5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at June 30, 2017 and December 31, 2016 are summarized as follows. Net deferred loan costs were $542 and $579 at June 30, 2017 and December 31, 2016.


	June 30, 2017		December 31, 2016
Commercial	$	452,180	$	408,814
Real estate:
Commercial		719,652		700,144
Residential		286,232		289,781
Consumer		139,298		134,226
Total	$	1,597,362	$	1,532,965

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended June 30, 2017 and 2016 are summarized as follows:


			Real estate
June 30, 2017	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance April 1, 2017	$	4,129	$	6,291	$	4,978	$	1,571	$		$	16,969
Charge-offs		(32)		(242)		(8)		(149)				(431)
Recoveries		6		22		4		32				64
Provisions		323		516		222		139				1,200
Ending balance	$	4,426	$	6,587	$	5,196	$	1,593	$		$	17,802

			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance April 1, 2016	$	3,322	$	4,616	$	4,359	$	1,646	$	215	$	14,158
Charge-offs		(393)		(48)		(126)		(65)				(632)
Recoveries		34		14		10		15				73
Provisions		300		495		222		83		100		1,200
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799


			Real estate
June 30, 2017	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance January 1, 2017	$	3,799	$	5,847	$	4,707		1,608				15,961
Charge-offs		(32)		(367)		(23)		(320)				(742)
Recoveries		13		55		26		89				183
Provisions		646		1,052		486		216				2,400
Ending balance	$	4,426	$	6,587	$	5,196	$	1,593	$		$	17,802

			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance January 1, 2016	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$	12,975
Charge-offs		(396)		(103)		(126)		(130)				(755)
Recoveries		36		30		35		78				179
Provisions		581		905		474		148		292		2,400
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799

The allocation of the allowance for loan losses and the related loans by major classifications of loans at June 30, 2017 and December 31, 2016 is summarized as follows:


			Real estate
June 30, 2017	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
Ending balance	$	4,426	$	6,587	$	5,196	$	1,593	$	$	17,802
Ending balance: individually evaluated for impairment		322		509		461		43			1,335
Ending balance: collectively evaluated for impairment		4,104		6,078		4,735		1,550			16,467
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$	$
Loans receivable:
Ending balance	$	452,180	$	719,652	$	286,232	$	139,298	$	$	1,597,362
Ending balance: individually evaluated for impairment		1,944		3,951		3,285		232			9,412
Ending balance: collectively evaluated for impairment		449,868		715,056		282,915		139,066			1,586,905
Ending balance: loans acquired with deteriorated credit quality	$	368	$	645	$	32	$		$	$	1,045



			Real estate
December 31, 2016	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
Ending balance	$	3,799	$	5,847	$	4,707	$	1,608	$	$	15,961
Ending balance: individually evaluated for impairment		225		1,197		520					1,942
Ending balance: collectively evaluated for impairment		3,574		4,650		4,187		1,608			14,019
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$	$
Loans receivable:
Ending balance	$	408,814	$	700,144	$	289,781	$	134,226	$	$	1,532,965
Ending balance: individually evaluated for impairment		1,724		5,820		3,543		155			11,242
Ending balance: collectively evaluated for impairment		406,127		692,987		286,201		134,071			1,519,386
Ending balance: loans acquired with deteriorated credit quality	$	963	$	1,337	$	37	$		$	$	2,337

The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

Pass- A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss nor designated as Special Mention.

Special Mention- A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification.

Substandard- A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

Doubtful – A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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

The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at June 30, 2017 and December 31, 2016:


			Special
June 30, 2017	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	444,700	$	2,976	$	4,504	$	$	452,180
Real estate:
Commercial		698,625		8,590		12,437			719,652
Residential		279,578		143		6,511			286,232
Consumer		139,154				144			139,298
Total	$	1,562,057	$	11,709	$	23,596	$	$	1,597,362


			Special
December 31, 2016	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	398,867	$	6,222	$	3,725	$	$	408,814
Real estate:
Commercial		674,914		10,392		14,838			700,144
Residential		282,737		233		6,811			289,781
Consumer		133,983				243			134,226
Total	$	1,490,501	$	16,847	$	25,617	$	$	1,532,965

Information concerning nonaccrual loans by major loan classification at June 30, 2017 and December 31, 2016 is summarized as follows:


	June 30, 2017		December 31, 2016
Commercial	$	1,285	$	934
Real estate:
Commercial		4,115		7,016
Residential		2,645		3,003
Consumer		232		155
Total	$	8,277	$	11,108

The major classifications of loans by past due status are summarized as follows:


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
June 30, 2017	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	501	$	105	$	1,285	$	1,891	$	450,289	$	452,180
Real estate:
Commercial		2,003		71		4,115		6,189		713,463		719,652
Residential		964		474		3,212		4,650		281,582		286,232	$	567
Consumer		964		346		500		1,810		137,488		139,298		268
Total	$	4,432	$	996	$	9,112	$	14,540	$	1,582,822	$	1,597,362	$	835


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2016	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	249	$	75	$	934	$	1,258	$	407,556	$	408,814
Real estate:
Commercial		4,782		527		7,016		12,325		687,819		700,144
Residential		2,100		354		3,561		6,015		283,766		289,781	$	558
Consumer		962		259		441		1,662		132,564		134,226		286
Total	$	8,093	$	1,215	$	11,952	$	21,260	$	1,511,705	$	1,532,965	$	844

The following tables summarize information concerning impaired loans as of and for the three and six months ended June 30, 2017 and June 30, 2016, and as of and for the year ended, December 31, 2016 by major loan classification:


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2017	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,580	$	2,197			$	1,173	$	18	$	1,583	$	35
Real estate:
Commercial		3,058		3,706				3,387		7		3,045		13
Residential		2,083		2,265				2,216		4		2,212		6
Consumer		188		188				186				176
Total		6,909		8,356				6,962		29		7,016		54
With an allowance recorded:
Commercial		732		732	$	321		1,328				979
Real estate:
Commercial		1,538		1,538		509		1,505		3		2,601		7
Residential		1,234		1,234		461		1,139		8		1,218		14
Consumer		44		44		44		34				22
Total		3,548		3,548		1,335		4,006		11		4,820		21
Commercial		2,312		2,929		321		2,501		18		2,562		35
Real estate:
Commercial		4,596		5,244		509		4,892		10		5,646		20
Residential		3,317		3,499		461		3,355		12		3,430		20
Consumer		232		232		44		220				198
Total	$	10,457	$	11,904	$	1,335	$	10,968	$	40	$	11,836	$	75


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2016	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	2,404	$	3,213			$	1,461	$	48
Real estate:
Commercial		2,364		3,018				4,300		71
Residential		2,205		2,388				2,133		35
Consumer		155		155				147
Total		7,128		8,774				8,041		154
With an allowance recorded:
Commercial		283		283	$	225		859
Real estate:
Commercial		4,793		4,793		1,197		2,366		2
Residential		1,375		1,376		520		1,185		7
Consumer								50
Total		6,451		6,452		1,942		4,460		9
Commercial		2,687		3,496		225		2,320		48
Real estate:
Commercial		7,157		7,811		1,197		6,666		73
Residential		3,580		3,764		520		3,318		42
Consumer		155		155				197
Total	$	13,579	$	15,226	$	1,942	$	12,501	$	163


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2016	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,296	$	2,378			$	1,235	$	14	$	1,249		30
Real estate:
Commercial		5,517		6,181				4,340		30		3,643		61
Residential		1,941		2,124				2,079		3		2,355		11
Consumer		157		157				123				92
Total		8,911		10,840				7,777		47		7,339		102
With an allowance recorded:
Commercial		615		615	$	615		878				923	$
Real estate:
Commercial		899		899		405		1,964				2,400
Residential		1,279		1,279		723		1,136		2		1,295		4
Consumer		71		71		71		80				92
Total		2,864		2,864		1,814		4,058		2		4,710		4
Commercial		1,911		2,993		615		2,113		14		2,172		30
Real estate:
Commercial		6,416		7,080		405		6,304		30		6,043		61
Residential		3,220		3,403		723		3,215		5		3,650		15
Consumer		228		228		71		203				184
Total	$	11,775	$	13,704	$	1,814	$	11,835	$	49	$	12,049	$	106

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $2,152 at June 30, 2017, $1,909 at December 31, 2016 and $2,701 at June 30, 2016.

Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:

Rate Modification - A modification in which the interest rate is changed to a below market rate.

Term Modification - A modification in which the maturity date, timing of payments or frequency of payments is changed.

Interest Only Modification - A modification in which the loan is converted to interest only payments for a period of time.

Payment Modification - A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

Combination Modification - Any other type of modification, including the use of multiple categories above.

There was one loan modified as a troubled debt restructuring for the three months ended June 30, 2017 totaling $64. For the six months ended June 30, 2017, two loans were modified as troubled debt restructurings in the amount of $409. There were no loans modified as troubled debt restructurings for the three months ended June 30, 2016. For the six months ended June 30, 2016, there was one loan modified as a troubled debt restructuring in the amount of $75. During the three and six months ended June 30, 2017, there were no payment defaults on loans restructured within the last twelve months. During the three months ended June 30, 2016, there were no payment defaults on loans restructured within the last twelve months. During the six months ended June 30, 2016, there were two payment defaults on restructured residential real estate loans totaling $208.