10-Q 1 cac-033116x10q.htm 10-Q 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549
FORM 10-Q

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.      0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
 
MAINE
01-0413282
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
 
2 ELM STREET, CAMDEN, ME
04843
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code:  (207) 236-8821
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x          No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes x          No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ¨          No x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:
Outstanding at May 3, 2016:  Common stock (no par value) 10,272,083 shares.



CAMDEN NATIONAL CORPORATION

 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2016
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
 
 
PAGE
PART I.  FINANCIAL INFORMATION
 
 
 
ITEM 1.
FINANCIAL STATEMENTS
 
 
 
 
 
Consolidated Statements of Condition - March 31, 2016 and December 31, 2015
 
 
 
 
Consolidated Statements of Income - Three Months Ended March 31, 2016 and 2015
 
 
 
 
Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2016 and 2015
 
 
 
 
Consolidated Statements of Changes in Shareholders’ Equity - Three Months Ended March 31, 2016 and 2015
 
 
 
 
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2016 and 2015
 
 
 
 
Notes to Consolidated Financial Statements
 
 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
 
 
ITEM 4.
CONTROLS AND PROCEDURES
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
ITEM 1.
LEGAL PROCEEDINGS
 
 
 
ITEM 1A.
RISK FACTORS
 
 
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
 
 
 
ITEM 4.
MINE SAFETY DISCLOSURES
 
 
 
ITEM 5.
OTHER INFORMATION
 
 
 
ITEM 6.
EXHIBITS
 
 
 
SIGNATURES
 
 
 
EXHIBITS
 

2



PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
(In Thousands, Except Number of Shares)
 
March 31,
 2016
 
December 31, 2015
ASSETS
 
 

 
 

Cash and due from banks
 
$
72,201

 
$
79,488

Securities:
 
 

 
 

Available-for-sale securities, at fair value
 
800,029

 
750,338

Held-to-maturity securities, at amortized cost
 
87,950

 
84,144

Federal Home Loan Bank and Federal Reserve Bank stock, at cost
 
21,605

 
21,513

Total securities
 
909,584

 
855,995

Loans held for sale
 
16,632

 
10,958

Loans
 
2,492,634

 
2,490,206

Less: allowance for loan losses
 
(21,339
)
 
(21,166
)
Net loans
 
2,471,295

 
2,469,040

Goodwill
 
95,267

 
95,657

Other intangible assets
 
8,191

 
8,667

Bank-owned life insurance
 
60,338

 
59,917

Premises and equipment, net
 
44,973

 
45,959

Deferred tax assets
 
36,154

 
39,716

Interest receivable
 
8,785

 
7,985

Other real estate owned
 
1,228

 
1,304

Other assets
 
37,898

 
34,658

Total assets
 
$
3,762,546

 
$
3,709,344

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Liabilities
 
 

 
 

Deposits:
 
 

 
 

Demand
 
$
349,586

 
$
357,673

Interest checking
 
686,517

 
740,084

Savings and money market
 
949,309

 
912,668

Certificates of deposit
 
482,821

 
516,867

Brokered deposits
 
206,599

 
199,087

Total deposits
 
2,674,832

 
2,726,379

Federal Home Loan Bank advances
 
55,000

 
55,000

Other borrowed funds
 
545,473

 
458,763

Subordinated debentures
 
58,638

 
58,599

Accrued interest and other liabilities
 
53,146

 
47,413

Total liabilities
 
3,387,089

 
3,346,154

Commitments and Contingencies
 


 


Shareholders’ Equity
 
 

 
 

Common stock, no par value; authorized 20,000,000 shares, issued and outstanding 10,271,083 and 10,220,478 shares as of March 31, 2016 and December 31, 2015, respectively
 
154,437

 
153,083

Retained earnings
 
227,540

 
222,329

Accumulated other comprehensive loss:
 
 

 
 

Net unrealized gains (losses) on available-for-sale securities, net of tax
 
3,968

 
(3,801
)
Net unrealized losses on cash flow hedging derivative instruments, net of tax
 
(8,479
)
 
(6,374
)
Net unrecognized losses on postretirement plans, net of tax
 
(2,009
)
 
(2,047
)
Total accumulated other comprehensive loss
 
(6,520
)
 
(12,222
)
Total shareholders’ equity
 
375,457

 
363,190

Total liabilities and shareholders’ equity
 
$
3,762,546

 
$
3,709,344

The accompanying notes are an integral part of these consolidated financial statements.

3



CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
 
Three Months Ended 
 March 31,
(In Thousands, Except Number of Shares and Per Share Data)
 
2016
 
2015
Interest Income
 
 

 
 

Interest and fees on loans
 
$
27,016

 
$
18,084

Interest on U.S. government and sponsored enterprise obligations
 
3,990

 
3,872

Interest on state and political subdivision obligations
 
714

 
387

Interest on federal funds sold and other investments
 
261

 
105

Total interest income
 
31,981

 
22,448

Interest Expense
 
 

 
 

Interest on deposits
 
2,042

 
1,529

Interest on borrowings
 
1,136

 
860

Interest on subordinated debentures
 
851

 
625

Total interest expense
 
4,029

 
3,014

Net interest income
 
27,952

 
19,434

Provision for credit losses
 
872

 
446

Net interest income after provision for credit losses
 
27,080

 
18,988

Non-Interest Income
 
 

 
 

Service charges on deposit accounts
 
1,724

 
1,487

Other service charges and fees
 
2,328

 
1,510

Income from fiduciary services
 
1,169

 
1,220

Mortgage banking income, net
 
808

 
239

Brokerage and insurance commissions
 
458

 
449

Bank-owned life insurance
 
422

 
422

Other income
 
1,008

 
820

Total non-interest income
 
7,917

 
6,147

Non-Interest Expense
 
 

 
 

Salaries and employee benefits
 
11,610

 
8,375

Furniture, equipment and data processing
 
2,427

 
1,923

Net occupancy
 
1,877

 
1,472

Consulting and professional fees
 
885

 
591

Other real estate owned and collection costs
 
656

 
562

Regulatory assessments
 
721

 
510

Amortization of intangible assets
 
476

 
287

Merger and acquisition costs
 
644

 
735

Other expenses
 
3,632

 
2,346

Total non-interest expense
 
22,928

 
16,801

Income before income taxes
 
12,069

 
8,334

Income Taxes
 
3,735

 
2,723

Net Income
 
$
8,334

 
$
5,611

 
 
 
 
 
Per Share Data
 
 

 
 

Basic earnings per share
 
$
0.81

 
$
0.75

Diluted earnings per share
 
$
0.81

 
$
0.75

Weighted average number of common shares outstanding
 
10,259,995

 
7,431,065

Diluted weighted average number of common shares outstanding
 
10,298,171

 
7,453,875


The accompanying notes are an integral part of these consolidated financial statements.  

4



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 
Three Months Ended 
 March 31,
(In Thousands)
 
2016
 
2015
Net Income
 
$
8,334

 
$
5,611

Other comprehensive income:
 
 

 
 

Net change in unrealized gains on available-for-sale securities, net of tax of ($4,183), and ($2,212), respectively
 
7,769

 
4,108

Net change in unrealized losses on cash flow hedging derivatives:
 
 
 
 
Net change in unrealized loss on cash flow hedging derivatives, net of tax of $1,261, and $751, respectively
 
(2,342
)
 
(1,395
)
Net reclassification adjustment for effective portion of cash flow hedges included in interest expense, net of tax of ($128) and ($120), respectively(1)
 
237

 
223

Net change in unrealized losses on cash flow hedging derivatives, net of tax
 
(2,105
)
 
(1,172
)
Reclassification of amortization of net unrecognized actuarial loss and prior service cost, net of tax of ($21) and ($21), respectively(2)
 
38

 
38

Other comprehensive income
 
5,702

 
2,974

Comprehensive Income
 
$
14,036

 
$
8,585

(1) Reclassified into the consolidated statements of income in interest on subordinated debentures.
(2) Reclassified into the consolidated statements of income in salaries and employee benefits.
 
The accompanying notes are an integral part of these consolidated financial statements.

5




CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
 
 
Common Stock
 
 
 
Accumulated
Other Comprehensive
Loss
 
Total Shareholders’
Equity
(In Thousands, Except Number of Shares and Per Share Data)
 
Shares
Outstanding
 
Amount
 
Retained
Earnings
 
 
Balance at December 31, 2014
 
7,426,222

 
$
41,555

 
$
211,979

 
$
(8,425
)
 
$
245,109

Net income
 

 

 
5,611

 

 
5,611

Other comprehensive income, net of tax
 

 

 

 
2,974

 
2,974

Stock-based compensation expense
 

 
198

 

 

 
198

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings and tax benefit
 
12,707

 
136

 

 

 
136

Cash dividends declared ($0.30 per share)
 

 

 
(2,229
)
 

 
(2,229
)
Balance at March 31, 2015
 
7,438,929

 
$
41,889

 
$
215,361

 
$
(5,451
)
 
$
251,799

 
 
 
 
 
 
 
 
 
 

Balance at December 31, 2015
 
10,220,478

 
$
153,083

 
$
222,329

 
$
(12,222
)
 
$
363,190

Net income
 

 

 
8,334

 

 
8,334

Other comprehensive income, net of tax
 

 

 

 
5,702

 
5,702

Stock-based compensation expense
 

 
337

 

 

 
337

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings and tax benefit
 
50,605

 
1,017

 

 

 
1,017

Cash dividends declared ($0.30 per share)
 

 

 
(3,123
)
 

 
(3,123
)
Balance at March 31, 2016
 
10,271,083

 
$
154,437

 
$
227,540

 
$
(6,520
)
 
$
375,457

 
The accompanying notes are an integral part of these consolidated financial statements.

6



CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Three Months Ended
 March 31,
(In Thousands)
 
2016
 
2015
Operating Activities
 
 

 
 

Net Income
 
$
8,334

 
$
5,611

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Provision for credit losses
 
872

 
446

Depreciation expense
 
1,427

 
764

Purchase accounting accretion, net
 
(1,055
)
 
(66
)
Investment securities amortization, net
 
652

 
509

Stock-based compensation expense
 
337

 
198

Amortization of intangible assets
 
476

 
287

Net increase in other real estate owned valuation allowance and loss on disposition
 
66

 
81

Originations of mortgage loans held for sale
 
(44,431
)
 
(5,425
)
Proceeds from the sale of mortgage loans
 
39,868

 
4,935

Gain on sale of mortgage loans
 
(972
)
 
(129
)
Increase in other assets
 
2,869

 
780

(Decrease) increase in other liabilities
 
(4,170
)
 
16

Net cash provided by operating activities
 
4,273

 
8,007

Investing Activities
 
 

 
 

Proceeds from maturities of available-for-sale securities
 
28,580

 
37,132

Purchase of available-for-sale securities
 
(66,849
)
 
(20,344
)
Purchase of held-to-maturity securities
 
(3,929
)
 
(16,076
)
Net increase in loans
 
(2,321
)
 
(20,293
)
Purchase of Federal Home Loan Bank and Federal Reserve Bank stock
 
(92
)
 

Proceeds from the sale of other real estate owned
 
42

 
1,564

Recoveries of previously charged-off loans
 
104

 
133

Purchase of premises and equipment
 
(464
)
 
(464
)
Net cash used by investing activities
 
(44,929
)
 
(18,348
)
Financing Activities
 
 
 
 

Net (decrease) increase in deposits
 
(51,286
)
 
34,112

Repayments on Federal Home Loan Bank long-term advances
 

 
(19
)
Net increase (decrease) in other borrowed funds
 
86,726

 
(29,392
)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings and tax benefit
 
1,017

 
136

Cash dividends paid on common stock
 
(3,088
)
 
(2,235
)
Net cash provided by financing activities
 
33,369

 
2,602

Net decrease in cash and cash equivalents
 
(7,287
)
 
(7,739
)
Cash and cash equivalents at beginning of period
 
79,488

 
60,813

Cash and cash equivalents at end of period
 
$
72,201

 
$
53,074

Supplemental information
 
 

 
 

Interest paid
 
$
4,029

 
$
3,015

Income taxes paid
 
5

 
5

Transfer from loans to other real estate owned
 
32

 
1,439

Held-to-maturity securities purchased but unsettled
 

 
4,830

SBM acquisition measurement-period adjustments
 
390

 

 
The accompanying notes are an integral part of these consolidated financial statements.

7


NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts In Tables Expressed in Thousands, Except Per Share Data)


NOTE 1 – BASIS OF PRESENTATION
 
The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation as of March 31, 2016 and December 31, 2015, the consolidated statements of income for the three months ended March 31, 2016 and 2015, the consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015, the consolidated statements of changes in shareholders' equity for the three months ended March 31, 2016 and 2015, and the consolidated statements of cash flows for the three months ended March 31, 2016 and 2015. All significant intercompany transactions and balances are eliminated in consolidation. Certain items from the prior period were reclassified to conform to the current period presentation. The income reported for the three months ended March 31, 2016 is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the year ended December 31, 2015 Annual Report on Form 10-K.

The acronyms and abbreviations identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Other Information." The following is provided to aid the reader and provide a reference page when reviewing this Form 10-Q.
Acadia Trust:
Acadia Trust, N.A., a wholly-owned subsidiary of Camden National Corporation
 
FASB:
Financial Accounting Standards Board
AFS:
Available-for-sale
 
FDIC:
Federal Deposit Insurance Corporation
ALCO:
Asset/Liability Committee
 
FHLB:
Federal Home Loan Bank
ALL:
Allowance for loan losses
 
FHLBB:
Federal Home Loan Bank of Boston
AOCI:
Accumulated other comprehensive income (loss)
 
FRB:
Federal Reserve Bank
ASC:
Accounting Standards Codification
 
Freddie Mac:
Federal Home Loan Mortgage Corporation
ASU:
Accounting Standards Update
 
GAAP:
Generally accepted accounting principles in the United States
Bank:
Camden National Bank, a wholly-owned subsidiary of Camden National Corporation
 
HPFC:
Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
BOLI:
Bank-owned life insurance
 
HTM:
Held-to-maturity
Board ALCO:
Board of Directors' Asset/Liability Committee
 
IRS:
Internal Revenue Service
BSA:
Bank Secrecy Act
 
LIBOR:
London Interbank Offered Rate
CCTA:
Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation
 
LTIP:
Long-Term Performance Share Plan
CDARS:
Certificate of Deposit Account Registry System
 
Management ALCO:
Management Asset/Liability Committee
CDs:
Certificate of deposits
 
MBS:
Mortgage-backed security
Company:
Camden National Corporation
 
Merger:
On October 16, 2015, the two-step merger of Camden National Corporation, SBM Financial, Inc. and Atlantic Acquisitions, LLC, a wholly-owned subsidiary of Camden National Corporation, was completed
CSV:
Cash surrender value
 
Merger Agreement:
Plan of Merger, dated as of March 29, 2015, by and among Camden National Corporation, SBM Financial, Inc. and Atlantic Acquisitions, LLC, a wholly-owned subsidiary of the Company
CMO:
Collateralized mortgage obligation
 
MSHA:
Maine State Housing Authority
DCRP:
Defined Contribution Retirement Plan
 
MSRs:
Mortgage servicing rights
EPS:
Earnings per share
 
MSPP:
Management Stock Purchase Plan

8



OTTI:
Other-than-temporary impairment
 
SBM:
SBM Financial, Inc., the parent company of The Bank of Maine
NIM:
Net interest margin on a fully-taxable basis
 
SERP:
Supplemental executive retirement plans
N.M.:
Not meaningful
 
TDR:
Troubled-debt restructured loan
NRV:
Net realizable value
 
UBCT:
Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
OCC:
Office of the Comptroller of the Currency
 
U.S.:
United States of America
OCI:
Other comprehensive income (loss)
 
2003 Plan:
2003 Stock Option and Incentive Plan
OFAC:
Office of Foreign Assets Control
 
2012 Plan:
2012 Equity and Incentive Plan
OREO:
Other real estate owned
 
2013 Repurchase Program:
2013 Common Stock Repurchase Program, approved by the Company's Board of Directors

NOTE 2 – EPS
 
The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below: 
 
 
Three Months Ended 
 March 31,
 
 
2016
 
2015
Net income
 
$
8,334

 
$
5,611

Dividends and undistributed earnings allocated to participating securities(1)
 
(29
)
 
(17
)
Net income available to common shareholders
 
$
8,305

 
$
5,594

Weighted-average common shares outstanding for basic EPS
 
10,259,995

 
7,431,065

Dilutive effect of stock-based awards(2)
 
38,176

 
22,810

Weighted-average common and potential common shares for diluted EPS
 
10,298,171

 
7,453,875

Earnings per common share:
 
 

 
 

Basic EPS
 
$
0.81

 
$
0.75

Diluted EPS
 
$
0.81

 
$
0.75

Awards excluded from the calculation of diluted EPS(3):
 
 
 
 
Stock options
 
13,250

 
15,250

(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.
(2) Represents the effect of the assumed exercise of stock options, vesting of restricted shares, vesting of restricted stock units, and vesting of LTIP awards that have met the performance criteria, as applicable, utilizing the treasury stock method.
(3) Represents stock-based awards not included in the computation of potential common shares for purposes of calculating diluted EPS as the exercise prices were greater than the average market price of the Company's common stock and are considered anti-dilutive.

Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested stock-based awards qualify as participating securities. 
  
Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards. 
 
Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.


9



NOTE 3 – SECURITIES
 
The following tables summarize the amortized cost and estimated fair values of AFS and HTM securities, as of the dates indicated: 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
March 31, 2016
 

 
 

 
 

 
 

AFS Securities:
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises
$
4,973

 
$
146

 
$

 
$
5,119

Obligations of states and political subdivisions
15,254

 
286

 

 
15,540

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
460,604

 
6,612

 
(617
)
 
466,599

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
308,902

 
2,126

 
(2,470
)
 
308,558

Subordinated corporate bonds
3,480

 
18

 
(37
)
 
3,461

Total AFS debt securities
793,213

 
9,188

 
(3,124
)
 
799,277

Equity securities
712

 
40

 

 
752

Total AFS securities
$
793,925

 
$
9,228

 
$
(3,124
)
 
$
800,029

HTM Securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
87,950

 
$
2,816

 
$
(37
)
 
$
90,729

Total HTM securities
$
87,950

 
$
2,816

 
$
(37
)
 
$
90,729

December 31, 2015
 

 
 

 
 

 
 

AFS Securities:
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises
$
4,971

 
$
69

 
$

 
$
5,040

Obligations of states and political subdivisions
17,355

 
339

 

 
17,694

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
419,429

 
3,474

 
(3,857
)
 
419,046

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
312,719

 
409

 
(6,271
)
 
306,857

Subordinated corporate bonds
1,000

 

 
(4
)
 
996

Total AFS debt securities
755,474

 
4,291

 
(10,132
)
 
749,633

Equity securities
712

 
2

 
(9
)
 
705

Total AFS securities
$
756,186

 
$
4,293

 
$
(10,141
)
 
$
750,338

HTM Securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
84,144

 
$
1,564

 
$
(61
)
 
$
85,647

Total HTM securities
$
84,144

 
$
1,564

 
$
(61
)
 
$
85,647

 
Net unrealized gains on AFS securities at March 31, 2016 included in AOCI amounted to $4.0 million, net of a deferred tax liability of $2.1 million. Net unrealized losses on AFS securities at December 31, 2015 included in AOCI amounted to $3.8 million, net of a deferred tax benefit of $2.0 million.

During the first three months of 2016, the Company purchased investment securities totaling $70.8 million. The Company designated $66.9 million as AFS securities and $3.9 million as HTM securities.

During the first three months of 2015, the Company purchased investment securities totaling $36.4 million. The Company designated $20.3 million as AFS securities and $16.1 million as HTM securities.


10



Impaired Securities
Management periodically reviews the Company’s investment portfolio to determine the cause, magnitude and duration of declines in the fair value of each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, recoverability of invested amount over a reasonable period of time, and the length of time the security is in a loss position, for example, are applied in determining OTTI. Once a decline in value is determined to be other-than-temporary, the cost basis of the security is permanently reduced and a corresponding charge to earnings is recognized.
 
The following table presents the estimated fair values and gross unrealized losses of investment securities that were in a continuous loss position at March 31, 2016 and December 31, 2015, by length of time that individual securities in each category have been in a continuous loss position:  
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
March 31, 2016
 

 
 

 
 

 
 

 
 

 
 

AFS Securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
$
14,453

 
$
(82
)
 
$
49,596

 
$
(535
)
 
$
64,049

 
$
(617
)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
8,240

 
(47
)
 
145,716

 
(2,423
)
 
153,956

 
(2,470
)
Subordinated corporate bonds
1,963

 
(37
)
 

 

 
1,963

 
(37
)
Total AFS securities
$
24,656

 
$
(166
)
 
$
195,312

 
$
(2,958
)
 
$
219,968

 
$
(3,124
)
HTM Securities:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
2,181

 
$
(37
)
 
$

 
$

 
$
2,181

 
$
(37
)
Total HTM securities
$
2,181

 
$
(37
)
 
$

 
$

 
$
2,181

 
$
(37
)
December 31, 2015
 

 
 

 
 

 
 

 
 

 
 

AFS Securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
$
234,897

 
$
(2,351
)
 
$
45,629

 
$
(1,506
)
 
$
280,526

 
$
(3,857
)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
111,143

 
(1,068
)
 
147,180

 
(5,203
)
 
258,323

 
(6,271
)
Subordinated corporate bonds
996

 
(4
)
 

 

 
996

 
(4
)
Equity Securities
615

 
(9
)
 

 

 
615

 
(9
)
Total AFS securities
$
347,651

 
$
(3,432
)
 
$
192,809

 
$
(6,709
)
 
$
540,460

 
$
(10,141
)
HTM Securities:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
5,507

 
$
(61
)
 
$

 
$

 
$
5,507

 
$
(61
)
Total HTM securities
$
5,507

 
$
(61
)
 
$

 
$

 
$
5,507

 
$
(61
)

At March 31, 2016 and December 31, 2015, the Company held 42 and 109 investment securities with a fair value of $222.1 million and $546.0 million with unrealized losses totaling $3.2 million and $10.2 million, respectively, that were considered temporary. Of these, the Company had 29 MBS and CMO investments with a fair value of $195.3 million that were in an unrealized loss position totaling $3.0 million at March 31, 2016 and 28 MBS and CMO investments with a fair value of $192.8 million that were in an unrealized loss position totaling $6.7 million at December 31, 2015 for 12 months or more. The decline in the fair value of securities is reflective of current interest rates in excess of the yield received on investments and is not indicative of an overall change in credit quality or other factors with the Company's investment portfolio. At March 31, 2016

11



and December 31, 2015, gross unrealized losses on the Company's AFS and HTM securities were 1% and 2%, respectively, of the respective investment securities fair value.

The Company has the intent and ability to retain its investment securities in an unrealized loss position at March 31, 2016 until the decline in value has recovered.

For the three months ended March 31, 2016 and 2015, the Company did not sell any investment securities.

FHLBB and FRB Stock
As of March 31, 2016 and December 31, 2015, the Company's investment in FHLBB stock was $20.7 million and $20.6 million, respectively. As of March 31, 2016 and December 31, 2015, the Company's investment in FRB stock was $908,000.

Securities Pledged
At March 31, 2016 and December 31, 2015, securities with an amortized cost of $557.1 million and $577.6 million, respectively, and estimated fair values of $559.6 million and $570.9 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.
 
Contractual Maturities
The amortized cost and estimated fair values of debt securities by contractual maturity at March 31, 2016, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 
 
Amortized
Cost
 
Fair
Value
AFS Securities
 
 
 
Due in one year or less
$
1,002

 
$
1,016

Due after one year through five years
103,817

 
105,196

Due after five years through ten years
111,295

 
113,903

Due after ten years
577,099

 
579,162

 
$
793,213

 
$
799,277

HTM Securities
 
 
 
Due after one year through five years
$
2,204

 
$
2,260

Due after five years through ten years
2,494

 
2,538

Due after ten years
83,252

 
85,931

 
$
87,950

 
$
90,729

 


12



NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES
 
The composition of the Company’s loan portfolio, excluding residential loans held for sale, at March 31, 2016 and December 31, 2015 was as follows:   
 
March 31,
2016
 
December 31,
2015
Residential real estate(1)
$
813,266

 
$
821,074

Commercial real estate(1)
953,220

 
927,951

Commercial(1)
291,684

 
297,721

Home equity(1)
343,137

 
348,634

Consumer(1)
17,096

 
17,953

HPFC(1)
74,304

 
77,243

Deferred loan fees, net
(73
)
 
(370
)
Total loans
$
2,492,634

 
$
2,490,206

(1)
The loan balances are presented net of the unamortized fair value mark discount associated with the purchase accounting for acquired loans of $12.1 million and $13.1 million at March 31, 2016 and December 31, 2015, respectively.

The Bank’s lending activities are primarily conducted in Maine, and its footprint continues to expand into other New England states, including New Hampshire and Massachusetts. The Company originates single family and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy.

HPFC provides niche commercial lending to the small business medical field, including dentists, optometrists and veterinarians across the U.S. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the success of the borrower's business. Unlike the Bank's loan portfolio, there is, generally, little to no indication of credit quality issues and/or concerns of borrowers honoring their commitments until a payment is delinquent. Generally, once a payment is delinquent, if the payment is not received shortly thereafter to bring the loan current, the loan is deemed impaired (typically within 45 days). Effective February 19, 2016, the Company closed HPFC's operations and is no longer originating loans.

The ALL is management’s best estimate of the inherent risk of loss in the Company’s loan portfolio as of the consolidated statement of condition date. Management makes various assumptions and judgments about the collectability of the loan portfolio and provides an allowance for potential losses based on a number of factors including historical losses. If those assumptions are incorrect, the ALL may not be sufficient to cover losses and may cause an increase in the allowance in the future. Among the factors that could affect the Company’s ability to collect loans and require an increase to the allowance in the future are: (i) financial condition of borrowers; (ii) real estate market changes; (iii) state, regional, and national economic conditions; and (iv) a requirement by federal and state regulators to increase the provision for loan losses or recognize additional charge-offs.

There were no significant changes in the Company's ALL methodology during the three months ended March 31, 2016.

The board of directors monitors credit risk through the Directors' Loan Review Committee, which reviews large credit exposures, monitors the external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, concentration levels, and the ALL methodology. The Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system, determine the adequacy of the ALL and support the oversight efforts of the Directors' Loan Review Committee and the board of directors. The Company's practice is to proactively manage the portfolio such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. For purposes of

13



determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, consumer and HPFC. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. These risk characteristics unique to each portfolio segment include:

Residential Real Estate. Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one- to four-family residential properties.

Commercial Real Estate. Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

Commercial. Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant & equipment, or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

Home Equity. Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Consumer. Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.

HPFC. HPFC is a niche lender that provides commercial lending to dentists, optometrists and veterinarians, many of which are start-up companies. HPFC's loan portfolio consists of term loan obligations extended for the purpose of financing working capital and/or purchase of equipment. Collateral may consist of pledges of business assets including, but not limited to, accounts receivable, inventory, and/or equipment. These loans are primarily paid by the operating cash flow of the borrower and the terms range from seven to ten years.

14



The following tables presents the activity in the ALL and select loan information by portfolio segment for the three months ended March 31, 2016 and 2015, and for the year ended December 31, 2015: 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Home
Equity
 
Consumer
 
HPFC
 
Unallocated
 
Total
For The Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL for the three months ended:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Beginning balance
$
4,545

 
$
10,432

 
$
3,241

 
$
2,731

 
$
193

 
$
24

 
$

 
$
21,166

Loans charged off
(210
)
 
(222
)
 
(226
)
 
(128
)
 
(15
)
 

 

 
(801
)
Recoveries
40

 
9

 
52

 
1

 
2

 

 

 
104

Provision(1)
141

 
161

 
231

 
18

 
2

 
317

 

 
870

Ending balance
$
4,516

 
$
10,380

 
$
3,298

 
$
2,622

 
$
182

 
$
341

 
$

 
$
21,339

ALL balance attributable to loans:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Individually evaluated for impairment
$
512

 
$
158

 
$
214

 
$
89

 
$

 
$
307

 
$

 
$
1,280

Collectively evaluated for impairment
4,004

 
10,222

 
3,084

 
2,533

 
182

 
34

 

 
20,059

Total ending ALL
$
4,516

 
$
10,380

 
$
3,298

 
$
2,622

 
$
182

 
$
341

 
$

 
$
21,339

Loans:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Individually evaluated for impairment
$
6,033

 
$
3,130

 
$
3,862

 
$
492

 
$
7

 
$
357

 
$

 
$
13,881

Collectively evaluated for impairment
805,941

 
949,351

 
288,202

 
344,005

 
17,182

 
74,072

 

 
2,478,753

Total ending loans balance
$
811,974

 
$
952,481

 
$
292,064

 
$
344,497

 
$
17,189

 
$
74,429

 
$

 
$
2,492,634

For The Three Months Ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL for the three months ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
4,899

 
$
7,951

 
$
3,354

 
$
2,247

 
$
281

 
$

 
$
2,384

 
$
21,116

Loans charged off
(113
)
 
(55
)
 
(159
)
 
(89
)
 
(8
)
 

 

 
(424
)
Recoveries
3

 
10

 
104

 
5

 
11

 

 

 
133

Provision (credit)(1)
46

 
328

 
128

 
84

 
(14
)
 

 
(132
)
 
440

Ending balance
$
4,835

 
$
8,234

 
$
3,427

 
$
2,247

 
$
270

 
$

 
$
2,252

 
$
21,265

ALL balance attributable to loans:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Individually evaluated for impairment
$
743

 
$
132

 
$
139

 
$

 
$
78

 
$

 
$

 
$
1,092

Collectively evaluated for impairment
4,092

 
8,102

 
3,288

 
2,247

 
192

 

 
2,252

 
20,173

Total ending ALL
$
4,835

 
$
8,234

 
$
3,427

 
$
2,247

 
$
270

 
$

 
$
2,252

 
$
21,265

Loans:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Individually evaluated for impairment
$
6,107

 
$
2,696

 
$
823

 
$
302

 
$
156

 
$

 
$

 
$
10,084

Collectively evaluated for impairment
578,366

 
654,765

 
256,940

 
274,482

 
16,443

 

 

 
1,780,996

Total ending loans balance
$
584,473

 
$
657,461

 
$
257,763

 
$
274,784

 
$
16,599

 
$

 
$

 
$
1,791,080


15



 
Residential 
Real Estate
 
Commercial 
Real Estate
 
Commercial
 
Home
Equity
 
Consumer
 
HPFC
 
Unallocated
 
Total
For The Year Ended December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Beginning balance
$
4,899

 
$
7,951

 
$
3,354

 
$
2,247

 
$
281

 
$

 
$
2,384

 
$
21,116

Loans charged off
(801
)
 
(481
)
 
(655
)
 
(525
)
 
(154
)
 

 

 
(2,616
)
Recoveries
55

 
74

 
389

 
188

 
22

 

 

 
728

Provision (credit)(1)
392

 
2,888

 
153

 
821

 
44

 
24

 
(2,384
)
 
1,938

Ending balance
$
4,545

 
$
10,432

 
$
3,241

 
$
2,731

 
$
193

 
$
24

 
$

 
$
21,166

ALL balance attributable to loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
544

 
$
644

 
$
92

 
$
89

 
$

 
$

 
$

 
$
1,369

Collectively evaluated for impairment
4,001

 
9,788

 
3,149

 
2,642

 
193

 
24

 

 
19,797

Total ending ALL
$
4,545

 
$
10,432

 
$
3,241

 
$
2,731

 
$
193

 
$
24

 
$

 
$
21,166

Loans:
  

 
  

 
  

 
  

 
  

 
 
 
  

 
  

Individually evaluated for impairment
$
6,026

 
$
4,610

 
$
3,937

 
$
588

 
$
74

 
$

 
$

 
$
15,235

Collectively evaluated for impairment
814,591

 
923,341

 
293,784

 
348,046

 
17,879

 
77,330

 

 
2,474,971

Total ending loans balance
$
820,617

 
$
927,951

 
$
297,721

 
$
348,634

 
$
17,953

 
$
77,330

 
$

 
$
2,490,206

(1)
The provision (credit) for loan losses excludes any impact for the change in the reserve for unfunded commitments, which represents management's estimate of the amount required to reflect the probable inherent losses on outstanding letters of credit and unused lines of credit. The reserve for unfunded commitments is presented within accrued interest and other liabilities on the consolidated statements of condition. At March 31, 2016 and 2015, and December 31, 2015, the reserve for unfunded commitments was $24,000, $23,000 and $22,000, respectively.

The following table reconciles the three months ended March 31, 2016 and 2015, and year ended December 31, 2015 provision for loan losses to the provision for credit losses as presented on the consolidated statement of income:
 
 
Three Months Ended
March 31,
 
Year Ended December 31,
 
 
2016
 
2015
 
2015
Provision for loan losses
 
$
870

 
$
440

 
$
1,938

Change in reserve for unfunded commitments
 
2

 
6

 
(2
)
Provision for credit losses
 
$
872

 
$
446

 
$
1,936


The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To ensure that credit concentrations can be effectively identified, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored by Credit Risk Administration. As of March 31, 2016, the non-residential building operators industry exposure was 11% of the Company's total loan portfolio and 29% of the total commercial real estate portfolio. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of March 31, 2016.


16



 To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The indicators for commercial, commercial real estate and residential real estate loans are represented by Grades 1 through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews, periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely risk rated loans. The Company uses the following definitions when assessing grades for the purpose of evaluating the risk and adequacy of the ALL:

Grade 1 through 6 — Grades 1 through 6 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risks, which is measured using a variety of credit risk criteria, such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.
Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.
Grade 8 — Loans with definite weakness (Substandard). Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by collateral pledged. Borrowers experience difficulty in meeting debt repayment requirements. Deterioration is sufficient to cause the Company to look to the sale of collateral.
Grade 9 — Loans with potential loss (Doubtful). Loans classified as doubtful have all the weaknesses inherent in the substandard grade with the added characteristic that the weaknesses make collection or liquidation of the loan in full highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.
Grade 10 — Loans with definite loss (Loss). Loans classified as loss are considered uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be protracted.

Asset quality indicators are periodically reassessed to appropriately reflect the risk composition of the Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over 90 days and non-accrual loans, including TDRs, are considered non-performing.
 

17



The following table summarizes credit risk exposure indicators by portfolio segment as of the following dates:
 
 
Residential 
Real Estate
 
Commercial 
Real Estate
 
Commercial
 
Home
Equity
 
Consumer
 
HPFC
 
Total
March 31, 2016
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Pass (Grades 1-6)
 
$
795,256

 
$
886,346

 
$
277,568

 
$

 
$

 
$
72,615

 
$
2,031,785

Performing
 

 

 

 
342,929

 
17,185

 

 
360,114

Special Mention (Grade 7)
 
3,043

 
32,330

 
7,778

 

 

 
301

 
43,452

Substandard (Grade 8)
 
13,675

 
33,805

 
6,718

 

 

 
1,513

 
55,711

Non-performing
 

 

 

 
1,568

 
4

 

 
1,572

Total
 
$
811,974

 
$
952,481

 
$
292,064

 
$
344,497

 
$
17,189

 
$
74,429

 
$
2,492,634

December 31, 2015
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Pass (Grades 1-6)
 
$
802,873

 
$
868,664

 
$
281,553

 
$

 
$

 
$
70,173

 
$
2,023,263

Performing
 

 

 

 
346,701

 
17,835

 

 
364,536

Special Mention (Grade 7)
 
3,282

 
20,732

 
7,527

 

 

 
3,179

 
34,720

Substandard (Grade 8)
 
14,462

 
38,555

 
8,641

 

 

 
3,978

 
65,636

Non-performing
 

 

 

 
1,933

 
118

 

 
2,051

Total
 
$
820,617

 
$
927,951

 
$
297,721

 
$
348,634

 
$
17,953

 
$
77,330

 
$
2,490,206

 
The Company closely monitors the performance of its loan portfolio for both the Bank and HPFC. A loan is placed on non-accrual status when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is well-secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan may return to accrual status when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period. Unsecured loans, however, are not normally placed on non-accrual status because they are charged-off once their collectability is in doubt.

The following is a loan aging analysis by portfolio segment (including loans past due over 90 days and non-accrual loans) and a summary of non-accrual loans, which include TDRs, and loans past due over 90 days and accruing as of the following dates:
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater
than
90 Days
 
Total
Past Due
 
Current