Loans

6 Months Ended

Jun. 30, 2011

Loans

Loans

LOANS

Total net loans at June 30, 2011 and December 31, 2010 are summarized as follows:

	June 30, 2011			December 31, 2010
Commercial, industrial, and agricultural	$	251,530		$	257,491
Commercial mortgages		235,409			212,878
Residential real estate		280,029			266,604
Consumer		53,894			53,202
Credit cards		2,976			2,870
Overdrafts		617			3,964
Less: unearned discount		(2,668	)		(2,447	)
allowance for loan losses		(11,715	)		(10,820	)
Loans, net	$	810,072		$	783,742

At June 30, 2011 and December 31, 2010, net unamortized loan costs and fees of ($89) and ($167), 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. 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.

Transactions in the allowance for loan losses for the three months ended June 30, 2011 were as follows:

	Commercial,						Residential
	Industrial, and			Commercial			Real						Credit
	Agricultural			Mortgages			Estate			Consumer			Cards			Overdrafts			Total
Allowance for loan losses, April 1, 2011	$	3,732		$	3,879		$	1,879		$	1,507		$	96		$	131		$	11,224
Charge-offs		(173	)		(41	)		(63	)		(202	)		(7	)		(62	)		(548	)
Recoveries		3			—			—			21			3			20			47
Provision (benefit) for loan losses		208			561			84			74			12			53			992
Allowance for loan losses, June 30, 2011	$	3,770		$	4,399		$	1,900		$	1,400		$	104		$	142		$	11,715

Transactions in the allowance for loan losses for the six months ended June 30, 2011 were as follows:

	Commercial,						Residential
	Industrial, and			Commercial			Real						Credit
	Agricultural			Mortgages			Estate			Consumer			Cards			Overdrafts			Total
Allowance for loan losses, January 1, 2011	$	3,517		$	3,511		$	1,916		$	1,561		$	96		$	219		$	10,820
Charge-offs		(215	)		(88	)		(77	)		(462	)		(25	)		(115	)		(982	)
Recoveries		4			—			—			45			5			54			108
Provision (benefit) for loan losses		464			976			61			256			28			(16	)		1,769
Allowance for loan losses, June 30, 2011	$	3,770		$	4,399		$	1,900		$	1,400		$	104		$	142		$	11,715

Transactions in the allowance for loan losses for the three months ended June 30, 2010 were as follows:

Allowance for loan losses, April 1, 2010	$	9,914
Charge-off		(715	)
Recoveries		55
Provision for loan losses		1,161
Allowance for loan losses, June 30, 2010	$	10,415

Transactions in the allowance for loan losses for the six months ended June 30, 2010 were as follows:

Allowance for loan losses, January 1, 2010	$	9,795
Charge-off		(1,256	)
Recoveries		130
Provision for loan losses		1,746
Allowance for loan losses, June 30, 2010	$	10,415

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, 2011:

	Commercial,				Residential
	Industrial, and		Commercial		Real				Credit
	Agricultural		Mortgages		Estate		Consumer		Cards		Overdrafts		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	130	$	698	$	59	$	—	$	—	$	—	$	887
Collectively evaluated for impairment		3,640		3,467		1,841		1,400		104		142		10,594
Modified in a troubled debt restructuring		—		234		—		—		—		—		234
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending allowance balance	$	3,770	$	4,399	$	1,900	$	1,400	$	104	$	142	$	11,715
Loans:
Loans individually evaluated for impairment	$	1,429	$	15,066	$	184	$	—	$	—	$	—	$	16,679
Loans collectively evaluated for impairment		250,101		215,592		279,845		53,894		2,976		617		803,025
Loans modified in a troubled debt restructuring		—		4,751		—		—		—		—		4,751
Loans acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending loans balance	$	251,530	$	235,409	$	280,029	$	53,894	$	2,976	$	617	$	824,455

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 December 31, 2010:

	Commercial,				Residential
	Industrial, and		Commercial		Real				Credit
	Agricultural		Mortgages		Estate		Consumer		Cards		Overdrafts		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	142	$	509	$	69	$	—	$	—	$	—	$	720
Collectively evaluated for impairment		3,375		2,759		1,847		1,561		96		219		9,857
Modified in a troubled debt restructuring		—		243		—		—		—		—		243
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending allowance balance	$	3,517	$	3,511	$	1,916	$	1,561	$	96	$	219	$	10,820
Loans:
Loans individually evaluated for impairment	$	2,616	$	8,759	$	235	$	—	$	—	$	—	$	11,610
Loans collectively evaluated for impairment		254,875		202,405		266,369		53,202		2,870		3,964		783,685
Loans modified in a troubled debt restructuring		—		1,714		—		—		—		—		1,714
Loans acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending loans balance	$	257,491	$	212,878	$	266,604	$	53,202	$	2,870	$	3,964	$	797,009

The following tables present information related to loans individually evaluated for impairment by portfolio segment as of and for the three and six months ended June 30, 2011:

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance		Investment		Allocated
With an allowance recorded:
Commercial, industrial, and agricultural	$	600	$	509	$	130
Commercial mortgage		8,185		7,336		932
Residential real estate		267		184		59
With no related allowance recorded:
Commercial, industrial, and agricultural		1,390		920		—
Commercial mortgage		9,490		7,730		—
Residential real estate		—		—		—
Total	$	19,932	$	16,679	$	1,121

	Three Months Ended June 30, 2011						Six Months Ended June 30, 2011
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With an allowance recorded:
Commercial, industrial, and agricultural	$	1,183	$	—	$	—	$	1,660	$	—	$	—
Commercial mortgage		8,835		14		14		8,810		16		16
Residential real estate		185		—		—		202		—		—
With no related allowance recorded:
Commercial, industrial, and agricultural		2,411		—		—		1,607		—		—
Commercial mortgage		4,584		—		—		3,506		—		—
Residential real estate		—		—		—		—		—		—
Total	$	17,198	$	14	$	14	$	15,785	$	16	$	16

The following table presents information related to loans individually evaluated for impairment by portfolio segment as of December 31, 2010:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial, industrial, and agricultural	$	3,041	$	2,616	$	142
Commercial mortgage		13,070		10,473		752
Residential real estate		339		235		69
With no related allowance recorded:
Commercial, industrial, and agricultural		—		—		—
Commercial mortgage		—		—		—
Residential real estate		—		—		—
Total	$	16,450	$	13,324	$	963

The unpaid principal balance of impaired loans includes the Corporation's recorded investment in the loan and amounts that have been charged off.

The following table presents information for loans individually evaluated for impairment during the three months ended June 30, 2010:

Average of individually impaired loans during period	$	14,718
Interest income recognized during impairment		241
Cash basis interest income recognized during impairment		241

The following table presents information for loans individually evaluated for impairment during the six months ended June 30, 2010:

Average of individually impaired loans during period	$	15,046
Interest income recognized during impairment		340
Cash basis interest income recognized during impairment		340

The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by portfolio segment as of June 30, 2011 and December 31, 2010:

	Nonaccrual		Past Due Over 90 Days Still on Accrual
June 30, 2011
Commercial, industrial, and agricultural	$	7,195	$	1,499
Commercial mortgages		7,539		125
Residential real estate		1,339		135
Consumer		25		116
Credit cards		—		34
Total	$	16,098	$	1,909

	Nonaccrual		Past Due Over 90 Days Still on Accrual
December 31, 2010
Commercial, industrial, and agricultural	$	2,344	$	23
Commercial mortgages		8,276		321
Residential real estate		1,306		386
Consumer		—		154
Credit cards		—		5
Total	$	11,926	$	889

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 tables present the aging of the recorded investment in past due loans as of June 30, 2011 and December 31, 2010 by class of loans:

					Greater Than
June 30, 2011	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due		Total Past Due		Loans Not Past Due		Total
Commercial, industrial, and agricultural	$	111	$	344	$	8,694	$	9,149	$	242,381	$	251,530
Commercial mortgages		2,527		1,927		7,664		12,118		223,291		235,409
Residential real estate		1,249		342		1,474		3,065		276,964		280,029
Consumer		420		212		141		773		53,121		53,894
Credit cards		13		15		34		62		2,914		2,976
Overdrafts		—		—		—		—		617		617
Total	$	4,320	$	2,840	$	18,007	$	25,167	$	799,288	$	824,455

					Greater Than
December 31, 2010	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due		Total Past Due		Loans Not Past Due		Total
Commercial, industrial, and agricultural	$	225	$	2,512	$	2,367	$	5,104	$	252,387	$	257,491
Commercial mortgages		129		1,184		8,597		9,910		202,968		212,878
Residential real estate		1,629		262		1,692		3,583		263,021		266,604
Consumer		455		145		154		754		52,448		53,202
Credit cards		20		10		5		35		2,835		2,870
Overdrafts		—		—		—		—		3,964		3,964
Total	$	2,458	$	4,113	$	12,815	$	19,386	$	777,623	$	797,009

Troubled Debt Restructurings

The Corporation has allocated $234 and $243 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2011 and December 31, 2010, respectively. The Corporation has no further loan commitments to customers whose loans are classified as a troubled debt restructuring.

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 analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $1 million bi-annually and loans with an outstanding balance of less than $1 million 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.

June 30, 2011	Pass		Special Mention		Substandard		Doubtful		Total
Commercial, industrial, and agricultural	$	217,377	$	15,147	$	19,006	$	—	$	251,530
Commercial mortgages		213,103		4,635		17,550		121		235,409
Total	$	430,480	$	19,782	$	36,556	$	121	$	486,939

December 31, 2010	Pass		Special Mention		Substandard		Doubtful		Total
Commercial, industrial, and agricultural	$	223,196	$	4,830	$	29,450	$	15	$	257,491
Commercial mortgages		188,846		7,673		16,249		110		212,878
Total	$	412,042	$	12,503	$	45,699	$	125	$	470,369

The Corporation's portfolio of residential real estate and consumer loans maintained within Holiday Financial Services Corporation ("Holiday"), our subsidiary that offers small balance unsecured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics, are considered to be subprime loans. Holiday originates small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher credit risk characteristics than are typical in the consumer loan portfolio held by the Bank. Holiday's loan portfolio is summarized as follows at June 30, 2011 and December 31, 2010:

	June 30, 2011			December 31, 2010
Consumer	$	17,040		$	16,532
Residential real estate		1,059			1,149
Less: unearned discount		(2,668	)		(2,447	)
Total	$	15,431		$	15,234

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate and consumer 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 and consumer loans based on payment activity as of June 30, 2011 and December 31, 2010:

	June 30, 2011				December 31, 2010
	Residential Real Estate		Consumer		Residential Real Estate		Consumer
Performing	$	278,555	$	53,753	$	264,912	$	53,048
Non-performing		1,474		141		1,692		154
Total	$	280,029	$	53,894	$	266,604	$	53,202