NOTE 5. LOANS

The Company’s loan portfolio is segregated into the following segments: residential mortgage, commercial real estate, commercial and industrial, and consumer. Residential mortgage loans include classes for 1- 4 family owner occupied and construction loans. Commercial real estate loans include construction, single and multi-family, and other commercial real estate classes. Commercial and industrial loans include asset based lending loans, lease financing and other commercial business loan classes. Consumer loans include home equity, direct and indirect auto and other. These portfolio segments each have unique risk characteristics that are considered when determining the appropriate level for the allowance for loan losses.

A substantial portion of the loan portfolio is secured by real estate in western Massachusetts, southern Vermont, northeastern New York, and in the Bank’s other New England lending areas. The ability of many of the Bank’s borrowers to honor their contracts is dependent, among other things, on the specific economy and real estate markets of these areas.

Total loans include business activity loans and acquired loans. Acquired loans are those loans acquired from the acquisitions of the 20 acquired branches, Beacon Federal Bancorp, Inc., The Connecticut Bank and Trust Company, Legacy Bancorp, Inc., and Rome Bancorp, Inc. The following is a summary of total loans:

	June 30, 2014						December 31, 2013
(In thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total

Residential mortgages:
1-4 family	$	1,073,431	$	305,595	$	1,379,026	$	1,027,737	$	333,367	$	1,361,104
Construction	17,162		1,043		18,205		18,158		5,012		23,170
Total residential mortgages	1,090,593		306,638		1,397,231		1,045,895		338,379		1,384,274

Commercial real estate:
Construction	165,276		6,824		172,100		125,247		13,770		139,017
Single and multi-family	89,684		61,420		151,104		63,493		64,827		128,320
Other commercial real estate	1,007,268		249,028		1,256,296		871,271		278,512		1,149,783
Total commercial real estate	1,262,228		317,272		1,579,500		1,060,011		357,109		1,417,120

Commercial and industrial loans:
Asset based lending	328,681		—		328,681		294,241		3,130		297,371
Other commercial and industrial loans	337,801		61,477		399,278		323,196		66,726		389,922
Total commercial and industrial loans	666,482		61,477		727,959		617,437		69,856		687,293

Total commercial loans	1,928,710		378,749		2,307,459		1,677,448		426,965		2,104,413

Consumer loans:
Home equity	240,301		69,708		310,009		232,677		74,154		306,831
Auto and other	297,010		138,594		435,604		213,171		171,834		385,005
Total consumer loans	537,311		208,302		745,613		445,848		245,988		691,836

Total loans	$	3,556,614	$	893,689	$	4,450,303	$	3,169,191	$	1,011,332	$	4,180,523

The carrying amount of the acquired loans at June 30, 2014 totaled $894 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 $23 million (and a note balance of $41 million) and loans that were considered not impaired at the acquisition date with a carrying amount of $871 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.

	Three Months Ended June 30,
(In thousands)	2014			2013
Balance at beginning of period	$	3,154		$	5,666
Sales	—			(301		)
Reclassification from nonaccretable difference for loans with improved cash flows	39			—
Changes in expected cash flows that do not affect nonaccretable difference	(149		)	—
Accretion	(604		)	(2,037		)
Balance at end of period	$	2,440		$	3,328

	Six months ended June 30,
(In thousands)	2014			2013
Balance at beginning of period	$	2,559		$	8,247
Acquisitions	—			—
Sales	—			(301		)
Reclassification from nonaccretable difference for loans with improved cash flows	1,579			—
Changes in expected cash flows that do not affect nonaccretable difference	(149		)	—
Accretion	(1,549		)	(4,618		)
Balance at end of period	$	2,440		$	3,328

The following is a summary of past due loans at June 30, 2014 and December 31, 2013:

Business Activities Loans

(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
June 30, 2014
Residential mortgages:
1-4 family	$	2,785	$	169	$	4,885	$	7,839	$	1,065,592	$	1,073,431	$	1,533
Construction	—		—		—		—		17,162		17,162		—
Total	2,785		169		4,885		7,839		1,082,754		1,090,593		1,533
Commercial real estate:
Construction	—		—		1,370		1,370		163,906		165,276		—
Single and multi-family	293		73		832		1,198		88,486		89,684		216
Other commercial real estate	2,567		1,486		9,204		13,257		994,011		1,007,268		1,721
Total	2,860		1,559		11,406		15,825		1,246,403		1,262,228		1,937
Commercial and industrial loans:
Asset based lending	—		—		—		—		328,681		328,681		—
Other commercial and industrial loans	271		41		3,730		4,042		333,759		337,801		123
Total	271		41		3,730		4,042		662,440		666,482		123
Consumer loans:
Home equity	490		—		1,284		1,774		238,527		240,301		303
Auto and other	700		35		344		1,079		295,931		297,010		14
Total	1,190		35		1,628		2,853		534,458		537,311		317
Total	$	7,106	$	1,804	$	21,649	$	30,559	$	3,526,055	$	3,556,614	$	3,910

Business Activities Loans

(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, 2013
Residential mortgages:
1-4 family	$	2,500	$	623	$	7,382	$	10,505	$	1,017,232	$	1,027,737	$	1,451
Construction	—		—		41		41		18,117		18,158		—
Total	2,500		623		7,423		10,546		1,035,349		1,045,895		1,451
Commercial real estate:
Construction	174		—		3,176		3,350		121,897		125,247		—
Single and multi-family	139		654		679		1,472		62,021		63,493		168
Other commercial real estate	622		4,801		6,912		12,335		858,936		871,271		865
Total	935		5,455		10,767		17,157		1,042,854		1,060,011		1,033
Commercial and industrial loans:
Asset based lending	—		—		—		—		294,241		294,241		—
Other commercial and industrial loans	1,136		386		1,477		2,999		320,197		323,196		42
Total	1,136		386		1,477		2,999		614,438		617,437		42
Consumer loans:
Home equity	732		54		1,655		2,441		230,236		232,677		572
Auto and other	524		231		390		1,145		212,026		213,171		142
Total	1,256		285		2,045		3,586		442,262		445,848		714
Total	$	5,827	$	6,749	$	21,712	$	34,288	$	3,134,903	$	3,169,191	$	3,240

Acquired Loans

(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
June 30, 2014
Residential mortgages:
1-4 family	$	1,319	$	801	$	2,612	$	4,732	$	300,863	$	305,595	$	669
Construction	—		—		—		—		1,043		1,043		—
Total	1,319		801		2,612		4,732		301,906		306,638		669
Commercial real estate:
Construction	—		179		805		984		5,840		6,824		805
Single and multi-family	409		189		1,205		1,803		59,617		61,420		508
Other commercial real estate	782		—		4,578		5,360		243,668		249,028		2,161
Total	1,191		368		6,588		8,147		309,125		317,272		3,474
Commercial and industrial loans:
Asset based lending	—		—		—		—		—		—		—
Other commercial and industrial loans	544		116		1,820		2,480		58,997		61,477		606
Total	544		116		1,820		2,480		58,997		61,477		606
Consumer loans:
Home equity	386		20		898		1,304		68,404		69,708		496
Auto and other	1,605		151		1,674		3,430		135,164		138,594		28
Total	1,991		171		2,572		4,734		203,568		208,302		524
Total	$	5,045	$	1,456	$	13,592	$	20,093	$	873,596	$	893,689	$	5,273

Acquired Loans

(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, 2013
Residential mortgages:
1-4 family	$	1,891	$	437	$	2,577	$	4,905	$	328,462	$	333,367	$	805
Construction	134		32		625		791		4,221		5,012		501
Total	2,025		469		3,202		5,696		332,683		338,379		1,306
Commercial real estate:
Construction	—		—		805		805		12,965		13,770		805
Single and multi-family	350		188		1,335		1,873		62,954		64,827		512
Other commercial real estate	537		518		6,108		7,163		271,349		278,512		2,925
Total	887		706		8,248		9,841		347,268		357,109		4,242
Commercial and industrial loans:
Asset based lending	—		—		—		—		3,130		3,130		—
Other commercial and industrial loans	440		135		1,239		1,814		64,912		66,726		318
Total	440		135		1,239		1,814		68,042		69,856		318
Consumer loans:
Home equity	425		545		636		1,606		72,548		74,154		35
Auto and other	2,606		641		1,641		4,888		166,946		171,834		82
Total	3,031		1,186		2,277		6,494		239,494		245,988		117
Total	$	6,383	$	2,496	$	14,966	$	23,845	$	987,487	$	1,011,332	$	5,983

The following is summary information pertaining to non-accrual loans at June 30, 2014 and December 31, 2013:

	June 30, 2014						December 31, 2013
(In thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total
Residential mortgages:
1-4 family	$	3,352	$	1,943	$	5,295	$	5,931	$	1,772	$	7,703
Construction	—		—		—		41		123		164
Total	3,352		1,943		5,295		5,972		1,895		7,867

Commercial real estate:
Construction	1,370		—		1,370		3,176		—		3,176
Single and multi-family	616		697		1,313		511		823		1,334
Other commercial real estate	7,483		2,417		9,900		6,047		3,183		9,230
Total	9,469		3,114		12,583		9,734		4,006		13,740

Commercial and industrial loans:
Other commercial and industrial loans	3,607		1,214		4,821		1,434		921		2,355
Total	3,607		1,214		4,821		1,434		921		2,355

Consumer loans:
Home equity	981		402		1,383		1,083		602		1,685
Auto and other	330		1,646		1,976		249		1,559		1,808
Total	1,311		2,048		3,359		1,332		2,161		3,493

Total non-accrual loans	$	17,739	$	8,319	$	26,058	$	18,472	$	8,983	$	27,455

Loans evaluated for impairment as of June 30, 2014 and December 31, 2013 were as follows:

Business Activities Loans

(In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Total
June 30, 2014
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	3,872	$	21,572	$	3,505	$	304	$	29,253
Collectively evaluated	1,086,721		1,240,656		662,977		537,007		3,527,361
Total	$	1,090,593	$	1,262,228	$	666,482	$	537,311	$	3,556,614

Business Activities Loans

(In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Total
December 31, 2013
Loans receivable:
Balance at end of year
Individually evaluated for impairment	$	6,237	$	22,429	$	1,380	$	515	$	30,561
Collectively evaluated for impairment	1,039,658		1,037,582		616,057		445,333		3,138,630
Total	$	1,045,895	$	1,060,011	$	617,437	$	445,848	$	3,169,191

Acquired Loans

(In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Total
June 30, 2014
Loans receivable:
Balance at end of Period
Individually evaluated for impairment	$	1,054	$	5,315	$	485	$	—	$	6,854
Collectively evaluated	305,584		311,957		60,992		208,302		886,835
Total	$	306,638	$	317,272	$	61,477	$	208,302	$	893,689

Acquired Loans

(In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Total
December 31, 2013
Loans receivable:
Balance at end of year
Individually evaluated for impairment	$	1,568	$	6,295	$	367	$	154	$	8,384
Collectively evaluated for impairment	336,811		350,814		69,489		245,834		1,002,948
Total	$	338,379	$	357,109	$	69,856	$	245,988	$	1,011,332

The following is a summary of impaired loans at June 30, 2014:

Business Activities Loans

	At June 30, 2014
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	3,338	$	3,338	$	—
Other commercial real estate loans	17,341		17,341		—
Commercial real esate - construction	1,370		1,370		—
Other commercial and industrial loans	566		566		—
Consumer - home equity	183		183		—
Consumer - other	121		121		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	477	$	534	$	57
Other commercial real estate loans	2,149		2,861		712
Other commercial and industrial loans	2,464		2,939		475

Total
Residential mortgages	$	3,815	$	3,872	$	57
Commercial real estate	20,860		21,572		712
Commercial and industrial loans	3,030		3,505		475
Consumer	304		304		—
Total impaired loans	$	28,009	$	29,253	$	1,244

Acquired Loans

	At June 30, 2014
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	604	$	604	$	—
Other commercial real estate loans	3,919		3,919		—
Other commercial and industrial loans	419		419		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	390	$	450	$	60
Other commercial real estate loans	1,090		1,396		306
Other commercial and industrial loans	46		66		20

Total
Residential mortgages	$	994	$	1,054	$	60
Commercial real estate	5,009		5,315		306
Commercial and industrial loans	465		485		20
Total impaired loans	$	6,468	$	6,854	$	386

The following is a summary of impaired loans at December 31, 2013:

Business Activities Loans

	At December 31, 2013
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	3,406	$	3,406	$	—
Commercial real estate - construction	3,176		3,176		—
Commercial real estate - single and multifamily	—		—		—
Other commercial real estate loans	18,909		18,909		—
Other commercial and industrial loans	811		811		—
Consumer - home equity	270		270		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	1,926	$	2,831	$	905
Commercial real estate - construction	—		—		—
Commercial real estate - single and multifamily	—		—		—
Other commercial real estate loans	125		344		219
Other commercial and industrial loans	514		569		55
Consumer - home equity	142		245		103

Total
Residential mortgages	$	5,332	$	6,237	$	905
Commercial real estate	22,210		22,429		219
Commercial and industrial loans	1,325		1,380		55
Consumer	412		515		103
Total impaired loans	$	29,279	$	30,561	$	1,282

Acquired Loans

	At December 31, 2013
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	381	$	381	$	—
Other commercial real estate loans	3,853		3,853		—
Other commercial and industrial loans	367		367		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	957	$	1,187	$	230
Other commercial real estate loans	1,954		2,442		488
Consumer - home equity	115		154		39

Total
Residential mortgages	$	1,338	$	1,568	$	230
Other commercial real estate loans	5,807		6,295		488
Other commercial and industrial loans	367		367		—
Consumer - home equity	115		154		39
Total impaired loans	$	7,627	$	8,384	$	757

The following is a summary of the average recorded investment and interest income recognized on impaired loans as of June 30, 2014 and June 30, 2013:

Business Activities Loans

	Six Months Ended June 30, 2014				Six Months Ended June 30, 2013
(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	$	4,661	$	99	$	3,911	$	52
Commercial real estate - construction	—		—		2,494		—
Commercial real estate - single and multifamily	17,308		312		—		—
Other commercial real estate loans	2,397		—		16,934		447
Commercial and industrial loans	583		14		539		11
Consumer - home equity	300		3		530		9
Consumer - other	123		2		—		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	482	$	3	$	2,731	$	26
Commercial real estate - construction	—		—		1,938		—
Commercial real estate - single and multifamily	2,858		—		—		—
Other commercial real estate loans	—		—		8,062		91
Commercial and industrial loans	2,055		44		1,554		17
Consumer - home equity	—		—		931		1

Total
Residential mortgages	$	5,143	$	102	$	6,642	$	78
Commercial real estate	22,563		312		29,428		538
Commercial and industrial loans	2,638		58		2,093		28
Consumer loans	423		5		1,461		10
Total impaired loans	$	30,767	$	477	$	39,624	$	654

Acquired Loans

	Six Months Ended June 30, 2014				Six Months Ended June 30, 2013
(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	$	930	$	5	$	132	$	1
Other commercial real estate loans	4,392		51		1,445		54
Commercial and industrial loans	537		8		—		—
Consumer - home equity	51		—		—		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	363	$	1	$	708	$	4
Other commercial real estate loans	1,489		55		1,399		2
Commercial and industrial loans	68		3		181		—

Total
Residential mortgages	$	1,293	$	6	$	840	$	5
Other commercial real estate loans	5,881		106		2,844		56
Commercial and industrial loans	605		11		181		—
Consumer loans	51		—		—		—
Total impaired loans	$	7,830	$	123	$	3,865	$	61

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 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. 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 six months ended June 30, 2014 and for the six months ended June 30, 2013, 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. The modifications for the six months ending June 30, 2014 were attributable to concessions granted as ordered by bankruptcy court, interest rate concessions and maturity date extensions. The modifications for the six months ending June 30, 2013 were attributable to interest rate concessions and maturity date extensions.

	Modifications by Class
	Six months ending June 30, 2014
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential - 1-4 Family	3	$	369	$	366
Commercial - Single and multifamily	1	623		623
Commercial - Other	6	4,804		4,804
	10	$	5,796	$	5,793

	Modifications by Class
	Six months ending June 30, 2013
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential - 1-4 Family	5	$	941	$	941
Residential - Construction	1	320		320
Commercial - Single and multifamily	2	2,366		2,406
Commercial - Other	10	3,882		3,450
Commercial business - Other	4	100		100
	22	$	7,609	$	7,217

The following table discloses the recorded investment and number of modifications for TDRs within the last six months where a concession has been made, that then defaulted in the current reporting period.

The following table presents the Company’s TDR activity for the six months ended June 30, 2014 and June 30, 2013:

	Six months ending
	June 30,
(In thousands)	2014			2013
Balance at beginning of the period	$	10,822		$	4,626
Principal Payments	(960		)	(37		)
TDR Status Change (1)	(641		)	(1,164		)
Other Reductions (2)	99			(482		)
Newly Identified TDRs	5,793			7,217
Balance at end of the period	$	15,113		$	10,160

(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 and advances 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.

Modifications that Subsequently Defaulted

Six months ending June 30, 2014

Number of Contracts

Recorded Investment

Troubled Debt Restructurings

Commercial and industrial - Other