(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 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		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.