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, 2017	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, 2017	$	11,110		$	9,450	$	3,223		$	865	$	2,140	$	7,381		$	8,515		$	200		$	3,586		$	1,449	$	47,919
Charge-Offs		(109	)		-		-			-		-		(7	)		-			(114	)		-			-		(230	)
Recoveries		110			-		-			37		6		-			6			46			-			-		205
Provision		(14	)		1,946		(473	)		95		115		(14	)		539			77			(392	)		971		2,850
Ending Balance- September 30, 2017	$	11,097		$	11,396	$	2,750		$	997	$	2,261	$	7,360		$	9,060		$	209		$	3,194		$	2,420	$	50,744
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2017	$	11,242		$	10,265	$	2,687		$	872	$	2,170	$	7,236		$	9,544		$	205		$	2,952		$	1,891	$	49,064
Charge-Offs		-			-		-			-		-		-			-			(54	)		-			-		(54	)
Recoveries		99			-		-			18		1		-			2			14			-			-		134
Provision		(244	)		1,131		63			107		90		124			(486	)		44			242			529		1,600
Ending Balance- September 30, 2017	$	11,097		$	11,396	$	2,750		$	997	$	2,261	$	7,360		$	9,060		$	209		$	3,194		$	2,420	$	50,744
Ending Balance Individually Evaluated for Impairment		385			-		-			61		17		69			231			5			-			-		768
Ending Balance Collectively Evaluated for Impairment		10,712			11,396		2,750			936		2,244		7,291			8,829			204			3,194			2,420		49,976
Loans & Leases:
Ending Balance	$	683,037		$	470,738	$	162,167		$	257,920	$	33,350	$	259,127		$	257,951		$	7,312		$	85,177		$	-	$	2,216,779
Ending Balance Individually Evaluated for Impairment		4,855			-		-			1,887		369		368			1,752			7			-			-		9,238
Ending Balance Collectively Evaluated for Impairment	$	678,182		$	470,738	$	162,167		$	256,033	$	32,981	$	258,759		$	256,199		$	7,305		$	85,177		$	-	$	2,207,541

December 31, 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		-		-		-		(21	)		(46	)		-		-		(105	)		-		-			(172	)
Recoveries		2		-		-		26			103			-		47		55			-		-			233
Provision		1,045		2,569		738		71			(63	)		1,073		632		75			292		(97	)		6,335
Ending Balance- December 31, 2016	$	11,110	$	9,450	$	3,223	$	865		$	2,140		$	7,381	$	8,515	$	200		$	3,586	$	1,449		$	47,919
Ending Balance Individually Evaluated for Impairment		-		-		-		70			18			128		608		7			-		-			831
Ending Balance Collectively Evaluated for Impairment		11,110		9,450		3,223		795			2,122			7,253		7,907		193			3,586		1,449			47,088
Loans & Leases:
Ending Balance	$	668,046	$	467,685	$	176,462	$	242,247		$	31,625		$	295,325	$	217,577	$	6,913		$	71,721	$	-		$	2,177,601
Ending Balance Individually Evaluated for Impairment		1,932		1,304		-		2,126			402			625		4,464		10			-		-			10,863
Ending Balance Collectively Evaluated for Impairment	$	666,114	$	466,381	$	176,462	$	240,121		$	31,223		$	294,700	$	213,113	$	6,903		$	71,721	$	-		$	2,166,738

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

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $3.0 million at September 30, 2017, $3.3 million at December 31, 2016 and $4.9 million at September 30, 2016, which are no longer classified as TDRs.

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

September 30, 2017	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	678,083	$	4,458	$	496	$	683,037
Agricultural Real Estate		465,427		1,281		4,030		470,738
Real Estate Construction		152,989		9,178		-		162,167
Residential 1st Mortgages		256,906		43		971		257,920
Home Equity Lines & Loans		33,297		-		53		33,350
Agricultural		250,372		5,331		3,424		259,127
Commercial		253,144		4,184		623		257,951
Consumer & Other		7,142		-		170		7,312
Leases		82,889		2,288		-		85,177
Total	$	2,180,249	$	26,763	$	9,767	$	2,216,779

December 31, 2016	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	659,694	$	6,817	$	1,535	$	668,046
Agricultural Real Estate		464,997		1,384		1,304		467,685
Real Estate Construction		176,462		-		-		176,462
Residential 1st Mortgages		241,816		47		384		242,247
Home Equity Lines and Loans		31,558		-		67		31,625
Agricultural		283,525		11,366		434		295,325
Commercial		208,172		6,974		2,431		217,577
Consumer & Other		6,705		-		208		6,913
Leases		71,721		-		-		71,721
Total	$	2,144,650	$	26,588	$	6,363	$	2,177,601

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

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, 2017, December 31, 2016, and September 30, 2016, 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, 2017	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	$	-	$	-	$	-	$	-	$	-	$	683,037	$	683,037
Agricultural Real Estate		-		-		-		-		-		470,738		470,738
Real Estate Construction		-		-		-		-		-		162,167		162,167
Residential 1st Mortgages		-		-		-		-		-		257,920		257,920
Home Equity Lines & Loans		-		-		-		-		-		33,350		33,350
Agricultural		-		-		-		-		-		259,127		259,127
Commercial		-		3		-		-		3		257,948		257,951
Consumer & Other		16		-		-		4		20		7,292		7,312
Leases		-		-		-		-		-		85,177		85,177
Total	$	16	$	3	$	-	$	4	$	23	$	2,216,756	$	2,216,779

December 31, 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	$	-	$	-	$	-	$	-	$	-	$	668,046	$	668,046
Agricultural Real Estate		-		-		-		1,304		1,304		466,381		467,685
Real Estate Construction		-		-		-		-		-		176,462		176,462
Residential 1st Mortgages		-		-		-		95		95		242,152		242,247
Home Equity Lines and Loans		-		-		-		-		-		31,625		31,625
Agricultural		-		-		-		243		243		295,082		295,325
Commercial		-		-		-		1,425		1,425		216,152		217,577
Consumer & Other		10		-		-		7		17		6,896		6,913
Leases		-		-		-		-		-		71,721		71,721
Total	$	10	$	-	$	-	$	3,074	$	3,084	$	2,174,517	$	2,177,601

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

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

							Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
September 30, 2017	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	$	106	$	107	$	-	$	107	$	2	$	121	$	9
Agricultural Real Estate		-		-		-		488		-		868		-
Residential 1st Mortgages		399		456		-		403		3		415		6
Home Equity Lines & Loans		-		-		-		-		-		21		-
Agricultural		-		-		-		30		-		40		-
Commercial		-		-		-		-		-		504		-
	$	505	$	563	$	-	$	1,028	$	5	$	1,969	$	15
With an allowance recorded:
Commercial Real Estate	$	2,991	$	2,977	$	384	$	3,000	$	25		2,509	$	80
Residential 1st Mortgages		519		574		26		472		3		442		12
Home Equity Lines & Loans		83		90		4		67		-		76		2
Agricultural		367		367		69		499		7		588		21
Commercial		1,760		1,752		234		1,696		14		1,624		44
Consumer & Other		4		11		4		14		-		12		-
	$	5,724	$	5,771	$	721	$	5,748	$	49		5,251	$	159
Total	$	6,229	$	6,334	$	721	$	6,776	$	54	$	7,220	$	174

December 31, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	184	$	184	$	-	$	354	$	7
Residential 1st Mortgages		451		504		-		404		10
Home Equity Lines and Loans		-		-		-		181		-
Agricultural		-		-		-		144		5
Commercial		3,023		3,023		-		3,053		133
	$	4,963	$	5,016	$	-	$	4,705	$	158
With an allowance recorded:
Residential 1st Mortgages	$	430	$	469	$	21	$	336	$	13
Home Equity Lines and Loans		90		97		5		123		4
Agricultural		625		625		128		581		22
Commercial		1,441		1,640		608		1,536		8
Consumer & Other		6		13		6		12		-
	$	2,592	$	2,844	$	768	$	2,588	$	47
Total	$	7,555	$	7,860	$	768	$	7,293	$	205

							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

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 classified as TDRs.

At September 30, 2017, the Company allocated $721,000 of specific reserves to $6.2 million of troubled debt restructured loans & leases, all of which were performing. The Company had no commitments at September 30, 2017 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three and nine-month periods ending September 30, 2017, there were four loans & leases modified as a troubled debt restructuring. When a loan is restructured, the modification of the terms 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 ranged from 7 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, 2017 (in thousands):

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
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	$	112	$	112		1	$	112	$	112
Home Equity Lines & Loans		1		32		32		1		32		32
Commercial		2		138		138		2		138		138
Total		4	$	282	$	282		4	$	282	$	282

The TDRs described above increased the allowance for credit losses by $13,000 for the three and nine-month periods ending September 30, 2017.

During the three and nine-months ended September 30, 2017, the twelve months ended December 31, 2016, and the three and nine-month periods ending 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.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2016 (in thousands):

	December 31, 2016
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Real Estate		1	$	112	$	112
Residential 1st Mortgages		2		289		281
Home Equity Lines and Loans		2		305		286
Total		5	$	706	$	679

The troubled debt restructurings described above had no impact on the allowance for credit losses and resulted in charge-offs of $27,000 for the twelve months ended December 31, 2016.

At December 31, 2016, the Company allocated $736,000 of specific reserves to $5.9 million of troubled debt restructured loans, of which $4.5 million were performing. The Company had no commitments at December 31, 2016, to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2016, the terms of certain loans were modified as troubled debt restructurings. Modifications involving a reduction of the stated interest rate of the loan 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.

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.