5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at September 30, 2017 and December 31, 2016 are summarized as follows. Net deferred loan costs were $646 and $579 at September 30, 2017 and December 31, 2016.


		September 30, 2017		December 31, 2016
Commercial	$	449,464	$	408,814
Real estate:
Commercial		751,510		700,144
Residential		289,582		289,781
Consumer		141,959		134,226
Total	$	1,632,515	$	1,532,965

The changes in the allowance for loan losses account by major classification of loan for the three and nine months ended September 30, 2017 and 2016 are summarized as follows:


			Real estate
September 30, 2017	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance July 1, 2017	$	4,426	$	6,587	$	5,196	$	1,593	$		$	17,802
Charge-offs		(17)				(82)		(169)				(268)
Recoveries		3		41		4		49				97
Provisions		358		566		175		101				1,200
Ending balance	$	4,770	$	7,194	$	5,293	$	1,574	$		$	18,831

			Real estate
September 30, 2016	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance July 1, 2016	$	3,263	$	5,077	$	4,465	$	1,679	$	315	$	14,799
Charge-offs				(72)		(153)		(130)				(355)
Recoveries		2		28		4		34				68
Provisions		321		548		245		86				1,200
Ending balance	$	3,586	$	5,581	$	4,561	$	1,669	$	315	$	15,712


			Real estate
September 30, 2017	Commercial		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance January 1, 2017	$	3,799	$	5,847	$	4,707		1,608				15,961
Charge-offs		(49)		(367)		(105)		(489)				(1,010)
Recoveries		16		96		30		138				280
Provisions		1,004		1,618		661		317				3,600
Ending balance	$	4,770	$	7,194	$	5,293	$	1,574	$		$	18,831

			Real estate
September 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)		(175)		(279)		(260)				(1,110)
Recoveries		38		58		39		112				247
Provisions		902		1,453		719		234		292		3,600
Ending balance	$	3,586	$	5,581	$	4,561	$	1,669	$	315	$	15,712

The allocation of the allowance for loan losses and the related loans by major classifications of loans at September 30, 2017 and December 31, 2016 is summarized as follows:


			Real estate
September 30, 2017	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
Ending balance	$	4,770	$	7,194	$	5,293	$	1,574	$	$	18,831
Ending balance: individually evaluated for impairment		436		631		616		23			1,706
Ending balance: collectively evaluated for impairment		4,334		6,563		4,677		1,551			17,125
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$	$
Loans receivable:
Ending balance	$	449,464	$	751,510	$	289,582	$	141,959	$	$	1,632,515
Ending balance: individually evaluated for impairment		2,789		4,062		3,697		194			10,742
Ending balance: collectively evaluated for impairment		446,322		746,802		285,854		141,765			1,620,743
Ending balance: loans acquired with deteriorated credit quality	$	353	$	646	$	31	$		$	$	1,030



			Real estate
December 31, 2016	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
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

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 September 30, 2017 and December 31, 2016:


			Special
September 30, 2017	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	441,503	$	5,028	$	2,933	$	$	449,464
Real estate:
Commercial		724,659		14,730		12,121			751,510
Residential		283,690		19		5,873			289,582
Consumer		141,618				341			141,959
Total	$	1,591,470	$	19,777	$	21,268	$	$	1,632,515


			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

Information concerning nonaccrual loans by major loan classification at September 30, 2017 and December 31, 2016 is summarized as follows:


		September 30, 2017		December 31, 2016
Commercial	$	1,263	$	934
Real estate:
Commercial		4,233		7,016
Residential		3,031		3,003
Consumer		194		155
Total	$	8,721	$	11,108

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
September 30, 2017	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	260	$	84	$	1,263	$	1,607	$	447,857	$	449,464
Real estate:
Commercial		831		135		4,233		5,199		746,311		751,510
Residential		1,756		147		4,312		6,215		283,367		289,582	$	1,281
Consumer		846		357		423		1,626		140,333		141,959		229
Total	$	3,693	$	723	$	10,231	$	14,647	$	1,617,868	$	1,632,515	$	1,510


					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

The following tables summarize information concerning impaired loans as of and for the three and nine months ended September 30, 2017 and September 30, 2016, and as of and for the year ended, December 31, 2016 by major loan classification:


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2017	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	2,310	$	2,455			$	1,945	$	28	$	1,765	$	63
Real estate:
Commercial		2,900		3,192				2,979		6		3,009		19
Residential		2,303		2,727				2,193		4		2,235		10
Consumer		171		183				180				175
Total		7,684		8,557				7,297		38		7,184		92
With an allowance recorded:
Commercial		833		910	$	436		783				943
Real estate:
Commercial		1,807		2,073		631		1,673		6		2,402		13
Residential		1,425		1,663		616		1,330		8		1,270		22
Consumer		23		23		23		34				23
Total		4,088		4,669		1,706		3,820		14		4,638		35
Commercial		3,143		3,365		436		2,728		28		2,708		63
Real estate:
Commercial		4,707		5,265		631		4,652		12		5,411		32
Residential		3,728		4,390		616		3,523		12		3,505		32
Consumer		194		206		23		214				198
Total	$	11,772	$	13,226	$	1,706	$	11,117	$	52	$	11,822	$	127


							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


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2016	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	970	$	1,876			$	1,133	$	10	$	1,214		40
Real estate:
Commercial		6,156		6,812				5,837		9		4,396		70
Residential		2,171		2,354				2,056		3		2,263		14
Consumer		188		188				173				119
Total		9,485		11,230				9,199		22		7,992		124
With an allowance recorded:
Commercial		1,396		1,396	$	895		1,006				954	$
Real estate:
Commercial		743		743		337		821				1,877
Residential		1,093		1,093		638		1,186				1,263		4
Consumer		41		41		41		56				80
Total		3,273		3,273		1,911		3,069		—		4,174		4
Commercial		2,366		3,272		895		2,139		10		2,168		40
Real estate:
Commercial		6,899		7,555		337		6,658		9		6,273		70
Residential		3,264		3,447		638		3,242		3		3,526		18
Consumer		229		229		41		229				199
Total	$	12,758	$	14,503	$	1,911	$	12,268	$	22	$	12,166	$	128

Included in the commercial real estate, residential real estate and commercial loan categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $3,365 at September 30, 2017, $1,909 at December 31, 2016 and $2,666 at September 30, 2016.

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 four loans, representing two credit relationships, modified as troubled debt restructurings for the three months ended September 30, 2017 totaling $1,249. For the nine months ended September 30, 2017, six loans were modified as troubled debt restructurings in the amount of $1,658. There were no loans modified as troubled debt restructurings for the three months ended September 30, 2016. For the nine months ended September 30, 2016, there was one loan modified as a troubled debt restructuring in the amount of $75. During the three and nine months ended September 30, 2017, there were no payment defaults on loans restructured within the last twelve months. During the three months ended September 30, 2016, there were no payment defaults on loans restructured within the last twelve months. During the nine months ended September 30, 2016, there were two payment defaults on restructured residential real estate loans totaling $208.