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Loans (Tables)

9 Months Ended

Sep. 30, 2020

Loan Portfolio and Allowance for Loan Losses

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York. The recently completed MidCoast acquisition has expanded our lending market into Wilmington and Dover, Delaware. Although the Company had a diversified loan portfolio at September 30, 2020 and December 31, 2019, 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 and how those segments are analyzed within the allowance for loan losses as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	208,084	$	1,041	$	20	$	207,023
Commercial		535,456		9,465		3,306		522,685
Agricultural		310,702		4,398		1,722		304,582
Construction		28,656		-		-		28,656
Consumer		30,625		15		-		30,610
Other commercial loans		129,731		1,603		-		128,128
Other agricultural loans		40,790		1,246		306		39,238
State and political subdivision loans		81,835		-		-		81,835
Total		1,365,879		17,768		5,354		1,342,757
Allowance for loan losses		15,169		791		-		14,378
Net loans	$	1,350,710	$	16,977	$	5,354	$	1,328,379

December 31, 2019	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	217,088	$	1,166	$	23	$	215,899
Commercial		342,023		11,537		1,210		329,276
Agricultural		311,464		3,782		-		307,682
Construction		15,519		-		-		15,519
Consumer		9,947		4		-		9,943
Other commercial loans		69,970		1,902		49		68,019
Other agricultural loans		55,112		1,281		-		53,831
State and political subdivision loans		94,446		-		-		94,446
Total		1,115,569		19,672		1,282		1,094,615
Allowance for loan losses		13,845		735		-		13,110
Net loans	$	1,101,724	$	18,937	$	1,282	$	1,081,505

Purchase Accounting Adjustments Related to Purchased Impaired Loans Acquired

The table below presents the components of the purchase accounting adjustments related to the purchased impaired loans acquired in the MidCoast Acquisition as of April 17, 2020 (in thousands):

	April 17, 2020
Contractually required principal and interest at acquisition	$	8,801
Non-accretable discount		(2,966	)
Expected cash flows		5,835
Accretable discount	$	(966	)
Estimated fair value	$	4,869

Accretable Yield for Purchased Credit Impaired Loans

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Balance at beginning of period	$	987		$	100		$	89		$	104
Acquisition of Midcoast		-			-			966			-
Accretion		(100	)		(10	)		(168	)		(14	)
Balance at end of period	$	887		$	90		$	887		$	90

Loans Acquired with Specific Evidence of Deterioration in Credit Quality

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2020		December 31, 2019
Outstanding balance	$	9,479	$	4,072
Carrying amount		5,354		1,282

Impaired Loan Receivables with Associated Allowance Amount

The following table includes the recorded investment and unpaid principal balances for impaired loan receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

September 30, 2020	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate loans:
Mortgages	$	1,125	$	609	$	296	$	905	$	20
Home Equity		159		77		59		136		9
Commercial		10,053		8,325		1,140		9,465		341
Agricultural		4,614		2,526		1,872		4,398		79
Consumer		15		3		12		15		12
Other commercial loans		2,225		1,243		360		1,603		181
Other agricultural loans		1,368		123		1,123		1,246		149
Total	$	19,559	$	12,906	$	4,862	$	17,768	$	791

December 31, 2019
Real estate loans:
Mortgages	$	1,212	$	794	$	223	$	1,017	$	20
Home Equity		170		83		66		149		12
Commercial		12,070		10,723		814		11,537		251
Agricultural		3,900		1,580		2,202		3,782		151
Consumer		4		4		-		4		-
Other commercial loans		2,517		1,555		347		1,902		147
Other agricultural loans		1,347		126		1,155		1,281		154
Total	$	21,220	$	14,865	$	4,807	$	19,672	$	735

The following tables includes the average balance of impaired loan receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2020 and 2019 (in thousands):

	For the Nine Months Ended
	September 30, 2020						September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis
Real estate loans:
Mortgages	$	998	$	15	$	-	$	1,075	$	12	$	-
Home Equity		142		5		-		108		4		-
Commercial		10,836		294		20		11,768		342		11
Agricultural		3,718		58		-		5,068		61		-
Consumer		3		-		-		2		-		-
Other commercial loans		1,757		2		-		2,088		1		-
Other agricultural loans		1,275		6		-		1,419		4		-
Total	$	18,729	$	380	$	20	$	21,528	$	424	$	11

	For the Three Months Ended
	September 30, 2020						September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis
Real estate loans:
Mortgages	$	900	$	5	$	-	$	1,048	$	3	$	-
Home Equity		138		2		-		143		2		-
Commercial		9,436		75		18		11,906		112		-
Agricultural		3,633		18		-		4,795		5		-
Consumer		5		-		-		4		-		-
Other commercial loans		1,626		-		-		2,073		-		-
Other agricultural loans		1,259		2		-		1,408		-		-
Total	$	16,997	$	102	$	18	$	21,377	$	122	$	-

Financing Receivable Credit Exposures by Internally Assigned Grades

The following tables represent credit exposures by internally assigned grades as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	514,291	$	10,727	$	10,400	$	38	$	-	$	535,456
Agricultural		287,998		11,882		10,822		-		-		310,702
Construction		28,656		-		-		-		-		28,656
Other commercial loans		124,563		1,239		3,843		86		-		129,731
Other agricultural loans		37,529		1,593		1,668		-		-		40,790
State and political subdivision loans		81,493		-		342		-		-		81,835
Total	$	1,074,530	$	25,441	$	27,075	$	124	$	-	$	1,127,170

December 31, 2019	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	329,831	$	4,305	$	7,848	$	39	$	-	$	342,023
Agricultural		287,044		14,261		10,159		-		-		311,464
Construction		15,519		-		-		-		-		15,519
Other commercial loans		66,880		984		2,042		64		-		69,970
Other agricultural loans		51,711		1,077		2,324		-		-		55,112
State and political subdivision loans		93,993		-		453		-		-		94,446
Total	$	844,978	$	20,627	$	22,826	$	103	$	-	$	888,534

For residential real estate mortgages, home equity 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 and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	149,171	$	1,466	$	20	$	150,657
Home Equity		57,407		20		-		57,427
Consumer		30,613		12		-		30,625
Total	$	237,191	$	1,498	$	20	$	238,709

December 31, 2019	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	156,151	$	904	$	23	$	157,078
Home Equity		59,950		60		-		60,010
Consumer		9,939		8		-		9,947
Total	$	226,040	$	972	$	23	$	227,035

Aging Analysis of Past Due Loan 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 loan receivables as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		PCI		Total Loan Receivables		90 Days or Greater and Accruing
Real estate loans:
Mortgages	$	736	$	208	$	811	$	1,755	$	148,882	$	20	$	150,657	$	622
Home Equity		100		43		18		161		57,266		-		57,427		-
Commercial		1,651		78		4,805		6,534		525,616		3,306		535,456		413
Agricultural		116		215		1,327		1,658		307,322		1,722		310,702		147
Construction		-		-		-		-		28,656		-		28,656		-
Consumer		142		33		12		187		30,438		-		30,625		12
Other commercial loans		169		-		1,491		1,660		128,071		-		129,731		-
Other agricultural loans		9		-		136		145		40,339		306		40,790		-
State and political subdivision loans		-		-		-		-		81,835		-		81,835		-
Total	$	2,923	$	577	$	8,600	$	12,100	$	1,348,425	$	5,354	$	1,365,879	$	1,194

Loans considered non-accrual	$	53	$	-	$	7,406	$	7,459	$	4,252	$	-	$	11,711
Loans still accruing		2,870		577		1,194		4,641		1,344,173		5,354		1,354,168
Total	$	2,923	$	577	$	8,600	$	12,100	$	1,348,425	$	5,354	$	1,365,879

December 31, 2019	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		PCI		Total Loan Receivables		90 Days or Greater and Accruing
Real estate loans:
Mortgages	$	581	$	57	$	319	$	957	$	156,098	$	23	$	157,078	$	1
Home Equity		334		11		56		401		59,609		-		60,010		1
Commercial		750		573		3,720		5,043		335,770		1,210		342,023		-
Agricultural		118		-		785		903		310,561		-		311,464		299
Construction		-		-		-		-		15,519		-		15,519		-
Consumer		113		10		8		131		9,816		-		9,947		2
Other commercial loans		217		71		1,946		2,234		67,687		49		69,970		184
Other agricultural loans		29		32		-		61		55,051		-		55,112		-
State and political subdivision loans		-		-		-		-		94,446		-		94,446		-
Total	$	2,142	$	754	$	6,834	$	9,730	$	1,104,557	$	1,282	$	1,115,569	$	487

Loans considered non-accrual	$	90	$	95	$	6,347	$	6,532	$	5,004	$	-	$	11,536
Loans still accruing		2,052		659		487		3,198		1,099,553		1,282		1,104,033
Total	$	2,142	$	754	$	6,834	$	9,730	$	1,104,557	$	1,282	$	1,115,569

Loan Receivables on Nonaccrual Status

The following table reflects the loan receivables, excluding PCI loans, on non-accrual status as of September 30, 2020 and December 31, 2019, respectively. The balances are presented by class of loan receivable (in thousands):

	September 30, 2020		December 31, 2019
Real estate loans:
Mortgages	$	844	$	903
Home Equity		20		59
Commercial		5,141		5,080
Agricultural		3,161		2,578
Consumer		-		6
Other commercial loans		1,551		1,837
Other agricultural loans		994		1,073
	$	11,711	$	11,536

Loan Modifications Related to COVID-19

The Company has elected to follow the loan modification guidance under Section 4013 of the CARES Act with regard to COVID-19 modifications made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. A modification of six months or less is considered to be a short-term loan modification. In response to the COVID-19 pandemic, the Company has prudently executed loan modifications for existing loan customers, which includes deferrals of interest and in certain cases deferrals of principal and interest. The following table presents information regarding loans which were subject to a loan modification related to COVID-19, with balances as of the date of modification and September 30, 2020, as well as the balance by modification type as of September 30, 2020.

	Number of loans		Balance as of Modification date		Number of loans as of September 30, 2020		Balance as of September 30, 2020		Principal and Interest Deferral		Principal Deferral		% of loans as of September 30, 2020
Real estate loans:
Mortgages		49	$	9,996		1	$	75	$	75	$	-		0.05	%
Home Equity		29		1,389		-		-		-		-		0.00	%
Commercial		259		144,647		9		17,712		13,039		4,673		3.31	%
Agricultural		50		20,421		2		2,368		-		2,368		0.76	%
Construction		3		1,178		-		-		-		-		0.00	%
Consumer		10		68		-		-		-		-		0.00	%
Other commercial loans		88		24,077		-		-		-		-		0.00	%
Other agricultural loans		46		3,347		-		-		-		-		0.00	%
Total		534	$	205,123		12	$	20,155	$	13,114	$	7,041		1.48	%

Troubled Debt Restructurings on Financing Receivables

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):

	For the Three Months Ended September 30, 2020
	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		-		1	$	-	$	276	$	-	$	276
Consumer		-		1		-		3		-		3
Total		-		2	$	-	$	279	$	-	$	279

	For the Nine Months Ended September 30, 2020
	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		-		3		-		682		-		682
Agricultural		-		1		-		150		-		150
Consumer		-		1		-		3		-		3
Total		-		5	$	-	$	835	$	-	$	835

	For the Three Months Ended September 30, 2019
	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		-		1	$	-	$	118	$	-	$	118
Consumer		-		1		-		3		-		3
Total		-		2	$	-	$	121	$	-	$	121

	For the Nine Months Ended September 30, 2019
	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:
Mortgages		-		1	$	-	$	4	$	-	$	4
Home Equity		-		1		-		40		-		40
Commercial		-		5		-		918		-		918
Consumer		-		1		-		3		-		3
Total		-		8	$	-	$	965	$	-	$	965

Subsequent Default Recorded Investment

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 on modified loans 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. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2020 and 2019 (9 month periods) and July 1, 2020 and 2019 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended								For the Nine Months Ended
	September 30, 2020				September 30, 2019				September 30, 2020				September 30, 2019
	Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment
Real estate loans:
Commercial		1	$	110		-	$	-		1	$	110		1	$	542
Agricultural		-		-		-		-		-		-		1		1,439
Other agricultural loans		-		-		-		-		-		-		4		261
Total recidivism		1	$	110		-	$	-		1	$	110		6	$	2,242

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 September 30, 2020 and December 31, 2019, respectively (in thousands):

	September 30, 2020						December 31, 2019
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	29	$	1,190	$	1,219	$	32	$	1,082	$	1,114
Commercial		341		4,965		5,306		251		4,298		4,549
Agricultural		79		4,727		4,806		151		4,871		5,022
Construction		-		85		85		-		43		43
Consumer		12		340		352		-		112		112
Other commercial loans		181		1,049		1,230		147		1,108		1,255
Other agricultural loans		149		586		735		154		807		961
State and political subdivision loans		-		514		514		-		536		536
Unallocated		-		922		922		-		253		253
Total	$	791	$	14,378	$	15,169	$	735	$	13,110	$	13,845

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 nine months ended September 30, 2020 and 2019, respectively (in thousands):

	For the three months ended September 30, 2020
	Balance at June 30, 2020		Charge-offs			Recoveries		Provision			Balance at September 30, 2020
Real estate loans:
Residential	$	1,206	$	-		$	-	$	13		$	1,219
Commercial		4,944		(220	)		3		579			5,306
Agricultural		5,061		(4	)		19		(270	)		4,806
Construction		81		-			-		4			85
Consumer		362		(12	)		3		(1	)		352
Other commercial loans		1,201		(1	)		4		26			1,230
Other agricultural loans		821		-			-		(86	)		735
State and political subdivision loans		547		-			-		(33	)		514
Unallocated		604		-			-		318			922
Total	$	14,827	$	(237	)	$	29	$	550		$	15,169

	For the three months ended September 30, 2019
	Balance at June 30, 2019		Charge-offs			Recoveries		Provision			Balance at September 30, 2019
Real estate loans:
Residential	$	1,066	$	(24	)	$	-	$	49		$	1,091
Commercial		4,400		-			-		241			4,641
Agricultural		4,532		-			-		180			4,712
Construction		36		-			-		(17	)		19
Consumer		118		(10	)		6		5			119
Other commercial loans		1,328		-			3		18			1,349
Other agricultural loans		741		-			-		128			869
State and political subdivision loans		539		-			-		(3	)		536
Unallocated		544		-			-		(201	)		343
Total	$	13,304	$	(34	)	$	9	$	400		$	13,679

	For the nine months ended September 30, 2020
	Balance at December 31, 2019		Charge-offs			Recoveries		Provision			Balance at September 30, 2020
Real estate loans:
Residential	$	1,114	$	-		$	-	$	105		$	1,219
Commercial		4,549		(221	)		37		941			5,306
Agricultural		5,022		(4	)		19		(231	)		4,806
Construction		43		-			-		42			85
Consumer		112		(30	)		15		255			352
Other commercial loans		1,255		(1	)		9		(33	)		1,230
Other agricultural loans		961		-			-		(226	)		735
State and political subdivision loans		536		-			-		(22	)		514
Unallocated		253		-			-		669			922
Total	$	13,845	$	(256	)	$	80	$	1,500		$	15,169

	For the nine months ended September 30, 2019
	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at September 30, 2019
Real estate loans:
Residential	$	1,105	$	(24	)	$	-	$	10		$	1,091
Commercial		4,115		(293	)		-		819			4,641
Agricultural		4,264		-			-		448			4,712
Construction		58		-			-		(39	)		19
Consumer		120		(32	)		24		7			119
Other commercial loans		1,354		(38	)		8		25			1,349
Other agricultural loans		752		-			-		117			869
State and political subdivision loans		762		-			-		(226	)		536
Unallocated		354		-			-		(11	)		343
Total	$	12,884	$	(387	)	$	32	$	1,150		$	13,679