LOANS

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

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

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



	March 31, 2018						December 31, 2017
(in thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total
Commercial Real Estate:
Construction and land development	$	31,073	$	14,800	$	45,873	$	28,892	$	16,781	$	45,673
Other commercial real estate	512,093		266,755		778,848		505,119		275,954		781,073
Total Commercial Real Estate	543,166		281,555		824,721		534,011		292,735		826,746

Commercial and Industrial:
Other Commercial	210,304		65,198		275,502		198,051		68,069		266,120
Agricultural	26,309		—		26,309		27,588		—		27,588
Tax exempt	43,092		42,302		85,394		42,365		43,350		85,715
Total Commercial and Industrial	279,705		107,500		387,205		268,004		111,419		379,423

Total Commercial Loans	822,871		389,055		1,211,926		802,015		404,154		1,206,169

Residential Real Estate:
Residential mortgages	588,465		544,512		1,132,977		591,411		564,271		1,155,682
Total Residential Real Estate	588,465		544,512		1,132,977		591,411		564,271		1,155,682

Consumer:
Home equity	52,100		57,766		109,866		51,376		62,217		113,593
Other consumer	7,580		2,070		9,650		7,828		2,341		10,169
Total Consumer	59,680		59,836		119,516		59,204		64,558		123,762

Total Loans	$	1,471,016	$	993,403	$	2,464,419	$	1,452,630	$	1,032,983	$	2,485,613

The carrying amount of the acquired loans at March 31, 2018 totaled $993.4 million. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $12.1 million (and a note balance of $16.6 million). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Acquired loans considered not impaired at acquisition date had a carrying amount of $981.3 million as of March 31, 2018.

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



	Three Months Ended March 31,
(in thousands)	2018			2017
Balance at beginning of period	$	3,509		$	—
Acquisitions	—			3,398
Reclassification from nonaccretable difference for loans with improved cash flows	199			—
Changes in expected cash flows that do not affect the nonaccretable difference	—			—
Reclassification to troubled debt restructurings	—			—
Accretion	(361		)	(204		)
Balance at end of period	$	3,347		$	3,194

The following is a summary of past due loans at March 31, 2018 and December 31, 2017:

Business Activities Loans



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
March 31, 2018
Commercial Real Estate:
Construction and land development	$	—	$	2	$	566	$	568	$	30,505	$	31,073	$	—
Other commercial real estate	1,008		158		6,656		7,822		504,271		512,093		—
Total Commercial Real Estate	1,008		160		7,222		8,390		534,776		543,166		—

Commercial and Industrial:
Other Commercial	829		12		506		1,347		208,957		210,304		—
Agricultural	39		88		101		228		26,081		26,309		2
Tax exempt	—		—		—		—		43,092		43,092		—
Total Commercial and Industrial	868		100		607		1,575		278,130		279,705		2

Total Commercial Loans	1,876		260		7,829		9,965		812,906		822,871		2

Residential Real Estate:
Residential mortgages	624		810		3,772		5,206		583,259		588,465		—
Total Residential Real Estate	624		810		3,772		5,206		583,259		588,465		—

Consumer:
Home equity	174		28		349		551		51,549		52,100		—
Other consumer	132		2		—		134		7,446		7,580		—
Total Consumer	306		30		349		685		58,995		59,680		—

Total Loans	$	2,806	$	1,100	$	11,950	$	15,856	$	1,455,160	$	1,471,016	$	2

Business Activities Loans



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
December 31, 2017
Commercial Real Estate:
Construction and land development	$	—	$	—	$	637	$	637	$	28,255	$	28,892	$	—
Other commercial real estate	965		1,659		5,065		7,689		497,430		505,119		119
Total Commercial Real Estate	965		1,659		5,702		8,326		525,685		534,011		119

Commercial and Industrial:
Other Commercial	186		329		702		1,217		196,834		198,051		21
Agricultural	42		159		198		399		27,189		27,588		155
Tax exempt	—		—		—		—		42,365		42,365		—
Total Commercial and Industrial	228		488		900		1,616		266,388		268,004		176

Total Commercial Loans	1,193		2,147		6,602		9,942		792,073		802,015		295

Residential Real Estate:
Residential mortgages	3,096		711		975		4,782		586,629		591,411		—
Total Residential Real Estate	3,096		711		975		4,782		586,629		591,411		—

Consumer:
Home equity	515		—		199		714		50,662		51,376		199
Other consumer	36		24		—		60		7,768		7,828		—
Total Consumer	551		24		199		774		58,430		59,204		199

Total Loans	$	4,840	$	2,882	$	7,776	$	15,498	$	1,437,132	$	1,452,630	$	494

Acquired Loans



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Acquired Credit Impaired		Total Loans		Past Due > 90 days and Accruing
March 31, 2018
Commercial Real Estate:
Construction and land development	$	—	$	—	$	—	$	—	$	260	$	14,800	$	—
Other commercial real estate	411		—		305		716		8,350		266,755		—
Total Commercial Real Estate	411		—		305		716		8,610		281,555		—

Commercial and Industrial:
Other Commercial	208		97		148		453		459		65,198		—
Agricultural	—		—		—		—		—		—		—
Tax exempt	—		—		—		—		—		42,302		—
Total Commercial and Industrial	208		97		148		453		459		107,500		—

Total Commercial Loans	619		97		453		1,169		9,069		389,055		—

Residential Real Estate:
Residential mortgages	1,376		204		771		2,351		3,168		544,512		—
Total Residential Real Estate	1,376		204		771		2,351		3,168		544,512		—

Consumer:
Home equity	292		46		80		418		25		57,766		—
Other consumer	3		—		—		3		3		2,070		—
Total Consumer	295		46		80		421		28		59,836		—

Total Loans	$	2,290	$	347	$	1,304	$	3,941	$	12,265	$	993,403	$	—

Acquired Loans



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Acquired Credit Impaired		Total Loans		Past Due > 90 days and Accruing
December 31, 2017
Commercial Real Estate:
Construction and land development	$	124	$	9	$	—	$	133	$	258	$	16,781	$	—
Other commercial real estate	278		—		411		689		8,397		275,954		—
Total Commercial Real Estate	402		9		411		822		8,655		292,735		—

Commercial and Industrial:
Other Commercial	125		14		49		188		632		68,069		—
Agricultural	—		—		—		—		—		—		—
Tax exempt	—		—		—		—		—		43,350		—
Total Commercial and Industrial	125		14		49		188		632		111,419		—

Total Commercial Loans	527		23		460		1,010		9,287		404,154		—

Residential Real Estate:
Residential mortgages	752		388		614		1,754		3,259		564,271		—
Total Residential Real Estate	752		388		614		1,754		3,259		564,271		—

Consumer:
Home equity	125		117		80		322		38		62,217		16
Other consumer	2		—		—		2		3		2,341		—
Total Consumer	127		117		80		324		41		64,558		16

Total Loans	$	1,406	$	528	$	1,154	$	3,088	$	12,587	$	1,032,983	$	16

Non-Accrual Loans

The following is summary information pertaining to non-accrual loans at March 31, 2018 and December 31, 2017:



	March 31, 2018						December 31, 2017
(in thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total
Commercial Real Estate:
Construction and land development	$	566	$	—	$	566	$	637	$	—	$	637
Other commercial real estate	7,401		455		7,856		7,146		560		7,706
Total Commercial Real Estate	7,967		455		8,422		7,783		560		8,343

Commercial and Industrial:
Other Commercial	1,532		528		2,060		703		463		1,166
Agricultural	244		—		244		43		—		43
Tax exempt	—		—		—		—		—		—
Total Commercial and Industrial	1,776		528		2,304		746		463		1,209

Total Commercial Loans	9,743		983		10,726		8,529		1,023		9,552

Residential Real Estate:
Residential mortgages	6,527		2,021		8,548		3,408		858		4,266
Total Residential Real Estate	6,527		2,021		8,548		3,408		858		4,266

Consumer:
Home equity	624		277		901		130		217		347
Other consumer	109		55		164		95		58		153
Total Consumer	733		332		1,065		225		275		500

Total Loans	$	17,003	$	3,336	$	20,339	$	12,162	$	2,156	$	14,318

Loans evaluated for impairment as of March 31, 2018 and December 31, 2017 were as follows:

Business Activities Loans



(in thousands)	Commercial real estate		Commercial and industrial		Residential real estate		Consumer		Total
March 31, 2018
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	7,641	$	1,504	$	4,386	$	362	$	13,893
Collectively evaluated	535,525		278,201		584,079		59,318		1,457,123
Total	$	543,166	$	279,705	$	588,465	$	59,680	$	1,471,016

Business Activities Loans



(in thousands)	Commercial real estate		Commercial and industrial		Residential real estate		Consumer		Total
December 31, 2017
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	7,604	$	626	$	1,404	$	13	$	9,647
Collectively evaluated	526,407		267,378		590,007		59,191		1,442,983
Total	$	534,011	$	268,004	$	591,411	$	59,204	$	1,452,630

Acquired Loans



(in thousands)	Commercial real estate		Commercial and industrial		Residential real estate		Consumer		Total
March 31, 2018
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	133	$	598	$	503	$	—	$	1,234
Purchased Credit Impaired	8,610		459		3,168		28		12,265
Collectively evaluated	272,812		106,443		540,841		59,808		979,904
Total	$	281,555	$	107,500	$	544,512	$	59,836	$	993,403

Acquired Loans



(in thousands)	Commercial real estate		Commercial and industrial		Residential real estate		Consumer		Total
December 31, 2017
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	241	$	571	$	271	$	63	$	1,146
Purchased Credit Impaired	8,655		632		3,259		41		12,587
Collectively evaluated	283,839		110,216		560,741		64,454		1,019,250
Total	$	292,735	$	111,419	$	564,271	$	64,558	$	1,032,983

The following is a summary of impaired loans at March 31, 2018 and December 31, 2017:

Business Activities Loans



	March 31, 2018
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Construction and land development	$	566	$	2,491	$	—
Commercial real estate other	5,933		5,944		—
Commercial other	962		966		—
Agricultural	—		—		—
Tax exempt loans	—		—		—
Residential real estate	3,586		3,603		—
Home equity	362		463		—
Consumer other	—		—		—

With an allowance recorded:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	1,142		1,204		433
Commercial other	542		544		132
Agricultural	—		—		—
Tax exempt loans	—		—		—
Residential real estate	800		801		84
Home equity	—		—		—
Consumer other	—		—		—

Total
Commercial real estate	$	7,641	$	9,639	$	433
Commercial and industrial	1,504		1,510		132
Residential real estate	4,386		4,404		84
Consumer	362		463		—
Total impaired loans	$	13,893	$	16,016	$	649

Acquired Loans



	March 31, 2018
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	133		245		—
Commercial other	176		175		—
Agricultural	—		—		—
Tax exempt loans	—		—		—
Residential real estate	503		507		—
Home equity	—		—		—
Consumer other	—		—		—

With an allowance recorded:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	—		—		—
Commercial other	422		436		121
Agricultural	—		—		—
Tax exempt loans	—		—		—
Residential real estate	—		—		—
Home equity	—		—		—
Consumer other	—		—		—

Total
Commercial real estate	$	133	$	245	$	—
Commercial and industrial	598		611		121
Residential real estate	503		507		—
Consumer	—		—		—
Total impaired loans	$	1,234	$	1,363	$	121

Business Activities Loans



	December 31, 2017
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	5,896		5,903		—
Commercial other	218		217		—
Agricultural	—		—		—
Tax exempt loans	—		—		—
Residential real estate	1,247		1,260		—
Home equity	13		13		—
Consumer other	—		—		—

With an allowance recorded:
Construction and land development	$	637	$	2,563	$	59
Commercial real estate other	1,071		1,132		388
Commercial other	408		408		3
Agricultural	—		—		—
Tax exempt loans	—		—		—
Residential real estate	157		157		9
Home equity	—		—		—
Consumer other	—		—		—

Total
Commercial real estate	$	7,604	$	9,598	$	447
Commercial and industrial	626		625		3
Residential real estate	1,404		1,417		9
Consumer	13		13		—
Total impaired loans	$	9,647	$	11,653	$	459

Acquired Loans



	December 31, 2017
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Other commercial real estate	241		352		—
Other commercial	571		584		—
Agricultural	—		—		—
Tax exempt	—		—		—
Residential mortgages	271		278		—
Home equity	63		156		—
Other consumer	—		—		—

With an allowance recorded:
Construction and land development	$	—	$	—	$	—
Other commercial real estate	—		—		—
Other commercial	—		—		—
Agricultural	—		—		—
Tax exempt	—		—		—
Residential mortgages	—		—		—
Home equity	—		—		—
Other consumer	—		—		—

Total
Commercial real estate	$	241	$	352	$	—
Commercial and industrial	571		584		—
Residential real estate	271		278		—
Consumer	63		156		—
Total impaired loans	$	1,146	$	1,370	$	—

The following is a summary of the average recorded investment and interest income recognized on impaired loans as of March 31, 2018 and 2017:

Business Activities Loans



	Three Months Ended March 31, 2018				Three Months Ended March 31, 2017
(in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:
Construction and land development	$	589	$	—	$	—	$	—
Commercial real estate other	5,937		—		2,592		34
Commercial other	1,334		—		226		3
Agricultural	—		—		192		2
Tax exempt loans	—		—		—		—
Residential real estate	3,591		—		1,500		22
Home equity	444		—		590		—
Consumer other	—		—		44		1

With an allowance recorded:
Construction and land development	$	—	$	—	$	—	$	—
Commercial real estate other	1,144		—		1,723		—
Commercial other	187		—		216		—
Agricultural	—		—		—		—
Tax exempt loans	—		—		—		—
Residential real estate	802		—		321		—
Home equity	—		—		—		—
Consumer other	—		—		9		—

Total
Commercial real estate	$	7,670	$	—	$	4,315	$	34
Commercial and industrial	1,521		—		634		5
Residential real estate	4,393		—		1,821		22
Consumer	444		—		643		1
Total impaired loans	$	14,028	$	—	$	7,413	$	62

Acquired Loans



	Three Months Ended March 31, 2018				Three Months Ended March 31, 2017
(in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:
Construction and land development	$	—	$	—	$	—	$	—
Commercial real estate other	133		—		—		—
Commercial other	161		1		—		—
Agricultural	—		—		—		—
Tax exempt loans	—		—		—		—
Residential real estate	508		—		—		—
Home equity	—		—		—		—
Consumer other	—		—		—		—

With an allowance recorded:
Construction and land development	$	—	$	—	$	—	$	—
Commercial real estate other	—		—		—		—
Commercial other	434		—		—		—
Agricultural	—		—		—		—
Tax exempt loans	—		—		—		—
Residential real estate	—		—		—		—
Home equity	—		—		—		—
Consumer other	—		—		—		—

Total
Commercial real estate	$	133	$	—	$	—	$	—
Commercial and industrial	595		1		—		—
Residential real estate	508		—		—		—
Consumer	—		—		—		—
Total impaired loans	$	1,236	$	1	$	—	$	—

Troubled Debt Restructuring Loans

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

The following tables include the recorded investment and number of modifications identified during the three months ended March 31, 2018 and for the three months ended March 31, 2017, respectively. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. The modifications for the three months ended March 31, 2018 were attributable to interest rate concessions, maturity date extensions, reamortization or a combination of two concessions. The modifications for the three months ending March 31, 2017 were attributable to interest rate concessions, maturity date extensions, or a combination of both.



	Three Months Ended March 31, 2018
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial installment	2	$	452	$	448
Agricultural	1	2		2
Commercial real estate	1	167		—
Residential real estate	5	1,105		1,099
Consumer other	1	1		1
Total	10	$	1,727	$	1,550


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

For the three months ended March 31, 2018, there were no loans restructured that had subsequently defaulted during the period.

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

Foreclosure

As of March 31, 2018, the Company maintained foreclosed residential real estate property with a fair value of $216 thousand. Additionally, residential mortgage loans collateralized by real estate property that are in the process of foreclosure as of March 31, 2018 and December 31, 2017 totaled $1.6 million and $843 thousand, respectively. As of December 31, 2017, foreclosed residential real estate property totaled $122 thousand.

Mortgage Banking

Total residential loans included held for sale loans of $4.8 million and $13.4 million at March 31, 2018 and December 31, 2017, respectively.