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Loans Receivable and Allowance for Loan Losses | 9 Months Ended
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Sep. 30, 2021
Loans Receivable and Allowance for Loan Losses [Abstract] |
Loans Receivable and Allowance for Loan Losses | 8. Loans Receivable and Allowance for Loan Losses Set forth below is selected data relating to the composition of the loan portfolio at the dates indicated (dollars in thousands): September 30, 2021 December 31, 2020 Real Estate Loans: Residential$ 265,778 19.4% $ 263,127 18.6%Commercial 612,794 44.6 579,104 41.0 Agricultural 64,018 4.7 66,334 4.7 Construction 23,892 1.7 21,005 1.5 Commercial loans 216,692 15.8 283,741 20.1 Other agricultural loans 40,257 2.9 40,929 2.9 Consumer loans to individuals 149,343 10.9 158,049 11.2 Total loans 1,372,774 100.0% 1,412,289 100.0%Deferred fees, net (1,772) (1,557) Total loans receivable 1,371,002 1,410,732 Allowance for loan losses (16,103) (13,150) Net loans receivable$ 1,354,899 $ 1,397,582 During 2020 and 2021 the Company participated in the Paycheck Protection Program (“PPP”), administered directly by the United States Small Business Administration (“SBA”). The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. As of September 30, 2021 and December 31, 2020, the Company had outstanding principal balances of $35.8 million and $95.0 million, respectively, in PPP loans. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. As of September 30, 2021, $116.4 million of PPP loans have been forgiven. PPP loans are included in the commercial loan category. In accordance with the SBA terms and conditions on these PPP loans, the Company received approximately $5.2 million in fees associated with the processing of these loans. Upon funding of the loan, these fees were deferred and will be amortized over the life of the loan as an adjustment to yield in accordance with FASB ASC 310-20-25-2. The following table presents information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands): September 30, 2021 December 31, 2020Outstanding Balance$ 13,332 $ 15,570Carrying Amount$ 8,481 $ 9,281 As a result of the acquisition of UpState New York Bancorp, Inc. (“UpState”), the Company added $15,410,000 of loans that were accounted for in accordance with ASC 310-30. Based on a review of the loans acquired by the Company’s senior lending management, which included an analysis of credit deterioration of the loans since origination, the Company recorded a specific credit fair value adjustment of $6,937,000. For loans that were acquired with specific evidence of deterioration in credit quality, loan losses will be accounted for through a reduction of the specific reserve and will not impact the allowance for loan losses until actual losses exceed the allotted reserves. For loans acquired without a deterioration of credit quality, losses incurred will result in adjustments to the allowance for loan losses through the allowance for loan loss adequacy calculation. Changes in the accretable yield for purchased credit impaired loans for the nine-months ended September 30, 2021 and 2020, were as follows (in thousands): 2021 2020Balance at beginning of period $ 1,365 $ 97Additions — 1,724Accretion (523) (179)Reclassification and other 993 (96)Balance at end of period$ 1,835 $ 1,546 Loans acquired with credit deterioration of $15,410,000 and accounted for in accordance with ASC 310-30 were individually evaluated to estimate credit losses and a net recovery amount for each loan. The net cash flows for each loan were then discounted to present value using a risk-adjusted market rate. The table below presents the components of the purchase accounting adjustments: (In Thousands)July 7, 2020Contractually required principal and interest$ 15,410Non-accretable discount (5,213)Expected cash flows 10,197Accretable discount (1,724)Estimated fair value$ 8,473 The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified losses based on a review of such information. A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. We do not aggregate such loans for evaluation purposes. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring. Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in foreclosed real estate owned on the Consolidated Balance Sheets. As of September 30, 2021 and December 31, 2020, foreclosed real estate owned totaled $1,876,000 and $965,000, respectively. During the nine months ended September 30, 2021, the Company transferred one property with a carrying value of $1,032,000 to the foreclosed real estate category. The Company disposed of a parcel of the one property that was previously transferred to foreclosed real estate owned with a carrying value of $121,000 through the sale of the property. As of September 30, 2021, the Company has initiated formal foreclosure proceedings on four properties classified as consumer residential mortgages with an aggregate carrying value of $492,000. The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated: Real Estate Loans Commercial Other Consumer Residential Commercial Agricultural Construction Loans Agricultural Loans TotalSeptember 30, 2021(In thousands) Individually evaluated for impairment$ — $ 1,603 $ 858 $ — $ 18 $ 126 $ — $ 2,605Loans acquired with deteriorated credit quality 787 3,405 1,959 — 128 2,202 — 8,481 Collectively evaluated for impairment 264,991 606,927 62,059 23,892 216,421 38,055 149,343 1,361,688Total Loans$ 265,778 $ 611,935 $ 64,876 $ 23,892 $ 216,567 $ 40,383 $ 149,343 $ 1,372,774 Real Estate Loans Commercial Other Consumer Residential Commercial Agricultural Construction Loans Agricultural Loans Total (In thousands)December 31, 2020 Individually evaluated for impairment$ - $ 2,582 $ — $- $ 80 $ — $- $ 2,662Loans acquired with deteriorated credit quality 591 3,995 2,043 194 246 2,212 - 9,281 Collectively evaluated for impairment 262,536 572,527 64,291 20,811 283,415 38,717 158,049 1,400,346Total Loans$ 263,127 $ 579,104 $ 66,334 $ 21,005 $ 283,741 $ 40,929 $ 158,049 $ 1,412,289 The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable. Unpaid Recorded Principal Associated Investment Balance AllowanceSeptember 30, 2021 (in thousands) With no related allowance recorded: Real Estate Loans: Commercial$ 83 $ 83 $ — Agriculture 858 858 —Commercial Loans 18 18 —Other agricultural loans 126 126 —Subtotal$ 1,085 $ 1,085 $ —With an allowance recorded: Real Estate - Commercial$ 1,520 $ 1,520 $ 275Subtotal$ 1,520 $ 1,520 $ 275Total: Real Estate Loans: Commercial$ 1,603 $ 1,603 $ 275 Agriculture 858 858 —Commercial Loans 18 18 —Other agricultural loans 126 126 —Total Impaired Loans$ 2,605 $ 2,605 $ 275 Unpaid Recorded Principal Associated Investment Balance AllowanceDecember 31, 2020 (in thousands) With no related allowance recorded: Real Estate Loans: Commercial$ 2,582 $ 3,234 $ —Commercial Loans 80 80 —Subtotal 2,662 3,314 —Total: Real Estate Loans: Commercial 2,582 3,234 —Commercial Loans 80 80 —Total Impaired Loans$ 2,662 $ 3,314 $ — The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the three-month periods ended September 30, 2021 and 2020, respectively (in thousands): Average Recorded Interest Income Investment Recognized 2021 2020 2021 2020Real Estate Loans: Commercial$ 1,405 $ 1,874 $ 55 $ 2 Agriculture 858 — — —Commercial Loans 19 — — —Other agricultural loans 125 — — —Total $ 2,407 $ 1,874 $ 55 $ 2 The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the nine-month periods ended September 30, 2021 and 2020, respectively (in thousands): Average Recorded Interest Income Investment Recognized 2021 2020 2021 2020Real Estate Loans: Commercial$ 1,560 $ 1,986 $ 56 $ 6 Agriculture 858 — — —Commercial Loans 19 — — —Other agricultural loans 114 — — —Total $ 2,551 $ 1,986 $ 56 $ 6 Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources. As of September 30, 2021 and December 31, 2020, troubled debt restructured loans totaled $0 and $75,000, respectively, with no specific reserve. For the nine-month period ended September 30, 2021 and 2020, there were no new loans identified as troubled debt restructurings. During 2020, the Company recognized a charge-off $20,000 on a loan that was previously identified as a troubled debt restructuring. On April 7, 2020, federal banking regulators issued a revised interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered troubled debt restructurings (“TDRs”). Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first four categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as nonperformance, repossession, or death occurs to raise awareness of a possible credit event. The Company’s Loan Review Department is responsible for the timely and accurate risk rating of the loans on an ongoing basis. Every credit which must be approved by Loan Committee or the Board of Directors is assigned a risk rating at time of consideration. Loan Review also annually reviews relationships of $1,500,000 and over to assign or re-affirm risk ratings. Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance. The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of September 30, 2021 and December 31, 2020 (in thousands): Special Doubtful Pass Mention Substandard or Loss TotalSeptember 30, 2021 Commercial real estate loans$ 602,548 $ 5,596 $ 4,375 $ 275 $ 612,794Real estate - agricultural 61,387 — 2,631 — 64,018Commercial loans 216,374 208 110 — 216,692Other agricultural loans 37,424 212 2,621 — 40,257Total$ 917,733 $ 6,016 $ 9,737 $ 275 $ 933,761 Special Doubtful Pass Mention Substandard or Loss TotalDecember 31, 2020 Commercial real estate loans$ 566,418 $ 6,346 $ 6,340 $ — $ 579,104Real estate - agricultural 58,322 5,111 2,901 — 66,334Commercial loans 282,915 437 389 — 283,741Other agricultural loans 35,772 2,786 2,371 — 40,929Total$ 943,427 $ 14,680 $ 12,001 $ — $ 970,108 For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. The following table presents the recorded investment in the loan classes based on payment activity as of September 30, 2021 and December 31, 2020 (in thousands): Performing Nonperforming TotalSeptember 30, 2021 Residential real estate loans$ 265,256 $ 522 $ 265,778Construction 23,892 — 23,892Consumer loans to individuals 149,243 100 149,343Total$ 438,391 $ 622 $ 439,013 Performing Nonperforming TotalDecember 31, 2020 Residential real estate loans$ 262,556 $ 571 $ 263,127Construction 21,005 — 21,005Consumer loans to individuals 157,864 185 158,049Total$ 441,425 $ 756 $ 442,181 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 presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of September 30, 2021 and December 31, 2020 (in thousands): Current 31-60 Days Past Due 61-90 Days Past Due Greater than 90 Days Past Due and still accruing Nonaccrual Total Past Due and Non-Accrual Purchased Credit-Impaired Total LoansSeptember 30, 2021 Real Estate loans Residential$ 264,251 $ 186 $ 32 $ - $ 522 $ 740 $ 787 $ 265,778Commercial 609,048 244 58 - 39 341 3,405 612,794Agricultural 61,201 - - - 858 858 1,959 64,018Construction 23,831 61 - - - 61 - 23,892Commercial loans 215,349 112 26 - 1,077 1,215 128 216,692Other agricultural loans 37,929 - - 126 126 2,202 40,257Consumer loans 148,858 310 75 - 100 485 - 149,343Total$ 1,360,467 $ 913 $ 191 $ - $ 2,722 $ 3,826 $ 8,481 $ 1,372,774 Current 31-60 Days Past Due 61-90 Days Past Due Greater than 90 Days Past Due and still accruing Nonaccrual Total Past Due and Non-Accrual Purchased Credit-Impaired Total LoansDecember 31, 2020 Real Estate loans Residential$ 261,406 $ 355 $ 204 $ - $ 571 $ 1,130 $ 591 $ 263,127Commercial 573,376 59 - - 1,674 1,733 3,995 579,104Agricultural 63,615 - - 676 676 2,043 66,334Construction 20,811 - - - - - 194 21,005Commercial loans 282,374 1,009 90 - 22 1,121 246 283,741Other agricultural loans 38,454 - - 263 263 2,212 40,929Consumer loans 157,538 233 93 - 185 511 - 158,049Total$ 1,397,574 $ 1,656 $ 387 $ - $ 3,391 $ 5,434 $ 9,281 $ 1,412,289 Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the allowance for loan losses. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the allowance. As of September 30, 2021, the allocation of the allowance pertaining to each major category of loans is higher than the allocation as of December 31, 2020. This increase is due primarily to an increase in the qualitative factors related to lending management and external factors. As of September 30, 2021, the Company has also continued to incorporate qualitative factors related to the pandemic to capture some of the risk associated with higher-risk industries and to recognize risk related to loans that have been granted deferral of payments due to COVID-19. At September 30, 2021, the allowance for loan losses includes $2.1 million of COVID related factors. The 2021 allowance for loan losses excludes growth in Paycheck Protection Program loans which are fully guaranteed by the Small Business Association as well as loans acquired from UpState which were recorded at fair value. The following table presents the allowance for loan losses by the classes of the loan portfolio: (In thousands)Residential Real Estate Commercial Real Estate Construction Commercial Consumer TotalBeginning balance, December 31, 2020$ 1,960 $ 8,004 $ 150 $ 1,360 $ 1,676 $ 13,150Charge Offs (5) (452) — (174) (368) (999)Recoveries 64 15 — 33 90 202Provision for loan losses 424 2,324 13 386 603 3,750Ending balance, September 30, 2021$ 2,443 $ 9,891 $ 163 $ 1,605 $ 2,001 $ 16,103Ending balance individually evaluated‎for impairment$ — $ 275 $ — $ — $ — $ 275Ending balance collectively evaluated‎for impairment$ 2,443 $ 9,616 $ 163 $ 1,605 $ 2,001 $ 15,828 (In thousands)Residential Real Estate Commercial Real Estate Construction Commercial Consumer TotalBeginning balance, June 30, 2021$ 2,233 $ 9,580 $ 137 $ 1,503 $ 1,887 $ 15,340Charge Offs - (13) - - (107) (120)Recoveries 59 5 - 9 60 133Provision for loan losses 151 319 26 93 161 750Ending balance, September 30, 2021$ 2,443 $ 9,891 $ 163 $ 1,605 $ 2,001 $ 16,103 (In thousands)Residential Real Estate Commercial Real Estate Construction Commercial Consumer TotalBeginning balance, December 31, 2019$ 1,552 $ 4,687 $ 95 $ 949 $ 1,226 $ 8,509Charge Offs (41) (433) — (18) (275) (767)Recoveries 5 10 — 36 31 82Provision for loan losses 162 2,904 30 242 512 3,850Ending balance, September 30, 2020$ 1,678 $ 7,168 $ 125 $ 1,209 $ 1,494 $ 11,674Ending balance individually evaluated‎for impairment$ — $ — $ — $ — $ — $ —Ending balance collectively evaluated‎for impairment$ 1,678 $ 7,168 $ 125 $ 1,209 $ 1,494 $ 11,674 (In thousands)Residential Real Estate Commercial Real Estate Construction Commercial Consumer TotalBeginning balance, June 30, 2020$ 1,652 $ 6,079 $ 86 $ 1,076 $ 1,419 $ 10,312Charge Offs (40) (400) — — (83) (523)Recoveries 2 4 — 18 11 35Provision for loan losses 64 1,485 39 115 147 1,850Ending balance, September 30, 2020$ 1,678 $ 7,168 $ 125 $ 1,209 $ 1,494 $ 11,674 The Company’s primary business activity as of September 30, 2021 was with customers located in northeastern Pennsylvania and the New York counties of Delaware, Sullivan, Ontario, Otsego and Yates. Accordingly, the Company has extended credit primarily to commercial entities and individuals in this area whose ability to repay their loans is influenced by the region’s economy. As of September 30, 2021, the Company considered its concentration of credit risk to be acceptable. The highest concentrations are in commercial rentals with $133.7 million of loans outstanding, or 9.7% of total loans outstanding, and residential rentals with loans outstanding of $116.5 million, or 8.5% of loans outstanding. During 2021, the Company did not recognize any charge offs on loans in the named concentrations.

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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 + Details
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