Loans, Notes, Trade and Other Receivables Disclosure [Text Block] | NOTE 5. LOANS Outstanding loan balances consist of the following at December 31, 2015, and December 31, 2014. As of (Amounts in thousands) December 31, Loan Portfolio 2015 2014 Commercial $ 132,805 $ 150,253 Commercial real estate: Real estate – construction and land development 28,319 30,099 Real estate – commercial non-owner occupied 243,374 213,883 Real estate – commercial owner occupied 156,299 120,324 Residential real estate: Real estate – residential - ITIN 49,106 52,830 Real estate – residential - 1-4 family mortgage 11,390 13,156 Real estate – residential - equity lines 45,473 44,981 Consumer and other 49,873 35,372 Gross loans 716,639 660,898 Deferred fees and costs 870 157 Loans, net of deferred fees and costs 717,509 661,055 Allowance for loan and lease losses (11,180 ) (10,820 ) Net loans $ 706,329 $ 650,235 Gross loan balances in the table above include net purchase discounts of $2.3 million and $998 thousand as of December 31, 2015, and December 31, 2014, respectively. Loans are reported as past due when any portion of the principal and interest are not received by the due date. The days past due will continue to increase for each day until full principal and interest are received (i.e. if payment is not received within 30 days of the due date, the loan will be considered 30 days past due; if payment is not received within 60 days of the due date, the loan will be considered 60 days past due, etc.). Loans that become 90 days past due will be placed in nonaccrual status unless well secured and in the process of collection. Age analysis of gross loan balances for past due loans, segregated by class of loans, as of December 31, 2015, and December 31, 2014, were as follows. Greater Recorded (Amounts in thousands) 30-59 60-89 Than 90 Investment > Past Due Loans at Days Past Days Past Days Past Total Past 90 Days and December 31, 2015 Due Due Due Due Current Total Accruing Commercial $ — $ 30 $ 634 $ 664 $ 132,141 $ 132,805 $ — Commercial real estate: Real estate - construction and land development — — — — 28,319 28,319 — Real estate - commercial non-owner occupied 64 — 5,665 5,729 237,645 243,374 — Real estate - commercial owner occupied — — 1,071 1,071 155,228 156,299 — Residential real estate: Real estate - residential - ITIN 1,018 118 850 1,986 47,120 49,106 — Real estate - residential - 1-4 family mortgage — 404 871 1,275 10,115 11,390 — Real estate - residential - equity lines 137 97 — 234 45,239 45,473 — Consumer and other 150 50 88 288 49,585 49,873 88 Total $ 1,369 $ 699 $ 9,179 $ 11,247 $ 705,392 $ 716,639 $ 88 Greater Recorded (Amounts in thousands) 30-59 60-89 Than 90 Investment > Past Due Loans at Days Past Days Past Days Past Total Past 90 Days and December 31, 2014 Due Due Due Due Current Total Accruing Commercial $ 2,421 $ 301 $ 2,161 $ 4,883 $ 145,370 $ 150,253 $ — Commercial real estate: Real estate - construction and land development — — — — 30,099 30,099 — Real estate - commercial non-owner occupied — — 7,086 7,086 206,797 213,883 Real estate - commercial owner occupied — — 1,378 1,378 118,946 120,324 — Residential real estate: Real estate - residential - ITIN 1,080 122 2,017 3,219 49,611 52,830 — Real estate - residential - 1-4 family mortgage — — 1,580 1,580 11,576 13,156 Real estate - residential - equity lines 145 99 24 268 44,713 44,981 — Consumer and other 158 57 23 238 35,134 35,372 23 Total $ 3,804 $ 579 $ 14,269 $ 18,652 $ 642,246 $ 660,898 $ 23 A loan is considered impaired when based on current information and events we determine it is probable that we will not be able to collect all amounts due according to the original loan contract, including scheduled interest payments. Generally, when we identify a loan as impaired, we measure the loan for potential impairment using discounted cash flows, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, the current fair value of collateral is used, less selling costs. The starting point for determining the fair value of collateral is through obtaining external appraisals. Generally, external appraisals are updated every six to twelve months. We obtain appraisals from a pre-approved list of independent, third party, local appraisal firms. Approval and addition to the list is based on experience, reputation, character, consistency and knowledge of the respective real estate market. At a minimum, it is ascertained that the appraiser is: (1) currently licensed in the state in which the property is located, (2) is experienced in the appraisal of properties similar to the property being appraised, (3) is actively engaged in the appraisal work, (4) has knowledge of current real estate market conditions and financing trends, (5) is reputable, and (6) is not on Freddie Mac’s nor our Exclusionary List of appraisers and brokers. In certain cases appraisals will be reviewed by another independent third party to ensure the quality of the appraisal and the expertise and independence of the appraiser. Upon receipt and review, an external appraisal is utilized to measure a loan for potential impairment. Our impairment analysis documents the date of the appraisal used in the analysis, whether the officer preparing the report deems it current, and, if not, allows for internal valuation adjustments with justification. Typical justified adjustments might include discounts for continued market deterioration subsequent to appraisal date, adjustments for the release of collateral contemplated in the appraisal, or the value of other collateral or consideration not contemplated in the appraisal. An appraisal over one year old in most cases will be considered stale dated and an updated or new appraisal will be required. Any adjustments from appraised value to net realizable value are detailed and justified in the impairment analysis, which is reviewed and approved by our Chief Credit Officer. Although an external appraisal is the primary source to value collateral dependent loans, we may also utilize values obtained through purchase and sale agreements, negotiated short sales, broker price opinions, or the sales price of the note. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. Impairment analyses are updated, reviewed and approved on a quarterly basis at or near the end of each reporting period. Based on these processes, we do not believe there are significant time lapses for the recognition of additional losses on collateral dependent loans. The following tables summarize impaired loans by loan class as of December 31, 2015, and December 31, 2014. As of December 31, 2015 Unpaid (Amounts in thousands) Recorded Principal Related Impaired Loans Investment Balance Allowance With no related allowance recorded: Commercial $ 1,282 $ 1,519 $ — Commercial real estate: Real estate - commercial non-owner occupied 5,488 6,226 — Real estate - commercial owner-occupied 1,071 1,794 — Residential real estate: Real estate - residential - ITIN 7,063 8,662 — Real estate - residential - 1-4 family mortgage 1,775 2,775 — Real estate - residential - equity lines 142 142 — Total with no related allowance recorded $ 16,821 $ 21,118 $ — With an allowance recorded: Commercial $ 761 $ 820 $ 122 Commercial real estate: Real estate - commercial non-owner occupied 824 824 35 Real estate - commercial owner-occupied 350 350 62 Residential real estate: Real estate - residential - ITIN 2,044 2,089 321 Real estate - residential - equity lines 558 558 279 Consumer and other 32 32 13 Total with an allowance recorded $ 4,569 $ 4,673 $ 832 Subtotal: Commercial $ 2,043 $ 2,339 $ 122 Commercial real estate 7,733 9,194 97 Residential real estate 11,582 14,226 600 Consumer and other 32 32 13 Total impaired loans $ 21,390 $ 25,791 $ 832 As of December 31, 2014 Unpaid (Amounts in thousands) Recorded Principal Related Impaired Loans Investment Balance Allowance With no related allowance recorded: Commercial $ 4,298 $ 8,461 $ — Commercial real estate: Real estate - commercial non-owner occupied 6,909 10,207 — Real estate - commercial owner-occupied 1,378 $ 2,102 — Residential real estate: Real estate - residential - ITIN 7,106 8,803 — Real estate - residential - 1-4 family mortgage 1,608 2,578 — Real estate - residential - equity lines 201 202 — Total with no related allowance recorded $ 21,500 $ 32,353 $ — With an allowance recorded: Commercial $ 2,299 $ 2,317 $ 314 Commercial real estate: Real estate - commercial non-owner occupied 2,248 2,846 411 Real estate - commercial owner-occupied 1,218 1,218 21 Residential real estate: Real estate - residential - ITIN 3,002 3,103 503 Real estate - residential - 1-4 family mortgage 527 537 3 Real estate - residential - equity lines 579 579 289 Consumer and other 35 35 15 Total with an allowance recorded $ 9,908 $ 10,635 $ 1,556 Subtotal: Commercial $ 6,597 $ 10,778 $ 314 Commercial real estate 11,753 16,373 432 Residential real estate 13,023 15,802 795 Consumer and other 35 35 15 Total impaired loans $ 31,408 $ 42,988 $ 1,556 Had nonaccrual loans performed in accordance with their contractual terms, we would have recognized additional interest income, net of tax, of approximately $228 thousand, $649 thousand, and $722 thousand for the years ended December 31, 2015, 2014, and 2013, respectively. Nonaccrual loans, segregated by loan class, were as follows as of December 31, 2015, and December 31, 2014. As of (Amounts in thousands) December 31, Nonaccrual Loans 2015 2014 Commercial $ 1,994 $ 5,112 Commercial real estate: Real estate - commercial non-owner occupied 5,488 8,318 Real estate - commercial owner occupied 1,071 1,378 Residential real estate: Real estate - residential - ITIN 3,649 4,647 Real estate - residential - 1-4 family mortgage 1,775 2,135 Real estate - residential - equity lines — 24 Consumer and other 32 35 Total $ 14,009 $ 21,649 The following table summarizes average recorded investment and interest income recognized on impaired loans by loan class for the years ended December 31, 2015, 2014 and 2013. 2015 2014 2013 Average Interest Average Interest Average Interest (Amounts in thousands) Recorded Income Recorded Income Recorded Income Average Recorded Investment and Interest Income Investment Recognized Investment Recognized Investment Recognized Commercial $ 3,533 $ 22 $ 6,222 $ 33 $ 7,239 $ 82 Commercial real estate: Real estate - commercial non-owner occupied 7,306 49 11,277 165 16,277 185 Real estate - commercial owner- occupied 2,212 59 5,233 78 7,909 106 Residential real estate: Real estate - residential - ITIN 9,679 141 10,668 114 12,278 80 Real estate - residential - 1-4 family mortgage 1,786 — 1,561 — 1,693 — Real estate - residential - equity lines 750 27 1,141 33 875 26 Consumer and other 33 — 17 — — — Total $ 25,299 $ 298 $ 36,119 $ 423 $ 46,271 $ 479 The impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans. Loans are reported as troubled debt restructurings when we grant a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. At December 31, 2015 and December 31, 2014, impaired loans of $6.9 million and $9.2 million were classified as performing restructured loans, respectively. The restructurings were granted in response to borrower financial difficulty, and generally provide for a temporary modification of loan repayment terms. In order for a restructured loan to be on accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must demonstrate the ability to make payments from a verified source of cash flow. We had no obligations to lend additional funds on the restructured loans as of December 31, 2015 or December 31, 2014. As of December 31, 2015, we had $15.9 million in troubled debt restructurings compared to $23.5 million as of December 31, 2014. As of December 31, 2015, we had 120 loans that qualified as troubled debt restructurings, of which 107 loans were performing according to their restructured terms. Troubled debt restructurings represented 2.22% of gross loans as of December 31, 2015, compared with 3.55% at December 31, 2014. The types of modifications offered can generally be described in the following categories: Rate Maturity Payment deferral The following tables present the period ended balances of newly restructured loans and the types of modifications that occurred during the years ended December 31, 2015, 2014 and 2013. For The Year Ended December 31, 2015 Rate & (Amounts in thousands) Rate & Payment Payment Troubled Debt Restructuring Modification Types Rate Maturity Deferral Maturity Deferral Total Commercial $ — $ 39 $ — $ — $ 708 $ 747 Residential real estate: Real estate - residential - ITIN 115 — 264 — 379 758 Total $ 115 $ 39 $ 264 $ — $ 1,087 $ 1,505 For The Year Ended December 31, 2014 Rate & (Amounts in thousands) Rate & Payment Payment Troubled Debt Restructuring Modification Types Rate Maturity Deferral Maturity Deferral Total Commercial $ — $ 3,396 $ — $ — $ — $ 3,396 Residential real estate: Real estate - residential - ITIN 207 — 39 — — 246 Consumer and other — 35 — — — 35 Total $ 207 $ 3,431 $ 39 $ — $ — $ 3,677 For The Year Ended December 31, 2013 Rate & (Amounts in thousands) Rate & Payment Payment Troubled Debt Restructuring Modification Types Rate Maturity Deferral Maturity Deferral Total Commercial $ — $ — $ — $ 6,093 $ — $ 6,093 Commercial real estate: Real estate - commercial non-owner occupied — 6,029 — — 2,129 8,158 Real estate - commercial owner occupied — — — 918 — 918 Residential real estate: Real estate - residential - ITIN 550 205 539 — — 1,294 Real estate - residential - equity lines — 161 — — — 161 Total $ 550 $ 6,395 $ 539 $ 7,011 $ 2,129 $ 16,624 The tables below provide information regarding the number of loans where the contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties for the years ended December 31, 2015, 2014, and 2013. 2015 Pre-Modification Post-Modification (Amounts in thousands) Number of Outstanding Recorded Outstanding Recorded Troubled Debt Restructurings Contracts Investment Investment Commercial 2 $ 872 $ 872 Residential real estate: Real estate - residential - ITIN 11 1,237 1,023 Total 13 $ 2,109 $ 1,895 2014 Pre-Modification Post-Modification (Amounts in thousands) Number of Outstanding Recorded Outstanding Recorded Troubled Debt Restructurings Contracts Investment Investment Commercial 2 $ 9,070 $ 9,070 Residential real estate: Real estate - residential - ITIN 4 263 267 Consumer and other 1 35 35 Total 7 $ 9,368 $ 9,372 2013 Pre-Modification Post-Modification (Amounts in thousands) Number of Outstanding Recorded Outstanding Recorded Troubled Debt Restructurings Contracts Investment Investment Commercial 3 $ 6,837 $ 6,638 Commercial real estate: Real estate - commercial non-owner occupied 3 8,132 8,186 Real estate - commercial owner occupied 1 918 418 Residential real estate: Real estate - residential - ITIN 15 1,286 1,360 Real estate - residential - equity lines 2 165 166 Total 24 $ 17,338 $ 16,768 The following table presents loans modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the twelve months ended December 31, 2015, 2014 and 2013, respectively. 2015 2014 2013 (Amounts in thousands) Number of Recorded Number of Recorded Number of Recorded Troubled Debt Restructurings That Subsequently Defaulted Contracts Investment Contracts Investment Contracts Investment Commercial — $ — 1 $ 1,923 — $ — Residential real estate: Real estate - residential - ITIN — — 2 109 9 591 Total — $ — 3 $ 2,032 9 $ 591 We define a performing loan as a loan where any installment of principal or interest is not 90 days or more past due, and management believes the ultimate collection of original contractual principal and interest is likely. We define a nonperforming loan as an impaired loan, which may be on nonaccrual, 90 days past due and still accruing, or has been restructured and is not in compliance with its modified terms, and our ultimate collection of original contractual principal and interest is uncertain. The foundation or primary factor in determining the appropriate credit quality indicators is the degree of a debtor’s willingness and ability to perform as agreed. Performing and nonperforming loans, segregated by class of loans, are as follows at December 31, 2015 and 2014. (Amounts in thousands) December 31, 2015 Performing and Nonperforming Loans Performing Nonperforming Total Commercial $ 130,811 $ 1,994 $ 132,805 Commercial real estate: Real estate - construction and land development 28,319 — 28,319 Real estate - commercial non-owner occupied 237,886 5,488 243,374 Real estate - commercial owner occupied 155,228 1,071 156,299 Residential real estate: Real estate - residential - ITIN 45,457 3,649 49,106 Real estate - residential - 1-4 family mortgage 9,615 1,775 11,390 Real estate - residential - equity lines 45,473 — 45,473 Consumer and other 49,753 120 49,873 Total $ 702,542 $ 14,097 $ 716,639 (Amounts in thousands) December 31, 2014 Performing and Nonperforming Loans Performing Nonperforming Total Commercial $ 145,141 $ 5,112 $ 150,253 Commercial real estate: Real estate - construction and land development 30,099 — 30,099 Real estate - commercial non-owner occupied 205,565 8,318 213,883 Real estate - commercial owner occupied 118,946 1,378 120,324 Residential real estate: Real estate - residential - ITIN 48,183 4,647 52,830 Real estate - residential - 1-4 family mortgage 11,021 2,135 13,156 Real estate - residential - equity lines 44,957 24 44,981 Consumer and other 35,314 58 35,372 Total $ 639,226 $ 21,672 $ 660,898 In conjunction with evaluating the performing versus nonperforming nature of our loan portfolio, management evaluates the following credit risk and other relevant factors in determining the appropriate credit quality indicator (rating) for each loan class: Pass Grade: A Pass loan is a strong credit with no existing or known weaknesses that may require management’s close attention. Some pass loans require short term enhanced monitoring to determine when the credit relationship would merit either an upgrade or a downgrade. Loans classified as Pass Grade specifically demonstrate: ● Strong Cash Flows – borrower’s cash flows must meet or exceed our minimum debt service coverage ratio. ● Collateral Margin – generally, the borrower must have pledged an acceptable collateral class with an adequate collateral margin. ● Qualitative Factors – in addition to meeting our minimum cash flow and collateral requirements, a number of other qualitative factors are also factored into assigning a Pass Grade including the borrower’s level of leverage (debt to equity), prospects, history and experience in their industry, credit history, and any other relevant factors including a borrower’s character. Those borrowers who qualify for unsecured loans must fully demonstrate above average cash flows and strong secondary sources of repayment to mitigate the lack of unpledged collateral. Watch Grade: The credit is acceptable but the borrower has experienced a temporary setback or adverse information has been received, and may exhibit one or more of the characteristics shown in the list below. This risk grade could apply to credits on a temporary basis pending a full review. Credits with this risk grade will require more handling time and increased management. The list below contains characteristics of this risk grade, but individually do not automatically cause the loan to be assigned a Watch Grade. ● The primary source of repayment may be weakening causing greater reliance on the secondary source of repayment or ● The primary source of repayment is adequate, but the secondary source of repayment is insufficient ● In-depth financial analysis would compare to the lower quartile in two or more of the major components of the Risk Management Association Annual Statement Studies ● Volatile or deteriorating collateral ● Management decisions may be called into question ● Delinquencies in bank credits or other financial/trade creditors ● Frequent overdrafts ● Significant change in management/ownership Special Mention Grade: Credits in this grade are potentially weak and deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the credit. Special Mention credits are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. The list below exhibits the characteristics of this grade, but individually do not automatically cause the borrower to be assigned a grade of Special Mention: ● Inadequate or incomplete loan documentation or perfection of collateral, or any other deviation from prudent lending practices ● Credit is structured in a manner in which the timing of the repayment source does not match the payment schedule or maturity, materially jeopardizing repayment ● Current economic or market conditions exist which may affect the borrower's ability to perform or affect the Bank's collateral position ● Adverse trends in the borrower's operations or continued deterioration in the borrower’s financial condition that has not yet reached a point where the retirement of debt is jeopardized. A credit in this grade should have favorable prospects of the deteriorating financial trends reversing within a reasonable timeframe. ● The borrower is less than cooperative or unable to produce current and adequate financial information Substandard Grade: A Substandard credit is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard credits have a well-defined weakness or weaknesses that jeopardize the liquidation or timely collection of the debt. Substandard credits are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. However, a potential loss does not have to be recognizable in an individual credit for it to be considered a substandard credit. As such, substandard credits may or may not be graded as impaired. The following represents, but is not limited to, the potential characteristics of a Substandard Grade and do not necessarily generate automatic reclassification into this loan grade: ● Sustained or substantial deteriorating financial trends, ● Unresolved management problems, ● Collateral is insufficient to repay debt; collateral is not sufficiently supported by independent sources, such as asset-based financial audits, appraisals, or equipment evaluations, ● Improper perfection of lien position, which is not readily correctable, ● Unanticipated and severe decline in market values, ● High reliance on secondary source of repayment, ● Legal proceedings, such as bankruptcy or a divorce, which has substantially decreased the borrower’s capacity to repay the debt, ● Fraud committed by the borrower, ● IRS liens that take precedence, ● Forfeiture statutes for assets involved in criminal activities, ● Protracted repayment terms outside of policy that are for longer than the same type of credit in our portfolio, ● Any other relevant quantitative or qualitative factor that negatively affects the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Doubtful Grade: A Doubtful loan has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain pending factors that may work to the advantage and strengthening of the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include, but are not limited to: ● Proposed merger(s), ● Acquisition or liquidation procedures, ● Capital injection, ● Perfecting liens on additional collateral, ● Refinancing plans. Generally, a Doubtful Grade does not remain outstanding for a period greater than six months. After six months, the pending events should have either occurred or not occurred. The credit grade should have improved or the principal balance charged against the ALLL. Credit Grade definitions, including qualitative factors, are reviewed and approved annually by our Loan Committee. During the current year, we determined that certain amounts in the “pass” and “watch” grade disclosed in the internal risk grade table included in our 2014 annual consolidated financial statements were incorrect. Accordingly, $46.9 million have been reclassified from “Watch” to “Pass” in the December 31, 2014 table below. The following table summarizes internal risk grade by loan class as of December 31, 2015, and December 31, 2014. December 31, 2015 Special (Amounts in thousands) Pass Watch Mention Substandard Doubtful Total Commercial $ 108,696 $ 10,240 $ 9,587 $ 4,282 $ — $ 132,805 Commercial real estate: Real estate - construction and land development 28,291 28 — — — 28,319 Real estate - commercial non-owner occupied 234,177 917 1,588 6,692 243,374 Real estate - commercial owner occupied 149,327 3,864 1,687 1,421 — 156,299 Residential real estate: Real estate - residential - ITIN 41,480 — — 7,626 — 49,106 Real estate - residential - 1-4 family mortgage 9,041 — 575 1,774 11,390 Real estate - residential - equity lines 41,149 1,760 1,682 882 — 45,473 Consumer and other 49,551 — 256 66 — 49,873 Total $ 661,712 $ 16,809 $ 15,375 $ 22,743 $ — $ 716,639 December 31, 2014 Pass Watch Special (Amounts in thousands) (Restated) (Restated) Mention Substandard Doubtful Total Commercial $ 121,282 $ 14,116 $ 4,018 $ 10,837 $ — $ 150,253 Commercial real estate: Real estate - construction and land development 30,056 43 — — — 30,099 Real estate - commercial non-owner occupied 201,155 1,953 869 9,906 213,883 Real estate - commercial owner occupied 111,689 5,864 — 2,771 — 120,324 Residential real estate: Real estate - residential - ITIN 42,721 — — 10,109 — 52,830 Real estate - residential - 1-4 family mortgage 10,769 — — 2,387 13,156 Real estate - residential - equity lines 41,624 2,380 — 977 — 44,981 Consumer and other 35,279 3 18 72 — 35,372 Total $ 594,575 $ 24,359 $ 4,905 $ 37,059 $ — $ 660,898 The following tables below summarize the ALLL by portfolio for the years ended December 31, 2015, and December 31, 2014. As of December 31, 2015 (Amounts in thousands) Commercial Residential ALLL by Portfolio Commercial Real Estate Real Estate Consumer Unallocated Total Beginning balance $ 3,503 $ 4,875 $ 1,670 $ 450 $ 322 $ 10,820 Charge offs (700 ) (428 ) (749 ) (499 ) — (2,376 ) Recoveries 1,692 771 273 — — 2,736 Provision (2,002 ) 566 383 819 234 — Ending balance $ 2,493 $ 5,784 $ 1,577 $ 770 $ 556 $ 11,180 As of December 31, 2014 (Amounts in thousands) Commercial Residential ALLL by Portfolio Commercial Real Estate Real Estate Consumer Unallocated Total Beginning balance $ 7,057 $ 2,784 $ 2,493 $ 35 $ 1,803 $ 14,172 Charge offs (4,242 ) (2,699 ) (376 ) (2 ) — (7,319 ) Recoveries 582 2 208 — — 792 Provision 106 4,788 (655 ) 417 (1,481 ) 3,175 Ending balance $ 3,503 $ 4,875 $ 1,670 $ 450 $ 322 $ 10,820 The following tables summarize the ALLL and the recorded investment in loans and leases as of December 31, 2015 and December 31, 2014. As of December 31, 2015 Commercial Residential (Amounts in thousands) Commercial Real Estate Real Estate Consumer Unallocated Total ALLL: Individually evaluated for impairment $ 122 $ 97 $ 600 $ 13 $ — $ 832 Collectively evaluated for impairment 2,371 5,687 977 757 556 10,348 Total 2,493 5,784 1,577 770 556 11,180 Gross loans: Individually evaluated for impairment $ 2,043 $ 7,733 $ 11,582 $ 32 $ — $ 21,390 Collectively evaluated for impairment 130,762 420,259 94,387 49,841 — 695,249 Total gross loans $ 132,805 $ 427,992 $ 105,969 $ 49,873 $ — $ 716,639 As of December 31, 2014 Commercial Residential (Amounts in thousands) Commercial Real Estate Real Estate Consumer Unallocated Total ALLL: Individually evaluated for impairment $ 314 $ 432 $ 795 $ 15 $ — $ 1,556 Collectively evaluated for impairment 3,189 4,443 875 435 322 9,264 Total 3,503 4,875 1,670 450 322 10,820 Gross loans: Individually evaluated for impairment $ 6,597 $ 11,753 $ 13,023 $ 35 $ — $ 31,408 Collectively evaluated for impairment 143,656 352,553 97,944 35,337 — 629,490 Total gross loans $ 150,253 $ 364,306 $ 110,967 $ 35,372 $ — $ 660,898 The ALLL totaled $11.2 million or 1.56% of total gross loans at December 31, 2015 and $10.8 million or 1.64% at December 31, 2014. As of December 31, 2015, we had $230.6 million in commitments to extend credit, and recorded a reserve for unfunded commitments of $695 thousand in other liabilities Consolidated Balance Sheets The ALLL is based upon estimates of loan and lease losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan portfolio. Our ALLL methodology significantly incorporates management’s current judgments, and reflects the reserve amount that is necessary for estimated loan and lease losses and risks inherent in the loan portfolio in accordance with ASC Topic 450 Contingencies Receivables. The allowance is increased by provisions charged to expense and reduced by net charge offs. In periodic evaluations of the adequacy of the allowance balance, management considers past loan and lease loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, current economic conditions and other factors. We formally assess the adequacy of the ALLL on a monthly basis. These assessments include the periodic re-grading of classified loans based on changes in their individual credit characteristics including delinquency, seasoning, recent financial performance of the borrower, economic factors, changes in the interest rate environment and other factors as warranted. Loans are initially rated when originated. They are reviewed as they are renewed, when there is a new loan to the same borrower and/or when identified facts demonstrate heightened risk of default. Confirmation of the quality of our grading process is obtained by independent reviews conducted by outside consultants specifically hired for this purpose and by periodic examination by various bank regulatory agencies. Management monitors delinquent loans continuously and identifies problem loans to be evaluated individually for impairment testing. For loans that are determined impaired, a formal impairment measurement is performed at least quarterly on a loan-by-loan basis. Our method for assessing the appropriateness of the allowance includes specific allowances for identified problem loans, an allowance factor for categories of credits and allowances for changing environmental factors (e.g., portfolio trends, concentration of credit, growth, economic factors). Allowances for identified problem loans are based on specific analysis of individual credits. Loss estimation factors for loan categories are based on analysis of local economic factors applicable to each loan category. Allowances for changing environmental factors are management’s best estimate of the probable impact these changes have had on the loan portfolio as a whole. We believe that the ALLL was adequate as of December 31, 2015. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan and lease losses. In addition, bank regulatory authorities, as part of their periodic examination of the Company, may require additional charges to the provision for loan and lease losses in future periods if warranted as a result of their review. As of December 31, 2015, 74 |