Loans Receivable | Loans Categories of loans include: December 31, 2016 2015 Commercial loans Commercial and industrial $ 102,437 $ 102,000 Owner-occupied commercial real estate 57,668 44,462 Investor commercial real estate 13,181 16,184 Construction 53,291 45,898 Single tenant lease financing 606,568 374,344 Total commercial loans 833,145 582,888 Consumer loans Residential mortgage 205,554 214,559 Home equity 35,036 43,279 Other consumer 173,449 108,312 Total consumer loans 414,039 366,150 Total commercial and consumer loans 1,247,184 949,038 Net deferred loan origination costs and premiums and discounts on purchased loans 3,605 4,821 Total loans 1,250,789 953,859 Allowance for loan losses (10,981 ) (8,351 ) Net loans $ 1,239,808 $ 945,508 The risk characteristics of each loan portfolio segment are as follows: Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee. Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in the Central Indiana and greater Phoenix, Arizona markets and its loans often times are secured by manufacturing and service facilities, as well as office buildings. Investor Commercial Real Estate: These loans are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate. These loans typically incorporate a personal guarantee. This portfolio segment generally involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans may be more adversely affected by conditions in the real estate markets, changing industry dynamics, or the overall health of the general economy. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type and are typically located in the state of Indiana and markets adjacent to Indiana. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, and other risk grade criteria. As a general rule, the Company avoids financing special use projects or properties outside of its designated market areas unless other underwriting factors are present to mitigate these additional risks. Construction: Construction loans are secured by real estate and improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, multi-family) properties or single family residential properties offered for sale by the builder. These loans generally finance a variety of project costs, including land, site preparation, construction, closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes. Single Tenant Lease Financing: These loans are made to property owners of real estate subject to long term lease arrangements with single tenant operators. The real estate is typically operated by regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria. Residential Mortgage: With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Company typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. Home Equity: Home equity loans and lines of credit are typically secured by a subordinate interest in 1-4 family residences. The properties securing the Company's home equity portfolio segment are generally geographically diverse as the Company offers these products on a nationwide basis. Repayment of home equity loans and lines of credit may be impacted by changes in property values on residential properties and unemployment levels, among other economic conditions and financial circumstances in the market. Other Consumer: These loans primarily consist of consumer loans and credit cards. Consumer loans may be secured by consumer assets such as horse trailers or recreational vehicles. Some consumer loans are unsecured, such as small installment loans, home improvement loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. The following tables present changes in the balance of the allowance for loan losses during the twelve months ended December 31, 2016 , 2015 , and 2014 . Twelve Months Ended December 31, 2016 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Allowance for loan losses: Balance, beginning of period $ 1,367 $ 476 $ 212 $ 500 $ 3,931 $ 896 $ 125 $ 844 $ 8,351 Provision (credit) charged to expense 1,380 106 (44 ) 44 2,317 (38 ) (3 ) 568 4,330 Losses charged off (1,582 ) — — — — (134 ) (33 ) (440 ) (2,189 ) Recoveries 187 — — — — 30 13 259 489 Balance, end of period $ 1,352 $ 582 $ 168 $ 544 $ 6,248 $ 754 $ 102 $ 1,231 $ 10,981 Twelve Months Ended December 31, 2015 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Allowance for loan losses: Balance, beginning of period $ 920 $ 345 $ 261 $ 330 $ 2,061 $ 985 $ 207 $ 691 $ 5,800 Provision (credit) charged to expense 447 131 (549 ) 170 1,870 (311 ) (83 ) 271 1,946 Losses charged off — — — — — (185 ) — (451 ) (636 ) Recoveries — — 500 — — 407 1 333 1,241 Balance, end of period $ 1,367 $ 476 $ 212 $ 500 $ 3,931 $ 896 $ 125 $ 844 $ 8,351 Twelve Months Ended December 31, 2014 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Allowance for loan losses: Balance, beginning of period $ 819 $ 290 $ 219 $ 277 $ 1,731 $ 1,008 $ 211 $ 871 $ 5,426 Provision (credit) charged to expense 115 55 (418 ) 53 330 186 (4 ) 32 349 Losses charged off (14 ) — — — — (247 ) — (596 ) (857 ) Recoveries — — 460 — — 38 — 384 882 Balance, end of period $ 920 $ 345 $ 261 $ 330 $ 2,061 $ 985 $ 207 $ 691 $ 5,800 The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2016 and 2015 . December 31, 2016 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Loans: Ending balance: collectively evaluated for impairment $ 102,437 $ 57,668 $ 13,181 $ 53,291 $ 606,568 $ 203,842 $ 35,036 $ 173,321 $ 1,245,344 Ending balance: individually evaluated for impairment — — — — — 1,712 — 128 1,840 Ending balance $ 102,437 $ 57,668 $ 13,181 $ 53,291 $ 606,568 $ 205,554 $ 35,036 $ 173,449 $ 1,247,184 Allowance for loan losses: Ending balance: collectively evaluated for impairment $ 1,352 $ 582 $ 168 $ 544 $ 6,248 $ 754 $ 102 $ 1,231 $ 10,981 Ending balance: individually evaluated for impairment — — — — — — — — — Ending balance $ 1,352 $ 582 $ 168 $ 544 $ 6,248 $ 754 $ 102 $ 1,231 $ 10,981 December 31, 2015 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Loans: Ending balance: collectively evaluated for impairment $ 102,000 $ 44,462 $ 16,184 $ 45,898 $ 374,344 $ 213,426 $ 43,279 $ 108,163 $ 947,756 Ending balance: individually evaluated for impairment — — — — — 1,133 — 149 1,282 Ending balance $ 102,000 $ 44,462 $ 16,184 $ 45,898 $ 374,344 $ 214,559 $ 43,279 $ 108,312 $ 949,038 Allowance for loan losses: Ending balance: collectively evaluated for impairment $ 1,367 $ 476 $ 212 $ 500 $ 3,931 $ 896 $ 125 $ 844 $ 8,351 Ending balance: individually evaluated for impairment — — — — — — — — — Ending balance $ 1,367 $ 476 $ 212 $ 500 $ 3,931 $ 896 $ 125 $ 844 $ 8,351 The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. In the third quarter 2016, the Company updated its risk grading matrix to improve precision within the “Pass” risk grades. Commercial loans are now graded on a scale of 1 to 10, whereas commercial loans were previously graded on a scale of 1 to 9. This update to the risk grading matrix did not have an impact on the ALLL. The following table illustrates the risk ratings utilized as of December 31, 2016 and December 31, 2015 . Rating December 31, 2016 December 31, 2015 Pass Grade 1-6 Grade 1-5 Special Mention Grade 7 Grade 6 Substandard Grade 8 Grade 7 Doubtful Grade 9 Grade 8 Loss Grade 10 Grade 9 A description of the general characteristics of the ten risk grades is as follows: • “Pass” - Higher quality loans that do not fit any of the other categories described below. • “Special Mention” - Loans that possess some credit deficiency or potential weakness which deserve close attention. • “Substandard” - Loans that possess a defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. • “Doubtful” - Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable. • “Loss” - Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted. The following tables present the credit risk profile of the Company’s commercial loan portfolio based on rating category and payment activity as of December 31, 2016 and 2015 . December 31, 2016 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Total Rating: 1-6 Pass $ 99,200 $ 57,657 $ 13,181 $ 53,291 $ 605,190 $ 828,519 7 Special Mention 2,746 — — — 1,378 4,124 8 Substandard 491 11 — — — 502 Total $ 102,437 $ 57,668 $ 13,181 $ 53,291 $ 606,568 $ 833,145 December 31, 2016 Residential mortgage Home equity Other consumer Total Performing $ 204,530 $ 35,036 $ 173,390 $ 412,956 Nonaccrual 1,024 — 59 1,083 Total $ 205,554 $ 35,036 $ 173,449 $ 414,039 December 31, 2015 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Total Rating: 1-5 Pass $ 95,589 $ 43,913 $ 14,746 $ 45,599 $ 374,344 $ 574,191 6 Special Mention 2,006 535 — 299 — 2,840 7 Substandard 4,405 14 1,438 — — 5,857 Total $ 102,000 $ 44,462 $ 16,184 $ 45,898 $ 374,344 $ 582,888 December 31, 2015 Residential mortgage Home equity Other consumer Total Performing $ 214,456 $ 43,279 $ 108,248 $ 365,983 Nonaccrual 103 — 64 167 Total $ 214,559 $ 43,279 $ 108,312 $ 366,150 The following tables present the Company’s loan portfolio delinquency analysis as of December 31, 2016 and 2015 . December 31, 2016 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total commercial and consumer loans Nonaccrual Loans Total Loans 90 Days or More Past Due and Accruing Commercial and industrial $ 27 $ — $ — $ 27 $ 102,410 $ 102,437 $ — $ — Owner-occupied commercial real estate — — — — 57,668 57,668 — — Investor commercial real estate — — — — 13,181 13,181 — — Construction — — — — 53,291 53,291 — — Single tenant lease financing — — — — 606,568 606,568 — — Residential mortgage — 347 991 1,338 204,216 205,554 1,024 — Home equity — — — — 35,036 35,036 — — Other consumer 173 91 25 289 173,160 173,449 59 — Total $ 200 $ 438 $ 1,016 $ 1,654 $ 1,245,530 $ 1,247,184 $ 1,083 $ — December 31, 2015 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total commercial and consumer loans Nonaccrual Loans Total Loans 90 Days or More Past Due and Accruing Commercial and industrial $ 29 $ — $ — $ 29 $ 101,971 $ 102,000 $ — $ — Owner-occupied commercial real estate — — — — 44,462 44,462 — — Investor commercial real estate — — — — 16,184 16,184 — — Construction — — — — 45,898 45,898 — — Single tenant lease financing — — — — 374,344 374,344 — — Residential mortgage 300 23 45 368 214,191 214,559 103 — Home equity 20 — — 20 43,259 43,279 — — Other consumer 116 12 — 128 108,184 108,312 64 — Total $ 465 $ 35 $ 45 $ 545 $ 948,493 $ 949,038 $ 167 $ — The following tables present the Company’s impaired loans as of December 31, 2016 and 2015 . There were no impaired loans with a specific valuation allowance as of December 31, 2016 and 2015 . December 31, 2016 December 31, 2015 Recorded Unpaid Specific Recorded Unpaid Specific Loans without a specific valuation allowance Residential mortgage $ 1,712 $ 1,824 $ — $ 1,133 $ 1,154 $ — Other consumer 128 184 — 149 178 — Total impaired loans $ 1,840 $ 2,008 $ — $ 1,282 $ 1,332 $ — The table below presents average balances and interest income recognized for impaired loans during the twelve months ended December 31, 2016 , 2015 , and 2014 . Twelve Months Ended December 31, 2016 December 31, 2015 December 31, 2014 Average Interest Average Interest Average Interest Loans without a specific valuation allowance Investor commercial real estate $ — $ — $ 21 $ 2 $ 666 $ 5 Residential mortgage 1,595 8 1,112 8 1,266 32 Other consumer 149 5 193 16 380 37 Total 1,744 13 1,326 26 2,312 74 Loans with a specific valuation allowance Commercial and industrial 1,084 — — — — — Residential mortgage — — 15 — — — Other consumer — — 13 1 40 4 Total 1,084 — 28 1 40 4 Total impaired loans $ 2,828 $ 13 $ 1,354 $ 27 $ 2,352 $ 78 |