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LOANS AND ALLOWANCE FOR LOAN LOSSES
 6 Months Ended
Jun. 30, 2020
Loans and Leases Receivable Disclosure [Abstract]  
LOANS AND ALLOWANCE FOR LOAN LOSSES 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):
June 30, 2020December 31, 2019
Commercial and agricultural:
Commercial and industrial$395,044  $230,018  
Agricultural416  274  
Commercial mortgages:  
Construction47,180  43,962  
Commercial mortgages, other623,261  604,832  
Residential mortgages207,999  188,338  
Consumer loans:  
Home equity lines and loans85,927  91,784  
Indirect consumer loans124,921  134,973  
Direct consumer loans13,250  15,038  
Total loans, net of deferred origination fees and costs1,497,998  1,309,219  
Interest receivable on loans4,748  3,684  
Total recorded investment in loans$1,502,746  $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 June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30, 2020
Allowance for loan lossesCommercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Beginning balance$11,191  $10,472  $1,421  $3,149  $26,233  
Charge-offs(36) (2,143) (13) (297) (2,489) 
Recoveries5  —  49  72  126  
Net recoveries (charge-offs)(31) (2,143) 36  (225) (2,363) 
Provision(2,833) 2,220  434  439  260  
Ending balance$8,327  $10,549  $1,891  $3,363  $24,130  
Three Months Ended June 30, 2019
Allowance for loan lossesCommercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Beginning balance$5,429  $9,474  $1,215  $3,627  $19,745  
Charge-offs(48) —  (39) (318) (405) 
Recoveries4  1  45  116  166  
Net recoveries (charge-offs)(44) 1  6  (202) (239) 
Provision91  70  8  (19) 150  
Ending balance$5,476  $9,545  $1,229  $3,406  $19,656  


The following tables present the activity in the allowance for loan losses by portfolio segment for the six month periods ended June 30, 2020 and 2019 (in thousands):
Six Months Ended June 30, 2020
Allowance for loan lossesCommercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Beginning balance:$10,227  $8,869  $1,252  $3,130  $23,478  
Charge-offs:(65) (2,143) (13) (700) (2,921) 
Recoveries:8  —  48  207  263  
Net recoveries (charge-offs)(57) (2,143) 35  (493) (2,658) 
Provision(1,843) 3,823  604  726  3,310  
Ending balance$8,327  $10,549  $1,891  $3,363  $24,130  

Six Months Ended June 30, 2019
Allowance for loan lossesCommercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Beginning balance:$5,383  $8,184  $1,226  $4,151  $18,944  
Charge-offs:(55) —  (41) (757) (853) 
Recoveries:15  2  45  260  322  
Net recoveries (charge-offs)(40) 2  4  (497) (531) 
Provision133  1,359  (1) (248) 1,243  
Ending balance$5,476  $9,545  $1,229  $3,406  $19,656  

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 June 30, 2020 and December 31, 2019 (in thousands):
 June 30, 2020
Allowance for loan losses:Commercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Ending allowance balance attributable to loans:
Individually evaluated for impairment$5,431  $213  $—  $62  $5,706  
Collectively evaluated for impairment2,896  10,336  1,891  3,301  18,424  
   Total ending allowance balance$8,327  $10,549  $1,891  $3,363  $24,130  
 December 31, 2019
Allowance for loan losses:Commercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Ending allowance balance attributable to loans:
Individually evaluated for impairment$6,000  $2,097  $—  $—  $8,097  
Collectively evaluated for impairment4,227  6,772  1,252  3,130  15,381  
   Total ending allowance balance$10,227  $8,869  $1,252  $3,130  $23,478  
 June 30, 2020
Loans:Commercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Loans individually evaluated for impairment$6,572  $7,162  $1,170  $837  $15,741  
Loans collectively evaluated for  impairment390,126  665,378  207,523  223,978  1,487,005  
   Total ending loans balance$396,698  $672,540  $208,693  $224,815  $1,502,746  
 December 31, 2019
Loans:Commercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Loans individually evaluated for impairment$6,147  $8,844  $525  $149  $15,665  
Loans collectively evaluated for  impairment224,775  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 June 30, 2020 and December 31, 2019 (in thousands):
 June 30, 2020December 31, 2019
With no related allowance recorded:Unpaid Principal BalanceRecorded InvestmentAllowance for Loan Losses AllocatedUnpaid Principal BalanceRecorded InvestmentAllowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial$1,089  $1,088  $—  $133  $133  $—  
Commercial mortgages:      
Construction219  220  —  247  247  —  
Commercial mortgages, other6,887  4,743  —  3,501  3,503  —  
Residential mortgages1,190  1,170  —  554  525  —  
Consumer loans:      
Home equity lines and loans672  657  —  171  149  —  
With an allowance recorded:      
Commercial and agricultural:     
Commercial and industrial5,481  5,484  5,431  6,013  6,014  6,000  
Commercial mortgages:      
Commercial mortgages, other2,197  2,199  213  5,093  5,094  2,097  
Consumer loans:      
Home equity lines and loans180  180  62  —  —  —  
Total$17,915  $15,741  $5,706  $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 and six month periods ended June 30, 2020 and 2019 (in thousands):
 Three Months Ended 
 June 30, 2020		Three Months Ended 
 June 30, 2019		Six Months Ended 
 June 30, 2020		Six Months Ended 
 June 30, 2019
With no related allowance recorded:Average Recorded InvestmentInterest Income Recognized
(1)		Average Recorded InvestmentInterest Income Recognized
(1)		Average Recorded InvestmentInterest Income Recognized
(1)		Average Recorded InvestmentInterest Income Recognized
(1)
Commercial and agricultural:
Commercial and industrial$597  $—  $289  $—  $442  $—  $308  $1  
Commercial mortgages:      
Construction226  2  285  2  233  4  293  5  
Commercial mortgages, other3,982  —  3,640  3  3,822  —  3,738  6  
Residential mortgages844  5  388  2  738  10  393  4  
Consumer loans:        
Home equity lines & loans403  2  163  1  318  3  127  1  
With an allowance recorded:       
Commercial and agricultural:       
Commercial and industrial5,665  2  1,817  —  5,781  2  1,805  —  
Commercial mortgages:       
Commercial mortgages, other3,613  8  7,741  —  4,107  8  5,795  —  
Consumer loans:        
Home equity lines and loans90  —  —  —  60  —  —  —  
Total$15,420  $19  $14,323  $8  $15,501  $27  $12,459  $17  
(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 June 30, 2020 and December 31, 2019 (in thousands):
Non-accrualLoans Past Due 90 Days or More and Still Accruing
June 30, 2020December 31, 2019June 30, 2020December 31, 2019
Commercial and agricultural:
Commercial and industrial$6,439  $6,147  $3  $7  
Commercial mortgages:
Construction70  80  —  —  
Commercial mortgages, other6,416  8,407  —  —  
Residential mortgages2,537  2,155  —  —  
Consumer loans:
Home equity lines and loans1,061  641  —  —  
Indirect consumer loans755  571  —  —  
Direct consumer loans1  7  —  —  
Total$17,279  $18,008  $3  $7  
The following tables present the aging of the recorded investment in loans as of June 30, 2020 and December 31, 2019 (in thousands):
June 30, 2020
 30 - 59 Days Past Due60 - 89 Days Past Due90 Days or More Past DueTotal Past DueLoans Not Past DueTotal
Commercial and agricultural:
Commercial and industrial$3,796  $215  $276  $4,287  $391,993  $396,280  
Agricultural—  —  —  —  418  418  
Commercial mortgages:     
Construction—  —  —  —  47,329  47,329  
Commercial mortgages, other1,046  347  1,881  3,274  621,937  625,211  
Residential mortgages590  364  733  1,687  207,006  208,693  
Consumer loans:    
Home equity lines and loans180  53  96  329  85,855  86,184  
Indirect consumer loans499  102  386  987  124,331  125,318  
Direct consumer loans2  1  —  3  13,310  13,313  
Total$6,113  $1,082  $3,372  $10,567  $1,492,179  $1,502,746  

December 31, 2019
 30 - 59 Days Past Due60 - 89 Days Past Due90 Days or More Past DueTotal Past DueLoans Not Past DueTotal
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, other441  277  2,165  2,883  603,605  606,488  
Residential mortgages1,016  803  956  2,775  186,099  188,874  
Consumer loans:    
Home equity lines and loans353  151  149  653  91,412  92,065  
Indirect consumer loans1,546  377  355  2,278  133,088  135,366  
Direct consumer loans32  11  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 June 30, 2020, in conformance with Section 4013 of the CARES Act, the Corporation modified a total of 1,168 commercial and consumer loans represented by a total loan balance of $241.6 million. As of June 30, 2020, 593 loans totaling $185.8 million remained in modified status.
As of June 30, 2020 and December 31, 2019, the Corporation has a recorded investment in TDRs of $9.8 million and $9.0 million, respectively.  There were specific reserves of $0.6 million and $2.3 million allocated for TDRs at June 30, 2020 and December 31, 2019, respectively.  As of June 30, 2020, TDRs totaling $1.4 million were accruing interest under the modified terms and $8.4 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 $29 thousand and $17 thousand to customers with outstanding loans that are classified as TDRs as of June 30, 2020 and December 31, 2019, respectively.

During the three months ended June 30, 2020, the terms of certain loans were modified as TDRs. These included the modifications of two commercial and industrial loans where deferral of payments were granted and both loans were risk rated Substandard while one loan was in non-accrual status prior to the modification. The modifications of four commercial mortgage loans included the deferral of payments with three of the loans risk rated Substandard and in non-accrual status, three of the borrowers were over one year past due in real estate taxes and two of the loans were over 30 days past due in payments. The modifications of three residential mortgages included the deferral of payments while all three were in non-accrual status prior to the modifications, two were risk rated Substandard and one was over thirty days past due in payments. The modifications of three home equity lines and loans included the deferral of payments while all three loans were risk rated Substandard and in non-accrual status prior to the modifications.

There were no loans modified as TDRs during the three month period ended June 30, 2019.

During the six month period ended June 30, 2020, there were no loans modified as TDRs except those described above during the three month period ended June 30, 2020. During the six month period ended June 30, 2019, the terms of certain loans were modified as TDRs. The modification of the terms of one home equity loan during the six months ended June 30, 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 tables present loans by class modified as TDRs that occurred during the three month period ended June 30, 2020 and June 30, 2019 (dollars in thousands):

June 30, 2020Number of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial$2  $929  $929  
Commercial mortgages:
Commercial mortgages, other4  1,297  1,297  
Residential mortgages3  677  677  
Consumer loans:
Home equity lines and loans3  738  738  
Total$12  $3,641  $3,641  

The TDRs described above increased the allowance for loan losses by $0.2 million and resulted in no charge-offs during the three month period ended June 30, 2020. There were no loans modified as TDRs during the three month period ended June 30, 2019.
The following tables present loans by class modified as TDRs that occurred during the six month period ended June 30, 2020 and June 30, 2019 (dollars in thousands):

June 30, 2020Number of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial$2  $929  $929  
Commercial mortgages:
Commercial mortgages, other4  1,297  1,297  
Residential mortgages3  677  677  
Consumer loans:
Home equity lines and loans3  738  738  
Total$12  $3,641  $3,641  

June 30, 2019Number of LoansPre-Modification Outstanding Recorded InvestmentPost-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 increased the allowance for loan losses by $0.2 million and resulted in no charge-offs during the six month period ended June 30, 2020. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the six month period ended June 30, 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 and six month periods ended June 30, 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 June 30, 2020 and December 31, 2019, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):
 June 30, 2020
 Not RatedPassSpecial MentionSubstandardDoubtfulTotal
Commercial and agricultural:
Commercial and industrial$—  $382,873  $4,324  $3,786  $5,297  $396,280  
Agricultural—  418  —  —  —  418  
Commercial mortgages:     
Construction—  43,235  546  3,548  —  47,329  
Commercial mortgages—  596,641  14,436  11,868  2,266  625,211  
Residential mortgages206,156  —  —  2,537  —  208,693  
Consumer loans:     
Home equity lines and loans85,123  —  —  1,061  —  86,184  
Indirect consumer loans124,563  —  —  755  —  125,318  
Direct consumer loans13,312  —  —  1  —  13,313  
Total$429,154  $1,023,167  $19,306  $23,556  $7,563  $1,502,746  
 December 31, 2019
 Not RatedPassSpecial MentionSubstandardDoubtfulTotal
Commercial and agricultural:
Commercial and industrial$—  $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 mortgages186,719  —  —  2,155  —  188,874  
Consumer loans:     
Home equity lines and loans91,424  —  —  641  —  92,065  
Indirect consumer loans134,795  —  —  571  —  135,366  
Direct consumer loans15,099  —  —  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 June 30, 2020 and December 31, 2019 (in thousands):
 June 30, 2020
 Consumer Loans
 Residential MortgagesHome Equity Lines and LoansIndirect Consumer LoansOther Direct Consumer Loans
Performing$206,156  $85,123  $124,563  $13,312  
Non-Performing2,537  1,061  755  1  
 $208,693  $86,184  $125,318  $13,313  

 December 31, 2019
 Consumer Loans
 Residential MortgagesHome Equity Lines and LoansIndirect Consumer LoansOther Direct Consumer Loans
Performing$186,719  $91,424  $134,795  $15,099  
Non-Performing2,155  641  571  7  
 $188,874  $92,065  $135,366  $15,106