LOANS | LOANS Total net loans at September 30, 2018 and December 31, 2017 are summarized as follows: September 30, 2018 December 31, 2017 Commercial, industrial, and agricultural $ 853,495 $ 749,138 Commercial mortgages 683,979 600,065 Residential real estate 760,342 713,347 Consumer 85,888 80,193 Credit cards 7,434 6,753 Overdrafts 325 352 Less: unearned discount (4,508 ) (3,889 ) allowance for loan losses (22,510 ) (19,693 ) Loans, net $ 2,364,445 $ 2,126,266 At September 30, 2018 and December 31, 2017 , net unamortized loan fees of $3,331 and $2,574 , respectively, have been included in the carrying value of loans. The Corporation’s outstanding loans and related unfunded commitments are primarily concentrated within Central and Western Pennsylvania, Central and Northeastern Ohio, and Western New York. The Bank attempts to limit concentrations within specific industries by utilizing dollar limitations to single industries or customers, and by entering into participation agreements with third parties. Collateral requirements are established based on management’s assessment of the customer. The Corporation maintains lending policies to control the quality of the loan portfolio. These policies delegate the authority to extend loans under specific guidelines and underwriting standards. These policies are prepared by the Corporation’s management and reviewed and ratified annually by the Corporation’s Board of Directors. Pursuant to the Corporation’s lending policies, management considers a variety of factors when determining whether to extend credit to a customer, including loan-to-value ratios, FICO scores, quality of the borrower’s financial statements, and the ability to obtain personal guarantees. Commercial, industrial, and agricultural loans comprised 36% and 35% of the Corporation’s total loan portfolio at September 30, 2018 and December 31, 2017 , respectively. Commercial mortgage loans comprised 29% and 28% of the Corporation’s total loan portfolio at September 30, 2018 and December 31, 2017 , respectively. Management assigns a risk rating to all commercial loans at loan origination. The loan-to-value policy guidelines for commercial, industrial, and agricultural loans are generally a maximum of 80% of the value of business equipment, a maximum of 75% of the value of accounts receivable, and a maximum of 60% of the value of business inventory at loan origination. The loan-to-value policy guideline for commercial mortgage loans is generally a maximum of 85% of the appraised value of the real estate. Residential real estate loans comprised 32% and 33% of the Corporation’s total loan portfolio at September 30, 2018 and December 31, 2017 , respectively. The loan-to-value policy guidelines for residential real estate loans vary depending on the collateral position and the specific type of loan. Higher loan-to-value terms may be approved with the appropriate private mortgage insurance coverage. The Corporation also originates and prices loans for sale into the secondary market. Loans so originated are classified as loans held for sale and are excluded from residential real estate loans reported above. The rationale for these sales is to mitigate interest rate risk associated with holding lower rate, long-term residential mortgages in the loan portfolio and to generate fee revenue from sales and servicing the loan. The Corporation also offers a variety of unsecured and secured consumer loan and credit card products which represented less than 10% of the total loan portfolio at both September 30, 2018 and December 31, 2017 . Terms and collateral requirements vary depending on the size and nature of the loan. Transactions in the allowance for loan losses for the three months ended September 30, 2018 were as follows: Commercial, Industrial, and Agricultural Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses, July 1, 2018 $ 7,143 $ 10,615 $ 1,900 $ 2,156 $ 101 $ 207 $ 22,122 Charge-offs (30 ) — (212 ) (469 ) (8 ) (94 ) (813 ) Recoveries 3 — 55 28 3 17 106 Provision (benefit) for loan losses (536 ) 682 235 608 11 95 1,095 Allowance for loan losses, September 30, 2018 $ 6,580 $ 11,297 $ 1,978 $ 2,323 $ 107 $ 225 $ 22,510 Transactions in the allowance for loan losses for the nine months ended September 30, 2018 were as follows: Commercial, Industrial, and Agricultural Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses, January 1, 2018 $ 6,160 $ 9,007 $ 2,033 $ 2,179 $ 120 $ 194 $ 19,693 Charge-offs (61 ) — (289 ) (1,610 ) (53 ) (236 ) (2,249 ) Recoveries 165 — 67 112 27 64 435 Provision for loan losses 316 2,290 167 1,642 13 203 4,631 Allowance for loan losses, September 30, 2018 $ 6,580 $ 11,297 $ 1,978 $ 2,323 $ 107 $ 225 $ 22,510 Transactions in the allowance for loan losses for the three months ended September 30, 2017 were as follows: Commercial, Industrial, and Agricultural Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses, July 1, 2017 $ 5,563 $ 7,641 $ 1,670 $ 2,068 $ 142 $ 185 $ 17,269 Charge-offs (20 ) (22 ) (130 ) (703 ) (39 ) (63 ) (977 ) Recoveries 36 3 — 96 8 14 157 Provision (benefit) for loan losses (223 ) 472 468 627 — 56 1,400 Allowance for loan losses, September 30, 2017 $ 5,356 $ 8,094 $ 2,008 $ 2,088 $ 111 $ 192 $ 17,849 Transactions in the allowance for loan losses for the nine months ended September 30, 2017 were as follows: Commercial, Industrial, and Agricultural Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses, January 1, 2017 $ 5,428 $ 6,753 $ 1,653 $ 2,215 $ 93 $ 188 $ 16,330 Charge-offs (50 ) (22 ) (328 ) (1,969 ) (111 ) (192 ) (2,672 ) Recoveries 167 197 73 110 23 71 641 Provision (benefit) for loan losses (189 ) 1,166 610 1,732 106 125 3,550 Allowance for loan losses, September 30, 2017 $ 5,356 $ 8,094 $ 2,008 $ 2,088 $ 111 $ 192 $ 17,849 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and is based on the Corporation’s impairment method as of September 30, 2018 and December 31, 2017 . The recorded investment in loans excludes accrued interest and unearned discounts due to their insignificance. September 30, 2018 Commercial, Industrial, and Agricultural Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ — $ 1 $ — $ — $ — $ — $ 1 Collectively evaluated for impairment 6,343 5,062 1,978 2,323 107 225 16,038 Acquired with deteriorated credit quality — — — — — — — Modified in a troubled debt restructuring 237 6,234 — — — — 6,471 Total ending allowance balance $ 6,580 $ 11,297 $ 1,978 $ 2,323 $ 107 $ 225 $ 22,510 Loans: Individually evaluated for impairment $ 1,500 $ 467 $ — $ — $ — $ — $ 1,967 Collectively evaluated for impairment 847,197 669,989 760,342 85,888 7,434 325 2,371,175 Acquired with deteriorated credit quality — 577 — — — — 577 Modified in a troubled debt restructuring 4,798 12,946 — — — — 17,744 Total ending loans balance $ 853,495 $ 683,979 $ 760,342 $ 85,888 $ 7,434 $ 325 $ 2,391,463 December 31, 2017 Commercial, Industrial, and Agricultural Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 47 $ — $ — $ — $ — $ — $ 47 Collectively evaluated for impairment 5,868 3,563 2,033 2,179 120 194 13,957 Acquired with deteriorated credit quality — — — — — — — Modified in a troubled debt restructuring 245 5,444 — — — — 5,689 Total ending allowance balance $ 6,160 $ 9,007 $ 2,033 $ 2,179 $ 120 $ 194 $ 19,693 Loans: Individually evaluated for impairment $ 1,187 $ 51 $ — $ — $ — $ — $ 1,238 Collectively evaluated for impairment 742,738 586,845 713,347 80,193 6,753 352 2,130,228 Acquired with deteriorated credit quality — 1,079 — — — — 1,079 Modified in a troubled debt restructuring 5,213 12,090 — — — — 17,303 Total ending loans balance $ 749,138 $ 600,065 $ 713,347 $ 80,193 $ 6,753 $ 352 $ 2,149,848 The following tables present information related to loans individually evaluated for impairment, including loans modified in troubled debt restructurings, by portfolio segment as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017 : September 30, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: Commercial, industrial, and agricultural $ 1,096 $ 1,096 $ 237 Commercial mortgage 9,717 8,991 6,235 Residential real estate — — — With no related allowance recorded: Commercial, industrial, and agricultural 5,918 5,202 — Commercial mortgage 5,464 4,422 — Residential real estate — — — Total $ 22,195 $ 19,711 $ 6,472 December 31, 2017 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: Commercial, industrial, and agricultural $ 1,915 $ 1,915 $ 292 Commercial mortgage 9,940 9,731 5,444 Residential real estate — — — With no related allowance recorded: Commercial, industrial, and agricultural 5,264 4,485 — Commercial mortgage 3,211 2,410 — Residential real estate — — — Total $ 20,330 $ 18,541 $ 5,736 The unpaid principal balance of impaired loans includes the Corporation’s recorded investment in the loan and amounts that have been charged off. Three months ended September 30, 2018 Three months ended September 30, 2017 Average Interest Cash Basis Average Interest Cash Basis With an allowance recorded: Commercial, industrial, and agricultural $ 3,460 $ 11 $ 11 $ 1,190 $ 20 $ 20 Commercial mortgage 9,042 37 37 9,724 77 77 Residential real estate — — — — — — With no related allowance recorded: Commercial, industrial, and agricultural 5,569 69 69 2,142 23 23 Commercial mortgage 5,153 20 20 4,981 33 33 Residential real estate — — — — — — Total $ 23,224 $ 137 $ 137 $ 18,037 $ 153 $ 153 Nine months ended September 30, 2018 Nine months ended September 30, 2017 Average Interest Cash Basis Average Interest Cash Basis With an allowance recorded: Commercial, industrial, and agricultural $ 2,672 $ 54 $ 54 $ 1,413 $ 56 $ 56 Commercial mortgage 9,147 111 111 12,497 293 293 Residential real estate — — — — — — With no related allowance recorded: Commercial, industrial, and agricultural 5,084 160 160 1,927 73 73 Commercial mortgage 4,511 66 66 2,490 100 100 Residential real estate — — — — — — Total $ 21,414 $ 391 $ 391 $ 18,327 $ 522 $ 522 The following table presents the recorded investment in non-accrual loans and loans past due over 90 days still accruing interest by class of loans as of September 30, 2018 and December 31, 2017 : September 30, 2018 December 31, 2017 Non-accrual Past Due Over 90 Days Still on Accrual Non-accrual Past Due Over 90 Days Still on Accrual Commercial, industrial, and agricultural $ 3,824 $ 265 $ 1,869 $ 78 Commercial mortgages 10,151 — 11,065 — Residential real estate 4,767 1,488 5,470 338 Consumer 140 82 828 17 Credit cards — 26 — 44 Total $ 18,882 $ 1,861 $ 19,232 $ 477 Non-accrual loans and loans past due over 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The following table presents the aging of the recorded investment in past due loans as of September 30, 2018 and December 31, 2017 by class of loans. September 30, 2018 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Loans Not Past Due Total Commercial, industrial, and agricultural $ 76 $ 587 $ 1,557 $ 2,220 $ 851,275 $ 853,495 Commercial mortgages 614 — 58 672 683,307 683,979 Residential real estate 2,039 844 4,937 7,820 752,522 760,342 Consumer 526 605 830 1,961 83,927 85,888 Credit cards 30 33 26 89 7,345 7,434 Overdrafts — — — — 325 325 Total $ 3,285 $ 2,069 $ 7,408 $ 12,762 $ 2,378,701 $ 2,391,463 December 31, 2017 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Loans Not Past Due Total Commercial, industrial, and agricultural $ 2,745 $ 646 $ 748 $ 4,139 $ 744,999 $ 749,138 Commercial mortgages 233 — 292 525 599,540 600,065 Residential real estate 2,290 1,494 4,655 8,439 704,908 713,347 Consumer 454 307 812 1,573 78,620 80,193 Credit cards 31 10 44 85 6,668 6,753 Overdrafts — — — — 352 352 Total $ 5,753 $ 2,457 $ 6,551 $ 14,761 $ 2,135,087 $ 2,149,848 Troubled Debt Restructurings A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. All loans modified in troubled debt restructurings are performing in accordance with their modified terms as of September 30, 2018 and December 31, 2017 and no principal balances were forgiven in connection with the loan restructurings. In order to determine whether a borrower is experiencing financial difficulty, the Corporation performs an evaluation using its internal underwriting policies of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without a loan modification. The Corporation has no further loan commitments to customers whose loans are classified as a troubled debt restructuring. Generally, non-performing troubled debt restructurings are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The terms of certain loans have been modified as troubled debt restructurings. The modification of the terms of such loans included either or both of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. The following table presents the number of loans, loan balances, and specific reserves for loans that have been restructured in a troubled debt restructuring as of September 30, 2018 and December 31, 2017 . September 30, 2018 December 31, 2017 Number of Loans Loan Balance Specific Reserve Number of Loans Loan Balance Specific Reserve Commercial, industrial, and agricultural 11 $ 4,798 $ 237 11 $ 5,213 $ 245 Commercial mortgages 13 12,946 6,234 9 12,090 5,444 Residential real estate — — — — — — Consumer — — — — — — Credit cards — — — — — — Total 24 $ 17,744 $ 6,471 20 $ 17,303 $ 5,689 The following table presents information associated with the loans that were modified as troubled debt restructurings during the nine months ended September 30, 2018 and the three and nine months ended September 30, 2017 . There were no loans modified as troubled debt restructurings during the three months ended September 30, 2018 . Nine months ended September 30, 2018 Three and Nine months ended September 30, 2017 Number of Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Commercial, industrial, and agricultural — $ — $ — 2 $ 324 $ 379 Commercial mortgages 4 1,091 1,091 2 6,227 6,276 Residential real estate — — — — — — Consumer — — — — — — Credit cards — — — — — — Total 4 $ 1,091 $ 1,091 4 $ 6,551 $ 6,655 The troubled debt restructurings described above increased the allowance for loan losses by $113 and resulted in charge-offs of zero during the nine months ended September 30, 2018 . The troubled debt restructurings described above increased the allowance for loan losses by $169 and $1,324 during the three and nine months ended September 30, 2017 , respectively. Credit Quality Indicators The Corporation classifies commercial, industrial, and agricultural loans and commercial mortgage loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans with outstanding balances greater than $1 million are analyzed at least semiannually and loans with outstanding balances of less than $1 million are analyzed at least annually. The Corporation uses the following definitions for risk ratings: Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date. Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans not rated as special mention, substandard, or doubtful are considered to be pass rated loans. All loans included in the following tables have been assigned a risk rating within 12 months of the balance sheet date. September 30, 2018 Pass Special Mention Substandard Doubtful Total Commercial, industrial, and agricultural $ 827,425 $ 10,304 $ 15,766 $ — $ 853,495 Commercial mortgages 665,896 3,309 14,774 — 683,979 Total $ 1,493,321 $ 13,613 $ 30,540 $ — $ 1,537,474 December 31, 2017 Pass Special Mention Substandard Doubtful Total Commercial, industrial, and agricultural $ 713,102 $ 16,726 $ 19,310 $ — $ 749,138 Commercial mortgages 581,631 4,419 14,015 — 600,065 Total $ 1,294,733 $ 21,145 $ 33,325 $ — $ 1,349,203 The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate, consumer, and credit card loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential, consumer, and credit card loans based on payment activity as of September 30, 2018 and December 31, 2017 : September 30, 2018 December 31, 2017 Residential Real Estate Consumer Credit Cards Residential Real Estate Consumer Credit Cards Performing $ 754,087 $ 85,666 $ 7,408 $ 707,539 $ 79,348 $ 6,709 Nonperforming 6,255 222 26 5,808 845 44 Total $ 760,342 $ 85,888 $ 7,434 $ 713,347 $ 80,193 $ 6,753 The Corporation’s portfolio of consumer loans maintained within Holiday Financial Services Corporation (“Holiday”) are considered to be subprime loans. Holiday is a subsidiary that offers small balance unsecured and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics than are typical in the Bank’s consumer loan portfolio. Holiday’s loan portfolio is summarized as follows at September 30, 2018 and December 31, 2017 : September 30, 2018 December 31, 2017 Consumer $ 25,242 $ 23,428 Less: unearned discount (4,508 ) (3,889 ) Total $ 20,734 $ 19,539 |