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, 2018 and December 31, 2017 are summarized as follows. Net deferred loan costs were $930 and $575 at September 30, 2018 and December 31, 2017.


		September 30, 2018		December 31, 2017
Commercial	$	478,128	$	476,199
Real estate:
Commercial		881,071		786,210
Residential		297,819		287,935
Consumer		122,427		142,721
Total	$	1,779,445	$	1,693,065

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


			Real estate
September 30, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2018	$	5,749	$	7,506	$	4,962	$	1,356	$	19,573
Charge-offs		(148)		(63)				(117)		(328)
Recoveries		12		26		13		67		118
Provisions		289		536		164		61		1,050
Ending balance	$	5,902	$	8,005	$	5,139	$	1,367	$	20,413

			Real estate
September 30, 2017	Commercial		Commercial		Residential		Consumer		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, 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		(150)		(1,232)		(381)		(389)		(2,152)
Recoveries		128		83		80		164		455
Provisions		872		1,606		460		212		3,150
Ending balance	$	5,902	$	8,005	$	5,139	$	1,367	$	20,413

			Real estate
September 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		(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

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


			Real estate
September 30, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	5,902	$	8,005	$	5,139	$	1,367	$	20,413
Ending balance: individually evaluated for impairment		93		462		362		14		931
Ending balance: collectively evaluated for impairment		5,809		7,543		4,777		1,353		19,482
Ending balance: loans acquired with deteriorated credit quality	$		$		$		$		$
Loans receivable:
Ending balance	$	478,128	$	881,071	$	297,819	$	122,427	$	1,779,445
Ending balance: individually evaluated for impairment		1,996		4,538		3,651		156		10,341
Ending balance: collectively evaluated for impairment		475,833		875,988		294,141		122,271		1,768,233
Ending balance: loans acquired with deteriorated credit quality	$	299	$	545	$	27	$		$	871



			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 September 30, 2018 and December 31, 2017:


			Special
September 30, 2018	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	473,685	$	1,542	$	2,901	$	$	478,128
Real estate:
Commercial		856,513		11,920		12,638			881,071
Residential		292,530		361		4,928			297,819
Consumer		122,210				217			122,427
Total	$	1,744,938	$	13,823	$	20,684	$	$	1,779,445


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


		September 30, 2018		December 31, 2017
Commercial	$	808	$	860
Real estate:
Commercial		4,214		3,821
Residential		2,565		2,994
Consumer		156		177
Total	$	7,743	$	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
September 30, 2018	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	218	$		$	808	$	1,026	$	477,102	$	478,128
Real estate:
Commercial		1,681		104		4,288		6,073		874,998		881,071		74
Residential		1,774		531		3,075		5,380		292,439		297,819	$	510
Consumer		527		420		156		1,103		121,324		122,427
Total	$	4,200	$	1,055	$	8,327	$	13,582	$	1,765,863	$	1,779,445	$	584

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 nine months ended September 30, 2018 and September 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
September 30, 2018	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	1,356	$	1,538			$	1,269	$	17	$	1,257	$	50
Real estate:
Commercial		3,414		3,666				3,143		5		3,036		20
Residential		2,366		3,003				2,256		7		2,249		15
Consumer		142		149				101				131
Total		7,278		8,356				6,769		29		6,673		85
With an allowance recorded:
Commercial		939		1,086		93		1,020		7		1,089		23
Real estate:
Commercial		1,669		1,774		462		1,712		8		1,807		18
Residential		1,312		1,508		362		1,369		5		1,456		13
Consumer		14		14		14		9				11
Total		3,934		4,382		931		4,110		20		4,363		54
Total impaired loans
Commercial		2,295		2,624		93		2,289		24		2,346		73
Real estate:
Commercial		5,083		5,440		462		4,855		13		4,843		38
Residential		3,678		4,511		362		3,625		12		3,705		28
Consumer		156		163		14		110				142
Total	$	11,212	$	12,738	$	931	$	10,879	$	49	$	11,036	$	139


							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
Total impaired loans
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
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
Total impaired loans
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

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 $3,230 at September 30, 2018, $3,074 at December 31, 2017 and $3,365 at September 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 were no loans modified as a troubled debt restructuring for the three months ended September 30, 2018. There were four loans , representing two credit relationships, modified as a troubled debt restructurings for the three months ended September 30, 2017 totaling $1,249. For the nine months ended September 30, 2018, there was one commercial real estate loan modified as a troubled debt restructuring totaling $340. For the nine months ended September 30, 2017, six loans were modified as troubled debt restructurings in the amount of $1,658. During the three months ended September 30, 2018, there was one payment default on a restructured residential real estate loan with an outstanding balance of $6. During the nine months ended September 30, 2018, there were two payment defaults on restructured residential mortgage loans with a total outstanding amount of $64. There were no payment defaults during the three or nine months ended September 30, 2017 on loans restructured within the last twelve months.