Loans

Our assessment of the allowance for loan losses is based on an evaluation of the loan portfolio, recent loss experience, current economic conditions and other pertinent factors.

An analysis of the allowance for loan losses by portfolio segment for the three months ended March 31, follows:

	Commercial			Mortgage			Installment			Subjective Allocation		Total
	(In thousands)
2018
Balance at beginning of period	$	5,595		$	8,733		$	864		$	7,395	$	22,587
Additions (deductions)
Provision for loan losses		(135	)		147			69			234		315
Recoveries credited to the allowance		606			180			228			-		1,014
Loans charged against the allowance		(40	)		(439	)		(366	)		-		(845	)
Balance at end of period	$	6,026		$	8,621		$	795		$	7,629	$	23,071

2017
Balance at beginning of period	$	4,880		$	8,681		$	1,011		$	5,662	$	20,234
Additions (deductions)
Provision for loan losses		(61	)		(699	)		133			268		(359	)
Recoveries credited to the allowance		404			486			239			-		1,129
Loans charged against the allowance		(135	)		(359	)		(472	)		-		(966	)
Balance at end of period	$	5,088		$	8,109		$	911		$	5,930	$	20,038

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

	Commercial		Mortgage		Installment		Subjective Allocation		Total
	(In thousands)
March 31, 2018
Allowance for loan losses
Individually evaluated for impairment	$	739	$	5,345	$	248	$	-	$	6,332
Collectively evaluated for impairment		5,287		3,276		547		7,629		16,739
Total ending allowance balance	$	6,026	$	8,621	$	795	$	7,629	$	23,071

Loans
Individually evaluated for impairment	$	8,348	$	51,830	$	3,891			$	64,069
Collectively evaluated for impairment		851,338		840,396		322,094				2,013,828
Total loans recorded investment		859,686		892,226		325,985				2,077,897
Accrued interest included in recorded investment		2,269		3,316		877				6,462
Total loans	$	857,417	$	888,910	$	325,108			$	2,071,435

December 31, 2017
Allowance for loan losses
Individually evaluated for impairment	$	837	$	5,725	$	277	$	-	$	6,839
Collectively evaluated for impairment		4,758		3,008		587		7,395		15,748
Total ending allowance balance	$	5,595	$	8,733	$	864	$	7,395	$	22,587

Loans
Individually evaluated for impairment	$	8,420	$	53,179	$	3,945			$	65,544
Collectively evaluated for impairment		847,140		799,629		313,005				1,959,774
Total loans recorded investment		855,560		852,808		316,950				2,025,318
Accrued interest included in recorded investment		2,300		3,278		923				6,501
Total loans	$	853,260	$	849,530	$	316,027			$	2,018,817

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) follow:

	90+ and Still Accruing		Non- Accrual		Total Non- Performing Loans
	(In thousands)
March 31, 2018
Commercial
Income producing - real estate	$	-	$	-	$	-
Land, land development and construction - real estate		-		-		-
Commercial and industrial		-		439		439
Mortgage
1-4 family		-		4,213		4,213
Resort lending		-		762		762
Home equity - 1st lien		-		309		309
Home equity - 2nd lien		-		301		301
Purchased loans		-		-		-
Installment
Home equity - 1st lien		-		150		150
Home equity - 2nd lien		-		241		241
Boat lending		-		66		66
Recreational vehicle lending		-		14		14
Other		-		134		134
Total recorded investment	$	-	$	6,629	$	6,629
Accrued interest included in recorded investment	$	-	$	-	$	-
December 31, 2017
Commercial
Income producing - real estate	$	-	$	30	$	30
Land, land development and construction - real estate		-		9		9
Commercial and industrial		-		607		607
Mortgage
1-4 family		-		5,130		5,130
Resort lending		-		1,223		1,223
Home equity - 1st lien		-		326		326
Home equity - 2nd lien		-		316		316
Purchased loans		-		-		-
Installment
Home equity - 1st lien		-		141		141
Home equity - 2nd lien		-		159		159
Boat lending		-		100		100
Recreational vehicle lending		-		25		25
Other		-		118		118
Total recorded investment	$	-	$	8,184	$	8,184
Accrued interest included in recorded investment	$	-	$	-	$	-

An aging analysis of loans by class follows:

	Loans Past Due								Loans not		Total
	30-59 days		60-89 days		90+ days		Total		Past Due		Loans
	(In thousands)
March 31, 2018
Commercial
Income producing - real estate	$	-	$	-	$	-	$	-	$	304,709	$	304,709
Land, land development and construction - real estate		-		-		-		-		51,382		51,382
Commercial and industrial		41		8		-		49		503,546		503,595
Mortgage
1-4 family		2,598		443		4,213		7,254		665,487		672,741
Resort lending		85		-		762		847		86,582		87,429
Home equity - 1st lien		61		264		309		634		37,191		37,825
Home equity - 2nd lien		334		254		301		889		59,598		60,487
Purchased loans		9		1		-		10		33,734		33,744
Installment
Home equity - 1st lien		174		-		150		324		8,497		8,821
Home equity - 2nd lien		157		59		241		457		8,411		8,868
Boat lending		156		8		66		230		134,383		134,613
Recreational vehicle lending		30		24		14		68		98,489		98,557
Other		124		61		134		319		74,807		75,126
Total recorded investment	$	3,769	$	1,122	$	6,190	$	11,081	$	2,066,816	$	2,077,897
Accrued interest included in recorded investment	$	46	$	17	$	-	$	63	$	6,399	$	6,462

December 31, 2017
Commercial
Income producing - real estate	$	-	$	-	$	30	$	30	$	290,466	$	290,496
Land, land development and construction - real estate		9		-		-		9		70,182		70,191
Commercial and industrial		60		-		44		104		494,769		494,873
Mortgage
1-4 family		1,552		802		5,130		7,484		625,638		633,122
Resort lending		713		-		1,223		1,936		88,620		90,556
Home equity - 1st lien		308		38		326		672		34,689		35,361
Home equity - 2nd lien		353		155		316		824		58,834		59,658
Purchased loans		7		-		-		7		34,104		34,111
Installment
Home equity - 1st lien		90		11		141		242		9,213		9,455
Home equity - 2nd lien		217		94		159		470		9,001		9,471
Boat lending		59		36		100		195		129,777		129,972
Recreational vehicle lending		28		20		25		73		92,737		92,810
Other		275		115		118		508		74,734		75,242
Total recorded investment	$	3,671	$	1,271	$	7,612	$	12,554	$	2,012,764	$	2,025,318
Accrued interest included in recorded investment	$	43	$	22	$	-	$	65	$	6,436	$	6,501

Impaired loans are as follows:

	March 31, 2018		December 31, 2017
Impaired loans with no allocated allowance	(In thousands)
TDR	$	382	$	349
Non - TDR		164		175
Impaired loans with an allocated allowance
TDR - allowance based on collateral		1,988		2,482
TDR - allowance based on present value cash flow		61,261		62,113
Non - TDR - allowance based on collateral		-		148
Total impaired loans	$	63,795	$	65,267

Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	533	$	684
TDR - allowance based on present value cash flow		5,799		6,089
Non - TDR - allowance based on collateral		-		66
Total amount of allowance for loan losses allocated	$	6,332	$	6,839

Impaired loans by class are as follows (1):

	March 31, 2018						December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	-	$	-	$	-	$	-	$	-	$	-
Land, land development & construction-real estate		-		-		-		-		-		-
Commercial and industrial		515		541		-		524		549		-
Mortgage
1-4 family		35		476		-		2		469		-
Resort lending		-		-		-		-		-		-
Home equity - 1st lien		-		-		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Installment
Home equity - 1st lien		1		94		-		1		69		-
Home equity - 2nd lien		-		-		-		-		-		-
Boat lending		-		-		-		-		-		-
Recreational vehicle lending		-		-		-		-		-		-
Other		-		17		-		-		-		-
		551		1,128		-		527		1,087		-
With an allowance recorded:
Commercial
Income producing - real estate		5,178		5,158		344		5,195		5,347		347
Land, land development & construction-real estate		156		155		5		166		194		9
Commercial and industrial		2,499		2,556		390		2,535		2,651		481
Mortgage
1-4 family		35,885		37,464		3,248		36,848		38,480		3,454
Resort lending		15,579		15,607		2,044		15,978		16,046		2,210
Home equity - 1st lien		154		160		36		173		236		43
Home equity - 2nd lien		177		212		17		178		213		18
Installment
Home equity - 1st lien		1,622		1,738		106		1,667		1,804		108
Home equity - 2nd lien		1,761		1,778		114		1,793		1,805		140
Boat lending		1		5		1		1		5		1
Recreational vehicle lending		87		87		5		90		90		5
Other		419		443		22		393		418		23
		63,518		65,363		6,332		65,017		67,289		6,839
Total
Commercial
Income producing - real estate		5,178		5,158		344		5,195		5,347		347
Land, land development & construction-real estate		156		155		5		166		194		9
Commercial and industrial		3,014		3,097		390		3,059		3,200		481
Mortgage
1-4 family		35,920		37,940		3,248		36,850		38,949		3,454
Resort lending		15,579		15,607		2,044		15,978		16,046		2,210
Home equity - 1st lien		154		160		36		173		236		43
Home equity - 2nd lien		177		212		17		178		213		18
Installment
Home equity - 1st lien		1,623		1,832		106		1,668		1,873		108
Home equity - 2nd lien		1,761		1,778		114		1,793		1,805		140
Boat lending		1		5		1		1		5		1
Recreational vehicle lending		87		87		5		90		90		5
Other		419		460		22		393		418		23
Total	$	64,069	$	66,491	$	6,332	$	65,544	$	68,376	$	6,839

Accrued interest included in recorded investment	$	274					$	277

(1)	There were no impaired purchased mortgage loans at March 31, 2018 or December 31, 2017.

Average recorded investment in and interest income earned on impaired loans by class for the three month periods ending March 31, follows (1):

	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded	(In thousands)
Commercial
Income producing - real estate	$	-	$	-	$	444	$	-
Land, land development & construction-real estate		-		-		16		-
Commercial and industrial		520		4		1,171		-
Mortgage
1-4 family		19		6		2		4
Resort lending		-		-		-		-
Home equity - 1st lien		-		-		-		-
Home equity - 2nd lien		-		-		-		-
Installment
Home equity - 1st lien		1		2		-		1
Home equity - 2nd lien		-		-		-		-
Boat lending		-		-		-		-
Recreational vehicle lending		-		-		-		-
Other		-		-		-		-
		540		12		1,633		5
With an allowance recorded
Commercial
Income producing - real estate		5,187		68		7,739		105
Land, land development & construction-real estate		161		2		203		2
Commercial and industrial		2,517		32		4,099		35
Mortgage
1-4 family		36,367		458		40,900		464
Resort lending		15,779		164		16,795		161
Home equity - 1st lien		164		2		235		2
Home equity - 2nd lien		178		2		254		2
Installment
Home equity - 1st lien		1,645		29		1,939		34
Home equity - 2nd lien		1,777		27		2,362		35
Boat lending		1		-		1		-
Recreational vehicle lending		89		1		108		1
Other		406		6		385		7
		64,271		791		75,020		848
Total
Commercial
Income producing - real estate		5,187		68		8,183		105
Land, land development & construction-real estate		161		2		219		2
Commercial and industrial		3,037		36		5,270		35
Mortgage
1-4 family		36,386		464		40,902		468
Resort lending		15,779		164		16,795		161
Home equity - 1st lien		164		2		235		2
Home equity - 2nd lien		178		2		254		2
Installment
Home equity - 1st lien		1,646		31		1,939		35
Home equity - 2nd lien		1,777		27		2,362		35
Boat lending		1		-		1		-
Recreational vehicle lending		89		1		108		1
Other		406		6		385		7
Total	$	64,811	$	803	$	76,653	$	853

(1)	There were no impaired purchased mortgage loans during the three month periods ended March 31, 2018 and 2017, respectively.

Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance.

Troubled debt restructurings follow:

	March 31, 2018
	Commercial		Retail (1)			Total
	(In thousands)
Performing TDRs	$	7,880	$	52,022		$	59,902
Non-performing TDRs(2)		275		3,454	⁽³⁾		3,729
Total	$	8,155	$	55,476		$	63,631

	December 31, 2017
	Commercial		Retail (1)			Total
	(In thousands)
Performing TDRs	$	7,748	$	52,367		$	60,115
Non-performing TDRs(2)		323		4,506	⁽³⁾		4,829
Total	$	8,071	$	56,873		$	64,944

(1)	Retail loans include mortgage and installment portfolio segments.

(2)	Included in non-performing loans table above.

(3)	Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

We allocated $6.3 million and $6.8 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2018 and December 31, 2017, respectively.

During the three months ended March 31, 2018 and 2017, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans generally included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan have generally been for periods ranging from 9 months to 36 months but have extended to as much as 480 months in certain circumstances. Modifications involving an extension of the maturity date have generally been for periods ranging from 1 month to 60 months but have extended to as much as 230 months in certain circumstances.

Loans that have been classified as troubled debt restructurings during the three-month periods ended March 31 follow(1):

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2018
Commercial
Income producing - real estate		1	$	67	$	67
Land, land development & construction-real estate		-		-		-
Commercial and industrial		3		434		434
Mortgage
1-4 family		3		228		211
Resort lending		-		-		-
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		3		98		99
Home equity - 2nd lien		1		61		61
Boat lending		-		-		-
Recreational vehicle lending		-		-		-
Other		1		35		32
Total		12	$	923	$	904

2017
Commercial
Income producing - real estate		-	$	-	$	-
Land, land development & construction-real estate		-		-		-
Commercial and industrial		3		133		133
Mortgage
1-4 family		1		17		17
Resort lending		1		189		189
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		2		34		37
Home equity - 2nd lien		2		45		46
Boat lending		-		-		-
Recreational vehicle lending		-		-		-
Other		-		-		-
Total		9	$	418	$	422

(1)	There were no purchased mortgage loans classified as troubled debt restructurings during the three month periods ended March 31, 2018 and 2017, respectively.

The troubled debt restructurings described above for 2018 decreased the allowance for loan losses by $0.03 million and resulted in zero charge offs while the troubled debt restructurings described above for 2017 increased the allowance for loan losses by $0.05 million and resulted in zero charge offs.

There were no troubled debt restructurings that subsequently defaulted within twelve months following the modification during the three months ended March 31, 2018 and 2017.

A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, we perform an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

Credit Quality Indicators – As part of our on-going monitoring of the credit quality of our loan portfolios, we track certain credit quality indicators including (a) weighted-average risk grade of commercial loans, (b) the level of classified commercial loans, (c) credit scores of mortgage and installment loan borrowers, and (d) delinquency history and non-performing loans.

For commercial loans, we use a loan rating system that is similar to those employed by state and federal banking regulators. Loans are graded on a scale of 1 to 12. A description of the general characteristics of the ratings follows:

Rating 1 through 6: These loans are generally referred to as our “non-watch” commercial credits that include very high or exceptional credit fundamentals through acceptable credit fundamentals.

Rating 7 and 8: These loans are generally referred to as our “watch” commercial credits. These ratings include loans to borrowers that exhibit potential credit weakness or downward trends. If not checked or cured these trends could weaken our asset or credit position. While potentially weak, no loss of principal or interest is envisioned with these ratings.

Rating 9: These loans are generally referred to as our “substandard accruing” commercial credits. This rating includes loans to borrowers that exhibit a well-defined weakness where payment default is probable and loss is possible if deficiencies are not corrected. Generally, loans with this rating are considered collectible as to both principal and interest primarily due to collateral coverage.

Rating 10 and 11: These loans are generally referred to as our ‘‘substandard - non-accrual’’ and ‘‘doubtful’’ commercial credits. Our doubtful rating includes a sub classification for a loss rate other than 50% (which is the standard doubtful loss rate). These ratings include loans to borrowers with weaknesses that make collection of debt in full, on the basis of current facts, conditions and values at best questionable and at worst improbable. All of these loans are placed in non-accrual.

Rating 12: These loans are generally referred to as our “loss” commercial credits. This rating includes loans to borrowers that are deemed incapable of repayment and are charged-off.

The following table summarizes loan ratings by loan class for our commercial loan segment:

	Commercial
	Non-watch 1-6		Watch 7-8		Substandard Accrual 9		Non- Accrual 10-11		Total
	(In thousands)
March 31, 2018
Income producing - real estate	$	303,189	$	1,225	$	295	$	-	$	304,709
Land, land development and construction - real estate		48,916		2,466		-		-		51,382
Commercial and industrial		466,289		27,389		9,478		439		503,595
Total	$	818,394	$	31,080	$	9,773	$	439	$	859,686
Accrued interest included in total	$	2,122	$	103	$	44	$	-	$	2,269

December 31, 2017
Income producing - real estate	$	288,869	$	1,293	$	304	$	30	$	290,496
Land, land development and construction - real estate		70,122		60		-		9		70,191
Commercial and industrial		463,570		28,351		2,345		607		494,873
Total	$	822,561	$	29,704	$	2,649	$	646	$	855,560
Accrued interest included in total	$	2,198	$	94	$	8	$	-	$	2,300

For each of our mortgage and installment segment classes, we generally monitor credit quality based on the credit scores of the borrowers. These credit scores are generally updated semi-annually.

The following tables summarize credit scores by loan class for our mortgage and installment loan segments:

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Purchased Loans		Total
	(In thousands)
March 31, 2018
800 and above	$	68,918	$	9,759	$	6,990	$	7,107	$	7,862	$	100,636
750-799		279,211		35,228		17,235		23,504		17,462		372,640
700-749		154,631		21,334		8,177		16,633		7,891		208,666
650-699		91,118		11,740		2,970		7,336		423		113,587
600-649		25,015		2,963		1,226		2,609		-		31,813
550-599		15,341		2,486		418		1,470		-		19,715
500-549		8,755		749		480		1,102		-		11,086
Under 500		2,905		266		180		377		-		3,728
Unknown		26,847		2,904		149		349		106		30,355
Total	$	672,741	$	87,429	$	37,825	$	60,487	$	33,744	$	892,226
Accrued interest included in total	$	2,400	$	370	$	165	$	283	$	98	$	3,316

December 31, 2017
800 and above	$	70,540	$	11,625	$	6,169	$	7,842	$	7,983	$	104,159
750-799		265,907		36,015		16,561		24,126		17,651		360,260
700-749		146,302		22,099		7,317		15,012		7,937		198,667
650-699		83,695		12,145		2,793		7,420		426		106,479
600-649		25,087		3,025		1,189		2,512		-		31,813
550-599		15,136		2,710		518		1,118		-		19,482
500-549		9,548		1,009		397		1,156		-		12,110
Under 500		2,549		269		260		385		-		3,463
Unknown		14,358		1,659		157		87		114		16,375
Total	$	633,122	$	90,556	$	35,361	$	59,658	$	34,111	$	852,808
Accrued interest included in total	$	2,361	$	371	$	157	$	294	$	95	$	3,278

(1)	Credit scores have been updated within the last twelve months.

	Installment(1)
	Home Equity 1st Lien		Home Equity 2nd Lien		Boat Lending		Recreational Vehicle Lending		Other		Total
	(In thousands)
March 31, 2018
800 and above	$	829	$	636	$	17,303	$	17,684	$	5,808	$	42,260
750-799		1,739		1,731		75,796		56,527		28,221		164,014
700-749		1,713		1,900		30,043		18,801		21,211		73,668
650-699		1,679		1,963		8,556		4,178		9,247		25,623
600-649		1,500		1,231		2,006		907		2,376		8,020
550-599		862		1,137		577		308		806		3,690
500-549		444		164		243		107		440		1,398
Under 500		40		76		32		5		142		295
Unknown		15		30		57		40		6,875		7,017
Total	$	8,821	$	8,868	$	134,613	$	98,557	$	75,126	$	325,985
Accrued interest included in total	$	32	$	38	$	331	$	248	$	228	$	877

December 31, 2017
800 and above	$	815	$	825	$	15,531	$	16,754	$	7,060	$	40,985
750-799		1,912		1,952		73,251		52,610		28,422		158,147
700-749		1,825		2,142		28,922		17,993		20,059		70,941
650-699		1,840		2,036		9,179		4,270		9,258		26,583
600-649		1,567		1,065		2,052		754		2,402		7,840
550-599		950		1,028		640		305		871		3,794
500-549		499		303		281		83		475		1,641
Under 500		32		88		57		6		194		377
Unknown		15		32		59		35		6,501		6,642
Total	$	9,455	$	9,471	$	129,972	$	92,810	$	75,242	$	316,950
Accrued interest included in total	$	39	$	43	$	346	$	254	$	241	$	923

(1)	Credit scores have been updated within the last twelve months.

Foreclosed residential real estate properties included in other real estate and repossessed assets on our Condensed Consolidated Statements of Financial Condition totaled $1.5 million and $1.6 million at March 31, 2018 and December 31, 2017, respectively. Retail mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements totaled $0.4 million and $0.8 million at March 31, 2018 and December 31, 2017, respectively.

In March 2018, we sold $16.5 million of single-family residential fixed and adjustable rate mortgage loans servicing retained to another financial institution and recognized a gain on sale of $0.05 million. These mortgage loans were all on properties located in Ohio, had a weighted average interest rate of 3.59% and were sold primarily for asset/liability management purposes.