LOANS | 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 include multi-family, commercial construction and land, and other commercial real estate classes. Commercial and industrial loans include loans to commercial businesses, agricultural and other loans to farmers, and tax exempt loans. Residential real estate loans consist of mortgages for 1-to-4 family housing. Consumer loans include home equity loans, auto and other installment loans. 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 previously acquired from a business combination. The following is a summary of total loans as of December 31, 2018 and December 31, 2017 : December 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 $ 23,754 $ 2,890 $ 26,644 $ 28,892 $ 16,781 $ 45,673 Other commercial real estate 555,980 244,075 800,055 505,119 275,954 781,073 Total commercial real estate 579,734 246,965 826,699 534,011 292,735 826,746 Commercial and industrial: Other Commercial 234,757 52,470 287,227 198,051 68,069 266,120 Agricultural 22,317 — 22,317 27,588 — 27,588 Tax exempt 56,588 38,738 95,326 42,365 43,350 85,715 Total commercial and industrial 313,662 91,208 404,870 268,004 111,419 379,423 Total commercial loans 893,396 338,173 1,231,569 802,015 404,154 1,206,169 Residential real estate: Residential mortgages 670,189 474,509 1,144,698 591,411 564,271 1,155,682 Total residential real estate 670,189 474,509 1,144,698 591,411 564,271 1,155,682 Consumer: Home equity 57,898 45,291 103,189 51,376 62,217 113,593 Other consumer 9,414 1,357 10,771 7,828 2,341 10,169 Total consumer 67,312 46,648 113,960 59,204 64,558 123,762 Total loans $ 1,630,897 $ 859,330 $ 2,490,227 $ 1,452,630 $ 1,032,983 $ 2,485,613 Total unamortized net premiums included in the year-end total for business activity loans were the following at December 31, 2018 and December 31, 2017 : (in thousands) 2018 2017 Unamortized net loan origination costs $ 3,064 $ 2,445 Unamortized net premium on purchased loans (127 ) (123 ) Total unamortized net costs and premiums $ 2,937 $ 2,322 For the year ended December 31, 2018 , the Company had pledged loans with a collateral value totaling $96.3 million to the Federal Reserve Bank of Boston for certain borrowing arrangements. The Company also pledged residential first mortgage loans, home equity loans and certain commercial loans with collateral value totaling $986.2 million for FHLB borrowings for the year ended December 31, 2018 . (See Note 8 - Borrowed Funds of the Company's Consolidated Financial Statements.) The carrying amount of the acquired loans at December 31, 2018 totaled $859.3 million . A subset of these loans was determined to have evidence of credit deterioration at the acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $10.1 million (and a note balance of $14.0 million ). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Loans considered not impaired at acquisition date had a carrying amount of $849.2 million . 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: Twelve Months Ended December 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 2,240 1,925 Changes in expected cash flows that do not affect the nonaccretable difference — — Reclassification to TDR (30 ) — Accretion (1,342 ) (1,814 ) Balance at end of period $ 4,377 $ 3,509 The following is a summary of past due loans at December 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 December 31, 2018 Commercial real estate: Construction and land development $ — $ — $ — $ — $ 23,754 $ 23,754 $ — Other commercial real estate 1,146 — 6,725 7,871 548,109 555,980 — Total commercial real estate 1,146 — 6,725 7,871 571,863 579,734 — Commercial and industrial: Other Commercial 395 60 402 857 233,900 234,757 50 Agricultural 65 6 25 96 22,221 22,317 — Tax exempt — — — — 56,588 56,588 — Total commercial and industrial 460 66 427 953 312,709 313,662 50 Total commercial loans 1,606 66 7,152 8,824 884,572 893,396 50 Residential real estate: Residential mortgages 3,565 641 1,309 5,515 664,674 670,189 — Total residential real estate 3,565 641 1,309 5,515 664,674 670,189 — Consumer: Home equity 72 — — 72 57,826 57,898 — Other consumer 17 — 11 28 9,386 9,414 — Total consumer 89 — 11 100 67,212 67,312 — Total loans $ 5,260 $ 707 $ 8,472 $ 14,439 $ 1,616,458 $ 1,630,897 $ 50 Acquired Loans (in thousands) 30-59 Days 60-89 Days 90 Days or Greater Past Due Total Past Due Acquired Credit Impaired Total Loans Past Due > 90 days and Accruing December 31, 2018 Commercial real estate: Construction and land development $ — $ — $ — $ — $ 164 $ 2,890 $ — Other commercial real estate 631 99 211 941 6,143 244,075 — Total commercial real estate 631 99 211 941 6,307 246,965 — Commercial and industrial: Other commercial 149 26 494 669 679 52,470 — Agricultural — — — — — — — Tax exempt — — — — — 38,738 — Total commercial and industrial 149 26 494 669 679 91,208 — Total commercial loans 780 125 705 1,610 6,986 338,173 — Residential real estate: Residential mortgages 3,419 254 1,792 5,465 3,095 474,509 — Total residential real estate 3,419 254 1,792 5,465 3,095 474,509 — Consumer: Home equity 198 — 66 264 22 45,291 7 Other consumer 17 — — 17 3 1,357 189 Total consumer 215 — 66 281 25 46,648 196 Total loans $ 4,414 $ 379 $ 2,563 $ 7,356 $ 10,106 $ 859,330 $ 196 Business Activities Loans (in thousands) 30-59 Days 60-89 Days 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 60-89 Days 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 December 31, 2018 and December 31, 2017 : December 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 $ 1 $ — $ 1 $ 637 $ — $ 637 Other commercial real estate 7,873 282 8,155 7,146 560 7,706 Total commercial real estate 7,874 282 8,156 7,783 560 8,343 Commercial and industrial: Other commercial 1,423 643 2,066 703 463 1,166 Agricultural 265 — 265 43 — 43 Tax exempt — — — — — — Total commercial and industrial 1,688 643 2,331 746 463 1,209 Total commercial loans 9,562 925 10,487 8,529 1,023 9,552 Residential real estate: Residential mortgages 4,213 2,997 7,210 3,408 858 4,266 Total residential real estate 4,213 2,997 7,210 3,408 858 4,266 Consumer: Home equity 246 201 447 130 217 347 Other consumer 90 1 91 95 58 153 Total consumer 336 202 538 225 275 500 Total loans $ 14,111 $ 4,124 $ 18,235 $ 12,162 $ 2,156 $ 14,318 Loans evaluated for impairment by portfolio segment as of December 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 December 31, 2018 Individually evaluated for impairment $ 9,835 $ 1,445 $ 2,562 $ 13 $ 13,855 Collectively evaluated 569,899 312,217 667,627 67,299 1,617,042 Total $ 579,734 $ 313,662 $ 670,189 $ 67,312 $ 1,630,897 Acquired Loans (in thousands) Commercial real estate Commercial and industrial Residential real estate Consumer Total December 31, 2018 Individually evaluated for impairment $ 188 $ 426 $ 744 $ — $ 1,358 Purchased credit impaired 6,307 679 3,095 25 10,106 Collectively evaluated 240,470 90,103 470,670 46,623 847,866 Total $ 246,965 $ 91,208 $ 474,509 $ 46,648 $ 859,330 Business Activities Loans (in thousands) Commercial real estate Commercial and industrial Residential real estate Consumer Total December 31, 2017 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 December 31, 2017 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 December 31, 2018 and December 31, 2017 : Business Activities Loans December 31, 2018 (in thousands) Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance: Construction and land development $ — $ — $ — Other commercial real estate 8,209 8,301 — Other commercial 649 669 — Agricultural — — — Tax exempt — — — Residential real estate 1,671 1,709 — Home equity — — — Other consumer — — — With an allowance recorded: Construction and land development $ 1 $ 1 $ 1 Other commercial real estate 1,625 1,660 421 Other commercial 796 855 78 Agricultural — — — Tax exempt — — — Residential real estate 891 916 111 Home equity 13 13 — Other consumer — — — Total Commercial real estate $ 9,835 $ 9,962 $ 422 Commercial and industrial 1,445 1,524 78 Residential real estate 2,562 2,625 111 Consumer 13 13 — Total impaired loans $ 13,855 $ 14,124 $ 611 Acquired Loans December 31, 2018 (in thousands) Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance: Construction and land development $ — $ — $ — Other commercial real estate 188 187 — Other commercial 426 510 — Agricultural — — — Tax exempt — — — Residential real estate 375 524 — Home equity — — — Other consumer — — — With an allowance recorded: Construction and land development $ — Other commercial real estate — — — Other commercial — — — Agricultural — — — Tax exempt — — — Residential real estate 369 379 41 Home equity — — — Other consumer — — — Total Commercial real estate $ 188 $ 187 $ — Commercial and industrial 426 510 — Residential real estate 744 903 41 Consumer — — — Total impaired loans $ 1,358 $ 1,600 $ 41 Business Activities Loans December 31, 2017 (in thousands) Recorded Investment Unpaid Principal Related Allowance With no related allowance: Construction and land development $ — $ — $ — Other commercial real estate 5,896 5,903 — Other commercial 218 217 — Agricultural — — — Tax exempt — — — Residential real estate 1,247 1,260 — Home equity 13 13 — Other consumer — — — With an allowance recorded: Construction and land development $ 637 $ 2,563 $ 59 Other commercial real estate 1,071 1,132 388 Other commercial 408 408 3 Agricultural — — — Tax exempt — — — Residential real estate 157 157 9 Home equity — — — Other consumer — — — 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 real estate 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 real estate — — — 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 December 31, 2018 and December 31, 2017 : Business Activities Loan Twelve Months Ended December 31, 2018 Twelve Months Ended December 31, 2017 (in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest With no related allowance: Construction and land development $ — $ — $ — $ — Other commercial real estate 6,878 77 2,541 66 Other commercial 634 9 382 6 Agricultural — — 113 1 Tax exempt — — — — Residential real estate 1,693 39 2,174 39 Home equity — — 27 — Other consumer — — 53 3 With an allowance recorded: Construction and land development $ 1 $ — $ 637 $ — Other commercial real estate 1,140 — 735 — Other commercial 735 — 105 1 Agricultural — — — — Tax exempt — — — — Residential real estate 826 9 157 5 Home equity 13 1 — — Other consumer — — — — Total Commercial real estate $ 8,019 $ 77 $ 3,913 $ 66 Commercial and industrial 1,369 9 600 8 Residential real estate 2,519 48 2,331 44 Consumer 13 1 80 3 Total impaired loans $ 11,920 $ 135 $ 6,924 $ 121 Acquired Loans Twelve Months Ended December 31, 2018 Twelve Months Ended December 31, 2017 (in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest With no related allowance: Construction and land development $ — $ — $ — $ — Other commercial real estate 112 1 136 — Other commercial 441 1 264 1 Agricultural — — — — Tax exempt — — — — Residential real estate 442 — 140 1 Home equity — — 58 — Other consumer — — — — With an allowance recorded: Construction and land development $ — $ — $ — $ — Other commercial real estate — — — — Other commercial — — — — Agricultural — — — — Tax exempt — — — — Residential real estate 218 3 — — Home equity — — — — Other consumer — — — — Total Commercial real estate $ 112 $ 1 $ 136 $ — Commercial and industrial 441 1 264 1 Residential real estate 660 3 140 1 Consumer — — 58 — Total impaired loans $ 1,213 $ 5 $ 598 $ 2 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 non-performing 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 twelve months ended December 31, 2018 , 2017 and 2016, 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. Modifications may include adjustments to interest rates, payment amounts, extensions of maturity, court ordered concessions or other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. Twelve Months Ended December 31, 2018 (in thousands, except modifications) Number of Modifications Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserve Troubled Debt Restructurings Construction and land development 1 $ 1 $ 1 $ 1 Other commercial real estate 9 1,896 1,564 153 Other commercial 7 556 486 55 Agricultural 1 167 — — Tax exempt — — — — Residential mortgages 19 3,348 2,752 145 Home equity 1 100 100 — Other consumer 3 13 11 — Total 41 $ 6,081 $ 4,914 $ 354 Twelve Months Ended December 31, 2017 (in thousands, except modifications) Number of Modifications Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserve Troubled Debt Restructurings Construction and land development — $ — $ — $ — Other commercial real estate 6 388 222 — Other commercial 6 563 545 — Agricultural 1 19 18 — Tax exempt — — — — Residential mortgages 3 692 670 — Home equity 1 13 13 — Other consumer 1 38 36 — Total 18 $ 1,713 $ 1,504 $ — Twelve Months Ended December 31, 2016 (in thousands, except modifications) Number of Modifications Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserve Troubled Debt Restructurings Construction and land development — $ — $ — $ — Other commercial real estate 6 1,459 1,354 — Other commercial 2 38 48 — Agricultural 3 29 44 — Tax exempt — — — — Residential mortgages — — — — Home equity — — — — Other consumer 2 11 11 9 Total 13 $ 1,537 $ 1,457 $ 9 The following table summarizes the types of loan concessions made for the periods presented: 2018 2017 2016 (in thousands, except modifications) Number of Modifications Post-Modification Outstanding Recorded Investment Number of Modifications Post-Modification Outstanding Recorded Investment Number of Modifications Post-Modification Outstanding Recorded Investment Interest rate and maturity concession 1 $ 16 6 $ 725 6 $ 440 Amortization and maturity concession 1 286 6 490 — — Amortization concession — — 1 94 4 981 Amortization, interest rate and maturity concession — — 1 36 — — Amortization and interest rate concession — — — — 1 9 Forbearance 3 271 — — — — Forbearance and interest only payments 6 121 — — — — Forbearance and interest rate concession 1 49 — — — — Forbearance and maturity concession 20 2,030 — — — — Maturity concession 2 440 — — — — Restructure without concession 5 1,419 — — — — Court ordered — — — — 1 1 Other 2 282 4 159 1 26 Total 41 4,914 18 1,504 13 1,457 For the twelve months ended December 31, 2018 , 2017 and 2016 , there were no loans that were 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. Residential Mortgage Foreclosure and Other Real Estate Owned As of December 31, 2018 , the Company maintained bank-owned residential real estate property with a fair value of $2.4 million . Additionally, residential mortgage loans collateralized by real estate property that were in the process of foreclosure as of December 31, 2018 and December 31, 2017 totaled $1.5 million and $843 thousand , respectively. As of December 31, 2017 , bank-owned non-residential real estate property totaling $90 thousand . Loan Concentrations Loan concentrations in specific industries may occasionally emerge as a result of economic conditions, changes in local demands, natural loan growth and runoff. At December 31, 2018 the largest industry concentration outside of commercial real estate was the hospitality industry which represents 9.0% or $223.0 million of the Company's total loan portfolio, compared with 9.4% or $234.6 million at December 31, 2017 . There were no concentrations of loans related to any single industry in excess of 10% of total loans for 2018 or 2017 . Loans to Related Parties In the ordinary course of business, the Bank has made loans at prevailing rates and terms to directors, officers and other related parties. In management’s opinion, such loans do not present more than the normal risk of collectability or incorporate other unfavorable features, and were made under terms that are consistent with the Bank’s lending policies. Loan to related parties at December 31, 2018 and December 31, 2017 are summarized below. (in thousands) 2018 2017 Beginning balance $ 10,487 $ 10,620 Changes in composition (1) — 249 New Loans — 1,124 Less: repayments (2,092 ) (1,506 ) Ending balance $ 8,395 $ 10,487 ______________________________________ (1) Adjustments to reflect changes in status of directors and officers for each year presented. Mortgage Banking The Bank sells loans in the secondary market and retains the ability to service many of these loans. The Bank earns fees for the servicing provided. At year end 2018 and 2017 , the Company was servicing loans for participants totaling $496.5 million and $497.9 million , respectively. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates. Contractually-specified servicing fees were $1.3 million , $1.2 million , and $28 thousand for the years ended 2018 , 2017 , and 2016 , respectively, and is included as a component of other income within non-interest income. Servicing rights activity during 2018 and 2017 was as follows: At or for the Twelve Months Ended December 31, (in thousands) 2018 2017 Balance at beginning of year $ 3,232 $ 5 Acquired — 3,417 Additions 99 134 Amortization (245 ) (324 ) Balance at end of year $ 3,086 $ 3,232 Total residential loans included held for sale loans of $168 thousand and $13.4 million at December 31, 2018 and 2017 , respectively. The net gains on sales of loans at December 31, 2018 and 2017 were $121 thousand and $222 thousand , respectively, and included as a component of other income within non-interest income. |