LOANS AND THE ALLOWANCE FOR LOAN LOSSES

A summary of the balances of loans follows:



	March 31,			December 31,
	2018			2017
	(In thousands)
Real estate:
1-4 family residential	$	934,595		$	922,627
Home equity	75,013			80,662
Commercial real estate	849,178			834,264
Construction	73,354			91,050
	1,932,140			1,928,603
Commercial business	249,285			253,509
Consumer	19,911			21,698
Total loans	2,201,336			2,203,810
Allowance for loan losses	(20,185		)	(20,877		)
Discount and fair value adjustments on purchased loans	(1,314		)	(1,477		)
Deferred loan costs and fees, net	4,453			4,691
Loans, net	$	2,184,290		$	2,186,147

Activity in the allowance for loan losses for the three months ended March 31, 2018 and 2017, by loan segment, follows:



	1-4 Family Residential		Home Equity			Commercial Real Estate			Construction			Commercial Business			Consumer			Total
	(In thousands)
Three Months Ended March 31, 2018
Allowance at December 31, 2017	$	5,076	$	699		$	9,584		$	1,708		$	3,473		$	337		$	20,877
Provision (credit) for loan losses	23		(68		)	121			(427		)	(95		)	(14		)	(460		)
Loans charged-off	—		—			(194		)	—			(25		)	(21		)	(240		)
Recoveries	—		—			—			—			—			8			8
Allowance at March 31, 2018	$	5,099	$	631		$	9,511		$	1,281		$	3,353		$	310		$	20,185



Three Months Ended March 31, 2017
Allowance at December 31, 2016	$	4,846	$	537	$	8,374		$	1,353	$	3,206		$	434		$	18,750
Provision (credit) for loan losses	80		21		(41		)	104		(89		)	(18		)	57
Loans charged-off	—		—		—			—		—			(15		)	(15		)
Recoveries	74		—		—			—		9			—			83
Allowance at March 31, 2017	$	5,000	$	558	$	8,333		$	1,457	$	3,126		$	401		$	18,875

Additional information pertaining to the allowance for loan losses at March 31, 2018 and December 31, 2017 is as follows:



	1-4 Family Residential		Home Equity		Commercial Real Estate		Construction		Commercial Business		Consumer		Total
	(In thousands)
March 31, 2018
Allowance related to impaired loans	$	51	$	—	$	—	$	—	$	—	$	1	$	52
Allowance related to non-impaired loans	5,048		631		9,511		1,281		3,353		309		20,133
Total allowance for loan losses	$	5,099	$	631	$	9,511	$	1,281	$	3,353	$	310	$	20,185
Impaired loans	$	6,027	$	1,327	$	2,397	$	—	$	305	$	92	$	10,148
Non-impaired loans	928,568		73,686		846,781		73,354		248,980		19,819		2,191,188
Total loans	$	934,595	$	75,013	$	849,178	$	73,354	$	249,285	$	19,911	$	2,201,336
December 31, 2017
Allowance related to impaired loans	$	80	$	—	$	—	$	—	$	—	$	1	$	81
Allowance related to non-impaired loans	4,996		699		9,584		1,708		3,473		336		20,796
Total allowance for loan losses	$	5,076	$	699	$	9,584	$	1,708	$	3,473	$	337	$	20,877
Impaired loans	$	5,949	$	1,387	$	4,744	$	—	$	—	$	202	$	12,282
Non-impaired loans	916,678		79,275		829,520		91,050		253,509		21,496		2,191,528
Total loans	$	922,627	$	80,662	$	834,264	$	91,050	$	253,509	$	21,698	$	2,203,810

The following is a summary of past due and non-accrual loans, by loan class, at March 31, 2018 and December 31, 2017:



	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More		Total Past Due		Loans on Non-accrual
	(In thousands)
March 31, 2018
Real estate:
1-4 family residential	$	658	$	275	$	1,337	$	2,270	$	5,549
Home equity	692		222		908		1,822		1,327
Commercial real estate	—		—		—		—		2,397
Commercial business	—		—		—		—		305
Consumer	127		19		7		153		92
Total	$	1,477	$	516	$	2,252	$	4,245	$	9,670



December 31, 2017
Real estate:
1-4 family residential	$	381	$	348	$	2,184	$	2,913	$	5,190
Home equity	509		13		656		1,178		1,387
Commercial real estate	—		—		3,893		3,893		4,744
Consumer	107		7		92		206		202
Total	$	997	$	368	$	6,825	$	8,190	$	11,523

There were no loans past due 90 days or more and still accruing interest at March 31, 2018 and December 31, 2017.

The following is a summary of information pertaining to impaired loans by loan class at the dates indicated:



	Recorded Investment		Unpaid Principal Balance		Related Allowance
March 31, 2018	(In thousands)
Impaired loans without a valuation allowance:
Real estate:
1-4 family residential	$	4,490	$	4,886	$	—
Home equity	1,327		1,469		—
Commercial real estate	2,397		2,500		—
Commercial business	305		341		—
Consumer	91		105		—
Total	8,610		9,301		—

Impaired loans with a valuation allowance:
1-4 family residential	1,537		1,537		51
Consumer	1		1		1
Total	1,538		1,538		52
Total impaired loans	$	10,148	$	10,839	$	52

December 31, 2017
Impaired loans without a valuation allowance:
Real estate:
1-4 family residential	$	4,501	$	4,897	$	—
Home equity	1,387		1,523		—
Commercial real estate	4,744		5,206		—
Commercial business	—		11		—
Consumer	191		243		—
Total	10,823		11,880		—

Impaired loans with a valuation allowance:
Real estate:
1-4 family residential	1,448		1,448		80
Consumer	11		11		1
Total	1,459		1,459		81

Total impaired loans	$	12,282	$	13,339	$	81

The following tables set forth information regarding average balances and interest income recognized (the majority of which is on a cash basis) on impaired loans by class, for the periods indicated:



	Average Recorded Investment		Interest Income Recognized
Three Months Ended March 31, 2018	(In thousands)
Real estate:
1-4 family residential	$	5,988	$	78
Home equity	1,357		9
Commercial real estate	3,571		24
Commercial business	153		4
Consumer	147		2
Total	$	11,216	$	117

Three Months Ended March 31, 2017
Real estate:
1-4 family residential	$	6,620	$	78
Home equity	1,087		14
Commercial real estate	3,007		8
Commercial business	232		3
Consumer	167		1
Total	$	11,113	$	104

No additional funds are committed to be advanced in connection with impaired loans.

Troubled debt restructurings entered into during the three months ended March 31, 2018 are as follows:



	Number of contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate:	(In thousands)
1-4 family residential	3	$	469	$	475
Commercial real estate	1	$	1,563	$	1,563
Total	4	$	2,032	$	2,038

There were no material troubled debt restructurings recorded during the three months ended March 31, 2017. Loans modified during the three months ended March 31, 2018 were modified to capitalize past due interest for residential loans and extend interest only periods for commercial real estate loans.

Credit Quality Information

The Company utilizes a ten-grade internal loan rating system for all loans as follows:

Loans rated 1 – 6 are considered “acceptable” rated loans that are performing as agreed, and generally require only routine supervision.

Loans rated 7 are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 8 are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected. Generally, all loans 90 days delinquent are rated 8.

Loans rated 9 are considered “doubtful.” Serious problems exist to the point where a partial loss of principal is likely. Weakness is so pronounced that on the basis of current information, conditions and values, collection in full is highly improbable.

Loans rated 10 are considered "loss" and the credit extended to the customer is considered uncollectible or of such little value that it does not warrant consideration as an active asset.

The Company assigns a 6 risk-rating to otherwise performing, satisfactorily collateralized consumer and residential loans where the Bank becomes aware of deterioration in a FICO score or other indication of potential inability to service the debt. The Company assigns risk ratings of 7-10 to residential or consumer loans that have a well-defined weakness that may jeopardize the collection of the contractual principal and interest, are contractually past due 90 days or more or legal action has commenced against the borrower. All other residential mortgage and consumer loans have no risk rating.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial and commercial construction loans. At least annually, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process. In addition, management utilizes delinquency reports, the watch list and other loan reports to monitor credit quality of other loan segments.

The following tables present the Company’s loans by risk rating at March 31, 2018 and December 31, 2017:



	1-4 Family Residential		Home Equity		Commercial Real Estate		Construction		Commercial Business		Consumer		Total Loans
	(In thousands)
March 31, 2018
Loans rated 1 - 6	$	1,014	$	265	$	840,962	$	73,354	$	244,949	$	—	$	1,160,544
Loans rated 7	2,948		1,469		4,635		—		4,030		123		13,205
Loans rated 8	2,549		—		3,581		—		306		—		6,436
Loans rated 9	247		—		—		—		—		—		247
Loans rated 10	—		—		—		—		—		—		—
Loans not rated	927,837		73,279		—		—		—		19,788		1,020,904
	$	934,595	$	75,013	$	849,178	$	73,354	$	249,285	$	19,911	$	2,201,336
December 31, 2017
Loans rated 1 - 6	$	1,022	$	270	$	821,815	$	91,050	$	252,765	$	3	$	1,166,925
Loans rated 7	2,848		1,523		4,660		—		744		121		9,896
Loans rated 8	2,566		—		7,789		—		—		—		10,355
Loans rated 9	250		—		—		—		—		—		250
Loans rated 10	—		—		—		—		—		—		—
Loans not rated	915,941		78,869		—		—		—		21,574		1,016,384
	$	922,627	$	80,662	$	834,264	$	91,050	$	253,509	$	21,698	$	2,203,810