LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio, excluding residential loans held for sale, was as follows for the dates indicated:



(In thousands)	June 30, 2019		December 31, 2018
Residential real estate	$	1,035,792	$	992,866
Commercial real estate	1,260,639		1,269,533
Commercial	428,676		381,780
Home equity	323,536		327,763
Consumer	23,665		20,624
HPFC	28,016		33,656
Total loans	$	3,100,324	$	3,026,222

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 for the dates indicated:



(In thousands)	June 30, 2019			December 31, 2018
Net unamortized fair value mark discount on acquired loans	$	3,240		$	3,936
Net unamortized loan origination costs	(2,586		)	(1,865		)
Total	$	654		$	2,071

The Bank’s lending activities are primarily conducted in Maine, but also include loan production offices in Massachusetts and New Hampshire. The Company originates single- 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.

In the normal course of business, the Bank makes loans to certain officers, directors and their associated companies, under terms that are consistent with the Company's lending policies and regulatory requirements and that do not involve more than the normal risk of collectability or present other unfavorable features At June 30, 2019 and December 31, 2018, outstanding loans to certain officers, directors and their associated companies was less than 5% of the Company's shareholders' equity.

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. In 2016, the Company closed HPFC's operations and is no longer originating HPFC 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, 2019.

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. 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 manage the portfolio proactively 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 the following:

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, including for investment purposes.

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 and equipment, and/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 include 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 in 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 original terms range from seven to ten years.

The following presents the activity in the ALL and select loan information by portfolio segment for the periods indicated:



(In thousands)	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Total
For The Three and Six Months Ended June 30, 2019
ALL for the three months ended:
Beginning balance	$	6,153		$	11,838		$	3,616		$	3,027		$	259		$	308		$	25,201
Loans charged off	(14		)	—			(217		)	(34		)	(6		)	—			(271		)
Recoveries	2			3			49			—			4			—			58
Provision (credit)⁽¹⁾	108			311			659			(1		)	126			(28		)	1,175
Ending balance	$	6,249		$	12,152		$	4,107		$	2,992		$	383		$	280		$	26,163
ALL for the six months ended:
Beginning balance	$	6,071		$	11,654		$	3,620		$	2,796		$	234		$	337		$	24,712
Loans charged off	(25		)	(65		)	(453		)	(44		)	(20		)	—			(607		)
Recoveries	4			7			111			—			11			—			133
Provision (credit)⁽¹⁾	199			556			829			240			158			(57		)	1,925
Ending balance	$	6,249		$	12,152		$	4,107		$	2,992		$	383		$	280		$	26,163
ALL balance attributable to loans:
Individually evaluated for impairment	$	524		$	27		$	322		$	310		$	—		$	—		$	1,183
Collectively evaluated for impairment	5,725			12,125			3,785			2,682			383			280			24,980
Total ending ALL	$	6,249		$	12,152		$	4,107		$	2,992		$	383		$	280		$	26,163
Loans:
Individually evaluated for impairment	$	4,472		$	409		$	675		$	887		$	—		$	—		$	6,443
Collectively evaluated for impairment	1,031,320			1,260,230			428,001			322,649			23,665			28,016			3,093,881
Total ending loans balance	$	1,035,792		$	1,260,639		$	428,676		$	323,536		$	23,665		$	28,016		$	3,100,324
For The Three and Six Months Ended June 30, 2018
ALL for the three months ended:
Beginning balance	$	5,497		$	10,286		$	4,126		$	2,427		$	230		$	424		$	22,990
Loans charged off	(85		)	(86		)	(127		)	(75		)	(16		)	—			(389		)
Recoveries	15			2			57			1			2			—			77
Provision (credit)⁽¹⁾	352			108			247			263			44			(24		)	990
Ending balance	$	5,779		$	10,310		$	4,303		$	2,616		$	260		$	400		$	23,668
ALL for the six months ended:
Beginning balance	$	5,086		$	11,863		$	4,171		$	2,367		$	233		$	451		$	24,171
Loans charged off	(116		)	(512		)	(298		)	(224		)	(42		)	—			(1,192		)
Recoveries	15			15			120			44			5			—			199
Provision⁽¹⁾	794			(1,056		)	310			429			64			(51		)	490
Ending balance	$	5,779		$	10,310		$	4,303		$	2,616		$	260		$	400		$	23,668
ALL balance attributable to loans:
Individually evaluated for impairment	$	585		$	23		$	—		$	226		$	—		$	—		$	834
Collectively evaluated for impairment	5,194			10,287			4,303			2,390			260			400			22,834
Total ending ALL	$	5,779		$	10,310		$	4,303		$	2,616		$	260		$	400		$	23,668
Loans:
Individually evaluated for impairment	$	5,400		$	5,093		$	1,611		$	487		$	—		$	—		$	12,591
Collectively evaluated for impairment	902,510			1,184,959			384,782			323,184			19,506			39,997			2,854,938
Total ending loans balance	$	907,910		$	1,190,052		$	386,393		$	323,671		$	19,506		$	39,997		$	2,867,529



(In thousands)	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Total
For The Year Ended December 31, 2018
ALL:
Beginning balance	$	5,086		$	11,863		$	4,171		$	2,367		$	233		$	451		$	24,171
Loans charged off	(173		)	(512		)	(736		)	(476		)	(96		)	(255		)	(2,248		)
Recoveries	90			28			1,770			44			11			1			1,944
Provision (credit)⁽¹⁾	1,068			275			(1,585		)	861			86			140			845
Ending balance	$	6,071		$	11,654		$	3,620		$	2,796		$	234		$	337		$	24,712
ALL balance attributable to loans:
Individually evaluated for impairment	$	586		$	23		$	53		$	162		$	—		$	—		$	824
Collectively evaluated for impairment	5,485			11,631			3,567			2,634			234			337			23,888
Total ending ALL	$	6,071		$	11,654		$	3,620		$	2,796		$	234		$	337		$	24,712
Loans:
Individually evaluated for impairment	$	4,762		$	930		$	786		$	442		$	6		$	—		$	6,926
Collectively evaluated for impairment	988,104			1,268,603			380,994			327,321			20,618			33,656			3,019,296
Total ending loans balance	$	992,866		$	1,269,533		$	381,780		$	327,763		$	20,624		$	33,656		$	3,026,222

(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, 2019 and 2018, and December 31, 2018, the reserve for unfunded commitments was $14,000, $16,000 and $22,000, respectively.

The following reconciles the provision for loan losses to the provision for credit losses as presented on the consolidated statements of income for the periods indicated:



	Three Months Ended June 30,						Six Months Ended June 30,						Year Ended December 31, 2018
(In thousands)	2019			2018			2019			2018			Year Ended December 31, 2018
Provision for loan losses	$	1,175		$	990		$	1,925		$	490		$	845
Change in reserve for unfunded commitments	(2		)	(7		)	(8		)	(4		)	2
Provision for credit losses	$	1,173		$	983		$	1,917		$	486		$	847

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 June 30, 2019, the Company's total exposure to the lessors of nonresidential buildings' industry was 12% of total loans and 31% of total commercial real estate loans. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of June 30, 2019.

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:



(In thousands)	Residential Real Estate		Commercial Real Estate		Commercial		Home Equity		Consumer		HPFC		Total
June 30, 2019
Pass (Grades 1-6)	$	1,026,460	$	1,229,524	$	423,281	$	—	$	—	$	26,758	$	2,706,023
Performing	—		—		—		320,866		23,284		—		344,150
Special Mention (Grade 7)	482		15,072		2,051		—		—		98		17,703
Substandard (Grade 8)	8,850		16,043		3,344		—		—		1,160		29,397
Non-performing	—		—		—		2,670		381		—		3,051
Total	$	1,035,792	$	1,260,639	$	428,676	$	323,536	$	23,665	$	28,016	$	3,100,324
December 31, 2018
Pass (Grades 1-6)	$	983,086	$	1,247,190	$	374,429	$	—	$	—	$	32,261	$	2,636,966
Performing	—		—		—		325,917		20,595		—		346,512
Special Mention (Grade 7)	887		7,921		3,688		—		—		123		12,619
Substandard (Grade 8)	8,893		14,422		3,663		—		—		1,272		28,250
Non-performing	—		—		—		1,846		29		—		1,875
Total	$	992,866	$	1,269,533	$	381,780	$	327,763	$	20,624	$	33,656	$	3,026,222

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 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:



(In thousands)	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, 2019
Residential real estate	$	1,530	$	1,396	$	4,301	$	7,227	$	1,028,565	$	1,035,792	$	—	$	5,566
Commercial real estate	2,194		2,126		423		4,743		1,255,896		1,260,639		—		1,590
Commercial	1,380		20		768		2,168		426,508		428,676		—		785
Home equity	777		153		2,277		3,207		320,329		323,536		—		2,672
Consumer	57		14		367		438		23,227		23,665		14		367
HPFC	—		171		381		552		27,464		28,016		—		465
Total	$	5,938	$	3,880	$	8,517	$	18,335	$	3,081,989	$	3,100,324	$	14	$	11,445
December 31, 2018
Residential real estate	$	3,300	$	2,046	$	4,520	$	9,866	$	983,000	$	992,866	$	—	$	5,492
Commercial real estate	1,794		369		1,108		3,271		1,266,262		1,269,533		—		1,380
Commercial	150		19		799		968		380,812		381,780		—		1,279
Home equity	907		607		1,476		2,990		324,773		327,763		—		1,846
Consumer	67		15		29		111		20,513		20,624		14		15
HPFC	—		183		423		606		33,050		33,656		—		518
Total	$	6,218	$	3,239	$	8,355	$	17,812	$	3,008,410	$	3,026,222	$	14	$	10,530

Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms was $115,000 and $174,000 for the three months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019 and 2018, the interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms was $224,000 and $336,000, 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
(In thousands, except number of contracts)	June 30, 2019	December 31, 2018	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Residential real estate	22	25	$	3,342	$	3,614	$	381	$	443
Commercial real estate	2	2	343		347		27		23
Commercial	2	2	133		141		—		—
Home equity	1	2	299		304		125		162
Total	27	31	$	4,117	$	4,406	$	533	$	628

At June 30, 2019, the Company had performing and non-performing TDRs with a recorded investment balance of $3.5 million and $606,000, respectively. At December 31, 2018, the Company had performing and non-performing TDRs with a recorded investment balance of $3.9 million and $513,000, respectively.

The following represents loan modifications that qualify as TDRs that occurred for the three and six months ended June 30, 2019 and 2018:



(In thousands, except number of contracts)	Number of Contracts		Pre-Modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment				Specific Reserve
(In thousands, except number of contracts)	2019	2018	2019		2018		2019		2018		2019		2018
For the three and six months ended
Residential real estate:
Interest rate and maturity concession	—	1	$	—	$	163	$	—	$	186	$	—	$	39
Total	—	1	$	—	$	163	$	—	$	186	$	—	$	39

For the three and six months ended June 30, 2019, 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, 2018, one home equity loan with a recorded investment of $299,000 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 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 periods indicated:



							For the Three Months Ended					For the Six Months Ended
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized
June 30, 2019:
With an allowance recorded:
Residential real estate	$	3,286	$	3,286	$	524	$	3,370	$	26		$	3,404	$	56
Commercial real estate	131		131		27		131		5			131		6
Commercial	461		461		322		230		—			339		—
Home equity	828		828		310		828		—			658		—
Consumer	—		—		—		—		—			—		—
HPFC	—		—		—		—		—			—		—
Ending balance	4,706		4,706		1,183		4,559		31			4,532		62
Without an allowance recorded:
Residential real estate	1,186		1,310		—		1,234		7			1,253		17
Commercial real estate	278		437		—		278		4			452		7
Commercial	214		278		—		219		2			222		4
Home equity	59		197		—		63		—			84		—
Consumer	—		—		—		—		—			2		—
HPFC	—		—		—		—		—			—		—
Ending balance	1,737		2,222		—		1,794		13			2,013		28
Total impaired loans	$	6,443	$	6,928	$	1,183	$	6,353	$	44		$	6,545	$	90
June 30, 2018:
With an allowance recorded:
Residential real estate	$	3,506	$	3,506	$	585	$	3,525	$	39		$	3,636	$	69
Commercial real estate	351		351		23		1,971		10			3,121		11
Commercial	—		—		—		—		—			—		—
Home equity	465		465		226		306		—			204		—
Consumer	—		—		—		—		—			—		—
HPFC	—		—		—		—		—			—		—
Ending Balance	4,322		4,322		834		5,802		49			6,961		80
Without an allowance recorded:
Residential real estate	1,894		2,200		—		1,704		7			1,574		14
Commercial real estate	4,742		5,080		—		2,556		(3		)	1,963		—
Commercial	1,611		2,785		—		1,663		2			1,705		4
Home equity	22		61		—		183		(2		)	265		—
Consumer	—		—		—		—		—			—		—
HPFC	—		—		—		—		—			—		—
Ending Balance	8,269		10,126		—		6,106		4			5,507		18
Total impaired loans	$	12,591	$	14,448	$	834	$	11,908	$	53		$	12,468	$	98



							For the Year Ended
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2018:
With an allowance recorded:
Residential real estate	$	3,471	$	3,471	$	586	$	3,591	$	127
Commercial real estate	131		131		23		1,969		11
Commercial	556		556		53		111		—
Home equity	318		318		162		250		—
Consumer	—		—		—		—		—
HPFC	—		—		—		—		—
Ending Balance	4,476		4,476		824		5,921		138
Without an allowance recorded:
Residential real estate	1,291		1,415		—		1,524		34
Commercial real estate	799		975		—		2,269		13
Commercial	230		293		—		1,379		8
Home equity	124		305		—		195		—
Consumer	6		13		—		1		—
HPFC	—		—		—		—		—
Ending Balance	2,450		3,001		—		5,368		55
Total impaired loans	$	6,926	$	7,477	$	824	$	11,289	$	193

Loan Sales:

For the three months ended June 30, 2019 and 2018, the Company sold $49.6 million and $52.0 million, respectively, of fixed rate residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $1.2 million and $1.3 million, respectively. For the six months ended June 30, 2019 and 2018, the Company sold $77.6 million and $97.2 million, respectively, of fixed rate residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $2.0 million and $2.6 million, respectively.

At June 30, 2019 and December 31, 2018, the Company had certain residential mortgage loans with a principal balance of $13.1 million and $4.3 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 June 30, 2019 and December 31, 2018, recorded an unrealized gain of $25,000 and $89,000, respectively. For the three months ended June 30, 2019 and 2018, the net change in unrealized gains on loans held for sale recorded within mortgage banking income, net, on its consolidated statements of income was ($60,000) and $23,000, respectively. For the six months ended June 30, 2019 and 2018, the net change in unrealized gains on loans held for sale recorded within mortgage banking income, net, on its consolidated statements of income was ($64,000) and $32,000, respectively.

The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at June 30, 2019 and December 31, 2018. Refer to Note 8 for further discussion of the Company's forward delivery commitments.

In-Process Foreclosure Proceedings:

At June 30, 2019 and December 31, 2018, the Company had $2.5 million and $2.3 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 $1.2 billion and $1.1 billion at June 30, 2019 and December 31, 2018, respectively.

Refer to Notes 3 and 7 of the consolidated financial statements for discussion of securities pledged as collateral.