Loans

9 Months Ended

Sep. 30, 2011

Loans [Abstract]

Loans

LOANS

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

		September 30, 2011			December 31, 2010
Commercial, industrial, and agricultural		$	247,628		$	257,491
Commercial mortgages			238,965			212,878
Residential real estate			293,883			266,604
Consumer			54,766			53,202
Credit cards			2,968			2,870
Overdrafts			293			3,964
Less:	unearned discount		(2,837	)		(2,447	)
	allowance for loan losses		(12,252	)		(10,820	)
Loans, net		$	823,414		$	783,742

At September 30, 2011 and December 31, 2010, net unamortized loan costs and fees of ($49) 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 September 30, 2011 were as follows:

	Commercial, Industrial, and Agricultural			Commercial Mortgages			Residential Real Estate			Consumer			Credit Cards			Overdrafts			Total
Allowance for loan losses, July 1, 2011	$	3,770		$	4,399		$	1,900		$	1,400		$	104		$	142		$	11,715
Charge-offs		(84	)		(12	)		(55	)		(221	)		(12	)		(50	)		(434	)
Recoveries		3			—			12			31			3			18			67
Provision for loan losses		33			467			154			202			2			46			904
Allowance for loan losses, September 30, 2011	$	3,722		$	4,854		$	2,011		$	1,412		$	97		$	156		$	12,252

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

	Commercial, Industrial, and Agricultural			Commercial Mortgages			Residential Real Estate			Consumer			Credit Cards			Overdrafts			Total
Allowance for loan losses, January 1, 2011	$	3,517		$	3,511		$	1,916		$	1,561		$	96		$	219		$	10,820
Charge-offs		(299	)		(100	)		(132	)		(683	)		(37	)		(165	)		(1,416	)
Recoveries		7			—			12			76			8			72			175
Provision for loan losses		497			1,443			215			458			30			30			2,673
Allowance for loan losses, September 30, 2011	$	3,722		$	4,854		$	2,011		$	1,412		$	97		$	156		$	12,252

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

Allowance for loan losses, July 1, 2010	$	10,415
Charge-off		(503	)
Recoveries		65
Provision for loan losses		853
Allowance for loan losses, September 30, 2010	$	10,830

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

Allowance for loan losses, January 1, 2010	$	9,795
Charge-off		(1,759	)
Recoveries		195
Provision for loan losses		2,599
Allowance for loan losses, September 30, 2010	$	10,830

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, 2011:

	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	$	40	$	1,323	$	43	$	—	$	—	$	—	$	1,406
Collectively evaluated for impairment		3,682		3,297		1,968		1,412		97		156		10,612
Modified in a troubled debt restructuring		—		234		—		—		—		—		234
Total ending allowance balance	$	3,722	$	4,854	$	2,011	$	1,412	$	97	$	156	$	12,252
Loans:
Loans individually evaluated for impairment	$	2,466	$	13,703	$	165	$	—	$	—	$	—	$	16,334
Loans collectively evaluated for impairment		245,162		218,983		293,718		54,766		2,968		293		815,890
Loans modified in a troubled debt restructuring		—		6,279		—		—		—		—		6,279
Total ending loans balance	$	247,628	$	238,965	$	293,883	$	54,766	$	2,968	$	293	$	838,503

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, 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	$	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
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
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 nine months ended September 30, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial, industrial, and agricultural	$	337	$	337	$	40
Commercial mortgage		6,648		5,772		1,323
Residential real estate		265		165		43
With no related allowance recorded:
Commercial, industrial, and agricultural		2,577		2,129		—
Commercial mortgage		9,404		7,931		—
Residential real estate		—		—		—
Total	$	19,231	$	16,334	$	1,406

	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial, industrial, and agricultural	$	1,097	$	—	$	—	$	1,330	$	—	$	—
Commercial mortgage		6,554		—		—		8,050		16		16
Residential real estate		175		3		3		193		3		3
With no related allowance recorded:
Commercial, industrial, and agricultural		1,525		—		—		1,738		—		—
Commercial mortgage		7,831		—		—		4,275		—		—
Residential real estate		—		—		—		—		—		—
Total	$	17,182	$	3	$	3	$	15,586	$	19	$	19

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 September 30, 2010:

Average of individually impaired loans during period	$	14,669
Interest income recognized during impairment		26
Cash basis interest income recognized during impairment		26

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

Average of individually impaired loans during period	$	14,239
Interest income recognized during impairment		366
Cash basis interest income recognized during impairment		366

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 September 30, 2011 and December 31, 2010:

September 30, 2011	Nonaccrual		Past Due Over 90 Days Still on Accrual
Commercial, industrial, and agricultural	$	2,466	$	53
Commercial mortgages		13,562		1,495
Residential real estate		1,237		120
Consumer		5		146
Credit cards		—		20
Total	$	17,270	$	1,834

December 31, 2010	Nonaccrual		Past Due Over 90 Days Still on Accrual
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 September 30, 2011 and December 31, 2010 by class of loans:

September 30, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
Commercial, industrial, and agricultural	$	152	$	341	$	8,718	$	9,211	$	238,417	$	247,628
Commercial mortgages		1,344		1,982		8,858		12,184		226,781		238,965
Residential real estate		1,431		630		1,357		3,418		290,465		293,883
Consumer		437		128		151		716		54,050		54,766
Credit cards		27		3		20		50		2,918		2,968
Overdrafts		—		—		—		—		293		293
Total	$	3,391	$	3,084	$	19,104	$	25,579	$	812,924	$	838,503

December 31, 2010	30-59 Days Past Due		60-89 Days Past Due		Greater Than 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 one commercial mortgage customer whose loan terms have been modified in troubled debt restructurings as of September 30, 2011 and December 31, 2010, respectively. The interest rate on the original loan was 6.60%. Due to financial difficulties experienced by the customer, the interest rate was reduced to 4.19% in the third quarter of 2010, resulting in an additional provision for loan losses of $253 thousand for the three and nine months ended September 30, 2010. The interest rate on this loan was further reduced to 4.07% in the third quarter of 2011, resulting in an additional provision for loan losses of $5 thousand for the three and nine months ended September 30, 2011. This loan had a total recorded investment of $1,676 and $1,714 as of September 30, 2011 and December 31, 2010, respectively.

In addition, the Corporation has one commercial mortgage customer whose loan relationships have interest-only terms that were extended during 2011. The original interest rates on the loans, which are also currently the market rates of interest, were not reduced; therefore, no additional provision for loan losses was required to be recorded. These loans have a total recorded investment of $4,603 at September 30, 2011.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without a loan modification. This evaluation is performed using the Corporation's internal underwriting policies.

All loans modified in troubled debt restructurings are performing in accordance with their modified terms as of September 30, 2011. 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. Loans with an outstanding balance greater than $1 million are analyzed bi-annually and loans with an outstanding balance 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, 2011			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial, industrial, and agricultural	$	213,927	$	14,974	$	18,727		—	$	247,628
Commercial mortgages		209,484		2,479		26,881		121		238,965
Total	$	423,411	$	17,453	$	45,608	$	121	$	486,593

December 31, 2010			Special
	Pass		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"), 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, are considered to be subprime loans. Holiday's loan portfolio is summarized as follows at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Consumer	$	17,649		$	16,532
Residential real estate		1,019			1,149
Less: unearned discount		(2,837	)		(2,447	)
Total	$	15,831		$	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 September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
	Residential				Residential
	Real Estate		Consumer		Real Estate		Consumer
Performing	$	292,526	$	54,615	$	264,912	$	53,048
Non-performing		1,357		151		1,692		154
Total	$	293,883	$	54,766	$	266,604	$	53,202