Loans and Allowance for Loan and Lease Losses | 7) Loans and Allowance for Loan and Lease Losses The types of loans in Mid Penn’s portfolio, summarized by those rated as “pass” (net of deferred fees and costs of $1,081,000 as of December 31, 2019 and $647,000 as of December 31, 2018), and the loans classified as “special mention” and “substandard” within Mid Penn’s internal risk rating system as of December 31, 2019 and December 31, 2018, are as follows: (Dollars in thousands) December 31, 2019 Pass Special Mention Substandard Total Commercial and industrial $ 326,573 $ 9,558 $ 3,016 $ 339,147 Commercial real estate 913,001 2,426 13,711 929,138 Commercial real estate - construction 181,650 — 40 181,690 Lease financing — — — — Residential mortgage 235,252 55 1,417 236,724 Home equity 68,224 — 47 68,271 Consumer 7,786 — — 7,786 $ 1,732,486 $ 12,039 $ 18,231 $ 1,762,756 (Dollars in thousands) December 31, 2018 Pass Special Mention Substandard 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 Mid Penn had no loans classified as “Doubtful” as of December 31, 2019 and December 31, 2018. Impaired loans by loan portfolio class as of December 31, 2019 and 2018 are summarized as follows: December 31, 2019 December 31, 2018 (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 $ 890 $ 890 $ — $ — $ — $ — Commercial real estate 7,973 8,366 — 2,007 2,276 — Commercial real estate - construction 40 61 — — — — Lease financing — — — — — — Residential mortgage 817 838 — 657 811 — Home equity 25 27 — 30 106 — Consumer — — — — — — With no related allowance recorded and acquired with credit deterioration: * Commercial and industrial $ 3 $ 68 $ — $ 28 $ 28 $ — Commercial real estate 1,423 1,708 — 1,563 1,563 — Commercial real estate - construction — — — — — — Lease financing — — — — — — Residential mortgage 381 578 — 1,208 1,208 — Home equity 1 5 — 4 4 — Consumer — — — — — — With an allowance recorded: Commercial and industrial $ — $ — $ — $ 4,527 $ 4,635 $ 500 Commercial real estate 338 380 166 721 721 204 Commercial real estate - construction — — — 367 370 38 Lease financing — — — — — — Residential mortgage — — — — — — Home equity — — — — — — Consumer — — — — — — Total: Commercial and industrial $ 893 $ 958 $ — $ 4,555 $ 4,663 $ 500 Commercial real estate 9,734 10,454 166 4,291 4,560 204 Commercial real estate - construction 40 61 — 367 370 38 Lease financing — — — — — — Residential mortgage 1,198 1,416 — 1,865 2,019 — Home equity 26 32 — 34 110 — Consumer — — — — — — * 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, 2019, 2018, and 2017 are summarized as follows: December 31, 2019 December 31, 2018 December 31, 2017 (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 $ 178 $ 3 $ — $ — $ 15 $ — Commercial real estate 3,363 20 3,048 3 1,915 279 Commercial real estate - construction 32 — — — 164 — Lease financing — — — — — — Residential mortgage 854 30 754 29 890 18 Home equity 27 — 101 — 218 6 Consumer — — — — — — With no related allowance recorded and acquired with credit deterioration: Commercial and industrial $ 18 $ — $ 23 $ — $ — $ — Commercial real estate 1,597 — 1,414 23 651 110 Commercial real estate - construction — — — — — — Lease financing — — — — — — Residential mortgage 991 — 832 — 332 — Home equity 4 — 1 — — — Consumer — — — — — — With an allowance recorded: Commercial and industrial $ 962 $ — $ 4,437 $ — $ 1,779 $ — Commercial real estate 424 — 541 — 1,446 — Commercial real estate - construction 147 — 367 — 488 — Lease financing — — — — — — Residential mortgage — — — — — — Home equity — — — — — — Consumer — — — — — — Total: Commercial and industrial $ 1,158 $ 3 $ 4,460 $ — $ 1,794 $ — Commercial real estate 5,384 20 5,003 26 4,012 389 Commercial real estate - construction 179 — 367 — 652 — Lease financing — — — — — — Residential mortgage 1,845 30 1,586 29 1,222 18 Home equity 31 — 102 — 218 6 Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of December 31, 2019 and 2018 are summarized as follows: (Dollars in thousands) 2019 2018 Commercial and industrial $ 894 $ 4,555 Commercial real estate 9,800 4,291 Commercial real estate - construction 40 367 Residential mortgage 711 1,502 Home equity 26 34 $ 11,471 $ 10,749 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 $333,000, $536,000, and $780,000, in the years ended December 31, 2019, 2018, and 2017, 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, 2019 and 2018 are summarized as follows: (Dollars in thousands) December 31, 2019 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 $ — $ 1,059 $ 890 $ 1,949 $ 337,195 $ 339,144 $ — Commercial real estate 1,298 11 — 1,309 926,406 927,715 — Commercial real estate - construction — — 7,819 7,819 173,871 181,690 — Lease financing — — — — — — — Residential mortgage 145 — 326 471 235,872 236,343 — Home equity 34 — — 34 68,236 68,270 — Consumer 5 3 — 8 7,778 7,786 — Loans acquired with credit deterioration: Commercial and industrial — — 3 3 — 3 — Commercial real estate 16 473 934 1,423 — 1,423 — Commercial real estate - construction — — — — — — — Lease financing — — — — — — — Residential mortgage 5 — 203 208 173 381 — Home equity — — — — 1 1 — Consumer — — — — — — — Total $ 1,503 $ 1,546 $ 10,175 $ 13,224 $ 1,749,532 $ 1,762,756 $ — (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 $ 17 $ — $ 4,527 $ 4,544 $ 281,946 $ 286,490 $ — Commercial real estate 685 — 458 1,143 858,663 859,806 — Commercial real estate - construction — — 367 367 141,806 142,173 — Lease financing — — — — 53 53 — Residential mortgage 461 — 277 738 251,597 252,335 — Home equity 166 22 25 213 69,879 70,092 — Consumer 57 5 — 62 10,253 10,315 — Loans acquired with credit deterioration: Commercial and industrial 23 5 — 28 — 28 — Commercial real estate 29 — 1,534 1,563 — 1,563 — Commercial real estate - construction — — — — — — — Lease financing — — — — — — — Residential mortgage 19 57 913 989 219 1,208 — Home equity — — 4 4 — 4 — Consumer — — — — — — — Total $ 1,457 $ 89 $ 8,105 $ 9,651 $ 1,614,416 $ 1,624,067 $ — Activity in the allowance for loan and lease losses for the years ended December 31, 2019, 2018, and 2017, and the recorded investment in loans receivable as of December 31, 2019, 2018, and 2017 are as follows: (Dollars in thousands) Dec. 31, 2019 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 $ 2,391 $ 4,703 $ 75 $ — $ 453 $ 528 $ 7 $ 240 $ 8,397 Charge-offs (217 ) (60 ) (40 ) — (29 ) (18 ) (64 ) — (428 ) Recoveries 45 82 — — 9 5 15 — 156 Provisions 122 1,534 16 — (16 ) (73 ) 44 (237 ) 1,390 Ending balance 2,341 6,259 51 — 417 442 2 3 9,515 Ending balance: individually evaluated for impairment — 166 — — — — — — 166 Ending balance: collectively evaluated for impairment $ 2,341 $ 6,093 $ 51 $ — $ 417 $ 442 $ 2 $ 3 $ 9,349 Loans receivable: Ending balance $ 339,147 $ 929,138 $ 181,690 $ — $ 236,724 $ 68,271 $ 7,786 $ — $ 1,762,756 Ending balance: individually evaluated for impairment 890 8,311 40 — 817 25 — — 10,083 Ending balance: acquired with credit deterioration 3 1,423 — — 381 1 — — 1,808 Ending balance: collectively evaluated for impairment $ 338,254 $ 919,404 $ 181,650 $ — $ 235,526 $ 68,245 $ 7,786 $ — $ 1,750,865 (Dollars in thousands) Dec. 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) Dec. 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 The recorded investments in troubled debt restructured loans at December 31, 2019 and 2018 are as follows: (Dollars in thousands) Pre-Modification Post-Modification December 31, 2019 Outstanding Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial $ 3 $ 3 $ 3 Commercial real estate 2,562 2,463 1,705 Commercial real estate - construction 40 40 40 Residential mortgage 677 675 490 $ 3,282 $ 3,181 $ 2,238 (Dollars in thousands) Pre-Modification Post-Modification December 31, 2018 Outstanding Recorded 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 Mid Penn’s troubled debt restructured loans at December 31, 2019 totaled $2,238,000, and included three accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $490,000. The remaining $1,748,000 of troubled debt restructurings was attributable to eight loans among five relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. One large relationship accounted for $1,252,000 of the total $1,748,000 in nonaccrual impaired troubled debt restructured loans. As of December 31, 2019, 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 2019. 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 modifications, 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. 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 two loans modified in 2019, one loan modified in 2018, and ten loans modified in 2017 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, 2019, 2018, and 2017. (Dollars in thousands) Pre-Modification Post-Modification December 31, 2019 Number of Contracts Outstanding Recorded Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial 1 $ 3 $ 3 $ 3 Commercial real estate - construction 1 40 40 40 2 $ 43 $ 43 $ 43 (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 The following table provides activity for the accretable yield of purchased impaired loans for the years ended December 31, 2019 and 2018. (Dollars in thousands) For the year ended December 31, 2019 2018 Accretable yield, beginning of period $ 309 $ 67 Acquisition of impaired loans — 430 Accretable yield amortized to interest income (220 ) (188 ) Accretable yield, end of period $ 89 $ 309 The Bank has granted loans to certain of its executive officers, directors, and their related interests. The aggregate amount of these loans was $11,220,000 and $17,843,000 at December 31, 2019 and 2018, respectively. During 2019, $24,278,000 of new loans and advances were extended and repayments totaled $30,901,000. None of these loans were past due, in nonaccrual status, or restructured at December 31, 2019. |