Loans

The following table shows the composition of the Company's loan portfolio as of September 30, 2014 and 2013 and at December 31, 2013:



	September 30, 2014				December 31, 2013				September 30, 2013
Commercial
Real estate	$	243,936,000	26.8	%	$	245,943,000	28.2	%	$	248,889,000	28.9	%
Construction	26,954,000		3.0	%	20,382,000		2.3	%	19,409,000		2.3	%
Other	97,651,000		10.8	%	95,289,000		10.9	%	85,130,000		9.9	%
Municipal	20,722,000		2.3	%	19,117,000		2.2	%	18,218,000		2.1	%
Residential
Term	386,768,000		42.6	%	377,218,000		43.0	%	375,387,000		43.5	%
Construction	12,253,000		1.3	%	11,803,000		1.3	%	7,617,000		0.9	%
Home equity line of credit	101,094,000		11.1	%	91,549,000		10.4	%	92,374,000		10.7	%
Consumer	18,737,000		2.1	%	15,066,000		1.7	%	15,049,000		1.7	%
Total	$	908,115,000	100.0	%	$	876,367,000	100.0	%	$	862,073,000	100.0	%

Loan balances include net deferred loan costs of $2,568,000 as of September 30, 2014, $2,086,000 as of December 31, 2013, and $2,007,000 as of September 30, 2013. Pursuant to collateral agreements, qualifying first mortgage loans, which totaled $279,150,000 at September 30, 2014, $266,740,000 at December 31, 2013, and $260,084,000 at September 30, 2013, were used to collateralize borrowings from the FHLB. In addition, commercial, construction and home equity loans totaling $245,950,000 at September 30, 2014, $189,728,000 at December 31, 2013, and $195,687,000 at September 30, 2013, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.

For all loan classes, loans over 30 days past due are considered delinquent. Information on the past-due status of loans by class of financing receivable as of September 30, 2014, 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	$	—	$	116,000	$	1,220,000	$	1,336,000	$	242,600,000	$	243,936,000	$	—
Construction	—		—		208,000		208,000		26,746,000		26,954,000		—
Other	86,000		34,000		499,000		619,000		97,032,000		97,651,000		—
Municipal	—		—		—		—		20,722,000		20,722,000		—
Residential
Term	725,000		1,314,000		4,871,000		6,910,000		379,858,000		386,768,000		380,000
Construction	—		—		—		—		12,253,000		12,253,000		—
Home equity line of credit	595,000		107,000		657,000		1,359,000		99,735,000		101,094,000		—
Consumer	92,000		24,000		72,000		188,000		18,549,000		18,737,000		72,000
Total	$	1,498,000	$	1,595,000	$	7,527,000	$	10,620,000	$	897,495,000	$	908,115,000	$	452,000

Information on the past-due status of loans by class of financing receivable 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 by class of financing receivable as of September 30, 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	$	1,537,000	$	—	$	2,085,000	$	3,622,000	$	245,267,000	$	248,889,000	$	—
Construction	—		—		62,000		62,000		19,347,000		19,409,000		—
Other	3,970,000		291,000		1,783,000		6,044,000		79,086,000		85,130,000		—
Municipal	—		—		—		—		18,218,000		18,218,000		—
Residential
Term	1,553,000		1,649,000		8,281,000		11,483,000		363,904,000		375,387,000		264,000
Construction	—		—		—		—		7,617,000		7,617,000		—
Home equity line of credit	666,000		—		1,045,000		1,711,000		90,663,000		92,374,000		40,000
Consumer	89,000		12,000		51,000		152,000		14,897,000		15,049,000		51,000
Total	$	7,815,000	$	1,952,000	$	13,307,000	$	23,074,000	$	838,999,000	$	862,073,000	$	355,000

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.

Cash payments received on non-accrual loans, which are included in impaired loans, are applied to reduce the loan's principal balance until the remaining principal balance is deemed collectible, after which interest is recognized when collected. As a general rule, a loan may be restored to accrual status when payments are current for a substantial period of time, generally six months, and repayment of the remaining contractual amounts is expected or when it otherwise becomes well secured and in the process of collection. Information on nonaccrual loans as of September 30, 2014 and 2013 and at December 31, 2013 is presented in the following table:



	September 30, 2014		December 31, 2013		September 30, 2013
Commercial
Real estate	$	2,866,000	$	2,457,000	$	3,996,000
Construction	208,000		—		62,000
Other	1,800,000		4,370,000		2,542,000
Municipal	—		—		—
Residential
Term	6,166,000		8,484,000		10,279,000
Construction	—		—		—
Home equity line of credit	759,000		—		1,033,000
Consumer	26,000		1,007,000		—
Total	$	11,825,000	$	16,318,000	$	17,912,000

Impaired loans include troubled debt restructured 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, 2014, is presented in the following table:



							For the nine months ended September 30, 2014				For the quarter ended September 30, 2014
	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	$	12,509,000	$	13,064,000	$	—	$	10,700,000	$	362,000	$	11,183,000	$	123,000
Construction	—		—		—		40,000		—		—		—
Other	3,029,000		3,255,000		—		4,221,000		125,000		3,071,000		66,000
Municipal	—		—		—		—		—		—		—
Residential
Term	9,777,000		10,488,000		—		10,478,000		286,000		9,746,000		107,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	1,134,000		1,366,000		—		1,549,000		21,000		1,140,000		7,000
Consumer	26,000		28,000		—		6,000		2,000		18,000		2,000
	$	26,475,000	$	28,201,000	$	—	$	26,994,000	$	796,000	$	25,158,000	$	305,000
With an Allowance Recorded
Commercial
Real estate	$	1,909,000	$	2,071,000	$	1,041,000	$	3,517,000	$	67,000	$	3,354,000	$	24,000
Construction	1,380,000		1,380,000		411,000		1,245,000		42,000		1,455,000		14,000
Other	863,000		953,000		660,000		1,252,000		38,000		1,028,000		29,000
Municipal	—		—		—		—		—		—		—
Residential
Term	6,119,000		6,351,000		661,000		5,831,000		193,000		5,793,000		62,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	250,000		255,000		70,000		266,000		2,000		276,000		1,000
Consumer	—		—		—		—		—		—		—
	$	10,521,000	$	11,010,000	$	2,843,000	$	12,111,000	$	342,000	$	11,906,000	$	130,000
Total
Commercial
Real estate	$	14,418,000	$	15,135,000	$	1,041,000	$	14,217,000	$	429,000	$	14,537,000	$	147,000
Construction	1,380,000		1,380,000		411,000		1,285,000		42,000		1,455,000		14,000
Other	3,892,000		4,208,000		660,000		5,473,000		163,000		4,099,000		95,000
Municipal	—		—		—		—		—		—		—
Residential
Term	15,896,000		16,839,000		661,000		16,309,000		479,000		15,539,000		169,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	1,384,000		1,621,000		70,000		1,815,000		23,000		1,416,000		8,000
Consumer	26,000		28,000		—		6,000		2,000		18,000		2,000
	$	36,996,000	$	39,211,000	$	2,843,000	$	39,105,000	$	1,138,000	$	37,064,000	$	435,000

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, 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

A breakdown of impaired loans by class of financing receivable as of and for the period ended September 30, 2013, is presented in the following table:



							For the nine months ended September 30, 2013				For the quarter ended September 30, 2013
	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	$	11,848,000	$	12,509,000	$	—	$	10,913,000	$	351,000	$	11,487,000	$	151,000
Construction	62,000		79,000		—		262,000		4,000		364,000		1,000
Other	3,939,000		4,282,000		—		3,793,000		168,000		3,923,000		109,000
Municipal	—		—		—		—		—		—		—
Residential
Term	15,787,000		17,888,000		—		14,435,000		385,000		15,564,000		137,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	1,638,000		1,854,000		—		1,601,000		24,000		1,644,000		9,000
Consumer	—		—		—		—		—		—		—
	$	33,274,000	$	36,612,000	$	—	$	31,004,000	$	932,000	$	32,982,000	$	407,000
With an Allowance Recorded
Commercial
Real estate	$	5,122,000	$	5,644,000	$	1,535,000	$	6,327,000	$	154,000	$	5,617,000	$	44,000
Construction	1,302,000		1,302,000		269,000		1,965,000		32,000		1,312,000		13,000
Other	987,000		1,097,000		807,000		1,843,000		11,000		1,518,000		—
Municipal	—		—		—		—		—		—		—
Residential
Term	3,351,000		3,493,000		228,000		5,261,000		105,000		3,884,000		12,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	40,000		40,000		6,000		76,000		1,000		41,000		—
Consumer	—		—		—		—		—		—		—
	$	10,802,000	$	11,576,000	$	2,845,000	$	15,472,000	$	303,000	$	12,372,000	$	69,000
Total
Commercial
Real estate	$	16,970,000	$	18,153,000	$	1,535,000	$	17,240,000	$	505,000	$	17,104,000	$	195,000
Construction	1,364,000		1,381,000		269,000		2,227,000		36,000		1,676,000		14,000
Other	4,926,000		5,379,000		807,000		5,636,000		179,000		5,441,000		109,000
Municipal	—		—		—		—		—		—		—
Residential
Term	19,138,000		21,381,000		228,000		19,696,000		490,000		19,448,000		149,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	1,678,000		1,894,000		6,000		1,677,000		25,000		1,685,000		9,000
Consumer	—		—		—		—		—		—		—
	$	44,076,000	$	48,188,000	$	2,845,000	$	46,476,000	$	1,235,000	$	45,354,000	$	476,000

Troubled Debt Restructured

A troubled debt restructured ("TDR") constitutes a restructuring of debt if the Company, 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 Company has granted a concession; common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.

As of September 30, 2014, the Company had 96 loans with a value of $27,877,000 that have been classified as TDRs. This compares to 99 loans with a value of $29,098,000 and 104 loans with a value of $29,921,000 classified as TDRs as of December 31, 2013 and September 30, 2013, respectively. The impairment carried as a specific reserve in the allowance for loan losses is calculated by present valuing the expected cash flows on the loan at the original interest rate, 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 September 30, 2014:



	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	20	$	12,809,000	$	696,000
Construction	1	1,172,000		204,000
Other	16	2,092,000		—
Municipal	—	—		—
Residential
Term	54	10,978,000		390,000
Construction	—	—		—
Home equity line of credit	5	826,000		21,000
Consumer	—	—		—
	96	$	27,877,000	$	1,311,000

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 September 30, 2013:



	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	20	$	13,520,000	$	853,000
Construction	2	1,364,000		270,000
Other	21	2,828,000		100,000
Municipal	—	—		—
Residential
Term	55	11,353,000		149,000
Construction	—	—		—
Home equity line of credit	6	856,000		6,000
Consumer	—	—		—
	104	$	29,921,000	$	1,378,000

As of September 30, 2014, 11 of the loans classified as TDRs with a total balance of $1,987,000 were more than 30 days past due. Of these loans, three loans with an outstanding balance of $416,000 had been placed on TDR status in the previous 12 months. The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2014:



	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	1	$	519,000	$	519,000
Construction	—	—		—
Other	—	—		—
Municipal	—	—		—
Residential
Term	9	1,267,000		48,000
Construction	—	—		—
Home equity line of credit	1	201,000		21,000
Consumer	—	—		—
	11	$	1,987,000	$	588,000

As of September 30, 2013, 18 of the loans classified as TDRs with a total balance of $2,495,000 were more than 30 days past due. Of these loans, five loans with an outstanding balance of $957,000 had been placed on TDR status in the previous 12 months. The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2013:



	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	1	$	60,000	$	—
Construction	—	—		—
Other	2	388,000		—
Municipal	—	—		—
Residential
Term	13	1,836,000		10,000
Construction	—	—		—
Home equity line of credit	2	211,000		—
Consumer	—	—		—
	18	$	2,495,000	$	10,000

For the nine months ended September 30, 2014, six loans were placed on TDR status with a post-modification outstanding balance of $832,000. This compares to ten loans placed on TDR status with a post-modification outstanding balance of $3,336,000 for the nine months ended September 30, 2013. 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 tables show loans placed on TDR status in the nine months ended September 30, 2014 and 2013, by class of loan and the associated specific reserve included in the allowance for loan losses as of September 30, 2014 and 2013:



For the nine months ended September 30, 2014	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	2	$	290,000	$	290,000	$	—
Construction	—	—		—		—
Other	—	—		—		—
Municipal	—	—		—		—
Residential
Term	4	602,000		542,000		23,000
Construction	—	—		—		—
Home equity line of credit	—	—		—		—
Consumer	—	—		—		—
	6	$	892,000	$	832,000	$	23,000



For the nine months ended September 30, 2013	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	2	$	1,890,000	$	1,890,000	$	—
Construction	—	—		—		—
Other	3	536,000		523,000		—
Municipal	—	—		—		—
Residential
Term	3	749,000		712,000		—
Construction	—	—		—		—
Home equity line of credit	2	214,000		211,000		—
Consumer	—	—		—		—
	10	$	3,389,000	$	3,336,000	$	—

For the quarter ended September 30, 2014, three loans were placed on TDR status with a post-modification outstanding balance of $545,000. This compares to three loans placed on TDR status with a post-modification outstanding balance of $410,000 for the quarter ended September 30, 2013. 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 in the three months ended September 30, 2014, by class of loan and the associated specific reserve included in the allowance for loan losses as of September 30, 2014:



For the quarter ended September 30, 2014	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	2	$	290,000	$	290,000	$	—
Construction	—	—		—		—
Other	—	—		—		—
Municipal	—	—		—		—
Residential
Term	1	255,000		255,000		8,000
Construction	—	—		—		—
Home equity line of credit	—	—		—		—
Consumer	—	—		—		—
	3	$	545,000	$	545,000	$	8,000

The following table shows loans placed on TDR status in the three months ended September 30, 2013, by class of loan and the associated specific reserve included in the allowance for loan losses as of September 30, 2013:



For the quarter ended September 30, 2013	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	—	$	—	$	—	$	—
Construction	—	—		—		—
Other	—	—		—		—
Municipal	—	—		—		—
Residential
Term	2	437,000		400,000		—
Construction	—	—		—		—
Home equity line of credit	1	10,000		10,000		—
Consumer	—	—		—		—
	3	$	447,000	$	410,000	$	—

As of September 30, 2014, Management is aware of 9 loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $1,220,000. There were also 16 loans with an outstanding balance of $2,708,000 that were classified as TDRs and on non-accrual status. Three loans with an outstanding balance of $455,000, that were classified as TDRs, were in the process of foreclosure.