5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at December 31, 2014 and 2013 are summarized as follows. Net deferred loan costs were $651 and $24 in 2014 and 2013, respectively.


December 31	2014		2013
Commercial	$	319,590	$	350,680
Real estate:
Commercial		493,481		413,058
Residential		310,667		322,062
Consumer		86,156		90,817

Total	$	1,209,894	$	1,176,617

Loans outstanding to directors, executive officers, principal stockholders or to their affiliates totaled $16,484 and $14,205 at December 31, 2014 and 2013, respectively. Advances and repayments during 2014 totaled $2,764 and $485 respectively. These loans are made during the ordinary course of business at the Company’s normal credit terms. There were no related party loans that were classified as nonaccrual, past due, or restructured or considered a potential credit risk at December 31, 2014 and 2013.

At December 31, 2014, the majority of the Company’s loans were at least partially secured by real estate in Northeastern Pennsylvania. Therefore, a primary concentration of credit risk is directly related to the real estate market in this area. Changes in the general economy, local economy or in the real estate market could affect the ultimate collectability of this portion of the loan portfolio. Management does not believe there are any other significant concentrations of credit risk that could affect the loan portfolio.

The changes in the allowance for loan losses account by major classification of loan for the year ended December 31, 2014, 2013, and 2012 were as follows:


				Real estate
December 31, 2014	Commercial			Commercial			Residential			Consumer			Unallocated	Total
Allowance for loan losses:
Beginning balance	$	2,008		$	2,394		$	3,135		$	1,114		$	$	8,651
Charge-offs		(601	)		(500	)		(804	)		(386	)			(2,291	)
Recoveries		9			292			38			115				454
Provisions		905			851			1,321			447				3,524

Ending balance	$	2,321		$	3,037		$	3,690		$	1,290		$	$	10,338

Ending balance: individually evaluated for impairment		1,072			805			767			38				2,682

Ending balance: collectively evaluated for impairment		1,081			2,125			2,921			1,252				7,379

Ending balance: loans acquired with deteriorated credit quality	$	168		$	107		$	2		$			$	$	277

Loans receivable:
Ending balance	$	319,590		$	493,481		$	310,667		$	86,156		$	$	1,209,894

Ending balance: individually evaluated for impairment		2,595			5,084			4,001			127				11,807

Ending balance: collectively evaluated for impairment		315,642			487,024			306,608		$	86,029				1,195,303

Ending balance: loans acquired with deteriorated credit quality	$	1,353		$	1,373		$	58					$	$	2,784


				Real estate
December 31, 2013	Commercial			Commercial			Residential			Consumer			Unallocated	Total
Allowance for loan losses:
Beginning balance	$	799		$	2,304		$	2,981		$	866		$	$	6,950
Charge-offs		(5	)		(15	)		(508	)		(313	)			(841	)
Recoveries		1			20			111			49				181
Provisions		1,213			85			551			512				2,361

Ending balance	$	2,008		$	2,394		$	3,135		$	1,114		$	$	8,651

Ending balance: individually evaluated for impairment		1,500			300			224							2,024

Ending balance: collectively evaluated for impairment		508			2,094			2,911			1,114				6,627

Ending balance: loans acquired with deteriorated credit quality	$			$			$			$			$	$

Loans receivable:
Ending balance	$	350,680		$	413,058		$	322,062		$	90,817		$	$	1,176,617

Ending balance: individually evaluated for impairment		4,504			7,711			3,321			90				15,626

Ending balance: collectively evaluated for impairment		343,502			401,168			318,274		$	90,727				1,153,671

Ending balance: loans acquired with deteriorated credit quality	$	2,674		$	4,179		$	467					$	$	7,320


				Real estate
December 31, 2012	Commercial			Commercial			Residential			Consumer			Unallocated	Total
Allowance for loan losses:
Beginning balance	$	793		$	2,294		$	2,855		$	769		$	$	6,711
Charge-offs		(78	)		(33	)		(431	)		(275	)			(817	)
Recoveries		1			6			67			58				132
Provisions		83			37			490			314				924

Ending balance	$	799		$	2,304		$	2,981		$	866		$	$	6,950

Ending balance: individually evaluated for impairment		351			550			325							1,226

Ending balance: collectively evaluated for impairment	$	448		$	1,754		$	2,656		$	866		$	$	5,724

Loans receivable:
Ending balance	$	91,724		$	217,496		$	261,912		$	52,398		$	$	623,530

Ending balance: individually evaluated for impairment		655			2,160			2,425			31				5,271

Ending balance: collectively evaluated for impairment	$	91,069		$	215,336		$	259,487		$	52,367		$	$	618,259

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 December 31, 2014 and 2013:


December 31, 2014:	Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	306,066	$	6,135	$	7,389	$	$	319,590
Real estate:
Commercial		472,270		9,858		11,353			493,481
Residential		300,299		2,123		8,245			310,667
Consumer		86,037		13		106			86,156

Total	$	1,164,672	$	18,129	$	27,093	$	$	1,209,894


December 31, 2013:	Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	332,257	$	7,025	$	11,398	$	$	350,680
Real estate:
Commercial		386,825		10,701		15,532			413,058
Residential		314,544		861		6,657			322,062
Consumer		90,718		9		90			90,817

Total	$	1,124,344	$	18,596	$	33,677	$	$	1,176,617

Information concerning nonaccrual loans by major loan classification at December 31, 2014 and 2013 is summarized as follows:


December 31,	2014		2013
Commercial	$	1,322	$	2,035
Real estate:
Commercial		3,732		9,172
Residential		3,523		3,569
Consumer		122		90

Total	$	8,699	$	14,866

The major classification of loans by past due status at December 31, 2014 and 2013 are summarized as follows:


December 31, 2014	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	$	898	$	117	$	1,322	$	2,337	$	317,253	$	319,590
Real estate:
Commercial		2,100		888		3,868		6,856		486,625		493,481	$	136
Residential		3,154		1,239		4,585		8,978		301,689		310,667		1,062
Consumer		848		247		547		1,642		84,514		86,156		425

Total	$	7,000	$	2,491	$	10,322	$	19,813	$	1,190,081	$	1,209,894	$	1,623


December 31, 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	$	1,052	$	105	$	2,041	$	3,198	$	347,482	$	350,680	$	6
Real estate:
Commercial		1,641		75		9,372		11,088		401,970		413,058		200
Residential		3,676		985		4,247		8,908		313,154		322,062		678
Consumer		798		313		661		1,772		89,045		90,817		571

Total	$	7,167	$	1,478	$	16,321	$	24,966	$	1,151,651	$	1,176,617	$	1,455

The following tables summarize information concerning impaired loans as of and for the years ended December 31, 2014, 2013 and 2012 by major loan classification:


							For the Year Ended
December 31, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	2,379	$	4,084			$	2,669	$	141
Real estate:
Commercial		2,932		3,690				7,944		120
Residential		2,672		2,857				2,731		4
Consumer		83		83				94

Total		8,066		10,714				13,438		265

With an allowance recorded:
Commercial		1,569		1,569	$	1,240		1,787		58
Real estate:
Commercial		3,525		3,525		912		2,293		28
Residential		1,387		1,387		769		590		10
Consumer		44		44		38		10		1

Total		6,525		6,525		2,959		4,680		97

Commercial		3,948		5,653		1,240		4,456		199
Real estate:
Commercial		6,457		7,215		912		10,237		148
Residential		4,059		4,244		769		3,321		14
Consumer		127		127		38		104		1

Total	$	14,591	$	17,239	$	2,959	$	18,118	$	362


							For the Year Ended
December 31, 2013	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	4,978	$	9,474			$	5,824
Real estate:
Commercial		10,496		13,352				10,095
Residential		3,004		3,437				2,614
Consumer		90		90				95

Total		18,568		26,353				18,628

With an allowance recorded:
Commercial		2,200		2,200	$	1,500		2,182	$	95
Real estate:
Commercial		1,394		1,394		300		1,409		76
Residential		784		784		224		672		13
Consumer

Total		4,378		4,378		2,024		4,263		184

Commercial		7,178		11,674		1,500		8,006		95
Real estate:
Commercial		11,890		14,746		300		11,504		76
Residential		3,788		4,221		224		3,286		13
Consumer		90		90				95

Total	$	22,946	$	30,731	$	2,024	$	22,891	$	184


							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	$	304	$	304			$	152
Real estate:
Commercial		145		145				201
Residential		928		928				1,152
Consumer		31		31				68

Total		1,408		1,408				1,573

With an allowance recorded:
Commercial		351		351	$	351		351	$	17
Real estate:
Commercial		2,015		2,015		550		2,104		114
Residential		1,497		1,497		325		1,040		44
Consumer

Total		3,863		3,863		1,226		3,495		175

Commercial		655		655		351		503		17
Real estate:
Commercial		2,160		2,160		550		2,305		114
Residential		2,425		2,425		325		2,192		44
Consumer		31		31				68

Total	$	5,271	$	5,271	$	1,226	$	5,068	$	175

There were no amounts of interest income recognized using the cash-basis method on impaired loans for the years ended December 31, 2014, 2013 and 2012.

As a part of the Merger, an adjustment was made to reflect the elimination of the allowance for loan losses related to the Peoples Bank loan portfolio, as required by purchase accounting standards. As a result, the acquired loan portfolio was evaluated based on risk characteristics and other credit and market criteria to determine a credit quality adjustment to the fair value of the loan acquired. The acquired loan balance was reduced by the aggregate amount of the credit quality adjustment in determining the fair value of the loans. The credit quality adjustment does not account for acquired loans deemed to be impaired in accordance with Accounting Standard Codification 310-30-30, previously known as Statement of Position (SOP) 03-3, “Accounting for Certain Loans Acquired in a Transfer.” These impaired loans are accounted for in the credit adjustment on distressed loans, which represents the portion of the loan balance that has been deemed uncollectible based on the management’s expectations of future cash flows for each respective loan. Based on management’s evaluation of the acquired loan portfolio, 29 loans were deemed impaired resulting in a credit adjustment on distressed loans of $6,892. As of December 31, 2014, there were a total of 15 loans remaining with a credit adjustment of $2,588.

At December 31, 2014, the Company had total impaired loans of $14,591. The impaired loan balance includes $2,784 of impaired loans acquired as part of the merger net of a remaining fair value adjustment of $2,648. Management performed an evaluation of expected future cash flows, including the anticipated cash flow from the sale of collateral, and compared that to the carrying amount of the impaired loans. Based on these evaluations, the Company has determined that an additional reserve of $277 was required against the impaired loans at December 31, 2014.

The changes in the accretible yield and nonaccretible difference of acquired loans accounted for under ASC310 for the years ended December 31, 2014, 2013 and 2012, were as follows:


	2014						2013					2012
Year ended December 31	Accretible			Nonaccretible			Accretible			Nonaccretible		Accretible	Nonaccretible
Beginning Balance, January 1	$	895		$	6,892							$	$	211
Additions							$	934		$	6,892
Accretion		(280	)					(39	)
Charge-offs		(398	)		(2,703	)
Payments		(157	)		(1,601	)								(211	)

Ending Balance, December 31	$	60		$	2,588		$	895		$	6,892	$	$

Included in the commercial loan and commercial real estate categories are troubled debt restructurings that were classified as impaired. Trouble debt restructurings totaled $2,933, $2,487 and $351 at December 31, 2014, 2013 and 2012, respectively.

There were three loans modified in 2014 and no loans modified in 2013 or 2012 that resulted in troubled debt restructurings. The following table summarizes the loans whose terms have been modified resulting in troubled debt restructurings during the year ended December 31, 2014.


December 31, 2014	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Recorded Investment
Commercial real estate		1	$	4,408	$	2,500	$	2,457
Residential mortgage		2		479		479		476

Total		3	$	4,887	$	2,979	$	2,933

There were no payment defaults within 12 months of their modification on loans considered troubled debt restructurings for the years ended December 31, 2014, 2013 and 2012.