LOANS

The Corporation grants commercial, residential, and consumer loans to customers primarily within southcentral Pennsylvania and northern Maryland and the surrounding area. A large portion of the loan portfolio is secured by real estate. Although the Bank has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Corporation’s internal risk rating system as of December 31, 2016 and 2015:



In thousands	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2016
Commercial and industrial	$	134,088	$	2,355	$	3,901	$	—	$	140,344
Commercial real estate	291,762		17,376		9,842		—		318,980
Commercial real estate construction	13,606		1,202		463		—		15,271
Residential mortgage	344,048		3,617		874		—		348,539
Home equity lines of credit	69,190		756		126		—		70,072
Consumer	14,704		—		—		—		14,704
Total	$	867,398	$	25,306	$	15,206	$	—	$	907,910
December 31, 2015
Commercial and industrial	$	112,037	$	3,744	$	1,911	$	—	$	117,692
Commercial real estate	252,071		23,421		14,407		—		289,899
Commercial real estate construction	11,087		1,968		374		—		13,429
Residential mortgage	350,537		5,548		1,143		—		357,228
Home equity lines of credit	58,856		1,138		130		—		60,124
Consumer	14,588		—		—		—		14,588
Total	$	799,176	$	35,819	$	17,965	$	—	$	852,960

The following table summarizes information relative to impaired loans by loan portfolio class as of December 31, 2016 and 2015:



	Impaired Loans with Allowance						Impaired Loans with No Allowance
In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
December 31, 2016
Commercial and industrial	$	948	$	948	$	599	$	1,178	$	1,178
Commercial real estate	—		—		—		8,764		8,965
Commercial real estate construction	—		—		—		300		300
Residential mortgage	376		376		333		379		379
Total	$	1,324	$	1,324	$	932	$	10,621	$	10,822
December 31, 2015
Commercial and industrial	$	—	$	—	$	—	$	1,471	$	1,471
Commercial real estate	—		—		—		8,185		8,396
Commercial real estate construction	—		—		—		374		648
Residential mortgage	—		—		—		461		461
Total	$	—	$	—	$	—	$	10,491	$	10,976

The following table summarizes information in regards to average of impaired loans and related interest income by loan portfolio class:



	Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
December 31, 2016
Commercial and industrial	$	190	$	—	$	1,356	$	3
Commercial real estate	—		—		8,377		371
Commercial real estate construction	—		—		330		—
Residential mortgage	224		—		424		17
Total	$	414	$	—	$	10,487	$	391
December 31, 2015
Commercial and industrial	$	—	$	—	$	1,591	$	129
Commercial real estate	—		—		9,057		449
Commercial real estate construction	—		—		276		—
Residential mortgage	278		—		463		18
Total	$	278	$	—	$	11,387	$	596
December 31, 2014
Commercial and industrial	$	—	$	—	$	1,351	$	2
Commercial real estate	144		—		10,380		459
Commercial real estate construction	—		—		604		—
Residential mortgage	1,027		9		576		16
Total	$	1,171	$	9	$	12,911	$	477

No additional funds are committed to be advanced in connection with impaired loans.

If interest on all nonaccrual loans had been accrued at original contract rates, interest income would have increased by $369,000 in 2016, $456,000 in 2015, and $570,000 in 2014.

The following table presents nonaccrual loans by loan portfolio class as of December 31, 2016 and 2015:



In thousands	2016		2015
Commercial and industrial	$	2,126	$	1,471
Commercial real estate	1,593		1,676
Commercial real estate construction	300		374
Residential mortgage	483		178
Total	$	4,502	$	3,699

The following table summarizes information relative to troubled debt restructurings by loan portfolio class at December 31, 2016 and 2015:



In thousands	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Recorded Investment at period end
December 31, 2016
Nonaccruing troubled debt restructurings:
Commercial real estate	$	648	$	648	$	377
Total nonaccruing troubled debt restructurings	648		648		377
Accruing troubled debt restructurings:
Commercial real estate	7,944		8,002		7,171
Residential mortgage	336		336		272
Total accruing troubled debt restructurings	8,280		8,338		7,443
Total Troubled Debt Restructurings	$	8,928	$	8,986	$	7,820

December 31, 2015
Nonaccruing troubled debt restructurings:
Commercial real estate	$	1,021	$	1,021	$	460
Commercial real estate construction	1,548		1,541		74
Total nonaccruing troubled debt restructurings	2,569		2,562		534
Accruing troubled debt restructurings:
Commercial real estate	7,118		7,170		6,509
Residential mortgage	336		336		283
Total accruing troubled debt restructurings	7,454		7,506		6,792
Total Troubled Debt Restructurings	$	10,023	$	10,068	$	7,326

All of the Corporation’s troubled debt restructured loans are also impaired loans, of which some have resulted in a specific allocation and, subsequently, a charge-off as appropriate. There were no defaulted troubled debt restructured loans as of December 31, 2016 and 2015. There were no charge-offs or specific allocation on any of the troubled debt restructured loans for the years ended December 31, 2016 and 2015. One troubled debt restructured loan paid off during 2016 in the amount of $74,000. One troubled debt restructured loan paid off during 2015 in the amount of $70,000. All other troubled debt restructured loans were current with respect to their associated forbearance agreement, except for one loan which has had periodic late payments. As of December 31, 2016, only two of the loans classified as troubled debt restructured loans have active forbearance agreements. Of those, one forbearance agreement was negotiated during 2013 and the other forbearance agreement was negotiated during 2016. All other forbearance agreements have expired or the loans have paid off.

The following table summarizes loans whose terms have been modified resulting in troubled debt restructurings during the years ended December 31, 2016 and 2015:



Dollars in thousands	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Recorded Investment at Period End
2016
Troubled debt restructurings	1	$	826	$	832	$	832
2015
Troubled debt restructurings	—	$	—	$	—	$	—

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at December 31, 2016 and 2015, totaled $471,000 and $583,000, respectively.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.

The following table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2016 and 2015:



In thousands	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
December 31, 2016
Commercial and industrial	$	26	$	1	$	1,178	$	1,205	$	139,139	$	140,344	$	—
Commercial real estate	325		674		—		999		317,981		318,980		—
Commercial real estate construction	—		—		300		300		14,971		15,271		—
Residential mortgage	2,866		657		1,413		4,936		343,603		348,539		937
Home equity lines of credit	310		56		408		774		69,298		70,072		408
Consumer	31		47		—		78		14,626		14,704		—
Total	$	3,558	$	1,435	$	3,299	$	8,292	$	899,618	$	907,910	$	1,345
December 31, 2015
Commercial and industrial	$	16	$	61	$	1,471	$	1,548	$	116,144	$	117,692	$	—
Commercial real estate	77		1,047		743		1,867		288,032		289,899		—
Commercial real estate construction	—		—		374		374		13,055		13,429		—
Residential mortgage	1,686		248		2,082		4,016		353,212		357,228		1,904
Home equity lines of credit	186		—		228		414		59,710		60,124		228
Consumer	26		26		—		52		14,536		14,588		—
Total	$	1,991	$	1,382	$	4,898	$	8,271	$	844,689	$	852,960	$	2,132

The following table summarizes the allowance for loan losses and recorded investment in loans:



In thousands	Commercial and Industrial			Commercial Real Estate			Commercial Real Estate Construction			Residential Mortgage			Home Equity Lines of Credit			Consumer			Unallocated			Total
December 31, 2016
Allowance for loan losses
Beginning balance- January 1, 2016	$	2,508		$	5,216		$	112		$	3,349		$	619		$	1,083		$	1,860		$	14,747
Charge-offs	(318		)	—			(135		)	(189		)	(74		)	(50		)	—			(766		)
Recoveries	45			—			132			25			—			11			—			213
Provisions	820			(248		)	38			293			103			(121		)	(885		)	—
Ending balance- December 31, 2016	$	3,055		$	4,968		$	147		$	3,478		$	648		$	923		$	975		$	14,194
Ending balance: individually evaluated for impairment	$	599		$	—		$	—		$	333		$	—		$	—		$	—		$	932
Ending balance: collectively evaluated for impairment	$	2,456		$	4,968		$	147		$	3,145		$	648		$	923		$	975		$	13,262
Loans receivables
Ending balance	$	140,344		$	318,980		$	15,271		$	348,539		$	70,072		$	14,704		$	—		$	907,910
Ending balance: individually evaluated for impairment	$	2,126		$	8,764		$	300		$	755		$	—		$	—		$	—		$	11,945
Ending balance: collectively evaluated for impairment	$	138,218		$	310,216		$	14,971		$	347,784		$	70,072		$	14,704		$	—		$	895,965
December 31, 2015
Allowance for loan losses
Beginning balance- January 1, 2015	$	2,048		$	5,872		$	194		$	3,845		$	557		$	1,050		$	1,606		$	15,172
Charge-offs	(150		)	—			(39		)	(622		)	(15		)	(111		)	—			(937		)
Recoveries	369			—			—			136			—			7			—			512
Provisions	241			(656		)	(43		)	(10		)	77			137			254			—
Ending balance- December 31, 2015	$	2,508		$	5,216		$	112		$	3,349		$	619		$	1,083		$	1,860		$	14,747
Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	2,508		$	5,216		$	112		$	3,349		$	619		$	1,083		$	1,860		$	14,747
Loans receivables
Ending balance	$	117,692		$	289,899		$	13,429		$	357,228		$	60,124		$	14,588		$	—		$	852,960
Ending balance: individually evaluated for impairment	$	1,471		$	8,185		$	374		$	461		$	—		$	—		$	—		$	10,491
Ending balance: collectively evaluated for impairment	$	116,221		$	281,714		$	13,055		$	356,767		$	60,124		$	14,588		$	—		$	842,469



In thousands	Commercial and Industrial			Commercial Real Estate			Commercial Real Estate Construction			Residential Mortgage			Home Equity Lines of Credit			Consumer			Unallocated			Total
December 31, 2014
Allowance for loan losses
Beginning balance- January 1, 2014	$	1,915		$	5,819		$	247		$	4,013		$	537		$	947		$	2,613		$	16,091
Charge-offs	(132		)	(121		)	—			(705		)	(169		)	(64		)	—			(1,191		)
Recoveries	15			—			—			97			—			10			—			122
Provisions	250			174			(53		)	440			189			157			(1,007		)	150
Ending balance- December 31, 2014	$	2,048		$	5,872		$	194		$	3,845		$	557		$	1,050		$	1,606		$	15,172
Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	302		$	—		$	—		$	—		$	302
Ending balance: collectively evaluated for impairment	$	2,048		$	5,872		$	194		$	3,543		$	557		$	1,050		$	1,606		$	14,870
Loans receivables
Ending balance	$	74,855		$	281,582		$	12,210		$	359,375		$	55,973		$	15,277		$	—		$	799,272
Ending balance: individually evaluated for impairment	$	1,729		$	9,999		$	368		$	1,520		$	—		$	—		$	—		$	13,616
Ending balance: collectively evaluated for impairment	$	73,126		$	271,583		$	11,842		$	357,855		$	55,973		$	15,277		$	—		$	785,656

The Bank has granted loans to certain of its executive officers, directors and their related interests. These loans were made on substantially the same basis, including interest rates and collateral as those prevailing for comparable transactions with other borrowers at the same time. The aggregate amount of these loans was $4,578,000 and $5,632,000 at December 31, 2016 and 2015, respectively. During 2016, $50,000 new loans or advances were extended and repayments totaled $1,104,000. None of these loans were past due, in nonaccrual status, or restructured at December 31, 2016.