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LOANS

9 Months Ended

Sep. 30, 2021

7. LOANS

The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans. Loans outstanding at September 30, 2021 and December 31, 2020 are summarized by segment, and by classes within each segment, as follows:

Summary of Loans by Type

(In Thousands)


	September 30,		December 31,
	2021		2020
Commercial:
Commercial loans secured by real estate	$	553,389	$	531,810
Commercial and industrial		152,244		159,577
Paycheck Protection Program - 1st Draw		5,747		132,269
Paycheck Protection Program - 2nd Draw		56,981		0
Political subdivisions		73,503		53,221
Commercial construction and land		53,267		42,874
Loans secured by farmland		10,812		11,736
Multi-family (5 or more) residential		52,962		55,811
Agricultural loans		3,092		3,164
Other commercial loans		17,312		17,289
Total commercial		979,309		1,007,751
Residential mortgage:
Residential mortgage loans - first liens		494,376		532,947
Residential mortgage loans - junior liens		24,303		27,311
Home equity lines of credit		38,465		39,301
1-4 Family residential construction		21,719		20,613
Total residential mortgage		578,863		620,172
Consumer		17,536		16,286
Total		1,575,708		1,644,209
Less: allowance for loan losses		(12,700)		(11,385)
Loans, net	$	1,563,008	$	1,632,824

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $5,719,000 at September 30, 2021 and $6,286,000 at December 31, 2020.

The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in northcentral Pennsylvania, the southern tier of New York State, southeastern Pennsylvania and southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act is a $2 trillion stimulus package designed to provide relief to U.S. businesses and consumers struggling as a result of the pandemic. A

provision in the CARES Act includes creation of the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”) and Treasury Department. Under the PPP, the Corporation, as an SBA-certified lender, provides SBA-guaranteed loans to small businesses to pay their employees, rent, mortgage interest, and utilities. PPP loans will be forgiven subject to clients’ providing documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. Information related to PPP loans advanced pursuant to the CARES Act are labeled “1st Draw” within the tables.

Section 4013 of the CARES Act provides that, from the period beginning March 1, 2020 until 60 days after the date on which the national emergency concerning the coronavirus (COVID-19) pandemic declared by the President of the United States under the National Emergencies Act terminates (the “applicable period”), the Corporation may elect to suspend U.S. GAAP for loan modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (TDRs) and suspend any determination of a loan modified as a result of the effects of the pandemic as being a TDR, including impairment for accounting purposes. The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The suspension is not applicable to any adverse impact on the credit of a borrower that is not related to the pandemic.

In addition, the banking regulators and other financial regulators, on March 22, 2020 and revised April 7, 2020, issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. Pursuant to the interagency statement, loan modifications that do not meet the conditions of Section 4013 of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. Specifically, the agencies confirmed with the FASB staff that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are not TDRs under U.S. GAAP. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease losses are expected to be maintained. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to the pandemic as past due because of the deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should not be reported as nonaccrual.

On December 27, 2020, the President of the United States signed into law the Consolidated Appropriations Act, 2021 (the “CAA”), which includes provisions that broadly address additional COVID-19 responses and relief. Among the additional relief measures included are certain extensions to elements of the CARES Act, including extension of temporary relief from troubled debt restructurings established under Section 4013 of the CARES Act to the earlier of a) January 1, 2022, or b) the date that is 60 days after the date on which the national COVID-19 emergency terminates. The CAA also includes additional funding for the PPP with additional eligibility requirements for borrowers with generally the same loan terms as provided under the CARES Act. Information related to PPP loans advanced pursuant to the CAA are labeled “2nd Draw” within the tables.

The maximum term of PPP loans is five years. Most of the Corporation’s 1st Draw PPP loans have two-year terms, while 2nd Draw PPP loans have five-year terms and the Corporation will be repaid sooner to the extent the loans are forgiven. The interest rate on PPP loans is 1%, and the Corporation has received fees from the SBA ranging between 1% and 5% per loan, depending on the size of the loan. Fees on PPP loans, net of origination costs and a market rate adjustment on PPP loans acquired from Covenant, are recognized in interest income as a yield adjustment over the term of the loans.

The Corporation began accepting and processing applications for loans under the PPP on April 3, 2020. Covenant also engaged in PPP lending starting in early April 2020. As of September 30, 2021, the recorded investment in 1st Draw PPP loans was $5,747,000, including contractual principal balances of $5,982,000, increased by a market rate adjustment on PPP loans acquired from Covenant of $2,000 and reduced by net deferred origination fees of $237,000. The recorded investment in 2nd Draw PPP loans was $56,981,000, including contractual principal balances of $59,190,000 reduced by net deferred origination fees of $2,208,000. Accretion of fees received on PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $1,409,000 in the three-month period ended September 30, 2021 and $467,000 in the three-month period ended September 30, 2020. Accretion of fees received on PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $3,975,000 in the nine-month period ended September 30, 2021 and $804,000 in the nine-month period ended September 30, 2020.

To work with clients impacted by COVID-19, the Corporation offers short-term loan modifications on a case-by-case basis to borrowers who were current in their payments at the inception of the loan modification program. Prior to the merger, Covenant had a similar program in place, and these modified loans have been incorporated into the Corporation’s program. These efforts have been designed to assist borrowers as they deal with the crisis and help the Corporation mitigate credit risk. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term. Consistent with Section 4013 of the CARES Act, the modified loans have not been reported as past due, nonaccrual or as TDRs at September 30, 2021. Most of the initial modifications under the program became effective in 2020 and provided a deferral of interest or principal and interest for 90-to-180 days. At September 30, 2021, there were no loans in deferral status under the program. At December 31, 2020, there were 45 loans with a total recorded investment of $37,397,000, in deferral status under the program.

As described in Note 2, effective July 1, 2020, the Corporation acquired loans pursuant to its acquisition of Covenant, and effective April 1, 2019, the Corporation acquired loans pursuant to the acquisition of Monument Bancorp, Inc. (“Monument”). The acquired loans were recorded at their initial fair value, with adjustments made to the gross amortized cost of loans based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans. Subsequent to the acquisitions, the Corporation has recognized amortization and accretion of a portion of the market rate adjustments and credit adjustments on non-impaired (performing) loans, and a partial recovery of purchased credit impaired (PCI) loans. For the three-month and nine-month periods ended September 30, 2021 and 2020, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:


(In Thousands)
	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2021		2020		2021		2020
Market Rate Adjustment
Adjustments to gross amortized cost of loans at beginning of period	$	(5)	$	(1,103)	$	718	$	(1,415)
Market rate adjustment recorded in acquisition		0		2,909		0		2,909
Amortization recognized in interest income		(368)		(452)		(1,091)		(140)
Adjustments to gross amortized cost of loans at end of period	$	(373)	$	1,354	$	(373)	$	1,354
Credit Adjustment on Non-impaired Loans
Adjustments to gross amortized cost of loans at beginning of period	$	(4,502)	$	(878)	$	(5,979)	$	(1,216)
Credit adjustment recorded in acquisition		0		(7,219)		0		(7,219)
Accretion recognized in interest income		666		970		2,143		1,308
Adjustments to gross amortized cost of loans at end of period	$	(3,836)	$	(7,127)	$	(3,836)	$	(7,127)

A summary of PCI loans held at September 30, 2021 and December 31, 2020 is as follows:


(In Thousands)	September 30,		December 31,
	2021		2020
Outstanding balance	$	10,064	$	10,316
Carrying amount		6,624		6,841

The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of September 30, 2021 and December 31, 2020, management determined that no allowance for credit losses related to unfunded loan commitments was required.

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month and nine-month periods ended September 30, 2021 and 2020 were as follows:


Three Months Ended September 30, 2021	June 30, 2021								September 30, 2021
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	3,452	$	0	$	0	$	368	$	3,820
Commercial and industrial		2,781		(1,194)		6		947		2,540
Commercial construction and land		452		0		0		107		559
Loans secured by farmland		113		0		0		(1)		112
Multi-family (5 or more) residential		150		0		0		46		196
Agricultural loans		25		0		0		8		33
Other commercial loans		145		0		0		28		173
Total commercial		7,118		(1,194)		6		1,503		7,433
Residential mortgage:
Residential mortgage loans - first liens		3,536		0		1		29		3,566
Residential mortgage loans - junior liens		327		0		0		(6)		321
Home equity lines of credit		294		0		0		(11)		283
1-4 Family residential construction		198		0		0		(9)		189
Total residential mortgage		4,355		0		1		3		4,359
Consumer		231		(26)		8		24		237
Unallocated		671		0		0		0		671
Total Allowance for Loan Losses	$	12,375	$	(1,220)	$	15	$	1,530	$	12,700


Three Months Ended September 30, 2020	June 30, 2020								September 30, 2020
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	2,426	$	0	$	0	$	(40)	$	2,386
Commercial and industrial		2,496		(2,219)		0		1,974		2,251
Commercial construction and land		420		0		0		20		440
Loans secured by farmland		146		0		0		(25)		121
Multi-family (5 or more) residential		163		0		0		64		227
Agricultural loans		40		0		0		(3)		37
Other commercial loans		167		0		0		0		167
Total commercial		5,858		(2,219)		0		1,990		5,629
Residential mortgage:
Residential mortgage loans - first liens		3,531		0		26		(92)		3,465
Residential mortgage loans - junior liens		365		0		0		(7)		358
Home equity lines of credit		287		0		1		1		289
1-4 Family residential construction		137		0		0		32		169
Total residential mortgage		4,320		0		27		(66)		4,281
Consumer		263		(30)		8		17		258
Unallocated		585		0		0		0		585
Total Allowance for Loan Losses	$	11,026	$	(2,249)	$	35	$	1,941	$	10,753

For the three months ended September 30, 2021, the provision for loan losses was $1,530,000, a decrease in expense of $411,000 as compared to $1,941,000 for the three months ended September 30, 2020. The third quarter 2021 provision included a net charge of $611,000 related to specific loans (net charge-offs of $1,205,000 offset by a net decrease in specific allowances on loans of $594,000), and an increase of $919,000 in the collectively determined portion of the allowance. In the third quarter 2021, the Corporation recorded a partial charge-off of $1,194,000 on a commercial loan with an outstanding balance of $3,496,000 at the time of the charge-off. The

partial charge-off amount exceeded the specific allowance of $583,000 that had been established on this loan at June 30, 2021. The provision for loan losses in the third quarter 2020 included the net impact of a charge-off of $2,219,000 on a commercial loan of $3,500,000 for which the previously-established allowance had been $1,193,000.


	December 31,								September 30,
Nine Months Ended September 30, 2021	2020						Provision		2021
(In Thousands)	Balance		Charge-offs		Recoveries		(Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	3,051	$	0	$	2	$	767	$	3,820
Commercial and industrial		2,245		(1,194)		20		1,469		2,540
Commercial construction and land		454		0		0		105		559
Loans secured by farmland		120		0		0		(8)		112
Multi-family (5 or more) residential		236		0		0		(40)		196
Agricultural loans		34		0		0		(1)		33
Other commercial loans		168		0		0		5		173
Total commercial		6,308		(1,194)		22		2,297		7,433
Residential mortgage:
Residential mortgage loans - first liens		3,524		(11)		3		50		3,566
Residential mortgage loans - junior liens		349		0		0		(28)		321
Home equity lines of credit		281		0		2		0		283
1-4 Family residential construction		99		0		0		90		189
Total residential mortgage		4,253		(11)		5		112		4,359
Consumer		239		(73)		33		38		237
Unallocated		585		0		0		86		671
Total Allowance for Loan Losses	$	11,385	$	(1,278)	$	60	$	2,533	$	12,700


	December 31,								September 30,
Nine Months Ended September 30, 2020	2019						Provision		2020
(In Thousands)	Balance		Charge-offs		Recoveries		(Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	1,921	$	0	$	0	$	465	$	2,386
Commercial and industrial		1,391		(2,236)		0		3,096		2,251
Commercial construction and land		966		(107)		0		(419)		440
Loans secured by farmland		158		0		0		(37)		121
Multi-family (5 or more) residential		156		0		0		71		227
Agricultural loans		41		0		0		(4)		37
Other commercial loans		155		0		0		12		167
Total commercial		4,788		(2,343)		0		3,184		5,629
Residential mortgage:
Residential mortgage loans - first liens		3,405		0		28		32		3,465
Residential mortgage loans - junior liens		384		0		1		(27)		358
Home equity lines of credit		276		0		3		10		289
1-4 Family residential construction		117		0		0		52		169
Total residential mortgage		4,182		0		32		67		4,281
Consumer		281		(100)		35		42		258
Unallocated		585		0		0		0		585
Total Allowance for Loan Losses	$	9,836	$	(2,443)	$	67	$	3,293	$	10,753

For the nine months ended September 30, 2021, the provision for loan losses was $2,533,000, a decrease in expense of $760,000 as compared to $3,293,000 recorded for the nine months ended September 30, 2020. The provision for the nine months ended September 30, 2021, includes the impact of a charge-off of $1,194,000 on a commercial loan with an ouststanding balance of $3,496,000, as previously discussed. In comparison, the provision for loan losses in the first nine months of 2020 included the impact of the $2,219,000 charge-off of a commercial loan of $3,500,000.

In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” column in the table that follows.

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of September 30, 2021 and December 31, 2020:


September 30, 2021									Purchased
(In Thousands)			Special						Credit
	Pass		Mention		Substandard		Doubtful		Impaired		Total
Commercial:
Commercial loans secured by real estate	$	519,673	$	15,055	$	14,473	$	0	$	4,188	$	553,389
Commercial and Industrial		136,858		8,578		6,028		0		780		152,244
Paycheck Protection Program - 1st Draw		5,747		0		0		0		0		5,747
Paycheck Protection Program - 2nd Draw		56,981		0		0		0		0		56,981
Political subdivisions		73,503		0		0		0		0		73,503
Commercial construction and land		52,504		715		48		0		0		53,267
Loans secured by farmland		9,639		194		979		0		0		10,812
Multi-family (5 or more) residential		48,154		2,352		878		0		1,578		52,962
Agricultural loans		2,533		0		559		0		0		3,092
Other commercial loans		17,307		5		0		0		0		17,312
Total commercial		922,899		26,899		22,965		0		6,546		979,309
Residential Mortgage:
Residential mortgage loans - first liens		482,710		5,066		6,528		0		72		494,376
Residential mortgage loans - junior liens		23,676		107		514		0		6		24,303
Home equity lines of credit		37,889		59		517		0		0		38,465
1-4 Family residential construction		21,719		0		0		0		0		21,719
Total residential mortgage		565,994		5,232		7,559		0		78		578,863
Consumer		17,505		0		31		0		0		17,536
Totals	$	1,506,398	$	32,131	$	30,555	$	0	$	6,624	$	1,575,708


December 31, 2020									Purchased
(In Thousands)			Special						Credit
	Pass		Mention		Substandard		Doubtful		Impaired		Total
Commercial:
Commercial loans secured by real estate	$	494,876	$	17,374	$	15,262	$	0	$	4,298	$	531,810
Commercial and Industrial		143,500		8,025		7,268		0		784		159,577
Paycheck Protection Program - 1st Draw		132,269		0		0		0		0		132,269
Political subdivisions		53,221		0		0		0		0		53,221
Commercial construction and land		42,110		715		49		0		0		42,874
Loans secured by farmland		10,473		405		858		0		0		11,736
Multi-family (5 or more) residential		50,563		2,405		1,229		0		1,614		55,811
Agricultural loans		2,569		0		595		0		0		3,164
Other commercial loans		17,289		0		0		0		0		17,289
Total commercial		946,870		28,924		25,261		0		6,696		1,007,751
Residential Mortgage:
Residential Mortgage loans - first liens		516,685		6,192		9,994		0		76		532,947
Residential Mortgage loans - junior liens		26,480		141		621		0		69		27,311
Home equity lines of credit		38,529		59		713		0		0		39,301
1-4 Family residential construction		20,613		0		0		0		0		20,613
Total residential mortgage		602,307		6,392		11,328		0		145		620,172
Consumer		16,172		0		114		0		0		16,286
Totals	$	1,565,349	$	35,316	$	36,703	$	0	$	6,841	$	1,644,209

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of September 30, 2021 and December 31, 2020.


September 30, 2021	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	11,303	$	542,086	$	553,389	$	672	$	3,148	$	3,820
Commercial and industrial		3,598		148,646		152,244		72		2,468		2,540
Paycheck Protection Program - 1st Draw		0		5,747		5,747		0		0		0
Paycheck Protection Program - 2nd Draw		0		56,981		56,981		0		0		0
Political subdivisions		0		73,503		73,503		0		0		0
Commercial construction and land		0		53,267		53,267		0		559		559
Loans secured by farmland		84		10,728		10,812		0		112		112
Multi-family (5 or more) residential		1,578		51,384		52,962		0		196		196
Agricultural loans		0		3,092		3,092		0		33		33
Other commercial loans		0		17,312		17,312		0		173		173
Total commercial		16,563		962,746		979,309		744		6,689		7,433
Residential mortgage:
Residential mortgage loans - first liens		1,134		493,242		494,376		0		3,566		3,566
Residential mortgage loans - junior liens		317		23,986		24,303		139		182		321
Home equity lines of credit		0		38,465		38,465		0		283		283
1-4 Family residential construction		0		21,719		21,719		0		189		189
Total residential mortgage		1,451		577,412		578,863		139		4,220		4,359
Consumer		0		17,536		17,536		0		237		237
Unallocated												671

Total	$	18,014	$	1,557,694	$	1,575,708	$	883	$	11,146	$	12,700


December 31, 2020	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	11,962	$	519,848	$	531,810	$	692	$	2,359	$	3,051
Commercial and industrial		1,359		158,218		159,577		71		2,174		2,245
Paycheck Protection Program - 1st Draw		0		132,269		132,269		0		0		0
Political subdivisions		0		53,221		53,221		0		0		0
Commercial construction and land		0		42,874		42,874		0		454		454
Loans secured by farmland		84		11,652		11,736		0		120		120
Multi-family (5 or more) residential		1,614		54,197		55,811		0		236		236
Agricultural loans		0		3,164		3,164		0		34		34
Other commercial loans		0		17,289		17,289		0		168		168
Total commercial		15,019		992,732		1,007,751		763		5,545		6,308
Residential mortgage:
Residential mortgage loans - first liens		2,385		530,562		532,947		9		3,515		3,524
Residential mortgage loans - junior liens		414		26,897		27,311		153		196		349
Home equity lines of credit		0		39,301		39,301		0		281		281
1-4 Family residential construction		0		20,613		20,613		0		99		99
Total residential mortgage		2,799		617,373		620,172		162		4,091		4,253
Consumer		0		16,286		16,286		0		239		239
Unallocated												585

Total	$	17,818	$	1,626,391	$	1,644,209	$	925	$	9,875	$	11,385

Summary information related to impaired loans at September 30, 2021 and December 31, 2020 is provided in the table immediately below.


(In Thousands)	September 30, 2021						December 31, 2020
	Unpaid						Unpaid
	Principal		Recorded		Related		Principal		Recorded		Related
	Balance		Investment		Allowance		Balance		Investment		Allowance
With no related allowance recorded:
Commercial loans secured by real estate	$	7,068	$	4,823	$	0	$	7,168	$	5,398	$	0
Commercial and industrial		5,930		3,526		0		1,781		1,287		0
Residential mortgage loans - first liens		786		760		0		1,248		1,248		0
Residential mortgage loans - junior liens		65		18		0		160		105		0
Loans secured by farmland		84		84		0		84		84		0
Multi-family (5 or more) residential		2,734		1,578		0		2,770		1,614		0
Total with no related allowance recorded		16,667		10,789		0		13,211		9,736		0

With a related allowance recorded:
Commercial loans secured by real estate		6,480		6,480		672		6,501		6,501		691
Commercial and industrial		72		72		72		72		72		72
Residential mortgage loans - first liens		374		374		0		1,200		1,200		9
Residential mortgage loans - junior liens		299		299		139		309		309		153
Total with a related allowance recorded		7,225		7,225		883		8,082		8,082		925
Total	$	23,892	$	18,014	$	883	$	21,293	$	17,818	$	925

In the table immediately above, loans to two borrowers are presented under the Residential mortgage loans – first liens and Residential mortgage loans – junior liens classes. Each of these loans is collateralized by one property, and the allowance associated with each of these loans was determined based on an analysis of the total amounts of the Corporation’s exposure in comparison to the estimated net proceeds if the Corporation were to sell the property. The total allowance related to these two borrowers was $139,000 at September 30, 2021 and $153,000 at December 31, 2020.

The average balance of impaired loans, excluding purchased credit impaired loans, and interest income recognized on these impaired loans is as follows:


(In Thousands)									Interest Income Recognized on
	Average Investment in Impaired Loans								Impaired Loans on a Cash Basis
	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Commercial:
Commercial loans secured by real estate	$	11,252	$	7,298	$	11,811	$	3,779	$	172	$	65	$	401	$	81
Commercial and industrial		3,844		2,235		2,566		3,178		4		1		25		21
Commercial construction and land		48		49		48		678		2		1		2		14
Loans secured by farmland		84		253		84		397		0		2		1		26
Multi-family (5 or more) residential		1,578		0		1,584		0		31		0		122		0
Agricultural loans		66		76		67		76		0		2		3		4
Other commercial loans		0		0		0		25		0		0		0		1
Total commercial		16,872		9,911		16,160		8,133		209		71		554		147
Residential mortgage:
Residential mortgage loans - first lien		1,322		2,159		1,830		1,579		11		27		68		70
Residential mortgage loans - junior lien		386		384		417		386		1		5		10		18
Home equity lines of credit		0		65		0		65		0		0		0		2
Total residential mortgage		1,708		2,608		2,247		2,030		12		32		78		90
Total	$	18,580	$	12,519	$	18,407	$	10,163	$	221	$	103	$	632	$	237

The breakdown by portfolio segment and class of nonaccrual loans and loans past due ninety days or more and still accruing is as follows:


(In Thousands)	September 30, 2021				December 31, 2020
	Past Due				Past Due
	90+ Days and				90+ Days and
	Accruing		Nonaccrual		Accruing		Nonaccrual
Commercial:
Commercial loans secured by real estate	$	752	$	11,205	$	395	$	11,550
Commercial and industrial		99		3,232		142		970
Commercial construction and land		0		48		0		49
Loans secured by farmland		30		84		188		84
Multi-family (5 or more) residential		0		1,578		0		1,614
Agricultural loans		66		0		0		0
Other commercial		0		0		71		0
Total commercial		947		16,147		796		14,267
Residential mortgage:
Residential mortgage loans - first liens		832		4,569		838		6,387
Residential mortgage loans - junior liens		71		305		52		378
Home equity lines of credit		64		289		233		299
Total residential mortgage		967		5,163		1,123		7,064
Consumer		10		31		56		85
Totals	$	1,924	$	21,341	$	1,975	$	21,416

The amounts shown in the table immediately above include loans classified as troubled debt restructurings (described in more detail below), if such loans are past due ninety days or more or nonaccrual. PCI loans with a total recorded investment of $6,624,000 at September 30, 2021 and $6,841,000 at December 31, 2020 are classified as nonaccrual.

The table below presents a summary of the contractual aging of loans as of September 30, 2021 and December 31, 2020. Loans modified under the Corporation’s program designed to work with clients impacted by COVID-19, as described above, are included in the current and past due less than 30 days category in the table that follows.


(In Thousands)	As of September 30, 2021								As of December 31, 2020
	Current &								Current &
	Past Due		Past Due		Past Due				Past Due		Past Due		Past Due
	Less than		30-89		90+				Less than		30-89		90+
	30 Days		Days		Days		Total		30 Days		Days		Days		Total
Commercial:
Commercial loans secured by real estate	$	547,885	$	142	$	5,362	$	553,389	$	529,998	$	66	$	1,746	$	531,810
Commercial and industrial		151,119		218		907		152,244		158,523		55		999		159,577
Paycheck Protection Program - 1st Draw		5,747		0		0		5,747		132,269		0		0		132,269
Paycheck Protection Program - 2nd Draw		56,981		0		0		56,981		0		0		0		0
Political subdivisions		73,503		0		0		73,503		53,221		0		0		53,221
Commercial construction and land		53,125		142		0		53,267		42,590		284		0		42,874
Loans secured by farmland		10,667		31		114		10,812		11,419		95		222		11,736
Multi-family (5 or more) residential		52,962		0		0		52,962		53,860		1,951		0		55,811
Agricultural loans		3,026		0		66		3,092		3,091		2		71		3,164
Other commercial loans		17,312		0		0		17,312		17,289		0		0		17,289
Total commercial		972,327		533		6,449		979,309		1,002,260		2,453		3,038		1,007,751

Residential mortgage:
Residential mortgage loans - first liens		489,339		2,212		2,825		494,376		523,191		5,703		4,053		532,947
Residential mortgage loans - junior liens		24,200		32		71		24,303		27,009		111		191		27,311
Home equity lines of credit		38,059		342		64		38,465		38,919		101		281		39,301
1-4 Family residential construction		21,719		0		0		21,719		20,457		156		0		20,613
Total residential mortgage		573,317		2,586		2,960		578,863		609,576		6,071		4,525		620,172
Consumer		17,447		48		41		17,536		16,063		83		140		16,286
Totals	$	1,563,091	$	3,167	$	9,450	$	1,575,708	$	1,627,899	$	8,607	$	7,703	$	1,644,209

Nonaccrual loans are included in the contractual aging in the immediately preceding table. A summary of the contractual aging of nonaccrual loans at September 30, 2021 and December 31, 2020 is as follows:


(In Thousands)	Current &
	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Total
September 30, 2021 Nonaccrual Totals	$	12,787	$	1,028	$	7,526	$	21,341
December 31, 2020 Nonaccrual Totals	$	12,999	$	2,689	$	5,728	$	21,416

Loans whose terms are modified are classified as TDRs if the Corporation grants such borrowers concessions, and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired. The outstanding balance of loans subject to TDRs, as well as contractual aging information at September 30, 2021 and December 31, 2020 is as follows:


(In Thousands)	Current &
	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Nonaccrual		Total
September 30, 2021 Totals	$	144	$	88	$	134	$	5,457	$	5,823
December 31, 2020 Totals	$	166	$	0	$	418	$	6,867	$	7,451

At September 30, 2021 and December 31, 2020, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month and nine-month periods ended September 30, 2021 and 2020 are as follows:


(Balances in Thousands)	Three Months Ended			Three Months Ended
	September 30, 2021			September 30, 2020
		Post-			Post-
	Number	Modification		Number	Modification
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Home equity lines of credit,
Reduced monthly payments for an eighteen-month period	1	$	70	0	$	0
Commercial loans secured by real estate,
Principal and interest payment deferral non-COVID related	0		0	2		4,831
Multi-family (5 or more) residential,
Principal and interest payment deferral non-COVID related	0		0	3		2,170
Total	1	$	70	5	$	7,001


(Balances in Thousands)	Nine Months Ended			Nine Months Ended
	September 30, 2021			September 30, 2020
		Post-			Post-
	Number	Modification		Number	Modification
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Residential mortgage - first liens:
Reduced monthly payments and extended maturity date	1	$	12	0	$	0
Reduced monthly payments for a fifteen-month period	1		116	0		0
Residential mortgage - junior liens,
New loan at lower than risk-adjusted market rate to borrower from whom short sale of other collateral was accepted	0		0	1		30
Home equity lines of credit:
Reduced monthly payments and extended maturity date	1		24	0		0
Reduced monthly payments for an eighteen-month period	1		70	0		0
Commercial loans secured by real estate:
Interest only payments for a nine-month period	0		0	1		240
Principal and interest payment deferral non-COVID related	0		0	2		4,831
Multi-family (5 or more) residential,
Principal and interest payment deferral non-COVID related	0		0	3		2,170
Total	4	$	222	7	$	7,271

In the three-month and nine-month periods ended September 30, 2020, the Corporation recorded a specific allowance for loan losses of $134,000 related to a loan secured by commercial real estate for which a TDR concession was also made in the third quarter 2020 and included in the table above. At December 31, 2020, the Corporation increased the specific allowance for loan losses related to this credit to $416,000, where it remains at September 30, 2021. The other loans for which TDRs were granted in the three-month and nine-month periods ended September 30, 2021 and 2020 had no specific impact on the provision or allowance for loan losses.

In the three-month and nine-month periods ended September 30, 2021 and 2020, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:


(Balances in Thousands)	Three Months Ended			Three Months Ended
	September 30, 2021			September 30, 2020
	Number			Number
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Commercial loans secured by real estate	0	$	0	1	$	240
Total	0	$	0	1	$	240


(Balances in Thousands)	Nine Months Ended			Nine Months Ended
	September 30, 2021			September 30, 2020
	Number			Number
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Commercial loans secured by real estate	1	$	3,392	1	$	240
Total	1	$	3,392	1	$	240

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in foreclosed assets held for sale in the unaudited consolidated balance sheets) is as follows:


(In Thousands)	September 30,		December 31,
	2021		2020
Foreclosed residential real estate	$	179	$	80

The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:


(In Thousands)	September 30,		December 31,
	2021		2020
Residential real estate in process of foreclosure	$	1,392	$	1,246