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LOANS AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 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):

						September 30, 2020						December 31, 2019
Commercial and agricultural:
Commercial and industrial						$	403,911					$	230,018
Agricultural						682						274
Commercial mortgages:
Construction						54,332						43,962
Commercial mortgages, other						636,179						604,832
Residential mortgages						227,372						188,338
Consumer loans:
Home equity lines and loans						81,556						91,784
Indirect consumer loans						121,406						134,973
Direct consumer loans						13,055						15,038
Total loans, net of deferred loan fees						1,538,493						1,309,219
Interest receivable on loans						5,035						3,684
Total recorded investment in loans						$	1,543,528					$	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. As of September 30, 2020, the Corporation had outstanding loan balances of $189.8 million for PPP loans which were included in commercial and industrial loans in the table above. These loans require no allowance for loan losses as of September 30, 2020 since they are government guaranteed loans.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three month periods ended September 30, 2020 and 2019 (in thousands):

			Three Months Ended September 30, 2020
Allowance for loan losses			Commercial and Agricultural						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Beginning balance			$	8,327					$	10,549					$	1,891					$	3,363					$	24,130
Charge-offs			(68)						—						(42)						(216)						(326)
Recoveries			18						2						—						87						107
Net recoveries (charge-offs)			(50)						2						(42)						(129)						(219)
Provision			180						361						232						(94)						679
Ending balance			$	8,457					$	10,912					$	2,081					$	3,140					$	24,590

			Three Months Ended September 30, 2019
Allowance for loan losses			Commercial and Agricultural						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Beginning balance			$	5,476					$	9,545					$	1,229					$	3,406					$	19,656
Charge-offs			—						—						(19)						(283)						(302)
Recoveries			29						—						—						99						128
Net recoveries (charge-offs)			29						—						(19)						(184)						(174)
Provision			4,651						(285)						(26)						101						4,441
Ending balance			$	10,156					$	9,260					$	1,184					$	3,323					$	23,923

The following tables present the activity in the allowance for loan losses by portfolio segment for the nine month periods ended September 30, 2020 and 2019 (in thousands):

			Nine Months Ended September 30, 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:			(134)						(2,143)						(56)						(915)						(3,248)
Recoveries:			27						2						49						293						371
Net recoveries (charge-offs)			(107)						(2,141)						(7)						(622)						(2,877)
Provision			(1,663)						4,184						836						632						3,989
Ending balance			$	8,457					$	10,912					$	2,081					$	3,140					$	24,590

			Nine Months Ended September 30, 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:			(55)						—						(60)						(1,040)						(1,155)
Recoveries:			44						2						45						359						450
Net recoveries (charge-offs)			(11)						2						(15)						(681)						(705)
Provision			4,784						1,074						(27)						(147)						5,684
Ending balance			$	10,156					$	9,260					$	1,184					$	3,323					$	23,923

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 September 30, 2020 and December 31, 2019 (in thousands):

			September 30, 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			$	5,530					$	184					$	—					$	52					$	5,766
Collectively evaluated for impairment			2,927						10,728						2,081						3,088						18,824
Total ending allowance balance			$	8,457					$	10,912					$	2,081					$	3,140					$	24,590

			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

			September 30, 2020
Loans:			Commercial and Agricultural						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Loans individually evaluated for impairment			$	7,515					$	6,750					$	1,277					$	812					$	16,354
Loans collectively evaluated for  impairment			398,498						686,185						226,707						215,784						1,527,174
Total ending loans balance			$	406,013					$	692,935					$	227,984					$	216,596					$	1,543,528

			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
Loans acquired with deteriorated credit quality			—						—						—						—						—
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 September 30, 2020 and December 31, 2019 (in thousands):

			September 30, 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			$	1,391					$	1,391					$	—					$	133					$	133					$	—
Commercial mortgages:
Construction			204						204						—						247						247						—
Commercial mortgages, other			6,339						4,287						—						3,501						3,503						—
Residential mortgages			1,297						1,277						—						554						525						—
Consumer loans:
Home equity lines and loans			657						642						—						171						149						—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial			6,118						6,124						5,530						6,013						6,014						6,000
Commercial mortgages:
Commercial mortgages, other			2,347						2,259						184						5,093						5,094						2,097
Consumer loans:
Home equity lines and loans			170						170						52						—						—						—
Total			$	18,523					$	16,354					$	5,766					$	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 nine month periods ended September 30, 2020 and 2019 (in thousands):

						Three Months Ended   September 30, 2020												Three Months Ended   September 30, 2019												Nine Months Ended   September 30, 2020												Nine Months Ended   September 30, 2019
With no related allowance recorded:						Average Recorded Investment						Interest Income Recognized (1)						Average Recorded Investment						Interest Income Recognized (1)						Average Recorded Investment						Interest Income Recognized (1)						Average Recorded Investment						Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial						$	1,239					$	2					$	228					$	—					$	679					$	2					$	277					$	1
Commercial mortgages:
Construction						213						2						270						2						226						6						285						7
Commercial mortgages, other						4,515						—						3,372						3						3,938						—						3,630						9
Residential mortgages						1,224						7						396						36						873						17						396						40
Consumer loans:
Home equity lines & loans						650						2						156						3						399						5						134						4
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial						5,804						2						3,983						—						5,867						4						2,508						—
Commercial mortgages:
Commercial mortgages, other						2,229						8						10,240						—						3,645						16						6,881						—
Consumer loans:
Home equity lines and loans						175						—						—						—						88						—						—						—
Total						$	16,049					$	23					$	18,645					$	44					$	15,715					$	50					$	14,111					$	61

(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 September 30, 2020 and December 31, 2019 (in thousands):

						Non-accrual												Loans Past Due 90 Days or More and Still Accruing
						September 30, 2020						December 31, 2019						September 30, 2020						December 31, 2019
Commercial and agricultural:
Commercial and industrial						$	6,272					$	6,147					$	—					$	7
Commercial mortgages:
Construction						63						80						—						—
Commercial mortgages, other						6,027						8,407						—						—
Residential mortgages						1,742						2,155						—						—
Consumer loans:
Home equity lines and loans						1,017						641						—						—
Indirect consumer loans						604						571						—						—
Direct consumer loans						1						7						—						—
Total						$	15,726					$	18,008					$	—					$	7

The following tables present the aging of the recorded investment in loans as of September 30, 2020 and December 31, 2019 (in thousands):

			September 30, 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			$	2,433					$	1					$	3,982					$	6,416											$	398,913					$	405,329
Agricultural			—						—						—						—												684						684
Commercial mortgages:
Construction			—						—						—						—												54,523						54,523
Commercial mortgages, other			11,077						262						1,878						13,217												625,195						638,412
Residential mortgages			631						9						434						1,074												226,910						227,984
Consumer loans:
Credit cards			—						—						—						—												—						—
Home equity lines and loans			169						30						147						346												81,424						81,770
Indirect consumer loans			753						190						213						1,156												120,564						121,720
Direct consumer loans			18						187						1						206												12,900						13,106
Total			$	15,081					$	679					$	6,655					$	22,415											$	1,521,113					$	1,543,528

			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						803						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						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 September 30, 2020, in conformance with Section 4013 of the CARES Act, the Corporation modified a total of 1,125 commercial and consumer loans represented by a total loan balance of $233.6 million. As of

September 30, 2020, 74 loans totaling $45.9 million remained in modified status, of which 44 loans totaling $32.8 million had been modified more than once.

As of September 30, 2020 and December 31, 2019, the Corporation has a recorded investment in TDRs of $10.8 million and $9.0 million, respectively. There were specific reserves of $0.6 million and $2.3 million allocated for TDRs at September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, TDRs totaling $2.8 million were accruing interest under the modified terms and $8.0 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 has committed $37 thousand and $17 thousand to customers with outstanding loans that are classified as TDRs as of September 30, 2020 and December 31, 2019, respectively.

During the three months ended September 30, 2020 and 2019, the terms of certain loans were modified as TDRs. In addition to the modifications noted above, during the nine months ended September 30, 2020 modifications included 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 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. In addition to the modification noted above, the modification of the terms of one home equity loan during the nine months ended September 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 September 30, 2020 and September 30, 2019 (dollars in thousands):

September 30, 2020						Number of Loans						Pre-Modification Outstanding Recorded Investment						Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial						2						$	1,138					$	1,138
Agricultural
Commercial mortgages:
Commercial mortgages, other						—						—						—
Residential mortgages						1						320						320
Consumer loans:
Home equity lines and loans						—						—						—
Total						3						$	1,458					$	1,458

The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the three month period ended September 30, 2020.

September 30, 2019						Number of Loans						Pre-Modification Outstanding Recorded Investment						Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages, other						1						$	4,223					$	4,223
Total						1						$	4,223					$	4,223

The TDR described above did not increase the allowance for loan losses and resulted in no charge-offs during the three month period ended September 30, 2019.

The following tables present loans by class modified as TDRs that occurred during the nine month period ended September 30, 2020 and September 30, 2019 (dollars in thousands):

September 30, 2020						Number of Loans						Pre-Modification Outstanding Recorded Investment						Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial						4						$	2,068					$	2,068
Commercial mortgages:
Commercial mortgages, other						4						1,297						1,297
Residential mortgages						4						997						997
Consumer loans:
Home equity lines and loans						3						738						738
Total						15						$	5,100					$	5,100

The TDRs described above increased the allowance for loan losses by $142 thousand and resulted in no charge-offs during the nine months ended September 30, 2020.

September 30, 2019						Number of Loans						Pre-Modification Outstanding Recorded Investment						Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages, other						1						$	4,223					$	4,223
Consumer loans:
Home equity lines and loans						1						137						137
Total						2						$	4,360					$	4,360

The TDRs described above increased the allowance for loan losses by $1.7 million and resulted in no charge-offs during the nine month period ended September 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 nine month periods ended September 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 September 30, 2020 and December 31, 2019, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

			September 30, 2020
			Not Rated						Pass						Special Mention						Substandard						Doubtful												Total
Commercial and agricultural:
Commercial and industrial			$	—					$	392,378					$	2,779					$	4,966					$	5,206											$	405,329
Agricultural			—						684						—						—						—												684
Commercial mortgages:
Construction			—						51,126						610						2,787						—												54,523
Commercial mortgages			—						610,687						6,732						18,755						2,238												638,412
Residential mortgages			226,242						—						—						1,742						—												227,984
Consumer loans:
Credit cards			—						—						—						—						—												—
Home equity lines and loans			80,753						—						—						1,017						—												81,770
Indirect consumer loans			121,116						—						—						604						—												121,720
Direct consumer loans			13,105						—						—						1						—												13,106
Total			$	441,216					$	1,054,875					$	10,121					$	29,872					$	7,444											$	1,543,528

			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 September 30, 2020 and December 31, 2019 (in thousands):

			September 30, 2020
															Consumer Loans
			Residential Mortgages												Home Equity Lines and Loans						Indirect Consumer Loans						Other Direct Consumer Loans
Performing			$	226,242											$	80,753					$	121,117					$	13,104
Non-Performing			1,742												1,017						604						1
			$	227,984											$	81,770					$	121,721					$	13,105

			December 31, 2019
															Consumer Loans
			Residential Mortgages												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

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- References

No definition available.

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- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

+ References

Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-URI http://asc.fasb.org/subtopic&trid=2196772

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