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):

September 30, 2016	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, 2016	$	10,063		$	6,881		$	2,485		$	789		$	2,146		$	6,308		$	7,836		$	175		$	3,294	$	1,546	$	41,523
Charge-Offs		-			-			-			(7	)		(46	)		-			-			(77	)		-		-		(130	)
Recoveries		2			-			-			13			102			-			45			41			-		-		203
Provision		57			2,490			(27	)		34			(7	)		(86	)		(281	)		40			250		380		2,850
Ending Balance- September 30, 2016	$	10,122		$	9,371		$	2,458		$	829		$	2,195		$	6,222		$	7,600		$	179		$	3,544	$	1,926	$	44,446
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2016	$	10,236		$	9,501		$	2,442		$	837		$	2,149		$	6,223		$	7,849		$	170		$	3,442	$	1,269	$	44,118
Charge-Offs		-			-			-			-			-			-			-			(25	)		-		-		(25	)
Recoveries		-			-			-			4			69			-			16			14			-		-		103
Provision		(114	)		(130	)		16			(12	)		(23	)		(1	)		(265	)		20			102		657		250
Ending Balance- September 30, 2016	$	10,122		$	9,371		$	2,458		$	829		$	2,195		$	6,222		$	7,600		$	179		$	3,544	$	1,926	$	44,446
Ending Balance Individually Evaluated for Impairment		-			-			-			74			18			129			620			7			-		-		848
Ending Balance Collectively Evaluated for Impairment		10,122			9,371			2,458			755			2,177			6,093			6,980			172			3,544		1,926		43,598
Loans & Leases:
Ending Balance	$	627,114		$	439,972		$	175,045		$	238,376		$	32,513		$	274,704		$	214,086		$	6,975		$	70,885	$	-	$	2,079,670
Ending Balance Individually Evaluated for Impairment		4,324			513			-			2,173			409			640			4,509			11			-		-		12,579
Ending Balance Collectively Evaluated for Impairment	$	622,790		$	439,459		$	175,045		$	236,203		$	32,104		$	274,064		$	209,577		$	6,964		$	70,885	$	-	$	2,067,091

December 31, 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	)		(84	)		-		-			(96	)
Recoveries		2,939			-		2,225			8			87			4			136			69			-		-			5,468
Provision		(718	)		2,696		(1,409	)		(241	)		(367	)		200			(483	)		(28	)		1,083		17			750
Ending Balance- December 31, 2015	$	10,063		$	6,881	$	2,485		$	789		$	2,146		$	6,308		$	7,836		$	175		$	3,294	$	1,546		$	41,523
Ending Balance Individually Evaluated for Impairment		61			-		-			69			35			115			905			28			-		-			1,213
Ending Balance Collectively Evaluated for Impairment		10,002			6,881		2,485			720			2,111			6,193			6,931			147			3,294		1,546			40,310
Loans & Leases:
Ending Balance	$	603,650		$	424,034	$	151,974		$	206,405		$	33,056		$	293,966		$	210,804		$	6,592		$	65,878	$	-		$	1,996,359
Ending Balance Individually Evaluated for Impairment		3,420			-		-			2,010			1,214			606			4,760			34			-		-			12,044
Ending Balance Collectively Evaluated for Impairment		600,230			424,034		151,974			204,395			31,842			293,360			206,044			6,558			65,878		-			1,984,315

September 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	)		(55	)		-		-			(67	)
Recoveries		2,939			-		-			4			85			3			24			51			-		-			3,106
Provision		(1,536	)		3,295		719			(274	)		(356	)		(969	)		38			2			860		(1,129	)		650
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388		$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2015	$	8,591		$	7,272	$	2,177		$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Charge-Offs		-			-		-			-			-			-			-			(21	)		-		-			(21	)
Recoveries		-			-		-			3			37			1			20			13			-		-			74
Provision		654			208		211			18			45			91			(653	)		7			539		(1,120	)		-
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388		$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Ending Balance Individually Evaluated for Impairment		61			-		-			70			35			120			879			31			-		-			1,196
Ending Balance Collectively Evaluated for Impairment		9,184			7,480		2,388			682			2,120			5,018			7,366			185			3,071		400			37,894
Loans & Leases:
Ending Balance	$	558,743		$	432,610	$	161,762		$	196,893		$	31,833		$	249,783		$	210,491		$	6,735		$	61,420	$	-		$	1,910,270
Ending Balance Individually Evaluated for Impairment		4,120			-		4,307			2,036			1,264			630			4,797			37			-		-			17,191
Ending Balance Collectively Evaluated for Impairment	$	554,623		$	432,610	$	157,455		$	194,857		$	30,569		$	249,153		$	205,694		$	6,698		$	61,420	$	-		$	1,893,079

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $4.9 million at September 30, 2016, $4.9 million at December 31, 2015 and $9.3 million at September 30, 2015, 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):

September 30, 2016	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	618,975	$	7,141	$	998	$	627,114
Agricultural Real Estate		437,059		1,418		1,495		439,972
Real Estate Construction		173,556		1,489		-		175,045
Residential 1st Mortgages		237,254		404		718		238,376
Home Equity Lines & Loans		32,408		-		105		32,513
Agricultural		273,184		1,070		450		274,704
Commercial		204,119		7,105		2,862		214,086
Consumer & Other		6,816		-		159		6,975
Leases		70,885		-		-		70,885
Total	$	2,054,256	$	18,627	$	6,787	$	2,079,670

December 31, 2015	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	595,011	$	7,917	$	722	$	603,650
Agricultural Real Estate		424,034		-		-		424,034
Real Estate Construction		150,379		1,595		-		151,974
Residential 1st Mortgages		205,135		413		857		206,405
Home Equity Lines and Loans		32,419		75		562		33,056
Agricultural		293,325		9		632		293,966
Commercial		199,467		8,160		3,177		210,804
Consumer & Other		6,411		-		181		6,592
Leases		65,878		-		-		65,878
Total	$	1,972,059	$	18,169	$	6,131	$	1,996,359

September 30, 2015	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	550,011	$	8,038	$	694	$	558,743
Agricultural Real Estate		432,610		-		-		432,610
Real Estate Construction		160,133		1,629		-		161,762
Residential 1st Mortgages		195,477		733		683		196,893
Home Equity Lines & Loans		31,149		78		606		31,833
Agricultural		249,116		437		230		249,783
Commercial		197,193		9,752		3,546		210,491
Consumer & Other		6,461		-		274		6,735
Leases		61,420		-		-		61,420
Total	$	1,883,570	$	20,667	$	6,033	$	1,910,270

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 September 30, 2016, December 31, 2015, and September 30, 2015, 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):

September 30, 2016	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	$	-	$	-	$	-	$	998	$	998	$	626,116	$	627,114
Agricultural Real Estate		-		983		-		322		1,305		438,667		439,972
Real Estate Construction		-		-		-		-		-		175,045		175,045
Residential 1st Mortgages		-		-		-		55		55		238,321		238,376
Home Equity Lines & Loans		-		-		-		-		-		32,513		32,513
Agricultural		-		-		-		243		243		274,461		274,704
Commercial		-		-		-		1,450		1,450		212,636		214,086
Consumer & Other		5		-		-		7		12		6,963		6,975
Leases		-		-		-		-		-		70,885		70,885
Total	$	5	$	983	$	-	$	3,075	$	4,063	$	2,075,607	$	2,079,670

December 31, 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	$	705	$	-	$	-	$	19	$	724	$	602,926	$	603,650
Agricultural Real Estate		-		-		-		-		-		424,034		424,034
Real Estate Construction		-		-		-		-		-		151,974		151,974
Residential 1st Mortgages		97		194		-		65		356		206,049		206,405
Home Equity Lines and Loans		-		-		-		538		538		32,518		33,056
Agricultural		-		-		-		-		-		293,966		293,966
Commercial		-		-		-		1,524		1,524		209,280		210,804
Consumer & Other		7		-		-		10		17		6,575		6,592
Leases		-		-		-		-		-		65,878		65,878
Total	$	809	$	194	$	-	$	2,156	$	3,159	$	1,993,200	$	1,996,359

September 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	$	-	$	-	$	-	$	696	$	696	$	558,047	$	558,743
Agricultural Real Estate		-		-		-		-		-		432,610		432,610
Real Estate Construction		-		-		-		-		-		161,762		161,762
Residential 1st Mortgages		74		196		-		68		338		196,555		196,893
Home Equity Lines & Loans		150		-		-		576		726		31,107		31,833
Agricultural		-		-		-		8		8		249,775		249,783
Commercial		-		-		-		1,545		1,545		208,946		210,491
Consumer & Other		6		-		-		11		17		6,718		6,735
Leases		-		-		-		-		-		61,420		61,420
Total	$	230	$	196	$	-	$	2,904	$	3,330	$	1,906,940	$	1,910,270

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

							Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016
September 30, 2016	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	$	1,074	$	1,071	$	-	$	575	$	2	$	248	$	6
Agricultural Real Estate		322		322		-		404		-		270		3
Residential 1st Mortgages		414		466		-		417		3		411		7
Home Equity Lines & Loans		-		-		-		-		-		339		-
Agricultural		191		191		-		192		2		193		5
Commercial		3,042		3,043		-		3,053		33		3,073		100
Consumer & Other		-		-				1		-		1		-
	$	5,043	$	5,093	$	-	$	4,642	$	40	$	4,535	$	121
With an allowance recorded:
Residential 1st Mortgages	$	430	$	471	$	21	$	335	$	3	$	290	$	9
Home Equity Lines & Loans		92		98		5		93		1		142		3
Agricultural		640		640		137		644		6		529		18
Commercial		1,466		1,648		620		1,536		-		1,599		8
Consumer & Other		7		13		7		8		-		18		-
	$	2,635	$	2,870	$	790	$	2,616	$	10	$	2,578	$	38
Total	$	7,678	$	7,963	$	790	$	7,258	$	50	$	7,113	$	159

December 31, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	102	$	104	$	-	$	479	$	7
Residential 1st Mortgages		551		618		-		560		16
Home Equity Lines and Loans		581		646		-		620		3
Agricultural		193		193		-		105		3
Commercial		3,103		3,103		-		2,349		85
	$	4,530	$	4,664	$	-	$	4,113	$	114
With an allowance recorded:
Residential 1st Mortgages	$	348	$	420	$	17	$	354	$	16
Home Equity Lines and Loans		134		151		7		136		5
Agricultural		412		413		115		431		28
Commercial		1,657		1,798		905		2,456		31
Consumer & Other		34		40		29		39		3
	$	2,585	$	2,822	$	1,073	$	3,416	$	83
Total	$	7,115	$	7,486	$	1,073	$	7,529	$	197

							Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
September 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	$	821	$	821	$	-	$	812	$	2	$	468	$	6
Residential 1st Mortgages		557		623		-		561		4		471		12
Home Equity Lines & Loans		619		659		-		620		1		531		2
Agricultural		203		216		-		107		-		42		-
Commercial		3,118		3,118		-		3,122		26		1,578		54
	$	5,318	$	5,437	$	-	$	5,222	$	33	$	3,090	$	74
With an allowance recorded:
Residential 1st Mortgages	$	352	$	424	$	17	$	354	$	4	$	453		12
Home Equity Lines & Loans		135		153		7		136		2		273		4
Agricultural		427		427		120		435		7		443		21
Commercial		1,679		1,803		879		1,687		2		3,233		29
Consumer & Other		37		43		31		39		-		42		2
	$	2,630	$	2,850	$	1,054	$	2,651	$	15	$	4,444	$	68
Total	$	7,948	$	8,287	$	1,054	$	7,873	$	48	$	7,534	$	142

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 September 30, 2016, the Company allocated $758,000 of specific reserves to $6.1 million of troubled debt restructured loans & leases, of which $4.6 million were performing. The Company had no commitments at September 30, 2016 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three month period ending September 30, 2016, there was one loan modified as a troubled debt restructuring. During the nine month period ending September 30, 2016, 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 5 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 nine-month periods ended September 30, 2016 (in thousands):

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
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	$	192	$	192		2	$	289	$	281
Home Equity Lines & Loans		-		-		-		2		305		286
Total		1	$	192	$	192		4	$	594	$	567

The TDRs described above had no impact on the allowance for credit losses for the three and nine-month periods ending September 30, 2016, and resulted in charge-offs of $0 and $27,000 for the three and nine-month periods ended September 30, 2016.

During the three and nine-months ended September 30, 2016, 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, 2015, the Company allocated $1.1 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, 2015 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2015, 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, 2015 (in thousands):

	December 31, 2015
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Agricultural		1	$	194	$	194
Commercial		1		131		119
Total		2	$	325	$	313

The troubled debt restructurings described above increased the allowance for credit losses by $70,000 and resulted in charge-offs of $12,000 for the twelve months ended December 31, 2015.

During the period ended December 31, 2015, 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 September 30, 2015, the Company allocated $1.1 million of specific reserves to $6.6 million of troubled debt restructured loans & leases, of which $5.0 million were performing. The Company had no commitments at September 30, 2015 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three and nine month period ending September 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 from 5 to 10 years. Modifications involving an extension of the maturity date were from 5 to 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and nine-month periods ended September 30, 2015 (in thousands):

	Three Months Ended September 30, 2015						Nine Months Ended September 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
Agricultural		1	$	194	$	194		1	$	194	$	194
Commercial		-		-		-		1		131		119
Total		1	$	194	$	194		2	$	325	$	313

The TDRs described above increased the allowance for credit losses by $0 and $70,000 for the three and nine-month periods ending September 30, 2015, and resulted in charge-offs of $0 and $12,000 for the three and nine-month periods ended September 30, 2015.

During the three and nine-months ended September 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.