LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2022

Loans and Leases Receivable Disclosure [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

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, 2022		December 31, 2021
Commercial and agricultural:
Commercial and industrial	$	252,044	$	256,893
Agricultural	249		394
Commercial mortgages:
Construction	108,243		82,204
Commercial mortgages	888,670		720,358
Residential mortgages	285,672		259,334
Consumer loans:
Home equity lines and loans	81,401		70,670
Indirect consumer loans	202,124		118,569
Direct consumer loans	11,045		9,827
Total loans, net of deferred loan fees	1,829,448		1,518,249
Interest receivable on loans	6,548		4,133
Total recorded investment in loans	$	1,835,996	$	1,522,382

The Corporation had no residential mortgages held for sale as of December 31, 2022 and $0.4 million as of December 31, 2021, which are not included in the above table.

Residential mortgages totaling $228.4 million at December 31, 2022 and $204.2 million at December 31, 2021 were pledged under a blanket collateral agreement for the Corporation's line of credit with the FHLBNY.

As of December 31, 2022, the Corporation had outstanding PPP loan balances of $0.7 million, which are included in commercial and industrial loans in the table above. These loans require no allowance for loan losses as of December 31, 2022 since they are government guaranteed loans.

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2022 and 2021, respectively (in thousands):

	December 31, 2022
Allowance for loan losses	Commercial, and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Beginning balance:	$	3,591	$	13,556	$	1,803	$	2,075	$	21,025
Charge Offs:	(20)		(687)		(17)		(770)		(1,494)
Recoveries:	42		3		40		597		682
Net (charge offs) recoveries	22		(684)		23		(173)		(812)
Provision	(240)		(1,296)		19		963		(554)
Ending balance	$	3,373	$	11,576	$	1,845	$	2,865	$	19,659

	December 31, 2021
Allowance for loan losses	Commercial, and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Beginning balance:	$	4,493	$	11,496	$	2,079	$	2,856	$	20,924
Charge Offs:	(28)		(43)		(75)		(593)		(739)
Recoveries:	312		3		10		498		823
Net recoveries (charge offs)	284		(40)		(65)		(95)		84
Provision	(1,186)		2,100		(211)		(686)		17
Ending balance	$	3,591	$	13,556	$	1,803	$	2,075	$	21,025

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, 2022 and December 31, 2021 (in thousands):

	December 31, 2022
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,078	$	38	$	—	$	31	$	1,147
Collectively evaluated for impairment	2,295		11,538		1,845		2,834		18,512
Total ending allowance balance	$	3,373	$	11,576	$	1,845	$	2,865	$	19,659

	December 31, 2021
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,394	$	1,571	$	—	$	65	$	3,030
Collectively evaluated for impairment	2,197		11,985		1,803		2,010		17,995
Total ending allowance balance	$	3,591	$	13,556	$	1,803	$	2,075	$	21,025

	December 31, 2022
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,113	$	4,384	$	760	$	265	$	7,522
Loans collectively evaluated for impairment	251,178		996,477		285,685		295,134		1,828,474
Total ending loans balance	$	253,291	$	1,000,861	$	286,445	$	295,399	$	1,835,996

	December 31, 2021
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,427	$	7,967	$	938	$	315	$	11,647
Loans collectively evaluated for impairment	255,586		796,858		259,029		199,262		1,510,735
Total ending loans balance	$	258,013	$	804,825	$	259,967	$	199,577	$	1,522,382

The following tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2022 and December 31, 2021, the average recorded investment and interest income recognized by class of loan as of the years ended December 31, 2022 and 2021 (in thousands):

	December 31, 2022						December 31, 2021
	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	$	1,026	$	1,025	$	—	$	954	$	948	$	—
Commercial mortgages:
Construction	5		5		—		129		130		—
Commercial mortgages	4,346		4,341		—		6,940		4,278		—
Residential mortgages	767		760		—		951		938		—
Consumer loans:
Home equity lines and loans	154		138		—		185		169		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,086		1,088		1,078		5,350		1,479		1,394
Commercial mortgages:
Commercial mortgages	38		38		38		3,550		3,559		1,571
Consumer loans:
Home equity lines and loans	126		127		31		146		146		65
Total	$	7,548	$	7,522	$	1,147	$	18,205	$	11,647	$	3,030

	December 31, 2022				December 31, 2021
	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	$	814	$	—	$	1,505	$	6
Commercial mortgages:
Construction	71		—		159		6
Commercial mortgages	4,211		14		4,650		30
Residential mortgages	864		37		1,015		40
Consumer loans:
Home equity lines & loans	153		—		273		7
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,453		5		1,505		8
Commercial mortgages:
Commercial mortgages	1,258		—		2,236		49
Consumer loans:
Home equity lines and loans	137		—		157		—
Total	$	8,961	$	56	$	11,500	$	146

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

The following table presents 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, 2022 and December 31, 2021 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	2022		2021		2022		2021
Commercial and agricultural:
Commercial and industrial	$	1,946	$	1,932	$	1	$	4
Commercial mortgages:
Construction	5		34		—		—
Commercial mortgages	3,928		3,844		—		—
Residential mortgages	986		1,039		—		—
Consumer loans:
Home equity lines and loans	760		790		—		—
Indirect consumer loans	540		462		—		—
Direct consumer loans	13		13		—		—
Total	$	8,178	$	8,114	$	1	$	4

The following tables present the aging of the recorded investment in loans as of December 31, 2022 and December 31, 2021 (in thousands):

	December 31, 2022
	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	$	74	$	3	$	1	$	78	$	252,963	$	253,041
Agricultural	—		—		—		—		250		250
Commercial mortgages:
Construction	—		—		—		—		108,671		108,671
Commercial mortgages	1,066		—		486		1,552		890,638		892,190
Residential mortgages	1,386		715		294		2,395		284,050		286,445
Consumer loans:
Home equity lines and loans	194		122		442		758		80,944		81,702
Indirect consumer loans	1,407		195		250		1,852		200,738		202,590
Direct consumer loans	2		19		1		22		11,085		11,107
Total	$	4,129	$	1,054	$	1,474	$	6,657	$	1,829,339	$	1,835,996

	December 31, 2021
	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	$	413	$	148	$	26	$	587	$	257,031	$	257,618
Agricultural	—		—		—		—		395		395
Commercial mortgages:
Construction	—		—		—		—		82,435		82,435
Commercial mortgages	24		224		1,302		1,550		720,840		722,390
Residential mortgages	580		32		652		1,264		258,703		259,967
Consumer loans:
Home equity lines and loans	256		69		424		749		70,105		70,854
Indirect consumer loans	1,179		424		255		1,858		116,997		118,855
Direct consumer loans	24		11		13		48		9,820		9,868
Total	$	2,476	$	908	$	2,672	$	6,056	$	1,516,326	$	1,522,382

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, 2022 and 2021, the Corporation has a recorded investment in TDRs of $5.4 million and $10.3 million, respectively. There were specific reserves of $0.2 million allocated for TDRs at December 31, 2022 and $1.9 million allocated at December 31, 2021. As of December 31, 2022, TDRs totaling $1.4 million were accruing interest under the modified terms and $4.0 million were on non-accrual status. As of December 31, 2021, TDRs totaling $5.6 million were accruing interest under the modified terms and $4.7 million were on non-accrual status. The Corporation has committed no additional amounts to customers with outstanding loans that are classified as TDRs as of December 31, 2022 and 2021.

During the year ended December 31, 2022 there were no loans that were modified as TDRs.

During the year ended December 31, 2021, the terms and conditions of two commercial and industrial loans and four commercial mortgage loans were modified as TDRs. The modification of the terms of all of these loans included a postponement or reduction of the scheduled amortized payments for greater than a three month period.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2021 (in thousands):

December 31, 2021	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	2	$	502	$	502
Commercial mortgages:
Commercial mortgages	4	6,094		6,094
Total	6	$	6,596	$	6,596

The TDRs described above increased the allowance for loan losses by $1.7 million and resulted in no in charge offs during the year ended December 31, 2021.

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 years ended December 31, 2022 and December 31, 2021, within twelve months following the modification.

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, 2022 and 2021, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	December 31, 2022
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	235,900	$	13,349	$	2,899	$	893	$	253,041
Agricultural	—		250		—		—		—		250
Commercial mortgages:
Construction	—		108,488		178		5		—		108,671
Commercial mortgages	—		860,389		23,938		7,825		38		892,190
Residential mortgages	285,459				—		986		—		286,445
Consumer loans
Home equity lines and loans	80,942		—		—		760		—		81,702
Indirect consumer loans	202,050		—		—		540		—		202,590
Direct consumer loans	11,094		—		—		13		—		11,107
Total	$	579,545	$	1,205,027	$	37,465	$	13,028	$	931	$	1,835,996

	December 31, 2021
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	250,529	$	2,892	$	3,108	$	1,089	$	257,618
Agricultural	—		395		—		—		—		395
Commercial mortgages:
Construction	—		82,404		—		31		—		82,435
Commercial mortgages	—		672,741		31,072		17,458		1,119		722,390
Residential mortgages	258,928		—		—		1,039		—		259,967
Consumer loans
Home equity lines and loans	70,064		—		—		790		—		70,854
Indirect consumer loans	118,393		—		—		462		—		118,855
Direct consumer loans	9,855		—		—		13		—		9,868
Total	$	457,240	$	1,006,069	$	33,964	$	22,901	$	2,208	$	1,522,382

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, 2022 and 2021 (in thousands):

	December 31, 2022
			Consumer Loans
	Residential Mortgages		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	285,459	$	80,942	$	202,050	$	11,094
Non-Performing	986		760		540		13
Total	$	286,445	$	81,702	$	202,590	$	11,107

	December 31, 2021
			Consumer Loans
	Residential Mortgages		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	258,928	$	70,064	$	118,393	$	9,855
Non-Performing	1,039		790		462		13
Total	$	259,967	$	70,854	$	118,855	$	9,868