LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio, excluding residential loans held for sale, at September 30, 2017 and December 31, 2016 was as follows:



	September 30, 2017		December 31, 2016
Residential real estate	$	852,851	$	802,494
Commercial real estate	1,131,883		1,050,780
Commercial	369,155		333,639
Home equity	328,328		329,907
Consumer	18,123		17,332
HPFC	47,950		60,412
Total loans	$	2,748,290	$	2,594,564

The loan balances for each portfolio segment presented above are net of their respective unamortized fair value mark discount on acquired loans and net of unamortized loan origination costs totaling:



	September 30, 2017			December 31, 2016
Net unamortized fair value mark discount on acquired loans	$	6,782		$	8,810
Net unamortized loan origination costs	(612		)	(66		)
Total	$	6,170		$	8,744

The Bank’s lending activities are primarily conducted in Maine, but also include a mortgage loan production office in Massachusetts and a commercial loan production office in New Hampshire. 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. 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.

Effective January 1, 2017, the Company's internal policy for assessing individual loans for impairment was changed to increase the principal balance threshold for a loan from $250,000 to $500,000. The qualitative factors for assessing a loan individually for impairment in accordance with the Company's internal policy were unchanged, and continue to require the loan to be classified as substandard or doubtful and on non-accrual status. There were no other significant changes in the Company's ALL methodology during the nine months ended September 30, 2017.

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 Company's Credit Risk Administration and the Credit Risk Policy Committee oversee the 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. Prior to the Company's closing of HPFC's operations, effective February 19, 2016, it provided commercial lending to dentists, optometrists and veterinarians, many of which were 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 consists 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 presents the activity in the ALL and select loan information by portfolio segment for the three and nine months ended September 30, 2017 and 2016, and for the year ended December 31, 2016:



	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Total
For The Three and Nine Months Ended September 30, 2017
ALL for the three months ended:
Beginning balance	$	4,481		$	12,848		$	4,275		$	2,094		$	182		$	514		$	24,394
Loans charged off	(238		)	(69		)	(369		)	(11		)	(28		)	(193		)	(908		)
Recoveries	26			25			59			1			9			5			125
Provision (credit)⁽¹⁾	273			(8		)	256			93			32			156			802
Ending balance	$	4,542		$	12,796		$	4,221		$	2,177		$	195		$	482		$	24,413
ALL for the nine months ended:
Beginning balance	$	4,160		$	12,154		$	3,755		$	2,194		$	181		$	672		$	23,116
Loans charged off	(433		)	(81		)	(650		)	(403		)	(90		)	(274		)	(1,931		)
Recoveries	30			138			254			2			13			5			442
Provision⁽¹⁾	785			585			862			384			91			79			2,786
Ending balance	$	4,542		$	12,796		$	4,221		$	2,177		$	195		$	482		$	24,413
ALL balance attributable to loans:
Individually evaluated for impairment	$	464		$	1,470		$	—		$	—		$	—		$	—		$	1,934
Collectively evaluated for impairment	4,078			11,326			4,221			2,177			195			482			22,479
Total ending ALL	$	4,542		$	12,796		$	4,221		$	2,177		$	195		$	482		$	24,413
Loans:
Individually evaluated for impairment	$	4,792		$	6,373		$	1,842		$	423		$	—		$	—		$	13,430
Collectively evaluated for impairment	848,059			1,125,510			367,313			327,905			18,123			47,950			2,734,860
Total ending loans balance	$	852,851		$	1,131,883		$	369,155		$	328,328		$	18,123		$	47,950		$	2,748,290
For The Three and Nine Months Ended September 30, 2016
ALL for the three months ended:
Beginning balance	$	4,431		$	11,559		$	4,558		$	2,946		$	193		$	30		$	23,717
Loans charged off	—			(32		)	(1,541		)	(44		)	(19		)	(205		)	(1,841		)
Recoveries	1			7			118			—			1			—			127
Provision (credit)⁽¹⁾	163			1,046			148			(335		)	(13		)	278			1,287
Ending balance	$	4,595		$	12,580		$	3,283		$	2,567		$	162		$	103		$	23,290
ALL for the nine months ended:
Beginning balance	$	4,545		$	10,432		$	3,241		$	2,731		$	193		$	24		$	21,166
Loans charged off	(229		)	(273		)	(1,970		)	(229		)	(60		)	(507		)	(3,268		)
Recoveries	72			50			252			2			5			—			381
Provision⁽¹⁾	207			2,371			1,760			63			24			586			5,011
Ending balance	$	4,595		$	12,580		$	3,283		$	2,567		$	162		$	103		$	23,290
ALL balance attributable to loans:
Individually evaluated for impairment	$	511		$	1,284		$	—		$	88		$	—		$	74		$	1,957
Collectively evaluated for impairment	4,084			11,296			3,283			2,479			162			29			21,333
Total ending ALL	$	4,595		$	12,580		$	3,283		$	2,567		$	162		$	103		$	23,290
Loans:
Individually evaluated for impairment	$	4,551		$	13,286		$	2,243		$	489		$	7		$	106		$	20,682
Collectively evaluated for impairment	792,485			1,041,021			322,179			332,606			17,409			65,627			$	2,571,327
Total ending loans balance	$	797,036		$	1,054,307		$	324,422		$	333,095		$	17,416		$	65,733		$	2,592,009



	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Total
For The Year Ended December 31, 2016
ALL:
Beginning balance	$	4,545		$	10,432		$	3,241		$	2,731		$	193		$	24		$	21,166
Loans charged off	(356		)	(315		)	(2,218		)	(308		)	(101		)	(507		)	(3,805		)
Recoveries	95			50			332			2			7			—			486
Provision (credit)⁽¹⁾	(124		)	1,987			2,400			(231		)	82			1,155			5,269
Ending balance	$	4,160		$	12,154		$	3,755		$	2,194		$	181		$	672		$	23,116
ALL balance attributable to loans:
Individually evaluated for impairment	$	483		$	1,373		$	—		$	86		$	—		$	65		$	2,007
Collectively evaluated for impairment	3,677			10,781			3,755			2,108			181			607			21,109
Total ending ALL	$	4,160		$	12,154		$	3,755		$	2,194		$	181		$	672		$	23,116
Loans:
Individually evaluated for impairment	$	4,348		$	13,317		$	2,028		$	457		$	7		$	97		$	20,254
Collectively evaluated for impairment	798,146			1,037,463			331,611			329,450			17,325			60,315			2,574,310
Total ending loans balance	$	802,494		$	1,050,780		$	333,639		$	329,907		$	17,332		$	60,412		$	2,594,564

(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 September 30, 2017 and 2016, and December 31, 2016, the reserve for unfunded commitments was $22,000, $14,000 and $11,000, respectively.

The following reconciles the three and nine months ended September 30, 2017 and 2016, and year ended December 31, 2016 provision for loan losses to the provision for credit losses as presented on the consolidated statement of income:



	Three Months Ended September 30,					Nine Months Ended September 30,					Year Ended December 31, 2016
	2017		2016			2017		2016			Year Ended December 31, 2016
Provision for loan losses	$	802	$	1,287		$	2,786	$	5,011		$	5,269
Change in reserve for unfunded commitments	15		(8		)	11		(8		)	(11		)
Provision for credit losses	$	817	$	1,279		$	2,797	$	5,003		$	5,258

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 Company's Credit Risk Administration. As of September 30, 2017, the non-residential building operators' industry exposure was 11% of the Company's total loan portfolio and 27% of the total commercial real estate portfolio. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of September 30, 2017.

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 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
September 30, 2017
Pass (Grades 1-6)	$	841,539	$	1,086,856	$	361,343	$	—	$	—	$	45,920	$	2,335,658
Performing	—		—		—		326,702		18,123		—		344,825
Special Mention (Grade 7)	933		16,663		1,770		—		—		209		19,575
Substandard (Grade 8)	10,379		28,364		4,645		—		—		1,821		45,209
Doubtful (Grade 9)	—		—		1,397		—		—		—		1,397
Non-performing	—		—		—		1,626		—		—		1,626
Total	$	852,851	$	1,131,883	$	369,155	$	328,328	$	18,123	$	47,950	$	2,748,290
December 31, 2016
Pass (Grades 1-6)	$	789,554	$	1,003,386	$	321,148	$	—	$	—	$	58,943	$	2,173,031
Performing	—		—		—		328,287		17,328		—		345,615
Special Mention (Grade 7)	2,387		5,724		5,598		—		—		257		13,966
Substandard (Grade 8)	10,553		41,670		5,437		—		—		1,212		58,872
Doubtful (Grade 9)	—		—		1,456		—		—		—		1,456
Non-performing	—		—		—		1,620		4		—		1,624
Total	$	802,494	$	1,050,780	$	333,639	$	329,907	$	17,332	$	60,412	$	2,594,564

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. 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
September 30, 2017
Residential real estate	$	3,308	$	157	$	3,393	$	6,858	$	845,993	$	852,851	$	—	$	4,465
Commercial real estate	1,036		1,260		5,761		8,057		1,123,826		1,131,883		—		5,887
Commercial	721		—		1,484		2,205		366,950		369,155		—		1,830
Home equity	1,022		284		1,375		2,681		325,647		328,328		—		1,626
Consumer	29		15		—		44		18,079		18,123		—		—
HPFC	646		834		297		1,777		46,173		47,950		—		838
Total	$	6,762	$	2,550	$	12,310	$	21,622	$	2,726,668	$	2,748,290	$	—	$	14,646
December 31, 2016
Residential real estate	$	1,783	$	924	$	2,904	$	5,611	$	796,883	$	802,494	$	—	$	3,945
Commercial real estate	855		223		12,625		13,703		1,037,077		1,050,780		—		12,849
Commercial	633		218		1,675		2,526		331,113		333,639		—		2,088
Home equity	892		134		1,321		2,347		327,560		329,907		—		1,620
Consumer	38		—		4		42		17,290		17,332		—		4
HPFC	438		688		110		1,236		59,176		60,412		—		207
Total	$	4,639	$	2,187	$	18,639	$	25,465	$	2,569,099	$	2,594,564	$	—	$	20,713

Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms was $187,000, $673,000, $251,000, and $675,000 for the three and nine months ended September 30, 2017 and 2016, 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. TDRs 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 net realizable value, 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
	September 30, 2017	December 31, 2016	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Residential real estate	25	21	$	3,728	$	3,221	$	464	$	483
Commercial real estate	3	3	987		1,008		19		—
Commercial	8	10	1,393		1,502		—		—
Home equity	2	1	308		16		—		—
Total	38	35	$	6,416	$	5,747	$	483	$	483

At September 30, 2017, the Company had performing and non-performing TDRs with a recorded investment balance of $5.2 million and $1.3 million, respectively. At December 31, 2016, the Company had performing and non-performing TDRs with a recorded investment balance of $4.3 million and $1.4 million, respectively.

The following represents loan modifications that qualify as TDRs that occurred for the three and nine months ended September 30, 2017 and 2016:



	Number of Contracts		Pre-Modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment				Specific Reserve
	2017	2016	2017		2016		2017		2016		2017		2016
For the three months ended
Commercial:
Maturity concession	—	6	$	—	$	1,344	$	—	$	1,652	$	—	$	—
Residential real estate:
Interest rate concession	1	—	134		—		145		—		—		—
Maturity concession	1	—	147		—		147		—		—		—
Interest rate and maturity concession	1	—	148		—		156		—		29		—
Total	3	6	$	429	$	1,344	$	448	$	1,652	$	29	$	—
For the nine months ended
Commercial:
Maturity concession	—	6	$	—	$	1,344	$	—	$	1,652	$	—	$	—
Residential real estate:
Interest rate concession	1	—	134		—		145		—		—		—
Maturity concession	2	—	298		—		298		—		15		—
Interest rate and maturity concession	1	—	148		—		156		—		29		—
Home equity:
Interest rate and maturity concession	1	—	315		—		315		—		—		—
Total	5	6	$	895	$	1,344	$	914	$	1,652	$	44	$	—

For the three and nine months ended September 30, 2017 and 2016, 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 loans and TDRs 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 the three and nine months ended September 30, 2017 and 2016, and as of and for the year-ended December 31, 2016:



							Three Months Ended					Nine Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized⁽¹⁾			Average Recorded Investment		Interest Income Recognized
September 30, 2017:
With an allowance recorded:
Residential real estate	$	3,262	$	3,262	$	464	$	3,194	$	48		$	3,084	$	103
Commercial real estate	5,589		5,589		1,470		6,590		4			10,048		15
Commercial	—		—		—		82		—			41		—
Home equity	—		—		—		—		—			167		—
Consumer	—		—		—		—		—			—		—
HPFC	—		—		—		—		—			33		—
Ending balance	8,851		8,851		1,934		9,866		52			13,373		118
Without an allowance recorded:
Residential real estate	1,530		1,949		—		1,427		15			1,349		15
Commercial real estate	784		1,032		—		794		15			1,250		22
Commercial	1,842		3,015		—		1,891		(6		)	1,959		8
Home equity	423		482		—		440		1			271		6
Consumer	—		—		—		—		(4		)	3		—
HPFC	—		—		—		—		—			—		—
Ending balance	4,579		6,478		—		4,552		21			4,832		51
Total impaired loans	$	13,430	$	15,329	$	1,934	$	14,418	$	73		$	18,205	$	169
September 30, 2016:
With an allowance recorded:
Residential real estate	$	3,041	$	3,041	$	511	$	3,050	$	56		$	3,108	$	81
Commercial real estate	11,354		11,354		1,284		7,582		—			3,092		—
Commercial	—		—		—		1,782		—			1,016		—
Home equity	302		302		88		303		—			307		—
Consumer	—		—		—		—		—			—		—
HPFC	106		106		74		35		—			97		—
Ending Balance	14,803		14,803		1,957		12,752		56			7,620		81
Without an allowance recorded:
Residential real estate	1,510		1,996		—		1,731		7			2,275		7
Commercial real estate	1,932		2,427		—		2,015		33			2,322		37
Commercial	2,243		4,667		—		1,354		(11		)	2,639		12
Home equity	187		374		—		188		3			181		—
Consumer	7		10		—		7		4			7		—
HPFC	—		—		—		—		—			—		—
Ending Balance	5,879		9,474		—		5,295		36			7,424		56
Total impaired loans	$	20,682	$	24,277	$	1,957	$	18,047	$	92		$	15,044	$	137

(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.



							Year Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2016:
With an allowance recorded:
Residential real estate	$	3,019	$	3,019	$	483	$	3,088	$	106
Commercial real estate	11,443		11,443		1,373		5,165		—
Commercial	—		—		—		762		—
Home equity	299		299		86		305		—
Consumer	—		—		—		—		—
HPFC	97		97		65		98		—
Ending Balance	14,858		14,858		2,007		9,418		106
Without an allowance recorded:
Residential real estate	1,329		1,800		—		2,057		9
Commercial real estate	1,874		2,369		—		2,214		51
Commercial	2,028		3,209		—		2,507		16
Home equity	158		368		—		180		—
Consumer	7		10		—		12		—
HPFC	—		—		—		—		—
Ending Balance	5,396		7,756		—		6,970		76
Total impaired loans	$	20,254	$	22,614	$	2,007	$	16,388	$	182

Loan Sales:

For the three and nine months ended September 30, 2017 and 2016, the Company sold $59.9 million, $150.8 million, $71.4 million, and $166.6 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 $1.6 million, $4.3 million, $2.0 million, and $4.2 million, respectively.

At September 30, 2017 and December 31, 2016, the Company had certain residential mortgage loans with a principal balance of $13.0 million and $15.1 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale, and at September 30, 2017 and December 31, 2016, recorded an unrealized loss of $26,000 and $289,000, respectively. For the three and nine months ended September 30, 2017 and 2016, the Company recorded within mortgage banking income, net on its consolidated statements of income the net change in unrealized gains (losses) of $72,000, $263,000, $(55,000), and $99,000, respectively, on its loans held for sale.

The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at September 30, 2017 and December 31, 2016. The fair value of its forward delivery commitments at September 30, 2017 and December 31, 2016 was $313,000 and $278,000, respectively. For the three months ended September 30, 2017 and 2016, the net unrealized gain from the change in fair value on the Company's forward delivery commitments reported within mortgage banking income, net on the consolidated statements of income was $16,000 and $0, respectively. For the nine months ended September 30, 2017 and 2016, the net unrealized gain from the change in fair value on the Company's forward delivery commitments reported within mortgage banking income, net on the consolidated statements of income was $35,000 and $0, respectively. Refer to Note 12 for further discussion of the Company's forward delivery commitments.

In-Process Foreclosure Proceedings:

At September 30, 2017 and December 31, 2016, the Company had $2.2 million and $1.4 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process. 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 at September 30, 2017 and December 31, 2016.

Refer to Notes 3 and 10 of the consolidated financial statements for discussion of securities pledged as collateral.