LOANS

Loan portfolio segments are defined as the level at which an entity develops and documents a systematic methodology to determine its allowance. The Corporation has two loan portfolio segments (commercial loans and consumer loans) that it uses in determining the allowance. Both quantitative and qualitative factors are used by management at the loan portfolio segment level in determining the adequacy of the allowance for the Corporation. Classes of loans are a disaggregation of an entity's loan portfolio segments. Classes of loans are defined as a group of loans that share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. The Corporation has seven classes of loans, which are set forth below.

Commercial — Loans and lines of credit to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital, operational needs and term financing of equipment. Repayment of such loans is generally provided through operating cash flows of the business. Commercial loans are predominately secured by equipment, inventory, accounts receivable, personal guarantees of the owner and other sources of repayment, although the Corporation may also secure commercial loans with real estate.

Commercial real estate — Loans secured by real estate occupied by the borrower for ongoing operations, non-owner occupied real estate leased to one or more tenants and vacant land that has been acquired for investment or future land development.

Real estate construction — Secured loans for the construction of business properties. Real estate construction loans often convert to a commercial real estate loan at the completion of the construction period.

Land development — Secured development loans made to borrowers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots/land. Most land development loans are originated with the intention that the loans will be paid through the sale of developed lots/land by the developers within twelve months of the completion date. Land development loans at December 31, 2012 and 2011 were primarily comprised of loans to develop residential properties.

Residential mortgage — Loans secured by one- to four-family residential properties, generally with fixed interest rates for periods of fifteen years or less. The loan-to-value ratio at the time of origination is generally 80% or less. Residential mortgage loans with a loan-to-value ratio of more than 80% generally require private mortgage insurance.

Consumer installment — Loans to consumers primarily for the purpose of acquiring automobiles, recreational vehicles and boats. These loans consist of relatively small amounts that are spread across many individual borrowers.

Home equity — Loans and lines of credit whereby consumers utilize equity in their personal residence, generally through a second mortgage, as collateral to secure the loan.

Commercial, commercial real estate, real estate construction and land development loans are referred to as the Corporation's commercial loan portfolio, while residential mortgage, consumer installment and home equity loans are referred to as the Corporation's consumer loan portfolio. A summary of loans follows:



	December 31,
	2012		2011
	(In thousands)
Commercial loan portfolio:
Commercial	$	1,002,722	$	895,150
Commercial real estate	1,161,861		1,071,999
Real estate construction	62,689		73,355
Land development	37,548		44,821
Subtotal	2,264,820		2,085,325
Consumer loan portfolio:
Residential mortgage	883,835		861,716
Consumer installment	546,036		484,058
Home equity	473,044		400,186
Subtotal	1,902,915		1,745,960
Total loans	$	4,167,735	$	3,831,285

Chemical Bank has extended loans to its directors, executive officers and their affiliates. These loans were made in the ordinary course of business upon normal terms, including collateralization and interest rates prevailing at the time, and did not involve more than the normal risk of repayment by the borrower. The aggregate loans outstanding to the directors, executive officers and their affiliates totaled approximately $16.0 million at December 31, 2012 and $16.2 million at December 31, 2011. During 2012 and 2011, there were $47.6 million and $35.1 million, respectively, of new loans and other additions, while repayments and other reductions totaled $47.8 million and $33.5 million, respectively.

Loans held-for-sale, comprised of fixed-rate residential mortgage loans, were $17.7 million at December 31, 2012 and $18.8 million at December 31, 2011. The Corporation sold residential mortgage loans totaling $305 million in 2012 and $219 million in 2011.

Credit Quality Monitoring

The Corporation maintains loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally only within the Corporation's market areas. The Corporation's lending markets generally consist of communities across the lower peninsula of Michigan, except for the southeastern portion of Michigan. The Corporation has no foreign loans.

The Corporation has a commercial loan portfolio approval process involving underwriting and individual and group loan approval authorities to consider credit quality and loss exposure at loan origination. The loans in the Corporation's commercial loan portfolio are risk rated at origination based on the grading system set forth below. The approval authority of relationship managers is established based on experience levels, with credit decisions greater than $1.0 million requiring group loan authority approval, except for four executive and senior officers who have varying limits exceeding $1.5 million and up to $3.5 million. With respect to the group loan authorities, the Corporation has a loan committee, consisting of certain executive and senior officers, that meets weekly to consider loans ranging in amounts from $1.0 million to $5.0 million, depending on risk rating and credit action required. A directors' loan committee, consisting of ten members of the board of directors, including the chief executive officer and senior credit officer, meets bi-weekly to consider loans in amounts over $5.0 million, and certain loans under $5.0 million depending on a loan's risk rating and credit action required. Loans over $10.0 million require the approval of the board of directors.

The majority of the Corporation's consumer loan portfolio is comprised of secured loans that are relatively small. The Corporation's consumer loan portfolio has a centralized approval process which utilizes standardized underwriting criteria. The ongoing measurement of credit quality of the consumer loan portfolio is largely done on an exception basis. If payments are made on schedule, as agreed, then no further monitoring is performed. However, if delinquency occurs, the delinquent loans are turned over to the Corporation's collection department for resolution, resulting in repossession or foreclosure if payments are not brought current. Credit quality for the entire consumer loan portfolio is measured by the periodic delinquency rate, nonaccrual amounts and actual losses incurred.

Loans in the commercial loan portfolio tend to be larger and more complex than those in the consumer loan portfolio, and therefore, are subject to more intensive monitoring. All loans in the commercial loan portfolio have an assigned relationship manager, and most borrowers provide periodic financial and operating information that allows the relationship managers to stay abreast of credit quality during the life of the loans. The risk ratings of loans in the commercial loan portfolio are reassessed at least annually, with loans below an acceptable risk rating reassessed more frequently and reviewed by various loan committees within the Corporation at least quarterly.

The Corporation maintains a centralized independent loan review function that monitors the approval process and ongoing asset quality of the loan portfolio, including the accuracy of loan grades. The Corporation also maintains an independent appraisal review function that participates in the review of all appraisals obtained by the Corporation for loans in the commercial loan portfolio.

Credit Quality Indicators

Commercial Loan Portfolio

The Corporation uses a nine grade risk rating system to monitor the ongoing credit quality of its commercial loan portfolio. These loan grades rank the credit quality of a borrower by measuring liquidity, debt capacity, coverage and payment behavior as shown in the borrower's financial statements. The loan grades also measure the quality of the borrower's management and the repayment support offered by any guarantors. A summary of the Corporation's loan grades (or, characteristics of the loans within each grade) follows:

Risk Grades 1-5 (Acceptable Credit Quality) — All loans in risk grades 1 through 5 are considered to be acceptable credit risks by the Corporation and are grouped for purposes of allowance for loan loss considerations and financial reporting. The five grades essentially represent a ranking of loans that are all viewed to be of acceptable credit quality, taking into consideration the various factors mentioned above, but with varying degrees of financial strength, debt coverage, management and factors that could impact credit quality. Business credits within risk grades 1 through 5 range from Risk Grade 1: Prime Quality (factors include: excellent business credit; excellent debt capacity and coverage; outstanding management; strong guarantors; superior liquidity and net worth; favorable loan-to-value ratios; debt secured by cash or equivalents, or backed by the full faith and credit of the U.S. Government) to Risk Grade 5: Acceptable Quality With Care (factors include: acceptable business credit, but with added risk due to specific industry or internal situations).

Risk Grade 6 (Watch) — A business credit that is not acceptable within the Corporation's loan origination criteria; cash flow may not be adequate or is continually inconsistent to service current debt; financial condition has deteriorated as company trends/management have become inconsistent; the company is slow in furnishing quality financial information; working capital needs of the company are reliant on short-term borrowings; personal guarantees are weak and/or with little or no liquidity; the net worth of the company has deteriorated after recent or continued losses; the loan requires constant monitoring and attention from the Corporation; payment delinquencies becoming more serious; if left uncorrected, these potential weaknesses may, at some future date, result in deterioration of repayment prospects.

Risk Grade 7 (Substandard — Accrual) — A business credit that is inadequately protected by the current financial net worth and paying capacity of the obligor or of the collateral pledged, if any; management has deteriorated or has become non-existent; quality financial information is unattainable; a high level of maintenance is required by the Corporation; cash flow can no longer support debt requirements; loan payments are continually and/or severely delinquent; negative net worth; personal guaranty has become insignificant; a credit that has a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. The Corporation still expects a full recovery of all contractual principal and interest payments; however, a possibility exists that the Corporation will sustain some loss if deficiencies are not corrected.

Risk Grade 8 (Substandard — Nonaccrual) — A business credit accounted for on a nonaccrual basis that has all the weaknesses inherent in a loan classified as risk grade 7 with the added characteristic that the weaknesses are so pronounced that, on the basis of current financial information, conditions and values, collection in full is highly questionable; a partial loss is possible and interest is no longer being accrued. This loan meets the definition of an impaired loan. The risk of loss requires analysis to determine whether a valuation allowance needs to be established.

Risk Grade 9 (Substandard — Doubtful) — A business credit that has all the weaknesses inherent in a loan classified as risk grade 8 and interest is no longer being accrued, but additional deficiencies make it highly probable that liquidation will not satisfy the majority of the obligation; the primary source of repayment is nonexistent and there is doubt as to the value of the secondary source of repayment; the possibility of loss is likely, but current pending factors could strengthen the credit. This loan meets the definition of an impaired loan. A loan charge-off is recorded when management deems an amount uncollectible; however, the Corporation will establish a valuation allowance for probable losses, if required.

The Corporation considers all loans graded 1 through 5 as acceptable credit risks and structures and manages such relationships accordingly. Periodic financial and operating data combined with regular loan officer interactions are deemed adequate to monitor borrower performance. Loans graded 6 and 7 are considered higher-risk credits than loans graded 1 through 5 and the frequency of loan officer contact and receipt of financial data is increased to stay abreast of borrower performance. Loans graded 8 and 9 are considered problematic and require special care. Further, loans graded 6 through 9 are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive and senior management of the Corporation, and include highly structured reporting of financial and operating data, intensive loan officer intervention and strategies to exit, as well as potential management by the Corporation's special assets group.

The following schedule presents the recorded investment of loans in the commercial loan portfolio by risk rating categories at December 31, 2012 and 2011:



	Commercial		Commercial Real Estate		Real Estate Construction		Land Development		Total
	(In thousands)
December 31, 2012
Originated Portfolio:
Risk Grades 1-5	$	827,112	$	846,901	$	47,847	$	15,010	$	1,736,870
Risk Grade 6	38,066		45,261		59		497		83,883
Risk Grade 7	16,831		26,343		—		6,367		49,541
Risk Grade 8	12,540		33,345		1,217		4,184		51,286
Risk Grade 9	2,061		4,315		—		—		6,376
Subtotal	896,610		956,165		49,123		26,058		1,927,956
Acquired Portfolio:
Risk Grades 1-5	93,281		188,499		13,566		8,419		303,765
Risk Grade 6	8,225		5,900		—		237		14,362
Risk Grade 7	2,169		9,677		—		—		11,846
Risk Grade 8	2,437		1,620		—		2,834		6,891
Risk Grade 9	—		—		—		—		—
Subtotal	106,112		205,696		13,566		11,490		336,864
Total	$	1,002,722	$	1,161,861	$	62,689	$	37,548	$	2,264,820
December 31, 2011
Originated Portfolio:
Risk Grades 1-5	$	706,040	$	692,193	$	54,029	$	14,791	$	1,467,053
Risk Grade 6	20,531		29,788		287		6,874		57,480
Risk Grade 7	26,238		48,648		—		2,400		77,286
Risk Grade 8	9,828		40,130		—		4,593		54,551
Risk Grade 9	898		4,308		—		1,597		6,803
Subtotal	763,535		815,067		54,316		30,255		1,663,173
Acquired Portfolio:
Risk Grades 1-5	111,846		231,669		18,883		8,358		370,756
Risk Grade 6	9,990		14,346		—		1,277		25,613
Risk Grade 7	3,101		8,556		—		596		12,253
Risk Grade 8	6,678		2,361		156		4,335		13,530
Risk Grade 9	—		—		—		—		—
Subtotal	131,615		256,932		19,039		14,566		422,152
Total	$	895,150	$	1,071,999	$	73,355	$	44,821	$	2,085,325

Consumer Loan Portfolio

The Corporation evaluates the credit quality of loans in the consumer loan portfolio based on the performing or nonperforming status of the loan. Loans in the consumer loan portfolio that are performing in accordance with original contractual terms and are less than 90 days past due and accruing interest are considered to be in a performing status, while those that are not performing in accordance with original contractual terms and are 90 days or more past due are considered to be in a nonperforming status. Loans in the consumer loan portfolio that are reported as TDRs are considered in a nonperforming status until they meet the Corporation's definition of a performing TDR, at which time they are considered in a performing status.

The following schedule presents the recorded investment of loans in the consumer loan portfolio based on loans in a performing status and loans in a nonperforming status at December 31, 2012 and 2011:



	Residential Mortgage		Consumer Installment		Home Equity		Total
	(In thousands)
December 31, 2012
Originated Loans:
Performing	$	854,882	$	543,339	$	429,734	$	1,827,955
Nonperforming	14,988		739		3,502		19,229
Subtotal	869,870		544,078		433,236		1,847,184
Acquired Loans:
Performing	13,843		1,958		39,637		55,438
Nonperforming	122		—		171		293
Subtotal	13,965		1,958		39,808		55,731
Total	$	883,835	$	546,036	$	473,044	$	1,902,915
December 31, 2011
Originated Loans:
Performing	$	818,044	$	479,237	$	349,850	$	1,647,131
Nonperforming	22,708		1,707		3,783		28,198
Subtotal	840,752		480,944		353,633		1,675,329
Acquired Loans:
Performing	19,387		3,114		46,091		68,592
Nonperforming	1,577		—		462		2,039
Subtotal	20,964		3,114		46,553		70,631
Total	$	861,716	$	484,058	$	400,186	$	1,745,960

Nonperforming Loans

A summary of nonperforming loans follows:



	December 31,
	2012		2011
	(In thousands)
Nonaccrual loans:
Commercial	$	14,601	$	10,726
Commercial real estate	37,660		44,438
Real estate construction and land development	5,401		6,190
Residential mortgage	10,164		12,573
Consumer installment and home equity	3,472		4,467
Total nonaccrual loans	71,298		78,394
Accruing loans contractually past due 90 days or more as to interest or principal payments:
Commercial	—		1,381
Commercial real estate	87		374
Real estate construction and land development	—		287
Residential mortgage	1,503		752
Consumer installment and home equity	769		1,023
Total accruing loans contractually past due 90 days or more as to interest or principal payments	2,359		3,817
Nonperforming TDRs:
Commercial loan portfolio	13,876		14,675
Consumer loan portfolio	3,321		9,383
Total nonperforming TDRs	17,197		24,058
Total nonperforming loans	$	90,854	$	106,269

The Corporation's loans reported as TDRs do not include loans that are in a nonaccrual status that have been modified by the Corporation due to the borrower experiencing financial difficulty and for which a concession has been granted, as the Corporation does not expect to collect the full amount of principal and interest owed from the borrower on these modified loans. The Corporation's nonaccrual loans at December 31, 2012 and 2011 included $47.5 million and $41.8 million, respectively, of these modified loans.

There was no interest income recognized on nonaccrual loans during 2012, 2011 and 2010 while the loans were in nonaccrual status. During 2012, 2011 and 2010, the Corporation recognized $1.1 million, $1.0 million and $1.1 million, respectively, of interest income on these loans while they were in an accruing status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $4.5 million in 2012, $6.0 million in 2011 and $5.9 million in 2010. During 2012, 2011 and 2010, the Corporation recognized interest income of $2.9 million, $2.3 million and$1.8 million, respectively, on TDRs.

Impaired Loans

The following schedule presents impaired loans by classes of loans at December 31, 2012:



	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance		Average Annual Recorded Investment		Interest Income Recognized While on Impaired Status
	(In thousands)
Impaired loans with a valuation allowance:
Commercial	$	6,368	$	6,818	$	1,966	$	6,108	$	—
Commercial real estate	17,267		17,607		5,359		19,788		—
Real estate construction	171		171		75		130		—
Land development	254		254		50		1,278		—
Residential mortgage	18,901		18,901		658		21,307		1,353
Subtotal	42,961		43,751		8,108		48,611		1,353
Impaired loans with no related valuation allowance:
Commercial	23,230		27,959		—		21,651		964
Commercial real estate	37,223		48,531		—		38,342		1,020
Real estate construction	1,046		1,116		—		543		—
Land development	10,867		15,112		—		7,811		387
Residential mortgage	10,164		10,164		—		12,057		—
Consumer installment	739		739		—		1,093		—
Home equity	2,733		2,733		—		2,922		—
Subtotal	86,002		106,354		—		84,419		2,371
Total impaired loans:
Commercial	29,598		34,777		1,966		27,759		964
Commercial real estate	54,490		66,138		5,359		58,130		1,020
Real estate construction	1,217		1,287		75		673		—
Land development	11,121		15,366		50		9,089		387
Residential mortgage	29,065		29,065		658		33,364		1,353
Consumer installment	739		739		—		1,093		—
Home equity	2,733		2,733		—		2,922		—
Total	$	128,963	$	150,105	$	8,108	$	133,030	$	3,724

The following schedule presents impaired loans by classes of loans at December 31, 2011:



	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance		Average Annual Recorded Investment		Interest Income Recognized While on Impaired Status
	(In thousands)
Impaired loans with a valuation allowance:
Commercial	$	6,362	$	7,650	$	1,480	$	6,997	$	—
Commercial real estate	20,050		21,370		6,775		27,762		—
Land development	902		934		327		1,928		—
Residential mortgage	25,012		25,012		704		22,525		1,433
Subtotal	52,326		54,966		9,286		59,212		1,433
Impaired loans with no related valuation allowance:
Commercial	19,559		29,349		—		22,900		1,000
Commercial real estate	40,953		54,249		—		41,663		767
Real estate construction	156		934		—		181		12
Land development	10,187		15,788		—		11,507		352
Residential mortgage	12,573		12,573		—		16,054		—
Consumer installment	1,707		1,707		—		2,665		—
Home equity	2,760		2,760		—		3,126		—
Subtotal	87,895		117,360		—		98,096		2,131
Total impaired loans:
Commercial	25,921		36,999		1,480		29,897		1,000
Commercial real estate	61,003		75,619		6,775		69,425		767
Real estate construction	156		934		—		181		12
Land development	11,089		16,722		327		13,435		352
Residential mortgage	37,585		37,585		704		38,579		1,433
Consumer installment	1,707		1,707		—		2,665		—
Home equity	2,760		2,760		—		3,126		—
Total	$	140,221	$	172,326	$	9,286	$	157,308	$	3,564

The difference between an impaired loan's recorded investment and the unpaid principal balance represents either (i) for originated loans, a partial charge-off resulting from a confirmed loss due to the value of the collateral securing the loan being below the loan balance and management's assessment that full collection of the loan balance is not likely or (ii) for acquired loans that meet the definition of an impaired loan, fair value adjustments recognized at the acquisition date attributable to expected credit losses and the discounting of expected cash flows at market interest rates. The difference between the recorded investment and the unpaid principal balance of $21.1 million and $32.1 million at December 31, 2012 and December 31, 2011, respectively, includes confirmed losses (partial charge-offs) of $17.3 million and $21.7 million, respectively, and fair value discount adjustments of $3.8 million and $10.4 million, respectively.

Impaired loans included $9.1 million and $17.4 million at December 31, 2012 and December 31, 2011, respectively, of acquired loans that were not performing in accordance with original contractual terms. Acquired loans that are not performing in accordance with contractual terms are not reported as nonperforming loans because these loans are recorded in pools at their net realizable value based on the principal and interest the Corporation expects to collect on these loans. Impaired loans also included $31.4 million and $20.4 million at December 31, 2012 and December 31, 2011, respectively, of performing TDRs.

The following schedule presents the aging status of the recorded investment in loans by portfolio segment/class at December 31, 2012 and 2011.



	31-60 Days Past Due		61-89 Days Past Due		Accruing Loans Past Due 90 Days or More		Non-accrual Loans		Total Past Due		Current		Total Loans
	(In thousands)
December 31, 2012
Originated Portfolio:
Commercial	$	3,999	$	730	$	—	$	14,601	$	19,330	$	877,280	$	896,610
Commercial real estate	5,852		2,089		87		37,660		45,688		910,477		956,165
Real estate construction	—		—		—		1,217		1,217		47,906		49,123
Land development	—		—		—		4,184		4,184		21,874		26,058
Residential mortgage	3,161		55		1,503		10,164		14,883		854,987		869,870
Consumer installment	2,415		378		—		739		3,532		540,546		544,078
Home equity	1,618		427		769		2,733		5,547		427,689		433,236
Total	$	17,045	$	3,679	$	2,359	$	71,298	$	94,381	$	3,680,759	$	3,775,140
Acquired Portfolio:
Commercial	$	—	$	—	$	2,834	$	—	$	2,834	$	103,278	$	106,112
Commercial real estate	287		15		3,139		—		3,441		202,255		205,696
Real estate construction	—		—		—		—		—		13,566		13,566
Land development	—		—		2,834		—		2,834		8,656		11,490
Residential mortgage	123		—		122		—		245		13,720		13,965
Consumer installment	10		—		—		—		10		1,948		1,958
Home equity	205		—		170		—		375		39,433		39,808
Total	$	625	$	15	$	9,099	$	—	$	9,739	$	382,856	$	392,595
December 31, 2011
Originated Portfolio:
Commercial	$	5,207	$	6,268	$	1,381	$	10,726	$	23,582	$	739,953	$	763,535
Commercial real estate	9,967		3,241		374		44,438		58,020		757,047		815,067
Real estate construction	—		—		287		—		287		54,029		54,316
Land development	—		—		—		6,190		6,190		24,065		30,255
Residential mortgage	5,591		76		752		12,573		18,992		821,760		840,752
Consumer installment	3,449		1,174		—		1,707		6,330		474,614		480,944
Home equity	2,038		408		1,023		2,760		6,229		347,404		353,633
Total	$	26,252	$	11,167	$	3,817	$	78,394	$	119,630	$	3,218,872	$	3,338,502
Acquired Portfolio:
Commercial	$	394	$	—	$	7,808	$	—	$	8,202	$	123,413	$	131,615
Commercial real estate	1,820		—		2,592		—		4,412		252,520		256,932
Real estate construction	—		—		156		—		156		18,883		19,039
Land development	—		—		4,780		—		4,780		9,786		14,566
Residential mortgage	288		—		1,577		—		1,865		19,099		20,964
Consumer installment	49		11		—		—		60		3,054		3,114
Home equity	641		262		462		—		1,365		45,188		46,553
Total	$	3,192	$	273	$	17,375	$	—	$	20,840	$	471,943	$	492,783

Loans Modified Under Troubled Debt Restructurings (TDRs)

The following schedule presents the Corporation's TDRs at December 31, 2012 and 2011:



	Performing		Nonperforming		Total
	(In thousands)
December 31, 2012
Commercial loan portfolio	$	15,789	$	13,876	$	29,665
Consumer loan portfolio	15,580		3,321		18,901
Total	$	31,369	$	17,197	$	48,566
December 31, 2011
Commercial loan portfolio	$	4,765	$	14,675	$	19,440
Consumer loan portfolio	15,629		9,383		25,012
Total	$	20,394	$	24,058	$	44,452

The following schedule provides information on loans reported as performing and nonperforming TDRs that were modified during the twelve months ended December 31, 2012 and 2011:



	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
	(Dollars in thousands)
Twelve months ended December 31, 2012
Commercial loan portfolio:
Commercial	52	$	7,506	$	7,506
Commercial real estate	29	7,651		7,651
Land development	4	3,991		3,991
Subtotal — commercial loan portfolio	85	19,148		19,148
Consumer loan portfolio (residential mortgage)	89	8,252		7,992
Total	174	$	27,400	$	27,140
Twelve months ended December 31, 2011
Commercial loan portfolio:
Commercial	19	$	4,708	$	4,708
Commercial real estate	25	6,267		6,267
Land development	—	—		—
Subtotal — commercial loan portfolio	44	10,975		10,975
Consumer loan portfolio (residential mortgage)	126	10,545		10,127
Total	170	$	21,520	$	21,102

The pre-modification and post-modification recorded investment represents amounts as of the date of loan modification. The difference between the pre-modification and post-modification recorded investment of residential mortgage TDRs represents impairment recognized by the Corporation through the provision for loan losses computed based on a loan's post-modification present value of expected future cash flows discounted at the loan's original effective interest rate. No provision for loan losses was recognized related to TDRs in the commercial loan portfolio as the Corporation does not expect to incur a loss on these loans based on its assessment of the borrower's expected cash flows.

The following schedule includes performing and nonperforming TDRs at December 31, 2012 and 2011, and TDRs that were transferred to nonaccrual status during 2012 and 2011, for which there was a payment default during the twelve months ended December 31, 2012 and 2011, whereby the borrower was past due with respect to principal and/or interest for 90 days or more, and the loan became a TDR during the twelve-month period prior to the default:



	Years Ended December 31,
	2012			2011
	Number of Loans	Principal Balance at Year End		Number of Loans	Principal Balance at Year End
	Number of Loans	Principal Balance at Year End		Number of Loans	Principal Balance at Year End
	(Dollars in thousands)
Commercial loan portfolio:
Commercial	3	$	1,300	7	$	2,659
Commercial real estate	5	3,293		9	1,828
Subtotal — commercial loan portfolio	8	4,593		16	4,487
Consumer loan portfolio (residential mortgage)	6	1,166		18	1,740
Total	14	$	5,759	34	$	6,227

Allowance for Loan Losses

The following schedule presents, by loan portfolio segment, the changes in the allowance for the year ended December 31, 2012 and details regarding the balance in the allowance and the recorded investment in loans at December 31, 2012 by impairment evaluation method.



	Commercial Loan Portfolio			Consumer Loan Portfolio			Unallocated		Total
	(In thousands)
Changes in allowance for loan losses for the year ended December 31, 2012:
Beginning balance	$	55,645		$	29,166		$	3,522	$	88,333
Provision for loan losses	7,061			9,778			1,661		18,500
Charge-offs	(15,723		)	(11,713		)	—		(27,436		)
Recoveries	2,992			2,102			—		5,094
Ending balance	$	49,975		$	29,333		$	5,183	$	84,491
Allowance for loan losses balance at December 31, 2012 attributable to:
Loans individually evaluated for impairment	$	7,450		$	658		$	—	$	8,108
Loans collectively evaluated for impairment	42,525			28,175			5,183		75,883
Loans acquired with deteriorated credit quality	—			500			—		500
Total	$	49,975		$	29,333		$	5,183	$	84,491
Recorded investment (loan balance) at December 31, 2012:
Loans individually evaluated for impairment	$	87,327		$	18,901		$	—	$	106,228
Loans collectively evaluated for impairment	1,840,629			1,828,283			—		3,668,912
Loans acquired with deteriorated credit quality	336,864			55,731			—		392,595
Total	$	2,264,820		$	1,902,915		$	—	$	4,167,735

The following presents, by loan portfolio segment, the changes in the allowance for the year ended December 31, 2011 and details regarding the balance in the allowance and the recorded investment in loans at December 31, 2011 by impairment evaluation method.



	Commercial Loan Portfolio			Consumer Loan Portfolio			Unallocated		Total
	(In thousands)
Changes in allowance for loan losses for the year ended December 31, 2011:
Beginning balance	$	59,443		$	27,338		$	2,749	$	89,530
Provision for loan losses	14,196			11,031			773		26,000
Charge-offs	(20,571		)	(11,537		)	—		(32,108		)
Recoveries	2,577			2,334			—		4,911
Ending balance	$	55,645		$	29,166		$	3,522	$	88,333
Allowance for loan losses balance at December 31, 2011 attributable to:
Loans individually evaluated for impairment	$	8,582		$	704		$	—	$	9,286
Loans collectively evaluated for impairment	45,863			28,062			3,522		77,447
Loans acquired with deteriorated credit quality	1,200			400			—		1,600
Total	$	55,645		$	29,166		$	3,522	$	88,333
Recorded investment (loan balance) at December 31, 2011:
Loans individually evaluated for impairment	$	80,794		$	25,012		$	—	$	105,806
Loans collectively evaluated for impairment	1,582,379			1,650,317			—		3,232,696
Loans acquired with deteriorated credit quality	422,152			70,631			—		492,783
Total	$	2,085,325		$	1,745,960		$	—	$	3,831,285

The allowance attributable to acquired loans of $0.5 million at December 31, 2012 was primarily attributable to two consumer loan pools in the acquired loan portfolio experiencing a decline in expected cash flows. The allowance of $1.6 million at December 31, 2011 was primarily attributable to one of the commercial loan pools in the acquired loan portfolio experiencing a decline in expected cash flows. There were no material changes in expected cash flows for the remaining acquired loan pools at December 31, 2012 or December 31, 2011.