LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income of $1.2 million and $1.3 million at March 31, 2014 and December 31, 2013. The following table indicates the composition of the loans as of the dates presented:



(dollars in thousands)	March 31, 2014		December 31, 2013
Commercial
Commercial real estate	$	1,607,958	$	1,607,756
Commercial and industrial	884,870		842,449
Commercial construction	167,432		143,675
Total Commercial Loans	2,660,260		2,593,880
Consumer
Residential mortgage	490,120		487,092
Home equity	410,695		414,195
Installment and other consumer	64,561		67,883
Consumer construction	2,260		3,149
Total Consumer Loans	967,636		972,319
Total Portfolio Loans	3,627,896		3,566,199
Loans held for sale	1,133		2,136
Total Loans	$	3,629,029	$	3,568,335

We attempt to limit our exposure to credit risk by diversifying our loan portfolio and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by monitoring the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. Total commercial loans represented 73 percent of total portfolio loans at March 31, 2014 and December 31, 2013. Within our commercial portfolio, the commercial real estate, or CRE, and commercial construction portfolios combined comprised 67 percent of total commercial loans and 49 percent of total portfolio loans at March 31, 2014 and 68 percent of total commercial loans and 49 percent of total portfolio loans at December 31, 2013. Further segmentation of the CRE and commercial construction portfolios by industry and collateral type revealed no concentration in excess of nine percent of total loans at either March 31, 2014 or December 31, 2013. The majority of both commercial and consumer loans are made to businesses and individuals in Western Pennsylvania resulting in a geographic concentration. The conditions of the local and regional economies are monitored closely through publicly available data as well as information supplied by our customers. Management believes underwriting guidelines, active monitoring of economic conditions and ongoing review by credit administration mitigates the concentration risk present in the loan portfolio. Only the CRE and commercial construction portfolios combined have any significant out-of-state exposure, with 24 percent of the combined portfolio and 12 percent of total loans being out-of-state loans at March 31, 2014 and 23 percent of the combined portfolio and 11 percent of total loans being out-of-state loans at December 31, 2013. Our CRE and commercial construction portfolios combined out-of-state exposure, excluding the contiguous states of Ohio, West Virginia, New York and Maryland, was 7.3 percent of the combined portfolio and 3.6 percent of total loans at March 31, 2014 and 7.9 percent of the combined portfolio and 3.9 percent of total loans at December 31, 2013.

Troubled debt restructurings, or TDRs, are loans where we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise grant. We strive to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant. Additionally, we classify loans where the debt obligation has been discharged through a Chapter 7 Bankruptcy and not reaffirmed as TDRs.

We individually evaluate all substandard commercial loans that have experienced a forbearance or change in terms agreement, as well as all substandard consumer and residential mortgage loans that entered into an agreement to modify their existing loan to determine if they should be designated as TDRs. All TDRs are considered to be impaired loans and will be reported as impaired loans for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement. Further, all impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements to be returned to accruing status. TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

The following table summarizes the restructured loans as of the dates presented:



	March 31, 2014						December 31, 2013
(dollars in thousands)	Accruing TDRs		Nonaccruing TDRs		Total TDRs		Accruing TDRs		Nonaccruing TDRs		Total TDRs
Commercial real estate	$	15,538	$	3,529	$	19,067	$	19,711	$	3,898	$	23,609
Commercial and industrial	7,453		2,138		9,591		7,521		1,884		9,405
Commercial construction	6,352		1,969		8,321		5,338		2,708		8,046
Residential mortgage	2,692		1,394		4,086		2,581		1,356		3,937
Home equity	3,878		237		4,115		3,924		218		4,142
Installment and other consumer	146		2		148		154		3		157
Total	$	36,059	$	9,269	$	45,328	$	39,229	$	10,067	$	49,296

We did not return any TDRs to accruing status during the three months ended March 31, 2014. One TDR for $0.2 million was returned to accruing status during the three months ended March 31, 2013.

The following tables present the restructured loans for the three month periods ended March 31, 2014 and March 31, 2013:



	Three Months Ended March 31, 2014
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
Commercial real estate
Principal deferral	—	$	—	$	—	$	—
Chapter 7 bankruptcy⁽²⁾	—	—		—		—
Commercial and industrial
Principal deferral	—	—		—		—
Chapter 7 bankruptcy⁽²⁾	1	287		286		(1		)
Commercial Construction
Principal deferral	1	1,019		1,019		—
Residential mortgage
Principal deferral	—	—		—		—
Chapter 7 bankruptcy⁽²⁾	4	277		276		(1		)
Home equity
Principal deferral	—	—		—		—
Chapter 7 bankruptcy⁽²⁾	6	225		210		(15		)
Installment and other consumer
Chapter 7 bankruptcy⁽²⁾	—	—		—		—
Total by Concession Type
Principal deferral	1	1,019		1,019		—
Chapter 7 bankruptcy⁽²⁾	11	789		772		(17		)
Total	12	$	1,808	$	1,791	$	(17	)
(1) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. (2) Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.



	Three Months Ended March 31, 2013
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
Commercial real estate
Principal deferral	3	$	1,541	$	1,288	$	(253	)
Chapter 7 bankruptcy⁽²⁾	3	205		204		(1		)
Commercial and industrial
Principal deferral	1	392		387		(5		)
Chapter 7 bankruptcy⁽²⁾	1	3		3		—
Commercial Construction
Principal deferral	—	—		—		—
Residential mortgage
Principal deferral	2	153		153		—
Chapter 7 bankruptcy⁽²⁾	6	269		269		—
Home equity
Principal deferral	1	174		45		(129		)
Chapter 7 bankruptcy⁽²⁾	6	162		162		—
Installment and other consumer
Chapter 7 bankruptcy⁽²⁾	6	73		73		—
Total by Concession Type
Principal deferral	7	2,260		1,873		(387		)
Chapter 7 bankruptcy⁽²⁾	22	712		711		(1		)
Total	29	$	2,972	$	2,584	$	(388	)
⁽¹⁾ Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. ⁽²⁾Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.

For the three months ended March 31, 2014, we modified a $0.4 million commercial and industrial, or C&I, loan that was not considered to be a TDR because we were adequately compensated for the modification through additional collateral and a higher interest rate. As of March 31, 2014 we have no commitments to lend additional funds on any TDRs.

Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place. The following table is a summary of TDRs which defaulted during the three months ended March 31, 2014 and 2013 that had been restructured within the last twelve months prior to defaulting:



	Defaulted TDRs
	For the period ended March 31, 2014			For the period ended March 31, 2013
(dollars in thousands)	Number of Defaults	Recorded Investment		Number of Defaults		Recorded Investment
Commercial real estate	—	$	—	$	—	$	—
Commercial and Industrial	—	—		—		—
Commercial construction	—	—		—		—
Residential real estate	1	72		1		18
Home equity	—	—		2		118
Total	1	$	72	$	3	$	136

The following table is a summary of nonperforming assets as of the dates presented:



(dollars in thousands)	March 31, 2014		December 31, 2013
Nonperforming Assets
Nonaccrual loans	$	11,753	$	12,387
Nonaccrual TDRs	9,269		10,067
Total nonaccrual loans	21,022		22,454
OREO	343		410
Total Nonperforming Assets	$	21,365	$	22,864

OREO consists of six properties and is included in other assets in the Consolidated Balance Sheets. It is our policy to obtain OREO appraisals on an annual basis.