Company Quick10K Filing
Quick10K
CNB Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$28.05 15 $428
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-02-22 Regulation FD, Exhibits
8-K 2019-02-13 Other Events, Exhibits
8-K 2019-01-28 Earnings, Exhibits
8-K 2019-01-28 Earnings, Exhibits
8-K 2018-11-13 Other Events, Exhibits
8-K 2018-10-19 Earnings, Exhibits
8-K 2018-10-10 Officers
8-K 2018-09-18 Officers
8-K 2018-08-14 Other Events, Exhibits
8-K 2018-08-08 Regulation FD, Exhibits
8-K 2018-07-20 Earnings, Exhibits
8-K 2018-05-08 Other Events, Exhibits
8-K 2018-04-17 Shareholder Vote, Other Events, Exhibits
8-K 2018-04-16 Earnings, Exhibits
8-K 2018-02-13 Officers
8-K 2018-02-02 Earnings, Exhibits
8-K 2018-01-12 Other Events
CFG Citizens Financial Group
SIVB Silicon Valley Bank
PNFP Pinnacle Financial Partners
OZK Bank of The Ozarks
HWC Hancock Whitney
VBTX Veritex Holdings
CNOB Connectone Bancorp
THFF First Financial
FSB Franklin Financial Network
UBCP United Bancorp
CCNE 2018-09-30
Part I.
Part I Financial Information
Item 1. Financial Statements
Item 1. Legal Proceedings - None
Item 1A. Risk Factors - There Have Been No Material Changes To The Risk Factors Disclosed in Part I, Item Ia of The 2017 Form 10-K.
Item 2. Issuer Purchases of Equity Securities
Item 6. Exhibits
EX-31.1 ccne09302018ex311.htm
EX-31.2 ccne09302018ex312.htm
EX-32.1 ccne09302018ex321.htm
EX-32.2 ccne09302018ex322.htm

CNB Financial Earnings 2018-09-30

CCNE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ccne0930201810-q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10–Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 000-13396
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Pennsylvania
 
25-1450605
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
1 South Second Street
P.O. Box 42
Clearfield, Pennsylvania 16830
(Address of principal executive offices)
Registrant’s telephone number, including area code, (814) 765-9621
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý    Yes    ¨    No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ý    Yes    ¨    No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer
 
¨
  
Accelerated filer
 
ý
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
Emerging growth company    ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
¨  Yes    ý    No
The number of shares outstanding of the issuer’s common stock as of November 6, 2018
COMMON STOCK NO PAR VALUE PER SHARE: 15,247,411 SHARES




INDEX
PART I.
FINANCIAL INFORMATION
 
 
Page Number
 
 
 
 
 
1

 
 
2

 
 
4

 
 
5

 
 
6

 
 
27

 
 
38

 
 
39

 
PART II.
OTHER INFORMATION
 
 
40

 
 
40

 
 

40

 
 
41

 
 
42





Forward-Looking Statements
This quarterly report on form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, liquidity, results of operations, future performance and our business. These forward-looking statements are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. Forward-looking statements include statements with respect to beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond our control). Forward-looking statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would” and “could.” Such known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) changes in general business, industry or economic conditions or competition; (ii) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (iii) adverse changes or conditions in capital and financial markets; (iv) changes in interest rates; (v) higher than expected costs or other difficulties related to integration of combined or merged businesses; (vi) the inability to realize expected cost savings or achieve other anticipated benefits in connection with business combinations and other acquisitions; (vii) changes in the quality or composition of our loan and investment portfolios; (viii) adequacy of loan loss reserves; (ix) increased competition; (x) loss of certain key officers; (xi) continued relationships with major customers; (xii) deposit attrition; (xiii) rapidly changing technology; (xiv) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xv) changes in the cost of funds, demand for loan products or demand for financial services; (xvi) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices; and (xvii) our success at managing the foregoing items. Some of these and other factors are discussed in our annual and quarterly reports filed with the Securities and Exchange Commission ("SEC"). Such factors could have an adverse impact on our financial position and our results of operations.
The forward-looking statements contained herein are based upon management’s beliefs and assumptions. Any forward-looking statement made herein speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.





Part I Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share data
 
(unaudited)
 
 
 
September 30, 2018
 
December 31, 2017
ASSETS
Cash and due from banks
$
34,637

 
$
33,146

Interest bearing deposits with other banks
1,863

 
2,199

Total cash and cash equivalents
36,500

 
35,345

Securities available for sale
522,334

 
409,709

Trading securities
8,887

 
7,150

Loans held for sale
775

 
852

Loans
2,391,463

 
2,149,848

Less: unearned discount
(4,508
)
 
(3,889
)
Less: allowance for loan losses
(22,510
)
 
(19,693
)
Net loans
2,364,445

 
2,126,266

FHLB, other equity, and restricted equity interests
23,836

 
21,517

Premises and equipment, net
49,301

 
50,715

Bank owned life insurance
56,108

 
55,035

Mortgage servicing rights
1,492

 
1,387

Goodwill
38,730

 
38,730

Core deposit intangible
907

 
1,625

Accrued interest receivable and other assets
25,998

 
20,442

Total Assets
$
3,129,313

 
$
2,768,773

LIABILITIES AND SHAREHOLDERS’ EQUITY
Non-interest bearing deposits
$
345,154

 
$
321,858

Interest bearing deposits
2,177,225

 
1,845,957

Total deposits
2,522,379

 
2,167,815

Short-term borrowings
2,211

 
34,416

FHLB and other long term borrowings
250,211

 
222,943

Subordinated debentures
70,620

 
70,620

Accrued interest payable and other liabilities
29,516

 
29,069

Total liabilities
2,874,937

 
2,524,863

Common stock, $0 par value; authorized 50,000,000 shares; issued 15,308,378 shares at September 30, 2018 and December 31, 2017

 

Additional paid in capital
97,328

 
97,042

Retained earnings
165,427

 
148,298

Treasury stock, at cost (22,948 shares at September 30, 2018 and 43,638 shares at December 31, 2017)
(608
)
 
(1,087
)
Accumulated other comprehensive loss
(7,771
)
 
(343
)
Total shareholders’ equity
254,376

 
243,910

Total Liabilities and Shareholders’ Equity
$
3,129,313

 
$
2,768,773

 
 
 
 
See Notes to Consolidated Financial Statements


1



CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Dollars in thousands, except per share data
 
 
 
 
 
Three months ended September 30,
 
2018
 
2017
INTEREST AND DIVIDEND INCOME:
 
 
 
Loans including fees
$
30,385

 
$
25,215

Securities:
 
 
 
Taxable
2,698

 
1,970

Tax-exempt
677

 
692

Dividends
280

 
192

Total interest and dividend income
34,040

 
28,069

INTEREST EXPENSE:
 
 
 
Deposits
4,812

 
2,345

Borrowed funds
1,334

 
1,225

Subordinated debentures (includes $44 and $71 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements in 2018 and 2017, respectively)
1,016

 
982

Total interest expense
7,162

 
4,552

NET INTEREST INCOME
26,878

 
23,517

PROVISION FOR LOAN LOSSES
1,095

 
1,400

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
25,783

 
22,117

NON-INTEREST INCOME:
 
 
 
Service charges on deposit accounts
1,584

 
1,244

Other service charges and fees
732

 
587

Wealth and asset management fees
1,031

 
952

Net realized gains on available-for-sale securities (includes $0 and $5 accumulated other comprehensive income reclassifications for net realized gains on available-for-sale securities in 2018 and 2017, respectively)

 
5

Net realized and unrealized gains on trading securities
421

 
160

Mortgage banking
283

 
237

Bank owned life insurance
335

 
592

Card processing and interchange income
1,066

 
942

Other
481

 
313

Total non-interest income
5,933

 
5,032

NON-INTEREST EXPENSES:
 
 
 
Salaries and benefits
11,429

 
9,101

Net occupancy expense
2,650

 
2,219

Amortization of core deposit intangible
222

 
305

Data processing
1,149

 
1,031

State and local taxes
808

 
710

Legal, professional, and examination fees
603

 
561

Advertising
554

 
495

FDIC insurance premiums
361

 
295

Card processing and interchange expenses
767

 
541

Other
2,251

 
2,360

Total non-interest expenses
20,794

 
17,618

INCOME BEFORE INCOME TAXES
10,922

 
9,531

INCOME TAX EXPENSE (includes $(9) and $(23) income tax expense from reclassification items in 2018 and 2017, respectively)
1,686

 
2,285

NET INCOME
$
9,236

 
$
7,246

EARNINGS PER SHARE:
 
 
 
Basic
0.60

 
0.47

Diluted
0.60

 
0.47

DIVIDENDS PER SHARE:
 
 
 
Cash dividends per share
$
0.170

 
$
0.165

 
 
 
 
See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Dollars in thousands, except per share data
 
 
 
 
 
Nine months ended September 30,
 
2018
 
2017
INTEREST AND DIVIDEND INCOME:
 
 
 
Loans including fees
$
85,817

 
$
71,100

Securities:
 
 
 
Taxable
6,862

 
6,286

Tax-exempt
2,054

 
2,266

Dividends
793

 
524

Total interest and dividend income
95,526

 
80,176

INTEREST EXPENSE:
 
 
 
Deposits
11,423

 
6,709

Borrowed funds
4,426

 
2,819

Subordinated debentures (includes $149 and $220 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements in 2018 and 2017, respectively)
2,873

 
2,940

Total interest expense
18,722

 
12,468

NET INTEREST INCOME
76,804

 
67,708

PROVISION FOR LOAN LOSSES
4,631

 
3,550

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
72,173

 
64,158

NON-INTEREST INCOME:
 
 
 
Service charges on deposit accounts
4,102

 
3,499

Other service charges and fees
2,073

 
1,675

Wealth and asset management fees
3,151

 
2,775

Net realized gains on available-for-sale securities (includes $0 and $1,543 accumulated other comprehensive income reclassifications for net realized gains on available-for-sale securities in 2018 and 2017, respectively)

 
1,543

Net realized and unrealized gains on trading securities
672

 
475

Mortgage banking
801

 
668

Bank owned life insurance
1,074

 
1,308

Card processing and interchange income
3,140

 
2,790

Gain on sale of branch

 
536

Other
1,277

 
625

Total non-interest income
16,290

 
15,894

NON-INTEREST EXPENSES:
 
 
 
Salaries and benefits
31,095

 
27,008

Net occupancy expense
7,780

 
7,016

Amortization of core deposit intangible
718

 
967

Data processing
3,370

 
3,011

State and local taxes
2,494

 
2,063

Legal, professional, and examination fees
1,661

 
1,776

Advertising
1,732

 
1,527

FDIC insurance premiums
1,037

 
869

Card processing and interchange expenses
2,139

 
1,577

Other
7,310

 
6,635

Total non-interest expenses
59,336

 
52,449

INCOME BEFORE INCOME TAXES
29,127

 
27,603

INCOME TAX EXPENSE (includes $(31) and $463 income tax expense from reclassification items in 2018 and 2017, respectively)
4,353

 
7,194

NET INCOME
$
24,774

 
$
20,409

EARNINGS PER SHARE:
 
 
 
Basic
$
1.62

 
$
1.34

Diluted
$
1.62

 
$
1.34

DIVIDENDS PER SHARE:
 
 
 
Cash dividends per share
$
0.500

 
$
0.495

 
 
 
 
See Notes to Consolidated Financial Statements

2



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Dollars in thousands
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
NET INCOME
$
9,236

 
$
7,246

 
$
24,774

 
$
20,409

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net change in fair value of interest rate swap agreements designated as cash flow hedges:
 
 
 
 
 
 
 
Unrealized gain (loss) on interest rate swaps, net of tax of $0 for the three months ended September 30, 2018 and 2017, and ($4) and $1 for the nine months ended September 30, 2018 and 2017
1

 

 
16

 
(2
)
Reclassification adjustment for losses recognized in earnings, net of tax of ($9) and ($25) for the three months ended September 30, 2018 and 2017, and ($31) and ($77) for the nine months ended September 30, 2018 and 2017
35

 
46

 
118

 
143

 
36

 
46

 
134

 
141

Net change in unrealized gains on securities available for sale:
 
 
 
 
 
 
 
Unrealized gains on other-than-temporarily impaired securities available for sale:
 
 
 
 
 
 
 
Unrealized losses arising during the period, net of tax of $0 for the three months ended September 30, 2018 and 2017, and $0 and ($47) for the nine months ended September 30, 2018 and 2017

 

 

 
87

Reclassification adjustment for realized gains included in net income, net of tax of $0 for the three months ended September 30, 2018 and 2017, and $0 and $484 for the nine months ended September 30, 2018 and 2017

 

 

 
(899
)
 

 

 

 
(812
)
Unrealized gains on other securities available for sale:
 
 
 
 
 
 
 
Unrealized (losses) gains arising during the period, net of tax of $653 and $433 for the three months ended September 30, 2018 and 2017, and $2,010 and ($1,111) for the nine months ended September 30, 2018 and 2017
(2,459
)
 
(814
)
 
(7,562
)
 
2,059

Reclassification adjustment for realized gains included in net income, net of tax of $0 and $2 for the three months ended September 30, 2018 and 2017, and $0 and $56 for the nine months ended September 30, 2018 and 2017

 
(3
)
 

 
(104
)
 
(2,459
)
 
(817
)
 
(7,562
)
 
1,955

Other comprehensive income (loss)
(2,423
)
 
(771
)
 
(7,428
)
 
1,284

COMPREHENSIVE INCOME
$
6,813

 
$
6,475

 
$
17,346

 
$
21,693

 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements


3



CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Dollars in thousands
 
 
 
 
 
Nine months ended September 30,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
24,774

 
$
20,409

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Provision for loan losses
4,631

 
3,550

Depreciation and amortization of premises and equipment, core deposit intangible, and mortgage servicing rights
3,661

 
3,974

Amortization and accretion of securities premiums and discounts, deferred loan fees and costs, net yield and credit mark on acquired loans, and unearned income
(472
)
 
(980
)
Net realized gains on sales of available-for-sale securities

 
(1,543
)
Net realized and unrealized gains on trading securities
(672
)
 
(475
)
Proceeds from sale of trading securities
434

 
402

Purchase of trading securities
(1,499
)
 
(1,050
)
Gain on sale of branch

 
(536
)
Gain on sale of loans
(510
)
 
(253
)
Net gains on dispositions of premises and equipment and foreclosed assets
(285
)
 
(64
)
Proceeds from sale of loans
18,811

 
17,978

Origination of loans held for sale
(18,404
)
 
(20,001
)
Income on bank owned life insurance
(1,074
)
 
(1,308
)
Stock-based compensation expense
1,219

 
600

Changes in:
 
 
 
Accrued interest receivable and other assets
(5,756
)
 
2,829

Accrued interest payable and other liabilities
2,627

 
(3,604
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
27,485

 
19,928

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from maturities, prepayments and calls of available-for-sale securities
44,605

 
59,347

Proceeds from sales of available-for-sale securities

 
15,374

Purchase of available-for-sale securities
(167,473
)
 
(3,620
)
Purchase of BOLI policies

 
(10,000
)
Proceeds from death benefit of BOLI policies

 
893

Net cash received from sale of branch

 
1,079

Loan origination and payments, net
(241,895
)
 
(226,078
)
Purchase of FHLB, other equity, and restricted equity interests
(2,319
)
 
(6,959
)
Purchase of premises and equipment
(1,373
)
 
(3,718
)
Proceeds from the sale of premises and equipment and foreclosed assets
597

 
563

NET CASH USED IN INVESTING ACTIVITIES
(367,858
)
 
(173,119
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net change in:
 
 
 
Checking, money market and savings accounts
329,925

 
35,303

Certificates of deposit
24,639

 
8,864

Purchase of treasury stock
(454
)
 
(1,360
)
Cash dividends paid
(7,645
)
 
(7,572
)
Proceeds from stock offering, net of issuance costs

 
19,294

Repayment of long-term borrowings
(22,732
)
 
(42,505
)
Proceeds from long-term borrowings
50,000

 
140,000

Net change in short-term borrowings
(32,205
)
 
7,659

NET CASH PROVIDED BY FINANCING ACTIVITIES
341,528

 
159,683

NET INCREASE IN CASH AND CASH EQUIVALENTS
1,155

 
6,492

CASH AND CASH EQUIVALENTS, Beginning
35,345

 
29,183

CASH AND CASH EQUIVALENTS, Ending
$
36,500

 
$
35,675

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
18,456

 
$
12,699

Income taxes
$
4,250

 
$
6,000

SUPPLEMENTAL NONCASH DISCLOSURES:
 
 
 
Transfers to other real estate owned
$
228

 
$
239

Grant of restricted stock awards from treasury stock
$
933

 
$
943

Net assets transferred for sale of branch, excluding cash and cash equivalents
$

 
$
543

See Notes to Consolidated Financial Statements

4



CNB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1.    BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the SEC and in compliance with accounting principles generally accepted in the United States of America (“GAAP”). Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.
In the opinion of management of the registrant, the accompanying consolidated financial statements as of September 30, 2018 and for the three and nine month periods ended September 30, 2018 and 2017 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods presented. The financial performance reported for CNB Financial Corporation (the “Corporation”) for the three and nine month periods ended September 30, 2018 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the period ended December 31, 2017 (the “2017 Form 10-K”). All dollar amounts are stated in thousands, except share and per share data and other amounts as indicated. Certain prior period amounts have been reclassified to conform to the current period presentation.

2.    STOCK COMPENSATION
The Corporation has a stock incentive plan for key employees and independent directors. The stock incentive plan, which is administered by a committee of the Board of Directors, provides for aggregate grants of up to 500,000 shares of common stock in the form of non-qualified options or restricted stock. For key employees, the plan vesting is either one-third or one-fourth of the granted options or restricted stock per year, beginning one year after the grant date, with 100% vesting on the third or fourth anniversary of the grant date, respectively. Prior to 2018, for independent directors, the vesting schedule was one-third of the granted options or restricted stock per year beginning one year after the grant date, with 100% vested on the third anniversary of the grant date. Beginning in 2018, stock compensation received by independent directors vests immediately. At September 30, 2018, there was no unrecognized compensation cost related to nonvested stock options granted under this plan and no stock options were granted during the three and nine month periods ended September 30, 2018 and 2017.
In addition to the time-based restricted stock disclosed above, the Corporation’s Board of Directors grants performance-based restricted stock awards (“PBRSAs”) to key employees. The number of PBRSAs will depend on certain performance conditions and are also subject to service-based vesting. In 2018, awards with a maximum of 15,702 shares in aggregate were granted to key employees. In 2017, an award with a maximum of 10,000 shares was granted to a key employee.
Compensation expense for the restricted stock awards is recognized over the requisite service period noted above based on the fair value of the shares at the date of grant. Nonvested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned. Compensation expense resulting from these restricted stock awards was $268 and $1,219 for the three and nine months ended September 30, 2018, and $204 and $600 for the three and nine months ended September 30, 2017. As of September 30, 2018, there was $1,042 of total unrecognized compensation cost related to unvested restricted stock awards.
A summary of changes in time-based nonvested restricted stock awards for the three months ended September 30, 2018 follows:
 
Shares
 
Per Share
Weighted Average
Grant Date Fair 
Value
Nonvested at beginning of period
76,045

 
$
23.09

Vested
(250
)
 
18.58

Nonvested at end of period
75,795

 
$
23.11







5



A summary of changes in time-based nonvested restricted stock awards for the nine months ended September 30, 2018 follows:
 
Shares
 
Per Share
Weighted Average
Grant Date Fair 
Value
Nonvested at beginning of period
94,472

 
$
20.79

Granted
22,108

 
26.92

Forfeited
(130
)
 
26.29

Vested
(40,655
)
 
19.66

Nonvested at end of period
75,795

 
$
23.11


The above tables exclude 15,600 shares that were granted and immediately vested. Compensation expense resulting from the immediately vested shares was $0 and $385 for the three and nine months ended September 30, 2018, and is included in the previously disclosed $1,219 of stock-based compensation expense for the nine months ended September 30, 2018.

The fair value of shares vested was $8 and $1,479 during the three and nine months ended September 30, 2018, and $6 and $929 during the three and nine months ended September 30, 2017.

3.    FAIR VALUE
Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has also been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs are used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The fair values of most trading securities and securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
The Corporation’s derivative instruments are interest rate swaps that are similar to those that trade in liquid markets. As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (Level 2 inputs).
The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.




6



Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2018 and December 31, 2017:
 
 
 
 
Fair Value Measurements at September 30, 2018 Using
 
 
 
Quoted Prices in
Active Markets 
for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable
Inputs
Description
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Securities Available For Sale:
 
 
 
 
 
 
 
U.S. Government sponsored entities
$
145,509

 
$

 
$
145,509

 
$

States and political subdivisions
138,395

 

 
138,395

 

Residential and multi-family mortgage
194,635

 

 
194,635

 

Corporate notes and bonds
12,036

 

 
12,036

 

Pooled SBA
30,833

 

 
30,833

 

Other
926

 
926

 

 

Total Securities Available For Sale
$
522,334

 
$
926

 
$
521,408

 
$

Interest Rate swaps
$
191

 
$

 
$
191

 
$

Trading Securities:
 
 
 
 
 
 
 
Corporate equity securities
$
6,643

 
$
6,643

 

 

Mutual funds
1,687

 
1,687

 

 

Certificates of deposit
228

 
228

 

 

Corporate notes and bonds
278

 
278

 

 

U.S. Government sponsored entities
51

 

 
51

 

Total Trading Securities
$
8,887

 
$
8,836

 
$
51

 
$

Liabilities,
 
 
 
 
 
 
 
Interest rate swaps
$
(182
)
 
$

 
$
(182
)
 
$

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements at December 31, 2017 Using
 
 
 
Quoted Prices in
 
 
 
Significant
 
 
 
Active Markets 
for
 
Significant Other
 
Unobservable
 
 
 
Identical Assets
 
Observable Inputs
 
Inputs
Description
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Securities Available For Sale:
 
 
 
 
 
 
 
U.S. Government sponsored entities
$
108,148

 
$

 
$
108,148

 
$

States and political subdivisions
137,723

 

 
137,723

 

Residential and multi-family mortgage
109,636

 

 
109,636

 

Corporate notes and bonds
17,200

 

 
17,200

 

Pooled SBA
36,040

 

 
36,040

 

Other
962

 
962

 

 

Total Securities Available For Sale
$
409,709

 
$
962

 
$
408,747

 
$

Interest Rate swaps
$
149

 
$

 
$
149

 
$

Trading Securities:
 
 
 
 
 
 
 
Corporate equity securities
5,125

 
5,125

 

 

Mutual funds
1,499

 
1,499

 

 

Certificates of deposit
220

 
220

 

 

Corporate notes and bonds
254

 
254

 

 

U.S. Government sponsored entities
52

 

 
52

 

Total Trading Securities
$
7,150

 
$
7,098

 
52

 

Liabilities,
 
 
 
 
 
 
 
Interest rate swaps
$
(310
)
 
$

 
$
(310
)
 
$


7



The table below presents a reconciliation of the fair value of securities available for sale measured on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018 and 2017:
 
2018
 
2017
Balance, January 1
$

 
$
2,049

Total gains:
 
 
 
Included in other comprehensive income (unrealized)

 
134

Sale of available-for-sale securities

 
(2,183
)
Balance, September 30
$

 
$


The Corporation did not have any Level 3 securities during the three months ended September 30, 2018 and 2017.

Assets and liabilities measured at fair value on a non-recurring basis are as follows at September 30, 2018 and December 31, 2017:

 
 
 
Fair Value Measurements at September 30, 2018 Using
 
 
 
Quoted Prices in
Active Markets 
for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable
Inputs
Description
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Commercial mortgages
$
324

 

 

 
$
324

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements at December 31, 2017 Using
 
 
 
Quoted Prices in
 
 
 
Significant
 
 
 
Active Markets 
for
 
Significant Other
 
Unobservable
 
 
 
Identical Assets
 
Observable Inputs
 
Inputs
Description
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Commercial mortgages
$
11

 

 

 
$
11

Impaired loans, measured for impairment using the fair value of collateral for collateral dependent loans, had a recorded investment of $1,310 with a valuation allowance of $986 as of September 30, 2018, resulting in a provision (benefit) for loan losses of $(634) and $352 for the corresponding three and nine month periods ended September 30, 2018. Impaired loans had a recorded investment of $646 with a valuation allowance of $635 as of December 31, 2017. Impaired loans carried at fair value resulted in a negative provision for loan losses of $(22) and $(395) for the three and nine month periods ended September 30, 2017.
The estimated fair values of impaired collateral dependent loans such as commercial or residential mortgages are determined primarily through third-party appraisals. When a collateral dependent loan, such as a commercial or residential mortgage loan, becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral and a further reduction for estimated costs to sell the property is applied, which results in an amount that is considered to be the estimated fair value. If a loan becomes impaired and the appraisal of related loan collateral is outdated, management applies an appropriate adjustment factor based on its experience with current valuations of similar collateral in determining the loan’s estimated fair value and resulting allowance for loan losses. Third-party appraisals are not customarily obtained in respect of unimpaired loans, unless in management’s view changes in circumstances warrant obtaining an updated appraisal.


8



The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2018:
 
 
Fair
value
 
Valuation Technique
 
Unobservable Inputs
 
Weighted Average (Range)
Impaired loans – commercial mortgages
$
324

 
Valuation of third party appraisal on underlying collateral
 
Loss severity rates
 
15% (10-15%)
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2017:
 
Fair
value
 
Valuation Technique
 
Unobservable Inputs
 
Weighted Average (Range)
Impaired loans – commercial mortgages
$
11

 
Valuation of third party appraisal on underlying collateral
 
Loss severity rates
 
10% (10%)
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments at September 30, 2018:
 
 
Carrying
 
Fair Value Measurement Using:
 
Total
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
36,500

 
$
36,500

 
$

 
$

 
$
36,500

Securities available for sale
522,334

 
926

 
521,408

 

 
522,334

Trading securities
8,887

 
8,836

 
51

 

 
8,887

Loans held for sale
775

 

 
775

 

 
775

Net loans
2,364,445

 

 

 
2,334,576

 
2,334,576

FHLB and other restricted interests
16,885

 
n/a

 
n/a

 
n/a

 
n/a

Other equity interests
6,951

 
 
 
 
 
 
 
6,951

Interest rate swaps
191

 

 
191

 

 
191

Accrued interest receivable
11,221

 
7

 
3,748

 
7,466

 
11,221

LIABILITIES
 
 
 
 
 
 
 
 
 
Deposits
$
(2,522,379
)
 
$
(2,132,769
)
 
$
(391,848
)
 
$

 
$
(2,524,617
)
FHLB and other borrowings
(252,422
)
 

 
(248,986
)
 

 
(248,986
)
Subordinated debentures
(70,620
)
 

 
(68,202
)
 

 
(68,202
)
Interest rate swaps
(182
)
 

 
(182
)
 

 
(182
)
Accrued interest payable
(820
)
 

 
(820
)
 

 
(820
)









9



The following table presents the carrying amount and fair value of financial instruments at December 31, 2017:
 
Carrying
 
Fair Value Measurement Using:
 
Total
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
35,345

 
$
35,345

 
$

 
$

 
$
35,345

Securities available for sale
409,709

 
962

 
408,747

 

 
409,709

Trading securities
7,150

 
7,098

 
52

 

 
7,150

Loans held for sale
852

 

 
853

 

 
853

Net loans
2,126,266

 

 

 
2,126,824

 
2,126,824

FHLB and other restricted interests
17,035

 
n/a

 
n/a

 
n/a

 
n/a

Other equity interests
4,482

 
 
 
 
 
 
 
4,482

Interest rate swaps
149

 

 
149

 

 
149

Accrued interest receivable
9,254

 
6

 
2,651

 
6,597

 
9,254

LIABILITIES
 
 
 
 
 
 
 
 
 
Deposits
$
(2,167,815
)
 
$
(1,802,844
)
 
$
(362,756
)
 
$

 
$
(2,165,600
)
FHLB and other borrowings
(257,359
)
 

 
(257,361
)
 

 
(257,361
)
Subordinated debentures
(70,620
)
 

 
(63,575
)
 

 
(63,575
)
Interest rate swaps
(310
)
 

 
(310
)
 

 
(310
)
Accrued interest payable
(554
)
 

 
(554
)
 

 
(554
)

The methods utilized to estimate the fair value of financial instruments at December 31, 2017 did not necessarily represent an exit price. In accordance with our adoption of ASU 2016-01 in 2018, the methods utilized to measure the fair value of financial instruments at September 30, 2018 represent an approximation of exit price; however, an actual exit price may differ.
While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. Other equity interests fair value is based on the net asset values provided by underlying investment partnership. ASU 2015-7 removes the requirement to categorize within the fair value hierarchy all investments measured using the net asset value per share practical expedient and related disclosures.
In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures. Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet, may have value but are not included in the fair value disclosures.

4.    SECURITIES
Securities available for sale at September 30, 2018 and December 31, 2017 are as follows:
 
September 30, 2018
 
December 31, 2017
 
Amortized
 
Unrealized
 
Fair
 
Amortized
 
Unrealized
 
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
Cost
 
Gains
 
Losses
 
Value
U.S. gov’t sponsored entities
$
148,034

 
$
178

 
$
(2,703
)
 
$
145,509

 
$
108,578

 
$
478

 
$
(908
)
 
$
108,148

State & political subdivisions
137,848

 
1,643

 
(1,096
)
 
138,395

 
134,428

 
3,609

 
(314
)
 
137,723

Residential & multi-family mortgage
199,968

 
76

 
(5,409
)
 
194,635

 
111,214

 
304

 
(1,882
)
 
109,636

Corporate notes & bonds
12,358

 
31

 
(353
)
 
12,036

 
17,610

 
52

 
(462
)
 
17,200

Pooled SBA
32,079

 
66

 
(1,312
)
 
30,833

 
36,260

 
355

 
(575
)
 
36,040

Other
1,020

 

 
(94
)
 
926

 
1,020

 

 
(58
)
 
962

Total
$
531,307

 
$
1,994

 
$
(10,967
)
 
$
522,334

 
$
409,110

 
$
4,798

 
$
(4,199
)
 
$
409,709


10




At September 30, 2018 and December 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. government sponsored entities, in an amount greater than 10% of shareholders’ equity. The Corporation’s residential and multi-family mortgage securities are issued by government sponsored entities.
Trading securities at September 30, 2018 and December 31, 2017 are as follows:
 
September 30, 2018
 
December 31, 2017
Corporate equity securities
$
6,643

 
$
5,125

Mutual funds
1,687

 
1,499

Certificates of deposit
228

 
220

Corporate notes and bonds
278

 
254

U.S. government sponsored entities
51

 
52

Total
$
8,887

 
$
7,150

Securities with unrealized losses at September 30, 2018 and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:
September 30, 2018
 
 
Less than 12 Months
 
12 Months or More
 
Total
Description of Securities
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
U.S. gov’t sponsored entities
$
63,025

 
$
(736
)
 
$
70,211

 
$
(1,967
)
 
$
133,236

 
$
(2,703
)
State & political subdivisions
45,113

 
(617
)
 
7,907

 
(479
)
 
53,020

 
(1,096
)
Residential & multi-family mortgage
106,762

 
(2,196
)
 
62,880

 
(3,213
)
 
169,642

 
(5,409
)
Corporate notes & bonds
5,229

 
(29
)
 
4,676

 
(324
)
 
9,905

 
(353
)
Pooled SBA
7,326

 
(106
)
 
19,377

 
(1,206
)
 
26,703

 
(1,312
)
Other

 

 
926

 
(94
)
 
926

 
(94
)
 
$
227,455

 
$
(3,684
)
 
$
165,977

 
$
(7,283
)
 
$
393,432

 
$
(10,967
)
December 31, 2017
 
 
Less than 12 Months
 
12 Months or More
 
Total
Description of Securities
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
U.S. gov’t sponsored entities
$
55,696

 
$
(540
)
 
$
34,754

 
$
(368
)
 
$
90,450

 
$
(908
)
State & political subdivisions
15,890

 
(69
)
 
4,104

 
(245
)
 
19,994

 
(314
)
Residential and multi-family mortgage
30,144

 
(153
)
 
63,699

 
(1,729
)
 
93,843

 
(1,882
)
Corporate notes & bonds
5,005

 
(9
)
 
9,042

 
(453
)
 
14,047

 
(462
)
Pooled SBA

 

 
22,270

 
(575
)
 
22,270

 
(575
)
Other

 

 
962

 
(58
)
 
962

 
(58
)
 
$
106,735

 
$
(771
)
 
$
134,831

 
$
(3,428
)
 
$
241,566

 
$
(4,199
)
The Corporation evaluates securities for other-than-temporary impairment on a quarterly basis, or more frequently when economic or market conditions warrant such an evaluation.

11



A roll-forward of the other-than-temporary impairment amount related to credit losses for the three and nine months ended September 30, 2018 and 2017 is as follows:
 
2018
 
2017
Balance of credit losses on debt securities for which a portion of other-than-temporary impairment was recognized in earnings, beginning of period
$

 
$
2,071

Credit losses previously recognized on securities sold during the period

 
(2,071
)
Additional credit loss for which other-than-temporary impairment was not previously recognized

 

Additional credit loss for which other-than-temporary impairment was previously recognized

 

Balance of credit losses on debt securities for which a portion of other-than-temporary impairment was recognized in earnings, end of period
$

 
$

For the securities that comprise corporate notes and bonds and the securities that are issued by state and political subdivisions, management monitors publicly available financial information, such as filings with the SEC, in order to evaluate the securities for other-than-temporary impairment. For financial institution issuers, management monitors information from quarterly “call” report filings that are used to generate Uniform Bank Performance Reports. All other securities that were in an unrealized loss position at the balance sheet date were reviewed by management, and issuer-specific documents were reviewed as appropriate given the following considerations: When reviewing securities for other-than-temporary impairment, management considers the financial condition and near-term prospects of the issuer and whether downgrades by bond rating agencies have occurred. Management also considers the length of time and extent to which fair value has been less than cost, and whether management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.
As of September 30, 2018 and December 31, 2017, management concluded that the securities described in the previous paragraph were not other-than-temporarily impaired for the following reasons:
 
There is no indication of any significant deterioration of the creditworthiness of the institutions that issued the securities.
All contractual interest payments on the securities have been received as scheduled, and no information has come to management’s attention through the processes previously described which would lead to a conclusion that future contractual payments will not be timely received.
The Corporation does not intend to sell and it is not more likely than not that it will be required to sell the securities in an unrealized loss position before recovery of its amortized cost basis.
On September 30, 2018 and December 31, 2017, securities carried at $311,336 and $319,575, respectively, were pledged to secure public deposits and for other purposes as provided by law.
Information pertaining to security sales on available for sale securities is as follows: 
 
Proceeds
 
Gross
Gains
 
Gross
Losses
Three months ended September 30, 2018
$

 
$

 
$

Three months ended September 30, 2017
$
7,757

 
$
76

 
$
(71
)
Nine months ended September 30, 2018
$

 
$

 
$

Nine months ended September 30, 2017
$
15,374

 
$
1,614

 
$
(71
)
The tax provision related to these net realized gains was $2 and $540 during the three and nine months ended September 30, 2017.

12



The following is a schedule of the contractual maturity of securities available for sale, at September 30, 2018:
 
 
Amortized
Cost
 
Fair
Value
1 year or less
$
58,844

 
$
58,554

1 year – 5 years
164,854

 
163,471

5 years – 10 years
70,767

 
70,223

After 10 years
3,775

 
3,692

 
298,240

 
295,940

Residential and multi-family mortgage
199,968

 
194,635

Pooled SBA
32,079

 
30,833

Other securities
1,020

 
926

Total securities
$
531,307

 
$
522,334

Mortgage and asset backed securities and pooled SBA securities are not due at a single date; periodic payments are received based on the payment patterns of the underlying collateral.

5.    LOANS
Total net loans at September 30, 2018 and December 31, 2017 are summarized as follows:
 
September 30, 2018
 
December 31, 2017
Commercial, industrial, and agricultural
$
853,495

 
$
749,138

Commercial mortgages
683,979

 
600,065

Residential real estate
760,342

 
713,347

Consumer
85,888

 
80,193

Credit cards
7,434

 
6,753

Overdrafts
325

 
352

Less: unearned discount
(4,508
)
 
(3,889
)
allowance for loan losses
(22,510
)
 
(19,693
)
Loans, net
$
2,364,445

 
$
2,126,266

At September 30, 2018 and December 31, 2017, net unamortized loan fees of $3,331 and $2,574, 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, Central and Northeastern Ohio, and Western New York. 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. The Corporation maintains lending policies to control the quality of the loan portfolio. These policies delegate the authority to extend loans under specific guidelines and underwriting standards. These policies are prepared by the Corporation’s management and reviewed and ratified annually by the Corporation’s Board of Directors.
Pursuant to the Corporation’s lending policies, management considers a variety of factors when determining whether to extend credit to a customer, including loan-to-value ratios, FICO scores, quality of the borrower’s financial statements, and the ability to obtain personal guarantees.
Commercial, industrial, and agricultural loans comprised 36% and 35% of the Corporation’s total loan portfolio at September 30, 2018 and December 31, 2017, respectively. Commercial mortgage loans comprised 29% and 28% of the Corporation’s total loan portfolio at September 30, 2018 and December 31, 2017, respectively. Management assigns a risk rating to all commercial loans at loan origination. The loan-to-value policy guidelines for commercial, industrial, and agricultural loans are generally a maximum of 80% of the value of business equipment, a maximum of 75% of the value of accounts receivable, and a maximum of 60% of the value of business inventory at loan origination. The loan-to-value policy guideline for commercial mortgage loans is generally a maximum of 85% of the appraised value of the real estate.

13



Residential real estate loans comprised 32% and 33% of the Corporation’s total loan portfolio at September 30, 2018 and December 31, 2017, respectively. The loan-to-value policy guidelines for residential real estate loans vary depending on the collateral position and the specific type of loan. Higher loan-to-value terms may be approved with the appropriate private mortgage insurance coverage. The Corporation also originates and prices loans for sale into the secondary market. Loans so originated are classified as loans held for sale and are excluded from residential real estate loans reported above. The rationale for these sales is to mitigate interest rate risk associated with holding lower rate, long-term residential mortgages in the loan portfolio and to generate fee revenue from sales and servicing the loan. The Corporation also offers a variety of unsecured and secured consumer loan and credit card products which represented less than 10% of the total loan portfolio at
both September 30, 2018 and December 31, 2017. Terms and collateral requirements vary depending on the size and nature of the loan.
Transactions in the allowance for loan losses for the three months ended September 30, 2018 were as follows:
 
Commercial,
Industrial, and
Agricultural
 
Commercial
Mortgages
 
Residential
Real
Estate
 
Consumer
 
Credit
Cards
 
Overdrafts
 
Total
Allowance for loan losses, July 1, 2018
$
7,143

 
$
10,615

 
$
1,900

 
$
2,156

 
$
101

 
$
207

 
$
22,122

Charge-offs
(30
)
 

 
(212
)
 
(469
)
 
(8
)
 
(94
)
 
(813
)
Recoveries
3

 

 
55

 
28

 
3

 
17

 
106

Provision (benefit) for loan losses
(536
)
 
682

 
235

 
608

 
11

 
95

 
1,095

Allowance for loan losses, September 30, 2018
$
6,580

 
$
11,297

 
$
1,978

 
$
2,323

 
$
107

 
$
225

 
$
22,510

Transactions in the allowance for loan losses for the nine months ended September 30, 2018 were as follows:
 
Commercial,
Industrial, and
Agricultural
 
Commercial
Mortgages
 
Residential
Real
Estate
 
Consumer
 
Credit
Cards
 
Overdrafts
 
Total
Allowance for loan losses, January 1, 2018
$
6,160

 
$
9,007

 
$
2,033

 
$
2,179

 
$
120

 
$
194

 
$
19,693

Charge-offs
(61
)
 

 
(289
)
 
(1,610
)
 
(53
)
 
(236
)
 
(2,249
)
Recoveries
165

 

 
67

 
112

 
27

 
64

 
435

Provision for loan losses
316

 
2,290

 
167

 
1,642

 
13

 
203

 
4,631

Allowance for loan losses, September 30, 2018
$
6,580

 
$
11,297

 
$
1,978

 
$
2,323

 
$
107

 
$
225

 
$
22,510

Transactions in the allowance for loan losses for the three months ended September 30, 2017 were as follows:
 
Commercial,
Industrial, and
Agricultural
 
Commercial
Mortgages
 
Residential
Real
Estate
 
Consumer
 
Credit
Cards
 
Overdrafts
 
Total
Allowance for loan losses, July 1, 2017
$
5,563

 
$
7,641

 
$
1,670

 
$
2,068

 
$
142

 
$
185

 
$
17,269

Charge-offs
(20
)
 
(22
)
 
(130
)
 
(703
)
 
(39
)
 
(63
)
 
(977
)
Recoveries
36

 
3

 

 
96

 
8

 
14

 
157

Provision (benefit) for loan losses
(223
)
 
472

 
468

 
627

 

 
56

 
1,400

Allowance for loan losses, September 30, 2017
$
5,356

 
$
8,094

 
$
2,008

 
$
2,088

 
$
111

 
$
192

 
$
17,849

Transactions in the allowance for loan losses for the nine months ended September 30, 2017 were as follows:
 
Commercial,
Industrial, and
Agricultural
 
Commercial
Mortgages
 
Residential
Real
Estate
 
Consumer
 
Credit
Cards
 
Overdrafts
 
Total
Allowance for loan losses, January 1, 2017
$
5,428

 
$
6,753

 
$
1,653

 
$
2,215

 
$
93

 
$
188

 
$
16,330

Charge-offs
(50
)
 
(22
)
 
(328
)
 
(1,969
)
 
(111
)
 
(192
)
 
(2,672