LOANS

A summary of the loan portfolio at year end is as follows:

	December 31,
	2016			2015
	(In thousands)
Mortgage loans on real estate:
Residential:
One-to-four family	$	179,025		$	166,483
Home equity loans and lines of credit		35,393			33,259
Commercial		88,394			74,911
Construction		23,629			7,807
		326,441			282,460

Commercial and industrial		2,067			2,040
Consumer		6,578			2,602

Total loans		335,086			287,102
Allowance for loan losses		(3,271	)		(3,239	)
Net deferred loan costs and fees, and purchase premiums		1,176			1,288

	$	332,991		$	285,151

The Company has transferred a portion of its originated commercial real estate loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying consolidated balance sheets. The Company and participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties. At December 31, 2016 and 2015, the Company was servicing loans for participants aggregating $6,197,000 and $7,347,000, respectively. See Note 6 for information relating to the Company’s servicing of residential mortgage loans for others.

The following table summarizes the changes in loans to directors, executive officers and their affiliates for the years ended December 31, 2016 and 2015:

	2016			2015
	(In thousands)
Balance at beginning of the year	$	32		$	57
New loans		—			—
Repayments		(32	)		(25	)
Balance at end of year	$	—		$	32

The following table presents activity in the allowance for loan losses, by loan category, for the years ended December 31, 2016, and 2015 and allocation of the allowance to each category as of December 31, 2016 and 2015:

				Second
	Residential			Mortgages			Commercial					Commercial
	1-4 Family			and HELOC			Real Estate			Construction		and Industrial			Consumer			Total
	(In thousands)
Allowance for loan losses
Balance at December 31, 2014	$	1,368		$	488		$	1,539		$	60	$	51		$	38		$	3,544
Provision (credit) for loan losses		(181	)		24			(137	)		99		18			40			(137	)
Loans charged-off		(128	)		—			(35	)		—		—			(40	)		(203	)
Recoveries		17			—			—			—		3			15			35
Balance at December 31, 2015		1,076			512			1,367			159		72			53			3,239
Provision (credit) for loan losses		(66	)		(76	)		43			66		(20	)		156			103
Loans charged-off		—			—			—			—		(15	)		(81	)		(96	)
Recoveries		8			—			—			—		—			17			25
Balance at December 31, 2016	$	1,018		$	436		$	1,410		$	225	$	37		$	145		$	3,271

December 31, 2016
Allowance for impaired loans	$	190	$	2	$	8	$	—	$	—	$	—	$	200
Allowance for non-impaired loans		828		434		1,402		225		37		145		3,071
Total allowance for loan losses	$	1,018	$	436	$	1,410	$	225	$	37	$	145	$	3,271
Impaired loans	$	4,506	$	276	$	832	$	—	$	—	$	—	$	5,614
Non-impaired loans		174,519		35,117		87,562		23,629		2,067		6,578		329,472
Total loans	$	179,025	$	35,393	$	88,394	$	23,629	$	2,067	$	6,578	$	335,086
December 31, 2015
Allowance for impaired loans	$	254	$	2	$	28	$	—	$	—	$	—	$	284
Allowance for non-impaired loans		822		510		1,339		159		72		53		2,955
Total allowance for loan losses	$	1,076	$	512	$	1,367	$	159	$	72	$	53	$	3,239
Impaired loans	$	4,961	$	277	$	1,449	$	—	$	16	$	—	$	6,703
Non-impaired loans		161,522		32,982		73,462		7,807		2,024		2,602		280,399
Total loans	$	166,483	$	33,259	$	74,911	$	7,807	$	2,040	$	2,602	$	287,102

The following table presents past due and non-accrual loans, by loan category, at December 31, 2016 and 2015:

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Non-accrual Loans
	(In thousands)
December 31, 2016
Residential one-to-four family	$	1,168	$	201	$	—	$	1,369	$	1,945
Home equity loans and lines of credit		258		—		—		258		276
Commercial real estate		400		—		—		400		—
Construction		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
Consumer		59		—		—		59		—

Total	$	1,885	$	201	$	—	$	2,086	$	2,221

December 31, 2015
Residential one-to-four family	$	403	$	133	$	46	$	582	$	2,022
Home equity loans and lines of credit		—		247		—		247		30
Commercial real estate		—		—		—		—		—
Construction		—		—		—		—		—
Commercial and industrial		—		—		—		—		16
Consumer		—		—		—		—		—

Total	$	403	$	380	$	46	$	829	$	2,068

At December 31, 2016 and 2015, there were no loans past due 90 days or more and still accruing interest.

Further information pertaining to impaired loans, which includes both non-accrual loans and troubled debt restructurings, follows:

	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
December 31, 2016
Impaired loans without a valuation allowance:
Residential one-to-four family	$	1,922	$	1,877	$	—
Home equity loans and lines of credit		246		246		—
Commercial real estate		270		270		—
Total		2,438		2,393		—

Impaired loans with a valuation allowance:
Residential one-to-four family		2,648		2,629		190
Home equity loans and lines of credit		31		30		2
Commercial real estate		562		562		8
Total		3,241		3,221		200

Total impaired loans	$	5,679	$	5,614	$	200

December 31, 2015
Impaired loans without a valuation allowance:
Residential one-to-four family	$	906	$	874	$	—
Home equity loans and lines of credit		247		247		—
Commercial real estate		422		422		—
Commercial and industrial		16		16		—
Total		1,591		1,559		—

Impaired loans with a valuation allowance:
Residential one-to-four family		4,120		4,088		254
Home equity loans and lines of credit		31		30		2
Commercial real estate		1,026		1,026		28
Total		5,177		5,144		284

Total impaired loans	$	6,768	$	6,703	$	284

Information related to the average balances of impaired loans and the interest income recognized on such loans, follows:

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
	(In thousands)
Year Ended December 31, 2016

Residential one-to-four family	$	4,738	$	158	$	56
Home equity loans and lines of credit		260		1		1
Commercial real estate		1,122		51		—
Commercial and industrial		5		2		1

Total	$	6,125	$	212	$	58

Year Ended December 31, 2015
Residential one-to-four family	$	5,981	$	239	$	92
Home equity loans and lines of credit		71		3		1
Commercial real estate		5,219		309		45
Commercial and industrial		17		1		1

Total	$	11,288	$	552	$	139

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

Troubled Debt Restructurings

The Company periodically grants concessions to borrowers experiencing financial difficulties. The Company’s troubled debt restructurings consist primarily of interest rate concessions for periods of three months to thirty years for residential real estate loans, and for periods up to one year for commercial real estate loans.

At December 31, 2016, the Company had 13 residential real estate loans and 3 commercial real estate loans aggregating $2,809,000 and $624,000, respectively, which were subject to troubled debt restructuring agreements.

At December 31, 2015, the Company had 12 residential real estate loans and 5 commercial real estate loans aggregating $2,938,000 and $1,234,000, respectively, which were subject to troubled debt restructuring agreements.

As of December 31, 2016 and 2015, all troubled debt restructurings were performing in accordance with the terms of the modified loan agreements.

For the year ended December 31, 2016 the Company did not enter into any loan modifications meeting the criteria of a troubled debt restructuring. In 2015, the Company modified 2 loans meeting the criteria of a troubled debt restructuring having a loan balance of $434,000 with rate reductions ranging from 1% to 3%.

Management performs a discounted cash flow calculation to determine the amount of impairment reserve required on each of the troubled debt restructurings. Any reserve required is recorded as part of the allowance for loan losses. At December 31, 2016 and 2015 allowances of $200,000 and $284,000, respectively, related to troubled debt restructurings.

During the years ended December 31, 2016 and 2015, there were no troubled debt restructurings that defaulted (over 30 days past due) within twelve months of the restructure date.

Credit Quality Information

The Company utilizes an eight-grade internal loan rating system for commercial real estate, construction and commercial loans, as follows:

Loans rated 1 – 3A are considered “pass” rated loans with low to average risk.

Loans rated 4 are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5 are considered “substandard” and are 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.

Loans rated 6 are considered “doubtful” and have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 7 are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans. 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.

The following table presents the Company’s loans by risk rating at December 31, 2016 and 2015:

	December 31, 2016						December 31, 2015
	Commercial Real Estate		Construction		Commercial and Industrial		Commercial Real Estate		Construction		Commercial and Industrial
	(In thousands)
Loans rated 1 - 3A	$	88,186	$	23,286	$	2,067	$	73,517	$	7,807	$	2,006
Loans rated 4		—		343		—		1,145		—		—
Loans rated 5		208		—		—		249		—		34

	$	88,394	$	23,629	$	2,067	$	74,911	$	7,807	$	2,040

Residential mortgages, home equity loans and lines of credit, and consumer loans are monitored for credit quality based primarily on their payment status. When one of these loans becomes more than 90 days delinquent it is assigned an internal loan rating. At December 31, 2016, $890,000 in residential mortgages were rated as substandard and $1,471,000 in residential mortgages and $400,000 in home equity loans were rated as special mention. At December 31, 2015, $378,000 in residential mortgages were rated as substandard and $2,262,000 in residential mortgages and $277,000 in home equity loans were rated as special mention.