Note 5 – Loans

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York. Although the Company had a diversified loan portfolio at March 31, 2019 and December 31, 2018, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	214,635	$	1,178	$	28	$	213,429
Commercial		334,371		10,724		1,291		322,356
Agricultural		295,547		5,562		-		289,985
Construction		18,611		-		-		18,611
Consumer		9,773		-		-		9,773
Other commercial loans		74,323		2,072		486		71,765
Other agricultural loans		43,245		1,428		-		41,817
State and political subdivision loans		100,412		-		-		100,412
Total		1,090,917		20,964		1,805		1,068,148
Allowance for loan losses		13,084		721		-		12,363
Net loans	$	1,077,833	$	20,243	$	1,805	$	1,055,785

December 31, 2018	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	215,305	$	890	$	28	$	214,387
Commercial		319,265		13,327		1,321		304,617
Agricultural		284,520		5,592		-		278,928
Construction		33,913		-		-		33,913
Consumer		9,858		-		-		9,858
Other commercial loans		74,118		2,206		510		71,402
Other agricultural loans		42,186		1,435		-		40,751
State and political subdivision loans		102,718		-		-		102,718
Total		1,081,883		23,450		1,859		1,056,574
Allowance for loan losses		12,884		676		-		12,208
Net loans	$	1,068,999	$	22,774	$	1,859	$	1,044,366

Purchased loans are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses. Upon acquisition, the Company evaluates whether an acquired loan was within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired (“PCI”) loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Based upon management’s review, there were no material decreases in the expected cash flows of these loans between the acquisition date and March 31, 2019. The fair value of PCI loans, on the acquisition date, was determined, primarily based on the fair value of the loans’ collateral. The carrying value of PCI loans was $1,805,000 and $1,859,000 at March 31, 2019 and December 31, 2018, respectively. The carrying value of the PCI loans was determined by projected discounted contractual cash flows and collateral valuations.

Changes in the accretable yield for PCI loans were as follows for the three months ended March 31, 2019 and 2018, respectively (in thousands):

	Three months ended
	March 31,
	2019			2018
Balance at beginning of period	$	104		$	106
Accretion		(2	)		(24	)
Balance at end of period	$	102		$	82

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

	March 31,		December 31, 2018
Outstanding balance	$	4,521	$	4,529
Carrying amount		1,805		1,859

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

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

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

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
March 31, 2019	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,239	$	856	$	238	$	1,094	$	10
Home Equity		103		11		73		84		13
Commercial		11,242		9,635		1,089		10,724		310
Agricultural		5,569		2,368		3,194		5,562		83
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		2,608		1,752		320		2,072		146
Other agricultural loans		1,483		119		1,309		1,428		159
State and political
subdivision loans		-		-		-		-		-
Total	$	22,244	$	14,741	$	6,223	$	20,964	$	721

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
December 31, 2018	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	932	$	515	$	288	$	803	$	10
Home Equity		106		12		75		87		14
Commercial		16,326		11,933		1,394		13,327		216
Agricultural		5,598		2,386		3,206		5,592		84
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		2,711		1,836		370		2,206		193
Other agricultural loans		1,487		120		1,315		1,435		159
State and political
subdivision loans		-		-		-		-		-
Total	$	27,160	$	16,802	$	6,648	$	23,450	$	676

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three month periods ended March 31, 2019 and 2018(in thousands):

	For the Three Months ended
	March 31, 2019						March 31, 2018
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	1,103	$	4	$	-	$	1,023	$	4	$	-
Home Equity		85		1		-		107		1		-
Commercial		12,548		119		6		13,795		122		5
Agricultural		5,575		32		-		4,086		51		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		4		-		-
Other commercial loans		2,137		1		-		4,156		26		-
Other agricultural loans		1,431		2		-		1,370		10		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	22,879	$	159	$	6	$	24,541	$	214	$	5

Credit Quality Information

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

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

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

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

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

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

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company’s loan rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management. All commercial, agricultural and state and political loans are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to 1) review a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) review new loans originated for over $1.0 million in the last year, 3) review a majority of borrowers with commitments greater than or equal to $1.0 million, 4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate.

The following tables represent credit exposures by internally assigned grades as of March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	316,782	$	10,140	$	7,410	$	39	$	-	$	334,371
Agricultural		273,727		11,735		10,085		-		-		295,547
Construction		18,611		-		-		-		-		18,611
Other commercial loans		71,048		736		2,469		70		-		74,323
Other agricultural loans		39,699		1,660		1,886		-		-		43,245
State and political
subdivision loans		99,873		-		539		-		-		100,412
Total	$	819,740	$	24,271	$	22,389	$	109	$	-	$	866,509

December 31, 2018	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	297,690	$	10,792	$	10,743	$	40	$	-	$	319,265
Agricultural		264,732		10,017		9,771		-		-		284,520
Construction		33,913		-		-		-		-		33,913
Other commercial loans		70,425		777		2,800		116		-		74,118
Other agricultural loans		38,628		1,724		1,834		-		-		42,186
State and political
subdivision loans		92,666		9,481		571		-		-		102,718
Total	$	798,054	$	32,791	$	25,719	$	156	$	-	$	856,720

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	155,440	$	1,032	$	28	$	156,500
Home Equity		58,041		94		-		58,135
Consumer		9,773		-		-		9,773
Total	$	223,254	$	1,126	$	28	$	224,408

December 31, 2018	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	155,360	$	1,099	$	28	$	156,487
Home Equity		58,736		82		-		58,818
Consumer		9,832		26		-		9,858
Total	$	223,928	$	1,207	$	28	$	225,163

Aging Analysis of Past Due Financing Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due financing receivables as of March 31, 2019 and December 31, 2018 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
March 31, 2019	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	592	$	83	$	717	$	1,392	$	155,080	$	28	$	156,500	$	23
Home Equity		401		87		89		577		57,558		-		58,135		17
Commercial		1,888		499		2,368		4,755		328,325		1,291		334,371		4
Agricultural		991		-		3,596		4,587		290,960		-		295,547		-
Construction		-		-		-		-		18,611		-		18,611		-
Consumer		96		-		-		96		9,677		-		9,773		-
Other commercial loans		396		-		1,980		2,376		71,461		486		74,323		20
Other agricultural loans		180		36		1,196		1,412		41,833		-		43,245		-
State and political
subdivision loans		-		-		-		-		100,412		-		100,412		-
Total	$	4,544	$	705	$	9,946	$	15,195	$	1,073,917	$	1,805	$	1,090,917	$	64

Loans considered non-accrual	$	354	$	425	$	9,882	$	10,661	$	1,039	$	-	$	11,700
Loans still accruing		4,190		280		64		4,534		1,072,878		1,805		1,079,217
Total	$	4,544	$	705	$	9,946	$	15,195	$	1,073,917	$	1,805	$	1,090,917

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2018	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	483	$	789	$	686	$	1,958	$	154,501	$	28	$	156,487	$	20
Home Equity		257		108		63		428		58,390		-		58,818		-
Commercial		999		631		4,706		6,336		311,608		1,321		319,265		36
Agricultural		121		-		3,184		3,305		281,215		-		284,520		-
Construction		-		-		-		-		33,913		-		33,913		-
Consumer		37		14		12		63		9,795		-		9,858		12
Other commercial loans		141		53		2,061		2,255		71,353		510		74,118		-
Other agricultural loans		-		-		1,201		1,201		40,985		-		42,186		-
State and political
subdivision loans		-		-		-		-		102,718		-		102,718		-
Total	$	2,038	$	1,595	$	11,913	$	15,546	$	1,064,478	$	1,859	$	1,081,883	$	68

Loans considered non-accrual	$	72	$	253	$	11,845	$	12,170	$	1,554	$	-	$	13,724
Loans still accruing		1,966		1,342		68		3,376		1,062,924		1,859		1,068,159
Total	$	2,038	$	1,595	$	11,913	$	15,546	$	1,064,478	$	1,859	$	1,081,883

Nonaccrual Loans

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

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of March 31, 2019 and December 31, 2018, respectively. The balances are presented by class of financing receivable (in thousands):

	March 31, 2019		December 31, 2018
Real estate loans:
Mortgages	$	1,009	$	1,079
Home Equity		77		82
Commercial		3,689		5,957
Agricultural		3,607		3,206
Construction		-		-
Consumer		-		14
Other commercial loans		2,053		2,185
Other agricultural loans		1,265		1,201
State and political subdivision		-		-
	$	11,700	$	13,724

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower's financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company’s investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower’s ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations. Based on this evaluation management would no longer consider a loan to be a TDR when the relevant facts support such a conclusion. As of March 31, 2019 and December 31, 2018, included within the allowance for loan losses are reserves of $249,000 and $255,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three months ended March 31, 2019 and 2018 were as follows (dollars in thousands):

	For the Three Months Ended March 31, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	548	$	-	$	548
Total		-		1	$	-	$	548	$	-	$	548

	For the Three Months Ended March 31, 2018
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Mortgages		-		1	$	-	$	7	$	-	$	7
Total		-		1	$	-	$	7	$	-	$	7

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism on modified loans occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2019 and 2018 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended
	March 31, 2019				March 31, 2018
	Number of contracts		Recorded investment		Number of contracts		Recorded investment
Other agricultural loans		1	$	124		-	$	-
Total recidivism		1	$	124		-	$	-

Allowance for Loan Losses

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2019 and December 31, 2018, respectively (in thousands):

	March 31, 2019						December 31, 2018
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	23	$	1,066	$	1,089	$	24	$	1,081	$	1,105
Commercial		310		3,820		4,130		216		3,899		4,115
Agricultural		83		4,309		4,392		84		4,180		4,264
Construction		-		32		32		-		58		58
Consumer		-		124		124		-		120		120
Other commercial loans		146		1,137		1,283		193		1,161		1,354
Other agricultural loans		159		597		756		159		593		752
State and political
subdivision loans		-		565		565		-		762		762
Unallocated		-		713		713		-		354		354
Total	$	721	$	12,363	$	13,084	$	676	$	12,208	$	12,884

The following tables roll forward the balance of the ALLL by portfolio segment for the three months ended March 31, 2019 and 2018, respectively (in thousands):

	For the three months ended March 31, 2019
	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at March 31, 2019
Real estate loans:
Residential	$	1,105	$	-		$	-	$	(16	)	$	1,089
Commercial		4,115		(200	)		-		215			4,130
Agricultural		4,264		-			-		128			4,392
Construction		58		-			-		(26	)		32
Consumer		120		(14	)		11		7			124
Other commercial loans		1,354		-			3		(74	)		1,283
Other agricultural loans		752		-			-		4			756
State and political
subdivision loans		762		-			-		(197	)		565
Unallocated		354		-			-		359			713
Total	$	12,884	$	(214	)	$	14	$	400		$	13,084

	For the three months ended March 31, 2018
	Balance at December 31, 2017		Charge-offs			Recoveries		Provision			Balance at March 31, 2018
Real estate loans:
Residential	$	1,049	$	(15	)	$	-	$	43		$	1,077
Commercial		3,867		-			-		139			4,006
Agricultural		3,143		-					197			3,340
Construction		23		-			-		16			39
Consumer		124		(13	)		10		2			123
Other commercial loans		1,272		(45	)		3		43			1,273
Other agricultural loans		492		(43	)		-		83			532
State and political
subdivision loans		816		-			-		(27	)		789
Unallocated		404		-			-		4			408
Total	$	11,190	$	(116	)	$	13	$	500		$	11,587

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

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

§	Change in volume and severity of past due loans

§	Volume of non-accrual loans

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

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

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

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

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

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

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

§	General economic conditions

§	Unemployment rates

§	Inflation rate/ Consumer Price Index

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

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

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

·	Any change in the level of board oversight.

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

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

For the three months ended March 31, 2019, the allowance for commercial real estate was decreased in general reserves due to a decrease in the amount of non-accrual, classified and past due loans, which was offset by an specific reserves. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances, an increase in the amount of loans classified as non-accrual and past due. The result of this was represented as an increase in the provision. The allowance for other commercial loans was decreased as a result of a decrease in specific reserves and a decrease in the volume of classified loans. The result of these changes was represented as a decrease in the provision. The allowance for state and political subdivision was decreased as a result a decrease in the volume of classified loans. The result of this change was represented as a decrease in the provision.

For the three months ended March 31, 2018, the allowance for residential real estate increased in general reserves for pooled loans as a result of increased loss rates reflected in the charge-offs for the three month period, as well as higher loan balances. The increase was offset by a decrease in the specific reserve for individually evaluated residential loans. This was represented as an increase to the provision. The allowance for commercial real estate was increased in general reserves due to growth in the commercial real estate loan portfolio. It was also impacted by an increase in specific reserves during the quarter. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. The result of this growth was represented as an increase in the provision. The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. The result of these changes was represented as an increase in the provision.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of March 31, 2019 and December 31, 2018, included with other assets are $4,295,000 and $601,000, respectively, of foreclosed assets. As of March 31, 2019, included within the foreclosed assets are $561,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of March 31 2019, the Company has initiated formal foreclosure proceedings on $1,072,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.