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, 2015	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, 2015	$	7,842		$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Charge-Offs		-			-		-		-			-			-			(12	)		(34	)		-		-			(46	)
Recoveries		2,939			-		-		2			47			3			4			37			-		-			3,032
Provision		(2,190	)		3,087		508		(293	)		(400	)		(1,061	)		691			(4	)		321		(9	)		650
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2015	$	7,954		$	6,901	$	1,916	$	673		$	2,096		$	4,602		$	8,941		$	212		$	2,499	$	3,146		$	38,940
Charge-Offs		-			-		-		-			-			-			-			(17	)		-		-			(17	)
Recoveries		1			-		-		2			42			2			2			15			-		-			64
Provision		636			371		261		56			(65	)		442			(65	)		7			33		(1,626	)		50
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Ending Balance Individually Evaluated for Impairment		61			-		-		71			49			129			887			34			-		-			1,231
Ending Balance Collectively Evaluated for Impairment		8,530			7,272		2,177		660			2,024			4,917			7,991			183			2,532		1,520			37,806
Loans & Leases:
Ending Balance	$	570,173		$	373,324	$	116,983	$	189,039		$	31,327		$	225,795		$	256,386		$	4,984		$	50,631	$	-		$	1,818,642
Ending Balance Individually Evaluated for Impairment		4,163			-		4,335		2,055			1,541			454			4,819			40			-		-			17,407
Ending Balance Collectively Evaluated for Impairment	$	566,010		$	373,324	$	112,648	$	186,984		$	29,786		$	225,341		$	251,567		$	4,944		$	50,631	$	-		$	1,801,235

December 31, 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		-		-		-		(73	)		(70	)		-			(1	)		(132	)		-		-			(276	)
Recoveries		11		-		-		-			58			8			86			65			-		-			228
Provision		2,653		609		1,015		(13	)		(329	)		(6,109	)		2,413			109			1,572		(745	)		1,175
Ending Balance- December 31, 2014	$	7,842	$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Ending Balance Individually Evaluated for Impairment		377		-		-		422			329			114			914			41			-		-			2,197
Ending Balance Collectively Evaluated for Impairment		7,465		4,185		1,669		600			2,097			5,990			7,281			177			2,211		1,529			33,204
Loans & Leases:
Ending Balance	$	491,903	$	357,207	$	96,519	$	171,880		$	33,017		$	281,963		$	230,819		$	4,719		$	44,217	$	-		$	1,712,244
Ending Balance Individually Evaluated for Impairment		20,066		-		4,386		2,108			1,643			461			4,874			46			-		-			33,584
Ending Balance Collectively Evaluated for Impairment	$	471,837	$	357,207	$	92,133	$	169,772		$	31,374		$	281,502		$	225,945		$	4,673		$	44,217	$	-		$	1,678,660

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

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $9.6 million at June 30, 2015, $26.4 million at December 31, 2014 and $28.1 million at June 30, 2014, 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, 2015	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	561,370	$	8,088	$	715	$	570,173
Agricultural Real Estate		373,324		-		-		373,324
Real Estate Construction		115,320		1,663		-		116,983
Residential 1st Mortgages		187,663		739		637		189,039
Home Equity Lines & Loans		30,637		80		610		31,327
Agricultural		225,075		453		267		225,795
Commercial		240,190		12,680		3,516		256,386
Consumer & Other		4,737		-		247		4,984
Leases		50,631						50,631
Total	$	1,788,947	$	23,703	$	5,992	$	1,818,642

December 31, 2014	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	483,146	$	8,651	$	106	$	491,903
Agricultural Real Estate		357,207		-		-		357,207
Real Estate Construction		94,887		1,632		-		96,519
Residential 1st Mortgages		170,462		744		674		171,880
Home Equity Lines and Loans		32,054		85		878		33,017
Agricultural		281,232		679		52		281,963
Commercial		211,036		18,143		1,640		230,819
Consumer & Other		4,449		-		270		4,719
Leases		44,217		-		-		44,217
Total	$	1,678,690	$	29,934	$	3,620	$	1,712,244

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

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, 2015, December 31, 2014, and June 30, 2014, 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):

June 30, 2015	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	$	-	$	-	$	-	$	715	$	715	$	569,458	$	570,173
Agricultural Real Estate		-		-		-		-		-		373,324		373,324
Real Estate Construction		-		-		-		-		-		116,983		116,983
Residential 1st Mortgages		-		196		-		72		268		188,771		189,039
Home Equity Lines & Loans		-		-		-		576		576		30,751		31,327
Agricultural		-		-		-		11		11		225,784		225,795
Commercial		-		-		-		1,559		1,559		254,827		256,386
Consumer & Other		8		-		-		11		19		4,965		4,984
Leases		-		-		-		-		-		50,631		50,631
Total	$	8	$	196	$	-	$	2,944	$	3,148	$	1,815,494	$	1,818,642

December 31, 2014	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	$	-	$	-	$	-	$	-	$	-	$	491,903	$	491,903
Agricultural Real Estate		-		-		-		-		-		357,207		357,207
Real Estate Construction		-		-		-		-		-		96,519		96,519
Residential 1st Mortgages		-		-		-		77		77		171,803		171,880
Home Equity Lines and Loans		79		-		-		576		655		32,362		33,017
Agricultural		-		-		-		18		18		281,945		281,963
Commercial		-		-		-		1,586		1,586		229,233		230,819
Consumer & Other		10		-		-		13		23		4,696		4,719
Leases		-		-		-		-		-		44,217		44,217
Total	$	89	$	-	$	-	$	2,270	$	2,359	$	1,709,885	$	1,712,244

June 30, 2014	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	$	-	$	-	$	-	$	-	$	-	$	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

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

							Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
June 30, 2015	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	$	802	$	802	$	-	$	497	$	2	$	297	$	4
Residential 1st Mortgages		564		628		-		567		4		426		8
Home Equity Lines & Loans		620		660		-		641		-		486		1
Agricultural		11		24		-		13		-		10		-
Commercial		3,125		3,125		-		1,587		27		806		28
	$	5,122	$	5,239	$	-	$	3,305	$	33	$	2,025	$	41
With an allowance recorded:
Residential 1st Mortgages	$	355	$	426	$	18		357	$	4		503		8
Home Equity Lines & Loans		137		155		7		138		1		342		2
Agricultural		443		443		129		443		7		448		14
Commercial		1,694		1,804		887		3,244		2		4,006		27
Consumer & Other		40		46		34		42		1		44		2
	$	2,669	$	2,874	$	1,075	$	4,224	$	15	$	5,343	$	53
Total	$	7,791	$	8,113	$	1,075	$	7,529	$	48	$	7,368	$	94

December 31, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	-	$	-	$	-	$	49	$	4
Home Equity Lines and Loans		-		-		-		169		-
Agricultural		-		-		-		15		-
Commercial		-		-		-		1,620		54
	$	-	$	-	$	-	$	1,853	$	58
With an allowance recorded:
Commercial Real Estate	$	92	$	92	$	2	$	47	$	4
Residential 1st Mortgages		937		1,069		187		612		9
Home Equity Lines and Loans		951		1,020		190		803		10
Agricultural		461		473		114		473		28
Commercial		4,742		4,813		910		3,182		54
Consumer & Other		46		51		41		46		2
	$	7,229	$	7,518	$	1,444	$	5,163	$	107
Total	$	7,229	$	7,518	$	1,444	$	7,016	$	165

							Three Months Ended June 30, 2014				Six Months Ended June 30, 2014
June 30, 2014	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	$	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

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, 2015, the Company allocated $1.1 million of specific reserves to $6.5 million of troubled debt restructured loans & leases, of which $4.8 million were performing. The Company had no commitments at June 30, 2015 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three month period ending June 30, 2015, there were no loans & leases modified as a troubled debt restructuring. During the six month period ending June 30, 2015, 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 10 years. Modifications involving an extension of the maturity date were for 10 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, 2015 (in thousands):

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
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		-	$	-	$	-		1	$	131	$	119
Total		-	$	-	$	-		1	$	131	$	119

The TDR described above increased the allowance for credit losses by $0 and $114,000 for the three and six-month periods ending June 30, 2015, and resulted in charge-offs of $0 and $12,000 for the three and six-month periods ended June 30, 2015.

During the three and six-months ended June 30, 2015, 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, 2014, the Company allocated $1.3 million of specific reserves to $6.6 million of troubled debt restructured loans, of which $5.0 million were performing. The Company had no commitments at December 31, 2014 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2014, 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 4 to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 30 years.

The following table presents loans or leases by class modified as TDRs for the period ended December 31, 2014 (in thousands):

	December 31, 2014
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		5	$	857	$	804
Home Equity Lines and Loans		3		98		89
Agricultural		1		32		32
Commercial		1		18		18
Consumer & Other		1		7		7
Total		11	$	1,012	$	950

The troubled debt restructurings described above increased the allowance for credit losses by $28,000 and resulted in charge-offs of $63,000 for the twelve months ended December 31, 2014.

During the period ended December 31, 2014, 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 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.