LOANS

9 Months Ended

Sep. 30, 2012

LOANS

LOANS

NOTE 6. LOANS

Total loans include loans from business activities and loans acquired from business combinations. Loans from business combinations are those loans acquired from the acquisitions of The Connecticut Bank and Trust Company, Legacy Bancorp, Inc., and Rome Bancorp, Inc. The following is a summary of total loans:

	September 30, 2012
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages
1-4 family	$	902,661	$	289,791	$	1,192,452
Construction	26,623		6,947		33,570
Total residential mortgages	929,284		296,738		1,226,022
Commercial mortgages:
Construction	145,494		10,378		155,872
Single and multi-family	77,470		13,508		90,978
Commercial real estate	737,492		270,830		1,008,322
Total commercial mortgages	960,456		294,716		1,255,172
Commercial business loans:
Asset based lending	243,126		2,565		245,691
Other commercial business loans	232,386		90,704		323,090
Total commercial business loans	475,512		93,269		568,781
Total commercial loans	1,435,968		387,985		1,823,953
Consumer loans:
Home equity	228,497		73,560		302,057
Other	38,334		28,026		66,360
Total consumer loans	266,831		101,586		368,417
Total loans	$	2,632,083	$	786,309	$	3,418,392

	December 31, 2011
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages:
1-4 family	$	649,467	$	329,407	$	978,874
Construction	32,191		9,370		41,561
Total residential mortgages	681,658		338,777		1,020,435
Commercial mortgages:
Construction	117,492		6,726		124,218
Single and multi-family	89,401		16,398		105,799
Commercial real estate	746,545		179,679		926,224
Total commercial mortgages	953,438		202,803		1,156,241
Commercial business loans:
Asset based lending	151,065		2,206		153,271
Other commercial business loans	210,701		46,320		257,021
Total commercial business loans	361,766		48,526		410,292
Total commercial loans	1,315,204		251,329		1,566,533
Consumer loans:
Home equity	226,369		71,827		298,196
Other	39,020		32,386		71,406
Total consumer loans	265,389		104,213		369,602
Total loans	$	2,262,251	$	694,319	$	2,956,570

The carrying amount of the acquired loans at September 30, 2012 totaled $786.3 million.  These loans consisted of loans determined to be impaired at the time of acquisition, which are accounted for in accordance with ASC Topic 310-30, with a carrying amount of $26.4 million and loans that were considered not impaired at the acquisition date with a carrying amount of $759.9 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.

(In thousands)	2012
Three months ended September 30, 2012
Balance at beginning of period	$	2,554
Acquisitions	—
Sales	—
Reclassification from nonaccretable difference for loans with improved cash flows	—
Changes in expected cash flows that do not affect nonaccretable difference	—
Accretion	(806		)
Balance at end of period	$	1,748

(In thousands)	2012
Nine months ended September 30, 2012
Balance at beginning of period	$	1,277
Acquisitions	2,816
Sales
Reclassification from nonaccretable difference for loans with improved cash flows	—
Changes in expected cash flows that do not affect nonaccretable difference	—
Accretion	(2,345		)
Balance at end of period	$	1,748

The following is a summary of past due loans at September 30, 2012 and December 31, 2011:

Loans from Business Activities (in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
September 30, 2012
Residential mortgages:
1-4 family	$	2,435	$	471	$	8,764	$	11,670	$	890,991	$	902,661	$	1,746
Construction	41		513		—		554		26,069		26,623		—
Total	2,476		984		8,764		12,224		917,060		929,284		1,746
Commercial mortgages:
Construction	350		—		4,672		5,022		140,472		145,494		—
Single and multi-family	574		356		452		1,382		76,088		77,470		287
Commercial real estate	2,137		1,432		8,623		12,192		725,300		737,492		863
Total	3,061		1,788		13,747		18,596		941,860		960,456		1,150
Commercial business loans:
Asset based lending	—		—		—		—		243,126		243,126		—
Other commercial business loans	1,049		1,438		2,143		4,630		227,756		232,386		238
Total	1,049		1,438		2,143		4,630		470,882		475,512		238
Consumer loans:
Home equity	724		214		1,469		2,407		226,090		228,497		—
Other	542		100		240		882		37,452		38,334		65
Total	1,266		314		1,709		3,289		263,542		266,831		65
Total	$	7,852	$	4,524	$	26,363	$	38,739	$	2,593,344	$	2,632,083	$	3,199

Loans Acquired from Business Combinations (in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
September 30, 2012
Residential mortgages:
1-4 family	$	1,799	$	406	$	2,181	$	4,386	$	285,405	$	289,791	$	759
Construction	—		—		—		—		6,947		6,947		—
Total	1,799		406		2,181		4,386		292,352		296,738		759
Commercial mortgages:
Construction	196		70		1,479		1,745		8,633		10,378		1,479
Single and multi-family	99		—		276		375		13,133		13,508		276
Commercial real estate	1,529		296		5,862		7,687		263,143		270,830		4,906
Total	1,824		366		7,617		9,807		284,909		294,716		6,661
Commercial business loans:
Asset based lending	—		—		—		—		2,565		2,565		—
Other commercial business loans	412		3,047		2,313		5,772		84,932		90,704		2,194
Total	412		3,047		2,313		5,772		87,497		93,269		2,194
Consumer loans:
Home equity	609		127		83		819		72,741		73,560		46
Other	255		152		279		686		27,340		28,026		138
Total	864		279		362		1,505		100,081		101,586		184
Total	$	4,899	$	4,098	$	12,473	$	21,470	$	764,839	$	786,309	$	9,798

Loans from Business Activities (in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
December 31, 2011
Residential mortgages:
1-4 family	$	2,045	$	877	$	11,479	$	14,401	$	635,066	$	649,467	$	5,123
Construction	—		—		—		—		32,191		32,191		—
Total	2,045		877		11,479		14,401		667,257		681,658		5,123
Commercial mortgages:
Construction	—		—		8,650		8,650		108,842		117,492		—
Single and multi-family	70		—		676		746		88,655		89,401		314
Commercial real estate	746		8,019		5,258		14,023		732,522		746,545		—
Total	816		8,019		14,584		23,419		930,019		953,438		314
Commercial business loans
Asset based lending	—		—		—		—		151,065		151,065		—
Other commercial business loans	369		781		1,156		2,306		208,395		210,701		178
Total	369		781		1,156		2,306		359,460		361,766		178
Consumer loans:
Home equity	430		257		1,692		2,379		223,990		226,369		—
Other	311		148		148		607		38,413		39,020		100
Total	741		405		1,840		2,986		262,403		265,389		100
Total	$	3,971	$	10,082	$	29,059	$	43,112	$	2,219,139	$	2,262,251	$	5,715

Loans Acquired from Business Combinations (in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
December 31, 2011
Residential mortgages:
1-4 family	$	663	$	242	$	1,450	$	2,355	$	327,052	$	329,407	$	796
Construction	—		—		165		165		9,205		9,370		165
Total	663		242		1,615		2,520		336,257		338,777		961
Commercial mortgages:
Construction	—		—		606		606		6,120		6,726		606
Single and multi-family	—		—		703		703		15,695		16,398		703
Commercial real estate	68		102		1,923		2,093		177,586		179,679		1,913
Total	68		102		3,232		3,402		199,401		202,803		3,222
Commercial business loans:
Asset based lending	—		—		—		—		2,206		2,206		—
Other commercial business loans	349		235		258		842		45,478		46,320		245
Total	349		235		258		842		47,684		48,526		245
Consumer loans:
Home equity	284		—		75		359		71,468		71,827		—
Other	239		69		179		487		31,899		32,386		41
Total	523		69		254		846		103,367		104,213		41
Total	$	1,603	$	648	$	5,359	$	7,610	$	686,709	$	694,319	$	4,469

Activity in the allowance for loan losses for the nine months ended September 30, 2012 and the period ended December 31, 2011 was as follows:

Loans from Business Activities (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
September 30, 2012
Balance at beginning of year	$	3,150	$	22,095	$	4,540	$	2,203	$	(90	)	$	31,898
Charged-off loans	1,590		3,207		116		1,297		—			6,210
Recoveries on charged-off loans	87		8		42		132		—			269
Provision for loan losses	4,922		731		267		2		95			6,017
Balance at end of period	$	6,569	$	19,627	$	4,733	$	1,040	$	5		$	31,974
Individually evaluated for impairment	663		1,653		342		107		—			2,765
Collectively evaluated	5,906		17,974		4,391		933		5			29,209
Total	$	6,569	$	19,627	$	4,733	$	1,040	$	5		$	31,974
Loans receivable:
Balance at end of period
Individually evaluated for impairment	6,534		30,819		1,221		1,085		—			39,659
Collectively evaluated	922,750		929,637		474,291		265,746		—			2,592,424
Total	$	929,284	$	960,456	$	475,512	$	266,831	$	—		$	2,632,083

Loans Acquired from Business Combinations (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
September 30, 2012
Balance at beginning of year	$	281	$	158	$	38	$	87	$	(18	)	$	546
Charged-off loans	8		85		34		40		—			167
Recoveries on charged-off loans	—		—		4		—		—			4
Provision for loan losses	165		247		82		96		143			733
Balance at end of period	$	438	$	320	$	90	$	143	$	125		$	1,116
Individually evaluated for impairment	44		—		—		—		—			44
Collectively evaluated	394		320		90		143		125			1,072
Total	$	438	$	320	$	90	$	143	$	125		$	1,116
Loans receivable:
Balance at end of Period
Individually evaluated for impairment	612		891		—		—		—			1,503
Collectively evaluated	296,126		293,825		93,269		101,586		—			784,806
Total	$	296,738	$	294,716	$	93,269	$	101,586	$	—		$	786,309

Loans from Business Activities (In thousands)	Residential mortgages		Commercial mortgages		Commercial business			Consumer		Unallocated			Total
December 31, 2011
Balance at beginning of year	$	3,077	$	19,461	$	6,038		$	2,099	$	1,223		$	31,898
Charged-off loans	1,322		4,047		1,443			884		—			7,696
Recoveries on charged-off loans	231		189		109			150		—			679
Provision for loan losses	1,164		6,492		(164		)	838		(1,313		)	7,017
Balance at end of year	$	3,150	$	22,095	$	4,540		$	2,203	$	(90	)	$	31,898
Individually evaluated for impairment	449		1,722		116			488		—			2,775
Collectively evaluated	2,701		20,373		4,424			1,715		(90		)	29,123
Total	$	3,150	$	22,095	$	4,540		$	2,203	$	(90	)	$	31,898
Loans receivable:
Balance at end of year
Individually evaluated for impairment	5,655		34,074		564			1,190					41,483
Collectively evaluated	676,003		919,364		361,202			264,199					2,220,768
Total	$	681,658	$	953,438	$	361,766		$	265,389				$	2,262,251

Loans Acquired from Business Combinations (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
December 31, 2011
Balance at beginning of year	$	—	$	—	$	—	$	—	$	—		$	—
Charged-off loans	—		—		—		—		—			—
Recoveries on charged-off loans	—		—		—		—		—			—
Provision for loan losses	281		158		38		87		(18		)	546
Balance at end of year	$	281	$	158	$	38	$	87	$	(18	)	$	546
Individually evaluated for impairment	—		—		—		—		—			—
Collectively evaluated	281		158		38		87		(18		)	546
Total	$	281	$	158	$	38	$	87	$	(18	)	$	546
Loans receivable:
Balance at end of year
Individually evaluated for impairment	—		—		—		—					—
Collectively evaluated	338,777		202,803		48,526		104,213					694,319
Total	$	338,777	$	202,803	$	48,526	$	104,213				$	694,319

The following is a summary of impaired loans at September 30, 2012:

	At September 30, 2012
Loans from Business Activities (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	2,032	$	2,032	$	—
Commercial mortgages - single and multifamily	164		164		—
Commercial mortgages - real estate	4,134		4,134		—
Other commercial business loans	176		176		—
Consumer - home equity	809		809		—
With an allowance recorded:
Residential mortgages - 1-4 family	2,685		3,349		664
Commercial mortgages - construction	3,986		4,672		686
Commercial mortgages - real estate	2,124		3,090		966
Other commercial business loans	520		862		342
Consumer - home equity	168		275		107
Total
Residential mortgages	$	4,717	$	5,381	$	664
Commercial mortgages	10,408		12,060		1,652
Commercial business	696		1,038		342
Consumer	977		1,084		107
Total impaired loans	$	16,798	$	19,563	$	2,765

	At September 30, 2012
Loans Acquired from Business Combinations  (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	455	$	455	$	—
Commercial mortgages - real estate	891		891		—
With an allowance recorded:
Residential mortgages - 1-4 family	113		157		44
Total
Residential mortgages	$	568	$	612	$	44
Commercial mortgages	891		891		—
Total impaired loans	$	1,459	$	1,503	$	44

The following is a summary of impaired loans at December 31, 2011:

	At December 31, 2011
Loans from Business Activities (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	2,546	$	2,546	$	—
Commercial mortgages - single and multifamily	326		326		—
Commercial mortgages - real estate	2,751		2,751		—
Consumer - home equity	308		308		—
With an allowance recorded:
Residential mortgages - 1-4 family	$	1,853	$	2,302	$	449
Commercial mortgages - construction	7,559		8,650		1,091
Commercial mortgages - real estate	1,373		2,004		631
Other commercial business loans	13		129		116
Consumer - home equity	357		845		488
Total
Residential mortgages	$	4,399	$	4,848	$	449
Commercial mortgages	12,009		13,731		1,722
Commercial business	13		129		116
Consumer	665		1,153		488
Total impaired loans	$	17,086	$	19,861	$	2,775

	At December 31, 2011
Loans Acquired from Business Combinations (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	247	$	247	$	—
Consumer - home equity	37		37		—
Total
Residential mortgages	$	247	$	247	$	—
Consumer	37		37		—
Total impaired loans	$	284	$	284	$	—

The following is a summary of the average recorded investment and interest income recognized on impaired loans as of September 30, 2012 and September 30, 2011:

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
Loans from Business Activities (in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:
Residential mortgages - 1-4 family	$	1,623	$	22	$	1,487	$	39
Residential mortgages - construction	—		—		52		—
Commercial-construction	—		—		105		—
Commercial mortgages - single and multifamily	190		2		89		1
Commercial mortgages - real estate	2,644		48		7,470		248
Commercial business loans	15		—		31		1
Consumer-home equity	249		1		361		5
With an allowance recorded:
Residential mortgages - 1-4 family	$	2,567	$	27	$	568	$	20
Residential mortgages - construction	—		—		21		—
Commercial-construction	4,736		—		3,504		—
Commercial mortgages - single and multifamily	75		—		365		11
Commercial mortgages - real estate	2,013		23		2,077		20
Commercial business loans	169		5		429		3
Consumer-home equity	421		—		154		—
Total
Residential mortgages	$	4,190	$	49	$	2,129	$	59
Commercial mortgages	9,658		73		13,611		280
Commercial business loans	184		5		460		4
Consumer loans	670		1		515		5
Total impaired loans	$	14,702	$	128	$	16,715	$	348

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
Loans Acquired from Business Combinations (in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:
Residential mortgages - 1-4 family	$	426	$	—	$	—	$	—
Residential mortgages - construction	—		—		—		—
Commercial-construction	—		—		—		—
Commercial mortgages - single and multifamily	—		—		—		—
Commercial mortgages - real estate	274		15		1,064		—
Commercial business loans	—		—		161		—
Consumer-home equity	25		—		—		—
With an allowance recorded:
Residential mortgages - 1-4 family	$	13	$	—	$	—	$	—
Residential mortgages - construction	—		—		—		—
Commercial-construction	—		—		—		—
Commercial mortgages - single and multifamily	—		—		—		—
Commercial mortgages - real estate	—		—		—		—
Commercial business loans	—		—		—		—
Consumer-home equity	—		—		—		—
Total
Residential mortgages	$	439	$	—	$	—	$	—
Commercial mortgages	274		15		1,064		—
Commercial business loans	—		—		161		—
Consumer loans	25		—		—		—
Total impaired loans	$	738	$	15	$	1,225	$	—

The following is summary information pertaining to non-accrual loans at September 30, 2012 and December 31, 2011:

	September 30, 2012
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages:
1-4 family	$	7,018	$	1,422	$	8,440
Total	7,018		1,422		8,440
Commercial mortgages:
Construction	4,672		—		4,672
Single and multi-family	165		—		165
Other	7,760		956		8,716
Total	12,597		956		13,553
Commercial business loans:
Other commercial business loans	1,905		119		2,024
Total	1,905		119		2,024
Consumer loans:
Home equity	1,469		37		1,506
Other	175		141		316
Total	1,644		178		1,822
Total non-accrual loans	$	23,164	$	2,675	$	25,839

	December 31, 2011
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages:
1-4 family	$	6,356	$	654	$	7,010
Total	6,356		654		7,010
Commercial mortgages:
Construction	8,650		—		8,650
Single and multi-family	362		—		362
Other	5,259		9		5,268
Total	14,271		9		14,280
Commercial business loans:
Other commercial business loans	977		13		990
Total	977		13		990
Consumer loans:
Home equity	1,692		75		1,767
Other	48		139		187
Total	1,740		214		1,954
Total non-accrual loans	$	23,344	$	890	$	24,234

Credit Quality Information

The Bank utilizes an eleven grade internal loan rating system for each of its commercial real estate, construction and commercial loans as follows:

1Substantially Risk Free

Borrowers in this category are of unquestioned credit standing and are at the pinnacle of credit quality. Credits in this category are generally cash secured with strong management depth and experience and exhibit a superior track record.

2Minimal Risk

A relationship which provides an adequate return on investment to the Company, has been stable during the last three years and has a superior financial condition as determined by a comparison with the industry.  In addition, management must be of unquestionable character and have strong abilities as measured by its long-term financial performance.

3Moderate Risk

A relationship which does not appear to possess more than the normal degree of credit risk.  Overall, the borrower’s financial statements compare favorably with the industry.  A strong secondary repayment source exists and the loan is performing as agreed.

4Better than Average Risk

A relationship which possesses most of the characteristics found in the Moderate Risk category and ranges from definitely sound to those with minor risk characteristics. Operates in a reasonably stable industry that may be moderately affected by the business cycle and moderately open to changes. Has a satisfactory track record and the loan is performing as agreed.

5Average Risk

A relationship which possesses most of the characteristics found in the Better than Average Risk category but may have recently experienced a loss year often as a result of its operation in a cyclical industry. The relationship has smaller margins of debt service coverage with some elements of reduced strength. Good secondary repayment source exists and the loan is performing as agreed.  Start-up businesses and construction loans will generally be assigned to this category as well.

6Acceptable Risk

Borrowers in this category may be more highly leveraged than their industry peers and experience moderate losses relative to net worth.  Trends and performance, e.g. Sales and earnings, leverage, among other factors may be negative.  Management’s ability may be questionable, or perhaps untested.  The industry may be experiencing either temporary or long term pressures.  Collateral values are seen as more important in assessing risk than in higher quality loans.  Failure to meet required line clean-up periods or other terms and conditions, including some slow payments may also predicate this grade.

7              Special Mention

A classification assigned to all relationships for credits with potential weaknesses which present a higher than normal credit risk, but not to the point of requiring a Substandard loan classification.  No loss of principal or interest is anticipated. However, these credits are followed closely, and if necessary, remedial plans to reduce the Company’s risk exposure are established.

8              Substandard — Performing

A classification assigned to a credit that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.  Substandard loans will be evaluated on at least a quarterly basis to determine if an additional allocation of the Company’s allowance for loan loss is warranted.

9              Substandard — Non-Performing

A classification given to Substandard credits which have deteriorated to the point that management has placed the accounts on non-accrual status due to delinquency exceeding 90 days or where the Company has determined that collection of principal and interest in full is unlikely.

10           Doubtful

Loans classified as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, highly questionable and improbable.  Collection in excess of 50% of the balance owed is not expected.

11           Loss

Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.  This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be possible in the future.

The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention and Substandard.  Loans that are current within 59 days are rated Pass.  Residential mortgages that are 60-89 days delinquent are rated Special Mention. Loans delinquent for 90 days or greater are rated Substandard and generally placed on non-accrual status.  Home equity loans are risk rated based on the same rating system as the Company’s residential mortgages.

Ratings for other consumer loans, including auto loans, are rated based on a two rating system. Loans that are current within 119 days are rated Performing while loans delinquent for 120 days or more are rated Non-performing. Other consumer loans are placed on non-accrual at such time as they become Non-performing.

Acquired Loans Credit Quality Analysis

Upon acquiring a loan portfolio, our Internal Loan Review function undertakes the same process of assigning risk ratings as historical loans, which may differ from the risk rating policy of the predecessor company.  Loans which are rated Substandard or worse according to the rating process outlined below are deemed to be credit impaired loans accounted for under ASC 310-30, regardless of whether they are classified as performing or non-performing.

The Bank utilizes an eleven grade internal loan rating system for each of its acquired commercial real estate, construction and commercial loans as outlined in the Credit Quality Information section of this Note.  The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention and Substandard.  Residential mortgages that are current within 59 days are rated Pass.  Residential mortgages that are 60 — 89 days delinquent are rated Special Mention.  Residential mortgages delinquent for 90 days or greater are rated Substandard.  Home equity loans are risk rated based on the same rating system as the Company’s residential mortgages.  Other consumer loans are rated based on a two rating system.  Other consumer loans that are current within 119 days are rated Performing while loans delinquent for 120 days or more are rated Non-performing. Non-performing other consumer loans are deemed to be credit impaired loans accounted for under ASC 310-30.

The Company subjects loans that do not meet the ASC 310-30 criteria to ASC 450-20 by collectively evaluating these loans for an allowance for loan loss.  The Company applies a methodology similar to the methodology prescribed for originated loans, which includes the application of environmental factors to each category of loans.  The methodology to collectively evaluate the acquired loans outside the scope of ASC 310-30 includes the application of a number of environmental factors that reflect management’s best estimate of the level of incremental credit losses that might be recognized given current conditions.  This is reviewed as part of the allowance for loan loss adequacy analysis.  As the loan portfolio matures and environmental factors change, the loan portfolio will be reassessed each quarter to determine an appropriate reserve allowance.

A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time for ASC 310-30 loans. At September 30, 2012, there had not been such a decrease and therefore there was no allowance for losses on acquired loans under Subtopic ASC 310-30.

The Company presented several tables within this footnote of historical loans and acquired loans in order to distinguish the credit performance of the newly acquired loans.

The following table presents the Company’s loans by risk rating at September 30, 2012 and December 31, 2011:

Loans from Business Activities

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass
Special mention	$	893,426	$	637,110	$	26,109	$	32,191	$	919,535	$	669,301
Substandard	471		877		514		—		985		877
Total	8,764		11,480		—		—		8,764		11,480
	$	902,661	$	649,467	$	26,623	$	32,191	$	929,284	$	681,658

Commercial Mortgages

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Real estate				Total commercial mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	130,658	$	91,452	$	74,438	$	85,153	$	664,683	$	674,814	$	869,779	$	851,419
Special mention	49		5,939		422		435		12,962		16,459		13,433		22,833
Substandard	14,787		17,262		2,610		3,813		59,742		55,156		77,139		76,231
Doubtful	—		2,839		—		—		105		116		105		2,955
Total	$	145,494	$	117,492	$	77,470	$	89,401	$	737,492	$	746,545	$	960,456	$	953,438

Commercial Business Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total commercial business loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	242,089	$	149,741	$	218,085	$	200,246	$	460,174	$	349,987
Special mention	—		—		4,921		607		4,921		607
Substandard	1,037		1,324		9,287		9,753		10,324		11,077
Doubtful	—		—		93		95		93		95
Total	$	243,126	$	151,065	$	232,386	$	210,701	$	475,512	$	361,766

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Other				Total consumer loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Performing	$	227,028	$	224,677	$	38,159	$	38,972	$	265,187	$	263,649
Nonperforming	1,469		1,692		175		48		1,644		1,740
Total	$	228,497	$	226,369	$	38,334	$	39,020	$	266,831	$	265,389

Loans Acquired from Business Combinations

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	287,204	$	327,715	$	6,947	$	9,205	$	294,151	$	336,920
Special mention	406		242		—		—		406		242
Substandard	2,181		1,450		—		165		2,181		1,615
Total	$	289,791	$	329,407	$	6,947	$	9,370	$	296,738	$	338,777

Commercial Mortgages

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Real estate				Total commercial mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	8,703	$	3,548	$	9,691	$	14,802	$	235,441	$	161,218	$	253,835	$	179,568
Special mention	—		2,160		2,553		272		12,245		8,071		14,798		10,503
Substandard	1,675		1,018		1,264		1,324		23,144		10,390		26,083		12,732
Total	$	10,378	$	6,726	$	13,508	$	16,398	$	270,830	$	179,679	$	294,716	$	202,803

Commercial Business Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total commercial business loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	2,565	$	2,206	$	76,480	$	39,578	$	79,045	$	41,784
Special mention	—		—		8,394		3,810		8,394		3,810
Substandard	—		—		5,830		2,932		5,830		2,932
Total	$	2,565	$	2,206	$	90,704	$	46,320	$	93,269	$	48,526

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Other				Total consumer loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Performing	$	73,523	$	71,752	$	27,885	$	32,248	$	101,408	$	104,000
Nonperforming	37		75		141		138		178		213
Total	$	73,560	$	71,827	$	28,026	$	32,386	$	101,586	$	104,213

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.

The following tables include the recorded investment and number of modifications identified during the nine months ended September 30, 2012. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.

	Modifications by Class
	Nine months ending September 30, 2012
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential- 1-4 Family	1	$	70	$	70

As of September 30, 2012, there were no loans that were restructured within the last twelve months that have subsequently defaulted.

The following table presents the Company’s TDR activity for the nine months ended September 30, 2012 and 2011:

	September 30,
(In thousands)	2012		2011
Balance at beginning of the period	$	1,264	$	7,829
Principal Payments	6		72
TDR Status Change (1)	1,125		7,041
Other Reductions (2)	—		189
Newly Identified TDRs	2,043		177
Balance at end of the period	$	2,176	$	704

(1)TDR Status change classification represents TDR loans with a specified interest rate equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk and  the loan was on current payment status and not impaired based on the terms specified by the restructuring agreement.

(2)Other Reductions classification consists of transfer to other real estate owned and charge-offs to loans.

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