LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income of $1.8 million and $1.3 million at June 30, 2014 and December 31, 2013. The following table indicates the composition of the loans as of the dates presented:



(dollars in thousands)	June 30, 2014		December 31, 2013
Commercial
Commercial real estate	$	1,636,383	$	1,607,756
Commercial and industrial	922,191		842,449
Commercial construction	188,311		143,675
Total Commercial Loans	2,746,885		2,593,880
Consumer
Residential mortgage	492,589		487,092
Home equity	416,226		414,195
Installment and other consumer	65,838		67,883
Consumer construction	3,541		3,149
Total Consumer Loans	978,194		972,319
Total Portfolio Loans	3,725,079		3,566,199
Loans held for sale	3,102		2,136
Total Loans	$	3,728,181	$	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 74 percent of total portfolio loans at June 30, 2014 and 73 percent of total portfolio loans at December 31, 2013. Within our commercial portfolio, the commercial real estate, or CRE, and commercial construction portfolios combined comprised 66 percent of total commercial loans and 49 percent of total portfolio loans at June 30, 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 June 30, 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 26 percent of the combined portfolio and 13 percent of total loans being out-of-state loans at June 30, 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 7.2 percent of the combined portfolio and 3.6 percent of total loans at June 30, 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:



	June 30, 2014						December 31, 2013
(dollars in thousands)	Accruing TDRs		Nonaccruing TDRs		Total TDRs		Accruing TDRs		Nonaccruing TDRs		Total TDRs
Commercial real estate	$	16,934	$	1,431	$	18,365	$	19,711	$	3,898	$	23,609
Commercial and industrial	7,390		1,170		8,560		7,521		1,884		9,405
Commercial construction	6,310		1,869		8,179		5,338		2,708		8,046
Residential mortgage	2,647		645		3,292		2,581		1,356		3,937
Home equity	3,712		125		3,837		3,924		218		4,142
Installment and other consumer	127		1		128		154		3		157
Total	$	37,120	$	5,241	$	42,361	$	39,229	$	10,067	$	49,296

We returned four TDRs for $1.4 million to accruing status during the three months ended June 30, 2014 and five TDRs for $1.5 million to accruing status during the six months ended June 30, 2014. There were no TDRs returned to accruing status during the three months ended June 30, 2013 and one TDR for $0.2 million was returned to accruing status during the six months ended June 30, 2013.

The following tables present the restructured loans for the three and six month periods ended June 30, 2014 and June 30, 2013:



	Three Months Ended June 30, 2014								Three Months Ended June 30, 2013
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
Commercial real estate
Principal forgiveness⁽³⁾	—	$	—	$	—	$	—		1	$	4,339	$	4,339	$	—
Principal deferral	1	129		127		(2		)	—	—		—		—
Chapter 7 bankruptcy⁽²⁾	—	—		—		—			4	53		51		(2		)
Commercial and industrial
Maturity date extension	—	—		—		—			1	751		751		—
Residential mortgage
Chapter 7 bankruptcy⁽²⁾	1	52		52		—			2	84		75		(9		)
Home equity
Chapter 7 bankruptcy⁽²⁾	4	43		41		(2		)	17	486		478		(8		)
Installment and other consumer
Chapter 7 bankruptcy⁽²⁾	1	9		9		—			—	—		—		—
Total by Concession Type
Principal forgiveness ⁽³⁾	—	—		—		—			1	4,339		4,339		—
Principal deferral	1	129		127		(2		)	—	—		—		—
Chapter 7 bankruptcy⁽²⁾	6	104		102		(2		)	23	623		604		(19		)
Maturity date extension	—	—		—		—			1	751		751		—
Total	7	$	233	$	229	$	4		25	5,713		5,694		(19		)
(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. (3) This loan had debt forgiveness of $0.l million to the customer; however, the loan was previously charged off to a balance below the actual contractual balance.



	Six Months Ended June 30, 2014								Six Months Ended June 30, 2013
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			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	1	$	129	$	127	$	(2	)	3	$	1,541	$	1,288	$	(253	)
Principal forgiveness⁽³⁾	—	—		—		—			1	4,339		4,339		—
Chapter 7 bankruptcy⁽²⁾	—	—		—		—			7	258		255		(3		)
Commercial and industrial
Principal deferral	—	—		—		—			1	392		387		(5		)
Maturity date extension	—	—		—		—			1	751		751		—
Chapter 7 bankruptcy⁽²⁾	1	287		286		(1		)	1	3		3		—
Commercial Construction
Maturity date extension	1	1,019		1,019		—			—	—		—		—
Residential mortgage
Principal deferral	—	—		—		—			2	153		153		—
Chapter 7 bankruptcy⁽²⁾	5	329		327		(2		)	8	353		344		(9		)
Home equity
Principal deferral	—	—		—		—			1	174		45		(129		)
Chapter 7 bankruptcy⁽²⁾	10	269		251		(18		)	23	648		640		(8		)
Installment and other consumer
Chapter 7 bankruptcy⁽²⁾	1	9		9		—			6	73		73		—
Total by Concession Type
Principal deferral	1	129		127		(2		)	7	2,260		1,873		(387		)
Principal forgiveness⁽³⁾	—	—		—		—			1	4,339		4,339		—
Maturity date extension	1	1,019		1,019		—			1	751		751		—
Chapter 7 bankruptcy⁽²⁾	17	894		873		(21		)	45	1,335		1,315		(20		)
Total	19	$	2,042	$	2,019	$	(23	)	54	$	8,685	8,278		(407		)
(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. (3) This loan had debt forgiveness of $0.l million to the customer; however, the loan was previously charged off to a balance below the actual contractual balance.

For the three months ended June 30, 2014, we modified two CRE loans totaling $1.2 million that were not considered to be TDRs. For the six months ended June 30, 2014, we modified three loans that were not considered to be TDRs, including a $0.4 million commercial and industrial, or C&I, loan and two CRE loans for $1.2 million. The modifications primarily represented instances where we were adequately compensated through additional collateral and a higher interest rate or there was an insignificant delay in payment. As of June 30, 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 tables present a summary of TDRs which defaulted during the periods presented that had been restructured within the last twelve months prior to defaulting:



	Defaulted TDRs
	For the Three Months ended June 30, 2014			For the Three Months ended June 30, 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	—	—		2		46
Home equity	—	—		2		33
Total	—	$	—	$	4	$	79

	Defaulted TDRs
	For the Six Months Ended June 30, 2014			For the Six Months Ended June 30, 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		3		64
Home equity	—	—		4		151
Total	1	$	72	$	7	$	215

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



	Nonperforming Assets
(dollars in thousands)	June 30, 2014		December 31, 2013
Nonperforming Assets
Nonaccrual loans	$	9,698	$	12,387
Nonaccrual TDRs	5,241		10,067
Total nonaccrual loans	14,939		22,454
OREO	431		410
Total Nonperforming Assets	$	15,370	$	22,864

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