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For each loan segment, general allowances are provided for loans that are collectively evaluated for impairment, which is based on quantitative factors, principally historical loss trends for the respective segment, adjusted for qualitative factors. The historical loss factor is based on the average charge -offs for the last two calendar years of the Bank and a peer group of Pennsylvania banks of relative equal size. 

In addition to the quantitative analysis, additional reserves are allocated on loans collectively evaluated for impairment based on additional qualitative factors. The qualitative factors used by management to adjust the historical loss factor to the total loss allocation, range from 0 -40 basis points per factor. Factors include local unemployment, national gross domestic product, real estate collateral trends, changes in lending policies, percentage of classified loans, portfolio growth and composition, recent past due loan ratios and lending staff experience. 

Loans with principal or interest payments 90 or more days past due are considered for potential charge -off. Commercial purpose loans are individually reviewed and a charge -off recognized when it is unlikely that the loan balance will be collected in full. Consumer purpose loans secured by real estate are individually reviewed. An appropriate loss will be recognized when it is determined that the value of the real estate collateral is not sufficient to pay the loan in full. 

Activity in the allowance for loan losses for the years ended December 31, 2013 and 2012 is as follows ( in thousands): 

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