10.00%	10.00%
Holding period	12 months	12 months
Impaired Loans [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount to appraised value	40.43%	46.50%
Selling costs	8.11%	7.75%
Holding period	10 months	10 months
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 799	$ 1,197
Valuation Technique(s)	Appraised Collateral Values	Appraised Collateral Values
Other Real Estate Owned [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount to appraised value	0.00%	0.00%
Other Real Estate Owned [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount to appraised value	37.00%	75.00%
Other Real Estate Owned [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount to appraised value	25.90%	25.00%

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Fair Value Measurements, By Balance Sheet Grouping (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Financial assets [Abstract]
Interest bearing time deposits with other banks	$ 6,955	$ 7,696
Available-for-sale securities	$ 349,154	359,737
Financial liabilities [Abstract]
Consideration period for recognition of cash and due from banks	90 days
Consideration period for recognition of accrued interest receivable and payable	90 days
Level I [Member]
Financial assets [Abstract]
Cash and due from banks	$ 16,371	24,384
Interest bearing time deposits with other banks	0	0
Available-for-sale securities	7,738	12,514
Loans held for sale	576	603
Net loans	0	0
Bank owned life insurance	26,050	25,535
Regulatory stock	4,139	3,459
Accrued interest receivable	3,988	4,211
Financial liabilities [Abstract]
Deposits	742,676	706,121
Borrowed funds	12,740	1,598
Accrued interest payable	636	734
Level II [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Interest bearing time deposits with other banks	0	0
Available-for-sale securities	341,416	347,223
Net loans	0	0
Bank owned life insurance	0	0
Regulatory stock	0	0
Accrued interest receivable	0	0
Financial liabilities [Abstract]
Deposits	0	0
Borrowed funds	0	0
Accrued interest payable	0	0
Level III [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Interest bearing time deposits with other banks	6,961	7,705
Available-for-sale securities		0
Net loans	764,383	712,524
Bank owned life insurance	0	0
Regulatory stock	0	0
Accrued interest receivable	0	0
Financial liabilities [Abstract]
Deposits	267,201	281,421
Borrowed funds	37,934	37,265
Accrued interest payable	0
Carrying Amount [Member]
Financial assets [Abstract]
Cash and due from banks	16,371	24,384
Interest bearing time deposits with other banks	6,955	7,696
Available-for-sale securities	349,154	359,737
Loans held for sale	576	603
Net loans	743,099	687,925
Bank owned life insurance	26,050	25,535
Regulatory stock	4,139	3,459
Accrued interest receivable	3,988	4,211
Financial liabilities [Abstract]
Deposits	1,008,747	988,031
Borrowed funds	51,859	41,631
Accrued interest payable	636	734
Fair Value [Member]
Financial assets [Abstract]
Cash and due from banks	16,371	24,384
Interest bearing time deposits with other banks	6,961	7,705
Available-for-sale securities	349,154	359,737
Loans held for sale	576	603
Net loans	764,383	712,524
Bank owned life insurance	26,050	25,535
Regulatory stock	4,139	3,459
Accrued interest receivable	3,988	4,211
Financial liabilities [Abstract]
Deposits	1,009,877	987,542
Borrowed funds	50,674	38,863
Accrued interest payable	$ 636	$ 734