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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)
 6 Months Ended
Jun. 30, 2014
LOANS AND ALLOWANCE FOR LOAN LOSSES [Abstract]  
Composition of the loan portfolio by type
The composition of the loan portfolio, net of deferred origination fees and cost, and unearned income is summarized as follows (dollars in thousands):

 
 
June 30, 2014
  
December 31, 2013
 
Commercial and agricultural:
 
  
 
  Commercial and industrial
 
$
158,151
  
$
144,787
 
  Agricultural
  
726
   
576
 
Commercial mortgages:
        
  Construction
  
39,106
   
27,440
 
  Commercial mortgages
  
383,187
   
345,707
 
Residential mortgages
  
194,603
   
195,997
 
Consumer loans:
        
  Credit cards
  
1,604
   
1,756
 
  Home equity lines and loans
  
99,023
   
95,905
 
  Indirect consumer loans
  
187,082
   
164,846
 
  Direct consumer loans
  
20,871
   
18,852
 
      Total loans, net of deferred origination
        fees and costs, and unearned income
 
$
1,084,353
  
$
995,866
 
Interest receivable on loans
  
2,402
   
2,597
 
      Total recorded investment in loans
 
$
1,086,755
  
$
998,463
 
Allowance for loan losses by portfolio segment
The following tables present the activity in the allowance for loan losses by portfolio segment for the three and six-month periods ending June 30, 2014 and 2013 (dollars in thousands):

 
 
Six Months Ended
 
 
 
June 30, 2014
 
Allowance for loan losses
 
Commercial and Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Unallocated
  
Total
 
Beginning balance:
 
$
1,979
  
$
6,243
  
$
1,517
  
$
3,037
  
$
-
  
$
12,776
 
  Charge Offs:
  
(355
)
  
(358
)
  
(7
)
  
(776
)
  
-
   
(1,496
)
  Recoveries:
  
193
   
83
   
28
   
307
   
-
   
611
 
     Net recoveries (charge offs)
  
(162
)
  
(275
)
  
21
   
(469
)
  
-
   
(885
)
  Provision
  
(68
)
  
944
   
(40
)
  
905
   
-
   
1,741
 
Ending balance
 
$
1,749
  
$
6,912
  
$
1,498
  
$
3,473
  
$
-
  
$
13,632
 

 
 
Six Months Ended
 
 
 
June 30, 2013
 
Allowance for loan losses
 
Commercial and Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Unallocated
  
Total
 
Beginning balance:
 
$
1,708
  
$
4,428
  
$
1,565
  
$
2,706
  
$
26
  
$
10,433
 
  Charge Offs:
  
(18
)
  
-
   
(54
)
  
(398
)
  
-
   
(470
)
  Recoveries:
  
294
   
19
   
39
   
124
   
-
   
476
 
     Net recoveries (charge offs)
  
276
   
19
   
(15
)
  
(274
)
  
-
   
6
 
  Provision
  
(105
)
  
687
   
(35
)
  
360
   
(26
)
  
881
 
Ending balance
 
$
1,879
  
$
5,134
  
$
1,515
  
$
2,792
  
$
-
  
$
11,320
 
 
 
 
Three Months Ended
 
 
 
June 30, 2014
 
Allowance for loan losses
 
Commercial and Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Unallocated
  
Total
 
Beginning balance:
 
$
1,945
  
$
6,484
  
$
1,552
  
$
3,174
  
$
-
  
$
13,155
 
  Charge Offs:
  
(300
)
  
(315
)
  
-
   
(308
)
  
-
   
(923
)
  Recoveries:
  
100
   
45
   
28
   
124
   
-
   
297
 
     Net recoveries (charge offs)
  
(200
)
  
(270
)
  
28
   
(184
)
  
-
   
(626
)
  Provision
  
4
   
698
   
(82
)
  
483
   
-
   
1,103
 
Ending balance
 
$
1,749
  
$
6,912
  
$
1,498
  
$
3,473
  
$
-
  
$
13,632
 

 
 
Three Months Ended
 
 
 
June 30, 2013
 
Allowance for loan losses
 
Commercial and Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Unallocated
  
Total
 
Beginning balance:
 
$
1,993
  
$
4,673
  
$
1,557
  
$
2,602
  
$
-
  
$
10,825
 
  Charge Offs:
  
(1
)
  
-
   
(10
)
  
(201
)
  
-
   
(212
)
  Recoveries:
  
152
   
10
   
39
   
56
   
-
   
257
 
     Net recoveries (charge-offs)
  
151
   
10
   
29
   
(145
)
  
-
   
45
 
  Provision
  
(265
)
  
451
   
(71
)
  
335
   
-
   
450
 
Ending balance
 
$
1,879
  
$
5,134
  
$
1,515
  
$
2,792
  
$
-
  
$
11,320
 
Allowance for loan losses and the recorded investment in loans based on impairment method
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2014 and December 31, 2013 (dollars in thousands):

 
June 30, 2014
 
Allowance for loan losses
Commercial and Agricultural
 
Commercial Mortgages
 
Residential Mortgages
 
Consumer Loans
 
Unallocated
 
Total
 
Ending allowance balance
  attributable to loans:
 
 
 
 
 
 
Individually evaluated for
  Impairment
 
$
132
  
$
201
  
$
-
  
$
2
  
$
-
  
$
335
 
Collectively evaluated for
  Impairment
  
1,617
   
5,244
   
1,486
   
3,471
   
-
   
11,818
 
Loans acquired with
  deteriorated credit quality
  
-
   
1,467
   
12
   
-
   
-
   
1,479
 
Total ending allowance balance
 
$
1,749
  
$
6,912
  
$
1,498
  
$
3,473
  
$
-
  
$
13,632
 
 
 
December 31, 2013
 
Allowance for loan losses
Commercial and Agricultural
 
Commercial Mortgages
 
Residential Mortgages
 
Consumer Loans
 
Unallocated
 
Total
 
Ending allowance balance
  attributable to loans:
 
 
 
 
 
 
Individually evaluated for
  impairment
 
$
576
  
$
466
  
$
-
  
$
4
  
$
-
  
$
1,046
 
Collectively evaluated for
 impairment
  
1,403
   
4,407
   
1,497
   
3,033
   
-
   
10,340
 
Loans acquired with
  deteriorated credit quality
  
-
   
1,370
   
20
   
-
   
-
   
1,390
 
Total ending allowance balance
 
$
1,979
  
$
6,243
  
$
1,517
  
$
3,037
  
$
-
  
$
12,776
 

 
 
June 30, 2014
 
Loans:
 
Commercial
and
Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Total
 
Loans individually
  evaluated for impairment
 
$
1,589
  
$
9,655
  
$
111
  
$
126
  
$
11,481
 
Loans collectively
  evaluated for  impairment
  
156,987
   
405,519
   
194,727
   
309,143
   
1,066,376
 
Loans acquired with deteriorated
  credit quality
  
631
   
7,997
   
270
   
-
   
8,898
 
Total ending loans balance
 
$
159,207
  
$
423,171
  
$
195,108
  
$
309,269
  
$
1,086,755
 
 
 
 
December 31, 2013
 
Loans:
 
Commercial
and
Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Total
 
Loans individually
  evaluated for impairment
 
$
2,946
  
$
10,703
  
$
117
  
$
131
  
$
13,897
 
Loans collectively
  evaluated for  impairment
  
142,108
   
354,636
   
196,147
   
281,979
   
974,870
 
Loans acquired with deteriorated
  credit quality
  
678
   
8,757
   
261
   
-
   
9,696
 
Total ending loans balance
 
$
145,732
  
$
374,096
  
$
196,525
  
$
282,110
  
$
998,463
 
Summary of impaired financing receivables
The following tables present loans individually evaluated for impairment recognized by class of loans as of June 30, 2014 and December 31, 2013, the average recorded investment and interest income recognized by class of loans as of the three and six-month periods ended June 30, 2014 and 2013 (dollars in thousands):

 
 
June 30, 2014
  
December 31, 2013
 
With no related allowance recorded:
 
Unpaid Principal Balance
  
Recorded Investment
  
Allowance for Loan Losses Allocated
  
Unpaid Principal Balance
  
Recorded Investment
  
Allowance for Loan Losses Allocated
 
Commercial and agricultural:
 
  
  
  
  
  
 
  Commercial and industrial
 
$
1,364
  
$
1,369
  
$
-
  
$
1,906
  
$
1,909
  
$
-
 
Commercial mortgages:
                        
  Construction
  
1,944
   
1,929
   
-
   
2,329
   
2,319
   
-
 
  Commercial mortgages
  
6,599
   
6,487
   
-
   
7,406
   
7,439
   
-
 
Residential mortgages
  
111
   
111
   
-
   
117
   
117
   
-
 
Consumer loans:
                        
  Home equity lines and loans
  
68
   
70
   
-
   
71
   
73
   
-
 
With an allowance recorded:
                        
Commercial and agricultural:
                        
  Commercial and industrial
  
520
   
220
   
132
   
1,037
   
1,037
   
576
 
Commercial mortgages:
                        
  Commercial mortgages
  
1,245
   
1,239
   
201
   
951
   
945
   
466
 
Consumer loans:
                        
  Home equity lines and loans
  
56
   
56
   
2
   
58
   
58
   
4
 
Total
 
$
11,907
  
$
11,481
  
$
335
  
$
13,875
  
$
13,897
  
$
1,046
 
 
 
 
Six-Months Ended
June 30, 2014
   
Six-Months Ended
June 30, 2013
  
Three Months Ended
June 30, 2014
  
Three Months Ended
June 30, 2013
 
 
 
Average Recorded Investment
  
Interest Income Recognized
   
Average Recorded Investment
  
Interest Income Recognized
  
Average Recorded Investment
  
Interest Income Recognized
  
Average Recorded Investment
  
Interest Income Recognized
 
With no related allowance recorded:
 
  
   
  
  
  
  
  
 
Commercial and agricultural:
 
  
   
  
  
  
  
  
 
  Commercial and industrial
 
$
1,566
  
$
30
   
$
1,524
  
$
35
  
$
1,386
  
$
16
  
$
1,554
  
$
17
 
Commercial mortgages:
                                 
  Construction
  
2,231
   
51
    
4,168
   
64
   
2,101
   
25
   
3,669
   
32
 
  Commercial mortgages
  
6,806
   
129
    
5,685
   
118
   
6,489
   
66
   
5,983
   
66
 
Residential mortgages
  
114
   
-
    
129
   
-
   
112
   
-
   
127
   
-
 
Consumer loans:
                                 
  Home equity lines and loans
  
72
   
1
    
30
   
1
   
71
   
1
   
45
   
1
 
With an allowance recorded:
                                 
Commercial and agricultural:
                                 
  Commercial and industrial
  
784
   
-
    
499
   
-
   
512
   
-
   
526
   
-
 
Commercial mortgages:
                                 
  Commercial mortgages
  
912
   
-
    
614
   
-
   
1,010
   
-
   
740
   
-
 
Consumer loans:
                                 
Consumer loans:
                                 
  Home equity lines and loans
  
58
   
2
    
39
   
1
   
57
   
1
   
58
   
1
 
  Direct consumer loans
  
-
   
-
    
5
   
-
   
-
   
-
   
7
   
-
 
  Total
 
$
12,543
  
$
213
   
$
12,693
  
$
219
  
$
11,738
  
$
109
  
$
12,709
  
$
117
 
Recorded investment in past due and non-accrual status by class of loans
The following tables present the recorded investment in past due and non-accrual status by class of loans as of June 30, 2014 and December 31, 2013 (dollars in thousands):

 
 
  
  
  
  
  
 
June 30, 2014
 
Current
  
30-89 Days Past Due
  
90 Days or more Past Due and accruing
  
Loans acquired with deteriorated credit quality
  
Non-Accrual (1)
  
Total
 
Commercial and agricultural:
 
  
  
  
  
  
 
  Commercial and industrial
 
$
156,888
  
$
468
  
$
-
  
$
631
  
$
493
  
$
158,480
 
  Agricultural
  
727
   
-
   
-
   
-
   
-
   
727
 
Commercial mortgages:
                        
  Construction
  
35,496
   
1,313
   
1,449
   
774
   
155
   
39,187
 
  Commercial mortgages
  
373,640
   
262
   
-
   
7,223
   
2,859
   
383,984
 
Residential mortgages
  
189,337
   
2,113
   
-
   
270
   
3,388
   
195,108
 
Consumer loans:
                        
  Credit cards
  
1,583
   
14
   
7
   
-
   
-
   
1,604
 
  Home equity lines and loans
  
98,029
   
725
   
-
   
-
   
506
   
99,260
 
  Indirect consumer loans
  
185,732
   
1,439
   
-
   
-
   
300
   
187,471
 
  Direct consumer loans
  
20,833
   
90
   
-
   
-
   
11
   
20,934
 
  Total
 
$
1,062,265
  
$
6,424
  
$
1,456
  
$
8,898
  
$
7,712
  
$
1,086,755
 
(1)  Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of June 30, 2014.

 
 
  
  
  
  
  
 
December 31, 2013
 
Current
  
30-89 Days Past Due
  
90 Days or more Past Due and accruing
  
Loans acquired with deteriorated credit quality
  
Non-Accrual (1)
  
Total
 
Commercial and agricultural:
 
  
  
  
  
  
 
  Commercial and industrial
 
$
143,100
  
$
29
  
$
-
  
$
678
  
$
1,348
  
$
145,155
 
  Agricultural
  
577
   
-
   
-
   
-
   
-
   
577
 
Commercial mortgages:
                        
  Construction
  
24,742
   
-
   
1,454
   
774
   
540
   
27,510
 
  Commercial mortgages
  
335,123
   
1,138
   
-
   
7,983
   
2,342
   
346,586
 
Residential mortgages
  
187,448
   
5,458
   
-
   
261
   
3,358
   
196,525
 
Consumer loans:
                        
  Credit cards
  
1,729
   
9
   
19
   
-
   
-
   
1,757
 
  Home equity lines and loans
  
95,349
   
150
   
-
   
-
   
635
   
96,134
 
  Indirect consumer loans
  
163,810
   
1,235
   
-
   
-
   
249
   
165,294
 
  Direct consumer loans
  
18,830
   
50
   
-
   
-
   
45
   
18,925
 
  Total
 
$
970,708
  
$
8,069
  
$
1,473
  
$
9,696
  
$
8,517
  
$
998,463
 
(1)  Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2013.
Loans by class modified as troubled debt restructurings
The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2014 and June 30, 2013 (dollars in thousands):

Six months ended June 30, 2014
 
Number of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
 
Troubled debt restructurings:
 
  
  
 
  Commercial and agricultural:
 
  
  
 
    Commercial and industrial
  
1
  
$
503
  
$
503
 
Commercial mortgages:
            
    Commercial mortgages
  
2
   
367
   
323
 
Total
  
3
  
$
870
  
$
826
 

 
 
  
  
 
Six months ended
June 30, 2013
 
Number of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
 
Troubled debt restructurings:
 
  
  
 
  Commercial and agricultural:
 
  
  
 
    Commercial and industrial
  
4
  
$
841
  
$
841
 
Commercial mortgages:
            
    Commercial mortgages
  
1
   
133
   
133
 
  Consumer loans:
            
    Home equity lines and loans
  
2
   
104
   
104
 
Total
  
7
  
$
1,078
  
$
1,078
 

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended June 30, 2013 (dollars in thousands):
 
 
 
  
  
 
Three months ended
June 30, 2013
 
Number of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
 
Troubled debt restructurings:
 
 
 
  Commercial and agricultural:
 
  
  
 
    Commercial and industrial
  
2
  
$
410
  
$
410
 
Commercial mortgages:
            
    Commercial mortgages
  
1
   
133
   
133
 
Total
  
3
  
$
543
  
$
543
 
Risk category of the recorded investment of loans by class of loans
Based on the analyses performed as of June 30, 2014 and December 31, 2013, the risk category of the recorded investment of loans by class of loans is as follows (dollars in thousands):

 
 
June 30, 2014
 
 
 
Not Rated
  
Pass
  
Loans acquired with deteriorated credit quality
  
Special Mention
  
Substandard
  
Doubtful
 
Commercial and agricultural:
 
  
  
  
  
  
 
  Commercial and industrial
 
$
-
  
$
146,698
  
$
631
  
$
7,775
  
$
3,156
  
$
220
 
  Agricultural
  
-
   
727
   
-
   
-
   
-
   
-
 
Commercial mortgages:
                        
  Construction
  
-
   
34,885
   
774
   
3,373
   
155
   
-
 
  Commercial mortgages
  
-
   
350,244
   
7,223
   
14,159
   
12,184
   
174
 
Residential mortgages
  
191,368
   
-
   
270
   
-
   
3,470
   
-
 
Consumer loans:
                        
  Credit cards
  
1,604
   
-
   
-
   
-
   
-
   
-
 
  Home equity lines and loans
  
98,678
   
-
   
-
   
-
   
582
   
-
 
  Indirect consumer loans
  
187,161
   
-
   
-
   
-
   
310
   
-
 
  Direct consumer loans
  
20,922
   
-
   
-
   
-
   
12
   
-
 
Total
 
$
499,733
  
$
532,554
  
$
8,898
  
$
25,307
  
$
19,869
  
$
394
 
 
     
 
 
 
 
December 31, 2013
 
 
 
Not Rated
  
Pass
  
Loans acquired with deteriorated credit quality
  
Special Mention
  
Substandard
  
Doubtful
 
Commercial and agricultural:
 
  
  
  
  
  
 
  Commercial and industrial
 
$
-
  
$
133,615
  
$
678
  
$
5,117
  
$
4,724
  
$
1,021
 
  Agricultural
  
-
   
577
   
-
   
-
   
-
   
-
 
Commercial mortgages:
                        
  Construction
  
-
   
23,087
   
774
   
2,783
   
866
   
-
 
  Commercial mortgages
  
-
   
313,956
   
7,983
   
13,611
   
11,036
   
-
 
Residential mortgages
  
192,995
   
-
   
261
   
-
   
3,269
   
-
 
Consumer loans
                        
  Credit cards
  
1,757
   
-
   
-
   
-
   
-
   
-
 
  Home equity lines and loans
  
95,422
   
-
   
-
   
-
   
712
   
-
 
  Indirect consumer loans
  
165,045
   
-
   
-
   
-
   
249
   
-
 
  Direct consumer loans
  
18,880
   
-
   
-
   
-
   
45
   
-
 
Total
 
$
474,099
  
$
471,235
  
$
9,696
  
$
21,511
  
$
20,901
  
$
1,021
 
 
     
 
Recorded investment in residential and consumer loans based on payment activity
The following table presents the recorded investment in residential and consumer loans based on payment activity as of June 30, 2014 and December 31, 2013 (dollars in thousands):

 
June 30, 2014
 
 
 
Consumer Loans
 
 
Residential Mortgages
 
Credit Card
 
Home Equity Lines and Loans
 
Indirect Consumer Loans
 
Other Direct Consumer Loans
 
Performing
 
$
191,720
  
$
1,604
  
$
98,754
  
$
187,171
  
$
20,923
 
Non-Performing
  
3,388
   
-
   
506
   
300
   
11
 
Total
 
$
195,108
  
$
1,604
  
$
99,260
  
$
187,471
  
$
20,934
 


 
December 31, 2013
 
 
 
Consumer Loans
 
 
Residential Mortgages
 
Credit Card
 
Home Equity Lines and Loans
 
Indirect Consumer Loans
 
Other Direct Consumer Loans
 
Performing
 
$
193,167
  
$
1,757
  
$
95,499
  
$
165,045
  
$
18,880
 
Non-Performing
  
3,358
   
-
   
635
   
249
   
45
 
 
 
$
196,525
  
$
1,757
  
$
96,134
  
$
165,294
  
$
18,925
 
Summary of changes in contractually required principal and interest on loans acquired
The table below summarizes the changes in total contractually required principal and interest cash payments, management's estimate of expected total cash payments and carrying value of the PCI loans from January 1, 2014 to June 30, 2014 and April 1, 2014 to June 30, 2014 (dollars in thousands):

Six months ended June 30, 2014
 
Balance at
December 31, 2013
  
Income Accretion
  
All Other Adjustments
  
Balance at
June 30,
2014
 
Contractually required principal and interest
 
$
11,230
  
$
-
  
$
(1,173
)
 
$
10,057
 
Contractual cash flows not expected to be collected
  (nonaccretable discount)
  
(543
)
  
-
   
57
   
(486
)
Cash flows expected to be collected
  
10,687
   
-
   
(1,116
)
  
9,571
 
Interest component of expected cash flows (accretable yield)
  
(991
)
  
344
   
(26
)
  
(673
)
Fair value of loans acquired with deteriorating credit quality
 
$
9,696
  
$
344
  
$
(1,142
)
 
$
8,898
 


Three months ended June 30, 2014
 
Balance at
March 31, 2014
  
Income Accretion
  
All Other Adjustments
  
Balance at
June 30,
2014
 
Contractually required principal and interest
 
$
11,073
  
$
-
  
$
(1,016
)
 
$
10,057
 
Contractual cash flows not expected to be collected
  (nonaccretable discount)
  
(435
)
  
-
   
(51
)
  
(486
)
Cash flows expected to be collected
  
10,638
   
-
   
(1,067
)
  
9,571
 
Interest component of expected cash flows (accretable yield)
  
(876
)
  
145
   
58
   
(673
)
Fair value of loans acquired with deteriorating credit quality
 
$
9,762
  
$
145
  
$
(1,009
)
 
$
8,898