3. Allowance for Loan Losses

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

September 30, 2012	Commercial Real Estate			Agricultural Real Estate			Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Unallocated			Total

Year-To-Date Allowance for Loan Losses:
Beginning Balance- January 1, 2012	$	5,823		$	2,583		$	1,933		$	1,251		$	3,746		$	8,127		$	8,733		$	207		$	614		$	33,017
Charge-Offs		-			-			-			(81	)		(138	)		(240	)		(198	)		(122	)		-			(779	)
Recoveries		-			89			-			16			12			61			41			47			-			266
Provision		(1,490	)		990			(72	)		356			(105	)		311			1,084			12			14			1,100
Ending Balance- September 30, 2012	$	4,333		$	3,662		$	1,861		$	1,542		$	3,515		$	8,259		$	9,660		$	144		$	628		$	33,604

Third Quarter Allowance for Loan Losses:
Beginning Balance- July 1, 2012	$	4,377		$	2,633		$	1,900		$	1,451		$	3,514		$	7,834		$	9,538		$	140		$	1,711		$	33,098
Charge-Offs		-			-			-			(80	)		(22	)		-			-			(34	)		-			(136	)
Recoveries		-			-			-			16			2			-			9			15			-			42
Provision		(44	)		1,029			(39	)		155			21			425			113			23			(1,083	)		600
Ending Balance- September 30, 2012	$	4,333		$	3,662		$	1,861		$	1,542		$	3,515		$	8,259		$	9,660		$	144		$	628		$	33,604
Ending Balance Individually Evaluated for Impairment		-			-			-			-			248			548			146			20			-			962
Ending Balance Collectively Evaluated for Impairment		4,333			3,662			1,861			1,542			3,267			7,711			9,514			124			628			32,642
Loans:
Ending Balance	$	335,664		$	293,864		$	32,701		$	137,464		$	43,990		$	193,053		$	167,777		$	5,514		$	-		$	1,210,027
Ending Balance Individually Evaluated for Impairment		295			2,551			-			493			1,048			2,652			257			20			-			7,316
Ending Balance Collectively Evaluated for Impairment		335,369			291,313			32,701			136,971			42,942			190,401			167,520			5,494			-			1,202,711

December 31, 2011	Commercial Real Estate			Agricultural Real Estate			Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Unallocated			Total

Year-To-Date Allowance for Loan 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	)		-			(449	)		(751	)		(3,559	)		(788	)		(190	)		-			(6,146	)
Recoveries		-			18			-			4			13			10			21			61			-			127
Provision		(1,783	)		1,410			(227	)		532			760			4,943			416			120			604			6,775
Ending Balance- December 31, 2011	$	5,823		$	2,583		$	1,933		$	1,251		$	3,746		$	8,127		$	8,733		$	207		$	614		$	33,017
Ending Balance Individually Evaluated for Impairment		686			-			-			-			80			793			54			23			-			1,636
Ending Balance Collectively Evaluated for Impairment		5,137			2,583			1,933			1,251			3,666			7,334			8,679			184			614			31,381
Loans:
Ending Balance	$	305,704		$	280,139		$	29,607		$	107,421		$	50,956		$	217,227		$	165,089		$	6,935		$	-		$	1,163,078
Ending Balance Individually Evaluated for Impairment		4,562			954			-			1,194			576			1,337			292			23			-			8,938
Ending Balance Collectively Evaluated for Impairment		301,142			279,185			29,607			106,227			50,380			215,890			164,797			6,912			-			1,154,140

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

Year-To-Date Allowance for Loan 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 Loan 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

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

September 30, 2012	Pass		Special Mention		Substandard		Total Loans
Loans:
Commercial Real Estate	$	313,441	$	15,910	$	6,313	$	335,664
Agricultural Real Estate		273,823		9,887		10,154		293,864
Real Estate Construction		24,856		3,217		4,628		32,701
Residential 1st Mortgages		135,473		1,211		780		137,464
Home Equity Lines & Loans		41,975		-		2,015		43,990
Agricultural		186,398		2,300		4,355		193,053
Commercial		161,685		5,634		458		167,777
Consumer & Other		5,195		-		319		5,514
Total	$	1,142,846	$	38,159	$	29,022	$	1,210,027

December 31, 2011	Pass		Special Mention		Substandard		Total Loans
Loans:
Commercial Real Estate	$	265,201	$	15,186	$	25,317	$	305,704
Agricultural Real Estate		254,181		21,657		4,301		280,139
Real Estate Construction		21,428		3,217		4,962		29,607
Residential 1st Mortgages		104,609		1,483		1,329		107,421
Home Equity Lines & Loans		49,631		-		1,325		50,956
Agricultural		209,555		4,083		3,589		217,227
Commercial		158,273		5,240		1,576		165,089
Consumer & Other		6,528		-		407		6,935
Total	$	1,069,406	$	50,866	$	42,806	$	1,163,078

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 Lines & Loans		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

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, 2012, December 31, 2011, and September 30, 2011 rated doubtful or loss.

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

(in thousands):

	30-89 Days		90 Days or More				Total Past				Total
September 30, 2012	Past Due		and Still Accruing		Nonaccrual		Due		Current		Loans
Loans:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	335,664	$	335,664
Agricultural Real Estate		-		-		2,551		2,551		291,313		293,864
Real Estate Construction		-		-		-		-		32,701		32,701
Residential 1st Mortgages		-		-		279		279		137,185		137,464
Home Equity Lines & Loans		101		-		528		629		43,361		43,990
Agricultural		-		-		2,374		2,374		190,679		193,053
Commercial		-		-		-		-		167,777		167,777
Consumer & Other		56		-		20		76		5,438		5,514
Total	$	157	$	-	$	5,752	$	5,909	$	1,204,118	$	1,210,027


	30-89 Days		90 Days or More				Total Past				Total
December 31, 2011	Past Due		and Still Accruing		Nonaccrual		Due		Current		Loans
Loans:
Commercial Real Estate	$	-	$	-	$	1,354	$	1,354	$	304,350	$	305,704
Agricultural Real Estate		-		-		954		954		279,185		280,139
Real Estate Construction		-		-		-		-		29,607		29,607
Residential 1st Mortgages		108		-		284		392		107,029		107,421
Home Equity Lines & Loans		566		-		194		760		50,196		50,956
Agricultural		284		-		1,202		1,486		215,741		217,227
Commercial		179		-		217		396		164,693		165,089
Consumer & Other		101		-		23		124		6,811		6,935
Total	$	1,238	$	-	$	4,228	$	5,466	$	1,157,612	$	1,163,078


	30-89 Days		90 Days or More				Total Past				Total
September 30, 2011	Past Due		and Still Accruing		Nonaccrual		Due		Current		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 Lines & Loans		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

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

							Three Months Ended Sept. 30, 2012				Nine Months Ended Sept. 30, 2012
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2012	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	295	$	295	$	-	$	297	$	6	$	789	$	15
Agricultural Real Estate		2,558		2,551		-		2,036		-		1,402		-
Residential 1st Mortgages		494		521		-		438		-		512		-
Home Equity Lines & Loans		785		862		-		743		6		717		17
Agricultural		2,106		2,111		-		1,197		5		594		15
Commercial		111		111		-		115		2		169		4
	$	6,349	$	6,451	$	-	$	4,826	$	19	$	4,183	$	51
With an allowance recorded:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	503	$	-
Residential 1st Mortgages		-		-		-		54		-		72		-
Home Equity Lines & Loans		269		314		248		174		1		152		3
Agricultural		547		1,551		548		567		-		749		-
Commercial		146		146		146		196		2		157		2
Consumer & Other		20		22		20		21		-		22		-
	$	982	$	2,033	$	962	$	1,012	$	3	$	1,655	$	5
Total	$	7,331	$	8,484	$	962	$	5,838	$	22	$	5,838	$	56

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2011	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	1,555	$	1,547	$	-	$	729	$	-
Agricultural Real Estate		955		974		-		1,341		-
Residential 1st Mortgages		1,219		1,272		-		936		13
Home Equity Lines & Loans		469		484		-		290		2
Agricultural		262		372		-		149		9
Commercial		188		264		-		195		1
Consumer & Other		-		-		-		5		-
	$	4,648	$	4,913	$	-	$	3,645	$	25
With an allowance recorded:
Commercial Real Estate	$	3,017	$	3,015	$	686	$	2,281	$	89
Agricultural Real Estate		-		-		-		529		-
Home Equity Lines & Loans		113		119		80		117		2
Agricultural		1,076		1,791		793		1,818		25
Commercial		104		107		54		120		-
Consumer & Other		24		24		23		31		-
	$	4,334	$	5,056	$	1,636	$	4,896	$	116
Total	$	8,982	$	9,969	$	1,636	$	8,541	$	141

							Three Months Ended Sept. 30, 2011				Nine Months Ended Sept. 30, 2011
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2011	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	816	$	811	$	-	$	530	$	-	$	453	$	-
Agricultural Real Estate		935		974		-		1,717		-		1,470		-
Residential 1st Mortgages		1,278		1,469		-		861		1		842		3
Home Equity Lines & Loans		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		-
Home Equity Lines & Loans		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

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 for purposes of this table takes into account charge-offs, net deferred loans fees & costs, unamortized premium or discount, and accrued interest.

At September 30, 2012, the Company allocated $187,000 of specific reserves to $2.1 million of troubled debt restructured loans, of which $1.6 million were performing. The Company had no commitments at September 30, 2012 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, 2012, 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 15 years.

The following table presents loans by class modified as troubled debt restructured loans for the three and nine month periods ended September 30, 2012 (in thousands):

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
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		-	$	-	$	-		1	$	116	$	116
Residential 1st Mortgages		1		185		173		5		331		312
Home Equity Lines & Loans		1		46		43		4		414		369
Agricultural		2		175		175		3		355		355
Commercial		-		-		-		3		273		273
Total		4	$	406	$	391		16	$	1,489	$	1,425

The TDRs described above increased the allowance for loan losses by $0 and $19,000 and resulted in charge-offs of $15,000 and $64,000 for the three and nine months ended September 30, 2012.

During the three and nine months ended September 30, 2012, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.

At December 31, 2011, the Company allocated $759,000 of specific reserves to $4.9 million of troubled debt restructured loans, of which $4.7 million were performing. The Company had no commitments at December 31, 2011 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 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 period ended December 31, 2011 (in thousands):

	December 31, 2011
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Real Estate		3	$	3,224	$	3,224
Residential 1st Mortgages		5		995		940
Home Equity Lines & Loans		7		381		362
Agricultural		1		140		140
Commercial		2		82		82
Consumer & Other		1		24		24
Total		19	$	4,846	$	4,772

Prior to classifying these loans as TDRs, general loss reserves of $680,000 were allocated to them under the Company's loan loss allowance methodology. At the time they were classified as TDRs, charge-offs of $74,000 were recorded. Based upon individual evaluation of the loans, specific loss reserves of $759,000 were required at December 31, 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 twelve months ended December 31, 2011

(in thousands):

	December 31, 2011
Troubled Debt Restructurings That Subsequently Defaulted	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

The troubled debt restructurings that subsequently defaulted did not increase the allowance for loan losses but did result in charge offs of $12,000 during the twelve month period ending December 31, 2011.

The Company allocated $904,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2011. The Company had no commitments at September 30, 2011 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.

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.

	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

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.