LOANS

The Company’s loan portfolio is comprised of the following segments: commercial real estate, commercial and industrial, residential real estate, and consumer loans. Commercial real estate loans includes single and multi-family, commercial construction and land, and other commercial real estate classes. Commercial and industrial loans includes loans to commercial businesses, agricultural and other loans to farmers, and tax exempt loans. Residential real estate loans consists of mortgages for 1 to 4 family housing. Consumer loans include home equity loans, indirect auto and other installment lending.

The Company’s lending activities are principally conducted in Maine, New Hampshire, and Vermont.

Total loans include business activity loans and acquired loans. Acquired loans are those loans acquired from Lake Sunapee Bank Group. The following is a summary of total loans:



	March 31, 2017								December 31, 2016
(In thousands)	Business Activities Loans			Acquired Loans		Total			Business Activities Loans			Acquired Loans		Total
Commercial real estate:
Construction and land development	$	8,315		$	17,315	$	25,630		$	14,695		$	—	$	14,695
Commercial real estate other	436,622			317,582		754,204			403,594			—		403,594
Total commercial real estate	444,937			334,897		779,834			418,289			—		418,289

Commercial and industrial:
Commercial other	120,302			82,761		203,063			103,586			—		103,586
Agricultural and other loans to farmers	32,621			643		33,264			31,808			—		31,808
Tax exempt loans	31,263			42,405		73,668			15,846			—		15,846
Total commercial and industrial	184,186			125,809		309,995			151,240			—		151,240

Total commercial loans	629,123			460,706		1,089,829			569,529			—		569,529

Residential real estate:
Residential mortgages	518,556			636,880		1,155,436			506,612			—		506,612
Total residential real estate	518,556			636,880		1,155,436			506,612			—		506,612

Consumer:
Home equity	48,018			68,374		116,392			46,921			—		46,921
Consumer other	7,131			3,847		10,978			6,172			—		6,172
Total consumer	55,149			72,221		127,370			53,093			—		53,093

Net deferred loan costs and fees	(199		)	—		(199		)	(170		)	—		(170		)
Total loans	$	1,202,629		$	1,169,807	$	2,372,436		$	1,129,064		$	—	$	1,129,064

The carrying amount of the acquired loans at March 31, 2017 totaled $1.17 billion. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $17.0 million (and a note balance of $21.7 million). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Loans considered not impaired at acquisition date had a carrying amount of $1.15 billion.

The following table summarizes activity in the accretable yield for the acquired loan portfolio that falls under the purview of ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer:



	Three Months Ended March 31,
(In thousands)	2017			2016
Balance at beginning of period	$	—		$	—
Acquisitions	3,398			—
Reclassification from nonaccretable difference for loans with improved cash flows	—			—
Accretion	(204		)	—
Balance at end of period	$	3,194		$	—

The following is a summary of past due loans at March 31, 2017 and December 31, 2016:

Business Activities Loans



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current			Total Loans			Past Due > 90 days and Accruing
March 31, 2017
Commercial real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	8,315		$	8,315		$	—
Commercial real estate other	184		13		1,461		1,658		434,964			436,622			—
Total commercial real estate	184		13		1,461		1,658		443,279			444,937			—

Commercial and industrial:
Commercial other	34		9		205		248		120,054			120,302			—
Agricultural and other loans to farmers	—		125		136		261		32,360			32,621			—
Tax exempt loans	—		—		—		—		31,263			31,263			—
Total commercial and industrial	34		134		341		509		183,677			184,186			—

Total commercial loans	218		147		1,802		2,167		626,956			629,123			—

Residential real estate:
Residential mortgages	2,963		173		508		3,644		514,912			518,556			—
Total residential real estate	2,963		173		508		3,644		514,912			518,556			—

Consumer:
Home equity	128		—		—		128		47,890			48,018			—
Consumer other	109		—		—		109		7,022			7,131			—
Total consumer	237		—		—		237		54,912			55,149			—

Net deferred loan costs and fees	—		—		—		—		(199		)	(199		)	—
Total loans	$	3,418	$	320	$	2,310	$	6,048	$	1,196,581		$	1,202,629		$	—

Business Activities Loans



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current			Total Loans			Past Due > 90 days and Accruing
December 31, 2016
Commercial real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	14,695		$	14,695		$	—
Commercial real estate other	195		554		1,665		2,414		401,180			403,594			—
Total commercial real estate	195		554		1,665		2,414		415,875			418,289			—

Commercial and industrial:
Commercial other	61		45		201		307		103,279			103,586			—
Agricultural and other loans to farmers	231		—		—		231		31,577			31,808			—
Tax exempt loans	—		—		—		—		15,846			15,846			—
Total commercial and industrial	292		45		201		538		150,702			151,240			—

Total commercial loans	487		599		1,866		2,952		566,577			569,529			—

Residential real estate:
Residential mortgages	4,484		429		938		5,851		500,761			506,612			—
Total residential real estate	4,484		429		938		5,851		500,761			506,612			—

Consumer:
Home equity	—		—		15		15		46,906			46,921			—
Consumer other	103		1		6		110		6,062			6,172			—
Total consumer	103		1		21		125		52,968			53,093			—

Net deferred loan costs and fees	—		—		—		—		(170		)	(170		)	—
Total loans	$	5,074	$	1,029	$	2,825	$	8,928	$	1,120,136		$	1,129,064		$	—

Acquired Loans



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Acquired Credit Impaired		Total Loans		Past Due > 90 days and Accruing
March 31, 2017
Commercial real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	516	$	17,315	$	—
Commercial real estate other	742		425		—		1,167		11,337		317,582		—
Total commercial real estate	742		425		—		1,167		11,853		334,897		—

Commercial and industrial:
Commercial other	218		—		—		218		1,142		82,761		—
Agricultural and other loans to farmers	—		—		—		—		—		643		—
Tax exempt loans	—		—		—		—		—		42,405		—
Total commercial and industrial	218		—		—		218		1,142		125,809		—

Total commercial loans	960		425		—		1,385		12,995		460,706		—

Residential real estate:
Residential mortgages	2,354		55		—		2,409		3,819		636,880		—
Total residential real estate	2,354		55		—		2,409		3,819		636,880		—

Consumer:
Home equity	309		—		—		309		192		68,374		—
Consumer other	3		—		—		3		19		3,847		—
Total consumer	312		—		—		312		211		72,221		—

Net deferred loan costs and fees	—		—		—		—		—		—		—
Total loans	$	3,626	$	480	$	—	$	4,106	$	17,025	$	1,169,807	$	—

Non Accrual Loans

The following is summary information pertaining to non-accrual loans at March 31, 2017 and December 31, 2016:



	March 31, 2017						December 31, 2016
(In thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total
Commercial real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate other	2,354		—		2,354		2,564		—		2,564
Total commercial real estate	2,354		—		2,354		2,564		—		2,564

Commercial and industrial:
Commercial loans	284		—		284		284		—		284
Agricultural and other loans to farmers	167		—		167		31		—		31
Tax exempt loans	—		—		—		—		—		—
Total commercial and industrial	451		—		451		315		—		315

Total commercial loans	2,805		—		2,805		2,879		—		2,879

Residential real estate:
Residential mortgages	3,066		—		3,066		3,419		—		3,419
Total residential real estate	3,066		—		3,066		3,419		—		3,419

Consumer:
Home equity	62		—		62		90		—		90
Consumer other	98		—		98		108		—		108
Total consumer	160		—		160		198		—		198

Total loans	$	6,031	$	—	$	6,031	$	6,496	$	—	$	6,496

Loans evaluated for impairment as of March 31, 2017 and December 31, 2016 were as follows:

Business Activities Loans



(In thousands)	Commercial real estate		Commercial and industrial		Residential real estate		Consumer		Total
March 31, 2017
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	4,191	$	722	$	1,700	$	641	$	7,254
Collectively evaluated	440,746		183,464		516,856		54,508		1,195,574
Total	$	444,937	$	184,186	$	518,556	$	55,149	$	1,202,828

Business Activities Loans



(In thousands)	Commercial real estate		Commercial and industrial		Residential real estate		Consumer		Total
December 31, 2016
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	4,481	$	486	$	1,709	$	33	$	6,709
Collectively evaluated	413,808		150,754		504,903		53,060		1,122,525
Total	$	418,289	$	151,240	$	506,612	$	53,093	$	1,129,234

Acquired Loans



(In thousands)	Commercial real estate		Commercial and industrial		Residential real estate		Consumer		Total
March 31, 2017
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Purchased credit-impaired loans	11,853		1,142		3,819		211		17,025
Collectively evaluated	323,044		124,667		633,061		72,010		1,152,782
Total	$	334,897	$	125,809	$	636,880	$	72,221	$	1,169,807

The following is a summary of impaired loans at March 31, 2017 and December 31, 2016:

Business Activities Loans



	March 31, 2017
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	2,471		2,612		—
Commercial other	251		254		—
Agricultural and other loans to farmers	256		256		—
Tax exempt loans	—		—		—
Residential real estate	1,380		1,496		—
Home equity	589		589		—
Consumer other	44		44		—

With an allowance recorded:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	1,720		3,699		302
Commercial other	215		365		172
Agricultural and other loans to farmers	—		—		—
Tax exempt loans	—		—		—
Residential real estate	320		320		45
Home equity	—		—		—
Consumer other	8		8		8

Total
Commercial real estate	$	4,191	$	6,311	$	302
Commercial and industrial	722		875		172
Residential real estate	1,700		1,816		45
Consumer	641		641		8
Total impaired loans	$	7,254	$	9,643	$	527

Business Activities Loans



	December 31, 2016
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	2,831		2,919		—
Commercial other	130		130		—
Agricultural and other loans to farmers	139		139		—
Tax exempt loans	—		—		—
Residential real estate	1,387		1,504		—
Home equity	16		16		—
Consumer other	2		2		—

With an allowance recorded:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	1,650		3,575		193
Commercial other	217		367		173
Agricultural and other loans to farmers	—		—		—
Tax exempt loans	—		—		—
Residential real estate	322		322		49
Home equity	—		—		—
Consumer other	15		15		9

Total
Commercial real estate	$	4,481	$	6,494	$	193
Commercial and industrial	486		636		173
Residential real estate	1,709		1,826		49
Consumer	33		33		9
Total impaired loans	$	6,709	$	8,989	$	424

The following is a summary of the average recorded investment and interest income recognized on impaired loans as of March 31, 2017 and 2016:

Business Activities Loan



	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
(in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:
Construction and land development	$	—	$	—	$	—	$	—
Commercial real estate other	2,592		34		1,932		22
Commercial other	226		3		98		2
Agricultural and other loans to farmers	192		2		141		3
Tax exempt loans	—		—		—		—
Residential real estate	1,500		22		1,079		21
Home equity	590		—		17		—
Consumer other	44		1		—		—

With an allowance recorded:
Construction and land development	$	—	$	—	$	1,111	$	—
Commercial real estate other	1,723		—		529		—
Commercial other	216		—		223		—
Agricultural and other loans to farmers	—		—		—		—
Tax exempt loans	—		—		—		—
Residential real estate	321		—		767		—
Home equity	—		—		—		—
Consumer other	9		—		8		—

Total
Commercial real estate	$	4,315	$	34	$	3,572	$	22
Commercial and industrial	634		5		462		5
Residential real estate	1,821		22		1,846		21
Consumer	643		1		25		—
Total impaired loans	$	7,413	$	62	$	5,905	$	48

Troubled Debt Restructuring Loans

The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.

The following tables include the recorded investment and number of modifications identified during the three months ended March 31, 2017 and for the three months ended March 31, 2016, respectively. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. The modifications for the three months ended March 31, 2017 were attributable to interest rate concessions, maturity date extensions, reamortization or a combination of two concessions. The modifications for the three months ending March 31, 2016 were attributable to interest rate concessions, maturity date extensions or a combination of both.



	Three Months Ended March 31, 2017
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial other	1	$	80	$	80
Residential mortgages	2	575		574
Consumer other	1	38		37
Total	4	$	693	$	691



	Three Months Ended March 31, 2016
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial real estate	2	$	395	$	394
Agricultural and other loans to farmers	2	30		25
Total	4	$	425	$	419

For the three months ended March 31, 2017, there were no loans that were restructured that had subsequently defaulted during the period.

The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.

As of March 31, 2017, the Company maintained foreclosed residential real estate property with a fair value of $363 thousand. Additionally, residential mortgage loans collateralized by real estate property that are in the process of foreclosure as of March 31, 2017 and December 31, 2016 totaled $2.0 million and $2.4 million, respectively. As of December 31, 2016, foreclosed residential real estate property totaled $90 thousand.