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, 2016 and December 31, 2015 are summarized as follows. Net deferred loan costs were $668 and $690 at June 30, 2016 and December 31, 2015.


		June 30, 2016		December 31, 2015
Commercial	$	394,283	$	365,767
Real estate:
Commercial		647,058		567,277
Residential		299,037		306,218
Consumer		124,430		101,603
Total	$	1,464,808	$	1,340,865

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended June 30, 2016 and 2015 are summarized as follows:


			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, 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


			Real estate
June 30, 2015	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance April 1, 2015	$	2,420	$	3,087	$	3,909	`	1,387	`	10,803
Charge-offs		(3)		(30)		(35)		(106)		(174)
Recoveries		3		5		3		38		49
Provisions		15		128		150		457		750
Ending balance	$	2,435	$	3,190	$	4,027	$	1,776	$	11,428

			Real estate
June 30, 2015	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2015	$	2,321	$	3,037	$	3,690	$	1,290	$	10,338
Charge-offs		(40)		(79)		(234)		(186)		(539)
Recoveries		64		6		8		51		129
Provisions		90		226		563		621		1,500
Ending balance	$	2,435	$	3,190	$	4,027	$	1,776	$	11,428

The allocation of the allowance for loan losses and the related loans by major classifications of loans at June 30, 2016 and December 31, 2015 is summarized as follows:


			Real estate
June 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799
Ending balance: individually evaluated for impairment		615		405		723		71				1,814
Ending balance: collectively evaluated for impairment		2,648		4,672		3,742		1,608		315		12,985
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$		$	—
Loans receivable:
Ending balance	$	394,283	$	647,058	$	299,037	$	124,430	$		$	1,464,808
Ending balance: individually evaluated for impairment		870		5,073		3,177		228				9,348
Ending balance: collectively evaluated for impairment		392,372		640,642		295,817		124,202				1,453,033
Ending balance: loans acquired with deteriorated credit quality	$	1,041	$	1,343	$	43	$		$		$	2,427



			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 June 30, 2016 and December 31, 2015:


			Special
June 30, 2016	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	386,532	$	4,960	$	2,791	$	$	394,283
Real estate:
Commercial		610,356		20,454		16,248			647,058
Residential		292,293		598		6,146			299,037
Consumer		124,218				212			124,430
Total	$	1,413,399	$	26,012	$	25,397	$	$	1,464,808


			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 June 30, 2016 and December 31, 2015 is summarized as follows:


		June 30, 2016		December 31, 2015
Commercial	$	1,262	$	1,632
Real estate:
Commercial		4,929		3,859
Residential		2,826		4,732
Consumer		228		148
Total	$	9,245	$	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
June 30, 2016	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	724	$	234	$	1,262	$	2,220	$	392,063	$	394,283
Real estate:
Commercial		2,172		617		4,929		7,718		639,340		647,058
Residential		1,673		289		4,545		6,507		292,530		299,037	$	1,719
Consumer		955		269		580		1,804		122,626		124,430		352
Total	$	5,524	$	1,409	$	11,316	$	18,249	$	1,446,559	$	1,464,808	$	2,071


					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 and six months ended June 30, 2016 and June 30, 2015, and as of and for the year ended, December 31, 2015 by major loan classification:


							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


							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


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2015	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,658	$	3,184			$	1,989	$	17	$	2,168		37
Real estate:
Commercial		2,140		2,852				2,169		28		2,366		47
Residential		2,734		2,917				2,503		1		2,488		2
Consumer								6				26
Total		6,532		8,953				6,667		46		7,048		86
With an allowance recorded:
Commercial		1,312		1,312	$	1,209		1,469	$	13		1,533	$	27
Real estate:
Commercial		5,316		5,316		1,445		4,628		48		4,182		65
Residential		1,706		1,706		796		1,673		7		1,593		17
Consumer		137		137		137		114				91
Total		8,471		8,471		3,587		7,884		68		7,399		109
Commercial		2,970		4,496		1,209		3,458		30		3,701		64
Real estate:
Commercial		7,456		8,168		1,445		6,797		76		6,548		112
Residential		4,440		4,623		796		4,176		8		4,081		19
Consumer		137		137		137		120				117
Total	$	15,003	$	17,424	$	3,587	$	14,551	$	114	$	14,447	$	195

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 $2,701 at June 30, 2016, $2,861 at December 31, 2015 and $3,046 at June 30, 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 were no loans modified as troubled debt restructurings for the three months ended June 30, 2016. For the six months ended June 30, 2016, one loan was modified as a troubled debt restructuring in the amount of $75. There were four loans modified as troubled debt restructurings for the three months ended June 30, 2015, in the amount of $170. For the six months ended June 30, 2015, there were eight loans modified as troubled debt restructurings in the amount of $554. During the three months ended June 30, 2016, there were no payment 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. During the three and six months ended June 30, 2015; there were no payment defaults on loans restructured within the last twelve months.