Loans and The Allowance for Loan Losses | LOANS AND THE ALLOWANCE FOR LOAN LOSSES A summary of the balances of loans follows: March 31, December 31, 2018 2017 (In thousands) Real estate: 1-4 family residential $ 934,595 $ 922,627 Home equity 75,013 80,662 Commercial real estate 849,178 834,264 Construction 73,354 91,050 1,932,140 1,928,603 Commercial business 249,285 253,509 Consumer 19,911 21,698 Total loans 2,201,336 2,203,810 Allowance for loan losses (20,185 ) (20,877 ) Discount and fair value adjustments on purchased loans (1,314 ) (1,477 ) Deferred loan costs and fees, net 4,453 4,691 Loans, net $ 2,184,290 $ 2,186,147 Activity in the allowance for loan losses for the three months ended March 31, 2018 and 2017 , by loan segment, follows: 1-4 Family Home Commercial Construction Commercial Consumer Total (In thousands) Three Months Ended March 31, 2018 Allowance at December 31, 2017 $ 5,076 $ 699 $ 9,584 $ 1,708 $ 3,473 $ 337 $ 20,877 Provision (credit) for loan losses 23 (68 ) 121 (427 ) (95 ) (14 ) (460 ) Loans charged-off — — (194 ) — (25 ) (21 ) (240 ) Recoveries — — — — — 8 8 Allowance at March 31, 2018 $ 5,099 $ 631 $ 9,511 $ 1,281 $ 3,353 $ 310 $ 20,185 Three Months Ended March 31, 2017 Allowance at December 31, 2016 $ 4,846 $ 537 $ 8,374 $ 1,353 $ 3,206 $ 434 $ 18,750 Provision (credit) for loan losses 80 21 (41 ) 104 (89 ) (18 ) 57 Loans charged-off — — — — — (15 ) (15 ) Recoveries 74 — — — 9 — 83 Allowance at March 31, 2017 $ 5,000 $ 558 $ 8,333 $ 1,457 $ 3,126 $ 401 $ 18,875 Additional information pertaining to the allowance for loan losses at March 31, 2018 and December 31, 2017 is as follows: 1-4 Family Home Commercial Construction Commercial Consumer Total (In thousands) March 31, 2018 Allowance related to impaired loans $ 51 $ — $ — $ — $ — $ 1 $ 52 Allowance related to non-impaired loans 5,048 631 9,511 1,281 3,353 309 20,133 Total allowance for loan losses $ 5,099 $ 631 $ 9,511 $ 1,281 $ 3,353 $ 310 $ 20,185 Impaired loans $ 6,027 $ 1,327 $ 2,397 $ — $ 305 $ 92 $ 10,148 Non-impaired loans 928,568 73,686 846,781 73,354 248,980 19,819 2,191,188 Total loans $ 934,595 $ 75,013 $ 849,178 $ 73,354 $ 249,285 $ 19,911 $ 2,201,336 December 31, 2017 Allowance related to impaired loans $ 80 $ — $ — $ — $ — $ 1 $ 81 Allowance related to non-impaired loans 4,996 699 9,584 1,708 3,473 336 20,796 Total allowance for loan losses $ 5,076 $ 699 $ 9,584 $ 1,708 $ 3,473 $ 337 $ 20,877 Impaired loans $ 5,949 $ 1,387 $ 4,744 $ — $ — $ 202 $ 12,282 Non-impaired loans 916,678 79,275 829,520 91,050 253,509 21,496 2,191,528 Total loans $ 922,627 $ 80,662 $ 834,264 $ 91,050 $ 253,509 $ 21,698 $ 2,203,810 The following is a summary of past due and non-accrual loans, by loan class, at March 31, 2018 and December 31, 2017 : 30-59 Days Past Due 60-89 Days Past Due Past Due 90 Days or More Total Past Due Loans on Non-accrual (In thousands) March 31, 2018 Real estate: 1-4 family residential $ 658 $ 275 $ 1,337 $ 2,270 $ 5,549 Home equity 692 222 908 1,822 1,327 Commercial real estate — — — — 2,397 Commercial business — — — — 305 Consumer 127 19 7 153 92 Total $ 1,477 $ 516 $ 2,252 $ 4,245 $ 9,670 December 31, 2017 Real estate: 1-4 family residential $ 381 $ 348 $ 2,184 $ 2,913 $ 5,190 Home equity 509 13 656 1,178 1,387 Commercial real estate — — 3,893 3,893 4,744 Consumer 107 7 92 206 202 Total $ 997 $ 368 $ 6,825 $ 8,190 $ 11,523 There were no loans past due 90 days or more and still accruing interest at March 31, 2018 and December 31, 2017 . The following is a summary of information pertaining to impaired loans by loan class at the dates indicated: Recorded Investment Unpaid Principal Balance Related Allowance March 31, 2018 (In thousands) Impaired loans without a valuation allowance: Real estate: 1-4 family residential $ 4,490 $ 4,886 $ — Home equity 1,327 1,469 — Commercial real estate 2,397 2,500 — Commercial business 305 341 — Consumer 91 105 — Total 8,610 9,301 — Impaired loans with a valuation allowance: 1-4 family residential 1,537 1,537 51 Consumer 1 1 1 Total 1,538 1,538 52 Total impaired loans $ 10,148 $ 10,839 $ 52 December 31, 2017 Impaired loans without a valuation allowance: Real estate: 1-4 family residential $ 4,501 $ 4,897 $ — Home equity 1,387 1,523 — Commercial real estate 4,744 5,206 — Commercial business — 11 — Consumer 191 243 — Total 10,823 11,880 — Impaired loans with a valuation allowance: Real estate: 1-4 family residential 1,448 1,448 80 Consumer 11 11 1 Total 1,459 1,459 81 Total impaired loans $ 12,282 $ 13,339 $ 81 The following tables set forth information regarding average balances and interest income recognized (the majority of which is on a cash basis) on impaired loans by class, for the periods indicated: Average Recorded Investment Interest Income Recognized Three Months Ended March 31, 2018 (In thousands) Real estate: 1-4 family residential $ 5,988 $ 78 Home equity 1,357 9 Commercial real estate 3,571 24 Commercial business 153 4 Consumer 147 2 Total $ 11,216 $ 117 Three Months Ended March 31, 2017 Real estate: 1-4 family residential $ 6,620 $ 78 Home equity 1,087 14 Commercial real estate 3,007 8 Commercial business 232 3 Consumer 167 1 Total $ 11,113 $ 104 No additional funds are committed to be advanced in connection with impaired loans. Troubled debt restructurings entered into during the three months ended March 31, 2018 are as follows: Number of contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Real estate: (In thousands) 1-4 family residential 3 $ 469 $ 475 Commercial real estate 1 $ 1,563 $ 1,563 Total 4 $ 2,032 $ 2,038 There were no material troubled debt restructurings recorded during the three months ended March 31, 2017. Loans modified during the three months ended March 31, 2018 were modified to capitalize past due interest for residential loans and extend interest only periods for commercial real estate loans. Credit Quality Information The Company utilizes a ten-grade internal loan rating system for all loans as follows: Loans rated 1 – 6 are considered “acceptable” rated loans that are performing as agreed, and generally require only routine supervision. Loans rated 7 are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management. Loans rated 8 are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected. Generally, all loans 90 days delinquent are rated 8. Loans rated 9 are considered “doubtful.” Serious problems exist to the point where a partial loss of principal is likely. Weakness is so pronounced that on the basis of current information, conditions and values, collection in full is highly improbable. Loans rated 10 are considered "loss" and the credit extended to the customer is considered uncollectible or of such little value that it does not warrant consideration as an active asset. The Company assigns a 6 risk-rating to otherwise performing, satisfactorily collateralized consumer and residential loans where the Bank becomes aware of deterioration in a FICO score or other indication of potential inability to service the debt. The Company assigns risk ratings of 7-10 to residential or consumer loans that have a well-defined weakness that may jeopardize the collection of the contractual principal and interest, are contractually past due 90 days or more or legal action has commenced against the borrower. All other residential mortgage and consumer loans have no risk rating. On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial and commercial construction loans. At least annually, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process. In addition, management utilizes delinquency reports, the watch list and other loan reports to monitor credit quality of other loan segments. The following tables present the Company’s loans by risk rating at March 31, 2018 and December 31, 2017 : 1-4 Family Residential Home Equity Commercial Real Estate Construction Commercial Business Consumer Total Loans (In thousands) March 31, 2018 Loans rated 1 - 6 $ 1,014 $ 265 $ 840,962 $ 73,354 $ 244,949 $ — $ 1,160,544 Loans rated 7 2,948 1,469 4,635 — 4,030 123 13,205 Loans rated 8 2,549 — 3,581 — 306 — 6,436 Loans rated 9 247 — — — — — 247 Loans rated 10 — — — — — — — Loans not rated 927,837 73,279 — — — 19,788 1,020,904 $ 934,595 $ 75,013 $ 849,178 $ 73,354 $ 249,285 $ 19,911 $ 2,201,336 December 31, 2017 Loans rated 1 - 6 $ 1,022 $ 270 $ 821,815 $ 91,050 $ 252,765 $ 3 $ 1,166,925 Loans rated 7 2,848 1,523 4,660 — 744 121 9,896 Loans rated 8 2,566 — 7,789 — — — 10,355 Loans rated 9 250 — — — — — 250 Loans rated 10 — — — — — — — Loans not rated 915,941 78,869 — — — 21,574 1,016,384 $ 922,627 $ 80,662 $ 834,264 $ 91,050 $ 253,509 $ 21,698 $ 2,203,810 |