3. Loans & Leases and Allowance for Credit Losses

The following tables show the allocation of the allowance for credit losses by portfolio segment and by impairment methodology at the dates indicated (in thousands):

September 30, 2014	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases		Unallocated			Total

Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2014	$	5,178	$	3,576	$	654	$	1,108		$	2,767		$	12,205		$	5,697	$	176		$	639	$	2,274		$	34,274
Charge-Offs		-		-		-		(58	)		(70	)		-			-		(76	)		-		-			(204	)
Recoveries		12		-		-		-			54			3			83		45			-		-			197
Provision		2,608		370		1,026		92			(76	)		(6,426	)		2,135		76			1,206		(1,011	)		-
Ending Balance- September 30, 2014	$	7,798	$	3,946	$	1,680	$	1,142		$	2,675		$	5,782		$	7,915	$	221		$	1,845	$	1,263		$	34,267
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Charge-Offs		-		-		-		(25	)		(5	)		-			-		(31	)		-		-			(61	)
Recoveries		12		-		-		-			3			1			6		16			-		-			38
Provision		795		269		390		73			(60	)		(2,510	)		532		43			737		(269	)		-
Ending Balance- September 30, 2014	$	7,798	$	3,946	$	1,680	$	1,142		$	2,675		$	5,782		$	7,915	$	221		$	1,845	$	1,263		$	34,267
Ending Balance Individually Evaluated for Impairment		190		-		239		370			328			120			912		42			-		-			2,201
Ending Balance Collectively Evaluated for Impairment		7,608		3,946		1,441		772			2,347			5,662			7,003		179			1,845		1,263			32,066
Loans & Leases:
Ending Balance	$	473,505	$	364,161	$	104,463	$	168,310		$	33,283		$	237,521		$	192,804	$	4,816		$	36,908	$	-		$	1,615,771
Ending Balance Individually Evaluated for Impairment		20,175		-		4,419		1,847			1,658			518			4,877		42			-		-			33,536
Ending Balance Collectively Evaluated for Impairment		453,330		364,161		100,044		166,463			31,625			237,003			187,927		4,774			36,908		-			1,582,235

December 31, 2013	Commercial Real Estate			Agricultural Real Estate			Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated		Total

Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2013	$	6,464		$	2,877		$	986		$	1,219		$	3,235		$	10,437		$	7,963		$	182		$	-	$	854	$	34,217
Charge-Offs		(6	)		(575	)		-			(16	)		(91	)		(23	)		(60	)		(120	)		-		-		(891	)
Recoveries		-			-			-			-			115			42			312			54			-		-		523
Provision		(1,280	)		1,274			(332	)		(95	)		(492	)		1,749			(2,518	)		60			639		1,420		425
Ending Balance- December 31, 2013	$	5,178		$	3,576		$	654		$	1,108		$	2,767		$	12,205		$	5,697		$	176		$	639	$	2,274	$	34,274
Ending Balance Individually Evaluated for Impairment		-			-			-			414			209			122			820			51			-		-		1,616
Ending Balance Collectively Evaluated for Impairment		5,178			3,576			654			694			2,558			12,083			4,877			125			639		2,274		32,658
Loans & Leases:
Ending Balance	$	407,514		$	328,264		$	41,092		$	151,292		$	35,477		$	256,414		$	150,398		$	5,052		$	12,733	$	-	$	1,388,236
Ending Balance Individually Evaluated for Impairment		22,176			-			4,500			2,072			1,045			522			5,250			51			-		-		35,616
Ending Balance Collectively Evaluated for Impairment		385,338			328,264			36,592			149,220			34,432			255,892			145,148			5,001			12,733		-		1,352,620

September 30, 2013	Commercial Real Estate			Agricultural Real Estate			Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total

Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2013	$	6,464		$	2,877		$	986		$	1,219		$	3,235		$	10,437		$	7,963		$	182		$	-	$	854		$	34,217
Charge-Offs		(6	)		(575	)		-			(16	)		(23	)		(23	)		(4	)		(93	)		-		-			(740	)
Recoveries		-			-			-			-			30			36			281			37			-		-			384
Provision		(382	)		911			(48	)		(130	)		(492	)		(1,190	)		1,551			42			-		(12	)		250
Ending Balance- September 30, 2013	$	6,076		$	3,213		$	938		$	1,073		$	2,750		$	9,260		$	9,791		$	168		$	-	$	842		$	34,111
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2013	$	5,732		$	3,481		$	977		$	1,037		$	2,984		$	10,557		$	9,075		$	168		$	-	$	224		$	34,235
Charge-Offs		(6	)		(175	)		-			-			(1	)		-			-			(29	)		-		-			(211	)
Recoveries		-			-			-			-			10			16			45			16			-		-			87
Provision		350			(93	)		(39	)		36			(243	)		(1,313	)		671			13			-		618			-
Ending Balance- September 30, 2013	$	6,076		$	3,213		$	938		$	1,073		$	2,750		$	9,260		$	9,791		$	168		$	-	$	842		$	34,111
Ending Balance Individually Evaluated for Impairment		788			-			229			75			147			126			1,858			53			-		-			3,276
Ending Balance Collectively Evaluated for Impairment		5,288			3,213			709			998			2,603			9,134			7,933			115			-		842			30,835
Loans & Leases:
Ending Balance	$	401,626		$	311,401		$	27,099		$	143,577		$	37,160		$	221,569		$	145,793		$	5,063		$	4,523	$	-		$	1,297,811
Ending Balance Individually Evaluated for Impairment		22,467			849			4,527			1,962			1,125			738			2,192			53			-		-			33,913
Ending Balance Collectively Evaluated for Impairment		379,159			310,552			22,572			141,615			36,035			220,831			143,601			5,010			4,523		-			1,263,898

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $26.6 million at September 30, 2014, $28.4 million at December 31, 2013 and $28.7 million at September 30, 2013, which are no longer disclosed or classified as TDR’s.

The following tables show the loan & lease portfolio allocated by management’s internal risk ratings at the dates indicated (in thousands):

September 30, 2014	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	464,714	$	8,683	$	108	$	473,505
Agricultural Real Estate		364,161		-		-		364,161
Real Estate Construction		102,831		1,632		-		104,463
Residential 1st Mortgages		166,884		752		674		168,310
Home Equity Lines & Loans		32,309		88		886		33,283
Agricultural		236,760		695		66		237,521
Commercial		168,215		22,929		1,660		192,804
Consumer & Other		4,520		-		296		4,816
Leases		36,908		-		-		36,908
Total	$	1,577,302	$	34,779	$	3,690	$	1,615,771

December 31, 2013	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	398,488	$	7,979	$	1,047	$	407,514
Agricultural Real Estate		325,926		2,338		-		328,264
Real Estate Construction		39,460		1,632		-		41,092
Residential 1st Mortgages		149,798		774		720		151,292
Home Equity Lines & Loans		34,821		-		656		35,477
Agricultural		255,443		889		82		256,414
Commercial		132,008		15,426		2,964		150,398
Consumer & Other		4,763		-		289		5,052
Leases		12,733		-		-		12,733
Total	$	1,353,440	$	29,038	$	5,758	$	1,388,236

September 30, 2013	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	389,137	$	7,765	$	4,724	$	401,626
Agricultural Real Estate		307,736		2,497		1,168		311,401
Real Estate Construction		25,467		1,632		-		27,099
Residential 1st Mortgages		142,036		780		761		143,577
Home Equity Lines & Loans		36,090		-		1,070		37,160
Agricultural		220,504		464		601		221,569
Commercial		135,303		8,958		1,532		145,793
Consumer & Other		4,761		-		302		5,063
Leases		4,523		-		-		4,523
Total	$	1,265,557	$	22,096	$	10,158	$	1,297,811

See “Note 1. Significant Accounting Policies - Allowance for Credit Losses” for a description of the internal risk ratings used by the Company. There were no loans or leases outstanding at September 30, 2014, December 31, 2013, and September 30, 2013 rated doubtful or loss.

The following tables show an aging analysis of the loan & lease portfolio by the time past due at the dates indicated

(in thousands):

	30-59 Days		60-89 Days		90 Days and				Total Past				Total
September 30, 2014	Past Due		Past Due		Still Accruing		Nonaccrual		Due		Current		Loans
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	473,505	$	473,505
Agricultural Real Estate		-		-		-		-		-		364,161		364,161
Real Estate Construction		-		-		-		-		-		104,463		104,463
Residential 1st Mortgages		-		-		-		283		283		168,027		168,310
Home Equity Lines & Loans		92		-		-		575		667		32,616		33,283
Agricultural		-		-		-		25		25		237,496		237,521
Commercial		-		-		-		1,600		1,600		191,204		192,804
Consumer & Other		12		-		-		14		26		4,790		4,816
Leases		-		-		-		-		-		36,908		36,908
Total	$	104	$	-	$	-	$	2,497	$	2,601	$	1,613,170	$	1,615,771

	30-59 Days		60-89 Days		90 Days and				Total Past				Total
December 31, 2013	Past Due		Past Due		Still Accruing		Nonaccrual		Due		Current		Loans
Loans & Leases:
Commercial Real Estate	$	773	$	-	$	-	$	-	$	773	$	406,741	$	407,514
Agricultural Real Estate		607		-		-		-		607		327,657		328,264
Real Estate Construction		-		-		-		-		-		41,092		41,092
Residential 1st Mortgages		-		-		-		324		324		150,968		151,292
Home Equity Lines & Loans		-		52		-		406		458		35,019		35,477
Agricultural		-		-		-		35		35		256,379		256,414
Commercial		-		-		-		1,815		1,815		148,583		150,398
Consumer & Other		19		-		-		16		35		5,017		5,052
Leases		-		-		-		-		-		12,733		12,733
Total	$	1,399	$	52	$	-	$	2,596	$	4,047	$	1,384,189	$	1,388,236

	30-59 Days		60-89 Days		90 Days and				Total Past				Total
September 30, 2013	Past Due		Past Due		Still Accruing		Nonaccrual		Due		Current		Loans
Loans & Leases:
Commercial Real Estate	$	592	$	-	$	-	$	176	$	768	$	400,858	$	401,626
Agricultural Real Estate		-		-		-		849		849		310,552		311,401
Real Estate Construction		-		-		-		-		-		27,099		27,099
Residential 1st Mortgages		-		-		-		455		455		143,122		143,577
Home Equity Lines & Loans		-		121		-		243		364		36,796		37,160
Agricultural		-		-		-		99		99		221,470		221,569
Commercial		-		-		-		1,944		1,944		143,849		145,793
Consumer & Other		14		94		-		17		125		4,938		5,063
Leases		-		-		-		-		-		4,523		4,523
Total	$	606	$	215	$	-	$	3,783	$	4,604	$	1,293,207	$	1,297,811

The following tables show information related to impaired loans & leases for the periods indicated (in thousands):

							Three Months Ended September 30, 2014				Nine Months Ended September 30, 2014
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2014	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	-	$	-	$	-	$	49	$	-	$	82	$	4
Home Equity Lines & Loans		-		-		-		-		-		226		-
Agricultural		-		-		-		14		-		26		-
Commercial		-		-		-		1,575		-		2,740		54
	$	-	$	-	$	-	$	1,638	$	-	$	3,074	$	58
With an allowance recorded:
Commercial Real Estate	$	94	$	94	$	2	$	47	$	2	$	16	$	2
Residential 1st Mortgages		658		771		131		550		1		522		3
Home Equity Lines & Loans		955		1,008		191		934		3		710		6
Agricultural		483		493		119		478		7		477		21
Commercial		4,744		4,801		908		3,179		27		2,144		27
Consumer & Other		43		47		43		44		1		47		2
	$	6,977	$	7,214	$	1,394	$	5,232	$	41	$	3,916	$	61
Total	$	6,977	$	7,214	$	1,394	$	6,870	$	41	$	6,990	$	119

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2013	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	102	$	101	$	-	$	865	$	8
Agricultural Real Estate		-		-		-		2,185		-
Residential 1st Mortgages		-		-		-		450		11
Home Equity Lines and Loans		-		-		-		228		5
Agricultural		35		43		-		586		-
Commercial		3,474		3,532		-		939		13
	$	3,611	$	3,676	$	-	$	5,253	$	37
With an allowance recorded:
Commercial Real Estate	$	-	$	-	$	-	$	2	$	-
Agricultural Real Estate		-		-		-		823		-
Residential 1st Mortgages		769		826		154		254		6
Home Equity Lines and Loans		689		821		138		332		3
Agricultural		488		488		122		1,002		31
Commercial		1,641		1,657		820		1,072		6
Consumer & Other		50		53		50		126		3
	$	3,637	$	3,845	$	1,284	$	3,611	$	49
Total	$	7,248	$	7,521	$	1,284	$	8,864	$	86

							Three Months Ended Sept. 30, 2013				Nine Months Ended Sept. 30, 2013
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2013	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	279	$	299	$	-	$	1,626	$	2	$	953	$	6
Agricultural Real Estate		850		1,173		-		2,616		-		3,777		-
Residential 1st Mortgages		535		588		-		533		4		643		11
Home Equity Lines & Loans		287		306		-		331		3		379		5
Agricultural		99		121		-		278		-		1,239		-
Commercial		85		85		-		89		2		99		6
	$	2,135	$	2,572	$	-	$	5,473	$	11	$	7,090	$	28
With an allowance recorded:
Commercial Real Estate	$	-	$	-	$	-	$	4	$	-	$	2	$	-
Agricultural Real Estate		-		-		-		725		-		1,221		-
Residential 1st Mortgages		246		246		50		123		-		27		-
Home Equity Lines & Loans		243		290		132		243		-		195		-
Agricultural		488		488		122		766		8		1,562		24
Commercial		2,084		2,095		1,856		1,251		2		436		6
Consumer & Other		53		56		53		55		1		185		3
	$	3,114	$	3,175	$	2,213	$	3,167	$	11	$	3,628	$	33
Total	$	5,249	$	5,747	$	2,213	$	8,640	$	22	$	10,718	$	61

Total recorded investment shown in the prior tables will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance tables. This is because the calculation of recorded investment takes into account charge-offs, net unamortized loan & lease fees & costs, unamortized premium or discount, and accrued interest. This table also excludes impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified as TDR’s.

At September 30, 2014, the Company allocated $1.3 million of specific reserves to $6.4 million of troubled debt restructured loans, of which $4.5 million were performing. The Company had no commitments at September 30, 2014 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the three and nine month periods ending September 30, 2014, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 5 years to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 5 years to 30 years.

The following table presents loans by class, modified as troubled debt restructured loans & leases for the three and nine-month periods ended September 30, 2014 (in thousands):

	Three Months Ended September 30, 2014						Nine Months Ended September 30, 2014
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		1	$	248	$	222		4	$	565	$	528
Home Equity Lines & Loans		1		51		47		3		98		89
Agricultural		-		-		-		1		32		32
Total		2	$	299	$	269		8	$	695	$	649

The TDRs described above increased the allowance for credit losses by $51,000 and $50,000 and resulted in charge-offs of $30,000 and $46,000 for the three and nine-month period ending September 30, 2014.

During the three and nine-months ended September 30, 2014, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

At December 31, 2013, the Company allocated $1.2 million of specific reserves to $6.8 million of troubled debt restructured loans or leases, of which $4.6 million were performing. The Company had no commitments at December 31, 2013, to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the twelve-month period ending December 31, 2013, the terms of certain loans or leases were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate were for periods of 5 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans during the twelve-month period ended December 31, 2013 (in thousands):

	December 31, 2013
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		4	$	306	$	290
Home Equity Lines and Loans		4		414		387
Commercial		4		5,016		5,016
Total		12	$	5,736	$	5,693

The TDRs described above did not increase the allowance for credit losses but did result in charge-offs of $43,000 during the year ended December 31, 2013.

During the twelve-month period ended December 31, 2013, there was one commercial loan with an outstanding balance of $174,000 that was previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted during the twelve months ended December 31, 2013.

At September 30, 2013, the Company allocated $364,000 of specific reserves to $2.0 million of troubled debt restructured loans, of which $1.5 million were performing. The Company had no commitments at September 30, 2013 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the three and nine month periods ending September 30, 2013, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods of 5 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 10 years.

The following table presents loans by class, modified as troubled debt restructured loans & leases for the three and nine-month periods ended September 30, 2013 (in thousands):

	Three Months Ended September 30, 2013						Nine Months Ended September 30, 2013
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		-	$	-	$	-		4	$	306	$	290
Home Equity Lines & Loans		-		-		-		2		195		184
Commercial		-		-		-		2		292		292
Total		-	$	-	$	-		8	$	793	$	766

The TDRs described above increased the allowance for credit losses by $0 and $4,000 and resulted in charge-offs of $0 and $27,000 for the three and nine-month period ending September 30, 2013.

As of September 30, 2013, there was one commercial loan with an outstanding balance of $277,000 that was previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted during the nine months ended September 30, 2013. This defaulted loan did not increase the allowance for credit loss and did not result in any charge offs during the twelve-month period ending September 30, 2013.