4. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at December 31, 2016 and 2015 are summarized as follows. Net deferred loan costs included in loan balances were $579 and $690 in 2016 and 2015, respectively.


December 31	2016		2015
Commercial	$	408,814	$	365,767
Real estate:
Commercial		700,144		567,277
Residential		289,781		306,218
Consumer		134,226		101,603
Total	$	1,532,965	$	1,340,865

Loans outstanding to directors, executive officers, principal stockholders or to their affiliates totaled $15,614 and $10,187 at December 31, 2016 and 2015, respectively. Advances and repayments during 2016 totaled $7,862 and $2,435 respectively. There were no related party loans that were classified as nonaccrual, past due, or restructured at December 31, 2016 and 2015.

At December 31, 2016, the majority of the Company’s loans were at least partially secured by real estate in the eastern Pennsylvania and southern tier New York counties that make up the market serviced by Peoples Security Bank & Trust Company. Therefore, a primary concentration of credit risk is directly related to the real estate market in this region. 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, 2016, 2015, and 2014 were as follows:


			Real estate
December 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		(776)		(858)		(339)		(495)				(2,468)
Recoveries		86		122		69		177				454
Provisions		1,447		2,338		895		343		(23)		5,000
Ending balance	$	3,799	$	5,847	$	4,707	$	1,608	$		$	15,961
Ending balance: individually evaluated for impairment		225		1,197		520						1,942
Ending balance: collectively evaluated for impairment		3,574		4,650		4,187		1,608				14,019
Ending balance: loans acquired with deteriorated credit quality	$		$		$				$		$	—
Loans receivable:
Ending balance	$	408,814	$	700,144	$	289,781	$	134,226	$		$	1,532,965
Ending balance: individually evaluated for impairment		1,724		5,820		3,543		155				11,242
Ending balance: collectively evaluated for impairment		406,127		692,987		286,201		134,071				1,519,386
Ending balance: loans acquired with deteriorated credit quality	$	963	$	1,337	$	37	$		$		$	2,337


			Real estate
December 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		(246)		(325)		(523)		(333)				(1,427)
Recoveries		77		144		26		117				364
Provisions		890		1,389		889		509		23		3,700
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


			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	$	322,454	$	74,369	$	$	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		318,395		74,242			1,195,303
Ending balance: loans acquired with deteriorated credit quality	$	1,353	$	1,373	$	58	$		$	$	2,784

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, 2016 and 2015:


			Special
December 31, 2016	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	398,867	$	6,222	$	3,725	$	$	408,814
Real estate:
Commercial		674,914		10,392		14,838			700,144
Residential		282,737		233		6,811			289,781
Consumer		133,983				243			134,226
Total	$	1,490,501	$	16,847	$	25,617	$	$	1,532,965


			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 December 31, 2016 and 2015 is summarized as follows:


		December 31, 2016		December 31, 2015
Commercial	$	934	$	1,632
Real estate:
Commercial		7,016		3,859
Residential		3,003		4,732
Consumer		155		148
Total	$	11,108	$	10,371

The major classification of loans by past due status at December 31, 2016 and 2015 are summarized as follows:


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2016	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	249	$	75	$	934	$	1,258	$	407,556	$	408,814
Real estate:
Commercial		4,782		527		7,016		12,325		687,819		700,144
Residential		2,100		354		3,561		6,015		283,766		289,781	$	558
Consumer		962		259		441		1,662		132,564		134,226		286
Total	$	8,093	$	1,215	$	11,952	$	21,260	$	1,511,705	$	1,532,965	$	844


					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 years ended December 31, 2016, 2015 and 2014 by major loan classification:


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2016	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	2,404	$	3,213			$	1,461	$	48
Real estate:
Commercial		2,364		3,018				4,300		71
Residential		2,205		2,388				2,133		35
Consumer		155		155				147
Total		7,128		8,774				8,041		154
With an allowance recorded:
Commercial		283		283	$	225		859
Real estate:
Commercial		4,793		4,793		1,197		2,366		2
Residential		1,375		1,376		520		1,185		7
Consumer								50
Total		6,451		6,452		1,942		4,460		9
Commercial		2,687		3,496		225		2,320		48
Real estate:
Commercial		7,157		7,811		1,197		6,666		73
Residential		3,580		3,764		520		3,318		42
Consumer		155		155		—		197
Total	$	13,579	$	15,226	$	1,942	$	12,501	$	163


							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 Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2014	Investment		Balance		Allowance		Investment		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

There were no amounts of interest income recognized using the cash-basis method on impaired loans for the years ended December 31, 2016, 2015 and 2014.

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, 2016, there were a total of ten loans remaining with a credit adjustment of $1,647. 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 no additional reserve was required against the acquired impaired loans at December 31, 2016.

The changes in the accretible yield of acquired loans accounted for under ASC310-30 for the years ended December 31, 2016, 2015 and 2014, were as follows:


Year ended December 31	2016		2015		2014
Beginning Balance, January 1	$		$	60	$	895
Reclassification from Nonaccretible		554
Accretion		(369)		(60)		(280)
Charge-offs						(398)
Payments						(157)
Ending Balance, December 31	$	185	$		$	60

Included in the commercial loan and commercial real estate categories are troubled debt restructurings that were classified as impaired. Trouble debt restructurings totaled $1,909, $2,861 and $2,933 at December 31, 2016, 2015 and 2014, respectively.

There were three loans modified in 2016, nine loans modified in 2015 and three loans modified in 2014 that resulted in troubled debt restructurings. The following tables summarize the loans whose terms have been modified resulting in troubled debt restructurings during the year ended December 31, 2016 and 2015.


		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
December 31, 2016	of Contracts	Investment		Recorded Investment		Investment
Commercial	1	$	1,500	$	1,150	$	1,150
Commercial real estate
Residential mortgage	2		216		216		207
Total	3	$	1,716	$	1,366	$	207

		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
December 31, 2015	of Contracts	Investment		Recorded Investment		Investment
Commercial	1	$	98	$	98
Commercial real estate	1		58		58	$	54
Residential mortgage	7		501		501		484
Total	9	$	657	$	657	$	538

There was one payment default within 12 months of its modification on loans considered troubled debt restructurings for the year ended December 31, 2016 for $43, two payment defaults for the year ended December 31, 2015 totaling $166 and no defaults for the year ended December 31, 2014.

The amount of loans in the formal process of foreclosure totaled $1,529 at December 31, 2016 and $564 at December 31, 2015.