Loans | LOANS Total net loans at March 31, 2020 and December 31, 2019 are summarized as follows: March 31, 2020 December 31, 2019 Commercial, industrial and agricultural $ 1,090,915 $ 1,046,665 Commercial mortgages 846,215 814,002 Residential real estate 814,657 814,030 Consumer 94,425 124,785 Credit cards 8,683 7,569 Overdrafts 311 2,146 Less: unearned discount (4,546 ) (5,162 ) allowance for loan losses (21,915 ) (19,473 ) Loans, net $ 2,828,745 $ 2,784,562 At March 31, 2020 and December 31, 2019 , net unamortized loan fees of $3,267 and $3,092 , 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 March 31, 2020 and December 31, 2019 , respectively. Commercial mortgage loans comprised 30% and 29% of the Corporation’s total loan portfolio at March 31, 2020 and December 31, 2019 , 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 70% 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 29% and 29% of the Corporation’s total loan portfolio at March 31, 2020 and December 31, 2019 , 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 March 31, 2020 and December 31, 2019 . 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 March 31, 2020 were as follows: Commercial,Industrial Commercial Mortgages Residential Real Estate Consumer Credit Cards Overdrafts Total Allowance for loan losses, January 1, 2020 $ 8,287 $ 6,952 $ 1,499 $ 2,411 $ 84 $ 240 $ 19,473 Charge-offs (25 ) 0 (143 ) (592 ) (31 ) (119 ) (910 ) Recoveries 18 172 3 43 1 36 273 Provision (benefit) for loan losses 2,252 368 99 276 58 26 3,079 Allowance for loan losses, March 31, 2020 $ 10,532 $ 7,492 $ 1,458 $ 2,138 $ 112 $ 183 $ 21,915 Transactions in the allowance for loan losses for the three months ended March 31, 2019 were as follows: Commercial, Industrial and Agricultural 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 (17 ) (98 ) (549 ) (26 ) (128 ) (818 ) Recoveries 4 0 65 46 5 34 154 Provision (benefit) for loan losses 442 1,373 (740 ) 166 23 42 1,306 Allowance for loan losses, March 31, 2019 $ 7,787 $ 8,846 $ 1,383 $ 2,040 $ 105 $ 185 $ 20,346 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 March 31, 2020 and December 31, 2019 . The recorded investment in loans excludes accrued interest and unearned discounts due to their insignificance. March 31, 2020 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 $ 3,489 $ 1,264 $ 51 $ 0 $ 0 $ 0 $ 4,804 Collectively evaluated for impairment 7,009 5,912 1,407 2,138 112 183 16,761 Acquired with deteriorated credit quality 0 0 0 0 0 0 0 Modified in a troubled debt restructuring 34 316 0 0 0 0 350 Total ending allowance balance $ 10,532 $ 7,492 $ 1,458 $ 2,138 $ 112 $ 183 $ 21,915 Loans: Individually evaluated for impairment $ 8,663 $ 12,172 $ 460 $ 0 $ 0 $ 0 $ 21,295 Collectively evaluated for impairment 1,079,220 826,966 814,197 94,425 8,683 311 2,823,802 Acquired with deteriorated credit quality 0 512 0 0 0 0 512 Modified in a troubled debt restructuring 3,032 6,565 0 0 0 0 9,597 Total ending loans balance $ 1,090,915 $ 846,215 $ 814,657 $ 94,425 $ 8,683 $ 311 $ 2,855,206 December 31, 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 $ 645 $ 1,264 $ 34 $ 0 $ 0 $ 0 $ 1,943 Collectively evaluated for impairment 7,614 5,358 1,465 2,411 84 240 17,172 Acquired with deteriorated credit quality 0 0 0 0 0 0 0 Modified in a troubled debt restructuring 28 330 0 0 0 0 358 Total ending allowance balance $ 8,287 $ 6,952 $ 1,499 $ 2,411 $ 84 $ 240 $ 19,473 Loans: Individually evaluated for impairment $ 8,078 $ 2,410 $ 465 $ 0 $ 0 $ 0 $ 10,953 Collectively evaluated for impairment 1,035,494 804,360 813,565 124,785 7,569 2,146 2,787,919 Acquired with deteriorated credit quality 0 523 0 0 0 0 523 Modified in a troubled debt restructuring 3,093 6,709 0 0 0 0 9,802 Total ending loans balance $ 1,046,665 $ 814,002 $ 814,030 $ 124,785 $ 7,569 $ 2,146 $ 2,809,197 The following tables present information related to loans individually evaluated for impairment, including loans modified in troubled debt restructurings, by portfolio segment as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 : March 31, 2020 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: Commercial, industrial and agricultural $ 7,111 $ 7,068 $ 3,523 Commercial mortgage 6,542 4,312 1,580 Residential real estate 480 460 51 With no related allowance recorded: Commercial, industrial and agricultural 4,780 4,627 0 Commercial mortgage 14,666 14,425 0 Residential real estate 0 0 0 Total $ 33,579 $ 30,892 $ 5,154 December 31, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: Commercial, industrial and agricultural $ 2,657 $ 1,476 $ 673 Commercial mortgage 6,541 4,349 1,594 Residential real estate 485 465 34 With no related allowance recorded: Commercial, industrial and agricultural 9,845 9,695 0 Commercial mortgage 4,903 4,770 0 Residential real estate 0 0 0 Total $ 24,431 $ 20,755 $ 2,301 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 March 31, 2020 Three months ended March 31, 2019 Average Interest Cash Basis Average Interest Cash Basis With an allowance recorded: Commercial, industrial and agricultural $ 4,272 $ 17 $ 17 $ 2,158 $ 38 $ 38 Commercial mortgage 4,331 37 37 7,267 40 40 Residential real estate 463 5 5 0 0 0 With no related allowance recorded: Commercial, industrial and agricultural 7,161 42 42 3,376 54 54 Commercial mortgage 9,598 158 158 4,065 18 18 Residential real estate 0 0 0 500 7 7 Total $ 25,825 $ 259 $ 259 $ 17,366 $ 157 $ 157 The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of March 31, 2020 and December 31, 2019 : March 31, 2020 December 31, 2019 Nonaccrual Past Due Over 90 Days Still on Accrual Nonaccrual Past Due Over 90 Days Still on Accrual Commercial, industrial and agricultural $ 12,144 $ 16 $ 11,644 $ 0 Commercial mortgages 14,237 0 4,533 0 Residential real estate 4,663 0 4,724 59 Consumer 810 0 835 0 Credit cards 0 17 0 2 Total $ 31,854 $ 33 $ 21,736 $ 61 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 March 31, 2020 and December 31, 2019 by class of loans. March 31, 2020 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 $ 2,604 $ 6,251 $ 4,809 $ 13,664 $ 1,077,251 $ 1,090,915 Commercial mortgages 11,773 179 2,599 14,551 831,664 846,215 Residential real estate 3,285 623 2,601 6,509 808,148 814,657 Consumer 450 238 433 1,121 93,304 94,425 Credit cards 33 33 17 83 8,600 8,683 Overdrafts 0 0 0 0 311 311 Total $ 18,145 $ 7,324 $ 10,459 $ 35,928 $ 2,819,278 $ 2,855,206 December 31, 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 $ 1,273 $ 548 $ 3,784 $ 5,605 $ 1,041,060 $ 1,046,665 Commercial mortgages 162 183 2,594 2,939 811,063 814,002 Residential real estate 3,383 1,270 2,714 7,367 806,663 814,030 Consumer 412 311 415 1,138 123,647 124,785 Credit cards 48 54 2 104 7,465 7,569 Overdrafts 0 0 0 0 2,146 2,146 Total $ 5,278 $ 2,366 $ 9,509 $ 17,153 $ 2,792,044 $ 2,809,197 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 March 31, 2020 and December 31, 2019 . March 31, 2020 December 31, 2019 Number of Loans Loan Balance Specific Reserve Number of Loans Loan Balance Specific Reserve Commercial, industrial and agricultural 10 $ 3,032 $ 34 10 $ 3,093 $ 28 Commercial mortgages 13 6,565 316 13 6,709 330 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 23 $ 9,597 $ 350 23 $ 9,802 $ 358 There were no loans modified as troubled debt restructurings during the three months ended March 31, 2020 or 2019, respectively. 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 March 31, 2020 and March 31, 2019 . There were no principal balances 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. March 31, 2020 Pass Special Mention Substandard Doubtful Total Commercial, industrial and agricultural $ 1,049,414 $ 13,444 $ 28,057 $ 0 $ 1,090,915 Commercial mortgages 799,848 22,388 23,979 0 846,215 Total $ 1,849,262 $ 35,832 $ 52,036 $ 0 $ 1,937,130 December 31, 2019 Pass Special Mention Substandard Doubtful Total Commercial, industrial and agricultural $ 1,004,445 $ 16,696 $ 25,524 $ 0 $ 1,046,665 Commercial mortgages 780,798 18,837 14,367 0 814,002 Total $ 1,785,243 $ 35,533 $ 39,891 $ 0 $ 1,860,667 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 March 31, 2020 and December 31, 2019 : March 31, 2020 December 31, 2019 Residential Real Estate Consumer Credit Cards Residential Real Estate Consumer Credit Cards Performing $ 809,994 $ 93,615 $ 8,666 $ 809,247 $ 123,950 $ 7,567 Nonperforming 4,663 810 17 4,783 835 2 Total $ 814,657 $ 94,425 $ 8,683 $ 814,030 $ 124,785 $ 7,569 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 March 31, 2020 and December 31, 2019 : 3/31/2020 12/31/2019 Consumer $ 25,855 $ 28,122 Less: unearned discount (4,546 ) (5,162 ) Total $ 21,309 $ 22,960 |