Loans and Allowance for Loan Losses | Loans and Allowance for Loan Losses The Company offers a full range of commercial, real estate, and consumer loans described in further detail below. Our loan portfolio is comprised of the following categories: commercial and industrial, construction, real estate-commercial mortgage, real estate-residential mortgage, and installment. Our primary lending objective is to meet business and consumer needs in our market areas while maintaining our standards of profitability and credit quality and enhancing client relationships. All lending decisions are based upon a thorough evaluation of the financial strength and credit history of the borrower and the quality and value of the collateral securing the loan. With few exceptions, personal guarantees are required on all loans. The total of our loans by segment at March 31, 2016 and December 31, 2015 are as follows. (in thousands) March 31, 2016 December 31, 2015 Commercial and Industrial $ 224,011 $ 233,319 Construction 139,593 141,208 Real estate - commercial mortgage 642,345 655,895 Real estate - residential mortgage 345,632 349,758 Installment 169,643 161,918 Deferred loan fees and related costs (380 ) (596 ) Total loans $ 1,520,844 $ 1,541,502 Allowance for Loan Losses A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans for the three months ended March 31, 2016 and 2015 is as follows. Three Months Ended March 31, 2016 Real Estate Commercial Commercial Residential (in thousands) and Industrial Construction Mortgage Mortgage Installment Unallocated Qualitative Total Allowance for loan losses: Beginning balance $ 3,576 $ 3,339 $ 6,302 $ 7,501 $ 839 $ 1,627 $ 23,184 Charge-offs (46 ) (312 ) (751 ) (1,603 ) (53 ) — (2,765 ) Recoveries 63 268 248 220 10 — 809 Provision (529 ) 176 (727 ) 210 153 717 — Ending balance $ 3,064 $ 3,471 $ 5,072 $ 6,328 $ 949 $ 2,344 $ 21,228 Ending balance: attributable to loans individually evaluated for impairment $ 205 $ 961 $ 1,126 $ 1,304 $ 88 $ 3,684 Recorded investment: loans individually evaluated for impairment $ 3,700 $ 20,798 $ 27,225 $ 11,127 $ 98 Ending balance: attributable to loans collectively evaluated for impairment $ 2,859 $ 2,510 $ 3,946 $ 5,024 $ 861 $ 2,344 $ 17,544 Recorded investment: loans collectively evaluated for impairment $ 220,311 $ 118,795 $ 615,120 $ 334,505 $ 169,545 Three Months Ended March 31, 2015 Real Estate Commercial Commercial Residential (in thousands) and Industrial Construction Mortgage Mortgage Installment Unallocated Qualitative Total Allowance for loan losses: Beginning balance $ 4,605 $ 4,342 $ 6,854 $ 7,142 $ 979 $ 3,128 $ 27,050 Charge-offs (185 ) (31 ) (100 ) (96 ) (38 ) — (450 ) Recoveries 363 430 57 97 30 — 977 Provision (293 ) 487 796 (454 ) 93 (29 ) 600 Ending balance $ 4,490 $ 5,228 $ 7,607 $ 6,689 $ 1,064 $ 3,099 $ 28,177 Ending balance: attributable to loans individually evaluated for impairment $ 227 $ 1,318 $ 551 $ 1,984 $ 47 $ 4,127 Recorded investment: loans individually evaluated for impairment $ 1,535 $ 10,795 $ 22,029 $ 15,174 $ 114 Ending balance: attributable to loans collectively evaluated for impairment $ 4,263 $ 3,910 $ 7,056 $ 4,705 $ 1,017 $ 3,099 $ 24,050 Recorded investment: loans collectively evaluated for impairment $ 250,709 $ 131,694 $ 613,732 $ 336,543 $ 153,060 Management believes the allowance for loan losses as of March 31, 2016 is adequate to absorb losses inherent in the portfolio. However, the allowance is subject to regulatory examinations and determination as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in comparison to peer banks identified by regulatory agencies. Such agencies may require us to recognize additions to the allowance for loan losses based on their judgments about information available at the time of the examinations. Impaired Loans Total impaired loans were $62.9 million and $65.9 million at March 31, 2016 , and December 31, 2015 , respectively. The Company continues to resolve its troubled loans through charge-offs, curtailments, pay offs, and returns of loans to performing status. Collateral dependent impaired loans were $57.6 million and $60.5 million at March 31, 2016 , and December 31, 2015 , respectively, and are measured at the fair value of the underlying collateral less costs to sell. Impaired loans for which no allowance is provided totaled $21.5 million and $37.0 million at March 31, 2016 , and December 31, 2015 , respectively. Loans written down to their estimated fair value of collateral less the costs to sell account for $4.2 million and $18.6 million of the impaired loans for which no allowance has been provided as of March 31, 2016 , and December 31, 2015 , respectively. The remaining impaired loans for which no allowance is provided are expected to be fully covered by the fair value of the collateral, and therefore, no loss is expected on these loans. The following charts show recorded investment, unpaid balance, and related allowance, as of March 31, 2016 and December 31, 2015 , as well as average investment and interest recognized for the three months ended March 31, 2016 and 2015 , for impaired loans by major segment and class. March 31, 2016 Three Months Ended Recorded Unpaid Related Average Interest (in thousands) Investment Balance Allowance Investment Recognized With no related allowance recorded: Commercial & Industrial $ 1,247 $ 1,594 $ — $ 1,476 $ 2 Construction 1-4 family residential construction — — — — — Commercial construction 746 1,080 — 840 1 Real estate Commercial Mortgage Owner occupied 10,484 10,893 — 10,830 86 Non-owner occupied 4,255 6,338 — 4,541 17 Residential Mortgage Secured by 1-4 family 1st lien 4,093 4,939 — 4,583 1 Junior lien 633 978 — 836 — Installment 10 31 — 15 — $ 21,468 $ 25,853 $ — $ 23,121 $ 107 With an allowance recorded: Commercial & Industrial $ 2,453 $ 2,650 $ 205 $ 2,479 $ — Construction 1-4 family residential construction — — — — — Commercial construction 20,052 21,374 961 20,075 49 Real estate Commercial Mortgage Owner occupied 8,516 8,616 1,035 8,657 49 Non-owner occupied 3,970 4,097 91 4,887 49 Residential Mortgage Secured by 1-4 family 1st lien 4,830 4,830 703 4,856 32 Junior lien 1,571 1,571 601 1,624 11 Installment 88 88 88 88 — $ 41,480 $ 43,226 $ 3,684 $ 42,666 $ 190 Total: Commercial & Industrial $ 3,700 $ 4,244 $ 205 $ 3,955 $ 2 Construction 20,798 22,454 961 20,915 50 Real estate Commercial mortgage 27,225 29,944 1,126 28,915 201 Residential mortgage 11,127 12,318 1,304 11,899 44 Installment 98 119 88 103 — Total $ 62,948 $ 69,079 $ 3,684 $ 65,787 $ 297 December 31, 2015 Three Months Ended Recorded Unpaid Related Average Interest (in thousands) Investment Balance Allowance Investment Recognized With no related allowance recorded: Commercial & Industrial $ 3,735 $ 4,317 $ — $ 1,344 $ 2 Construction 1-4 family residential construction — — — — — Commercial construction 14,913 16,485 — 4,630 16 Real estate Commercial Mortgage Owner occupied 10,309 10,607 — 12,737 74 Non-owner occupied 2,879 3,048 — 5,208 4 Residential Mortgage Secured by 1-4 family 1st lien 4,253 4,649 — 6,866 15 Junior lien 872 1,336 — 1,495 1 Installment 10 31 — 14 — $ 36,971 $ 40,473 $ — $ 32,294 $ 112 With an allowance recorded: Commercial & Industrial $ 469 $ 469 $ 318 $ 311 $ — Construction 1-4 family residential construction — — — — — Commercial construction 6,179 6,179 951 6,598 50 Real estate Commercial Mortgage Owner occupied 9,230 9,230 1,287 5,774 47 Non-owner occupied 5,530 7,030 629 — — Residential Mortgage Secured by 1-4 family 1st lien 5,721 5,877 1,445 5,813 43 Junior lien 1,686 1,686 729 1,853 11 Installment 88 88 88 104 — $ 28,903 $ 30,559 $ 5,447 $ 20,453 $ 151 Total: Commercial & Industrial $ 4,204 $ 4,786 $ 318 $ 1,655 $ 2 Construction 21,092 22,664 951 11,228 66 Real estate Commercial mortgage 27,948 29,915 1,916 23,719 125 Residential mortgage 12,532 13,548 2,174 16,027 70 Installment 98 119 88 118 — Total $ 65,874 $ 71,032 $ 5,447 $ 52,747 $ 263 Non-performing Assets Non-performing assets consist of loans 90 days past due and still accruing interest, nonaccrual loans, and other real estate owned and repossessed assets. Our non-performing assets ratio, defined as the ratio of non-performing assets to gross loans plus loans held for sale plus other real estate owned and repossessed assets was 2.71% and 2.98% at March 31, 2016 and December 31, 2015 , respectively. Non-performing assets as of March 31, 2016 and December 31, 2015 , were as follows. (in thousands) March 31, 2016 December 31, 2015 Loans 90 days past due and still accruing interest $ — $ — Nonaccrual loans, including nonaccrual impaired loans 34,253 35,512 Other real estate owned and repossessed assets 8,661 12,409 Non-performing assets $ 42,914 $ 47,921 A reconciliation of nonaccrual loans to impaired loans as of March 31, 2016 and December 31, 2015 is as follows. (in thousands) March 31, 2016 December 31, 2015 Nonaccrual loans, including nonaccrual impaired loans 34,253 35,512 TDRs on accrual 28,695 28,939 Impaired loans on accrual — 1,423 Total impaired loans $ 62,948 $ 65,874 Nonaccrual loans were $34.3 million at March 31, 2016 compared to $35.5 million at December 31, 2015 . If income on nonaccrual loans had been recorded under original terms, $298 thousand and $428 thousand of additional interest income would have been recorded for the three months ended March 31, 2016 and 2015 respectively. The following table provides a rollforward of nonaccrual loans for the three months ended March 31, 2016 . Real Estate (in thousands) Commercial & Industrial Construction Commercial Mortgage Residential Mortgage Installment Total Balance at December 31, 2015 $ 4,101 $ 15,729 $ 9,325 $ 6,259 $ 98 $ 35,512 Transfers in — 60 629 2,239 72 3,000 Transfers to OREO (388 ) — (234 ) (371 ) — (993 ) Charge-offs (46 ) (312 ) (751 ) (1,603 ) (53 ) (2,765 ) Payments (46 ) 11 (262 ) (147 ) (19 ) (463 ) Return to accrual — — — (38 ) — (38 ) Balance at March 31, 2016 $ 3,621 $ 15,488 $ 8,707 $ 6,339 $ 98 $ 34,253 Age Analysis of Past Due Loans An age analysis of past due loans as of March 31, 2016 and December 31, 2015 is as follows. March 31, 2016 90 Days or More Past 30-59 Days 60-89 Days 90 Days Total Total Due and (in thousands) Past Due Past Due Past Due Past Due Current Loans Accruing Commercial & Industrial $ 118 $ 74 $ 3,621 $ 3,813 $ 220,198 $ 224,011 $ — Construction 1-4 family residential construction 153 — — 153 24,916 25,069 — Commercial construction 290 — 15,488 15,778 98,746 114,524 — Real estate Commercial Mortgage Owner occupied 383 1,384 5,782 7,549 225,665 233,214 — Non-owner occupied 230 — 2,925 3,155 405,976 409,131 — Residential Mortgage Secured by 1-4 family 1st lien 1,980 — 5,089 7,069 216,382 223,451 — Junior lien 17 174 1,250 1,441 120,740 122,181 — Installment — — 98 98 169,545 169,643 — Deferred loan fees and related costs — — — — (380 ) (380 ) — Total $ 3,171 $ 1,632 $ 34,253 $ 39,056 $ 1,481,788 $ 1,520,844 $ — December 31, 2015 90 Days or More Past 30-59 Days 60-89 Days 90 Days Total Total Due and (in thousands) Past Due Past Due Past Due Past Due Current Loans Accruing Commercial & Industrial $ 1,073 $ 85 $ 4,101 $ 5,259 $ 228,060 $ 233,319 $ — Construction 1-4 family residential construction — — — — 23,364 23,364 — Commercial construction 208 — 15,729 15,937 101,907 117,844 — Real estate Commercial Mortgage Owner occupied 1,489 — 6,255 7,744 232,043 239,787 — Non-owner occupied 282 — 3,070 3,352 412,756 416,108 — Residential Mortgage Secured by 1-4 family 1st lien 1,455 175 4,704 6,334 217,689 224,023 — Junior lien 74 240 1,555 1,869 123,866 125,735 — Installment 6 — 98 104 161,814 161,918 — Deferred loan fees and related costs — — — — (596 ) (596 ) — Total $ 4,587 $ 500 $ 35,512 $ 40,599 $ 1,500,903 $ 1,541,502 $ — Credit Quality The following tables provide information on March 31, 2016 and December 31, 2015 about the credit quality of the loan portfolio using the Company’s internal rating system as an indicator. March 31, 2016 Special Nonaccrual (in thousands) Pass Substandard Total Commercial & Industrial $ 212,198 $ 6,781 $ 1,411 $ 3,621 $ 224,011 Construction 1-4 family residential construction 25,069 — — — 25,069 Commercial construction 91,831 7,169 36 15,488 114,524 Real estate Commercial Mortgage Owner occupied 222,217 3,757 1,458 5,782 233,214 Non-owner occupied 391,858 5,963 8,385 2,925 409,131 Residential Mortgage Secured by 1-4 family 1st lien 199,922 12,548 5,892 5,089 223,451 Junior lien 113,828 5,809 1,294 1,250 122,181 Installment 168,432 1,061 52 98 169,643 Deferred loan fees and related costs (380 ) — — — (380 ) Total $ 1,424,975 $ 43,088 $ 18,528 $ 34,253 $ 1,520,844 December 31, 2015 Special Nonaccrual (in thousands) Pass Substandard Total Commercial & Industrial $ 220,225 $ 7,407 $ 1,586 $ 4,101 $ 233,319 Construction 1-4 family residential construction 23,364 — — — 23,364 Commercial construction 94,855 7,260 — 15,729 117,844 Real estate Commercial Mortgage Owner occupied 228,273 3,792 1,467 6,255 239,787 Non-owner occupied 396,970 7,632 8,436 3,070 416,108 Residential Mortgage Secured by 1-4 family 1st lien 200,992 12,576 5,751 4,704 224,023 Junior lien 116,630 5,762 1,788 1,555 125,735 Installment 160,708 1,055 57 98 161,918 Deferred loan fees and related costs (596 ) — — — (596 ) Total $ 1,441,421 $ 45,484 $ 19,085 $ 35,512 $ 1,541,502 Modifications Loans meeting the criteria to be classified as Troubled Debt Restructurings (“TDRs”) are included in impaired loans. As of March 31, 2016 and December 31, 2015 , loans classified as TDRs were $30.5 million and $30.8 million , respectively. The following table shows the loans classified as TDRs by management at March 31, 2016 and December 31, 2015 . (in thousands except number of contracts) March 31, 2016 December 31, 2015 Recorded Recorded Troubled Debt Restructurings Number of Contracts Number of Contracts Commercial & Industrial 2 $ 79 2 $ 103 Construction 1-4 family residential construction — — — — Commercial construction 4 5,386 4 5,440 Real estate Commercial Mortgage Owner occupied 13 14,307 13 14,388 Non-owner occupied 6 5,300 6 5,339 Residential Mortgage Secured by 1-4 family, 1st lien 10 4,373 10 4,396 Secured by 1-4 family, junior lien 4 1,034 5 1,087 Installment — — — — Total 39 $ 30,479 40 $ 30,753 Of total TDRs, $28.7 million was accruing and $1.8 million was nonaccruing at March 31, 2016 and $28.9 million was accruing and $1.8 million was nonaccruing at December 31, 2015 . Loans that are on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers whether such loans may return to accrual status. TDRs in nonaccrual status may be returned to accrual status after a period of performance under which the borrower demonstrates the ability and willingness to repay the loan in accordance with the modified terms. For the three months ended March 31, 2016 , none of the nonaccrual TDRs were returned to accrual status. The following table shows a rollforward of accruing and nonaccruing TDRs for the three months ended March 31, 2016 . (in thousands) Accruing Nonaccruing Total Balance at December 31, 2015 $ 28,939 $ 1,814 $ 30,753 Charge-offs — — — Payments (244 ) (30 ) (274 ) New TDR designation — — — Release TDR designation — — — Transfer — — — Balance at March 31, 2016 $ 28,695 $ 1,784 $ 30,479 The allowance for loan losses allocated to TDRs was $1.5 million and $1.6 million at March 31, 2016 and December 31, 2015 , respectively. There were no TDRs charged off and there was no allocated portion of allowance for loan losses associated with TDRs charged off, during the three months ended March 31, 2016 . The total of TDRs charged off and the allocated portion of allowance for loan losses associated with TDRs charged off were $158 thousand and $135 thousand , respectively, during the year ended December 31, 2015 . The following table shows a summary of the primary reason and pre- and post-modification outstanding recorded investment for loan modifications that were classified as TDRs during the three months ended March 31, 2015 . There were no loan modifications that were classified as TDRs during the three months ended March 31, 2016 . This table includes modifications made to existing TDRs as well as new modifications that are considered TDRs for the periods presented. TDRs made with a below market rate that also include a modification of loan structure are included under rate change. Three Months Ended March 31, 2015 (in thousands except number of contracts) Rate Structure Number of Contracts Pre- Post- Number of Contracts Pre- Post- Troubled Debt Restructurings Commercial & Industrial — $ — $ — — $ — $ — Construction 1-4 family residential construction — — — — — — Commercial construction — — — — — — Real estate Commercial Mortgage Owner occupied 2 391 391 — — — Non-owner occupied — — — — — — Residential Mortgage Secured by 1-4 family, 1st lien — — — — — — Secured by 1-4 family, junior lien — — — — — — Installment — — — — — — Total 2 $ 391 $ 391 — $ — $ — For the three months ended March 31, 2016 and 2015 , the Company had no loans for which there was a payment default and subsequent movement to nonaccrual status, that were modified as TDR’s within the previous twelve months. Loans that are considered TDRs are considered specifically impaired and the primary consideration for measurement of impairment is the present value of the expected cash flows. However, given the prevalence of real estate secured loans in the Company’s portfolio of troubled assets, the majority of the Company’s TDR loans are ultimately considered collateral-dependent. As a practical expedient, impairments are, therefore, calculated based upon the estimated fair value of the underlying collateral and observable market prices for the sale of the respective notes are not considered as a basis for impairment for any of the Company’s loans as of March 31, 2016 and December 31, 2015 . In determining the estimated fair value of collateral dependent impaired loans, the Company uses third party appraisals and, if necessary, utilizes a proprietary database of its own historical property appraisals in conjunction with external data and applies a relevant discount derived from analysis of appraisals of similar property type, vintage, and geographic location (for example, in situations where the most recent available appraisal is aged and an updated appraisal has not yet been received). The Company does not participate in any government or company sponsored TDR programs and holds no corresponding assets. Rather, loans are individually modified in situations where the Company believes it will minimize the probability of losses to the Company. Additionally, the Company had no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs at March 31, 2016 and December 31, 2015 . |