. Loans and Allowance for Loan Losses

The Company’s loan and allowance for loan loss policies are as follows:

Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for loan losses. The Company grants real estate mortgage, commercial business and consumer loans. A substantial portion of the loan portfolio is represented by mortgage loans to customers in the Louisville, Kentucky metropolitan statistical area (MSA). The ability of the Company’s customers to honor their loan agreements is largely dependent upon the real estate and general economic conditions in this area.

Loan origination and commitment fees, as well as certain direct costs of underwriting and closing loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related loans using the interest method. Amortization of net deferred loan fees is discontinued when a loan is placed on nonaccrual status.

The recognition of income on a loan is discontinued and previously accrued interest is reversed, when interest or principal payments become

ninety

(

) days past due unless, in the opinion of management, the outstanding interest remains collectible. Past due status is determined based on contractual terms. Generally, by applying the cash receipts method, interest income is subsequently recognized only as received until the loan is returned to accrual status. The cash receipts method is used when the likelihood of further loss on the loan is remote. Otherwise, the Company applies the cost recovery method and applies all payments as a reduction of the unpaid principal balance until the loan qualifies for return to accrual status. Interest income on impaired loans is recognized using the cost recovery method, unless the likelihood of further loss on the loan is remote

A loan is restored to accrual status when all principal and interest payments are brought current and the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, which generally requires that the borrower demonstrate a period of performance of at least

six

consecutive months.

For portfolio segments other than consumer loans, the Company’s practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan’s classification as a loss by regulatory examiners, or for other reasons. A partial charge-off is recorded on a loan when the uncollectibility of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan will

not

be repaid. A specific reserve is recognized as a component of the allowance for estimated losses on loans individually evaluated for impairment. Partial charge-offs on nonperforming and impaired loans are included in the Company’s historical loss experience used to estimate the general component of the allowance for loan losses as discussed below. Specific reserves are

not

considered charge-offs in management’s analysis of the allowance for loan losses because they are estimates and the outcome of the loan relationship is undetermined. At

June 30, 2018,

the Company had

five

loans on which partial charge-offs of

$97,000

had been recorded.

Consumer loans

not

secured by real estate are typically charged off at

days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection. Overdrafts are charged off after

days past due. Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed upon.

The allowance for loan losses reflects management’s judgment of probable loan losses inherent in the loan portfolio at the balance sheet date. Additions to the allowance for loan losses are made by the provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company uses a disciplined process and methodology to evaluate the allowance for loan losses on at least a quarterly basis that is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that

may

affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are individually evaluated for impairment or loans otherwise classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The general component covers non-classified loans and classified loans that are found, upon individual evaluation, to

not

be impaired. Such loans are pooled by segment and losses are modeled using annualized historical loss experience adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent

twelve

calendar quarters unless the historical loss experience is

not

considered indicative of the level of risk in the remaining balance of a particular portfolio segment, in which case an adjustment is determined by management. The Company’s historical loss experience is then adjusted by an overall loss factor based on a qualitative analysis prepared by management and reviewed on a quarterly basis. The overall loss factor considers changes in underwriting standards, economic conditions, changes and trends in past due and classified loans and other internal and external factors.

Management also applies additional loss factor multiples to loans classified as watch, special mention and substandard that are

not

individually evaluated for impairment. The loss factor multiples for classified loans are based on management’s assessment of historical trends regarding losses experienced on classified loans in prior periods. See below for additional discussion of the overall loss factor and loss factor multiples for classified loans as of

June 30, 2018

and

December 31, 2017.

Management exercises significant judgment in evaluating the relevant historical loss experience and the qualitative factors. Management also monitors the differences between estimated and actual incurred loan losses for loans considered impaired in order to evaluate the effectiveness of the estimation process and make any changes in the methodology as necessary.

Management utilizes the following portfolio segments in its analysis of the allowance for loan losses: residential real estate, land, construction, commercial real estate, commercial business, home equity and

second

mortgage, and other consumer loans. Additional discussion of the portfolio segments and the risks associated with each segment can be found in the Company’s Annual Report on Form

-K for the year ended

December 31, 2017.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs to complete unfinished or repair damaged property and other factors. New appraisals are generally obtained for all significant properties when a loan is identified as impaired, and a property is considered significant if the value of the property is estimated to exceed

$200,000.

Subsequent appraisals are obtained as needed or if management believes there has been a significant change in the market value of the property. In instances where it is

not

deemed necessary to obtain a new appraisal, management bases its impairment and allowance for loan loss analysis on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property.

June 30, 2018

and

December 31, 2017,

the recorded investments in loans secured by residential real estate properties for which formal foreclosure proceedings are in process was

$906,000

and

$588,000,

respectively.

Loans at

June 30, 2018

and

December 31, 2017

consisted of the following:

(In thousands)	June 30, 2018			December 31, 2017

Real estate mortgage loans:
Residential	$	135,602		$	136,399
Land		21,334			18,198
Residential construction		30,495			28,854
Commercial real estate		104,767			100,133
Commercial real estate contruction		12,387			17,161
Commercial business loans		33,743			34,114
Consumer loans:
Home equity and second mortgage loans		51,283			49,802
Automobile loans		40,435			38,361
Loans secured by savings accounts		1,404			1,751
Unsecured loans		3,708			3,744
Other consumer loans		8,018			8,714
Gross loans		443,176			437,231
Less undisbursed portion of loans in process		(21,013	)		(25,020	)

Principal loan balance		422,163			412,211

Deferred loan origination fees, net		1,064			1,041
Allowance for loan losses		(3,867	)		(3,634	)

Loans, net	$	419,360		$	409,618

The following table provides the components of the Company’s recorded investment in loans at

June 30, 2018:

	Residential Real Estate		Land		Construction			Commercial Real Estate			Commercial Business		Home Equity & 2nd Mtg		Other Consumer		Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	135,602	$	21,334	$	21,869		$	104,767		$	33,743	$	51,283	$	53,565	$	422,163

Accrued interest receivable		482		94		56			250			117		206		217		1,422

Net deferred loan origination fees and costs		92		15		(8	)		(41	)		1		1,005		-		1,064

Recorded investment in loans	$	136,176	$	21,443	$	21,917		$	104,976		$	33,861	$	52,494	$	53,782	$	424,649

Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	2,383	$	333	$	-		$	259		$	245	$	76	$	8	$	3,304
Collectively evaluated for impairment		133,441		21,110		21,917			104,667			33,616		52,418		53,774		420,943
Acquired with deteriorated credit quality		352		-		-			50			-		-		-		402

Ending balance	$	136,176	$	21,443	$	21,917		$	104,976		$	33,861	$	52,494	$	53,782	$	424,649

The following table provides the components of the Company’s recorded investment in loans at

December 31, 2017:

	Residential Real Estate		Land		Construction			Commercial Real Estate			Commercial Business		Home Equity & 2nd Mtg		Other Consumer		Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	136,399	$	18,198	$	20,995		$	100,133		$	34,114	$	49,802	$	52,570	$	412,211

Accrued interest receivable		474		94		49			249			87		189		223		1,365

Net deferred loan origination fees and costs		87		17		(10	)		(42	)		2		987		-		1,041

Recorded investment in loans	$	136,960	$	18,309	$	21,034		$	100,340		$	34,203	$	50,978	$	52,793	$	414,617


Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	2,907	$	-	$	-		$	401		$	42	$	73	$	-	$	3,423
Collectively evaluated for impairment		133,703		18,309		21,034			99,891			34,161		50,905		52,793		410,796
Acquired with deteriorated credit quality		350		-		-			48			-		-		-		398

Ending balance	$	136,960	$	18,309	$	21,034		$	100,340		$	34,203	$	50,978	$	52,793	$	414,617

An analysis of the allowance for loan losses as of

June 30, 2018

is as follows:

	Residential Real Estate		Land		Construction		Commercial Real Estate		Commercial Business		Home Equity & 2nd Mtg		Other Consumer		Total
	(In thousands)
Ending allowance balance attributable to loans:

Individually evaluated for impairment	$	160	$	-	$	-	$	-	$	2	$	-	$	-	$	162
Collectively evaluated for impairment		528		148		216		1,306		415		607		485		3,705
Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-

Ending balance	$	688	$	148	$	216	$	1,306	$	417	$	607	$	485	$	3,867

An analysis of the allowance for loan losses as of

December 31, 2017

is as follows:

	Residential Real Estate		Land		Construction		Commercial Real Estate		Commercial Business		Home Equity & 2nd Mtg		Other Consumer		Total
	(In thousands)
Ending allowance balance attributable to loans:

Individually evaluated for impairment	$	35	$	-	$	-	$	-	$	4	$	13	$	-	$	52
Collectively evaluated for impairment		182		133		245		1,622		287		697		414		3,580
Acquired with deteriorated credit quality		2		-		-		-		-		-		-		2

Ending balance	$	219	$	133	$	245	$	1,622	$	291	$	710	$	414	$	3,634

An analysis of the changes in the allowance for loan losses for the

three

months and

six

months ended

June 30, 2018

is as follows:

	Residential Real Estate			Land			Construction			Commercial Real Estate			Commercial Business			Home Equity & 2nd Mtg			Other Consumer			Total
	(In thousands)
Allowance for loan losses:
Changes in Allowance for Loan Losses for the three-months ended June 30, 2018
Beginning balance	$	301		$	156		$	291		$	1,520		$	276		$	680		$	407		$	3,631
Provisions for loan losses		398			(8	)		(75	)		(237	)		141			(75	)		172			316
Charge-offs		(15	)		0			0			0			0			(13	)		(138	)		(166	)
Recoveries		4			0			0			23			0			15			44			86

Ending balance	$	688		$	148		$	216		$	1,306		$	417		$	607		$	485		$	3,867

Changes in Allowance for Loan Losses for the six-months ended June 30, 2018
Beginning balance	$	219		$	133		$	245		$	1,622		$	291		$	710		$	414		$	3,634
Provisions for loan losses		538			15			(29	)		(348	)		126			(109	)		320			513
Charge-offs		(75	)		0			0			0			(1	)		(12	)		(334	)		(422	)
Recoveries		6			0			0			32			1			18			85			142

Ending balance	$	688		$	148		$	216		$	1,306		$	417		$	607		$	485		$	3,867

An analysis of the changes in the allowance for loan losses for the

three

months and

six

months ended

June 30, 2017

is as follows:

	Residential Real Estate			Land		Construction		Commercial Real Estate			Commercial Business			Home Equity & 2nd Mtg			Other Consumer			Total
	(In thousands)
Allowance for loan losses:
Changes in Allowance for Loan Losses for the three-months ended June 30, 2017
Beginning balance	$	271		$	109	$	223	$	1,585		$	244		$	698		$	288		$	3,418
Provisions for loan losses		(61	)		15		83		(4	)		46			(13	)		190			256
Charge-offs		(6	)		0		0		(2	)		0			(6	)		(186	)		(200	)
Recoveries		8			0		0		4			0			1			39			52

Ending balance	$	212		$	124	$	306	$	1,583		$	290		$	680		$	331		$	3,526

Changes in Allowance for Loan Losses for the six-months ended June 30, 2017
Beginning balance	$	380		$	56	$	80	$	1,670		$	198		$	683		$	319		$	3,386
Provisions for loan losses		(146	)		68		226		(132	)		131			1			319			467
Charge-offs		(46	)		0		0		(3	)		(43	)		(6	)		(390	)		(488	)
Recoveries		24			0		0		48			4			2			83			161

Ending balance	$	212		$	124	$	306	$	1,583		$	290		$	680		$	331		$	3,526

June 30, 2018

and

December 31, 2017,

management applied qualitative factor adjustments to various portfolio segments as they determined that the historical loss experience was

not

indicative of the level of risk in the remaining balance of those portfolio segments. As part of their analysis of qualitative factors, management considers changes in underwriting standards, economic conditions, past due loan trends, collateral valuations, loan concentrations and other internal and external factors. Had these qualitative factor adjustments

not

been considered, the allowance for loan losses based on historical loss factors would have been

$2.7

million and

$2.6

million lower at

June 30, 2018

and

December 31, 2017,

respectively. These changes were made to reflect management’s estimates of inherent losses in these portfolio segments at

June 30, 2018

and

December 31, 2017.

Management also adjusts the historical loss factors for loans classified as watch, special mention and substandard that are

not

individually evaluated for impairment. The adjustments consider the increased likelihood of loss on classified loans based on the Company’s separate historical experience for classified loans. Had the adjustments for classified loans

not

been considered, the allowance for loan losses would have been

$489,000

and

$506,000

lower at

June 30, 2018

and

December 31, 2017,

respectively. These factors were

not

adjusted during the period from

December 31, 2017

June 30, 2018.

Additional discussion of the Bank’s allowance for loan loss methodology can be found in the Company’s Annual Report on Form

-K for the year ended

December 31, 2017.

The following table summarizes the Company’s impaired loans as of

June 30, 2018

and for the

three

months and

six

months ended

June 30, 2018.

The Company did

not

recognize any interest income on impaired loans using the cash receipts method of accounting for the

three

six

month periods ended

June 30, 2018:

	At June 30, 2018						Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential	$	2,128	$	2,357	$	0	$	2,327	$	5	$	2,449	$	13
Land		333		339		0		214		0		142		0
Construction		0		0		0		0		0		0		0
Commercial real estate		259		257		0		312		5		342		10
Commercial business		217		219		0		254		4		173		7
Home equity/2nd mortgage		76		85		0		77		0		71		1
Other consumer		8		0		0		8		1		5		1

		3,021		3,257		0		3,192		15		3,182		32

Loans with an allowance recorded:
Residential		255		274		160		267		0		248		0
Land		0		0		0		0		0		0		0
Construction		0		0		0		0		0		0		0
Commercial real estate		0		0		0		0		0		0		0
Commercial business		28		30		2		28		0		29		0
Home equity/2nd mortgage		0		0		0		7		0		9		0
Other consumer		0		0		0		0		0		0		0

		283		304		162		302		0		286		0

Total:
Residential		2,383		2,631		160		2,594		5		2,697		13
Land		333		339		0		214		0		142		0
Construction		0		0		0		0		0		0		0
Commercial real estate		259		257		0		312		5		342		10
Commercial business		245		249		2		282		4		202		7
Home equity/2nd mortgage		76		85		0		84		0		80		1
Other consumer		8		0		0		8		1		5		1

	$	3,304	$	3,561	$	162	$	3,494	$	15	$	3,468	$	32

The following table summarizes the Company’s impaired loans for the

three

months and

six

months ended

June 30, 2017.

The Company did

not

recognize any interest income on impaired loans using the cash receipts method of accounting for the

three

six

month periods ended

June 30, 2017:

	Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

Loans with no related allowance recorded:
Residential	$	2,387	$	6	$	2,215	$	14
Land		0		0		0		0
Construction		0		0		0		0
Commercial real estate		759		6		911		8
Commercial business		72		0		73		0
Home equity/2nd mortgage		228		0		229		1
Other consumer		11		0		7		0

		3,457		12		3,435		23

Loans with an allowance recorded:
Residential		87		0		128		0
Land		0		0		0		0
Construction		0		0		0		0
Commercial real estate		0		0		0		0
Commercial business		50		0		56		0
Home equity/2nd mortgage		23		0		19		0
Other consumer		25		0		23		0

		185		0		226		0

Total:
Residential		2,474		6		2,343		14
Land		0		0		0		0
Construction		0		0		0		0
Commercial real estate		759		6		911		8
Commercial business		122		0		129		0
Home equity/2nd mortgage		251		0		248		1
Other consumer		36		0		30		0

	$	3,642	$	12	$	3,661	$	23

The following table summarizes the Company’s impaired loans as of

December 31, 2017:

	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Loans with no related allowance recorded:
Residential	$	2,695	$	2,948	$	-
Land		-		-		-
Construction		-		-		-
Commercial real estate		401		535		-
Commercial business		12		12		-
Home equity/2nd mortgage		60		68		-
Other consumer		-		-		-

		3,168		3,563		-

Loans with an allowance recorded:
Residential		212		218		35
Land		-		-		-
Construction		-		-		-
Commercial real estate		-		-		-
Commercial business		30		30		4
Home equity/2nd mortgage		13		13		13
Other consumer		-		-		-

		255		261		52

Total:
Residential		2,907		3,166		35
Land		-		-		-
Construction		-		-		-
Commercial real estate		401		535		-
Commercial business		42		42		4
Home equity/2nd mortgage		73		81		13
Other consumer		-		-		-

	$	3,423	$	3,824	$	52

Nonperforming loans consists of nonaccrual loans and loans over

days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at

June 30, 2018

and

December 31, 2017:

	June 30, 2018						December 31, 2017
	Nonaccrual Loans		Loans 90+ Days Past Due Still Accruing		Total Nonperforming Loans		Nonaccrual Loans		Loans 90+ Days Past Due Still Accruing		Total Nonperforming Loans
	(In thousands)

Residential	$	1,845	$	-	$	1,845	$	2,298	$	109	$	2,407
Land		333		-		333		-		95		95
Construction		-		-		-		-		-		-
Commercial real estate		-		-		-		139		-		139
Commercial business		76		67		143		42		59		101
Home equity/2nd mortgage		62		-		62		57		-		57
Other consumer		-		30		30		-		28		28

Total	$	2,316	$	97	$	2,413	$	2,536	$	291	$	2,827

The following table presents the aging of the recorded investment in loans at

June 30, 2018:

	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Purchased Credit Impaired Loans		Total Loans
	(In thousands)

Residential	$	2,468	$	554	$	1,099	$	4,121	$	131,703	$	352	$	136,176
Land		103		-		95		198		21,245		-		21,443
Construction		-		-		-		-		21,917		-		21,917
Commercial real estate		728		-		-		728		104,198		50		104,976
Commercial business		201		-		67		268		33,593		-		33,861
Home equity/2nd mortgage		125		1		-		126		52,368		-		52,494
Other consumer		297		54		30		381		53,401		-		53,782

Total	$	3,922	$	609	$	1,291	$	5,822	$	418,425	$	402	$	424,649

The following table presents the aging of the recorded investment in loans at

December 31, 2017:

	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Purchased Credit Impaired Loans		Total Loans
	(In thousands)

Residential	$	2,612	$	338	$	1,255	$	4,205	$	132,405	$	350	$	136,960
Land		186		-		95		281		18,028		-		18,309
Construction		-		-		-		-		21,034		-		21,034
Commercial real estate		379		-		139		518		99,774		48		100,340
Commercial business		46		49		102		197		34,006		-		34,203
Home equity/2nd mortgage		468		27		13		508		50,470		-		50,978
Other consumer		420		37		28		485		52,308		-		52,793

Total	$	4,111	$	451	$	1,632	$	6,194	$	408,025	$	398	$	414,617

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:

Special Mention:

Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses

may

result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard:

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are

not

corrected.

Doubtful:

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss:

Loans classified as loss are considered uncollectible and of such little value that their continuance on the institution’s books as an asset is

not

warranted.

Loans

not

meeting the criteria above that are analyzed individually as part of the described process are considered to be pass rated loans.

The following table presents the recorded investment in loans by risk category as of the date indicated:

	Residential Real Estate		Land		Construction		Commercial Real Estate		Commercial Business		Home Equity & 2nd Mtg		Other Consumer		Total
	(In thousands)
June 30, 2018
Pass	$	133,138	$	21,061	$	21,644	$	101,232	$	32,647	$	52,431	$	53,638	$	415,791
Special Mention		379		-		273		1,944		899		-		142		3,637
Substandard		798		49		-		1,800		239		1		2		2,889
Doubtful		1,861		333		-		-		76		62		-		2,332
Loss		-		-		-		-		-		-		-		-

Total	$	136,176	$	21,443	$	21,917	$	104,976	$	33,861	$	52,494	$	53,782	$	424,649

December 31, 2017
Pass	$	133,618	$	18,003	$	20,173	$	97,219	$	33,245	$	50,919	$	52,629	$	405,806
Special Mention		348		157		861		1,362		734		-		161		3,623
Substandard		684		149		-		1,620		182		2		3		2,640
Doubtful		2,310		-		-		139		42		57		-		2,548
Loss		-		-		-		-		-		-		-		-

Total	$	136,960	$	18,309	$	21,034	$	100,340	$	34,203	$	50,978	$	52,793	$	414,617

The following table summarizes the Company’s troubled debt restructurings (TDRs) by accrual status as of

June 30, 2018

and

December 31, 2017:

	June 30, 2018								December 31, 2017
	Accruing		Nonaccrual		Total		Related Allowance for Loan Losses		Accruing		Nonaccrual		Total		Related Allowance for Loan Losses
	(In thousands)
Troubled debt restructurings:
Residential real estate	$	468	$	106	$	574	$	-	$	487	$	106	$	593	$	-
Commercial real estate		352		-		352		-		356		-		356		-
Commercial business		169		-		169		-		-		-		-		-
Home equity and 2nd mortgage		14		-		14		-		15		-		15		-

Total	$	1,003	$	106	$	1,109	$	-	$	858	$	106	$	964	$	-

June 30, 2018

and

December 31, 2017,

there were

commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.

The following table summarizes information in regard to TDRs that were restructured during the

six

months ended

June 30, 2018:

	Six months ended June 30, 2018
	Number of Contracts		Pre-Modifcation Outstanding Balance		Post-Modifcation Outstanding Balance
	(Dollars in thousands)
Troubled debt restructurings:
Commercial business		1	$	179	$	179

Total		1	$	179	$	179

For the TDR listed above, the terms of modification included the deferral of contractual principal payments. There were

TDRs that were restructured during the

three

months ended

June 30, 2018

and the

three

and

six

months ended

June 30, 2017.

There were

principal charge-offs recorded as a result of TDRs and there was

specific allowance for loan losses related to TDRs modified during the

three

and

six

months ended

June 30, 2018

2017.

There were

TDRs modified within the previous

months for which there was a subsequent payment default (defined as the loan becoming more than

days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) during the

three

and

six

months ended

June 30, 2018

and

2017.

In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses

may

be increased or charge-offs

may

be taken to reduce the carrying amount of the loan.

Purchased Credit Impaired (PCI) Loans

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with

carryover of the related allowance for loan and lease losses. Such loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit score, loan type and date of origination. In determining the estimated fair value of purchased loans or pools, management considers a number of factors including the remaining life, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and net present value of cash flows expected to be received, among others. Purchased loans that have evidence of credit deterioration since origination for which it is deemed probable at the date of acquisition that the acquirer will

not

collect all contractually required principal and interest payments are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

310

30.

The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. The difference between the expected cash flows and the fair value at acquisition is recorded as interest income over the remaining life of the loan or pool of loans and is referred to as the accretable yield. 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 is recognized as future interest income.

The following table presents the carrying amount of PCI loans accounted for under ASC

310

June 30, 2018

and

December 31, 2017:

(In thousands)	June 30, 2018		December 31 , 2017

Residential real estate	$	352	$	350
Commercial real estate		50		48
Carrying amount		402		398
Allowance for loan losses		0		2
Carrying amount, net of allowance	$	402	$	396

The outstanding balance of PCI loans accounted for under ASC

310

30,

including contractual principal, interest, fees and penalties was

$610,000

and

$625,000

June 30, 2018

and

December 31, 2017,

respectively.

There was

allowance for loan losses related to PCI loans at

June 30, 2018.

The allowance for loan losses related to PCI loans was

$2,000

December 31, 2017.

There was a

$2,000

reduction of the allowance for loan losses related to PCI loans for the

six

-month period ended

June 30, 2018.

There were

net provisions for loans losses related to PCI loans for the

three

-month period ended

June 30, 2018

or for the

three

-month or

six

-month periods ended

June 30, 2017.

Accretable yield, or income expected to be collected, is as follows for the

three

and

six

month periods ended

June 30, 2018

and

2017:

	Three Months Ended						Six Months Ended
		6/30/2018			6/30/2017			6/30/2018			6/30/2017

Balance at beginning of period	$	459		$	244		$	470		$	252
New loans purchased		-			-			-			-
Accretion to income		(15	)		(14	)		(29	)		(28	)
Disposals and other adjustments		-			(17	)		-			(17	)
Reclassification (to) from nonaccretable difference		(1	)		10			2			16

Balance at end of period	$	443		$	223		$	443		$	223