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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)
 9 Months Ended
Sep. 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):

  
September 30, 2014
  
December 31, 2013
 
Commercial and agricultural:
    
  Commercial and industrial
 
$
164,984
  
$
144,787
 
  Agricultural
  
868
   
576
 
Commercial mortgages:
        
  Construction
  
46,981
   
27,440
 
  Commercial mortgages
  
388,185
   
345,707
 
Residential mortgages
  
192,870
   
195,997
 
Consumer loans:
        
  Credit cards
  
1,621
   
1,756
 
  Home equity lines and loans
  
100,991
   
95,905
 
  Indirect consumer loans
  
196,603
   
164,846
 
  Direct consumer loans
  
21,079
   
18,852
 
      Total loans, net of deferred origination
        fees and costs, and unearned income
 
$
1,114,182
  
$
995,866
 
Interest receivable on loans
  
2,512
   
2,597
 
      Total recorded investment in loans
 
$
1,116,694
  
$
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 nine-month periods ending September 30, 2014 and 2013 (dollars in thousands):

  
Nine Months Ended
 
  
September 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:
  
(415
)
  
(1,236
)
  
(97
)
  
(1,191
)
  
-
   
(2,939
)
  Recoveries:
  
331
   
118
   
28
   
507
   
-
   
984
 
     Net recoveries (charge offs)
  
(84
)
  
(1,118
)
  
(69
)
  
(684
)
  
-
   
(1,955
)
  Provision
  
(183
)
  
1,200
   
(16
)
  
1,329
   
-
   
2,330
 
Ending balance
 
$
1,712
  
$
6,325
  
$
1,432
  
$
3,682
  
$
-
  
$
13,151
 

  
Nine Months Ended
 
  
September 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:
  
(186
)
  
(44
)
  
(53
)
  
(910
)
  
-
   
(1,193
)
  Recoveries:
  
454
   
53
   
65
   
289
   
-
   
861
 
     Net recoveries (charge offs)
  
268
   
9
   
12
   
(621
)
  
-
   
(332
)
  Provision
  
82
   
976
   
(25
)
  
748
   
(26
)
  
1,755
 
Ending balance
 
$
2,058
  
$
5,413
  
$
1,552
  
$
2,833
  
$
-
  
$
11,856
 


  
Three Months Ended
 
  
September 30, 2014
 
Allowance for loan losses
 
Commercial and Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Unallocated
  
Total
 
Beginning balance:
 
$
1,749
  
$
6,912
  
$
1,498
  
$
3,473
  
$
-
  
$
13,632
 
  Charge Offs:
  
(60
)
  
(878
)
  
(90
)
  
(415
)
  
-
   
(1,443
)
  Recoveries:
  
138
   
35
   
-
   
200
   
-
   
373
 
     Net recoveries (charge offs)
  
78
   
(843
)
  
(90
)
  
(215
)
  
-
   
(1,070
)
  Provision
  
(115
)
  
256
   
24
   
424
   
-
   
589
 
Ending balance
 
$
1,712
  
$
6,325
  
$
1,432
  
$
3,682
  
$
-
  
$
13,151
 

  
Three Months Ended
 
  
September 30, 2013
 
Allowance for loan losses
 
Commercial and Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Unallocated
  
Total
 
Beginning balance:
 
$
1,879
  
$
5,134
  
$
1,515
  
$
2,792
  
$
-
  
$
11,320
 
  Charge Offs:
  
(167
)
  
(44
)
  
-
   
(512
)
  
-
   
(723
)
  Recoveries:
  
158
   
34
   
27
   
166
   
-
   
385
 
     Net recoveries (charge-offs)
  
(9
)
  
(10
)
  
27
   
(346
)
  
-
   
(338
)
  Provision
  
188
   
289
   
10
   
387
   
-
   
874
 
Ending balance
 
$
2,058
  
$
5,413
  
$
1,552
  
$
2,833
  
$
-
  
$
11,856
 
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 September 30, 2014 and December 31, 2013 (dollars in thousands):

 
September 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
 
$
68
  
$
188
  
$
-
  
$
1
  
$
-
  
$
257
 
Collectively evaluated for
  impairment
  
1,644
   
5,199
   
1,419
   
3,681
   
-
   
11,943
 
Loans acquired with
  deteriorated credit quality
  
-
   
938
   
13
   
-
   
-
   
951
 
Total ending allowance balance
 
$
1,712
  
$
6,325
  
$
1,432
  
$
3,682
  
$
-
  
$
13,151
 


 
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
 



  
September 30, 2014
 
Loans:
 
Commercial
and
Agricultural
  
Commercial Mortgages
  
Residential Mortgages
  
Consumer Loans
  
Total
 
Loans individually
  evaluated for impairment
 
$
1,318
  
$
12,477
  
$
108
  
$
124
  
$
14,027
 
Loans collectively
  evaluated for  impairment
  
164,288
   
418,721
   
193,020
   
320,868
   
1,096,897
 
Loans acquired with deteriorated
  credit quality
  
607
   
4,917
   
246
   
-
   
5,770
 
Total ending loans balance
 
$
166,213
  
$
436,115
  
$
193,374
  
$
320,992
  
$
1,116,694
 


  
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 September 30, 2014 and December 31, 2013, the average recorded investment and interest income recognized by class of loans as of the three and nine-month periods ended September 30, 2014 and 2013 (dollars in thousands):
  
September 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
 
$
1,247
  
$
1,250
  
$
-
  
$
1,906
  
$
1,909
  
$
-
 
Commercial mortgages:
                        
  Construction
  
1,936
   
1,919
   
-
   
2,329
   
2,319
   
-
 
  Commercial mortgages
  
9,437
   
9,331
   
-
   
7,406
   
7,439
   
-
 
Residential mortgages
  
108
   
108
   
-
   
117
   
117
   
-
 
Consumer loans:
                        
  Home equity lines and loans
  
67
   
69
   
-
   
71
   
73
   
-
 
With an allowance recorded:
                        
Commercial and agricultural:
                        
  Commercial and industrial
  
68
   
68
   
68
   
1,037
   
1,037
   
576
 
Commercial mortgages:
                        
  Commercial mortgages
  
1,237
   
1,227
   
188
   
951
   
945
   
466
 
Consumer loans:
                        
  Home equity lines and loans
  
55
   
55
   
1
   
58
   
58
   
4
 
Total
 
$
14,155
  
$
14,027
  
$
257
  
$
13,875
  
$
13,897
  
$
1,046
 

  
Nine Months Ended
September 30, 2014
  
Nine Months Ended
September 30, 2013
  
Three Months Ended
September 30, 2014
  
Three Months Ended
September 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
  
$
26
  
$
1,529
  
$
52
  
$
1,309
  
$
11
  
$
1,599
  
$
17
 
Commercial mortgages:
                                
  Construction
  
2,231
   
76
   
3,626
   
64
   
1,924
   
26
   
2,576
   
22
 
  Commercial mortgages
  
6,806
   
211
   
5,629
   
184
   
7,909
   
82
   
5,564
   
66
 
Residential mortgages
  
114
   
-
   
127
   
-
   
110
   
-
   
124
   
-
 
Consumer loans:
                                
  Home equity lines and loans
  
72
   
2
   
41
   
2
   
69
   
1
   
60
   
1
 
With an allowance recorded:
                                
Commercial and agricultural:
                                
  Commercial and industrial
  
784
   
-
   
640
   
-
   
144
   
-
   
819
   
-
 
Commercial mortgages:
                                
  Commercial mortgages
  
912
   -    
847
   
-
   
1,233
   
-
   
1,333
   
-
 
Consumer loans:
                                
  Home equity lines and loans
  
58
   
3
   
43
   
2
   
56
   
1
   
58
   
1
 
  Direct consumer loans
  
-
   
-
   
4
   
-
   
-
   
-
   
-
   
-
 
Total
 
$
12,543
  
$
318
  
$
12,486
  
$
304
  
$
12,754
  
$
121
  
$
12,133
  
$
107
 
Cash basis interest income approximates interest income recognized.
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 September 30, 2014 and December 31, 2013 (dollars in thousands):

September 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
 
$
164,207
  
$
206
  
$
-
  
$
607
  
$
324
  
$
165,344
 
  Agricultural
  
869
   
-
   
-
   
-
   
-
   
869
 
Commercial mortgages:
                        
  Construction
  
44,710
   
-
   
1,447
   
774
   
152
   
47,083
 
  Commercial mortgages
  
378,459
   
2,542
   
1,077
   
4,143
   
2,811
   
389,032
 
Residential mortgages
  
187,777
   
2,219
   
-
   
246
   
3,132
   
193,374
 
Consumer loans:
                        
  Credit cards
  
1,601
   
17
   
3
   
-
   
-
   
1,621
 
  Home equity lines and loans
  
100,153
   
608
   
-
   
-
   
465
   
101,226
 
  Indirect consumer loans
  
195,291
   
1,426
   
-
   
-
   
286
   
197,003
 
  Direct consumer loans
  
21,042
   
61
   
-
   
-
   
39
   
21,142
 
  Total
 
$
1,094,109
  
$
7,079
  
$
2,527
  
$
5,770
  
$
7,209
  
$
1,116,694
 
(1)  Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of September 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 nine months ended September 30, 2014 and September 30, 2013 (dollars in thousands):

Nine months ended September 30, 2014
 
Number of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
 
Troubled debt restructurings:
      
  Commercial and agricultural:
      
    Commercial and industrial
  
3
  
$
908
  
$
908
 
Commercial mortgages:
            
    Commercial mortgages
  
3
   
2,236
   
2,192
 
Total
  
6
  
$
3,144
  
$
3,100
 

Nine months ended September 30, 2013
      
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
  
3
   
134
   
134
 
Total
  
8
  
$
1,108
  
$
1,108
 
 
The troubled debt restructurings described above did not increase the allowance for loan losses and resulted in less than $0.1 million in charge offs during the nine months ended September 30, 2014.  The troubled debt restructurings described above increased the allowance for loan losses by less than $0.1 million and resulted in no charge offs during the nine months ended September 30, 2013.

There were no payment defaults on any loans previously modified as troubled debt restructurings during the nine months ending September 30, 2014 or September 30, 2013, within twelve months following the modification.  A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
 
The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2014 and September 30, 2013 (dollars in thousands):

Three months ended September 30, 2014
 
Number of Loans
  
Pre-Modification Outstanding Recorded Investment
  
Post-Modification Outstanding Recorded Investment
 
Troubled debt restructurings:
      
  Commercial and agricultural:
      
    Commercial and industrial
  
2
  
$
405
  
$
405
 
Commercial mortgages:
            
    Commercial mortgages
  
1
   
1,869
   
1,869
 
Total
  
3
  
$
2,274
  
$
2,274
 

       
Three months ended September 30, 2013
      
Troubled debt restructurings:
   
Consumer loans:
      
    Home equity lines and loans
  
1
  
$
31
  
$
31
 
Total
  
1
  
$
31
  
$
31
 
Risk category of the recorded investment of loans by class of loans
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans.  Based on the analyses performed as of September 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):


  
September 30, 2014
 
  
Not Rated
  
Pass
  
Loans acquired with deteriorated credit quality
  
Special Mention
  
Substandard
  
Doubtful
  
Total
 
Commercial and
  agricultural:
              
  Commercial and industrial
 
$
-
  
$
154,618
  
$
607
  
$
6,671
  
$
3,380
  
$
68
  
$
165,344
 
  Agricultural
  
-
   
869
   
-
   
-
   
-
   
-
   
869
 
Commercial mortgages:
                            
  Construction
  
-
   
42,829
   
774
   
3,328
   
152
   
-
   
47,083
 
  Commercial mortgages
  
-
   
362,160
   
4,143
   
12,088
   
10,491
   
150
   
389,032
 
Residential mortgages
  
189,739
   
-
   
246
   
-
   
3,389
   
-
   
193,374
 
Consumer loans:
                            
  Credit cards
  
1,621
   
-
   
-
   
-
   
-
   
-
   
1,621
 
  Home equity lines and
  loans
  
100,761
   
-
   
-
   
-
   
465
   
-
   
101,226
 
  Indirect consumer loans
  
196,717
   
-
   
-
   
-
   
286
   
-
   
197,003
 
  Direct consumer loans
  
21,103
   
-
   
-
   
-
   
39
       
21,142
 
Total
 
$
509,941
  
$
560,476
  
$
5,770
  
$
22,087
  
$
18,202
  
$
218
  
$
1,116,694
 


  
December 31, 2013
 
  
Not Rated
  
Pass
  
Loans
acquired with deteriorated credit quality
  
Special Mention
  
Substandard
  
Doubtful
  
Total
 
Commercial and
  agricultural:
              
  Commercial and industrial
 
$
-
  
$
133,615
  
$
678
  
$
5,117
  
$
4,724
  
$
1,021
  
$
145,155
 
  Agricultural
  
-
   
577
   
-
   
-
   
-
   
-
   
577
 
Commercial mortgages:
                            
  Construction
  
-
   
23,087
   
774
   
2,783
   
866
   
-
   
27,510
 
  Commercial mortgages
  
-
   
313,956
   
7,983
   
13,611
   
11,036
   
-
   
346,586
 
Residential mortgages
  
192,995
   
-
   
261
   
-
   
3,269
   
-
   
196,525
 
Consumer loans
                            
  Credit cards
  
1,757
   
-
   
-
   
-
   
-
   
-
   
1,757
 
  Home equity lines and
  loans
  
95,422
   
-
   
-
   
-
   
712
   
-
   
96,134
 
  Indirect consumer loans
  
165,045
   
-
   
-
   
-
   
249
   
-
   
165,294
 
  Direct consumer loans
  
18,880
   
-
   
-
   
-
   
45
   
-
   
18,925
 
Total
 
$
474,099
  
$
471,235
  
$
9,696
  
$
21,511
  
$
20,901
  
$
1,021
  
$
998,463
 
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 September 30, 2014 and December 31, 2013 (dollars in thousands):

 
September 30, 2014
 
 
 
Consumer Loans
 
 
Residential Mortgages
 
Credit Card
 
Home Equity Lines and Loans
 
Indirect Consumer Loans
 
Other Direct Consumer Loans
 
Performing
 
$
190,242
  
$
1,621
  
$
100,761
  
$
196,717
  
$
21,103
 
Non-Performing
  
3,132
   
-
   
465
   
286
   
39
 
Total
 
$
193,374
  
$
1,621
  
$
101,226
  
$
197,003
  
$
21,142
 


 
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
 
Total
 
$
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 September 30, 2014 and July 1, 2014 to September 30, 2014 (dollars in thousands):

Nine months ended September 30, 2014
 
Balance at
December 31, 2013
  
Income Accretion
  
All Other Adjustments
  
Balance at
September 30, 2014
 
Contractually required principal and interest
 
$
11,230
  
$
-
  
$
(4,359
)
 
$
6,871
 
Contractual cash flows not expected to be collected
  (non accretable discount)
  
(543
)
  
-
   
(43
)
  
(586
)
Cash flows expected to be collected
  
10,687
   
-
   
(4,402
)
  
6,285
 
Interest component of expected cash flows (accretable yield)
  
(991
)
  
464
   
12
   
(515
)
Fair value of loans acquired with deteriorating credit quality
 
$
9,696
  
$
464
  
$
(4,390
)
 
$
5,770
 


Three months ended September 30, 2014
 
Balance at
June 30,
2014
  
Income Accretion
  
All Other Adjustments
  
Balance at
September 30, 2014
 
Contractually required principal and interest
 
$
10,057
  
$
-
  
$
(3,186
)
 
$
6,871
 
Contractual cash flows not expected to be collected
  (non accretable discount)
  
(486
)
  
-
   
(100
)
  
(586
)
Cash flows expected to be collected
  
9,571
   
-
   
(3,286
)
  
6,285
 
Interest component of expected cash flows (accretable yield)
  
(673
)
  
120
   
38
   
(515
)
Fair value of loans acquired with deteriorating credit quality
 
$
8,898
  
$
120
  
$
(3,248
)
 
$
5,770