Loans and Allowance for Loan and Lease Losses | (8) Loans and Allowance for Loan and Lease Losses The classes of the loan portfolio, summarized by the aggregate pass rating, net of deferred fees and costs of $196,000 and $178,000 as of December 31, 2016 and 2015, respectively, and the classified ratings of special mention, substandard, and doubtful within Mid Penn’s internal risk rating system as of December 31, 2016 and 2015, are noted below: (Dollars in thousands) December 31, 2016 Pass Special Mention Substandard Doubtful Total Commercial and industrial $ 170,780 $ 937 $ 801 $ — $ 172,518 Commercial real estate 437,592 1,683 7,249 — 446,524 Commercial real estate - construction 52,888 202 1,286 — 54,376 Lease financing 425 — — — 425 Residential mortgage 97,994 107 1,356 — 99,457 Home equity 37,242 142 224 — 37,608 Consumer 3,016 — — 3,016 $ 799,937 $ 3,071 $ 10,916 $ — $ 813,924 (Dollars in thousands) December 31, 2015 Pass Special Mention Substandard Doubtful Total Commercial and industrial $ 158,302 $ 1,289 $ 670 $ — $ 160,261 Commercial real estate 359,859 2,088 7,517 — 369,464 Commercial real estate - construction 65,665 2,403 — — 68,068 Lease financing 727 — — — 727 Residential mortgage 101,507 475 1,361 — 100,665 Home equity 32,928 261 222 — 33,411 Consumer 3,917 — — — 3,917 $ 722,905 $ 6,516 $ 9,770 $ — $ 736,513 Impaired loans by loan portfolio class as of December 31, 2016 and 2015 are summarized as follows: December 31, 2016 December 31, 2015 (Dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial and industrial: Commercial and industrial $ 4 $ 9 $ — $ 14 $ 49 $ — Commercial real estate: Commercial real estate 726 1,792 — 1,023 2,020 — Acquired with credit deterioration* 842 842 — 931 931 — Commercial real estate - construction: Commercial real estate - construction 618 618 — — — — Residential mortgage: Residential mortgage 848 882 — 1,329 1,434 — Acquired with credit deterioration* 389 389 — 400 400 — Home equity: Home equity 111 129 — 115 137 — With an allowance recorded: Commercial and industrial $ 56 $ 62 $ 6 $ 113 $ 128 $ 51 Commercial real estate 2,520 2,646 711 1,947 1,981 429 Commercial real estate - construction 242 242 72 — — — Residential mortgage 68 68 68 32 32 23 Home equity 29 49 1 — — — Total: Commercial and industrial $ 60 $ 71 $ 6 $ 127 $ 177 $ 51 Commercial real estate 4,088 5,280 711 3,901 4,001 429 Commercial real estate - construction 860 860 72 — — — Residential mortgage 1,305 1,339 68 1,761 1,466 23 Home equity 140 178 1 115 137 — * Loans acquired with credit deterioration are presented net of credit fair value adjustment. Average recorded investment of impaired loans and related interest income recognized for the years ended December 31, 2016, 2015, and 2014 are summarized as follows: December 31, 2016 December 31, 2015 December 31, 2014 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial and industrial: Commercial and industrial $ 9 $ — $ 19 $ — $ 72 $ — Acquired with credit deterioration — — — 205 — — Commercial real estate: Commercial real estate 820 — 1,051 14 1,966 346 Acquired with credit deterioration 810 164 926 350 — — Commercial real estate - construction: Commercial real estate - construction 124 — — — — — Residential mortgage: Residential mortgage 821 21 816 8 541 — Acquired with credit deterioration 378 4 400 — — — Home equity: Home equity 75 — 107 — 29 — Acquired with credit deterioration — — — 3 — — With an allowance recorded: Commercial and industrial $ 59 $ — $ 123 $ — $ 93 $ — Commercial real estate 2,177 — 1,721 — 6,823 — Commercial real estate - construction 48 — — — — — Residential mortgage 14 — 25 — — — Home equity 32 — — — 76 — Total: Commercial and industrial $ 68 $ — $ 142 $ 205 $ 165 $ — Commercial real estate 3,807 164 3,698 364 8,789 346 Commercial real estate - construction 172 — — — — — Residential mortgage 1,213 25 1,241 8 541 — Home equity 107 — 107 3 105 — Nonaccrual loans by loan portfolio class as of December 31, 2016 and 2015 are summarized as follows: (Dollars in thousands) 2016 2015 Commercial and industrial $ 4 $ 66 Commercial real estate 2,939 2,607 Commercial real estate - construction 860 — Residential mortgage 715 1,630 Home equity 140 115 $ 4,658 $ 4,418 If nonaccrual loans and leases had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the period, Mid Penn would have recorded interest income on these loans of $666,000, $778,000, and $798,000, in the years ended December 31, 2016, 2015, and 2014, respectively. Mid Penn has no commitments to lend additional funds to borrowers with impaired or nonaccrual loans. The performance and credit quality of the loan portfolio is also monitored by the analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The classes of the loan portfolio summarized by the past due status as of December 31, 2016 and 2015 are summarized as follows: (Dollars in thousands) December 31, 2016 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans Loans Receivable > 90 Days and Accruing Commercial and industrial: Commercial and industrial $ 164 $ 12 $ 4 $ 180 $ 172,338 $ 172,518 $ — Commercial real estate: Commercial real estate 475 — 1,004 1,479 444,203 445,682 — Acquired with credit deterioration — — 59 59 783 842 59 Commercial real estate - construction: Commercial real estate - construction — 404 84 488 53,888 54,376 — Lease financing: Lease financing — — — — 425 425 — Residential mortgage: Residential mortgage 548 124 237 909 98,159 99,068 — Acquired with credit deterioration — — 238 238 151 389 — Home equity: Home equity 33 13 125 171 37,437 37,608 — Consumer: Consumer — — — — 3,016 3,016 — Total $ 1,220 $ 553 $ 1,751 $ 3,524 $ 810,400 $ 813,924 $ 59 (Dollars in thousands) December 31, 2015 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans Loans Receivable > 90 Days and Accruing Commercial and industrial: Commercial and industrial $ 55 $ 204 $ 66 $ 325 $ 159,936 $ 160,261 $ — Commercial real estate: Commercial real estate 211 608 1,456 2,275 366,258 368,533 — Acquired with credit deterioration 215 518 55 788 143 931 55 Commercial real estate - construction: Commercial real estate - construction — — — — 68,068 68,068 — Lease financing: Lease financing — — — — 727 727 — Residential mortgage: Residential mortgage 694 550 778 2,022 98,243 100,265 — Acquired with credit deterioration 12 — 222 234 166 400 — Home equity: Home equity — 50 23 73 33,338 33,411 — Consumer: Consumer 10 5 — 15 3,902 3,917 — Total $ 1,197 $ 1,935 $ 2,600 $ 5,732 $ 730,781 $ 736,513 $ 55 Activity in the allowance for loan and lease losses for the years ended December 31, 2016, 2015, and 2014, and the recorded investment in loans receivable as of December 31, 2016, 2015, and 2014 are as follows: (Dollars in thousands) December 31, 2016 Commercial and industrial Commercial real estate Commercial real estate - construction Lease financing Residential mortgage Home equity Consumer Unallocated Total Allowance for loan and lease losses: Beginning balance $ 1,393 $ 3,552 $ 153 $ 1 $ 534 $ 317 $ 12 $ 206 $ 6,168 Charge-offs (820 ) (216 ) — — (4 ) (25 ) (42 ) — (1,107 ) Recoveries 4 211 — — 26 — 11 — 252 Provisions 1,003 776 (9 ) — (15 ) 87 22 6 1,870 Ending balance 1,580 4,323 144 1 541 379 3 212 7,183 Ending balance: individually evaluated for impairment 6 711 72 — 68 1 — — 858 Ending balance: collectively evaluated for impairment $ 1,574 $ 3,612 $ 72 $ 1 $ 473 $ 378 $ 3 $ 212 $ 6,325 Loans receivable: Ending balance $ 172,518 $ 446,524 $ 54,376 $ 425 $ 99,457 $ 37,608 $ 3,016 $ — $ 813,924 Ending balance: individually evaluated for impairment 60 3,246 860 — 916 140 — — 5,222 Ending balance: acquired with credit deterioration — 842 — — 389 — — — 1,231 Ending balance: collectively evaluated for impairment $ 172,458 $ 442,436 $ 53,516 $ 425 $ 98,152 $ 37,468 $ 3,016 $ — $ 807,471 (Dollars in thousands) December 31, 2015 Commercial and industrial Commercial real estate Commercial real estate - construction Lease financing Residential mortgage Home equity Consumer Unallocated Total Allowance for loan and lease losses: Beginning balance $ 1,393 $ 3,925 $ 33 $ 2 $ 450 $ 653 $ 35 $ 225 $ 6,716 Charge-offs (130 ) (1,569 ) — — (35 ) (36 ) (14 ) — (1,784 ) Recoveries 12 75 — — 44 29 11 — 171 Provisions 118 1,121 120 (1 ) 75 (329 ) (20 ) (19 ) 1,065 Ending balance 1,393 3,552 153 1 534 317 12 206 6,168 Ending balance: individually evaluated for impairment 51 429 — — 23 — — — 503 Ending balance: collectively evaluated for impairment $ 1,342 $ 3,123 $ 153 $ 1 $ 511 $ 317 $ 12 $ 206 $ 5,665 Loans receivable: Ending balance $ 160,261 $ 369,464 $ 68,068 $ 727 $ 100,665 $ 33,411 $ 3,917 $ — $ 736,513 Ending balance: individually evaluated for impairment 127 2,970 — — 1,361 115 — — 4,573 Ending balance: acquired with credit deterioration — 931 — — 400 — — — 1,331 Ending balance: collectively evaluated for impairment $ 160,134 $ 365,563 $ 68,068 $ 727 $ 98,904 33,296 $ 3,917 $ — $ 730,609 (Dollars in thousands) December 31, 2014 Commercial and industrial Commercial real estate Commercial real estate - construction Lease financing Residential mortgage Home equity Consumer Unallocated Total Allowance for loan and lease losses: Beginning Balance $ 1,187 $ 4,006 $ 9 $ — $ 581 $ 441 $ 72 $ 21 $ 6,317 Charge-offs (62 ) (1,057 ) — — (133 ) (43 ) (33 ) — (1,328 ) Recoveries 13 13 — — 20 1 63 — 110 Provisions 255 963 24 2 (18 ) 254 (67 ) 204 1,617 Ending balance 1,393 3,925 33 2 450 653 35 225 6,716 Ending balance: individually evaluated for impairment 137 1,382 — — — 115 — — 1,634 Ending balance: collectively evaluated for impairment $ 1,256 $ 2,543 $ 33 $ 2 $ 450 $ 538 $ 35 $ 225 $ 5,082 Loans receivable: Ending balance $ 119,010 $ 297,357 $ 56,076 $ 1,121 $ 66,442 $ 28,506 $ 3,021 $ — $ 571,533 Ending balance: individually evaluated for impairment 618 8,925 — — 1,146 240 — — 10,929 Ending balance: collectively evaluated for impairment $ 118,392 $ 288,432 $ 56,076 $ 1,121 $ 65,296 $ 28,266 $ 3,021 $ — $ 560,604 The recorded investments in troubled debt restructured loans at December 31, 2016 and 2015 are as follows: (Dollars in thousands) Pre-Modification Post-Modification December 31, 2016 Outstanding Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial $ 40 $ 35 $ 5 Commercial real estate 4,569 4,031 2,871 Residential mortgage 759 757 639 $ 5,368 $ 4,823 $ 3,515 (Dollars in thousands) Pre-Modification Post-Modification December 31, 2015 Outstanding Recorded Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial $ 40 $ 35 $ 15 Commercial real estate 3,634 3,117 2,235 Residential mortgage 733 727 555 $ 4,407 $ 3,879 $ 2,805 At December 31, 2016, Mid Penn’s troubled debt restructured loans totaled $3,515,000, including five loans totaling $877,000 represented accruing impaired loans in compliance with the terms of the modification. Of the $877,000, four are accruing impaired residential mortgages to unrelated borrowers totaling $571,000 and the other one is an accruing impaired commercial real estate loan for $306,000. The remaining $2,638,000 of troubled debt restructured loans represent ten loans among four relationships, are nonaccrual impaired loans, and resulted in a collateral evaluation in accordance with the guidance on impaired loans. Two large relationships account for $2,170,000 of the $2,638,000 nonaccrual impaired troubled debt restructured loan total. As a result of the evaluation, a specific allocation and, subsequently, charge-offs have been taken as appropriate. As of December 31, 2016, there were no charge-offs associated with troubled debt restructured loans while under a forbearance agreement. As of December 31, 2016, there were no defaulted troubled debt restructured loans as all troubled debt restructured loans were current with respect to their associated forbearance agreements. There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2016. One forbearance agreement was negotiated during 2008, eight forbearance agreements were negotiated during 2009, two were negotiated during 2013, one was negotiated during 2014, and three were negotiated during 2016. At December 31, 2015, Mid Penn’s troubled debt restructured loans totaled $2,805,000 of which four loans totaling $459,000 represented accruing impaired loans in compliance with the terms of the modification. Of the $459,000, three are accruing impaired residential mortgages to unrelated borrowers totaling $64,000 and the other one is an accruing impaired commercial real estate loan for $395,000. The remaining $2,346,000, representing nine loans among four relationships, are nonaccrual impaired loans, and resulted in a collateral evaluation in accordance with the guidance on impaired loans. One large relationship accounted for $1,370,000 of the $2,346,000 nonaccrual impaired troubled debt restructured loan total. As a result of the evaluation, a specific allocation and, subsequently, charge-offs have been taken as appropriate. As of December 31, 2015, there were no charge-offs associated with troubled debt restructured loans while under a forbearance agreement. As of December 31, 2015, there were no defaulted troubled debt restructured loans as all troubled debt restructured loans were current with respect to their associated forbearance agreements. There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2015. One forbearance agreement was negotiated during 2008, nine forbearance agreements were negotiated during 2009, two were negotiated during 2013, and one was negotiated during 2014. Mid Penn entered into forbearance agreements on all loans currently classified as troubled debt restructures and all of these agreements have resulted in additional principal repayment. The terms of these forbearance agreements vary whereby principal payments have been decreased, interest rates have been reduced and/or the loan will be repaid as collateral is sold. There were three loans modified in 2016 and no loans modified in 2015 that resulted in troubled debt restructurings. The following table summarizes the loans whose terms have been modified resulting in troubled debt restructurings during the year ended December 31, 2016. (Dollars in thousands) Pre-Modification Post-Modification December 31, 2016 Number of Contracts Outstanding Recorded Investment Outstanding Recorded Investment Recorded Investment Commercial real estate 2 $ 934 $ 914 $ 914 Residential mortgage 1 68 68 68 3 $ 1,002 $ 982 $ 982 The following table provides activity for the accretable yield of purchased impaired loans for the year ended December 31, 2016. (Dollars in thousands) Accretable yield, January 1, 2016 $ 178 Accretable yield amortized to interest income (141 ) Reclassification from nonaccretable difference (a) 30 Accretable yield, December 31, 2016 $ 67 (a) Reclassification from non-accretable difference represents an increase to the estimated cash flows to be collected on the underlying portfolio. The Bank has granted loans to certain of its executive officers, directors, and their related interests. The aggregate amount of these loans was $17,594,000 and $10,657,000 at December 31, 2016 and 2015, respectively. During 2016, $14,479,000 of new loans and advances were extended and repayments totaled $7,542,000. None of these loans were past due, in nonaccrual status, or restructured at December 31, 2016. |