XML 30 R12.htm IDEA: XBRL DOCUMENT v3.10.0.1
LOANS AND PAYMENT PLAN RECEIVABLES
 12 Months Ended
Dec. 31, 2018
LOANS AND PAYMENT PLAN RECEIVABLES [Abstract]  
LOANS AND PAYMENT PLAN RECEIVABLES
NOTE 4 – LOANS AND PAYMENT PLAN RECEIVABLES

Our loan portfolios at December 31 follow:

  
2018
  
2017
 
  
(In thousands)
 
Real estate(1)
      
Residential first mortgages
 
$
811,719
  
$
672,592
 
Residential home equity and other junior mortgages
  
177,574
   
136,560
 
Construction and land development
  
180,286
   
143,188
 
Other(2)
  
707,347
   
538,880
 
Consumer
  
379,607
   
291,091
 
Commercial
  
319,058
   
231,786
 
Agricultural
  
6,929
   
4,720
 
Total loans
 
$
2,582,520
  
$
2,018,817
 


(1)
Includes both residential and non-residential commercial loans secured by real estate.

(2)
Includes loans secured by multi-family residential and non-farm, non-residential property.

Loans include net deferred loan costs of $13.3 million and $9.3 million at December 31, 2018 and 2017, respectively.

In August 2016, we purchased $15.0 million of single-family residential fixed rate jumbo mortgage loans from a Michigan-based financial institution. These mortgage loans were all on properties located in Michigan, had a weighted average interest rate (after a 0.25% servicing fee) of 3.65% and a weighted average remaining contractual maturity of 332 months. We did not purchase any loans during 2018 or 2017.

An analysis of the allowance for loan losses by portfolio segment for the years ended December 31 follows:

  
Commercial
  
Mortgage
  
Installment
  
Payment
Plan
Receivables
  
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
  
(946
)
  
457
   
462
   
-
   
1,530
   
1,503
 
Recoveries credited to allowance
  
2,889
   
734
   
999
   
-
   
-
   
4,622
 
Loans charged against the allowance
  
(448
)
  
(1,946
)
  
(1,430
)
  
-
   
-
   
(3,824
)
Balance at end of period
 
$
7,090
  
$
7,978
  
$
895
  
$
-
  
$
8,925
  
$
24,888
 
                         
2017
                        
Balance at beginning of period
 
$
4,880
  
$
8,681
  
$
1,011
  
$
-
  
$
5,662
  
$
20,234
 
Additions (deductions)
                        
Provision for loan losses
  
(327
)
  
(567
)
  
360
   
-
   
1,733
   
1,199
 
Recoveries credited to allowance
  
1,497
   
1,741
   
967
   
-
   
-
   
4,205
 
Loans charged against the allowance
  
(455
)
  
(1,122
)
  
(1,474
)
  
-
   
-
   
(3,051
)
Balance at end of period
 
$
5,595
  
$
8,733
  
$
864
  
$
-
  
$
7,395
  
$
22,587
 
                         
2016
                        
Balance at beginning of period
 
$
5,670
  
$
10,391
  
$
1,181
  
$
56
  
$
5,272
  
$
22,570
 
Additions (deductions)
                        
Provision for loan losses
  
(1,945
)
  
(158
)
  
401
   
(4
)
  
397
   
(1,309
)
Recoveries credited to allowance
  
2,472
   
1,047
   
1,100
   
-
   
-
   
4,619
 
Loans charged against the allowance
  
(1,317
)
  
(2,599
)
  
(1,671
)
  
-
   
-
   
(5,587
)
Reclassification to loans held for sale
  
-
   
-
   
-
   
(52
)
  
(7
)
  
(59
)
Balance at end of period
 
$
4,880
  
$
8,681
  
$
1,011
  
$
-
  
$
5,662
  
$
20,234
 

Allowance for loan losses and recorded investment in loans by portfolio segment at December 31 follows:

  
Commercial
  
Mortgage
  
Installment
  
Subjective
Allocation
  
Total
 
  
(In thousands)
 
2018
               
Allowance for loan losses:
               
Individually evaluated for impairment
 
$
1,305
  
$
4,799
  
$
206
  
$
-
  
$
6,310
 
Collectively evaluated for impairment
  
5,785
   
3,179
   
689
   
8,925
   
18,578
 
Loans acquired with deteriorated credit quality
  
-
   
-
   
-
   
-
   
-
 
Total ending allowance for loan losses balance
 
$
7,090
  
$
7,978
  
$
895
  
$
8,925
  
$
24,888
 
                     
Loans
                    
Individually evaluated for impairment
 
$
8,697
  
$
46,394
  
$
3,370
      
$
58,461
 
Collectively evaluated for impairment
  
1,137,586
   
1,000,038
   
392,460
       
2,530,084
 
Loans acquired with deteriorated credit quality
  
1,609
   
555
   
349
       
2,513
 
Total loans recorded investment
  
1,147,892
   
1,046,987
   
396,179
       
2,591,058
 
Accrued interest included in recorded investment
  
3,411
   
4,097
   
1,030
       
8,538
 
Total loans
 
$
1,144,481
  
$
1,042,890
  
$
395,149
      
$
2,582,520
 
                     
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 for loan losses 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
 

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. If these loans had continued to accrue interest in accordance with their original terms, approximately $0.4 million, $0.4 million and $0.5 million of interest income would have been recognized in 2018, 2017 and 2016, respectively. Interest income recorded on these loans was approximately zero during the years ended 2018, 2017 and 2016.

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) at December 31 follow(1):

  
90+ and
Still
Accruing
  
Non-
Accrual
  
Total Non-
Performing
Loans
 
  
(In thousands)
 
2018
         
Commercial
         
Income producing - real estate
 
$
-
  
$
-
  
$
-
 
Land, land development and construction - real estate
  
-
   
-
   
-
 
Commercial and industrial
  
-
   
2,220
   
2,220
 
Mortgage
            
1-4 family
  
5
   
4,694
   
4,699
 
Resort lending
  
-
   
755
   
755
 
Home equity - 1st lien
  
-
   
159
   
159
 
Home equity - 2nd lien
  
-
   
419
   
419
 
Installment
            
Home equity - 1st lien
  
-
   179   179 
Home equity - 2nd lien
  
-
   
226
   
226
 
Boat lending
  
-
   
166
   
166
 
Recreational vehicle lending
  
-
   
7
   
7
 
Other
  
-
   
204
   
204
 
Total recorded investment
 
$
5
  
$
9,029
  
$
9,034
 
Accrued interest included in recorded investment
 
$
-
  
$
-
  
$
-
 
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
 
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
 
$
-
  
$
-
  
$
-
 

(1)
Non-performing loans exclude purchase credit impaired loans.

An aging analysis of loans by class at December 31 follows:

  
Loans Past Due
  
Loans not
  
Total
 
  
30-59 days
  
60-89 days
  
90+ days
  
Total
  
Past Due
  
Loans
 
  
(In thousands)
 
2018
                  
Commercial
                  
Income producing - real estate
 
$
44
  
$
-
  
$
-
  
$
44
  
$
388,729
  
$
388,773
 
Land, land development and construction - real estate
  
-
   
-
   
-
   
-
   
84,458
   
84,458
 
Commercial and industrial
  
1,538
   
-
   
-
   
1,538
   
673,123
   
674,661
 
Mortgage
                        
1-4 family
  
1,608
   
194
   
4,882
   
6,684
   
833,760
   
840,444
 
Resort lending
  
252
   
-
   
755
   
1,007
   
80,774
   
81,781
 
Home equity - 1st lien
  
176
   
-
   
159
   
335
   
38,909
   
39,244
 
Home equity - 2nd lien
  
446
   
100
   
419
   
965
   
84,553
   
85,518
 
Installment
                        
Home equity - 1st lien
  
200
   
55
   
197
   
452
   
6,985
   
7,437
 
Home equity - 2nd lien
  
111
   
24
   
226
   
361
   
6,683
   
7,044
 
Boat lending
  
316
   
295
   
166
   
777
   
169,117
   
169,894
 
Recreational vehicle lending
  
28
   
21
   
7
   
56
   
125,780
   
125,836
 
Other
  
241
   
131
   
204
   
576
   
85,392
   
85,968
 
Total recorded investment
 
$
4,960
  
$
820
  
$
7,015
  
$
12,795
  
$
2,578,263
  
$
2,591,058
 
Accrued interest included in recorded investment
                        

 
$
44
  
$
11
  
$
-
  
$
55
  
$
8,483
  
$
8,538
 
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
  
1,559
   
802
   
5,130
   
7,491
   
659,742
   
667,233
 
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
 
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 :

  
December 31,
 
  
2018
  
2017
 
Impaired loans with no allocated allowance for loan losses
 
(In thousands)
 
TDR
 
$
-
  
$
349
 
Non - TDR
  
-
   
175
 
Impaired loans with an allocated allowance for loan losses
        
TDR - allowance based on collateral
  
2,787
   
2,482
 
TDR - allowance based on present value cash flow
  
53,258
   
62,113
 
Non - TDR - allowance based on collateral
  
2,145
   
148
 
Total impaired loans
 
$
58,190
  
$
65,267
 
         
Amount of allowance for loan losses allocated
        
TDR - allowance based on collateral
 
$
769
  
$
684
 
TDR - allowance based on present value cash flow
  
4,849
   
6,089
 
Non - TDR - allowance based on collateral
  
692
   
66
 
Total amount of allowance for loan losses allocated
 
$
6,310
  
$
6,839
 

Impaired loans by class as of December 31 are as follows:

  
2018
  
2017
 
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance for
Loan Losses
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance for
Loan Losses
 
With no related allowance for loan losses recorded:
 
(In thousands)
    
Commercial
                  
Income producing - real estate
 
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
 
Land, land development & construction-real estate
  
-
   
-
   
-
   
-
   
-
   
-
 
Commercial and industrial
  
-
   
-
   
-
   
524
   
549
   
-
 
Mortgage
                        
1-4 family
  
3
   
474
   
-
   
2
   
469
   
-
 
Resort lending
  
-
   
-
   
-
   
-
   
-
   
-
 
Home equity - 1st lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Installment
                        
Home equity - 1st lien
  
1
   
122
   
-
   
1
   
69
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Boat lending
  
-
   
5
   
-
   
-
   
-
   
-
 
Recreational vehicle lending
  
-
   
-
   
-
   
-
   
-
   
-
 
Other
  
-
   
15
   
-
   
-
   
-
   
-
 
   
4
   
616
   
-
   
527
   
1,087
   
-
 

  
2018
  
2017
 
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance for
Loan Losses
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance for
Loan Losses
 
  
(In thousands)
 
With an allowance for loan losses recorded:
                  
Commercial
                  
Income producing - real estate
  
4,770
   
4,758
   
303
   
5,195
   
5,347
   
347
 
Land, land development & construction-real estate
  
290
   
289
   
35
   
166
   
194
   
9
 
Commercial and industrial
  
3,637
   
3,735
   
967
   
2,535
   
2,651
   
481
 
Mortgage
                        
1-4 family
  
32,842
   
34,427
   
2,859
   
36,848
   
38,480
   
3,454
 
Resort lending
  
13,328
   
13,354
   
1,927
   
15,978
   
16,046
   
2,210
 
Home equity - 1st lien
  
65
   
64
   
4
   
173
   
236
   
43
 
Home equity - 2nd lien
  
156
   
155
   
9
   
178
   
213
   
18
 
Installment
                        
Home equity - 1st lien
  
1,440
   
1,524
   
89
   
1,667
   
1,804
   
108
 
Home equity - 2nd lien
  
1,471
   
1,491
   
92
   
1,793
   
1,805
   
140
 
Boat lending
  
—
   
—
   
—
   
1
   
5
   
1
 
Recreational vehicle lending
  
79
   
79
   
4
   
90
   
90
   
5
 
Other
  
379
   
406
   
21
   
393
   
418
   
23
 
   
58,457
   
60,282
   
6,310
   
65,017
   
67,289
   
6,839
 
Total
                        
Commercial
                        
Income producing - real estate
  
4,770
   
4,758
   
303
   
5,195
   
5,347
   
347
 
Land, land development & construction-real estate
  
290
   
289
   
35
   
166
   
194
   
9
 
Commercial and industrial
  
3,637
   
3,735
   
967
   
3,059
   
3,200
   
481
 
Mortgage
                        
1-4 family
  
32,845
   
34,901
   
2,859
   
36,850
   
38,949
   
3,454
 
Resort lending
  
13,328
   
13,354
   
1,927
   
15,978
   
16,046
   
2,210
 
Home equity - 1st lien
  
65
   
64
   
4
   
173
   
236
   
43
 
Home equity - 2nd lien
  
156
   
155
   
9
   
178
   
213
   
18
 
Installment
                        
Home equity - 1st lien
  
1,441
   
1,646
   
89
   
1,668
   
1,873
   
108
 
Home equity - 2nd lien
  
1,471
   
1,491
   
92
   
1,793
   
1,805
   
140
 
Boat lending
  
—
   
5
   
—
   
1
   
5
   
1
 
Recreational vehicle lending
  
79
   
79
   
4
   
90
   
90
   
5
 
Other
  
379
   
421
   
21
   
393
   
418
   
23
 
Total
 
$
58,461
  
$
60,898
  
$
6,310
  
$
65,544
  
$
68,376
  
$
6,839
 
Accrued interest included in recorded investment
 
$
271
          
$
277
         

Average recorded investment in and interest income earned (of which the majority of these amounts were received in cash and related primarily to performing TDR’s) on impaired loans by class for the years ended December 31 follows:

     
2018
  
2017
  
2016
 
 
Average
Recorded
Investment
  
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Interest
Income
Recognized
 
With no related allowance for loan losses recorded:
 
(In thousands)
 
Commercial
                  
Income producing - real estate
 
$
-
  
$
-
  
$
177
  
$
-
  
$
609
  
$
2
 
Land, land development & construction-real estate
  
961
   
-
   
6
   
-
   
330
   
7
 
Commercial and industrial
  
378
   
20
   
751
   
22
   
961
   
54
 
Mortgage
                        
1-4 family
  
56
   
27
   
52
   
21
   
10
   
16
 
Resort lending
  
-
   
-
   
-
   
-
   
-
   
-
 
Home equity - 1st lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Installment
                        
Home equity - 1st lien
  
1
   
10
   
1
   
6
   
-
   
5
 
Home equity - 2nd lien
  
-
   
-
   
-
   
-
   
3
   
-
 
Boat lending
  
-
   
-
   
-
   
-
   
-
   
-
 
Recreational vehicle lending
  
-
   
-
   
-
   
-
   
-
   
-
 
Other
  
-
   
1
   
-
   
-
   
-
   
-
 
   
1,396
   
58
   
987
   
49
   
1,913
   
84
 
With an allowance for loan losses recorded:
                        
Commercial
                        
Income producing - real estate
  
5,016
   
277
   
7,059
   
369
   
8,069
   
427
 
Land, land development & construction-real estate
  
184
   
11
   
183
   
8
   
1,129
   
31
 
Commercial and industrial
  
2,640
   
127
   
3,298
   
132
   
5,723
   
189
 
Mortgage
                        
1-4 family
  
35,007
   
1,791
   
39,143
   
1,774
   
44,923
   
1,918
 
Resort lending
  
14,687
   
606
   
16,383
   
616
   
17,544
   
619
 
Home equity - 1st lien
  
105
   
5
   
209
   
5
   
226
   
10
 
Home equity - 2nd lien
  
165
   
7
   
209
   
7
   
248
   
14
 
Installment
                        
Home equity - 1st lien
  
1,564
   
105
   
1,832
   
128
   
2,185
   
147
 
Home equity - 2nd lien
  
1,676
   
95
   
2,126
   
112
   
2,661
   
162
 
Boat lending
  
1
   
-
   
1
   
1
   
2
   
1
 
Recreational vehicle lending
  
84
   
4
   
100
   
5
   
115
   
6
 
Other
  
400
   
24
   
377
   
25
   
433
   
28
 
   
61,529
   
3,052
   
70,920
   
3,182
   
83,258
   
3,552
 


 

2018

  

2017

  

2016

 

 

Average
Recorded
Investment

  

Interest
Income
Recognized

  

Average
Recorded
Investment

  

Interest
Income
Recognized

  

Average
Recorded
Investment

  

Interest
Income
Recognized

 

 

(In thousands)

 

Total

                  

Commercial

                  

Income producing - real estate

  

5,016

   

277

   

7,236

   

369

   

8,678

   

429

 

Land, land development & construction-real estate

  

1,145

   

11

   

189

   

8

   

1,459

   

38

 

Commercial and industrial

  

3,018

   

147

   

4,049

   

154

   

6,684

   

243

 

Mortgage

                        

1-4 family

  

35,063

   

1,818

   

39,195

   

1,795

   

44,933

   

1,934

 

Resort lending

  

14,687

   

606

   

16,383

   

616

   

17,544

   

619

 

Home equity - 1st lien

  

105

   

5

   

209

   

5

   

226

   

10

 

Home equity - 2nd lien

  

165

   

7

   

209

   

7

   

248

   

14

 

Installment

                        

Home equity - 1st lien

  

1,565

   

115

   

1,833

   

134

   

2,185

   

152

 

Home equity - 2nd lien

  

1,676

   

95

   

2,126

   

112

   

2,664

   

162

 

Boat lending

  

1

   

—

   

1

   

1

   

2

   

1

 

Recreational vehicle lending

  

84

   

4

   

100

   

5

   

115

   

6

 

Other

  

400

   

25

   

377

   

25

   

433

   

28

 

Total

 

$

62,925

  

$

3,110

  

$

71,907

  

$

3,231

  

$

85,171

  

$

3,636

 

Troubled debt restructurings at December 31 follow:

  
2018
 
  
Commercial
  
Retail (1)
  
Total
 
  
(In thousands)
 
Performing TDR’s
 
$
6,460
  
$
46,627
  
$
53,087
 
Non-performing TDR’s (2)
  
74
   
2,884
(3) 
  
2,958
 
Total
 
$
6,534
  
$
49,511
  
$
56,045
 

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

(1)
Retail loans include mortgage and installment loan 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 have 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 December 31, 2018 and 2017, respectively. We have committed to lend additional amounts totaling up to $0.04 million at both December 31, 2018 and 2017, respectively, to customers with outstanding loans that are classified as troubled debt restructurings.

The terms of certain loans were modified as troubled debt restructurings and 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 years ended December 31 follow:

  
Number of
Contracts
  
Pre-modification
Recorded
Balance
  
Post-modification
Recorded
Balance
 
2018
 
(Dollars in thousands)
 
Commercial
         
Income producing - real estate
  
1
  
$
67
  
$
67
 
Land, land development & construction-real estate
  
1
   
137
   
137
 
Commercial and industrial
  
7
   
652
   
652
 
Mortgage
            
1-4 family
  
10
   
1,410
   
1,413
 
Resort lending
  
1
   
115
   
114
 
Home equity - 1st lien
  
-
   
-
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
 
Installment
            
Home equity - 1st lien
  
8
   
413
   
415
 
Home equity - 2nd lien
  
3
   
113
   
114
 
Boat lending
  
-
   
-
   
-
 
Recreational vehicle lending
  
-
   
-
   
-
 
Other
  
3
   
182
   
180
 
Total
  
34
  
$
3,089
  
$
3,092
 
2017
            
Commercial
            
Income producing - real estate
  
-
  
$
-
  
$
-
 
Land, land development & construction-real estate
  
-
   
-
   
-
 
Commercial and industrial
  
15
   
925
   
925
 
Mortgage
            
1-4 family
  
6
   
456
   
462
 
Resort lending
  
1
   
189
   
189
 
Home equity - 1st lien
  
-
   
-
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
 
Installment
            
Home equity - 1st lien
  
3
   
86
   
90
 
Home equity - 2nd lien
  
10
   
391
   
394
 
Boat lending
  
-
   
-
   
-
 
Recreational vehicle lending
  
-
   
-
   
-
 
Other
  
2
   
74
   
75
 
Total
  
37
  
$
2,121
  
$
2,135
 

  
Number of
Contracts
  
Pre-modification
Recorded
Balance
  
Post-modification
Recorded
Balance
 
  
(Dollars in thousands)
 
2016
         
Commercial
         
Income producing - real estate
  
4
  
$
290
  
$
290
 
Land, land development & construction-real estate
  
—
   
—
   
—
 
Commercial and industrial
  
9
   
2,044
   
2,027
 
Mortgage
            
1-4 family
  
9
   
927
   
1,004
 
Resort lending
  
1
   
116
   
117
 
Home equity - 1st lien
  
1
   
107
   
78
 
Home equity - 2nd lien
  
2
   
77
   
78
 
Installment
            
Home equity - 1st lien
  
6
   
141
   
145
 
Home equity - 2nd lien
  
6
   
154
   
157
 
Boat lending
  
—
   
—
   
—
 
Recreational vehicle lending
  
—
   
—
   
—
 
Other
  
2
   
46
   
46
 
Total
  
40
  
$
3,902
  
$
3,942
 

The troubled debt restructurings described above increased (decreased) the AFLL by $(0.2) million, $0.1 million and $(0.1) million during the years ended December 31, 2018, 2017 and 2016, respectively and resulted in charge offs of zero, zero and $0.53 million during the years ended December 31, 2018, 2017 and 2016, respectively.

Loans that have been classified as troubled debt restructured during the past twelve months and that have subsequently defaulted during the years ended December 31 follows:

  
Number of
Contracts
  
Recorded
Balance
 
2018
 
(Dollars in thousands)
 
Commercial
      
Income producing - real estate
  
-
  
$
-
 
Land, land development & construction-real estate
  
-
   
-
 
Commercial and industrial
  
-
   
-
 
Mortgage
        
1-4 family
  
-
   
-
 
Resort lending
  
-
   
-
 
Home equity - 1st lien
  
-
   
-
 
Home equity - 2nd lien
  
-
   
-
 
Installment
        
Home equity - 1st lien
  
1
   
13
 
Home equity - 2nd lien
  
-
   
-
 
Boat lending
  
-
   
-
 
Recreational vehicle lending
  
-
   
-
 
Other
  
-
   
-
 
Total
  
1
  
$
13
 


  
Number of
Contracts
  
Recorded
Balance
 
  
(Dollars in thousands)
 
       
2017
      
Commercial
      
Income producing - real estate
  
—
  
$
—
 
Land, land development & construction-real estate
  
—
   
—
 
Commercial and industrial
  
6
   
164
 
Mortgage
        
1-4 family
  
—
   
—
 
Resort lending
  
—
   
—
 
Home equity - 1st lien
  
—
   
—
 
Home equity - 2nd lien
  
—
   
—
 
Installment
        
Home equity - 1st lien
  
1
   
13
 
Home equity - 2nd lien
  
—
   
—
 
Boat lending
  
—
   
—
 
Recreational vehicle lending
  
—
   
—
 
Other
  
—
   
—
 
Total
  
7
  
$
177
 
         
2016
        
Commercial
        
Income producing - real estate
  
—
  
$
—
 
Land, land development & construction-real estate
  
—
   
—
 
Commercial and industrial
  
1
   
1,767
 
Mortgage
        
1-4 family
  
—
   
—
 
Resort lending
  
—
   
—
 
Home equity - 1st lien
  
—
   
—
 
Home equity - 2nd lien
  
—
   
—
 
Installment
        
Home equity - 1st lien
  
—
   
—
 
Home equity - 2nd lien
  
—
   
—
 
Boat lending
  
—
   
—
 
Recreational vehicle lending
  
—
   
—
 
Other
  
—
   
—
 
Total
  
1
  
$
1,767
 

A loan is generally considered to be in payment default once it is 90 days contractually past due under the modified terms for commercial loans and installment loans and when four consecutive payments are missed for mortgage loans.

The troubled debt restructurings that subsequently defaulted described above increased (decreased) the AFLL by zero, $0.04 million and $(0.17) million during the years ended December 31, 2018, 2017 and 2016, respectively and resulted in charge offs of zero, $0.05 million and $0.51 million during the years ended December 31, 2018, 2017 and 2016, respectively.

The terms of certain other loans were modified during the years ending December 31, 2018, 2017 and 2016 that did not meet the definition of a troubled debt restructuring. The modification of these loans could have included modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

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 at December 31:

  
Commercial
 
  
Non-watch
1-6
  
Watch
7-8
  
Substandard
Accrual
9
  
Non-
Accrual
10-11
  
Total
 
        
(In thousands)
       
2018
               
Income producing - real estate
 
$
375,142
  
$
13,387
  
$
200
  
$
44
  
$
388,773
 
Land, land development and construction - real estate
  
76,120
   
8,328
   
-
   
10
   
84,458
 
Commercial and industrial
  
631,248
   
35,469
   
5,577
   
2,367
   
674,661
 
Total
 
$
1,082,510
  
$
57,184
  
$
5,777
  
$
2,421
  
$
1,147,892
 
Accrued interest included in total
 
$
3,107
  
$
174
  
$
130
  
$
-
  
$
3,411
 

  
Commercial
 
  
Non-watch
1-6
  
Watch
7-8
  
Substandard
Accrual
9
  
Non-
Accrual
10-11
  
Total
 
  
(In thousands)
 
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 at December 31:

   
Mortgage (1)
 
   
1-4 Family
  
Resort
Lending
  
Home
Equity
1st Lien
  
Home
Equity
2nd Lien
  
Total
 
   
(In thousands)
 
2018
                
800 and above
  
$
94,492
  
$
10,898
  
$
6,784
  
$
8,838
  
$
121,012
 
750-799
   
384,344
   
36,542
   
17,303
   
38,295
   
476,484
 
700-749
   
202,440
   
17,282
   
9,155
   
23,249
   
252,126
 
650-699
   
91,847
   
9,945
   
3,987
   
8,681
   
114,460
 
600-649
   
34,342
   
3,088
   
959
   
3,359
   
41,748
 
550-599
   
13,771
   
1,867
   
427
   
1,236
   
17,301
 
500-549
   
8,439
   
106
   
418
   
826
   
9,789
 
Under 500
   
2,533
   
143
   
98
   
381
   
3,155
 
Unknown
   
8,236
   
1,910
   
113
   
653
   
10,912
 
Total
  
$
840,444
  
$
81,781
  
$
39,244
  
$
85,518
  
$
1,046,987
 
Accrued interest included in total
  
$
3,079
  
$
363
  
$
199
  
$
456
  
$
4,097
 
                      
2017
                     
800 and above
  
$
78,523
  
$
11,625
  
$
6,169
  
$
7,842
  
$
104,159
 
750-799
   
283,558
   
36,015
   
16,561
   
24,126
   
360,260
 
700-749
   
154,239
   
22,099
   
7,317
   
15,012
   
198,667
 
650-699
   
84,121
   
12,145
   
2,793
   
7,420
   
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
   
14,472
   
1,659
   
157
   
87
   
16,375
 
Total
  
$
667,233
  
$
90,556
  
$
35,361
  
$
59,658
  
$
852,808
 
Accrued interest included in total
  
$
2,456
  
$
371
  
$
157
  
$
294
  
$
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)
 
2018
                   
800 and above
  
$
555
  
$
235
  
$
20,767
  
$
20,197
  
$
6,272
  
$
48,026
 
750-799
   
1,502
   
1,642
   
100,191
   
74,154
   
31,483
   
208,972
 
700-749
   
1,582
   
1,682
   
35,455
   
24,890
   
24,369
   
87,978
 
650-699
   
1,606
   
1,217
   
10,581
   
4,918
   
9,840
   
28,162
 
600-649
   
996
   
1,272
   
1,657
   
992
   
2,751
   
7,668
 
550-599
   
759
   
658
   
652
   
453
   
838
   
3,360
 
500-549
   
384
   
229
   
286
   
225
   
651
   
1,775
 
Under 500
   
51
   
6
   
266
   
7
   
218
   
548
 
Unknown
   
2
   
103
   
39
   
-
   
9,546
   
9,690
 
Total
  
$
7,437
  
$
7,044
  
$
169,894
  
$
125,836
  
$
85,968
  
$
396,179
 
Accrued interest included in total
  
$
28
  
$
25
  
$
403
  
$
311
  
$
263
  
$
1,030
 
                          
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.

Mortgage loans serviced for others are not reported as assets on the Consolidated Statements of Financial Condition. The principal balances of these loans at December 31 follow:

  
2018
  
2017
 
  
(In thousands)
 
Mortgage loans serviced for :
      
Fannie Mae
 
$
1,350,703
  
$
1,001,388
 
Freddie Mac
  
712,740
   
637,204
 
Ginnie Mae
  
165,467
   
130,284
 
FHLB
  
78,687
   
47,527
 
Other
  
26,148
   
34
 
Total
 
$
2,333,745
  
$
1,816,437
 

Custodial deposit accounts maintained in connection with mortgage loans serviced for others totaled

$22.0 million and $20.7 million, at December 31, 2018 and 2017, respectively.

If we do not remain well capitalized for regulatory purposes (see note #20), meet certain minimum capital levels or certain profitability requirements or if we incur a rapid decline in net worth, we could lose our ability to sell and/or service loans to these investors. This could impact our ability to generate net gains on mortgage loans and generate servicing income. A forced liquidation of our servicing portfolio could also impact the value that could be recovered on this asset. Fannie Mae has the most stringent eligibility requirements covering capital levels, profitability and decline in net worth. Fannie Mae requires seller/servicers to be well capitalized for regulatory purposes. For the profitability requirement, we cannot record four or more consecutive quarterly losses and experience a 30% decline in net worth over the same period. Our net worth cannot decline by more than 25% in one quarter or more than 40% over two consecutive quarters. The highest level of capital we are required to maintain is at least $2.5 million plus 0.25% of all loans serviced for others.

An analysis of capitalized mortgage loan servicing rights for the years ended December 31 follows:

  
2018
  
2017
  
2016
 
  
(In thousands)
 
Balance at beginning of period
 
$
15,699
  
$
13,671
  
$
12,436
 
Change in accounting (see note #1)
  
-
   
542
   
-
 
Balance at beginning of period, as adjusted
 
$
15,699
  
$
14,213
  
$
12,436
 
Originated servicing rights capitalized
  
4,977
   
4,230
   
3,119
 
Servicing rights acquired
  
3,047
   
-
   
-
 
Amortization
  
-
   
-
   
(2,850
)
Change in valuation allowance
  
-
   
-
   
966
 
Change in fair value due to price
  
191
   
(718
)
  
-
 
Change in fair value due to pay downs
  
(2,514
)
  
(2,026
)
  
-
 
Balance at end of year
 
$
21,400
  
$
15,699
  
$
13,671
 
Valuation allowance
 
$
-
  
$
-
  
$
2,306
 
Loans sold and serviced that have had servicing rights capitalized
 
$
2,333,081
  
$
1,815,668
  
$
1,657,996
 

Fair value of capitalized mortgage loan servicing rights was determined using an average coupon rate of 4.23%, average servicing fee of 0.258%, average discount rate of 10.15% and an average Public Securities Association (‘‘PSA’’) prepayment rate of 182 for December 31, 2018; and an average coupon rate of 4.17%, average servicing fee of 0.258%, average discount rate of 10.11% and an average PSA prepayment rate of 169 for December 31, 2017.

Purchase Credit Impaired (“PCI”) Loans

Loans acquired in a business combination are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. In determining the estimated fair value of purchased loans, management considers a number of factors including, among others, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and net present value of cash flows expected to be received. Purchased loans are accounted for in accordance with guidance for certain loans acquired in a transfer (ASC 310-30), when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

As a result of our acquisition of TCSB Bancorp, Inc. (‘‘TCSB’’) (see note #26) we purchased loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. For these loans that meet the criteria of ASC 310-30 treatment, the carrying amount was as follows:

  
December 31,
 
  
2018
  
2017
 
  
(In thousands)
 
Commercial
 
$
1,609
  
$
-
 
Mortgage
  
555
   
-
 
Installment
  
349
   
-
 
Total carrying amount
  
2,513
   
-
 
Allowance for loan losses
  
-
   
-
 
Carrying amount, net of allowance for loan losses
 
$
2,513
  
$
-
 

The accretable difference on PCI loans is the difference between the expected cash flows and the net present value of expected cash flows with such difference accreted into earnings using the effective yield method over the term of the loans. Accretion recorded as loan interest income totaled $0.11 million during the year ended December 31, 2018.  Accretable yield of PCI loans, or income expected to be collected follows:

  
Year ended December 31,
 
  
2018
  
2017
 
  
(In thousands)
 
       
Balance at beginning of period
 
$
-
  
$
-
 
New loans purchased
  
568
   
-
 
Accretion of income
  
(106
)
  
-
 
Reclassification from (to) nonaccretable difference
  
-
   
-
 
Disposals/other adjustments
  
-
   
-
 
Balance at end of period
 
$
462
  
$
-
 

PCI loans purchased during 2018 (all relating to the TCSB acquisition) for which it was probable at acquisition that all contractually required payments would not be collected follows:

  
(In thousands)
 
    
Contractually required payments
 
$
4,213
 
Non accretable difference
  
(742
)
Cash flows expected to be collected at acquisition
  
3,471
 
Accretable yield
  
(568
)
Fair value of acquired loans at acquisition
 
$
2,903
 

Income would not be recognized on certain purchased loans if we could not reasonably estimate cash flows to be collected.  We did not have any purchased loans for which we could not reasonably estimate cash flows to be collected.