LOANS

Total net loans at March 31, 2012 and December 31, 2011 are summarized as follows:


	March 31, 2012			December 31, 2011

Commercial, industrial, and agricultural	$	258,628		$	253,324
Commercial mortgages		250,407			242,511
Residential real estate		295,510			298,628
Consumer		54,905			54,677
Credit cards		3,133			3,206
Overdrafts		308			423
Less: unearned discount		(2,881	)		(2,886	)
allowance for loan losses		(13,015	)		(12,615	)


Loans, net	$	846,995		$	837,268

At March 31, 2012 and December 31, 2011, net unamortized loan costs and fees of $27 and ($7), 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 March 31, 2012 were as follows:


	Commercial, Industrial, and Agricultural			Commercial Mortgages			Residential Real Estate			Consumer			Credit Cards			Overdrafts			Total

Allowance for loan losses, January 1, 2012	$	4,511		$	4,470		$	1,991		$	1,404		$	71		$	168		$	12,615
Charge-offs		(225	)		(115	)		(87	)		(256	)		(19	)		(67	)		(769	)
Recoveries		3			—			—			27			1			34			65
Provision for loan losses		653			22			93			260			43			33			1,104


Allowance for loan losses, March 31, 2012	$	4,942		$	4,377		$	1,997		$	1,435		$	96		$	168		$	13,015

Transactions in the allowance for loan losses for the three months ended March 31, 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		(42	)		(47	)		(14	)		(260	)		(18	)		(53	)		(434	)
Recoveries		1			—			—			24			2			34			61
Provision (benefit) for loan losses		256			415			(23	)		182			16			(69	)		777


Allowance for loan losses, March 31, 2011	$	3,732		$	3,879		$	1,879		$	1,507		$	96		$	131		$	11,224

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 March 31, 2012 and December 31, 2011:


March 31, 2012	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	$	605	$	248	$	32	$	—	$	—	$	—	$	885
Collectively evaluated for impairment		4,337		3,352		1,965		1,435		96		168		11,353
Modified in a troubled debt restructuring		—		777		—		—		—		—		777


Total ending allowance balance	$	4,942	$	4,377	$	1,997	$	1,435	$	96	$	168	$	13,015


Loans:
Loans individually evaluated for impairment	$	6,054	$	7,611	$	213	$	—	$	—	$	—	$	13,878
Loans collectively evaluated for impairment		252,574		232,595		295,297		54,905		3,133		308		838,812
Loans modified in a troubled debt restructuring		—		10,201		—		—		—		—		10,201


Total ending loans balance	$	258,628	$	250,407	$	295,510	$	54,905	$	3,133	$	308	$	862,891


December 31, 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	$	462	$	784	$	19	$	—	$	—	$	—	$	1,265
Collectively evaluated for impairment		4,182		3,325		1,972		1,404		71		168		11,122
Modified in a troubled debt restructuring		—		228		—		—		—		—		228


Total ending allowance balance	$	4,644	$	4,337	$	1,991	$	1,404	$	71	$	168	$	12,615


Loans:
Loans individually evaluated for impairment	$	6,115	$	8,457	$	124	$	—	$	—	$	—	$	14,696
Loans collectively evaluated for impairment		247,209		226,366		298,504		54,677		3,206		423		830,385
Loans modified in a troubled debt restructuring		—		7,688		—		—		—		—		7,688


Total ending loans balance	$	253,324	$	242,511	$	298,628	$	54,677	$	3,206	$	423	$	852,769

The following tables present information related to loans individually evaluated for impairment by portfolio segment as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011:


March 31, 2012	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial, industrial, and agricultural	$	4,242	$	2,531	$	605
Commercial mortgage		6,546		5,770		1,025
Residential real estate		316		213		32
With no related allowance recorded:
Commercial, industrial, and agricultural		4,168		3,523		—
Commercial mortgage		13,802		12,042		—
Residential real estate		—		—		—


Total	$	29,074	$	24,079	$	1,662


December 31, 2011	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial, industrial, and agricultural	$	4,329	$	2,815	$	462
Commercial mortgage		4,724		4,065		1,012
Residential real estate		187		124		19
With no related allowance recorded:
Commercial, industrial, and agricultural		3,892		3,300		—
Commercial mortgage		13,839		12,080		—
Residential real estate		—		—		—


Total	$	26,971	$	22,384	$	1,493


	Three Months Ended March 31, 2012						Three Months Ended March 31, 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	$	2,673	$	4	$	4	$	2,236	$	—	$	—
Commercial mortgage		4,918		—		—		10,404		2		2
Residential real estate		169		4		4		211		—		—
With no related allowance recorded:
Commercial, industrial, and agricultural		3,412		—		—		1,949		—		—
Commercial mortgage		12,061		—		—		719		—		—
Residential real estate		—		—		—		—		—		—


Total	$	23,233	$	8	$	8	$	15,519	$	2	$	2

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still accruing interest by class of loans as of March 31, 2012 and December 31, 2011:


	March 31, 2012				December 31, 2011
	Nonaccrual		Past Due Over 90 Days Still on Accrual		Nonaccrual		Past Due Over 90 Days Still on Accrual

Commercial, industrial, and agricultural	$	6,523	$	—	$	6,949	$	10
Commercial mortgages		8,590		147		8,359		122
Residential real estate		1,645		27		1,254		157
Consumer		5		148		5		125
Credit cards		—		2		—		27


Total	$	16,763	$	324	$	16,567	$	441

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 table presents the aging of the recorded investment in past due loans as of March 31, 2012 and December 31, 2011 by class of loans. The recorded investment in loans excludes accrued interest and loan origination fees, net due to their insignificance.


March 31, 2012	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	$	1,716	$	10	$	6,523	$	8,249	$	250,379	$	258,628
Commercial mortgages		3,487		211		7,320		11,018		239,389		250,407
Residential real estate		1,198		276		1,672		3,146		292,364		295,510
Consumer		292		237		153		682		54,223		54,905
Credit cards		23		23		2		48		3,085		3,133
Overdrafts		—		—		—		—		308		308


Total	$	6,716	$	757	$	15,670	$	23,143	$	839,748	$	862,891


December 31, 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	$	239	$	53	$	6,959	$	7,251	$	246,073	$	253,324
Commercial mortgages		1,064		2,620		7,043		10,727		231,784		242,511
Residential real estate		1,816		682		1,411		3,909		294,719		298,628
Consumer		392		185		130		707		53,970		54,677
Credit cards		34		19		27		80		3,126		3,206
Overdrafts		—		—		—		—		423		423


Total	$	3,545	$	3,559	$	15,570	$	22,674	$	830,095	$	852,769

Troubled Debt Restructurings

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.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. All loans modified in troubled debt restructurings are performing in accordance with their modified terms as of March 31, 2012 and no principal balances were forgiven in connection with the loan restructurings.

The Corporation has allocated $212 and $228 of specific reserves to one commercial mortgage customer whose loan terms have been modified in troubled debt restructurings as of March 31, 2012 and December 31, 2011, 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, and the interest rate on this loan was further reduced to 4.07% in the third quarter of 2011. In the first quarter of 2012, the customer was granted interest-only terms for six months, resulting in an additional provision for loan losses that was insignificant for the three months ended March 31, 2012. This loan had a total recorded investment of $1,657 and $1,662 as of March 31, 2012 and December 31, 2011, respectively.

The Corporation has allocated $101 of specific reserves to one commercial mortgage customer with two loans whose terms have been modified in a troubled debt restructuring as of March 31, 2012. The interest rates on the original loans were 6.45% and 6.47%. Due to financial difficulties experienced by the customer, the interest rates on both loans were reduced to 5.75% in the first quarter of 2012, and the maturity dates were extended to 2020 and 2024, resulting in an additional provision for loan losses of $101 for the three months ended March 31, 2012. These loans had a total recorded investment of $1,840 as of March 31, 2012. This commercial customer has two additional mortgage loans that were deemed to be impaired as of December 31, 2011 and whose terms were modified in a troubled debt restructuring in the first quarter of 2012. The loan payments were modified to reflect a twenty year amortization with a balloon payment due after five years. These loans had a total recorded investment of $716 and $728 and specific reserves of $465 as of both March 31, 2012 and December 31, 2011, respectively. No additional provision for loan losses was required to be recorded during the three months ended March 31, 2012 in connection with the loan modifications.

The Corporation has a commercial mortgage customer whose loan relationships have interest-only terms that were extended during 2011. The original interest rates on the loans, which were also the market rates of interest at the time of the loan modification, were not reduced; therefore, no additional provision for loan losses was required to be recorded. These loans have a total recorded investment of $4,571 and $4,588 at March 31, 2012 and December 31, 2011, respectively.

In addition, the Corporation has a commercial mortgage customer whose loan relationship was restructured due to the forgiveness of accrued interest and late charges. The original interest rate on the loan, which was also the market rate of interest at the time of the loan modification, was not reduced; therefore, no additional provision for loan losses was required to be recorded. This loan has a recorded investment of $1,417 and $1,438 at March 31, 2012 and December 31, 2011.

The Corporation has a commercial customer with five loans whose terms were modified in a troubled debt restructuring in the first quarter of 2012 due to financial difficulties experienced by the customer. The outstanding balances on the five loans, which ranged in maturity from 2012 to 2014, were combined into one new loan with a five year term. The blended original interest rates on the loans, which were also the market rates of interest at the time of the loan modification, were not reduced; therefore no additional provision for loan losses was required to be recorded. This loan has a total recorded investment of $310 at March 31, 2012.

The Corporation has no further loan commitments to customers whose loans are classified as a troubled debt restructuring, and there have been no payment defaults on loans modified in 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 at least 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.


March 31, 2012	Pass		Special Mention		Substandard		Doubtful		Total

Commercial, industrial, and agricultural	$	229,534	$	4,329	$	24,577	$	188	$	258,628
Commercial mortgages		224,108		3,383		22,200		716		250,407


Total	$	453,642	$	7,712	$	46,777	$	904	$	509,035


December 31, 2011	Pass		Special Mention		Substandard		Doubtful		Total

Commercial, industrial, and agricultural	$	223,457	$	4,176	$	25,490	$	201	$	253,324
Commercial mortgages		214,098		3,172		24,513		728		242,511


Total	$	437,555	$	7,348	$	50,003	$	929	$	495,835

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 March 31, 2012 and December 31, 2011:


	March 31, 2012			December 31, 2011

Consumer	$	17,896		$	18,176
Residential real estate		1,005			1,056
Less: unearned discount		(2,881	)		(2,886	)


Total	$	16,020		$	16,346

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate, consumer, and credit card 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 March 31, 2012 and December 31, 2011:


	March 31, 2012						December 31, 2011
	Residential Real Estate		Consumer		Credit Cards		Residential Real Estate		Consumer		Credit Cards

Performing	$	293,838	$	54,752	$	3,131	$	297,217	$	54,547	$	3,179
Non-performing		1,672		153		2		1,411		130		27


Total	$	295,510	$	54,905	$	3,133	$	298,628	$	54,677	$	3,206