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, 2016 and December 31, 2015 are summarized as follows. Net deferred loan costs were $757 and $690 at March 31, 2016 and December 31, 2015.


		March 31, 2016		December 31, 2015
Commercial	$	395,407	$	365,767
Real estate:
Commercial		598,875		567,277
Residential		301,686		306,218
Consumer		113,723		101,603
Total	$	1,409,691	$	1,340,865

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2016 and 2015 are summarized as follows:


			Real estate
March 31, 2016	Commercial		Commercial		Residential		Consumer		Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$		12,975
Charge-offs		(3)		(55)				(65)					(123)
Recoveries		2		16		25		63					106
Provisions		281		410		252		65		192			1,200
Ending balance	$	3,322	$	4,616	$	4,359	$	1,646	$	215	$		14,158

			Real estate
March 31, 2015	Commercial		Commercial		Residential		Consumer		Unallocated			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

The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2016 and December 31, 2015 is summarized as follows:


			Real estate
March 31, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,322	$	4,616	$	4,359	$	1,646	$	215	$	14,158
Ending balance: individually evaluated for impairment		1,040		434		533		89				2,096
Ending balance: collectively evaluated for impairment		2,282		4,075		3,826		1,557		215		11,955
Ending balance: loans acquired with deteriorated credit quality	$		$	107	$		$		$		$	107
Loans receivable:
Ending balance	$	395,407	$	598,875	$	301,686	$	113,723	$		$	1,409,691
Ending balance: individually evaluated for impairment		1,399		4,827		3,162		178				9,566
Ending balance: collectively evaluated for impairment		393,093		592,685		298,478		113,545				1,397,801
Ending balance: loans acquired with deteriorated credit quality	$	915	$	1,363	$	46	$		$		$	2,324



			Real estate
December 31, 2015	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,042	$	4,245	$	4,082	$	1,583	$	23	$	12,975
Ending balance: individually evaluated for impairment		759		126		1,138		117				2,140
Ending balance: collectively evaluated for impairment		2,283		4,012		2,944		1,466		23		10,728
Ending balance: loans acquired with deteriorated credit quality	$		$	107	$		$		$		$	107
Loans receivable:
Ending balance	$	365,767	$	567,277	$	306,218	$	101,603	$		$	1,340,865
Ending balance: individually evaluated for impairment		1,196		4,006		4,917		148				10,267
Ending balance: collectively evaluated for impairment		363,620		561,903		301,252		101,455				1,328,230
Ending balance: loans acquired with deteriorated credit quality	$	951	$	1,368	$	49	$		$		$	2,368

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 March 31, 2016 and December 31, 2015:


			Special
March 31, 2016	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	388,364	$	3,564	$	3,479	$	$	395,407
Real estate:
Commercial		559,346		20,401		19,128			598,875
Residential		293,467		1,775		6,444			301,686
Consumer		113,577				146			113,723
Total	$	1,354,754	$	25,740	$	29,197	$	$	1,409,691


			Special
December 31, 2015	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	357,894	$	3,566	$	4,307	$	$	365,767
Real estate:
Commercial		538,130		10,150		18,997			567,277
Residential		296,587		983		8,648			306,218
Consumer		101,486				117			101,603
Total	$	1,294,097	$	14,699	$	32,069	$	$	1,340,865

Information concerning nonaccrual loans by major loan classification at March 31, 2016 and December 31, 2015 is summarized as follows:


		March 31, 2016		December 31, 2015
Commercial	$	1,813	$	1,632
Real estate:
Commercial		4,683		3,859
Residential		2,977		4,732
Consumer		178		148
Total	$	9,651	$	10,371

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
March 31, 2016	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	383	$	56	$	1,813	$	2,252	$	393,155	$	395,407
Real estate:
Commercial		2,837		381		4,683		7,901		590,974		598,875
Residential		5,472		191		3,680		9,343		292,343		301,686	$	703
Consumer		921		234		452		1,607		112,116		113,723		274
Total	$	9,613	$	862	$	10,628	$	21,103	$	1,388,588	$	1,409,691	$	977


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2015	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	126	$		$	1,632	$	1,758	$	364,009	$	365,767
Real estate:
Commercial		1,364		165		3,859		5,388		561,889		567,277
Residential		3,891		1,067		5,257		10,215		296,003		306,218	$	525
Consumer		705		353		386		1,444		100,159		101,603		238
Total	$	6,086	$	1,585	$	11,134	$	18,805	$	1,322,060	$	1,340,865	$	763

The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2016 and March 31, 2015, and as of and for the year ended, December 31, 2015 by major loan classification:


							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2016	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,173	$	2,383			$	1,263	$	17
Real estate:
Commercial		3,162		3,832				2,947		32
Residential		2,216		2,399				2,632		1
Consumer		89		89				60
Total		6,640		8,703				6,902		50
With an allowance recorded:
Commercial		1,141		1,141	$	1,040		968
Real estate:
Commercial		3,028		3,028		541		2,836
Residential		992		992		533		1,455		2
Consumer		89		89		89		103
Total		5,250		5,250		2,203		5,362		2
Commercial		2,314		3,524		1,040		2,231		17
Real estate:
Commercial		6,190		6,860		541		5,783		32
Residential		3,208		3,391		533		4,087		3
Consumer		178		178		89		163
Total	$	11,890	$	13,953	$	2,203	$	12,264	$	52


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2015	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,352	$	2,720			$	1,848	$	87
Real estate:
Commercial		2,731		3,408				2,394		95
Residential		3,048		3,231				2,664		4
Consumer		31		31				17
Total		7,162		9,390				6,923		186
With an allowance recorded:
Commercial		795		795	$	759		1,680		40
Real estate:
Commercial		2,643		2,643		233		4,155		86
Residential		1,918		1,918		1,138		1,776		30
Consumer		117		117		117		126
Total		5,473		5,473		2,247		7,737		156
Commercial		2,147		3,515		759		3,528		127
Real estate:
Commercial		5,374		6,051		233		6,549		181
Residential		4,966		5,149		1,138		4,440		34
Consumer		148		148		117		143
Total	$	12,635	$	14,863	$	2,247	$	14,660	$	342


							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2015	Investment		Balance		Allowance		Investment		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

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 $2,834 at March 31, 2016, $2,861 at December 31, 2015 and $2,967 at March 31, 2015.

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 March 31, 2016, in the amount of $75. There were four loans modified as troubled debt restructurings for the three months ended March 31, 2015, in the amount of $384. During the three months ended March 31, 2016, there were two payment defaults on restructured residential real estate loans totaling $208; there were no payment defaults during the three months ended March 31, 2015.