Loans and Allowance for Loan and Lease Losses | (9 ) 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 $475,000 and $464,000 as of December 31, 2018 and 2017, respectively, and the classified ratings of special mention, substandard, and doubtful within Mid Penn’s internal risk rating system as of December 31, 2018 and 2017, are noted below: (Dollars in thousands) December 31, 2018 Pass Special Mention Substandard Doubtful Total Commercial and industrial $ 276,690 $ 2,769 $ 7,059 $ — $ 286,518 Commercial real estate 850,150 2,432 8,787 — 861,369 Commercial real estate - construction 141,806 — 367 — 142,173 Lease financing 53 — — — 53 Residential mortgage 251,151 147 2,245 — 253,543 Home equity 70,004 — 92 — 70,096 Consumer 10,315 — — — 10,315 $ 1,600,169 $ 5,348 $ 18,550 $ — $ 1,624,067 (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 Impaired loans by loan portfolio class as of December 31, 2018 and 2017 are summarized as follows: December 31, 2018 December 31, 2017 (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 $ — Commercial real estate 2,007 2,276 — 3,424 4,056 — Commercial real estate - construction — — — — — — Lease financing — — — — — — Residential mortgage 657 811 — 760 877 — Home equity 30 106 — 260 295 — Consumer — — — — — — With no related allowance recorded and acquired with credit deterioration: * Commercial and industrial $ 28 $ 28 $ — $ — $ — $ — Commercial real estate 1,563 1,563 — 555 555 — Commercial real estate - construction — — — — — — Lease financing — — — — — — Residential mortgage 1,208 1,208 — 306 306 — Home equity 4 4 — — — — Consumer — — — — — — With an allowance recorded: Commercial and industrial $ 4,527 $ 4,635 $ 500 $ 4,434 $ 4,460 $ 136 Commercial real estate 721 721 204 1,423 1,589 293 Commercial real estate - construction 367 370 38 487 492 100 Lease financing — — — — — — Residential mortgage — — — — — — Home equity — — — — — — Consumer — — — — — — Total: Commercial and industrial $ 4,555 $ 4,663 $ 500 $ 4,434 $ 4,473 $ 136 Commercial real estate 4,291 4,560 204 5,402 6,200 293 Commercial real estate - construction 367 370 38 487 492 100 Lease financing — — — — — — Residential mortgage 2,019 1,865 — 1,066 1,183 — Home equity 34 110 — 260 295 — * 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, 2018, 2017, and 2016 are summarized as follows: December 31, 2018 December 31, 2017 December 31, 2016 (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 $ — Commercial real estate 3,048 3 1,915 279 820 — Commercial real estate - construction — — 164 — 124 — Lease financing — — — — — — Residential mortgage 754 29 890 18 821 21 Home equity 101 — 218 6 75 — Consumer — — — — — — With no related allowance recorded and acquired with credit deterioration: Commercial and industrial $ 23 $ — $ — $ — $ — $ — Commercial real estate 1,414 23 651 110 810 164 Commercial real estate - construction — — — — — — Lease financing — — — — — — Residential mortgage 832 — 332 — 378 4 Home equity 1 — — — — — Consumer — — — — — — With an allowance recorded: Commercial and industrial $ 4,437 $ — $ 1,779 $ — $ 59 $ — Commercial real estate 541 — 1,446 — 2,177 — Commercial real estate - construction 367 — 488 — 48 — Lease financing — — — — — — Residential mortgage — — — — 14 — Home equity — — — — 32 — Consumer — — — — — — Total: Commercial and industrial $ 4,460 $ — $ 1,794 $ — $ 68 $ — Commercial real estate 5,003 26 4,012 389 3,807 164 Commercial real estate - construction 367 — 652 — 172 — Lease financing — — — — — — Residential mortgage 1,586 29 1,222 18 1,213 25 Home equity 102 — 218 6 107 — Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of December 31, 2018 and 2017 are summarized as follows: (Dollars in thousands) 2018 2017 Commercial and industrial $ 4,555 $ 4,434 Commercial real estate 4,291 4,902 Commercial real estate - construction 367 487 Residential mortgage 1,502 492 Home equity 34 260 $ 10,749 $ 10,575 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 $536,000, $780,000, and $778,000, in the years ended December 31, 2018, 2017, and 2016, 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, 2018 and 2017 are summarized as follows: (Dollars in thousands) December 31, 2018 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 $ 17 $ — $ 4,527 $ 4,544 $ 281,946 $ 286,490 $ — Acquired with credit deterioration 23 5 — 28 — 28 — Commercial real estate: Commercial real estate 685 — 458 1,143 858,663 859,806 — Acquired with credit deterioration 29 — 1,534 1,563 — 1,563 — Commercial real estate - construction: Commercial real estate - construction — — 367 367 141,806 142,173 Lease financing: Lease financing — — — — 53 53 — Residential mortgage: Residential mortgage 461 - 277 738 251,597 252,335 — Acquired with credit deterioration 19 57 913 989 219 1,208 — Home equity: Home equity 166 22 25 213 69,879 70,092 — Acquired with credit deterioration — — 4 4 — 4 — Consumer: Consumer 57 5 — 62 10,253 10,315 — Total $ 1,457 $ 89 $ 8,105 $ 9,651 $ 1,614,416 $ 1,624,067 $ — (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 $ - Activity in the allowance for loan and lease losses for the years ended December 31, 2018, 2017, and 2016, and the recorded investment in loans receivable as of December 31, 2018, 2017, and 2016 are as follows: (Dollars in thousands) December 31, 2018 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 $ 1,795 $ 4,435 $ 178 $ — $ 428 $ 423 $ 3 $ 344 $ 7,606 Charge-offs (142 ) (64 ) (40 ) — (60 ) (185 ) (37 ) — (528 ) Recoveries 1 808 — — — 1 9 — 819 Provisions 737 (476 ) (63 ) — 85 289 32 (104 ) 500 Ending balance 2,391 4,703 75 — 453 528 7 240 8,397 Ending balance: individually evaluated for impairment 500 204 38 — — — — — 742 Ending balance: collectively evaluated for impairment $ 1,891 $ 4,499 $ 37 $ — $ 453 $ 528 $ 7 $ 240 $ 7,655 Loans receivable: Ending balance $ 286,518 $ 861,369 $ 142,173 $ 53 $ 253,543 $ 70,096 $ 10,315 $ — $ 1,624,067 Ending balance: individually evaluated for impairment 4,527 2,728 367 — 811 30 — — 8,463 Ending balance: acquired with credit deterioration 28 1,563 — — 1,208 4 — — 2,803 Ending balance: collectively evaluated for impairment $ 281,963 $ 857,078 $ 141,806 $ 53 $ 251,524 $ 70,062 $ 10,315 $ — $ 1,612,801 (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 The recorded investments in troubled debt restructured loans at December 31, 2018 and 2017 are as follows: (Dollars in thousands) Pre-Modification Post-Modification December 31, 2018 Outstanding Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial $ 4,110 $ 4,460 $ 4,302 Commercial real estate 2,940 2,841 2,201 Residential mortgage 677 675 516 Home equity 14 14 1 $ 7,741 $ 7,990 $ 7,020 (Dollars in thousands) Pre-Modification Post-Modification December 31, 2017 Outstanding Recorded 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 677 675 540 Home equity 14 14 4 $ 10,536 $ 10,730 $ 9,571 Mid Penn’s troubled debt restructured loans at December 31, 2018 totaled $7,020,000, and included four loans totaling $517,000 representing accruing impaired loans to unrelated borrowers in compliance with the terms of the modification, with three loans being accruing impaired residential mortgages to unrelated borrowers totaling $516,000 and one loan being an accruing impaired home equity loan of $1,000. The remaining $6,503,000 of troubled debt restructurings was attributable to ten loans among five relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. Two large relationships accounted for $5,463,000 of the total $6,503,000 in nonaccrual impaired troubled debt restructured loans. As of December 31, 2018, 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 2018. 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, with three loans being accruing impaired residential mortgages to unrelated borrowers totaling $540,000, and one loan being an accruing impaired home equity loan of $4,000. The remaining $9,027,000 of troubled debt restructured loans is attributable to fifteen loans among seven relationships, which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. Two large relationships accounted for $7,284,000 of the $9,027,000 in nonaccrual impaired troubled debt restructured loans. 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. 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 was one loan modified in 2018, ten loans modified in 2017, and three loans modified in 2016 that resulted in troubled debt restructurings. The following table summarizes the loans whose terms have been modified resulting in troubled debt restructurings during the years ended December 31, 2018, 2017, and 2016. (Dollars in thousands) Pre-Modification Post-Modification December 31, 2018 Number of Contracts Outstanding Recorded Investment Outstanding Recorded Investment Recorded Investment Commercial real estate 1 $ 270 $ 270 $ 266 1 $ 270 $ 270 $ 266 (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 (Dollars in thousands) Pre-Modification Post-Modification December 31, 2016 Number of Contracts Outstanding Recorded Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial 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, 2018. (Dollars in thousands) Accretable yield, January 1, 2018 $ 67 Acquisition of impaired loans $ 430 Accretable yield amortized to interest income (188 ) Accretable yield, December 31, 2018 $ 309 The Bank has granted loans to certain of its executive officers, directors, and their related interests. The aggregate amount of these loans was $17,843,000 and $15,163,000 at December 31, 2018 and 2017, respectively. During 2018, $6,458,000 of new loans and advances were extended, $582,000 of loans were assumed from First Priority as a result of the addition of new directors, and repayments totaled $4,360,000. None of these loans were past due, in nonaccrual status, or restructured at December 31, 2018. |