LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio, excluding residential loans held for sale, at June 30, 2015 and December 31, 2014 was as follows:



	June 30, 2015			December 31, 2014
Residential real estate	$	587,720		$	585,996
Commercial real estate	660,135			640,661
Commercial	262,187			257,515
Home equity	281,057			271,709
Consumer	16,384			17,257
Net deferred fees	(476		)	(528		)
Total	$	1,807,007		$	1,772,610

The Company’s lending activities are primarily conducted in Maine, and its footprint continues to expand into other New England states, including New Hampshire and Massachusetts. The Company originates single family and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy.

The ALL is management’s best estimate of the inherent risk of loss in the Company’s loan portfolio as of the consolidated statement of condition date. Management makes various assumptions and judgments about the collectability of the loan portfolio and provides an allowance for potential losses based on a number of factors including historical losses. If those assumptions are incorrect, the ALL may not be sufficient to cover losses and may cause an increase in the allowance in the future. Among the factors that could affect the Company’s ability to collect loans and require an increase to the allowance in the future are: (i) financial condition of borrowers; (ii) real estate market changes; (iii) state, regional, and national economic conditions; and (iv) a requirement by federal and state regulators to increase the provision for loan losses or recognize additional charge-offs.

There were no significant changes in the Company's ALL methodology during the six months ended June 30, 2015.

The board of directors monitors credit risk through the Directors' Loan Review Committee, which reviews large credit exposures, monitors the external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, concentration levels, and the ALL methodology. The Corporate Risk Management Group and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system, determine the adequacy of the ALL and support the oversight efforts of the Directors' Loan Review Committee and the board of directors. The Company's practice is to proactively manage the portfolio such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. For purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, and consumer. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. These risk characteristics unique to each portfolio segment include:

Residential Real Estate. Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one- to four-family residential properties.

Commercial Real Estate. Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

Commercial. Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant & equipment, or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

Home Equity. Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Consumer. Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.

The following table presents the activity in the ALL and select loan information by portfolio segment for the three and six months ended June 30, 2015 and 2014, and for the year ended December 31, 2014:



	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			Unallocated		Total
For The Three and Six Months Ended June 30, 2015
ALL for the three months ended:
Beginning balance	$	4,835		$	4,761		$	6,900		$	2,247		$	270		$	2,252	$	21,265
Loans charged off	(179		)	(48		)	(84		)	(152		)	(11		)	—		(474		)
Recoveries	17			54			78			—			3			—		152
Provision (benefit)⁽¹⁾	16			(69		)	(117		)	49			6			366		251
Ending balance	$	4,689		$	4,698		$	6,777		$	2,144		$	268		$	2,618	$	21,194
ALL for the six months ended:
Beginning balance	$	4,899		$	4,482		$	6,823		$	2,247		$	281		$	2,384	$	21,116
Loans charged off	(292		)	(103		)	(243		)	(241		)	(19		)	—		(898		)
Recoveries	20			64			182			5			14			—		285
Provision (benefit)⁽¹⁾	62			255			15			133			(8		)	234		691
Ending balance	$	4,689		$	4,698		$	6,777		$	2,144		$	268		$	2,618	$	21,194
ALL balance attributable to loans:
Individually evaluated for impairment	$	1,044		$	336		$	262		$	343		$	99		$	—	$	2,084
Collectively evaluated for impairment	3,645			4,362			6,515			1,801			169			2,618		19,110
Total ending ALL	$	4,689		$	4,698		$	6,777		$	2,144		$	268		$	2,618	$	21,194
Loans:
Individually evaluated for impairment	$	7,937		$	4,344		$	1,768		$	1,706		$	251		$	—	$	16,006
Collectively evaluated for impairment	579,307			655,791			260,419			279,351			16,133			—		1,791,001
Total ending loans balance	$	587,244		$	660,135		$	262,187		$	281,057		$	16,384		$	—	$	1,807,007



	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			Unallocated			Total
For The Three and Six Months Ended June 30, 2014
ALL for the three months ended:
Beginning balance	$	5,411		$	4,528		$	6,292		$	2,673		$	310		$	2,456		$	21,670
Loans charged off	(178		)	(5		)	(307		)	(44		)	(26		)	—			(560		)
Recoveries	42			11			73			8			12			—			146
Provision (benefit)⁽¹⁾	(134		)	(173		)	426			115			22			393			649
Ending balance	$	5,141		$	4,361		$	6,484		$	2,752		$	318		$	2,849		$	21,905
ALL for the six months ended:
Beginning balance	$	5,603		$	4,374		$	6,220		$	2,403		$	319		$	2,671		$	21,590
Loans charged off	(361		)	(176		)	(526		)	(106		)	(40		)	—			(1,209		)
Recoveries	134			50			169			11			19			—			383
Provision (benefit)⁽¹⁾	(235		)	113			621			444			20			178			1,141
Ending balance	$	5,141		$	4,361		$	6,484		$	2,752		$	318		$	2,849		$	21,905
ALL balance attributable to loans:
Individually evaluated for impairment	$	1,346		$	397		$	578		$	805		$	138		$	—		$	3,264
Collectively evaluated for impairment	3,795			3,964			5,906			1,947			180			2,849			18,641
Total ending ALL	$	5,141		$	4,361		$	6,484		$	2,752		$	318		$	2,849		$	21,905
Loans:
Individually evaluated for impairment	$	11,782		$	7,334		$	4,272		$	2,142		$	433		$	—		$	25,963
Collectively evaluated for impairment	555,377			596,806			229,587			271,637			17,395			—			1,670,802
Total ending loans balance	$	567,159		$	604,140		$	233,859		$	273,779		$	17,828		$	—		$	1,696,765
For The Year Ended December 31, 2014
ALL:
Beginning balance	$	5,603		$	4,374		$	6,220		$	2,403		$	319		$	2,671		$	21,590
Loans charged off	(785		)	(361		)	(1,544		)	(611		)	(143		)	—			(3,444		)
Recoveries	165			135			395			19			32			—			746
Provision (benefit)⁽¹⁾	(84		)	334			1,752			436			73			(287		)	2,224
Ending balance	$	4,899		$	4,482		$	6,823		$	2,247		$	281		$	2,384		$	21,116
ALL balance attributable to loans:
Individually evaluated for impairment	$	1,220		$	251		$	168		$	496		$	104		$	—		$	2,239
Collectively evaluated for impairment	3,679			4,231			6,655			1,751			177			2,384			18,877
Total ending ALL	$	4,899		$	4,482		$	6,823		$	2,247		$	281		$	2,384		$	21,116
Loans:
Individually evaluated for impairment	$	9,656		$	7,658		$	1,853		$	1,741		$	271		$	—		$	21,179
Collectively evaluated for impairment	575,812			633,003			255,662			269,968			16,986			—			1,751,431
Total ending loans balance	$	585,468		$	640,661		$	257,515		$	271,709		$	17,257		$	—		$	1,772,610

(1) The provision (benefit) for loan losses excludes any impact for the change in the reserve for unfunded commitments, which represents management's estimate of the amount required to reflect the probable inherent losses on outstanding letters of credit and unused lines of credit. The reserve for unfunded commitments is presented within accrued interest and other liabilities on the consolidated statement of condition. At June 30, 2015 and 2014, and December 31, 2014, the reserve for unfunded commitments was $26,000, $16,000 and $17,000, respectively.

The following table reconciles the three and six months ended June 30, 2015 and 2014, and year ended December 31, 2014 provision for loan losses to the provision for credit losses as presented on the consolidated statement of income:



	Three Months Ended June 30,					Six Months Ended June 30,					Year Ended December 31,
	2015		2014			2015		2014			2014
Provision for loan losses	$	251	$	649		$	691	$	1,141		$	2,224
Change in reserve for unfunded commitments	3		(6		)	9		(5		)	(4		)
Provision for credit losses	$	254	$	643		$	700	$	1,136		$	2,220

The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To ensure that credit concentrations can be effectively identified, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored by the Corporate Risk Management Group. As of June 30, 2015, the Company did not have any industry exposures exceeding 10% of the Company's total loan portfolio. At June 30, 2015, the two most significant industry exposures within the commercial real estate loan portfolio were: (i) non-residential building operators (operators of commercial and industrial buildings, retail establishments, theaters, banks and insurance buildings) at 26%; and (ii) lodging (inns, bed & breakfasts, ski lodges, tourist cabins, hotels and motels) at 25% of the total commercial real estate portfolio.

To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The indicators for commercial, commercial real estate and residential real estate loans are represented by Grades 1 through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews, periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely risk rated loans. The Company uses the following definitions when assessing grades for the purpose of evaluating the risk and adequacy of the ALL:

•

Grade 1 through 6 — Grades 1 through 6 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risks, which is measured using a variety of credit risk criteria, such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.

•

Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.


•	Grade 8 — Loans with definite weakness (Substandard). Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by collateral pledged. Borrowers experience difficulty in meeting debt repayment requirements. Deterioration is sufficient to cause the Company to look to the sale of collateral.

•

Grade 9 — Loans with potential loss (Doubtful). Loans classified as doubtful have all the weaknesses inherent in the substandard grade with the added characteristic that the weaknesses make collection or liquidation of the loan in full highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.


•	Grade 10 — Loans with definite loss (Loss). Loans classified as loss are considered uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be protracted.

Asset quality indicators are periodically reassessed to appropriately reflect the risk composition of the Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over 90 days and non-accrual loans, including TDRs, are considered non-performing.

The following table summarizes credit risk exposure indicators by portfolio segment as of the following dates:



	Residential Real Estate		Commercial Real Estate		Commercial		Home Equity		Consumer		Total
June 30, 2015
Pass (Grades 1-6)	$	576,814	$	617,517	$	249,918	$	—	$	—	$	1,444,249
Performing	—		—		—		279,351		16,133		295,484
Special Mention (Grade 7)	2,618		20,807		7,231		—		—		30,656
Substandard (Grade 8)	7,812		21,811		5,038		—		—		34,661
Non-performing	—		—		—		1,706		251		1,957
Total	$	587,244	$	660,135	$	262,187	$	281,057	$	16,384	$	1,807,007
December 31, 2014
Pass (Grades 1-6)	$	572,589	$	606,387	$	244,930	$	—	$	—	$	1,423,906
Performing	—		—		—		269,968		16,986		286,954
Special Mention (Grade 7)	3,579		4,690		6,023		—		—		14,292
Substandard (Grade 8)	9,300		29,584		6,562		—		—		45,446
Non-performing	—		—		—		1,741		271		2,012
Total	$	585,468	$	640,661	$	257,515	$	271,709	$	17,257	$	1,772,610

The Company closely monitors the performance of its loan portfolio. A loan is placed on non-accrual status when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is well-secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured by a specific event such as the closing of a pending sale contract. When one loan to a borrower is placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan may be returned to accrual status when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period. Unsecured loans, however, are not normally placed on non-accrual status because they are charged-off once their collectability is in doubt.

The following is a loan aging analysis by portfolio segment (including loans past due over 90 days and non-accrual loans) and a summary of non-accrual loans, which include TDRs, and loans past due over 90 days and accruing as of the following dates:



	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Outstanding		Loans > 90 Days Past Due and Accruing		Non-Accrual Loans
June 30, 2015
Residential real estate	$	1,192	$	107	$	3,506	$	4,805	$	582,439	$	587,244	$	—	$	4,498
Commercial real estate	518		281		2,114		2,913		657,222		660,135		—		2,813
Commercial	607		261		1,178		2,046		260,141		262,187		—		1,425
Home equity	842		313		1,136		2,291		278,766		281,057		—		1,706
Consumer	44		—		251		295		16,089		16,384		—		251
Total	$	3,203	$	962	$	8,185	$	12,350	$	1,794,657	$	1,807,007	$	—	$	10,693
December 31, 2014
Residential real estate	$	1,206	$	426	$	4,531	$	6,163	$	579,305	$	585,468	$	—	$	6,056
Commercial real estate	1,696		—		3,791		5,487		635,174		640,661		—		7,043
Commercial	456		269		1,139		1,864		255,651		257,515		—		1,529
Home equity	889		88		1,129		2,106		269,603		271,709		—		1,741
Consumer	28		—		254		282		16,975		17,257		—		271
Total	$	4,275	$	783	$	10,844	$	15,902	$	1,756,708	$	1,772,610	$	—	$	16,640

Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms was $129,000 and $225,000 for the three months ended June 30, 2015 and 2014, and $272,000 and $455,000 for the six months ended June 30, 2015 and 2014, respectively.

TDRs:

The Company takes a conservative approach in credit risk management and remains focused on community lending and reinvesting. The Company works closely with borrowers experiencing credit problems to assist in loan repayment or term modifications. TDR loans consist of loans where the Company, for economic or legal reasons related to the borrower’s financial difficulties, granted a concession to the borrower that it would not otherwise consider. TDRs, typically, involve term modifications or a reduction of either interest or principal. Once such an obligation has been restructured, it will remain a TDR until paid in full, or until the loan is again restructured at current market rates and no concessions were granted.

The specific reserve allowance was determined by discounting the total expected future cash flows from the borrower at the original loan interest rate, or if the loan is currently collateral-dependent, using the NRV, which was obtained through independent appraisals and internal evaluations. The following is a summary of TDRs, by portfolio segment, and the associated specific reserve included within the ALL as of:



	Number of Contracts		Recorded Investment				Specific Reserve
	June 30, 2015	December 31, 2014	June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014
Residential real estate	22	24	$	3,551	$	3,786	$	592	$	635
Commercial real estate	7	7	1,785		1,702		7		—
Commercial	9	9	421		426		10		10
Consumer and home equity	1	1	27		29		—		—
Total	39	41	$	5,784	$	5,943	$	609	$	645

At June 30, 2015, the Company had performing and non-performing TDRs with a recorded investment balance of $5.3 million and $479,000, respectively. At December 31, 2014, the Company had performing and non-performing TDRs with a recorded investment balance of $4.5 million and $1.4 million, respectively. As of June 30, 2015 and December 31, 2014, the Company did not have any commitments to lend additional funds to borrowers with loans classified as TDRs.

The following represents loan modifications that occurred during the six months ended June 30, 2015 and 2014 that qualify as TDRs, by portfolio segment, and the associated specific reserve included within the ALL:



	Number of Contracts		Pre-Modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment				Specific Reserve
	June 30, 2015	June 30, 2014	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
For the six months ended:
Residential real estate	—	1	$	—	$	136	$	—	$	149	$	—	$	45
Total	—	1	$	—	$	136	$	—	$	149	$	—	$	45

There were no loan modifications that occurred during the three months ended June 30, 2015 or 2014 that qualify as TDRs.

For the three and six months ended June 30, 2015, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted. For the three and six months ended June 30, 2014, one commercial loan with a recorded investment of $43,000 was modified as a TDR within the previous 12 months for which the borrower subsequently defaulted.

Impaired Loans:

Impaired loans consist of non-accrual loans and TDRs. All impaired loans are allocated a portion of the allowance to cover potential losses. The following is a summary of impaired loan balances and associated allowance by portfolio segment as of and for the three and six months ended June 30, 2015 and 2014:



							Three Months Ended					Six Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized⁽¹⁾			Average Recorded Investment		Interest Income Recognized
June 30, 2015:
With an allowance recorded:
Residential real estate	$	6,486	$	6,486	$	1,044	$	7,618	$	27		$	7,262	$	56
Commercial real estate	1,778		1,811		336		2,161		—			2,080		—
Commercial	1,185		1,185		262		1,320		1			1,272		1
Home equity	1,023		1,023		343		1,410		—			1,198		—
Consumer	234		235		99		248		—			242		—
Ending Balance	10,706		10,740		2,084		12,757		28			12,054		57
Without an allowance recorded:
Residential real estate	1,451		1,865		—		1,774		2			1,663		4
Commercial real estate	2,566		2,656		—		3,102		27			2,769		35
Commercial	583		712		—		503		4			544		8
Home equity	683		927		—		303		—			474		—
Consumer	17		37		—		17		—			17		—
Ending Balance	5,300		6,197		—		5,699		33			5,467		47
Total impaired loans	$	16,006	$	16,937	$	2,084	$	18,456	$	61		$	17,521	$	104
June 30, 2014:
With an allowance recorded:
Residential real estate	$	8,964	$	8,964	$	1,346	$	9,653	$	35		$	10,273	$	64
Commercial real estate	5,734		5,734		397		6,371		(4		)	6,812		1
Commercial	3,886		3,886		578		3,273		5			2,618		10
Home equity	1,704		1,704		805		1,671		—			1,614		—
Consumer	416		416		138		417		—			422		—
Ending Balance	20,704		20,704		3,264		21,385		36			21,739		75
Without an allowance recorded:
Residential real estate	2,818		3,177		—		2,924		(2		)	2,634		3
Commercial real estate	1,600		1,984		—		1,466		19			1,601		29
Commercial	386		478		—		387		1			478		2
Home equity	438		645		—		425		—			421		—
Consumer	17		37		—		17		—			17		—
Ending Balance	5,259		6,321		—		5,219		18			5,151		34
Total impaired loans	$	25,963	$	27,025	$	3,264	$	26,604	$	54		$	26,890	$	109

(1) Negative interest income represents the re-allocation of income between "with an allowance recorded" and "without an allowance recorded" (or vice versa) during the period.

The following is a summary of impaired loan balances and associated allowance by portfolio segment as of and for the year ended December 31, 2014:



							Year Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With an allowance recorded:
Residential real estate	$	7,713	$	7,713	$	1,220	$	9,524	$	125
Commercial real estate	3,419		3,419		251		4,911		—
Commercial	1,390		1,390		168		2,466		8
Home equity	1,410		1,410		496		1,545		—
Consumer	254		254		104		358		—
Ending Balance	14,186		14,186		2,239		18,804		133
Without an allowance recorded:
Residential real estate	1,943		2,604		—		2,257		13
Commercial real estate	4,239		4,502		—		2,869		59
Commercial	463		606		—		791		11
Home equity	331		581		—		399		—
Consumer	17		37		—		21		—
Ending Balance	6,993		8,330		—		6,337		83
Total impaired loans	$	21,179	$	22,516	$	2,239	$	25,141	$	216

Loan Sales:

For the three months ended June 30, 2015 and 2014, the Company sold $7.7 million and $399,000, respectively, of fixed rate residential mortgage loans on the secondary market that resulted in net gains on the sale of loans of $162,000 and $17,000, respectively. For the six months ended June 30, 2015 and 2014, the Company sold $12.5 million and $399,000 of fixed rate residential mortgage loans on the secondary market that resulted in net gains on the sale of loans of $292,000 and $17,000, respectively.

At June 30, 2015, the Company had certain fixed rate mortgage loans with a total principal of $1.4 million designated as held for sale. The Company has elected to record its loans held for sale at fair value. At June 30, 2015, the Company recorded an unrealized gain of $18,000 within non-operating income on its consolidated statements of income for the three and six months ended June 30, 2015. The company did not have any loans designated as held for sale at June 30, 2014.

OREO:

The Company records its properties obtained through foreclosure or deed-in-lieu of foreclosure as OREO properties on the consolidated statements of condition at NRV. At June 30, 2015, the Company had four residential real estate properties and three commercial properties with a carrying value of $300,000 and $351,000, respectively, within OREO. At December 31, 2014, the Company had 11 residential real estate properties and six commercial properties with a carrying value of $575,000 and $1.0 million, respectively, within OREO.

In-Process Foreclosure Proceedings:

At June 30, 2015 and December 31, 2014, the Company had $3.8 million and $4.9 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process, representing 58% and 61%, respectively, of non-performing loans within the Company's residential, consumer and home equity portfolios. The Company continues to be focused on working these consumer mortgage loans through the foreclosure process to resolution; however, the foreclosure process, typically, will take 18 to 24 months due to the State of Maine foreclosure laws.

FHLB Advances:

FHLB advances are those borrowings from the FHLBB greater than 90 days. FHLB advances are collateralized by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one- to four-family properties, certain commercial real estate loans, certain pledged investment securities and other qualified assets. The carrying value of residential real estate and commercial loans pledged as collateral was $840.3 million and $843.2 million at June 30, 2015 and December 31, 2014, respectively.

Refer to Note 3 of the consolidated financial statements for discussion of securities pledged as collateral.