Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

Loans and leases considered for inclusion in the allowance for loan and lease losses include acquired non-impaired loans and leases, those acquired impaired loans with credit deterioration after acquisition, and originated loans and leases. Although all acquired loans and leases are included in the following table, only those with credit deterioration subsequent to acquisition date are actually included in the allowance for loan and lease losses.

The following tables summarize the balance and activity within the allowance for loan and lease losses, the components of the allowance for loan and lease losses in terms of loans and leases individually and collectively evaluated for impairment, and corresponding loan and lease balances by type for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017	Commercial Real Estate			Residential Real Estate			Construction, Land Development, and Other Land			Commercial and Industrial			Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Beginning balance	$	1,945		$	2,483		$	742		$	4,196		$	334		$	1,223		$	10,923
Provisions		4,343			(405	)		(520	)		6,058			34			3,143			12,653
Charge-offs		(1,494	)		(440	)		—			(2,836	)		(327	)		(3,099	)		(8,196	)
Recoveries		—			—			—			—			—			1,326			1,326
Ending balance	$	4,794		$	1,638		$	222		$	7,418		$	41		$	2,593		$	16,706
Ending balance:
Individually evaluated for impairment	$	1,101		$	158		$	—		$	2,692		$	14		$	—		$	3,965
Collectively evaluated for impairment		1,765			1,047			145			3,308			9			2,593			8,867
Loans acquired with deteriorated credit quality		1,928			433			77			1,418			18			—			3,874
Total allowance for loan and lease losses	$	4,794		$	1,638		$	222		$	7,418		$	41		$	2,593		$	16,706

2017	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Loans and leases ending balance:
Individually evaluated for impairment	$	13,884	$	2,429	$	—	$	14,784	$	14	$	—	$	31,111
Collectively evaluated for impairment		711,097		430,227		99,483		496,446		3,752		177,686		1,918,691
Loans acquired with deteriorated credit quality		166,712		144,562		5,946		10,008		462		—		327,690
Total loans and leases	$	891,693	$	577,218	$	105,429	$	521,238	$	4,228	$	177,686	$	2,277,492

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2016	Commercial Real Estate			Residential Real Estate			Construction, Land Development, and Other Land			Commercial and Industrial			Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Beginning balance	$	2,280		$	2,981		$	232		$	1,403		$	357		$	379		$	7,632
Provisions		4,032			135			605			2,869			(11	)		2,722			10,352
Charge-offs		(4,367	)		(633	)		(95	)		(76	)		(12	)		(2,634	)		(7,817	)
Recoveries		—			—			—			—			—			756			756
Ending balance	$	1,945		$	2,483		$	742		$	4,196		$	334		$	1,223		$	10,923
Ending balance:
Individually evaluated for impairment	$	—		$	293		$	—		$	396		$	328		$	—		$	1,017
Collectively evaluated for impairment		1,456			1,743			742			3,126			5			1,223			8,295
Loans acquired with deteriorated credit quality		489			447			—			674			1			—			1,611
Total allowance for loan and lease losses	$	1,945		$	2,483		$	742		$	4,196		$	334		$	1,223		$	10,923

2016	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Loans and leases ending balance:
Individually evaluated for impairment	$	8,916	$	1,300	$	—	$	1,382	$	328	$	—	$	11,926
Collectively evaluated for impairment		580,125		433,721		133,787		423,392		2,057		158,966		1,732,048
Loans acquired with deteriorated credit quality		207,303		175,717		6,979		13,464		574		—		404,037
Total loans and leases	$	796,344	$	610,738	$	140,766	$	438,238	$	2,959	$	158,966	$	2,148,011

2015	Commercial Real Estate			Residential Real Estate			Construction, Land Development, and Other Land			Commercial and Industrial			Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Beginning balance	$	1,112		$	1,936		$	834		$	648		$	121		$	143		$	4,794
Provisions		2,464			1,873			(585	)		782			237			2,195			6,966
Charge-offs		(1,296	)		(828	)		(17	)		(30	)		(1	)		(2,187	)		(4,359	)
Recoveries		—			—			—			3			—			228			231
Ending balance	$	2,280		$	2,981		$	232		$	1,403		$	357		$	379		$	7,632
Ending balance:
Individually evaluated for impairment	$	1,076		$	615		$	137		$	171		$	327		$	—		$	2,326
Collectively evaluated for impairment		470			476			95			596			—			379			2,016
Loans acquired with deteriorated credit quality		734			1,890			—			636			30			—			3,290
Total allowance for loan and lease losses	$	2,280		$	2,981		$	232		$	1,403		$	357		$	379		$	7,632

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2015	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Loans and leases ending balance:
Individually evaluated for impairment	$	4,160	$	4,042	$	208	$	171	$	327	$	—	$	8,908
Collectively evaluated for impairment		285,571		256,555		31,390		155,955		594		119,553		849,618
Loans acquired with deteriorated credit quality		243,964		223,738		8,634		9,570		1,005		—		486,911
Total loans and leases	$	533,695	$	484,335	$	40,232	$	165,696	$	1,926	$	119,553	$	1,345,437

The Company increased the allowance for loan and lease losses by $5.8 million and $3.3 million for the years ended December 31, 2017 and 2016, respectively. For acquired impaired loans, the Company increased the allowance for loan and lease losses by $2.3 million for the year ended December 31, 2017. There was a net reversal of $1.7 million of the allowance for loan and lease losses during the year ended December 31, 2016.

The following tables summarize the recorded investment, unpaid principal balance, related allowance, average recorded investment, and interest income recognized for loans and leases considered impaired as of December 31, 2017, 2016, and 2015, which excludes acquired impaired loans:

2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	11,425	$	12,936	$	—	$	10,482	$	525
Residential real estate		2,075		2,046		—		1,781		72
Construction, land development and other land		—		—		—		295		2
Commercial and industrial		5,470		6,774		—		2,875		265
With an allowance recorded
Commercial real estate		2,459		2,634		1,101		1,988		187
Residential real estate		354		351		158		422		6
Construction, land development and other land		—		—		—		14		—
Commercial and industrial		9,314		9,724		2,692		3,460		486
Installment and other		14		14		14		162		12
Total impaired loans	$	31,111	$	34,479	$	3,965	$	21,479	$	1,555

2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	8,916	$	9,502	$	—	$	8,975	$	305
Residential real estate		804		1,999		—		827		45
Commercial and Industrial		521		524		—		516		(2	)
With an allowance recorded
Residential real estate		496		528		293		519		1
Commercial and industrial		861		869		396		914		—
Installment and other		328		361		328		328		16
Total impaired loans	$	11,926	$	13,783	$	1,017	$	12,079	$	365

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	1,362	$	1,922	$	—	$	1,394	$	64
Residential real estate		2,821		4,222		—		2,865		63
With an allowance recorded
Commercial real estate		2,798		2,797		1,076		2,826		46
Residential real estate		1,221		1,216		615		1,250		15
Construction, land development and other land		208		1,201		137		208		—
Commercial and industrial		171		171		171		185		1
Installment and other		327		335		327		327		23
Total impaired loans	$	8,908	$	11,864	$	2,326	$	9,055	$	212

For purposes of these tables, the unpaid principal balance represents the outstanding contractual balance. Impaired loans include loans that are individually evaluated for impairment as well as troubled debt restructurings for all loan categories. The sum of non‑accrual loans and loans past due 90 days still on accrual will differ from the total impaired loan amount.

The Bank’s credit risk rating methodology assigns risk ratings from 1 to 10, where a higher rating represents higher risk. The risk rating categories are described by the following groupings:

Pass—Ratings 1‑4 define the risk levels of borrowers and guarantors that offer a minimal to an acceptable level of risk.

Watch—A watch asset (rating of 5) has credit exposure that presents higher than average risk and warrants greater than routine attention by Bank personnel due to conditions affecting the borrower, the borrower’s industry or the economic environment.

Special Mention—A special mention asset (rating of 6) 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 Company’s credit position at some future date.

Substandard Accrual—A substandard accrual asset (rating of 7) has well‑defined weakness or weaknesses in cash flow and collateral coverage resulting in a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This classification may be used in limited cases, where despite credit severity, the borrower is current on payments and there is an agreed plan for credit remediation.

Substandard Non‑Accrual—A substandard asset (rating of 8) has well‑defined weakness or weaknesses in cash flow and collateral coverage resulting in the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful—A doubtful asset (rating of 9) 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.

Loss—A loss asset (rating of 10) is considered uncollectible and of such little value that its continuance as a realizable asset is not warranted.

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

The following tables summarize the risk rating categories of the loans and leases considered for inclusion in the allowance for loan and lease losses calculation, excluding acquired impaired loans, as of December 31, 2017 and 2016:

2017	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Pass	$	638,066	$	398,743	$	73,935	$	415,163	$	3,732	$	174,672	$	1,704,311
Watch		58,217		29,165		22,380		67,024		20		190		176,996
Special Mention		14,645		2,251		3,168		13,535		—		1,293		34,892
Substandard		14,053		2,497		—		15,508		14		1,259		33,331
Doubtful		—		—		—		—		—		272		272
Loss		—		—		—		—		—		—		—
Total	$	724,981	$	432,656	$	99,483	$	511,230	$	3,766	$	177,686	$	1,949,802

2016	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Pass	$	536,499	$	419,880	$	129,732	$	369,136	$	2,052	$	157,296	$	1,614,595
Watch		38,707		10,885		2,897		52,872		4		324		105,689
Special Mention		5,377		3,116		1,158		1,258		1		512		11,422
Substandard		8,458		1,140		—		1,508		328		739		12,173
Doubtful		—		—		—		—		—		95		95
Loss		—		—		—		—		—		—		—
Total	$	589,041	$	435,021	$	133,787	$	424,774	$	2,385	$	158,966	$	1,743,974

The following tables summarize contractual delinquency information for acquired non-impaired and originated loans and leases by category as of December 31, 2017 and 2016:

2017	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Non- accrual		Total Past Due		Current		Total
Commercial real estate	$	4,783	$	968	$	—	$	8,459	$	14,210	$	710,771	$	724,981
Residential real estate		148		—		—		2,092		2,240		430,416		432,656
Construction, land development, and other land		—		—		—		-		-		99,483		99,483
Commercial and industrial		6,667		967		—		4,348		11,982		499,248		511,230
Installment and other		18		—		—		14		32		3,734		3,766
Lease financing receivables		997		638		—		851		2,486		175,200		177,686
Total	$	12,613	$	2,573	$	—	$	15,764	$	30,950	$	1,918,852	$	1,949,802

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2016	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Non- accrual		Total Past Due		Current		Total
Commercial real estate	$	2,944	$	648	$	—	$	3,935	$	7,527	$	581,514	$	589,041
Residential real estate		243		—		—		1,118		1,361		433,660		435,021
Construction, land development, and other land		1,363		—		—		—		1,363		132,424		133,787
Commercial and industrial		6,066		374		—		958		7,398		417,376		424,774
Installment and other		—		—		—		328		328		2,057		2,385
Lease financing receivables		2,070		390		—		445		2,905		156,061		158,966
Total	$	12,686	$	1,412	$	—	$	6,784	$	20,882	$	1,723,092	$	1,743,974

Trouble debt restructurings are granted due to borrower financial difficulty and provide for a modification of loan repayment terms. TDRs are treated in the same manner as impaired loans for purposes of calculating the allowance for loan and lease losses. The tables below present TDRs by loan category as of December 31, 2017, 2016, and 2015. Refer to Note 1—Summary of Significant Accounting Policies for the accounting policy for TDRs.

December 31, 2017	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Troubled Debt Restructurings:
Commercial real estate		5	$	1,655	$	1,655	$	—	$	111
Commercial and industrial		3		1,246		759		487		246
Residential real estate		2		216		216		—		—
Total		10	$	3,117	$	2,630	$	487	$	357

December 31, 2016	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Troubled Debt Restructurings:
Commercial real estate		2	$	898	$	898	$	—	$	—
Residential real estate		3		256		256		—		—
Total		5	$	1,154	$	1,154	$	—	$	—

December 31, 2015	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Troubled Debt Restructurings:
Commercial real estate		2	$	979	$	979	$	—	$	—
Residential real estate		4		1,762		1,762		—		—
Total		6	$	2,741	$	2,741	$	—	$	—

At December 31, 2017 and 2016, there were no commitments outstanding on troubled debt restructurings. TDRs that subsequently defaulted within twelve months of the restructure date during the years ended December 31, 2017, 2016, and 2015 had a recorded investment of $144,000, $477,000, and $750,000, respectively. At December 31, 2017 and 2016, TDRs classified as non-accrual totaled $1.6 million and $552,000, respectively.

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

At December 31, 2017 and 2016, the reserve for unfunded commitments was $923,000 and $760,000, respectively. During the years ended December 31, 2017 and 2016, the provisions for unfunded commitments were $162,000 and $493,000, respectively. There were no charge‑offs or recoveries related to the reserve for unfunded commitments during both periods.