Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses

Loan and lease receivables consist of the following:



	March 31, 2016		December 31, 2015
	(In Thousands)
Commercial real estate
Commercial real estate — owner occupied	$	174,286	$	176,322
Commercial real estate — non-owner occupied	441,539		436,901
Construction and land development	179,778		160,404
Multi-family	84,004		80,254
1-4 family ⁽¹⁾	52,620		51,607
Total commercial real estate	932,227		905,488
Commercial and industrial ⁽²⁾	461,573		473,592
Direct financing leases, net	31,617		31,093
Consumer and other
Home equity and second mortgages	7,366		8,237
Other	18,510		16,319
Total consumer and other	25,876		24,556
Total gross loans and leases receivable	1,451,293		1,434,729
Less:
Allowance for loan and lease losses	16,684		16,316
Deferred loan fees	1,010		1,062
Loans and leases receivable, net	$	1,433,599	$	1,417,351


(1)	Includes residential real estate loans held for sale totaling $1.7 million as of March 31, 2016 and $1.3 million as of December 31, 2015.


(2)	Includes guaranteed portion of SBA loans held for sale totaling $1.4 million as of December 31, 2015. No guaranteed portion of SBA loans were held for sale as of March 31, 2016.

Loans transferred to third parties consist of the guaranteed portion of SBA loans as well as participation interests in other originated loans. The total principal amount of loans transferred during the three months ended March 31, 2016 and 2015 was $18.1 million and $15.8 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, including the requirements specific to loan participations, and therefore all of the loans transferred during the three months ended March 31, 2016 and December 31, 2015 have been derecognized in the unaudited Consolidated Financial Statements. The Corporation has a continuing involvement in each of the agreements by way of relationship management and servicing the loans; however, there are no further obligations to the third-party participant required of the Corporation, other than standard representations and warranties related to sold amounts, that would preclude the application of sale accounting treatment. The guaranteed portion of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements. No gain or loss was recognized on participation interests in other originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total amount of loan participations purchased on the Corporation’s Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 was $463,000 and $467,000, respectively.

The total amount of outstanding loans transferred to third parties as loan participations sold at March 31, 2016 and December 31, 2015 was $181.6 million and $169.2 million, respectively, all of which was treated as a sale and derecognized under the applicable accounting guidance at the time of the transfers of the financial assets. The Corporation’s continuing involvement with these loans is by way of partial ownership, relationship management and all servicing responsibilities; however, there are no further obligations of the Corporation, other than standard representations and warranties to the sold amount, that would preclude the application of sale accounting treatment. As of March 31, 2016 and December 31, 2015, the total amount of the Corporation’s partial ownership of loans on the Corporation’s Consolidated Balance Sheets was $139.6 million and $136.8 million, respectively. As of March 31, 2016, $1.6 million loans in this participation sold portfolio were considered impaired as compared to $1.8 million as of December 31, 2015. The Corporation does not share in the participant’s portion of the charge-offs.

The Corporation sells residential real estate loans, servicing released, in the secondary market. The total principal amount of residential real estate loans sold during the three months ended March 31, 2016 and March 31, 2015 was $7.2 million and $9.1 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three months ended March 31, 2016 have been derecognized in the unaudited Consolidated Financial Statements. The Corporation has a continuing involvement in each of the transactions, including by way of relationship management and standard representations and warranties related to the sold amount; however, there are no further obligations of the Corporation that would would preclude the application of sale accounting treatment. The loans were transferred at their fair value and the related gain was recognized as non-interest income upon the transfer in the unaudited Consolidated Financial Statements.

According to ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, purchased credit-impaired loans exhibit evidence of deterioration in credit quality since origination for which it is probable at acquisition that the Corporation will be unable to collect all contractually required payments. Purchased credit-impaired loans are initially recorded at fair value, which is estimated by discounting the cash flows expected to be collected at the acquisition date. Because the estimate of expected cash flows reflects an estimate of future credit losses expected to be incurred over the life of the loans, an allowance for credit losses is not recorded at the acquisition date. The excess of cash flows expected at acquisition over the estimated fair value, referred to as the accretable yield, is recognized in interest income over the remaining life of the loan on a level-yield basis, contingent on the subsequent evaluation of future expected cash flows. The difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. A subsequent decrease in the estimate of cash flows expected to be received on purchased credit-impaired loans generally results in the recognition of an allowance for credit losses. Subsequent increases in cash flows result in reversal of any nonaccretable difference (or allowance for loan and lease losses to the extent any has been recorded) with a positive impact on interest income recognized. The measurement of cash flows involves assumptions and judgments for interest rates, prepayments, default rates, loss severity, and collateral values. All of these factors are inherently subjective and significant changes in the cash flow estimates over the life of the loan can result.

The following table reflects the contractually required payments receivable and fair value of the Corporation’s purchased credit impaired loans as of March 31, 2016 and December 31, 2015:



	March 31, 2016		December 31, 2015
	(In Thousands)
Contractually required payments	$	5,166	$	5,291
Fair value of purchased credit impaired loans	$	3,160	$	3,250

The following table presents a rollforward of the Corporation’s accretable yield as of March 31, 2016 and December 31, 2015:



	As of and for the Three Months Ended March 31, 2016			As of and for the Year Ended December 31, 2015
	(In Thousands)
Accretable yield, beginning of period	$	414		$	676
Accretion recognized in earnings	(33		)	(50		)
Reclassification to nonaccretable difference for loans with changing cash flows⁽¹⁾	(9		)	(60		)
Changes in accretable yield for non-credit related changes in expected cash flows⁽²⁾	9			(152		)
Accretable yield, end of period	$	381		$	414


(1)	Represents changes in accretable yield for those loans that are driven primarily by credit performance.


(2)	Represents changes in accretable yield for those loans that are driven primarily by changes in actual and estimated payments.

The following information illustrates ending balances of the Corporation’s loan and lease portfolio, including impaired loans by class of receivable, and considering certain credit quality indicators as of March 31, 2016 and December 31, 2015:



	Category
As of March 31, 2016	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	144,146		$	14,184		$	13,070		$	2,886		$	174,286
Commercial real estate — non-owner occupied	406,493			28,185			5,962			899			441,539
Construction and land development	165,735			6,215			3,127			4,701			179,778
Multi-family	83,487			517			—			—			84,004
1-4 family ⁽¹⁾	43,432			4,104			1,786			3,298			52,620
Total commercial real estate	843,293			53,205			23,945			11,784			932,227

Commercial and industrial	384,103			27,028			43,721			6,721			461,573

Direct financing leases, net	30,195			964			458			—			31,617

Consumer and other:
Home equity and second mortgages	6,118			766			139			343			7,366
Other	17,846			23			—			641			18,510
Total consumer and other	23,964			789			139			984			25,876

Total gross loans and leases receivable	$	1,281,555		$	81,986		$	68,263		$	19,489		$	1,451,293
Category as a % of total portfolio	88.31		%	5.65		%	4.70		%	1.34		%	100.00		%


(1)	Includes residential real estate loans held for sale totaling $1.7 million in Category I.



	Category
As of December 31, 2015	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	156,379		$	7,654		$	9,311		$	2,978		$	176,322
Commercial real estate — non-owner occupied	410,517			20,662			3,408			2,314			436,901
Construction and land development	151,508			3,092			874			4,930			160,404
Multi-family	79,368			884			—			2			80,254
1-4 family ⁽¹⁾	42,389			3,985			1,865			3,368			51,607
Total commercial real estate	840,161			36,277			15,458			13,592			905,488

Commercial and industrial ⁽²⁾	431,598			7,139			25,706			9,149			473,592

Direct financing leases, net	29,514			1,013			528			38			31,093

Consumer and other:
Home equity and second mortgages	7,497			—			141			599			8,237
Other	15,616			48			—			655			16,319
Total consumer and other	23,113			48			141			1,254			24,556

Total gross loans and leases receivable	$	1,324,386		$	44,477		$	41,833		$	24,033		$	1,434,729
Category as a % of total portfolio	92.30		%	3.10		%	2.92		%	1.68		%	100.00		%


(1)	Includes residential real estate loans held for sale totaling $1.3 million in Category I.


(2)	Includes guaranteed portion of SBA loans held for sale totaling $1.4 million in Category I.

Credit underwriting through a committee process is a key component of the Corporation’s operating philosophy. Business development officers have relatively low individual lending authority limits, and thus a significant portion of the Corporation’s new credit extensions require approval from a loan approval committee regardless of the type of loan or lease, asset quality grade of the credit, amount of the credit, or the related complexities of each proposal.

Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers, or as other circumstances dictate. The Corporation uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk rating grades follow a consistent definition, and are then applied to specific loan types based on the nature of the loan. Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on the stated risk rating. In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management.

Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrower’s management team or the industry in which the borrower operates. Loans and leases in this category are not subject to additional monitoring procedures above and beyond what is required at the origination or renewal of the loan or lease. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers and continued review of such borrowers’ compliance with the terms of their respective agreements.

Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends and collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by subcommittees of the Banks’ loan committees.

Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Banks. Category III loans and leases generally exhibit undesirable characteristics such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and loan committees of the Banks on a monthly basis and the Banks’ Boards of Directors at each of their regularly scheduled meetings.

Category IV — Loans and leases in this category are considered to be impaired. Impaired loans and leases have been placed on non-accrual as management has determined that it is unlikely that the Banks will receive the contractual principal and interest in accordance with the contractual terms of the agreement. Impaired loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually for impaired loans and leases. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded to reflect the magnitude of the impairment. Loans and leases in this category are monitored by management and loan committees of the Banks on a monthly basis and the Banks’ Boards of Directors at each of their regularly scheduled meetings.

Utilizing regulatory classification terminology, the Corporation identified $33.9 million and $26.8 million of loans and leases as Substandard as of March 31, 2016 and December 31, 2015, respectively. No loans were considered Special Mention, Doubtful or Loss as of either March 31, 2016 or December 31, 2015. The population of Substandard loans are a subset of Category III and Category IV loans.

The delinquency aging of the loan and lease portfolio by class of receivable as of March 31, 2016 and December 31, 2015 is as follows:



As of March 31, 2016	30-59 days past due			60-89 days past due			Greater than 90 days past due			Total past due			Current			Total loans
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	171,469		$	171,469
Non-owner occupied	234			354			—			588			440,689			441,277
Construction and land development	312			1,063			—			1,375			173,901			175,276
Multi-family	—			—			—			—			84,004			84,004
1-4 family	—			—			—			—			49,989			49,989
Commercial and industrial	—			—			—			—			454,855			454,855
Direct financing leases, net	—			—			—			—			31,617			31,617
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,076			7,076
Other	—			—			—			—			17,869			17,869
Total	546			1,417			—			1,963			1,431,469			1,433,432
Non-accruing loans and leases
Commercial real estate:
Owner occupied	$	465		$	—		$	—		$	465		$	2,352		$	2,817
Non-owner occupied	—			—			—			—			262			262
Construction and land development	—			—			391			391			4,111			4,502
Multi-family	—			—			—			—			—			—
1-4 family	—			741			945			1,686			945			2,631
Commercial and industrial	—			—			792			792			5,926			6,718
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			290			290
Other	—			—			641			641			—			641
Total	465			741			2,769			3,975			13,886			17,861
Total loans and leases
Commercial real estate:
Owner occupied	$	465		$	—		$	—		$	465		$	173,821		$	174,286
Non-owner occupied	234			354			—			588			440,951			441,539
Construction and land development	312			1,063			391			1,766			178,012			179,778
Multi-family	—			—			—			—			84,004			84,004
1-4 family	—			741			945			1,686			50,934			52,620
Commercial and industrial	—			—			792			792			460,781			461,573
Direct financing leases, net	—			—			—			—			31,617			31,617
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,366			7,366
Other	—			—			641			641			17,869			18,510
Total	$	1,011		$	2,158		$	2,769		$	5,938		$	1,445,355		$	1,451,293
Percent of portfolio	0.07		%	0.15		%	0.19		%	0.41		%	99.59		%	100.00		%



As of December 31, 2015	30-59 days past due			60-89 days past due			Greater than 90 days past due			Total past due			Current			Total loans
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	173,416		$	173,416
Non-owner occupied	—			—			—			—			435,222			435,222
Construction and land development	—			—			—			—			155,675			155,675
Multi-family	—			—			—			—			80,252			80,252
1-4 family	78			—			—			78			48,918			48,996
Commercial and industrial	—			—			—			—			464,456			464,456
Direct financing leases, net	—			—			—			—			31,055			31,055
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,695			7,695
Other	—			—			—			—			15,664			15,664
Total	78			—			—			78			1,412,353			1,412,431
Non-accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	473		$	—		$	473		$	2,434		$	2,907
Non-owner occupied	—			—			—			—			1,678			1,678
Construction and land development	397			—			—			397			4,332			4,729
Multi-family	—			—			—			—			2			2
1-4 family	430			34			895			1,359			1,252			2,611
Commercial and industrial	2,077			—			564			2,641			6,495			9,136
Direct financing leases, net	—			—			—			—			38			38
Consumer and other:
Home equity and second mortgages	—			—			250			250			292			542
Other	—			—			655			655			—			655
Total	2,904			507			2,364			5,775			16,523			22,298
Total loans and leases
Commercial real estate:
Owner occupied	$	—		$	473		$	—		$	473		$	175,850		$	176,323
Non-owner occupied	—			—			—			—			436,900			436,900
Construction and land development	397			—			—			397			160,007			160,404
Multi-family	—			—			—			—			80,254			80,254
1-4 family	508			34			895			1,437			50,170			51,607
Commercial and industrial	2,077			—			564			2,641			470,951			473,592
Direct financing leases, net	—			—			—			—			31,093			31,093
Consumer and other:
Home equity and second mortgages	—			—			250			250			7,987			8,237
Other	—			—			655			655			15,664			16,319
Total	$	2,982		$	507		$	2,364		$	5,853		$	1,428,876		$	1,434,729
Percent of portfolio	0.21		%	0.04		%	0.16		%	0.41		%	99.59		%	100.00		%

The Corporation’s total impaired assets consisted of the following at March 31, 2016 and December 31, 2015, respectively.



	March 31, 2016		December 31, 2015
	(Dollars in Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	2,817	$	2,907
Commercial real estate — non-owner occupied	262		1,678
Construction and land development	4,502		4,729
Multi-family	—		2
1-4 family	2,631		2,611
Total non-accrual commercial real estate	10,212		11,927
Commercial and industrial	6,718		9,136
Direct financing leases, net	—		38
Consumer and other:
Home equity and second mortgages	290		542
Other	641		655
Total non-accrual consumer and other loans	931		1,197
Total non-accrual loans and leases	17,861		22,298
Foreclosed properties, net	1,677		1,677
Total non-performing assets	19,538		23,975
Performing troubled debt restructurings	1,628		1,735
Total impaired assets	$	21,166	$	25,710



	March 31, 2016		December 31, 2015
Total non-accrual loans and leases to gross loans and leases	1.23	%	1.55	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	1.34		1.67
Total non-performing assets to total assets	1.09		1.35
Allowance for loan and lease losses to gross loans and leases	1.15		1.14
Allowance for loan and lease losses to non-accrual loans and leases	93.41		73.17

As of March 31, 2016 and December 31, 2015, $14.0 million and $16.2 million of the non-accrual loans were considered troubled debt restructurings, respectively. As of March 31, 2016, there were no unfunded commitments associated with troubled debt restructured loans and leases.



	As of March 31, 2016					As of December 31, 2015
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Troubled debt restructurings:
Commercial real estate
Commercial real estate — owner occupied	3	$	1,209	$	1,163	3	$	1,209	$	1,188
Commercial real estate — non-owner occupied	5	1,150		899		5	1,150		904
Construction and land development	3	6,034		4,351		3	6,034		4,593
Multi-family	—	—		—		1	184		2
1-4 family	15	2,035		1,840		15	2,035		1,869
Commercial and industrial	11	7,973		6,392		10	7,572		8,330
Consumer and other:
Home equity and second mortgages	4	461		343		4	461		349
Other	1	2,076		641		1	2,076		655
Total	42	$	20,938	$	15,629	42	$	20,721	$	17,890

All loans and leases modified as a troubled debt restructuring are evaluated for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a default, is considered in the determination of an appropriate level of the allowance for loan and lease losses.

As of March 31, 2016 and December 31, 2015, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:



	As of March 31, 2016			As of December 31, 2015
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(Dollars in Thousands)
Commercial real estate
Extension of term	1	$	20	1	$	24
Interest rate concession	1	54		1	55
Combination of extension and interest rate concession	24	8,179		25	8,477
Commercial and industrial
Combination of extension and interest rate concession	11	6,392		10	8,330
Consumer and other
Extension of term	1	641		1	655
Combination of extension and interest rate concession	4	343		4	349
Total	42	$	15,629	42	$	17,890

There were no loans and leases modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three months ended March 31, 2016.

The following represents additional information regarding the Corporation’s impaired loans and leases by class:



	Impaired Loans and Leases
	As of and for the Three Months Ended March 31, 2016
	Recorded investment		Unpaid principal balance		Impairment reserve		Average recorded investment⁽¹⁾		Foregone interest income		Interest income recognized		Net foregone interest income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	2,255	$	2,255	$	—	$	2,140	$	35	$	—	$	35
Non-owner occupied	899		939		—		1,843		6		—		6
Construction and land development	4,701		7,372		—		4,935		34		—		34
Multi-family	—		—		—		1		1		134		(133		)
1-4 family	2,442		2,504		—		2,658		30		—		30
Commercial and industrial	481		481		—		106		22		18		4
Direct financing leases, net	—		—		—		23		—		—		—
Consumer and other:
Home equity and second mortgages	244		244		—		493		2		—		2
Other	641		1,307		—		649		20		—		20
Total	11,663		15,102		—		12,848		150		152		(2		)
With impairment reserve recorded:
Commercial real estate:
Owner occupied	$	631	$	631	$	18	$	628	$	9	$	—	$	9
Non-owner occupied	—		—		—		—		—		—		—
Construction and land development	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	856		862		126		851		7		—		7
Commercial and industrial	6,240		6,240		730		6,224		143		—		143
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	99		99		23		98		2		—		2
Other	—		—		—		—		—		—		—
Total	7,826		7,832		897		7,801		161		—		161
Total:
Commercial real estate:
Owner occupied	$	2,886	$	2,886	$	18	$	2,768	$	44	$	—	$	44
Non-owner occupied	899		939		—		1,843		6		—		6
Construction and land development	4,701		7,372		—		4,935		34		—		34
Multi-family	—		—		—		1		1		134		(133		)
1-4 family	3,298		3,366		126		3,509		37		—		37
Commercial and industrial	6,721		6,721		730		6,330		165		18		147
Direct financing leases, net	—		—		—		23		—		—		—
Consumer and other:
Home equity and second mortgages	343		343		23		591		4		—		4
Other	641		1,307		—		649		20		—		20
Grand total	$	19,489	$	22,934	$	897	$	20,649	$	311	$	152	$	159


(1)	Average recorded investment is calculated primarily using daily average balances.



	Impaired Loans and Leases
	As of and for the Year Ended December 31, 2015
	Recorded investment		Unpaid principal balance		Impairment reserve		Average recorded investment⁽¹⁾		Foregone interest income		Interest income recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	2,164	$	2,164	$	—	$	712	$	53	$	12	$	41
Non-owner occupied	2,314		2,355		—		962		25		—		25
Construction and land development	4,533		7,203		—		4,807		133		—		133
Multi-family	2		369		—		10		27		—		27
1-4 family	2,423		2,486		—		1,604		82		4		78
Commercial and industrial	2,546		2,590		—		544		172		6		166
Direct financing leases, net	38		38		—		4		—		—		—
Consumer and other:
Home equity and second mortgages	500		500		—		390		23		63		(40		)
Other	655		1,321		—		688		82		—		82
Total	15,175		19,026		—		9,721		597		85		512
With impairment reserve recorded:
Commercial real estate:
Owner occupied	$	814	$	814	$	20	$	215	$	7	$	2	$	5
Non-owner occupied	—		—		—		—		—		—		—
Construction and land development	397		397		48		34		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	945		950		173		605		34		—		34
Commercial and industrial	6,603		6,603		847		810		102		—		102
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	99		99		25		58		10		—		10
Other	—		—		—		—		—		—		—
Total	8,858		8,863		1,113		1,722		153		2		151
Total:
Commercial real estate:
Owner occupied	$	2,978	$	2,978	$	20	$	927	$	60	$	14	$	46
Non-owner occupied	2,314		2,355		—		962		25		—		25
Construction and land development	4,930		7,600		48		4,841		133		—		133
Multi-family	2		369		—		10		27		—		27
1-4 family	3,368		3,436		173		2,209		116		4		112
Commercial and industrial	9,149		9,193		847		1,354		274		6		268
Direct financing leases, net	38		38		—		4		—		—		—
Consumer and other:
Home equity and second mortgages	599		599		25		448		33		63		(30		)
Other	655		1,321		—		688		82		—		82
Grand total	$	24,033	$	27,889	$	1,113	$	11,443	$	750	$	87	$	663


(1)	Average recorded investment is calculated primarily using daily average balances.

The difference between the loans and leases recorded investment and the unpaid principal balance of $3.4 million and $3.9 million as of March 31, 2016 and December 31, 2015 represents partial charge-offs resulting from confirmed losses due to the value of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included $1.6 million and $1.7 million of loans as of March 31, 2016 and December 31, 2015 that were performing troubled debt restructurings, and thus, while not on non-accrual, were reported as impaired, due to the concession in terms. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to principal. Foregone interest represents the interest that was contractually due on the note but not received or recorded. To the extent the amount of principal on a non-accrual note is fully collected and additional cash is received, the Corporation will recognize interest income.

To determine the level and composition of the allowance for loan and lease losses, the Corporation breaks out the portfolio by segments and risk ratings. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance.

A summary of the activity in the allowance for loan and lease losses by portfolio segment is as follows:



	As of and for the Three Months Ended March 31, 2016
	Commercial real estate			Commercial and industrial loans and leases			Consumer and other			Total
	(Dollars in Thousands)
Allowance for credit losses:
Beginning balance	$	11,220		$	4,387		$	709		$	16,316
Charge-offs	(41		)	(196		)	(7		)	(244		)
Recoveries	84			—			3			87
Provision	217			297			11			525
Ending balance	$	11,480		$	4,488		$	716		$	16,684
Ending balance: individually evaluated for impairment	$	144		$	730		$	23		$	897
Ending balance: collectively evaluated for impairment	$	11,336		$	3,758		$	693		$	15,787
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—
Loans and lease receivables:
Ending balance, gross	$	932,227		$	493,190		$	25,876		$	1,451,293
Ending balance: individually evaluated for impairment	$	9,106		$	6,481		$	793		$	16,380
Ending balance: collectively evaluated for impairment	$	920,443		$	486,468		$	24,892		$	1,431,803
Ending balance: loans acquired with deteriorated credit quality	$	2,678		$	241		$	191		$	3,110
Allowance as % of gross loans	1.23		%	0.91		%	2.77		%	1.15		%



	As of and for the Year Ended December 31, 2015
	Commercial real estate			Commercial and industrial loans and leases			Consumer and other			Total
	(Dollars in Thousands)
Allowance for credit losses:
Beginning balance	$	8,619		$	5,492		$	218		$	14,329
Charge-offs	(793		)	(711		)	(9		)	(1,513		)
Recoveries	104			6			4			114
Provision	3,290			(400		)	496			3,386
Ending balance	$	11,220		$	4,387		$	709		$	16,316
Ending balance: individually evaluated for impairment	$	240		$	847		$	26		$	1,113
Ending balance: collectively evaluated for impairment	$	10,980		$	3,540		$	683		$	15,203
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—
Loans and lease receivables:
Ending balance, gross	$	905,488		$	504,685		$	24,556		$	1,434,729
Ending balance: individually evaluated for impairment	$	10,849		$	8,942		$	1,061		$	20,852
Ending balance: collectively evaluated for impairment	$	891,897		$	495,497		$	23,495		$	1,410,889
Ending balance: loans acquired with deteriorated credit quality	$	2,742		$	246		$	193		$	3,181
Allowance as % of gross loans	1.24		%	0.87		%	2.89		%	1.14		%