3. Allowance for Loan Losses

The following table shows the allocation of the allowance for loan losses at September 30, 2011 and December 31, 2010 by portfolio segment and by impairment methodology (in thousands):

September 30, 2011	Commercial Real Estate			Agricultural Real Estate			Real Estate Construction			Residential 1st Mortgages			Home Equity			Agricultural			Commercial			Consumer & Other			Unallocated		Total

Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2011	$	7,631		$	1,539		$	2,160		$	1,164		$	3,724		$	6,733		$	9,084		$	216		$	10	$	32,261
Charge-Offs		(25	)		(384	)		-			(398	)		(701	)		(2,750	)		(324	)		(149	)		-		(4,731	)
Recoveries		-			-			-			3			11			10			14			45			-		83
Provision		(1,790	)		1,233			196			341			497			2,646			738			80			1,409		5,350
Ending Balance- September 30, 2011	$	5,816		$	2,388		$	2,356		$	1,110		$	3,531		$	6,639		$	9,512		$	192		$	1,419	$	32,963

Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2011	$	5,726		$	2,813		$	2,362		$	1,198		$	3,450		$	6,284		$	10,794		$	252		$	63	$	32,942
Charge-Offs		(12	)		(384	)		-			(58	)		(239	)		-			(148	)		(62	)		-		(903	)
Recoveries		-			-			-			-			5			-			5			14			-		24
Provision		102			(41	)		(6	)		(30	)		315			355			(1,139	)		(12	)		1,356		900
Ending Balance- September 30, 2011	$	5,816		$	2,388		$	2,356		$	1,110		$	3,531		$	6,639		$	9,512		$	192		$	1,419	$	32,963
Ending Balance Individually Evaluated for Impairment		702			46			-			-			40			827			103			24			-		1,742
Ending Balance Collectively Evaluated for Impairment		5,114			2,342			2,356			1,110			3,491			5,812			9,409			168			1,419		31,221
Loans:
Ending Balance	$	300,918		$	284,149		$	28,979		$	104,130		$	52,451		$	219,670		$	180,329		$	6,879		$	-	$	1,177,505
Ending Balance Individually Evaluated for Impairment		3,841			1,413			-			1,273			262			1,671			349			24			-		8,833
Ending Balance Collectively Evaluated for Impairment		297,077			282,736			28,979			102,857			52,189			217,999			179,980			6,855			-		1,168,672

December 31, 2010	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages		Home Equity		Agricultural		Commercial		Consumer & Other		Unallocated		Total

Allowance for Credit Losses:
Ending Balance Allocated to Portfolio Segments	$	7,631	$	1,539	$	2,160	$	1,164	$	3,724	$	6,733	$	9,084	$	216	$	10	$	32,261
Ending Balance Individually Evaluated for Impairment		3,425		365		850		298		-		150		84		-		-		5,172
Ending Balance Collectively Evaluated for Impairment		4,206		1,174		1,310		866		3,724		6,583		9,000		216		10		27,089
Loans:
Ending Balance	$	316,271	$	254,575	$	37,486	$	103,574	$	58,971	$	231,150	$	165,263	$	8,712	$	-	$	1,176,002
Ending Balance Individually Evaluated for Impairment		22,107		1,797		6,193		1,824		13		750		277		-		-		32,961
Ending Balance Collectively Evaluated for Impairment		294,164		252,778		31,293		101,750		58,958		230,400		164,986		8,712		-		1,143,041

The following table shows the loan portfolio allocated by management's internal risk ratings at September 30, 2011 and December 31, 2010 (in thousands):

September 30, 2011	Pass		Special Mention		Substandard		Total Loans
Loans:
Commercial Real Estate	$	260,662	$	15,482	$	24,774	$	300,918
Agricultural Real Estate		259,428		19,315		5,406		284,149
Real Estate Construction		20,781		3,217		4,981		28,979
Residential 1st Mortgages		101,230		1,503		1,397		104,130
Home Equity		51,559		-		892		52,451
Agricultural		202,323		12,285		5,062		219,670
Commercial		172,702		5,971		1,656		180,329
Consumer & Other		6,479		-		400		6,879
Total	$	1,075,164	$	57,773	$	44,568	$	1,177,505

December 31, 2010	Pass		Special Mention		Substandard		Total Loans
Loans:
Commercial Real Estate	$	281,868	$	9,846	$	24,557	$	316,271
Agricultural Real Estate		237,127		14,563		2,885		254,575
Real Estate Construction		27,734		3,217		6,535		37,486
Residential 1st Mortgages		100,709		1,099		1,766		103,574
Home Equity		58,632		-		339		58,971
Agricultural		218,165		11,521		1,464		231,150
Commercial		160,045		2,965		2,253		165,263
Consumer & Other		8,498		-		214		8,712
Total	$	1,092,778	$	43,211	$	40,013	$	1,176,002

See “Note 1. Significant Accounting Policies - Allowance for Loan Losses” for a description of the internal risk ratings used by the Company. There were no loans outstanding at September 30, 2011 and December 31, 2010 rated doubtful or loss.

The following table shows an aging analysis of the loan portfolio by the time past due at September 30, 2011 and December 31, 2010 (in thousands):

September 30, 2011	30-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Loans:
Commercial Real Estate	$	-	$	-	$	811	$	811	$	300,107	$	300,918
Agricultural Real Estate		-		-		1,413		1,413		282,736		284,149
Real Estate Construction		-		-		-		-		28,979		28,979
Residential 1st Mortgages		-		-		347		347		103,783		104,130
Home Equity		359		-		190		549		51,902		52,451
Agricultural		3,854		-		1,531		5,385		214,285		219,670
Commercial		-		-		348		348		179,981		180,329
Consumer & Other		15		-		24		39		6,840		6,879
Total	$	4,228	$	-	$	4,664	$	8,892	$	1,168,613	$	1,177,505

December 31, 2010	30-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Loans:
Commercial Real Estate	$	-	$	-	$	2,348	$	2,348	$	313,923	$	316,271
Agricultural Real Estate		-		-		1,797		1,797		252,778		254,575
Real Estate Construction		-		-		-		-		37,486		37,486
Residential 1st Mortgages		797		-		954		1,751		101,823		103,574
Home Equity		526		-		-		526		58,445		58,971
Agricultural		47		-		-		47		231,103		231,150
Commercial		275		-		207		482		164,781		165,263
Consumer & Other		44		-		2		46		8,666		8,712
Total	$	1,689	$	-	$	5,308	$	6,997	$	1,169,005	$	1,176,002

The following table shows information related to impaired loans at and for the three and nine month periods ended September 30, 2011 and December 31, 2010 (in thousands):

							Three Months Ended Sept. 30, 2011				Nine Months Ended Sept. 30, 2011
September 30, 2011	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	$	816	$	811	$	-	$	530	$	-	$	453	$	-
Agricultural Real Estate		935		974		-		1,717		-		1,470		-
Real Estate Construction		-		-		-		-		-		-		-
Residential 1st Mortgages		1,278		1,469		-		861		1		842		3
Home Equity		190		191		-		218		-		230		1
Agricultural		140		140		-		143		3		111		6
Commercial		186		182		-		188		-		197		-
Consumer & Other		-		-		-		-		-		7		-
	$	3,545	$	3,767	$	-	$	3,657	$	4	$	3,310	$	10
With an allowance recorded:
Commercial Real Estate	$	3,033	$	3,030	$	702	$	3,041	$	44	$	2,035	$	46
Agricultural Real Estate		463		823		46		645		-		705		-
Real Estate Construction		-		-		-		-		-		-		-
Residential 1st Mortgages		-		-		-		-		-		-		-
Home Equity		73		82		40		74		1		118		2
Agricultural		1,533		1,548		827		2,732		2		2,065		25
Commercial		168		206		103		155		-		125		-
Consumer & Other		24		24		24		31		-		33		-
	$	5,294	$	5,713	$	1,742	$	6,678	$	47	$	5,081	$	73
Total	$	8,839	$	9,480	$	1,742	$	10,335	$	51	$	8,391	$	83

December 31, 2010	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	12,218	$	12,442	$	-	$	9,259	$	227
Agricultural Real Estate		975		974		-		867		-
Real Estate Construction		3,092		3,093		-		3,276		71
Residential 1st Mortgages		857		1,197		-		742		26
Home Equity		36		42		-		359		2
Agricultural		-		-		-		430		-
Commercial		140		140		-		1,124		-
Consumer & Other		-		-		-		1		-
	$	17,318	$	17,888	$	-	$	16,058	$	326
With an allowance recorded:
Commercial Real Estate	$	9,907	$	9,909	$	3,425	$	5,141	$	360
Agricultural Real Estate		826		823		365		417		27
Real Estate Construction		3,100		3,100		850		1,308		41
Residential 1st Mortgages		952		997		298		294		8
Home Equity		-		-		-		3		-
Agricultural		750		750		150		188		24
Commercial		137		136		84		34		3
Consumer & Other		-		-		-		-		-
	$	15,672	$	15,715	$	5,172	$	7,385	$	463
Total	$	32,990	$	33,603	$	5,172	$	23,443	$	789

Total recorded investment shown in the prior table will not equal the total ending balance of loans individually evaluated for impairment on the allocation of allowance table. This is because the calculation of recorded investment takes into account charge-offs, net deferred loans fees & costs, unamortized premium or discount, and accrued interest.

The Company has allocated $904,000 and $4.6 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2011 and December 31, 2010. The Company had no commitments at September 30, 2011 and December 31, 2010 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending September 30, 2011, 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 2 years to 8 years. Modifications involving an extension of the maturity date were for periods ranging from 3 years to 10 years.

The following table presents loans by class modified as troubled debt restructured loans for the three and nine months ended September 30, 2011 (in thousands):

	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011
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
Commercial Real Estate		-	$	-	$	-		2	$	3,032	$	3,032
Agricultural Real Estate		-		-		-		-		-		-
Real Estate Construction		-		-		-		-		-		-
Residential 1st Mortgages		4		897		847		4		897		847
Home Equity Lines & Loans		-		-		-		2		55		51
Agricultural		-		-		-		1		140		140
Commercial		-		-		-		2		82		82
Consumer & Other		-		-		-		1		24		24
Total		4	$	897	$	847		12	$	4,230	$	4,176

The troubled debt restructurings described above increased the allowance for loan losses by $0 and $126,000 and resulted in charge-offs of $50,000 and $54,000 during the three and nine month periods ending September 30, 2011.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2011 (in thousands):

	Three Months Ended September 30, 2011				Nine Months Ended September 30, 2011
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Commercial Real Estate		-	$	-		-	$	-
Agricultural Real Estate		-		-		-		-
Real Estate Construction		-		-		-		-
Residential 1st Mortgages		-		-		-		-
Home Equity Lines & Loans		-		-		1		12
Agricultural		-		-		-		-
Commercial		-		-		-		-
Consumer & Other		-		-		-		-
Total		-	$	-		1	$	12

A loan is considered to be in payment default once it is greater than 90 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted did not increase the allowance for loan losses but did result in charge offs of $0 and $12,000 during the three and nine month periods ending September 30, 2011.