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, 2018	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, 2018	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159	$	9,197		$	209		$	3,363	$	1,422	$	50,342
Charge-Offs		-			-		-			(12	)		(14	)		-		(613	)		(84	)		-		-		(723	)
Recoveries		-			-		-			12			4			40		19			40			-		-		115
Provision		(31	)		1,422		(372	)		59			284			4		1,029			142			430		366		3,333
Ending Balance- September 30, 2018	$	10,891		$	13,507	$	1,474		$	874		$	2,598		$	8,203	$	9,632		$	307		$	3,793	$	1,788	$	53,067
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658	$	9,436		$	270		$	3,400	$	1,248	$	51,137
Charge-Offs		-			-		-			-			(10	)		-		(599	)		(25	)		-		-		(634	)
Recoveries		-			-		-			6			2			27		16			13			-		-		64
Provision		108			193		(142	)		4			58			518		779			49			393		540		2,500
Ending Balance- September 30, 2018	$	10,891		$	13,507	$	1,474		$	874		$	2,598		$	8,203	$	9,632		$	307		$	3,793	$	1,788	$	53,067
Ending Balance Individually Evaluated for Impairment		314			-		-			121			15			-		192			7			-		-		649
Ending Balance Collectively Evaluated for Impairment		10,577			13,507		1,474			753			2,583			8,203		9,440			300			3,793		1,788		52,418
Loans & Leases:
Ending Balance	$	767,410		$	553,608	$	92,521		$	263,549		$	38,490		$	287,821	$	304,333		$	7,723		$	101,147	$	-	$	2,416,602
Ending Balance Individually Evaluated for Impairment		4,713			7,238		-			2,426			305			-		1,670			7			-		-		16,359
Ending Balance Collectively Evaluated for Impairment	$	762,697		$	546,370	$	92,521		$	261,123		$	38,185		$	287,821	$	302,663		$	7,716		$	101,147	$	-	$	2,400,243

December 31, 2017	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, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140		$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			(53	)		(3	)		(374	)		-		(146	)		-			-			(685	)
Recoveries		109			-		-			40			8			17			8		76			-			-			258
Provision		(188	)		2,635		(1,377	)		(37	)		179			1,135			674		79			(223	)		(27	)		2,850
Ending Balance- December 31, 2017	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197	$	209		$	3,363		$	1,422		$	50,342
Ending Balance Individually Evaluated for Impairment		366			-		-			73			17			-			220		8			-			-			684
Ending Balance Collectively Evaluated for Impairment		10,556			12,085		1,846			742			2,307			8,159			8,977		201			3,363			1,422			49,658
Loans & Leases:
Ending Balance	$	684,961		$	499,231	$	100,206		$	260,751		$	34,525		$	273,582		$	265,703	$	6,656		$	89,680		$	-		$	2,215,295
Ending Balance Individually Evaluated for Impairment		4,822			-		-			2,373			340			-			1,734		10			-			-			9,279
Ending Balance Collectively Evaluated for Impairment	$	680,139		$	499,231	$	100,206		$	258,378		$	34,185		$	273,582		$	263,969	$	6,646		$	89,680		$	-		$	2,206,016

September 30, 2017	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, 2017	$	11,110		$	9,450	$	3,223		$	865	$	2,140	$	7,381		$	8,515		$	200		$	3,586		$	1,449	$	47,919
Charge-Offs		(109	)		-		-			-		-		(7	)		-			(114	)		-			-		(230	)
Recoveries		110			-		-			37		6		-			6			46			-			-		205
Provision		(14	)		1,946		(473	)		95		115		(14	)		539			77			(392	)		971		2,850
Ending Balance- September 30, 2017	$	11,097		$	11,396	$	2,750		$	997	$	2,261	$	7,360		$	9,060		$	209		$	3,194		$	2,420	$	50,744
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2017	$	11,242		$	10,265	$	2,687		$	872	$	2,170	$	7,236		$	9,544		$	205		$	2,952		$	1,891	$	49,064
Charge-Offs		-			-		-			-		-		-			-			(54	)		-			-		(54	)
Recoveries		99			-		-			18		1		-			2			14			-			-		134
Provision		(244	)		1,131		63			107		90		124			(486	)		44			242			529		1,600
Ending Balance- September 30, 2017	$	11,097		$	11,396	$	2,750		$	997	$	2,261	$	7,360		$	9,060		$	209		$	3,194		$	2,420	$	50,744
Ending Balance Individually Evaluated for Impairment		385			-		-			61		17		69			231			5			-			-		768
Ending Balance Collectively Evaluated for Impairment		10,712			11,396		2,750			936		2,244		7,291			8,829			204			3,194			2,420		49,976
Loans & Leases:
Ending Balance	$	683,037		$	470,738	$	162,167		$	257,920	$	33,350	$	259,127		$	257,951		$	7,312		$	85,177		$	-	$	2,216,779
Ending Balance Individually Evaluated for Impairment		4,855			-		-			1,887		369		368			1,752			7			-			-		9,238
Ending Balance Collectively Evaluated for Impairment	$	678,182		$	470,738	$	162,167		$	256,033	$	32,981	$	258,759		$	256,199		$	7,305		$	85,177		$	-	$	2,207,541

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $2.8 million at September 30, 2018, $3.0 million at December 31, 2017 and $3.0 million at September 30, 2017, which are no longer classified as TDRs.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management's close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company's credit position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the balance.

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

September 30, 2018	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	764,839	$	2,571	$	-	$	767,410
Agricultural Real Estate		537,027		3,271		13,310		553,608
Real Estate Construction		92,521		-		-		92,521
Residential 1st Mortgages		262,946		-		603		263,549
Home Equity Lines & Loans		38,443		-		47		38,490
Agricultural		281,698		4,635		1,488		287,821
Commercial		303,507		171		655		304,333
Consumer & Other		7,552		-		171		7,723
Leases		101,147		-		-		101,147
Total	$	2,389,680	$	10,648	$	16,274	$	2,416,602

December 31, 2017	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	677,636	$	6,843	$	482	$	684,961
Agricultural Real Estate		488,672		6,529		4,030		499,231
Real Estate Construction		90,728		9,478		-		100,206
Residential 1st Mortgages		259,795		41		915		260,751
Home Equity Lines and Loans		34,476		-		49		34,525
Agricultural		264,425		6,439		2,718		273,582
Commercial		260,565		4,610		528		265,703
Consumer & Other		6,498		-		158		6,656
Leases		87,497		2,183		-		89,680
Total	$	2,170,292	$	36,123	$	8,880	$	2,215,295

September 30, 2017	Pass		Special Mention		Substandard		Total Loans &Leases
Loans & Leases:
Commercial Real Estate	$	678,083	$	4,458	$	496	$	683,037
Agricultural Real Estate		465,427		1,281		4,030		470,738
Real Estate Construction		152,989		9,178		-		162,167
Residential 1st Mortgages		256,906		43		971		257,920
Home Equity Lines & Loans		33,297		-		53		33,350
Agricultural		250,372		5,331		3,424		259,127
Commercial		253,144		4,184		623		257,951
Consumer & Other		7,142		-		170		7,312
Leases		82,889		2,288		-		85,177
Total	$	2,180,249	$	26,763	$	9,767	$	2,216,779

There were no loans or leases outstanding at September 30, 2018, December 31, 2017, and September 30, 2017, 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):

September 30, 2018	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	767,410	$	767,410
Agricultural Real Estate		-		-		-		-		-		553,608		553,608
Real Estate Construction		-		-		-		-		-		92,521		92,521
Residential 1st Mortgages		167		-		-		-		167		263,382		263,549
Home Equity Lines & Loans		-		-		-		-		-		38,490		38,490
Agricultural		150		-		-		-		150		287,671		287,821
Commercial		21		-		-		-		21		304,312		304,333
Consumer & Other		17		-		-				17		7,706		7,723
Leases		-		-		-				-		101,147		101,147
Total	$	355	$	-	$	-	$	-	$	355	$	2,416,247	$	2,416,602

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	684,961	$	684,961
Agricultural Real Estate		-		-		-		-		-		499,231		499,231
Real Estate Construction		-		-		-		-		-		100,206		100,206
Residential 1st Mortgages		448		-		-		-		448		260,303		260,751
Home Equity Lines and Loans		10		-		-		-		10		34,515		34,525
Agricultural		-		-		-		-		-		273,582		273,582
Commercial		180		-		-		-		180		265,523		265,703
Consumer & Other		7		-		-		-		7		6,649		6,656
Leases		-		-		-		-		-		89,680		89,680
Total	$	645	$	-	$	-	$	-	$	645	$	2,214,650	$	2,215,295

September 30, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	683,037	$	683,037
Agricultural Real Estate		-		-		-		-		-		470,738		470,738
Real Estate Construction		-		-		-		-		-		162,167		162,167
Residential 1st Mortgages		-		-		-		-		-		257,920		257,920
Home Equity Lines & Loans		-		-		-		-		-		33,350		33,350
Agricultural		-		-		-		-		-		259,127		259,127
Commercial		-		3		-		-		3		257,948		257,951
Consumer & Other		16		-		-		4		20		7,292		7,312
Leases		-		-		-		-		-		85,177		85,177
Total	$	16	$	3	$	-	$	4	$	23	$	2,216,756	$	2,216,779

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

September 30, 2018							Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
September 30, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	98	$	98	$	-	$	99	$	2	$	101	$	6
Agricultural Real Estate		7,239		7,238		-		3,620		6		804		6
Residential 1st Mortgages		-		-		-		-		-		553		8
	$	7,337	$	7,336	$	-	$	3,719	$	8	$	1,458	$	20
With an allowance recorded:
Commercial Real Estate	$	2,920	$	2,910	$	314	$	2,929	$	24	$	2,950	$	72
Residential 1st Mortgages		1,562		1,739		77		1,630		12		989		32
Home Equity Lines & Loans		75		85		4		76		1		76		3
Commercial		1,675		1,670		192		1,986		14		1,879		44
Consumer & Other		7		7		7		7		-		8		-
	$	6,239	$	6,411	$	594	$	6,628	$	51		5,902	$	151
Total	$	13,576	$	13,747	$	594	$	10,347	$	59	$	7,360	$	171

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	104	$	104	$	-	$	107	$	11
Agricultural Real Estate		-		-		-		488		-
Residential 1st Mortgages		911		1,012		-		532		11
Home Equity Lines and Loans		-		-		-		16		-
Agricultural		-		-		-		30		-
	$	1,015	$	1,116	$	-	$	1,173	$	22
With an allowance recorded:
Commercial Real Estate	$	2,973	$	2,961	$	366	$	2,999	$	104
Residential 1st Mortgages		508		571		25		469		16
Home Equity Lines and Loans		73		89		4		74		3
Agricultural		-		-		-		409		21
Commercial		1,741		1,734		220		1,693		59
Consumer & Other		8		9		8		11		-
	$	5,303	$	5,364	$	623	$	5,655	$	203
Total	$	6,318	$	6,480	$	623	$	6,828	$	225

							Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
September 30, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	106	$	107	$	-	$	107	$	2	$	121	$	9
Agricultural Real Estate		-		-		-		488		-		868		-
Residential 1st Mortgages		399		456		-		403		3		415		6
Home Equity Lines & Loans		-		-		-		-		-		21		-
Agricultural		-		-		-		30		-		40		-
Commercial		-		-		-		-		-		504		-
	$	505	$	563	$	-	$	1,028	$	5	$	1,969	$	15
With an allowance recorded:
Commercial Real Estate	$	2,991	$	2,977	$	384	$	3,000	$	25		2,509	$	80
Residential 1st Mortgages		519		574		26		472		3		442		12
Home Equity Lines & Loans		83		90		4		67		-		76		2
Agricultural		367		367		69		499		7		588		21
Commercial		1,760		1,752		234		1,696		14		1,624		44
Consumer & Other		4		11		4		14		-		12		-
	$	5,724	$	5,771	$	721	$	5,748	$	49		5,251	$	159
Total	$	6,229	$	6,334	$	721	$	6,776	$	54	$	7,220	$	174

Total recorded investment shown in the prior table will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance table. This is because this table does not include 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, 2018, there were no formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties.

At September 30, 2018, the Company allocated $594,000 of specific reserves to $13.6 million of troubled debt restructured loans & leases, all of which were performing. The Company had no commitments at September 30, 2018 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the nine-month periods ending September 30, 2018, there were two loans & leases modified as a troubled debt restructuring. When a loan is restructured, the modification of the terms can include 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 5 years. Modifications involving an extension of the maturity date was 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and nine-month periods ended September 30, 2018 (in thousands):

	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
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
Agricultural Real Estate		1	$	7,239	$	7,239		1	$	7,239	$	7,239
Residential 1st Mortgages		-		-		-		1		175		163
Total		1	$	7,239	$	7,239		2	$	7,414	$	7,402

The TDRs described above had minimal impact on the allowance for credit losses for the three and nine-month periods ending September 30, 2018.

During the three and nine-months ended September 30, 2018, the twelve months ended December 31, 2017, and the three and nine-month periods ending September 30, 2017 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.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2017 (in thousands):

	December 31, 2017
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		2		673		630
Home Equity Lines and Loans		1		32		32
Commercial		2		138		138
Consumer & Other		1		9		8
Total		6	$	852	$	808

The troubled debt restructurings described above had minimal impact on the on the allowance for credit losses and resulted in charge-offs of $44,000 for the twelve months ended December 31, 2017.

At December 31, 2017, the Company allocated $623,000 of specific reserves to $6.3 million of troubled debt restructured loans, all of which were performing. The Company had no commitments at December 31, 2017 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings

During the period ending December 31, 2017, 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.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and nine-month periods ended September 30, 2017 (in thousands):

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
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	$	112	$	112		1	$	112	$	112
Home Equity Lines & Loans		1		32		32		1		32		32
Commercial		2		138		138		2		138		138
Total		4	$	282	$	282		4	$	282	$	282

The TDRs described above had minimal impact on the allowance for credit losses for the three and nine-month periods ending September 30, 2017.

At September 30, 2017, the Company allocated $721,000 of specific reserves to $6.2 million of troubled debt restructured loans & leases, all of which were performing. The Company had no commitments at September 30, 2017 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three and nine-month periods ending September 30, 2017, there were four loans & leases modified as a troubled debt restructuring. When a loan is restructured, the modification of the terms can include 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 5 years. Modifications involving an extension of the maturity date ranged from 7 to 10 years.