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LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2021

Loan Portfolio and Allowance for Loan Losses

The Company grants commercial, industrial, agricultural, residential, and consumer loans primarily to customers throughout north central, central and south central Pennsylvania, southern New York and Wilmington and Dover, Delaware. Although the Company had a diversified loan portfolio at December 31, 2021 and 2020, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio, as well as how those segments are analyzed within the allowance for loan losses as of December 31, 2021 and 2020 (in thousands):

2021	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	201,097	$	620	$	14	$	200,463
Commercial		687,338		8,381		2,145		676,812
Agricultural		312,011		5,355		1,643		305,013
Construction		55,036		-		-		55,036
Consumer		25,858		-		-		25,858
Other commercial loans		74,585		186		-		74,399
Other agricultural loans		39,852		991		-		38,861
State and political subdivision loans		45,756		-		-		45,756
Total		1,441,533		15,533		3,802		1,422,198
Allowance for loan losses		17,304		121		-		17,183
Net loans	$	1,424,229	$	15,412	$	3,802	$	1,405,015

2020
Real estate loans:
Residential	$	201,911	$	990	$	20	$	200,901
Commercial		596,255		9,183		2,937		584,135
Agricultural		315,158		4,645		1,686		308,827
Construction		35,404		-		-		35,404
Consumer		30,277		2		-		30,275
Other commercial loans		114,169		1,335		232		112,602
Other agricultural loans		48,779		1,122		-		47,657
State and political subdivision loans		63,328		-		-		63,328
Total		1,405,281		17,277		4,875		1,383,129
Allowance for loan losses		15,815		510		-		15,305
Net loans	$	1,389,466	$	16,767	$	4,875	$	1,367,824

Purchase Accounting Adjustments Related to Purchased Impaired Loans Acquired

The table below presents the components of the purchase accounting adjustments related to the purchased impaired loans acquired in the MidCoast Acquisition as of April 17, 2020 (in thousands):

	April 17, 2020
Contractually required principal and interest at acquisition	$	8,801
Non-accretable discount		(2,966	)
Expected cash flows		5,835
Accretable discount		(966	)
Estimated fair value	$	4,869

Accretable Yield for Purchased Credit Impaired Loans

Changes in the accretable discount for PCI loans were as follows for the years ended December 31, 2021 and 2020 (in thousands):

	December 31, 2021			December 31, 2020
Balance at beginning of period	$	788		$	89
Addition due to MidCoast Acquisition		-			966
Accretion		(499	)		(267	)
Reclassification of non-accretable discount		81			-
Balance at end of period	$	370		$	788

Loans Acquired with Specific Evidence of Deterioration in Credit Quality

The following table presents additional information regarding PCI loans (in thousands):

	December 31, 2021		December 31, 2020
Outstanding balance	$	6,159	$	8,958
Carrying amount		3,802		4,875

Impaired Loan Receivables with Associated Allowance Amount

The following table includes the recorded investment and unpaid principal balances for impaired loans by class, with the associated allowance amount as of December 31, 2021 and 2020, if applicable (in thousands):

2021	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate loans:
Mortgages	$	697	$	495	$	45	$	540	$	6
Home Equity		97		37		43		80		6
Commercial		9,330		8,096		285		8,381		61
Agricultural		5,694		5,167		188		5,355		14
Consumer		-		-		-		-		-
Other commercial loans		813		92		94		186		34
Other agricultural loans		1,274		991		-		991		-
Total	$	17,905	$	14,878	$	655	$	15,533	$	121

2020	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate loans:
Mortgages	$	1,070	$	740	$	123	$	863	$	9
Home Equity		150		70		57		127		9
Commercial		9,847		8,323		860		9,183		95
Agricultural		4,811		2,799		1,846		4,645		83
Consumer		2		2		-		2		-
Other commercial loans		1,908		1,094		241		1,335		170
Other agricultural loans		1,262		19		1,103		1,122		144
Total	$	19,050	$	13,047	$	4,230	$	17,277	$	510

The following table includes the average investment in impaired loans and the income recognized on impaired loans for 2021, 2020 and 2019 (in thousands):

					Interest
	Average		Interest		Income
	Recorded		Income		Recognized
2021	Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	682	$	16	$	-
Home Equity		99		4		-
Commercial		8,789		288		31
Agricultural		4,562		82		-
Other commercial loans		704		2		-
Other agricultural loans		1,044		3		-
Total	$	15,880	$	395	$	31

2020
Real estate loans:
Mortgages	$	956	$	20	$	-
Home Equity		139		6		-
Commercial		10,354		358		27
Agricultural		3,918		75		-
Consumer		3		-		-
Other commercial loans		1,671		3		-
Other agricultural loans		1,237		6		-
Total	$	18,278	$	468	$	27

2019
Real estate loans:
Mortgages	$	1,062	$	16	$	-
Home Equity		119		6		-
Commercial		11,756		453		24
Agricultural		4,899		78		-
Consumer		2		-		-
Other commercial loans		2,056		1		-
Other agricultural loans		1,400		4		-
Total	$	21,294	$	558	$	24

Financing Receivable Credit Exposures by Internally Assigned Grades

The following tables represent credit exposures by internally assigned grades as of December 31, 2021 and 2020 (in thousands):

2021	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	646,137	$	35,332	$	5,869	$	-	$	-	$	687,338
Agricultural		291,537		15,105		5,369		-		-		312,011
Construction		55,036		-		-		-		-		55,036
Other commercial loans		70,932		3,289		316		48		-		74,585
Other agricultural loans		37,800		1,351		701		-		-		39,852
State and political subdivision loans		45,588		168		-		-		-		45,756
Total	$	1,147,030	$	55,245	$	12,255	$	48	$	-	$	1,214,578

2020
Real estate loans:
Commercial	$	563,121	$	24,329	$	8,805	$	-	$	-	$	596,255
Agricultural		289,216		14,307		11,635		-		-		315,158
Construction		35,404		-		-		-		-		35,404
Other commercial loans		106,604		3,808		3,672		85		-		114,169
Other agricultural loans		45,758		1,431		1,590		-		-		48,779
State and political subdivision loans		58,649		4,372		307		-		-		63,328
Total	$	1,098,752	$	48,247	$	26,009	$	85	$	-	$	1,173,093

For residential real estate mortgages, home equities and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below and all loans past due 90 or more days. The following table presents the recorded investment in those loan classes based on payment activity as of December 31, 2021 and 2020 (in thousands):

2021	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	150,320	$	608	$	14	$	150,942
Home Equity		50,122		33		-		50,155
Consumer		25,858		-		-		25,858
Total	$	226,300	$	641	$	14	$	226,955

2020	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	145,843	$	1,039	$	20	$	146,902
Home Equity		54,961		48		-		55,009
Consumer		30,247		30		-		30,277
Total	$	231,051	$	1,117	$	20	$	232,188

Aging Analysis of Past Due Loan Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loans as of December 31, 2021 and 2020 (in thousands):

	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		90 Days and
2021	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	220	$	170	$	209	$	599	$	150,329	$	14	$	150,942	$	13
Home Equity		103		-		33		136		50,019		-		50,155		33
Commercial		127		115		1,969		2,211		682,982		2,145		687,338		-
Agricultural		31		-		1,367		1,398		308,970		1,643		312,011		-
Construction		-		-		-		-		55,036		-		55,036		-
Consumer		163		1		-		164		25,694		-		25,858		-
Other commercial loans		17		10		92		119		74,466		-		74,585		-
Other agricultural loans		10		-		-		10		39,842		-		39,852		-
State and political
subdivision loans		-		-		-		-		45,756		-		45,756		-
Total	$	671	$	296	$	3,670	$	4,637	$	1,433,094	$	3,802	$	1,441,533	$	46
Loans considered non-accrual	$	-	$	-	$	3,624	$	3,624	$	3,992	$	-	$	7,616
Loans still accruing		671		296		46		1,013		1,429,102		3,802		1,433,917
Total	$	671	$	296	$	3,670	$	4,637	$	1,433,094	$	3,802	$	1,441,533

2020
Real estate loans:
Mortgages	$	864	$	414	$	518	$	1,796	$	145,086	$	20	$	146,902	$	252
Home Equity		152		62		34		248		54,761		-		55,009		23
Commercial		836		439		1,822		3,097		590,221		2,937		596,255		70
Agricultural		2,283		-		1,329		3,612		309,860		1,686		315,158		150
Construction		-		-		-		-		35,404		-		35,404		-
Consumer		147		9		30		186		30,091		-		30,277		30
Other commercial loans		930		-		133		1,063		112,874		232		114,169		-
Other agricultural loans		1,044		-		-		1,044		47,735		-		48,779		-
State and political
subdivision loans		-		-		-		-		63,328		-		63,328		-
Total	$	6,256	$	924	$	3,866	$	11,046	$	1,389,360	$	4,875	$	1,405,281	$	525
Loans considered non-accrual	$	3,032	$	28	$	3,341	$	6,401	$	4,331	$	-	$	10,732
Loans still accruing		3,224		896		525		4,645		1,385,029		4,875		1,394,549
Total	$	6,256	$	924	$	3,866	$	11,046	$	1,389,360	$	4,875	$	1,405,281

Loan Receivables on Nonaccrual Status

The following table reflects the loans on nonaccrual status as of December 31, 2021 and 2020, respectively. The balances are presented by class of loan (in thousands):

	2021		2020
Real estate loans:
Mortgages	$	595	$	787
Home Equity		-		25
Commercial		2,945		4,529
Agricultural		3,133		3,133
Other commercial loans		140		1,284
Other agricultural loans		803		974
	$	7,616	$	10,732

Loan Modifications Related to COVID-19

The Company has elected to follow the loan modification guidance under Section 4013 of the CARES Act with regard to COVID-19 modifications made between March 1, 2020 and the earlier of either January 1, 2022 or the 60th day after the end of the COVID-19 national emergency. Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. A modification of six months or less is considered to be a short-term loan modification. In response to the COVID-19 pandemic, the Company has prudently executed loan modifications for existing loan customers, which includes deferrals of interest and in certain cases deferrals of principal and interest. The following table presents information regarding loans which were subject to a loan modification related to COVID-19 during 2021, with balances as of December 31, 2020 and December 31, 2021, as well as the balance by modification type as of December 31, 2021 (dollars in thousands).

	Number of loans		Balance as of December 31, 2020		Number of loans		Balance as of December 31, 2021		Principal and Interest Deferral		Principal Deferral		% of loans as of December 31, 2021
Real estate loans:
Mortgages		1	$	209		-	$	-	$	-	$	-		0.00	%
Home Equity		1		49		-		-		-		-		0.00	%
Commercial		12		26,039		-		-		-		-		0.00	%
Agricultural		3		181		-		-		-		-		0.00	%
Other commercial loans		2		249		-		-		-		-		0.00	%
Total		19	$	26,727		-	$	-	$	-	$	-		0.00	%

Troubled Debt Restructurings on Financing Receivables

Loan modifications that are considered TDRs completed during the years ended December 31, 2021, 2020 and 2019 were as follows (dollars in thousands):

2021	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		4	$	-	$	1,469	$	-	$	1,469
Agricultural		-		4		-		2,090		-		2,090
Total		-		8	$	-	$	3,559	$	-	$	3,559

2020
Real estate loans:
Mortgages	-	1	$	-	$	2	$	-	$	2
Commercial	-	10		-		2,456		-		2,456
Agricultural	-	2		-		494		-		494
Consumer	-	1		-		3				3
Other commercial loans	-	2		-		1,094				1,094
Other agricultural loans	-	1		-		19		-		19
Total	-	17	$	-	$	4,068	$	-	$	4,068

2019
Real estate loans:
Mortgages	-	1	$	-	$	4	$	-	$	4
Home Equity	-	1		-		40		-		40
Commercial	-	6		-		918		-		918
Agricultural	-	5		-		1,731		-		1,731
Consumer	-	1		-		3				3
Other commercial loans	-	1		-		55				55
Other agricultural loans	-	5		-		1,054		-		1,054
Total	-	20	$	-	$	3,805	$	-	$	3,805

Subsequent Default Recorded Investment

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which begin January 1, 2021, 2020 and 2019, respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	December 31, 2021				December 31, 2020				December 31, 2019
	Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment
Real estate loans:
Commercial		-	$	-		1	$	110		-	$	-
Agricultural		-		-		-		-		1		1,439
Other agricultural loans		-		-		-		-		3		137
Total recidivism		-	$	-		1	$	110		4	$	1,576

Roll forward of Allowance for Loan Losses by Portfolio Segment

The following tables roll forward the balance of the allowance for loan and lease losses for the years ended December 31, 2021, 2020 and 2019 and is segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2021, 2020 and 2019 (in thousands):

	Balance at December 31, 2020		Charge-offs			Recoveries		Provision			Balance at December 31, 2021		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	1,174	$	-		$	-	$	(27	)	$	1,147	$	12	$	1,135
Commercial		6,216		(54	)		89		1,848			8,099		61		8,038
Agricultural		4,953		-			-		(224	)		4,729		14		4,715
Construction		122		-			-		312			434		-		434
Consumer		321		(27	)		21		(53	)		262		-		262
Other commercial loans		1,226		(133	)		43		(113	)		1,023		34		989
Other agricultural loans		864		-			-		(306	)		558		-		558
State and political subdivision loans		479		-			-		(198	)		281		-		281
Unallocated		460		-			-		311			771		-		771
Total	$	15,815	$	(214	)	$	153	$	1,550		$	17,304	$	121	$	17,183

	Balance at December 31, 2019		Charge-offs			Recoveries		Provision			Balance at December 31, 2020		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	1,114	$	-		$	14	$	46		$	1,174	$	18	$	1,156
Commercial		4,549		(435	)		37		2,065			6,216		95		6,121
Agricultural		5,022		(4	)		19		(84	)		4,953		83		4,870
Construction		43		-			-		79			122		-		122
Consumer		112		(50	)		21		238			321		-		321
Other commercial loans		1,255		(44	)		12		3			1,226		170		1,056
Other agricultural loans		961		-			-		(97	)		864		144		720
State and political subdivision loans		536		-			-		(57	)		479		-		479
Unallocated		253		-			-		207			460		-		460
Total	$	13,845	$	(533	)	$	103	$	2,400		$	15,815	$	510	$	15,305

	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at December 31, 2019		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	1,105	$	(32	)	$	-	$	41		$	1,114	$	32	$	1,082
Commercial		4,115		(578	)		-		1,012			4,549		251		4,298
Agricultural		4,264		-			-		758			5,022		151		4,871
Construction		58		-			-		(15	)		43		-		43
Consumer		120		(49	)		33		8			112		-		112
Other commercial loans		1,354		(38	)		10		(71	)		1,255		147		1,108
Other agricultural loans		752		(60	)		-		269			961		154		807
State and political subdivision loans		762		-			-		(226	)		536		-		536
Unallocated		354		-			-		(101	)		253		-		253
Total	$	12,884	$	(757	)	$	43	$	1,675		$	13,845	$	735	$	13,110