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 September 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
September 30, 2018
Originated loans:
Commercial real estate
Owner occupied	$	150,728	$	971	$	1,015	$	152,714
Non-owner occupied		239,817		377		110		240,304
Farmland		94,808		0		74		94,882
Other		91,417		0		256		91,673
Commercial
Commercial and industrial		206,823		3,464		2,879		213,166
Agricultural		33,361		13		672		34,046
Total originated loans	$	816,954	$	4,825	$	5,006	$	826,785
Acquired loans:
Commercial real estate
Owner occupied	$	46,279	$	443	$	778	$	47,500
Non-owner occupied		17,832		60		229		18,121
Farmland		38,041		449		3,766		42,256
Other		10,060		0		662		10,722
Commercial
Commercial and industrial		17,910		195		1,529		19,634
Agricultural		9,905		346		597		10,848
Total acquired loans	$	140,027	$	1,493	$	7,561	$	149,081
Total loans	$	956,981	$	6,318	$	12,567	$	975,866

(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 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 September 30, 2018, there were no other real estate owned properties and $940 thousand of properties in foreclosure. Other real estate owned and foreclosure properties were $171 thousand and $336 thousand at December 31, 2017.

The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of September 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
September 30, 2018
Originated loans:
Performing	$	298,725	$	77,312	$	173,542	$	30,678	$	10,871
Nonperforming		3,889		793		572		170		3
Total originated loans	$	302,614	$	78,105	$	174,114	$	30,848	$	10,874
Acquired loans:
Performing	$	82,164	$	24,866	$	0	$	10,326	$	157
Nonperforming		1,102		299		0		197		0
Total acquired loans		83,266		25,165		0		10,523		157
Total loans	$	385,880	$	103,270	$	174,114	$	41,371	$	11,031

	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