Loans

The following table shows the composition of the Company's loan portfolio as of December 31, 2013 and 2012:



	December 31, 2013				December 31, 2012
Commercial
Real estate	$	245,943,000	28.2	%	$	251,335,000	28.9	%
Construction	20,382,000		2.3	%	22,417,000		2.6	%
Other	95,289,000		10.9	%	81,183,000		9.3	%
Municipal	19,117,000		2.2	%	14,704,000		1.7	%
Residential
Term	377,218,000		43.0	%	379,447,000		43.7	%
Construction	11,803,000		1.3	%	6,459,000		0.7	%
Home equity line of credit	91,549,000		10.4	%	99,082,000		11.4	%
Consumer	15,066,000		1.7	%	14,657,000		1.7	%
Total loans	$	876,367,000	100.0	%	$	869,284,000	100.0	%

Loan balances include net deferred loan costs of $2,086,000 in 2013 and $1,783,000 in 2012. Pursuant to collateral agreements, qualifying first mortgage loans, which were valued at $266,740,000 and $256,378,000 at December 31, 2013 and 2012, respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In addition, commercial, construction and home equity loans totaling $189,728,000 at December 31, 2013 and 220,520,000 at December 2012, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.

At December 31, 2013 and 2012, non-accrual loans were $16,318,000 and $19,150,000, respectively. As of December 31, 2013, 2012 and 2011, interest income which would have been recognized on these loans, if interest had been accrued, was $917,000, $1,158,000, and $1,052,000, respectively. Loans more than 90 days past due accruing interest totaled $1,043,000 at December 31, 2013 and $1,051,000 at December 31, 2012. The Company continues to accrue interest on these loans because it believes collection of principal and interest is reasonably assured.

Loans to directors, officers and employees totaled $28,821,000 at December 31, 2013 and $28,707,000 at December 31, 2012. A summary of loans to directors and executive officers, which in the aggregate exceed $60,000, is as follows:



For the years ended December 31,	2013			2012
Balance at beginning of year	$	14,917,000		$	24,551,000
New loans	909,000			275,000
Repayments	(942,000		)	(9,909,000		)
Balance at end of year	$	14,884,000		$	14,917,000

Information on the past-due status of loans as of December 31, 2013, 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	$	82,000	$	259,000	$	745,000	$	1,086,000	$	244,857,000	$	245,943,000	$	—
Construction	—		—		—		—		20,382,000		20,382,000		—
Other	544,000		128,000		2,797,000		3,469,000		91,820,000		95,289,000		—
Municipal	—		—		—		—		19,117,000		19,117,000		—
Residential
Term	229,000		1,913,000		7,002,000		9,144,000		368,074,000		377,218,000		596,000
Construction	47,000		—		—		47,000		11,756,000		11,803,000		—
Home equity line of credit	573,000		145,000		1,001,000		1,719,000		89,830,000		91,549,000		59,000
Consumer	113,000		26,000		388,000		527,000		14,539,000		15,066,000		388,000
Total	$	1,588,000	$	2,471,000	$	11,933,000	$	15,992,000	$	860,375,000	$	876,367,000	$	1,043,000

Information on the past-due status of loans as of December 31, 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	$	2,172,000	$	346,000	$	2,380,000	$	4,898,000	$	246,437,000	$	251,335,000	$	102,000
Construction	—		29,000		35,000		64,000		22,353,000		22,417,000		—
Other	658,000		218,000		2,306,000		3,182,000		78,001,000		81,183,000		2,000
Municipal	136,000		—		—		136,000		14,568,000		14,704,000		—
Residential
Term	2,404,000		1,082,000		9,298,000		12,784,000		366,663,000		379,447,000		363,000
Construction	188,000		—		—		188,000		6,271,000		6,459,000		—
Home equity line of credit	430,000		133,000		1,136,000		1,699,000		97,383,000		99,082,000		539,000
Consumer	101,000		70,000		45,000		216,000		14,441,000		14,657,000		45,000
Total	$	6,089,000	$	1,878,000	$	15,200,000	$	23,167,000	$	846,117,000	$	869,284,000	$	1,051,000

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 December 31, 2013 and 2012 is presented in the following table:



As of December 31,	2013		2012
Commercial
Real estate	$	2,457,000	$	4,603,000
Construction	—		101,000
Other	4,370,000		3,459,000
Municipal	—		—
Residential
Term	8,484,000		10,333,000
Construction	—		—
Home equity line of credit	1,007,000		654,000
Consumer	—		—
Total	$	16,318,000	$	19,150,000

Information regarding impaired loans is as follows:



For the years ended December 31,	2013		2012		2011
Average investment in impaired loans	$	45,722,000	$	45,019,000	$	28,777,000
Interest income recognized on impaired loans, all on cash basis	1,750,000		1,039,000		598,000



As of December 31,	2013			2012
Balance of impaired loans	$	42,351,000		$	45,744,000
Less portion for which no allowance for loan losses is allocated	(32,417,000		)	(28,282,000		)
Portion of impaired loan balance for which an allowance for loan losses is allocated	$	9,934,000		$	17,462,000
Portion of allowance for loan losses allocated to the impaired loan balance	$	2,461,000		$	3,539,000

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, or, in certain situations, if the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

A breakdown of impaired loans by category as of December 31, 2013, 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	$	11,813,000	$	12,419,000	$	—	$	11,100,000	$	495,000
Construction	—		—		—		202,000		—
Other	5,617,000		7,309,000		—		4,265,000		322,000
Municipal	—		—		—		—		—
Residential
Term	13,432,000		14,600,000		—		14,396,000		511,000
Construction	—		—		—		—		—
Home equity line of credit	1,555,000		1,791,000		—		1,578,000		32,000
Consumer	—		—		—		—		—
	$	32,417,000	$	36,119,000	$	—	$	31,541,000	$	1,360,000
With an Allowance Recorded
Commercial
Real estate	$	3,122,000	$	3,264,000	$	890,000	$	5,673,000	$	150,000
Construction	1,284,000		1,284,000		272,000		1,795,000		48,000
Other	1,081,000		1,132,000		841,000		1,633,000		28,000
Municipal	—		—		—		—		—
Residential
Term	4,354,000		4,516,000		404,000		4,982,000		162,000
Construction	—		—		—		—		—
Home equity line of credit	93,000		93,000		54,000		98,000		2,000
Consumer	—		—		—		—		—
	$	9,934,000	$	10,289,000	$	2,461,000	$	14,181,000	$	390,000
Total
Commercial
Real estate	$	14,935,000	$	15,683,000	$	890,000	$	16,773,000	$	645,000
Construction	1,284,000		1,284,000		272,000		1,997,000		48,000
Other	6,698,000		8,441,000		841,000		5,898,000		350,000
Municipal	—		—		—		—		—
Residential
Term	17,786,000		19,116,000		404,000		19,378,000		673,000
Construction	—		—		—		—		—
Home equity line of credit	1,648,000		1,884,000		54,000		1,676,000		34,000
Consumer	—		—		—		—		—
	$	42,351,000	$	46,408,000	$	2,461,000	$	45,722,000	$	1,750,000

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 category as of December 31, 2012, 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	$	9,386,000	$	9,963,000	$	—	$	10,102,000	$	199,000
Construction	101,000		115,000		—		2,533,000		—
Other	4,737,000		5,345,000		—		2,877,000		53,000
Municipal	—		—		—		—		—
Residential
Term	12,747,000		14,440,000		—		9,801,000		189,000
Construction	—		—		—		560,000		—
Home equity line of credit	1,311,000		1,440,000		—		961,000		27,000
Consumer	—		—		—		3,000		—
	$	28,282,000	$	31,303,000	$	—	$	26,837,000	$	468,000
With an Allowance Recorded
Commercial
Real estate	$	6,388,000	$	7,018,000	$	1,523,000	$	4,614,000	$	211,000
Construction	3,253,000		3,253,000		969,000		1,816,000		85,000
Other	1,124,000		1,126,000		652,000		1,974,000		38,000
Municipal	—		—		—		—		—
Residential
Term	6,697,000		6,842,000		395,000		9,066,000		237,000
Construction	—		—		—		261,000		—
Home equity line of credit	—		—		—		442,000		—
Consumer	—		—		—		9,000		—
	$	17,462,000	$	18,239,000	$	3,539,000	$	18,182,000	$	571,000
Total
Commercial
Real estate	$	15,774,000	$	16,981,000	$	1,523,000	$	14,716,000	$	410,000
Construction	3,354,000		3,368,000		969,000		4,349,000		85,000
Other	5,861,000		6,471,000		652,000		4,851,000		91,000
Municipal	—		—		—		—		—
Residential
Term	19,444,000		21,282,000		395,000		18,867,000		426,000
Construction	—		—		—		821,000		—
Home equity line of credit	1,311,000		1,440,000		—		1,403,000		27,000
Consumer	—		—		—		12,000		—
	$	45,744,000	$	49,542,000	$	3,539,000	$	45,019,000	$	1,039,000

A breakdown of impaired loans by category as of 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		1,319,000		143,000
Other	7,042,000		7,042,000		402,000		2,599,000		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

Troubled Debt Restructured

A TDR constitutes a restructuring of debt if the Bank, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. To determine whether or not a loan should be classified as a TDR, Management evaluates a loan based upon the following criteria:


•	The borrower demonstrates financial difficulty; common indicators include past due status with bank obligations, substandard credit bureau reports, or an inability to refinance with another lender, and


•	The Bank has granted a concession; common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.

The Bank applies the same interest accrual policy to TDRs as it does for all classes of loans. As of December 31, 2013, the Bank had 99 loans with a value of $29,098,000 that have been restructured. This compares to 101 loans with a value of $29,955,000 classified as TDRs as of December 31, 2012. The impairment carried as a specific reserve in the allowance for loan losses is calculated by present valuing the cashflow modification on the loan, or, for collateral-dependent loans, using the fair value of the collateral less costs to sell.

The following table shows TDRs by class and the specific reserve as of December 31, 2013:



	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	20	$	13,018,000	$	433,000
Construction	1	1,284,000		274,000
Other	20	2,734,000		100,000
Municipal	—	—		—
Residential
Term	53	11,220,000		210,000
Construction	—	—		—
Home equity line of credit	5	842,000		—
Consumer	—	—		—
	99	$	29,098,000	$	1,017,000

The following table shows TDRs by class and the specific reserve as of December 31, 2012:



	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	18	$	11,961,000	$	823,000
Construction	3	3,319,000		969,000
Other	23	3,074,000		574,000
Municipal	—	—		—
Residential
Term	53	10,945,000		224,000
Construction	—	—		—
Home equity line of credit	4	656,000		—
Consumer	—	—		—
	101	$	29,955,000	$	2,590,000

As of December 31, 2013, 16 of the loans classified as TDRs with a total balance of $3,261,000 were more than 30 days past due. Of these loans, six loans with an outstanding balance of $810,000 had been placed on TDR status in the previous 12 months. The following table shows past-due TDRs by class and the associated specific reserves included in the allowance for loan losses as of December 31, 2013:



	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	2	$	990,000	$	—
Construction	—	—		—
Other	2	355,000		—
Municipal	—	—		—
Residential
Term	10	1,688,000		37,000
Construction	—	—		—
Home equity line of credit	2	228,000		—
Consumer	—	—		—
	16	$	3,261,000	$	37,000

As of December 31, 2012, 12 of the loans classified as TDRs with a total balance of $2,413,000 were more than 30 days past due. Of these loans, six loans with an outstanding balance of $1,059,000 had been placed on TDR status in the previous 12 months. The following table shows past-due TDRs by class and the associated specific reserves included in the allowance for loan losses as of December 31, 2012:



	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	3	$	760,000	$	—
Construction	—	—		—
Other	—	—		—
Municipal	—	—		—
Residential
Term	8	1,624,000		67,000
Construction	—	—		—
Home equity line of credit	1	29,000		—
Consumer	—	—		—
	12	$	2,413,000	$	67,000

During the year ended December 31, 2013, 10 loans were placed on TDR status with an outstanding balance of $3,610,000. These were considered TDRs because concessions had been granted to borrowers experiencing financial difficulties. Concessions include reductions in interest rates, principal and/or interest forbearance, payment extensions, or combinations thereof. The following table shows loans placed on TDR status during the year ended December 31, 2013, by class of loan and the associated specific reserve included in the allowance for loan losses as of December 31, 2013:



	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	2	$	1,883,000	$	1,883,000	$	—
Construction	—	—		—		—
Other	2	491,000		491,000		—
Municipal	—	—		—		—
Residential
Term	5	1,032,000		1,029,000		31,000
Construction	—	—		—		—
Home equity line of credit	1	204,000		201,000		—
Consumer	—	—		—		—
	10	$	3,610,000	$	3,604,000	$	31,000

During the year ended December 31, 2012, 52 loans were placed on TDR status with an outstanding balance of $15,030,000. These were considered to be TDRs because concessions had been granted to borrowers experiencing financial difficulties. Concessions include reductions in interest rates, principal and/or interest forbearance, payment extensions, or combinations thereof. The following table shows loans placed on TDR status in 2012 by type of loan and the associated specific reserve included in the allowance for loan losses as of December 31, 2012:



	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	13	$	7,149,000	$	6,821,000	$	180,000
Construction	3	3,333,000		3,319,000		969,000
Other	19	1,903,000		1,887,000		543,000
Municipal	—	—		—		—
Residential
Term	13	1,989,000		1,974,000		77,000
Construction	—	—		—		—
Home equity line of credit	4	656,000		656,000		—
Consumer	—	—		—		—
	52	$	15,030,000	$	14,657,000	$	1,769,000

As of December 31, 2013, Management is aware of 12 loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $1,690,000. As of December 31, 2013, there were 16 loans with an outstanding balance of $3,065,000 that were classified as TDRs and were on non-accrual status, three of which, with an outstanding balance of $356,000, were in the process of foreclosure.