Loans and Leases | NOTE 4 – LOANS AND LEASES The following tables present the activity in the allowance for loan and lease losses by portfolio segment for the periods ending March 31, 2017 and 2016: (in thousands) Commercial Commercial and multi-family real estate Residential 1 – 4 family real estate Consumer Total Balance at December 31, 2016 $ 896 $ 1,876 $ 542 $ 31 $ 3,345 Provision (credit) charged to expenses (145) (222) 6 11 (350) Losses charged off (30) (70) (14) (13) (127) Recoveries 70 28 3 5 106 Balance at March 31, 2017 $ 791 $ 1,612 $ 537 $ 34 $ 2,974 Commercial Commercial and multi-family real estate Residential 1 – 4 family real estate Consumer Total Balance at December 31, 2015 $ 893 $ 2,540 $ 373 $ 28 $ 3,834 Provision (credit) charged to expenses 245 (670) 20 5 (400) Losses charged off - (11) - (7) (18) Recoveries 9 223 - 2 234 Balance at March 31, 2016 $ 1,147 $ 2,082 $ 393 $ 28 $ 3,650 The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment and based on impairment method for the periods ending March 31, 2017 and December 31, 2016: (in thousands) March 31, 2017 Commercial Commercial and multi-family real estate Residential 1 – 4 family real estate Consumer Total Allowance for loan and lease losses: Attributable to loans and leases individually evaluated for impairment $ 309 $ 333 $ - $ - $ 642 Collectively evaluated for impairment 482 1,279 537 34 2,332 Total allowance for loan and lease losses $ 791 $ 1,612 $ 537 $ 34 $ 2,974 Loans and leases: Individually evaluated for impairment $ 822 $ 1,684 $ - $ - $ 2,506 Acquired with deteriorated credit quality - 468 52 - 520 Collectively evaluated for impairment 61,799 223,738 88,991 3,975 378,503 Total ending loans and leases balance $ 62,621 $ 225,890 $ 89,043 $ 3,975 $ 381,529 December 31, 2016 Commercial Commercial and multi-family real estate Residential 1 – 4 family real estate Consumer Total Allowance for loan and lease losses: Attributable to loans and leases individually evaluated for impairment $ 399 $ 619 $ - $ - $ 1,018 Collectively evaluated for impairment 497 1,257 542 31 2,327 Total allowance for loan and lease losses $ 896 $ 1,876 $ 542 $ 31 $ 3,345 Loans and leases: Individually evaluated for impairment $ 937 $ 1,980 $ - $ - $ 2,917 Acquired with deteriorated credit quality - 573 51 - 624 Collectively evaluated for impairment 62,782 216,933 88,818 4,012 372,545 Total ending loans and leases balance $ 63,719 $ 219,486 $ 88,869 $ 4,012 $ 376,086 Impaired loans and leases were as follows as of March 31, 2017 and December 31, 2016: (in thousands) March 31, 2017 December 31, 2016 Loans and leases with no allowance for loan and lease losses allocated $ - $ - Loans and leases with allowance for loan and lease losses allocated 2,506 2,917 Total impaired loans and leases 2,506 2,917 Amount of the allowance allocated to impaired loans and leases $ 642 $ 1,018 No a dditional funds are committed to be advanced in connection with impaired loans and leases. The average recorded investment in impaired loans and leases (excluding loans and leases acquired with deteriorated credit quality) for the three month periods ended March 31, 2017 and 201 6 was approximatel y $ 2.7 million a nd $5.4 million, respectively. There was $27,000 a nd $82,000 in interest income recognized by the Corporation on impaired loans and leases on an accrual or cash basis for the three month periods ended March 31, 2017 and 201 6 , respectively. The following table presents loans and leases individually evaluated for impairment by class of loans as of March 31, 2017 and December 31, 2016: (in thousands) March 31, 2017 December 31, 2016 Recorded investment Allowance for loan and lease losses allocated Recorded investment Allowance for loan and lease losses allocated With no related allowance recorded: Commercial $ - $ - $ - $ - Commercial and multi-family real estate - - - - Agriculture - - - - Agricultural real estate - - - - Consumer - - - - Residential 1-4 family real estate - - - - With an allowance recorded: Commercial 822 309 937 399 Commercial and multi-family real estate 1,684 333 1,980 619 Agriculture - - - Agricultural real estate - - - Consumer - - - Residential 1-4 family real estate - - - Total $ 2,506 $ 642 $ 2,917 $ 1,018 The following tables present the recorded investment in nonaccrual loans and leases, loans and leases past due over 90 days still on accrual and troubled debt restructurings by class of loans as of March 31, 2017 and December 31, 2016: (in thousands) March 31, 2017 Nonaccrual Loans and leases past due over 90 days still accruing Troubled Debt Restructurings Commercial $ 969 $ - $ 29 Commercial real estate 3,127 - 694 Agricultural real estate 266 - - Agriculture - - - Consumer 4 - - Residential: 1 – 4 family 867 - 450 Home equity - - - Total $ 5,233 $ - $ 1,173 (in thousands) December 31, 2016 Nonaccrual Loans and leases past due over 90 days still accruing Troubled Debt Restructurings Commercial $ 1,295 $ - $ 29 Commercial real estate 3,462 - 722 Agricultural real estate 277 - - Agriculture - 73 - Consumer 3 - - Residential: 1 – 4 family 966 81 457 Home equity - - - Total $ 6,003 $ 154 $ 1,208 The nonaccrual balances in the table above include troubled debt restructurings that have been classified as nonaccrual. The following table presents the aging of the recorded investment in past due loans and leases as of March 31, 2017 by class of loans and leases: (in thousands) 30 – 59 days past due 60 – 89 days past due Greater than 90 days past due Total past due Loans and leases not past due Total Commercial $ 817 $ - $ 79 $ 896 $ 49,654 $ 50,550 Commercial real estate 67 152 555 774 198,842 199,616 Agriculture 20 78 - 98 11,973 12,071 Agricultural real estate 9 - - 9 26,265 26,274 Consumer 2 6 4 12 3,963 3,975 Residential real estate 1,406 20 598 2,024 87,019 89,043 Total $ 2,321 $ 256 $ 1,236 $ 3,813 $ 377,716 $ 381,529 The following table presents the aging of the recorded investment in past due loans and leases as of December 31, 2016 by class of loans and leases: (in thousands) 30 – 59 days past due 60 – 89 days past due Greater than 90 days past due Total past due Loans and leases not past due Total Commercial $ 326 $ 71 $ 79 $ 476 $ 49,988 $ 50,464 Commercial real estate 103 147 553 803 192,830 193,633 Agriculture 227 - - 227 13,026 13,253 Agricultural real estate - - 5 5 25,850 25,855 Consumer 10 2 - 12 4,000 4,012 Residential real estate 1,770 484 462 2,716 86,153 88,869 Total $ 2,436 $ 704 $ 1,099 $ 4,239 $ 371,847 $ 376,086 Credit Quality Indicators: The Corporation categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt , such as: current final financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans and leases individually by classifying the loans and leases as to the credit risk. This analysis generally includes loans and leases with an outs tanding balance greater than $50 0,000 and non-homogenous loans and leases , such as commercial and commercial real estate loans and leases . This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings: · Special Mention: Loans and leases which possess some credit deficiency or potential weakness which deserve s close attention, but which do not yet warrant substandard classification. Such loans and leases pose unwarranted financial risk that, if not corrected, could weaken the loan or lease and increase risk in the future. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk, and (2) weaknesses are considered "potential", versus "defined", impairments to the primary source of loan repayment. · Substandard: These loans and leases are inadequately protected by the current sound net worth and paying ability of the borrower. Loans and leases of this type will generally display negative financial trends such as poor or negative net worth, earnings or cash flow. These loans and leases may also have historic and/or severe delinquency problems, and Corporation management may depend on secondary repayment sources to liquidate these loans and leases . The Corporation could sustain some degree of loss in these loans and leases if the weaknesses remain uncorrected. · Doubtful: Loans and leases in this category display a high degree of loss, although the amount of actual loss at the time of classification is undeterminable. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification. Loans and leases not meeting the previous criteria that are analyzed individually as part of the above described process are considered to be pass rated loans and leases . Loans and leases listed as not rated are generally either less than $500,000 or are included in groups of homogenous loans and leases . As of March 31, 2017 and December 31, 2016, and based on the most recent analysis performed, the risk category of loans by class of loans and leases is as follows: (in thousands) March 31, 2017 Pass Special Mention Substandard Doubtful Not rated Commercial $ 43,051 $ - $ 2,683 $ - $ 16,887 Commercial and multi- family real estate 169,633 4,196 2,540 - 49,521 Residential 1 - 4 family 207 - - - 88,836 Consumer - - - - 3,975 Total $ 212,891 $ 4,196 $ 5,223 $ - $ 159,219 December 31, 2016 Pass Special Mention Substandard Doubtful Not rated Commercial $ 41,233 $ - $ 3,666 $ - $ 18,819 Commercial and multi- family real estate 162,399 4,239 3,850 - 48,999 Residential 1 - 4 family 210 - - - 88,659 Consumer - - - - 4,012 Total $ 203,842 $ 4,239 $ 7,516 $ - $ 160,489 The Corporation considers the performance of the loan and lease portfolio and its impact on the allowance for loan and lease losses. For all loan classes that are not rated, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. Generally, all loans and leases not rated that are 90 days past due or are classified as nonaccrual and collectively evaluated for impairment, are considered nonperforming. The following table presents the recorded investment in all loans and leases that are not risk rated, based on payment activity as of March 31, 2017 and December 31, 2016: : (in thousands) March 31, 2017 Commercial Commercial and multi-family real estate Residential 1-4 family Consumer Performing $ 16,808 $ 48,966 $ 88,238 $ 3,971 Nonperforming 79 555 598 4 Total $ 16,887 $ 49,521 $ 88,836 $ 3,975 December 31, 2016 Commercial Commercial and multi-family real estate Residential 1-4 family Consumer Performing $ 18,740 $ 48,441 $ 88,197 $ 4,012 Nonperforming 79 558 462 - Total $ 18,819 $ 48,999 $ 88,659 $ 4,012 Modifications: The Corporation’s loan and lease portfolio also includes certain loans and leases that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. All TDRs are also classified as impaired loans and leases . When the Corporation modifies a loan or lease, management evaluates any possible concession based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, except when the sole (remaining) source of repayment for the loan or lease is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan or lease is less than the recorded investment in the loan or lease (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), an impairment is recognized through a specific reserve in the allowance or a direct write down of the loan or lease balance if collection is not expected. There were no modifications for TDR loans and leases, or troubled debt restructurings for which there was a payment default during the three month period ended March 31, 2017 . The following is additional information with respect to loans and leases acquired through the OSB acquisition (as described below): (in thousands) Contractual Principal Accretable Carrying Receivable Difference Amount Purchased Performing Loans and Leases Balance at December 31, 2016 $ 34,416 $ (1,476) $ 32,940 Change due to payments received (1,943) 69 (1,874) Transfer to foreclosed real estate - - - Change due to loan charge-off - - - Balance at March 31, 2017 $ 32,473 $ (1,407) $ 31,066 Contractual Non Principal Accretable Carrying Receivable Difference Amount Purchased Impaired Loans and Leases Balance at December 31, 2016 $ 1,520 $ (896) $ 624 Change due to payments received (7) 4 (3) Transfer to foreclosed real estate - - - Change due to loan charge-off (208) 107 (101) Balance at March 31, 2017 $ 1,305 $ (785) $ 520 Effective as of November 14, 2014, the Corporation acquired The Ohio State Bank (“OSB”), which was merged into The Union Bank Company. As a result of the OSB acquisition, the Corporation has loans, for which there was at acquisition, evidence of deterioration of credit quality since origination and for which it was probable at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans as of March 31, 2017 and December 31, 201 6 wa s $520,000 an d $624,000, respectively. A $101,000 provision for loan and lease losses was recognized during the three-month period ended March 31, 2017 related to the acquired loans. This provision was attributable to one purchase credit impaired commercial loan for which the sheriff’s appraisal was substantially below the expected collateral value. There was no provision for loan and lease losses recognized during the three-month period ended March 31, 2016 related to the acquired loans as there was no significant change to the credit quality of the loans during the period. |