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 , 2018 and 2017: (in thousands) Commercial Commercial and multi-family real estate Residential 1 – 4 family real estate Consumer Total Balance at December 31, 2017 $ 501 $ 1,746 $ 545 $ 43 $ 2,835 Provision charged to expenses 43 94 48 15 200 Losses charged off (19) (17) (52) (6) (94) Recoveries 33 200 - 1 234 Balance at June 30, 2018 $ 558 $ 2,023 $ 541 $ 53 $ 3,175 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 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 as of June 30 , 2018 and December 31, 2017: (in thousands) June 30, 2018 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 $ - $ - $ - $ - $ - Collectively evaluated for impairment 558 2,023 541 53 3,175 Total allowance for loan and lease losses $ 558 $ 2,023 $ 541 $ 53 $ 3,175 Loans and leases: Individually evaluated for impairment $ - $ - $ - $ - $ - Acquired with deteriorated credit quality 1 410 74 - 485 Collectively evaluated for impairment 81,409 334,116 117,741 5,784 539,050 Total ending loans and leases balance $ 81,410 $ 334,526 $ 117,815 $ 5,784 $ 539,535 December 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 $ - $ - $ - $ - $ - Collectively evaluated for impairment 501 1,746 545 43 2,835 Total allowance for loan and lease losses $ 501 $ 1,746 $ 545 $ 43 $ 2,835 Loans and leases: Individually evaluated for impairment $ - $ - $ - $ - $ - Acquired with deteriorated credit quality - 984 194 - 1,178 Collectively evaluated for impairment 68,072 311,274 121,224 4,664 505,234 Total ending loans and leases balance $ 68,072 $ 312,258 $ 121,418 $ 4,664 $ 506,412 The average recorded investment in impaired loans and leases (excluding loans and leases acquired with deteriorated credit quality) for the six month period ended June 30, 2017 was approximately $2.1 million. There was no recorded investment in impaired loans and leases for the six month period ended June 30, 2018. There was $66,000 in interest income recognized by the Corporation on impaired loans and leases on an accrual or cash basis for the six month period ended June 30, 2017 and none for the six month period ended June 30, 2018. 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 , 2018 and December 31, 2017 . Nonaccrual loans primarily consist of smaller dollar homogenous loans that are collectively evaluated for impairment. (in thousands) June 30, 2018 Nonaccrual Loans and leases past due over 90 days still accruing Troubled Debt Restructurings Commercial $ 23 $ - $ 26 Commercial real estate 954 - 233 Agricultural real estate 230 - - Agriculture - - - Consumer - - - Residential: 1 – 4 family 475 246 341 Home equity - - - Total $ 1,682 $ 246 $ 600 December 31, 2017 Commercial $ 532 $ 60 $ 27 Commercial real estate 1,411 - 257 Agricultural real estate 233 - - Agriculture - - - Consumer - - - Residential: 1 – 4 family 591 110 428 Home equity - - - Total $ 2,767 $ 170 $ 712 The following table presents the aging of the recorded investment in past due loans and leases as of June 30 , 2018 and December 31, 2017 by class of loans and leases: (in thousands) June 30, 2018 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 $ 119 $ - $ 1 $ 120 $ 68,897 $ 69,017 Commercial real estate 178 40 323 541 304,295 304,836 Agriculture 217 - - 217 12,176 12,393 Agricultural real estate - 271 - 271 29,419 29,690 Consumer 2 - - 2 5,782 5,784 Residential real estate 2,155 223 383 2,761 115,054 117,815 Total $ 2,671 $ 534 $ 707 $ 3,912 $ 535,623 $ 539,535 December 31, 2017 Commercial $ 419 $ 34 $ 60 $ 513 $ 55,410 $ 55,923 Commercial real estate 636 354 631 1,621 278,276 279,897 Agriculture - 145 - 145 12,318 12,463 Agricultural real estate 25 - - 25 32,022 32,047 Consumer 1 - - 1 4,663 4,664 Residential real estate 3,418 195 392 4,005 117,413 121,418 Total $ 4,499 $ 728 $ 1,083 $ 6,310 $ 500,102 $ 506,412 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 is completed on all non-homogenous loans and leases, such as commercial and commercial real estate loans and leases at origination and at the renewal of line of credit. For amortizing loan relationships, an annual assessment is performed on relationships with outstanding aggregate balance greater than $500,000. The Corporation uses the following definitions for risk ratings: · Special Mention: Loans and leases which possess some credit deficiency or potential weakness which deserves 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. Beginning in late March 2018, all commercial loans, including commercial and multi-family real estate loans, are risk rated. Loans and leases not rated, including commercial loans and leases prior to March 31 , 2018, generally are less than $500,000 or are included in groups of homogenous loans. As of June 30 , 2018 and December 31, 2017, 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, 2018 Pass Special Mention Substandard Doubtful Not rated Commercial $ 78,894 $ 1,377 $ 1,138 $ - $ 1 Commercial and multi- family real estate 325,624 5,785 3,117 - - Residential 1 - 4 family 10,621 - - - 107,194 Consumer - - - - 5,784 Total $ 415,139 $ 7,162 $ 4,255 $ - $ 112,979 December 31, 2017 Commercial $ 47,054 $ - $ 1,845 $ - $ 19,173 Commercial and multi- family real estate 234,428 2,344 3,868 - 71,618 Residential 1 - 4 family 11,637 - 174 - 109,607 Consumer - - - - 4,664 Total $ 293,119 $ 2,344 $ 5,887 $ - $ 205,062 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 , 2018 and December 31, 2017: : (in thousands) June 30, 2018 Commercial Commercial and multi-family real estate Residential 1-4 family Consumer Performing $ - $ - $ 106,811 $ 5,784 Nonperforming 1 - 383 - Total $ 1 $ - $ 107,194 $ 5,784 December 31, 2017 Performing $ 19,113 $ 70,987 $ 109,214 $ 4,664 Nonperforming 60 631 393 - Total $ 19,173 $ 71,618 $ 109,607 $ 4,664 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. 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 six month period ended June 30, 2018. T he Corporation acquired The Ohio State Bank ( “ OSB ” ) in November 2014 and Benchmark Bank in September 2017 . As a result of these acquisitions, the Corporation has loans and leases, 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 following is information related to loans and leases acquired in these transactions, including purchased impaired loans: The Ohio State Bank (in thousands) Contractual Principal Accretable Carrying Receivable Difference Amount Purchased Performing Loans and Leases Balance at December 31, 2017 $ 25,509 $ (929) $ 24,580 Change due to payments received (2,374) 121 (2,253) Transfer to foreclosed real estate - - - Change due to loan charge-off - - - Balance at June 30, 2018 $ 23,135 $ (808) $ 22,327 Purchased Impaired Loans and Leases Balance at December 31, 2017 $ 496 $ (232) $ 264 Change due to payments received (162) 42 (120) Transfer to foreclosed real estate - - - Change due to loan charge-off - - - Balance at June 30, 2018 $ 334 $ (190) $ 144 Benchmark Bank (in thousands) Contractual Principal Accretable Carrying Receivable Difference Amount Purchased Performing Loans and Leases Balance at December 31, 2017 $ 89,151 $ (2,066) $ 87,085 Change due to payments received (8,089) 348 (7,741) Transfer to foreclosed real estate - - - Change due to loan charge-off - - - Balance at June 30, 2018 $ 81,062 $ (1,718) $ 79,344 Purchased Impaired Loans and Leases Balance at December 31, 2017 $ 1,588 $ (674) $ 914 Change due to payments received (971) 398 (573) Transfer to foreclosed real estate - - - Change due to loan charge-off - - - Balance at June 30, 2018 $ 617 $ (276) $ 341 There was no provision for loan and lease losses recognized during the six month period ended June 30, 2018 related to the acquired loans as there was no significant change to the credit quality of the loans during the period. There was a $101,000 provision for loan and lease losses recognized during the six month period ended June 30 , 2017 related to one purchase credit impaired commercial loan from the OSB acquisition for which the sheriff’s appraisal was substantially below the expected collateral value. |