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, 2018 and December 31, 2017 are summarized as follows. Net deferred loan costs were $719 and $575 at March 31, 2018 and December 31, 2017.


		March 31, 2018		December 31, 2017
Commercial	$	467,404	$	476,199
Real estate:
Commercial		833,497		786,210
Residential		289,367		287,935
Consumer		135,513		142,721
Total	$	1,725,781	$	1,693,065

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2018 and 2017 are summarized as follows:


			Real estate
March 31, 2018	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
Beginning Balance January 1, 2018	$	5,052	$	7,548	$	4,980	$	1,380	$	$	18,960
Charge-offs						(299)		(127)			(426)
Recoveries		57		27		10		40			134
Provisions		297		524		148		81			1,050
Ending balance	$	5,406	$	8,099	$	4,839	$	1,374	$	$	19,718

			Real estate
March 31, 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				(125)		(15)		(171)			(311)
Recoveries		7		33		22		57			119
Provisions		323		536		264		77			1,200
Ending balance	$	4,129	$	6,291	$	4,978	$	1,571	$	$	16,969

The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2018 and December 31, 2017 is summarized as follows:


			Real estate
March 31, 2018	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
Ending balance	$	5,406	$	8,099	$	4,839	$	1,374	$	$	19,718
Ending balance: individually evaluated for impairment		145		1,411		182		17			1,755
Ending balance: collectively evaluated for impairment		5,261		6,688		4,657		1,357			17,963
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$	$
Loans receivable:
Ending balance	$	467,404	$	833,497	$	289,367	$	135,513	$	$	1,725,781
Ending balance: individually evaluated for impairment		2,023		4,784		3,751		169			10,727
Ending balance: collectively evaluated for impairment		465,060		828,125		285,587		135,344			1,714,116
Ending balance: loans acquired with deteriorated credit quality	$	321	$	588	$	29	$		$	$	938



			Real estate
December 31, 2017	Commercial		Commercial		Residential		Consumer		Unallocated	Total
Allowance for loan losses:
Ending balance	$	5,052	$	7,548	$	4,980	$	1,380	$	$	18,960
Ending balance: individually evaluated for impairment		159		263		336		8			766
Ending balance: collectively evaluated for impairment		4,893		7,285		4,644		1,372			18,194
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$	$
Loans receivable:
Ending balance	$	476,199	$	786,210	$	287,935	$	142,721	$	$	1,693,065
Ending balance: individually evaluated for impairment		2,121		3,644		3,763		177			9,705
Ending balance: collectively evaluated for impairment		473,736		781,921		284,142		142,544			1,682,343
Ending balance: loans acquired with deteriorated credit quality	$	342	$	645	$	30	$		$	$	1,017

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, 2018 and December 31, 2017:


			Special
March 31, 2018	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	462,244	$	1,192	$	3,968	$	$	467,404
Real estate:
Commercial		804,815		17,130		11,552			833,497
Residential		284,005		17		5,345			289,367
Consumer		135,313				200			135,513
Total	$	1,686,377	$	18,339	$	21,065	$	$	1,725,781


			Special
December 31, 2017	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	472,185	$	1,958	$	2,056	$	$	476,199
Real estate:
Commercial		764,320		13,015		8,875			786,210
Residential		282,484		18		5,433			287,935
Consumer		142,507				214			142,721
Total	$	1,661,496	$	14,991	$	16,578	$	$	1,693,065

Information concerning nonaccrual loans by major loan classification at March 31, 2018 and December 31, 2017 is summarized as follows:


		March 31, 2018		December 31, 2017
Commercial	$	770	$	860
Real estate:
Commercial		4,719		3,821
Residential		3,020		2,994
Consumer		169		177
Total	$	8,678	$	7,852

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, 2018	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	99	$	18	$	774	$	891	$	466,513	$	467,404	$	3
Real estate:
Commercial		4,608		416		4,719		9,743		823,754		833,497
Residential		1,305		780		3,345		5,430		283,937		289,367		325
Consumer		545		342		275		1,162		134,351		135,513		107
Total	$	6,557	$	1,556	$	9,113	$	17,226	$	1,708,555	$	1,725,781	$	435

The Company classifies all nonaccrual loans in the greater than 90 days category.


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2017	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	124	$	216	$	860	$	1,200	$	474,999	$	476,199
Real estate:
Commercial		1,722		194		3,821		5,737		780,473		786,210
Residential		1,134		1,551		3,543		6,228		281,707		287,935	$	549
Consumer		1,101		364		363		1,828		140,893		142,721		186
Total	$	4,081	$	2,325	$	8,587	$	14,993	$	1,678,072	$	1,693,065	$	735

The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2018 and March 31, 2017, and as of and for the year ended, December 31, 2017 by major loan classification:


							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2018	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,211	$	1,375			$	1,246	$	17
Real estate:
Commercial		2,970		3,312				2,929		6
Residential		2,289		2,762				2,243		4
Consumer		151		159				160
Total		6,621		7,608				6,578		27
With an allowance recorded:
Commercial		1,133		1,158		144		1,159		8
Real estate:
Commercial		2,402		2,520		1,411		1,902		6
Residential		1,491		1,977		182		1,544		4
Consumer		18		18		18		13
Total		5,044		5,673		1,755		4,618		18
Commercial		2,344		2,533		144		2,405		25
Real estate:
Commercial		5,372		5,832		1,411		4,831		12
Residential		3,780		4,739		182		3,787		8
Consumer		169		177		18		173
Total	$	11,665	$	13,281	$	1,755	$	11,196	$	45


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2017	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,279	$	1,439			$	1,668	$	43
Real estate:
Commercial		2,888		3,190				2,985		24
Residential		2,196		2,672				2,227		21
Consumer		169		181				173
Total		6,532		7,482				7,053		88
With an allowance recorded:
Commercial		1,184		1,218		159		991		50
Real estate:
Commercial		1,401		1,496		263		2,202		18
Residential		1,597		1,759		336		1,335		23
Consumer		8		8		8		20
Total		4,190		4,481		766		4,548		91
Commercial		2,463		2,657		159		2,659		93
Real estate:
Commercial		4,289		4,686		263		5,187		42
Residential		3,793		4,431		336		3,562		44
Consumer		177		189		8		193
Total	$	10,722	$	11,963	$	766	$	11,601	$	179


							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2017	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	765	$	1,386			$	1,585	$	4
Real estate:
Commercial		3,715		4,368				3,039		4
Residential		2,349		2,533				2,277		4
Consumer		184		184				170
Total		7,013		8,471				7,071		12
With an allowance recorded:
Commercial		1,923		1,923	$	404		1,103		13
Real estate:
Commercial		1,471		1,471		513		3,132		6
Residential		1,044		1,044		484		1,210		4
Consumer		23		23		23		12
Total		4,461		4,461		1,424		5,457		23
Commercial		2,688		3,309		404		2,688		17
Real estate:
Commercial		5,186		5,839		513		6,171		10
Residential		3,393		3,577		484		3,487		8
Consumer		207		207		23		182
Total	$	11,474	$	12,932	$	1,424	$	12,528	$	35

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 $3,032 at March 31, 2018, $3,074 at December 31, 2017 and $2,226 at March 31, 2017.

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 a troubled debt restructuring for the three months ended March 31, 2018. There was one loan modified as a troubled debt restructuring for the three months ended March 31, 2017, in the amount of $345. During the three months ended March 31, 2018, there was one payment default on a restructured residential mortgage loan with an outstanding balance of $64; there were no payment defaults on restructured loans during the three months ended March 31, 2017.