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 June 30, 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 (274) (136) 37 23 (350) Losses charged off (30) (493) (27) (23) (573) Recoveries 76 319 6 6 407 Balance at June 30, 2017 $ 668 $ 1,566 $ 558 $ 37 $ 2,829 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 106 (809) 7 (4) (700) Losses charged off - (11) (24) (8) (43) Recoveries 18 251 - 8 277 Balance at June 30, 2016 $ 1,017 $ 1,971 $ 356 $ 24 $ 3,368 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 June 30, 2017 and December 31, 2016: (in thousands) June 30, 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 $ 79 $ 97 $ - $ - $ 176 Collectively evaluated for impairment 589 1,469 558 37 2,653 Total allowance for loan and lease losses $ 668 $ 1,566 $ 558 $ 37 $ 2,829 Loans and leases: Individually evaluated for impairment $ 533 $ 408 $ - $ - $ 941 Acquired with deteriorated credit quality - 436 89 - 525 Collectively evaluated for impairment 60,765 229,977 87,968 4,135 382,845 Total ending loans and leases balance $ 61,298 $ 230,821 $ 88,057 $ 4,135 $ 384,311 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 June 30, 2017 and December 31, 2016: (in thousands) June 30, 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 941 2,917 Total impaired loans and leases 941 2,917 Amount of the allowance allocated to impaired loans and leases $ 176 $ 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 six month periods ended June 30, 2017 and 201 6 was approximatel y $ 2.1 million a nd $4.2 million, respectively. There wa s $66,000 a nd $182,000 in interest income recognized by the Corporation on impaired loans and leases on an accrual or cash basis for the six month periods ended June 30, 2017 and 201 6 , respectively. The following table presents loans and leases individually evaluated for impairment by class of loans as of June 30, 2017 and December 31, 2016: (in thousands) June 30, 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 533 79 937 399 Commercial and multi-family real estate 408 97 1,980 619 Agriculture - - - - Agricultural real estate - - - - Consumer - - - - Residential 1-4 family real estate - - - - Total $ 941 $ 176 $ 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 June 30, 2017 and December 31, 2016: (in thousands) June 30, 2017 Nonaccrual Loans and leases past due over 90 days still accruing Troubled Debt Restructurings Commercial $ 673 $ - $ 28 Commercial real estate 1,845 - 619 Agricultural real estate 236 - - Agriculture - - 19 Consumer - - - Residential: 1 – 4 family 806 47 443 Home equity - - - Total $ 3,560 $ 47 $ 1,109 (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 s 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 June 30, 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 $ 204 $ - $ 79 $ 283 $ 48,194 $ 48,477 Commercial real estate 138 - 636 774 201,876 202,650 Agriculture 145 - - 145 12,676 12,821 Agricultural real estate - - - - 28,171 28,171 Consumer 2 - - 2 4,133 4,135 Residential real estate 1,005 566 149 1,720 86,337 88,057 Total $ 1,494 $ 566 $ 864 $ 2,924 $ 381,387 $ 384,311 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 June 30, 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) June 30, 2017 Pass Special Mention Substandard Doubtful Not rated Commercial $ 42,185 $ - $ 1,977 $ - $ 17,136 Commercial and multi- family real estate 176,050 4,133 1,886 - 48,752 Residential 1 - 4 family 203 - - - 87,854 Consumer - - - - 4,135 Total $ 218,438 $ 4,133 $ 3,863 $ - $ 157,877 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 June 30, 2017 and December 31, 2016: : (in thousands) June 30, 2017 Commercial Commercial and multi-family real estate Residential 1-4 family Consumer Performing $ 17,057 $ 48,116 $ 87,705 $ 4,135 Nonperforming 79 636 149 - Total $ 17,136 $ 48,752 $ 87,854 $ 4,135 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. The following table includes the recorded investment and number of modifications for TDR loans and leases during the six month period ended June 30, 2017: (dollars in thousands) Number of modifications Recorded investment Allowance for loan and lease losses allocated Troubled Debt Restructurings: Residential Real Estate 1 $ 4 $ - Agricultural 1 $ 18 $ - Total 2 $ 22 $ - The concessions granted in the above TDR’s were a modification of the original term. One note was unable to be refinanced due to the borrower not having any income. One note was termed out after previously having the term extended. The recorded investment in the loans did not change as a result of the modification. There are not any troubled debt restructurings for which there was a payment default in the current reporting period. The following is additional information with respect to loans and leases acquired through The Ohio State Bank (“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 (4,546) 338 (4,208) Transfer to foreclosed real estate - - - Change due to loan charge-off - - - Balance at June 30, 2017 $ 29,870 $ (1,138) $ 28,732 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) 9 2 Transfer to foreclosed real estate - - - Change due to loan charge-off (208) 107 (101) Balance at June 30, 2017 $ 1,305 $ (780) $ 525 Effective November 14, 2014, the Corporation acquired OSB, which was merged into The Bank. 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 June 30, 2017 and December 31, 201 6 w as $525,000 a n d $624,000, respectively. A $101,000 provision for loan and lease losses was recognized during the six month period ended June 30, 2017 related 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 six month period ended June 30, 2016 related to the acquired loans as there has been no significant change to the credit quality of the loans during the period. |