5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2015 and December 31, 2014 are summarized as follows. Net deferred loan costs were $648 and $651 at March 31, 2015 and December 31, 2014.


	March 31, 2015		December 31, 2014
Commercial	$	319,468	$	319,590
Real estate:
Commercial		522,432		493,481
Residential		305,663		310,667
Consumer		89,605		86,156

Total	$	1,237,168	$	1,209,894

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2015 and 2014 are summarized as follows:


				Real estate
March 31, 2015	Commercial			Commercial			Residential			Consumer			Total
Allowance for loan losses:
Beginning Balance	$	2,321		$	3,037		$	3,690		$	1,290		$	10,338
Charge-offs		(37	)		(49	)		(199	)		(80	)		(365	)
Recoveries		61			1			5			13			80
Provisions		75			98			413			164			750

Ending balance	$	2,420		$	3,087		$	3,909		$	1,387		$	10,803


				Real estate
March 31, 2014	Commercial			Commercial			Residential			Consumer			Total
Allowance for loan losses:
Beginning Balance	$	2,008		$	2,394		$	3,135		$	1,114		$	8,651
Charge-offs		(347	)		(28	)		(240	)		(68	)		(683	)
Recoveries								3			31			34
Provisions		300			107			350			100			857

Ending balance	$	1,961		$	2,473		$	3,248		$	1,177		$	8,859

The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2015 and December 31, 2014 is summarized as follows:


			Real estate
March 31, 2015	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
Ending balance	$	2,420	$	3,087	$	3,909	$	1,387		$	10,803

Ending balance: individually evaluated for impairment		1,263		625		843		90			2,821

Ending balance: collectively evaluated for impairment		954		2,355		3,066		1,297			7,672

Ending balance: loans acquired with deteriorated credit quality	$	203	$	107	$		$			$	310

Loans receivable:
Ending balance	$	319,468	$	522,432	$	305,663	$	89,605		$	1,237,168

Ending balance: individually evaluated for impairment		2,631		4,757		3,853		101			11,342

Ending balance: collectively evaluated for impairment		315,524		516,295		301,752	$	89,504			1,223,075

Ending balance: loans acquired with deteriorated credit quality	$	1,313	$	1,380	$	58				$	2,751



			Real estate
December 31, 2014	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
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

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 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 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 March 31, 2015 and December 31, 2014:


March 31, 2015:	Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	307,690	$	6,802	$	4,976		$	319,468
Real estate:
Commercial		503,620		9,885		8,927			522,432
Residential		296,500		1,065		8,098			305,663
Consumer		89,504				101			89,605

Total	$	1,197,314	$	17,752	$	22,102		$	1,237,168


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

Information concerning nonaccrual loans by major loan classification at March 31, 2015 and December 31, 2014 is summarized as follows:


	March 31, 2015		December 31, 2014
Commercial	$	2,366	$	1,322
Real estate:
Commercial		3,781		3,732
Residential		3,331		3,523
Consumer		97		122

Total	$	9,575	$	8,699

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


March 31, 2015	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	$	543	$	43	$	2,366	$	2,952	$	316,516	$	319,468
Real estate:
Commercial		1,689		220		3,781		5,690		516,742		522,432
Residential		3,811		1,065		4,106		8,982		296,681		305,663	$	775
Consumer		679		170		559		1,408		88,197		89,605		462

Total	$	6,722	$	1,498	$	10,812	$	19,032	$	1,218,136	$	1,237,168	$	1,237


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

The following tables summarize information concerning impaired loans at and for the period ended March 31, 2015, December 31, 2014 and March 31, 2014, by major loan classification:


							For the Quarter Ended
March 31, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	2,319	$	3,900			$	2,349	$	20
Real estate:
Commercial		2,198		2,936				2,565		19
Residential		2,272		2,456				2,472		1
Consumer		11		11				47

Total		6,800		9,303				7,433		40

With an allowance recorded:
Commercial		1,625		1,625	$	1,466		1,597	$	14
Real estate:
Commercial		3,939		3,939		732		3,732		17
Residential		1,639		1,639		843		1,513		10
Consumer		90		90		90		67

Total		7,293		7,293		3,131		6,909		41

Commercial		3,944		5,525		1,466		3,946		34
Real estate:
Commercial		6,137		6,875		732		6,297		36
Residential		3,911		4,095		843		3,985		11
Consumer		101		101		90		114

Total	$	14,093	$	16,596	$	3,131	$	14,342	$	81


							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 Quarter Ended
March 31, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	2,008	$	4,762			$	3,493
Real estate:
Commercial		9,958		12,746				10,227
Residential		2,740		3,144				2,872
Consumer		128		128				109

Total		14,834		20,780				16,701

With an allowance recorded:
Commercial		1,728		1,728	$	1,128		1,964	$	26
Real estate:
Commercial		1,404		1,404		542		1,399		18
Residential		261		261		162		523
Consumer

Total		3,393		3,393		1,832		3,886		44

Commercial		3,736		6,490		1,128		5,457		26
Real estate:
Commercial		11,362		14,150		542		11,626		18
Residential		3,001		3,405		162		3,395
Consumer		128		128				109

Total	$	18,227	$	24,173	$	1,832	$	20,587	$	44

Included in the commercial loan and residential and commercial real estate categories are troubled debt restructurings that are classified as impaired. Trouble debt restructurings totaled $2,967 at March 31, 2015, $2,933 at December 31, 2014 and $1,924 at March 31, 2014.

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 can 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 were four loans modified as troubled debt restructurings for the three months ended March 31, 2015, in the amount of $384. There were no loans modified as troubled debt restructurings for the three months ended March 31, 2014. During the three months ended March 31, 2015 and 2014, there were no defaults on loans restructured within the last twelve months.