LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the loan portfolio, net of deferred origination fees and costs, is summarized as follows (in thousands):



	March 31, 2020		December 31, 2019
Commercial and agricultural:
Commercial and industrial	$	235,690	$	230,018
Agricultural	289		274
Commercial mortgages:
Construction	40,957		43,962
Commercial mortgages, other	618,831		604,832
Residential mortgages	192,722		188,338
Consumer loans:
Credit cards	—		—
Home equity lines and loans	88,149		91,784
Indirect consumer loans	129,473		134,973
Direct consumer loans	14,350		15,038
Total loans, net of deferred origination fees and costs	1,320,461		1,309,219
Interest receivable on loans	3,759		3,684
Total recorded investment in loans	$	1,324,220	$	1,312,903

The Corporation's concentrations of credit risk by loan type are reflected in the preceding table. The concentrations of credit risk with standby letters of credit, committed lines of credit and commitments to originate new loans generally follow the loan classifications in the table above.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2020 and 2019 (in thousands):



	Three Months Ended March 31, 2020
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages		Consumer Loans			Total
Beginning balance	$	10,227		$	8,869	$	1,252	$	3,130		$	23,478
Charge-offs	(30		)	—		—		(403		)	(433		)
Recoveries	4			1		—		135			140
Net recoveries (charge-offs)	(26		)	—		—		(268		)	(294		)
Provision	990			1,603		169		288			3,050
Ending balance	$	11,191		$	10,472	$	1,421	$	3,149		$	26,233



	Three Months Ended March 31, 2019
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages			Consumer Loans			Total
Beginning balance	$	5,383		$	8,184	$	1,226		$	4,151		$	18,944
Charge-offs	(7		)	—		(2		)	(439		)	(448		)
Recoveries	11			1		—			144			156
Net recoveries (charge-offs)	4			1		(2		)	(295		)	(292		)
Provision	42			1,289		(9		)	(229		)	1,093
Ending balance	$	5,429		$	9,474	$	1,215		$	3,627		$	19,745

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	5,851	$	2,058	$	—	$	—	$	7,909
Collectively evaluated for impairment	5,340		8,414		1,421		3,149		18,324
Total ending allowance balance	$	11,191	$	10,472	$	1,421	$	3,149	$	26,233



	December 31, 2019
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6,000	$	2,097	$	—	$	—	$	8,097
Collectively evaluated for impairment	4,227		6,772		1,252		3,130		15,381
Total ending allowance balance	$	10,227	$	8,869	$	1,252	$	3,130	$	23,478



	March 31, 2020
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	5,952	$	8,478	$	518	$	149	$	15,097
Loans collectively evaluated for impairment	230,698		653,183		192,751		232,491		1,309,123
Total ending loans balance	$	236,650	$	661,661	$	193,269	$	232,640	$	1,324,220



	December 31, 2019
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	6,147	$	8,844	$	525	$	149	$	15,665
Loans collectively evaluated for impairment	224,775		641,726		188,349		242,388		1,297,238
Total ending loans balance	$	230,922	$	650,570	$	188,874	$	242,537	$	1,312,903

The following table presents loans individually evaluated for impairment recognized by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020						December 31, 2019
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	105	$	106	$	—	$	133	$	133	$	—
Commercial mortgages:
Construction	231		232		—		247		247		—
Commercial mortgages, other	3,219		3,220		—		3,501		3,503		—
Residential mortgages	547		518		—		554		525		—
Consumer loans:
Home equity lines and loans	171		149		—		171		149		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,845		5,846		5,851		6,013		6,014		6,000
Commercial mortgages:
Commercial mortgages, other	5,025		5,026		2,058		5,093		5,094		2,097
Total	$	15,143	$	15,097	$	7,909	$	15,712	$	15,665	$	8,097

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans for the three-month periods ended March 31, 2020 and 2019 (in thousands):



	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	120	$	—	$	325	$	1
Commercial mortgages:
Construction	239		2		301		2
Commercial mortgages, other	3,362		—		3,889		5
Residential mortgages	521		5		397		2
Consumer loans:
Home equity lines & loans	149		2		111		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,930		—		1,807		—
Commercial mortgages:
Commercial mortgages, other	5,060		—		3,523		—
Total	$	15,381	$	9	$	10,353	$	11

(1)Cash basis interest income approximates interest income recognized.

The following table presents the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):



	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Commercial and agricultural:
Commercial and industrial	$	5,951	$	6,147	$	8	$	7
Commercial mortgages:
Construction	73		80		—		—
Commercial mortgages, other	8,247		8,407		—		—
Residential mortgages	2,265		2,155		—		—
Consumer loans:
Credit cards	—		—		—		—
Home equity lines and loans	638		641		—		—
Indirect consumer loans	767		571		—		—
Direct consumer loans	7		7		—		—
Total	$	17,948	$	18,008	$	8	$	7

The following tables present the aging of the recorded investment in loans as of March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	347	$	1,373	$	4,264	$	5,984	$	230,376	$	236,360
Agricultural	—		—		—		—		290		290
Commercial mortgages:
Construction	—		—		—		—		41,073		41,073
Commercial mortgages, other	2,385		1,211		2,297		5,893		614,695		620,588
Residential mortgages	1,432		286		1,131		2,849		190,420		193,269
Consumer loans:
Home equity lines and loans	368		174		95		637		87,784		88,421
Indirect consumer loans	1,050		216		376		1,642		128,167		129,809
Direct consumer loans	33		21		6		60		14,350		14,410
Total	$	5,615	$	3,281	$	8,169	$	17,065	$	1,307,155	$	1,324,220



	December 31, 2019
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	1,285	$	49	$	4,398	$	5,732	$	224,916	$	230,648
Agricultural	—		—		—		—		274		274
Commercial mortgages:
Construction	—		—		—		—		44,082		44,082
Commercial mortgages, other	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		804		956		2,775		186,099		188,874
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	353		151		149		653		91,412		92,065
Indirect consumer loans	1,546		377		355		2,278		133,088		135,366
Direct consumer loans	32		10		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903

Troubled Debt Restructurings:

A modification of a loan may result in classification as a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Corporation offers various types of modifications which may involve a change in the schedule of payments, a reduction in the interest rate, an extension of the maturity date, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, requesting additional collateral, releasing collateral for consideration, substituting or adding a new borrower or guarantor, a permanent reduction of the recorded investment in the loan or a permanent reduction of the interest on the loan. 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 related modifications and therefore will not be treated as TDRs. As of March 31, 2020, in conformance with Section 4013 of the CARES Act, the Corporation modified a total of 444 commercial and consumer loans represented by a total loan balance of $56.6 million.

As of March 31, 2020 and December 31, 2019, the Corporation has a recorded investment in TDRs of $8.7 million and $9.0 million, respectively. There were specific reserves of $2.3 million allocated for TDRs at both March 31, 2020 and December 31, 2019, respectively. As of March 31, 2020, TDRs totaling $0.8 million were accruing interest under the modified terms and $7.9 million were on non-accrual status. As of December 31, 2019, TDRs totaling $0.9 million were accruing interest under the modified terms and $8.1 million were on non-accrual status. The Corporation had committed no additional amounts as of both March 31, 2020 and December 31, 2019, to customers with outstanding loans that are classified as TDRs.

During the three month period ended March 31, 2020, no loans were modified as TDRs. During the three-month period ended March 31, 2019, the terms of certain loans were modified as TDRs. The modification of the terms of one home equity loan during the three months ended March 31, 2019 included a reduction in the stated interest rate for the remaining life of the loan, an extension of the maturity date for approximately three years, and a reduction of the scheduled amortized payment of the loan for greater than a three month period.

The following table present loans by class modified as TDRs that occurred during the three months ended March 31, 2019 (dollars in thousands):



March 31, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Consumer loans:
Home equity lines and loans	1	$	137	$	137
Total	1	$	137	$	137

The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the three-month period ended March 31, 2019.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no payment defaults on any loans previously modified as TDRs within twelve months following the modification during the three-month periods ended March 31, 2020 and 2019.

Credit Quality Indicators

The Corporation establishes a risk rating at origination for all commercial loans. The main factors considered in assigning risk ratings include, but are not limited to: historic and future debt service coverage, collateral position, operating performance, liquidity, leverage, payment history, management ability, and the customer’s industry. Commercial relationship managers monitor all loans in their respective portfolios for any changes in the borrower’s ability to service its debt and affirm the risk ratings for the loans at least annually.

For the retail loans, which include residential mortgages, indirect and direct consumer loans, home equity lines and loans, and credit cards, once a loan is properly approved and closed, the Corporation evaluates credit quality based upon loan repayment.

The Corporation uses the risk rating system to identify criticized and classified loans. Commercial relationships within the criticized and classified risk ratings are analyzed quarterly. The Corporation uses the following definitions for criticized and classified loans (which are consistent with regulatory guidelines):

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 the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capability 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. They 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.

Commercial loans not meeting the criteria above to be considered criticized or classified are considered to be pass rated loans. Loans listed as not rated are included in groups of homogeneous loans performing under terms of the loan notes. Based on the analyses performed as of March 31, 2020 and December 31, 2019, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):



	March 31, 2020
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	214,801	$	5,852	$	9,926	$	5,781	$	236,360
Agricultural	—		290		—		—		—		290
Commercial mortgages:
Construction	—		37,123		398		3,552		—		41,073
Commercial mortgages	—		593,742		11,483		11,008		4,355		620,588
Residential mortgages	191,004		—		—		2,265		—		193,269
Consumer loans:
Home equity lines and loans	87,783		—		—		638		—		88,421
Indirect consumer loans	129,042		—		—		767		—		129,809
Direct consumer loans	14,403		—		—		7		—		14,410
Total	$	422,232	$	845,956	$	17,733	$	28,163	$	10,136	$	1,324,220



	December 31, 2019
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	208,552	$	5,915	$	10,361	$	5,820	$	230,648
Agricultural	—		274		—		—		—		274
Commercial mortgages:
Construction	—		40,304		168		3,610		—		44,082
Commercial mortgages	—		577,266		12,451		12,356		4,415		606,488
Residential mortgages	186,719		—		—		2,155		—		188,874
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	91,424		—		—		641		—		92,065
Indirect consumer loans	134,795		—		—		571		—		135,366
Direct consumer loans	15,099		—		—		7		—		15,106
Total	$	428,037	$	826,396	$	18,534	$	29,701	$	10,235	$	1,312,903

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following tables present the recorded investment in residential and consumer loans based on payment activity as of March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	191,004	$	—	$	87,783	$	129,042	$	14,403
Non-Performing	2,265		—		638		767		7
	$	193,269	$	—	$	88,421	$	129,809	$	14,410



	December 31, 2019
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	186,719	$	—	$	91,424	$	134,795	$	15,099
Non-Performing	2,155		—		641		571		7
	$	188,874	$	—	$	92,065	$	135,366	$	15,106