LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2021

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSESThe Corporation grants commercial, residential, and consumer loans to customers primarily within southcentral Pennsylvania and northern Maryland and the surrounding area. A large portion of the loan portfolio is secured by real estate. Although the Bank has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Corporation’s internal risk rating system as of December 31, 2021 and 2020:


In thousands	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2021
Originated Loans
Commercial and industrial	$	139,908	$	5,549	$	2,056	$	—	$	147,513
Commercial real estate	500,978		56,462		8,658		—		566,098
Commercial real estate construction	41,002		1,659		—		—		42,661
Residential mortgage	299,041		4,961		75		—		304,077
Home equity lines of credit	74,094		883		—		—		74,977
Consumer	9,708		—		—		—		9,708
Total Originated Loans	1,064,731		69,514		10,789		—		1,145,034
Acquired Loans
Commercial and industrial	29,728		1,555		771		—		32,054
Commercial real estate	207,937		11,596		624		—		220,157
Commercial real estate construction	5,228		2,111		—		—		7,339
Residential mortgage	39,378		4,175		1,495		—		45,048
Home equity lines of credit	17,491		37		257		—		17,785
Consumer	997		—		13		—		1,010
Total Acquired Loans	300,759		19,474		3,160		—		323,393
Total Loans
Commercial and industrial	169,636		7,104		2,827		—		179,567
Commercial real estate	708,915		68,058		9,282		—		786,255
Commercial real estate construction	46,230		3,770		—		—		50,000
Residential mortgage	338,419		9,136		1,570		—		349,125
Home equity lines of credit	91,585		920		257		—		92,762
Consumer	10,705		—		13		—		10,718
Total Loans	$	1,365,490	$	88,988	$	13,949	$	—	$	1,468,427


In thousands	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2020
Originated Loans
Commercial and industrial	$	270,047	$	5,168	$	2,688	$	—	$	277,903
Commercial real estate	414,538		54,122		10,463		—		479,123
Commercial real estate construction	39,462		1,746		—		—		41,208
Residential mortgage	332,632		4,327		178		—		337,137
Home equity lines of credit	80,560		346		—		—		80,906
Consumer	11,819		—		—		—		11,819
Total Originated Loans	1,149,058		65,709		13,329		—		1,228,096
Acquired Loans
Commercial and industrial	38,882		1,893		1,476		—		42,251
Commercial real estate	245,597		16,706		3,201		—		265,504
Commercial real estate construction	10,300		2,394		—		—		12,694
Residential mortgage	58,787		3,535		1,881		—		64,203
Home equity lines of credit	23,165		97		442		—		23,704
Consumer	1,330		—		2		—		1,332
Total Acquired Loans	378,061		24,625		7,002		—		409,688
Total Loans
Commercial and industrial	308,929		7,061		4,164		—		320,154
Commercial real estate	660,135		70,828		13,664		—		744,627
Commercial real estate construction	49,762		4,140		—		—		53,902
Residential mortgage	391,419		7,862		2,059		—		401,340
Home equity lines of credit	103,725		443		442		—		104,610
Consumer	13,149		—		2		—		13,151
Total Loans	$	1,527,119	$	90,334	$	20,331	$	—	$	1,637,784

The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table.


In thousands	Year Ended December 31, 2021		Year Ended December 31, 2020
Balance at beginning of period	$	596	$	642
Acquisitions of impaired loans	—		354
Reclassification from non-accretable differences	253		311
Accretion to loan interest income	(414)		(711)
Balance at end of period	$	435	$	596

Cash flows expected to be collected on acquired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Improved cash flow expectations for loans or pools are recorded first as a reversal of previously recorded impairment, if any, and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as impairment through a charge to the provision for loan losses and credit to the allowance for loan losses.

The following table summarizes information relative to impaired loans by loan portfolio class as of December 31, 2021 and 2020:


	Impaired Loans with Allowance						Impaired Loans with No Allowance
In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
December 31, 2021
Commercial and industrial	$	1,005	$	1,005	$	855	$	482	$	1,452
Commercial real estate	1,311		1,311		600		6,265		6,265
Commercial real estate construction	—		—		—		—		—
Residential mortgage	—		—		—		—		—
Home equity lines of credit	—		—		—		—		—
Total	$	2,316	$	2,316	$	1,455	$	6,747	$	7,717
December 31, 2020
Commercial and industrial	$	2,031	$	2,031	$	1,224	$	—	$	—
Commercial real estate	2,728		2,728		158		5,861		5,861
Commercial real estate construction	—		—		—		—		—
Residential mortgage	—		—		—		101		101
Home equity lines of credit	—		—		—		—		—
Total	$	4,759	$	4,759	$	1,382	$	5,962	$	5,962

The following table summarizes information in regards to average of impaired loans and related interest income by loan portfolio class:


	Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
December 31, 2021
Commercial and industrial	$	1,888	$	—	$	7	$	—
Commercial real estate	1,468		181		6,673		20
Commercial real estate construction	—		2		123		—
Residential mortgage	—		—		60		—
Home equity lines of credit	—		—		—		—
Total	$	3,356	$	183	$	6,863	$	20
December 31, 2020
Commercial and industrial	$	441	$	—	$	9	$	—
Commercial real estate	1,642		—		6,513		184
Commercial real estate construction	—		—		495		109
Residential mortgage	—		—		114		7
Home equity lines of credit	—		—		39		3
Total	$	2,083	$	—	$	7,170	$	303

No additional funds are committed to be advanced in connection with impaired loans.

If interest on all nonaccrual loans had been accrued at original contract rates, interest income would have increased by $462,000 in 2021 and $379,000 in 2020.

The following table presents nonaccrual loans by loan portfolio class as of December 31, 2021 and 2020, the table below excludes $4.6 million in purchase credit impaired loans, net of unamortized fair value adjustments:


In thousands	2021		2020
Commercial and industrial	$	1,487	$	2,031
Commercial real estate	4,002		4,909
Commercial real estate construction	—		—
Residential mortgage	—		101
Home equity lines of credit	—		—
Total	$	5,489	$	7,041

There were no loans whose terms have been modified resulting in a troubled debt restructuring during the years ended December 31, 2021 and 2020. The Corporation classifies certain loans as troubled debt restructurings when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term and/or the restructuring of scheduled principal payments. The Corporation had pre-existing nonaccruing and accruing troubled debt restructurings of $3,637,000 and $3,807,000 at December 31, 2021 and 2020, respectively. All of the Corporation’s troubled debt restructured loans are also impaired loans, of which some have resulted in a specific allocation and, subsequently, a charge-off as appropriate. Included in the non-accrual loan total at December 31, 2021 and 2020, were $63,000 and $127,000, respectively, of troubled debt restructurings. In addition to the troubled debt restructurings included in non-accrual loans, the Corporation also has a loan classified as an accruing troubled debt restructurings at December 31, 2021 and 2020, which total $3,574,000 and $3,680,000, respectively. There were no defaulted troubled debt restructured loans as of December 31, 2021 and 2020. There were no charge-offs on any of the troubled debt restructured loans for the years ended December 31, 2021 and 2020. There were no specific allocations on any troubled debt restructured loans for the years ended December 31, 2021 and 2020. All other troubled debt restructured loans were current as of December 31, 2021, with respect to their associated forbearance agreement, except for one loan which has had periodic late payments. As of December 31, 2021, there are no active forbearance agreements. All forbearance agreements have expired or the loans have paid off.

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at December 31, 2021 and 2020, totaled $399,000 and $391,000, respectively.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.

The following table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2021 and 2020:


In thousands	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
December 31, 2021
Originated Loans
Commercial and industrial	$	20	$	64	$	1,397	$	1,481	$	146,032	$	147,513	$	—
Commercial real estate	—		—		2,483		2,483		563,615		566,098		—
Commercial real estate construction	—		—		—		—		42,661		42,661		—
Residential mortgage	970		140		475		1,585		302,492		304,077		475
Home equity lines of credit	239		42		255		536		74,441		74,977		255
Consumer	84		58		—		142		9,566		9,708		—
Total originated loans	1,313		304		4,610		6,227		1,138,807		1,145,034		730
Acquired Loans
Commercial and industrial	—		—		—		—		32,054		32,054		—
Commercial real estate	—		270		—		270		219,887		220,157		—
Commercial real estate construction	—		—		—		—		7,339		7,339		—
Residential mortgage	210		950		—		1,160		43,888		45,048		—
Home equity lines of credit	1,156		—		—		1,156		16,629		17,785		—
Consumer	—		—		—		—		1,010		1,010		—
Total acquired loans	1,366		1,220		—		2,586		320,807		323,393		—
Total Loans
Commercial and industrial	20		64		1,397		1,481		178,086		179,567		—
Commercial real estate	—		270		2,483		2,753		783,502		786,255		—
Commercial real estate construction	—		—		—		—		50,000		50,000		—
Residential mortgage	1,180		1,090		475		2,745		346,380		349,125		475
Home equity lines of credit	1,395		42		255		1,692		91,070		92,762		255
Consumer	84		58		—		142		10,576		10,718		—
Total Loans	$	2,679	$	1,524	$	4,610	$	8,813	$	1,459,614	$	1,468,427	$	730


In thousands	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
December 31, 2020
Originated Loans
Commercial and industrial	$	1,432	$	—	$	—	$	1,432	$	276,471	$	277,903	$	—
Commercial real estate	133		2,463		1,631		4,227		474,896		479,123		—
Commercial real estate construction	—		76		—		76		41,132		41,208		—
Residential mortgage	1,382		335		623		2,340		334,797		337,137		522
Home equity lines of credit	54		60		58		172		80,734		80,906		58
Consumer	98		51		—		149		11,670		11,819		—
Total originated loans	3,099		2,985		2,312		8,396		1,219,700		1,228,096		580
Acquired Loans
Commercial and industrial	122		231		—		353		41,898		42,251		—
Commercial real estate	319		220		—		539		264,965		265,504		—
Commercial real estate construction	42		—		97		139		12,555		12,694		97
Residential mortgage	834		349		146		1,329		62,874		64,203		146
Home equity lines of credit	196		—		32		228		23,476		23,704		32
Consumer	—		16		—		16		1,316		1,332		—
Total acquired loans	1,513		816		275		2,604		407,084		409,688		275
Total Loans
Commercial and industrial	1,554		231		—		1,785		318,369		320,154		—
Commercial real estate	452		2,683		1,631		4,766		739,861		744,627		—
Commercial real estate construction	42		76		97		215		53,687		53,902		97
Residential mortgage	2,216		684		769		3,669		397,671		401,340		668
Home equity lines of credit	250		60		90		400		104,210		104,610		90
Consumer	98		67		—		165		12,986		13,151		—
Total Loans	$	4,612	$	3,801	$	2,587	$	11,000	$	1,626,784	$	1,637,784	$	855

The following table summarizes the allowance for loan losses and recorded investment in loans:


In thousands	Commercial and Industrial		Commercial Real Estate		Commercial Real Estate Construction		Residential Mortgage		Home Equity Lines of Credit		Consumer		Unallocated		Total
December 31, 2021
Allowance for loan losses
Beginning balance- January 1, 2021	$	4,037	$	9,569	$	503	$	3,395	$	693	$	648	$	1,381	$	20,226
Charge-offs	(1,176)		—		—		—		(22)		(120)		—		(1,318)
Recoveries	43		—		—		—		—		32		—		75
Provisions (credits)	272		1,147		113		(160)		(170)		(152)		(1,000)		50
Ending balance- December 31, 2021	$	3,176	$	10,716	$	616	$	3,235	$	501	$	408	$	381	$	19,033
Ending balance: individually evaluated for impairment	$	855	$	600	$	—	$	—	$	—	$	—	$	—	$	1,455
Ending balance: collectively evaluated for impairment	$	2,321	$	10,116	$	616	$	3,235	$	501	$	408	$	381	$	17,578
Loans receivables
Ending balance	$	179,567	$	786,255	$	50,000	$	349,125	$	92,762	$	10,718	$	—	$	1,468,427
Ending balance: individually evaluated for impairment	$	1,487	$	7,576	$	—	$	—	$	—	$	—	$	—	$	9,063
Ending balance: collectively evaluated for impairment	$	178,080	$	778,679	$	50,000	$	349,125	$	92,762	$	10,718	$	—	$	1,459,364
December 31, 2020
Allowance for loan losses
Beginning balance- January 1, 2020	$	2,400	$	6,693	$	298	$	2,555	$	619	$	650	$	620	$	13,835
Charge-offs	(2,107)		(675)		—		—		—		(205)		—		(2,987)
Recoveries	83		96		—		1		29		29		—		238
Provisions	3,661		3,455		205		839		45		174		761		9,140
Ending balance- December 31, 2020	$	4,037	$	9,569	$	503	$	3,395	$	693	$	648	$	1,381	$	20,226
Ending balance: individually evaluated for impairment	$	1,224	$	158	$	—	$	—	$	—	$	—	$	—	$	1,382
Ending balance: collectively evaluated for impairment	$	2,813	$	9,411	$	503	$	3,395	$	693	$	648	$	1,381	$	18,844
Loans receivables
Ending balance	$	320,154	$	744,627	$	53,902	$	401,340	$	104,610	$	13,151	$	—	$	1,637,784
Ending balance: individually evaluated for impairment	$	2,031	$	8,589	$	—	$	101	$	—	$	—	$	—	$	10,721
Ending balance: collectively evaluated for impairment	$	318,123	$	736,038	$	53,902	$	401,239	$	104,610	$	13,151	$	—	$	1,627,063

The Bank has granted loans to certain of its executive officers, directors and their related interests. These loans were made on substantially the same basis, including interest rates and collateral as those prevailing for comparable transactions with other borrowers at the same time. The aggregate amount of these loans was $5,214,000 and $5,215,000 at December 31, 2021 and 2020, respectively. During 2021, $1,350,000 new loans or advances were extended and repayments totaled $806,000. None of these loans were past due, in nonaccrual status, or restructured at December 31, 2021.

Loan Modifications/Troubled Debt Restructurings/COVID-19

The Corporation implemented numerous initiatives to support and protect employees and customers during the COVID-19 pandemic. These efforts continue with current information and guidelines related to ongoing COVID-19 initiatives. As of September 30, 2021, the Corporation no longer had any temporary loan modifications or deferrals for either commercial or consumer customers, furthering the positive trend of improvement in 2021. In comparison, at December 31, 2020, the Corporation had outstanding approvals for temporary loan modifications and deferrals for 48 loans totaling $36,123,155 in principal balances, representing 2.2% of the total loan portfolio. The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (SBA) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (PPP). As a qualified SBA lender, the Corporation was automatically authorized to originate PPP loans.

On December 27, 2020, President Trump signed H.R. 133, the Consolidated Appropriations Act, 2021, into law (Economic Aid Act). Congress appropriated approximately $285 billion to the SBA to reopen the PPP for first-time and second-time borrowers. The Economic Aid Act reopened the PPP for first-time borrowers (First Draw PPP Loan) and allows for a second draw of PPP funds (Second Draw PPP Loan) for small businesses with 300 or fewer employees that have sustained a 25% drop in revenue in any quarter of 2020 when compared to the same quarter in 2019. To receive a second draw PPP loan, a business must use or have used the full amount of their first PPP loan. The maximum second-draw loan amount is $2 million. Second Draw PPP Loans will have: (a) an interest rate of 1.0%, (b) a five-year loan term to maturity; and (c) principal and interest payments deferred until ten months following the last day of the covered period.

An eligible business can apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly payroll costs, or (2) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year or five-year loan term to maturity; and (c) principal and interest payments deferred until ten months following the last day of the covered period. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrowers’ PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP, so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.

As of December 31, 2021, the Corporation had closed and funded 2,217 PPP loans totaling $223,036,703, resulting in approximately $9.5 million in total fee income. Of this fee income amount, $2,875,000, before costs, was recognized in 2020 and another $5,627,000, before costs, was recognized in 2021 as an adjustment to interest income yield, with the remainder to be recognized in future quarters as an adjustment to interest income yield. At December 31, 2021, there was an outstanding balance of $18,540,986 in PPP loans as a result of forgiveness and repayments to date. Currently the Corporation is assisting the remainder of PPP customers with the processing of applications for loan forgiveness through the Small Business Administration (SBA).