Note 3 – Loans

The following table shows the composition of the Company's loan portfolio as of September 30, 2012 and 2011 and at December 31, 2011:

	September 30, 2012				December 31, 2011				September 30, 2011
Commercial
Real estate	$	256,531,000	29.5	%	$	255,424,000	29.5	%	$	257,910,000	29.7	%
Construction		21,905,000	2.5	%		32,574,000	3.8	%		30,345,000	3.5	%
Other		83,703,000	9.6	%		86,982,000	10.1	%		96,045,000	11.1	%
Municipal		16,448,000	1.9	%		16,221,000	1.9	%		19,853,000	2.3	%
Residential
Term		369,949,000	42.5	%		341,286,000	39.5	%		329,730,000	38.0	%
Construction		6,528,000	0.8	%		10,469,000	1.2	%		12,061,000	1.4	%
Home equity line of credit		100,099,000	11.5	%		105,244,000	12.1	%		105,891,000	12.1	%
Consumer		14,708,000	1.7	%		16,788,000	1.9	%		16,738,000	1.9	%
Total	$	869,871,000	100.0	%	$	864,988,000	100.0	%	$	868,573,000	100.0	%

Loan balances include net deferred loan costs of $1,694,000 as of September 30, 2012, $1,386,000 as of December 31, 2011, and $1,336,000 as of September 30, 2011. Pursuant to collateral agreements, qualifying first mortgage loans, which totaled $244,794,000 at September 30, 2012, $211,597,000 at December 31, 2011, and $190,890,000 at September 30, 2011, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In addition, commercial, construction and home equity loans totaling $234,200,000 at September 30, 2012, $218,417,000 at December 31, 2011, and $310,230,000 at September 30, 2011, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.

Loans on non-accrual status totaled $23,573,000 at September 30, 2012, $27,806,000 at December 31, 2011 and $20,980,000 at September 30, 2011. Loans past due 90 days or greater which are accruing interest totaled $1,787,000 at September 30, 2012, $1,170,000 at December 31, 2011 and $1,291,000 at September 30, 2011. The Company continues to accrue interest on these loans because it believes collection of principal and interest is reasonably assured.

Information on the past-due status of loans by class of financing receivable as of September 30, 2012, is presented in the following table:

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	190,000	$	102,000	$	2,105,000	$	2,397,000	$	254,134,000	$	256,531,000	$	283,000
Construction		31,000		-		154,000		185,000		21,720,000		21,905,000		-
Other		448,000		248,000		1,790,000		2,486,000		81,217,000		83,703,000		-
Municipal		-		-		-		-		16,448,000		16,448,000		-
Residential
Term		1,436,000		2,536,000		9,047,000		13,019,000		356,930,000		369,949,000		1,442,000
Construction		-		-		23,000		23,000		6,505,000		6,528,000		-
Home equity line of credit		358,000		-		1,000,000		1,358,000		98,741,000		100,099,000		-
Consumer		169,000		19,000		63,000		251,000		14,457,000		14,708,000		62,000
Total	$	2,632,000	$	2,905,000	$	14,182,000	$	19,719,000	$	850,152,000	$	869,871,000	$	1,787,000

Information on the past-due status of loans by class of financing receivable as of December 31, 2011, is presented in the following table:

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	1,367,000	$	1,505,000	$	3,992,000	$	6,864,000	$	248,560,000	$	255,424,000	$	-
Construction		-		174,000		1,603,000		1,777,000		30,797,000		32,574,000		-
Other		665,000		766,000		1,192,000		2,623,000		84,359,000		86,982,000		52,000
Municipal		-				-		-		16,221,000		16,221,000		-
Residential
Term		1,933,000		1,398,000		8,843,000		12,174,000		329,112,000		341,286,000		1,118,000
Construction		-		-		1,198,000		1,198,000		9,271,000		10,469,000		-
Home equity line of credit		480,000		-		1,134,000		1,614,000		103,630,000		105,244,000		-
Consumer		230,000		101,000		16,000		347,000		16,441,000		16,788,000		-
Total	$	4,675,000	$	3,944,000	$	17,978,000	$	26,597,000	$	838,391,000	$	864,988,000	$	1,170,000

Information on the past-due status of loans by class of financing receivable as of September 30, 2011, is presented in the following table:

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	1,337,000	$	341,000	$	3,437,000	$	5,115,000	$	252,795,000	$	257,910,000	$	-
Construction		-		-		35,000		35,000		30,310,000		30,345,000		-
Other		820,000		155,000		802,000		1,777,000		94,268,000		96,045,000		71,000
Municipal		-		-		-		-		19,853,000		19,853,000		-
Residential
Term		1,274,000		954,000		7,945,000		10,173,000		319,557,000		329,730,000		1,213,000
Construction		-		-		396,000		396,000		11,665,000		12,061,000		-
Home equity line of credit		232,000		13,000		1,234,000		1,479,000		104,412,000		105,891,000		-
Consumer		115,000		25,000		7,000		147,000		16,591,000		16,738,000		7,000
Total	$	3,778,000	$	1,488,000	$	13,856,000	$	19,122,000	$	849,451,000	$	868,573,000	$	1,291,000

For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or, (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.

Information on nonaccrual loans as of September 30, 2012 and 2011 and at December 31, 2011 is presented in the following table:

	September 30, 2012		December 31, 2011		September 30, 2011
Commercial
Real estate	$	5,200,000	$	7,064,000	$	6,056,000
Construction		3,546,000		2,350,000		792,000
Other		3,030,000		5,784,000		1,327,000
Municipal		-		-		-
Residential
Term		10,745,000		10,194,000		11,073,000
Construction		23,000		1,198,000		396,000
Home equity line of credit		1,028,000		1,163,000		1,234,000
Consumer		1,000		53,000		102,000
Total	$	23,573,000	$	27,806,000	$	20,980,000

Impaired loans include restructured loans and loans placed on non-accrual. These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference.

A breakdown of impaired loans by class of financing receivable as of and for the period ended September 30, 2012, is presented in the following table:

							For the nine months ended September 30, 2012				For the quarter ended September 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	10,142,000	$	10,858,000	$	-	$	10,238,000	$	134,000	$	11,257,000	$	23,000
Construction		4,694,000		4,694,000		-		2,319,000		34,000		2,578,000		8,000
Other		2,362,000		2,543,000		-		2,548,000		22,000		2,223,000		6,000
Municipal		-		-		-		-		-		-		-
Residential
Term		8,414,000		8,870,000		-		9,267,000		102,000		8,477,000		31,000
Construction		23,000		272,000		-		747,000		-		481,000		-
Home equity line of credit		957,000		1,076,000		-		868,000		14,000		1,089,000		14,000
Consumer		-		-		-		4,000		-		-		-
	$	26,592,000	$	28,313,000	$	-	$	25,991,000	$	306,000	$	26,105,000	$	82,000
With an Allowance Recorded
Commercial
Real estate	$	6,179,000	$	6,416,000	$	1,416,000	$	4,058,000	$	113,000	$	4,119,000	$	97,000
Construction		1,951,000		1,951,000		696,000		1,613,000		61,000		2,086,000		24,000
Other		2,543,000		2,573,000		1,240,000		2,105,000		28,000		2,290,000		10,000
Municipal		-		-		-		-		-		-		-
Residential
Term		10,891,000		11,066,000		1,494,000		9,215,000		202,000		10,672,000		75,000
Construction		-		-		-		348,000		-		111,000		-
Home equity line of credit		488,000		488,000		215,000		563,000		-		558,000		-
Consumer		1,000		1,000		1,000		12,000		-		6,000		-
	$	22,053,000	$	22,495,000	$	5,062,000	$	17,914,000	$	404,000	$	19,842,000	$	206,000
Total
Commercial
Real estate	$	16,321,000	$	17,274,000	$	1,416,000	$	14,296,000	$	247,000	$	15,376,000	$	120,000
Construction		6,645,000		6,645,000		696,000		3,931,000		95,000		4,664,000		32,000
Other		4,905,000		5,116,000		1,240,000		4,653,000		50,000		4,513,000		16,000
Municipal		-		-		-		-		-		-		-
Residential
Term		19,305,000		19,936,000		1,494,000		18,482,000		304,000		19,149,000		106,000
Construction		23,000		272,000		-		1,095,000		-		592,000		-
Home equity line of credit		1,445,000		1,564,000		215,000		1,432,000		14,000		1,647,000		14,000
Consumer		1,000		1,000		1,000		16,000		-		6,000		-
	$	48,645,000	$	50,808,000	$	5,062,000	$	43,905,000	$	710,000	$	45,947,000	$	288,000

Substantially all interest income recognized on impaired loans for all classes of financing receivables was recognized on a cash basis as received.

A breakdown of impaired loans by class of financing receivable as of and for the year ended December 31, 2011, is presented in the following table:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	5,584,000	$	5,584,000	$	-	$	5,212,000	$	23,000
Construction		5,172,000		5,172,000		-		1,072,000		143,000
Other		6,022,000		6,022,000		-		1,918,000		28,000
Municipal		-		-		-		-		-
Residential
Term		9,875,000		9,875,000		-		9,493,000		54,000
Construction		468,000		468,000		-		961,000		-
Home equity line of credit		739,000		739,000		-		646,000		-
Consumer		37,000		37,000		-		39,000		-
	$	27,897,000	$	27,897,000	$	-	$	19,341,000	$	248,000
With an Allowance Recorded
Commercial
Real estate	$	4,557,000	$	4,557,000	$	808,000	$	2,307,000	$	103,000
Construction		530,000		530,000		33,000		247,000		-
Other		1,020,000		1,020,000		402,000		681,000		19,000
Municipal		-		-		-		-		-
Residential
Term		6,946,000		6,946,000		478,000		5,628,000		228,000
Construction		730,000		730,000		235,000		244,000		-
Home equity line of credit		424,000		424,000		91,000		272,000		-
Consumer		16,000		16,000		11,000		57,000		-
	$	14,223,000	$	14,223,000	$	2,058,000	$	9,436,000	$	350,000
Total
Commercial
Real estate	$	10,141,000	$	10,141,000	$	808,000	$	7,519,000	$	126,000
Construction		5,702,000		5,702,000		33,000		1,318,000		143,000
Other		7,042,000		7,042,000		402,000		2,600,000		47,000
Municipal		-		-		-		-		-
Residential
Term		16,821,000		16,821,000		478,000		15,121,000		282,000
Construction		1,198,000		1,198,000		235,000		1,205,000		-
Home equity line of credit		1,163,000		1,163,000		91,000		918,000		-
Consumer		53,000		53,000		11,000		96,000		-
	$	42,120,000	$	42,120,000	$	2,058,000	$	28,777,000	$	598,000

A breakdown of impaired loans by class of financing receivable as of and for the period ended September 30, 2011, is presented in the following table:

							For the nine months ended September 30, 2011				For the quarter ended September 30, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	5,008,000	$	5,008,000	$	-	$	5,268,000	$	-	$	5,384,000	$	-
Construction		792,000		792,000		-		670,000		-		775,000		-
Other		1,295,000		1,295,000		-		1,150,000		-		1,215,000		-
Municipal		-		-		-		-		-		-		-
Residential
Term		10,104,000		10,104,000		-		9,482,000		-		10,650,000		-
Construction		314,000		314,000		-		1,203,000		-		328,000		-
Home equity line of credit		886,000		886,000		-		618,000		-		1,018,000		-
Consumer		38,000		38,000		-		40,000		-		38,000		-
	$	18,437,000	$	18,437,000	$	-	$	18,431,000	$	-	$	19,408,000	$	-
With an Allowance Recorded
Commercial
Real estate	$	2,731,000	$	2,731,000	$	636,000	$	1,858,000	$	43,000	$	1,532,000	$	15,000
Construction		-		-		-		151,000		-		-		-
Other		645,000		645,000		352,000		651,000		16,000		648,000		6,000
Municipal		-		-		-		-		-		-		-
Residential
Term		5,963,000		5,963,000		398,000		5,370,000		187,000		5,602,000		63,000
Construction		82,000		82,000		82,000		155,000		-		82,000		-
Home equity line of credit		348,000		348,000		95,000		247,000		-		230,000		-
Consumer		64,000		64,000		64,000		67,000		-		64,000		-
	$	9,833,000	$	9,833,000	$	1,627,000	$	8,499,000	$	246,000	$	8,158,000	$	84,000
Total
Commercial
Real estate	$	7,739,000	$	7,739,000	$	636,000	$	7,126,000	$	43,000	$	6,917,000	$	15,000
Construction		792,000		792,000		-		821,000		-		775,000		-
Other		1,940,000		1,940,000		352,000		1,801,000		16,000		1,863,000		6,000
Municipal		-		-		-		-		-		-		-
Residential
Term		16,067,000		16,067,000		398,000		14,852,000		187,000		16,252,000		63,000
Construction		396,000		396,000		82,000		1,358,000		-		410,000		-
Home equity line of credit		1,234,000		1,234,000		95,000		865,000		-		1,248,000		-
Consumer		102,000		102,000		64,000		107,000		-		102,000		-
	$	28,270,000	$	28,270,000	$	1,627,000	$	26,930,000	$	246,000	$	27,567,000	$	84,000