Loans and Allowance for Loan and Lease Losses

12 Months Ended

Dec. 31, 2019

Accounts Notes Loans And Financing Receivable Gross Allowance And Net [Abstract]

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 Recorded 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.