Note 4: Loans and Allowance for Loan Losses

The Company's lending activities are principally conducted in downeast, midcoast and central Maine The following table summarizes the composition of the loan portfolio as of December 31, 2015 and 2014:

LOAN PORTFOLIO SUMMARY


		2015			2014

Commercial real estate mortgages	$	371,002		$	325,949
Commercial and industrial		79,911			73,893
Commercial construction and land development		24,926			25,421
Agricultural and other loans to farmers		31,003			30,471
Total commercial loans		506,842			455,734

Residential real estate mortgages		406,652			382,678
Home equity loans		51,530			51,795
Other consumer loans		9,698			12,140
Total consumer loans		467,880			446,613

Tax exempt loans		15,244			16,693

Net deferred loan costs and fees		104			(16	)
Total loans		990,070			919,024
Allowance for loan losses		(9,439	)		(8,969	)
Total loans net of allowance for loan losses	$	980,631		$	910,055

Included in the table above are purchased loans, consisting of residential real estate mortgages, of $137,907 and $114,607, at December 31, 2015 and 2014, respectively.

Loan Origination/Risk Management: The Bank has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. The Bank's board of directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the board with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing loans and potential problem loans. The Bank seeks to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.

Commercial Real Estate Mortgages: The Bank's commercial real estate mortgage loans are collateralized by liens on real estate, typically have variable interest rates and amortize over a 15 to 20 year period. These loans are underwritten primarily as cash flow loans and secondarily as loans secured by real estate. Payments on loans secured by such properties are largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Accordingly, repayment of these loans may be subject to adverse economic conditions to a greater extent than other types of loans. The Bank seeks to minimize these risks in a variety of ways, including giving careful consideration to the property's operating history, future operating projections, current and projected occupancy, location and physical condition in connection with underwriting these loans. The underwriting analysis also includes credit verification, analysis of global cash flows, appraisals and a review of the financial condition of the borrower. Reflecting the Bank's business region, at December 31, 2015, approximately 25.7% of the commercial real estate mortgage portfolio was represented by loans to the lodging industry. The Bank underwrites lodging industry loans as operating businesses, lending primarily to seasonal establishments with stabilized cash flows.

Commercial and Industrial Loans: Commercial and industrial loans are underwritten after evaluating and understanding the borrower's ability to operate profitably, and prudently expand its business. Commercial and industrial loans are primarily made in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income. These loans typically have variable interest rates and amortize over a period of less than 10 years. As a general practice, the Bank takes as collateral a lien on available real estate, equipment or other assets owned by the borrower and obtains a personal guaranty of the borrower(s) or principal(s). Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. The risk in commercial and industrial loans is principally due to the type of collateral securing these loans. The increased risk also derives from the expectation that commercial and industrial loans generally will be serviced principally from the operations of the business, and, if not successful, these loans are primarily secured by tangible, non-real estate collateral.

Construction and Land Development Loans: The Bank makes loans to finance the construction of residential and non-residential properties. Construction loans generally are collateralized by first liens on real estate with terms of six to twenty-four months. The Bank conducts periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans. Underwriting guidelines similar to those described immediately above are also used in the Bank's construction lending activities. Construction loans involve additional risks attributable to the fact that loan funds are advanced against a project under construction and the project is of uncertain value prior to its completion. Because of uncertainties inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. In many cases the success of the project can also depend upon the financial support/strength of the sponsorship. If the Bank is forced to foreclose on a project prior to completion, there is no assurance that the Bank will be able to recover the entire unpaid portion of the loan. In addition, the Bank may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. While the Bank has underwriting procedures designed to identify what it believes to be acceptable levels of risks in construction lending, no assurance can be given that these procedures will prevent losses from the risks described above.

Residential Real Estate Mortgage Loans: The Bank originates and purchases first-lien, adjustable-rate and fixed-rate, one-to-four-family residential real estate loans for the construction, purchase or refinancing of residential property. These loans are principally collateralized by owner-occupied properties, and to a lesser extent second homes and vacation properties, and are amortized over 10 to 30 years. From time to time the Bank will sell longer-term, low rate, residential mortgage loans to the Federal Home Loan Mortgage Corporation ("FHLMC") with servicing rights retained. This practice allows the Bank to better manage interest rate risk and liquidity risk. In an effort to manage risk of loss and strengthen secondary market liquidity opportunities, management typically uses secondary market underwriting, appraisal, and servicing guidelines for all loans, including those held in its portfolio. Loans on one-to-four-family residential real estate are mostly originated in amounts of no more than 80% of appraised value or have private mortgage insurance. Mortgage title insurance and hazard insurance is required.

Home Equity Loans: The Bank originates home equity lines of credit and second mortgage loans (loans which are secured by a junior lien position on one-to-four-family residential real estate). Home equity loans are mostly originated in amounts of no more than 85% of the combined loan-to-value ratio (first and second liens), or have private mortgage insurance. These loans carry a higher risk than first mortgage residential loans as they are in a second position relating to collateral. Risk is reduced through underwriting criteria, which include credit verification, appraisals and evaluations, a review of the borrower's financial condition, and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate.

Troubled Debt Restructures: A Troubled Debt Restructure ("TDR") results from a modification to a loan to a borrower who is experiencing financial difficulty in which the Bank grants a concession to the debtor that it would not otherwise consider but for the debtor's financial difficulties. Financial difficulty arises when a debtor is bankrupt or contractually past due, or is likely to become so, based upon its ability to pay. A concession represents an accommodation not generally available to other customers, which may include a below-market interest rate, deferment of principal payments, extension of maturity dates, etc. Such accommodations extended to customers who are not experiencing financial difficulty do not result in TDR classification.

As of December 31, 2015, the Bank had eight real estate secured loans, four commercial and industrial loans, two agricultural loan, and one other consumer loan, outstanding to 17 relationships totaling $3,162 that were classified as TDRs. At December 31, 2015, six of these TDRs totaling $826 were classified as non-accrual, and none were past due 30 days or more and still accruing.

As of December 31, 2014, the Bank had six real estate secured loans, six commercial and industrial loans, one agricultural loan, and one other consumer loan, to nine relationships totaling $1,449 that were classified as TDRs. At December 31, 2014, seven of these TDRs totaling $357 were classified as non-accrual, and none were past due 30 days or more and still accruing.

Troubled debt restructings and related delinquency trends in general are considered in management's evaluation of the allowance for loan losses and the related determination of the provision for loan losses.

Summary information pertaining to the TDRs granted during the years ended December 31, 2015 and 2014 follows:


	For the Twelve Months Ended					For the Twelve Months Ended
	December 31,					December 31,
	2015					2014
			Pre-		Post-			Pre-	Post -
			Modification		Modification			Modification	Modification
			Outstanding		Outstanding			Outstanding	Outstanding
	Number		Recorded		Recorded	Number		Recorded	Recorded
	of Loans		Investment		Investment	of Loans		Investment	Investment

Commercial real estate
mortgages	4	$	342	$	352	1	$	30	$	30
Agricultural and other
loans to farmers	1		18		15	1		100		97
Total commercial loans	5		360		367	2		130		127

Residential real estate
mortgages	5	$	1,435	$	1,433	---	$	---	$	---
Total consumer loans	5		1,435		1,433	---		---		---

Total	10	$	1,795	$	1,800	2	$	130	$	127

The following table shows the Company's post-modification balance of TDRs listed by type of modification for the twelve months ended December 31, 2015 and 2014:


		2015		2014

Extended maturity and adjusted interest rate	$	132	$	97
Adjusted payment		735		---
Adjusted payment and capitalized interest		187		---
Extended maturity, adjusted interest rate, and adjusted payment		746		---
Extended amortization and adjusted interest rate		---		30
Total	$	1,800	$	127

During the twelve months ended December 31, 2015 and 2014, there were no defaults on loans that had been modified as TDRs within the previous twelve months. A default for purposes of this disclosure is a TDR in which the borrower is 90 days or more past due or results in foreclosure and repossession of the applicable collateral.

Past Due Loans: Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following tables set forth information regarding past due loans at December 31, 2015 and December 31, 2014. Amounts shown exclude deferred loan origination fees and costs.


																>90Days
		30-59		60-89		90 Days										Past Due
December 31, 2015		Days Past		Days Past		or		Total Past				Total		Non-		and
		Due		Due		Greater		Due		Current		Loans		Accrual		Accruing
Commercial real
estate mortgages	$	99	$	287	$	241	$	627	$	370,375	$	371,002	$	1,279	$	---
Commercial and industrial		9		1		271		281		79,630		79,911		292		---
Commercial construction
and land development		---		---		1,111		1,111		23,815		24,926		1,111		---
Agricultural and other
loans to farmers		12		70		3		85		30,918		31,003		16		3
Residential real
estate mortgages		1,313		452		1,299		3,064		403,588		406,652		3,452		25
Home equity		245		---		797		1,042		50,488		51,530		820		---
Other consumer loans		66		---		---		66		9,632		9,698		10		---
Tax exempt		---		---		---				15,244		15,244		---		---
Total	$	1,744	$	810	$	3,722	$	6,276	$	983,690	$	989,966	$	6,980	$	28


																>90 Days
December 31, 2014		30-59		60-89		90 Days										Past Due
		Days Past		Days Past		or		Total Past				Total		Non-		and
		Due		Due		Greater		Due		Current		Loans		Accrual		Accruing
Commercial real
estate mortgages	$	189	$	234	$	1,843	$	2,266	$	323,683	$	325,949	$	3,156	$	---
Commercial and industrial		665		45		333		1,043		72,850		73,893		624		---
Commercial construction
and land development		---		---		1,328		1,328		24,093		25,421		1,328		---
Agricultural and other
loans to farmers		27		---		64		91		30,380		30,471		84		---
Residential real
estate mortgages		1,980		547		1,681		4,208		378,470		382,678		6,051		---
Home equity		138		40		575		753		51,042		51,795		1,029		---
Other consumer loans		231		5		7		243		11,897		12,140		16		---
Tax exempt		---		---		---		---		16,693		16,693		---		---
Total	$	3,230	$	871	$	5,831	$	9,932	$	909,108	$	919,040	$	12,288	$	---

Impaired Loans: Impaired loans are all commercial loans for which the Company believes it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement, as well as all loans modified into a troubled debt restructure, if any. Allowances for losses on impaired loans are determined by the lower of the present value of the expected cash flows related to the loan, using the original contractual interest rate, and its recorded value, or in the case of collateral dependent loans, the lower of the fair value of the collateral, less estimated costs to dispose, and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral less estimated costs to sell.

Details of impaired loans as of December 31, 2015 and December 31, 2014 follows:


		December 31, 2015								December 31, 2014
				Unpaid						Unpaid
		Recorded		Principal		Related		Recorded		Principal		Related
		Investment Balance Allowance						Investment		Balance		Allowance
With no related allowance:
Commercial real estate mortgages	$	1,692	$	1,736	$	---	$	1,606	$	1,606	$	---
Commercial and industrial		202		352		---		309		309		---
Commercial construction
and land development		---		---		---		1,328		3,253		---
Agricultural and other loans to farmers		106		106		---		181		181		---
Residential real estate loans		1,332		1,362		---		389		419		---
Home equity loans		18		18		---		---		--		---
Other consumer		---		---		---		---		--		---
Subtotal	$	3,350	$	3,574	$	---	$	3,813	$	5,768	$	---

With an allowance:
Commercial real estate mortgages	$	531	$	531	$	43	$	1,986	$	2,014	$	776
Commercial and industrial		224		374		175		325		555		187
Commercial construction
and land development		1,111		3,036		58		---		---		---
Agricultural and other loans to farmers		---		---		---		---		---		---
Residential real estate loans		515		515		97		---		---		---
Home equity loans		---		---		---		---		---		---
Other consumer		8		8		---		10		10		1
Subtotal	$	2,389	$	4,464	$	373	$	2,321	$	2,579	$	964
Total	$	5,739	$	8,038	$	373	$	6,134	$	8,347	$	964

Details of impaired loans as of December 31, 2015, 2014, and 2013 follows:


		December 31, 2015				December 31, 2014				December 31, 2013
		For the Twelve Months				For the Twelve Months				For the Twelve Months
		Ended				Ended				Ended

		Average				Average				Average
		Recorded		Interest		Recorded		Interest		Recorded		Interest
		Investment Recorded				Investment Recorded				Investment		Recorded
With no related allowance:
Commercial real estate mortgages	$	2,663	$	60	$	1,589	$	66	$	2,387	$	74
Commercial and industrial		346		10		537		4		689		6
Commercial construction		---		---		1,514		---		133		---
and land development
Agricultural and other loans to farmers		143		8		162		3		270		---
Residential real estate mortgages		1,327		42		470		25		323		21
Home equity loans		18		---		---		---		17		2
Other consumer		---		1		---		---		11		1
Subtotal	$	4,497	$	121	$	4,272	$	98	$	3,830	$	104

With an allowance:
Commercial real estate mortgages	$	532	$	---	$	572	$	---	$	---	$	----
Commercial and industrial		227		---		376		---		---		---
Commercial construction
and land development		1,243		---		---		---		1,987		---
Agricultural and other loans to farmers		---		---		---		---		---		---
Residential real estate mortgages		650		---		---		---		---		---
Home equity loans		---		---		---		---		---		---
Other consumer		9		---		12		1		---		---
Subtotal	$	2,661	$	---	$	960	$	1	$	1,987	$	---
Total	$	7,158	$	121	$	5,232	$	99	$	5,797	$	104

Credit Quality Indicators/Classified Loans: In monitoring the credit quality of the portfolio, management applies a credit quality indicator to all categories of commercial loans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. These ratings are used as inputs to the calculation of the allowance for loan losses.

Consistent with regulatory guidelines, the Bank provides for the classification of loans which are considered to be of lesser quality as substandard, doubtful, or loss (7, 8 and 9, respectively). The Bank considers a loan substandard if it is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness that jeopardizes liquidation of the debt. Substandard loans include those loans where there is the distinct possibility of some loss of principal, if the deficiencies are not corrected.

Loans that the Bank classifies as doubtful have all of the weaknesses inherent in those loans that are classified as substandard but also have the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is high but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as loss is deferred until its more exact status is determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The entire amount of the loan might not be classified as doubtful when collection of a specific portion appears highly probable. Loans are generally not classified doubtful for an extended period of time (i.e., over a year).

Loans that the Bank classifies as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted and the uncollectible amounts are charged-off. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this worthless asset even though partial recovery may be affected in the future. Losses are taken in the period in which they are determined to be uncollectible.

Loans that do not expose the Bank to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are designated "as other assets especially mentioned" special mention. A special mention loan has 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 institution's credit position at some future date. This might include loans which the lending officer may be unable to supervise properly because of: (i) lack of expertise, inadequate loan agreement; (ii) the poor condition of or lack of control over collateral; (iii) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose an institution to sufficient risks to warrant classification.

The following tables summarize the commercial loan portfolio as of December 31, 2015 and December 31, 2014, by credit quality indicator. Credit quality indicators are reassessed for each applicable commercial loan at least annually, or upon receipt and analysis of the borrower's financial statements, when applicable. Consumer loans, which principally consist of residential mortgage loans, are not rated, but are evaluated for credit quality after origination based on delinquency status (see past due loan aging table above).


						Commercial		Agricultural
		Commercial		Commercial		construction		and other
		real estate		and		and land		loans to
December 31, 2015		mortgages		industrial		development		farmers		Total

Pass	$	345,197	$	74,771	$	23,460	$	30,688	$	474,116
Other Assets
Especially Mentioned		7,381		2,349		355		168		10,253
Substandard		18,424		2,790		1,111		147		22,472
Doubtful		---		---		---		---		---
Loss		---		1		---		---		1
Total	$	371,002	$	79,911	$	24,926	$	31,003	$	506,842


						Commercial		Agricultural
		Commercial		Commercial		construction		and other
		real estate		and		and land		loans to
December 31, 2014		mortgages		industrial		development		farmers		Total

Pass	$	302,376	$	62,226	$	23,290	$	30,047	$	417,939
Other Assets
Especially Mentioned		11,501		7,349		---		193		19,043
Substandard		12,072		4,318		2,131		231		18,752
Doubtful		---		---		---		---		---
Loss		---		---		---		---		---
Total	$	325,949	$	73,893	$	25,421	$	30,471	$	455,734

Allowance for Loan Losses: The allowance for loan losses (the "allowance") is a reserve established through a provision for loan losses (the "provision") charged to expense, which represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to provide for estimated loan losses and risks inherent in the loan portfolio. The Bank's allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, "Receivables" and allowance allocations calculated in accordance with ASC Topic 450, "Contingencies." Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, homogeneous risk pools and specific loss allocations, with qualitative factor adjustments for current events and conditions. The allowance calculation also includes an estimated adjustment for a Loss Emergence Period, which improves the Bank's ability to more accurately forecast probable losses that may exist in the loan portfolio that have not yet emerged into "problem loan" status. The Bank's process for determining the appropriate level of the allowance is designed to account for credit deterioration as it occurs. The provision reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans, net charge-offs or recoveries, and the overall size of the loan portfolio, among other factors. The provision also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.

The level of the allowance also reflects management's continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Bank's control, including, among other things, the performance of the Bank's loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Bank's allowance for loan losses consists of two principal elements: (i) specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans; (ii) general valuation allowances, determined by taking historical valuation allowances determined in accordance with ASC Topic 450 based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, for economic conditions and other qualitative risk factors both internal and external to the Bank.

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor's ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship level for all commercial loans. When a loan has a classification of substandard or worse and is non-accruing, or considered a Troubled Debt Restructure (regardless of accrual status or risk rating). The Bank analyzes the loan to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance to the loan. Specific valuation allowances are determined by analyzing the borrower's ability to repay amounts contractually owed and collateral deficiencies, among other observable considerations.

Historical valuation allowances are calculated based on the historical loss experience of specific types of loans and the internal risk grade of such loans at the time they were charged-off, and is the first step to determining the general allowance component of the reserve. The Bank calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual net charge-offs experienced to the total loan balance in the pool. The historical loss ratios are updated quarterly based on this net charge-off experience. A historical valuation allowance is established for each pool of similar loans based upon the product of the historical loss rate and the total dollar amount of the loans in the pool, net of any loans for which reserves are already established. The Bank's pools of similar loans include similarly risk-graded groups of commercial real estate loans, commercial and industrial loans, commercial construction and development loans, municipal loans, residential mortgage loans, consumer revolving loans, and consumer installment loans.

The general valuation allowances are determined by making adjustments to the historical valuation allowances (above), where adjustments are based on general economic conditions and other qualitative risk factors both internal and external to the Bank. Such qualitative factor adjustments are determined by evaluating, among other things: (i) changes in lending policies and procedures; (ii) economic and business conditions; (iii) changes in the volume and nature of the loan portfolio; (iv) experience, ability and depth of lending management and staff; (v) changes in asset quality and problem loan trends; (vi) quality of internal controls and effectiveness of loan review; (vii) concentrations of credit; (viii) external factors, including changes in competition, legal, and regulatory matters; and (ix) real estate market conditions and valuations of collateral. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. The results are then used to determine an appropriate general valuation allowance.

Once established, the general valuation allowance is then modified by the Loss Emergence Period established for each pool of homogeneous loans.

Loans identified as losses by management, external loan review and/or bank examiners, are charged-off. Furthermore, consumer loan accounts are charged-off based on regulatory requirements.

In 2014, the Company enhanced and refined its Allowance framework and methodology to provide for a more accurate and precise quantification of probable losses that have already occurred in the total loan portfolio. Among other refinements, under the enhanced methodology, historical loss rates for the ASC 450 loan analysis were updated and modified to more precisely determine the specific loss rates for both the substandard loan balances and non-substandard loan balances. In prior periods, the same rate was used for both pools. Under the enhanced methodology, a twelve-quarter look back period was used for each pool, and the Company examined losses on the substandard portfolio and non-substandard portfolio for the last three years for each loan segment. The annualized twelve-quarter average of charge-offs for each loan segment (using equal weighting for all quarters considered) was applied to the original portfolio balances to determine an annualized loss rate.

All qualitative factors were examined and updated in 2014 and again in 2015 as reflected in the December 31, 2015 and 2014 allowances, with specific basis point ranges formulated from an analysis of actual charge-offs dating back to 2007. The enhanced ranges are anchored by, on the low end, lowest quarterly (annualized) loss experience; at the mean, by average quarterly (annualized) loss experience; and, on the upper bound, by considering stress events such as the 2008 financial crisis in the data along with the Company's worst quarterly (annualized) loss experience. The factor ranges are effectively allocated between the nine (9) qualitative factors as discussed above.

The Company's December 31, 2015 and 2014 Allowance calculations included the use of more definitive and distinct Loss Emergence Periods (LEPs) for each loan segment, allowing the Company to more accurately forecast probable losses that have already occurred in the loan portfolio, which may not have emerged into "problem loan" status.

The updates and refinements to the Allowance methodology did not have a significant impact on the total Allowance for Loan Losses, but as depicted in the tables below, did result in some realignment of Allowance allocations. Notably, the Residential Mortgage allocation increased in 2014, which was primarily the result of higher NPLs and calculated loss rates, higher qualitative factor adjustments, and a higher LEP. As this category has incurred the most amount of dollars charged-off each of the past three years and has been a significant contributor to the Company's non-performing loans, the Company believes the resulting December 31, 2015 and 2014 Allowance allocations for this portfolio segment are reasonable and appropriate.

As of December 31, 2015, Management believes that the overall model methodology and Allowance calculation provides a reasonable and supportable basis for determining and reporting on probable losses that have already occurred in the Company's loan portfolio.

The following tables detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2015, 2014, and 2013. The tables also provide details regarding the Company's recorded investment in loans related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company's impairment methodology. Allocation of a portion of the Allowance to one category of loans does not preclude its availability to absorb losses in other categories.


								Commercial
Twelve Months					Commercial			Construction
Ended		Commercial			and			and Land					Residential						Home			Tax
December 31, 2015		Real Estate			Industrial			Development		Agricultural			Real Estate			Consumer			Equity			Exempt			Total
Beginning Balance	$	4,468		$	929		$	145	$	277		$	2,714		$	94		$	271		$	71		$	8,969
Charged Off		(667	)		(323	)		---		(72	)		(70	)		(111	)		(376	)		---			(1,619	)
Recoveries		98			36			---		18			129			22			1			---			304
Provision		347			594			39		84			(26	)		106			665			(24	)		1,785
Ending Balance	$	4,246		$	1,236		$	184	$	307		$	2,747		$	111		$	561		$	47		$	9,439

of which:

Amount for loans
individually
evaluated
for impairment	$	43		$	175		$	58	$	---		$	97		$	---		$	---		$	---		$	373

Amount for loans
collectively
evaluated
for impairment	$	4,203		$	1,061		$	126	$	307		$	2,650		$	111		$	561		$	47		$	9,066

Loans
individually
evaluated
for impairment	$	2,223		$	426		$	1,111	$	106		$	1,847		$	8		$	18		$	---		$	5,739

Loans
Collectively
evaluated
for impairment	$	368,779		$	79,485		$	23,815	$	30,897		$	404,805		$	9,690		$	51,512		$	15,244		$	984,227

Twelve Months								Commercial
Ended					Commercial			Construction
December 31, 2014		Commercial			and			and Land						Residential						Home			Tax
		Real Estate			Industrial			Development			Agricultural			Real Estate			Consumer			Equity			Exempt			Total
Beginning Balance	$	4,825		$	1,266		$	314		$	335		$	1,166		$	137		$	264		$	168		$	8,475
Charged-off		(238	)		(475	)		---			(14	)		(650	)		(191	)		(52	)		---			(1,620	)
Recoveries		85			16			---			130			12			37			1			---			281
Provision		(204	)		122			(169	)		(174	)		2,186			111			58			(97	)		1,833
Ending Balance	$	4,468		$	929		$	145		$	277		$	2,714		$	94		$	271		$	71		$	8,969

of which:

Amount for loans
individually
evaluated
for impairment	$	776		$	187		$	---		$	---		$	---		$	1		$	---		$	---		$	964

Amount for loans
collectively
evaluated
for impairment	$	3,692		$	742		$	145		$	277		$	2,714		$	93		$	271		$	71		$	8,005

Loans individually
evaluated for
impairment	$	3,592		$	634		$	1,328		$	181		$	389		$	10		$	---		$	---		$	6,134

Loans collectively
evaluated for
impairment	$	322,357		$	73,259		$	24,093		$	30,290		$	382,289		$	12,130		$	51,795		$	16,693		$	912,906


								Commercial
Twelve Months Ended		Commercial						Construction
December 31, 2013		Real			Commercial			and Land						Residential						Home			Tax
		Estate			and Industrial			Development			Agricultural			Real Estate			Consumer			Equity			Exempt		Total
Beginning Balance	$	4,320		$	1,026		$	515		$	303		$	1,330		$	207		$	255		$	141	$	8,097
Charged Off		(214	)		(405	)		---			(81	)		(406	)		(120	)		(29	)		---		(1,255	)
Recoveries		105			23			---			37			7			23			20			---		215
Provision		614			622			(201	)		76			235			27			18			27		1,418
Ending Balance	$	4,825		$	1,266		$	314		$	335		$	1,166		$	137		$	264		$	168	$	8,475

of which:

Amount for loans
Individually
evaluated for
impairment	$	100		$	150		$	20		$	---		$	---		$	---		$	---		$	---	$	270

Amount for loans
Collectively
evaluated for
impairment	$	4,725		$	1,116		$	294		$	335		$	1,166		$	137		$	264		$	168	$	8,205

Loans individually
Evaluated for
impairment	$	2,046		$	793		$	1,913		$	56		$	---		$	---		$	---		$	---	$	4,808

Loans collectively
Evaluated for
impairment	$	334,496		$	73,179		$	16,216		$	26,873		$	317,115		$	14,523		$	49,565		$	16,355	$	848,322

Loan Concentrations: Because of the Company's proximity to Acadia National Park, a large part of the economic activity in the Bank's area is generated from the lodging and hospitality business associated with tourism. At December 31, 2015 and 2014, loans to the lodging and hospitality industry amounted to approximately $98,231 and $112,520, respectively.

Loans to Related Parties: In the ordinary course of business, the Bank has made loans at prevailing rates and terms to directors, officers and other related parties. In management's opinion, such loans do not present more than the normal risk of collectability or incorporate other unfavorable features, and were made under terms that are consistent with the Bank's lending policies.

Loan to related parties at December 31 are summarized below. Balances have been adjusted to reflect changes in status of directors and officers for each year presented.


		2015			2014

Beginning balance	$	2,902		$	3,334

Changes in composition		1,675			(199	)
New loans		236			9
Less: repayments		(713	)		(242	)
Ending balance	$	4,100		$	2,902

As of December 31, 2015, and 2014, there were no past due or non-performing loans to related parties.

Other Real Estate Owned: At December 31, 2015, total other real estate owned amounted to $256 compared with $523 at December 31, 2014.

Real Estate Loans Under Foreclosure: At December 31, 2015, the bank had consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions totaling $4,575 compared with $2,588 at December 31, 2014.