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, 2018 and December 31, 2017 are summarized as follows. Net deferred loan costs were $782 and $575 at June 30, 2018 and December 31, 2017.


		June 30, 2018		December 31, 2017
Commercial	$	469,318	$	476,199
Real estate:
Commercial		867,349		786,210
Residential		290,831		287,935
Consumer		125,891		142,721
Total	$	1,753,389	$	1,693,065

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended June 30, 2018 and 2017 are summarized as follows:


			Real estate
June 30, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance April 1, 2018	$	5,406	$	8,099	$	4,839	$	1,374	$	19,718
Charge-offs		(2)		(1,169)		(82)		(145)		(1,398)
Recoveries		59		30		57		57		203
Provisions		286		546		148		70		1,050
Ending balance	$	5,749	$	7,506	$	4,962	$	1,356	$	19,573

			Real estate
June 30, 2017	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance April 1, 2017	$	4,129	$	6,291	$	4,978	$	1,571	$	16,969
Charge-offs		(32)		(242)		(8)		(149)		(431)
Recoveries		6		22		4		32		64
Provisions		323		516		222		139		1,200
Ending balance	$	4,426	$	6,587	$	5,196	$	1,593	$	17,802


			Real estate
June 30, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2018	$	5,052	$	7,548	$	4,980		1,380		18,960
Charge-offs		(2)		(1,169)		(381)		(272)		(1,824)
Recoveries		116		57		67		97		337
Provisions		583		1,070		296		151		2,100
Ending balance	$	5,749	$	7,506	$	4,962	$	1,356	$	19,573

			Real estate
June 30, 2017	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2017	$	3,799	$	5,847	$	4,707	$	1,608	$	15,961
Charge-offs		(32)		(367)		(23)		(320)		(742)
Recoveries		13		55		26		89		183
Provisions		646		1,052		486		216		2,400
Ending balance	$	4,426	$	6,587	$	5,196	$	1,593	$	17,802

The allocation of the allowance for loan losses and the related loans by major classifications of loans at June 30, 2018 and December 31, 2017 is summarized as follows:


			Real estate
June 30, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	5,749	$	7,506	$	4,962	$	1,356	$	19,573
Ending balance: individually evaluated for impairment		146		502		378		3		1,029
Ending balance: collectively evaluated for impairment		5,603		7,004		4,584		1,353		18,544
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$
Loans receivable:
Ending balance	$	469,318	$	867,349	$	290,831	$	125,891	$	1,753,389
Ending balance: individually evaluated for impairment		1,972		4,060		3,542		63		9,637
Ending balance: collectively evaluated for impairment		467,035		862,723		287,261		125,828		1,742,847
Ending balance: loans acquired with deteriorated credit quality	$	311	$	566	$	28	$		$	905



			Real estate
December 31, 2017	Commercial		Commercial		Residential		Consumer		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 June 30, 2018 and December 31, 2017:


			Special
June 30, 2018	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	465,880	$	627	$	2,811	$	$	469,318
Real estate:
Commercial		842,115		12,916		12,318			867,349
Residential		285,388		17		5,426			290,831
Consumer		125,804				87			125,891
Total	$	1,719,187	$	13,560	$	20,642	$	$	1,753,389


			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 June 30, 2018 and December 31, 2017 is summarized as follows:


		June 30, 2018		December 31, 2017
Commercial	$	760	$	860
Real estate:
Commercial		3,824		3,821
Residential		2,890		2,994
Consumer		63		177
Total	$	7,537	$	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
June 30, 2018	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	817	$	13	$	760	$	1,590	$	467,728	$	469,318
Real estate:
Commercial		2,174		988		3,824		6,986		860,363		867,349
Residential		1,659		812		2,962		5,433		285,398		290,831	$	72
Consumer		582		219		75		876		125,015		125,891		12
Total	$	5,232	$	2,032	$	7,621	$	14,885	$	1,738,504	$	1,753,389	$	84

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 and six months ended June 30, 2018 and June 30, 2017, and as of and for the year ended, December 31, 2017 by major loan classification:


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2018	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,182	$	1,355			$	1,197	$	16	$	1,224	$	33
Real estate:
Commercial		2,871		3,262				2,921		9		2,910		15
Residential		2,146		2,848				2,218		4		2,210		8
Consumer		60		67				106				127
Total		6,259		7,532				6,442		29		6,471		56
With an allowance recorded:
Commercial		1,100		1,124		146		1,117		8		1,139		16
Real estate:
Commercial		1,755		1,876		502		2,079		4		1,853		10
Residential		1,425		1,550		378		1,458		4		1,504		8
Consumer		3		3		3		11				10
Total		4,283		4,553		1,029		4,665		16		4,506		34
Commercial		2,282		2,479		146		2,314		24		2,363		49
Real estate:
Commercial		4,626		5,138		502		5,000		13		4,763		25
Residential		3,571		4,398		378		3,676		8		3,714		16
Consumer		63		70		3		117				137
Total	$	10,542	$	12,085	$	1,029	$	11,107	$	45	$	10,977	$	90


							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


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2017	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,580	$	2,197			$	1,173	$	18	$	1,583		35
Real estate:
Commercial		3,058		3,706				3,387		7		3,045		13
Residential		2,083		2,265				2,216		4		2,212		6
Consumer		188		188				186				176
Total		6,909		8,356				6,962		29		7,016		54
With an allowance recorded:
Commercial		732		732	$	321		1,328				979	$
Real estate:
Commercial		1,538		1,538		509		1,505		3		2,601		7
Residential		1,234		1,234		461		1,139		8		1,218		14
Consumer		44		44		44		34				22
Total		3,548		3,548		1,335		4,006		11		4,820		21
Commercial		2,312		2,929		321		2,501		18		2,562		35
Real estate:
Commercial		4,596		5,244		509		4,892		10		5,646		20
Residential		3,317		3,499		461		3,355		12		3,430		20
Consumer		232		232		44		220				198
Total	$	10,457	$	11,904	$	1,335	$	10,968	$	40	$	11,836	$	75

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 $3,307 at June 30, 2018, $3,074 at December 31, 2017 and $2,152 at June 30, 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 was one commercial real estate loan modified as a troubled debt restructuring for the three and six months ended June 30, 2018 totaling $340. There was one residential real estate loan modified as a troubled debt restructuring for the three months ended June 30, 2017 totaling $64. For the six months ended June 30, 2017, two loans were modified as troubled debt restructurings in the amount of $409. During the three months ended June 30, 2018, there were no payment defaults on loans restructured within the last twelve months. During the six months ended June 30, 2018, there was one payment default on a restructured residential mortgage loan with an outstanding amount of $58. There were no payment defaults during the three or six months ended June 30, 2017 on loans restructured within the last twelve months.