5.	Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at September 30, 2013 and December 31, 2012 are summarized as follows. Net deferred loan costs were $679 at September 30, 2013, and $589 at December 31, 2012.

	September 30, 2013		December 31, 2012
Commercial	$	187,462	$	170,379
Real estate:
Commercial		181,557		158,798
Residential		117,796		117,527
Consumer		18,294		19,069
Total	$	505,109	$	465,773

The changes in the allowance for loan losses account by major classification of loan for the three and nine months ended September 30, 2013 and 2012 are summarized as follows:

					Real estate
September 30, 2013	Commercial				Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance July 1, 2013		$	2,711		$	2,831		$	886		$	176		$	131	$	6,735
Charge-offs			(46	)								(24	)				(70	)
Recoveries			(2	)					(2	)		9					5
Provisions			18			(1	)		65			16			67		165
Ending balance		$	2,681		$	2,830		$	949		$	177		$	198	$	6,835

					Real estate
September 30, 2013	Commercial				Commercial			Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance January 1, 2013		$	2,024		$	2,101		$	1,206		$	234		$	1,016			$	6,581
Charge-offs			(46	)		(58	)		(187	)		(53	)						(344	)
Recoveries			2						77			24							103
Provisions			701			787			(147	)		(28	)		(818	)			495
Ending balance		$	2,681		$	2,830		$	949		$	177		$	198			$	6,835

					Real estate
September 30, 2012	Commercial				Commercial		Residential		Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance, July 1, 2012		$	2,117		$	1,970	$	819	$	197		$	813		$	5,916
Charge-offs			(12	)						(90	)					(102	)
Recoveries			1							152						153
Provisions			(10	)		21		137		(68	)		250			330
Ending balance		$	2,096		$	1,991	$	956	$	191		$	1,063		$	6,297

					Real estate
September 30, 2012	Commercial				Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance, January 1, 2012		$	2,047		$	1,515		$	761		$	198		$	828	$	5,349
Charge-offs			(219	)		(100	)		(21	)		(267	)				(607	)
Recoveries			2									188					190
Provisions			266			576			216			72			235		1,365
Ending balance		$	2,096		$	1,991		$	956		$	191		$	1,063	$	6,297

The allocation of the allowance for loan losses and the related loans by major classifications of loans at September 30, 2013 and December 31, 2012 is summarized as follows:

			Real estate
September 30, 2013	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	2,681	$	2,830	$	949	$	177	$	198	$	6,835
Ending balance: individually evaluated for impairment		386		424		297						1,107
Ending balance: collectively evaluated for impairment	$	2,295	$	2,406	$	652	$	177	$	198	$	5,728
Loans receivable:
Ending balance	$	187,462	$	181,557	$	117,796	$	18,294			$	505,109
Ending balance: individually evaluated for impairment		3,275		13,388		1,891						18,554
Ending balance: collectively evaluated for impairment	$	184,187	$	168,169	$	115,905	$	18,294			$	486,555

			Real estate
December 31, 2012	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	2,024	$	2,101	$	1,206	$	234	$	1,016	$	6,581
Ending balance: individually evaluated for impairment		327		239		283		6				855
Ending balance: collectively evaluated for impairment	$	1,697	$	1,862	$	923	$	228	$	1,016	$	5,726
Loans receivable:
Ending balance	$	170,379	$	158,798	$	117,527	$	19,069			$	465,773
Ending balance: individually evaluated for impairment		5,169		7,137		1,522		6				13,834
Ending balance: collectively evaluated for impairment	$	165,210	$	151,661	$	116,005	$	19,063			$	451,939

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 weakness 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 their continuance as bankable loans 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 effected in the future.

The following tables present the major classifications of the loan portfolio 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 September 30, 2013 and December 31, 2012:

September 30, 2013	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	179,054	$	5,186	$	815	$	2,407	$	187,462
Real estate:
Commercial		165,829		3,960		8,029		3,739		181,557
Residential		115,557		348		227		1,664		117,796
Consumer		18,278		16						18,294
Total	$	478,718	$	9,510	$	9,071	$	7,810	$	505,109

December 31, 2012	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	161,236	$	5,752	$	1,113	$	2,278	$	170,379
Real estate:
Commercial		146,205		5,302		3,120		4,171		158,798
Residential		116,042						1,485		117,527
Consumer		19,058		11						19,069
Total	$	442,541	$	11,065	$	4,233	$	7,934	$	465,773

Information concerning nonaccrual loans by major loan category at September 30, 2013 and December 31, 2012, is as follows:

	September 30, 2013		December 31, 2012
Commercial	$	2,407	$	2,278
Real estate:
Commercial		3,739		4,171
Residential		1,664		1,485
Consumer
Total	$	7,810	$	7,934

The major categories of the loan portfolio by past due status at September 30, 2013 and December 31, 2012, are summarized as follows:

September 30, 2013	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
Commercial	$	272	$	3	$	2,254	$	2,529	$	184,933	$	187,462	$	53
Real estate:
Commercial		1,041		1,540		429		3,010		178,547		181,557
Residential		1,138		231		1,177		2,546		115,250		117,796
Consumer		341		152		444		937		17,357		18,294		444
Total	$	2,792	$	1,926	$	4,304	$	9,022	$	496,087	$	505,109	$	497

December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
Commercial	$	883	$	255	$	324	$	1,462	$	168,917	$	170,379	$	324
Real estate:
Commercial		2,268		245		22		2,535		156,263		158,798		22
Residential		1,528				21		1,549		115,978		117,527		21
Consumer		411		192		494		1,097		17,972		19,069		494
Total	$	5,090	$	692	$	861	$	6,643	$	459,130	$	465,773	$	861

The following tables summarize information in regards to impaired loans as of and for the three and nine months ended September 30, 2013 and 2012, and as of and for the year ended December 31, 2012, by loan portfolio class:

							This Quarter				Year to Date
September 30, 2013	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	755	$	755			$	1,076	$	17	$	1,167	$	59
Real estate:
Commercial		10,133		10,133				11,148		63		7,884		146
Residential		1,096		1,096				1,201		2		983		5
Consumer
Total		11,984		11,984				13,425		82		10,034		210

With an allowance recorded:
Commercial		2,520		2,520	$	386		2,505		1		2,661		1
Real estate:
Commercial		3,255		3,255		424		3,300		53		3,312		112
Residential		795		795		297		737		5		933		5
Consumer
Total		6,570		6,570		1,107		6,542		59		6,906		118

Commercial		3,275		3,275		386		3,581		18		3,828		60
Real estate:
Commercial		13,388		13,388		424		14,448		116		11,196		258
Residential		1,891		1,891		297		1,938		7		1,916		10
Consumer
Total	$	18,554	$	18,554	$	1,107	$	19,967	$	141	$	16,940	$	328

							For the Year Ended
December 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	3,782	$	3,782			$	4,792	$	114
Real estate:
Commercial		3,354		3,354				1,632		72
Residential		359		359				771
Consumer
Total		7,495		7,495				7,195		186

With an allowance recorded:
Commercial		1,387		1,387	$	327		2,798		10
Real estate:
Commercial		3,783		3,783		239		3,749		120
Residential		1,163		1,163		283		910
Consumer		6		6		6		2
Total		6,339		6,339		855		7,459		130

Commercial		5,169		5,169		327		7,590		124
Real estate:
Commercial		7,137		7,137		239		5,381		192
Residential		1,522		1,522		283		1,681
Consumer		6		6		6		2
Total	$	13,834	$	13,834	$	855	$	14,654	$	316

							This Quarter				Year to Date
September 30, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	4,953	$	4,953			$	5,267	$	100	$	4,679	$	132
Real estate:
Commercial		862		862				1,002		25		1,004		103
Residential		539		539				716				760
Consumer
Total		6,354		6,354				6,985		125		6,443		235

With an allowance recorded:
Commercial		1,528		1,528	$	396		1,617		10		2,818		55
Real estate:
Commercial		3,800		3,800		108		3,758		97		3,745		161
Residential		1,058		1,058		259		1,189				781
Consumer
Total		6,386		6,386		763		6,564		107		7,344		216

Commercial		6,481		6,481		396		6,884		110		7,497		187
Real estate:
Commercial		4,662		4,662		108		4,760		122		4,749		264
Residential		1,597		1,597		259		1,905				1,541
Consumer
Total	$	12,740	$	12,740	$	763	$	13,549	$	232	$	13,787	$	451

Included in the commercial loan and commercial real estate categories are troubled debt restructurings that are classified as impaired. 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 for which concessions have been granted. From time to time, the Company has modified loans and not accounted for them as troubled debt restructurings. Given the current economic environment, especially with respect to interest rates, there have been instances where a good customer has come in to renegotiate for a more favorable rate or one more in line with market rates. Given these and similar circumstances the Company has made modifications to keep the relationship. In such cases, these are not accounted for or reported as a troubled debt restructured loan as there was no deterioration in the borrower's condition. Trouble debt restructurings totaled $3,693 at September 30, 2013, $3,787 at December 31, 2012 and $3,817 at September 30, 2012.

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:

Rate Modification - A modification in which the interest rate is changed.

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.

Information concerning trouble debt restructurings by major loan category at September 30, 2013 and December 31, 2012 is summarized as follows:

September 30, 2013	Number of Contracts		Accrual Status		Nonaccrual Status		Total Modifications
Commercial		2			$	2,074	$	2,074
Real estate:
Commercial		1	$	1,619				1,619
Residential
Consumer
Total		3	$	1,619	$	2,074	$	3,693

December 31, 2012	Number of Contracts		Accrual Status		Nonaccrual Status		Total Modifications
Commercial		2			$	2,146	$	2,146
Real estate:
Commercial		1	$	1,641				1,641
Residential
Consumer
Total		3	$	1,641	$	2,146	$	3,787

There were no new troubled debt restructurings that occurred during the nine months ended September 30, 2013 and 2012. There were no defaults of loans considered troubled debt restructurings for the nine months ended September 30, 2013 and 2012. There were no charge-offs as a result of the troubled debt restructurings.