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, 2017		December 31, 2016
	(In Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	183,016	$	176,459
Commercial real estate — non-owner occupied	492,366		473,158
Land development	52,663		56,638
Construction	91,343		101,206
Multi-family	107,669		92,762
1-4 family	40,036		45,651
Total commercial real estate	967,093		945,874
Commercial and industrial	458,778		450,298
Direct financing leases, net	29,330		30,951
Consumer and other:
Home equity and second mortgages	8,237		8,412
Other	18,859		16,329
Total consumer and other	27,096		24,741
Total gross loans and leases receivable	1,482,297		1,451,864
Less:
Allowance for loan and lease losses	21,666		20,912
Deferred loan fees	1,326		1,189
Loans and leases receivable, net	$	1,459,305	$	1,429,763

As of March 31, 2017 and December 31, 2016, the total amount of the Corporation’s ownership of SBA loans on the Consolidated Balance Sheets was $67.4 million and $62.1 million, respectively. As of March 31, 2017 and December 31, 2016, $11.1 million and $5.5 million of loans in this portfolio were considered impaired, respectively.

Loans transferred to third parties consist of the guaranteed portion of SBA loans which the Corporation sold in the secondary market, as well as participation interests in other originated loans. The total principal amount of the guaranteed portion of SBA loans sold during the three months ended March 31, 2017 and 2016 was $3.3 million and $13.1 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, 2017 and 2016 have been derecognized in the unaudited Consolidated Financial Statements. 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. The total outstanding balance of sold SBA loans at March 31, 2017 and December 31, 2016 was $101.7 million and $105.1 million, respectively, while the retained, unguaranteed portion of sold SBA loans on the unaudited Consolidated Balance Sheets was $31.4 million and $32.2 million as of March 31, 2017 and December 31, 2016, respectively. The total outstanding balance of the retained, unguaranteed portion of sold SBA loans considered impaired as of March 31, 2017 and December 31, 2016 was $1.5 million and $2.5 million, respectively.

The total principal amount of transferred participation interests in other originated commercial loans during the three months ended March 31, 2017 and 2016 was $5.6 million and $375,000, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. 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 outstanding balance of these transferred loans at March 31, 2017 and December 31, 2016 was $86.6 million and $102.7 million, respectively. As of March 31, 2017 and December 31, 2016, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $127.4 million and $106.1 million, respectively. No loans in this participation portfolio were considered impaired as of March 31, 2017 and December 31, 2016. The Corporation does not share in the participant’s portion of any potential charge-offs. The total amount of loan participations purchased on the unaudited Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016 was $707,000 and $1.2 million, respectively.

The Corporation also 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, 2017 and 2016 was $1.0 million and $7.2 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred have been derecognized in the unaudited Consolidated Financial Statements. 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 loan and lease 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, 2017 and December 31, 2016:



	March 31, 2017		December 31, 2016
	(In Thousands)
Contractually required payments	$	2,986	$	3,265
Fair value of purchased credit-impaired loans	1,234		1,432

The following table presents a rollforward of the accretable yield as of March 31, 2017 and December 31, 2016:



	As of and for the Three Months Ended March 31, 2017			As of and for the Year Ended December 31, 2016
	(In Thousands)
Accretable yield, beginning of period	$	135		$	414
Accretion recognized in interest income	(3		)	(129		)
Reclassification to nonaccretable difference for loans with changing cash flows⁽¹⁾	(3		)	(244		)
Changes in accretable yield for non-credit related changes in expected cash flows⁽²⁾	(5		)	94
Accretable yield, end of period	$	124		$	135


(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, 2017 and December 31, 2016:



	March 31, 2017
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	146,120		$	19,410		$	11,992		$	5,494		$	183,016
Commercial real estate — non-owner occupied	465,826			22,813			1,748			1,979			492,366
Land development	48,206			814			288			3,355			52,663
Construction	84,930			799			1,012			4,602			91,343
Multi-family	107,518			151			—			—			107,669
1-4 family	34,546			1,561			1,394			2,535			40,036
Total commercial real estate	887,146			45,548			16,434			17,965			967,093
Commercial and industrial	354,072			33,188			51,963			19,555			458,778
Direct financing leases, net	27,930			1,400			—			—			29,330
Consumer and other:
Home equity and second mortgages	7,734			485			11			7			8,237
Other	18,065			100			—			694			18,859
Total consumer and other	25,799			585			11			701			27,096
Total gross loans and leases receivable	$	1,294,947		$	80,721		$	68,408		$	38,221		$	1,482,297
Category as a % of total portfolio	87.36		%	5.45		%	4.61		%	2.58		%	100.00		%



	December 31, 2016
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	142,704		$	20,294		$	11,174		$	2,287		$	176,459
Commercial real estate — non-owner occupied	447,895			20,933			2,721			1,609			473,158
Land development	52,082			823			293			3,440			56,638
Construction	93,510			3,154			1,624			2,918			101,206
Multi-family	87,418			1,937			3,407			—			92,762
1-4 family	38,504			3,144			1,431			2,572			45,651
Total commercial real estate	862,113			50,285			20,650			12,826			945,874
Commercial and industrial	348,201			42,949			46,675			12,473			450,298
Direct financing leases, net	29,351			1,600			—			—			30,951
Consumer and other:
Home equity and second mortgages	8,271			121			12			8			8,412
Other	15,714			—			11			604			16,329
Total consumer and other	23,985			121			23			612			24,741
Total gross loans and leases receivable	$	1,263,650		$	94,955		$	67,348		$	25,911		$	1,451,864
Category as a % of total portfolio	87.04		%	6.54		%	4.64		%	1.78		%	100.00		%

Credit underwriting through a committee process is a key component of the Corporation’s operating philosophy. Commercial lenders 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 borrowers’ 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 or 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 the Banks’ loan committees 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 original 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 the Banks’ loan committees on a monthly basis and the Banks’ boards of directors at each of their regularly scheduled meetings.

Utilizing regulatory classification terminology, the Corporation identified $46.3 million and $34.3 million of loans and leases as Substandard as of March 31, 2017 and December 31, 2016, respectively. No loans were considered Special Mention, Doubtful or Loss as of either March 31, 2017 or December 31, 2016. The population of Substandard loans is 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, 2017 and December 31, 2016 were as follows:



	March 31, 2017
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	177,583		$	177,583
Non-owner occupied	—			266			—			266			490,121			490,387
Land development	—			—			—			—			49,308			49,308
Construction	431			166			—			597			86,144			86,741
Multi-family	—			—			—			—			107,669			107,669
1-4 family	—			—			—			—			38,125			38,125
Commercial and industrial	327			—			—			327			438,906			439,233
Direct financing leases, net	—			—			—			—			29,330			29,330
Consumer and other:
Home equity and second mortgages	—			—			—			—			8,237			8,237
Other	7			—			—			7			18,158			18,165
Total	$	765		$	432		$	—		$	1,197		$	1,443,581		$	1,444,778
Non-accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	429		$	4,416		$	4,845		$	588		$	5,433
Non-owner occupied	—			—			1,941			1,941			38			1,979
Land development	—			—			—			—			3,355			3,355
Construction	—			—			2,539			2,539			2,063			4,602
Multi-family	—			—			—			—			—			—
1-4 family	—			—			1,606			1,606			305			1,911
Commercial and industrial	239			—			12,455			12,694			6,851			19,545
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	82			—			612			694			—			694
Total	$	321		$	429		$	23,569		$	24,319		$	13,200		$	37,519
Total loans and leases
Commercial real estate:
Owner occupied	$	—		$	429		$	4,416		$	4,845		$	178,171		$	183,016
Non-owner occupied	—			266			1,941			2,207			490,159			492,366
Land development	—			—			—			—			52,663			52,663
Construction	431			166			2,539			3,136			88,207			91,343
Multi-family	—			—			—			—			107,669			107,669
1-4 family	—			—			1,606			1,606			38,430			40,036
Commercial and industrial	566			—			12,455			13,021			445,757			458,778
Direct financing leases, net	—			—			—			—			29,330			29,330
Consumer and other:
Home equity and second mortgages	—			—			—			—			8,237			8,237
Other	89			—			612			701			18,158			18,859
Total	$	1,086		$	861		$	23,569		$	25,516		$	1,456,781		$	1,482,297
Percent of portfolio	0.07		%	0.06		%	1.59		%	1.72		%	98.28		%	100.00		%



	December 31, 2016
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	174,236		$	174,236
Non-owner occupied	—			—			—			—			471,549			471,549
Land development	—			—			—			—			53,198			53,198
Construction	—			—			—			—			98,288			98,288
Multi-family	—			—			—			—			92,762			92,762
1-4 family	75			—			—			75			43,639			43,714
Commercial and industrial	55			468			—			523			437,312			437,835
Direct financing leases, net	—			—			—			—			30,951			30,951
Consumer and other:
Home equity and second mortgages	—			—			—			—			8,412			8,412
Other	—			—			—			—			15,725			15,725
Total	$	130		$	468		$	—		$	598		$	1,426,072		$	1,426,670
Non-accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	1,183		$	1,183		$	1,040		$	2,223
Non-owner occupied	—			—			—			—			1,609			1,609
Land development	—			—			—			—			3,440			3,440
Construction	2,482			—			436			2,918			—			2,918
Multi-family	—			—			—			—			—			—
1-4 family	—			—			1,240			1,240			697			1,937
Commercial and industrial	3,345			168			6,740			10,253			2,210			12,463
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	186			—			378			564			40			604
Total	$	6,013		$	168		$	9,977		$	16,158		$	9,036		$	25,194
Total loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	1,183		$	1,183		$	175,276		$	176,459
Non-owner occupied	—			—			—			—			473,158			473,158
Land development	—			—			—			—			56,638			56,638
Construction	2,482			—			436			2,918			98,288			101,206
Multi-family	—			—			—			—			92,762			92,762
1-4 family	75			—			1,240			1,315			44,336			45,651
Commercial and industrial	3,400			636			6,740			10,776			439,522			450,298
Direct financing leases, net	—			—			—			—			30,951			30,951
Consumer and other:
Home equity and second mortgages	—			—			—			—			8,412			8,412
Other	186			—			378			564			15,765			16,329
Total	$	6,143		$	636		$	9,977		$	16,756		$	1,435,108		$	1,451,864
Percent of portfolio	0.42		%	0.04		%	0.69		%	1.15		%	98.85		%	100.00		%

The Corporation’s total impaired assets consisted of the following at March 31, 2017 and December 31, 2016, respectively.



	March 31, 2017		December 31, 2016
	(Dollars in Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	5,433	$	2,223
Commercial real estate — non-owner occupied	1,979		1,609
Land development	3,355		3,440
Construction	4,602		2,918
Multi-family	—		—
1-4 family	1,911		1,937
Total non-accrual commercial real estate	17,280		12,127
Commercial and industrial	19,545		12,463
Direct financing leases, net	—		—
Consumer and other:
Home equity and second mortgages	—		—
Other	694		604
Total non-accrual consumer and other loans	694		604
Total non-accrual loans and leases	37,519		25,194
Foreclosed properties, net	1,472		1,472
Total non-performing assets	38,991		26,666
Performing troubled debt restructurings	702		717
Total impaired assets	$	39,693	$	27,383



	March 31, 2017		December 31, 2016
Total non-accrual loans and leases to gross loans and leases	2.53	%	1.74	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	2.63		1.83
Total non-performing assets to total assets	2.17		1.50
Allowance for loan and lease losses to gross loans and leases	1.46		1.44
Allowance for loan and lease losses to non-accrual loans and leases	57.75		83.00

As of March 31, 2017 and December 31, 2016, $12.4 million and $12.8 million of the non-accrual loans and leases were considered troubled debt restructurings, respectively. There were no unfunded commitments associated with troubled debt restructured loans and leases as of March 31, 2017.

The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable as of March 31, 2017 and December 31, 2016.



	As of March 31, 2017					As of December 31, 2016
	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)
Commercial real estate:
Commercial real estate — owner occupied	3	$	1,065	$	919	3	$	1,065	$	930
Commercial real estate — non-owner occupied	1	158		38		1	158		39
Land development	1	5,745		3,354		1	5,745		3,440
Construction	—	—		—		2	331		314
Multi-family	—	—		—		—	—		—
1-4 family	11	1,391		1,371		11	1,391		1,393
Commercial and industrial	10	8,094		7,053		10	8,094		7,058
Consumer and other:
Home equity and second mortgage	1	37		7		1	37		8
Other	1	2,076		368		1	2,076		378
Total	28	$	18,566	$	13,110	30	$	18,897	$	13,560

All loans and leases modified as a troubled debt restructuring are measured 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, 2017 and December 31, 2016, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:



	As of March 31, 2017			As of December 31, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(Dollars in Thousands)
Commercial real estate:
Extension of term	1	$	4	1	$	8
Interest rate concession	1	51		1	52
Combination of extension of term and interest rate concession	14	5,627		16	6,056
Commercial and industrial:
Combination of extension of term and interest rate concession	10	7,053		10	7,058
Consumer and other:
Extension of term	1	368		1	378
Combination of extension of term and interest rate concession	1	7		1	8
Total	28	$	13,110	30	$	13,560

There were three loans modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three months ended March 31, 2017. The total recorded investment of these loans was $878,000 as of March 31, 2017. 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, including performing troubled debt restructurings, by class:



	As of and for the Three Months Ended March 31, 2017
	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	$	5,066	$	5,066		$	—	$	2,921		$	205		$	—	$	205
Non-owner occupied	1,979		2,019			—		1,996			36			—		36
Land development	3,355		6,025			—		3,422			24			—		24
Construction	2,120		2,120			—		917			12			—		12
Multi-family	—		—			—		3			—			—		—
1-4 family	2,463		2,463			—		2,473			16			—		16
Commercial and industrial	7,146		7,146			—		318			83			—		83
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	7		7			—		7			—			—		—
Other	367		1,035			—		368			15			—		15
Total	$	22,503	$	25,881		$	—	$	12,425		$	391		$	—	$	391
With impairment reserve recorded:
Commercial real estate:
Owner occupied	$	428	$	428		$	42	$	432		$	6		$	—	$	6
Non-owner occupied	—		—			—		—			—			—		—
Land development	—		—		—	—		—		—	—		—	—		—
Construction	2,482		2,482		—	1,777		2,482		—	63		—	—		63
Multi-family	—		—			—		—			—			—		—
1-4 family	72		77			2		72			1			—		1
Commercial and industrial	12,409		12,409			4,010		12,355			251			—		251
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	327		327			327		113			—			—		—
Total	$	15,718	$	15,723		$	6,158	$	15,454		$	321		$	—	$	321
Total:
Commercial real estate:
Owner occupied	$	5,494	$	5,494		$	42	$	3,353		$	211		$	—	$	211
Non-owner occupied	1,979		2,019			—		1,996			36			—		36
Land development	3,355		6,025			—		3,422			24			—		24
Construction	4,602		4,602			1,777		3,399			75			—		75
Multi-family	—		—			—		3			—			—		—
1-4 family	2,535		2,540			2		2,545			17			—		17
Commercial and industrial	19,555		19,555			4,010		12,673			334			—		334
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	7		7			—		7			—			—		—
Other	694		1,362			327		481			15			—		15
Grand total	$	38,221	$	41,604		$	6,158	$	27,879		$	712		$	—	$	712


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



	As of and for the Year Ended December 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	$	1,788	$	1,788	$	—	$	3,577	$	328	$	118	$	210
Non-owner occupied	1,609		1,647		—		1,318		91		79		12
Land development	3,440		6,111		—		3,898		107		—		107
Construction	436		438		—		291		20		—		20
Multi-family	—		—		—		—		1		134		(133		)
1-4 family	2,379		2,379		—		2,755		125		94		31
Commercial and industrial	1,307		1,307		—		709		79		62		17
Direct financing leases, net	—		—		—		6		—		—		—
Consumer and other:
Home equity and second mortgages	8		8		—		307		16		127		(111		)
Other	378		1,044		—		510		71		—		71
Total	$	11,345	$	14,722	$	—	$	13,371	$	838	$	614	$	224
With impairment reserve recorded:
Commercial real estate:
Owner occupied	$	499	$	499	$	70	$	111	$	28	$	—	$	28
Non-owner occupied	—		—		—		—		—		—		—
Land development	—		—		—		—		—		—		—
Construction	2,482		2,482		1,790		834		45		—		45
Multi-family	—		—		—		—		—		—		—
1-4 family	193		199		39		203		5		—		5
Commercial and industrial	11,166		11,166		3,700		8,448		701		—		701
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		—		—
Other	226		226		—		19		—		—		—
Total	$	14,566	$	14,572	$	5,599	$	9,615	$	779	$	—	$	779
Total:
Commercial real estate:
Owner occupied	$	2,287	$	2,287	$	70	$	3,688	$	356	$	118	$	238
Non-owner occupied	1,609		1,647		—		1,318		91		79		12
Land development	3,440		6,111		—		3,898		107		—		107
Construction	2,918		2,920		1,790		1,125		65		—		65
Multi-family	—		—		—		—		1		134		(133		)
1-4 family	2,572		2,578		39		2,958		130		94		36
Commercial and industrial	12,473		12,473		3,700		9,157		780		62		718
Direct financing leases, net	—		—		—		6		—		—		—
Consumer and other:
Home equity and second mortgages	8		8		—		307		16		127		(111		)
Other	604		1,270		—		529		71		—		71
Grand total	$	25,911	$	29,294	$	5,599	$	22,986	$	1,617	$	614	$	1,003


(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 as of March 31, 2017 and December 31, 2016 represents partial charge-offs resulting from losses due to the appraised 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 $702,000 and $717,000 of loans as of March 31, 2017 and December 31, 2016, respectively, that were performing troubled debt restructurings, and although 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 such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan 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 categorizes the portfolio into segments with similar risk characteristics. 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, 2017
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Allowance for loan and lease losses:
Beginning balance	$	12,384		$	7,970		$	558		$	20,912
Charge-offs	(67		)	(55		)	(87		)	(209		)
Recoveries	104			246			41			391
Provision	396			(218		)	394			572
Ending balance	$	12,817		$	7,943		$	906		$	21,666
Ending balance: individually evaluated for impairment	$	1,821		$	4,010		$	327		$	6,158
Ending balance: collectively evaluated for impairment	$	10,996		$	3,933		$	579		$	15,508
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—
Loans and lease receivables:
Ending balance, gross	$	967,093		$	488,108		$	27,096		$	1,482,297
Ending balance: individually evaluated for impairment	$	16,693		$	19,545		$	702		$	36,940
Ending balance: collectively evaluated for impairment	$	949,128		$	468,554		$	26,394		$	1,444,076
Ending balance: loans acquired with deteriorated credit quality	$	1,272		$	9		$	—		$	1,281
Allowance as % of gross loans and leases	1.33		%	1.63		%	3.34		%	1.46		%



	As of and for the Year Ended December 31, 2016
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Allowance for loan and lease losses:
Beginning balance	$	11,220		$	4,387		$	709		$	16,316
Charge-offs	(1,194		)	(2,273		)	(127		)	(3,594		)
Recoveries	274			91			7			372
Provision	2,084			5,765			(31		)	7,818
Ending balance	$	12,384		$	7,970		$	558		$	20,912
Ending balance: individually evaluated for impairment	$	1,899		$	3,700		$	—		$	5,599
Ending balance: collectively evaluated for impairment	$	10,485		$	4,270		$	558		$	15,313
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—
Loans and lease receivables:
Ending balance, gross	$	945,874		$	481,249		$	24,741		$	1,451,864
Ending balance: individually evaluated for impairment	$	11,222		$	12,452		$	612		$	24,286
Ending balance: collectively evaluated for impairment	$	933,048		$	468,776		$	24,129		$	1,425,953
Ending balance: loans acquired with deteriorated credit quality	$	1,604		$	21		$	—		$	1,625
Allowance as % of gross loans and leases	1.31		%	1.66		%	2.26		%	1.44		%