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Loans
 9 Months Ended
Sep. 30, 2023
Loans and Leases Receivable Disclosure [Abstract]  
Loans Loans
Management segments the Banks' loan portfolio to a level that enables risk and performance monitoring according to similar risk characteristics.  Loans are segmented based on the underlying collateral characteristics.  Categories include commercial, financial, and agricultural, real estate, and installment loans.  Real estate loans are further segmented into three categories: residential, commercial, and construction, while installment loans are classified as either consumer automobile loans or other installment loans.

The following table presents the related aging categories of loans, by class, as of September 30, 2023 and December 31, 2022:
 September 30, 2023
 Past DuePast Due 90
 30 To 89Past Due 90Days Or More
(In Thousands)DaysDays Or MoreCurrent& Still AccruingTotal
Commercial, financial, and agricultural$255 $33 $211,185 $8 $211,473 
Real estate mortgage: 
Residential5,013 1,151 767,618 1,434 773,782 
Commercial775 92 524,799 59 525,666 
Construction472 32 55,329 — 55,833 
Consumer automobile loans1,121 144 238,503 141 239,768 
Other consumer installment loans157 4 10,660 36 10,821 
 $7,793 $1,456 $1,808,094 $1,678 $1,817,343 
Net deferred loan fees and discounts 1,118 
Allowance for credit losses (12,890)
Loans, net $1,805,571 
 December 31, 2022
 Past DuePast Due 90  
 30 To 89Days Or MoreNon- 
(In Thousands)Days& Still AccruingAccrualCurrentTotal
Commercial, financial, and agricultural$94 $— $432 $189,935 $190,461 
Real estate mortgage:     
Residential5,472 1,120 524 701,093 708,209 
Commercial2,564 60 2,659 495,349 500,632 
Construction511 — — 42,797 43,308 
Consumer automobile loans2,089 80 — 183,943 186,112 
Other consumer installment loans152 15 — 10,194 10,361 
 $10,882 $1,275 $3,615 $1,623,311 1,639,083 
Net deferred loan fees and discounts   648 
Allowance for loan losses   (15,637)
Loans, net   $1,624,094 

The Allowance for Credit Losses ("ACL") related to loans consists of loans evaluated collectively and individually for expected credit losses. The ACL related to loans represents an estimate of expected credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to net loans. The ACL for off balance sheet credit exposure includes estimated losses on unfunded loan commitments, letters of credit and other off balance sheet credit exposures and is recorded in other liabilities. The total ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.

The following table presents the components of the ACL as of September 30, 2023:
September 30,
(In Thousands)2023
ACL - loans$12,890 
ACL - off balance sheet credit exposure1,240 
Total ACL$14,130 
 
Non-Accrual Loans
 September 30, 2023December 31, 2022
 Non-accrual Loans
(In Thousands)With a Related ACLWithout a Related ACLTotalTotal Non-accrual loans
Commercial, financial, and agricultural$— $543 $543 $432 
Real estate mortgage:
Residential24 265 289 524 
Commercial947 226 1,173 2,659 
Construction— — — — 
Consumer automobile— — — — 
Other consumer installment loans— — — — 
$971 $1,034 $2,005 $3,615 

Total interest income recorded on non-accrual loans at September 30, 2023 totaled $104,000.
The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of December 31, 2022:
 December 31, 2022
 RecordedUnpaid PrincipalRelated
(In Thousands)InvestmentBalanceAllowance
With no related allowance recorded:  
Commercial, financial, and agricultural$295 $295 $— 
Real estate mortgage:   
Residential3,388 3,388 — 
Commercial2,588 2,588 — 
Construction— — — 
Consumer automobile loans— — — 
Installment loans to individuals— — — 
 6,271 6,271 — 
With an allowance recorded:   
Commercial, financial, and agricultural403 403 4 
Real estate mortgage:   
Residential933 933 111 
Commercial3,607 3,607 827 
Construction— — — 
Consumer automobile loans— — — 
Installment loans to individuals19 — 19 
 4,962 4,943 961 
Total:   
Commercial, financial, and agricultural698 698 4 
Real estate mortgage:   
Residential4,321 4,321 111 
Commercial6,195 6,195 827 
Construction— — — 
Consumer automobile loans— — — 
Installment loans to individuals19 — 19 
 $11,233 $11,214 $961 


The following table presents outstanding loan balances of collateral-dependent loans by class as of September 30, 2023:

(In Thousands)Real estateUnsecured*Total
Real estate mortgage:
Residential$238 $— $238 
Commercial92 332 424 
Total$330 $332 $662 
* Loan considered unsecured due to lien position on property
The following table presents the average recorded investment in impaired loans and related interest income recognized for the three and nine months ended September 30, 2022:
 Three Months Ended September 30,
 2022
(In Thousands)Average
Investment in
Impaired Loans		Interest Income
Recognized on an
Accrual Basis on
Impaired Loans		Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural$711 $5 $— 
Real estate mortgage:   
Residential4,586 47 — 
Commercial7,227 50 — 
Construction— — — 
Consumer automobile7 — — 
Other consumer installment loans10 — — 
 $12,541 $102 $— 
 Nine Months Ended September 30,
 2022
(In Thousands)Average
Investment in
Impaired Loans		Interest Income
Recognized on an
Accrual Basis on
Impaired Loans		Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural$782 $15 $— 
Real estate mortgage:   
Residential4,765 141 — 
Commercial7,492 151 — 
Construction42 1 — 
Consumer automobile3 1 — 
Other consumer installment loans15 — — 
$13,099 $309 $— 

Loan Modifications

On January 1, 2023, the Corporation adopted ASU 2022-02. Loan modifications reported below do not include modifications with insignificant payment delays. ASU 2022-02 lists the following factors when considering if the loan modification has insignificant payment delays: (1) the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value of the debt and will result in an insignificant shortfall in the contractual amount due, and (2) the delay in timing of the restructured payment period is insignificant relative to the frequency of payments due under the debt, the debt’s original contractual maturity or the debt’s original expected duration.

The ACL incorporates an estimate of lifetime expected credit losses and is recorded upon asset origination or acquisition. The starting point for the estimate of the ACL is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Corporation uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

There were no loan modifications completed during the three and nine months ended September 30, 2023.

There were no loan modifications considered to be TDRs completed during the three and nine months ended September 30, 2022.
There were no loan modifications made during the twelve months prior to September 30, 2023 that defaulted during the nine months ended September 30, 2023. There were no loan modifications considered to be a TDR made during the twelve months previous to September 30, 2022 that defaulted during the nine months ended September 30, 2022.

Loans considered modifications amounted to $5,233,000 and $7,468,000 as of September 30, 2023 and December 31, 2022, respectively.

The amount of foreclosed residential real estate held at September 30, 2023 and December 31, 2022, totaled $588,000 and $950,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 2023 and December 31, 2022, totaled $328,000 and $890,000, respectively.

Internal Credit Ratings

Management uses a ten point internal credit rating system to monitor the credit quality of the overall loan portfolio. The first six 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 evaluated for substandard classification.  Loans in the doubtful category exhibit the same weaknesses found in the substandard loans; however, the weaknesses are more pronounced.  Such loans are static and collection in full is improbable.  However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.  Loans classified as loss are considered uncollectible and charge-off is imminent.

To help ensure that credit ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Banks have a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  An external semi-annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. The 2023 loan review will evaluate 55% of the Banks' average outstanding commercial portfolio which can consist of outstanding loans, commercial real estate mortgages and outstanding commitments. Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a quarterly basis.
The following table presents the credit quality categories identified above as of September 30, 2023 and December 31, 2022:
September 30, 2023
(In Thousands)20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial, financial, and agricultural
Pass$34,288 $53,560 $42,363 $33,239 $9,224 $6,756 $29,212 $114 $208,756 
Special Mention— 201 42 — — 168 223 — 634 
Substandard or Lower— — — 85 — 755 490 753 2,083 
$34,288 $53,761 $42,405 $33,324 $9,224 $7,679 $29,925 $867 $211,473 
 
Current period gross write offs$— $— $— $— $— $— $— $— $— 
Real estate mortgage:
Residential
Pass$117,468 $218,678 $120,137 $70,364 $45,930 $17,038 $51,814 $129,802 $771,231 
Special Mention— 409 274 — — — — — 683 
Substandard or Lower— — — — — 1,798 — 70 1,868 
$117,468 $219,087 $120,411 $70,364 $45,930 $18,836 $51,814 $129,872 $773,782 
Current period gross write offs$— $— $— $— $— $9 $72 $— $81 
Commercial
Pass$43,594 $105,217 $134,960 $50,535 $25,913 $147,471 $10,827 $691 $519,208 
Special Mention— — 1,065 — — 48 — — 1,113 
Substandard or Lower— — — — 63 5,282 — — 5,345 
$43,594 $105,217 $136,025 $50,535 $25,976 $152,801 $10,827 $691 $525,666 
Current period gross write offs$59 $— $— $— $— $3 $— $— $62 
Construction
Pass$21,093 $13,072 $15,045 $1,417 $402 $4,452 $261 $— $55,742 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — 91 — — 91
$21,093 $13,072 $15,045 $1,417 $402 $4,543 $261 $— $55,833 
Current period gross write offs$— $— $— $— $— $— $— $— $— 
Consumer Automobile
Pass$101,214 $85,276 $21,969 $17,486 $8,716 $5,107 $— $— $239,768 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — — — — — 
$101,214 $85,276 $21,969 $17,486 $8,716 $5,107 $— $— $239,768 
Current period gross write offs$— $247 $136 $112 $6 $7 $— $— $508 
Installment loans to individuals
Pass$2,609 $2,406 $1,291 $558 $427 $3,486 $— $44 $10,821 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — — — — — 
$2,609 $2,406 $1,291 $558 $427 $3,486 $— $44 $10,821 
Current period gross write offs$179 $28 $20 $6 $6 $19 $13 $11 $282 
The information presented in the table above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit ratings for the report loan segments as of December 31, 2022:
 December 31, 2022
 Commercial, Financial, and AgriculturalReal Estate MortgagesConsumer automobile Other consumer installment loans 
(In Thousands)ResidentialCommercialConstructionTotals
Pass$184,783 $705,515 $488,993 $43,209 $186,112 $10,361 $1,618,973 
Special Mention125 266 4,526 — — — 4,917 
Substandard5,553 2,428 7,113 99 — — 15,193 
 $190,461 $708,209 $500,632 $43,308 $186,112 $10,361 $1,639,083 

Allowance for Credit Losses

Maintaining an appropriate Allowance for Credit Losses ("ACL") is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal credit rating process is used. Management believes that internal credit ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal credit rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning credit ratings involves judgment. The Company's loan review process provide a separate assessment of credit rating accuracy. Credit ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff or if specific loan review assessments identify a deterioration or an improvement in the loans.

Management considers the performance of the loan portfolio and its impact on the ACL. The Company does not assign internal Credit ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, and consumer automobile loans. For these loans, the most relevant credit quality indicator is delinquency status and management evaluates credit quality based on the aging status of the loan.

Historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.  A historical charge-off factor is calculated utilizing the charge-off and recovery data over the past ten years.  Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis in order to make appropriate and timely adjustments to the ACL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ACL.
Activity in the allowance is presented for the three and nine months ended September 30, 2023 and 2022:

 Three Months Ended September 30, 2023
 Commercial, Financial, and AgriculturalReal Estate MortgagesConsumer automobileOther consumer installment  
(In Thousands)ResidentialCommercialConstructionUnallocatedTotals
Beginning Balance$3,019 $1,078 $4,191 $178 $2,446 $680 $— $11,592 
Charge-offs— — — — (130)(86)— (216)
Recoveries106 22 1 — 27 27 — 183 
Provision788 68 131 20 241 83 — 1,331 
Ending Balance$3,913 $1,168 $4,323 $198 $2,584 $704 $— $12,890 
 Three Months Ended September 30, 2022
 Commercial, Financial, and AgriculturalReal Estate MortgagesConsumer automobileOther consumer installment  
(In Thousands)ResidentialCommercialConstructionUnallocatedTotals
Beginning Balance$2,108 $4,818 $5,395 $199 $1,307 $110 $456 $14,393 
Charge-offs(18)— — — (57)(85)— (160)
Recoveries93 1 1 — 10 18 — 123 
Provision(114)376 140 11 325 75 42 855 
Ending Balance$2,069 $5,195 $5,536 $210 $1,585 $118 $498 $15,211 

 
tNine Months Ended September 30, 2023
 Commercial, Financial, and AgriculturalReal Estate MortgagesConsumer automobileOther consumer installment  
(In Thousands)ResidentialCommercialConstructionUnallocatedTotals
Beginning Balance$1,914 $5,061 $6,110 $188 $1,617 $109 $638 $15,637 
Impact of adopting ASC 3262,656 (3,893)(2,660)(96)240 602 (638)(3,789)
Charge-offs— (81)(62)— (507)(283)— (933)
Recoveries1,067 25 26 — 66 65 — 1,249 
Provision(1,724)56 909 106 1,168 211 — 726 
Ending Balance$3,913 $1,168 $4,323 $198 $2,584 $704 $— $12,890 
 Nine Months Ended September 30, 2022
 Commercial, Financial, and AgriculturalReal Estate MortgagesConsumer automobileOther consumer installment  
(In Thousands)ResidentialCommercialConstructionUnallocatedTotals
Beginning Balance$1,946 $4,701 $5,336 $179 $1,411 $111 $492 $14,176 
Charge-offs(18)(15)(155)— (234)(188)— (610)
Recoveries138 46 3 28 32 63 — 310 
Provision3 463 352 3 376 132 6 1,335 
Ending Balance$2,069 $5,195 $5,536 $210 $1,585 $118 $498 $15,211 

The shift in allocation and the changes in the provision for credit losses are primarily due to changes in the credit metrics within the loan portfolio coupled with the adoption of CECL on January 1, 2023. The decrease in provision for consumer automobile loans for the three month period was driven by increased net recoveries that offset the impact of increased loan volume, while the increase in provision for the nine month period ended September 30, 2023 was driven by loan volume coupled with increased net charge-offs. The increase in provision for commercial, financial, and agricultural for the three month period was primarily the result of loan volume, while the decrease in provision for the nine month period ended September 30, 2023 was the result of improving credit metrics coupled with a large recovery during the three month period ended June 30, 2023 which effected the historical loss rate calculations. The provision for commercial real estate remained steady for the three month period and increased for the nine month period ended September 30, 2023 primarily due to growth within this segment of the loan portfolio.

The Company grants commercial, industrial, residential, and installment loans to customers primarily throughout north-east and central Pennsylvania. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within this region.
The Company has a concentration of the following to gross loans at September 30, 2023 and 2022: 
 September 30,
 20232022
Owners of residential rental properties18.99 %19.95 %
Owners of commercial rental properties14.62 %16.09 %


The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of December 31, 2022:
 December 31, 2022
 Commercial, Financial, and AgriculturalReal Estate MortgagesConsumer AutomobileOther consumer installmentUnallocated 
(In Thousands)ResidentialCommercialConstructionTotals
Allowance for Loan Losses:       
Ending allowance balance attributable to loans:       
Individually evaluated for impairment$4 $111 $827 $— $— $19 $— $961 
Collectively evaluated for impairment1,910 4,950 5,283 188 1,617 90 638 14,676 
Total ending allowance balance$1,914 $5,061 $6,110 $188 $1,617 $109 $638 $15,637 
Loans:       
Individually evaluated for impairment$698 $4,321 $6,195 $— $— $19  $11,233 
Collectively evaluated for impairment189,763 703,888 494,437 43,308 186,112 10,342  1,627,850 
Total ending loans balance$190,461 $708,209 $500,632 $43,308 $186,112 $10,361  $1,639,083