Note 6: Loans and Allowance for Loan Losses

Loans are carried at the principal amounts outstanding adjusted by partial charge-offs and net deferred loan origination costs or fees.

Interest on loans is accrued and credited to income based on the principal amount of loans outstanding. Residential real estate and home equity loans are generally placed on non-accrual status when reaching 90 days past due, or in process of foreclosure, or sooner if judged appropriate by management. Consumer loans are generally placed on non-accrual status when reaching 90 days or more past due, or sooner if management determines there is a reason to doubt full collectability of all outstanding principal and interest. Secured consumer loans are written down to realizable value and unsecured consumer loans are charged-off upon reaching 120 days past due. Commercial real estate loans and commercial business loans that are 90 days or more past due are generally placed on non-accrual status, unless secured by sufficient cash or other assets immediately convertible to cash, and the loan is in the process of collection. Commercial real estate and commercial business loans may be placed on non-accrual status prior to the 90 days delinquency date if management determines there is a reason to doubt full collectability of all outstanding principal and interest. When a loan has been placed on non-accrual status, previously accrued and uncollected interest is reversed against interest on loans. A loan can be returned to accrual status when there is evidence of an ability to adhere to the required repayment schedule and the loan has performed for a period of time, generally six months.

Commercial real estate and commercial business loans are considered impaired when it becomes probable the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status and collateral value. In considering loans for evaluation of impairment, management generally excludes smaller balance, homogeneous loans, residential mortgage loans, home equity loans, and all consumer loans, unless such loans were restructured in a troubled debt restructuring. These loans are collectively evaluated for risk of loss.

Loan origination, commitment fees and direct loan origination costs are deferred, and the net amount is amortized as an adjustment of the related loans' yield, using the level yield method over the estimated lives of the related loans.

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 March 31, 2016, and December 31, 2015:

LOAN PORTFOLIO SUMMARY

		March 31,			December 31,
		2016			2015

Commercial real estate mortgages	$	393,519		$	371,002
Commercial and industrial		78,640			79,911
Commercial construction and land development		25,195			24,926
Agricultural and other loans to farmers		32,087			31,003
Total commercial loans		529,441			506,842

Residential real estate mortgages		402,391			406,652
Home equity loans		49,568			51,530
Other consumer loans		7,393			9,698
Total consumer loans		459,352			467,880

Tax exempt loans		16,034			15,244

Net deferred loan costs and fees		1,735			104
Total loans		1,006,562			990,070
Allowance for loan losses		(9,814	)		(9,439	)
Total loans net of allowance for loan losses	$	996,748		$	980,631

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 March 31, 2016, approximately 30.0% 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.

Non-performing Loans: The following table sets forth information regarding non-accruing loans and accruing loans 90 days or more overdue at March 31, 2016, and December 31, 2015.

TOTAL NON-PERFORMING LOANS

		March 31,		December 31,
		2016		2015

Commercial real estate mortgages	$	982	$	1,279
Commercial and industrial loans		190		292
Commercial construction and land development		1,111		1,111
Agricultural and other loans to farmers	-	--		16
Total commercial loans		2,283		2,698

Residential real estate mortgages		3,734		3,452
Home equity loans		282		820
Other consumer loans		9		10
Total consumer loans		4,025		4,282

Total non-accrual loans		6,308		6,980
Accruing loans contractually past due 90 days or more		1		28
Total non-performing loans	$	6,309	$	7,008

Troubled Debt Restructures: A Troubled Debt Restructure ("TDR") results from a modification of 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.

Troubled debt restructurings 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 that occurred during the three months ended March 31, 2016 and 2015 follows:


		For the Three Months Ended						For the Three Months Ended
				March 31,						March 31,
				2016						2015
			Pre	-	Post	-			Pre	-	Post	-
				Modification		Modification				Modification		Modification
		Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
		of		Recorded		Recorded		of		Recorded		Recorded
		Loans		Investment		Investment		Loans		Investment		Investment

Commercial real estate
mortgages		2	$	395	$	394	-	--	$	---	$	---
Agricultural and
other loans to farmers		2		30		25		1		18		18
Total commercial loans		4		425		419		1		18		18

Residential real estate
mortgages	-	--	$	---	$	---		1	$	472	$	472
Total consumer loans	-	--	-	--	-	--		1		472		472

Total		4	$	425	$	419		2	$	490	$	490

The following tables show the Bank's post-modification balance of TDRs listed by type of modification for TDRs that occurred during the three months ended March 31, 2016 and 2015:


		Three Months Ended
		March 31,
		2016		2015

Extended maturity and adjusted interest rate	$	419	$	472
Extended maturity		--		18
Total	$	419	$	490

As of March 31, 2016, the Bank had $3,480 of loans outstanding to 20 relationships that were classified as TDRs. These loans consisted of nine commercial real estate loans, eight real estate secured loans, four commercial and industrial loans, four agricultural loans, and one other consumer loan. At March 31, 2016, four of these TDRs totaling $705 were classified as non-accrual, and one TDR for $221 was past due 30 days or more and still accruing.

As of December 31, 2015, the Bank had $3,162 of loans outstanding to 17 relationships that were classified as TDRs. These loans consisted of seven commercial real estate loans, eight real estate secured loans, four commercial and industrial loans, two agricultural loans, and one other consumer loan. 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.

During the three months ended March 31, 2016 and 2015, 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 March 31, 2016, and December 31, 2015. Amounts shown exclude deferred loan origination fees and costs.

																>90 Days
March 31, 2016		30-59		60-89		90 Days										Past Due
		Days		Days		or		Total				Total		Non-		and
		Past Due		Past Due		Greater		Past Due		Current		Loans		Accrual		Accruing
Commercial real
estate mortgages	$	191	$	151	$	254	$	596	$	392,923	$	393,519	$	982	$	---
Commercial and industrial		74		20		170		264		78,376		78,640		190		1
Commercial construction
and land development		--		--		1,111		1,111		24,084		25,195		1,111		--
Agricultural and other
loans to farmers		--		149		--		149		31,938		32,087		--		--
Residential real
estate mortgages		1,586		729		1,312		3,627		398,764		402,391		3,734		--
Home equity		41		40		186		267		49,301		49,568		282		--
Other consumer loans		48		2		1		51		7,342		7,393		9		--
Tax exempt		--		--		--		--		16,034		16,034		--		--
Total	$	1,940	$	1,091	$	3,034	$	6,065	$	998,762	$	1,004,827	$	6,308	$	1

																>90 Days
December 31, 2015		30-59		60-89		90 Days										Past Due
		Days		Days		or		Total				Total		Non-		and
		Past Due		Past Due		Greater		Past 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	$	983,693	$	989,969	$	6,980	$	28

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 TDR, 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 cost to sell.

Details of impaired loans as of March 31, 2016 and December 31, 2015 follows:


				March 31, 2016				December 31, 2015
				Unpaid						Unpaid
		Recorded		Principal		Related		Recorded		Principal		Related
		Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance:
Commercial real estate mortgages	$	1,918	$	1,918	$	---	$	1,692	$	1,736	$	---
Commercial and industrial		94		94		--		202		352		--
Commercial construction and
land development		--		--		--		--		--		--
Agricultural and other loans to farmers		129		129		--		106		106		--
Residential real estate loans		1,079		1,079		--		1,332		1,362		--
Home equity loans		17		17		--		18		18		--
Other consumer		--		--		--		--		--		--
Subtotal	$	3,237	$	3,237	$	---	$	3,350	$	3,574	$	---

With an allowance:
Commercial real estate mortgages	$	453	$	453	$	42	$	531	$	531	$	43
Commercial and industrial		222		372		175		224		374		175
Commercial construction and
land development		1,111		3,036		98		1,111		3,036		58
Agricultural and other loans to farmers		--		--		--		--		--		--
Residential real estate loans		766		796		118		515		515		97
Home equity loans		--		--		--		--		--		--
Other consumer		8		8		--		8		8		--
Subtotal	$	2,560	$	4,665	$	433	$	2,389	$	4,464	$	373
Total	$	5,797	$	7,902	$	433	$	5,739	$	8,038	$	373

Details of impaired loans for the three months ended March 31, 2016 and 2015 follows:


		March 31, 2016				March 31, 2015

		Average				Average
		Recorded		Interest		Recorded		Interest
		Investment		Recorded		Investment Recorded
With no related allowance:
Commercial real estate mortgages	$	1,932	$	22	$	2,501	$	16
Commercial and industrial		98		2		498		1
Commercial construction and
land development			-	--		1,260	-	--
Agricultural and other loans to farmers		141		3		124		2
Residential real estate mortgages		1,079		21		826		9
Home equity loans		17	-	--		19	-	--
Other consumer			-	--	-	--	-	--
Subtotal	$	3,267	$	48	$	5,228	$	28

With an allowance:
Commercial real estate mortgages	$	529	$	---	$	1,434	$	---
Commercial and industrial		223	-	--		191	-	--
Commercial construction and
land development		1,111	-	--	-	--	-	--
Agricultural and other loans to farmers	-	--	-	--		54	-	--
Residential real estate mortgages		767	-	--	-	--	-	--
Home equity loans	-	--	-	--	-	--	-	--
Other consumer		8	-	--		10	-	--
Subtotal	$	2,638	$	---	$	1,689	$	---

Total	$	5,905	$	48	$	6,917	$	28

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 basically 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 March 31, 2016, and December 31, 2015, 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
March 31, 2016		mortgages		industrial		development		farmers		Total
Pass	$	367,322	$	74,030	$	24,084	$	31,628	$	497,064
Other Assets Especially
Mentioned		8,919		2,012	-	--		173		11,104
Substandard		17,265		2,597		1,111		286		21,259
Doubtful	-	--	-	--	-	--	-	--	-	--
Loss		13		1	-	--	-	--		14
Total	$	393,519	$	78,640	$	25,195	$	32,087	$	529,441

						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

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 and 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 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 three principal elements: (i) specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans; (ii) 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, to reflect the impact of current conditions; and (iii) general valuation allowances determined in accordance with ASC Topic 450 based on general 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, 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, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, 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. 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 ratio 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 allowance is 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.

The following tables detail activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016, and 2015 and twelve months ended December 31, 2015. The tables also provide details regarding the Bank'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 Bank'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.

Three Months								Commercial
Ended					Commercial			Construction
March 31, 2016		Commercial			and			and land					Residential						Home			Tax
		Real Estate			Industrial			development			Agricultural		Real Estate			Consumer			Equity			Exempt		Total
Beginning Balance	$	4,246		$	1,236		$	184	$		307	$	2,747		$	111		$	561		$	47	$	9,439
Charged Off		(34	)		(89	)		--		-	--		(31	)		(10	)	-	--		-	--		(164	)
Recoveries		6			1			--			40		20			6			1		-	--		74
Provision		449			85			47			18		(115	)		1			(23	)		3		465
Ending Balance	$	4,667		$	1,233		$	231	$		365	$	2,621		$	108		$	539		$	50	$	9,814

of which:

Amount for loans
individually
evaluated
for impairment	$	42		$	175		$	98	$	-	--	$	118		$	---		$	---		$	-	$	433

Amount for loans
collectively
evaluated
for impairment	$	4,625		$	1,058		$	133	$		365	$	2,503		$	108		$	539		$	50	$	9,381

Loans individually
evaluated
for impairment	$	2,371		$	316		$	1,111	$		129	$	1,845		$	8		$	17		$	---	$	5,797

Loans collectively
evaluated
for impairment	$	391,148		$	78,324		$	24,084	$		31,958	$	400,546		$	7,385		$	49,551		$	16,034	$	999,030



									Commercial
Three Months					Commercial				Construction
Ended		Commercial			and				and land						Residential					Home			Tax
March 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		(25	)		(75	)		-	--			(18	)	-	--		(11	)		(40	)	-	--		(169	)
Recoveries		34			1			-	--			12			129		7		-	--		-	--		183
Provision		23			219				(38	)		63			32		55			136			5		495
Ending Balance	$	4,500		$	1,074		$		107		$	334		$	2,875	$	145		$	367		$	76	$	9,478

of which:

Amount for loans
Individually
evaluated
for impairment	$	669		$	200		$	-	--		$	39		$	---	$	---		$	1		$	---	$	909

Amount for loans
collectively
evaluated
for impairment	$	3,831		$	874		$		107		$	295		$	2,875	$	145		$	366		$	76	$	8,569

Loans individually
evaluated for
impairment	$	3,687		$	578		$		1,260		$	168		$	388	$	---		$	10		$	---	$	6,091

Loans collectively
evaluated for
impairment	$	339,496		$	81,919		$		24,465		$	31,380		$	377,490	$	11,355		$	50,948		$	16,576	$	933,629


								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

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 hospitality business associated with tourism. At March 31, 2016, and December 31, 2015, loans to the lodging industry amounted to approximately $121,589 and $98,231, respectively.