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LOANS AND ALLOWANCE FOR LOAN LOSSES
 3 Months Ended
Mar. 31, 2023
Credit Loss [Abstract]  
LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio, net of deferred origination fees and costs, is summarized as follows (in thousands):
March 31, 2023December 31, 2022
Commercial and agricultural:
Commercial and industrial$244,174 $252,044 
Agricultural333 249 
Commercial mortgages:
Construction118,660 108,243 
Commercial mortgages, other917,637 888,670 
Residential mortgages285,944 285,672 
Consumer loans:
Home equity lines and loans84,537 81,401 
Indirect consumer loans211,270 202,124 
Direct consumer loans11,146 11,045 
Total loans, net of deferred loan fees and costs1,873,701 1,829,448 
Allowance for credit losses(20,075)(19,659)
Loans, net$1,853,626 $1,809,789 

The Corporation's concentrations of credit risk by loan type are reflected in the preceding table. The concentrations of credit risk with standby letters of credit, committed lines of credit and commitments to originate new loans generally follow the loan classifications in the table above.

Accrued interest receivable on loans amounted to $6.3 million at March 31, 2023 and $6.5 million million at December 31, 2022. Accrued interest receivable on loans is included in the "accrued interest receivable and other assets" line item on the Corporation's Consolidated Balance Sheets, and is excluded from the estimate of credit losses.
The following table presents the activity in the allowance for credit losses by portfolio segment for the three month period ended March 31, 2023 (in thousands):
Three Months Ended March 31, 2023
Allowance for credit lossesCommercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Beginning balance$3,373 $11,576 $1,845 $2,865 $19,659 
Cumulative effect adjustment for the adoption of ASC 326909 (695)(16)176 374 
Beginning balance after cumulative effect adjustment 4,282 10,881 1,829 3,041 20,033 
Charge-offs(190)— — (193)(383)
Recoveries6 — — 108 114 
Net recoveries (charge-offs)(184)— — (85)(269)
Provision (1)
(45)102 63 191 311 
Ending balance$4,053 $10,983 $1,892 $3,147 $20,075 
(1) Additional credit provision related to off-balance sheet exposure was $34 thousand for the three months ended March 31, 2023.

Refer to Note 1-Summary of Significant Accounting Policies in our Annual report on Form 10-K for the fiscal year ended December 31, 2022, for the allowance for loan losses policy effective prior to the adoption of ASC 326-Financial Instruments-Credit Losses, as of December 31, 2022.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three month period ended March 31, 2022.
Three Months Ended March 31, 2022
Allowance for loan lossesCommercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Beginning balance$3,591 $13,556 $1,803 $2,075 $21,025 
Charge-offs(4)— — (194)(198)
Recoveries6 1 — 239 246 
Net recoveries (charge-offs)2 1 — 45 48 
Provision(110)(593)(197)(245)(1,145)
Ending balance$3,483 $12,964 $1,606 $1,875 $19,928 
Unfunded Commitments
The allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities in the Consolidated Balance Sheets), with adjustments to the reserve recognized in the provision for credit losses on the Consolidated Statements of Income. The Corporation established a reserve for unfunded commitments in conjunction with its adoption of ASC 326-Financial Instruments-Credit Losses.

The following table presents the activity in the allowance for credit losses on unfunded commitments for the three month periods ended March 31, 2023 and 2022:
For the Three Months Ended
Allowance for credit losses on unfunded commitments March 31, 2023March 31, 2022
Beginning balance $— $— 
Impact of ASC 326 adoption1,082 — 
Provision for unfunded commitments (34)— 
Ending balance $1,048 $— 


The following table presents the provision for credit losses on loans and unfunded commitments for the three month period ended March 31, 2023, based upon the current expected credit loss methodology, and the provision for loan losses on loans for the three month period ended March 31, 2022, based upon the incurred loss methodology:
For the Three Months Ended
Provision for credit lossesMarch 31, 2023March 31, 2022
Provision for credit losses on loans $311 $(1,145)
Provision for unfunded commitments (34)— 
Total provision (credit) for credit losses$277 $(1,145)



The following tables present the balance in the allowance for credit losses and allowance for loan losses, and the amortized cost basis in loans by portfolio segment, as of March 31, 2023 and December 31, 2022 (in thousands):
 March 31, 2023
Allowance for credit lossesCommercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Ending allowance balance attributable to loans:
Individually analyzed$1,040 $36 $— $— $1,076 
Collectively analyzed3,013 10,947 1,892 3,147 18,999 
   Total ending allowance balance$4,053 $10,983 $1,892 $3,147 $20,075 

 December 31, 2022
Allowance for loan lossesCommercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Ending allowance balance attributable to loans:
Individually evaluated for impairment$1,078 $38 $— $31 $1,147 
Collectively evaluated for impairment2,295 11,538 1,845 2,834 18,512 
   Total ending allowance balance$3,373 $11,576 $1,845 $2,865 $19,659 
 March 31, 2023
Loans:Commercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Loans individually analyzed $1,779 $4,089 $715 $254 $6,837 
Loans collectively analyzed242,728 1,032,208 285,229 306,699 1,866,864 
   Total ending loans balance$244,507 $1,036,297 $285,944 $306,953 $1,873,701 


 December 31, 2022
Loans:Commercial and AgriculturalCommercial MortgagesResidential MortgagesConsumer LoansTotal
Loans individually evaluated for impairment$2,112 $4,383 $723 $264 $7,482 
Loans collectively evaluated for impairment250,181 992,530 284,949 294,306 1,821,966 
   Total ending loans balance$252,293 $996,913 $285,672 $294,570 $1,829,448 


Modifications to Loans Made to Borrowers Experiencing Financial Difficulty
Effective January 1, 2023, the Corporation adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326)-Troubled Debt Restructurings and Vintage Disclosures. The Corporation may occasionally make modifications to loans where the borrower is considered to be experiencing financial difficulty. Types of modifications considered under ASU 2022-02 include principal reductions, interest rate reductions, term extensions, or a combination thereof.

The following table summarizes the amortized cost basis of loans modified as of March 31, 2023:
March 31, 2023
Loans modified under ASU 2022-02:Principal ReductionInterest Rate ReductionTerm ExtensionCombinationTotal
(%) of Loan Class (1)
Commercial mortgages $— $— $277 $— $277 0.03 %
Total$— $— $277 $— $277 
(1) Represents the amortized cost basis of loans modified during the period as a percentage of the period-end loan balances by class.


The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three month period ended March 31, 2023:
March 31, 2023
Effect of loan modifications under ASU 2022-02:Principal Reduction (in thousands)Weighted-average interest rate reduction (%)Weighted-average term extension (in months)
Commercial mortgages $——%60


Individually Analyzed Loans
Effective January 1, 2023, the Corporation began analyzing loans on an individual basis when management determined that the loan no longer exhibited risk characteristics consistent with the risk characteristics existing in its designated pool of loans, under the Corporation's CECL methodology. Loans individually analyzed include certain non-accrual commercial and consumer loans, as well as certain loans previously identified under prior troubled debt restructuring (TDR) guidance.
As of March 31, 2023, the amortized cost basis of individually analyzed loans amounted to $6.8 million, of which $6.0 million were considered collateral dependent. For collateral dependent loans where the borrower is experiencing financial difficulty and repayment is likely to be substantially provided through the sale or operation of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan, at measurement date. Certain assets held as collateral may be exposed to future deterioration in fair value, particularly due to changes in real estate markets or usage.

The following table presents the amortized cost basis and related allowance for credit loss of individually analyzed loans considered to be collateral dependent as of March 31, 2023 (in thousands):
March 31, 2023
Amortized Cost BasisRelated Allowance
Commercial and agricultural:
Commercial and industrial (1) (3)
$573 $168 
Commercial mortgages:
Commercial mortgages, other (1)
4,413 36 
Residential mortgages (2)
715 — 
Consumer loans
Home equity lines and loans (2)
254 — 
Total$5,955 $204 
(1) Secured by commercial real estate
(2) Secured by residential real estate
(3) Secured by business assets


Prior to January 1, 2023, the Corporation considered a loan to be impaired when, based on currently available information, it was deemed probable that the Corporation would not be able to collect on the loan's contractually determined principal and interest payments. Impaired loans included loans on non-accrual status and troubled debt restructurings (TDRs). The Corporation identified loss allocations for impaired loans on an individual basis, and in conformity with its methodology under the incurred loss framework.
The following is a summary of impaired loans as of December 31, 2022 (in thousands):
 December 31, 2022
With no related allowance recorded:Unpaid Principal BalanceRecorded InvestmentAllowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial$1,026 $1,025 $— 
Commercial mortgages:
Construction5 5 — 
Commercial mortgages, other4,346 4,341 — 
Residential mortgages767 760 — 
Consumer loans:
Home equity lines and loans154 138 — 
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial1,086 1,088 1,078 
Commercial mortgages:
Commercial mortgages, other38 38 38 
Consumer loans:
Home equity lines and loans126 127 31 
Total$7,548 $7,522 $1,147 


The following table presents the amortized cost basis and interest income of loans individually evaluated recognized by class of loans for the three month periods ended March 31, 2023 and 2022 (in thousands):

 Three Months Ended 
 March 31, 2023		Three Months Ended 
 March 31, 2022
With no related allowance recorded:Amortized Cost Basis
Interest Income Recognized (1)
Amortized Cost Basis
Interest Income Recognized (1)
Commercial and agricultural:
   Commercial and industrial$729 $— $926 $3 
Commercial mortgages:
Construction— — 113 1 
Commercial mortgages, other4,053 7 4,105 7 
Residential mortgages715 9 895 11 
Consumer loans:
Home equity lines & loans254 — 161 1 
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial1,049 2 1,414 3 
Commercial mortgages:
Commercial mortgages, other36 — 2,601 21 
Consumer loans:
Home equity lines and loans— — 141 — 
Total$6,836 $18 $10,356 $47 
(1)Cash basis interest income approximates interest income recognized.
The following table presents the amortized cost basis in non-accrual and loans past due 90 days or more and still accruing by class of loan as of March 31, 2023 and December 31, 2022 (in thousands):

Non-accrual with no allowance for credit lossesNon-accrualLoans Past Due 90 Days or More and Still Accruing
March 31, 2023March 31, 2023December 31, 2022March 31, 2023December 31, 2022
Commercial and agricultural:
Commercial and industrial$730 $1,623 $1,946 $6 $1 
Commercial mortgages:
Construction— — 5 — — 
Commercial mortgages, other3,611 3,647 3,928 — — 
Residential mortgages1,036 1,036 986 — — 
Consumer loans:
Home equity lines and loans866 866 760 — — 
Indirect consumer loans556 556 540 — — 
Direct consumer loans3 3 13 — — 
Total$6,802 $7,731 $8,178 $6 $1 



The following tables present the aging of the amortized cost basis of loans as of March 31, 2023 and December 31, 2022 (in thousands):
March 31, 2023
 30 - 59 Days Past Due60 - 89 Days Past Due90 Days or More Past DueTotal Past DueLoans Not Past DueTotal
Commercial and agricultural:
Commercial and industrial$67 $8 $16 $91 $244,083 $244,174 
Agricultural— — — — 333 333 
Commercial mortgages: 
Construction2,284 — — 2,284 116,376 118,660 
Commercial mortgages, other246 — 297 543 917,094 917,637 
Residential mortgages933 57 412 1,402 284,542 285,944 
Consumer loans: 
Home equity lines and loans261 57 568 886 83,651 84,537 
Indirect consumer loans1,036 52 265 1,353 209,917 211,270 
Direct consumer loans10 — — 10 11,136 11,146 
Total$4,837 $174 $1,558 $6,569 $1,867,132 $1,873,701 
December 31, 2022
 30 - 59 Days Past Due60 - 89 Days Past Due90 Days or More Past DueTotal Past DueLoans Not Past DueTotal
Commercial and agricultural:
Commercial and industrial$74 $3 $1 $78 $251,966 $252,044 
Agricultural— — — — 249 249 
Commercial mortgages: 
Construction— — — — 108,243 108,243 
Commercial mortgages, other1,058 — 486 1,544 887,126 888,670 
Residential mortgages1,360 709 294 2,363 283,309 285,672 
Consumer loans: 
Home equity lines and loans193 121 442 756 80,645 81,401 
Indirect consumer loans1,397 193 250 1,840 200,284 202,124 
Direct consumer loans2 19 1 22 11,023 11,045 
Total$4,084 $1,045 $1,474 $6,603 $1,822,845 $1,829,448 


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 its debt and affirm the risk ratings for the loans at least annually.

For 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 at 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.

Commercial loans not meeting the criteria above to be considered criticized or classified, are considered to be pass rated loans. Loans listed as not rated, are included in groups of homogeneous loans performing under terms of the loan notes.
Based on the analyses performed as of March 31, 2023, the risk category of the amortized cost basis of loans by class of loans and vintage, as well as the gross charge-offs by loan class and vintage for the period, are as follows (in thousands):
Term Loans Amortized Cost by Origination YearRevolving Loans Amortized CostRevolving Loans Converted to TermTotal
20232022202120202019Prior
Commercial & industrial
Pass$7,750 $43,899 $21,452 $14,723 $38,017 $12,844 $88,666 $— $227,351 
Special mention100 104 350 3 86 457 3,478 9,315 13,893 
Substandard — 36 — 412 28 370 629 588 2,063 
Doubtful— — — — — 867 — — 867 
Total7,850 44,039 21,802 15,138 38,131 14,538 92,773 9,903 244,174 
Gross charge-offs $— $— $— $— $— $190 $— $— $190 
Agricultural
Pass— 17 170 — — — 146 — 333 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Total— 17 170 — — — 146 — 333 
Gross charge-offs— — — — — — — — — 
Construction
Pass8,311 2,819 1,975 — 2,317 1,205 101,857 — 118,484 
Special mention— 176 — — — — — — 176 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Total8,311 2,995 1,975 — 2,317 1,205 101,857 — 118,660 
Gross charge-offs— — — — — — — — — 
Commercial mortgages
Pass 31,729 214,915 129,614 99,057 40,489 180,523 192,038 — 888,365 
Special mention— 2,563 8,828 1,033 — 3,867 — 6,154 22,445 
Substandard277 1,186 — — — 4,790 97 441 6,791 
Doubtful— — — — — 36 — — 36 
Total32,006 218,664 138,442 100,090 40,489 189,216 192,135 6,595 917,637 
Gross charge-offs— — — — — — — — — 
Residential mortgages
Not rated5,594 52,576 52,443 75,198 16,416 52,615 30,066 — 284,908 
Substandard — 107 64 111 181 573 — — 1,036 
Total 5,594 52,683 52,507 75,309 16,597 53,188 30,066 — 285,944 
Gross charge-offs— — — — — — — — — 
Home equity lines and loans
Not rated3,945 19,073 6,477 3,827 3,110 12,740 34,500 — 83,672 
Substandard — — — — 121 392 352 — 865 
Total3,945 19,073 6,477 3,827 3,231 13,132 34,852 — 84,537 
Gross charge-offs— — — — — — 8 — 8 
Indirect consumer
Not rated26,012 123,593 32,138 14,374 7,385 7,211 — — 210,713 
Substandard — 186 98 59 73 141 — — 557 
Total26,012 123,779 32,236 14,433 7,458 7,352 — — 211,270 
Gross charge-offs— 43 36 30 12 23 — — 144 
Direct consumer
Not rated1,121 3,956 1,330 630 266 478 3,362 — 11,143 
Substandard— — — — — 3 — — 3 
Total 1,121 3,956 1,330 630 266 481 3,362 — 11,146 
Gross charge-offs— — 1 4 — 36 — — 41 
Total loans $84,839 $465,206 $254,939 $209,427 $108,489 $279,112 $455,191 $16,498 $1,873,701 
Total gross charge-offs$— $43 $37 $34 $12 $249 $8 $— $383 
Prior to the adoption of ASC 326-Financial Instruments-Credit Losses, loans not meeting the criteria above that were analyzed individually as part of the above described process were considered pass rated loans as of December 31, 2022. Based upon the analyses performed as of December 31, 2022, the risk category of the recorded investment of loans by class of loans was as follows (in thousands):
 December 31, 2022
 Not RatedPassSpecial MentionSubstandardDoubtfulTotal
Commercial and agricultural:
Commercial and industrial$— $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 mortgages285,459 — — 986 — 286,445 
Consumer loans:
Home equity lines and loans80,942 — — 760 — 81,702 
Indirect consumer loans202,050 — — 540 — 202,590 
Direct consumer loans11,094 — — 13 — 11,107 
Total$579,545 $1,205,027 $37,465 $13,028 $931 $1,835,996 

For residential and consumer loan classes, the Corporation also evaluated credit quality based on the aging status of the loan, which was previously presented, by payment activity. The following table presents the amortized cost basis in residential and consumer loans based on payment activity as of March 31, 2023 (in thousands):
 Consumer Loans
March 31, 2023Residential MortgagesHome Equity Lines and LoansIndirect Consumer LoansOther Direct Consumer Loans
Performing$284,908 $83,672 $210,713 $11,143 
Non-Performing1,036 865 557 3 
 Total$285,944 $84,537 $211,270 $11,146 

Prior to the adoption of ASC 326-Financial Instruments-Credit Losses, the Corporation also evaluated credit quality based on the aging status of the loan, which was previously presented, by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2022 (in thousands):
 Consumer Loans
December 31, 2022Residential MortgagesHome Equity Lines and LoansIndirect Consumer LoansOther Direct Consumer Loans
Performing$285,459 $80,942 $202,050 $11,094 
Non-Performing986 760 540 13 
 Total$286,445 $81,702 $202,590 $11,107