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LOANS
 12 Months Ended
Dec. 31, 2020
LOANS [Abstract]  
LOANS
NOTE 4 – LOANS


Our loan portfolios at December 31 follow:

  
2020
    
2019
  
   
(In thousands)
  
Real estate (1)
            
Residential first mortgages
  
$
792,762
    
$
843,746
  
Residential home equity and other junior mortgages
    
138,128
      
166,735
  
Construction and land development
    
232,693
      
249,747
  
Other (2)
    
669,150
      
693,580
  
Consumer
    
468,090
      
448,297
  
Commercial
    
429,011
      
318,504
  
Agricultural
    
3,844
      
4,414
  
Total loans
  
$
2,733,678
    
$
2,725,023
  


(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 $14.6 million and $16.3 million at December 31, 2020 and 2019, respectively.


During 2020, we securitized $26.3 million of portfolio residential fixed rate mortgage loans servicing retained with Freddie Mac and recognized a gain on sale of $0.72 million.  We also sold $2.4 million of portfolio residential fixed rate mortgage loans servicing retained into the secondary market and recognized a gain on sale of $0.07 million.  These transactions were done primarily for asset/liability management purposes.


During 2019, we sold $40.6 million of residential adjustable rate mortgage loans servicing released (classified on the Consolidated Statements of Financial Condition as held for sale, carried at the lower of cost or fair value at December 31, 2018) to another financial institution and recognized a gain on sale of $0.01 million. We also securitized $65.1 million of portfolio residential fixed rate mortgage loans servicing retained with Freddie Mac and recognized a gain on sale of $1.7 million. In addition, we sold $9.9 million of residential fixed and adjustable rate portfolio mortgage loans servicing retained to another financial institution and recognized a gain on sale of $0.07 million. These transactions were done primarily for asset/liability management purposes.
 

During 2018, we sold $27.6 million of residential fixed and adjustable rate portfolio mortgage loans servicing retained to another financial institution and recognized a gain on sale of $0.04 million. We also securitized $10.9 million of portfolio residential fixed rate mortgage loans servicing retained with Freddie Mac recognizing a loss on sale of approximately $0.1 million. These transactions were done primarily for asset/liability management purposes.


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

  
Commercial
    
Mortgage
    
Installment
    
Subjective
Allocation
    
Total
  
   
(In thousands)
  
2020
                              
Balance at beginning of period
  
$
7,922
    
$
8,216
    
$
1,283
    
$
8,727
    
$
26,148
  
Additions (deductions)
                                        
Provision for loan losses
    
1,751
      
(915
)
    
436
      
11,191
      
12,463
  
Recoveries credited to  allowance
    
1,804
      
513
      
752
      
-
      
3,069
  
Loans charged against  the allowance
    
(4,076
)
    
(816
)
    
(1,359
)
    
-
      
(6,251
)
Balance at end of period
  
$
7,401
    
$
6,998
    
$
1,112
    
$
19,918
    
$
35,429
  

2019
          
Balance at beginning of period
$7,090
$7,978
$895
$8,925
$24,888
Additions (deductions)
          
Provision for loan losses
(651)
526
1,147
(198)
824
Recoveries credited to  allowance
2,165
933
863
-
3,961
Loans charged against  the allowance
(682)
(1,221)
(1,622)
-
(3,525)
Balance at end of period
$7,922
$8,216
$1,283
$8,727
$26,148

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



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

  
Commercial
    
Mortgage
    
Installment
    
Subjective
Allocation
    
Total
  
   
(In thousands)
  
2020
                              
Allowance for loan losses:
                              
Individually evaluated for impairment
  
$
1,266
    
$
4,124
    
$
191
    
$
-
    
$
5,581
  
Collectively evaluated for impairment
    
6,135
      
2,874
      
921
      
19,918
      
29,848
  
Loans acquired with deteriorated credit quality
    
-
      
-
      
-
      
-
      
-
  
Total ending allowance for loan losses balance
  
$
7,401
    
$
6,998
    
$
1,112
    
$
19,918
    
$
35,429
  
                                         
Loans
                                        
Individually evaluated for impairment
  
$
9,431
    
$
39,245
    
$
1,996
            
$
50,672
  
Collectively evaluated for impairment
    
1,236,052
      
980,449
      
474,379
              
2,690,880
  
Loans acquired with deteriorated credit quality
    
468
      
410
      
147
              
1,025
  
Total loans recorded investment
    
1,245,951
      
1,020,104
      
476,522
              
2,742,577
  
Accrued interest included in recorded investment
    
3,536
      
4,178
      
1,185
              
8,899
  
Total loans
  
$
1,242,415
    
$
1,015,926
    
$
475,337
            
$
2,733,678
  

2019
          
Allowance for loan losses:
          
Individually evaluated for impairment
$1,031
$4,863
$261
$-
$6,155
Collectively evaluated for impairment
6,891
3,353
1,022
8,727
19,993
Loans acquired with deteriorated credit quality
-
-
-
-
-
Total ending allowance for loan losses balance
$7,922
$8,216
$1,283
$8,727
$26,148
           
Loans
          
Individually evaluated for impairment
$9,393
$43,574
$2,925
  
$55,892
Collectively evaluated for impairment
1,158,906
1,058,917
457,370
  
2,675,193
Loans acquired with deteriorated credit quality
1,394
575
316
  
2,285
Total loans recorded investment
1,169,693
1,103,066
460,611
  
2,733,370
Accrued interest included in recorded investment
2,998
4,155
1,194
  
8,347
Total loans
$1,166,695
$1,098,911
$459,417
  
$2,725,023


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 $0.5 million, $0.4 million and $0.4 million of interest income would have been recognized in each of the years ended 2020, 2019 and 2018, respectively. Interest income recorded on these loans was approximately zero during each of the years ended 2020, 2019 and 2018.


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)
  
2020
                  
Commercial
                  
Commercial and industrial (2)
  
$
-
    
$
1,387
    
$
1,387
  
Commercial real estate
    
-
      
-
      
-
  
Mortgage
                        
1-4 family owner occupied - jumbo
    
-
      
623
      
623
  
1-4 family owner occupied - non-jumbo (3)
    
-
      
2,281
      
2,281
  
1-4 family non-owner occupied
    
-
      
1,112
      
1,112
  
1-4 family - 2nd lien
    
-
      
1,344
      
1,344
  
Resort lending
    
-
      
607
      
607
  
Installment
                        
Boat lending
    
-
      
52
      
52
  
Recreational vehicle lending
    
-
      
74
      
74
  
Other
    
-
      
393
      
393
  
Total recorded investment
  
$
-
    
$
7,873
    
$
7,873
  
Accrued interest included in recorded investment
  
$
-
    
$
-
    
$
-
  
2019
                        
Commercial
                        
Commercial and industrial (2)
  
$
-
    
$
565
    
$
565
  
Commercial real estate
    
-
      
735
      
735
  
Mortgage
                        
1-4 family owner occupied - jumbo
    
-
      
1,179
      
1,179
  
1-4 family owner occupied - non-jumbo (3)
    
-
      
3,540
      
3,540
  
1-4 family non-owner occupied
    
-
      
1,039
      
1,039
  
1-4 family - 2nd lien
    
-
      
979
      
979
  
Resort lending
    
-
      
690
      
690
  
Installment
                        
Boat lending
    
-
      
332
      
332
  
Recreational vehicle lending
    
-
      
3
      
3
  
Other
    
-
      
470
      
470
  
Total recorded investment
  
$
-
    
$
9,532
    
$
9,532
  
Accrued interest included in recorded investment
  
$
-
    
$
-
    
$
-
  


(1)
Non-performing loans exclude purchase credit impaired loans.
(2)
Non-performing commercial and industrial loans exclude $0.053 million and $0.077 million of government guaranteed loans at December 31, 2020 and 2019, respectively.
(3)
Non-performing 1-4 family owner occupied – non jumbo loans exclude $0.386 million and $0.569 million of government guaranteed loans at December 31, 2020 and 2019, respectively.


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)
  
2020
                                    
Commercial
                                    
Commercial and industrial
  
$
5,003
    
$
131
    
$
70
    
$
5,204
    
$
671,115
    
$
676,319
  
Commercial real estate
    
2,600
      
-
      
-
      
2,600
      
567,032
      
569,632
  
Mortgage
                                                
1-4 family owner occupied - jumbo
    
761
      
-
      
623
      
1,384
      
438,794
      
440,178
  
1-4 family owner occupied - non-jumbo
    
1,888
      
453
      
502
      
2,843
      
264,730
      
267,573
  
1-4 family non-owner occupied
    
1,184
      
139
      
476
      
1,799
      
157,977
      
159,776
  
1-4 family - 2nd lien
    
710
      
228
      
732
      
1,670
      
92,860
      
94,530
  
Resort lending
    
32
      
195
      
358
      
585
      
57,462
      
58,047
  
Installment
                                                
Boat lending
    
95
      
101
      
-
      
196
      
207,317
      
207,513
  
Recreational vehicle lending
    
207
      
37
      
48
      
292
      
169,282
      
169,574
  
Other
    
337
      
162
      
199
      
698
      
98,737
      
99,435
  
Total recorded investment
  
$
12,817
    
$
1,446
    
$
3,008
    
$
17,271
    
$
2,725,306
    
$
2,742,577
  
Accrued interest included in recorded investment
  
$
147
    
$
22
    
$
-
    
$
169
    
$
8,730
    
$
8,899
  
                                                 
2019
                                                
Commercial
                                                
Commercial and industrial
  
$
-
    
$
289
    
$
102
    
$
391
    
$
564,480
    
$
564,871
  
Commercial real estate
    
177
      
-
      
735
      
912
      
603,910
      
604,822
  
Mortgage
                                                
1-4 family owner occupied - jumbo
    
1,757
      
1,037
      
-
      
2,794
      
398,759
      
401,553
  
1-4 family owner occupied - non-jumbo
    
2,672
      
852
      
1,387
      
4,911
      
342,349
      
347,260
  
1-4 family non-owner occupied
    
695
      
136
      
623
      
1,454
      
168,083
      
169,537
  
1-4 family - 2nd lien
    
909
      
90
      
386
      
1,385
      
115,157
      
116,542
  
Resort lending
    
364
      
53
      
565
      
982
      
67,192
      
68,174
  
Installment
                                                
Boat lending
    
337
      
107
      
88
      
532
      
202,750
      
203,282
  
Recreational vehicle lending
    
161
      
97
      
3
      
261
      
153,184
      
153,445
  
Other
    
377
      
275
      
202
      
854
      
103,030
      
103,884
  
Total recorded investment
  
$
7,449
    
$
2,936
    
$
4,091
    
$
14,476
    
$
2,718,894
    
$
2,733,370
  
Accrued interest included in recorded investment
  
$
74
    
$
34
    
$
-
    
$
108
    
$
8,239
    
$
8,347
  



Impaired loans are as follows:

  
December 31,
  
   
2020
    
2019
  
   
(In thousands)
  
Impaired loans with no allocated allowance for loan losses
      
TDR
  
$
93
    
$
337
  
Non - TDR
    
1,367
      
1,550
  
Impaired loans with an allocated allowance for loan losses
                
TDR - allowance based on collateral
    
9,027
      
1,587
  
TDR - allowance based on present value cash flow
    
37,953
      
48,798
  
Non - TDR - allowance based on collateral
    
1,873
      
3,365
  
Total impaired loans
  
$
50,313
    
$
55,637
  
                 
Amount of allowance for loan losses allocated
                
TDR - allowance based on collateral
  
$
1,058
    
$
542
  
TDR - allowance based on present value cash flow
    
3,755
      
4,641
  
Non - TDR - allowance based on collateral
    
768
      
972
  
Total amount of allowance for loan losses allocated
  
$
5,581
    
$
6,155
  


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

  
2020
    
2019
  
   
Recorded
Investment
    
Unpaid
Principal
Balance
    
Related
Allowance for
Loan Losses
    
Recorded
Investment
    
Unpaid
Principal
Balance
    
Related
Allowance for
Loan Losses
  
   
(In thousands)
  
With no related allowance for loan losses recorded:
      
Commercial
                                    
Commercial and industrial
  
$
77
    
$
80
    
$
-
    
$
257
    
$
257
    
$
-
  
Commercial real estate
    
-
      
-
      
-
      
796
      
796
      
-
  
Mortgage
                                                
1-4 family owner occupied - jumbo
    
623
      
629
      
-
      
-
      
-
      
-
  
1-4 family owner occupied - non-jumbo
    
-
      
-
      
-
      
212
      
217
      
-
  
1-4 family non-owner occupied
    
305
      
473
      
-
      
214
      
366
      
-
  
1-4 family - 2nd lien
    
301
      
304
      
-
      
407
      
438
      
-
  
Resort lending
    
154
      
379
      
-
      
-
      
-
      
-
  
Installment
                                                
Boat lending
    
-
      
-
      
-
      
-
      
-
      
-
  
Recreational vehicle lending
    
-
      
-
      
-
      
-
      
-
      
-
  
Other
    
-
      
-
      
-
      
1
      
41
      
-
  
     
1,460
      
1,865
      
-
      
1,887
      
2,115
      
-
  

2020
2019
 
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
            
Commercial and industrial
2,227
2,370
756
1,655
1,706
453
Commercial real estate
7,127
7,096
510
6,685
6,661
578
Mortgage
            
1-4 family owner occupied - jumbo
506
880
50
1,447
1,445
91
1-4 family owner occupied - non-jumbo
21,655
22,311
2,300
10,163
10,695
1,031
1-4 family non-owner occupied
4,335
4,704
495
4,962
5,542
572
1-4 family - 2nd lien
811
829
200
14,059
15,243
1,695
Resort lending
10,555
10,764
1,079
12,110
12,263
1,474
Installment
            
Boat lending
7
11
2
-
-
-
Recreational vehicle lending
87
100
19
-
-
-
Other
1,902
2,040
170
2,924
3,153
261
 
49,212
51,105
5,581
54,005
56,708
6,155
Total
            
Commercial
            
Commercial and industrial
2,304
2,450
756
1,912
1,963
453
Commercial real estate
7,127
7,096
510
7,481
7,457
578
Mortgage
            
1-4 family owner occupied - jumbo
1,129
1,509
50
1,447
1,445
91
1-4 family owner occupied - non-jumbo
21,655
22,311
2,300
10,375
10,912
1,031
1-4 family non-owner occupied
4,640
5,177
495
5,176
5,908
572
1-4 family - 2nd lien
1,112
1,133
200
14,466
15,681
1,695
Resort lending
10,709
11,143
1,079
12,110
12,263
1,474
Installment
            
Boat lending
7
11
2
-
-
-
Recreational vehicle lending
87
100
19
-
-
-
Other
1,902
2,040
170
2,925
3,194
261
Total
$50,672
$52,970
$5,581
$55,892
$58,823
$6,155
             
Accrued interest included in recorded investment
$359
    
$255
    



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:

  
2020
    
2019
    
2018
  
   
Average
Recorded
Investment
    
Interest
Income
Recognized
    
Average
Recorded
Investment
    
Interest
Income
Recognized
    
Average
Recorded
Investment
    
Interest
Income
Recognized
  
   
(In thousands)
  
With no related allowance for loan losses recorded:
      
Commercial
                                    
Commercial and industrial
  
$
125
    
$
9
    
$
51
    
$
-
    
$
378
    
$
20
  
Commercial real estate
    
159
      
-
      
278
      
5
      
961
      
-
  
Mortgage
                                                
1-4 family owner occupied - jumbo
    
408
      
-
      
-
      
-
      
41
      
-
  
1-4 family owner occupied - non-jumbo
    
252
      
4
      
201
      
-
      
15
      
27
  
1-4 family non-owner occupied
    
308
      
10
      
123
      
-
      
-
      
-
  
1-4 family - 2nd lien
    
380
      
-
      
136
      
7
      
-
      
-
  
Resort lending
    
92
      
-
      
-
      
-
      
-
      
-
  
Installment
                                                
Boat lending
    
-
      
-
      
-
      
-
      
-
      
-
  
Recreational vehicle lending
    
-
      
-
      
-
      
-
      
-
      
-
  
Other
    
-
      
-
      
-
      
1
      
1
      
11
  
     
1,724
      
23
      
789
      
13
      
1,396
      
58
  
With an allowance for loan losses recorded:
                                                
Commercial
                                                
Commercial and industrial
    
2,230
      
242
      
2,256
      
72
      
2,641
      
127
  
Commercial real estate
    
10,751
      
1,043
      
5,778
      
315
      
5,199
      
288
  
Mortgage
                                                
1-4 family owner occupied - jumbo
    
1,083
      
84
      
995
      
39
      
1,335
      
69
  
1-4 family owner occupied - non-jumbo
    
19,624
      
2,033
      
15,183
      
594
      
28,183
      
1,408
  
1-4 family non-owner occupied
    
4,664
      
375
      
2,874
      
291
      
5,475
      
314
  
1-4 family - 2nd lien
    
3,376
      
22
      
13,383
      
809
      
284
      
12
  
Resort lending
    
11,316
      
799
      
11,697
      
669
      
14,687
      
606
  
Installment
                                                
Boat lending
    
59
      
1
      
54
      
-
      
1
      
-
  
Recreational vehicle lending
    
81
      
4
      
22
      
-
      
84
      
4
  
Other
    
2,416
      
225
      
3,186
      
189
      
3,640
      
224
  
     
55,600
      
4,828
      
55,428
      
2,978
      
61,529
      
3,052
  
Total
                                                
Commercial
                                                
Commercial and industrial
    
2,355
      
251
      
2,307
      
72
      
3,019
      
147
  
Commercial real estate
    
10,910
      
1,043
      
6,056
      
320
      
6,160
      
288
  
Mortgage
                                                
1-4 family owner occupied - jumbo
    
1,491
      
84
      
995
      
39
      
1,376
      
69
  
1-4 family owner occupied - non-jumbo
    
19,876
      
2,037
      
15,384
      
594
      
28,198
      
1,435
  
1-4 family non-owner occupied
    
4,972
      
385
      
2,997
      
291
      
5,475
      
314
  
1-4 family - 2nd lien
    
3,756
      
22
      
13,519
      
816
      
284
      
12
  
Resort lending
    
11,408
      
799
      
11,697
      
669
      
14,687
      
606
  
Installment
                                                
Boat lending
    
59
      
1
      
54
      
-
      
1
      
-
  
Recreational vehicle lending
    
81
      
4
      
22
      
-
      
84
      
4
  
Other
    
2,416
      
225
      
3,186
      
190
      
3,641
      
235
  
Total
  
$
57,324
    
$
4,851
    
$
56,217
    
$
2,991
    
$
62,925
    
$
3,110
  



Troubled debt restructurings at December 31 follow:

  
2020
  
   
Commercial
    
Retail (1)
    
Total
  
   
(In thousands)
  
Performing TDR’s
  
$
7,956
    
$
36,385
    
$
44,341
  
Non-performing TDR’s (2)
    
1,148
      
1,584
(3) 
    
2,732
  
Total
  
$
9,104
    
$
37,969
    
$
47,073
  

 
2019
  
   
Commercial
    
Retail (1)
    
Total
  
   
(In thousands)
  
Performing TDR’s
  
$
7,974
    
$
39,601
    
$
47,575
  
Non-performing TDR’s (2)
    
540
      
2,607
(3) 
    
3,147
  
Total
  
$
8,514
    
$
42,208
    
$
50,722
  


(1)
Retail loans include mortgage and installment loan 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 have allocated $4.8 million and $5.2 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2020 and 2019, respectively. We have committed to lend additional amounts totaling up to $0.07 million and $0.05 million at December 31, 2020 and 2019, 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 a new loan 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
  
   
(Dollars in thousands)
  
2020
      
Commercial
                  
Commercial and industrial
    
7
    
$
1,207
    
$
1,207
  
Commercial real estate
    
4
      
7,012
      
7,012
  
Mortgage
                        
1-4 family owner occupied - jumbo
    
-
      
-
      
-
  
1-4 family owner occupied - non-jumbo
    
5
      
357
      
374
  
1-4 family non-owner occupied
    
2
      
111
      
116
  
1-4 family - 2nd lien
    
2
      
44
      
46
  
Resort lending
    
-
      
-
      
-
  
Installment
                        
Boat lending
    
-
      
-
      
-
  
Recreational vehicle lending
    
-
      
-
      
-
  
Other
    
4
      
91
      
93
  
Total
    
24
    
$
8,822
    
$
8,848
  

 
Number of
Contracts
Pre-modification
Recorded
Balance
Post-modification
Recorded
Balance
 
(Dollars in thousands)
   
2019
      
Commercial
      
Commercial and industrial
8
$1,609
$1,609
Commercial real estate
3
1,479
1,479
Mortgage
      
1-4 family owner occupied - jumbo
-
-
-
1-4 family owner occupied - non-jumbo
2
478
483
1-4 family non-owner occupied
1
507
505
1-4 family - 2nd lien
3
75
75
Resort lending
-
-
-
Installment
      
Boat lending
-
-
-
Recreational vehicle lending
-
-
-
Other
7
188
191
Total
24
$4,336
$4,342
2018
  
Commercial
      
Commercial and industrial
7
$652
$652
Commercial real estate
2
204
204
Mortgage
      
1-4 family owner occupied - jumbo
1
419
419
1-4 family owner occupied - non-jumbo
9
991
994
1-4 family non-owner occupied
-
-
-
1-4 family - 2nd lien
-
-
-
Resort lending
1
115
114
Installment
      
Boat lending
-
-
-
Recreational vehicle lending
-
-
-
Other
14
708
709
Total
34
$3,089
$3,092


The troubled debt restructurings described above increased (decreased) the AFLL by $0.04 million, $0.50 million and $(0.19) million during the years ended December 31, 2020, 2019 and 2018, respectively and resulted in charge offs of zero during each of the years ended December 31, 2020, 2019 and 2018, 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
  
2020
  
(Dollars in thousands)
  
Commercial
            
Commercial and industrial
    
-
    
$
-
  
Commercial real estate
    
-
      
-
  
Mortgage
                
1-4 family owner occupied - jumbo
    
-
      
-
  
1-4 family owner occupied - non-jumbo
    
-
      
-
  
1-4 family non-owner occupied
    
-
      
-
  
1-4 family - 2nd lien
    
-
      
-
  
Resort lending
    
-
      
-
  
Installment
                
Boat lending
    
-
      
-
  
Recreational vehicle lending
    
-
      
-
  
Other
    
-
      
-
  
Total
    
-
    
$
-
  
                 
2019
                
Commercial
                
Commercial and industrial
    
1
    
$
19
  
Commercial real estate
    
-
      
-
  
Mortgage
                
1-4 family owner occupied - jumbo
    
-
      
-
  
1-4 family owner occupied - non-jumbo
    
1
      
12
  
1-4 family non-owner occupied
    
-
      
-
  
1-4 family - 2nd lien
    
-
      
-
  
Resort lending
    
-
      
-
  
Installment
                
Boat lending
    
-
      
-
  
Recreational vehicle lending
    
-
      
-
  
Other
    
-
      
-
  
Total
    
2
    
$
31
  
                 
2018
                
Commercial
                
Commercial and industrial
    
-
    
$
-
  
Commercial real estate
    
-
      
-
  
Mortgage
                
1-4 family owner occupied - jumbo
    
-
      
-
  
1-4 family owner occupied - non-jumbo
    
-
      
-
  
1-4 family non-owner occupied
    
-
      
-
  
1-4 family - 2nd lien
    
-
      
-
  
Resort lending
    
-
      
-
  
Installment
                
Boat lending
    
-
      
-
  
Recreational vehicle lending
    
-
      
-
  
Other
    
1
      
13
  
Total
    
1
    
$
13
  



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 during each of the years ended December 31, 2020, 2019 and 2018 and resulted in charge offs of zero during each of the years ended December 31, 2020, 2019 and 2018.
 

The terms of certain other loans were modified during the years ending December 31, 2020, 2019 and 2018 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.


Non-TDR Loan Modifications and Paycheck Protection Program (“PPP”) due to COVID-19 - On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”.  This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19.  The guidance goes on to explain that in consultation with the Financial Accounting Standards Board staff that the federal banking agencies conclude that short-term modifications (e.g. six months or less) made on a good faith basis to borrowers who were current (less than 30 days past due) as of the implementation date of a relief program are not TDRs.  In addition, on March 27, 2020, the CARES Act was signed into law.  Section 4013 of the CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current (less than 30 days past due) as of December 31, 2019 are not TDRs.  We are assisting both commercial and retail (mortgage and installment) borrowers with reduced or suspended payments. Commercial loan accommodations are typically a three month interest-only period while retail loan (mortgage and installment) forbearances have primarily been payment suspensions for three months. For loans subject to these forbearance agreements each borrower is required to resume making regularly scheduled loan payments at the end of the forbearance period.  The deferred principal and interest will be repaid based upon individualized agreements.  Options for repayment include separate repayment plans, extending the term of the loan or re-amortizing the loan based upon the affordability of the payment in relationship to a reduced income.  While some borrowers may elect to make a lump sum payment, we anticipate the majority will require some type of repayment plan.  During the forbearance period, the loan will not be reported as past due in keeping with the guidance discussed previously.


A summary of remaining accommodations that had been entered into under this guidance as of December 31, 2020 follows:

Commercial and Retail Loan COVID-19 Accomodations
Covid-19 Accomodations
    
Total
    
% of Total
  
Loan Category
  
Loans (#)
    
Loans ($)
    
Loans
    
Loans
  
 
(Dollars in thousands)
  
Commercial
    
2
    
$
163
    
$
1,242,415
      
0.0
%
Mortgage
    
134
      
19,830
      
1,015,926
      
2.0
%
Installment
    
48
      
1,412
      
475,337
      
0.3
%
Total
    
184
    
$
21,405
    
$
2,733,678
      
0.8
%
Mortgage loans serviced for others(1)
    
288
    
$
42,897
    
$
2,984,088
      
1.4
%

1)
We have delegated authority from all investors to grant these deferrals on their behalf.


Information on subsequent accommodation extensions for portfolio loans follows:

Commercial and Retail Loan COVID-19 Subsequent Accomodations (1)

Loan Category
  
Loans (#)
    
Loans ($)
  
   
(Dollars in thousands)
  
Commercial
    
2
    
$
163
  
Mortgage
    
100
      
15,004
  
Installment
    
35
      
1,045
  
Total
    
137
    
$
16,212
  

(1)
Subsequent accommodations are extensions of the original accommodations that were given as summarized in the paragraph above.



The CARES Act also included an initial $349 billion loan program administered through the U.S. Small Business Administration (“SBA”) referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. We are participating as a lender in the PPP. The PPP opened on April 3, 2020 intending to provide American small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans through the SBA. In late April 2020 the Paycheck Protection Program and Health Care Enhancement Act, added another $310 billion in funding while the Paycheck Protection Program Flexibility Act made certain changes to the program, by allowing for more time to spend the funds, and making it easier to get a loan fully forgiven.  The PPP initially closed on August 8, 2020.  On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) was signed into law which allocates an additional $284 billion in funding for the PPP.  The Economic Aid Act reopens the PPP through March 31, 2021 with generally the same terms and conditions as originally enacted under the CARES Act while clarifying eligibility and ineligibility for certain entities and expanding the permitted uses of PPP funds.  In addition, the Economic Aid Act simplifies the loan forgiveness process for PPP loans of $150,000 or less. The Economic Aid Act also establishes second draw loans for entities that have already used the initial PPP funds, subject to numerous limitations and eligibility criteria. PPP second draw loans are eligible for forgiveness similar to initial PPP loans, subject to limitations set forth in the Economic Aid Act.  As of December 31, 2020, we had 1,483 initial PPP loans outstanding with a total balance of $169.8 million.  PPP loans are included in the commercial and industrial class of the commercial loan portfolio segment.  As these loans are 100% guaranteed through the SBA the allowance for loan losses recorded on these loans is zero.  As of December 31, 2020, 755 forgiveness applications had been processed and approved for initial PPP loans totaling $92.0 million (we expect to receive these forgiveness proceeds during the first quarter of 2021).  Interest and fees on loans in our consolidated statement of operations includes $5.6 million for the twelve month period of 2020, related to the accretion of net loan fees on initial PPP loans.  No such accretion is included in the comparable prior year periods.  At December 31, 2020 we had $3.2 million of remaining unaccreted net fees related to initial PPP loans. We had no PPP second draw loans outstanding as of December 31, 2020.


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) 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. 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 portfolio segment at December 31:

  
Commercial
  
   
Non-watch
1-6
    
Watch
7-8
    
Substandard
Accrual
9
    
Non-
Accrual
10-11
    
Total
  
               
(In thousands)
              
2020
                              
Commercial and industrial
  
$
637,826
    
$
32,765
    
$
4,341
    
$
1,387
    
$
676,319
  
Commercial real estate
    
561,382
      
5,978
      
2,272
      
-
      
569,632
  
Total
  
$
1,199,208
    
$
38,743
    
$
6,613
    
$
1,387
    
$
1,245,951
  
Accrued interest included in total
  
$
3,408
    
$
105
    
$
23
    
$
-
    
$
3,536
  
                                         
2019
                                        
Commercial and industrial
  
$
515,955
    
$
44,384
    
$
3,967
    
$
565
    
$
564,871
  
Commercial real estate
    
580,516
      
23,036
      
535
      
735
      
604,822
  
Total
  
$
1,096,471
    
$
67,420
    
$
4,502
    
$
1,300
    
$
1,169,693
  
Accrued interest included in total
  
$
2,763
    
$
205
    
$
30
    
$
-
    
$
2,998
  


For each of our mortgage and installment portfolio 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 portfolio segments at December 31:

  
Mortgage (1)
  
   
1-4 Family
Owner
Occupied -
Jumbo
    
1-4 Family
Owner
Occupied -
Non-jumbo
    
1-4 Family
Non-owner
Occupied
    
1-4 Family
2nd Lien
    
Resort
Lending
    
Total
  
   
(In thousands)
  
2020
                                    
800 and above
  
$
61,077
    
$
40,187
    
$
25,468
    
$
12,490
    
$
9,546
    
$
148,768
  
_750-799
    
223,177
      
70,642
      
82,124
      
42,138
      
27,530
      
445,611
  
_700-749
    
101,086
      
75,489
      
30,326
      
22,962
      
11,726
      
241,589
  
_650-699
    
40,296
      
44,344
      
13,182
      
11,269
      
6,393
      
115,484
  
_600-649
    
11,146
      
18,519
      
4,303
      
2,703
      
1,670
      
38,341
  
_550-599
    
-
      
11,021
      
2,388
      
1,608
      
917
      
15,934
  
_500-549
    
3,396
      
5,129
      
1,580
      
1,012
      
192
      
11,309
  
Under 500
    
-
      
2,242
      
405
      
348
      
73
      
3,068
  
Unknown
    
-
      
-
      
-
      
-
      
-
      
-
  
Total
  
$
440,178
    
$
267,573
    
$
159,776
    
$
94,530
    
$
58,047
    
$
1,020,104
  
Accrued interest included in total
  
$
1,301
    
$
1,641
    
$
587
    
$
373
    
$
276
    
$
4,178
  

 
Mortgage (1)
 
1-4 Family
Owner
Occupied -
Jumbo
1-4 Family
Owner
Occupied -
Non-jumbo
1-4 Family
Non-owner
Occupied
1-4 Family
2nd Lien
Resort
Lending
Total
 
(In thousands)
2019
            
800 and above
$48,486
$43,848
$24,315
$13,905
$11,076
$141,630
_750-799
198,491
111,521
84,656
50,012
29,364
474,044
_700-749
106,609
95,064
34,839
30,697
14,626
281,835
_650-699
31,553
51,174
13,995
14,267
8,063
119,052
_600-649
13,230
21,938
5,897
4,097
2,074
47,236
_550-599
514
12,308
1,863
1,703
673
17,061
_500-549
1,519
7,940
1,870
1,281
889
13,499
Under 500
641
2,208
533
511
79
3,972
Unknown
510
1,259
1,569
69
1,330
4,737
Total
$401,553
$347,260
$169,537
$116,542
$68,174
$1,103,066
Accrued interest included in total
$1,139
$1,662
$586
$502
$266
$4,155

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

 
Installment (1)
  
   
Boat Lending
    
Recreational
Vehicle
Lending
    
Other
    
Total
  
   
(In thousands)
  
2020
                        
800 and above
  
$
32,231
    
$
29,223
    
$
9,154
    
$
70,608
  
_750-799
    
123,689
      
95,890
      
37,512
      
257,091
  
_700-749
    
38,223
      
33,476
      
25,262
      
96,961
  
_650-699
    
10,189
      
8,794
      
21,138
      
40,121
  
_600-649
    
2,083
      
1,305
      
3,730
      
7,118
  
_550-599
    
661
      
551
      
1,299
      
2,511
  
_500-549
    
342
      
283
      
767
      
1,392
  
Under 500
    
95
      
52
      
63
      
210
  
Unknown
    
-
      
-
      
510
      
510
  
Total
  
$
207,513
    
$
169,574
    
$
99,435
    
$
476,522
  
Accrued interest included in total
  
$
572
    
$
457
    
$
156
    
$
1,185
  
                                 
2019
                                
800 and above
  
$
28,041
    
$
24,470
    
$
7,611
    
$
60,122
  
_750-799
    
118,380
      
88,164
      
37,583
      
244,127
  
_700-749
    
41,490
      
31,055
      
27,204
      
99,749
  
_650-699
    
11,485
      
7,267
      
22,517
      
41,269
  
_600-649
    
2,254
      
1,411
      
4,470
      
8,135
  
_550-599
    
946
      
592
      
1,884
      
3,422
  
_500-549
    
377
      
464
      
1,127
      
1,968
  
Under 500
    
309
      
22
      
284
      
615
  
Unknown
    
-
      
-
      
1,204
      
1,204
  
Total
  
$
203,282
    
$
153,445
    
$
103,884
    
$
460,611
  
Accrued interest included in total
  
$
490
    
$
378
    
$
326
    
$
1,194
  


(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:

  
2020
    
2019
  
   
(In thousands)
  
Mortgage loans serviced for :
            
Fannie Mae
  
$
1,656,060
    
$
1,449,935
  
Freddie Mac
    
1,095,877
      
852,123
  
Ginnie Mae
    
181,615
      
180,941
  
FHLB
    
39,294
      
69,149
  
Other
    
11,242
      
29,018
  
Total
  
$
2,984,088
    
$
2,581,166
  


Custodial deposit accounts maintained in connection with mortgage loans serviced for others totaled $40.5 million and $29.9 million, at December 31, 2020 and 2019, 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:

  
2020
    
2019
    
2018
  
   
(In thousands)
  
Balance at beginning of period
  
$
19,171
    
$
21,400
    
$
15,699
  
Originated servicing rights capitalized
    
13,957
      
7,303
      
4,977
  
Servicing rights acquired
    
-
      
-
      
3,047
  
Change in fair value due to price
    
(10,833
)
    
(6,408
)
    
191
  
Change in fair value due to pay downs
    
(5,391
)
    
(3,124
)
    
(2,514
)
Balance at end of year
  
$
16,904
    
$
19,171
    
$
21,400
  
Loans sold and serviced that have had servicing rights capitalized
  
$
2,982,833
    
$
2,580,705
    
$
2,333,081
  


Fair value of capitalized mortgage loan servicing rights was determined using an average coupon rate of 3.77%, average servicing fee of 0.257%, average discount rate of 10.09% and an average Public Securities Association (‘‘PSA’’) prepayment rate of 348 for December 31, 2020; and average coupon rate of 4.22%, average servicing fee of 0.258%, average discount rate of 10.14% and an average PSA prepayment rate of 250 for December 31, 2019.

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,
  
   
2020
    
2019
  
   
(In thousands)
  
Commercial
  
$
468
    
$
1,394
  
Mortgage
    
410
      
575
  
Installment
    
147
      
316
  
Total carrying amount
    
1,025
      
2,285
  
Allowance for loan losses
    
-
      
-
  
Carrying amount, net of allowance for loan losses
  
$
1,025
    
$
2,285
  


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 is included in the table below. Accretable yield of PCI loans, or income expected to be collected follows:

 
Year ended December 31,
  
 
2020
    
2019
  
 
(In thousands)
  
             
Balance at beginning of period
  
$
640
    
$
462
  
New loans purchased
    
-
      
-
  
Accretion of income
    
(280
)
    
(187
)
Reclassification from (to) nonaccretable difference
    
-
      
365
  
Displosals/other adjustments
    
-
      
-
  
Balance at end of period
  
$
360
    
$
640