Loans (Tables)

6 Months Ended

Jun. 30, 2012

Summary of loan portfolio and allowance for loan losses

The Company grants commercial, industrial, agricultural, residential, and consumer loans primarily to customers throughout North Central Pennsylvania and Southern New York. Although the Company had a diversified loan portfolio at June 30, 2012 and December 31, 2011, a substantial portion of its debtors' ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio as of June 30, 2012 and December 31, 2011 (in thousands):

June 30, 2012	Total Loans		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	181,409	$	351	$	181,058
Commercial and agricultural		189,705		7,475		182,230
Construction		10,328		-		10,328
Consumer		11,160		-		11,160
Other commercial and agricultural loans		47,067		457		46,610
State and political subdivision loans		57,463		-		57,463
Total		497,132	$	8,283	$	488,849
Allowance for loan losses		6,650
Net loans	$	490,482

December 31, 2011	Total Loans		Individually evaluated for impairment		Collectively evaluated for impairment
Real estate loans:
Residential	$	184,034	$	94	$	183,940
Commercial and agricultural		185,050		8,270		176,780
Construction		8,481		-		8,481
Consumer		10,746		-		10,746
Other commercial and agricultrual loans		44,299		517		43,782
State and political subdivision loans		54,899		-		54,899
Total		487,509	$	8,881	$	478,628
Allowance for loan losses		6,487
Net loans	$	481,022

Impaired financing receivables with associated allowance amount

			Recorded		Recorded
	Unpaid		Investment		Investment		Total				Average		Interest
	Principal		With No		With		Recorded		Related		Recorded		Income
June 30, 2012	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
Real estate loans:
Residential mortgages	$	258	$	118	$	140	$	258	$	14	$	83	$	1
Home equity		93		18		75		93		15		93		2
Commercial		8,816		5,366		2,109		7,475		512		8,138		39
Agricultural		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-
Consumer		-		-		-		-		-		-		-
Other commercial loans		504		28		429		457		21		468		-
Other agricultural Loans		-		-		-		-		-		-		-
State and political subdivision loans		-		-		-		-		-		-		-
Total	$	9,671	$	5,530	$	2,753	$	8,283	$	562	$	8,782	$	42

			Recorded		Recorded
	Unpaid		Investment		Investment		Total				Average		Interest
	Principal		With No		With		Recorded		Related		Recorded		Income
December 31, 2011	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
Real estate loans:
Residential mortgages	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Home equity		94		36		58		94		13		36		1
Commercial		9,394		5,663		2,607		8,270		433		8,585		65
Agricultural		-		-		-		-		-		371		37
Construction		-		-		-		-		-		-		-
Consumer		-		-		-		-		-		-		-
Other commercial loans		574		30		487		517		48		501		-
Other agricultural Loans		-		-		-		-		-		160		20
State and political subdivision loans		-		-		-		-		-		-		-
Total	$	10,062	$	5,729	$	3,152	$	8,881	$	494	$	9,653	$	123

Summary of financing receivable credit exposures by internally assigned grades

The following tables represent credit exposures by internally assigned grades as of June 30, 2012 and December 31, 2011 (in thousands):

June 30, 2012	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	141,568	$	10,496	$	18,739	$	75	$	-	$	170,878
Agricultural		16,219		623		1,985		-		-		18,827
Construction		10,328		-		-		-		-		10,328
Other commercial loans		36,982		1,806		1,016		16		-		39,820
Other agricultural loans		5,849		425		973		-		-		7,247
State and political subdivision loans		56,335		-		1,128		-		-		57,463
Total	$	267,281	$	13,350	$	23,841	$	91	$	-	$	304,563

December 31, 2011	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	138,409	$	10,372	$	17,045	$	-	$	-	$	165,826
Agricultural		14,628		2,412		2,184		-		-		19,224
Construction		8,481		-		-		-		-		8,481
Other commercial loans		34,606		2,203		921		17		-		37,747
Other agricultural loans		4,509		809		1,234		-		-		6,552
State and political subdivision loans		53,733		-		1,166		-		-		54,899
Total	$	254,366	$	15,796	$	22,550	$	17	$	-	$	292,729

For residential real estate mortgages, home equities and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below and all loans past due 90 or more days. The following table presents the recorded investment in those loan classes based on payment activity as of June 30, 2012 and December 31, 2011 (in thousands):

June 30, 2012	Performing		Non-performing		Total
Real estate loans:
Residential mortgages	$	104,600	$	558	$	105,158
Home equity		76,080		171		76,251
Consumer		11,160		-		11,160
Total	$	191,840	$	729	$	192,569

December 31, 2011	Performing		Non-performing		Total
Real estate loans:
Residential mortgages	$	102,238	$	473	$	102,711
Home equity		81,143		180		81,323
Consumer		10,746		-		10,746
Total	$	194,127	$	653	$	194,780

Age analysis of past due financing receivables

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 includes an aging analysis of the recorded investment of past due financing receivables as of June 30, 2012 and December 31, 2011 (in thousands):

	30-59 Days		60-89 Days		90 Days		Total Past				Total Financing		90 Days and
June 30, 2012	Past Due		Past Due		Or Greater		Due		Current		Receivables		Accruing
Real estate loans:
Residential mortgages	$	164	$	9	$	455	$	628	$	104,530	$	105,158	$	57
Home equity		360		88		161		609		75,642		76,251		21
Commercial		717		104		2,063		2,884		167,994		170,878		180
Agricultural		-		-		-		-		18,827		18,827		-
Construction		-		-		-		-		10,328		10,328		-
Consumer		45		-		-		45		11,115		11,160		-
Other commercial loans		-		-		445		445		39,375		39,820		-
Other agricultural loans		100		-		-		100		7,147		7,247		-
State and political subdivision loans		-		-		-		-		57,463		57,463		-
Total	$	1,386	$	201	$	3,124	$	4,711	$	492,421	$	497,132	$	258

Loans considered non-accrual	$	-	$	-	$	2,866	$	2,866	$	5,537	$	8,403
Loans still accruing		1,386		201		258		1,845		486,884		488,729
Total	$	1,386	$	201	$	3,124	$	4,711	$	492,421	$	497,132

	30-59 Days		60-89 Days		90 Days		Total Past				Total Financing		90 Days and
December 31, 2011	Past Due		Past Due		Or Greater		Due		Current		Receivables		Accruing
Real estate loans:
Residential mortgages	$	428	$	91	$	398	$	917	$	101,794	$	102,711	$	60
Home equity		339		-		180		519		80,804		81,323		39
Commercial		319		412		2,794		3,525		162,301		165,826		176
Agricultural		143		-		-		143		19,081		19,224		-
Construction		-		-		-		-		8,481		8,481		-
Consumer		86		7		-		93		10,653		10,746		-
Other commercial loans		9		-		503		512		37,235		37,747		-
Other agricultural loans		-		-		-		-		6,552		6,552		-
State and political subdivision loans		-		-		-		-		54,899		54,899		-
Total	$	1,324	$	510	$	3,875	$	5,709	$	481,800	$	487,509	$	275

Loans considered non-accrual	$	-	$	-	$	3,600	$	3,600	$	5,565	$	9,165
Loans still accruing		1,324		510		275		2,109		476,235		478,344
Total	$	1,324	$	510	$	3,875	$	5,709	$	481,800	$	487,509

Summary of financing receivables on nonaccrual status

The following table reflects the financing receivables on nonaccrual status as of June 30, 2012 and December 31, 2011, respectively. The balances are presented by class of financing receivable (in thousands):

	June 30, 2012		December 31, 2011
Real estate loans:
Residential mortgages	$	501	$	413
Home equity		150		141
Commercial		7,295		8,094
Agricultural		-		-
Construction		-		-
Consumer		-		-
Other commercial loans		457		517
Other agricultural		-		-
State and political subdivision		-		-
	$	8,403	$	9,165

Summary of troubled debt restructurings on financing receivables

Loan modifications that are considered TDR's completed during the three months and six months ended June 30, 2012 and 2011 were as follows (dollars in thousands):

	For the Three Months Ended June 30, 2012
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification

Real estate loans:
Residential mortgage		1		1	$	48	$	71	$	48	$	71
Total		1		1	$	48	$	71	$	48	$	71

	For the Six Months Ended June 30, 2012
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification

Real estate loans:
Residential mortgage		1	1		$	48	$	71	$	48	$	71
Commercial		-		2		-		98		-		98
Total		1		3	$	48	$	169	$	48	$	169

For the Three Months Ended June 30, 2011

Number of contracts

Pre-modification Outstanding

Recorded Investment

Post-Modification Outstanding

Recorded Investment

Interest

Modification

Term

Modification

Interest

Modification

Term

Modification

Interest

Modification

Term

Modification

Real estate loans:

Commercial

Total

	For the Six Months Ended June 30, 2011
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification

Real estate loans:
Commercial		5		-	$	5,912	$	-	$	5,912	$	-
Total		5		-	$	5,912	$	-	$	5,912	$	-

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. Loan modifications considered TDR's made during the twelve months ended June 30, 2012, that defaulted during the three and six month periods ended June 30, 2012 were as follows (dollars in thousands):

	Number of contracts		Recorded investment
Real estate loans:
Residential mortgage		1	$	71
Commercial		1		48
Total recidivism		2	$	119

Allowance for loan losses by impairment method

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2012 and December 31, 2011, respectively (in thousands):

	June 30, 2012						December 31, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	29	$	758	$	786	$	13	$	792	$	805
Commercial and agricultural		512		3,893		4,405		433		3,699		4,132
Construction		-		19		19		-		15		15
Consumer		-		108		108		-		111		111
Other commercial and agricultral		21		663		685		48		626		674
State and political subdivision loans		-		246		246		-		235		235
Unallocated		-		401		401		-		515		515
Total	$	562	$	6,088	$	6,650	$	494	$	5,993	$	6,487

Roll forward of allowance for loan losses by portfolio segment

The following tables roll forward the balance of the ALLL by portfolio segment for the three and six month periods ended June 30, 2012 and 2011, respectively (in thousands):

	Balance at March 31, 2012		Charge-offs			Recoveries		Provision			Balance at June 30, 2012
Real estate loans:
Residential	$	753	$	-		$	-	$	33		$	786
Commercial and agricultural		4,336		-			6		63			4,405
Construction		16		-			-		3			19
Consumer		96		(16	)		7		21			108
Other commercial and agricultrual loans		671		-			3		11			685
State and political subdivision loans		245		-			-		1			246
Unallocated		428		-			-		(27	)		401
Total	$	6,545	$	(16	)	$	16	$	105		$	6,650

	Balance at December 31, 2011		Charge-offs			Recoveries		Provision			Balance at June 30, 2012
Real estate loans:
Residential	$	805	$	(49	)	$	-	$	30		$	786
Commercial and agricultural		4,132		(2	)		6		269			4,405
Construction		15		-			-		4			19
Consumer		111		(24	)		16		5			108
Other commercial and agricultrual loans		674		-			6		5			685
State and political subdivision loans		235		-			-		11			246
Unallocated		515		-			-		(114	)		401
Total	$	6,487	$	(75	)	$	28	$	210		$	6,650

	Balance at March 31, 2011		Charge-offs			Recoveries		Provision			Balance at June 30, 2011
Real estate loans:
Residential	$	921	$	(41	)	$	-	$	(202	)	$	678
Commercial and agricultural		3,698		(12	)		-		226			3,912
Construction		13		-			-		-			13
Consumer		87		(17	)		12		27			109
Other commercial and agricultrual loans		901		-			3		(192	)		712
State and political subdivision loans		139		-			-		(20	)		119
Unallocated		309		-			-		311			620
Total	$	6,068	$	(70	)	$	15	$	150		$	6,163

	Balance at December 31, 2010		Charge-offs			Recoveries		Provision			Balance at June 30, 2011
Real estate loans:
Residential	$	969	$	(101	)	$	-	$	(190	)	$	678
Commercial and agricultural		3,380		(29	)		-		561			3,912
Construction		22		-			-		(9	)		13
Consumer		108		(33	)		29		5			109
Other commercial and agricultrual loans		983		-			7		(278	)		712
State and political subdivision loans		137		-			-		(18	)		119
Unallocated		316		-			-		304			620
Total	$	5,915	$	(163	)	$	36	$	375		$	6,163