| Loans and Allowance for Loan Losses | Loans and Allowance for Loan Losses General Loans held for investment are stated at the principal amounts outstanding adjusted for purchase premiums/discounts, deferred net loan fees and costs, and unearned income. We report our loan portfolio by segments and classes, which are disaggregations of portfolio segments. Our portfolio segments are: Commercial and agricultural, Real estate, and Consumer loans. The Commercial and agricultural loan and Consumer loan portfolios are not further segregated into classes. The classes within the Real estate portfolio segment include Real estate - construction and Real estate - mortgage, which is further broken into 1-4 family residential mortgage and Commercial real estate mortgage loans. Loan fees and the incremental direct costs associated with originating a loan are deferred and subsequently recognized over the life of the loan as an adjustment to interest income. In addition to originating loans, we also purchase loans. At acquisition, purchased loans are designated as either purchased contractual loans ("PC loans") or purchased impaired loans ("PI loans"). PC loans are acquired loans where management believes it is probable that it will receive all principal as of the date of acquisition. These loans are accounted for under the contractual cash flow method, under ASC 310-20. Any discount or premium paid on PC loans is amortized and included in interest income using the effective yield method over the expected life of the loans. PI loans are acquired loans whose purchase price has been discounted, in part, due to credit deterioration occurring subsequent to origination. Accordingly, management believes it is probable that all contractual principal and interest on these acquired loans will not be received. PI loans are placed in homogeneous risk-based pools where accounting for projected cash flows is performed, as allowed under ASC 310-30. Once a pool is established the individual loans within each pool do not change. As management obtains new information related to changes in expected principal loss and expected cash flows, by pool, we record either an increase in yield when new expected cash flows increase, an allowance for loan losses when new expected cash flows decline, or a decrease in yield when there is only a timing difference in expected cash flows. Loans acquired in the 2011 merger of Bank of Granite Corp. ("Granite Purchased Loans") included PI loans and PC loans. Loans designated as PC loans included performing revolving consumer and performing revolving commercial loans on the acquisition date. The following table presents an aging analysis of accruing and nonaccruing loans as of March 31, 2016 : (dollars in thousands) Accruing 30-59 days past due 60-89 days past due More than 90 days past due Nonaccrual Total past due and nonaccrual Current and accruing Total Loans PC and Originated Loans Commercial and agricultural $ 58 $ — $ — $ 810 $ 868 $ 149,401 $ 150,269 Real estate - construction 48 — — 84 132 95,596 95,728 Real estate - mortgage: 1-4 family residential 2,152 91 — 9,434 11,677 626,673 638,350 Commercial 29 — — 7,509 7,538 432,113 439,651 Consumer 842 320 — 580 1,742 114,039 115,781 Total 3,129 411 — 18,417 21,957 1,417,822 1,439,779 PI loans Commercial and agricultural 47 — 1,637 — 1,684 3,067 4,751 Real estate - construction — — 1,345 — 1,345 5,929 7,274 Real estate - mortgage: 1-4 family residential 774 171 1,018 — 1,963 11,457 13,420 Commercial 86 263 9,165 — 9,514 48,807 58,321 Consumer — 2 5 — 7 854 861 Total 907 436 13,170 — 14,513 70,114 84,627 Total Loans $ 4,036 $ 847 $ 13,170 $ 18,417 $ 36,470 $ 1,487,936 $ 1,524,406 The following table presents an aging analysis of accruing and nonaccruing loans as of December 31, 2015 : (dollars in thousands) Accruing 30-59 days past due 60-89 days past due More than 90 days past due Nonaccrual Total past due and nonaccrual Current and accruing Total Loans PC and Originated Loans Commercial and agricultural $ — $ 1 $ — $ 1,053 $ 1,054 $ 146,257 $ 147,311 Real estate - construction 761 140 — 110 1,011 98,247 99,258 Real estate - mortgage: 1-4 family residential 2,710 574 817 9,106 13,207 660,430 673,637 Commercial 661 34 — 7,209 7,904 421,220 429,124 Consumer 1,227 250 1 538 2,016 104,885 106,901 Total 5,359 999 818 18,016 25,192 1,431,039 1,456,231 PI loans Commercial and agricultural 102 — 1,618 — 1,720 3,275 4,995 Real estate - construction — — 1,455 — 1,455 6,289 7,744 Real estate - mortgage: 1-4 family residential 602 15 1,127 — 1,744 12,173 13,917 Commercial 517 123 8,819 — 9,459 50,530 59,989 Consumer 8 — 6 — 14 905 919 Total 1,229 138 13,025 — 14,392 73,172 87,564 Total Loans $ 6,588 $ 1,137 $ 13,843 $ 18,016 $ 39,584 $ 1,504,211 $ 1,543,795 All PI loans are considered to be accruing for all periods presented, in accordance with ASC 310-30. Risk Grades The risk-grade categories presented in the following table, which are standard categories used by the bank regulators, are: Pass - Loans categorized as Pass are higher quality loans that have adequate sources of repayment and little risk of collection. Special Mention - A Special Mention loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of Substandard loans, does not have to exist in individual assets classified Substandard. Doubtful - A loan classified as Doubtful 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 important and reasonable specific pending factors, which may work to the advantage of strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. Loans categorized as Special Mention, Substandard and Doubtful are considered Criticized. Loans categorized as Substandard or Doubtful are considered Classified. Purchased loans acquired in the Merger are recorded at estimated fair value on the date of acquisition without the carryover of related ALL. The table below includes $21.0 million and $27.0 million in Granite Purchased Loans categorized as Substandard or Doubtful at March 31, 2016 and December 31, 2015 , respectively. The following table presents loans held for investment balances by risk grade as of March 31, 2016 : (dollars in thousands) Pass Special Mention Substandard Doubtful (Ratings 1-5) (Rating 6) (Rating 7) (Rating 8) Total Commercial and agricultural $ 151,873 $ 570 $ 2,577 $ — $ 155,020 Real estate - construction 96,350 2,639 4,013 — 103,002 Real estate - mortgage: 1-4 family residential 633,530 2,900 15,340 — 651,770 Commercial 461,100 10,889 25,983 — 497,972 Consumer 115,635 5 568 434 116,642 Total $ 1,458,488 $ 17,003 $ 48,481 $ 434 $ 1,524,406 The following table presents loans held for investment balances by risk grade as of December 31, 2015 : (dollars in thousands) Pass Special Mention Substandard Doubtful (Ratings 1-5) (Rating 6) (Rating 7) (Rating 8) Total Commercial and agricultural $ 148,844 $ 672 $ 2,790 $ — $ 152,306 Real estate - construction 100,252 2,122 4,628 — 107,002 Real estate - mortgage: 1-4 family residential 669,695 3,508 14,351 — 687,554 Commercial 450,587 12,765 25,761 — 489,113 Consumer 107,008 4 553 255 107,820 Total $ 1,476,386 $ 19,071 $ 48,083 $ 255 $ 1,543,795 Loans included in the preceding loan composition table are net of participations sold. Loans are increased by net loan premiums of $3.4 million and $3.7 million at March 31, 2016 and December 31, 2015 , respectively. At March 31, 2016 and December 31, 2015, loans held for sale consisted of originated residential mortgage loans held for sale carried at the lower of cost or fair market value. Loans serviced for others are not included in the consolidated balance sheet. The unpaid principal balance of loans serviced for others amounted to $361.4 million at March 31, 2016 and $304.6 million at December 31, 2015 . Loans Pledged To borrow from the FHLB, members must pledge collateral to secure advances and letters of credit. Acceptable collateral includes, among other types of collateral, a variety of residential, multifamily, home equity lines and second mortgages, and commercial loans. Gross loans of $97.3 million and $112.6 million of investment securities, and gross loans of $102.9 million and $113.0 million of investment securities, were pledged to collateralize FHLB advances and letters of credit at March 31, 2016 and December 31, 2015 , respectively, of which there was $108.4 million and $80.8 million of credit availability for borrowing, respectively. At March 31, 2016 , $4.1 million of loans and $43.8 million of securities were pledged to collateralize potential borrowings from the Federal Reserve Discount Window, of which $46.8 million was available as borrowing capacity. We could also access $302.7 million of additional borrowings from the FHLB under credit lines by pledging additional collateral. Nonaccruing and Impaired Loans Interest income on loans is calculated by using the interest method based on the daily outstanding balance. The recognition of interest income is discontinued when, in management's opinion, the collection of all or a portion of interest becomes doubtful. Loans are returned to accrual status when the factors indicating doubtful collectability cease to exist and the loan has performed in accordance with its terms for a demonstrated period of time. The past due status of loans is based on the contractual payment terms. Had nonaccruing loans been on accruing status, interest income would have been higher by $0.3 million and $0.4 million for the three months ended March 31, 2016 and March 31, 2015 , respectively. At March 31, 2016 and December 31, 2015 , COB had certain impaired loans of $18.4 million and $18.0 million , respectively, which were on nonaccruing interest status. All loan classes are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date. When we cannot reasonably expect full and timely repayment of a loan, the loan is placed on nonaccrual. All loan classes on which principal or interest is in default for 90 days or more are put on nonaccrual status, unless there is sufficient information to conclude that the loan is well secured and in the process of collection. A debt is "well-secured" if collateralized by liens on or pledges of real or personal property, including securities, which have a realizable value sufficient to discharge the debt in full, or by the guarantee of a financially responsible party. A debt is "in process of collection" if collection is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action that are reasonably expected to result in repayment of the debt or its restoration to a current status. Loans that are less than 90 days delinquent may also be placed on nonaccrual if deterioration in the financial condition of the borrower has increased the probability of less than full repayment. At the time a loan is placed on nonaccrual, all accrued, unpaid interest is charged off, unless repayment of all principal and presently accrued but unpaid interest is probable. Charge-offs of accrued and unpaid interest are charged against the current year's interest income and not against the ALL. For all loan classes, a nonaccrual loan may be returned to accrual status when we can reasonably expect continued timely payments until payment in full. All prior arrearage does not have to be eliminated, nor do all previously charged off amounts need to have been recovered, but the loan can still be returned to accrual status if the following conditions are met: (1) all principal and interest amounts contractually due (including arrearage) are reasonably assured of repayment within a reasonable period; and (2) there is a sustained period of repayment performance (generally a minimum of six months) by the borrower, in accordance with the contractual terms involving payments of cash or cash equivalents. For all classes within all loan portfolios, cash receipts received on nonaccrual loans are generally applied entirely against principal until the loan has been collected in full, after which time any additional cash receipts are recognized as interest income. For all loan classes, as soon as any portion of a loan becomes uncollectible, the loan will be charged down or charged off as follows: • If unsecured, the loan must be charged off in full. • If secured, the outstanding principal balance of the loan should be charged down to the net liquidation value of the collateral. Loans are considered uncollectible when: • No regularly scheduled payment has been made within four months and the determination is made that any further payment is unlikely, or • The loan is unsecured, the borrower has filed for bankruptcy protection and there is no other (guarantor, etc.) support from an entity outside of the bankruptcy proceedings. Based on a variety of credit, collateral and documentation issues, loans with lesser degrees of delinquency or obvious loss may also be deemed uncollectible. A loan is considered impaired, based on current information and events, if it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. If the loan has been modified to provide relief to the borrower, the loan is deemed to be impaired if all principal and interest will not be repaid according to the original contract. When a loan has been determined to be impaired, the amount of the impairment is measured using the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, the observable market price of the loan, or the fair value of the collateral if the loan is collateral dependent. When the present value of expected future cash flows is used, the effective interest rate is the original contractual interest rate of the loan adjusted for any premium or discount. When the contractual interest rate is variable, the effective interest rate of the loan changes over time. A specific reserve is established as a component of the ALL when a loan has been determined to be impaired. Subsequent to the initial measurement of impairment, if there is a significant change to the impaired loan's expected future cash flows, or if actual cash flows are significantly different from the cash flows previously estimated, we recalculate the impairment and appropriately adjust the specific reserve. Similarly, if we measure impairment based on the observable market price of an impaired loan or the fair value of the collateral of an impaired collateral-dependent loan, we will adjust the specific reserve if there is a significant change in either of those bases. When a loan is impaired and principal and interest is in doubt when contractually due, interest income is not recognized. Cash receipts received on nonaccruing impaired loans within any class are generally applied entirely against principal until the loan has been collected in full, after which time any additional cash receipts are recognized as interest income. Cash receipts received on accruing impaired loans within any class are applied in the same manner as accruing loans that are not considered impaired. The following table summarizes information relative to impaired loans for the dates indicated: March 31, 2016 December 31, 2015 (dollars in thousands) Recorded Investment Associated Reserves Recorded Investment Associated Reserves Impaired loans, not individually reviewed for impairment $ 5,009 $ — $ 4,903 $ — Impaired loans, individually reviewed, with no impairment 20,548 — 22,411 — Impaired loans, individually reviewed, with impairment 4,525 384 3,817 399 Total impaired loans, excluding purchased impaired * $ 30,082 384 $ 31,131 399 Purchased impaired loans with subsequent deterioration $ 81,519 2,754 $ 84,329 2,754 Purchased impaired loans with no subsequent deterioration 3,108 — 3,235 — Total Reserves $ 3,138 $ 3,153 Average impaired loans calculated using a simple average 30,607 35,290 * Included at March 31, 2016 and December 31, 2015 were $11.7 million and $13.1 million, respectively, in restructured and performing loans. The following table presents loans held for investment on nonaccrual status by loan class for the dates indicated: (dollars in thousands) March 31, 2016 December 31, 2015 Loans held for investment: Commercial and agricultural $ 810 $ 1,053 Real estate - construction 84 110 Real estate - mortgage: 1-4 family residential 9,434 9,106 Commercial 7,509 7,209 Consumer 580 538 Total nonaccrual loans 18,417 18,016 Loans more than 90 days delinquent, still on accrual — 817 Total nonperforming loans $ 18,417 $ 18,833 There were no loans held for sale on nonaccrual status as of March 31, 2016 or December 31, 2015. The following table presents individually reviewed impaired loans and purchased impaired loans with subsequent credit deterioration, segregated by portfolio segment, and the corresponding allowance for loan losses as of March 31, 2016 : Unpaid (dollars in thousands) Recorded Principal Related Investment Balance Allowance Individually reviewed impaired loans with no related allowance recorded: Commercial and agricultural $ 392 $ 479 $ — Real estate - construction 755 921 — Real estate - mortgage: 1-4 family residential 6,691 8,481 — Commercial 12,710 17,944 — Consumer — — — Total 20,548 27,825 — Individually reviewed impaired loans with an allowance recorded: Commercial and agricultural — — — Real estate - construction — — — Real estate - mortgage: 1-4 family residential 4,278 5,376 380 Commercial 247 291 4 Consumer — — — Total 4,525 5,667 384 Total individually reviewed impaired loans: Commercial and agricultural 392 479 — Real estate - construction 755 921 — Real estate - mortgage: 1-4 family residential 10,969 13,857 380 Commercial 12,957 18,235 4 Consumer — — — Total $ 25,073 $ 33,492 $ 384 PI loans with subsequent credit deterioration: Commercial and agricultural $ 4,751 $ 3,691 $ 281 Real estate - construction 6,934 7,697 557 Real estate - mortgage: 1-4 family residential 10,652 10,739 336 Commercial 58,321 57,885 1,456 Consumer 861 553 124 Total $ 81,519 $ 80,565 $ 2,754 The following table presents individually reviewed impaired loans, and purchased impaired loans with subsequent credit deterioration, segregated by portfolio segment, and the corresponding allowance for loan losses as of December 31, 2015 : Unpaid (dollars in thousands) Recorded Principal Related Investment Balance Allowance Individually reviewed impaired loans with no related allowance recorded: Commercial and agricultural $ 399 $ 479 $ — Real estate - construction 775 939 — Real estate - mortgage: 1-4 family residential 7,418 9,406 — Commercial 13,820 19,116 — Consumer — — — Total 22,412 29,940 — Individually reviewed impaired loans with an allowance recorded: Commercial and agricultural — — — Real estate - construction — — — Real estate - mortgage: 1-4 family residential 3,817 4,691 399 Commercial — — — Consumer — — — Total 3,817 4,691 399 Total individually reviewed impaired loans: Commercial and agricultural 399 479 — Real estate - construction 775 939 — Real estate - mortgage: 1-4 family residential 11,235 14,097 399 Commercial 13,820 19,116 — Consumer — — — Total $ 26,229 $ 34,631 $ 399 PI loans with subsequent credit deterioration: Commercial and agricultural $ 4,995 $ 3,908 $ 311 Real estate - construction 7,323 8,121 579 Real estate - mortgage: 1-4 family residential 11,103 11,327 384 Commercial 59,989 60,582 1,356 Consumer 919 598 124 Total $ 84,329 $ 84,536 $ 2,754 The following summary presents individually reviewed impaired loans. Average recorded investment and interest income recognized on impaired loans, segregated by portfolio segment, is shown in the following table as of March 31, 2016 and March 31, 2015 : For Three Months Ended For Three Months Ended March 31, 2016 March 31, 2015 Average Interest Average Interest (dollars in thousands) Recorded Income Recorded Income Investment Recognized Investment Recognized Individually reviewed impaired loans with no related allowance recorded: Commercial and agricultural $ 395 $ — $ 478 $ — Real estate - construction 762 14 1,276 11 Real estate - mortgage: 1-4 family residential 6,717 27 7,925 31 Commercial 12,828 93 13,081 73 Consumer — — — — Total 20,702 134 22,760 115 Individually reviewed impaired loans with an allowance recorded: Commercial and agricultural — — — — Real estate - construction — — — — Real estate - mortgage: 1-4 family residential 4,288 20 3,744 19 Commercial 249 — 3,830 52 Consumer — — — — Total 4,537 20 7,574 71 Total individually reviewed impaired loans: Commercial and agricultural 395 — 478 — Real estate - construction 762 14 1,276 11 Real estate - mortgage: 1-4 family residential 11,005 47 11,669 50 Commercial 13,077 93 16,911 125 Consumer — — — — Total $ 25,239 $ 154 $ 30,334 $ 186 Impaired loans also include loans for which we may elect to grant a concession, providing terms more favorable than those prevalent in the market (e.g., rate, amortization term), and formally restructure due to the weakening credit status of a borrower. Restructuring is designed to facilitate a repayment plan that minimizes the potential losses that we otherwise may have to incur. If these impaired loans are on nonaccruing status as of the date of restructuring, the loans are included in nonperforming loans. Nonperforming restructured loans will remain as nonperforming until the borrower can demonstrate adherence to the restructured terms for a period of no less than six months and when it is otherwise determined that continued adherence is reasonably assured. Some restructured loans continue as accruing loans after restructuring if the borrower is not past due at the time of restructuring, adequate collateral valuations support the restructured loans, and the cash flows of the underlying business appear adequate to support the restructured debt service. Not included in nonperforming loans are loans that have been restructured that were performing as of the restructure date. At March 31, 2016 , there was $17.1 million in restructured loans, of which $12.0 million were accruing. At December 31, 2015 , there was $17.9 million in restructured loans, of which $13.1 million were accruing. Granite Purchased Loans Granite Purchased Loans include PI loans and PC loans. PC loans consist of revolving consumer and commercial loans that were performing as of the acquisition date. PI loans are segregated into pools and recorded at estimated fair value on the date of acquisition without the carryover of the related ALL. PI loans are accounted for under ASC 310-30 when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition we will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the date of acquisition may include statistics such as past due status, nonaccrual status and risk grade. PI loans generally meet our definition for nonaccrual status; however, even if the borrower is not currently making payments, we will classify loans as accruing if we can reasonably estimate the amount and timing of future cash flows. All Granite PI loans are presented on an accruing basis. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Periodically, we estimate the expected cash flows for each pool of the PI loans and evaluate whether the expected cash flows for each pool have changed from prior estimates. Decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior provisions, or reclassification from non-accretable difference to accretable yield with a positive impact on future interest income. Excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. We have accounted for the Granite PI loans under ASC 310-30 and the Granite PC loans under ASC 310-20. At March 31, 2016 and December 31, 2015, our financial statements reflected a Granite PI loan ALL of $2.8 million and $2.8 million , respectively, and an ALL for Granite PC loans of $0.3 million and $0.3 million , respectively. The following table presents the balance of all Granite Purchased Loans: At March 31, 2016 (dollars in thousands) Purchased Impaired Purchased Contractual Total Purchased Loans Unpaid Commercial and agricultural $ 4,751 $ 156 $ 4,907 $ 3,848 Real estate - construction 7,274 — 7,274 8,070 Real estate - mortgage: 1-4 family residential 13,420 17,470 30,890 31,442 Commercial 58,321 — 58,321 57,885 Consumer 861 — 861 553 Total $ 84,627 $ 17,626 $ 102,253 $ 101,798 At December 31, 2015 (dollars in thousands) Purchased Impaired Purchased Contractual Total Unpaid Commercial and agricultural $ 4,995 $ 238 $ 5,233 $ 4,149 Real estate - construction 7,744 — 7,744 8,579 Real estate - mortgage: 1-4 family residential 13,917 17,915 31,832 32,558 Commercial 59,989 — 59,989 60,582 Consumer 919 — 919 598 Total $ 87,564 $ 18,153 $ 105,717 $ 106,466 The table below includes only those Granite Purchased Loans accounted for under the expected cash flow method (PI loans) for the periods indicated. This table does not include PC loans, including Granite PC loans or purchased residential mortgage loan pools. For Three Months Ended For Three Months Ended March 31, 2016 March 31, 2015 Purchased Impaired Purchased Impaired (dollars in thousands) Carrying Future Carrying Future Accretion Balance, beginning of period $ 87,564 $ 15,623 $ 122,842 $ 24,898 Accretion 1,406 (1,406 ) 2,048 (2,048 ) Increase (Decrease) in future accretion — (2 ) — (1,925 ) Payments received (4,343 ) — (14,854 ) — Foreclosed and transferred to OREO — — (774 ) — Subtotal before allowance 84,627 14,215 109,262 20,925 Allowance for credit losses (2,754 ) — (3,194 ) — Net carrying amount, end of period $ 81,873 $ 14,215 $ 106,068 $ 20,925 Allowance for Loan Losses The Company's ALL, which is utilized to absorb actual losses in the loan portfolio, is maintained at a level consistent with our best estimate of probable loan losses to be incurred as of the balance sheet date. We assess our ALL quarterly. This assessment includes a methodology that separates the total loan portfolio into homogeneous loan classifications for purposes of evaluating risk. The required allowance is calculated by applying a risk adjusted reserve requirement to the dollar volume of loans within a homogenous group. For purposes of the ALL, we have grouped our loans into pools with similar risk characteristics, including loan purpose, collateral type and borrower type. Major loan portfolio subgroups include: risk graded commercial loans, mortgage loans, home equity loans, retail loans and retail credit lines. We also analyze the loan portfolio on an ongoing basis to evaluate current risk levels, and risk grades are adjusted accordingly. While we use the best information available to make evaluations, future adjustments may be necessary, if economic or other conditions differ substantially from the assumptions used. Historical loss rates are calculated by associating losses to the risk-graded pool to which they relate for each of the previous eight quarters. Then, using a look back period consisting of the twenty most recent quarters, loss factors are calculated for each risk-graded pool using a simple average. In addition to our ability to use our own historical loss data and migration between risk grades, we have a rigorous process for computing the qualitative factors that impact the ALL. A committee, independent of the historical loss migration team, reviews risk factors that may impact the ALL. Some factors are statistically quantifiable, such as concentration, growth, delinquency, and nonaccrual risk by loan type, while other factors are qualitative in nature, such as staff competency, competition within our markets and economic and regulatory changes impacting the loan portfolio. We lend primarily in North Carolina. As of March 31, 2016 , a large majority of the principal amount of the loans in our portfolio was to businesses and individuals in North Carolina. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. The risks created by this concentration have been considered by us in the determination of the adequacy of the ALL. We believe the ALL is adequate to cover estimated losses on loans at each balance sheet date. During the three month period ended March 31, 2016 , we charged off $1.1 million in loans and realized $0.7 million in recoveries, for $0.4 million of net charge-offs. The ALL, as a percentage of loans held for investment, was 0.93% at March 31, 2016 , compared to 1.36% at March 31, 2015 . At December 31, 2015 , the ALL, as a percentage of loans held for investment, was 0.98% . An analysis of the changes in the ALL is as follows: For Three Months Ended (dollars in thousands) March 31, 2016 March 31, 2015 Balance, beginning of period $ 15,195 $ 20,345 Recovery of losses charged to continuing operations (535 ) (1,137 ) Net charge-offs: Charge-offs (1,094 ) (994 ) Recoveries 674 794 Net charge-offs (420 ) (200 ) Balance, end of period $ 14,240 $ 19,008 Annualized net charge-offs during the period to average loans held for investment 0.11 % 0.06 % Annualized net charge-offs during the period to ALL 11.83 % 4.27 % Allowance for loan losses to loans held for investment 0.93 % 1.36 % The following table presents ALL activity by portfolio segment for the three months ended March 31, 2016 : Real Estate - Mortgage (dollars in thousands) Commercial and Agricultural Real Estate - Construction 1-4 Family Residential Commercial Consumer Total ALL: Beginning balance January 1, 2016 $ 2,402 $ 1,769 $ 5,141 $ 2,328 $ 3,555 $ 15,195 Charge-offs (159 ) — (64 ) — (871 ) (1,094 ) Recoveries 253 136 130 40 115 674 Provision (recovery of provision) (452 ) (609 ) (832 ) 175 1,183 (535 ) Ending balance March 31, 2016 $ 2,044 $ 1,296 $ 4,375 $ 2,543 $ 3,982 $ 14,240 The following table presents ALL activity by portfolio segment for the three months ended March 31, 2015 : Real Estate - Mortgage (dollars in thousands) Commercial and Agricultural Real Estate - Construction 1-4 Family Residential Commercial Consumer Total ALL: Beginning balance January 1, 2015 $ 3,915 $ 3,163 $ 5,847 $ 4,179 $ 3,241 $ 20,345 Charge-offs (49 ) (81 ) (125 ) (7 ) (732 ) (994 ) Recoveries 221 196 138 58 181 794 Provision (recovery of provision) (689 ) (158 ) (237 ) (1,078 ) 1,025 (1,137 ) Ending balance March 31, 2015 $ 3,398 $ 3,120 $ 5,623 $ 3,152 $ 3,715 $ 19,008 The following table details the recorded investment in loans related to each segment in the allowance for loan losses by portfolio segment and disaggregated on the basis of impairment evaluation methodology at March 31, 2016 : Real Estate - Mortgage (dollars in thousands) Commercial and Agricultural Real Estate - Construction 1-4 Family Residential Commercial Consume |
