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 $464,000 and $196,000 as of December 31, 2017 and 2016, respectively, and the classified ratings of special mention, substandard, and doubtful within Mid Penn’s internal risk rating system as of December 31, 2017 and 2016, are noted below: (Dollars in thousands) December 31, 2017 Pass Special Mention Substandard Doubtful Total Commercial and industrial $ 182,168 $ 453 $ 5,412 $ — $ 188,033 Commercial real estate 505,397 1,435 8,180 — 515,012 Commercial real estate - construction 61,667 182 487 — 62,336 Lease financing 229 — — — 229 Residential mortgage 97,814 157 1,062 — 99,033 Home equity 41,479 105 309 — 41,893 Consumer 3,868 — — — 3,868 $ 892,622 $ 2,332 $ 15,450 $ — $ 910,404 (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 Impaired loans by loan portfolio class as of December 31, 2017 and 2016 are summarized as follows: December 31, 2017 December 31, 2016 (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 $ — $ 13 $ — $ 4 $ 9 $ — Commercial real estate 3,424 4,056 — 726 1,792 — Commercial real estate - construction — — — 618 618 — Lease financing — — — — — — Residential mortgage 760 877 — 848 882 — Home equity 260 295 — 111 129 — Consumer — — — — — — With no related allowance recorded and acquired with credit deterioration: Commercial and industrial $ — $ — $ — $ — $ — $ — Commercial real estate 555 555 — 842 842 — Commercial real estate - construction — — — — — — Lease financing — — — — — — Residential mortgage 306 306 — 389 389 — Home equity — — — — — — Consumer — — — — — — With an allowance recorded: Commercial and industrial $ 4,434 $ 4,460 $ 136 $ 56 $ 62 $ 6 Commercial real estate 1,423 1,589 293 2,520 2,646 711 Commercial real estate - construction 487 492 100 242 242 72 Lease financing — — — — — — Residential mortgage — — — 68 68 68 Home equity — — — 29 49 1 Consumer — — — — — — Total: Commercial and industrial $ 4,434 $ 4,473 $ 136 $ 60 $ 71 $ 6 Commercial real estate 5,402 6,200 293 4,088 5,280 711 Commercial real estate - construction 487 492 100 860 860 72 Lease financing — — — — — — Residential mortgage 1,066 1,183 — 1,305 1,339 68 Home equity 260 295 — 140 178 1 * Loans acquired with credit deterioration are presented net of credit fair value adjustment. The average recorded investment of impaired loans and related interest income recognized for the years ended December 31, 2017, 2016, and 2015 are summarized as follows: December 31, 2017 December 31, 2016 December 31, 2015 (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 $ 15 $ — $ 9 $ — $ 19 $ — Commercial real estate 1,915 279 820 — 1,051 14 Commercial real estate - construction 164 — 124 — — — Lease financing — — — — — — Residential mortgage 890 18 821 21 816 8 Home equity 218 6 75 — 107 — Consumer — — — — — — With no related allowance recorded and acquired with credit deterioration: Commercial and industrial $ — $ — $ — $ — $ — $ 205 Commercial real estate 651 110 810 164 926 350 Commercial real estate - construction — — — — — — Lease financing — — — — — — Residential mortgage 332 — 378 4 400 — Home equity — — — — — 3 Consumer — — — — — — With an allowance recorded: Commercial and industrial $ 1,779 $ — $ 59 $ — $ 123 $ — Commercial real estate 1,446 — 2,177 — 1,721 — Commercial real estate - construction 488 — 48 — — — Lease financing — — — — — — Residential mortgage — — 14 — 25 — Home equity — — 32 — — — Consumer — — — — — — Total: Commercial and industrial $ 1,794 $ — $ 68 $ — $ 142 $ 205 Commercial real estate 4,012 389 3,807 164 3,698 364 Commercial real estate - construction 652 — 172 — — — Lease financing — — — — — — Residential mortgage 1,222 18 1,213 25 1,241 8 Home equity 218 6 107 — 107 3 Nonaccrual loans by loan portfolio class as of December 31, 2017 and 2016 are summarized as follows: (Dollars in thousands) 2017 2016 Commercial and industrial $ 4,434 $ 4 Commercial real estate 4,902 2,939 Commercial real estate - construction 487 860 Residential mortgage 492 715 Home equity 260 140 $ 10,575 $ 4,658 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 $780,000, $778,000, and $798,000, in the years ended December 31, 2017, 2016, and 2015, 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, 2017 and 2016 are summarized as follows: (Dollars in thousands) December 31, 2017 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 $ 4,439 $ 16 $ — $ 4,455 $ 183,578 $ 188,033 $ — Commercial real estate: Commercial real estate — — 3,669 3,669 510,788 514,457 — Acquired with credit deterioration 500 — 55 555 - 555 — Commercial real estate - construction: Commercial real estate - construction — — 487 487 61,849 62,336 — Lease financing: Lease financing — — — — 229 229 — Residential mortgage: Residential mortgage 310 467 177 954 97,773 98,727 — Acquired with credit deterioration — 31 193 224 82 306 — Home equity: Home equity 54 98 250 402 41,491 41,893 — Consumer: Consumer 3 — — 3 3,865 3,868 — Total $ 5,306 $ 612 $ 4,831 $ 10,749 $ 899,655 $ 910,404 $ — (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 Activity in the allowance for loan and lease losses for the years ended December 31, 2017, 2016, and 2015, and the recorded investment in loans receivable as of December 31, 2017, 2016, and 2015 are as follows: (Dollars in thousands) December 31, 2017 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 $ 1,580 $ 4,323 $ 144 $ 1 $ 541 $ 379 $ 3 $ 212 $ 7,183 Charge-offs (25 ) (322 ) — — (102 ) (20 ) (28 ) — (497 ) Recoveries 26 553 — — 4 5 7 — 595 Provisions 214 (119 ) 34 (1 ) (15 ) 59 21 132 325 Ending balance 1,795 4,435 178 — 428 423 3 344 7,606 Ending balance: individually evaluated for impairment 136 293 100 — — — — — 529 Ending balance: collectively evaluated for impairment $ 1,659 $ 4,142 $ 78 $ - $ 428 $ 423 $ 3 $ 344 $ 7,077 Loans receivable: Ending balance $ 188,033 $ 515,012 $ 62,336 $ 229 $ 99,033 $ 41,893 $ 3,868 $ — $ 910,404 Ending balance: individually evaluated for impairment 4,434 4,847 487 — 760 260 — — 10,788 Ending balance: acquired with credit deterioration — 555 — — 306 — — — 861 Ending balance: collectively evaluated for impairment $ 183,599 $ 509,610 $ 61,849 $ 229 $ 97,967 $ 41,633 $ 3,868 $ — $ 898,755 (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 The recorded investments in troubled debt restructured loans at December 31, 2017 and 2016 are as follows: (Dollars in thousands) Pre-Modification Post-Modification December 31, 2017 Outstanding Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial $ 4,110 $ 4,460 $ 4,434 Commercial real estate 5,735 5,581 4,593 Residential mortgage 691 689 544 $ 10,536 $ 10,730 $ 9,571 (Dollars in thousands) Pre-Modification Post-Modification December 31, 2016 Outstanding Recorded 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 At December 31, 2017, Mid Penn’s troubled debt restructured loans totaled $9,571,000, and included four loans, totaling $544,000, representing accruing impaired loans in compliance with the terms of the modification. Of the $544,000, three are accruing impaired residential mortgages to unrelated borrowers totaling $540,000 and the other one is an accruing impaired home equity loan of $4,000. The remaining $9,027,000 of troubled debt restructured loans represent fifteen loans among seven relationships, are nonaccrual impaired loans, and resulted in a collateral evaluation in accordance with the guidance on impaired loans. Two large relationships accounted for $7,284,000 of the $9,027,000 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, 2017, there was $66,000 of charge-offs associated with troubled debt restructured loans while under a forbearance agreement. As of December 31, 2017, 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 2017. One forbearance agreement was negotiated during 2008, six forbearance agreements were negotiated during 2009, one was negotiated during 2013, one was negotiated during 2014, and ten were negotiated during 2017. At December 31, 2016, Mid Penn’s troubled debt restructured loans totaled $3,515,000, and included five loans, totaling $877,000, representing accruing impaired loans in compliance with the terms of the modification. Of the $877,000, four were accruing impaired residential mortgages to unrelated borrowers totaling $571,000 and the other one was 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, were nonaccrual impaired loans, and resulted in a collateral evaluation in accordance with the guidance on impaired loans. Two large relationships accounted 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. Mid Penn entered into forbearance agreements on all loans currently classified as troubled debt restructurings 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 ten loans modified in 2017 and three loans modified in 2016 that resulted in troubled debt restructurings. There were 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, 2017. (Dollars in thousands) Pre-Modification Post-Modification December 31, 2017 Number of Contracts Outstanding Recorded Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial 1 $ 4,110 $ 4,460 $ 4,434 Commercial real estate 9 3,212 3,150 3,140 10 $ 7,322 $ 7,610 $ 7,574 The following table provides activity for the accretable yield of purchased impaired loans for the year ended December 31, 2017. (Dollars in thousands) Accretable yield, January 1, 2017 $ 67 Accretable yield amortized to interest income (23 ) Reclassification from nonaccretable difference (a) 23 Accretable yield, December 31, 2017 $ 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 $15,163,000 and $17,634,000 at December 31, 2017 and 2016, respectively. During 2017, $2,178,000 of new loans and advances were extended and repayments totaled $4,649,000. None of these loans were past due, in nonaccrual status, or restructured at December 31, 2017. |