Note 4: Loans and the Allowance for Credit Losses

Loans

We primarily originate residential real estate, commercial, commercial real estate, municipal obligations and installment loans to customers throughout the state of Vermont. There are no significant industry concentrations in the loan portfolio. Loans totaled $1.07 billion at September 30, 2012 and $1.03 billion at December 31, 2011. At September 30, 2012 and December 31, 2011, total loans included $(192) thousand and $11 thousand, respectively, of net deferred loan origination fees (costs). The aggregate amount of overdrawn deposit balances classified as loan balances was $334 thousand and $399 thousand at September 30, 2012 and December 31, 2011, respectively.

Allowance for Credit Losses

We have divided the loan portfolio into portfolio segments, each with different risk characteristics and methodologies for assessing risk. Each portfolio segment is broken down into class segments where appropriate. Class segments contain unique measurement attributes, risk characteristics and methods for monitoring and assessing risk that are necessary to develop the allowance for loan and lease losses. Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class segment. A description of the segments follows:

Commercial, financial and agricultural: We offer a variety of loan options to meet the specific needs of commercial customers including term loans and lines of credit. Such loans are made available to businesses to finance inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment, receivables, inventory or other assets owned by the borrower. These loans require different monitoring than commercial real estate loans because of the nature of the underlying collateral, and the fact that collateral values may change daily. Management generally employs enhanced monitoring requirements, obtains personal guarantees and, where appropriate, may also attempt to secure real estate as collateral.

Municipal: Municipal loans consist of short and long term loans issued on a taxable and tax-exempt basis which are general obligations of the municipality. These loans are generally viewed as lower risk as municipalities have taxing power to meet their financial obligations. Included in municipal loans are longer term loans under the federal Qualified School Construction Bond program. Proceeds are used for the construction, rehabilitation or repair of public school properties and we receive a federal tax credit in lieu of interest income on these loans.

Real Estate – Residential: Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. We originate adjustable-rate and fixed-rate, one- to four-family residential real estate loans for the construction, purchase or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in our market area. Loans on one- to four-family residential real estate are generally originated in amounts of no more than 80 percent of the purchase price or appraised value (whichever is lower). Mortgage title insurance and hazard insurance are required.

Real Estate – Commercial: We offer commercial real estate loans to finance real estate purchases and refinancing of existing commercial properties. These commercial real estate loans are secured by first liens on the real estate, which may include both owner occupied and non owner occupied facilities. The types of facilities financed include apartments, hotels, warehouses, retail facilities, manufacturing facilities and office buildings.

Real Estate – Construction: We offer construction loans for the construction, expansion and improvement of residential and commercial properties which are secured by the real estate being developed. A review of all plans and budgets is performed prior to approval, third party progress documents are usually required during construction, and an independent approval process for all draw and release requests is maintained to ensure that funding is prudently administered and that funds are sufficient to complete the project.

Installment - We offer traditional direct consumer installment loans for various personal needs, including vehicle financing. The vast majority of these loans are secured by a lien on the purchased vehicle and are underwritten using credit scores and income verification. We do not provide any indirect consumer lending activities.

For purposes of evaluating the adequacy of the allowance for credit losses, we consider a number of significant factors that affect the collectability of the portfolio. For individually evaluated loans, these include estimates of loss exposure, which reflect the facts and circumstances that affect the likelihood of repayment of such loans as of the evaluation date. For homogeneous pools of loans and leases, estimates of our exposure to credit loss reflect a current assessment of a number of factors, which could affect collectability. These factors include: past loss experience; size, trend, composition, and nature of loans; changes in lending policies and procedures, including underwriting standards and collection, charge-offs and recoveries; trends experienced in nonperforming and delinquent loans; current economic conditions in our market; the effect of external factors such as competition, legal and regulatory requirements; and the experience, ability, and depth of lending management and staff. Qualitative factors used in the evaluation of the adequacy of the allowance are reviewed and updated on a quarterly basis, these factors directly impact the allocation of the allowance. Past loss experience is based on net loan losses as a percentage of portfolio balances, using a five year weighted average. An external loan review firm and various regulatory agencies periodically review our allowance for credit losses.

After a thorough consideration of the factors discussed above, any required additions to the allowance for credit losses are made periodically by charges to the provision for credit losses. These charges are necessary to maintain the allowance for credit losses at a level which Management believes is reasonable for the overall inherent risk of probable loss in the portfolio. While Management uses available information to recognize losses on loans, additions may fluctuate from one reporting period to another. These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in Management’s assessment of any or all of the determining factors discussed above.

The following table reflects our loan loss experience and activity in the allowance for credit losses for the three months ended September 30, 2012:



(In thousands)	Commercial, financial and agricultural		Municipal		Real estate- residential		Real estate- commercial		Real estate-construction		Installment		All other		Totals
Allowance for credit losses:
Beginning balance	$	3,102	$	410	$	3,476	$	4,557	$	233	$	21	$	18	$	11,817
Charge-offs		0		0		0		0		0		0		0		0
Recoveries		3		0		1		1		8		0		0		13
Provision (credit)		136		31		85		3		(10)		(2)		7		250
Ending balance	$	3,241	$	441	$	3,562	$	4,561	$	231	$	19	$	25	$	12,080

The following table reflects our loan loss experience and activity in the allowance for credit losses for the nine months ended September 30, 2012, and our loan portfolio as of September 30, 2012:



(In thousands)	Commercial, financial and agricultural		Municipal		Real estate- residential		Real estate- commercial		Real estate-construction		Installment		All other		Totals
Allowance for credit losses:
Beginning balance	$	2,905	$	309	$	3,138	$	4,484	$	477	$	23	$	17	$	11,353
Charge-offs		(9)		0		(20)		0		0		0		0		(29)
Recoveries		21		0		13		1		21		0		0		56
Provision (credit)		324		132		431		76		(267)		(4)		8		700
Ending balance	$	3,241	$	441	$	3,562	$	4,561	$	231	$	19	$	25	$	12,080
Ending balance individually
evaluated for impairment	$	4	$	0	$	270	$	60	$	0	$	0	$	0	$	334
Ending balance collectively
evaluated for impairment		3,237		441		3,292		4,501		231		19		25		11,746
Totals	$	3,241	$	441	$	3,562	$	4,561	$	231	$	19	$	25	$	12,080
Financing receivables:
Ending balance individually
evaluated for impairment	$	20	$	0	$	2,132	$	581	$	0	$	7	$	0	$	2,740
Ending balance collectively
evaluated for impairment		169,430		82,048		475,189		326,601		11,285		5,252		334		1,070,139
Totals	$	169,450	$	82,048	$	477,321	$	327,182	$	11,285	$	5,259	$	334	$	1,072,879
Components:
Allowance for loan losses	$	2,795	$	435	$	3,472	$	4,502	$	196	$	19	$	25	$	11,444
Reserve for undisbursed
lines of credit		446		6		90		59		35		0		0		636
Total allowance for credit
losses	$	3,241	$	441	$	3,562	$	4,561	$	231	$	19	$	25	$	12,080

The following table reflects our loan loss experience and activity in the allowance for credit losses for the three months ended September 30, 2011:



(In thousands)	Commercial, financial and agricultural		Municipal		Real estate- residential		Real estate- commercial		Real estate-construction		Installment		All other		Totals
Allowance for credit losses:
Beginning balance	$	3,122	$	115	$	2,563	$	4,856	$	193	$	25	$	27	$	10,901
Charge-offs		(2)		0		(14)		0		(85)		(2)		0		(103)
Recoveries		32		0		2		0		7		0		0		41
Provision (credit)		(274)		182		678		(507)		175		0		(4)		250
Ending balance	$	2,878	$	297	$	3,229	$	4,349	$	290	$	23	$	23	$	11,089

The following table reflects our loan loss experience and activity in the allowance for credit losses for the nine months ended September 30, 2011, and our loan portfolio as of September 30, 2011:



(In thousands)	Commercial, financial and agricultural		Municipal		Real estate- residential		Real estate- commercial		Real estate-construction		Installment		All other		Totals
Allowance for credit losses:
Beginning balance	$	2,617	$	236	$	2,428	$	5,143	$	283	$	24	$	23	$	10,754
Charge-offs		(79)		0		(63)		(60)		(96)		(10)		0		(308)
Recoveries		76		0		3		43		18		3		0		143
Provision (credit)		264		61		861		(777)		85		6		0		500
Ending balance	$	2,878	$	297	$	3,229	$	4,349	$	290	$	23	$	23	$	11,089
Ending balance individually
evaluated for impairment	$	39	$	0	$	215	$	0	$	0	$	0	$	0	$	254
Ending balance collectively
evaluated for impairment		2,839		297		3,014		4,349		290		23		23		10,835
Totals	$	2,878	$	297	$	3,229	$	4,349	$	290	$	23	$	23	$	11,089
Financing receivables:
Ending balance individually
evaluated for impairment	$	223	$	0	$	2,380	$	588	$	0	$	1	$	0	$	3,192
Ending balance collectively
evaluated for impairment		155,820		97,015		423,240		310,275		12,238		5,857		439		1,004,884
Totals	$	156,043	$	97,015	$	425,620	$	310,863	$	12,238	$	5,858	$	439	$	1,008,076
Components:
Allowance for loan losses	$	2,448	$	295	$	3,131	$	4,306	$	254	$	23	$	23	$	10,480
Reserve for undisbursed
lines of credit		430		2		98		43		36		0		0		609
Total allowance for credit
losses	$	2,878	$	297	$	3,229	$	4,349	$	290	$	23	$	23	$	11,089

Presented below is an aging of past due loans, including both non-accrual and restructured loans, by class as of September 30, 2012:



	30-59 Days		60-89 Days		Over 90 Days		Total Past						Greater Than 90 Days and
(In thousands)	Past Due		Past Due		Past Due		Due		Current		Total		Accruing
Commercial, financial and agricultural	$	0	$	150	$	9	$	159	$	169,291	$	169,450	$	0
Municipal		0		0		0		0		82,048		82,048		0
Real estate-residential:
First mortgage		1		64		887		952		437,690		438,642		0
Second mortgage		8		0		726		734		37,945		38,679		0
Real estate-commercial:
Owner occupied		0		0		401		401		217,162		217,563		0
Non-owner occupied		0		0		0		0		109,619		109,619		0
Real estate-construction:
Residential		0		0		0		0		1,960		1,960		0
Commercial		0		0		0		0		9,325		9,325		0
Installment		0		0		7		7		5,252		5,259		0
Other		0		0		0		0		334		334		0
Total	$	9	$	214	$	2,030	$	2,253	$	1,070,626	$	1,072,879	$	0

Non-accruing and restructured loans make up $2.10 million of the total past due loans in the aging table above.

Presented below is an aging of past due loans, including both non-accrual and restructured loans, by class as of December 31, 2011:



	30-59 Days		60-89 Days		Over 90 Days		Total Past						Greater Than 90 Days and
	Past Due		Past Due		Past Due		Due		Current		Total		Accruing
Commercial, financial and agricultural	$	0	$	40	$	8	$	48	$	146,942	$	146,990	$	0
Municipal		0		0		0		0		101,705		101,705		0
Real estate-residential:
First mortgage		39		305		731		1,075		400,256		401,331		0
Second mortgage		0		0		281		281		38,206		38,487		0
Real estate-commercial:
Owner occupied		0		325		87		412		205,844		206,256		0
Non-owner occupied		0		0		0		0		107,659		107,659		0
Real estate-construction:
Residential		0		0		0		0		1,798		1,798		0
Commercial		0		0		0		0		17,195		17,195		0
Installment		0		0		0		0		5,806		5,806		0
Other		0		0		0		0		399		399		0
Total	$	39	$	670	$	1,107	$	1,816	$	1,025,810	$	1,027,626	$	0

Non-accruing and restructured loans make up $1.60 million of the total past due loans in the aging table above.

Impaired loans by class at September 30, 2012 were as follows:



(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Commercial, financial and agricultural	$	11	$	934	$	0
Real estate – residential:
First mortgage		788		1,084		0
Second mortgage		5		40		0
Real estate – commercial:
Owner occupied		324		485		0
Non-owner occupied		0		70		0
Installment		7		52		0
With related allowance recorded
Commercial, financial and agricultural		9		9		4
Real estate – residential:
First mortgage		618		635		232
Second mortgage		721		721		38
Real estate – commercial:
Owner occupied		257		257		60
Total
Commercial, financial and agricultural		20		943		4
Real estate – residential		2,132		2,480		270
Real estate – commercial		581		812		60
Installment and other		7		52		0
Total	$	2,740	$	4,287	$	334

Impaired loans by class at September 30, 2011 were as follows:



(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Commercial, financial and agricultural	$	168	$	1,185	$	0
Real estate – residential:
First mortgage		1,164		1,438		0
Second mortgage		178		178		0
Real estate – commercial:
Owner occupied		588		588		0
Non-owner occupied		0		70		0
Real estate – construction:
Commercial		0		94		0
Installment		1		22		0
With related allowance recorded
Commercial, financial and agricultural		55		55		39
Real estate – residential:
First mortgage		979		979		212
Second mortgage		59		59		3
Real estate – commercial:
Non-owner occupied		0		0		0
Total
Commercial, financial and agricultural		223		1,240		39
Real estate – residential		2,380		2,654		215
Real estate – commercial		588		658		0
Real estate – construction		0		94		0
Installment and other		1		22		0
Total	$	3,192	$	4,668	$	254

The average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2012 were as follows:



	Three months				Nine months
(In thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial, financial and agricultural	$	24	$	0	$	49	$	1
Real estate – residential:
First mortgage		888		27		818		47
Second mortgage		331		7		325		34
Real estate – commercial:
Owner occupied		350		2		405		5
Non-owner occupied		0		0		0		0
Installment		2		0		1		0
With related allowance recorded
Commercial, financial and agricultural		13		0		23		0
Real estate – residential:
First mortgage		580		0		662		0
Second mortgage		481		0		194		0
Real estate – commercial:
Owner occupied		231		0		113		0
Total
Commercial, financial and agricultural		37		0		72		1
Real estate – residential		2,280		34		1,999		81
Real estate – commercial		581		2		518		5
Installment and other		2		0		1		0
Total	$	2,900	$	36	$	2,590	$	87

The average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2011 were as follows:



	Three months				Nine months
(In thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial, financial and agricultural	$	138	$	0	$	170	$	0
Real estate – residential:
First mortgage		1,412		3		1,257		9
Second mortgage		221		0		369		1
Real estate – commercial:
Owner occupied		510		0		486		0
Non-owner occupied		120		0		86		0
Real estate – construction:
Commercial		105		0		142		0
Installment		1		0		3		0
With related allowance recorded
Commercial, financial and agricultural		138		0		306		0
Real estate – residential:
First mortgage		997		0		751		0
Second mortgage		59		0		26		0
Real estate – commercial:
Non-owner occupied		0		0		61		0
Total
Commercial, financial and agricultural		276		0		476		0
Real estate – residential		2,689		3		2,403		10
Real estate – commercial		630		0		633		0
Real estate – construction		105		0		142		0
Installment and other		1		0		3		0
Total	$	3,701	$	3	$	3,657	$	10

Impaired loans at September 30, 2012 consisted predominantly of residential real estate loans. Impaired loans totaled $2.74 million and $2.51 million at September 30, 2012 and December 31, 2011, respectively. At September 30, 2012, $1.60 million of the impaired loans had a specific reserve allocation of $334 thousand, and $1.14 million of the impaired loans had no specific reserve allocation. At December 31, 2011, $885 thousand of the impaired loans had a specific reserve allocation of $227 thousand, and $1.63 million of the impaired loans had no specific reserve allocation.

We recorded interest income on impaired loans of approximately $36 thousand and $87 thousand during the three and nine months ended September 30, 2012, respectively. No interest income was recorded on a cash basis during the period the loan was impaired. We recorded interest income on impaired loans of approximately $3 thousand and $10 thousand during the three and nine months ended September 30, 2011, respectively. No interest income was recorded on a cash basis during the period the loan was impaired. The average balance of impaired loans was $2.59 million and $3.66 million during the first nine months of 2012 and the first nine months of 2011, respectively.

Nonperforming loans at September 30, 2012 and December 31, 2011 were as follows:



(In thousands)	September 30, 2012		December 31, 2011
Nonaccrual loans	$	2,180	$	1,953
Loans greater than 90 days and accruing		0		0
Troubled debt restructured loans (“TDRs”)		560		558
Total nonperforming loans	$	2,740	$	2,511

Of the total TDRs in the table above, $372 thousand at September 30, 2012 and $224 thousand at December 31, 2011 were non-accruing. The remaining TDRs were accruing.

The loans in the table below are considered impaired under the guidance in ASC 310-10-35. Included in the total TDRs of $560 thousand at September 30, 2012 are $290 thousand of TDRs that were restructured prior to January 1, 2012. TDRs have been individually evaluated for impairment. There were no TDRs for which the allowance for credit losses was measured under a general allowance for credit losses methodology.

Presented below is a summary of our restructurings during the three months and nine months ended September 30, 2012:




	Three months ended					Nine months ended
	Number	Pre-Modification Recorded		Post-Modification Recorded		Number	Pre-Modification Recorded		Post-Modification Recorded
(Dollars in thousands)	of Loans	Investment		Investment		of Loans	Investment		Investment
Real estate – residential:
First mortgage	0	$	0	$	0	3	$	90	$	90
Real estate - commercial:
Owner occupied	0	$	0	$	0	1	$	180	$	180

Loans in the above table were classified as TDRs because the borrowers experienced financial difficulties and the bank granted concessions in loan terms. As of September 30, 2012, five loans classified as TDR totaling $372 thousand were in nonaccrual and the remaining loans were accruing. At September 30, 2012 TDRs consisted of eight residential real estate loans and one commercial real estate loan. All nine borrowers experienced financial difficulties that led to the restructure of their respective loans. At the time of restructure, seven were in payment default and all nine demonstrated cash flow insufficient to service their debt as well as an inability to obtain funds at market rates from other sources. At September 30, 2012, seven of the restructured loans were performing in accordance with modified agreements, while two residential loans totaling $70 thousand were in default. These two loans were also in non-accrual status. No TDRs paid off during the third quarter of 2012.

Presented below is a summary of our restructurings during the three months and nine months ended September 30, 2011:




	Three months ended					Nine months ended
	Number	Pre-Modification Recorded		Post-Modification Recorded		Number	Pre-Modification Recorded		Post-Modification Recorded
(Dollars in thousands)	of Loans	Investment		Investment		of Loans	Investment		Investment
Real estate – residential:
First mortgage	1	$	105	$	104	2	$	158	$	156

There was one loan restructured during the three months ended September 30, 2011. TDRs at September 30, 2011, consisted of three residential real estate loans. One of the loans was restructured with longer terms at market rates and two were restructured with rate concessions; all were performing in accordance with modified agreements with the borrowers at September 30, 2011. At September 30, 2011 there were no defaults on TDRs.

There were no commitments to lend additional funds to borrowers whose loans were modified in a troubled debt restructuring at September 30, 2012 or at September 30, 2011. We had no commitments to lend additional funds to borrowers whose loans were in non-accrual status or to borrowers whose loans were 90 days past due and still accruing at September 30, 2012 or at September 30, 2011.

We recorded interest income on restructured loans of $4 thousand and $26 thousand for the three and nine months ended September 30, 2012, respectively, and $3 thousand and $7 thousand for the three and nine months ended September 30, 2011, respectively.

Our OREO balance was $0 at September 30, 2012, compared with $358 thousand at December 31, 2011 consisting of three properties plus equipment. Two properties and the equipment were sold during the third quarter of 2012. Our OREO balance was $340 at September 30, 2011.

Non-accrual loans by class as of September 30, 2012 and December 31, 2011 were as follows:



(In thousands)	September 30, 2012		December 31, 2011
Commercial, financial and agricultural	$	20	$	114
Real estate - residential:
First mortgage		1,026		1,146
Second mortgage		726		281
Real estate - commercial:
Owner occupied		401		412
Installment		7		0
Nonaccruing non-TDR loans	$	2,180	$	1,953
Nonaccruing TDR’s
Real estate – residential:
First mortgage		372		224
Total nonaccrual loans	$	2,552	$	2,177

Commercial Grading System

We use risk rating definitions for our commercial loan portfolios and certain residential loans which are generally consistent with regulatory and banking industry norms. Loans are assigned a credit quality grade which is based upon management’s on-going assessment of risk based upon an evaluation of the quantitative and qualitative aspects of each credit. This assessment is a dynamic process and risk ratings are adjusted as each borrower’s financial situation changes. This process is designed to provide timely recognition of a borrower’s financial condition and appropriately focus management resources.

Pass rated loans exhibit acceptable risk to the bank in terms of financial capacity to repay their loans as well as possessing acceptable alternative repayment sources, typically collateral and personal guarantees. These loans are subject to a formal annual review process; additionally, Management reviews the risk rating at the time of any late payments, overdrafts or other sign of deterioration in the interim.

Loans rated Pass-Watch require more than usual attention and monitoring by the account officer, though not to the extent that a formal remediation plan is warranted. Borrowers can be rated Pass-Watch based upon a weakened capital structure, adequate but low cash flow and/or collateral coverage or early-stage declining trends in operations or financial condition.

Loans rated Special Mention possess potential weakness that may expose the bank to some risk of loss in the future. These loans require more frequent monitoring and formal reporting to Management.

Substandard loans reflect well-defined weaknesses in the current repayment capacity, collateral or net worth of the borrower with the possibility of some loss to the Bank if these weaknesses are not corrected. Action plans are required for these loans to address the inherent weakness in the credit and are formally reviewed.

Below is a summary of loans by credit quality indicator as of September 30, 2012:




	Unrated Residential and				Pass-		Special		Sub-
(In thousands)	Consumer		Pass		Watch		Mention		Standard		Total
Commercial, financial and agricultural	$	0		148,550		17,928		501		2,471	$	169,450
Municipal		0		82,048		0		0		0		82,048
Real estate – residential:
First mortgage		411,034		24,690		1,233		747		938		438,642
Second mortgage		36,784		1,195		0		0		700		38,679
Real estate – commercial:
Owner occupied		0		190,603		8,409		3,035		15,516		217,563
Non-owner occupied		0		96,554		10,101		1,480		1,484		109,619
Real estate – construction:
Residential		396		1,564		0		0		0		1,960
Commercial		593		8,205		527		0		0		9,325
Installment		5,259		0		0		0		0		5,259
All other loans		334		0		0		0		0		334
Total	$	454,400	$	553,409	$	38,198	$	5,763	$	21,109	$	1,072,879

Below is a summary of loans by credit quality indicator as of December 31, 2011:




	Unrated Residential and				Pass-		Special		Sub-
(In thousands)	Consumer		Pass		Watch		Mention		Standard		Total
Commercial, financial and agricultural	$	2	$	117,772	$	28,326	$	170	$	720	$	146,990
Municipal		0		101,705		0		0		0		101,705
Real estate – residential:
First mortgage		379,512		18,647		1,569		641		962		401,331
Second mortgage		38,020		146		0		0		321		38,487
Real estate – commercial:
Owner occupied		0		175,878		14,001		7,355		9,022		206,256
Non-owner occupied		0		95,239		8,891		1,195		2,334		107,659
Real estate – construction:
Residential		99		0		1,699		0		0		1,798
Commercial		81		15,925		573		0		616		17,195
Installment		5,806		0		0		0		0		5,806
All other loans		399		0		0		0		0		399
Total	$	423,919	$	525,312	$	55,059	$	9,361	$	13,975	$	1,027,626

The amount of interest which was not earned, but which would have been earned had our non-accrual and restructured loans performed in accordance with their original terms and conditions, was approximately $38 thousand and $107 thousand for the three and nine months ended September 30, 2012, and was approximately $49 thousand and $157 thousand for the three and nine months ended September 2011, respectively.

It is our policy to make loans to directors, executive officers, and associates of such persons on substantially the same terms, including interest rates and collateral, as those prevailing for comparable lending transactions with other persons.