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Credit Quality Indicators | 6 Months Ended
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Jun. 30, 2022
Risks and Uncertainties [Abstract] |
Credit Quality Indicators | Credit Quality Indicators The Company categorizes 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 Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $1 million, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for the loans in their respective portfolios on an annual basis. The Company 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 institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. 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. Substandard loans are characterized by the distinct possibility that the institution 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 meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2022 and December 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
(In Thousands of Dollars) |  | Pass |  |  | Special Mention |  |  | Sub standard |  |  | Total |
June 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 334,589 |  |  | $ | 1,279 |  |  | $ | 4,947 |  |  | $ | 340,815 |
Non-owner occupied |  |  | 541,462 |  |  |  | 12,769 |  |  |  | 19,260 |  |  |  | 573,491 |
Farmland |  |  | 173,341 |  |  |  | 2,131 |  |  |  | 439 |  |  |  | 175,911 |
Other |  |  | 124,250 |  |  |  | 0 |  |  |  | 364 |  |  |  | 124,614 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 279,870 |  |  |  | 882 |  |  |  | 5,517 |  |  |  | 286,269 |
Agricultural |  |  | 53,945 |  |  |  | 501 |  |  |  | 109 |  |  |  | 54,555 |
Total loans |  | $ | 1,507,457 |  |  | $ | 17,562 |  |  | $ | 30,636 |  |  | $ | 1,555,655 |
(In Thousands of Dollars) |  | Pass |  |  | Special Mention |  |  | Sub standard |  |  | Total |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 330,754 |  |  | $ | 5,006 |  |  | $ | 4,214 |  |  | $ | 339,974 |
Non-owner occupied |  |  | 495,170 |  |  |  | 19,366 |  |  |  | 18,170 |  |  |  | 532,706 |
Farmland |  |  | 174,580 |  |  |  | 2,160 |  |  |  | 677 |  |  |  | 177,417 |
Other |  |  | 137,063 |  |  |  | 784 |  |  |  | 147 |  |  |  | 137,994 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 301,879 |  |  |  | 1,190 |  |  |  | 9,463 |  |  |  | 312,532 |
Agricultural |  |  | 54,394 |  |  |  | 397 |  |  |  | 83 |  |  |  | 54,874 |
Total loans |  | $ | 1,493,840 |  |  | $ | 28,903 |  |  | $ | 32,754 |  |  | $ | 1,555,497 |
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential, consumer indirect and direct loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. In the 1-4 family residential real estate portfolio at June 30, 2022, other real estate owned and foreclosure properties were $0 and $33 thousand, respectively. At December 31, 2021, other real estate owned and foreclosure properties were $0 and $93 thousand, respectively. The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of June 30, 2022 and December 31, 2021. Nonperforming loans are loans past due 90 days or more and still accruing interest and nonaccrual loans.
|  | Residential Real Estate |  |  | Consumer |
(In Thousands of Dollars) |  | 1-4 Family Residential |  |  | Home Equity Lines of Credit |  |  | Indirect |  |  | Direct |  |  | Other |
June 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 459,819 |  |  | $ | 128,583 |  |  | $ | 198,795 |  |  | $ | 17,883 |  |  | $ | 8,299 |
Nonperforming |  |  | 3,947 |  |  |  | 836 |  |  |  | 448 |  |  |  | 220 |  |  |  | 0 |
Total loans |  | $ | 463,766 |  |  | $ | 129,419 |  |  | $ | 199,243 |  |  | $ | 18,103 |  |  | $ | 8,299 |
|  | Residential Real Estate |  |  | Consumer |
(In Thousands of Dollars) |  | 1-4 Family Residential |  |  | Home Equity Lines of Credit |  |  | Indirect |  |  | Direct |  |  | Other |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 448,970 |  |  | $ | 126,497 |  |  | $ | 164,182 |  |  | $ | 20,908 |  |  | $ | 9,395 |
Nonperforming |  |  | 3,822 |  |  |  | 953 |  |  |  | 578 |  |  |  | 280 |  |  |  | 6 |
Total loans |  | $ | 452,792 |  |  | $ | 127,450 |  |  | $ | 164,760 |  |  | $ | 21,188 |  |  | $ | 9,401 |
The following table presents total loans by risk categories and year of origination.
|  | Term Loans Amortized Cost Basis by Origination Year |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Revolving |  |  |  |
As of June 30, 2022 |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | Prior |  |  | Loans |  |  | Total |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 112,301 |  |  | $ | 173,000 |  |  | $ | 136,064 |  |  | $ | 157,325 |  |  | $ | 108,160 |  |  | $ | 298,149 |  |  | $ | 15,302 |  |  | $ | 1,000,301 |
Special mention |  |  | 0 |  |  |  | 768 |  |  |  | 0 |  |  |  | 5,379 |  |  |  | 909 |  |  |  | 6,480 |  |  |  | 512 |  |  |  | 14,048 |
Substandard |  |  | 0 |  |  |  | 0 |  |  |  | 438 |  |  |  | 2,496 |  |  |  | 0 |  |  |  | 20,994 |  |  |  | 643 |  |  |  | 24,571 |
Total commercial real estate loans |  | $ | 112,301 |  |  | $ | 173,768 |  |  | $ | 136,502 |  |  | $ | 165,200 |  |  | $ | 109,069 |  |  | $ | 325,623 |  |  | $ | 16,457 |  |  | $ | 1,038,920 |
Commercial and industrial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 59,270 |  |  | $ | 55,273 |  |  | $ | 41,450 |  |  | $ | 21,105 |  |  | $ | 17,388 |  |  | $ | 17,983 |  |  | $ | 67,401 |  |  | $ | 279,870 |
Special mention |  |  | 0 |  |  |  | 343 |  |  |  | 0 |  |  |  | 118 |  |  |  | 0 |  |  |  | 2 |  |  |  | 419 |  |  |  | 882 |
Substandard |  |  | 6 |  |  |  | 1,868 |  |  |  | 704 |  |  |  | 291 |  |  |  | 225 |  |  |  | 1,558 |  |  |  | 865 |  |  |  | 5,517 |
Total commercial loans |  | $ | 59,276 |  |  | $ | 57,484 |  |  | $ | 42,154 |  |  | $ | 21,514 |  |  | $ | 17,613 |  |  | $ | 19,543 |  |  | $ | 68,685 |  |  | $ | 286,269 |
Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 19,261 |  |  | $ | 41,041 |  |  | $ | 47,460 |  |  | $ | 25,504 |  |  | $ | 26,016 |  |  | $ | 49,030 |  |  | $ | 18,974 |  |  | $ | 227,286 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 222 |  |  |  | 29 |  |  |  | 0 |  |  |  | 2,031 |  |  |  | 350 |  |  |  | 2,632 |
Substandard |  |  | 0 |  |  |  | 368 |  |  |  | 36 |  |  |  | 54 |  |  |  | 10 |  |  |  | 50 |  |  |  | 30 |  |  |  | 548 |
Total agricultural loans |  | $ | 19,261 |  |  | $ | 41,409 |  |  | $ | 47,718 |  |  | $ | 25,587 |  |  | $ | 26,026 |  |  | $ | 51,111 |  |  | $ | 19,354 |  |  | $ | 230,466 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 45,241 |  |  | $ | 107,505 |  |  | $ | 81,495 |  |  | $ | 34,747 |  |  | $ | 25,755 |  |  | $ | 155,938 |  |  | $ | 3,730 |  |  | $ | 454,411 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 72 |  |  |  | 124 |  |  |  | 79 |  |  |  | 133 |  |  |  | 0 |  |  |  | 408 |
Substandard |  |  | 0 |  |  |  | 44 |  |  |  | 143 |  |  |  | 128 |  |  |  | 62 |  |  |  | 8,570 |  |  |  | 0 |  |  |  | 8,947 |
Total residential real estate loans |  | $ | 45,241 |  |  | $ | 107,549 |  |  | $ | 81,710 |  |  | $ | 34,999 |  |  | $ | 25,896 |  |  | $ | 164,641 |  |  | $ | 3,730 |  |  | $ | 463,766 |
Home equity lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 0 |  |  | $ | 0 |  |  | $ | 29 |  |  | $ | 0 |  |  | $ | 18 |  |  | $ | 1,839 |  |  | $ | 125,563 |  |  | $ | 127,449 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 48 |  |  |  | 48 |
Substandard |  |  | 0 |  |  |  | 13 |  |  |  | 85 |  |  |  | 50 |  |  |  | 64 |  |  |  | 1,593 |  |  |  | 117 |  |  |  | 1,922 |
Total home equity lines of credit |  | $ | 0 |  |  | $ | 13 |  |  | $ | 114 |  |  | $ | 50 |  |  | $ | 82 |  |  | $ | 3,432 |  |  | $ | 125,728 |  |  | $ | 129,419 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 66,912 |  |  | $ | 54,507 |  |  | $ | 38,378 |  |  | $ | 27,197 |  |  | $ | 15,059 |  |  | $ | 15,076 |  |  | $ | 7,487 |  |  | $ | 224,616 |
Substandard |  |  | 21 |  |  |  | 109 |  |  |  | 288 |  |  |  | 213 |  |  |  | 90 |  |  |  | 308 |  |  |  | 0 |  |  |  | 1,029 |
Total consumer loans |  | $ | 66,933 |  |  | $ | 54,616 |  |  | $ | 38,666 |  |  | $ | 27,410 |  |  | $ | 15,149 |  |  | $ | 15,384 |  |  | $ | 7,487 |  |  | $ | 225,645 |
Purchased Loans As a result of the Cortland Merger, the Company acquired $478.2 million in loans, excluding $4.0 million of loans held for sale. Under ASU Topic 326, when loans are purchased with evidence of more than significant deterioration of credit, they are accounted for as purchase credit deteriorated (“PCD”). PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. During 2021, the Company acquired PCD loans with a fair value of $34.3 million, credit discount of $1.3 million and a noncredit discount of $1.1 million. The outstanding balance at June 30, 2022 and related allowance on these loans is as follows:
|  | Loan Balance |  |  | ACL Balance |
Commercial real estate |  |  |  |  |  |
Owner Occupied |  | $ | 1,777 |  |  | $ | 26 |
Non-owner Occupied |  |  | 19,763 |  |  |  | 551 |
Other |  |  | 257 |  |  |  | 18 |
|  |  | 21,797 |  |  |  | 595 |
Commercial |  |  |  |  |  |
Commercial and industrial |  |  | 1,668 |  |  |  | 105 |
Residential real estate |  |  |  |  |  |
1-4 family residential |  |  | 494 |  |  |  | 3 |
Total |  | $ | 23,959 |  |  | $ | 703 |

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