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LOANS AND PAYMENT PLAN RECEIVABLES
 12 Months Ended
Dec. 31, 2014
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:
    
  
2014
  
2013
 
  
(In thousands)
 
Real estate(1)
    
Residential first mortgages
 
$
411,423
  
$
431,812
 
Residential home equity and other junior mortgages
  
108,162
   
113,703
 
Construction and land development
  
54,644
   
50,290
 
Other(2)
  
447,837
   
440,348
 
Commercial
  
186,875
   
146,954
 
Consumer
  
154,591
   
126,443
 
Payment plan receivables
  
40,001
   
60,638
 
Agricultural
  
6,429
   
4,382
 
Total loans
 
$
1,409,962
  
$
1,374,570
 
 
(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 $1.0 million and $0.2 million at December 31, 2014 and 2013, respectively. Payment plan receivables totaling $42.6 million and $64.7 million at December 31, 2014 and 2013, respectively, are presented net of unamortized discount of $2.6 million and $4.1 million at December 31, 2014 and 2013, respectively. These payment plan receivables had effective yields of 14% and 15% at December 31, 2014 and 2013, respectively. These receivables have various due dates through December 2016.
 
An analysis of the allowance for loan losses by portfolio segment for the years ended December 31 follows:

        
Payment
     
        
Plan
     
  
Commercial
  
Mortgage
  
Installment
  
Receivables
  
Unallocated
  
Total
 
  
(In thousands)
 
2014
            
Balance at beginning of period
 
$
6,827
  
$
17,195
  
$
2,246
  
$
97
  
$
5,960
  
$
32,325
 
Additions (deductions)
                        
Provision for loan losses
  
(1,683
)
  
(1,029
)
  
349
   
(36
)
  
(737
)
  
(3,136
)
Recoveries credited to allowance
  
4,914
   
1,397
   
1,104
   
5
   
-
   
7,420
 
Loans charged against the allowance
  
(4,613
)
  
(4,119
)
  
(1,885
)
  
(2
)
  
-
   
(10,619
)
Balance at end of period
 
$
5,445
  
$
13,444
  
$
1,814
  
$
64
  
$
5,223
  
$
25,990
 
                         
2013
                        
Balance at beginning of period
 
$
11,402
  
$
21,447
  
$
3,378
  
$
144
  
$
7,904
  
$
44,275
 
Additions (deductions)
                        
Provision for loan losses
  
(2,336
)
  
71
   
314
   
(93
)
  
(1,944
)
  
(3,988
)
Recoveries credited to allowance
  
5,119
   
1,996
   
1,074
   
81
   
-
   
8,270
 
Loans charged against the allowance
  
(7,358
)
  
(6,319
)
  
(2,520
)
  
(35
)
  
-
   
(16,232
)
Balance at end of period
 
$
6,827
  
$
17,195
  
$
2,246
  
$
97
  
$
5,960
  
$
32,325
 
                         
2012
                        
Balance at beginning of period
 
$
18,183
  
$
22,885
  
$
6,146
  
$
197
  
$
11,473
  
$
58,884
 
Additions (deductions)
                        
Provision for loan losses
  
2,351
   
7,778
   
15
   
(3
)
  
(3,254
)
  
6,887
 
Recoveries credited to allowance
  
3,610
   
1,581
   
1,311
   
20
   
-
   
6,522
 
Loans charged against the allowance
  
(12,588
)
  
(10,741
)
  
(4,009
)
  
(70
)
  
-
   
(27,408
)
Reclassification to loans held for sale
  
(154
)
  
(56
)
  
(85
)
  
-
   
(315
)
  
(610
)
Balance at end of period
 
$
11,402
  
$
21,447
  
$
3,378
  
$
144
  
$
7,904
  
$
44,275
 

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

        
Payment
     
        
Plan
     
  
Commercial
  
Mortgage
  
Installment
  
Receivables
  
Unallocated
  
Total
 
  
(In thousands)
 
2014
            
Allowance for loan losses:
            
Individually evaluated for impairment
 
$
3,194
  
$
9,311
  
$
728
  
$
-
  
$
-
  
$
13,233
 
Collectively evaluated for impairment
  
2,251
   
4,133
   
1,086
   
64
   
5,223
   
12,757
 
Total ending allowance balance
 
$
5,445
  
$
13,444
  
$
1,814
  
$
64
  
$
5,223
  
$
25,990
 
 
Loans
                        
Individually evaluated for impairment
 
$
34,147
  
$
72,340
  
$
6,679
  
$
-
      
$
113,166
 
Collectively evaluated for impairment
  
658,423
   
402,458
   
200,368
   
40,001
       
1,301,250
 
Total loans recorded investment
  
692,570
   
474,798
   
207,047
   
40,001
       
1,414,416
 
Accrued interest included in recorded investment
  
1,615
   
2,170
   
669
   
-
       
4,454
 
Total loans
 
$
690,955
  
$
472,628
  
$
206,378
  
$
40,001
      
$
1,409,962
 
                         
2013
                        
Allowance for loan losses:
                        
Individually evaluated for impairment
 
$
3,878
  
$
10,488
  
$
792
  
$
-
  
$
-
  
$
15,158
 
Collectively evaluated for impairment
  
2,949
   
6,707
   
1,454
   
97
   
5,960
   
17,167
 
Total ending allowance balance
 
$
6,827
  
$
17,195
  
$
2,246
  
$
97
  
$
5,960
  
$
32,325
 
Loans
                        
Individually evaluated for impairment
 
$
40,623
  
$
78,022
  
$
7,068
  
$
-
      
$
125,713
 
Collectively evaluated for impairment
  
596,235
   
410,887
   
185,676
   
60,638
       
1,253,436
 
Total loans recorded investment
  
636,858
   
488,909
   
192,744
   
60,638
       
1,379,149
 
Accrued interest included in recorded investment
  
1,624
   
2,276
   
679
   
-
       
4,579
 
Total loans
 
$
635,234
  
$
486,633
  
$
192,065
  
$
60,638
      
$
1,374,570
 

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 $0.8 million, $1.2 million, and $2.3 million of interest income would have been recognized in 2014, 2013 and 2012, respectively. Interest income recorded on these loans was approximately zero during the year ended 2014 and $0.1 million in each of the years ended 2013 and 2012, respectively.

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

  
90+ and
    
Total Non-
 
  
Still
  
Non-
  
Performing
 
  
Accruing
  
Accrual
  
Loans
 
  
(In thousands)
 
2014
      
Commercial
      
Income producing - real estate
 
$
-
  
$
1,233
  
$
1,233
 
Land, land development and construction - real estate
  
-
   
594
   
594
 
Commercial and industrial
  
-
   
2,746
   
2,746
 
Mortgage
            
1-4 family
  
7
   
5,945
   
5,952
 
Resort lending
  
-
   
2,168
   
2,168
 
Home equity - 1st lien
  
-
   
331
   
331
 
Home equity - 2nd lien
  
-
   
605
   
605
 
Installment
            
Home equity - 1st lien
  
-
   
576
   
576
 
Home equity - 2nd lien
  
-
   
517
   
517
 
Loans not secured by real estate
  
-
   
454
   
454
 
Other
  
-
   
48
   
48
 
Payment plan receivables
            
Full refund
  
-
   
2
   
2
 
Partial refund
  
-
   
12
   
12
 
Other
  
-
   
-
   
-
 
Total recorded investment
 
$
7
  
$
15,231
  
$
15,238
 
Accrued interest included in recorded investment
 
$
-
  
$
-
  
$
-
 
2013
            
Commercial
            
Income producing - real estate
 
$
-
  
$
1,899
  
$
1,899
 
Land, land development and construction - real estate
  
-
   
1,036
   
1,036
 
Commercial and industrial
  
-
   
2,434
   
2,434
 
Mortgage
            
1-4 family
  
-
   
6,594
   
6,594
 
Resort lending
  
-
   
2,668
   
2,668
 
Home equity - 1st lien
  
-
   
415
   
415
 
Home equity - 2nd lien
  
-
   
689
   
689
 
Installment
            
Home equity - 1st lien
  
-
   
938
   
938
 
Home equity - 2nd lien
  
-
   
571
   
571
 
Loans not secured by real estate
  
-
   
638
   
638
 
Other
  
-
   
-
   
-
 
Payment plan receivables
            
Full refund
  
-
   
20
   
20
 
Partial refund
  
-
   
3
   
3
 
Other
  
-
   
-
   
-
 
Total recorded investment
 
$
-
  
$
17,905
  
$
17,905
 
Accrued interest included in recorded investment
 
$
-
  
$
-
  
$
-
 
 
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)
 
2014
            
Commercial
            
Income producing - real estate
 
$
89
  
$
-
  
$
214
  
$
303
  
$
252,763
  
$
253,066
 
Land, land development and construction - real estate
  
131
   
-
   
223
   
354
   
33,984
   
34,338
 
Commercial and industrial
  
2,391
   
279
   
209
   
2,879
   
402,287
   
405,166
 
Mortgage
                        
1-4 family
  
1,877
   
1,638
   
5,952
   
9,467
   
269,719
   
279,186
 
Resort lending
  
226
   
-
   
2,168
   
2,394
   
126,342
   
128,736
 
Home equity - 1st lien
  
39
   
50
   
331
   
420
   
19,782
   
20,202
 
Home equity - 2nd lien
  
711
   
89
   
605
   
1,405
   
45,269
   
46,674
 
Installment
                        
Home equity - 1st lien
  
466
   
37
   
576
   
1,079
   
20,995
   
22,074
 
Home equity - 2nd lien
  
369
   
81
   
517
   
967
   
28,125
   
29,092
 
Loans not secured by real estate
  
589
   
231
   
454
   
1,274
   
152,115
   
153,389
 
Other
  
15
   
3
   
48
   
66
   
2,426
   
2,492
 
Payment plan receivables
                        
Full refund
  
838
   
214
   
2
   
1,054
   
26,799
   
27,853
 
Partial refund
  
409
   
123
   
12
   
544
   
6,550
   
7,094
 
Other
  
96
   
24
   
-
   
120
   
4,934
   
5,054
 
Total recorded investment
 
$
8,246
  
$
2,769
  
$
11,311
  
$
22,326
  
$
1,392,090
  
$
1,414,416
 
Accrued interest included in recorded investment
 
$
55
  
$
29
  
$
-
  
$
84
  
$
4,370
  
$
4,454
 
                         
2013
                        
Commercial
                        
Income producing - real estate
 
$
1,014
  
$
428
  
$
878
  
$
2,320
  
$
249,313
  
$
251,633
 
Land, land development and construction - real estate
  
781
   
129
   
256
   
1,166
   
30,670
   
31,836
 
Commercial and industrial
  
1,155
   
1,665
   
318
   
3,138
   
350,251
   
353,389
 
Mortgage
                        
1-4 family
  
3,750
   
224
   
6,594
   
10,568
   
270,855
   
281,423
 
Resort lending
  
698
   
234
   
2,668
   
3,600
   
142,356
   
145,956
 
Home equity - 1st lien
  
172
   
-
   
415
   
587
   
18,214
   
18,801
 
Home equity - 2nd lien
  
663
   
73
   
689
   
1,425
   
41,304
   
42,729
 
Installment
                        
Home equity - 1st lien
  
557
   
134
   
938
   
1,629
   
25,513
   
27,142
 
Home equity - 2nd lien
  
536
   
136
   
571
   
1,243
   
36,701
   
37,944
 
Loans not secured by real estate
  
833
   
281
   
638
   
1,752
   
123,295
   
125,047
 
Other
  
22
   
12
   
-
   
34
   
2,577
   
2,611
 
Payment plan receivables
                        
Full refund
  
1,364
   
349
   
20
   
1,733
   
46,344
   
48,077
 
Partial refund
  
190
   
20
   
3
   
213
   
4,840
   
5,053
 
Other
  
122
   
4
   
-
   
126
   
7,382
   
7,508
 
Total recorded investment
 
$
11,857
  
$
3,689
  
$
13,988
  
$
29,534
  
$
1,349,615
  
$
1,379,149
 
Accrued interest included in recorded investment
 
$
100
  
$
26
  
$
-
  
$
126
  
$
4,453
  
$
4,579
 

Impaired loans are as follows :
 
  
December 31,
 
  
2014
  
2013
 
Impaired loans with no allocated allowance
 
(In thousands)
 
TDR
 
$
9,325
  
$
13,006
 
Non - TDR
  
299
   
334
 
Impaired loans with an allocated allowance
        
TDR - allowance based on collateral
  
5,879
   
10,085
 
TDR - allowance based on present value cash flow
  
94,970
   
101,131
 
Non - TDR - allowance based on collateral
  
2,296
   
688
 
Non - TDR - allowance based on present value cash flow
  
-
   
-
 
Total impaired loans
 
$
112,769
  
$
125,244
 
Amount of allowance for loan losses allocated
        
TDR - allowance based on collateral
 
$
2,025
  
$
3,127
 
TDR - allowance based on present value cash flow
  
10,188
   
11,777
 
Non - TDR - allowance based on collateral
  
1,020
   
254
 
Non - TDR - allowance based on present value cash flow
  
-
   
-
 
Total amount of allowance for loan losses allocated
 
$
13,233
  
$
15,158
 

During the second quarter of 2013, we sold certain commercial watch, substandard and non-performing loans as follows:

  
(In thousands)
 
Income producing - real estate
 
$
4,570
 
Land, land development and construction - real estate
  
401
 
Commercial and industrial
  
3,630
 
Total
 
$
8,601
 
 
Impaired loans by class as of December 31 are as follows (1):

  
2014
  
2013
 
    
Unpaid
      
Unpaid
   
  
Recorded
  
Principal
  
Related
  
Recorded
  
Principal
  
Related
 
  
Investment
  
Balance
  
Allowance
  
Investment
  
Balance
  
Allowance
 
With no related allowance recorded:
 
(In thousands)
   
Commercial
            
Income producing - real estate
 
$
5,868
  
$
6,077
  
$
-
  
$
7,042
  
$
7,178
  
$
-
 
Land, land development & construction-real estate
  
1,051
   
1,606
   
-
   
2,185
   
3,217
   
-
 
Commercial and industrial
  
2,685
   
2,667
   
-
   
4,110
   
4,087
   
-
 
Mortgage
                        
1-4 family
  
-
   
49
   
-
   
8
   
8
   
-
 
Resort lending
  
48
   
397
   
-
   
35
   
163
   
-
 
Home equity - 1st lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Installment
                        
Home equity - 1st lien
  
-
   
40
   
-
   
-
   
-
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Loans not secured by real estate
  
-
   
-
   
-
   
-
   
-
   
-
 
Other
  
-
   
-
   
-
   
-
   
-
   
-
 
   
9,652
   
10,836
   
-
   
13,380
   
14,653
   
-
 
With an allowance recorded:
                        
Commercial
                        
Income producing - real estate
  
12,836
   
13,797
   
689
   
14,538
   
15,631
   
1,161
 
Land, land development & construction-real estate
  
3,456
   
3,528
   
499
   
3,366
   
4,130
   
686
 
Commercial and industrial
  
8,251
   
8,486
   
2,006
   
9,382
   
9,529
   
2,031
 
Mortgage
                        
1-4 family
  
53,206
   
56,063
   
6,195
   
57,612
   
60,768
   
7,236
 
Resort lending
  
18,799
   
18,963
   
3,075
   
20,171
   
20,608
   
3,221
 
Home equity - 1st lien
  
162
   
177
   
14
   
154
   
164
   
11
 
Home equity - 2nd lien
  
125
   
205
   
27
   
42
   
118
   
20
 
Installment
                        
Home equity - 1st lien
  
2,744
   
2,930
   
219
   
2,959
   
3,115
   
254
 
Home equity - 2nd lien
  
3,212
   
3,215
   
419
   
3,352
   
3,347
   
462
 
Loans not secured by real estate
  
711
   
835
   
89
   
741
   
902
   
75
 
Other
  
12
   
12
   
1
   
16
   
16
   
1
 
   
103,514
   
108,211
   
13,233
   
112,333
   
118,328
   
15,158
 
Total
                        
Commercial
                        
Income producing - real estate
  
18,704
   
19,874
   
689
   
21,580
   
22,809
   
1,161
 
Land, land development & construction-real estate
  
4,507
   
5,134
   
499
   
5,551
   
7,347
   
686
 
Commercial and industrial
  
10,936
   
11,153
   
2,006
   
13,492
   
13,616
   
2,031
 
Mortgage
                        
1-4 family
  
53,206
   
56,112
   
6,195
   
57,620
   
60,776
   
7,236
 
Resort lending
  
18,847
   
19,360
   
3,075
   
20,206
   
20,771
   
3,221
 
Home equity - 1st lien
  
162
   
177
   
14
   
154
   
164
   
11
 
Home equity - 2nd lien
  
125
   
205
   
27
   
42
   
118
   
20
 
Installment
                        
Home equity - 1st lien
  
2,744
   
2,970
   
219
   
2,959
   
3,115
   
254
 
Home equity - 2nd lien
  
3,212
   
3,215
   
419
   
3,352
   
3,347
   
462
 
Loans not secured by real estate
  
711
   
835
   
89
   
741
   
902
   
75
 
Other
  
12
   
12
   
1
   
16
   
16
   
1
 
Total
 
$
113,166
  
$
119,047
  
$
13,233
  
$
125,713
  
$
132,981
  
$
15,158
 
Accrued interest included in recorded investment
 
$
397
          
$
469
         
(1) There were no impaired payment plan receivables at December 31, 2014 or 2013.

Average recorded investment in and interest income earned on impaired loans by class for the years ended December 31 follows (1):

  
2014
  
2013
  
2012
 
  
Average
  
Interest
  
Average
  
Interest
  
Average
  
Interest
 
  
Recorded
  
Income
  
Recorded
  
Income
  
Recorded
  
Income
 
  
Investment
  
Recognized
  
Investment
  
Recognized
  
Investment
  
Recognized
 
With no related allowance recorded:
 
(In thousands)
 
Commercial
            
Income producing - real estate
 
$
7,660
  
$
250
  
$
5,765
  
$
340
  
$
2,981
  
$
166
 
Land, land development & construction-real estate
  
1,145
   
64
   
3,092
   
240
   
2,549
   
150
 
Commercial and industrial
  
3,351
   
152
   
3,980
   
226
   
3,526
   
246
 
Mortgage
                        
1-4 family
  
29
   
-
   
5
   
11
   
290
   
-
 
Resort lending
  
40
   
1
   
28
   
-
   
222
   
-
 
Home equity - 1st lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
   
-
   
-
   
-
 
Installment
                        
Home equity - 1st lien
  
-
   
2
   
1,604
   
83
   
1,961
   
97
 
Home equity - 2nd lien
  
-
   
-
   
1,841
   
96
   
2,093
   
111
 
Loans not secured by real estate
  
-
   
-
   
470
   
23
   
549
   
30
 
Other
  
-
   
-
   
15
   
1
   
22
   
2
 
   
12,225
   
469
   
16,800
   
1,020
   
14,193
   
802
 
With an allowance recorded:
                        
Commercial
                        
Income producing - real estate
  
12,772
   
677
   
18,164
   
587
   
23,508
   
571
 
Land, land development & construction-real estate
  
3,939
   
149
   
6,186
   
149
   
10,305
   
183
 
Commercial and industrial
  
8,500
   
294
   
11,795
   
457
   
17,828
   
467
 
Mortgage
                        
1-4 family
  
55,877
   
2,286
   
60,858
   
2,622
   
66,195
   
2,852
 
Resort lending
  
19,458
   
753
   
21,708
   
836
   
24,286
   
1,000
 
Home equity - 1st lien
  
160
   
6
   
136
   
4
   
65
   
2
 
Home equity - 2nd lien
  
57
   
2
   
42
   
2
   
81
   
3
 
Installment
                        
Home equity - 1st lien
  
2,837
   
174
   
1,448
   
85
   
1,432
   
50
 
Home equity - 2nd lien
  
3,359
   
188
   
1,546
   
86
   
1,325
   
51
 
Loans not secured by real estate
  
719
   
35
   
314
   
17
   
221
   
10
 
Other
  
14
   
1
   
3
   
1
   
-
   
-
 
   
107,692
   
4,565
   
122,200
   
4,846
   
145,246
   
5,189
 
Total
                        
Commercial
                        
Income producing - real estate
  
20,432
   
927
   
23,929
   
927
   
26,489
   
737
 
Land, land development & construction-real estate
  
5,084
   
213
   
9,278
   
389
   
12,854
   
333
 
Commercial and industrial
  
11,851
   
446
   
15,775
   
683
   
21,354
   
713
 
Mortgage
                        
1-4 family
  
55,906
   
2,286
   
60,863
   
2,633
   
66,485
   
2,852
 
Resort lending
  
19,498
   
754
   
21,736
   
836
   
24,508
   
1,000
 
Home equity - 1st lien
  
160
   
6
   
136
   
4
   
65
   
2
 
Home equity - 2nd lien
  
57
   
2
   
42
   
2
   
81
   
3
 
Installment
                        
Home equity - 1st lien
  
2,837
   
176
   
3,052
   
168
   
3,393
   
147
 
Home equity - 2nd lien
  
3,359
   
188
   
3,387
   
182
   
3,418
   
162
 
Loans not secured by real estate
  
719
   
35
   
784
   
40
   
770
   
40
 
Other
  
14
   
1
   
18
   
2
   
22
   
2
 
Total
 
$
119,917
  
$
5,034
  
$
139,000
  
$
5,866
  
$
159,439
  
$
5,991
 

(1)There were no impaired payment plan receivables during the years ending December 31, 2014, 2013 and 2012.

Our average investment in impaired loans was approximately $119.9 million, $139.0 million and $159.4 million in 2014, 2013 and 2012, respectively. Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance. Interest income recognized on impaired loans was approximately $5.0 million, $5.9 million and $6.0 million in 2014, 2013 and 2012, respectively, of which the majority of these amounts were received in cash.

Troubled debt restructurings at December 31 follow:

  
2014
 
  
Commercial
  
Retail
  
Total
 
  
(In thousands)
 
Performing TDR's
 
$
29,475
  
$
73,496
  
$
102,971
 
Non-performing TDR's(1)
  
1,978
   
5,225
(2) 
  
7,203
 
Total
 
$
31,453
  
$
78,721
  
$
110,174
 

  
2013
 
  
Commercial
  
Retail
  
Total
 
  
(In thousands)
 
Performing TDR's
 
$
35,134
  
$
79,753
  
$
114,887
 
Non-performing TDR's(1)
  
4,347
   
4,988
(2) 
  
9,335
 
Total
 
$
39,481
  
$
84,741
  
$
124,222
 
 
(1)
Included in non-performing loans table above.
(2)
Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.
 
We have allocated $12.2 million and $14.9 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2014 and 2013, respectively. We have committed to lend additional amounts totaling up to $0.04 million and $0.17 million as of December 31, 2014 and 2013, 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 60 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 70 months but have extended to as much as 240 months in certain circumstances.

Loans that have been classified as troubled debt restructurings during the three years ended December 31 follow:

    
Pre-modification
  
Post-modification
 
  
Number of
  
Recorded
  
Recorded
 
  
Contracts
  
Balance
  
Balance
 
2014
 
(Dollars in thousands)
 
Commercial
      
Income producing - real estate
  
4
  
$
426
  
$
389
 
Land, land development & construction-real estate
  
2
   
55
   
44
 
Commercial and industrial
  
13
   
2,236
   
1,606
 
Mortgage
            
1-4 family
  
15
   
1,576
   
1,570
 
Resort lending
  
6
   
1,583
   
1,572
 
Home equity - 1st lien
  
1
   
17
   
14
 
Home equity - 2nd lien
  
1
   
85
   
84
 
Installment
            
Home equity - 1st lien
  
13
   
631
   
523
 
Home equity - 2nd lien
  
9
   
400
   
400
 
Loans not secured by real estate
  
6
   
114
   
106
 
Other
  
-
   
-
   
-
 
Total
  
70
  
$
7,123
  
$
6,308
 
2013
            
Commercial
            
Income producing - real estate
  
6
  
$
4,798
  
$
3,869
 
Land, land development & construction-real estate
  
1
   
16
   
-
 
Commercial and industrial
  
23
   
2,522
   
1,901
 
Mortgage
            
1-4 family
  
20
   
1,968
   
1,995
 
Resort lending
  
5
   
1,240
   
1,231
 
Home equity - 1st lien
  
1
   
95
   
97
 
Home equity - 2nd lien
  
-
   
-
   
-
 
Installment
            
Home equity - 1st lien
  
25
   
659
   
657
 
Home equity - 2nd lien
  
16
   
508
   
508
 
Loans not secured by real estate
  
5
   
149
   
110
 
Other
  
-
   
-
   
-
 
Total
  
102
  
$
11,955
  
$
10,368
 
2012
  
Commercial
            
Income producing - real estate
  
20
  
$
9,464
  
$
8,568
 
Land, land development & construction-real estate
  
9
   
4,800
   
4,858
 
Commercial and industrial
  
50
   
9,951
   
7,905
 
Mortgage
            
1-4 family
  
66
   
8,900
   
8,488
 
Resort lending
  
31
   
7,750
   
7,514
 
Home equity - 1st lien
  
1
   
15
   
-
 
Home equity - 2nd lien
  
-
   
-
   
-
 
Installment
            
Home equity - 1st lien
  
18
   
666
   
632
 
Home equity - 2nd lien
  
24
   
784
   
768
 
Loans not secured by real estate
  
13
   
325
   
304
 
Other
  
-
   
-
   
-
 
Total
  
232
  
$
42,655
  
$
39,037
 

The troubled debt restructurings described above increased (decreased) the allowance for loan losses by $0.2 million, $(0.3) million and $1.6 million during the years ended December 31, 2014, 2013 and 2012, respectively and resulted in charge offs of $0.04 million, $0.5 million and $1.0 million during the years ended December 31, 2014, 2013 and 2012, 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
  
Recorded
 
  
Contracts
  
Balance
 
2014
 
(Dollars in thousands)
 
Commercial
    
Income producing - real estate
  
-
  
$
-
 
Land, land development & construction-real estate
  
-
   
-
 
Commercial and industrial
  
2
   
319
 
Mortgage
        
1-4 family
  
1
   
125
 
Resort lending
  
-
   
-
 
Home equity - 1st lien
  
-
   
-
 
Home equity - 2nd lien
  
-
   
-
 
Installment
        
Home equity - 1st lien
  
-
   
-
 
Home equity - 2nd lien
  
-
   
-
 
Loans not secured by real estate
  
-
   
-
 
Other
  
-
   
-
 
Total
  
3
  
$
444
 
2013
        
Commercial
        
Income producing - real estate
  
1
  
$
693
 
Land, land development & construction-real estate
  
1
   
334
 
Commercial and industrial
  
2
   
143
 
Mortgage
        
1-4 family
  
1
   
106
 
Resort lending
  
1
   
156
 
Home equity - 1st lien
  
-
   
-
 
Home equity - 2nd lien
  
-
   
-
 
Installment
        
Home equity - 1st lien
  
2
   
32
 
Home equity - 2nd lien
  
1
   
22
 
Loans not secured by real estate
  
-
   
-
 
Other
  
-
   
-
 
Total
  
9
  
$
1,486
 
2012
        
Commercial
        
Income producing - real estate
  
2
  
$
827
 
Land, land development & construction-real estate
  
-
   
-
 
Commercial and industrial
  
5
   
230
 
Mortgage
        
1-4 family
  
2
   
148
 
Resort lending
  
4
   
887
 
Home equity - 1st lien
  
-
   
-
 
Home equity - 2nd lien
  
-
   
-
 
Installment
        
Home equity - 1st lien
  
2
   
234
 
Home equity - 2nd lien
  
1
   
20
 
Loans not secured by real estate
  
-
   
-
 
Other
  
-
   
-
 
Total
  
16
  
$
2,346
 
 
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 the allowance for loan losses by $0.02 million, zero, and $0.3 million during the years ended December 31, 2014, 2013 and 2012, respectively and resulted in charge offs of zero, $0.2 million and $0.8 million during the years ended December 31, 2014, 2013 and 2012, respectively.

The terms of certain other loans were modified during the years ending December 31, 2014, 2013 and 2012 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 (d) insurance industry ratings of certain counterparties for payment plan receivables and (e) 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. This rating includes 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. This rating includes 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
 
  
  
  
Substandard
  
Non-
  
 
  
Non-watch
  
Watch
  
Accrual
  
Accrual
   
   
1-6
   
7-8
   
9
   
10-11
  
Total
 
          
(In thousands)
       
2014
                  
Income producing - real estate
 
$
241,266
  
$
8,649
  
$
1,918
  
$
1,233
  
$
253,066
 
Land, land development and construction - real estate
  
30,869
   
2,485
   
390
   
594
   
34,338
 
Commercial and industrial
  
372,947
   
23,475
   
5,998
   
2,746
   
405,166
 
Total
 
$
645,082
  
$
34,609
  
$
8,306
  
$
4,573
  
$
692,570
 
Accrued interest included in total
 
$
1,479
  
$
111
  
$
25
  
$
-
  
$
1,615
 
2013
                    
Income producing - real estate
 
$
227,957
  
$
17,882
  
$
3,895
  
$
1,899
  
$
251,633
 
Land, land development and construction - real estate
  
25,654
   
4,829
   
317
   
1,036
   
31,836
 
Commercial and industrial
  
318,183
   
26,303
   
6,469
   
2,434
   
353,389
 
Total
 
$
571,794
  
$
49,014
  
$
10,681
  
$
5,369
  
$
636,858
 
Accrued interest included in total
 
$
1,433
  
$
147
  
$
44
  
$
-
  
$
1,624
 

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 at least annually. The following tables summarize credit scores by loan class for our mortgage and installment loan segments at December 31:

  
Mortgage (1)
 
      
Home
  
Home
   
    
Resort
  
Equity
  
Equity
   
  
1-4 Family
  
Lending
  
1st Lien
  
2nd Lien
  
Total
 
  
(In thousands)
 
2014
           
800 and above
  
$
27,918
  
$
14,484
  
$
3,863
  
$
6,225
  
$
52,490
 
    750-799   
72,674
   
45,950
   
6,128
   
14,323
   
139,075
 
    700-749   
52,843
   
32,660
   
3,054
   
9,642
   
98,199
 
    650-699   
51,664
   
20,250
   
3,257
   
8,194
   
83,365
 
    600-649   
27,770
   
6,538
   
1,704
   
3,862
   
39,874
 
    550-599   
21,361
   
3,639
   
994
   
1,721
   
27,715
 
    500-549   
14,575
   
2,156
   
699
   
1,401
   
18,831
 
Under 500
   
6,306
   
875
   
261
   
632
   
8,074
 
Unknown
   
4,075
   
2,184
   
242
   
674
   
7,175
 
Total
  
$
279,186
  
$
128,736
  
$
20,202
  
$
46,674
  
$
474,798
 
Accrued interest included in total
  
$
1,311
  
$
562
  
$
88
  
$
209
  
$
2,170
 
2013                     
800 and above
  
$
23,924
  
$
13,487
  
$
3,650
  
$
5,354
  
$
46,415
 
    750-799   
60,728
   
56,880
   
4,560
   
11,809
   
133,977
 
    700-749   
58,269
   
35,767
   
3,289
   
8,628
   
105,953
 
    650-699   
49,771
   
21,696
   
2,316
   
7,145
   
80,928
 
    600-649   
34,991
   
8,555
   
2,621
   
5,141
   
51,308
 
    550-599   
24,616
   
3,261
   
1,165
   
2,485
   
31,527
 
    500-549   
14,823
   
2,271
   
644
   
1,560
   
19,298
 
Under 500
   
9,492
   
1,160
   
323
   
360
   
11,335
 
Unknown
   
4,809
   
2,879
   
233
   
247
   
8,168
 
Total
  
$
281,423
  
$
145,956
  
$
18,801
  
$
42,729
  
$
488,909
 
Accrued interest included in total
  
$
1,300
  
$
650
  
$
97
  
$
229
  
$
2,276
 
 
(1)Credit scores have been updated within the last twelve months.

  
Installment(1)
 
  
Home
  
Home
  
Loans not
     
  
Equity
  
Equity
  
Secured by
     
  
1st Lien
  
2nd Lien
  
Real Estate
  
Other
  
Total
 
  
(In thousands)
 
2014
           
800 and above
  
$
2,272
  
$
2,835
  
$
31,507
  
$
60
  
$
36,674
 
    750-799   
5,677
   
8,557
   
66,558
   
583
   
81,375
 
700-749
   
3,111
   
6,358
   
28,179
   
689
   
38,337
 
650-699
   
3,963
   
5,477
   
16,152
   
615
   
26,207
 
600-649
   
3,434
   
2,408
   
5,128
   
255
   
11,225
 
550-599
   
2,019
   
1,913
   
1,896
   
134
   
5,962
 
500-549
   
1,128
   
1,036
   
1,672
   
84
   
3,920
 
Under 500
   
393
   
427
   
455
   
28
   
1,303
 
Unknown
   
77
   
81
   
1,842
   
44
   
2,044
 
Total
  
$
22,074
  
$
29,092
  
$
153,389
  
$
2,492
  
$
207,047
 
Accrued interest included in total
  
$
93
  
$
112
  
$
445
  
$
19
  
$
669
 
                      
2013
                     
800 and above
  
$
2,977
  
$
3,062
  
$
23,649
  
$
53
  
$
29,741
 
750-799
   
6,585
   
11,197
   
48,585
   
557
   
66,924
 
700-749
   
4,353
   
9,487
   
25,343
   
683
   
39,866
 
650-699
   
4,815
   
6,832
   
15,256
   
646
   
27,549
 
600-649
   
3,173
   
2,824
   
5,289
   
258
   
11,544
 
550-599
   
2,843
   
2,084
   
2,785
   
213
   
7,925
 
500-549
   
1,483
   
1,715
   
1,732
   
130
   
5,060
 
Under 500
   
751
   
663
   
516
   
29
   
1,959
 
Unknown
   
162
   
80
   
1,892
   
42
   
2,176
 
Total
  
$
27,142
  
$
37,944
  
$
125,047
  
$
2,611
  
$
192,744
 
Accrued interest included in total
  
$
114
  
$
144
  
$
399
  
$
22
  
$
679
 
 
(1)Credit scores have been updated within the last twelve months.

Mepco is a wholly-owned subsidiary of our Bank that operates a vehicle service contract payment plan business throughout the United States. See note #11 for more information about Mepco’s business. As of December 31, 2014, approximately 69.6% of Mepco’s outstanding payment plan receivables relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the full refund owing upon cancellation of the related service contract (including with respect to both the portion funded to the service contract seller and the portion funded to the administrator). These receivables are shown as “Full Refund” in the table below. Another approximately 17.7% of Mepco’s outstanding payment plan receivables as of December 31, 2014, relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the refund owing upon cancellation only with respect to the unearned portion previously funded by Mepco to the administrator (but not to the service contract seller). These receivables are shown as “Partial Refund” in the table below. The balance of Mepco’s outstanding payment plan receivables relate to programs in which there is no insurer or risk retention group that has any contractual liability to Mepco for any portion of the refund amount. These receivables are shown as “Other” in the table below. For each class of our payment plan receivables we monitor financial information on the counterparties as we evaluate the credit quality of this portfolio.

The following table summarizes credit ratings of insurer or risk retention group counterparties by class of payment plan receivable at December 31:

  
Payment Plan Receivables
 
  
Full
  
Partial
     
  
Refund
  
Refund
  
Other
  
Total
 
  
(In thousands)
 
2014
         
AM Best rating
         
A+
 
$
-
  
$
43
  
$
-
  
$
43
 
A
  
10,007
   
6,190
   
-
   
16,197
 
A-
   
1,989
   
685
   
5,054
   
7,728
 
Not rated
   
15,857
   
176
   -   
16,033
 
Total
  
$
27,853
  
$
7,094
  
$
5,054
  
$
40,001
 
2013
                 
AM Best rating
                 
A
 
$
20,203
  
$
4,221
  
$
-
  
$
24,424
 
A-
   
4,058
   
832
   
7,496
   
12,386
 
Not rated
   
23,816
   
-
   
12
   
23,828
 
Total
  
$
48,077
  
$
5,053
  
$
7,508
  
$
60,638
 

Although Mepco has contractual recourse against various counterparties for refunds owing upon cancellation of vehicle service contracts, see Note #11 below regarding certain risks and difficulties associated with collecting these refunds.

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:

  
2014
  
2013
 
  
(In thousands)
 
Mortgage loans serviced for :
    
Fannie Mae
 
$
913,863
  
$
981,031
 
Freddie Mac
  
748,833
   
753,143
 
Other
  
104
   
111
 
Total
 
$
1,662,800
  
$
1,734,285
 

Custodial deposit accounts maintained in connection with mortgage loans serviced for others totaled $20.9 million and $20.3 million, at December 31, 2014 and 2013, 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 gains on the sale of 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. Finally, 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 loans serviced for Freddie Mac.

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

  
2014
  
2013
  
2012
 
  
(In thousands)
 
Balance at beginning of year
 
$
13,710
  
$
11,013
  
$
11,229
 
Originated servicing rights capitalized
  
1,823
   
3,210
   
4,006
 
Amortization
  
(2,509
)
  
(3,745
)
  
(4,679
)
Change in valuation allowance
  
(918
)
  
3,232
   
457
 
Balance at end of year
 
$
12,106
  
$
13,710
  
$
11,013
 
Valuation allowance
 
$
3,773
  
$
2,855
  
$
6,087
 
Loans sold and serviced that have had servicing rights capitalized
 
$
1,661,269
  
$
1,732,476
  
$
1,751,960