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Loans
 3 Months Ended
Mar. 31, 2024
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 March 31, 2024 and December 31, 2023:
 March 31, 2024
 Past Due
 30 To 89Past Due 90
(In Thousands)DaysDays Or MoreCurrentTotal
Commercial, financial, and agricultural$314 $145 $221,116 $221,575 
Real estate mortgage: 
Residential7,865 2,987 793,555 804,407 
Commercial1,761 1,739 530,128 533,628 
Construction14 — 38,099 38,113 
Consumer automobile loans2,255 155 243,898 246,308 
Other consumer installment loans221 5 10,094 10,320 
 $12,430 $5,031 $1,836,890 1,854,351 
Net deferred loan fees and discounts 996 
Allowance for credit losses (11,542)
Loans, net $1,843,805 
 December 31, 2023
 Past Due  
 30 To 89Past Due 90 
(In Thousands)DaysDays Or MoreCurrentTotal
Commercial, financial, and agricultural$749 $587 $212,130 $213,466 
Real estate mortgage:    
Residential10,158 1,970 786,373 798,501 
Commercial1,466 273 529,862 531,601 
Construction812 — 39,577 40,389 
Consumer automobile loans2,748 307 241,343 244,398 
Other consumer installment loans620 11 9,730 10,361 
 $16,553 $3,148 $1,819,015 1,838,716 
Net deferred loan fees and discounts  1,048 
Allowance for loan losses  (11,446)
Loans, net  $1,828,318 

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 March 31, 2024 and December 31, 2023:
March 31,December 31,
(In Thousands)20242023
ACL - loans$11,542 $11,446 
ACL - off balance sheet credit exposure902 1,342 
Total ACL$12,444 $12,788 
 
Non-Accrual Loans
 March 31, 2024December 31, 2023
(In Thousands)With a Related ACLWithout a Related ACLTotalWith a Related ACLWithout a Related ACLTotal
Commercial, financial, and agricultural$— $500 $500 $— $504 $504 
Real estate mortgage:
Residential— 241 241 21 259 280 
Commercial2,139 1,629 3,768 — 214 214 
Construction— — — — — — 
Consumer automobile— — — — — — 
Other consumer installment loans— — — — — — 
$2,139 $2,370 $4,509 $21 $977 $998 

Total interest income recorded on non-accrual loans at March 31, 2024 totaled $45,000.
The following table presents outstanding loan balances of collateral-dependent loans by class as of March 31, 2024 and December 31, 2023:
March 31, 2024
(In Thousands)Real estateUnsecured*Total
Real estate mortgage:
Residential$1,481 $— $1,481 
Commercial3,648 — 3,648 
Total$5,129 $— $5,129 
December 31, 2023
(In Thousands)Real estateUnsecured*Total
Real estate mortgage:
Residential$1,533 $— $1,533 
Commercial88 — 88 
Total$1,621 $— $1,621 
* Loan considered unsecured due to lien position on property
Loan Modifications

On January 1, 2023, the Corporation adopted ASU 2022-02. Loan modifications to borrowers experiencing financial difficulty 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.

Loans considered modifications amounted to $4,951,000 and $5,019,000 as of March 31, 2024 and December 31, 2023, respectively.

The amount of foreclosed residential real estate held at March 31, 2024 and December 31, 2023, totaled $445,000 and $700,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at March 31, 2024 and December 31, 2023, totaled $1,004,000 and $601,000, 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 2024 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 March 31, 2024 and December 31, 2023:
March 31, 2024
(In Thousands)20242023202220212020PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial, financial, and agricultural
Pass$8,108 $29,936 $48,504 $34,350 $31,511 $31,719 $34,598 $82 $218,808 
Special Mention— 450 164 33 18 — 159 — 824 
Substandard or Lower— — — — — 729 485 729 1,943 
$8,108 $30,386 $48,668 $34,383 $31,529 $32,448 $35,242 $811 $221,575 
 
Current period gross write offs$— $40 $50 $— $— $— $— $— $90 
Real estate mortgage:
Residential
Pass$23,086 $131,074 $133,995 $86,303 $49,751 $171,414 $57,262 $148,132 $801,017 
Special Mention— 339 524 — — 95 — — 958 
Substandard or Lower— — 314 271 — 1,784 — 63 2,432 
$23,086 $131,413 $134,833 $86,574 $49,751 $173,293 $57,262 $148,195 $804,407 
Current period gross write offs$— $— $— $— $— $4 $— $— $4 
Commercial
Pass$7,471 $61,609 $106,296 $124,866 $48,867 $162,909 $11,331 $859 $524,208 
Special Mention— 188 152 2,426 — 1,861 — — 4,627 
Substandard or Lower— — — 888 — 3,905 — — 4,793 
$7,471 $61,797 $106,448 $128,180 $48,867 $168,675 $11,331 $859 $533,628 
Current period gross write offs$— $— $— $— $— $— $— $— $— 
Construction
Pass$1,429 $22,495 $6,435 $1,611 $1,265 $4,523 $269 $— $38,027 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — 86 — — 86
$1,429 $22,495 $6,435 $1,611 $1,265 $4,609 $269 $— $38,113 
Current period gross write offs$— $— $— $— $— $— $— $— $— 
Consumer Automobile
Pass$21,341 $114,250 $71,858 $17,231 $13,108 $8,520 $— $— $246,308 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — — — — — 
$21,341 $114,250 $71,858 $17,231 $13,108 $8,520 $— $— $246,308 
Current period gross write offs$— $101 $162 $35 $20 $— $18 $— $336 
Installment loans to individuals
Pass$1,165 $2,595 $1,889 $1,050 $470 $3,113 $— $38 $10,320 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — — — — — 
$1,165 $2,595 $1,889 $1,050 $470 $3,113 $— $38 $10,320 
Current period gross write offs$17 $41 $23 $7 $— $— $7 $— $95 
December 31, 2023
(In Thousands)20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial, financial, and agricultural
Pass$31,190 $49,615 $35,901 $31,980 $3,123 $29,502 $29,397 $101 $210,809 
Special Mention— 183 37 19 — 138 223 — 600 
Substandard or Lower— — — 85 — 742 487 743 2,057 
$31,190 $49,798 $35,938 $32,084 $3,123 $30,382 $30,107 $844 $213,466 
Current period gross write offs$— $41 $— $— $— $— $— $— $41 
Real estate mortgage:
Residential
Pass$135,939 $134,077 $88,844 $51,378 $33,914 $148,802 $56,519 $146,055 $795,528 
Special Mention— 844 273 — — — — — 1,117 
Substandard or Lower— — — — — 1,790 — 66 1,856 
$135,939 $134,921 $89,117 $51,378 $33,914 $150,592 $56,519 $146,121 $798,501 
Current period gross write offs$— $— $— $— $— $9 $73 $— $82 
Commercial
Pass$55,664 $107,638 $128,094 $49,603 $24,104 $144,377 $12,338 $821 $522,639 
Special Mention— 153 2,990 — — 1,891 — — 5,034 
Substandard or Lower— — — — 59 3,869 — — 3,928 
$55,664 $107,791 $131,084 $49,603 $24,163 $150,137 $12,338 $821 $531,601 
Current period gross write offs$59 $— $— $— $— $3 $— $— $62 
Construction
Pass$25,494 $6,837 $1,742 $1,302 $392 $4,272 $261 $— $40,300 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — 89 — — 89
$25,494 $6,837 $1,742 $1,302 $392 $4,361 $261 $— $40,389 
Current period gross write offs$— $— $— $— $— $— $— $— $— 
Consumer Automobile
Pass$119,922 $78,443 $19,567 $15,348 $7,305 $3,813 $— $— $244,398 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — — — — — 
$119,922 $78,443 $19,567 $15,348 $7,305 $3,813 $— $— $244,398 
Current period gross write offs$30 $320 $178 $113 $8 $17 $— $— $666 
Installment loans to individuals
Pass$2,952 $2,188 $1,177 $524 $407 $3,071 $— $42 $10,361 
Special Mention— — — — — — — — — 
Substandard or Lower— — — — — — — — — 
$2,952 $2,188 $1,177 $524 $407 $3,071 $— $42 $10,361 
Current period gross write offs$232 $47 $23 $8 $12 $34 $13 $11 $380 

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 months ended March 31, 2024 and 2023:

 Three Months Ended March 31, 2024
 Commercial, Financial, and AgriculturalReal Estate MortgagesConsumer automobileOther consumer installment  
(In Thousands)ResidentialCommercialConstructionUnallocatedTotals
Beginning Balance$3,379 $1,200 $3,352 $145 $2,668 $702 $— $11,446 
Charge-offs(90)(4)— — (336)(95)— (525)
Recoveries70 2 2 — 44 27 — 145 
Provision(308)(479)1,292 (136)111 (4)— 476 
Ending Balance$3,051 $719 $4,646 $9 $2,487 $630 $— $11,542 
 Three Months Ended March 31, 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— (78)(3)— (93)(88)— (262)
Recoveries105 2 3 — 12 17 — 139 
Provision(813)320 31 92 337 42 — 9 
Ending Balance$3,862 $1,412 $3,481 $184 $2,113 $682 $— $11,734 
 
t
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 and a decrease in historical loss rates. The decrease in provision for consumer automobile loans and residential real estate was driven by improved credit metrics and a stable consumer economic outlook. The increase in provision for commercial, financial, and agricultural was primarily the result of increased net charge-offs offset by improved historical
loss metrics. The provision for commercial real estate increased due to a loan relationship being moved to nonaccrual and being measured individually for impairment. The provision for real estate construction decreased due to a decrease in historical loss rates over the ten year look back period.

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 March 31, 2024 and 2023: 
 March 31,
 20242023
Owners of residential rental properties18.68 %19.12 %
Owners of commercial rental properties14.56 %15.28 %
Exposure to non-owner occupied office space at March 31, 2024 and December 31, 2023 was $14,305,000 and $19,783,000 and with none of these loans being delinquent.