Loans | LOANS Total net loans at June 30, 2019 and December 31, 2018 are summarized as follows: June 30, 2019 December 31, 2018 Commercial, industrial, and agricultural $ 993,629 $ 916,297 Commercial mortgages 750,334 697,776 Residential real estate 786,354 771,309 Consumer 89,331 86,035 Credit cards 7,284 7,623 Overdrafts 337 308 Less: unearned discount (4,911 ) (4,791 ) allowance for loan losses (21,437 ) (19,704 ) Loans, net $ 2,600,921 $ 2,454,853 At June 30, 2019 and December 31, 2018 , net unamortized loan fees of $3,374 and $3,175 , 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 northwest Pennsylvania, central and northeast 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 38% and 37% of the Corporation’s total loan portfolio at June 30, 2019 and December 31, 2018 , respectively. Commercial mortgage loans comprised 29% and 28% of the Corporation’s total loan portfolio at June 30, 2019 and December 31, 2018 , 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 30% and 31% of the Corporation’s total loan portfolio at June 30, 2019 and December 31, 2018 , 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 4% of the total loan portfolio at both June 30, 2019 and December 31, 2018 . 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 June 30, 2019 were as follows: Commercial,Industrial, and Agricultural Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses, April 1, 2019 $ 7,787 $ 8,846 $ 1,383 $ 2,040 $ 105 $ 185 $ 20,346 Charge-offs 0 0 (146 ) (513 ) (26 ) (88 ) (773 ) Recoveries 4 16 2 28 1 25 76 Provision (benefit) for loan losses 317 676 164 586 7 38 1,788 Allowance for loan losses, June 30, 2019 $ 8,108 $ 9,538 $ 1,403 $ 2,141 $ 87 $ 160 $ 21,437 Transactions in the allowance for loan losses for the six months ended June 30, 2019 were as follows: Commercial,Industrial, Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses, January 1, 2019 $ 7,341 $ 7,490 $ 2,156 $ 2,377 $ 103 $ 237 $ 19,704 Charge-offs 0 (2 ) (244 ) (1,062 ) (52 ) (216 ) (1,576 ) Recoveries 8 1 67 74 6 59 215 Provision (benefit) for loan losses 759 2,049 (576 ) 752 30 80 3,094 Allowance for loan losses, June 30, 2019 $ 8,108 $ 9,538 $ 1,403 $ 2,141 $ 87 $ 160 $ 21,437 Transactions in the allowance for loan losses for the three months ended June 30, 2018 were as follows: Commercial, Industrial, and Agricultural Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses, April 1, 2018 $ 6,282 $ 10,020 $ 2,052 $ 2,065 $ 123 $ 214 $ 20,756 Charge-offs 0 0 (77 ) (551 ) (26 ) (56 ) (710 ) Recoveries 94 0 9 35 17 16 171 Provision (benefit) for loan losses 767 595 (84 ) 607 (13 ) 33 1,905 Allowance for loan losses, June 30, 2018 $ 7,143 $ 10,615 $ 1,900 $ 2,156 $ 101 $ 207 $ 22,122 Transactions in the allowance for loan losses for the six months ended June 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 (31 ) 0 (77 ) (1,141 ) (45 ) (142 ) (1,436 ) Recoveries 162 0 12 84 24 47 329 Provision (benefit) for loan losses 852 1,608 (68 ) 1,034 2 108 3,536 Allowance for loan losses, June 30, 2018 $ 7,143 $ 10,615 $ 1,900 $ 2,156 $ 101 $ 207 $ 22,122 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 June 30, 2019 and December 31, 2018 . The recorded investment in loans excludes accrued interest and unearned discounts due to their insignificance. June 30, 2019 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 $ 222 $ 664 $ 0 $ 0 $ 0 $ 0 $ 886 Collectively evaluated for impairment 7,795 4,154 1,403 2,141 87 160 15,740 Acquired with deteriorated credit quality 0 0 0 0 0 0 0 Modified in a troubled debt restructuring 91 4,720 0 0 0 0 4,811 Total ending allowance balance $ 8,108 $ 9,538 $ 1,403 $ 2,141 $ 87 $ 160 $ 21,437 Loans: Individually evaluated for impairment $ 1,666 $ 1,435 $ 472 $ 0 $ 0 $ 0 $ 3,573 Collectively evaluated for impairment 988,617 738,828 785,882 89,331 7,284 337 2,610,279 Acquired with deteriorated credit quality 0 545 0 0 0 0 545 Modified in a troubled debt restructuring 3,346 9,526 0 0 0 0 12,872 Total ending loans balance $ 993,629 $ 750,334 $ 786,354 $ 89,331 $ 7,284 $ 337 $ 2,627,269 December 31, 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 $ 54 $ 4 $ 100 $ 0 $ 0 $ 10 $ 168 Collectively evaluated for impairment 7,183 3,036 2,056 2,377 103 227 14,982 Acquired with deteriorated credit quality 0 0 0 0 0 0 0 Modified in a troubled debt restructuring 104 4,450 0 0 0 0 4,554 Total ending allowance balance $ 7,341 $ 7,490 $ 2,156 $ 2,377 $ 103 $ 237 $ 19,704 Loans: Individually evaluated for impairment $ 1,334 1,446 502 0 0 10 $ 3,292 Collectively evaluated for impairment 910,386 685,714 770,807 86,035 7,623 298 2,460,863 Acquired with deteriorated credit quality 0 567 0 0 0 0 567 Modified in a troubled debt restructuring 4,577 10,049 0 0 0 0 14,626 Total ending loans balance $ 916,297 697,776 771,309 86,035 7,623 308 $ 2,479,348 The following tables present information related to loans individually evaluated for impairment, including loans modified in troubled debt restructurings, by portfolio segment as of June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018 : June 30, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: Commercial, industrial, and agricultural $ 2,829 $ 1,268 $ 313 Commercial mortgage 8,179 7,790 5,384 Residential real estate 0 0 0 With no related allowance recorded: Commercial, industrial, and agricultural 4,493 3,744 0 Commercial mortgage 4,084 3,171 0 Residential real estate 492 472 0 Total $ 20,077 $ 16,445 $ 5,697 December 31, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: Commercial, industrial, and agricultural $ 3,053 $ 3,037 $ 158 Commercial mortgage 10,799 6,709 4,454 Residential real estate 502 502 100 Overdrafts 10 10 10 With no related allowance recorded: Commercial, industrial, and agricultural 3,684 2,874 0 Commercial mortgage 5,659 4,786 0 Residential real estate 0 0 0 Overdrafts 0 0 0 Total $ 23,707 $ 17,918 $ 4,722 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 June 30, 2019 Three months ended June 30, 2018 Average Recorded Investment Interest Income Recognized Cash Basis Interest Recognized Average Interest Cash Basis With an allowance recorded: Commercial, industrial, and agricultural $ 1,273 $ 27 $ 27 $ 3,838 $ 21 $ 21 Commercial mortgage 7,807 46 46 8,738 56 56 Residential real estate 0 0 0 0 0 0 With no related allowance recorded: Commercial, industrial, and agricultural 3,811 32 32 5,326 45 45 Commercial mortgage 3,257 20 20 5,490 33 33 Residential real estate 485 4 4 0 0 0 Total $ 16,633 $ 129 $ 129 $ 23,392 $ 155 $ 155 Six months ended June 30, 2019 Six months ended June 30, 2018 Average Interest Cash Basis Average Interest Cash Basis With an allowance recorded: Commercial, industrial, and agricultural $ 1,861 $ 65 $ 65 $ 3,197 $ 43 $ 43 Commercial mortgage 7,441 86 86 9,069 74 74 Residential real estate 0 0 0 0 0 0 With no related allowance recorded: Commercial, industrial, and agricultural 3,499 86 86 5,045 91 91 Commercial mortgage 3,767 38 38 4,463 46 46 Residential real estate 490 11 11 0 0 0 Total $ 17,058 $ 286 $ 286 $ 21,774 $ 254 $ 254 The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still accruing interest by class of loans as of June 30, 2019 and December 31, 2018 : June 30, 2019 December 31, 2018 Nonaccrual Past Due Over 90 Days Still on Accrual Nonaccrual Past Due Over 90 Days Still on Accrual Commercial, industrial, and agricultural $ 3,263 $ 248 $ 2,076 $ 487 Commercial mortgages 6,219 0 6,329 53 Residential real estate 4,824 195 5,187 299 Consumer 554 — 670 43 Credit cards 0 21 0 5 Total $ 14,860 $ 464 $ 14,262 $ 887 Nonaccrual 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 June 30, 2019 and December 31, 2018 by class of loans. June 30, 2019 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 $ 3,221 $ 2,607 $ 2,983 $ 8,811 $ 984,818 $ 993,629 Commercial mortgages 904 5,283 4,111 10,298 740,036 750,334 Residential real estate 3,704 774 2,757 7,235 779,119 786,354 Consumer 460 153 284 897 88,434 89,331 Credit cards 105 5 21 131 7,153 7,284 Overdrafts 0 0 0 0 337 337 Total $ 8,394 $ 8,822 $ 10,156 $ 27,372 $ 2,599,897 $ 2,627,269 December 31, 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 $ 2,339 $ 9 $ 2,264 $ 4,612 $ 911,685 $ 916,297 Commercial mortgages 758 3,055 283 4,096 693,680 697,776 Residential real estate 3,982 1,257 3,988 9,227 762,082 771,309 Consumer 470 282 363 1,115 84,920 86,035 Credit cards 59 15 5 79 7,544 7,623 Overdrafts 0 0 0 0 308 308 Total $ 7,608 $ 4,618 $ 6,903 $ 19,129 $ 2,460,219 $ 2,479,348 Troubled Debt Restructurings 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 June 30, 2019 and December 31, 2018 . June 30, 2019 December 31, 2018 Number of Loans Loan Balance Specific Reserve Number of Loans Loan Balance Specific Reserve Commercial, industrial, and agricultural 10 $ 3,346 $ 91 10 $ 4,577 $ 104 Commercial mortgages 15 9,526 4,720 15 10,049 4,450 Residential real estate 0 0 0 0 0 0 Consumer 0 0 0 0 0 0 Credit cards 0 0 0 0 0 0 Total 25 $ 12,872 $ 4,811 25 $ 14,626 $ 4,554 There were no loans modified as troubled debt restructurings during the three and six months ended June 30, 2019 and four loans modified as troubled debt restructurings during the three and six months ended June 30, 2018 . Three and six months ended June 30, 2018 Number of Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Commercial, industrial, and agricultural 0 $ 0 $ 0 Commercial mortgages 4 1,091 1,091 Residential real estate 0 0 0 Consumer 0 0 0 Credit cards 0 0 0 Total 4 $ 1,091 $ 1,091 A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no loans modified as troubled debt restructurings for which there was a payment default within a twelve-month cycle following the modification during the period ended June 30, 2019 and June 30, 2018 . There were no principal balances were forgiven in connection with the loan restructurings. In order to determine whether a borrower is experiencing financial difficulty, the Corporation evaluates the probability that the borrower will default on any of its debt payments in the foreseeable future without a loan modification. This evaluation is performed using the Corporation’s internal underwriting policies. The Corporation has no further loan commitments to customers whose loans are classified as a troubled debt restructuring. Generally, nonperforming 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. 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. 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. June 30, 2019 Pass Special Mention Substandard Doubtful Total Commercial, industrial, and agricultural $ 952,065 $ 23,169 $ 18,395 $ 0 $ 993,629 Commercial mortgages 730,455 8,935 10,944 0 750,334 Total $ 1,682,520 $ 32,104 $ 29,339 $ 0 $ 1,743,963 December 31, 2018 Pass Special Mention Substandard Doubtful Total Commercial, industrial, and agricultural $ 890,360 $ 10,484 $ 15,453 $ 0 $ 916,297 Commercial mortgages 684,806 3,236 9,734 0 697,776 Total $ 1,575,166 $ 13,720 $ 25,187 $ 0 $ 1,614,073 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 June 30, 2019 and December 31, 2018 : June 30, 2019 December 31, 2018 Residential Real Estate Consumer Credit Cards Residential Real Estate Consumer Credit Cards Performing $ 781,335 $ 88,777 $ 7,263 $ 765,823 $ 85,322 $ 7,618 Nonperforming 5,019 554 21 5,486 713 5 Total $ 786,354 $ 89,331 $ 7,284 $ 771,309 $ 86,035 $ 7,623 The Corporation’s portfolio of residential real estate and 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 June 30, 2019 and December 31, 2018 : 6/30/2019 12/31/2018 Consumer $ 26,898 $ 26,568 Less: unearned discount (4,911 ) (4,791 ) Total $ 21,987 $ 21,777 |