Loans

The following is a summary of loans:



(Dollars in thousands)	September 30, 2011				December 31, 2010
	Amount		%		Amount		%
Commercial:
Mortgages (1)	$	573,355	27	%	$	518,623	26	%
Construction and development (2)	18,518		1		47,335		2
Other (3)	478,652		23		461,107		23
Total commercial	1,070,525		51		1,027,065		51
Residential real estate:
Mortgages (4)	674,242		32		634,739		31
Homeowner construction	17,226		1		10,281		1
Total residential real estate	691,468		33		645,020		32
Consumer:
Home equity lines (5)	222,886		11		218,288		11
Home equity loans (5)	45,354		2		50,624		3
Other (6)	57,526		3		54,641		3
Total consumer	325,766		16		323,553		17
Total loans (7)	$	2,087,759	100	%	$	1,995,638	100	%


(1)	Amortizing mortgages and lines of credit, primarily secured by income producing property. As of September 30, 2011 and December 31, 2010, $109 million and $122 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 7).


(2)	Loans for construction of residential and commercial properties and for land development.

(3)

Loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate. As of September 30, 2011, $28 million and $44 million, respectively, of these loans were pledged as collateral for FHLBB borrowings and were collateralized for the discount window at the Federal Reserve Bank. Comparable amounts for December 31, 2010 were $30 million and $61 million, respectively (see Note 7).


(4)	As of September 30, 2011 and December 31, 2010, $609 million and $570 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 7).


(5)	As of September 30, 2011 and December 31, 2010, $179 million and $203 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 7).


(6)	Fixed rate consumer installment loans.


(7)	Includes unamortized loan origination costs, net of fees, totaling $80 thousand and $271 thousand at September 30, 2011 and December 31, 2010, respectively. Also includes $46 thousand and $39 thousand of net premiums on purchased loans at September 30, 2011 and December 31, 2010, respectively.

Nonaccrual Loans

Loans, with the exception of certain well-secured residential mortgage loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest or sooner if considered appropriate by management. Well-secured residential mortgage loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously accrued but not collected on such loans is reversed against current period income. Subsequent cash receipts on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management's assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management's opinion, the loans are considered to be fully collectible.

The following is a summary of nonaccrual loans, segregated by class of loans, as of the dates indicated:



(Dollars in thousands)	September 30, 2011		December 31, 2010
Commercial:
Mortgages	$	6,367	$	6,624
Construction and development	—		—
Other	2,745		5,259
Residential real estate:
Mortgages	11,352		6,414
Homeowner construction	—		—
Consumer:
Home equity lines	647		152
Home equity loans	316		53
Other	163		8
Total nonaccrual loans	$	21,590	$	18,510
Accruing loans 90 days or more past due	$	—	$	—

Past Due Loans

Past due status is based on the contractual payment terms of the loan. The following tables present an age analysis of past due loans, segregated by class of loans, as of the dates indicated:



(Dollars in thousands)	Days Past Due
September 30, 2011	30-59		60-89		Over 90		Total Past Due		Current		Total Loans
Commercial:
Mortgages	$	874	$	328	$	5,510	$	6,712	$	566,643	$	573,355
Construction and development	—		—		—		—		18,518		18,518
Other	1,629		103		1,209		2,941		475,711		478,652
Residential real estate:
Mortgages	2,145		206		7,826		10,177		664,065		674,242
Homeowner construction	—		—		—		—		17,226		17,226
Consumer:
Home equity lines	728		354		312		1,394		221,492		222,886
Home equity loans	342		66		180		588		44,766		45,354
Other	30		—		157		187		57,339		57,526
Total loans	$	5,748	$	1,057	$	15,194	$	21,999	$	2,065,760	$	2,087,759



(Dollars in thousands)	Days Past Due
December 31, 2010	30-59		60-89		Over 90		Total Past Due		Current		Total Loans
Commercial:
Mortgages	$	2,185	$	514	$	5,322	$	8,021	$	510,602	$	518,623
Construction and development	—		—		—		—		47,335		47,335
Other	1,862		953		3,376		6,191		454,916		461,107
Residential real estate:
Mortgages	3,073		1,477		4,041		8,591		626,148		634,739
Homeowner construction	—		—		—		—		10,281		10,281
Consumer:
Home equity lines	1,255		170		—		1,425		216,863		218,288
Home equity loans	529		180		11		720		49,904		50,624
Other	221		98		—		319		54,322		54,641
Total loans	$	9,125	$	3,392	$	12,750	$	25,267	$	1,970,371	$	1,995,638

Included in past due loans as of September 30, 2011 and December 31, 2010, were nonaccrual loans of $16.6 million and $14.9 million, respectively.

Impaired Loans

Impaired loans are loans for which it is probable that the Corporation will not be able to collect all amounts due according to the contractual terms of the loan agreements and loans restructured in a troubled debt restructuring. Impaired loans do not include large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, which consist of most residential mortgage loans and consumer loans. The following is a summary of impaired loans, as of the dates indicated:



(Dollars in thousands)	Recorded Investment (1)				Unpaid Principal				Related Allowance
	Sept. 30, 2011		Dec 31, 2010		Sept. 30, 2011		Dec 31, 2010		Sept. 30, 2011		Dec 31, 2010
No Related Allowance Recorded:
Commercial:
Mortgages	$	6,535	$	3,113	$	6,523	$	3,128	$	—	$	—
Construction and development	—		—		—		—		—		—
Other	2,299		3,237		2,431		3,834		—		—
Residential real estate:
Mortgages	1,391		928		1,463		937		—		—
Homeowner construction	—		—		—		—		—		—
Consumer:
Home equity lines	—		—		—		—		—		—
Home equity loans	—		163		—		159		—		—
Other	—		—		—		—		—		—
Subtotal	$	10,225	$	7,441	$	10,417	$	8,058	$	—	$	—
With Related Allowance Recorded:
Commercial:
Mortgages	$	5,706	$	15,287	$	7,150	$	15,930	$	229	$	629
Construction and development	—		—		—		—		—		—
Other	4,518		6,632		5,595		9,311		407		1,245
Residential real estate:
Mortgages	4,432		3,773		4,933		3,971		554		258
Homeowner construction	—		—		—		—		—		—
Consumer:
Home equity lines	172		105		280		172		34		1
Home equity loans	148		307		172		330		1		4
Other	273		145		247		143		149		—
Subtotal	$	15,249	$	26,249	$	18,377	$	29,857	$	1,374	$	2,137
Total impaired loans	$	25,474	$	33,690	$	28,794	$	37,915	$	1,374	$	2,137
Total:
Commercial	$	19,058	$	28,269	$	21,699	$	32,203	$	636	$	1,874
Residential real estate	5,823		4,701		6,396		4,908		554		258
Consumer	593		720		699		804		184		5
Total impaired loans	$	25,474	$	33,690	$	28,794	$	37,915	$	1,374	$	2,137

(1)

The recorded investment in impaired loans consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs. For impaired accruing loans (those troubled debt restructurings for which management has concluded that the collectibility of the loan is not in doubt), the recorded investment also includes accrued interest. As of September 30, 2011 and December 31, 2010, recorded investment in impaired loans included accrued interest of $32 thousand and $62 thousand, respectively.

The following tables present the average recorded investment and interest income recognized on impaired loans segregated by loan class for the periods indicated:



(Dollars in thousands)
	Average Recorded Investment				Interest Income Recognized
Three months ended September 30,	2011		2010		2011		2010
Commercial:
Mortgages	$	14,150	$	13,745	$	111	$	162
Construction and development	—		—		—		—
Other	7,330		10,553		80		125
Residential real estate:
Mortgages	5,822		4,848		38		63
Homeowner construction	—		—		—		—
Consumer:
Home equity lines	116		158		1		1
Home equity loans	167		718		3		12
Other	245		223		4		2
Totals	$	27,830	$	30,245	$	237	$	365



(Dollars in thousands)
	Average Recorded Investment				Interest Income Recognized
Nine months ended September 30,	2011		2010		2011		2010
Commercial:
Mortgages	$	15,829	$	14,854	$	433	$	576
Construction and development	—		—		—		—
Other	9,109		10,388		291		294
Residential real estate:
Mortgages	5,658		4,687		127		156
Homeowner construction	—		—		—		—
Consumer:
Home equity lines	106		265		4		7
Home equity loans	340		754		14		39
Other	236		203		12		10
Totals	$	31,278	$	31,151	$	881	$	1,082

At September 30, 2011, there were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status or had been restructured.

Troubled Debt Restructurings

Loans are considered restructured when the Corporation has granted concessions to a borrower due to the borrower's financial condition that it otherwise would not have considered. These concessions include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the Corporation by increasing the ultimate probability of collection.

Restructured loans are classified as accruing or non-accruing based on management's assessment of the collectibility of the loan. Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status. Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term.

Troubled debt restructurings are reported as such for at least one year from the date of the restructuring. In years after the restructuring, troubled debt restructured loans are removed from this classification if the restructuring did not involve a below market rate concession and the loan is not deemed to be impaired based on the terms specified in the restructuring agreement.

Troubled debt restructurings are classified as impaired loans. The Corporation identifies loss allocations for impaired loans on an individual loan basis. The carrying value of troubled debt restructurings was approximately $15.6 million and $22.4 million at September 30, 2011 and December 31, 2010, respectively. The allowance for loan losses included specific reserves for these troubled debt restructurings of $460 thousand and $859 thousand at September 30, 2011 and December 31, 2010, respectively. The recorded investment in troubled debt restructurings was $15.6 million and $22.5 million at September 30, 2011 and December 31, 2010, respectively.

The following table presents loans modified as a troubled debt restructuring during the three and nine months ended September 30, 2011.



(Dollars in thousands)	Number of Loans		Pre-Modifications Outstanding Recorded Investment (1)					Post-Modifications Outstanding Recorded Investment
Periods ended September 30, 2011	Three Months	Nine Months	Three Months		Nine Months			Three Months			Nine Months
Commercial:
Mortgages	—	2	$	—	$	215		$	—		$	215
Construction and development	—	—	—		—		—	—		—	—
Other	—	7	—		1,293		9,109	—		10,388	1,293
Residential real estate:
Mortgages	1	6	139		1,449		5,658	139		4,687	1,449
Homeowner construction	—	—	—		—		—	—		—	—
Consumer:
Home equity lines	—	—	—		—		106	—		265	—
Home equity loans	1	1	28		28		340	28		754	28
Other	—	1	—		117		236	—		203	117
Totals	2	17	$	167	$	3,102		$	167		$	3,102


(1)	The recorded investment in troubled debt restructurings consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs, at the time of the restructuring. For accruing troubled debt restructurings the recorded investment also includes accrued interest.

The following table provides information on how loans were modified as a troubled debt restructuring during the three and nine months ended September 30, 2011.



(Dollars in thousands)
Periods ended September 30, 2011	Three Months		Nine Months
Payment deferral	$	139	$	2,184
Maturity / amortization concession	28		694
Interest only payments	—		15
Below market interest rate concession	—		—
Combination (1)	—		209
Total	$	167	$	3,102


(1)	Loans included in this classification had a combination of any two of the concessions included in this table.

The following table presents loans modified in a troubled debt restructuring within the previous twelve months for which there was a payment default during the three and nine months ended September 30, 2011.



(Dollars in thousands)
	Number of Loans		Recorded Investment (1)
Periods ended September 30,	Three Months	Nine Months	Three Months		Nine Months
Commercial:
Mortgages	—	2	$	—	$	215
Construction and development	—	—	—		—
Other	9	10	894		929
Residential real estate:
Mortgages	2	2	383		383
Homeowner construction	—	—	—		—
Consumer:
Home equity lines	—	—	—		—
Home equity loans	—	—	—		—
Other	—	—	—		—
Totals	11	14	$	1,277	$	1,527


(1)	The recorded investment in troubled debt restructurings consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs. For accruing troubled debt restructurings the recorded investment also includes accrued interest.

Credit Quality Indicators

Commercial

The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan rating system takes into consideration parameters including the borrower's financial condition, the borrower's performance with respect to loan terms, and the adequacy of collateral. As of September 30, 2011 and December 31, 2010, the weighted average risk rating of the Corporation's commercial loan portfolio was 4.94 and 5.01, respectively.

For non-impaired loans, the Corporation assigns a loss allocation factor to each loan, based on its risk rating for purposes of establishing an appropriate allowance for loan losses. See Note 6 for additional information.

A description of the commercial loan categories are as follows:

Pass - Loans with acceptable credit quality, defined as ranging from superior or very strong to a status of lesser stature. Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity. Lesser stature loans have an acceptable level of credit quality but exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, or performance inconsistency or may be in an industry or of a loan type known to have a higher degree of risk.

Special Mention - Loans with potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's position as creditor at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Examples of these conditions include but are not limited to outdated or poor quality financial data, strains on liquidity and leverage, losses or negative trends in operating results, marginal cash flow, weaknesses in occupancy rates or trends in the case of commercial real estate and frequent delinquencies.

Classified - Loans identified as “substandard”, “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A "substandard" loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed in nonaccrual status when management determines there is uncertainty of collectibility. A “doubtful” loan is placed on non-accrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined. "Loss" is not intended to imply that the loan has no recovery value but rather it is not practical or desirable to continue to carry the asset.

The following table presents the commercial loan portfolio, segregated by category of credit quality indicator:



(Dollars in thousands)	Pass				Special Mention				Classified
	Sept. 30, 2011		Dec 31, 2010		Sept. 30, 2011		Dec 31, 2010		Sept. 30, 2011		Dec 31, 2010
Mortgages	$	535,723	$	485,668	$	24,534	$	16,367	$	13,098	$	16,588
Construction and development	18,518		43,119		—		4,216		—		—
Other	432,319		425,522		38,612		28,131		7,721		7,454
Total commercial loans	$	986,560	$	954,309	$	63,146	$	48,714	$	20,819	$	24,042

The Corporation's procedures call for loan ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, the criticized loan portfolio which consists of commercial and commercial real estate loans that are risk rated special mention or worse, are reviewed by management, focusing on the current status and strategies to improve the credit. An annual loan review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio.

Residential and Consumer

The residential and consumer portfolios are monitored on an ongoing basis by the Corporation using delinquency information and loan type as credit quality indicators. These credit quality indicators are assessed on an aggregate basis in these relatively homogeneous portfolios. The following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator:



(Dollars in thousands)	Under 90 Days Past Due				Over 90 Days Past Due
	Sept. 30, 2011		Dec 31, 2010		Sept. 30, 2011		Dec 31, 2010
Residential Real Estate:
Accruing mortgages	$	662,890	$	628,325	$	—	$	—
Nonaccrual mortgages	3,526		2,373		7,826		4,041
Homeowner construction	17,226		10,281		—		—
Total residential real estate loans	$	683,642	$	640,979	$	7,826	$	4,041
Consumer:
Home equity lines	$	222,574	$	218,288	$	312	$	—
Home equity loans	45,173		50,613		181		11
Other	57,370		54,641		156		—
Total consumer loans	$	325,117	$	323,542	$	649	$	11

For non-impaired loans, the Corporation assigns loss allocation factors to each respective loan type and delinquency status. See Note 6 for additional information.

Various other techniques are utilized to monitor indicators of credit deterioration in the portfolios of residential real estate mortgages and home equity lines and loans. Among these techniques is the periodic tracking of loans with an updated FICO score and an estimated loan to value (“LTV”) ratio. LTV is determined via statistical modeling analyses. The indicated LTV levels are estimated based on such factors as the location, the original LTV, and the date of origination of the loan and do not reflect actual appraisal amounts. The results of these analyses are taken into consideration in the determination of loss allocation factors for residential mortgage and home equity consumer credits. See Note 6 for additional information.