10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2016
☐	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: 000-19202

ChoiceOne Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)

Michigan (State or Other Jurisdiction of Incorporation or Organization)	38-2659066 (I.R.S. Employer Identification No.)
109 East Division Sparta, Michigan (Address of Principal Executive Offices)	49345 (Zip Code)
(616) 887-7366 (Registrant’s Telephone Number, including Area Code)

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

Yes  ☒           No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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  ☒          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 ☐
Non-accelerated filer ☐	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 ☒

As of October 31, 2016, the Registrant had outstanding 3,276,097 shares of common stock.

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)	September 30, 2016 (Unaudited)			December 31, 2015 (Audited)
Assets
Cash and due from banks	$	12,644		$	11,187
Securities available for sale (Note 2)		177,444			160,136
Federal Home Loan Bank stock		1,679			1,614
Federal Reserve Bank stock		1,573			1,573
Loans held for sale		2,838			4,957
Loans (Note 3)		362,603			349,304
Allowance for loan losses (Note 3)		(4,276	)		(4,194	)
Loans, net		358,327			345,110
Premises and equipment, net		12,394			11,847
Cash value of life insurance policies		12,526			12,261
Intangible assets, net		43			379
Goodwill		13,728			13,728
Other assets		5,468			4,954
Total assets	$	598,664		$	567,746
Liabilities
Deposits – noninterest-bearing	$	123,609		$	122,937
Deposits – interest-bearing		353,778			351,759
Total deposits		477,387			474,696
Federal funds purchased		624			—
Repurchase agreements		6,417			9,460
Advances from Federal Home Loan Bank		37,309			11,332
Other liabilities		3,348			2,416
Total liabilities		525,085			497,904
Shareholders’ Equity
Common stock and paid in capital, no par value; shares authorized: 7,000,000; shares outstanding: 3,275,201 at September 30, 2016 and 3,295,228 at December 31, 2015		46,228			46,501
Retained earnings		24,866			22,138
Accumulated other comprehensive income, net		2,485			1,203
Total shareholders’ equity		73,579			69,842
Total liabilities and shareholders’ equity	$	598,664		$	567,746

See accompanying notes to interim consolidated financial statements.

2 

ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share data)	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Interest income
Loans, including fees	$	4,210		$	4,015		$	12,293		$	11,945
Securities:
Taxable		594			489			1,731			1,427
Tax exempt		358			361			1,088			1,067
Other		5			6			14			10
Total interest income		5,167			4,871			15,126			14,449
Interest expense
Deposits		190			222			599			663
Advances from Federal Home Loan Bank		44			17			119			64
Other		2			7			7			28
Total interest expense		236			246			725			755
Net interest income		4,931			4,625			14,401			13,694
Provision for loan losses		—			—			—			100
Net interest income after provision for loan losses		4,931			4,625			14,401			13,594
Noninterest income
Customer service charges		1,030			1,092			3,020			3,137
Insurance and investment commissions		290			219			740			852
Gains on sales of loans		508			308			1,345			1,120
Gains on sales of securities		28			155			255			208
Losses on sales and write-downs of other assets		(3	)		(21	)		(26	)		(97	)
Earnings on life insurance policies		88			87			265			562
Other		124			120			360			322
Total noninterest income		2,065			1,960			5,959			6,104
Noninterest expense
Salaries and benefits		2,542			2,323			7,519			6,835
Occupancy and equipment		626			598			1,959			1,786
Data processing		556			558			1,654			1,689
Professional fees		232			263			700			776
Supplies and postage		92			100			312			278
Advertising and promotional		52			54			184			179
Intangible amortization		112			112			336			336
Loan and collection expense		15			53			59			104
FDIC insurance		78			72			218			222
Other		364			469			1,426			1,441
Total noninterest expense		4,669			4,602			14,367			13,646
Income before income tax		2,327			1,983			5,993			6,052
Income tax expense		644			533			1,591			1,529
Net income	$	1,683		$	1,450		$	4,402		$	4,523
Basic earnings per share (Note 4)	$	0.52		$	0.44		$	1.34		$	1.37
Diluted earnings per share (Note 4)	$	0.52		$	0.44		$	1.34		$	1.37
Dividends declared per share	$	0.17		$	0.17		$	0.51		$	0.49

See accompanying notes to interim consolidated financial statements.

3 

ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net income	$	1,683		$	1,450		$	4,402		$	4,523
Other comprehensive income:
Changes in net unrealized gains on investment securities available for sale, net of tax expense of $36 and $291 for the three months ended September 30, 2016 and  September 30, 2015 respectively.  Changes in net unrealized gains on investment securities available for sale, net of tax expense of $748 and $356 for the nine months ended September 30, 2016 and September 30, 2015 respectively.		68			564			1,450			688
Less: Reclassification adjustment for realized gain on sale of investment securities available for sale included in net income, net of tax benefit of $9 and $53 for the three months ended September 30, 2016 and  September 30, 2015 respectively.  Reclassification adjustment for realized gain on sale of investment securities available for sale included in net income, net of tax benefit of $87 and $71 for the nine months ended September 30, 2016 and  September 30, 2015 respectively.		(19	)		(102	)		(168	)		(137	)
Change in adjustment for pension and other postretirement benefits, net of tax benefit (expense).		—			—			—			—
Other comprehensive income (loss), net of tax		49			462			1,282			551
Comprehensive income	$	1,732		$	1,912		$	5,684		$	5,074

See accompanying notes to interim consolidated financial statements.

4 

ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands)	Number of Shares			Common Stock and Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income, Net		Total
Balance, January 1, 2015		3,295,834		$	46,552		$	18,565		$	1,073	$	66,190
Net income								4,523					4,523
Other comprehensive income											551		551
Shares issued		10,010			153								153
Change in ESOP repurchase obligation					(4	)							(4	)
Shares repurchased		(16,200	)		(371	)							(371	)
Effect of employee stock purchases					9								9
Stock-based compensation		2,284			60								60
Cash dividends declared ($0.49 per share)								(1,610	)				(1,610	)
Balance, September 30, 2015		3,291,928		$	46,399		$	21,478		$	1,624	$	69,501
Balance, January 1, 2016		3,295,228		$	46,501		$	22,138		$	1,203	$	69,842
Net income								4,402					4,402
Other comprehensive income											1,282		1,282
Shares issued		11,559			137								137
Change in ESOP repurchase obligation					127								127
Shares repurchased		(35,000	)		(794	)							(794	)
Effect of employee stock purchases					9								9
Stock-based compensation		3,414			248								248
Cash dividends declared ($0.51 per share)								(1,674	)				(1,674	)
Balance, September 30, 2016		3,275,201		$	46,228		$	24,866		$	2,485	$	73,579

See accompanying notes to interim consolidated financial statements.

5 

ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net income	$	4,402		$	4,523
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		—			100
Depreciation		757			736
Amortization		1,199			1,111
Compensation expense on stock purchases and restricted stock units		257			69
Gains on sales of securities		(255	)		(208	)
Gains on sales of loans		(1,345	)		(1,120	)
Loans originated for sale		(39,173	)		(36,402	)
Proceeds from loan sales		42,313			37,093
Earnings on bank-owned life insurance		(265	)		(562	)
Proceeds on bank-owned life insurance		—			461
(Gains) Losses on sales of other real estate owned		3			(11	)
Write-downs of other real estate owned		—			108
Proceeds from sales of other real estate owned		28			299
Deferred federal income tax benefit		(86	)		(209	)
Net changes in other assets		(135	)		(716	)
Net changes in other liabilities		481			(452	)
Net cash from operating activities		8,181			4,820
Cash flows from investing activities:
Securities available for sale:
Sales		14,538			23,329
Maturities, prepayments and calls		33,412			12,469
Purchases		(63,780	)		(47,171	)
Loan originations and payments, net		(13,700	)		2,733
Additions to premises and equipment		(1,112	)		(826	)
Net cash from investing activities		(30,642	)		(9,466	)
Cash flows from financing activities:
Net change in deposits		2,691			32,268
Net change in repurchase agreements		(3,043	)		(19,705	)
Net change in federal funds purchased		624			1,171
Proceeds from Federal Home Loan Bank advances		271,000			116,575
Payments on Federal Home Loan Bank advances		(245,023	)		(128,098	)
Issuance of common stock		137			153
Repurchase of common stock		(794	)		(371	)
Cash dividends		(1,674	)		(1,610	)
Net cash from financing activities		23,918			383
Net change in cash and cash equivalents		1,457			(4,263	)
Beginning cash and cash equivalents		11,187			16,650
Ending cash and cash equivalents	$	12,644		$	12,387
Supplemental disclosures of cash flow information:
Cash paid for interest	$	726		$	766
Cash paid for taxes	$	925		$	2,395
Loans transferred to other real estate owned	$	483		$	378

See accompanying notes to interim consolidated financial statements.

6 

ChoiceOne Financial Services, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include ChoiceOne Financial Services, Inc. (“ChoiceOne”) and its wholly-owned subsidiary, ChoiceOne Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. Intercompany transactions and balances have been eliminated in consolidation.

The unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading.

The accompanying consolidated financial statements reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of the Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015, the Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2016 and September 30, 2015, the Consolidated Statements of Comprehensive Income for the three- and nine-month periods ended September 30, 2016 and September 30, 2015, the Consolidated Statements of Changes in Shareholders’ Equity for the nine-month periods ended September 30, 2016 and September 30, 2015, and the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2016 and September 30, 2015. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2015.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses inherent in the consolidated loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, assessments of the impact of current economic conditions on the portfolio and historical loss experience of seasoned loan portfolios. See Note 3 to the interim consolidated financial statements for additional information.

Management believes the accounting estimate related to the allowance for loan losses is a “critical accounting estimate” because (1) the estimate is highly susceptible to change from period to period because of assumptions concerning the changes in the types and volumes of the portfolios and economic conditions and (2) the impact of recognizing an impairment or loan loss could have a material effect on ChoiceOne’s assets reported on the balance sheets as well as its net income.

Stock Transactions

A total of 4,112 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $95,000 under the terms of the Directors’ Stock Purchase Plan in the first nine months of 2016. A total of 4,793 shares of common stock were issued upon the exercise of stock options in the first three quarters of 2016. A total of 2,654 shares of common stock were issued to employees for a cash price of $51,000 under the Employee Stock Purchase Plan in the first nine months of 2016. A total of 3,414 shares of common stock were issued to employees upon vesting of Restricted Stock Units during the first three quarters of 2016. A total of 35,000 shares of common stock were repurchased by ChoiceOne in the first nine months of 2016.

Stock-Based Compensation

Effective July 1, 2013, ChoiceOne began granting Restricted Stock Units to a select group of employees under the Stock Incentive Plan of 2012. All of the Restricted Stock Units are initially unvested and vest in three annual installments on each of the next three anniversaries of the grant date. Certain additional vesting provisions apply. Each unit, once vested, is settled by issuance of one share of ChoiceOne common stock.

 7

NOTE 2 - SECURITIES

The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	September 30, 2016
				Gross		Gross
(Dollars in thousands)		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
U.S. Government and federal agency	$	64,440	$	381	$	(17	)	$	64,804
U.S. Treasury		2,074		43		(1	)		2,116
State and municipal		87,661		2,878		(25	)		90,514
Mortgage-backed		8,511		62		(14	)		8,559
Corporate		7,370		64		(1	)		7,433
Foreign debt		1,000		2		—			1,002
Equity securities		2,614		204		—			2,818
Asset-backed securities		202		—		(4	)		198
Total	$	173,872	$	3,634	$	(62	)	$	177,444

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
U.S. Government and federal agency	$	57,406	$	30	$	(229	)	$	57,207
U.S. Treasury		6,133		0		(33	)		6,100
State and municipal		76,005		1,858		(109	)		77,754
Mortgage-backed		6,989		26		(45	)		6,970
Corporate		8,418		8		(39	)		8,387
Foreign debt		1,000		—		(5	)		995
Equity securities		2,279		174		—			2,453
Asset-backed securities		274		—		(4	)		270
Total	$	158,504	$	2,096	$	(464	)	$	160,136

 8

Contractual maturities of securities available for sale at September 30, 2016 were as follows:

(Dollars in thousands)		Fair
		Value
Due within one year	$	31,758
Due after one year through five years		95,744
Due after five years through ten years		44,022
Due after ten years		3,103
Total debt securities		174,627
Equity securities		2,817
Total	$	177,444

Securities with unrealized losses at September 30, 2016 and year-end 2015, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

	September 30, 2016
	Less than 12 months					More than 12 months					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government and federal agency	$	7,551	$	(18	)	$	—	$	—		$	7,551	$	(18	)
State and municipal		3,506		(19	)		260		(5	)		3,766		(24	)
Mortgage-backed		2,827		(12	)		280		(1	)		3,107		(13	)
Corporate		501		(1	)		399		(1	)		900		(2	)
Asset-backed securities		—		—			198		(5	)		198		(5	)
Total temporarily impaired	$	14,385	$	(50	)	$	1,137	$	(12	)	$	15,522	$	(62	)

	December 31, 2015
	Less than 12 months					More than 12 months					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government and federal agency	$	38,567	$	(216	)	$	986	$	(13	)	$	39,553	$	(229	)
U.S. Treasury notes and bonds		6,101		(33	)		—		—			6,101		(33	)
State and municipal		10,382		(69	)		2,906		(40	)		13,288		(109	)
Mortgage-backed		4,459		(41	)		382		(4	)		4,841		(45	)
Corporate		4,284		(33	)		896		(6	)		5,180		(39	)
Foreign debt		995		(5	)		—		—			995		(5	)
Asset-backed securities		—		—			270		(4	)		270		(4	)
Total temporarily impaired	$	64,788	$	(397	)	$	5,440	$	(67	)	$	70,228	$	(464	)

ChoiceOne reviews its securities portfolio on a quarterly basis to determine whether unrealized losses are considered to be temporary or other-than-temporary. No other-than-temporary impairment charges were recorded during the nine months ended September 30, 2016. ChoiceOne believed that unrealized losses on securities were temporary in nature and were due to changes in interest rates and reduced market liquidity and not as a result of credit quality issues.

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NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses and balances in the loan portfolio were as follows:

(Dollars in thousands)	Agricultural			Commercial and Industrial			Consumer			Commercial Real Estate			Construction Real Estate			Residential Real Estate			Unallocated			Total
Allowance for Loan Losses
Three Months Ended September 30, 2016
Beginning balance	$	399		$	656		$	279		$	1,133		$	44		$	1,222		$	563		$	4,296
Charge-offs		—			—			(68	)		—			—			(25	)		—			(93	)
Recoveries		—			8			49			5			—			11			—			73
Provision		(11	)		(55	)		30			340			(3	)		(205	)		(96	)		—
Ending balance	$	388		$	609		$	290		$	1,478		$	41		$	1,003		$	467		$	4,276
Nine Months Ended September 30, 2016
Beginning balance	$	420		$	586		$	297		$	1,030		$	46		$	1,388		$	427		$	4,194
Charge-offs		—			(33	)		(136	)		—			—			(94	)		—			(263	)
Recoveries		—			31			119			35			—			160			—			345
Provision		(32	)		26			10			412			(5	)		(451	)		40			—
Ending balance	$	388		$	610		$	290		$	1,477		$	41		$	1,003		$	467		$	4,276
Individually evaluated for impairment	$	4		$	8		$	1		$	167		$	—		$	321		$	—		$	501
Collectively evaluated for impairment	$	384		$	602		$	289		$	1,310		$	41		$	682		$	467		$	3,775
Three Months Ended September 30, 2015
Beginning balance	$	279		$	498		$	193		$	1,284		$	28		$	1,375		$	695		$	4,352
Charge-offs		—			—			(65	)		—			—			(25	)		—			(90	)
Recoveries		—			11			25			15			—			4			—			55
Provision		10			(14	)		57			(179	)		15			(2	)		113			—
Ending balance	$	289		$	495		$	210		$	1,120		$	43		$	1,352		$	808		$	4,317
Nine Months Ended September 30, 2015
Beginning balance	$	187		$	527		$	183		$	1,641		$	9		$	1,193		$	433		$	4,173
Charge-offs		—			—			(172	)		—			—			(46	)		—			(218	)
Recoveries		1			59			104			36			—			62			—			262
Provision		101			(91	)		95			(557	)		34			143			375			100
Ending balance	$	289		$	495		$	210		$	1,120		$	43		$	1,352		$	808		$	4,317
Individually evaluated for impairment	$	3		$	1		$	29		$	296		$	—		$	355		$	—		$	684
Collectively evaluated for impairment	$	286		$	494		$	181		$	824		$	43		$	997		$	808		$	3,633
Loans
September 30, 2016
Individually evaluated for impairment	$	534		$	450		$	26		$	1,459		$	—		$	3,109					$	5,578
Collectively evaluated for impairment		37,744			95,221			21,427			107,608			6,027			88,998						357,025
Ending balance	$	38,278		$	95,671		$	21,453		$	109,067		$	6,027		$	92,107					$	362,603
December 31, 2015
Individually evaluated for impairment	$	50		$	192		$	24		$	2,790		$	—		$	2,529					$	5,585
Collectively evaluated for impairment		40,182			94,155			20,066			94,946			5,390			88,980						343,719
Ending balance	$	40,232		$	94,347		$	20,090		$	97,736		$	5,390		$	91,509					$	349,304

10 

The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans, (2) the level of classified business loans, and (3) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 8. A description of the characteristics of the ratings follows:

Risk ratings 1 and 2: These loans are considered pass credits. They exhibit good to exceptional credit risk and demonstrate the ability to repay the loan from normal business operations.

Risk rating 3: These loans are considered pass credits. They exhibit acceptable credit risk and demonstrate the ability to repay the loan from normal business operations.

Risk rating 4: These loans are considered pass credits. However, they have potential developing weaknesses that, if not corrected, may cause deterioration in the ability of the borrower to repay the loan. While a loss is possible for a loan with this rating, it is not anticipated.

Risk rating 5: These loans are considered special mention credits. Loans in this risk rating are considered to be inadequately protected by the net worth and debt service coverage of the borrower or of any pledged collateral. These loans have well defined weaknesses that may jeopardize the borrower’s ability to repay the loan. If the weaknesses are not corrected, loss of principal and interest could be probable.

Risk rating 6: These loans are considered substandard credits. These loans have well defined weaknesses, the severity of which makes collection of principal and interest in full, questionable. Loans in this category may be placed on nonaccrual status.

Risk rating 7: These loans are considered doubtful credits. Some loss of principal and interest has been determined to be probable. The estimate of the amount of loss could be affected by factors such as the borrower’s ability to provide additional capital or collateral. Loans in this category are on nonaccrual status.

Risk rating 8: These loans are considered loss credits. They are considered uncollectible and will be charged off against the allowance for loan losses.

Information regarding the Bank’s credit exposure is as follows:

Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category:

	Agricultural				Commercial and Industrial				Commercial Real Estate
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Risk ratings 1 and 2	$	8,072	$	10,416	$	11,672	$	10,480	$	7,305	$	3,875
Risk rating 3		21,626		25,189		63,450		66,921		57,355		57,540
Risk rating 4		7,269		3,086		19,242		16,169		40,692		29,826
Risk rating 5		1,267		1,491		1,227		574		3,153		3,776
Risk rating 6		44		50		80		129		562		2,719
Risk rating 7		—		—		—		74		—		—
	$	38,278	$	40,232	$	95,671	$	94,347	$	109,067	$	97,736
Corporate Credit Exposure - Credit Risk Profile Based On Payment Activity:
	Consumer				Construction Real Estate				Residential Real Estate
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Performing	$	21,448	$	20,090	$	6,027	$	5,390	$	91,317	$	90,796
Nonperforming		5		—		—		—		336		282
Nonaccrual		—		—		—		—		454		431
	$	21,453	$	20,090	$	6,027	$	5,390	$	92,107	$	91,509

11 

The following schedule provides information on loans that were considered TDRs that were modified during the three- and nine-month periods ended September 30, 2016:

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Investment		Investment		Loans		Investment		Investment
Agricultural		—	$	—	$	—		1	$	113	$	113
Residential real estate		—		—		—		2		156		156
		—	$	—	$	—		3	$	269	$	269

The following schedule provides information on loans that were considered TDRs that were modified during the three- and nine-month periods ended September 30, 2015:

	Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Investment		Investment		Loans		Investment		Investment
Commercial real estate		—	$	—	$	—		4	$	448	$	448
Residential real estate		1		85		85		2		193		193
		1	$	85	$	85		6	$	641	$	641

The pre-modification and post-modification outstanding recorded investment represents amounts as of the date of loan modification. If a difference exists between the pre-modification and post-modification outstanding recorded investment, it represents impairment recognized through the provision for loan losses computed based on a loan’s post-modification present value of expected future cash flows discounted at the loan’s original effective interest rate. If no difference exists, a loss is not expected to be incurred based on an assessment of the borrower’s expected cash flows.

The following schedule provides information on TDRs as of September 30, 2016 where the borrower was past due with respect to principal and/or interest for 30 days or more during the three months and nine months ended September 30, 2016 that had been modified during the year prior to the default:

	Three Months Ended				Nine Months Ended
	September 30, 2016				September 30, 2016
(Dollars in thousands)	Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment
Agricultural		—	$	—		1	$	113

The following schedule provides information on TDRs as of September 30, 2015 where the borrower was past due with respect to principal and/or interest for 30 days or more during the three months and nine months ended September 30, 2015 that had been modified during the year prior to the default:

	Three Months Ended				Nine Months Ended
	September 30, 2015				September 30, 2015
(Dollars in thousands)	Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment
Commercial real estate		2	$	293		3	$	409

Loans are classified as performing when they are current as to principal and interest payments or are past due on payments less than 90 days. Loans are classified as nonperforming when they are past due 90 days or more as to principal and interest payments or are considered a troubled debt restructuring.

12 

Impaired loans by loan category follow:

			Unpaid
(Dollars in thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
September 30, 2016
With no related allowance recorded
Agricultural	$	489	$	493	$	—
Commercial and industrial		177		177		—
Consumer		5		5		—
Commercial real estate		230		351		—
Residential real estate		266		266		—
Subtotal		1,167		1,292		—
With an allowance recorded
Agricultural		45		45		4
Commercial and industrial		273		247		8
Consumer		21		21		1
Commercial real estate		1,229		1,799		167
Residential real estate		2,843		2,859		321
Subtotal		4,411		4,971		501
Total
Agricultural		534		538		4
Commercial and industrial		450		424		8
Consumer		26		26		1
Commercial real estate		1,459		2,150		167
Residential real estate		3,109		3,125		321
Total	$	5,578	$	6,263	$	501
December 31, 2015
With no related allowance recorded
Agricultural	$	—	$	—	$	—
Commercial and industrial		74		103		—
Consumer		—		—		—
Commercial real estate		1,540		1,540		—
Residential real estate		13		13		—
Subtotal		1,627		1,656		—
With an allowance recorded
Agricultural		50		50		3
Commercial and industrial		118		118		15
Consumer		24		24		1
Commercial real estate		1,250		1,755		191
Residential real estate		2,516		2,516		296
Subtotal		3,958		4,463		506
Total
Agricultural		50		50		3
Commercial and industrial		192		221		15
Consumer		24		24		1
Commercial real estate		2,790		3,295		191
Residential real estate		2,529		2,529		296
Total	$	5,585	$	6,119	$	506

13 

The following schedule provides information regarding average balances of impaired loans and interest recognized on impaired loans for the nine months ended September 30, 2016 and 2015:

	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
September 30, 2016
With no related allowance recorded
Agricultural	$	154	$	(1	)
Commercial and industrial		63		—
Consumer		1		—
Commercial real estate		1,071		33
Residential real estate		134		46
Subtotal		1,423		78
With an allowance recorded
Agricultural		79		16
Commercial and industrial		242		4
Consumer		22		3
Commercial real estate		1,426		116
Residential real estate		2,670		308
Subtotal		4,439		447
Total
Agricultural		233		15
Commercial and industrial		305		4
Consumer		23		3
Commercial real estate		2,497		149
Residential real estate		2,804		354
Total	$	5,862	$	525
September 30, 2015
With no related allowance recorded
Agricultural	$	—	$	—
Commercial and industrial		13		—
Consumer		2		—
Commercial real estate		941		23
Residential real estate		236		(1	)
Subtotal		1,192		22
With an allowance recorded
Agricultural		65		(6	)
Commercial and industrial		26		1
Consumer		37		2
Commercial real estate		2,190		53
Residential real estate		2,402		64
Subtotal		4,720		114
Total
Agricultural		65		(6	)
Commercial and industrial		39		1
Consumer		39		2
Commercial real estate		3,131		76
Residential real estate		2,638		63
Total	$	5,912	$	136

14 

An aging analysis of loans by loan category follows:

					Greater								90 Days Past
(Dollars in thousands)	30 to 59		60 to 89		Than 90				Loans Not				Due and
	Days		Days		Days (1)		Total		Past Due		Total Loans		Accruing
September 30, 2016
Agricultural	$	—	$	—	$	113	$	113	$	38,165	$	38,278	$	—
Commercial and industrial		97		—		249		346		95,325		95,671		—
Consumer		40		6		5		51		21,402		21,453		5
Commercial real estate		—		256		260		516		108,551		109,067		—
Construction real estate		—		—		—		—		6,027		6,027		—
Residential real estate		230		614		487		1,331		90,776		92,107		346
	$	367	$	876	$	1,114	$	2,357	$	360,246	$	362,603	$	351
December 31, 2015
Agricultural	$	3	$	—	$	—	$	3	$	40,229	$	40,232	$	—
Commercial and industrial		90		322		77		489		93,858		94,347		—
Consumer		115		—		—		115		19,975		20,090		—
Commercial real estate		505		297		1,233		2,035		95,701		97,736		—
Construction real estate		299		—		—		299		5,091		5,390		—
Residential real estate		1,012		364		200		1,576		89,933		91,509		29
	$	2,024	$	983	$	1,510	$	4,517	$	344,787	$	349,304	$	29

(1) Includes nonaccrual loans.

Nonaccrual loans by loan category follow:

(Dollars in thousands)	September 30,		December 31,
	2016		2015
Agricultural	$	489	$	50
Commercial and industrial		320		77
Consumer		—		—
Commercial real estate		471		1,640
Construction real estate		—		—
Residential real estate		455		431
	$	1,735	$	2,198

15 

NOTE 4 - EARNINGS PER SHARE

Earnings per share are based on the weighted average number of shares outstanding during the period. A computation of basic earnings per share and diluted earnings per share follows:

	Three Months Ended				Nine Months Ended
(Dollars in thousands, except per share data)	September 30,				September 30,
	2016		2015		2016		2015
Basic Earnings Per Share
Net income available to common shareholders	$	1,683	$	1,450	$	4,402	$	4,523
Weighted average common shares outstanding		3,275,841		3,289,146		3,290,610		3,287,765
Basic earnings per share	$	0.52	$	0.44	$	1.34	$	1.37
Diluted Earnings Per Share
Net income available to common shareholders	$	1,683	$	1,450	$	4,402	$	4,523
Weighted average common shares outstanding		3,275,841		3,289,146		3,290,610		3,287,765
Plus dilutive stock options and restricted stock units		3,949		6,686		4,171		6,841
Weighted average common shares outstanding and potentially dilutive shares		3,279,790		3,295,832		3,294,781		3,294,606
Diluted earnings per share	$	0.52	$	0.44	$	1.34	$	1.37

There were 30,000 stock options as of September 30, 2016 and zero stock options as of September 30, 2015, that were considered to be anti-dilutive to earnings per share for the three-month and nine-month periods ended September 30, 2016 and 2015. These stock options have been excluded from the calculation above.

16 

NOTE 5 – FINANCIAL INSTRUMENTS

Financial instruments as of the dates indicated were as follows:

					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2016
Assets:
Cash and due from banks	$	12,644	$	12,644	$	12,644	$	—	$	—
Securities available for sale		177,444		177,444		1,318		161,598		14,528
Federal Home Loan Bank and Federal
Reserve Bank stock		3,252		3,252		—		3,252		—
Loans held for sale		2,838		2,828		—		—		2,828
Loans, net		358,327		362,465		—		—		362,465
Liabilities:
Noninterest-bearing deposits		123,609		123,609		—		123,609		—
Interest-bearing deposits		353,778		353,470		—		353,470		—
Federal funds purchased		624		624		—		624		—
Repurchase agreements		6,417		6,417		—		6,417		—
Federal Home Loan Bank advances		37,309		37,283		—		37,283		—
December 31, 2015
Assets:
Cash and due from banks	$	11,187	$	11,187	$	11,187	$	—	$	—
Securities available for sale		160,136		160,136		953		147,384		11,799
Federal Home Loan Bank and Federal
Reserve Bank stock		3,187		3,187		—		3,187		—
Loans held for sale		4,957		5,109		—		5,109		—
Loans, net		345,110		349,875		—		—		349,875
Liabilities:
Noninterest-bearing deposits		122,937		122,937		—		122,937		—
Interest-bearing deposits		351,759		353,113		—		353,113		—
Repurchase agreements		9,460		9,460		—		9,460		—
Federal Home Loan Bank advances		11,332		12,028		—		12,028		—

The estimated fair values approximate the carrying amounts for all assets and liabilities except those described later in this paragraph. The methodology for determining the estimated fair value for securities available for sale is described in Note 6. The estimated fair value for loans is based on the rates charged at September 30, 2016 and December 31, 2015 for new loans with similar maturities, applied until the loan is assumed to reprice or be paid off. The allowance for loan losses is considered to be a reasonable estimate of discount for credit quality concerns. The estimated fair values for time deposits and Federal Home Loan Bank (“FHLB”) advances are based on the rates paid at September 30, 2016 and December 31, 2015 for new deposits or FHLB advances, applied until maturity. The estimated fair values for other financial instruments and off-balance sheet loan commitments are considered nominal.

17 

NOTE 6 – FAIR VALUE MEASUREMENTS

The following tables present information about the Bank’s assets and liabilities measured at fair value on a recurring basis and the valuation techniques used by the Bank to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Bank has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Bank’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

There were no liabilities measured at fair value as of September 30, 2016 or December 31, 2015. Disclosures concerning assets measured at fair value are as follows:

Assets Measured at Fair Value on a Recurring Basis

(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Date Indicated
Investment Securities, Available for Sale – September 30, 2016
U.S. Treasury notes and bonds	$	—	$	2,116	$	—	$	2,116
U.S. Government and federal agency		—		64,804		—		64,804
State and municipal		—		77,885		12,629		90,514
Mortgage-backed		—		8,559		—		8,559
Corporate		—		7,034		399		7,433
Foreign debt		—		1,002		—		1,002
Equity securities		1,318		—		1,500		2,818
Asset backed securities		—		198		—		198
Total	$	1,318	$	161,598	$	14,528	$	177,444
Investment Securities, Available for Sale - December 31, 2015
U.S. Treasury notes and bonds	$	—	$	6,100	$	—	$	6,100
U.S. Government and federal agency		—		57,207		—		57,207
State and municipal		—		67,852		9,902		77,754
Mortgage-backed		—		6,970		—		6,970
Corporate		—		7,990		397		8,387
Foreign debt		—		995		—		995
Equity securities		953		—		1,500		2,453
Asset backed securities		—		270		—		270
Total	$	953	$	147,384	$	11,799	$	160,136

18 

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

(Dollars in thousands)	2016		2015
Investment Securities, Available for Sale
Balance, January 1	$	11,799	$	11,642
Total realized and unrealized gains included in income		—		—
Total unrealized gains (losses) included in other comprehensive income		131		946
Net purchases, sales, calls, and maturities		2,598		(2,075	)
Net transfers into Level 3		—		—
Balance, September 30	$	14,528	$	10,513

Of the Level 3 assets that were held by the Bank at September 30, 2016, the net unrealized gain for the nine months ended September 30, 2016 was $131,000, which is recognized in other comprehensive income in the consolidated balance sheet. Purchases of Level 3 securities during the first three quarters of 2016 and 2015 consisted of local municipal issues. During the first nine months of 2016, $5.1 million of Level 3 securities were purchased. There were no sales of Level 3 securities in the first nine months of 2016.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 investment securities and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Available for sale investment securities categorized as Level 3 assets primarily consist of bonds issued by local municipalities. The Bank estimates the fair value of these bonds based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.

The Bank also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:

Assets Measured at Fair Value on a Non-recurring Basis

			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for Identical		Observable		Unobservable
	Balance at		Assets		Inputs		Inputs
(Dollars in thousands)	Dates Indicated		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
September 30, 2016	$	5,578	$	—	$	—	$	5,578
December 31, 2015	$	5,585	$	—	$	—	$	5,585
Other Real Estate
September 30, 2016	$	483	$	—	$	—	$	483
December 31, 2015	$	31	$	—	$	—	$	31

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Bank estimates the fair value of the loans based on the present value of expected future cash flows using management’s estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted to the allowance for loan losses and write-downs of other real estate that were posted to a valuation account.

19 

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

The following discussion is designed to provide a review of the consolidated financial condition and results of operations of ChoiceOne Financial Services, Inc. (“ChoiceOne”) and its wholly-owned subsidiary, ChoiceOne Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. This discussion should be read in conjunction with the interim consolidated financial statements and related notes.

FORWARD-LOOKING STATEMENTS

This discussion and other sections of this quarterly report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and ChoiceOne itself. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Management’s determination of the provision and allowance for loan losses, the carrying value of goodwill and loan servicing rights, the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) and management’s assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“risk factors”) that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements. Furthermore, ChoiceOne undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

Risk factors include, but are not limited to, the risk factors discussed in Item 1A of ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2015. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

RESULTS OF OPERATIONS

Summary

Net income for the third quarter of 2016 was $1,683,000, which represented an increase of $233,000 or 16.1% compared to the same period in 2015. Net income for the first nine months of 2016 was $4,402,000, which represented a decrease of $121,000 or 2.7% compared to the same period in 2015. Increases in net interest income and noninterest income were partially offset by an increase in noninterest expense for the third quarter of 2016 compared to the third quarter of 2015. Basic earnings per common share were $0.52 for the third quarter and $1.34 for the first nine months of 2016, compared to $0.44 and $1.37, respectively, for the same periods in 2015. Diluted earnings per common share were the same during the time periods noted. The return on average assets and return on average shareholders’ equity percentages were 1.01% and 8.15%, respectively, for the first three quarters of 2016, compared to 1.10% and 8.86%, respectively, for the same periods in 2015.

Dividends

Cash dividends of $551,000 or $0.17 per share were declared in the third quarter of 2016, compared to $559,000 or $0.17 per share in the third quarter of 2015. The cash dividends declared in the first nine months of 2016 were $1,674,000 or $0.51 per share, compared to $1,610,000 or $0.49 per share declared in the same period in 2015. The cash dividend payout percentage was 38.0% for the first nine months of 2016 and 35.6% for the first nine months of 2015.

Interest Income and Expense

Tables 1 and 2 on the following pages provide information regarding interest income and expense for the nine-month periods ended September 30, 2016 and 2015. Table 1 documents ChoiceOne’s average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities. Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates. These tables are referred to in the discussion of interest income, interest expense and net interest income.

 20

Table 1 – Average Balances and Tax-Equivalent Interest Rates

	Nine Months Ended September 30,
	2016								2015
(Dollars in thousands)	Average Balance		Interest			Rate			Average Balance		Interest			Rate
Assets:
Loans (1)	$	355,281	$	12,301			4.62	%	$	339,157	$	11,953			4.70	%
Taxable securities (2) (3)		117,635		1,731			1.96			101,884		1,427			1.87
Nontaxable securities (1) (2)		53,685		1,643			4.08			49,513		1,613			4.34
Other		3,915		14			0.48			5,857		10			0.23
Interest-earning assets		530,516		15,689			3.94			496,411		15,003			4.03
Noninterest-earning assets		53,913								51,820
Total assets	$	584,429							$	548,231
Liabilities and Shareholders’ Equity:
Interest-bearing demand deposits	$	193,675		190			0.13	%	$	159,342		163			0.14	%
Savings deposits		72,619		16			0.03			67,351		19			0.04
Certificates of deposit		86,707		393			0.60			96,343		481			0.67
Advances from Federal Home Loan Bank		25,127		119			0.63			21,023		64			0.41
Other		8,698		7			0.11			21,475		28			0.17
Interest-bearing liabilities		386,826		725			0.25			365,534		755			0.28
Noninterest-bearing demand deposits		122,641								112,737
Other noninterest-bearing liabilities		2,945								1,932
Total liabilities		512,412								480,203
Shareholders’ equity		72,017								68,028
Total liabilities and shareholders’ equity	$	584,429							$	548,231
Net interest income (tax-equivalent basis)-interest spread (Non-GAAP)				14,964			3.69	%				14,248			3.75	%
Tax-equivalent adjustment (1)				(563	)							(554	)
Net interest income (GAAP)			$	14,401							$	13,694
Net interest income as a percentage of earning assets (tax-equivalent basis) (Non-GAAP)							3.76	%							3.83	%

(1)	Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets. The adjustment uses an incremental tax rate of 34% for the periods presented.
(2)	Includes the effect of unrealized gains or losses on securities.
(3)	Taxable securities include dividend income from Federal Home Loan Bank and Federal Reserve Bank stock.

 21

Table 2 – Changes in Tax-Equivalent Net Interest Income

	Nine Months Ended September 30,
(Dollars in thousands)	2016 Over 2015
	Total			Volume			Rate
Increase (decrease) in interest income (1)
Loans (2)	$	348		$	666		$	(318	)
Taxable securities		304			231			73
Nontaxable securities (2)		30			168			(138	)
Other		4			(6	)		10
Net change in tax-equivalent interest income		686			1,059			(373	)
Increase (decrease) in interest expense (1)
Interest-bearing demand deposits		27			43			(16	)
Savings deposits		(3	)		3			(6	)
Certificates of deposit		(88	)		(44	)		(44	)
Advances from Federal Home Loan Bank		55			15			40
Other		(21	)		(13	)		(8	)
Net change in interest expense		(30	)		4			(34	)
Net change in tax-equivalent net interest income	$	716		$	1,055		$	(339	)

(1)

The volume variance is computed as the change in volume (average balance) multiplied by the previous year’s interest rate.  The rate variance is computed as the change in interest rate multiplied by the previous year’s volume (average balance).  The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

(2)

Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 34% for the periods presented.

Net Interest Income

For the nine months ended September 30, 2016 and 2015, net interest income was $14,401,000 and $13,694,000, respectively, and net interest income on a tax-equivalent basis was $14,964,000 and $14,248,000, respectively.

The presentation of net interest income on a tax-equivalent basis is not in accordance with generally accepted accounting principles (“GAAP”), but is customary in the banking industry. This non-GAAP measure ensures comparability of net interest income arising from both taxable and tax-exempt loans and investment securities. The adjustments to determine net interest income on a tax-equivalent basis were $563,000 and $554,000 for the nine months ended September 30, 2016 and 2015, respectively. These adjustments were computed using a 34% federal income tax rate. For a reconciliation of net interest income on a tax-equivalent basis, Table 1 - Average Balances and Tax-Equivalent Interest Rates.

As shown in Tables 1 and 2, tax-equivalent net interest income increased $716,000 in the first nine months of 2016 compared to the same period in 2015. The relationship between growth in average interest-earning assets and average interest-bearing liabilities caused net interest income to increase $1,055,000 in the first three quarters of 2016 compared to the same period in the prior year. A decrease of 6 basis points in the net interest spread from 3.75% in the first nine months of 2015 to 3.69% in the first nine months of 2016 resulted in a $339,000 decrease in net interest income.

The average balance of loans increased $16.1 million in the first nine months of 2016 compared to the same period in 2015. Average commercial loans increased $11.9 million and average residential mortgage loans increased $3.9 million in the first three quarters of 2016 compared to the same period in 2015. The average interest rate earned on loans declined 8 basis points from the first nine months of 2015 to the same period in 2016. This was the result of existing loan renewals and new loan production at lower rates than in the existing portfolio. The increase in the average loans balance partially offset by the decrease in the average rate earned caused tax-equivalent interest income from loans to increase $348,000 in the first three quarters of 2016 compared to the same period in the prior year. The average balance of total securities grew $19.9 million in the first nine months of 2016 compared to the same period in 2015. Additional securities were purchased during the first nine months of 2016 to provide earning asset growth. Growth in average securities, partially offset by the effect of a 5 basis point decline in interest rates earned caused tax-equivalent interest income to increase $334,000 in the first nine months of 2016 compared to the same period in 2015.

 22

The average balance of interest-bearing demand deposits increased $34.3 million in the first nine months of 2016 compared to the same period in 2015. The effect of the higher average balance, offset by a 1 basis point decline in the average rate paid, caused interest expense to increase $27,000 in the first three quarters of 2016 compared to the same period in 2015. The average balance of savings deposits increased $5.3 million in the first nine months of 2016 compared to the same period in the prior year. The impact of the savings deposit growth offset by a 1 basis point decrease in the average rate paid caused interest expense to decrease $3,000 in the first nine months of 2016 compared to the same period in 2015. The average balance of certificates of deposit was down $9.6 million in the first nine months of 2016 compared to the same period in 2015. The decline in certificates of deposit plus a 7 basis point reduction in the average rate paid on certificates caused interest expense to fall $88,000 in the first nine months of 2016 compared to the same period in 2015. A $4.1 million increase in the average balance and a 22 basis point increase in the average rate paid caused interest expense from Federal Home Loan Bank advances to increase $55,000 in the first nine months of 2016 compared to the same period in the prior year. A decrease of $12.8 million in the average balance of other interest-bearing liabilities in the first nine months of 2016 compared to the first nine months of 2015 and the effect of a 6 basis point decrease in the average rate paid caused a $21,000 decrease in other interest expense.

The reduction in the average rate earned on interest-earning assets was caused by relatively low general market rates which affected new loan originations and securities purchases in the first nine months of 2016. Interest rates on loans are also being impacted by rate pressure from some of ChoiceOne’s competing financial institutions. The lower rate paid on interest-bearing liabilities resulted from repricing of local deposits as general market interest rates remained low during 2015 and the first nine months of 2016. If market interest rates continue to remain low, ChoiceOne’s net interest spread may continue to decrease in future quarters.

Provision and Allowance for Loan Losses

Total loans increased $13.3 million while the allowance for loan losses increased $82,000 from December 31, 2015 to September 30, 2016. The provision for loan losses was $0 in the third quarter and first nine months of 2016, compared to $0 and $100,000, respectively, in the same periods in 2015. Nonperforming loans were $5.6 million as of September 30, 2016, compared to $6.0 million as of June 30, 2016 and $5.5 million as of December 31, 2015. The allowance for loan losses was 1.18% of total loans at September 30, 2016, compared to 1.20% at June 30, 2016 and 1.20% at December 31, 2015.

Charge-offs and recoveries for respective loan categories for the nine months ended September 30 were as follows:

(Dollars in thousands)	2016				2015
		Charge-offs		Recoveries		Charge-offs		Recoveries
Agricultural	$	—	$	—	$	—	$	1
Commercial and industrial		33		31		—		59
Consumer		136		119		172		104
Real estate, commercial		—		35		—		36
Real estate, residential		94		160		46		62
	$	263	$	345	$	218	$	262

Net charge-offs were $20,000 in the third quarter of 2016 and net recoveries of $82,000 were experienced in the first nine months of 2016, compared to net charge-offs of $35,000 in the third quarter of 2015 and net recoveries of $44,000 in the first nine months of 2015. Management is aware that the economic climate in Michigan will continue to affect business and personal borrowers. Management has worked and intends to continue to work with delinquent borrowers in an attempt to lessen the negative impact to ChoiceOne. As charge-offs, changes in the level of nonperforming loans, and changes within the composition of the loan portfolio occur in the remainder of 2016, the provision and allowance for loan losses will be reviewed by the Bank’s management and adjusted as believed to be necessary.

 23

Noninterest Income

Total noninterest income increased $105,000 in the third quarter of 2016 and decreased $145,000 in the first nine months of 2016 compared to the same periods in 2015. A decrease in customer service charges of $62,000 in the third quarter and $117,000 in the first nine months of 2016 compared to the same periods in the prior year was due to lower overdraft fees and fees from deposit account charges. Insurance and investment commissions increased $71,000 in the third quarter of 2016, but have decreased $112,000 in the first three quarters of 2016 compared to the same periods in 2015. The decline in the first nine months of 2016 was caused by lower commissions from sales of real estate investment trusts. Gains on loan sales increased $200,000 in the third quarter and $225,000 in the first nine months of 2016 compared to the same periods in 2015. While residential mortgage refinancing activity has slowed in 2016, purchase activity has increased which has caused the increase. A decrease of $127,000 in the third quarter and an increase of $47,000 in the first nine months of 2016 in gains on sales of securities when compared to the same periods in 2015 resulted from less sales activity in the third quarter of 2016 than in the same period of the prior year. A death benefit of $308,000 received on a bank owned life insurance policy in the first quarter of 2015 caused a decrease in earnings on life insurance policies in the first three quarters of 2016 compared to the same period in 2015.

Noninterest Expense

Total noninterest expense increased $67,000 in the third quarter of 2016 and $721,000 in the first nine months of 2016 compared to the same periods in 2015. The increase of $219,000 in salaries and benefits in the third quarter of 2016 and $684,000 in the first nine months of 2016 compared to the same periods in 2015 resulted in part from higher salaries driven by the new loan production office and stock compensation expense. Professional fees decreased $31,000 in the third quarter of 2016 and $76,000 in the first three quarters of 2016 compared to the same periods in 2015 because of decreased consulting fees.

Income Tax Expense

Income tax expense was $1,591,000 in the first nine months of 2016 compared to $1,529,000 for the same period in 2015. The effective tax rate was 26.5% and 25.3%, respectively, for the first nine months of 2016 and 2015. The increase in the effective tax rate in 2016 compared to 2015 was due to the effect of a $308,000 nontaxable death benefit received in the first quarter of 2015 from a bank owned life insurance policy.

FINANCIAL CONDITION

Securities

The securities available for sale portfolio increased $2.3 million in the third quarter of 2016 and $17.3 million in the first nine months of 2016. Various securities totaling $63.8 million were purchased in the first nine months of 2016 to provide earning assets and to replace maturities, principal repayments, and calls within the securities portfolio. Approximately $31.6 million in various securities were called or matured since the end of 2015. Principal repayments on securities totaled $1.8 million in the first nine months of 2016. Approximately $14.5 million of securities were sold in the first three quarters of 2016 for a net gain of $255,000.

Loans

The loan portfolio (excluding loans held for sale) increased $5.4 million in the third quarter of 2016 and increased $13.3 million in the first nine months of 2016. Agricultural loans increased $3.6 million in the third quarter, but declined $2.0 million in the first nine months of 2016. Commercial and industrial loans declined $2.1 million in the third quarter of 2016 but grew $1.3 million in the first three quarters of 2016. Consumer loans increased $544,000 and $1.4 million, respectively, in the third quarter and first nine months of 2016. Commercial real estate loans increased $2.8 million in the third quarter and $11.3 in the first three quarters of 2016. Residential real estate loans declined $683,000 and grew $598 in the third quarter and first nine months of 2016, respectively. The environment for loan originations in ChoiceOne’s market area has become increasingly competitive.

 24

Asset Quality

Information regarding impaired loans can be found in Note 3 to the interim consolidated financial statements included in this report. The total balance of loans classified as impaired was $5.6 million at September 30, 2016, $6.0 million as of June 30, 2016 and $5.5 million as of December 31, 2015. The balance of commercial real estate loans classified as impaired has declined $1.3 million in the first nine months of 2016. This decline is offset by increases in impaired loans in the other loan categories.

As part of its review of the loan portfolio, management also monitors the various nonperforming loans. Nonperforming loans are comprised of: (1) loans accounted for on a nonaccrual basis; (2) loans, not included in nonaccrual loans, which are contractually past due 90 days or more as to interest or principal payments; and (3) loans, not included in nonaccrual or loans past due 90 days or more, which are considered troubled debt restructurings.

The balances of these nonperforming loans were as follows:

(Dollars in thousands)	September 30,		December 31,
	2016		2015
Loans accounted for on a nonaccrual basis	$	1,735	$	2,198
Accruing loans contractually past due 90 days or more as to principal or interest payments		351		29
Loans considered troubled debt restructurings		3,476		3,271
Total	$	5,562	$	5,498

At September 30, 2016, nonaccrual loans included $489,000 in agricultural loans, $320,000 in commercial and industrial loans, $471,000 in commercial real estate loans, and $454,000 in residential real estate loans. At December 31, 2015, nonaccrual loans included $50,000 in agricultural loans, $77,000 in commercial and industrial loans, $1.6 million in commercial real estate loans, and $431,000 in residential real estate loans. The decrease in nonaccrual loans was primarily due to credits paid off during the first nine months of 2016. Management believes the allowance allocated to its nonperforming loans was sufficient at September 30, 2016.

Deposits and Borrowings

Total deposits increased $13.6 million in the third quarter of 2016 and increased $2.7 million since the end of 2015. Checking and savings deposits increased $15.2 million in the third quarter of 2016 and $0.7 million in the first nine months of 2016. Money market deposits increased $1.4 million in the third quarter of 2016 and increased $5.6 million in the first nine months of 2016. Local certificates of deposit decreased $3.0 million in the third quarter of 2016 and $3.6 million in the first nine months of 2016. ChoiceOne continued to place an emphasis on building its core deposits base in 2016.

An increase in federal funds purchased of $624,000 since December 31, 2015 was used to fund short term liquidity needs of the Bank. Repurchase agreements have declined by $3.0 million in the first nine months of 2016 due to normal fluctuations in funds provided by bank customers. Management plans to continue this practice as a low-cost source of funding. Federal Home Loan Bank advances increased $26.0 million in the first nine months of 2016 to fund both loans and growth in the securities portfolio.

Shareholders’ Equity

Total shareholders’ equity increased $3.7 million from December 31, 2015 to September 30, 2016. Growth in equity resulted from current year’s net income, proceeds from the issuance of ChoiceOne stock and an increase in accumulated other comprehensive income offset by cash dividends paid and repurchases of shares. The $1.3 million increase in accumulated other comprehensive income since the end of 2015 was caused by an increase in net unrealized gains on available for sale securities. The change in unrealized gains resulted from decreases in mid- and short-term rates in 2016, which increased the market value of the Bank’s securities.

25 

Following is information regarding the Bank’s compliance with regulatory capital requirements:

									Minimum Required
									to be Well
					Minimum Required				Capitalized Under
					for Capital				Prompt Corrective
(Dollars in thousands)	Actual				Adequacy Purposes				Action Regulations
		Amount	Ratio			Amount	Ratio			Amount	Ratio
September 30, 2016
ChoiceOne Financial Services, Inc.
Total capital (to risk weighted assets)	$	61,573	14.3	%	$	34,436	8.0	%		N/A	N/A
Tier 1 capital (to risk weighted assets)		57,323	13.3			17,218	6.0			N/A	N/A
Common Equity Tier 1 Capital (to risk weighted assets)		57,323	13.3			19,370	4.5			N/A	N/A
Tier 1 capital (to average assets)		57,323	9.9			23,129	4.0			N/A	N/A
ChoiceOne Bank
Total capital (to risk weighted assets)	$	57,952	13.5	%	$	34,376	8.0	%	$	42,970	10.0	%
Tier 1 capital (to risk weighted assets)		53,702	12.5			17,188	6.0			25,782	8.0
Common Equity Tier 1 Capital (to risk weighted assets)		53,702	12.5			19,337	4.5			27,931	6.5
Tier 1 capital (to average assets)		53,702	9.3			23,003	4.0			28,754	5.0
December 31, 2015
ChoiceOne Financial Services, Inc.
Total capital (to risk weighted assets)	$	59,737	14.2	%	$	33,600	8.0	%		N/A	N/A
Tier 1 capital (to risk weighted assets)		54,532	13.0			16,800	4.0			N/A	N/A
Tier 1 capital (to average assets)		54,532	9.7			22,434	4.0			N/A	N/A
ChoiceOne Bank
Total capital (to risk weighted assets)	$	55,723	13.3	%	$	33,470	8.0	%	$	41,837	10.0	%
Tier 1 capital (to risk weighted assets)		51,574	13.0			16,800	4.0			25,102	6.0
Tier 1 capital (to average assets)		51,574	9.7			22,434	4.0			27,937	5.0

Management reviews the capital levels of ChoiceOne and the Bank on a regular basis. The Board of Directors (the “Board”) and management believe that the capital levels as of September 30, 2016 are adequate for the foreseeable future. The Board’s determination of appropriate cash dividends for future periods will be based on, among other things, market conditions and ChoiceOne’s requirements for cash and capital.

Liquidity

Net cash provided from operating activities was $8.2 million for the nine months ended September 30, 2016 compared to $4.8 million provided in the same period a year ago. Higher proceeds from loan sales were partially offset by a higher balance of loans originated for sale. Net cash used in investing activities was $30.6 million for the first nine months of 2016 compared to $9.5 million in the same period in 2015. The change was due to additional net securities purchases offset by security sales and maturities and due to a higher level of loan growth than in the prior year. Net cash provided from financing activities was $23.9 million in the nine months ended September 30, 2016, compared to $0.4 million in the same period in the prior year. A decline in the level of deposit growth in the first nine months of 2016 compared to the same period in 2015 was offset by a smaller decrease in the balance of repurchase agreements in 2016 than in 2015 and growth in Federal Home Loan Bank advances in 2016 in contrast with a decline in the prior year.

Management believes that the current level of liquidity is sufficient to meet the Bank’s normal operating needs. This belief is based upon the availability of deposits from both the local and national markets, maturities of securities, normal loan repayments, income retention, federal funds purchased from correspondent banks, and advances available from the Federal Home Loan Bank. The Bank also has a secured line of credit available from the Federal Reserve Bank.

26 

Item 4.  Controls and Procedures.

An evaluation was performed under the supervision and with the participation of ChoiceOne’s management, including the Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of ChoiceOne’s disclosure controls and procedures. Based on and as of the time of that evaluation, ChoiceOne’s management, including the Chief Executive Officer and Principal Financial Officer, concluded that ChoiceOne’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that material information required to be disclosed in the reports that ChoiceOne files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that ChoiceOne files or submits under the Exchange Act is accumulated and communicated to management, including ChoiceOne’s principal executive and principal financial officers, as appropriate to allow for timely decisions regarding required disclosure. There was no change in ChoiceOne’s internal control over financial reporting that occurred during the three months ended September 30, 2016 that has materially affected, or that is reasonably likely to materially affect, ChoiceOne’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

There are no material pending legal proceedings to which ChoiceOne or the Bank is a party or to which any of their properties are subject, except for proceedings that arose in the ordinary course of business. In the belief of management, pending or current legal proceedings should not have a material effect on the consolidated financial condition of ChoiceOne.

Item 1A.  Risk Factors.

Information concerning risk factors is contained in the discussion in Item 1A, “Risk Factors,” in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2015.

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

On July 26, 2016 ChoiceOne issued 808 shares of common stock, without par value, to the directors of ChoiceOne pursuant to the Directors’ Stock Purchase Plan for an aggregate cash price of $19,000. ChoiceOne relied on the exemption contained in Section 4(a)(5) of the Securities Act of 1933 in connection with these sales.

27 

ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information regarding ChoiceOne’s purchases of its common stock during the quarter ended September 30, 2016.

					Total Number		Maximum
					of Shares		Number of
					Purchased as		Shares that
(Dollars in thousands, except per share data)	Total Number		Average		Part of a		May Yet be
	of Shares		Price Paid		Publicly		Purchased
Period	Purchased		per Share		Announced Plan		Under the Plan
July 1 - July 31, 2016
Employee Transactions (1)		258	$	23.10
Repurchase Plan		—	$	—		—		29,224
August 1 - August 31, 2016
Employee Transactions (1)		259	$	23.74
Repurchase Plan (2)		5,000	$	23.25		5,000		24,224
September 1 - September 30, 2016
Employee Transactions		—	$	—
Repurchase Plan		—	$	—		—		24,224

(1) Shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of restricted units. The value of the shares delivered or withheld is determined by the applicable stock compensation plan.

(2) On August 10, 2016, ChoiceOne purchased 5,000 shares of common stock for an aggregate cash price of $116,000. As of September 30, 2016, there are 24,224 shares remaining that may yet be purchased under approved plans. The repurchase plan was adopted and announced on July 26, 2007. There is no stated expiration date. The plan authorized the repurchase of up to 100,000 shares.

Item 6.  Exhibits

The following exhibits are filed or incorporated by reference as part of this report:

Exhibit Number		Document
3.1	Amended and Restated Articles of Incorporation of ChoiceOne. Previously filed as an exhibit to ChoiceOne’s Form 10-K Annual Report for the year ended December 31, 2013.  Here incorporated by reference.
3.2	Bylaws of ChoiceOne. Previously filed as an exhibit to ChoiceOne’s Form 10-K Annual Report for the year ended December 31, 2013.  Here incorporated by reference.
31.1	Certification of Chief Executive Officer
31.2	Certification of Treasurer
32.1	Certification pursuant to 18 U.S.C. § 1350.
101.1	Interactive Data File.

 28

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.

	CHOICEONE FINANCIAL SERVICES, INC.
Date:   November 14, 2016	/s/ Kelly Potes
	Kelly Potes Chief Executive Officer (Principal Executive Officer)
Date:   November 14, 2016	/s/ Thomas L. Lampen
	Thomas L. Lampen Treasurer (Principal Financial and Accounting Officer)

 29

EX-31.1

ChoiceOne Financial Services, Inc.- 10-Q

EXHIBIT 31.1

CERTIFICATIONS

I, Kelly Potes, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of ChoiceOne 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.

Date:  November 14, 2016

/s/ Kelly Potes

Kelly Potes
Chief Executive Officer
ChoiceOne Financial Services, Inc.

30 

EX-31.2

ChoiceOne Financial Services, Inc.- 10-Q

EXHIBIT 31.2

CERTIFICATIONS

I, Thomas L. Lampen, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of ChoiceOne 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.

Date: November 14, 2016

/s/ Thomas L. Lampen

Thomas L. Lampen
Treasurer
ChoiceOne Financial Services, Inc.

31 

EX-32.1

ChoiceOne Financial Services, Inc. - 10-Q

EXHIBIT 32.1

CERTIFICATION

Pursuant to 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of ChoiceOne Financial Services, Inc. (the “Company”) that the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2016 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

Date:   November 14, 2016	/s/ Kelly Potes
	Kelly Potes Chief Executive Officer
Date:   November 14, 2016	/s/ Thomas L. Lampen
	Thomas L. Lampen Treasurer

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 31, 2016
Document And Entity Information
Entity Registrant Name	CHOICEONE FINANCIAL SERVICES INC
Entity Central Index Key	0000803164
Document Type	10-Q
Trading Symbol	COFS
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity a Well-known Seasoned Issuer	No
Entity a Voluntary Filer	No
Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,276,097
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016

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CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 12,644	$ 11,187
Securities available for sale (Note 2)	177,444	160,136
Federal Home Loan Bank stock	1,679	1,614
Federal Reserve Bank stock	1,573	1,573
Loans held for sale	2,838	4,957
Loans (Note 3)	362,603	349,304
Allowance for loan losses (Note 3)	(4,276)	(4,194)
Loans, net	358,327	345,110
Premises and equipment, net	12,394	11,847
Cash value of life insurance policies	12,526	12,261
Intangible assets, net	43	379
Goodwill	13,728	13,728
Other assets	5,468	4,954
Total assets	598,664	567,746
Liabilities
Deposits - noninterest-bearing	123,609	122,937
Deposits - interest-bearing	353,778	351,759
Total deposits	477,387	474,696
Federal funds purchased	624
Repurchase agreements	6,417	9,460
Advances from Federal Home Loan Bank	37,309	11,332
Other liabilities	3,348	2,416
Total liabilities	525,085	497,904
Shareholders' Equity
Common stock and paid in capital, no par value; shares authorized: 7,000,000; shares outstanding: 3,275,201 at September 30, 2016 and 3,295,228 at December 31, 2015	46,228	46,501
Retained earnings	24,866	22,138
Accumulated other comprehensive income, net	2,485	1,203
Total shareholders' equity	73,579	69,842
Total liabilities and shareholders' equity	$ 598,664	$ 567,746

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, authorized	7,000,000	7,000,000
Common stock, outstanding	3,275,201	3,295,228

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CONSOLIDATED STATEMENTS 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
Loans, including fees	$ 4,210	$ 4,015	$ 12,293	$ 11,945
Securities:
Taxable	594	489	1,731	1,427
Tax exempt	358	361	1,088	1,067
Other	5	6	14	10
Total interest income	5,167	4,871	15,126	14,449
Interest expense
Deposits	190	222	599	663
Advances from Federal Home Loan Bank	44	17	119	64
Other	2	7	7	28
Total interest expense	236	246	725	755
Net interest income	4,931	4,625	14,401	13,694
Provision for loan losses				100
Net interest income after provision for loan losses	4,931	4,625	14,401	13,594
Noninterest income
Customer service charges	1,030	1,092	3,020	3,137
Insurance and investment commissions	290	219	740	852
Gains on sales of loans	508	308	1,345	1,120
Gains on sales of securities	28	155	255	208
Losses on sales and write-downs of other assets	(3)	(21)	(26)	(97)
Earnings on life insurance policies	88	87	265	562
Other	124	120	360	322
Total noninterest income	2,065	1,960	5,959	6,104
Noninterest expense
Salaries and benefits	2,542	2,323	7,519	6,835
Occupancy and equipment	626	598	1,959	1,786
Data processing	556	558	1,654	1,689
Professional fees	232	263	700	776
Supplies and postage	92	100	312	278
Advertising and promotional	52	54	184	179
Intangible amortization	112	112	336	336
Loan and collection expense	15	53	59	104
FDIC insurance	78	72	218	222
Other	364	469	1,426	1,441
Total noninterest expense	4,669	4,602	14,367	13,646
Income before income tax	2,327	1,983	5,993	6,052
Income tax expense	644	533	1,591	1,529
Net income	$ 1,683	$ 1,450	$ 4,402	$ 4,523
Basic earnings per share (Note 4) (in dollars per share)	$ 0.52	$ 0.44	$ 1.34	$ 1.37
Diluted earnings per share (Note 4) (in dollars per share)	0.52	0.44	1.34	1.37
Dividends declared per share (in dollars per share)	$ 0.17	$ 0.17	$ 0.51	$ 0.49

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CONSOLIDATED STATEMENTS 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
Schedule of activity in secondar market loans
Net income	$ 1,683	$ 1,450	$ 4,402	$ 4,523
Other comprehensive income:
Changes in unrealized gains (losses) on investment securities available for sale, net of tax expense (benefit)	68	564	1,450	688
Less: Reclassification adjustment for realized gain on sale of investment securities available for sale included in net income, net of tax expense (benefit)	(19)	(102)	(168)	(137)
Change in adjustment for pension and other postretirement benefits, net of tax benefit (expense).
Other comprehensive income (loss), net of tax	49	462	1,282	551
Comprehensive income	$ 1,732	$ 1,912	$ 5,684	$ 5,074

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Schedule of activity in secondar market loans
Unrealized holding gains on available for sale securities, tax expense (benefit)	$ 36	$ 291	$ 748	$ 356
Reclassification adjustment for gain recognized in net income, tax expense (benefit)	$ (9)	$ (53)	$ (87)	$ (71)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Common Stock and Paid in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income, Net [Member]	Total
Balance, beginning at Dec. 31, 2014	$ 46,552	$ 18,565	$ 1,073	$ 66,190
Balance, beginning (in shares) at Dec. 31, 2014	3,295,834
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		4,523		4,523
Other comprehensive income			551	551
Shares issued	$ 153			153
Shares issued (shares)	10,010
Change in ESOP repurchase obligation	$ (4)			(4)
Shares repurchased	$ (371)			(371)
Shares repurchased (in shares)	(16,200)
Effect of employee stock purchases	$ 9			9
Stock-based compensation	$ 60			60
Stock-based compensation (in shares)	2,284
Cash dividends declared		(1,610)		(1,610)
Balance, ending at Sep. 30, 2015	$ 46,399	21,478	1,624	69,501
Balance, ending (in shares) at Sep. 30, 2015	3,291,928
Balance, beginning at Dec. 31, 2015	$ 46,501	22,138	1,203	$ 69,842
Balance, beginning (in shares) at Dec. 31, 2015	3,295,228			3,295,228
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		4,402		$ 4,402
Other comprehensive income			1,282	1,282
Shares issued	$ 137			137
Shares issued (shares)	11,559
Change in ESOP repurchase obligation	$ 127			127
Shares repurchased	$ (794)			(794)
Shares repurchased (in shares)	(35,000)
Effect of employee stock purchases	$ 9			9
Stock-based compensation	$ 248			248
Stock-based compensation (in shares)	3,414
Cash dividends declared		(1,674)		(1,674)
Balance, ending at Sep. 30, 2016	$ 46,228	$ 24,866	$ 2,485	$ 73,579
Balance, ending (in shares) at Sep. 30, 2016	3,275,201			3,275,201

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement of Stockholders' Equity [Abstract]
Cash dividend declared, per share	$ 0.17	$ 0.17	$ 0.51	$ 0.49

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net income	$ 4,402	$ 4,523
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		100
Depreciation	757	736
Amortization	1,199	1,111
Compensation expense on stock purchases and restricted stock units	257	69
Gains on sales of securities	(255)	(208)
Gains on sales of loans	(1,345)	(1,120)
Loans originated for sale	(39,173)	(36,402)
Proceeds from loan sales	42,313	37,093
Earnings on bank-owned life insurance	(265)	(562)
Proceeds on bank-owned life insurance		461
(Gains) Losses on sales of other real estate owned	3	(11)
Write-downs of other real estate owned		108
Proceeds from sales of other real estate owned	28	299
Deferred federal income tax benefit	(86)	(209)
Net changes in other assets	(135)	(716)
Net changes in other liabilities	481	(452)
Net cash from operating activities	8,181	4,820
Securities available for sale:
Sales	14,538	23,329
Maturities, prepayments and calls	33,412	12,469
Purchases	(63,780)	(47,171)
Loan originations and payments, net	(13,700)	2,733
Additions to premises and equipment	(1,112)	(826)
Net cash from investing activities	(30,642)	(9,466)
Cash flows from financing activities:
Net change in deposits	2,691	32,268
Net change in repurchase agreements	(3,043)	(19,705)
Net change in federal funds purchased	624	1,171
Proceeds from Federal Home Loan Bank advances	271,000	116,575
Payments on Federal Home Loan Bank advances	(245,023)	(128,098)
Issuance of common stock	137	153
Repurchase of common stock	(794)	(371)
Cash dividends	(1,674)	(1,610)
Net cash from financing activities	23,918	383
Net change in cash and cash equivalents	1,457	(4,263)
Beginning cash and cash equivalents	11,187	16,650
Ending cash and cash equivalents	12,644	12,387
Supplemental disclosures of cash flow information:
Cash paid for interest	726	766
Cash paid for taxes	925	2,395
Loans transferred to other real estate owned	$ 483	$ 378

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include ChoiceOne Financial Services, Inc. (“ChoiceOne”) and its wholly-owned subsidiary, ChoiceOne Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. Intercompany transactions and balances have been eliminated in consolidation.

The unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading.

The accompanying consolidated financial statements reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of the Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015, the Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2016 and September 30, 2015, the Consolidated Statements of Comprehensive Income for the three- and nine-month periods ended September 30, 2016 and September 30, 2015, the Consolidated Statements of Changes in Shareholders’ Equity for the nine-month periods ended September 30, 2016 and September 30, 2015, and the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2016 and September 30, 2015. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2015.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses inherent in the consolidated loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, assessments of the impact of current economic conditions on the portfolio and historical loss experience of seasoned loan portfolios. See Note 3 to the interim consolidated financial statements for additional information.

Management believes the accounting estimate related to the allowance for loan losses is a “critical accounting estimate” because (1) the estimate is highly susceptible to change from period to period because of assumptions concerning the changes in the types and volumes of the portfolios and economic conditions and (2) the impact of recognizing an impairment or loan loss could have a material effect on ChoiceOne’s assets reported on the balance sheets as well as its net income.

Stock Transactions

A total of 4,112 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $95,000 under the terms of the Directors’ Stock Purchase Plan in the first nine months of 2016. A total of 4,793 shares of common stock were issued upon the exercise of stock options in the first three quarters of 2016. A total of 2,654 shares of common stock were issued to employees for a cash price of $51,000 under the Employee Stock Purchase Plan in the first nine months of 2016. A total of 3,414 shares of common stock were issued to employees upon vesting of Restricted Stock Units during the first three quarters of 2016. A total of 35,000 shares of common stock were repurchased by ChoiceOne in the first nine months of 2016.

Stock-Based Compensation

Effective July 1, 2013, ChoiceOne began granting Restricted Stock Units to a select group of employees under the Stock Incentive Plan of 2012. All of the Restricted Stock Units are initially unvested and vest in three annual installments on each of the next three anniversaries of the grant date. Certain additional vesting provisions apply. Each unit, once vested, is settled by issuance of one share of ChoiceOne common stock.

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SECURITIES

9 Months Ended

Sep. 30, 2016

Investments, Debt and Equity Securities [Abstract]

SECURITIES

NOTE 2 - SECURITIES

The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	September 30, 2016
				Gross		Gross
(Dollars in thousands)		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
U.S. Government and federal agency	$	64,440	$	381	$	(17	)	$	64,804
U.S. Treasury		2,074		43		(1	)		2,116
State and municipal		87,661		2,878		(25	)		90,514
Mortgage-backed		8,511		62		(14	)		8,559
Corporate		7,370		64		(1	)		7,433
Foreign debt		1,000		2		—			1,002
Equity securities		2,614		204		—			2,818
Asset-backed securities		202		—		(4	)		198
Total	$	173,872	$	3,634	$	(62	)	$	177,444

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
U.S. Government and federal agency	$	57,406	$	30	$	(229	)	$	57,207
U.S. Treasury		6,133		0		(33	)		6,100
State and municipal		76,005		1,858		(109	)		77,754
Mortgage-backed		6,989		26		(45	)		6,970
Corporate		8,418		8		(39	)		8,387
Foreign debt		1,000		—		(5	)		995
Equity securities		2,279		174		—			2,453
Asset-backed securities		274		—		(4	)		270
Total	$	158,504	$	2,096	$	(464	)	$	160,136

Contractual maturities of securities available for sale at September 30, 2016 were as follows:

(Dollars in thousands)		Fair
		Value
Due within one year	$	31,758
Due after one year through five years		95,744
Due after five years through ten years		44,022
Due after ten years		3,103
Total debt securities		174,627
Equity securities		2,817
Total	$	177,444

Securities with unrealized losses at September 30, 2016 and year-end 2015, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

	September 30, 2016
	Less than 12 months					More than 12 months					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government and federal agency	$	7,551	$	(18	)	$	—	$	—		$	7,551	$	(18	)
State and municipal		3,506		(19	)		260		(5	)		3,766		(24	)
Mortgage-backed		2,827		(12	)		280		(1	)		3,107		(13	)
Corporate		501		(1	)		399		(1	)		900		(2	)
Asset-backed securities		—		—			198		(5	)		198		(5	)
Total temporarily impaired	$	14,385	$	(50	)	$	1,137	$	(12	)	$	15,522	$	(62	)

	December 31, 2015
	Less than 12 months					More than 12 months					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government and federal agency	$	38,567	$	(216	)	$	986	$	(13	)	$	39,553	$	(229	)
U.S. Treasury notes and bonds		6,101		(33	)		—		—			6,101		(33	)
State and municipal		10,382		(69	)		2,906		(40	)		13,288		(109	)
Mortgage-backed		4,459		(41	)		382		(4	)		4,841		(45	)
Corporate		4,284		(33	)		896		(6	)		5,180		(39	)
Foreign debt		995		(5	)		—		—			995		(5	)
Asset-backed securities		—		—			270		(4	)		270		(4	)
Total temporarily impaired	$	64,788	$	(397	)	$	5,440	$	(67	)	$	70,228	$	(464	)

ChoiceOne reviews its securities portfolio on a quarterly basis to determine whether unrealized losses are considered to be temporary or other-than-temporary. No other-than-temporary impairment charges were recorded during the nine months ended September 30, 2016. ChoiceOne believed that unrealized losses on securities were temporary in nature and were due to changes in interest rates and reduced market liquidity and not as a result of credit quality issues.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses and balances in the loan portfolio were as follows:

(Dollars in thousands)	Agricultural			Commercial and Industrial			Consumer			Commercial Real Estate			Construction Real Estate			Residential Real Estate			Unallocated			Total
Allowance for Loan Losses
Three Months Ended September 30, 2016
Beginning balance	$	399		$	656		$	279		$	1,133		$	44		$	1,222		$	563		$	4,296
Charge-offs		—			—			(68	)		—			—			(25	)		—			(93	)
Recoveries		—			8			49			5			—			11			—			73
Provision		(11	)		(55	)		30			340			(3	)		(205	)		(96	)		—
Ending balance	$	388		$	609		$	290		$	1,478		$	41		$	1,003		$	467		$	4,276
Nine Months Ended September 30, 2016
Beginning balance	$	420		$	586		$	297		$	1,030		$	46		$	1,388		$	427		$	4,194
Charge-offs		—			(33	)		(136	)		—			—			(94	)		—			(263	)
Recoveries		—			31			119			35			—			160			—			345
Provision		(32	)		26			10			412			(5	)		(451	)		40			—
Ending balance	$	388		$	610		$	290		$	1,477		$	41		$	1,003		$	467		$	4,276
Individually evaluated for impairment	$	4		$	8		$	1		$	167		$	—		$	321		$	—		$	501
Collectively evaluated for impairment	$	384		$	602		$	289		$	1,310		$	41		$	682		$	467		$	3,775
Three Months Ended September 30, 2015
Beginning balance	$	279		$	498		$	193		$	1,284		$	28		$	1,375		$	695		$	4,352
Charge-offs		—			—			(65	)		—			—			(25	)		—			(90	)
Recoveries		—			11			25			15			—			4			—			55
Provision		10			(14	)		57			(179	)		15			(2	)		113			—
Ending balance	$	289		$	495		$	210		$	1,120		$	43		$	1,352		$	808		$	4,317
Nine Months Ended September 30, 2015
Beginning balance	$	187		$	527		$	183		$	1,641		$	9		$	1,193		$	433		$	4,173
Charge-offs		—			—			(172	)		—			—			(46	)		—			(218	)
Recoveries		1			59			104			36			—			62			—			262
Provision		101			(91	)		95			(557	)		34			143			375			100
Ending balance	$	289		$	495		$	210		$	1,120		$	43		$	1,352		$	808		$	4,317
Individually evaluated for impairment	$	3		$	1		$	29		$	296		$	—		$	355		$	—		$	684
Collectively evaluated for impairment	$	286		$	494		$	181		$	824		$	43		$	997		$	808		$	3,633
Loans
September 30, 2016
Individually evaluated for impairment	$	534		$	450		$	26		$	1,459		$	—		$	3,109					$	5,578
Collectively evaluated for impairment		37,744			95,221			21,427			107,608			6,027			88,998						357,025
Ending balance	$	38,278		$	95,671		$	21,453		$	109,067		$	6,027		$	92,107					$	362,603
December 31, 2015
Individually evaluated for impairment	$	50		$	192		$	24		$	2,790		$	—		$	2,529					$	5,585
Collectively evaluated for impairment		40,182			94,155			20,066			94,946			5,390			88,980						343,719
Ending balance	$	40,232		$	94,347		$	20,090		$	97,736		$	5,390		$	91,509					$	349,304

The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans, (2) the level of classified business loans, and (3) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 8. A description of the characteristics of the ratings follows:

Risk ratings 1 and 2: These loans are considered pass credits. They exhibit good to exceptional credit risk and demonstrate the ability to repay the loan from normal business operations.

Risk rating 3: These loans are considered pass credits. They exhibit acceptable credit risk and demonstrate the ability to repay the loan from normal business operations.

Risk rating 4: These loans are considered pass credits. However, they have potential developing weaknesses that, if not corrected, may cause deterioration in the ability of the borrower to repay the loan. While a loss is possible for a loan with this rating, it is not anticipated.

Risk rating 5: These loans are considered special mention credits. Loans in this risk rating are considered to be inadequately protected by the net worth and debt service coverage of the borrower or of any pledged collateral. These loans have well defined weaknesses that may jeopardize the borrower’s ability to repay the loan. If the weaknesses are not corrected, loss of principal and interest could be probable.

Risk rating 6: These loans are considered substandard credits. These loans have well defined weaknesses, the severity of which makes collection of principal and interest in full, questionable. Loans in this category may be placed on nonaccrual status.

Risk rating 7: These loans are considered doubtful credits. Some loss of principal and interest has been determined to be probable. The estimate of the amount of loss could be affected by factors such as the borrower’s ability to provide additional capital or collateral. Loans in this category are on nonaccrual status.

Risk rating 8: These loans are considered loss credits. They are considered uncollectible and will be charged off against the allowance for loan losses.

Information regarding the Bank’s credit exposure is as follows:

Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category:

	Agricultural				Commercial and Industrial				Commercial Real Estate
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Risk ratings 1 and 2	$	8,072	$	10,416	$	11,672	$	10,480	$	7,305	$	3,875
Risk rating 3		21,626		25,189		63,450		66,921		57,355		57,540
Risk rating 4		7,269		3,086		19,242		16,169		40,692		29,826
Risk rating 5		1,267		1,491		1,227		574		3,153		3,776
Risk rating 6		44		50		80		129		562		2,719
Risk rating 7		—		—		—		74		—		—
	$	38,278	$	40,232	$	95,671	$	94,347	$	109,067	$	97,736
Corporate Credit Exposure - Credit Risk Profile Based On Payment Activity:
	Consumer				Construction Real Estate				Residential Real Estate
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Performing	$	21,448	$	20,090	$	6,027	$	5,390	$	91,317	$	90,796
Nonperforming		5		—		—		—		336		282
Nonaccrual		—		—		—		—		454		431
	$	21,453	$	20,090	$	6,027	$	5,390	$	92,107	$	91,509

The following schedule provides information on loans that were considered TDRs that were modified during the three- and nine-month periods ended September 30, 2016:

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Investment		Investment		Loans		Investment		Investment
Agricultural		—	$	—	$	—		1	$	113	$	113
Residential real estate		—		—		—		2		156		156
		—	$	—	$	—		3	$	269	$	269

The following schedule provides information on loans that were considered TDRs that were modified during the three- and nine-month periods ended September 30, 2015:

	Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Investment		Investment		Loans		Investment		Investment
Commercial real estate		—	$	—	$	—		4	$	448	$	448
Residential real estate		1		85		85		2		193		193
		1	$	85	$	85		6	$	641	$	641

The pre-modification and post-modification outstanding recorded investment represents amounts as of the date of loan modification. If a difference exists between the pre-modification and post-modification outstanding recorded investment, it represents impairment recognized through the provision for loan losses computed based on a loan’s post-modification present value of expected future cash flows discounted at the loan’s original effective interest rate. If no difference exists, a loss is not expected to be incurred based on an assessment of the borrower’s expected cash flows.

The following schedule provides information on TDRs as of September 30, 2016 where the borrower was past due with respect to principal and/or interest for 30 days or more during the three months and nine months ended September 30, 2016 that had been modified during the year prior to the default:

	Three Months Ended				Nine Months Ended
	September 30, 2016				September 30, 2016
(Dollars in thousands)	Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment
Agricultural		—	$	—		1	$	113

The following schedule provides information on TDRs as of September 30, 2015 where the borrower was past due with respect to principal and/or interest for 30 days or more during the three months and nine months ended September 30, 2015 that had been modified during the year prior to the default:

	Three Months Ended				Nine Months Ended
	September 30, 2015				September 30, 2015
(Dollars in thousands)	Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment
Commercial real estate		2	$	293		3	$	409

Loans are classified as performing when they are current as to principal and interest payments or are past due on payments less than 90 days. Loans are classified as nonperforming when they are past due 90 days or more as to principal and interest payments or are considered a troubled debt restructuring.

Impaired loans by loan category follow:

			Unpaid
(Dollars in thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
September 30, 2016
With no related allowance recorded
Agricultural	$	489	$	493	$	—
Commercial and industrial		177		177		—
Consumer		5		5		—
Commercial real estate		230		351		—
Residential real estate		266		266		—
Subtotal		1,167		1,292		—
With an allowance recorded
Agricultural		45		45		4
Commercial and industrial		273		247		8
Consumer		21		21		1
Commercial real estate		1,229		1,799		167
Residential real estate		2,843		2,859		321
Subtotal		4,411		4,971		501
Total
Agricultural		534		538		4
Commercial and industrial		450		424		8
Consumer		26		26		1
Commercial real estate		1,459		2,150		167
Residential real estate		3,109		3,125		321
Total	$	5,578	$	6,263	$	501
December 31, 2015
With no related allowance recorded
Agricultural	$	—	$	—	$	—
Commercial and industrial		74		103		—
Consumer		—		—		—
Commercial real estate		1,540		1,540		—
Residential real estate		13		13		—
Subtotal		1,627		1,656		—
With an allowance recorded
Agricultural		50		50		3
Commercial and industrial		118		118		15
Consumer		24		24		1
Commercial real estate		1,250		1,755		191
Residential real estate		2,516		2,516		296
Subtotal		3,958		4,463		506
Total
Agricultural		50		50		3
Commercial and industrial		192		221		15
Consumer		24		24		1
Commercial real estate		2,790		3,295		191
Residential real estate		2,529		2,529		296
Total	$	5,585	$	6,119	$	506

The following schedule provides information regarding average balances of impaired loans and interest recognized on impaired loans for the nine months ended September 30, 2016 and 2015:

	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
September 30, 2016
With no related allowance recorded
Agricultural	$	154	$	(1	)
Commercial and industrial		63		—
Consumer		1		—
Commercial real estate		1,071		33
Residential real estate		134		46
Subtotal		1,423		78
With an allowance recorded
Agricultural		79		16
Commercial and industrial		242		4
Consumer		22		3
Commercial real estate		1,426		116
Residential real estate		2,670		308
Subtotal		4,439		447
Total
Agricultural		233		15
Commercial and industrial		305		4
Consumer		23		3
Commercial real estate		2,497		149
Residential real estate		2,804		354
Total	$	5,862	$	525
September 30, 2015
With no related allowance recorded
Agricultural	$	—	$	—
Commercial and industrial		13		—
Consumer		2		—
Commercial real estate		941		23
Residential real estate		236		(1	)
Subtotal		1,192		22
With an allowance recorded
Agricultural		65		(6	)
Commercial and industrial		26		1
Consumer		37		2
Commercial real estate		2,190		53
Residential real estate		2,402		64
Subtotal		4,720		114
Total
Agricultural		65		(6	)
Commercial and industrial		39		1
Consumer		39		2
Commercial real estate		3,131		76
Residential real estate		2,638		63
Total	$	5,912	$	136

An aging analysis of loans by loan category follows:

					Greater								90 Days Past
(Dollars in thousands)	30 to 59		60 to 89		Than 90				Loans Not				Due and
	Days		Days		Days (1)		Total		Past Due		Total Loans		Accruing
September 30, 2016
Agricultural	$	—	$	—	$	113	$	113	$	38,165	$	38,278	$	—
Commercial and industrial		97		—		249		346		95,325		95,671		—
Consumer		40		6		5		51		21,402		21,453		5
Commercial real estate		—		256		260		516		108,551		109,067		—
Construction real estate		—		—		—		—		6,027		6,027		—
Residential real estate		230		614		487		1,331		90,776		92,107		346
	$	367	$	876	$	1,114	$	2,357	$	360,246	$	362,603	$	351
December 31, 2015
Agricultural	$	3	$	—	$	—	$	3	$	40,229	$	40,232	$	—
Commercial and industrial		90		322		77		489		93,858		94,347		—
Consumer		115		—		—		115		19,975		20,090		—
Commercial real estate		505		297		1,233		2,035		95,701		97,736		—
Construction real estate		299		—		—		299		5,091		5,390		—
Residential real estate		1,012		364		200		1,576		89,933		91,509		29
	$	2,024	$	983	$	1,510	$	4,517	$	344,787	$	349,304	$	29

(1) Includes nonaccrual loans.

Nonaccrual loans by loan category follow:

(Dollars in thousands)	September 30,		December 31,
	2016		2015
Agricultural	$	489	$	50
Commercial and industrial		320		77
Consumer		—		—
Commercial real estate		471		1,640
Construction real estate		—		—
Residential real estate		455		431
	$	1,735	$	2,198

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 4 - EARNINGS PER SHARE

Earnings per share are based on the weighted average number of shares outstanding during the period. A computation of basic earnings per share and diluted earnings per share follows:

	Three Months Ended				Nine Months Ended
(Dollars in thousands, except per share data)	September 30,				September 30,
	2016		2015		2016		2015
Basic Earnings Per Share
Net income available to common shareholders	$	1,683	$	1,450	$	4,402	$	4,523
Weighted average common shares outstanding		3,275,841		3,289,146		3,290,610		3,287,765
Basic earnings per share	$	0.52	$	0.44	$	1.34	$	1.37
Diluted Earnings Per Share
Net income available to common shareholders	$	1,683	$	1,450	$	4,402	$	4,523
Weighted average common shares outstanding		3,275,841		3,289,146		3,290,610		3,287,765
Plus dilutive stock options and restricted stock units		3,949		6,686		4,171		6,841
Weighted average common shares outstanding and potentially dilutive shares		3,279,790		3,295,832		3,294,781		3,294,606
Diluted earnings per share	$	0.52	$	0.44	$	1.34	$	1.37

There were 30,000 stock options as of September 30, 2016 and zero stock options as of September 30, 2015, that were considered to be anti-dilutive to earnings per share for the three-month and nine-month periods ended September 30, 2016 and 2015. These stock options have been excluded from the calculation above.

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FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

FINANCIAL INSTRUMENTS

NOTE 5 – FINANCIAL INSTRUMENTS

Financial instruments as of the dates indicated were as follows:

					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2016
Assets:
Cash and due from banks	$	12,644	$	12,644	$	12,644	$	—	$	—
Securities available for sale		177,444		177,444		1,318		161,598		14,528
Federal Home Loan Bank and Federal
Reserve Bank stock		3,252		3,252		—		3,252		—
Loans held for sale		2,838		2,639		—		—		2,639
Loans, net		358,327		345,497		—		—		345,497
Liabilities:
Noninterest-bearing deposits		123,609		123,609		—		123,609		—
Interest-bearing deposits		353,778		353,842		—		353,842		—
Federal funds purchased		624		624		—		624		—
Repurchase agreements		6,417		6,417		—		6,417		—
Federal Home Loan Bank advances		37,309		37,309		—		37,309		—
December 31, 2015
Assets:
Cash and due from banks	$	11,187	$	11,187	$	11,187	$	—	$	—
Securities available for sale		160,136		160,136		953		147,384		11,799
Federal Home Loan Bank and Federal
Reserve Bank stock		3,187		3,187		—		3,187		—
Loans held for sale		4,957		5,109		—		5,109		—
Loans, net		345,110		349,875		—		—		349,875
Liabilities:
Noninterest-bearing deposits		122,937		122,937		—		122,937		—
Interest-bearing deposits		351,759		353,113		—		353,113		—
Repurchase agreements		9,460		9,460		—		9,460		—
Federal Home Loan Bank advances		11,332		12,028		—		12,028		—

The estimated fair values approximate the carrying amounts for all assets and liabilities except those described later in this paragraph. The methodology for determining the estimated fair value for securities available for sale is described in Note 6. The estimated fair value for loans is based on the rates charged at September 30, 2016 and December 31, 2015 for new loans with similar maturities, applied until the loan is assumed to reprice or be paid off. The allowance for loan losses is considered to be a reasonable estimate of discount for credit quality concerns. The estimated fair values for time deposits and Federal Home Loan Bank (“FHLB”) advances are based on the rates paid at September 30, 2016 and December 31, 2015 for new deposits or FHLB advances, applied until maturity. The estimated fair values for other financial instruments and off-balance sheet loan commitments are considered nominal.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS

The following tables present information about the Bank’s assets and liabilities measured at fair value on a recurring basis and the valuation techniques used by the Bank to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Bank has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Bank’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

There were no liabilities measured at fair value as of September 30, 2016 or December 31, 2015. Disclosures concerning assets measured at fair value are as follows:

Assets Measured at Fair Value on a Recurring Basis

(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Date Indicated
Investment Securities, Available for Sale – September 30, 2016
U.S. Treasury notes and bonds	$	—	$	2,116	$	—	$	2,116
U.S. Government and federal agency		—		64,804		—		64,804
State and municipal		—		77,885		12,629		90,514
Mortgage-backed		—		8,559		—		8,559
Corporate		—		7,034		399		7,433
Foreign debt		—		1,002		—		1,002
Equity securities		1,318		—		1,500		2,818
Asset backed securities		—		198		—		198
Total	$	1,318	$	161,598	$	14,528	$	177,444
Investment Securities, Available for Sale - December 31, 2015
U.S. Treasury notes and bonds	$	—	$	6,100	$	—	$	6,100
U.S. Government and federal agency		—		57,207		—		57,207
State and municipal		—		67,852		9,902		77,754
Mortgage-backed		—		6,970		—		6,970
Corporate		—		7,990		397		8,387
Foreign debt		—		995		—		995
Equity securities		953		—		1,500		2,453
Asset backed securities		—		270		—		270
Total	$	953	$	147,384	$	11,799	$	160,136

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

(Dollars in thousands)	2016		2015
Investment Securities, Available for Sale
Balance, January 1	$	11,799	$	11,642
Total realized and unrealized gains included in income		—		—
Total unrealized gains (losses) included in other comprehensive income		131		946
Net purchases, sales, calls, and maturities		2,598		(2,075	)
Net transfers into Level 3		—		—
Balance, September 30	$	14,528	$	10,513

Of the Level 3 assets that were held by the Bank at September 30, 2016, the net unrealized gain for the nine months ended September 30, 2016 was $131,000, which is recognized in other comprehensive income in the consolidated balance sheet. Purchases of Level 3 securities during the first three quarters of 2016 and 2015 consisted of local municipal issues. During the first nine months of 2016, $5.1 million of Level 3 securities were purchased. There were no sales of Level 3 securities in the first nine months of 2016.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 investment securities and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Available for sale investment securities categorized as Level 3 assets primarily consist of bonds issued by local municipalities. The Bank estimates the fair value of these bonds based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.

The Bank also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:

Assets Measured at Fair Value on a Non-recurring Basis

			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for Identical		Observable		Unobservable
	Balance at		Assets		Inputs		Inputs
(Dollars in thousands)	Dates Indicated		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
September 30, 2016	$	5,578	$	—	$	—	$	5,578
December 31, 2015	$	5,585	$	—	$	—	$	5,585
Other Real Estate
September 30, 2016	$	483	$	—	$	—	$	483
December 31, 2015	$	31	$	—	$	—	$	31

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Bank estimates the fair value of the loans based on the present value of expected future cash flows using management’s estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted to the allowance for loan losses and write-downs of other real estate that were posted to a valuation account.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include ChoiceOne Financial Services, Inc. (“ChoiceOne”) and its wholly-owned subsidiary, ChoiceOne Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. Intercompany transactions and balances have been eliminated in consolidation.

The unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading.

The accompanying consolidated financial statements reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of the Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015, the Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2016 and September 30, 2015, the Consolidated Statements of Comprehensive Income for the three- and nine-month periods ended September 30, 2016 and September 30, 2015, the Consolidated Statements of Changes in Shareholders’ Equity for the nine-month periods ended September 30, 2016 and September 30, 2015, and the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2016 and September 30, 2015. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2015.

Allowance for Loan Losses

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses inherent in the consolidated loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, assessments of the impact of current economic conditions on the portfolio and historical loss experience of seasoned loan portfolios. See Note 3 to the interim consolidated financial statements for additional information.

Management believes the accounting estimate related to the allowance for loan losses is a “critical accounting estimate” because (1) the estimate is highly susceptible to change from period to period because of assumptions concerning the changes in the types and volumes of the portfolios and economic conditions and (2) the impact of recognizing an impairment or loan loss could have a material effect on ChoiceOne’s assets reported on the balance sheets as well as its net income.

Stock Transactions

Stock Transactions

A total of 4,112 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $95,000 under the terms of the Directors’ Stock Purchase Plan in the first nine months of 2016. A total of 4,793 shares of common stock were issued upon the exercise of stock options in the first three quarters of 2016. A total of 2,654 shares of common stock were issued to employees for a cash price of $51,000 under the Employee Stock Purchase Plan in the first nine months of 2016. A total of 3,414 shares of common stock were issued to employees upon vesting of Restricted Stock Units during the first three quarters of 2016. A total of 35,000 shares of common stock were repurchased by ChoiceOne in the first nine months of 2016.

Stock-Based Compensation

Stock-Based Compensation

Effective July 1, 2013, ChoiceOne began granting Restricted Stock Units to a select group of employees under the Stock Incentive Plan of 2012. All of the Restricted Stock Units are initially unvested and vest in three annual installments on each of the next three anniversaries of the grant date. Certain additional vesting provisions apply. Each unit, once vested, is settled by issuance of one share of ChoiceOne common stock.

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Schedule of fair value of securities available for sale

The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	September 30, 2016
				Gross		Gross
(Dollars in thousands)		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
U.S. Government and federal agency	$	64,440	$	381	$	(17	)	$	64,804
U.S. Treasury		2,074		43		(1	)		2,116
State and municipal		87,661		2,878		(25	)		90,514
Mortgage-backed		8,511		62		(14	)		8,559
Corporate		7,370		64		(1	)		7,433
Foreign debt		1,000		2		—			1,002
Equity securities		2,614		204		—			2,818
Asset-backed securities		202		—		(4	)		198
Total	$	173,872	$	3,634	$	(62	)	$	177,444

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
U.S. Government and federal agency	$	57,406	$	30	$	(229	)	$	57,207
U.S. Treasury		6,133		0		(33	)		6,100
State and municipal		76,005		1,858		(109	)		77,754
Mortgage-backed		6,989		26		(45	)		6,970
Corporate		8,418		8		(39	)		8,387
Foreign debt		1,000		—		(5	)		995
Equity securities		2,279		174		—			2,453
Asset-backed securities		274		—		(4	)		270
Total	$	158,504	$	2,096	$	(464	)	$	160,136

Schedule of expected maturities of available for sale securities

Contractual maturities of securities available for sale at September 30, 2016 were as follows:

(Dollars in thousands)		Fair
		Value
Due within one year	$	31,758
Due after one year through five years		95,744
Due after five years through ten years		44,022
Due after ten years		3,103
Total debt securities		174,627
Equity securities		2,817
Total	$	177,444

Schedule of securities in a continuous unrealized loss position

Securities with unrealized losses at September 30, 2016 and year-end 2015, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

	September 30, 2016
	Less than 12 months					More than 12 months					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government and federal agency	$	7,551	$	(18	)	$	—	$	—		$	7,551	$	(18	)
State and municipal		3,506		(19	)		260		(5	)		3,766		(24	)
Mortgage-backed		2,827		(12	)		280		(1	)		3,107		(13	)
Corporate		501		(1	)		399		(1	)		900		(2	)
Asset-backed securities		—		—			198		(5	)		198		(5	)
Total temporarily impaired	$	14,385	$	(50	)	$	1,137	$	(12	)	$	15,522	$	(62	)

	December 31, 2015
	Less than 12 months					More than 12 months					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government and federal agency	$	38,567	$	(216	)	$	986	$	(13	)	$	39,553	$	(229	)
U.S. Treasury notes and bonds		6,101		(33	)		—		—			6,101		(33	)
State and municipal		10,382		(69	)		2,906		(40	)		13,288		(109	)
Mortgage-backed		4,459		(41	)		382		(4	)		4,841		(45	)
Corporate		4,284		(33	)		896		(6	)		5,180		(39	)
Foreign debt		995		(5	)		—		—			995		(5	)
Asset-backed securities		—		—			270		(4	)		270		(4	)
Total temporarily impaired	$	64,788	$	(397	)	$	5,440	$	(67	)	$	70,228	$	(464	)

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Schedule of activity in the allowance for loan losses and balances in the loan portfolio

Activity in the allowance for loan losses and balances in the loan portfolio were as follows:

(Dollars in thousands)	Agricultural			Commercial and Industrial			Consumer			Commercial Real Estate			Construction Real Estate			Residential Real Estate			Unallocated			Total
Allowance for Loan Losses
Three Months Ended September 30, 2016
Beginning balance	$	399		$	656		$	279		$	1,133		$	44		$	1,222		$	563		$	4,296
Charge-offs		—			—			(68	)		—			—			(25	)		—			(93	)
Recoveries		—			8			49			5			—			11			—			73
Provision		(11	)		(55	)		30			340			(3	)		(205	)		(96	)		—
Ending balance	$	388		$	609		$	290		$	1,478		$	41		$	1,003		$	467		$	4,276
Nine Months Ended September 30, 2016
Beginning balance	$	420		$	586		$	297		$	1,030		$	46		$	1,388		$	427		$	4,194
Charge-offs		—			(33	)		(136	)		—			—			(94	)		—			(263	)
Recoveries		—			31			119			35			—			160			—			345
Provision		(32	)		26			10			412			(5	)		(451	)		40			—
Ending balance	$	388		$	610		$	290		$	1,477		$	41		$	1,003		$	467		$	4,276
Individually evaluated for impairment	$	4		$	8		$	1		$	167		$	—		$	321		$	—		$	501
Collectively evaluated for impairment	$	384		$	602		$	289		$	1,310		$	41		$	682		$	467		$	3,775
Three Months Ended September 30, 2015
Beginning balance	$	279		$	498		$	193		$	1,284		$	28		$	1,375		$	695		$	4,352
Charge-offs		—			—			(65	)		—			—			(25	)		—			(90	)
Recoveries		—			11			25			15			—			4			—			55
Provision		10			(14	)		57			(179	)		15			(2	)		113			—
Ending balance	$	289		$	495		$	210		$	1,120		$	43		$	1,352		$	808		$	4,317
Nine Months Ended September 30, 2015
Beginning balance	$	187		$	527		$	183		$	1,641		$	9		$	1,193		$	433		$	4,173
Charge-offs		—			—			(172	)		—			—			(46	)		—			(218	)
Recoveries		1			59			104			36			—			62			—			262
Provision		101			(91	)		95			(557	)		34			143			375			100
Ending balance	$	289		$	495		$	210		$	1,120		$	43		$	1,352		$	808		$	4,317
Individually evaluated for impairment	$	3		$	1		$	29		$	296		$	—		$	355		$	—		$	684
Collectively evaluated for impairment	$	286		$	494		$	181		$	824		$	43		$	997		$	808		$	3,633
Loans
September 30, 2016
Individually evaluated for impairment	$	534		$	450		$	26		$	1,459		$	—		$	3,109					$	5,578
Collectively evaluated for impairment		37,744			95,221			21,427			107,608			6,027			88,998						357,025
Ending balance	$	38,278		$	95,671		$	21,453		$	109,067		$	6,027		$	92,107					$	362,603
December 31, 2015
Individually evaluated for impairment	$	50		$	192		$	24		$	2,790		$	—		$	2,529					$	5,585
Collectively evaluated for impairment		40,182			94,155			20,066			94,946			5,390			88,980						343,719
Ending balance	$	40,232		$	94,347		$	20,090		$	97,736		$	5,390		$	91,509					$	349,304

Schedule of the bank's credit exposure

Information regarding the Bank’s credit exposure is as follows:

Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category:

	Agricultural				Commercial and Industrial				Commercial Real Estate
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Risk ratings 1 and 2	$	8,072	$	10,416	$	11,672	$	10,480	$	7,305	$	3,875
Risk rating 3		21,626		25,189		63,450		66,921		57,355		57,540
Risk rating 4		7,269		3,086		19,242		16,169		40,692		29,826
Risk rating 5		1,267		1,491		1,227		574		3,153		3,776
Risk rating 6		44		50		80		129		562		2,719
Risk rating 7		—		—		—		74		—		—
	$	38,278	$	40,232	$	95,671	$	94,347	$	109,067	$	97,736
Corporate Credit Exposure - Credit Risk Profile Based On Payment Activity:
	Consumer				Construction Real Estate				Residential Real Estate
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Performing	$	21,448	$	20,090	$	6,027	$	5,390	$	91,317	$	90,796
Nonperforming		5		—		—		—		336		282
Nonaccrual		—		—		—		—		454		431
	$	21,453	$	20,090	$	6,027	$	5,390	$	92,107	$	91,509

Schedule of troubled debt restructurings

The following schedule provides information on loans that were considered TDRs that were modified during the three- and nine-month periods ended September 30, 2016:

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Investment		Investment		Loans		Investment		Investment
Agricultural		—	$	—	$	—		1	$	113	$	113
Residential real estate		—		—		—		2		156		156
		—	$	—	$	—		3	$	269	$	269

The following schedule provides information on loans that were considered TDRs that were modified during the three- and nine-month periods ended September 30, 2015:

	Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Investment		Investment		Loans		Investment		Investment
Commercial real estate		—	$	—	$	—		4	$	448	$	448
Residential real estate		1		85		85		2		193		193
		1	$	85	$	85		6	$	641	$	641

The following schedule provides information on TDRs as of September 30, 2016 where the borrower was past due with respect to principal and/or interest for 30 days or more during the three months and nine months ended September 30, 2016 that had been modified during the year prior to the default:

	Three Months Ended				Nine Months Ended
	September 30, 2016				September 30, 2016
(Dollars in thousands)	Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment
Agricultural		—	$	—		1	$	113

The following schedule provides information on TDRs as of September 30, 2015 where the borrower was past due with respect to principal and/or interest for 30 days or more during the three months and nine months ended September 30, 2015 that had been modified during the year prior to the default:

	Three Months Ended				Nine Months Ended
	September 30, 2015				September 30, 2015
(Dollars in thousands)	Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment
Commercial real estate		2	$	293		3	$	409

Schedule of impaired loans

Impaired loans by loan category follow:

(Dollars in thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
September 30, 2016
With no related allowance recorded
Agricultural	$	489	$	493	$	—
Commercial and industrial		177		177		—
Consumer		5		5		—
Commercial real estate		230		351		—
Residential real estate		266		266		—
Subtotal		1,167		1,292		—
With an allowance recorded
Agricultural		45		45		4
Commercial and industrial		273		247		8
Consumer		21		21		1
Commercial real estate		1,229		1,799		167
Residential real estate		2,843		2,859		321
Subtotal		4,411		4,971		501
Total
Agricultural		534		538		4
Commercial and industrial		450		424		8
Consumer		26		26		1
Commercial real estate		1,459		2,150		167
Residential real estate		3,109		3,125		321
Total	$	5,578	$	6,263	$	501
December 31, 2015
With no related allowance recorded
Agricultural	$	—	$	—	$	—
Commercial and industrial		74		103		—
Consumer		—		—		—
Commercial real estate		1,540		1,540		—
Residential real estate		13		13		—
Subtotal		1,627		1,656		—
With an allowance recorded
Agricultural		50		50		3
Commercial and industrial		118		118		15
Consumer		24		24		1
Commercial real estate		1,250		1,755		191
Residential real estate		2,516		2,516		296
Subtotal		3,958		4,463		506
Total
Agricultural		50		50		3
Commercial and industrial		192		221		15
Consumer		24		24		1
Commercial real estate		2,790		3,295		191
Residential real estate		2,529		2,529		296
Total	$	5,585	$	6,119	$	506

The following schedule provides information regarding average balances of impaired loans and interest recognized on impaired loans for the nine months ended September 30, 2016 and 2015:

	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
September 30, 2016
With no related allowance recorded
Agricultural	$	154	$	(1	)
Commercial and industrial		63		—
Consumer		1		—
Commercial real estate		1,071		33
Residential real estate		134		46
Subtotal		1,423		78
With an allowance recorded
Agricultural		79		16
Commercial and industrial		242		4
Consumer		22		3
Commercial real estate		1,426		116
Residential real estate		2,670		308
Subtotal		4,439		447
Total
Agricultural		233		15
Commercial and industrial		305		4
Consumer		23		3
Commercial real estate		2,497		149
Residential real estate		2,804		354
Total	$	5,862	$	525
September 30, 2015
With no related allowance recorded
Agricultural	$	—	$	—
Commercial and industrial		13		—
Consumer		2		—
Commercial real estate		941		23
Residential real estate		236		(1	)
Subtotal		1,192		22
With an allowance recorded
Agricultural		65		(6	)
Commercial and industrial		26		1
Consumer		37		2
Commercial real estate		2,190		53
Residential real estate		2,402		64
Subtotal		4,720		114
Total
Agricultural		65		(6	)
Commercial and industrial		39		1
Consumer		39		2
Commercial real estate		3,131		76
Residential real estate		2,638		63
Total	$	5,912	$	136

Schedule of aging analysis of loans by loan category

An aging analysis of loans by loan category follows:

					Greater								90 Days Past
(Dollars in thousands)	30 to 59		60 to 89		Than 90				Loans Not				Due and
	Days		Days		Days (1)		Total		Past Due		Total Loans		Accruing
September 30, 2016
Agricultural	$	—	$	—	$	113	$	113	$	38,165	$	38,278	$	—
Commercial and industrial		97		—		249		346		95,325		95,671		—
Consumer		40		6		5		51		21,402		21,453		5
Commercial real estate		—		256		260		516		108,551		109,067		—
Construction real estate		—		—		—		—		6,027		6,027		—
Residential real estate		230		614		487		1,331		90,776		92,107		346
	$	367	$	876	$	1,114	$	2,357	$	360,246	$	362,603	$	351
December 31, 2015
Agricultural	$	3	$	—	$	—	$	3	$	40,229	$	40,232	$	—
Commercial and industrial		90		322		77		489		93,858		94,347		—
Consumer		115		—		—		115		19,975		20,090		—
Commercial real estate		505		297		1,233		2,035		95,701		97,736		—
Construction real estate		299		—		—		299		5,091		5,390		—
Residential real estate		1,012		364		200		1,576		89,933		91,509		29
	$	2,024	$	983	$	1,510	$	4,517	$	344,787	$	349,304	$	29

(1) Includes nonaccrual loans.

Schedule of nonaccrual loans by loan category

Nonaccrual loans by loan category follow:

(Dollars in thousands)	September 30,		December 31,
	2016		2015
Agricultural	$	489	$	50
Commercial and industrial		320		77
Consumer		—		—
Commercial real estate		471		1,640
Construction real estate		—		—
Residential real estate		455		431
	$	1,735	$	2,198

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Schedule of basic earnings per share and diluted earnings per share

Earnings per share are based on the weighted average number of shares outstanding during the period. A computation of basic earnings per share and diluted earnings per share follows:

	Three Months Ended				Nine Months Ended
(Dollars in thousands, except per share data)	September 30,				September 30,
	2016		2015		2016		2015
Basic Earnings Per Share
Net income available to common shareholders	$	1,683	$	1,450	$	4,402	$	4,523
Weighted average common shares outstanding		3,275,841		3,289,146		3,290,610		3,287,765
Basic earnings per share	$	0.52	$	0.44	$	1.34	$	1.37
Diluted Earnings Per Share
Net income available to common shareholders	$	1,683	$	1,450	$	4,402	$	4,523
Weighted average common shares outstanding		3,275,841		3,289,146		3,290,610		3,287,765
Plus dilutive stock options and restricted stock units		3,949		6,686		4,171		6,841
Weighted average common shares outstanding and potentially dilutive shares		3,279,790		3,295,832		3,294,781		3,294,606
Diluted earnings per share	$	0.52	$	0.44	$	1.34	$	1.37

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FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of carrying value and fair value of financial assets and liabilities

Financial instruments as of the dates indicated were as follows:

					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2016
Assets:
Cash and due from banks	$	12,644	$	12,644	$	12,644	$	—	$	—
Securities available for sale		177,444		177,444		1,318		161,598		14,528
Federal Home Loan Bank and Federal
Reserve Bank stock		3,252		3,252		—		3,252		—
Loans held for sale		2,838		2,639		—		—		2,639
Loans, net		358,327		345,497		—		—		345,497
Liabilities:
Noninterest-bearing deposits		123,609		123,609		—		123,609		—
Interest-bearing deposits		353,778		353,842		—		353,842		—
Federal funds purchased		624		624		—		624		—
Repurchase agreements		6,417		6,417		—		6,417		—
Federal Home Loan Bank advances		37,309		37,309		—		37,309		—
December 31, 2015
Assets:
Cash and due from banks	$	11,187	$	11,187	$	11,187	$	—	$	—
Securities available for sale		160,136		160,136		953		147,384		11,799
Federal Home Loan Bank and Federal
Reserve Bank stock		3,187		3,187		—		3,187		—
Loans held for sale		4,957		5,109		—		5,109		—
Loans, net		345,110		349,875		—		—		349,875
Liabilities:
Noninterest-bearing deposits		122,937		122,937		—		122,937		—
Interest-bearing deposits		351,759		353,113		—		353,113		—
Repurchase agreements		9,460		9,460		—		9,460		—
Federal Home Loan Bank advances		11,332		12,028		—		12,028		—

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of assets measured at fair value on a recurring basis

Financial instruments as of the dates indicated were as follows:

					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2016
Assets:
Cash and due from banks	$	12,644	$	12,644	$	12,644	$	—	$	—
Securities available for sale		177,444		177,444		1,318		161,598		14,528
Federal Home Loan Bank and Federal
Reserve Bank stock		3,252		3,252		—		3,252		—
Loans held for sale		2,838		2,828		—		—		2,828
Loans, net		358,327		362,465		—		—		362,465
Liabilities:
Noninterest-bearing deposits		123,609		123,609		—		123,609		—
Interest-bearing deposits		353,778		353,470		—		353,470		—
Federal funds purchased		624		624		—		624		—
Repurchase agreements		6,417		6,417		—		6,417		—
Federal Home Loan Bank advances		37,309		37,283		—		37,283		—
December 31, 2015
Assets:
Cash and due from banks	$	11,187	$	11,187	$	11,187	$	—	$	—
Securities available for sale		160,136		160,136		953		147,384		11,799
Federal Home Loan Bank and Federal
Reserve Bank stock		3,187		3,187		—		3,187		—
Loans held for sale		4,957		5,109		—		5,109		—
Loans, net		345,110		349,875		—		—		349,875
Liabilities:
Noninterest-bearing deposits		122,937		122,937		—		122,937		—
Interest-bearing deposits		351,759		353,113		—		353,113		—
Repurchase agreements		9,460		9,460		—		9,460		—
Federal Home Loan Bank advances		11,332		12,028		—		12,028		—

Schedule of changes in Level 3 assets measured at fair value on a recurring basis

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

(Dollars in thousands)	2016		2015
Investment Securities, Available for Sale
Balance, January 1	$	11,799	$	11,642
Total realized and unrealized gains included in income		—		—
Total unrealized gains (losses) included in other comprehensive income		131		946
Net purchases, sales, calls, and maturities		2,598		(2,075	)
Net transfers into Level 3		—		—
Balance, September 30	$	14,528	$	10,513

Schedule of assets measured at fair value on a nonrecurring basis

Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:

Assets Measured at Fair Value on a Non-recurring Basis

			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for Identical		Observable		Unobservable
	Balance at		Assets		Inputs		Inputs
(Dollars in thousands)	Dates Indicated		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
September 30, 2016	$	5,578	$	—	$	—	$	5,578
December 31, 2015	$	5,585	$	—	$	—	$	5,585
Other Real Estate
September 30, 2016	$	483	$	—	$	—	$	483
December 31, 2015	$	31	$	—	$	—	$	31

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Shares issued during period under Employee Stock Purchase Plan, shares	2,654
Shares issued during period under Employee Stock Purchase Plan, value	$ 51
Common Stock and Paid In Capital [Member]
Shares repurchased (in shares)	35,000	16,200
Stock Options [Member]
Shares issued upon exercise of options	4,793
Restricted stock [Member]
Shares issued during the period upon vesting	3,414
Vesting period	3 years
Directors' Stock Purchase Plan [Member]
Shares issued during the period, shares	4,112
Shares issued during the period, value	$ 95

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SECURITIES (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 173,872	$ 158,504
Gross Unrealized Gains	3,634	2,096
Gross Unrealized Losses	(62)	(464)
Fair Value	177,444	160,136
U.S. Government and federal agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	64,440	57,406
Gross Unrealized Gains	381	30
Gross Unrealized Losses	(17)	(229)
Fair Value	64,804	57,207
U.S. Treasury notes and bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,074	6,133
Gross Unrealized Gains	43	0
Gross Unrealized Losses	(1)	(33)
Fair Value	2,116	6,100
State and municipal [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	87,661	76,005
Gross Unrealized Gains	2,878	1,858
Gross Unrealized Losses	(25)	(109)
Fair Value	90,514	77,754
Mortgage-backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	8,511	6,989
Gross Unrealized Gains	62	26
Gross Unrealized Losses	(14)	(45)
Fair Value	8,559	6,970
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	7,370	8,418
Gross Unrealized Gains	64	8
Gross Unrealized Losses	(1)	(39)
Fair Value	7,433	8,387
Foreign debt [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,000	1,000
Gross Unrealized Gains	2
Gross Unrealized Losses		(5)
Fair Value	1,002	995
Equity securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,614	2,279
Gross Unrealized Gains	204	174
Fair Value	2,818	2,453
Asset-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	202	274
Gross Unrealized Losses	(4)	(4)
Fair Value	$ 198	$ 270

XML

SECURITIES (Details 1) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Available for Sale Securities, Fair Values
Due within one year	$ 31,758
Due after one year through five years	95,744
Due after five years through ten years	44,022
Due after ten years	3,103
Total debt securities	174,627
Equity securities	2,817
Total	$ 177,444	$ 160,136

XML

SECURITIES (Details 2) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Securities with unrealized loss position
Less than 12 Months, Fair Value	$ 14,385	$ 64,788
Less than 12 Months, Unrealized Losses	(50)	(397)
12 Months or More, Fair Value	1,137	5,440
12 Months or More, Unrealized Losses	(12)	(67)
Total, Fair Value	15,522	70,228
Total, Unrealized Losses	(62)	(464)
Foreign Debt [Member]
Securities with unrealized loss position
Less than 12 Months, Fair Value		995
Less than 12 Months, Unrealized Losses		(5)
Total, Fair Value		995
Total, Unrealized Losses		(5)
Asset-backed securities [Member]
Securities with unrealized loss position
12 Months or More, Fair Value	198	270
12 Months or More, Unrealized Losses	(5)	(4)
Total, Fair Value	198	270
Total, Unrealized Losses	(5)	(4)
U.S. Government and federal agency [Member]
Securities with unrealized loss position
Less than 12 Months, Fair Value	7,551	38,576
Less than 12 Months, Unrealized Losses	(18)	(216)
12 Months or More, Fair Value		986
12 Months or More, Unrealized Losses		(13)
Total, Fair Value	7,551	39,553
Total, Unrealized Losses	(18)	(229)
U.S. Treasury notes and bonds [Member]
Securities with unrealized loss position
Less than 12 Months, Fair Value		6,101
Less than 12 Months, Unrealized Losses		(33)
Total, Fair Value		6,101
Total, Unrealized Losses		(33)
State and municipal [Member]
Securities with unrealized loss position
Less than 12 Months, Fair Value	3,506	10,382
Less than 12 Months, Unrealized Losses	(19)	(69)
12 Months or More, Fair Value	260	2,906
12 Months or More, Unrealized Losses	(5)	(40)
Total, Fair Value	3,766	13,288
Total, Unrealized Losses	(24)	(109)
Mortgage-backed [Member]
Securities with unrealized loss position
Less than 12 Months, Fair Value	2,827	4,459
Less than 12 Months, Unrealized Losses	(12)	(41)
12 Months or More, Fair Value	280	382
12 Months or More, Unrealized Losses	(1)	(4)
Total, Fair Value	3,107	4,841
Total, Unrealized Losses	(13)	(45)
Corporate [Member]
Securities with unrealized loss position
Less than 12 Months, Fair Value	501	4,284
Less than 12 Months, Unrealized Losses	(1)	(33)
12 Months or More, Fair Value	399	896
12 Months or More, Unrealized Losses	(1)	(6)
Total, Fair Value	900	5,180
Total, Unrealized Losses	$ (2)	$ (39)

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (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
Allowance for Loan Losses
Beginning balance	$ 4,296	$ 4,352	$ 4,194	$ 4,173
Charge-offs	(93)	(90)	(263)	(218)
Recoveries	73	55	345	262
Provision				100
Ending balance	4,276	4,317	4,276	4,317
Individually evaluated for impairment	501	684	501	684
Collectively evaluated for impairment	3,775	3,633	3,775	3,633
Loans
Individually evaluated for impairment					$ 5,585
Collectively evaluated for impairment					343,719
Loans	362,603		362,603		349,304
Agricultural [Member]
Allowance for Loan Losses
Beginning balance	399	279	420	187
Recoveries				1
Provision	(11)	10	(32)	101
Ending balance	388	289	388	289
Individually evaluated for impairment	4	3	4	3
Collectively evaluated for impairment	384	286	384	286
Loans
Individually evaluated for impairment	534		534		50
Collectively evaluated for impairment	37,744		37,744		40,182
Loans	38,278		38,278		40,232
Commercial and Industrial [Member]
Allowance for Loan Losses
Beginning balance	656	498	586	527
Charge-offs			(33)
Recoveries	8	11	31	59
Provision	(55)	(14)	26	(91)
Ending balance	610	495	610	495
Individually evaluated for impairment	8	1	8	1
Collectively evaluated for impairment	602	494	602	494
Loans
Individually evaluated for impairment	450		450		192
Collectively evaluated for impairment	95,221		95,221		94,155
Loans	95,671		95,671		94,347
Consumer [Member]
Allowance for Loan Losses
Beginning balance	279	193	297	183
Charge-offs	(68)	(65)	(136)	(172)
Recoveries	49	25	119	104
Provision	30	57	10	95
Ending balance	290	210	290	210
Individually evaluated for impairment	1	29	1	29
Collectively evaluated for impairment	289	181	289	181
Loans
Individually evaluated for impairment	26		26		24
Collectively evaluated for impairment	21,427		21,427		20,066
Loans	21,453		21,453		20,090
Commercial Real Estate [Member]
Allowance for Loan Losses
Beginning balance	1,133	1,284	1,030	1,641
Recoveries	5	15	35	36
Provision	340	(179)	412	(557)
Ending balance	1,477	1,120	1,477	1,120
Individually evaluated for impairment	167	296	167	296
Collectively evaluated for impairment	1,310	824	1,310	824
Loans
Individually evaluated for impairment	1,459		1,459		2,790
Collectively evaluated for impairment	107,608		107,608		94,946
Loans	109,067		109,067		97,736
Construction Real Estate [Member]
Allowance for Loan Losses
Beginning balance	44	28	46	9
Provision	(3)	15	(5)	34
Ending balance	41	43	41	43
Collectively evaluated for impairment	41	43	41	43
Loans
Collectively evaluated for impairment	6,027		6,027		5,390
Loans	6,027		6,027		5,390
Residential Real Estate [Member]
Allowance for Loan Losses
Beginning balance	1,222	1,375	1,388	1,193
Charge-offs	(25)	(25)	(94)	(46)
Recoveries	11	4	160	62
Provision	(205)	(2)	(451)	143
Ending balance	1,003	1,352	1,003	1,352
Individually evaluated for impairment	321	355	321	355
Collectively evaluated for impairment	682	997	682	997
Loans
Individually evaluated for impairment	3,109		3,109		2,529
Collectively evaluated for impairment	88,998		88,998		88,980
Loans	92,107		92,107		$ 91,509
Unallocated [Member]
Allowance for Loan Losses
Beginning balance	563	695	427	433
Provision	(96)	113	40	375
Ending balance	467	808	467	808
Collectively evaluated for impairment	$ 467	$ 808	$ 467	$ 808

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 1) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	$ 362,603	$ 349,304
Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	38,278	40,232
Agricultural [Member] | Risk ratings 1 and 2 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	8,072	10,416
Agricultural [Member] | Risk ratings 3 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	21,626	25,189
Agricultural [Member] | Risk ratings 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	7,269	3,086
Agricultural [Member] | Risk ratings 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	1,267	1,491
Agricultural [Member] | Risk ratings 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	44	50
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	95,671	94,347
Commercial and Industrial [Member] | Risk ratings 1 and 2 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	11,672	10,480
Commercial and Industrial [Member] | Risk ratings 3 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	63,450	66,921
Commercial and Industrial [Member] | Risk ratings 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	19,242	16,169
Commercial and Industrial [Member] | Risk ratings 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	1,227	574
Commercial and Industrial [Member] | Risk ratings 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	80	129
Commercial and Industrial [Member] | Risk ratings 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans		74
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	109,067	97,736
Commercial Real Estate [Member] | Risk ratings 1 and 2 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	7,305	3,875
Commercial Real Estate [Member] | Risk ratings 3 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	57,355	57,540
Commercial Real Estate [Member] | Risk ratings 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	40,692	29,826
Commercial Real Estate [Member] | Risk ratings 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	3,153	3,776
Commercial Real Estate [Member] | Risk ratings 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	$ 562	$ 2,719

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 2) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	$ 362,603	$ 349,304
Nonaccrual past due loans	1,735	2,198
Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	21,453	20,090
Consumer [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	21,448	20,090
Consumer [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	5
Construction Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	6,027	5,390
Construction Real Estate [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	6,027	5,390
Residential Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	92,107	91,509
Nonaccrual past due loans	455	431
Residential Real Estate [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	91,317	90,796
Residential Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Risk rated loans	$ 336	$ 282

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 3) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2015 USD ($) Number	Sep. 30, 2016 USD ($) Number	Sep. 30, 2015 USD ($) Number
Financing Receivable, Modifications [Line Items]
Number of contracts | Number	1	3	6
Pre-Modification Outstanding Recorded Investment	$ 85	$ 269	$ 641
Post Modification Oustanding Recorded Investment	$ 85	$ 269	$ 641
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts | Number			4
Pre-Modification Outstanding Recorded Investment			$ 448
Post Modification Oustanding Recorded Investment			$ 448
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts | Number	1	2	2
Pre-Modification Outstanding Recorded Investment	$ 85	$ 156	$ 193
Post Modification Oustanding Recorded Investment	$ 85	$ 156	$ 193
Agricultural [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts | Number		1
Pre-Modification Outstanding Recorded Investment		$ 113
Post Modification Oustanding Recorded Investment		$ 113

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 4) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2015 USD ($) Number	Sep. 30, 2016 USD ($) Number	Sep. 30, 2015 USD ($) Number
Agricultural [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Number		1
Recorded Investment | $		$ 113
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Number	2		3
Recorded Investment | $	$ 293		$ 409

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 5) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Impaired and Restructured Loans with or without related allowance recorded
Recorded Investment With no related allowance recorded	$ 1,167		$ 1,627
Unpaid Principal Balance With no related allowance recorded	1,292		1,656
Average Recorded Investment With no related allowance recorded	1,423	$ 1,192
Interest Income Recognized With no related allowance recorded	78	22
Recorded Investment With an allowance recorded	4,411		3,958
Unpaid Principal Balance With an allowance recorded	4,971		4,463
Related Allowance	501		506
Average Recorded Investment With an allowance recorded	4,439	4,720
Interest Income Recognized With an allowance recorded	447	114
Recorded Investment	5,578		5,585
Unpaid Principal Balance	6,263		6,119
Average Recorded Investment	5,862	5,912
Interest Income Recognized	525	136
Agricultural [Member]
Impaired and Restructured Loans with or without related allowance recorded
Recorded Investment With no related allowance recorded	489
Unpaid Principal Balance With no related allowance recorded	493
Average Recorded Investment With no related allowance recorded	154
Interest Income Recognized With no related allowance recorded	(1)
Recorded Investment With an allowance recorded	45		50
Unpaid Principal Balance With an allowance recorded	45		50
Related Allowance	4		3
Average Recorded Investment With an allowance recorded	79	65
Interest Income Recognized With an allowance recorded	16	(6)
Recorded Investment	534		50
Unpaid Principal Balance	538		50
Average Recorded Investment	233	65
Interest Income Recognized	15	(6)
Commercial and Industrial [Member]
Impaired and Restructured Loans with or without related allowance recorded
Recorded Investment With no related allowance recorded	177		74
Unpaid Principal Balance With no related allowance recorded	177		103
Average Recorded Investment With no related allowance recorded	63	13
Interest Income Recognized With no related allowance recorded
Recorded Investment With an allowance recorded	273		118
Unpaid Principal Balance With an allowance recorded	247		118
Related Allowance	8		15
Average Recorded Investment With an allowance recorded	242	26
Interest Income Recognized With an allowance recorded	4	1
Recorded Investment	450		192
Unpaid Principal Balance	424		221
Average Recorded Investment	305	39
Interest Income Recognized	4	1
Consumer [Member]
Impaired and Restructured Loans with or without related allowance recorded
Recorded Investment With no related allowance recorded	5
Unpaid Principal Balance With no related allowance recorded	5
Average Recorded Investment With no related allowance recorded	1	2
Interest Income Recognized With no related allowance recorded
Recorded Investment With an allowance recorded	21		24
Unpaid Principal Balance With an allowance recorded	21		24
Related Allowance	1		1
Average Recorded Investment With an allowance recorded	22	37
Interest Income Recognized With an allowance recorded	3	2
Recorded Investment	26		24
Unpaid Principal Balance	26		24
Average Recorded Investment	23	39
Interest Income Recognized	3	2
Commercial Real Estate [Member]
Impaired and Restructured Loans with or without related allowance recorded
Recorded Investment With no related allowance recorded	230		1,540
Unpaid Principal Balance With no related allowance recorded	351		1,540
Average Recorded Investment With no related allowance recorded	1,071	941
Interest Income Recognized With no related allowance recorded	33	23
Recorded Investment With an allowance recorded	1,229		1,250
Unpaid Principal Balance With an allowance recorded	1,799		1,755
Related Allowance	167		191
Average Recorded Investment With an allowance recorded	1,426	2,190
Interest Income Recognized With an allowance recorded	116	53
Recorded Investment	1,459		2,790
Unpaid Principal Balance	2,150		3,295
Average Recorded Investment	2,497	3,131
Interest Income Recognized	149	76
Residential Real Estate [Member]
Impaired and Restructured Loans with or without related allowance recorded
Recorded Investment With no related allowance recorded	266		13
Unpaid Principal Balance With no related allowance recorded	266		13
Average Recorded Investment With no related allowance recorded	134	236
Interest Income Recognized With no related allowance recorded	46	(1)
Recorded Investment With an allowance recorded	2,843		2,516
Unpaid Principal Balance With an allowance recorded	2,859		2,516
Related Allowance	321		296
Average Recorded Investment With an allowance recorded	2,670	2,402
Interest Income Recognized With an allowance recorded	308	64
Recorded Investment	3,109		2,529
Unpaid Principal Balance	3,125		$ 2,529
Average Recorded Investment	2,804	2,638
Interest Income Recognized	$ 354	$ 63

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 6) - USD ($) $ in Thousands		Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		$ 2,357	$ 4,517
Loans Not Past Due		360,246	344,787
Loans		362,603	349,304
90 Days Past Due and Accruing		351	29
30 to 59 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		367	2,024
60 to 89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		876	983
Greater Than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total	[1]	1,114	1,510
Agricultural [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		113	3
Loans Not Past Due		38,165	40,229
Loans		38,278	40,232
Agricultural [Member] | 30 to 59 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total			3
Agricultural [Member] | Greater Than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total	[1]	113
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		346	489
Loans Not Past Due		95,325	93,858
Loans		95,671	94,347
Commercial and Industrial [Member] | 30 to 59 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		97	90
Commercial and Industrial [Member] | 60 to 89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total			322
Commercial and Industrial [Member] | Greater Than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total	[1]	249	77
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		51	115
Loans Not Past Due		21,402	19,975
Loans		21,453	20,090
90 Days Past Due and Accruing		5
Consumer [Member] | 30 to 59 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		40	115
Consumer [Member] | 60 to 89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		6
Consumer [Member] | Greater Than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total	[1]	5
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		516	2,035
Loans Not Past Due		108,551	95,701
Loans		109,067	97,736
Commercial Real Estate [Member] | 30 to 59 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total			505
Commercial Real Estate [Member] | 60 to 89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		256	297
Commercial Real Estate [Member] | Greater Than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total	[1]	260	1,233
Construction Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total			299
Loans Not Past Due		6,027	5,091
Loans		6,027	5,390
Construction Real Estate [Member] | 30 to 59 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total			299
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		1,131	1,576
Loans Not Past Due		90,776	89,933
Loans		92,107	91,509
90 Days Past Due and Accruing		346	29
Residential Real Estate [Member] | 30 to 59 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		230	1,012
Residential Real Estate [Member] | 60 to 89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total		614	364
Residential Real Estate [Member] | Greater Than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Total	[1]	$ 487	$ 200

[1] Includes nonaccrual loans

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 7) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual loans	$ 1,735	$ 2,198
Agricultural [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual loans	489	50
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual loans	320	77
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual loans	471	1,640
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual loans	$ 455	$ 431

XML

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
Basic Earnings Per Share
Net income available to common shareholders	$ 1,683	$ 1,450	$ 4,402	$ 4,523
Weighted average common shares outstanding	3,275,841	3,289,146	3,290,610	3,287,765
Basic earnings per share	$ 0.52	$ 0.44	$ 1.34	$ 1.37
Diluted Earnings Per Share
Plus dilutive stock options and restricted stock units	3,949	6,686	4,171	6,841
Weighted average common shares outstanding and potentially dilutive shares	3,279,790	3,295,832	3,294,781	3,294,606
Diluted earnings per share	$ 0.52	$ 0.44	$ 1.34	$ 1.37

XML

EARNINGS PER SHARE (Details Narrative) - shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share [Abstract]
Stock options considered to be anti-dilutive to earnings per share	30,000	0

XML

FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets:
Securities available for sale	$ 177,444	$ 160,136
Liabilities:
Noninterest-bearing deposits	123,609	122,937
Interest-bearing deposits	353,778	351,759
Federal funds purchased	624
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Cash and due from banks	12,644	11,187
Securities available for sale	1,318	953
Federal Home Loan Bank and Federal Reserve Bank stock
Loans held for sale
Loans, net
Liabilities:
Noninterest-bearing deposits
Interest-bearing deposits
Federal funds purchased
Repurchase agreements
Federal Home Loan Bank advances
Significant Other Observable Inputs (Level 2) [Member]
Assets:
Cash and due from banks
Securities available for sale	161,598	147,384
Federal Home Loan Bank and Federal Reserve Bank stock	3,252	3,187
Loans held for sale		5,109
Loans, net
Liabilities:
Noninterest-bearing deposits	123,609	122,937
Interest-bearing deposits	353,470	353,113
Federal funds purchased	624
Repurchase agreements	6,417	9,460
Federal Home Loan Bank advances	37,283	12,028
Significant Unobservable Inputs (Level 3) [Member]
Assets:
Cash and due from banks
Securities available for sale	14,528	11,799
Federal Home Loan Bank and Federal Reserve Bank stock
Loans held for sale	2,828
Loans, net	362,465	349,875
Liabilities:
Noninterest-bearing deposits
Interest-bearing deposits
Federal funds purchased
Repurchase agreements
Federal Home Loan Bank advances
Carrying Amount [Member]
Assets:
Cash and due from banks	12,644	11,187
Securities available for sale	177,444	160,136
Federal Home Loan Bank and Federal Reserve Bank stock	3,252	3,187
Loans held for sale	2,838	4,957
Loans, net	358,327	345,110
Liabilities:
Noninterest-bearing deposits	123,609	122,937
Interest-bearing deposits	353,778	351,759
Federal funds purchased	624
Repurchase agreements	6,417	9,460
Federal Home Loan Bank advances	37,309	11,332
Estimated Fair Value [Member]
Assets:
Cash and due from banks	12,644	11,187
Securities available for sale	177,444	160,136
Federal Home Loan Bank and Federal Reserve Bank stock	3,252	3,187
Loans held for sale	2,828	5,109
Loans, net	362,465	349,875
Liabilities:
Noninterest-bearing deposits	123,609	122,937
Interest-bearing deposits	353,470	353,113
Federal funds purchased	624
Repurchase agreements	6,417	9,460
Federal Home Loan Bank advances	$ 37,283	$ 12,028

XML

FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 177,444	$ 160,136
Equity securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	2,818	2,453
U.S. Treasury notes and bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	2,116	6,100
U.S. Government and federal agency [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	64,804	57,207
State and municipal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	90,514	77,754
Mortgage-backed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	8,559	6,970
Corporate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	7,433	8,387
Foreign debt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	1,002	995
Asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	198	270
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	1,318	953
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	161,598	147,384
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	14,528	11,799
Fair Value Measured on a Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	177,444	160,136
Fair Value Measured on a Recurring Basis [Member] | Equity securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	2,818	2,453
Fair Value Measured on a Recurring Basis [Member] | U.S. Treasury notes and bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	2,116	6,100
Fair Value Measured on a Recurring Basis [Member] | U.S. Government and federal agency [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	64,804	57,207
Fair Value Measured on a Recurring Basis [Member] | State and municipal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	90,514	77,754
Fair Value Measured on a Recurring Basis [Member] | Mortgage-backed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	8,559	6,970
Fair Value Measured on a Recurring Basis [Member] | Corporate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	7,433	8,387
Fair Value Measured on a Recurring Basis [Member] | Foreign debt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	1,002	995
Fair Value Measured on a Recurring Basis [Member] | Asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	198	270
Fair Value Measured on a Recurring Basis [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	1,318	953
Fair Value Measured on a Recurring Basis [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Equity securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	1,318	953
Fair Value Measured on a Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	161,598	147,384
Fair Value Measured on a Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | U.S. Treasury notes and bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	2,116	6,100
Fair Value Measured on a Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | U.S. Government and federal agency [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	64,804	57,207
Fair Value Measured on a Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | State and municipal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	77,885	67,852
Fair Value Measured on a Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | Mortgage-backed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	8,559	6,970
Fair Value Measured on a Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | Corporate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	7,034	7,990
Fair Value Measured on a Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | Foreign debt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	1,002	995
Fair Value Measured on a Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | Asset-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	198	270
Fair Value Measured on a Recurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	14,528	11,799
Fair Value Measured on a Recurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member] | Equity securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	1,500	1,500
Fair Value Measured on a Recurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member] | State and municipal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	12,629	9,902
Fair Value Measured on a Recurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member] | Corporate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 399	$ 397

XML

FAIR VALUE MEASUREMENTS (Details 1) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Changes in Level 3 Investment Securities, Available for Sale Measured at Fair Value on a Recurring Basis
Total unrealized gains (losses) included in other comprehensive income	$ 131
Fair Value Measured on a Recurring Basis [Member] | Significant Unobservable Inputs (Level 3) [Member]
Changes in Level 3 Investment Securities, Available for Sale Measured at Fair Value on a Recurring Basis
Balance at the beginning of period	11,799	$ 11,642
Total unrealized gains (losses) included in other comprehensive income	131	946
Net purchases, sales, calls, and maturities	2,598	(2,075)
Balance at the end of period	$ 14,528	$ 10,513

XML

FAIR VALUE MEASUREMENTS (Details 2) - Fair Value measured on a Non-Recurring Basis [Member] - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	$ 5,578	$ 5,585
Other real estate owned, net	483	31
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	5,578	5,585
Other real estate owned, net	$ 483	$ 31

XML

FAIR VALUE MEASUREMENTS (Details Narrative) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Fair Value Disclosures [Abstract]
Total unrealized gains (losses) included in other comprehensive income	$ 131
Level 3 securities purchased	$ 5,100