LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income of $2.0 million and $1.3 million at September 30, 2014 and December 31, 2013. The following table indicates the composition of the loans as of the dates presented:



(dollars in thousands)	September 30, 2014		December 31, 2013
Commercial
Commercial real estate	$	1,691,649	$	1,607,756
Commercial and industrial	946,366		842,449
Commercial construction	183,509		143,675
Total Commercial Loans	2,821,524		2,593,880
Consumer
Residential mortgage	491,404		487,092
Home equity	418,659		414,195
Installment and other consumer	66,607		67,883
Consumer construction	2,995		3,149
Total Consumer Loans	979,665		972,319
Total Portfolio Loans	3,801,189		3,566,199
Loans held for sale	3,126		2,136
Total Loans	$	3,804,315	$	3,568,335

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, collateral and industry 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 September 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 September 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 September 30, 2014 or December 31, 2013.

Our market area includes Pennsylvania and the contiguous states of Ohio, West Virginia, New York and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this market area resulting in a geographic concentration. We believe our knowledge and familiarity with customers and conditions locally outweighs this geographic concentration risk. 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. Our CRE and commercial construction portfolios have out of market exposure of 7.7 percent of the combined portfolio and 3.8 percent of total loans at September 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:



	September 30, 2014						December 31, 2013
(dollars in thousands)	Accruing TDRs		Nonaccruing TDRs		Total TDRs		Accruing TDRs		Nonaccruing TDRs		Total TDRs
Commercial real estate	$	17,140	$	898	$	18,038	$	19,711	$	3,898	$	23,609
Commercial and industrial	7,401		1,443		8,844		7,521		1,884		9,405
Commercial construction	6,273		1,869		8,142		5,338		2,708		8,046
Residential mortgage	2,743		486		3,229		2,581		1,356		3,937
Home equity	3,594		223		3,817		3,924		218		4,142
Installment and other consumer	122		10		132		154		3		157
Total	$	37,273	$	4,929	$	42,202	$	39,229	$	10,067	$	49,296

There were five TDRs for $0.5 million returned to accruing status during the three months ended September 30, 2014 and ten TDRs for $2.0 million were returned to accruing status during the nine months ended September 30, 2014. There were no TDRs returned to accruing status during the three months ended September 30, 2013 and one TDR for $0.2 million was returned to accruing status during the nine months ended September 30, 2013.

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



	Three Months Ended September 30, 2014								Three Months Ended September 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	$	487	$	475	$	(12	)	—	$	—	$	—	$	—
Chapter 7 bankruptcy⁽²⁾	1	83		83		—			—	—		—		—
Maturity date extension and interest rate reduction	—	—		—		—			2	664		644		(20		)
Commercial and industrial
Principal deferral	2	381		366		(15		)	1	278		278		—
Residential mortgage
Chapter 7 bankruptcy⁽²⁾	2	135		134		(1		)	—	—		—		—
Interest rate reduction	—	—		—		—			1	54		54		—
Home equity
Chapter 7 bankruptcy⁽²⁾	2	14		14		—			8	772		767		(5		)
Maturity date extension and interest rate reduction	2	96		96		—			—	—		—		—
Installment and other consumer
Chapter 7 bankruptcy⁽²⁾	2	14		11		(3		)	3	17		15		(2		)
Total by Concession Type
Principal deferral	3	868		841		(27		)	1	278		278		—
Chapter 7 bankruptcy⁽²⁾	7	246		242		(4		)	11	789		782		(7		)
Interest rate reduction	—	—		—		—			1	54		54		—
Maturity date extension and interest rate reduction	2	96		96		—			2	664		644		(20		)
Total	12	$	1,210	$	1,179	$	(31	)	15	1,785		1,758		(27		)
(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.



	Nine Months Ended September 30, 2014								Nine Months Ended September 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	2	$	616	$	602	$	(14	)	3	$	1,541	$	1,288	$	(253	)
Maturity date extension and interest rate reduction	—	—		—		—			2	664		644		(20		)
Principal forgiveness⁽³⁾	—	—		—		—			1	4,339		4,339		—
Chapter 7 bankruptcy⁽²⁾	1	83		83		—			7	258		255		(3		)
Commercial and industrial
Principal deferral	2	381		366		(15		)	2	670		665		(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		—
Interest rate reduction	—	—		—		—			1	54		54		—
Chapter 7 bankruptcy⁽²⁾	7	464		461		(3		)	8	353		344		(9		)
Home equity
Principal deferral	—	—		—		—			1	174		45		(129		)
Chapter 7 bankruptcy⁽²⁾	12	283		265		(18		)	31	1,420		1,407		(13		)
Maturity date extension and interest rate reduction	2	96		96		—			—	—		—		—
Installment and other consumer
Chapter 7 bankruptcy⁽²⁾	3	23		20		(3		)	9	90		88		(2		)
Total by Concession Type
Principal deferral	4	997		968		(29		)	8	2,538		2,151		(387		)
Interest rate reduction	—	—		—		—			1	54		54		—
Principal forgiveness⁽³⁾	—	—		—		—			1	4,339		4,339		—
Maturity date extension and interest rate reduction	2	96		96		—			2	664		644		(20		)
Maturity date extension	1	1,019		1,019		—			1	751		751		—
Chapter 7 bankruptcy⁽²⁾	24	1,140		1,115		(25		)	56	2,124		2,097		(27		)
Total	31	$	3,252	$	3,198	$	(54	)	69	$	10,470	10,036		(434		)
(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 September 30, 2014, we modified two commercial and industrial, or C&I loans totaling $2.8 million that were not considered to be TDRs. For the nine months ended September 30, 2014, we modified five loans that were not considered to be TDRs, including three C&I, loans for $3.2 million and two CRE loans for $1.2 million. The modifications primarily represented instances where we were adequately compensated through additional collateral or a higher interest rate or there was an insignificant delay in payment. As of September 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						For the Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
(dollars in thousands)	Number of Defaults	Recorded Investment		Number of Defaults	Recorded Investment		Number of Defaults	Recorded Investment		Number of Defaults	Recorded Investment
Commercial real estate	—	$	—	1	$	75	—	$	—	1	$	75
Commercial and Industrial	—	—		1	435		—	—		1	435
Commercial construction	—	—		—	—		—	—		—	—
Residential real estate	—	—		4	450		1	72		7	514
Home equity	—	—		1	42		—	—		5	193
Total	—	$	—	7	$	1,002	1	$	72	14	$	1,217

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



	Nonperforming Assets
(dollars in thousands)	September 30, 2014		December 31, 2013
Nonperforming Assets
Nonaccrual loans	$	8,573	$	12,387
Nonaccrual TDRs	4,929		10,067
Total nonaccrual loans	13,502		22,454
OREO	200		410
Total Nonperforming Assets	$	13,702	$	22,864

OREO consists of three properties and is included in other assets in the Consolidated Balance Sheets.