LOANS AND ALLOWANCE

The Corporation's primary lending focus is small business and middle market commercial, commercial real estate, residential real estate and consumer, which results in portfolio diversification. The following tables show the composition of the loan portfolio, the allowance for loan losses and certain credit quality aspects, all excluding loans held for sale. Loans held for sale at December 31, 2015 and 2014, were $9,894,000 and $7,235,000, respectively.

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



	December 31, 2015			December 31, 2014

Commercial and industrial loans	$	1,057,075		$	896,688
Agricultural production financing and other loans to farmers	97,711			104,927
Real estate loans:
Construction	366,704			207,221
Commercial and farmland	1,802,921			1,672,661
Residential	786,105			647,315
Home equity	348,613			286,529
Individuals' loans for household and other personal expenditures	74,717			73,400
Lease financing receivables, net of unearned income	588			1,106
Other commercial loans	159,388			35,018
Loans	4,693,822			3,924,865
Allowance for loan losses	(62,453		)	(63,964		)
Net Loans	$	4,631,369		$	3,860,901

During the twelve months ended December 31, 2015, loans acquired through business combinations totaled $430,289,000. See the information regarding the business combinations in the Note 2. ACQUISITIONS AND DIVESTITURES section of the Financial Statements and Supplementary Data included as Item 8 of this Annual Report on Form 10-K.

At December 31, 2015, Other commercial loans totaled $159,388,000, an increase of $124,370,000 from December 31, 2014. This increase was primarily a result of organic growth in the obligations of the state and political subdivisions sector of the portfolio.

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 that the allowance for loan losses is adequate to cover probable losses inherent in the loan portfolio at December 31, 2015. 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 it 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, portfolio mix and collateral values.

The allowance for loan losses is maintained through the provision for loan losses, which is a charge against earnings. The allowance is increased by provision expense 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 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 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 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 ensure that losses inherent in the portfolio are reflected in the allowance for loan losses. The environmental component adjusts the historical loss allocations for non-impaired 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.

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 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.

At December 31, 2015, the allowance for loan losses was $62,453,000, a decrease of $1,511,000 from the December 31, 2014 balance of $63,964,000. Specific reserves on impaired loans decreased $927,000 to $1,842,000, from $2,769,000 at December 31, 2014. Net charge offs for the twelve months ended December 31, 2015, were $1,928,000, a decrease of $4,538,000 from the same period in 2014. The provision for loan losses for the twelve months ended December 31, 2015 was $417,000, a decrease of $2,143,000 from the same period in 2014. The determination of the provision for loan losses in any period is based on management’s continuing review and evaluation of the loan portfolio, and its judgment as to the impact of current economic conditions on the portfolio.

The following table summarizes changes in the allowance for loan losses by loan segment for the twelve months ended December 31, 2015, 2014 and 2013:



	Twelve Months Ended December 31, 2015
	Commercial			Commercial Real Estate			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	28,824		$	19,327		$	2,658		$	13,152		$	3		$	63,964
Provision for losses	(1,901		)	1,710			299			310			(1		)	417
Recoveries on loans	1,911			2,545			352			1,536						6,344
Loans charged off	(2,356		)	(1,437		)	(620		)	(3,859		)				(8,272		)
Balances, December 31, 2015	$	26,478		$	22,145		$	2,689		$	11,139		$	2		$	62,453



	Twelve Months Ended December 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	3,459			(464		)	423			(839		)	$	(19	)	2,560
Recoveries on loans	5,435			3,297			377			1,783			24			10,916
Loans charged off	(7,246		)	(6,608		)	(657		)	(2,869		)	(2		)	(17,382		)
Balances, December 31, 2014	$	28,824		$	19,327		$	2,658		$	13,152		$	3		$	63,964



	Twelve Months Ended December 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	2,794			340			(11		)	3,514			$	11		6,648
Recoveries on loans	4,586			3,552			556			1,292			4			9,990
Loans charged off	(6,117		)	(7,493		)	(623		)	(3,886		)	(15		)	(18,134		)
Balances, December 31, 2013	$	27,176		$	23,102		$	2,515		$	15,077					$	67,870

The following tables show the Corporation’s allowance for loan losses and loan portfolio by loan segment for the years indicated:



	December 31, 2015
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance balances:
Individually evaluated for impairment	$	1,277	$	243			$	169			$	1,689
Collectively evaluated for impairment	25,201		21,753		$	2,689	10,966		$	2	60,611
Loans acquired with deteriorated credit quality			149				4				153
Total Allowance for Loan Losses	$	26,478	$	22,145	$	2,689	$	11,139	$	2	$	62,453
Loan balances:
Individually evaluated for impairment	$	7,877	$	16,670			$	4,020			$	28,567
Collectively evaluated for impairment	1,298,988		2,096,089		$	74,717	1,125,316		$	588	4,595,698
Loans acquired with deteriorated credit quality	7,309		56,866				5,382				69,557
Loans	$	1,314,174	$	2,169,625	$	74,717	$	1,134,718	$	588	$	4,693,822



	December 31, 2014
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance balances:
Individually evaluated for impairment	$	1,455	$	470			$	194			$	2,119
Collectively evaluated for impairment	27,369		18,207		$	2,658	12,958		$	3	61,195
Loans acquired with deteriorated credit quality			650								650
Total Allowance for Loan Losses	$	28,824	$	19,327	$	2,658	$	13,152	$	3	$	63,964
Loan balances:
Individually evaluated for impairment	$	16,108	$	23,963			$	4,022			$	44,093
Collectively evaluated for impairment	1,011,122		1,796,797		$	73,400	925,282		$	1,106	3,807,707
Loans acquired with deteriorated credit quality	9,403		59,122				4,540				73,065
Loans	$	1,036,633	$	1,879,882	$	73,400	$	933,844	$	1,106	$	3,924,865

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 typically 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. Uncollected 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 for the years indicated:



	December 31, 2015		December 31, 2014
Commercial and industrial loans	$	4,634	$	7,048
Agriculture production financing and other loans to farmers	827		5,800
Real estate loans:
Construction	736		1,439
Commercial and farmland	11,277		19,350
Residential	11,818		12,933
Home equity	1,952		1,988
Individuals' loans for household and other personal expenditures	145		231
Total	$	31,389	$	48,789

Commercial impaired loans include non-accrual loans, loans accounted for under ASC 310-30, and loans risk graded as substandard, doubtful and loss that were still accruing but deemed impaired according to the 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 years indicated:



	December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	22,151	$	11,669			$	12,578	$	488
Agriculture production financing and other loans to farmers	370		361				439
Real estate loans:
Construction	4,551		2,336				3,662		157
Commercial and farmland	95,930		69,024				71,569		3,328
Residential	11,262		7,338				7,926		244
Home equity	297		247				249
Other commercial loans	20
Total	$	134,581	$	90,975			$	96,423	$	4,217
Impaired loans with related allowance:
Commercial and industrial loans	$	3,043	$	2,690	$	1,247	$	2,752	$	38
Agriculture production financing and other loans to farmers	466		466		30		538
Real estate loans:
Commercial and farmland	2,144		1,933		392		1,868
Residential	2,300		1,463		173		1,787
Total	$	7,953	$	6,552	$	1,842	$	6,945	$	38
Total Impaired Loans	$	142,534	$	97,527	$	1,842	$	103,368	$	4,255



	December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	35,514	$	18,029			$	18,711	$	362
Agriculture production financing and other loans to farmers	26		22				26
Real estate loans:
Construction	12,956		9,318				9,837		427
Commercial and farmland	95,856		68,187				70,844		3,389
Residential	10,591		6,839				6,987		119
Home equity	3,590		398				402
Other commercial loans	30
Total	$	158,563	$	102,793			$	106,807	$	4,297
Impaired loans with related allowance:
Commercial and industrial loans	$	1,766	$	1,684	$	1,055	$	1,721	$	40
Agriculture production financing and other loans to farmers	6,777		5,777		400		8,044		1
Real estate loans:
Commercial and farmland	7,159		4,971		1,120		4,999		24
Residential	1,001		998		194		1,000
Total	$	16,703	$	13,430	$	2,769	$	15,764	$	65
Total Impaired Loans	$	175,266	$	116,223	$	2,769	$	122,571	$	4,362



	December 31, 2013
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	35,066	$	16,371			$	19,209	$	192
Agriculture production financing and other loans to farmers	32		30				32
Real estate loans:
Construction	16,109		10,625				11,621		117
Commercial and farmland	128,073		83,033				84,057		1,663
Residential	6,746		3,910				4,236		75
Home equity	3,299		112				225
Other commercial loans	454		172				181		1
Total	$	189,779	$	114,253			$	119,561	$	2,048
Impaired loans with related allowance:
Commercial and industrial loans	$	1,390	$	1,216	$	683	$	1,240	$	9
Real estate loans:
Commercial and farmland	4,657		4,215		894		4,291		9
Residential	74		71		6		76
Total	$	6,121	$	5,502	$	1,583	$	5,607	$	18
Total Impaired Loans	$	195,900	$	119,755	$	1,583	$	125,168	$	2,066

At December 31, 2015, the commercial impaired loan total of $97,527,000 included $11,365,000 and $1,841,000 in loans acquired from Ameriana and C Financial, respectively. At December 31, 2014, the commercial impaired loan total of $116,223,000 included $17,027,000 in loans acquired from Community. At December 31, 2013, the commercial impaired loan total of $119,755,000 included $69,448,000 in loans acquired from CFS.

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 for the years 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.



	December 31, 2015
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss	Consumer Performing		Consumer Non Performing		Total
Commercial and industrial loans	$	962,340	$	48,432	$	45,984	$	319						$	1,057,075
Agriculture production financing and other loans to farmers	77,884		6,665		13,162									97,711
Real estate loans:
Construction	345,449		1,271		1,790					$	18,114	$	80	366,704
Commercial and farmland	1,679,141		46,442		77,338									1,802,921
Residential	171,576		3,107		10,428					593,533		7,461		786,105
Home equity	8,218		48		600					337,718		2,029		348,613
Individuals' loans for household and other personal expenditures										74,491		226		74,717
Lease financing receivables, net of unearned income	495				93									588
Other commercial loans	159,388													159,388
Loans	$	3,404,491	$	105,965	$	149,395	$	319		$	1,023,856	$	9,796	$	4,693,822



	December 31, 2014
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss	Consumer Performing		Consumer Non Performing		Total
Commercial and industrial loans	$	823,732	$	24,455	$	48,226	$	275						$	896,688
Agriculture production financing and other loans to farmers	96,155		1,195		7,577									104,927
Real estate loans:
Construction	185,394		3,164		2,928					$	15,588	$	147	207,221
Commercial and farmland	1,552,781		29,484		90,161							235		1,672,661
Residential	149,430		6,321		10,918					470,972		9,674		647,315
Home equity	6,368		12		690					277,571		1,888		286,529
Individuals' loans for household and other personal expenditures										73,165		235		73,400
Lease financing receivables, net of unearned income	998				108									1,106
Other commercial loans	35,018													35,018
Loans	$	2,849,876	$	64,631	$	160,608	$	275		$	837,296	$	12,179	$	3,924,865

The following tables illustrate the past due aging of the Corporation’s loan portfolio, by loan class, for the years indicated:



	December 31, 2015
	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	$	1,052,275	$	166					$	4,634	$	4,800	$	1,057,075
Agriculture production financing and other loans to farmers	96,884								827		827		97,711
Real estate loans:
Construction	362,084		3,884						736		4,620		366,704
Commercial and farmland	1,786,092		5,552						11,277		16,829		1,802,921
Residential	765,634		6,090		$	2,061	$	502	11,818		20,471		786,105
Home equity	344,344		1,433		560		324		1,952		4,269		348,613
Individuals' loans for household and other personal expenditures	73,990		445		56		81		145		727		74,717
Lease financing receivables, net of unearned income	588												588
Other commercial loans	159,324				64						64		159,388
Loans	$	4,641,215	$	17,570	$	2,741	$	907	$	31,389	$	52,607	$	4,693,822



	December 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	$	882,596	$	4,006	$	53	$	2,985	$	7,048	$	14,092	$	896,688
Agriculture production financing and other loans to farmers	98,236		891						5,800		6,691		104,927
Real estate loans:
Construction	204,683		1,017		82				1,439		2,538		207,221
Commercial and farmland	1,642,016		9,846		778		$	671	19,350		30,645		1,672,661
Residential	626,821		4,876		1,831		854		12,933		20,494		647,315
Home equity	282,828		1,213		352		148		1,988		3,701		286,529
Individuals' loans for household and other personal expenditures	72,853		258		53		5		231		547		73,400
Lease financing receivables, net of unearned income	1,106												1,106
Other commercial loans	35,018												35,018
Loans	$	3,846,157	$	22,107	$	3,149	$	4,663	$	48,789	$	78,708	$	3,924,865

See the information regarding the analysis of loan loss experience in the “Loan Quality" and "Provision And Allowance For Loan Losses" section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Item 7 of this Annual Report on Form 10-K.

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 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 original 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 ended December 31, 2015 and 2014:



	December 31, 2015
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Commercial and industrial loans	$	4,111	$	2,115	7
Real estate loans:
Construction	79		80		1
Commercial and farmland	1,281		3,024		3
Residential	200		1,113		10
Home equity	263		242		1
Individuals' loans for household and other personal expenditures	26		27		1
Total	$	5,960	$	6,601	23



	December 31, 2014
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Real estate loans:
Commercial and farmland	$	259	$	259	1
Residential	632		622		9
Home equity	320		350		11
Individuals' loans for household and other personal expenditures	26		26		2
Total	$	1,237	$	1,257	23

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



	December 31, 2015
	Term Modification		Rate Modification		Combination		Total Modification
Commercial and industrial loans	$	761			$	1,053	$	1,814
Real estate loans:
Commercial and farmland	1,231				1,026		2,257
Residential	823		$	170	45		1,038
Home equity			242				242
Individuals' loans for household and other personal expenditures			27				27
Total	$	2,815	$	439	$	2,124	$	5,378



	December 31, 2014
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Commercial and farmland	$	288					$	288
Residential	31		$	218	$	360	609
Home equity			100		243		343
Individuals' loans for household and other personal expenditures					23		23
Total	$	319	$	318	$	626	$	1,263

Loans secured by commercial and farmland real estate made up 46 percent of the post-modification balances of the troubled debt restructured loans during the twelve months ending December 31, 2015. The second largest class of troubled debt restructurings during 2015 was commercial and industrial loans, which accounted for 32 percent of the total post modification balances.

The following tables summarize troubled debt restructures that occurred during the twelve months ended December 31, 2015 and 2014, 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.



	Twelve Months Ended December 31, 2015
	Number of Loans	Recorded Balance
Real estate loans:
Residential	1	$	21
Total	1	$	21



	Twelve Months Ended December 31, 2014
	Number of Loans	Recorded Balance
Real estate loans:
Residential	1	$	70
Total	1	$	70

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.