LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the loan portfolio, net of deferred loan fees is summarized as follows (in thousands):



	December 31, 2019		December 31, 2018
Commercial and agricultural:
Commercial and industrial	$	230,018	$	202,526
Agricultural	274		328
Commercial mortgages:
Construction	43,962		54,476
Commercial mortgages	604,832		606,694
Residential mortgages	188,338		182,724
Consumer loans:
Credit cards	—		1,449
Home equity lines and loans	91,784		98,145
Indirect consumer loans	134,973		149,380
Direct consumer loans	15,038		16,184
Total loans, net of deferred loan fees	1,309,219		1,311,906
Interest receivable on loans	3,684		3,703
Total recorded investment in loans	$	1,312,903	$	1,315,609

Residential mortgages held for sale as of December 31, 2019 and 2018 totaling $1.2 million and $0.5 million, respectively, are not included in the above table.

Residential mortgages totaling $170.0 million at December 31, 2019 and $132.5 million at December 31, 2018 were pledged under a blanket collateral agreement for the Corporation's line of credit with the FHLBNY.

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019, 2018 and 2017, respectively (in thousands):



	December 31, 2019
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	5,383		$	8,184		$	1,226		$	4,151		$	18,944
Charge Offs:	(312		)	(1		)	(151		)	(1,511		)	(1,975		)
Recoveries:	59			4			45			456			564
Net (charge offs) recoveries	(253		)	3			(106		)	(1,055		)	(1,411		)
Provision	5,097			682			132			34			5,945
Ending balance	$	10,227		$	8,869		$	1,252		$	3,130		$	23,478



	December 31, 2018
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161
Charge Offs:	(3,644		)	(213		)	(226		)	(1,836		)	(5,919		)
Recoveries:	47			3			5			494			549
Net recoveries (charge offs)	(3,597		)	(210		)	(221		)	(1,342		)	(5,370		)
Provision	2,004			(120		)	131			1,138			3,153
Ending balance	$	5,383		$	8,184		$	1,226		$	4,151		$	18,944



	December 31, 2017
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,589		$	7,270		$	1,523		$	3,871		$	14,253
Charge Offs:	(96		)	(419		)	(225		)	(1,831		)	(2,571		)
Recoveries:	109			5			30			313			457
Net recoveries (charge offs)	13			(414		)	(195		)	(1,518		)	(2,114		)
Provision	5,374			1,658			(12		)	2,002			9,022
Ending balance	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161

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 December 31, 2019 and December 31, 2018 (in thousands):



	December 31, 2019
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6,000	$	2,097	$	—	$	—	$	8,097
Collectively evaluated for impairment	4,227		6,772		1,252		3,130		15,381
Total ending allowance balance	$	10,227	$	8,869	$	1,252	$	3,130	$	23,478



	December 31, 2018
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,743	$	446	$	—	$	—	$	2,189
Collectively evaluated for impairment	3,640		7,738		1,226		4,151		16,755
Total ending allowance balance	$	5,383	$	8,184	$	1,226	$	4,151	$	18,944



	December 31, 2019
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	6,147	$	8,844	$	525	$	149	$	15,665
Loans collectively evaluated for impairment	224,775		641,726		188,349		242,388		1,297,238
Total ending loans balance	$	230,922	$	650,570	$	188,874	$	242,537	$	1,312,903



	December 31, 2018
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,128	$	6,146	$	402	$	55	$	8,731
Loans collectively evaluated for impairment	201,284		656,842		182,823		265,929		1,306,878
Total ending loans balance	$	203,412	$	662,988	$	183,225	$	265,984	$	1,315,609

The following tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2019 and December 31, 2018, the average recorded investment and interest income recognized by class of loans as of the years ended December 31, 2019, 2018 and 2017 (in thousands):



	December 31, 2019						December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	133	$	133	$	—	$	345	$	346	$	—
Commercial mortgages:
Construction	247		247		—		307		308		—
Commercial mortgages	3,501		3,503		—		4,007		3,935		—
Residential mortgages	554		525		—		424		402		—
Consumer loans:
Home equity lines and loans	171		149		—		54		55		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	6,013		6,014		6,000		1,780		1,782		1,743
Commercial mortgages:
Commercial mortgages	5,093		5,094		2,097		1,902		1,903		446
Consumer loans:
Home equity lines and loans	—		—		—		—		—		—
Total	$	15,712	$	15,665	$	8,097	$	8,819	$	8,731	$	2,189



	December 31, 2019				December 31, 2018				December 31, 2017
	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	248	$	—	$	608	$	12	$	706	$	35
Commercial mortgages:
Construction	278		10		337		11		830		12
Commercial mortgages	3,605		12		4,193		21		5,606		78
Residential mortgages	422		44		416		7		418		8
Consumer loans:
Home equity lines & loans	137		6		60		3		74		3
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	3,209		—		3,043		3		1,170		6
Commercial mortgages:
Commercial mortgages	6,524		—		2,315		4		3,751		12
Consumer loans:
Home equity lines and loans	—		—		—		—		144		—
Total	$	14,423	$	72	$	10,972	$	61	$	12,699	$	154

(1) Cash basis interest income approximates interest income recognized.

The following tables present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of December 31, 2019 and December 31, 2018 (in thousands):



	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	2019		2018		2019		2018
Commercial and agricultural:
Commercial and industrial	$	6,147	$	2,048	$	7	$	10
Commercial mortgages:
Construction	80		109		—		—
Commercial mortgages	8,407		5,529		—		—
Residential mortgages	2,155		2,655		—		—
Consumer loans:
Credit cards	—		—		—		9
Home equity lines and loans	641		1,183		—		—
Indirect consumer loans	571		693		—		—
Direct consumer loans	7		37		—		—
Total	$	18,008	$	12,254	$	7	$	19

The following tables present the aging of the recorded investment in loans as of December 31, 2019 and December 31, 2018 (in thousands):



	December 31, 2019
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	1,285	$	49	$	4,398	$	5,732	$	224,916	$	230,648
Agricultural	—		—		—		—		274		274
Commercial mortgages:
Construction	—		—		—		—		44,082		44,082
Commercial mortgages	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		803		956		2,775		186,099		188,874
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	353		151		149		653		91,412		92,065
Indirect consumer loans	1,546		377		355		2,278		133,088		135,366
Direct consumer loans	32		11		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903



	December 31, 2018
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	284	$	61	$	71	$	416	$	202,667	$	203,083
Agricultural	16		—		—		16		313		329
Commercial mortgages:
Construction	—		—		—		—		54,626		54,626
Commercial mortgages	6,273		158		169		6,600		601,762		608,362
Residential mortgages	2,204		516		1,026		3,746		179,479		183,225
Consumer loans:
Credit cards	1		3		9		13		1,437		1,450
Home equity lines and loans	279		97		730		1,106		97,360		98,466
Indirect consumer loans	1,511		319		436		2,266		147,540		149,806
Direct consumer loans	120		53		31		204		16,058		16,262
Total	$	10,688	$	1,207	$	2,472	$	14,367	$	1,301,242	$	1,315,609

Troubled Debt Restructurings:

A modification of a loan may result in classification as a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Corporation offers various types of modifications which may involve a change in the schedule of payments, a reduction in the interest rate, an extension of the maturity date, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, requesting additional collateral, releasing collateral for consideration, substituting or adding a new borrower or guarantor, a permanent reduction of the recorded investment in the loan or a permanent reduction of the interest on the loan.

As of December 31, 2019, 2018 and 2017, the Corporation has a recorded investment in TDRs of $9.0 million, $6.8 million, and $7.7 million, respectively. There were specific reserves of $2.3 million allocated for TDRs at December 31, 2019, and $0.9 million and $0.7 million allocated for December 31, 2018 and 2017, respectively. As of December 31, 2019, TDRs totaling $0.9 million were accruing interest under the modified terms and $8.1 million were on non-accrual status. As of December 31, 2018, TDRs totaling $0.8 million were accruing interest under the modified terms and $6.0 million were on non-accrual status. As of December 31, 2017, TDRs totaling $1.7 million were accruing interest under the modified terms and $6.0 million were on non-accrual status. The Corporation has committed $17 thousand to customers with outstanding loans that are classified as TDRs as of December 31, 2019 and no additional amounts as of December 31, 2018 or 2017.

During the years ended December 31, 2019, 2018 and 2017, the terms of certain loans were modified as TDRs. During the year ended December 31, 2019, the modification of the terms of one commercial real estate term loan included a reduction of the scheduled amortized payments for greater than a three month period, and modification of the terms of one home equity loan included a reduction in the stated interest rate for the remaining life of the loan, an extension of the maturity date for approximately three years and a reduction of the scheduled amortized payment of the loan for greater than a three month period. Additionally, one residential mortgage loan modification included a reduction in the stated interest rate for the remaining life of the loan, a deferral of the principal balance decreasing the effective borrowing rate, an extension of the maturity date by thirteen years at a stated rate lower than the current market rate for new debt with similar risk and a postponement of the scheduled amortized payments of the loan for greater than a three month period.

During the year ended December 31, 2018, the modification of the terms of two commercial and industrial term loans included extensions of the maturity dates at stated rates of interest lower than current market rates for new debt with similar risks.

During the year ended December 31, 2017, the modification of the terms of two commercial and industrial loans included a reduction of the scheduled amortized payments for greater than a three month period, the release of collateral related to one of the loans and the extension of a maturity date. Additionally, the modification of the terms of two commercial and industrial term loans and one line of credit included consolidating the loans into one commercial and industrial loan, extending the maturity date by approximately two years years and lowering the monthly payment. An additional piece of equipment was taken as collateral but was not considered to be of greater value than the concessions given. The modification of the terms of a commercial mortgage loan included a reduction of the scheduled amortized payments of the loan for greater than a three month period. The modification of the terms of a residential mortgage loan included an extension of the maturity date by approximately five years and a postponement of the scheduled amortized past due payments to the end of loan.

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2019, 2018 and 2017 (in thousands):



December 31, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages	1	4,223		4,223
Residential mortgages	1	123		123
Consumer loans:
Home equity lines and loans	1	137		137
Total	3	$	4,483	$	4,483

The TDRs described above increased the allowance for loan losses by $1.7 million and resulted in no charge offs during the year ended December 31, 2019.



December 31, 2018	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	2	$	491	$	491
Total	2	$	491	$	491

The TDRs described above increased the allowance for loan losses by $0.4 million and resulted in no charge offs during the year ended December 31, 2018.



December 31, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	677	$	677
Commercial mortgages:
Commercial mortgages	1	$	166	$	166
Residential mortgages	1	105		105
Total	5	$	948	$	948

The TDRs described above increased the allowance for loan losses by $0.1 million and resulted in no charge offs during the year ended December 31, 2017.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no payment defaults on any loans previously modified as troubled debt restructurings during the year ended December 31, 2019, and 2018, within twelve months following the modification.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2017:

Credit Quality Indicators

The Corporation establishes a risk rating at origination for all commercial loans. The main factors considered in assigning risk ratings include, but are not limited to: historic and future debt service coverage, collateral position, operating performance, liquidity, leverage, payment history, management ability, and the customer’s industry. Commercial relationship managers monitor all loans in their respective portfolios for any changes in the borrower’s ability to service their debt and affirm the risk ratings for the loans at least annually.

For the retail loans, which include residential mortgages, indirect and direct consumer loans, home equity lines and loans, and credit cards, once a loan is properly approved and closed, the Corporation evaluates credit quality based upon loan repayment. Retail loans are not rated until they become 90 days past due.

The Corporation uses the risk rating system to identify criticized and classified loans. Commercial relationships within the criticized and classified risk ratings are analyzed quarterly. The Corporation uses the following definitions for criticized and classified loans (which are consistent with regulatory guidelines):

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position as some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capability of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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 December 31, 2019 and 2018, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):



	December 31, 2019
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	208,552	$	5,915	$	10,361	$	5,820	$	230,648
Agricultural	—		274		—		—		—		274
Commercial mortgages:
Construction	—		40,304		168		3,610		—		44,082
Commercial mortgages	—		577,266		12,451		12,356		4,415		606,488
Residential mortgages	186,719				—		2,155		—		188,874
Consumer loans
Credit cards	—		—		—		—		—		—
Home equity lines and loans	91,424		—		—		641		—		92,065
Indirect consumer loans	134,795		—		—		571		—		135,366
Direct consumer loans	15,099		—		—		7		—		15,106
Total	$	428,037	$	826,396	$	18,534	$	29,701	$	10,235	$	1,312,903



	December 31, 2018
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	190,666	$	4,452	$	6,222	$	1,743	$	203,083
Agricultural	—		329		—		—		—		329
Commercial mortgages:
Construction	—		54,517		—		109		—		54,626
Commercial mortgages	—		574,221		16,830		15,948		1,363		608,362
Residential mortgages	180,570		—		—		2,655		—		183,225
Consumer loans
Credit cards	1,450		—		—		—		—		1,450
Home equity lines and loans	97,283		—		—		1,183		—		98,466
Indirect consumer loans	149,113		—		—		693		—		149,806
Direct consumer loans	16,225		—		—		37		—		16,262
Total	$	444,641	$	819,733	$	21,282	$	26,847	$	3,106	$	1,315,609

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. Non-performing loans include non-accrual loans and non-accrual troubled debt restructurings.

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2019 and 2018 (in thousands):



	December 31, 2019
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	186,719	$	—	$	91,424	$	134,795	$	15,099
Non-Performing	2,155		—		641		571		7
Total	$	188,874	$	—	$	92,065	$	135,366	$	15,106



	December 31, 2018
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	180,570	$	1,450	$	97,283	$	149,113	$	16,225
Non-Performing	2,655		—		1,183		693		37
Total	$	183,225	$	1,450	$	98,466	$	149,806	$	16,262

December 31, 2017

Number of Loans

Recorded Investment

Commercial mortgages:

Commercial mortgages