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):

June 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		-		-		-		(33	)		(65	)		-			-		(45	)		-		-			(143	)
Recoveries		-		-		-		-			51			2			77		29			-		-			159
Provision		1,813		101		636		19			(16	)		(3,916	)		1,603		33			469		(742	)		-
Ending Balance- June 30, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2014	$	6,426	$	3,387	$	1,077	$	1,100		$	2,648		$	9,601		$	6,426	$	171		$	921	$	2,520		$	34,277
Charge-Offs		-		-		-		(30	)		(65	)		-			-		(18	)		-		-			(113	)
Recoveries		-		-		-		-			39			1			72		14			-		-			126
Provision		565		290		213		24			115			(1,311	)		879		26			187		(988	)		-
Ending Balance- June 30, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Ending Balance Individually Evaluated for Impairment		218		-		241		329			315			118			807		45			-		-			2,073
Ending Balance Collectively Evaluated for Impairment		6,773		3,677		1,049		765			2,422			8,173			6,570		148			1,108		1,532			32,217
Loans & Leases:
Ending Balance	$	428,529	$	358,933	$	81,647	$	160,418		$	34,453		$	228,745		$	179,948	$	4,881		$	22,155	$	-		$	1,499,709
Ending Balance Individually Evaluated for Impairment		21,719		-		4,446		1,647			1,597			534			4,898		45			-		-			34,886
Ending Balance Collectively Evaluated for Impairment		406,810		358,933		77,201		158,771			32,856			228,211			175,050		4,836			22,155		-			1,464,823

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

June 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		-			(400	)		-			(16	)		(22	)		(23	)		(4	)		(64	)		-		-			(529	)
Recoveries		-			-			-			-			20			20			236			21			-		-			297
Provision		(732	)		1,004			(9	)		(166	)		(249	)		123			880			29			-		(630	)		250
Ending Balance- June 30, 2013	$	5,732		$	3,481		$	977		$	1,037		$	2,984		$	10,557		$	9,075		$	168		$	-	$	224		$	34,235
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2013	$	6,671		$	3,795		$	969		$	1,260		$	3,209		$	9,412		$	7,966		$	163		$	-	$	810		$	34,255
Charge-Offs		-			(400	)		-			-			(21	)		(23	)		(4	)		(46	)		-		-			(494	)
Recoveries		-			-			-			-			18			7			189			10			-		-			224
Provision		(939	)		86			8			(223	)		(222	)		1,161			924			41			-		(586	)		250
Ending Balance- June 30, 2013	$	5,732		$	3,481		$	977		$	1,037		$	2,984		$	10,557		$	9,075		$	168		$	-	$	224		$	34,235
Ending Balance Individually Evaluated for Impairment		801			300			231			26			273			601			204			55			-		-			2,491
Ending Balance Collectively Evaluated for Impairment		4,931			3,181			746			1,011			2,711			9,956			8,871			113			-		224			31,744
Loans & Leases:
Ending Balance	$	393,159		$	312,588		$	32,718		$	136,473		$	37,498		$	214,760		$	159,647		$	5,546		$	2,667	$	-		$	1,295,056
Ending Balance Individually Evaluated for Impairment		25,485			5,817			4,552			1,727			1,215			1,704			542			56			-		-			41,098
Ending Balance Collectively Evaluated for Impairment		367,674			306,771			28,166			134,746			36,283			213,056			159,105			5,490			2,667		-			1,253,958

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $28.1 million at June 30, 2014, $28.4 million at December 31, 2013 and $29.1 million at June 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):

June 30, 2014	Pass			Special Mention			Substandard			Total Loans & Leases
Loans & Leases:
Commercial Real Estate		$	417,627		$	10,780		$	122		$	428,529
Agricultural Real Estate			358,933			-			-			358,933
Real Estate Construction			80,015			1,632			-			81,647
Residential 1st Mortgages			159,098			759			561			160,418
Home Equity Lines & Loans			33,717			-			736			34,453
Agricultural			227,891			785			69			228,745
Commercial			157,709			20,557			1,682			179,948
Consumer & Other			4,622			-			259			4,881
Leases			22,155			-			-			22,155
Total		$	1,461,767		$	34,513		$	3,429		$	1,499,709

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

June 30, 2013	Pass			Special Mention			Substandard			Total Loans
Loans & Leases:
Commercial Real Estate		$	378,570		$	7,817		$	6,772		$	393,159
Agricultural Real Estate			304,516			1,936			6,136			312,588
Real Estate Construction			26,534			6,184			-			32,718
Residential 1st Mortgages			134,766			786			921			136,473
Home Equity Lines & Loans			36,407			-			1,091			37,498
Agricultural			212,923			526			1,311			214,760
Commercial			153,445			5,861			341			159,647
Consumer & Other			5,260			-			286			5,546
Leases			2,667			-			-			2,667
Total		$	1,255,088		$	23,110		$	16,858		$	1,295,056

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 June 30, 2014, December 31, 2013, and June 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):

	30-89 Days		90 Days and				Total Past				Total
June 30, 2014	Past Due		Still Accruing		Nonaccrual		Due		Current		Loans
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	428,529	$	428,529
Agricultural Real Estate		-		-		-		-		358,933		358,933
Real Estate Construction		-		-		-		-		81,647		81,647
Residential 1st Mortgages		-		-		289		289		160,129		160,418
Home Equity Lines & Loans		-		-		576		576		33,877		34,453
Agricultural		-		-		26		26		228,719		228,745
Commercial		-		-		1,613		1,613		178,335		179,948
Consumer & Other		72		-		15		87		4,794		4,881
Leases		-		-		-		-		22,155		22,155
Total	$	72	$	-	$	2,519	$	2,591	$	1,497,118	$	1,499,709

	30-89 Days		90 Days and				Total Past				Total
December 31, 2013	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	$	1,451	$	-	$	2,596	$	4,047	$	1,384,189	$	1,388,236

	30-89 Days		90 Days and				Total Past				Total
June 30, 2013	Past Due		Still Accruing		Nonaccrual		Due		Current		Loans
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	2,873	$	2,873	$	390,286	$	393,159
Agricultural Real Estate		-		-		5,817		5,817		306,771		312,588
Real Estate Construction		-		-		-		-		32,718		32,718
Residential 1st Mortgages		-		-		202		202		136,271		136,473
Home Equity Lines & Loans		152		-		243		395		37,103		37,498
Agricultural		-		-		997		997		213,763		214,760
Commercial		1		-		277		278		159,369		159,647
Consumer & Other		16		-		18		34		5,512		5,546
Leases		-		-		-		-		2,667		2,667
Total	$	169	$	-	$	10,427	$	10,596	$	1,284,460	$	1,295,056

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

							Three Months Ended June 30, 2014				Six Months Ended June 30, 2014
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2014	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	97	$	97	$	-	$	98	$	2	$	99	$	4
Home Equity Lines & Loans		-		-		-		339		-		339		-
Agricultural		27		37		-		30		-		32		-
Commercial		3,150		3,151		-		3,241		27		3,322		54
	$	3,274	$	3,285	$	-	$	3,708	$	29	$	3,792	$	58
With an allowance recorded:
Residential 1st Mortgages	$	442	$	527	$	89		427	$	1		509		2
Home Equity Lines & Loans		913		960		182		654		3		598		3
Agricultural		473		473		118		473		7		477		14
Commercial		1,613		1,657		807		1,620		-		1,627		-
Consumer & Other		45		49		45		47		-		48		1
	$	3,486	$	3,666	$	1,241	$	3,221	$	11	$	3,259	$	20
Total	$	6,760	$	6,951	$	1,241	$	6,929	$	40	$	7,051	$	78

			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 June 30, 2013				Six Months Ended June 30, 2013
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2013	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	2,973	$	2,993	$	-	$	1,540	$	2	$	869	$	4
Agricultural Real Estate		4,382		4,673		-		3,945		-		4,209		-
Residential 1st Mortgages		530		580		-		633		4		665		7
Home Equity Lines & Loans		374		397		-		312		1		417		2
Agricultural		457		503		-		1,105		-		1,474		-
Commercial		92		92		-		98		2		102		4
	$	8,808	$	9,238	$	-	$	7,633	$	9	$	7,736	$	17
With an allowance recorded:
Commercial Real Estate	$	7	$	6	$	6	$	4	$	-	$	2	$	-
Agricultural Real Estate		1,449		1,843		300		1,645		-		1,283		-
Home Equity Lines & Loans		243		289		243		198		-		186		-
Agricultural		1,043		1,068		596		1,516		8		1,757		16
Commercial		418		430		202		281		2		213		4
Consumer & Other		56		58		55		201		1		202		2
	$	3,216	$	3,694	$	1,402	$	3,845	$	11	$	3,643	$	22
Total	$	12,024	$	12,932	$	1,402	$	11,478	$	20	$	11,379	$	39

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 June 30, 2014, the Company allocated $1.1 million of specific reserves to $6.2 million of troubled debt restructured loans & leases, of which $4.2 million were performing. The Company had no commitments at June 30, 2014 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three and six month periods ending June 30, 2014, the terms of certain loans & leases were modified as troubled debt restructurings. The modification of the terms of such loans & leases 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 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 or leases by class modified as troubled debt restructured loans or leases during the three and six-month periods ended June 30, 2014 (in thousands):

	Three Months Ended June 30, 2014						Six Months Ended June 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	$	69	$	60		3	$	316	$	305
Home Equity Lines & Loans		2		47		42		3		79		74
Total		3	$	116	$	102		6	$	395	$	379

The TDRs described above had no impact on the allowance for credit losses but resulted in charge-offs of $14,000 and $17,000 for the three and six-month periods ended June 30, 2014

During the three and six-months ended June 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 with the previous 12 months that subsequently defaulted during the twelve months ended December 31, 2013.

At June 30, 2013, the Company allocated $433,000 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 June 30, 2013 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the three and six month periods ending June 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 or leases during the three and six month periods ended June 30, 2013 (in thousands):

	Three Months Ended June 30, 2013						Six Months Ended June 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		1		180		169		2		195		184
Commercial		-		-		-		2		292		292
Total		1	$	180	$	169		8	$	793	$	766

The TDRs described above increased the allowance for credit losses by $0 and $4,000 and resulted in charge-offs of $11,000 and $17,000 for the three and six-month periods ending June 30, 2013.

During the three and six-months ended June 30, 2013, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification.