Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $750 thousand, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for the loans and leases in their respective portfolios on an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

As of June 30, 2018 and December 31, 2017, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
June 30, 2018
Originated loans:
Commercial real estate
Owner occupied	$	143,500	$	997	$	1,048	$	145,545
Non-owner occupied		224,495		389		116		225,000
Farmland		94,311		0		79		94,390
Other		71,823		0		263		72,086
Commercial
Commercial and industrial		202,410		3,503		3,029		208,942
Agricultural		32,238		166		544		32,948
Total originated loans	$	768,777	$	5,055	$	5,079	$	778,911
Acquired loans:
Commercial real estate
Owner occupied	$	48,666	$	451	$	721	$	49,838
Non-owner occupied		18,037		47		233		18,317
Farmland		38,772		1,918		2,294		42,984
Other		10,732		0		667		11,399
Commercial
Commercial and industrial		21,487		195		1,628		23,310
Agricultural		9,906		494		439		10,839
Total acquired loans	$	147,600	$	3,105	$	5,982	$	156,687
Total loans	$	916,377	$	8,160	$	11,061	$	935,598

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
December 31, 2017
Originated loans:
Commercial real estate
Owner occupied	$	137,913	$	442	$	1,571	$	139,926
Non-owner occupied		198,043		419		126		198,588
Farmland		70,354		44		45		70,443
Other		88,421		36		246		88,703
Commercial
Commercial and industrial		184,444		5,326		3,109		192,879
Agricultural		32,291		192		198		32,681
Total originated loans	$	711,466	$	6,459	$	5,295	$	723,220
Acquired loans:
Commercial real estate
Owner occupied	$	51,133	$	466	$	1,452	$	53,051
Non-owner occupied		19,823		63		372		20,258
Farmland		43,694		3,304		757		47,755
Other		11,299		567		110		11,976
Commercial
Commercial and industrial		25,286		2		1,806		27,094
Agricultural		11,200		554		453		12,207
Total acquired loans	$	162,435	$	4,956	$	4,950	$	172,341
Total loans	$	873,901	$	11,415	$	10,245	$	895,561

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential, consumer indirect and direct loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. In the 1-4 family residential real estate portfolio at June 30, 2018, there were no other real estate owned properties and $743 thousand of properties in foreclosure. Other real estate owned and foreclosure properties were $171 thousand and $336 thousand at December 31, 2017, respectively.

The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of June 30, 2018 and December 31, 2017. Nonperforming loans are loans past due 90 days or more and still accruing interest and nonaccrual loans.

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
June 30, 2018
Originated loans:
Performing	$	286,333	$	74,180	$	172,918	$	29,590	$	9,887
Nonperforming		3,415		797		441		183		14
Total originated loans	$	289,748	$	74,977	$	173,359	$	29,773	$	9,901
Acquired loans:
Performing	$	86,574	$	26,271	$	0	$	11,422	$	145
Nonperforming		993		264		0		166		0
Total acquired loans		87,567		26,535		0		11,588		145
Total loans	$	377,315	$	101,512	$	173,359	$	41,361	$	10,046

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
December 31, 2017
Originated loans:
Performing	$	268,785	$	70,927	$	160,030	$	28,490	$	8,862
Nonperforming		3,046		610		818		216		14
Total originated loans	$	271,831	$	71,537	$	160,848	$	28,706	$	8,876
Acquired loans:
Performing	$	96,079	$	28,585	$	0	$	14,223	$	128
Nonperforming		682		170		0		155		0
Total acquired loans		96,761		28,755		0		14,378		128
Total loans	$	368,592	$	100,292	$	160,848	$	43,084	$	9,004