LOANS AND ALLOWANCE

The Corporation’s primary lending focus is small business and middle market commercial, residential real estate, auto and small consumer lending, which results in portfolio diversification. The following tables show the composition in the loan portfolio, loan grades and the allowance for loan losses excluding loans held for sale. Residential real estate loans held for sale as of June 30, 2013, and December 31, 2012, were $14,531,000 and $22,300,000, respectively.

The following table shows the composition of the Corporation’s loan portfolio by loan class for the periods indicated:



	June 30, 2013			December 31, 2012
Commercial and industrial loans	$	657,764		$	622,579
Agricultural production financing and other loans to farmers	105,175			112,527
Real estate loans:
Construction	101,909			98,639
Commercial and farmland	1,272,761			1,266,682
Residential	460,108			473,537
Home Equity	203,788			203,406
Individuals' loans for household and other personal expenditures	79,258			75,748
Lease financing receivables, net of unearned income	1,828			2,590
Other loans	37,489			46,501
Loans	2,920,080			2,902,209
Allowance for loan losses	(68,202		)	(69,366		)
Net Loans	$	2,851,878		$	2,832,843

The Corporation maintains an allowance for loan losses to cover probable credit losses identified during its loan review process. The allowance is increased by the provision for loan losses and decreased by charge offs less recoveries. All charge offs are approved by the Bank’s senior loan officers or loan committees, depending on the amount of the charge off. The Bank charges off a loan when a determination is made that all or a portion of the loan is uncollectible. The allowance for loan losses is maintained through the provision for loan losses, which is a charge against earnings.

The amount provided for loan losses in a given period may be greater than or less than net loan losses experienced during the period, and is based on management’s judgment as to the appropriate level of the allowance for loan losses. The determination of the provision amount in a given period is based on management’s ongoing review and evaluation of the loan portfolio, including an internally administered loan "watch" list and independent loan reviews. The evaluation takes into consideration identified credit problems, the possibility of losses inherent in the loan portfolio that are not specifically identified and management’s judgment as to the impact of current economic conditions on the portfolio.

Management believes that the allowance for loan losses is adequate to cover probable losses inherent in the loan portfolio as of June 30, 2013. The process for determining the adequacy of the allowance for loan losses is critical to the Corporation’s financial results. It requires management to make difficult, subjective and complex judgments, to estimate the effect of uncertain matters. The allowance for loan losses considers current factors, including economic conditions and ongoing internal and external examinations, and will increase or decrease as deemed necessary to ensure the allowance remains adequate. In addition, the allowance as a percentage of charge offs and nonperforming loans will change at different points in time based on credit performance, loan mix and collateral values.

The historical loss allocation for loans not deemed impaired according to ASC 310 is the product of the volume of loans within the non-impaired criticized and non-criticized risk grade classifications, each segmented by call code, and the historical loss factor for each respective classification and call code segment. The historical loss factors are based upon actual loss experience within each risk and call code classification. The historical look back period for non-criticized loans looks to the most recent rolling-four-quarter average and aligns with the look back period for non-impaired criticized loans. Each of the rolling four quarter periods used to obtain the average, include all charge offs for the previous twelve-month period, therefore the historical look back period includes seven quarters. The resulting allocation is reflective of current conditions. Criticized loans are grouped based on the risk grade assigned to the loan. Loans with a special mention grade are assigned a loss factor, and loans with a classified grade but not impaired are assigned a separate loss factor. The loss factor computation for this allocation includes a segmented historical loss migration analysis of criticized risk grades to charge off.

In addition to the specific reserves and historical loss components of the allowance, consideration is given to various environmental factors to help ensure that losses inherent in the portfolio are reflected in the allowance for loan losses. The environmental component adjusts the historical loss allocations for commercial and consumer loans to reflect relevant current conditions that, in management's opinion, have an impact on loss recognition. Environmental factors that management reviews in the analysis include: national and local economic trends and conditions; trends in growth in the loan portfolio and growth in higher risk areas; levels of, and trends in, delinquencies and non-accruals; experience and depth of lending management and staff; adequacy of, and adherence to, lending policies and procedures including those for underwriting; industry concentrations of credit; and adequacy of risk identification systems and controls through the internal loan review and internal audit processes.

The risk characteristics of the Corporation’s material portfolio segments are as follows:

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Residential and Consumer

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

The following tables summarize changes in the allowance for loan losses by loan segment for the three and six months ended June 30, 2013, and June 30, 2012:



	Three Months Ended June 30, 2013
	Commercial			Commercial Real Estate			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, April 1	$	25,371		$	24,978		$	2,689		$	15,479		$	20		$	68,537
Provision for losses	1,917			(673		)	225			497			31			1,997
Recoveries on loans	683			1,389			107			347						2,526
Loans charged off	(1,408		)	(2,089		)	(136		)	(1,210		)	(15		)	(4,858		)
Balances, June 30, 2013	$	26,563		$	23,605		$	2,885		$	15,113		$	36		$	68,202



	Six Months Ended June 30, 2013
	Commercial			Commercial Real Estate			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	25,913		$	26,703		$	2,593		$	14,157					$	69,366
Provision for losses	2,275			(1,428		)	298			2,903			$	51		4,099
Recoveries on loans	2,556			2,765			316			635						6,272
Loans charged off	(4,181		)	(4,435		)	(322		)	(2,582		)	(15		)	(11,535		)
Balances, June 30, 2013	$	26,563		$	23,605		$	2,885		$	15,113		$	36		$	68,202



	Three Months Ended June 30, 2012
	Commercial			Commercial Real Estate			Consumer			Residential			Finance Leases	Total
Allowance for loan losses:
Balances, April 1	$	15,574		$	37,907		$	2,805		$	14,083			$	70,369
Provision for losses	4,325			(750		)	(177		)	1,147				4,545
Recoveries on loans	519			1,636			168			481				2,804
Loans charged off	(2,627		)	(3,660		)	(365		)	(923		)		(7,575		)
Balances, June 30, 2012	$	17,791		$	35,133		$	2,431		$	14,788			$	70,143



	Six Months Ended June 30, 2012
	Commercial			Commercial Real Estate			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	17,731		$	37,919		$	2,902		$	12,343		$	3		$	70,898
Provision for losses	4,902			1,028			(161		)	3,655			(4		)	9,420
Recoveries on loans	667			1,864			376			794			1			3,702
Loans charged off	(5,509		)	(5,678		)	(686		)	(2,004		)				(13,877		)
Balances, June 30, 2012	$	17,791		$	35,133		$	2,431		$	14,788					$	70,143

The following tables show the Corporation’s allowance for credit losses and loan portfolio by loan segment as of the periods indicated:



	June 30, 2013
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	1,353	$	2,754			$	5			$	4,112
Collectively evaluated for impairment	24,941		20,708		$	2,885	15,084		$	36	63,654
Loans Acquired with Deteriorated Credit Quality	269		143				24				436
Total Allowance for Loan Losses	$	26,563	$	23,605	$	2,885	$	15,113	$	36	$	68,202
Loan Balances:
Individually evaluated for impairment	$	10,114	$	36,690			$	6,269			$	53,073
Collectively evaluated for impairment	789,354		1,328,427		$	79,258	656,900		$	1,828	2,855,767
Loans Acquired with Deteriorated Credit Quality	960		9,553				727				11,240
Loans	$	800,428	$	1,374,670	$	79,258	$	663,896	$	1,828	$	2,920,080



	December 31, 2012
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	1,628	$	2,565			$	50			$	4,243
Collectively evaluated for impairment	24,285		24,138		$	2,593	14,107				65,123
Total Allowance for Loan Losses	$	25,913	$	26,703	$	2,593	$	14,157			$	69,366
Loan Balances:
Individually evaluated for impairment	$	14,190	$	45,394			$	8,515			$	68,099
Collectively evaluated for impairment	765,707		1,309,912		$	75,748	667,401		$	2,590	2,821,358
Loans Acquired with Deteriorated Credit Quality	1,710		10,015				1,027				12,752
Loans	$	781,607	$	1,365,321	$	75,748	$	676,943	$	2,590	$	2,902,209

Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. Interest previously recorded, but not deemed collectible, is reversed and charged against current income. Payments subsequently received on non-accrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance. Payments received on impaired accruing or delinquent loans are applied to interest income as accrued.

The following table summarizes the Corporation’s non-accrual loans by loan class as of the periods indicated:



	June 30, 2013		December 31, 2012
Commercial and industrial loans	$	8,543	$	12,195
Agriculture Production financing and other loans to farmers	33
Real Estate Loans:
Construction	2,492		4,814
Commercial and farmland	15,352		22,612
Residential	11,148		11,476
Home Equity	1,234		1,997
Lease financing receivables, net of unearned income			301
Other Loans	169		4
Total	$	38,971	$	53,399

Commercial impaired loans include all non-accrual loans, loans accounted for under ASC 310-30 and renegotiated loans, as well as substandard, doubtful and loss grade loans that were still accruing but deemed impaired according to guidance set forth in ASC 310. Also included in impaired loans are accruing loans that are contractually past due 90 days or more. A loan is deemed impaired when, based on current information or events, it is probable that all amounts due of principal and interest according to the contractual terms of the loan agreement will not be collected.

Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

The following tables show the composition of the Corporation’s commercial impaired loans by loan class for the periods indicated:




	June 30, 2013
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	17,836	$	5,556
Agriculture production financing and other loans to farmers	34		33
Real Estate Loans:
Construction	4,540		3,053
Commercial and farmland	44,620		32,658
Residential	8,228		5,968
Home equity	3,412		226
Other loans	140		30
Total	$	78,810	$	47,524
Impaired loans with related allowance:
Commercial and industrial loans	$	7,193	$	5,306	$	1,476
Real Estate Loans:
Construction	961		599		74
Commercial and farmland	10,249		9,177		2,823
Residential	465		235		29
Other loans	321		148		146
Total	$	19,189	$	15,465	$	4,548
Total Impaired Loans	$	97,999	$	62,989	$	4,548



	December 31, 2012
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	28,532	$	11,730
Real Estate Loans:
Construction	9,787		5,164
Commercial and farmland	58,173		43,204
Residential	8,820		6,215
Home equity	4,199		1,006
Other loans	83		14
Total	$	109,594	$	67,333
Impaired loans with related allowance:
Commercial and industrial loans	$	4,415	$	4,155	$	1,628
Real Estate Loans:
Construction	1,202		1,058		105
Commercial and farmland	5,579		5,182		2,460
Residential	1,722		1,451		50
Total	$	12,918	$	11,846	$	4,243
Total Impaired Loans	$	122,512	$	79,179	$	4,243



	Three Months Ended June 30, 2013				Six Months Ended June 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	5,864	$	35	$	6,138	$	69
Agriculture production financing and other loans to farmers	33				33
Real Estate Loans:
Construction	3,060		19		3,070		38
Commercial and farmland	32,932		382		33,192		760
Residential	6,067		18		6,372		37
Home equity	226				245
Other loans	31				32
Total	$	48,213	$	454	$	49,082	$	904
Impaired loans with related allowance:
Commercial and industrial	$	5,669	$	3	$	6,138	$	5
Real Estate Loans:
Construction	599				599
Commercial and farmland	9,227				9,323
Residential	238				240
Other loans	$	152			$	156
Total	$	15,885	$	3	$	16,456	$	5
Total Impaired Loans	$	64,098	$	457	$	65,538	$	909



	Three Months Ended June 30, 2012				Six Months Ended June 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	11,411	$	39	$	12,418	$	64
Real Estate Loans:
Construction	8,040		16		8,581		29
Commercial and farmland	41,084		315		42,615		575
Residential	5,815		15		6,072		26
Home equity	570		3		585		6
Individuals' loans for household and other personal expenditures	139				139
Other loans	18				19
Total	$	67,077	$	388	$	70,429	$	700
Impaired loans with related allowance:
Commercial and industrial loans	$	6,111	$	11	$	6,136	$	21
Real Estate Loans:
Construction	1,931				1,936
Commercial and farmland	8,369		45		8,505		89
Residential	2,012		19		1,993		38
Total	$	18,423	$	75	$	18,570	$	148
Total Impaired Loans	$	85,500	$	463	$	88,999	$	848

As part of the ongoing monitoring of the credit quality of the Corporation's loan portfolio, management tracks certain credit quality indicators including trends related to: (i) the level of criticized commercial loans, (ii) net charge offs, (iii) non-performing loans and (iv) the general national and local economic conditions.

The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans. All large commercial credit grades are reviewed at a minimum of once a year for pass grade loans. Loans with grades below pass are reviewed more frequently depending on the grade. A description of the general characteristics of these grades is as follows:


•	Pass - Loans that are considered to be of acceptable credit quality.

•

Special Mention - Loans which possess some credit deficiency or potential weakness, which deserves close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation's credit position at some future date. Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification. The key distinctions of this category's classification are that it is indicative of an unwarranted level of risk; and weaknesses are considered “potential”, not “defined”, impairments to the primary source of repayment. Examples include businesses that may be suffering from inadequate management, loss of key personnel or significant customer or litigation.

•

Substandard - A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Other characteristics may include:



	o	the likelihood that a loan will be paid from the primary source of repayment is uncertain or financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss,



	o	the primary source of repayment is gone, and the Corporation is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees,



	o	loans have a distinct possibility that the Corporation will sustain some loss if deficiencies are not corrected,



	o	unusual courses of action are needed to maintain a high probability of repayment,



	o	the borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments,



	o	the Corporation is forced into a subordinated or unsecured position due to flaws in documentation,



	o	loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms,



	o	the Corporation is seriously contemplating foreclosure or legal action due to the apparent deterioration of the loan, and



	o	there is significant deterioration in market conditions to which the borrower is highly vulnerable.

•

Doubtful - Loans that have all of the weaknesses of those classified as Substandard. However, based on currently existing facts, conditions and values, these weaknesses make full collection of principal highly questionable and improbable. Other credit characteristics may include the primary source of repayment is gone or there is considerable doubt as to the quality of the secondary sources of repayment. The possibility of loss is high, but because of certain important pending factors that may strengthen the loan, loss classification is deferred until the exact status of repayment is known.


•	Loss – Loans that are considered uncollectible and of such little value that continuing to carry them as an asset is not warranted. Loans will be classified as Loss when it is neither practical not desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The following tables summarize the credit quality of the Corporation’s loan portfolio, by loan class as of the periods indicated. Consumer non-performing loans include accruing consumer loans 90 plus days delinquent and consumer non-accrual loans. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified date.



	June 30, 2013
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss	Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	606,312	$	24,198	$	25,352	$	1,902						$	657,764
Agriculture production financing and other loans to farmers	104,928		214		33									105,175
Real Estate Loans:
Construction	87,384		7,880		6,253							$	392	101,909
Commercial and farmland	1,164,325		44,639		63,212		350					235		1,272,761
Residential	140,813		1,468		14,258		140			$	296,399	7,030		460,108
Home equity	10,034		663		866					191,023		1,202		203,788
Individuals' loans for household and other personal expenditures										79,258				79,258
Lease financing receivables, net of unearned income	1,695				133									1,828
Other loans	37,311		9		169									37,489
Loans	$	2,152,802	$	79,071	$	110,276	$	2,392		$	566,680	$	8,859	$	2,920,080



	December 31, 2012
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss	Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	559,852	$	23,678	$	34,460	$	4,589						$	622,579
Agriculture production financing and other loans to farmers	112,209		224		94									112,527
Real Estate Loans:
Construction	85,728		1,384		11,356							$	171	98,639
Commercial and farmland	1,148,561		38,199		79,078		553					291		1,266,682
Residential	145,402		5,437		13,880		922			$	301,614	6,282		473,537
Home equity	9,092		893		1,657					189,721		2,043		203,406
Individuals' loans for household and other personal expenditures										75,748				75,748
Lease financing receivables, net of unearned income										2,289		301		2,590
Other loans	46,473				28									46,501
Loans	$	2,107,317	$	69,815	$	140,553	$	6,064		$	569,372	$	9,088	$	2,902,209

The following table shows a past due aging of the Corporation’s loan portfolio, by loan class as of June 30, 2013, and December 31, 2012:



	June 30, 2013
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total
Commercial and industrial loans	$	648,160	$	720	$	341			$	8,543	$	9,604	$	657,764
Agriculture production financing and other loans to farmers	105,142								33		33		105,175
Real Estate Loans:
Construction	99,398		19						2,492		2,511		101,909
Commercial and farmland	1,252,554		4,424		431				15,352		20,207		1,272,761
Residential	442,918		3,828		1,335		$	879	11,148		17,190		460,108
Home equity	201,041		755		565		193		1,234		2,747		203,788
Individuals' loans for household and other personal expenditures	78,652		532		74						606		79,258
Lease financing receivables, net of unearned income	1,828												1,828
Other loans	37,320								169		169		37,489
Loans	$	2,867,013	$	10,278	$	2,746	$	1,072	$	38,971	$	53,067	$	2,920,080



	December 31, 2012
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total
Commercial and industrial loans	$	607,442	$	2,628	$	144	$	170	$	12,195	$	15,137	$	622,579
Agriculture production financing and other loans to farmers	112,527												112,527
Real Estate Loans:
Construction	93,426		399						4,814		5,213		98,639
Commercial and farmland	1,238,907		3,276		1,822		65		22,612		27,775		1,266,682
Residential	453,743		5,734		1,338		1,246		11,476		19,794		473,537
Home equity	199,063		1,467		323		556		1,997		4,343		203,406
Individuals' loans for household and other personal expenditures	74,919		799		30						829		75,748
Lease financing receivables, net of unearned income	2,289								301		301		2,590
Other loans	46,497								4		4		46,501
Loans	$	2,828,813	$	14,303	$	3,657	$	2,037	$	53,399	$	73,396	$	2,902,209

See the information regarding the analysis of loan loss experience in the "LOAN QUALITY/PROVISION FOR LOAN LOSSES" section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as ITEM 2 of this Form 10-Q.

On occasion, borrowers experience declines in income and cash flow. As a result, these borrowers seek to reduce contractual cash outlays including debt payments. Concurrently, in an effort to preserve and protect earning assets, specifically troubled loans, the Corporation works to maintain its relationship with certain customers who are experiencing financial difficulty by contractually modifying the borrower's debt agreement with the Corporation. In certain loan restructuring situations, the Corporation may grant a concession to a debtor experiencing financial difficulty, resulting in a trouble debt restructuring. A concession is deemed to be granted when, as a result of the restructuring, the Corporation does not expect to collect all amounts due, including interest accrued at the original contract rate. If the payment of principal at original maturity is primarily dependent on the value of collateral, the current value of the collateral is considered in determining whether the principal will be paid.

The following tables summarize troubled debt restructurings that occurred during the periods indicated:



	Three Months Ended June 30, 2013					Six Months Ended June 30, 2013
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Commercial and industrial loans	$	36	$	36	1	$	133	$	133	4
Real Estate Loans:
Commercial and farmland	4,474		3,550		2	4,985		3,981		4
Residential	432		420		5	467		457		6
Individuals' loans for household and other personal expenditures	44		45		2	44		45		2
Total	$	4,986	$	4,051	10	$	5,629	$	4,616	16



	Three Months Ended June 30, 2012					Six Months Ended June 30, 2012
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Commercial and industrial loans	$	166	$	166	2	$	405	$	405	4
Real Estate Loans:
Construction	491		350		1	491		350		1
Commercial and farmland	730		735		4	2,508		2,369		6
Residential	1,733		1,598		11	1,957		1,822		15
Total	$	3,120	$	2,849	18	$	5,361	$	4,946	26

Residential real estate loans account for 50 percent and 38 percent of the troubled debt restructured loans made in the three and six months ended June 30, 2013, respectively. Nine and eleven troubled debt restructured loans made during the three and six months ended June 30, 2013, respectively, are in accrual status.

The following tables show the recorded investment of troubled debt restructurings, by modification type, that occurred during the periods indicated:



	Three Months Ended June 30, 2013
	Term Modification		Rate Modification		Combination		Total Modification
Commercial and industrial loans	$	36					$	36
Real Estate Loans:
Commercial and farmland					$	3,549	3,549
Residential			$	100	319		419
Individuals' loans for household and other personal expenditures					45		45
Total	$	36	$	100	$	3,913	$	4,049



	Six Months Ended June 30, 2013
	Term Modification		Rate Modification		Combination		Total Modification
Commercial and industrial loans	$	60			$	66	$	126
Real Estate Loans:
Commercial and farmland					3,935		3,935
Residential			$	100	355		455
Individuals' loans for household and other personal expenditures					45		45
Total	$	60	$	100	$	4,401	$	4,561



	Three Months Ended June 30, 2012
	Term Modification		Rate Modification		Combination		Total Modification
Commercial and industrial loans					$	31	$	31
Real Estate Loans:
Construction					346		346
Commercial and farmland	$	82			599		681
Residential	531		$	258	720		1,509
Total	$	613	$	258	$	1,696	$	2,567



	Six Months Ended June 30, 2012
	Term Modification		Rate Modification		Combination		Total Modification
Commercial and industrial loans	$	238			$	31	$	269
Real Estate Loans:
Construction					346		346
Commercial and farmland	1,717				599		2,316
Residential	531		$	258	944		1,733
Total	$	2,486	$	258	$	1,920	$	4,664

The following tables summarize troubled debt restructures that occurred during the twelve months ended June 30, 2013, and June 30, 2012, that subsequently defaulted during the period indicated:



	Three Months Ended June 30, 2013			Six Months Ended June 30, 2013
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Commercial and Industrial loans	1	$	3	1	$	3
Real Estate Loans:
Commercial and farmland				1	223
Total	1	$	3	2	$	226



	Three Months Ended June 30, 2012			Six Months Ended June 30, 2012
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Commercial and Industrial loans				1	$	46
Real Estate Loans:
Commercial and farmland	2	$	445	3	1,203
Residential	5	2,283		5	2,283
Total	7	$	2,728	9	$	3,532

For potential consumer loan restructures, impairment evaluation occurs prior to modification. Any subsequent impairment is typically addressed through the charge off process, or may be addressed through a specific reserve. Consumer troubled debt restructurings are generally included in the general historical allowance for loan loss at the post modification balance. Consumer non-accrual and delinquent troubled debt restructurings are also considered in the calculation of the non-accrual and delinquency trend environmental allowance allocation. Commercial troubled debt restructured loans risk graded special mention, substandard, doubtful and loss are individually evaluated for impairment under ASC 310. Any resulting specific reserves are included in the allowance for loan losses. Commercial 30 - 89 day delinquent troubled debt restructurings are included in the calculation of the delinquency trend environmental allowance allocation. All commercial non-impaired loans, including non-accrual and 90+ day delinquents, are included in the ASC 450 loss migration analysis.