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LOANS AND ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2021

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):

						March 31, 2021						December 31, 2020
Commercial and agricultural:
Commercial and industrial						$	398,923					$	368,663
Agricultural						436						283
Commercial mortgages:
Construction						58,326						61,945
Commercial mortgages, other						670,628						654,663
Residential mortgages						245,231						239,401
Consumer loans:
Home equity lines and loans						74,868						78,547
Indirect consumer loans						120,881						120,538
Direct consumer loans						11,656						12,423
Total loans, net of deferred loan fees and costs						1,580,949						1,536,463
Interest receivable on loans						5,035						5,035
Total recorded investment in loans						$	1,585,984					$	1,541,498

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 March 31, 2021 and December 31, 2020, the Corporation had outstanding PPP loan balances of $186.1 million and $150.9 million, respectively, which were included in commercial and industrial loans in the table above. These loans require no allowance for loan losses as of March 31, 2021 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 March 31, 2021 and 2020 (in thousands):

			Three Months Ended March 31, 2021
Allowance for loan losses			Commercial and Agricultural						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Beginning balance			$	4,493					$	11,496					$	2,079					$	2,856					$	20,924
Charge-offs			—						—						(26)						(164)						(190)
Recoveries			296						—						—						138						434
Net recoveries (charge-offs)			296						—						(26)						(26)						244
Provision			(452)						290						62						(159)						(259)
Ending balance			$	4,337					$	11,786					$	2,115					$	2,671					$	20,909

			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)						1						—						(268)						(293)
Provision			990						1,603						169						288						3,050
Ending balance			$	11,191					$	10,473					$	1,421					$	3,150					$	26,235

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, 2021 and December 31, 2020 (in thousands):

			March 31, 2021
Allowance for loan losses:			Commercial and Agricultural						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment			$	1,430					$	107					$	—					$	42					$	1,579
Collectively evaluated for impairment			2,907						11,679						2,115						2,629						19,330
Total ending allowance balance			$	4,337					$	11,786					$	2,115					$	2,671					$	20,909

			December 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			$	1,401					$	74					$	—					$	52					$	1,527
Collectively evaluated for impairment			3,092						11,422						2,079						2,804						19,397
Total ending allowance balance			$	4,493					$	11,496					$	2,079					$	2,856					$	20,924

			March 31, 2021
Loans:			Commercial and Agricultural						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Loans individually evaluated for impairment			$	3,378					$	5,223					$	964					$	357					$	9,922
Loans collectively evaluated for  impairment			397,341						726,215						244,879						207,627						1,576,062
Total ending loans balance			$	400,719					$	731,438					$	245,843					$	207,984					$	1,585,984

			December 31, 2020
Loans:			Commercial and Agricultural						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Loans individually evaluated for impairment			$	3,400					$	5,117					$	1,271					$	801					$	10,589
Loans collectively evaluated for  impairment			366,852						714,028						238,742						211,287						1,530,909
Total ending loans balance			$	370,252					$	719,145					$	240,013					$	212,088					$	1,541,498

The following table presents loans individually evaluated for impairment recognized by class of loans as of March 31, 2021 and December 31, 2020 (in thousands):

			March 31, 2021																		December 31, 2020
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			$	1,860					$	1,860					$	—					$	1,960					$	1,963					$	—
Commercial mortgages:
Construction			175						176						—						188						189						—
Commercial mortgages, other			7,542						4,881						—						6,814						4,760						—
Residential mortgages			981						964						—						1,283						1,271						—
Consumer loans:
Home equity lines and loans			213						196						—						645						631						—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial			5,380						1,518						1,430						5,228						1,437						1,401
Commercial mortgages:
Commercial mortgages, other			256						166						107						258						168						74
Consumer loans:
Home equity lines and loans			161						161						42						170						170						52
Total			$	16,568					$	9,922					$	1,579					$	16,546					$	10,589					$	1,527

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, 2021 and 2020 (in thousands):

						Three Months Ended   March 31, 2021												Three Months Ended   March 31, 2020
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						$	1,912					$	13					$	120					$	—
Commercial mortgages:
Construction						182						2						239						2
Commercial mortgages, other						4,822						8						3,362						—
Residential mortgages						1,118						8						521						5
Consumer loans:
Home equity lines & loans						413						2						149						2
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial						1,477						2						5,930						—
Commercial mortgages:
Commercial mortgages, other						167						—						5,060						—
Consumer loans:
Home equity lines and loans						166						—						—						—
Total						$	10,257					$	35					$	15,381					$	9

(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, 2021 and December 31, 2020 (in thousands):

						Non-accrual												Loans Past Due 90 Days or More and Still Accruing
						March 31, 2021						December 31, 2020						March 31, 2021						December 31, 2020
Commercial and agricultural:
Commercial and industrial						$	2,267					$	2,167					$	3					$	2
Commercial mortgages:
Construction						51						55						—						—
Commercial mortgages, other						4,541						4,415						—						—
Residential mortgages						1,254						1,632						—						—
Consumer loans:
Home equity lines and loans						673						1,159						—						—
Indirect consumer loans						521						519						—						—
Direct consumer loans						18						5						—						—
Total						$	9,325					$	9,952					$	3					$	2

The following tables present the aging of the recorded investment in loans as of March 31, 2021 and December 31, 2020 (in thousands):

			March 31, 2021
			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			$	1,066					$	—					$	15					$	1,081											$	399,200					$	400,281
Agricultural			—						—						—						—												438						438
Commercial mortgages:
Construction			—						—						—						—												58,525						58,525
Commercial mortgages, other			1,062						174						320						1,556												671,357						672,913
Residential mortgages			449						68						382						899												244,944						245,843
Consumer loans:
Home equity lines and loans			3						—						278						281												74,800						75,081
Indirect consumer loans			700						132						240						1,072												120,125						121,197
Direct consumer loans			4						—						7						11												11,695						11,706
Total			$	3,284					$	374					$	1,242					$	4,900											$	1,581,084					$	1,585,984

			December 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			$	520					$	14					$	30					$	564											$	369,404					$	369,968
Agricultural			—						—						—						—												284						284
Commercial mortgages:
Construction			—						—						—						—												62,164						62,164
Commercial mortgages, other			1,438						3,696						308						5,442												651,539						656,981
Residential mortgages			817						406						461						1,684												238,329						240,013
Consumer loans:
Home equity lines and loans			521						41						474						1,036												77,725						78,761
Indirect consumer loans			1,268						198						252						1,718												119,135						120,853
Direct consumer loans			34						2						—						36												12,438						12,474
Total			$	4,598					$	4,357					$	1,525					$	10,480											$	1,531,018					$	1,541,498

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. At its highest point as of May 31, 2020, in conformance with Section 4013 of the CARES Act, total loan forbearances represented 15.77% of the Corporation's total loan portfolio, or $242.5 million. As of March 31, 2021, 38 loans totaling $26.3 million remained in modified status, representing 1.66% of the Corporation's total loan portfolio, of which 22 loans totaling $21.4 million had been modified more than once.

As of March 31, 2021 and December 31, 2020, the Corporation has a recorded investment in TDRs of $8.3 million and $6.7 million, respectively. There were specific reserves of $0.4 million allocated for TDRs at both March 31, 2021 and December 31, 2020. As of March 31, 2021, TDRs totaling $2.6 million were accruing interest under the modified terms and $5.7 million were on non-accrual status. As of December 31, 2020, TDRs totaling $2.8 million were accruing interest under the modified terms and $3.9 million were on non-accrual status. The Corporation has committed no additional amounts as of both March 31, 2021 and December 31, 2020, to customers with outstanding loans that are classified as TDRs.

During the three months ended March 31, 2021, the terms and conditions of two commercial mortgage loans were modified as TDRs. The modification of the terms of both of these loans included a postponement or reduction of the scheduled amortized payments for greater than a three month period. During the three month period ended March 31, 2020, no loans were modified as TDRs.

The following table presents loans by class modified as TDRs that occurred during the three month period ended March 31, 2021 (dollars in thousands):

March 31, 2021						Number of Loans						Pre-Modification Outstanding Recorded Investment						Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages, other						2						$	2,488					$	2,488
Total						2						$	2,488					$	2,488

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, 2021.

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, 2021 and 2020.

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, 2021 and December 31, 2020, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

			March 31, 2021
			Not Rated						Pass						Special Mention						Substandard						Doubtful												Total
Commercial and agricultural:
Commercial and industrial			$	—					$	390,138					$	3,232					$	5,652					$	1,259											$	400,281
Agricultural			—						438						—						—						—												438
Commercial mortgages:
Construction			—						57,131						—						1,394						—												58,525
Commercial mortgages			—						631,346						21,502						18,938						1,127												672,913
Residential mortgages			244,589						—						—						1,254						—												245,843
Consumer loans:
Home equity lines and loans			74,408						—						—						673						—												75,081
Indirect consumer loans			120,676						—						—						521						—												121,197
Direct consumer loans			11,688						—						—						18						—												11,706
Total			$	451,361					$	1,079,053					$	24,734					$	28,450					$	2,386											$	1,585,984

			December 31, 2020
			Not Rated						Pass						Special Mention						Substandard						Doubtful												Total
Commercial and agricultural:
Commercial and industrial			$	—					$	360,500					$	2,999					$	5,092					$	1,377											$	369,968
Agricultural			—						284						—						—						—												284
Commercial mortgages:
Construction			—						59,885						—						2,279						—												62,164
Commercial mortgages			—						616,090						23,631						16,128						1,132												656,981
Residential mortgages			238,381						—						—						1,632						—												240,013
Consumer loans:
Home equity lines and loans			77,602						—						—						1,159						—												78,761
Indirect consumer loans			120,334						—						—						519						—												120,853
Direct consumer loans			12,470						—						—						4						—												12,474
Total			$	448,787					$	1,036,759					$	26,630					$	26,813					$	2,509											$	1,541,498

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, 2021 and December 31, 2020 (in thousands):

			March 31, 2021
															Consumer Loans
			Residential Mortgages												Home Equity Lines and Loans						Indirect Consumer Loans						Other Direct Consumer Loans
Performing			$	244,589											$	74,408					$	120,676					$	11,688
Non-Performing			1,254												673						521						18
			$	245,843											$	75,081					$	121,197					$	11,706

			December 31, 2020
															Consumer Loans
			Residential Mortgages												Home Equity Lines and Loans						Indirect Consumer Loans						Other Direct Consumer Loans
Performing			$	238,381											$	77,602					$	120,334					$	12,470
Non-Performing			1,632												1,159						519						4
			$	240,013											$	78,761					$	120,853					$	12,474

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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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