LOANS

6 Months Ended

Jun. 30, 2021

LOANS

LOANS

7. LOANS

The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans. Loans outstanding at June 30, 2021 and December 31, 2020 are summarized by segment, and by classes within each segment, as follows:

Summary of Loans by Type

(In Thousands)

	June 30,		December 31,
	2021		2020
Commercial:
Commercial loans secured by real estate	$	544,202	$	531,810
Commercial and industrial		158,907		159,577
Paycheck Protection Program - 1st Draw		37,902		132,269
Paycheck Protection Program - 2nd Draw		72,409		0
Political subdivisions		48,849		53,221
Commercial construction and land		43,178		42,874
Loans secured by farmland		10,950		11,736
Multi-family (5 or more) residential		51,916		55,811
Agricultural loans		2,379		3,164
Other commercial loans		14,711		17,289
Total commercial		985,403		1,007,751
Residential mortgage:
Residential mortgage loans - first liens		507,579		532,947
Residential mortgage loans - junior liens		25,287		27,311
Home equity lines of credit		39,432		39,301
1-4 Family residential construction		23,567		20,613
Total residential mortgage		595,865		620,172
Consumer		16,588		16,286
Total		1,597,856		1,644,209
Less: allowance for loan losses		(12,375)		(11,385)
Loans, net	$	1,585,481	$	1,632,824

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $7,044,000 at June 30, 2021 and $6,286,000 at December 31, 2020.

The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in northcentral Pennsylvania, the southern tier of New York State and southeastern Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act is a $2 trillion stimulus package designed to provide relief to U.S. businesses and consumers struggling as a result of the pandemic. A provision in the CARES Act includes creation of the Paycheck Protection Program (“PPP”) through the Small Business Administration

(“SBA”) and Treasury Department. Under the PPP, the Corporation, as an SBA-certified lender, provides SBA-guaranteed loans to small businesses to pay their employees, rent, mortgage interest, and utilities. PPP loans will be forgiven subject to clients’ providing documentation evidencing their compliant use of funds and otherwise complying with the terms of the program.  Information related to PPP loans advanced pursuant to the CARES Act are labeled “1st Draw” within the tables.

Section 4013 of the CARES Act provides that, from the period beginning March 1, 2020 until 60 days after the date on which the national emergency concerning the coronavirus (COVID-19) pandemic declared by the President of the United States under the National Emergencies Act terminates (the “applicable period”), the Corporation may elect to suspend U.S. GAAP for loan modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (TDRs) and suspend any determination of a loan modified as a result of the effects of the pandemic as being a TDR, including impairment for accounting purposes. The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The suspension is not applicable to any adverse impact on the credit of a borrower that is not related to the pandemic.

In addition, the banking regulators and other financial regulators, on March 22, 2020 and revised April 7, 2020, issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. Pursuant to the interagency statement, loan modifications that do not meet the conditions of Section 4013 of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. Specifically, the agencies confirmed with the FASB staff that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are not TDRs under U.S. GAAP. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease losses are expected to be maintained. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to the pandemic as past due because of the deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should not be reported as nonaccrual.

On December 27, 2020, the President of the United States signed into law the Consolidated Appropriations Act, 2021 (the “CAA”), which both funds the federal government until September 30, 2021 and broadly addresses additional COVID-19 responses and relief.  Among the additional relief measures included are certain extensions to elements of the CARES Act, including extension of temporary relief from troubled debt restructurings established under Section 4013 of the CARES Act to the earlier of a) January 1, 2022, or b) the date that is 60 days after the date on which the national COVID-19 emergency terminates. The CAA also includes additional funding for the PPP with additional eligibility requirements for borrowers with generally the same loan terms as provided under the CARES Act. Information related to PPP loans advanced pursuant to the CAA are labeled “2nd Draw” within the tables.

The maximum term of PPP loans is five years. Most of the Corporation’s 1st Draw PPP loans have two-year terms, while 2nd Draw PPP loans have  five-year terms and the Corporation will be repaid sooner to the extent the loans are forgiven. The interest rate on PPP loans is 1%, and the Corporation has received fees from the SBA ranging between 1% and 5% per loan, depending on the size of the loan. Fees on PPP loans, net of origination costs and a market rate adjustment on PPP loans acquired from Covenant, are recognized in interest income as a yield adjustment over the term of the loans.

The Corporation began accepting and processing applications for loans under the PPP on April 3, 2020. Covenant also engaged in PPP lending starting in early April 2020. As of June 30, 2021, the recorded investment in 1st Draw PPP loans was $37,902,000, including contractual principal balances of $38,706,000, increased by a market rate adjustment on PPP loans acquired from Covenant of $50,000 and reduced by net deferred origination fees of $854,000.  The recorded investment in 2nd Draw PPP loans was $72,409,000, including contractual principal balances of $75,446,000 reduced by net deferred origination fees of $3,037,000. Accretion of fees received on 1st Draw PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $722,000 and the accretion of fees on 2nd Draw PPP loans was $200,000 in the three-month period ended June 30, 2021.  For the six-month period ended June 30, 2021, accretion of fees received on 1st Draw PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $2,270,000 and the accretion of fees on 2nd Draw PPP loans was $297,000. For the three-month and six-month periods ended June 30, 2020, accretion of fees on 1st draw PPP loans was $337,000.

To work with clients impacted by COVID-19, the Corporation is offering short-term loan modifications on a case-by-case basis to borrowers who were current in their payments at the inception of the loan modification program. Prior to the merger, Covenant had a

similar program in place, and these modified loans have been incorporated into the Corporation’s program. These efforts have been designed to assist borrowers as they deal with the crisis and help the Corporation mitigate credit risk. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term. Consistent with Section 4013 of the CARES Act, the modified loans have not been reported as past due, nonaccrual  or as TDRs at June 30, 2021. Most of the initial modifications under the program became effective in March 2020 or the second quarter 2020 and provided a deferral of interest or principal and interest for 90-to-180 days. Many of the loans for which deferrals were granted returned to full payment status prior to June 30, 2021, while additional deferrals have been granted on certain loans.

At June 30, 2021, there were 12 loans in deferral status subject to CARES Act Section 4013 guidance with a total recorded investment of $6.7 million. Total loans in deferral status at June 30, 2021 is down from $26.0 million at March 31, 2021 and down significantly from 693 loans and $241.2 million (including 152 loans and $82.5 million reported by Covenant) at June 30, 2020. The amount of loans in deferral status has fallen over the past several quarters as the local and U.S. economy has reopened. The quantity and balances of modifications outstanding under the program and a summary of their risk ratings at June 30, 2021 are as follows:

	Deferrals Remaining
	As of June 30, 2021
(Dollars in Thousands)	Number					Purchased
	of			Special		Credit
	Loans	Pass		Mention		Impaired		Total
COVID-19-related loan modifications:
Commercial
Accommodation and food services - hotels	1	$	0	$	3,094	$	0	$	3,094
Lessors of residential buildings and dwellings	3		113		0		1,557		1,670
Transportation and warehousing	4		1,197		0		0		1,197
Real estate rental and leasing - other	1		438		0		0		438
Total commercial	9		1,748		3,094		1,557		6,399
Residential mortgage	3		254		0		0		254
Total	12	$	2,002	$	3,094	$	1,557	$	6,653

For the loans in the table above, the deferral periods as of June 30, 2021 expire in the third quarter of 2021. The Corporation will continue to evaluate requests for additional deferrals on a case-by-case basis.

As described in Note 2, effective July 1, 2020, the Corporation acquired loans pursuant to its acquisition of Covenant, and effective April 1, 2019, the Corporation acquired loans pursuant to the acquisition of Monument Bancorp, Inc. (“Monument”). The acquired loans were recorded at their initial fair value, with adjustments made to the gross amortized cost of loans based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans. Subsequent to the acquisitions, the Corporation has recognized amortization and accretion of a portion of the market rate adjustments and credit adjustments on non-impaired (performing) loans, and a partial recovery of purchased credit impaired (PCI) loans. For the three-month and six-month periods ended June 30, 2021 and 2020, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

(In Thousands)
	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Market Rate Adjustment
Adjustments to gross amortized cost of loans at beginning of period	$	352	$	(1,268)	$	718	$	(1,415)
(Amortization) accretion recognized in interest income		(357)		165		(723)		312
Adjustments to gross amortized cost of loans at end of period	$	(5)	$	(1,103)	$	(5)	$	(1,103)
Credit Adjustment on Non-impaired Loans
Adjustments to gross amortized cost of loans at beginning of period	$	(5,182)	$	(1,011)	$	(5,979)	$	(1,216)
Accretion recognized in interest income		680		133		1,477		338
Adjustments to gross amortized cost of loans at end of period	$	(4,502)	$	(878)	$	(4,502)	$	(878)

A summary of PCI loans held at June 30, 2021 and December 31, 2020 is as follows:

(In Thousands)	June 30,		December 31,
	2021		2020
Outstanding balance	$	10,189	$	10,316
Carrying amount		6,733		6,841

The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of June 30, 2021 and December 31, 2020, management determined that no allowance for credit losses related to unfunded loan commitments was required.

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month and six-month periods ended June 30, 2021 and 2020 were as follows:

Three Months Ended June 30, 2021	March 31, 2021								June 30, 2021
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	3,350	$	0	$	2	$	100	$	3,452
Commercial and industrial		2,187		0		0		594		2,781
Commercial construction and land		476		0		0		(24)		452
Loans secured by farmland		111		0		0		2		113
Multi-family (5 or more) residential		255		0		0		(105)		150
Agricultural loans		26		0		0		(1)		25
Other commercial loans		159		0		0		(14)		145
Total commercial		6,564		0		2		552		7,118
Residential mortgage:
Residential mortgage loans - first liens		3,507		(11)		1		39		3,536
Residential mortgage loans - junior liens		334		0		0		(7)		327
Home equity lines of credit		281		0		1		12		294
1-4 Family residential construction		78		0		0		120		198
Total residential mortgage		4,200		(11)		2		164		4,355
Consumer		220		(36)		13		34		231
Unallocated		677		0		0		(6)		671
Total Allowance for Loan Losses	$	11,661	$	(47)	$	17	$	744	$	12,375

Three Months Ended June 30, 2020	March 31, 2020								June 30, 2020
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	1,932	$	0	$	0	$	494	$	2,426
Commercial and industrial		2,645		0		0		(149)		2,496
Commercial construction and land		970		(107)		0		(443)		420
Loans secured by farmland		144		0		0		2		146
Multi-family (5 or more) residential		199		0		0		(36)		163
Agricultural loans		39		0		0		1		40
Other commercial loans		160		0		0		7		167
Total commercial		6,089		(107)		0		(124)		5,858
Residential mortgage:
Residential mortgage loans - first liens		3,572		0		1		(42)		3,531
Residential mortgage loans - junior liens		414		0		0		(49)		365
Home equity lines of credit		278		0		1		8		287
1-4 Family residential construction		119		0		0		18		137
Total residential mortgage		4,383		0		2		(65)		4,320
Consumer		273		(39)		16		13		263
Unallocated		585		0		0		0		585
Total Allowance for Loan Losses	$	11,330	$	(146)	$	18	$	(176)	$	11,026

For the three months ended June 30, 2021, the provision for loan losses was $744,000, an increase in expense of $920,000 as compared to the credit for loan losses of $176,000 for the three months ended June 30, 2020. The second quarter 2021 provision included a net charge of $383,000 related to specific loans (net increase in specific allowances on loans of $353,000 and net charge-offs of $30,000), an increase of $367,000 in the collectively determined portion of the allowance and a $6,000 decrease in the unallocated portion. The credit for loan losses in the second quarter 2020 included the benefit of repayment of a loan for less than the full principal balance,

resulting in a charge-off of $107,000 on a commercial loan for which an allowance for loan losses of $674,000 had been recorded at March 31, 2020.

	December 31,								June 30,
Six Months Ended June 30, 2021	2020						Provision		2021
(In Thousands)	Balance		Charge-offs		Recoveries		(Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	3,051	$	0	$	2	$	399	$	3,452
Commercial and industrial		2,245		0		14		522		2,781
Commercial construction and land		454		0		0		(2)		452
Loans secured by farmland		120		0		0		(7)		113
Multi-family (5 or more) residential		236		0		0		(86)		150
Agricultural loans		34		0		0		(9)		25
Other commercial loans		168		0		0		(23)		145
Total commercial		6,308		0		16		794		7,118
Residential mortgage:
Residential mortgage loans - first liens		3,524		(11)		2		21		3,536
Residential mortgage loans - junior liens		349		0		0		(22)		327
Home equity lines of credit		281		0		2		11		294
1-4 Family residential construction		99		0		0		99		198
Total residential mortgage		4,253		(11)		4		109		4,355
Consumer		239		(47)		25		14		231
Unallocated		585		0		0		86		671
Total Allowance for Loan Losses	$	11,385	$	(58)	$	45	$	1,003	$	12,375

	December 31,								June 30,
Six Months Ended June 30, 2020	2019						Provision		2020
(In Thousands)	Balance		Charge-offs		Recoveries		(Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	1,921	$	0	$	0	$	505	$	2,426
Commercial and industrial		1,391		(17)		0		1,122		2,496
Commercial construction and land		966		(107)		0		(439)		420
Loans secured by farmland		158		0		0		(12)		146
Multi-family (5 or more) residential		156		0		0		7		163
Agricultural loans		41		0		0		(1)		40
Other commercial loans		155		0		0		12		167
Total commercial		4,788		(124)		0		1,194		5,858
Residential mortgage:
Residential mortgage loans - first liens		3,405		0		2		124		3,531
Residential mortgage loans - junior liens		384		0		1		(20)		365
Home equity lines of credit		276		0		2		9		287
1-4 Family residential construction		117		0		0		20		137
Total residential mortgage		4,182		0		5		133		4,320
Consumer		281		(70)		27		25		263
Unallocated		585		0		0		0		585
Total Allowance for Loan Losses	$	9,836	$	(194)	$	32	$	1,352	$	11,026

For the six months ended June 30, 2021, the provision for loan losses was $1,003,000, a decrease in expense of $349,000 as compared to $1,352,000 recorded for the first six months ended June 30, 2020. The provision for the six months ended June 30, 2021, includes a net charge of $565,000 related to specific loans (increase in specific allowances on loans of $552,000 and net charge-offs of $13,000),

an increase of $352,000 in the collectively determined portion of the allowance and an $86,000 increase in the unallocated portion. In comparison, the provision for loan losses in the first six months of 2020 included the effects of recording a specific allowance of $1,193,000 on a commercial loan for which a charge-off of $2,219,000 was subsequently recorded in the third quarter 2020.

In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention.  Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” column in the table that follows.

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of June 30, 2021 and December 31, 2020:

June 30, 2021									Purchased
(In Thousands)			Special						Credit
	Pass		Mention		Substandard		Doubtful		Impaired		Total
Commercial:
Commercial loans secured by real estate	$	504,470	$	15,967	$	19,529	$	0	$	4,236	$	544,202
Commercial and Industrial		143,810		7,585		6,731		0		781		158,907
Paycheck Protection Program - 1st Draw		37,902		0		0		0		0		37,902
Paycheck Protection Program - 2nd Draw		72,409		0		0		0		0		72,409
Political subdivisions		48,849		0		0		0		0		48,849
Commercial construction and land		42,415		715		48		0		0		43,178
Loans secured by farmland		9,735		390		825		0		0		10,950
Multi-family (5 or more) residential		47,089		2,367		882		0		1,578		51,916
Agricultural loans		1,810		0		569		0		0		2,379
Other commercial loans		14,704		7		0		0		0		14,711
Total commercial		923,193		27,031		28,584		0		6,595		985,403
Residential Mortgage:
Residential mortgage loans - first liens		492,636		5,335		9,535		0		73		507,579
Residential mortgage loans - junior liens		24,485		125		612		0		65		25,287
Home equity lines of credit		38,739		59		634		0		0		39,432
1-4 Family residential construction		23,567		0		0		0		0		23,567
Total residential mortgage		579,427		5,519		10,781		0		138		595,865
Consumer		16,476		0		112		0		0		16,588
Totals	$	1,519,096	$	32,550	$	39,477	$	0	$	6,733	$	1,597,856

December 31, 2020									Purchased
(In Thousands)			Special						Credit
	Pass		Mention		Substandard		Doubtful		Impaired		Total
Commercial:
Commercial loans secured by real estate	$	494,876	$	17,374	$	15,262	$	0	$	4,298	$	531,810
Commercial and Industrial		143,500		8,025		7,268		0		784		159,577
Paycheck Protection Program - 1st Draw		132,269		0		0		0		0		132,269
Political subdivisions		53,221		0		0		0		0		53,221
Commercial construction and land		42,110		715		49		0		0		42,874
Loans secured by farmland		10,473		405		858		0		0		11,736
Multi-family (5 or more) residential		50,563		2,405		1,229		0		1,614		55,811
Agricultural loans		2,569		0		595		0		0		3,164
Other commercial loans		17,289		0		0		0		0		17,289
Total commercial		946,870		28,924		25,261		0		6,696		1,007,751
Residential Mortgage:
Residential Mortgage loans - first liens		516,685		6,192		9,994		0		76		532,947
Residential Mortgage loans - junior liens		26,480		141		621		0		69		27,311
Home equity lines of credit		38,529		59		713		0		0		39,301
1-4 Family residential construction		20,613		0		0		0		0		20,613
Total residential mortgage		602,307		6,392		11,328		0		145		620,172
Consumer		16,172		0		114		0		0		16,286
Totals	$	1,565,349	$	35,316	$	36,703	$	0	$	6,841	$	1,644,209

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of June 30, 2021 and December 31, 2020.

June 30, 2021	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	11,400	$	532,802	$	544,202	$	683	$	2,769	$	3,452
Commercial and industrial		4,654		154,253		158,907		654		2,127		2,781
Paycheck Protection Program - 1st Draw		0		37,902		37,902		0		0		0
Paycheck Protection Program - 2nd Draw		0		72,409		72,409		0		0		0
Political subdivisions		0		48,849		48,849		0		0		0
Commercial construction and land		0		43,178		43,178		0		452		452
Loans secured by farmland		84		10,866		10,950		0		113		113
Multi-family (5 or more) residential		1,578		50,338		51,916		0		150		150
Agricultural loans		0		2,379		2,379		0		25		25
Other commercial loans		0		14,711		14,711		0		145		145
Total commercial		17,716		967,687		985,403		1,337		5,781		7,118
Residential mortgage:
Residential mortgage loans - first liens		1,027		506,552		507,579		0		3,536		3,536
Residential mortgage loans - junior liens		403		24,884		25,287		140		187		327
Home equity lines of credit		0		39,432		39,432		0		294		294
1-4 Family residential construction		0		23,567		23,567		0		198		198
Total residential mortgage		1,430		594,435		595,865		140		4,215		4,355
Consumer		0		16,588		16,588		0		231		231
Unallocated												671
Total	$	19,146	$	1,578,710	$	1,597,856	$	1,477	$	10,227	$	12,375

December 31, 2020	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	11,962	$	519,848	$	531,810	$	692	$	2,359	$	3,051
Commercial and industrial		1,359		158,218		159,577		71		2,174		2,245
Paycheck Protection Program - 1st Draw		0		132,269		132,269		0		0		0
Political subdivisions		0		53,221		53,221		0		0		0
Commercial construction and land		0		42,874		42,874		0		454		454
Loans secured by farmland		84		11,652		11,736		0		120		120
Multi-family (5 or more) residential		1,614		54,197		55,811		0		236		236
Agricultural loans		0		3,164		3,164		0		34		34
Other commercial loans		0		17,289		17,289		0		168		168
Total commercial		15,019		992,732		1,007,751		763		5,545		6,308
Residential mortgage:
Residential mortgage loans - first liens		2,385		530,562		532,947		9		3,515		3,524
Residential mortgage loans - junior liens		414		26,897		27,311		153		196		349
Home equity lines of credit		0		39,301		39,301		0		281		281
1-4 Family residential construction		0		20,613		20,613		0		99		99
Total residential mortgage		2,799		617,373		620,172		162		4,091		4,253
Consumer		0		16,286		16,286		0		239		239
Unallocated												585
Total	$	17,818	$	1,626,391	$	1,644,209	$	925	$	9,875	$	11,385

Summary information related to impaired loans at June 30, 2021 and December 31, 2020 is provided in the table immediately below.

(In Thousands)	June 30, 2021						December 31, 2020
	Unpaid						Unpaid
	Principal		Recorded		Related		Principal		Recorded		Related
	Balance		Investment		Allowance		Balance		Investment		Allowance
With no related allowance recorded:
Commercial loans secured by real estate	$	6,667	$	4,909	$	0	$	7,168	$	5,398	$	0
Commercial and industrial		1,636		1,235		0		1,781		1,287		0
Residential mortgage loans - first liens		736		648		0		1,248		1,248		0
Residential mortgage loans - junior liens		151		98		0		160		105		0
Loans secured by farmland		84		84		0		84		84		0
Multi-family (5 or more) residential		2,734		1,578		0		2,770		1,614		0
Total with no related allowance recorded		12,008		8,552		0		13,211		9,736		0
With a related allowance recorded:
Commercial loans secured by real estate		6,491		6,491		683		6,501		6,501		691
Commercial and industrial		3,419		3,419		654		72		72		72
Residential mortgage loans - first liens		379		379		0		1,200		1,200		9
Residential mortgage loans - junior liens		305		305		140		309		309		153
Total with a related allowance recorded		10,594		10,594		1,477		8,082		8,082		925
Total	$	22,602	$	19,146	$	1,477	$	21,293	$	17,818	$	925

In the table immediately above, loans to two borrowers are presented under the Residential mortgage loans – first liens and Residential mortgage loans – junior liens classes. Each of these loans is collateralized by one property, and the allowance associated with each of these loans was determined based on an analysis of the total amounts of the Corporation’s exposure in comparison to the estimated net

proceeds if the Corporation were to sell the property. The total allowance related to these two borrowers was $140,000 at June 30, 2021 and $153,000 at December 31, 2020.

The average balance of impaired loans, excluding purchased credit impaired loans, and interest income recognized on these impaired loans is as follows:

(In Thousands)									Interest Income Recognized on
	Average Investment in Impaired Loans								Impaired Loans on a Cash Basis
	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Commercial:
Commercial loans secured by real estate	$	12,022	$	3,771	$	12,137	$	2,079	$	85	$	12	$	229	$	16
Commercial and industrial		2,754		4,460		1,927		3,666		9		19		21		20
Commercial construction and land		0		678		0		993		0		1		0		13
Loans secured by farmland		84		422		84		469		0		7		1		24
Multi-family (5 or more) residential		1,578		0		1,587		0		30		0		91		0
Agricultural loans		67		76		68		76		1		2		3		2
Other commercial loans		0		25		0		37		0		0		0		1
Total commercial		16,505		9,432		15,803		7,320		125		41		345		76
Residential mortgage:
Residential mortgage loans - first lien		1,717		1,398		2,084		1,315		20		35		57		43
Residential mortgage loans - junior lien		430		391		433		387		4		13		9		13
Home equity lines of credit		0		65		0		65		0		1		0		2
Total residential mortgage		2,147		1,854		2,517		1,767		24		49		66		58
Total	$	18,652	$	11,286	$	18,320	$	9,087	$	149	$	90	$	411	$	134

The breakdown by portfolio segment and class of nonaccrual loans and loans past due ninety days or more and still accruing is as follows:

(In Thousands)	June 30, 2021				December 31, 2020
	Past Due				Past Due
	90+ Days and				90+ Days and
	Accruing		Nonaccrual		Accruing		Nonaccrual
Commercial:
Commercial loans secured by real estate	$	756	$	11,300	$	395	$	11,550
Commercial and industrial		91		4,282		142		970
Commercial construction and land		0		48		0		49
Loans secured by farmland		188		84		188		84
Multi-family (5 or more) residential		0		1,578		0		1,614
Agricultural loans		66		0		0		0
Other commercial		0		0		71		0
Total commercial		1,101		17,292		796		14,267
Residential mortgage:
Residential mortgage loans - first liens		600		4,941		838		6,387
Residential mortgage loans - junior liens		61		367		52		378
Home equity lines of credit		98		294		233		299
Total residential mortgage		759		5,602		1,123		7,064
Consumer		21		77		56		85
Totals	$	1,881	$	22,971	$	1,975	$	21,416

The amounts shown in the table immediately above include loans classified as troubled debt restructurings (described in more detail below), if such loans are past due ninety days or more or nonaccrual. PCI loans with a total recorded investment of $6,733,000 at June 30, 2021 and $6,841,000 at December 31, 2020 are classified as nonaccrual.

The table below presents a summary of the contractual aging of loans as of June 30, 2021 and December 31, 2020. Loans modified under the Corporation’s program designed to work with clients impacted by COVID-19, as described above, are included in the current and past due less than 30 days category in the table that follows.

(In Thousands)	As of June 30, 2021								As of December 31, 2020
	Current &								Current &
	Past Due		Past Due		Past Due				Past Due		Past Due		Past Due
	Less than		30-89		90+				Less than		30-89		90+
	30 Days		Days		Days		Total		30 Days		Days		Days		Total
Commercial:
Commercial loans secured by real estate	$	538,713	$	110	$	5,379	$	544,202	$	529,998	$	66	$	1,746	$	531,810
Commercial and industrial		157,967		25		915		158,907		158,523		55		999		159,577
Paycheck Protection Program - 1st Draw		37,902		0		0		37,902		132,269		0		0		132,269
Paycheck Protection Program - 2nd Draw		72,409		0		0		72,409		0		0		0		0
Political subdivisions		48,849		0		0		48,849		53,221		0		0		53,221
Commercial construction and land		42,649		529		0		43,178		42,590		284		0		42,874
Loans secured by farmland		10,647		31		272		10,950		11,419		95		222		11,736
Multi-family (5 or more) residential		51,916		0		0		51,916		53,860		1,951		0		55,811
Agricultural loans		2,313		0		66		2,379		3,091		2		71		3,164
Other commercial loans		14,711		0		0		14,711		17,289		0		0		17,289
Total commercial		978,076		695		6,632		985,403		1,002,260		2,453		3,038		1,007,751
Residential mortgage:
Residential mortgage loans - first liens		502,311		3,143		2,125		507,579		523,191		5,703		4,053		532,947
Residential mortgage loans - junior liens		25,138		32		117		25,287		27,009		111		191		27,311
Home equity lines of credit		39,010		280		142		39,432		38,919		101		281		39,301
1-4 Family residential construction		23,567		0		0		23,567		20,457		156		0		20,613
Total residential mortgage		590,026		3,455		2,384		595,865		609,576		6,071		4,525		620,172
Consumer		16,433		57		98		16,588		16,063		83		140		16,286
Totals	$	1,584,535	$	4,207	$	9,114	$	1,597,856	$	1,627,899	$	8,607	$	7,703	$	1,644,209

Nonaccrual loans are included in the contractual aging in the immediately preceding table. A summary of the contractual aging of nonaccrual loans at June 30, 2021 and December 31, 2020 is as follows:

(In Thousands)	Current &
	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Total
June 30, 2021 Nonaccrual Totals	$	14,009	$	1,729	$	7,233	$	22,971
December 31, 2020 Nonaccrual Totals	$	12,999	$	2,689	$	5,728	$	21,416

Loans whose terms are modified are classified as TDRs if the Corporation grants such borrowers concessions, and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired. The outstanding balance of loans subject to TDRs, as well as contractual aging information at June 30, 2021 and December 31, 2020 is as follows:

(In Thousands)	Current &
	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Nonaccrual		Total
June 30, 2021 Totals	$	174	$	25	$	160	$	5,464	$	5,823
December 31, 2020 Totals	$	166	$	0	$	418	$	6,867	$	7,451

At June 30, 2021 and December 31, 2020, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

(Balances in Thousands)	Three Months Ended			Three Months Ended
	June 30, 2021			June 30, 2020
		Post-			Post-
	Number	Modification		Number	Modification
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Residential mortgage - first liens,
Reduced monthly payments for a fifteen-month period	1	$	116	0	$	0
Commercial and industrial,
Interest only payments for a nine-month period	0		0	1		240
Total	1	$	116	1	$	240

(Balances in Thousands)	Six Months Ended			Six Months Ended
	June 30, 2021			June 30, 2020
		Post-			Post-
	Number	Modification		Number	Modification
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Residential mortgage - first liens:
Reduced monthly payments and extended maturity date	1	$	12	0	$	0
Reduced monthly payments for a fifteen-month period	1		116	0		0
Residential mortgage - junior liens,
New loan at lower than risk-adjusted market rate to borrower from whom short sale of other collateral was accepted	0		0	1		30
Home equity lines of credit,
Reduced monthly payments and extended maturity date	1		24	0		0
Commercial and industrial,
Interest only payments for a nine-month period	0		0	1		240
Total	3	$	152	2	$	270

In the second quarters of 2021 and 2020, there were no defaults on loans for which TDRs were entered into within the previous 12 months. In the six-month periods ended June 30, 2021 and 2020, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:

(Balances in Thousands)	Six Months Ended			Six Months Ended
	June 30, 2021			June 30, 2020
	Number			Number
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Commercial loans secured by real estate	1	$	3,392	0	$	0
Total	1	$	3,392	0	$	0

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in foreclosed assets held for sale in the unaudited consolidated balance sheets) is as follows:

(In Thousands)	June 30,		December 31,
	2021		2020
Foreclosed residential real estate	$	116	$	80

The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:

(In Thousands)	June 30,		December 31,
	2021		2020
Residential real estate in process of foreclosure	$	1,684	$	1,246