Loans Receivable and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2023

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, 2023				December 31, 2022
Real Estate Loans:
Residential	$	316,139	19.6	%	$	298,813	20.3	%
Commercial		688,485	42.7			651,544	44.2
Agricultural		66,767	4.2			68,915	4.7
Construction		41,305	2.6			32,469	2.2
Commercial loans		205,014	12.7			187,257	12.7
Other agricultural loans		32,740	2.0			35,277	2.4
Consumer loans to individuals		260,828	16.2			200,149	13.5
Total loans		1,611,278	100.0	%		1,474,424	100.0	%
Deferred fees, net		(209)				(479)
Total loans receivable		1,611,069				1,473,945
Allowance for credit losses		(16,086)				(16,999)
Net loans receivable	$	1,594,983			$	1,456,946

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, 2023 and December 31, 2022, foreclosed real estate owned totaled $290,000 and $346,000, respectively. During the nine months ended September 30, 2023, there was one addition to the foreclosed real estate category, with a carrying value of $290,000, and three sales of properties with a carrying value of $292,000. Additionally, the company recognized a write-down on one property in the amount of $54,000 based on the realizable value of the property. As of September 30, 2023, the Company has initiated formal foreclosure proceedings on three properties classified as consumer residential mortgages with an aggregate carrying value of $203,000.

The following table shows the amount of loans in each category that were individually and collectively evaluated for credit loss:



	Real Estate Loans
									Commercial			Other	Consumer
	Residential		Commercial			Agricultural	Construction		Loans			Agricultural	Loans		Total
September 30, 2023	(In thousands)
Individually evaluated	$	575	$	2,222	$	—	$	—	$	7,071	$	—	$	668	$	10,536
Collectively evaluated		315,564		686,263		66,767		41,305		197,943		32,740		260,160		1,600,742
Total Loans	$	316,139	$	688,485	$	66,767	$	41,305	$	205,014	$	32,740	$	260,828	$	1,611,278

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		Total
	(In thousands)
December 31, 2022
Individually evaluated for impairment	$	-	$	402	$	—	$	-	$	61	$	—	$	-	$	463
Loans acquired with deteriorated credit quality		567		2,049		2,034		-		1,640		—		-		6,290
Collectively evaluated for impairment		298,246		649,093		66,881		32,469		185,556		35,277		200,149		1,467,671
Total Loans	$	298,813	$	651,544	$	68,915	$	32,469	$	187,257	$	35,277	$	200,149	$	1,474,424

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		Allowance
December 31, 2022				(in thousands)
With no related allowance recorded:
Real Estate Loans:
Commercial	$	402	$	402	$	—
Commercial Loans		11		11		—
Subtotal		413		413		—

With an allowance recorded:
Commercial Loans		50		50		50
Subtotal		50		50		50
Total:
Real Estate Loans:
Commercial		402		402		—
Commercial Loans		61		61		50
Total Impaired Loans	$	463	$	463	$	50

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the three-month period ended September 30, 2022 (in thousands):



		Average Recorded		Interest Income
		Investment		Recognized
	2022		2022
Real Estate Loans:
Commercial	$	—	$	18
Commercial Loans		13		—
Total	$	13	$	18

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the nine-month period ended September 30, 2022 (in thousands):




	Average Recorded			Interest Income
	Investment			Recognized
		2022			2022
Real Estate Loans:
Commercial		$	825		$	55
Commercial Loans			14			3
Total		$	839		$	58

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, in conjunction with a third-party consultant, also annually reviews all criticized credits and relationships of $1,500,000 and over to re-affirm risk ratings.

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, 2023 and December 31, 2022 (in thousands):



	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing			Non-accrual	Total Past Due and Non-Accrual		Total Loans
September 30, 2023
Real Estate loans
Residential	$	314,588	$	957	$	19	$	-	$	575	$	1,551	$	316,139
Commercial		685,293		970		-		-		2,222		3,192		688,485
Agricultural		66,767		-		-		-		-		-		66,767
Construction		41,285		20		-		-		-		20		41,305
Commercial loans		197,498		445		-		-		7,071		7,516		205,014
Other agricultural loans		32,740		-				-		-		-		32,740
Consumer loans		259,489		516		155		-		668		1,339		260,828
Total	$	1,597,660	$	2,908	$	174	$	-	$	10,536	$	13,618	$	1,611,278



	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing			Non-accrual	Total Past Due and Non-Accrual			Purchased Credit Impaired Loans	Total Loans
December 31, 2022
Real Estate loans
Residential	$	297,350	$	187	$	223	$	-	$	486	$	896	$	567	$	298,813
Commercial		648,688		405		-		-		402		807		2,049		651,544
Agricultural		66,751		130		-				-		130		2,034		68,915
Construction		32,469		-		-		-		-		-		-		32,469
Commercial loans		185,485		71		-		-		61		132		1,640		187,257
Other agricultural loans		35,277		-		-				-		-		-		35,277
Consumer loans		198,893		853		239		-		164		1,256		-		200,149
Total	$	1,464,913	$	1,646	$	462	$	-	$	1,113	$	3,221	$	6,290	$	1,474,424

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 credit losses. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the allowance.

The following table presents the allowance for credit losses by the classes of the loan portfolio:


(In thousands)	Residential Real Estate		Commercial Real Estate			Agricultural		Construction	Commercial			Other Agricultural	Consumer		Total
Beginning balance, December 31, 2022	$	2,833	$	8,293	$	259	$	409	$	2,445	$	124	$	2,636	$	16,999
Impact of adopting ASC 326		(1,545)		5,527		(200)		388		(1,156)		3		(551)		2,466
Charge Offs		(6)		(154)		-		-		(2,147)		-		(692)		(2,999)
Recoveries		6		12		-		-		20		-		64		102
(Release of) Provision for credit losses		45		(3,689)		(26)		45		1,848		(44)		1,339		(482)
Ending balance, September 30, 2023	$	1,333	$	9,989	$	33	$	842	$	1,010	$	83	$	2,796	$	16,086
Ending balance individually evaluated	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance collectively evaluated	$	1,333	$	9,989	$	33	$	842	$	1,010	$	83	$	2,796	$	16,086



(In thousands)	Residential Real Estate		Commercial Real Estate			Agricultural		Construction	Commercial			Other Agricultural	Consumer		Total
Beginning balance, December 31, 2021	$	2,175	$	10,878	$	-	$	133	$	1,490	$	-	$	1,766	$	16,442
Charge Offs		(120)		(1)		-		-		(16)		-		(249)		(386)
Recoveries		122		80		-		-		36		-		37		275
Provision for loan losses		736		(2,354)		220		186		910		123		779		600
Ending balance, September 30, 2022	$	2,913	$	8,603	$	220	$	319	$	2,420	$	123	$	2,333	$	16,931
Ending balance individually evaluated ‎for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance collectively evaluated ‎for impairment	$	2,913	$	8,603	$	220	$	319	$	2,420	$	123	$	2,333	$	16,931


(In thousands)	Residential Real Estate		Commercial Real Estate			Farmland		Construction	Commercial			Other Agricultural	Consumer		Total
Beginning balance, June 30, 2023	$	1,264	$	11,253	$	55	$	819	$	1,281	$	86	$	2,725	$	17,483
Charge Offs		-		-		-		-		(2,000)		-		(384)		(2,384)
Recoveries		-		3		-		-		14		-		18		35
(Release of) Provision for credit losses		69		(1,267)		(22)		23		1,715		(3)		437		952
Ending balance, September 30, 2023	$	1,333	$	9,989	$	33	$	842	$	1,010	$	83	$	2,796	$	16,086



(In thousands)	Residential Real Estate		Commercial Real Estate			Farmland		Construction	Commercial			Other Agricultural	Consumer		Total
Beginning balance, June 30, 2022	$	2,740	$	9,155	$	218	$	242	$	2,504	$	112	$	2,046	$	17,017
Charge Offs		-		(1)		-		-		(1)		-		(115)		(117)
Recoveries		4		-		-		-		13		-		14		31
Provision for loan losses		169		(551)		2		77		(96)		11		388		-
Ending balance, September 30, 2022	$	2,913	$	8,603	$	220	$	319	$	2,420	$	123	$	2,333	$	16,931

During the nine months ended September 30, 2023, the Company recorded a release of provision for credit losses totaling $482,000 despite total charge-offs of $2,999,000. Factors impacting the release include a $2,466,000 increase in the allowance for credit losses due to the adoption of ASC 326, and changes in the cumulative loss rates applied to the respective loan pools due to loss activity being added or subtracted with the passage of time. Variances in Qualitative Factors and Economic Factors also impacted the allowance for credit losses.

The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience. The Company chose to apply qualitative factors based on “quantitative metrics” which link the quantifiable metrics to historical changes in the qualitative factor categories. The Company also chose to apply economic projections to the model. A select group of economic indicators was utilized which was then correlated to the historical loss experience of the Company and its peers. Based on the correlation results, the economic adjustments are then weighted for relevancy and applied to the individual loan pools.

The following table presents the carrying value of loans on nonaccrual status and loans past due over 90 days still accruing interest (in thousands):


		Nonaccrual		Nonaccrual				Loans Past Due
		with no		with		Total		Over 90 Days		Total
	ACL		ACL		Nonaccrual		Still Accruing		Nonperforming
September 30, 2023
Real Estate loans
Residential	$	575	$	-	$	575	$	-	$	575
Commercial		2,222		-		2,222		-		2,222
Agricultural		-		-		-		-		-
Construction		-		-		-		-		-
Commercial loans		7,071		-		7,071		-		7,071
Other agricultural loans		-		-		-		-		-
Consumer loans		668		-		668		-		668
Total	$	10,536	$	-	$	10,536	$	-	$	10,536

Based on the most recent analysis performed, the following table presents the recorded investment in non-homogenous pools by internal risk rating systems (in thousands):


														Revolving		Revolving
	Term Loans Amortized Costs Basis by Origination Year													Loans		Loans
														Amortized		Converted
September 30, 2023		2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Commercial real estate
Risk Rating
Pass	$	63,900	$	130,901	$	115,171	$	77,750	$	73,789	$	197,656	$	16,115	$	-	$	675,282
Special Mention		1,000		414		243		1,341		-		6,184		-		-		9,182
Substandard		-		284		-		1,453		-		2,284		-		-		4,021
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	64,900	$	131,599	$	115,414	$	80,544	$	73,789	$	206,124	$	16,115	$	-	$	688,485

Commercial real estate
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	112	$	42	$	-	$	-	$	154

Real Estate - Agriculture
Risk Rating
Pass	$	2,218	$	12,581	$	5,506	$	8,839	$	8,361	$	26,291	$	741	$	-	$	64,537
Special Mention		-		-		-		-		-		493		-		-		493

Substandard		-		507		-		1,041		-		189		-		-		1,737
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	2,218	$	13,088	$	5,506	$	9,880	$	8,361	$	26,973	$	741	$	-	$	66,767

Real Estate - Agriculture
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial loans
Risk Rating
Pass	$	53,035	$	45,809	$	25,867	$	11,173	$	11,646	$	17,491	$	28,742	$	-	$	193,763
Special Mention		577		1,471		281		159		35		197		1,114		-		3,834
Substandard		-		-		405		3,463		-		49		3,500		-		7,417
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	53,612	$	47,280	$	26,553	$	14,795	$	11,681	$	17,737	$	33,356	$	-	$	205,014

Commercial loans
Current period gross charge-offs	$	-	$	32	$	24	$	2,050	$	-	$	41	$	-	$	-	$	2,147

Other agricultural loans
Risk Rating
Pass	$	2,071	$	5,510	$	3,424	$	3,023	$	2,777	$	4,532	$	10,848	$	-	$	32,185
Special Mention		-		-		3		185		93		-		155		-		436
Substandard		-		-		-		-		119		-		-		-		119
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	2,071	$	5,510	$	3,427	$	3,208	$	2,989	$	4,532	$	11,003	$	-	$	32,740

Other agricultural loans
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total
Risk Rating
Pass	$	121,224	$	194,801	$	149,968	$	100,785	$	96,573	$	245,970	$	56,446	$	-	$	965,767
Special Mention		1,577		1,885		527		1,685		128		6,874		1,269		-		13,945
Substandard		-		791		405		5,957		119		2,522		3,500		-		13,294
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	122,801	$	197,477	$	150,900	$	108,427	$	96,820	$	255,366	$	61,215	$	-	$	993,006

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 December 31, 2022 (in thousands):



			Special				Doubtful
	Pass		Mention		Substandard		or Loss		Total
December 31, 2022
Commercial real estate loans	$	646,775	$	1,079	$	3,690	$	—	$	651,544
Real estate - agricultural		66,444		368		2,103		—		68,915
Commercial loans		186,966		184		107		—		187,257
Other agricultural loans		34,071		556		650		—		35,277
Total	$	934,256	$	2,187	$	6,550	$	—	$	942,993

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due over 90 days and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed monthly. The following table presents the carrying value of residential and consumer loans based on payment activity (in thousands):


														Revolving		Revolving
	Term Loans Amortized Costs Basis by Origination Year													Loans		Loans
														Amortized		Converted
September 30, 2023		2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Residential real estate
Payment Performance
Performing	$	21,935	$	60,944	$	58,600	$	36,483	$	16,836	$	91,136	$	29,630	$	-	$	315,564
Nonperforming		-		-		-		-		57		450		68		-		575
Total	$	21,935	$	60,944	$	58,600	$	36,483	$	16,893	$	91,586	$	29,698	$	-	$	316,139

Residential real estate
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	6	$	-	$	-	$	6

Construction
Payment Performance
Performing	$	11,877	$	18,649	$	6,221	$	1,612	$	1,870	$	769	$	307	$	-	$	41,305
Nonperforming		-		-		-		-		-		-		-		-		-
Total	$	11,877	$	18,649	$	6,221	$	1,612	$	1,870	$	769	$	307	$	-	$	41,305

Construction
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer loans to individuals
Payment Performance
Performing	$	109,441	$	83,098	$	27,191	$	16,110	$	11,980	$	11,127	$	1,213	$	-	$	260,160
Nonperforming		28		499		67		31		43		-		-		-		668
Total	$	109,469	$	83,597	$	27,258	$	16,141	$	12,023	$	11,127	$	1,213	$	-	$	260,828

Consumer loans to individuals
Current period gross charge-offs	$	7	$	462	$	132	$	29	$	37	$	11	$	14	$	-	$	692

Total
Payment Performance
Performing	$	143,253	$	162,691	$	92,012	$	54,205	$	30,686	$	103,032	$	31,150	$	-	$	617,029
Nonperforming		28		499		67		31		100		450		68		-		1,243
Total	$	143,281	$	163,190	$	92,079	$	54,236	$	30,786	$	103,482	$	31,218	$	-	$	618,272

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 December 31, 2022 (in thousands):



	Performing		Nonperforming		Total
December 31, 2022
Residential real estate loans	$	298,327	$	486	$	298,813
Construction		32,469		—		32,469
Consumer loans to individuals		199,985		164		200,149
Total	$	530,781	$	650	$	531,431

Occasionally, the Bank modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Bank provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. During the nine months ended September 30, 2023, there were no modifications made to borrowers experiencing financial difficulty.

The Company’s primary business activity as of September 30 2023 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, 2023, the Company considered its concentration of credit risk to be acceptable. The highest concentrations are in commercial rentals with $146.4 million of loans outstanding, or 9.1% of total loans outstanding, and residential rentals with loans outstanding of $121.9 million, or 7.6% of loans outstanding. For the nine months ended September 30, 2023, the Company recognized charge offs of $6,000 on commercial rentals and $44,000 on residential rentals.