LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio, excluding residential loans held for sale, at June 30, 2016 and December 31, 2015 was as follows:



	June 30, 2016			December 31, 2015
Residential real estate⁽¹⁾	$	801,965		$	821,074
Commercial real estate⁽¹⁾	1,018,643			927,951
Commercial⁽¹⁾	336,114			297,721
Home equity⁽¹⁾	340,623			348,634
Consumer⁽¹⁾	17,732			17,953
HPFC⁽¹⁾	70,532			77,243
Deferred loan fees, net	(309		)	(370		)
Total loans	$	2,585,300		$	2,490,206


(1)	The loan balances are presented net of the unamortized fair value mark discount associated with the purchase accounting for acquired loans of $10.4 million and $13.1 million at June 30, 2016 and December 31, 2015, respectively.

The Bank’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 HPFC loan portfolio consists of niche commercial lending to the small business medical field, including dentists, optometrists and veterinarians across the U.S. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the success of the borrower's business. Unlike the Bank's loan portfolio, there is, generally, little to no indication of credit quality issues and/or concerns of borrowers honoring their commitments until a payment is delinquent. Generally, once a payment is delinquent, if the payment is not received shortly thereafter to bring the loan current, the loan is deemed impaired (typically within 45 days). Effective February 19, 2016, the Company closed HPFC's operations and is no longer originating loans.

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, 2016.

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 Credit Risk Administration 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, consumer and HPFC. 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.

HPFC. HPFC is a niche lender that provides commercial lending to dentists, optometrists and veterinarians, many of which are start-up companies. HPFC's loan portfolio consists of term loan obligations extended for the purpose of financing working capital and/or purchase of equipment. Collateral may consist of pledges of business assets including, but not limited to, accounts receivable, inventory, and/or equipment. These loans are primarily paid by the operating cash flow of the borrower and the terms range from seven to ten years.

The following tables present the activity in the ALL and select loan information by portfolio segment for the three and six months ended June 30, 2016 and 2015, and for the year ended December 31, 2015:



	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Unallocated		Total
For The Three and Six Months Ended June 30, 2016
ALL for the three months ended:
Beginning balance	$	4,516		$	10,380		$	3,298		$	2,622		$	182		$	341		$	—	$	21,339
Loans charged off	(19		)	(19		)	(203		)	(57		)	(26		)	(302		)	—		(626		)
Recoveries	31			34			82			1			2			—			—		150
Provision (credit)⁽¹⁾	(97		)	1,164			1,381			380			35			(9		)	—		2,854
Ending balance	$	4,431		$	11,559		$	4,558		$	2,946		$	193		$	30		$	—	$	23,717
ALL for the six months ended:
Beginning balance	$	4,545		$	10,432		$	3,241		$	2,731		$	193		$	24		$	—	$	21,166
Loans charged off	(229		)	(241		)	(429		)	(185		)	(41		)	(302		)	—		(1,427		)
Recoveries	71			43			134			2			4			—			—		254
Provision⁽¹⁾	44			1,325			1,612			398			37			308			—		3,724
Ending balance	$	4,431		$	11,559		$	4,558		$	2,946		$	193		$	30		$	—	$	23,717
ALL balance attributable to loans:
Individually evaluated for impairment	$	497		$	29		$	1,400		$	89		$	—		$	—		$	—	$	2,015
Collectively evaluated for impairment	3,934			11,530			3,158			2,857			193			30			—		21,702
Total ending ALL	$	4,431		$	11,559		$	4,558		$	2,946		$	193		$	30		$	—	$	23,717
Loans:
Individually evaluated for impairment	$	4,926		$	2,340		$	3,461		$	503		$	7		$	—		$	—	$	11,237
Collectively evaluated for impairment	795,630			1,015,437			333,056			341,478			17,811			70,651			—		2,574,063
Total ending loans balance	$	800,556		$	1,017,777		$	336,517		$	341,981		$	17,818		$	70,651		$	—	$	2,585,300
For The Three and Six Months Ended June 30, 2015
ALL for the three months ended:
Beginning balance	$	4,835		$	8,234		$	3,427		$	2,247		$	270		$	—		$	2,252	$	21,265
Loans charged off	(179		)	(48		)	(84		)	(152		)	(11		)	—			—		(474		)
Recoveries	17			54			78			—			3			—			—		152
Provision (credit)⁽¹⁾	16			(80		)	(106		)	49			6			—			366		251
Ending balance	$	4,689		$	8,160		$	3,315		$	2,144		$	268		$	—		$	2,618	$	21,194
ALL for the six months ended:
Beginning balance	$	4,899		$	7,951		$	3,354		$	2,247		$	281		$	—		$	2,384	$	21,116
Loans charged off	(292		)	(103		)	(243		)	(241		)	(19		)	—			—		(898		)
Recoveries	20			64			182			5			14			—			—		285
Provision (credit)⁽¹⁾	62			248			22			133			(8		)	—			234		691
Ending balance	$	4,689		$	8,160		$	3,315		$	2,144		$	268		$	—		$	2,618	$	21,194
ALL balance attributable to loans:
Individually evaluated for impairment	$	724		$	240		$	136		$	89		$	78		$	—		$	—	$	1,267
Collectively evaluated for impairment	3,965			7,920			3,179			2,055			190			—			2,618		19,927
Total ending ALL	$	4,689		$	8,160		$	3,315		$	2,144		$	268		$	—		$	2,618	$	21,194
Loans:
Individually evaluated for impairment	$	5,562		$	3,034		$	800		$	986		$	157		$	—		$	—	$	10,539
Collectively evaluated for impairment	581,682			657,101			261,387			280,071			16,227			—			—		1,796,468
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			HPFC		Unallocated			Total
For The Year Ended December 31, 2015
ALL:
Beginning balance	$	4,899		$	7,951		$	3,354		$	2,247		$	281		$	—	$	2,384		$	21,116
Loans charged off	(801		)	(481		)	(655		)	(525		)	(154		)	—		—			(2,616		)
Recoveries	55			74			389			188			22			—		—			728
Provision (credit)⁽¹⁾	392			2,888			153			821			44			24		(2,384		)	1,938
Ending balance	$	4,545		$	10,432		$	3,241		$	2,731		$	193		$	24	$	—		$	21,166
ALL balance attributable to loans:
Individually evaluated for impairment	$	544		$	644		$	92		$	89		$	—		$	—	$	—		$	1,369
Collectively evaluated for impairment	4,001			9,788			3,149			2,642			193			24		—			19,797
Total ending ALL	$	4,545		$	10,432		$	3,241		$	2,731		$	193		$	24	$	—		$	21,166
Loans:
Individually evaluated for impairment	$	6,026		$	4,610		$	3,937		$	588		$	74		$	—	$	—		$	15,235
Collectively evaluated for impairment	814,591			923,341			293,784			348,046			17,879			77,330		—			2,474,971
Total ending loans balance	$	820,617		$	927,951		$	297,721		$	348,634		$	17,953		$	77,330	$	—		$	2,490,206

(1)

The provision (credit) 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 statements of condition. At June 30, 2016 and 2015, and December 31, 2015, the reserve for unfunded commitments was $22,000, $26,000 and $22,000, respectively.

The following table reconciles the three and six months ended June 30, 2016 and 2015, and year ended December 31, 2015 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,
	2016			2015		2016		2015		2015
Provision for loan losses	$	2,854		$	251	$	3,724	$	691	$	1,938
Change in reserve for unfunded commitments	(2		)	3		—		9		(2		)
Provision for credit losses	$	2,852		$	254	$	3,724	$	700	$	1,936

The provision for loan losses for the three and six months ended June 30, 2016 increased $2.6 million and $3.0 million, respectively, compared to the three and six months ended June 30, 2015. The increase was driven by (i) the increase in loans (excluding loans held for sale) of $778.3 million since June 30, 2015, of which $615.4 million the Company acquired as part of the SBM acquisition in the fourth quarter of 2015, as well as (ii) the deterioration of one commercial real estate and one commercial credit in the second quarter of 2016 accounting for $2.3 million of the provision for loan losses for the three and six months ended June 30, 2016. The Company placed the commercial real estate loan totaling $11.7 million on non-accrual status in the second quarter of 2016, and the commercial loan was previously on non-accrual status. The Company believes that the credit deterioration of these two credits were driven by specific facts and circumstances of the borrowers and does not represent a systemic issue across its commercial real estate or commercial loan portfolios.

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 Credit Risk Administration. As of June 30, 2016, the non-residential building operators industry exposure was 12% of the Company's total loan portfolio and 30% of the total commercial real estate portfolio. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of June 30, 2016.

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, residential real estate, and HPFC 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		HPFC		Total
June 30, 2016
Pass (Grades 1-6)	$	785,673	$	957,457	$	322,590	$	—	$	—	$	68,497	$	2,134,217
Performing	—		—		—		340,370		17,814		—		358,184
Special Mention (Grade 7)	3,025		18,087		8,043		—		—		302		29,457
Substandard (Grade 8)	11,858		42,233		5,884		—		—		1,852		61,827
Non-performing	—		—		—		1,611		4		—		1,615
Total	$	800,556	$	1,017,777	$	336,517	$	341,981	$	17,818	$	70,651	$	2,585,300
December 31, 2015
Pass (Grades 1-6)	$	802,873	$	868,664	$	281,553	$	—	$	—	$	70,173	$	2,023,263
Performing	—		—		—		346,701		17,835		—		364,536
Special Mention (Grade 7)	3,282		20,732		7,527		—		—		3,179		34,720
Substandard (Grade 8)	14,462		38,555		8,641		—		—		3,978		65,636
Non-performing	—		—		—		1,933		118		—		2,051
Total	$	820,617	$	927,951	$	297,721	$	348,634	$	17,953	$	77,330	$	2,490,206

The Company closely monitors the performance of its loan portfolio for both the Bank and HPFC. 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. 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 return 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, 2016
Residential real estate	$	1,862	$	456	$	3,592	$	5,910	$	794,646	$	800,556	$	—	$	4,697
Commercial real estate	1,519		12,516		1,726		15,761		1,002,016		1,017,777		—		13,752
Commercial	3,296		78		756		4,130		332,387		336,517		—		3,539
Home equity	941		161		1,289		2,391		339,590		341,981		—		1,611
Consumer	13		—		7		20		17,798		17,818		—		4
HPFC	687		188		222		1,097		69,554		70,651		112		110
Total	$	8,318	$	13,399	$	7,592	$	29,309	$	2,555,991	$	2,585,300	$	112	$	23,713
December 31, 2015
Residential real estate	$	3,325	$	571	$	6,077	$	9,973	$	810,644	$	820,617	$	—	$	7,253
Commercial real estate	4,219		2,427		1,584		8,230		919,721		927,951		—		4,529
Commercial	267		550		1,002		1,819		295,902		297,721		—		4,489
Home equity	643		640		1,505		2,788		345,846		348,634		—		1,933
Consumer	112		7		118		237		17,716		17,953		—		118
HPFC	165		—		—		165		77,165		77,330		—		—
Total	$	8,731	$	4,195	$	10,286	$	23,212	$	2,466,994	$	2,490,206	$	—	$	18,322

Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms was $240,000, $424,000, $129,000 and $272,000 for the three and six months ended June 30, 2016 and 2015, respectively.

TDRs:

The Company takes a conservative approach with 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 are 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 the periods indicated:



	Number of Contracts		Recorded Investment				Specific Reserve
	June 30, 2016	December 31, 2015	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Residential real estate	21	22	$	3,273	$	3,398	$	497	$	544
Commercial real estate	3	6	1,024		1,459		—		48
Commercial	7	9	316		399		—		11
Home equity	1	1	19		21		—		—
Total	32	38	$	4,632	$	5,277	$	497	$	603

At June 30, 2016, the Company had performing and non-performing TDRs with a recorded investment balance of $4.5 million and $147,000, respectively. At December 31, 2015, the Company had performing and non-performing TDRs with a recorded investment balance of $4.8 million and $446,000, respectively. As of June 30, 2016 and December 31, 2015, the Company did not have any commitments to lend additional funds to borrowers with loans classified as TDRs.

There were no loan modifications that occurred during the six months ended June 30, 2016 or 2015 that qualify as TDRs.

For the six months ended June 30, 2016 and 2015, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.

Impaired Loans:

Impaired loans consist of non-accrual and TDR loans that are individually evaluated for impairment in accordance with the Company's policy. The following is a summary of impaired loan balances and the associated allowance by portfolio segment as of and for three and six months ended June 30, 2016 and 2015, and as of and for the year-ended December 31, 2015:



							Three Months Ended					Six Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment			Interest Income Recognized
June 30, 2016:
With an allowance recorded:
Residential real estate	$	3,067	$	3,067	$	497	$	3,156	$	25		$	3,137		$	52
Commercial real estate	99		99		29		1,256		—			847			—
Commercial	2,744		2,744		1,400		239		—			633			—
Home equity	303		303		89		303		—			309			—
Consumer	—		—		—		—		—			(11		)	—
HPFC	—		—		—		256		—			128			—
Ending balance	6,213		6,213		2,015		5,210		25			5,043			52
Without an allowance recorded:
Residential real estate	1,859		2,347		—		3,071		4			2,547			4
Commercial real estate	2,241		2,765		—		2,655		23			2,475			25
Commercial	717		814		—		3,978		(3		)	3,281			8
Home equity	200		387		—		220		(4		)	178			—
Consumer	7		10		—		7		—			18			—
HPFC	—		—		—		—		—			—			—
Ending balance	5,024		6,323		—		9,931		20			8,499			37
Total impaired loans	$	11,237	$	12,536	$	2,015	$	15,141	$	45		$	13,542		$	89
June 30, 2015:
With an allowance recorded:
Residential real estate	$	4,111	$	4,111	$	724	$	4,298	$	27		$	4,187		$	56
Commercial real estate	468		501		240		154		—			223			—
Commercial	217		217		136		213		1			228			1
Home equity	303		303		89		50		—			101			—
Consumer	140		140		78		140		—			140			—
HPFC	—		—		—		—		—			—			—
Ending Balance	5,239		5,272		1,267		4,855		28			4,879			57
Without an allowance recorded:
Residential real estate	1,451		1,865		—		1,663		2			1,553			4
Commercial real estate	2,566		2,656		—		2,769		27			2,437			35
Commercial	583		712		—		544		4			585			8
Home equity	683		927		—		474		—			644			—
Consumer	17		37		—		17		—			17			—
HPFC	—		—		—		—		—			—			—
Ending Balance	5,300		6,197		—		5,467		33			5,236			47
Total impaired loans	$	10,539	$	11,469	$	1,267	$	10,322	$	61		$	10,115		$	104



							Year Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2015:
With an allowance recorded:
Residential real estate	$	3,191	$	3,191	$	544	$	6,064	$	112
Commercial real estate	1,825		1,857		644		1,753		—
Commercial	156		156		92		945		2
Home equity	303		303		89		900		—
Consumer	—		—		—		195		—
HPFC	—		—		—		—		—
Ending Balance	5,475		5,507		1,369		9,857		114
Without an allowance recorded:
Residential real estate	2,835		4,353		—		2,175		8
Commercial real estate	2,785		3,426		—		2,719		65
Commercial	3,781		4,325		—		1,412		17
Home equity	285		688		—		369		—
Consumer	74		150		—		20		—
HPFC	—		—		—		—		—
Ending Balance	9,760		12,942		—		6,695		90
Total impaired loans	$	15,235	$	18,449	$	1,369	$	16,552	$	204

The impaired loan information presented above as of June 30, 2015, and for the three and six months ended June 30, 2015 and year ended December 31, 2015, was revised to disclose only those impaired loans that are individually evaluated for impairment in accordance with the Company's policy, which includes (i) loans with a principal balance greater than $250,000 or more and are classified as substandard or doubtful and are on non-accrual status and (ii) all TDRs. Previously, the Company's impaired loan disclosures included certain non-accrual loans which were collectively evaluated under ASC 450-20. The revision of prior period information had no impact on the Company's ALL, provision for loan losses, or its asset quality ratios as of June 30, 2015, and for the three and six months ended June 30, 2015 and year ended December 31, 2015,

Loan Sales:

For the three and six months ended June 30, 2016 and 2015, the Company sold $56.3 million, $95.2 million, $7.7 million and $12.5 million, respectively, of fixed rate residential mortgage loans on the secondary market that resulted in gains on the sale of loans (net of costs) of $1.3 million, $2.2 million, $158,000 and $288,000, respectively.

At June 30, 2016 and December 31, 2015, the Company had certain residential mortgage loans with a principal balance of $22.6 million and $10.8 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale and for the three and six months ended June 30, 2016 and 2015, the Company recorded within non-interest income on its consolidated statements of income the net change in unrealized gains of $147,000, $153,000, $12,000 and $18,000, respectively.

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, 2016, the Company had two residential and four commercial real estate properties with a carrying value of $80,000 and $775,000, respectively, within OREO. At December 31, 2015, the Company had two residential real estate properties and seven commercial properties with a carrying value of $241,000 and $1.0 million, respectively, within OREO.

In-Process Foreclosure Proceedings:

At June 30, 2016 and December 31, 2015, the Company had $1.7 million and $2.9 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process, representing 27% and 32%, respectively, of non-accrual 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 $1.1 billion and $1.1 billion at June 30, 2016 and December 31, 2015.

Refer to Note 3 and 11 of the consolidated financial statements for discussion of securities pledged as collateral.