LOANS AND ALLOWANCE

The Corporation’s primary lending focus is small business and middle market commercial, commercial real estate, residential real estate, auto and small consumer lending, which results in portfolio diversification. The following tables show the composition in the loan portfolio, the allowance for loan losses and certain credit quality elements, all excluding loans held for sale. Residential real estate loans held for sale as of March 31, 2014, and December 31, 2013, were $6,586,000 and $5,331,000, respectively.

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



	March 31, 2014			December 31, 2013
Commercial and industrial loans	$	787,390		$	761,705
Agricultural production financing and other loans to farmers	99,226			114,348
Real estate loans:
Construction	155,117			177,082
Commercial and farmland	1,606,735			1,611,809
Residential	626,202			616,385
Home Equity	256,790			255,223
Individuals' loans for household and other personal expenditures	61,742			69,783
Lease financing receivables, net of unearned income	1,378			1,545
Other loans	22,047			24,529
Loans	$	3,616,627		$	3,632,409
Allowance for loan losses	(69,583		)	(67,870		)
Net Loans	$	3,547,044		$	3,564,539

Purchased Loans

On February 10, 2012, First Merchants Bank, N.A. (the "Bank") assumed $113.0 million in loans as part of a Purchase and Assumption Agreement. This loan portfolio was acquired at a fair value discount of $19.2 million.

On November 12, 2013, the Corporation acquired all of the assets of CFS Bancorp, Inc. as discussed in NOTE 2. BUSINESS COMBINATIONS included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q. The acquired assets included $639.6 million in loans which were acquired at a fair value discount of $36.5 million.

In conformance with ASC 805 and ASC 820, loans purchased after December 31, 2008 are recorded at the acquisition date fair value. Such loans are only included in the allowance to the extent a specific impairment is identified that exceeds the fair value adjustment on an impaired loan or the historical loss and environmental factor analysis indicates losses inherent in a purchased portfolio exceeds the fair value adjustment on the portion of the purchased portfolio not deemed impaired.

Allowance, Credit Quality and Loan Portfolio

The Corporation maintains an allowance for loan losses to cover probable credit losses identified during its loan review process. Management believes the allowance for loan losses is appropriate to cover probable losses inherent in the loan portfolio at March 31, 2014. 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 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 the current environment and economic conditions on the portfolio.

The allowance consists of specific impairment reserves as required by ASC 310-10-35, a component for historical losses in accordance with ASC 450 and the consideration of current environmental factors in accordance with ASC 450. 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.

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 following tables summarize changes in the allowance for loan losses by loan segment for the three months ended March 31, 2014, and March 31, 2013:



	Three Months Ended March 31, 2014
	Commercial			Commercial Real Estate			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	27,176		$	23,102		$	2,515		$	15,077					$	67,870
Provision for losses	2,387			(1,257		)	(12		)	(1,098		)	$	(20	)
Recoveries on loans	2,050			790			136			604			20			3,600
Loans charged off	(706		)	(277		)	(229		)	(675		)				(1,887		)
Balances, March 31, 2014	$	30,907		$	22,358		$	2,410		$	13,908					$	69,583



	Three Months Ended March 31, 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	358			(755		)	73			2,406			$	20	2,102
Recoveries on loans	1,873			1,376			209			288					3,746
Loans charged off	(2,773		)	(2,346		)	(186		)	(1,372		)			(6,677		)
Balances, March 31, 2013	$	25,371		$	24,978		$	2,689		$	15,479		$	20	$	68,537

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



	March 31, 2014
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	556	$	795							$	1,351
Collectively evaluated for impairment	30,004		21,467		$	2,410	$	13,908			67,789
Loans Acquired with Deteriorated Credit Quality	347		96								443
Total Allowance for Loan Losses	$	30,907	$	22,358	$	2,410	$	13,908			$	69,583
Loan Balances:
Individually evaluated for impairment	$	10,422	$	28,864			$	2,834			$	42,120
Collectively evaluated for impairment	890,590		1,665,466		$	61,742	878,473		$	1,378	3,497,649
Loans Acquired with Deteriorated Credit Quality	7,651		67,522				1,685				76,858
Loans	$	908,663	$	1,761,852	$	61,742	$	882,992	$	1,378	$	3,616,627



	December 31, 2013
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	585	$	763			$	6			$	1,354
Collectively evaluated for impairment	26,493		22,208		$	2,515	15,071				66,287
Loans Acquired with Deteriorated Credit Quality	98		131								229
Total Allowance for Loan Losses	$	27,176	$	23,102	$	2,515	$	15,077			$	67,870
Loan Balances:
Individually evaluated for impairment	$	10,240	$	29,007			$	2,820			$	42,067
Collectively evaluated for impairment	882,794		1,690,285		$	69,783	867,094		$	1,545	3,511,501
Loans Acquired with Deteriorated Credit Quality	7,548		69,599				1,694				78,841
Loans	$	900,582	$	1,788,891	$	69,783	$	871,608	$	1,545	$	3,632,409

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.

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:



	March 31, 2014		December 31, 2013
Commercial and industrial loans	$	8,558	$	9,283
Agriculture production financing and other loans to farmers	28		30
Real estate Loans:
Construction	3,072		4,978
Commercial and farmland	28,598		28,095
Residential	12,938		12,068
Home Equity	2,351		1,667
Individuals' loans for household and other personal expenditures	141		117
Lease financing receivables, net of unearned income
Other Loans			164
Total	$	55,686	$	56,402

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 and troubled debt restructurings.

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:



	March 31, 2014
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	35,562	$	16,302
Agriculture production financing and other loans to farmers	31		28
Real estate Loans:
Construction	15,184		10,327
Commercial and farmland	115,745		80,957
Residential	6,196		3,948
Home equity	3,332		142
Other loans	40		2
Total	$	176,090	$	111,706
Impaired loans with related allowance:
Commercial and industrial loans	$	1,789	$	1,741	$	902
Real estate Loans:
Construction
Commercial and farmland	7,364		4,385		892
Residential
Total	$	9,153	$	6,126	$	1,794
Total Impaired Loans	$	185,243	$	117,832	$	1,794



	December 31, 2013
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	35,066	$	16,371
Agricultural production finance & other loans to farmers	32		30
Real estate Loans:
Construction	16,109		10,625
Commercial and farmland	128,073		83,033
Residential	6,746		3,910
Home equity	3,299		112
Other loans	454		172
Total	$	189,779	$	114,253
Impaired loans with related allowance:
Commercial and industrial loans	$	1,390	$	1,216	$	683
Real estate Loans:
Construction
Commercial and farmland	4,657		4,215		894
Residential	74		71		6
Total	$	6,121	$	5,502	$	1,583
Total Impaired Loans	$	195,900	$	119,755	$	1,583



	Three Months Ended March 31, 2014
	Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	16,377	$	21
Agriculture production financing and other loans to farmers	29
Real estate Loans:
Construction	10,440		28
Commercial and farmland	81,617		243
Residential	4,146		8
Home equity	144
Other loans	6
Total	$	112,759	$	300
Impaired loans with related allowance:
Commercial and industrial loans	$	1,752	$	3
Real estate Loans:
Commercial and farmland	4,398		1
Total	$	6,150	$	4
Total Impaired Loans	$	118,909	$	304



	Three Months Ended March 31, 2013
	Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	8,043	$	44
Agriculture production financing and other loans to farmers	86
Real estate Loans:
Construction	3,936		19
Commercial and farmland	39,228		382
Residential	4,737		22
Home equity	923		3
Other loans	10
Total	$	56,963	$	470
Impaired loans with related allowance:
Commercial and industrial loans	$	5,124	$	3
Real estate Loans:
Construction	915
Commercial and farmland	5,428
Residential	2,390
Total	$	13,857	$	3
Total Impaired Loans	$	70,820	$	473

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 for 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. Loans that evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected are included in the applicable categories below.



	March 31, 2014
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss	Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	724,556	$	10,148	$	52,172	$	514						$	787,390
Agriculture production financing and other loans to farmers	86,358		376		12,492									99,226
Real estate Loans:
Construction	142,676		1,123		11,116							$	202	155,117
Commercial and farmland	1,466,354		50,952		89,188							241		1,606,735
Residential	147,361		2,229		9,444		136			$	455,612	11,420		626,202
Home equity	6,011		332		980					247,169		2,298		256,790
Individuals' loans for household and other personal expenditures										61,598		144		61,742
Lease financing receivables, net of unearned income	1,256				122									1,378
Other loans	22,024				23									22,047
Loans	$	2,596,596	$	65,160	$	175,537	$	650		$	764,379	$	14,305	$	3,616,627



	December 31, 2013
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss	Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	708,835	$	11,332	$	41,013	$	525						$	761,705
Agriculture production financing and other loans to farmers	114,318				30									114,348
Real estate Loans:
Construction	162,976		1,132		12,029							$	945	177,082
Commercial and farmland	1,473,714		57,676		80,184							235		1,611,809
Residential	143,657		2,232		11,494		136			$	448,494	10,372		616,385
Home equity	6,194		35		1,184					246,101		1,709		255,223
Individuals' loans for household and other personal expenditures										69,666		117		69,783
Lease financing receivables, net of unearned income	1,420				125									1,545
Other loans	24,334				195									24,529
Loans	$	2,635,448	$	72,407	$	146,254	$	661		$	764,261	$	13,378	$	3,632,409

The following table shows a past due aging of the Corporation’s loan portfolio, by loan class as of March 31, 2014, and December 31, 2013:



	March 31, 2014
	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	$	776,473	$	1,933	$	426			$	8,558	$	10,917	$	787,390
Agriculture production financing and other loans to farmers	99,198								28		28		99,226
Real estate Loans:
Construction	151,645		400						3,072		3,472		155,117
Commercial and farmland	1,561,328		10,941		4,700		$	1,168	28,598		45,407		1,606,735
Residential	608,917		3,236		663		448		12,938		17,285		626,202
Home equity	252,734		932		684		89		2,351		4,056		256,790
Individuals' loans for household and other personal expenditures	61,216		340		41		4		141		526		61,742
Lease financing receivables, net of unearned income	1,378												1,378
Other loans	22,046		1								1		22,047
Loans	$	3,534,935	$	17,783	$	6,514	$	1,709	$	55,686	$	81,692	$	3,616,627



	December 31, 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	$	749,020	$	2,628	$	774			$	9,283	$	12,685	$	761,705
Agriculture production financing and other loans to farmers	114,305		13						30		43		114,348
Real estate Loans:
Construction	171,046		1,058						4,978		6,036		177,082
Commercial and farmland	1,573,403		3,807		5,801		$	703	28,095		38,406		1,611,809
Residential	595,192		7,156		1,475		494		12,068		21,193		616,385
Home equity	251,188		1,652		563		153		1,667		4,035		255,223
Individuals' loans for household and other personal expenditures	69,061		550		55				117		722		69,783
Lease financing receivables, net of unearned income	1,545												1,545
Other loans	24,365								164		164		24,529
Loans	$	3,549,125	$	16,864	$	8,668	$	1,350	$	56,402	$	83,284	$	3,632,409

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, borrower 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 its earning assets, specifically troubled loans, the Corporation is working 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 March 31, 2014
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Real estate Loans:
Residential	$	131	$	134	3
Individuals' loans for household and other personal expenditures	15		15		1
Total	$	146	$	149	4



	Three Months Ended March 31, 2013
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Commercial and industrial loans	$	96	$	96	3
Real estate Loans:
Commercial and farmland	511		431		2
Residential	37		38		1
Total	$	644	$	565	6

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



	Three Months Ended March 31, 2014
	Term Modification	Rate Modification		Combination		Total Modification
Real estate Loans:
Residential		$	134			$	134
Individuals' loans for household and other personal expenditures				$	15	15
Total		$	134	$	15	$	149



	Three Months Ended March 31, 2013
	Term Modification		Rate Modification	Combination		Total Modification
Commercial and industrial loans	$	31		$	69	$	100
Real estate Loans:
Commercial and farmland				415		415
Residential				37		37
Total	$	31		$	521	$	552

Loans secured by residential real estate made up 90 percent of the post-modification balance of troubled debt restructured loans made in the three months ended March 31, 2014.

The following tables summarize troubled debt restructures that occurred during the twelve months ended March 31, 2014, and March 31, 2013, that subsequently defaulted during the period indicated and remained in default at period end. For purposes of this schedule, a loan is considered in default if it is 30 or more days past due.



	Three Months Ended March 31, 2014
	Number of Loans	Recorded Balance
Commercial and industrial loans	1	$	146
Real estate Loans:
Residential	1	57
Total	2	$	203



	Three Months Ended March 31, 2013
	Number of Loans	Recorded Balance
Commercial and industrial loans	1	$	5
Real estate Loans:
Commercial and farmland	1	230
Residential	1	47
Total	3	$	282

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.