Loans and Related Allowance for Loan Losses | Note 7 – Loans and Related Allowance for Loan Losses The following table summarizes the primary segments of the loan portfolio at March 31, 2017 and December 31, 2016: (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Total March 31, 2017 Individually evaluated for impairment $ 14,054 $ 2,420 $ 290 $ 4,090 $ 0 $ 20,854 Collectively evaluated for impairment $ 280,727 $ 104,988 $ 74,303 $ 389,898 $ 23,762 $ 873,678 Total loans $ 294,781 $ 107,408 $ 74,593 $ 393,988 $ 23,762 $ 894,532 December 31, 2016 Individually evaluated for impairment $ 17,210 $ 2,525 $ 290 $ 3,975 $ 0 $ 24,000 Collectively evaluated for impairment $ 280,749 $ 101,757 $ 72,056 $ 389,441 $ 23,923 $ 867,926 Total loans $ 297,959 $ 104,282 $ 72,346 $ 393,416 $ 23,923 $ 891,926 The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The commercial real estate (“CRE”) loan segment is then segregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied, non-farm, and nonresidential properties, generally have a greater risk profile than all other CRE loans, which include loans secured by farmland, multifamily structures and owner-occupied commercial structures. The acquisition and development (“A&D”) loan segment is segregated into two classes. One-to-four family residential construction loans are generally made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built. All other A&D loans are generally made to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures. A&D loans have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan is made. The commercial and industrial (“C&I”) loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment is segregated into two classes: a mortizing term loans , which ar e primarily first lien loans and h ome equity lines of credit , which are generally second lien s. The consumer loan segment consists primarily of installment loans (direct and indirect) and overdraft lines of credit connected with customer deposit accounts. Management uses a 10-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. The portion of a specific allocation of the allowance for loan losses that management believes is associated with a pending event that could trigger loss in the short-term will be classified in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in the commercial segments at origination and on an ongoing basis. The Bank’s experienced Credit Quality and Loan Review Department s perform an annual review of all commercial relationships of $500,000 or greater. Confirmation of the appropriate risk grade is included as part of the review process on an ongoing basis. The Credit Quality and Loan Review Department s continually review and assess loans within the portfolio. In addition, the Bank engages an external consultant to conduct loan reviews on at least an annual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or criticized non-consumer loans greater than $500,000 . Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance. The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention and Substandard within the internal risk rating system at March 31, 2017 and December 31, 2016: (in thousands) Pass Special Mention Substandard Total March 31, 2017 Commercial real estate Non owner-occupied $ 137,837 $ 9,083 $ 9,881 $ 156,801 All other CRE 125,049 207 12,724 137,980 Acquisition and development 1-4 family residential construction 15,630 0 0 15,630 All other A&D 90,503 62 1,213 91,778 Commercial and industrial 73,029 43 1,521 74,593 Residential mortgage Residential mortgage - term 312,279 0 7,481 319,760 Residential mortgage - home equity 72,849 0 1,379 74,228 Consumer 23,630 0 132 23,762 Total $ 850,806 $ 9,395 $ 34,331 $ 894,532 December 31, 2016 Commercial real estate Non owner-occupied $ 137,181 $ 10,620 $ 9,357 $ 157,158 All other CRE 125,720 3,121 11,960 140,801 Acquisition and development 1-4 family residential construction 15,845 0 0 15,845 All other A&D 87,135 65 1,237 88,437 Commercial and industrial 70,613 593 1,140 72,346 Residential mortgage Residential mortgage - term 308,734 113 7,618 316,465 Residential mortgage - home equity 75,710 0 1,241 76,951 Consumer 23,794 0 129 23,923 Total $ 844,732 $ 14,512 $ 32,682 $ 891,926 Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. A loan is considered to be past due when a payment remains unpaid 30 days past its contractual due date. For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection. All non-accrual loans are considered to be impaired. Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Corporation’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2017 and December 31, 2016: (in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90 Days+ Past Due Total Past Due and Accruing Non-Accrual Total Loans March 31, 2017 Commercial real estate Non owner-occupied $ 150,968 $ 229 $ 126 $ 0 $ 355 $ 5,478 $ 156,801 All other CRE 134,089 0 273 0 273 3,618 137,980 Acquisition and development 1-4 family residential construction 15,630 0 0 0 0 0 15,630 All other A&D 91,626 102 0 0 102 50 91,778 Commercial and industrial 74,558 0 25 10 35 0 74,593 Residential mortgage Residential mortgage - term 316,129 1,887 208 84 2,179 1,452 319,760 Residential mortgage - home equity 72,983 718 158 74 950 295 74,228 Consumer 23,584 127 23 28 178 0 23,762 Total $ 879,567 $ 3,063 $ 813 $ 196 $ 4,072 $ 10,893 $ 894,532 December 31, 2016 Commercial real estate Non owner-occupied $ 150,595 $ 182 $ 0 $ 0 $ 182 $ 6,381 $ 157,158 All other CRE 134,931 40 0 0 40 5,830 140,801 Acquisition and development 1-4 family residential construction 15,845 0 0 0 0 0 15,845 All other A&D 88,353 0 39 0 39 45 88,437 Commercial and industrial 72,324 9 2 11 22 0 72,346 Residential mortgage Residential mortgage - term 310,721 517 3,376 312 4,205 1,539 316,465 Residential mortgage - home equity 75,558 974 198 70 1,242 151 76,951 Consumer 23,662 186 48 27 261 0 23,923 Total $ 871,989 $ 1,908 $ 3,663 $ 420 $ 5,991 $ 13,946 $ 891,926 Non-accrual loans totaled $1 0.9 million at March 31, 2017 compared to $1 3.9 million at December 31, 2016 . The decrease in non-accrual balances at March 31, 2017 was primarily due to paydowns of $2.5 million on one large relationship. Non-accrual loans which have been subject to a partial charge-off totaled $ 7.8 million at March 31, 2017 compared to $ 11.1 million at December 31, 2016. Loans secured by 1-4 family residential real estate properties in the process of foreclosure were $.3 million at March 31, 2017 and $.5 million at December 31, 2016. Accruing loans past due 30 days or more decreased to .46 % of the loan portfolio at March 31, 2017, compared to .67 % at December 31, 2016. The decrease for the first three months of 2017 was due primarily to improvements in the residential mortgage and home equity portfolios. An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans. The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement , for loans individually evaluated for impairment and ASC Subtopic 450-20, Contingencies - Loss Contingencies , for loans collectively evaluated for impairment, as well as the Interagency Policy Statement on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the allocated portion of the Bank’s ALL. In the second quarter of 2015, management determined that it would be prudent to establish an unallocated portion of the ALL to protect the Bank from other risks associated with the loan portfolio that may not be specifically identifiable. The following table summarizes the primary segments of the ALL at March 31, 2017 and December 31, 2016, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment: (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Unallocated Total March 31, 2017 Individually evaluated for impairment $ 1,795 $ 38 $ 0 $ 117 $ 0 $ 0 $ 1,950 Collectively evaluated for impairment $ 3,772 $ 845 $ 936 $ 3,385 $ 195 $ 500 $ 9,633 Total ALL $ 5,567 $ 883 $ 936 $ 3,502 $ 195 $ 500 $ 11,583 December 31, 2016 Individually evaluated for impairment $ 177 $ 40 $ 0 $ 43 $ 0 $ 0 $ 260 Collectively evaluated for impairment $ 3,736 $ 831 $ 858 $ 3,545 $ 188 $ 500 $ 9,658 Total ALL $ 3,913 $ 871 $ 858 $ 3,588 $ 188 $ 500 $ 9,918 Management uses the following methodology for determining impairment on consumer and commercial loans. All nonaccrual loans and all loans designated as “troubled debt restructures” (TDRs) are considered to be impaired. Additionally, an impairment evaluation is performed on any account which meets the following criteria: commercial loans which are risk related substandard with a balance greater than or equal to $500,000 OR which are part of relationship which is $750,000 or greater AND which are 60 days or greater delinquent. For those loans which are not classified as nonaccrual or troubled debt restructures, a judgment is made as to the likelihood that contractual principal and interest will be collected. Loans are considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. A valuation grid for impaired loans is used to determine when or how collateral values are to be updated based on size and collateral dependency for commercial loans and foreclosure status for consumer loans. If an updated appraisal has not been received and reviewed in time for the determination of estimated fair value at quarter (or year) end, or if the appraisal is found to be deficient following the Corporation’s internal appraisal review process and re-ordered, then the estimated fair value of the collateral is determined by adjusting the existing appraisal by the appropriate percentage from an internally prepared appraisal discount grid. This grid considers the age of a third party appraisal and the geographic region where the collateral is located. The discount rates in the appraisal discount grid are updated periodically to reflect the most current knowledge that management has available, including the results of current appraisals. A specific allocation of the ALL is recorded if there is any deficiency in collateral value determined by comparing the estimated fair value to the recorded investment of the loan. When updated appraisals are received and reviewed, adjustments are made to the specific allocation as needed. The evaluation of the need and amount of a specific allocation of the ALL and whether a loan can be removed from impairment status is made on a quarterly basis. The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary at March 31, 2017 and December 31, 2016: Impaired Loans with Specific Allowance Impaired Loans with No Specific Allowance Total Impaired Loans (in thousands) Recorded Investment Related Allowances Recorded Investment Recorded Investment Unpaid Principal Balance March 31, 2017 Commercial real estate Non owner-occupied $ 5,607 $ 1,641 $ 251 $ 5,858 $ 8,831 All other CRE 432 154 7,764 8,196 8,809 Acquisition and development 1-4 family residential construction 0 0 582 582 582 All other A&D 244 38 1,594 1,838 2,112 Commercial and industrial 0 0 290 290 2,504 Residential mortgage Residential mortgage - term 445 50 3,349 3,794 4,124 Residential mortgage – home equity 144 67 152 296 331 Consumer 0 0 0 0 0 Total impaired loans $ 6,872 $ 1,950 $ 13,982 $ 20,854 $ 27,293 December 31, 2016 Commercial real estate Non owner-occupied $ 131 $ 23 $ 6,635 $ 6,766 $ 9,372 All other CRE 432 154 10,012 10,444 11,057 Acquisition and development 1-4 family residential construction 0 0 582 582 628 All other A&D 245 40 1,698 1,943 2,213 Commercial and industrial 0 0 290 290 2,504 Residential mortgage Residential mortgage - term 61 43 3,763 3,824 4,249 Residential mortgage – home equity 0 0 151 151 168 Consumer 0 0 0 0 0 Total impaired loans $ 869 $ 260 $ 23,131 $ 24,000 $ 30,191 The reduction in impaired loans with no specific allowance was due to the paydown of a large non-accrual loan in the all other CRE portfolio and the movement of loan balances to impaired loans with a specific allowance due to a specific allocation placed on a large participation loan on a mall in Pennsylvania. Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity (full and partial charge-offs, net of full and partial recoveries) at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Consumer pools currently utilize a rolling 12 quarters, while Commercial pools currently utilize a rolling eight quarters. “Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. “Pass” pools for commercial and residential real estate are further segmented based upon the geographic location of the underlying collateral. There are seven geographic regions utilized – six that represent the Bank’s lending footprint and a seventh for all out-of-market credits. Different economic environments and resultant credit risks exist in each region that are acknowledged in the assignment of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management supplements the historical charge-off factor with a number of additional qualitative factors that are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors, which are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources, are: (a) national and local economic trends and conditions; (b) levels of and trends in delinquency rates and non-accrual loans; (c) trends in volumes and terms of loans; (d) effects of changes in lending policies; (e) experience, ability, and depth of lending staff; (f) value of underlying collateral; and (g) concentrations of credit from a loan type, industry and/or geographic standpoint. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Residential mortgage and consumer loans are charged off after they are 120 days contractually past due. All other loans are charged off based on an evaluation of the facts and circumstances of each individual loan. When the Bank believes that its ability to collect is solely dependent on the liquidation of the collateral, a full or partial charge-off is recorded promptly to bring the recorded investment to an amount that the Bank believes is supported by an ability to collect on the collateral. The circumstances that may impact the Bank’s decision to charge-off all or a portion of a loan include default or non-payment by the borrower, scheduled foreclosure actions, and/or prioritization of the Bank’s claim in bankruptcy. There may be circumstances where, due to pending events, the Bank will place a specific allocation of the ALL on a loan for which a partial charge-off has been previously recognized. This specific allocation may be either charged off or removed depending upon the outcome of the pending event. Full or partial charge-offs are not recovered until full principal and interest on the loan have been collected, even if a subsequent appraisal supports a higher value. Loans with partial charge-offs generally remain in non-accrual status. Both full and partial charge-offs reduce the recorded investment of the loan and the ALL and are considered to be charge-offs for purposes of all credit loss metrics and trends, including the historical rolling charge-off rates used in the determination of the ALL. The following tables present the activity in the ALL for the three-month periods ended March 31, 2017 and 2016: (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Unallocated Total ALL balance at January 1, 2017 $ 3,913 $ 871 $ 858 $ 3,588 $ 188 $ 500 $ 9,918 Charge-offs (429) (18) (33) (148) (84) 0 (712) Recoveries 5 11 1,455 220 77 0 1,768 Provision 2,078 19 (1,344) (158) 14 0 609 ALL balance at March 31, 2017 $ 5,567 $ 883 $ 936 $ 3,502 $ 195 $ 500 $ 11,583 ALL balance at January 1, 2016 $ 2,580 $ 4,129 $ 722 $ 3,785 $ 206 $ 500 $ 11,922 Charge-offs (211) 0 (53) (90) (84) 0 (438) Recoveries 0 100 30 32 42 0 204 Provision 931 (482) 59 32 28 0 568 ALL balance at March 31, 2016 $ 3,300 $ 3,747 $ 758 $ 3,759 $ 192 $ 500 $ 12,256 The ALL is based on estimates, and actual losses may vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date. As indicated in the table above, provision expense for the first quarter of 2017 was primarily driven by a specific allocation placed on a large participation loan on a mall in Pennsylvania in the CRE portfolio, offset by a net recovery of $1.3 million in the C&I portfolio relating to a prior charge-off on a loan to an ethanol plant. The following table present s the average recorded investment in impaired loans by class and related interest income recognized for the periods indicated: Three months ended Three months ended March 31, 2017 March 31, 2016 (in thousands) Average investment Interest income recognized on an accrual basis Interest income recognized on a cash basis Average investment Interest income recognized on an accrual basis Interest income recognized on a cash basis Commercial real estate Non owner-occupied $ 6,366 $ 6 $ 0 $ 1,597 $ 6 $ 0 All other CRE 9,320 53 0 13,093 37 0 Acquisition and development 1-4 family residential construction 582 6 0 700 8 0 All other A&D 1,891 23 0 3,869 24 0 Commercial and industrial 290 3 0 1,071 9 0 Residential mortgage Residential mortgage - term 4,018 33 0 4,519 39 4 Residential mortgage – home equity 224 0 0 298 0 0 Consumer 0 0 0 0 0 0 Total $ 22,691 $ 124 $ 0 $ 25,147 $ 123 $ 4 In the normal course of business, the Bank modifies loan terms for various reasons. These reasons may include as a retention strategy, remaining competitive in the current interest rate environment, and re-amortizing or extending a loan term to better match the loan’s payment stream with the borrower’s cash flows. A modified loan is considered to be a troubled debt restructuring (“TDR”) when the Bank has determined that the borrower is troubled (i.e., experiencing financial difficulties). The Bank evaluates the probability that the borrower will be in payment default on any of its debt obligations in the foreseeable future without modification. To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current ability to meet their financial obligations. When the Bank restructures a loan to a troubled borrower, the loan terms (i.e., interest rate, payment amount, amortization period, and/or maturity date) are modified in such a way as to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy. If a borrower’s hardship is thought to be temporary, then modified terms are only offered for that time period. Where possible, the Bank obtains additional collateral and/or secondary payment sources at the time of the restructure in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. To date, the Bank has not forgiven any principal as a restructuring concession. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default. All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status. The Bank’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. Accordingly, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection. If the loan was accruing at the time of the modification, then it continues to be in accruing status subsequent to the modification. Non-accrual TDRs may return to accruing status when there has been sufficient payment performance for a period of at least six months. TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to non-accrual status or to foreclosure. Loans may be removed from being reported as a TDR in the calendar year following the modification if the interest rate at the time of modification was consistent with the interest rate for a loan with comparable credit risk and the loan has performed according to its modified terms for at least six months. The volume and type of TDR activity is considered in the assessment of the local economic trends’ qualitative factor used in the determination of the ALL for loans that are evaluated collectively for impairment. The following tables present the volume and recorded investment at the time of modification of TDRs by class and type of modification that occurred during the periods indicated: Temporary Rate Modification Extension of Maturity Modification of Payment and Other Terms (in thousands) Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment Three months ended March 31, 2017 Commercial real estate Non owner-occupied 0 $ 0 0 $ 0 0 $ 0 All other CRE 0 0 0 0 0 0 Acquisition and development 1-4 family residential construction 0 0 0 0 0 0 All other A&D 0 0 1 244 0 0 Commercial and industrial 0 0 0 0 0 0 Residential mortgage Residential mortgage – term 0 0 1 259 0 0 Residential mortgage – home equity 0 0 0 0 0 0 Consumer 0 0 0 0 0 0 Total 0 $ 0 2 $ 503 0 $ 0 Temporary Rate Modification Extension of Maturity Modification of Payment and Other Terms (in thousands) Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment Three months ended March 31, 2016 Commercial real estate Non owner-occupied 0 $ 0 0 $ 0 0 $ 0 All other CRE 0 0 1 203 0 0 Acquisition and development 1-4 family residential construction 0 0 0 0 0 0 All other A&D 0 0 0 0 0 0 Commercial and industrial 0 0 0 0 1 486 Residential mortgage Residential mortgage – term 0 0 0 0 1 72 Residential mortgage – home equity 0 0 0 0 0 0 Consumer 0 0 0 0 0 0 Total 0 $ 0 1 $ 203 2 $ 558 During the three months ended March 31, 2017, there were no new TDRs and two existing TDRs which had reached their original modification maturity were re-modified. These re-modifications did not impact the ALL. During the three months ended March 31, 2017, there were no payment defaults. During the three months ended March 31, 2016, there were two new TDRs. In addition, one existing TDR which had reached its original modification maturity was re-modified. A $2,387 reduction of the ALL resulted from a change to the impairment evaluation of two loans from evaluated collectively to being evaluated individually. During the three months ended March 31, 2016, there were no payment defaults. |