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Loans and Allowance for Loan Losses | 3 Months Ended
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Mar. 31, 2016
Receivables [Abstract] |
Loans and Allowance for Loan Losses | Loans and Allowance for Loan Losses Credit Quality of Loans Outstanding loans by class and payment aging as of March 31, 2016 and December 31, 2015 were as follows:
Loan Aging Analysis by Loan Class
(in thousands) | Commercial and industrial |  | Commercial real estate, owner-occupied |  | Commercial real estate, investor |  | Construction |  | Home equity |  | Other residential 1 |  | Installment and other consumer |  | Total |
March 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
30-59 days past due | $ | — |  | $ | 177 |  | $ | 1,789 |  | $ | — |  | $ | 255 |  | $ | — |  | $ | 216 |  | $ | 2,437 |
60-89 days past due | — |  | — |  | — |  | — |  | — |  | — |  | 1 |  | 1 |
90 days or more past due | 21 |  | — |  | — |  | — |  | 99 |  | — |  | — |  | 120 |
Total past due | 21 |  | 177 |  | 1,789 |  | — |  | 354 |  | — |  | 217 |  | 2,558 |
Current | 213,047 |  | 238,155 |  | 705,551 |  | 74,528 |  | 110,539 |  | 73,896 |  | 23,565 |  | 1,439,281 |
Total loans 3 | $ | 213,068 |  | $ | 238,332 |  | $ | 707,340 |  | $ | 74,528 |  | $ | 110,893 |  | $ | 73,896 |  | $ | 23,782 |  | $ | 1,441,839 |
Non-accrual 2 | $ | 21 |  | $ | — |  | $ | 1,789 |  | $ | — |  | $ | 791 |  | $ | — |  | $ | 65 |  | $ | 2,666 |
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
30-59 days past due | $ | 36 |  | $ | — |  | $ | 1,096 |  | $ | 1 |  | $ | — |  | $ | — |  | $ | 249 |  | $ | 1,382 |
60-89 days past due | — |  | — |  | — |  | — |  | 633 |  | — |  | 89 |  | 722 |
90 days or more past due | 21 |  | — |  | — |  | — |  | 99 |  | — |  | — |  | 120 |
Total past due | 57 |  | — |  | 1,096 |  | 1 |  | 732 |  | — |  | 338 |  | 2,224 |
Current | 219,395 |  | 242,309 |  | 714,783 |  | 65,494 |  | 111,568 |  | 73,154 |  | 22,301 |  | 1,449,004 |
Total loans 3 | $ | 219,452 |  | $ | 242,309 |  | $ | 715,879 |  | $ | 65,495 |  | $ | 112,300 |  | $ | 73,154 |  | $ | 22,639 |  | $ | 1,451,228 |
Non-accrual 2 | $ | 21 |  | $ | — |  | $ | 1,903 |  | $ | 1 |  | $ | 171 |  | $ | — |  | $ | 83 |  | $ | 2,179 |
1 Our residential loan portfolio does not include sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios. 2 Amounts include $1 thousand of Purchased Credit Impaired ("PCI") loans that had stopped accreting interest at December 31, 2015. Amounts exclude accreting PCI loans of $2.8 million and $3.7 million at March 31, 2016 and December 31, 2015, respectively, as we have a reasonable expectation about future cash flows to be collected and we continue to recognize accretable yield on these loans in interest income. These accreting PCI loans are included in current loans. 3 Amounts include net deferred loan costs of $693 thousand and $768 thousand at March 31, 2016 and December 31, 2015, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $2.8 million and $3.2 million at March 31, 2016 and December 31, 2015, respectively. Our commercial loans are generally made to established small and mid-sized businesses to provide financing for their growth and working capital needs, equipment purchases and/or acquisitions. Management examines historical, current, and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial loans are made based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral and/or guarantor support. The cash flows of borrowers, however, may not occur as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed, such as accounts receivable and/or inventory, and typically include a personal guarantee. We target stable businesses with guarantors that have proven to be resilient in periods of economic stress. Typically, the guarantors provide an additional source of repayment for most of our credit extensions. Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans discussed above. We underwrite these loans to be repaid from cash flow and to be supported by real property collateral. Underwriting standards for commercial real estate loans include, but are not limited to, debt coverage and loan-to-value ratios. Furthermore, substantially all of our loans are guaranteed by the owners of the properties. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. In the event of a vacancy, guarantors are expected to carry the loans until a replacement tenant can be found. The owner's substantial equity investment provides a strong economic incentive to continue to support the commercial real estate projects. As such, we have generally experienced a relatively low level of loss and delinquencies in this portfolio. Construction loans are generally made to developers and builders to finance construction, renovation and occasionally land acquisitions. These loans are underwritten after evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals. The construction industry can be affected by significant events, including: the inherent volatility of real estate markets and vulnerability to delays due to weather, change orders, inability to obtain construction permits, labor or material shortages, and price changes. Estimates of construction costs and value associated with the completed project may be inaccurate. Repayment of construction loans is largely dependent on the ultimate success of the project. Consumer loans primarily consist of home equity lines of credit, other residential (tenancy-in-common, or “TIC”) loans, and installment and other consumer loans. We originate consumer loans utilizing credit score information, debt-to-income ratio and loan-to-value ratio analysis. Diversification, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk. Additionally, trend reports are reviewed by Management on a regular basis. Our residential loan portfolio includes TIC units almost entirely in San Francisco. These loans tend to have more equity in their properties than conventional residential mortgages, which mitigates risk. Installment and other consumer loans include mostly loans for floating homes and mobile homes along with a small number of installment loans. We use a risk rating system to evaluate asset quality, and to identify and monitor credit risk in individual loans, and ultimately in the portfolio. Definitions of loans that are risk graded “Special Mention” or worse are consistent with those used by the Federal Deposit Insurance Corporation ("FDIC"). Our internally assigned grades are as follows: Pass: Loans to borrowers of acceptable or better credit quality. Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history and management expertise. Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt service coverage ratios. These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial consequences. Negative external industry factors are generally not present. The loan may be secured, unsecured or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain. This category also includes “Watch” loans, where the primary source of repayment has been delayed. “Watch” is intended to be a transitional grade, with either an upgrade or downgrade within a reasonable period. Special Mention: Potential weaknesses that deserve close attention. If left uncorrected, those potential weaknesses may result in deterioration of the payment prospects for the asset. Special Mention assets do not present sufficient risk to warrant adverse classification. Substandard: Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any. A Substandard asset has a well-defined weakness or weaknesses that jeopardize(s) the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments in the borrower’s financial condition, managerial weaknesses and/or significant collateral deficiencies. Doubtful: Critical weaknesses that make collection or liquidation in full improbable. There may be specific pending events that work to strengthen the asset; however, the amount or timing of the loss may not be determinable. Pending events generally occur within one year of the asset being classified as Doubtful. Examples include: merger, acquisition, or liquidation; capital injection; guarantee; perfecting liens on additional collateral; and refinancing. Such loans are placed on non-accrual status and usually are collateral-dependent. We regularly review our credits for accuracy of risk grades whenever new information is received. Borrowers are required to submit financial information at regular intervals:
• | Generally, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk and complexity.
• | Investor commercial real estate borrowers are generally required to submit rent rolls or property income statements at least annually.
• | Construction loans are monitored monthly, and reviewed on an ongoing basis.
• | Home equity and other consumer loans are reviewed based on delinquency.
• | Loans graded “Watch” or more severe, regardless of loan type, are reviewed no less than quarterly.
The following table represents an analysis of loans by internally assigned grades, including the PCI loans, at March 31, 2016 and December 31, 2015:
Credit Risk Profile by Internally Assigned Grade
(in thousands) | Commercial and industrial |  | Commercial real estate, owner-occupied |  | Commercial real estate, investor |  | Construction |  | Home equity |  | Other residential |  | Installment and other consumer |  | Purchased credit-impaired |  | Total |
March 31, 2016 |  |  |  |  |  |  |  |  |
Pass | $ | 195,560 |  | $ | 224,903 |  | $ | 701,642 |  | $ | 71,290 |  | $ | 108,059 |  | $ | 73,896 |  | $ | 23,383 |  | $ | 2,431 |  | $ | 1,401,164 |
Special Mention | 13,627 |  | 3,252 |  | 367 |  | — |  | 1,120 |  | — |  | — |  | — |  | 18,366 |
Substandard | 3,843 |  | 9,155 |  | 3,612 |  | 3,238 |  | 1,644 |  | — |  | 399 |  | 418 |  | 22,309 |
Total loans | $ | 213,030 |  | $ | 237,310 |  | $ | 705,621 |  | $ | 74,528 |  | $ | 110,823 |  | $ | 73,896 |  | $ | 23,782 |  | $ | 2,849 |  | $ | 1,441,839 |
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 192,560 |  | $ | 219,060 |  | $ | 710,042 |  | $ | 62,255 |  | $ | 109,959 |  | $ | 73,154 |  | $ | 22,307 |  | $ | 3,260 |  | $ | 1,392,597 |
Special Mention | 22,457 |  | 12,371 |  | 372 |  | — |  | 1,100 |  | — |  | — |  | — |  | 36,300 |
Substandard | 4,260 |  | 9,167 |  | 3,739 |  | 3,239 |  | 1,173 |  | — |  | 332 |  | 421 |  | 22,331 |
Total loans | $ | 219,277 |  | $ | 240,598 |  | $ | 714,153 |  | $ | 65,494 |  | $ | 112,232 |  | $ | 73,154 |  | $ | 22,639 |  | $ | 3,681 |  | $ | 1,451,228 |
Troubled Debt Restructuring Our loan portfolio includes certain loans that have been modified in a troubled debt restructuring (“TDR”), where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs on nonaccrual status at the time of restructure may be returned to accruing status after Management considers the borrower’s sustained repayment performance for a reasonable period, generally six months, and obtains reasonable assurance of repayment and performance. A loan may no longer be reported as a TDR if all of the following conditions are met:
• | The loan is subsequently refinanced or restructured at current market interest rates and the new terms are consistent with the treatment of creditworthy borrowers under regular underwriting standards;
• | The borrower is no longer considered to be in financial difficulty;
• | Performance on the loan is reasonably assured; and;
• | Existing loan did not have any forgiveness of principal or interest.
The removal of TDR status must be approved by the same management level that approved the upgrading of the loan classification. There were no loans removed from TDR designation during 2016. During the first three months in 2015, one loan with a recorded investment totaling $108 thousand was removed from TDR designation. The table below summarizes outstanding TDR loans by loan class as of March 31, 2016 and December 31, 2015. The summary includes both TDRs that are on non-accrual status and those that continue to accrue interest.
(in thousands) | As of
Recorded investment in Troubled Debt Restructurings 1 | March 31, 2016 |  | December 31, 2015 |
Commercial and industrial | $ | 3,825 |  | $ | 4,698 |
Commercial real estate, owner-occupied | 6,993 |  | 6,993 |
Commercial real estate, investor | 2,052 |  | 514 |
Construction | 3,238 |  | 3,238 |
Home equity | 458 |  | 460 |
Other residential | 1,997 |  | 2,010 |
Installment and other consumer | 1,161 |  | 1,168 |
Total | $ | 19,724 |  | $ | 19,081 |
1 Includes $19.7 million and $19.0 million of TDR loans that were accruing interest as of March 31, 2016 and December 31, 2015, respectively. Includes $621 thousand and $137 thousand of acquired loans at March 31, 2016 and December 31, 2015, respectively. The table below presents the following information for loans modified in a TDR during the presented periods: number of contracts modified, the recorded investment in the loans prior to modification, and the recorded investment in the loans after being restructured. The table below excludes fully charged-off TDR loans and loans modified in a TDR and subsequently paid-off during the years presented. There were no loans modified in a TDR during the three months ended March 31, 2015.
(dollars in thousands) | Number of Contracts Modified |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment at period end |
Troubled Debt Restructurings during the three months ended March 31, 2016: |  |  |  |
Commercial real estate, investor | 1 |  | $ | 1,549 |  | $ | 1,546 |  | $ | 1,541 |
The modification during the three months ended March 31, 2016 primarily involved an interest rate concession and other changes to loan terms. During the first three months of 2016 and 2015, there were no defaults on loans that had been modified in a TDR within the prior twelve-month period. We report defaulted TDRs based on a payment default definition of more than ninety days past due. Impaired Loan Balances and Their Related Allowance by Major Classes of Loans The tables below summarize information on impaired loans and their related allowance. Total impaired loans include non-accrual loans, accruing TDR loans and accreting PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.
(in thousands) | Commercial and industrial |  | Commercial real estate, owner-occupied |  | Commercial real estate, investor |  | Construction |  | Home equity |  | Other residential |  | Installment and other consumer |  | Total |
March 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Recorded investment in impaired loans: |  |  |  |  |  |
With no specific allowance recorded | $ | 317 |  | $ | — |  | $ | 1,789 |  | $ | 2,688 |  | $ | 791 |  | $ | 1,205 |  | $ | 113 |  | $ | 6,903 |
With a specific allowance recorded | 3,529 |  | 6,993 |  | 2,052 |  | 550 |  | 386 |  | 793 |  | 1,113 |  | 15,416 |
Total recorded investment in impaired loans | $ | 3,846 |  | $ | 6,993 |  | $ | 3,841 |  | $ | 3,238 |  | $ | 1,177 |  | $ | 1,998 |  | $ | 1,226 |  | $ | 22,319 |
Unpaid principal balance of impaired loans | $ | 3,846 |  | $ | 6,993 |  | $ | 5,833 |  | $ | 3,238 |  | $ | 1,193 |  | $ | 1,998 |  | $ | 1,226 |  | $ | 24,327 |
Specific allowance | $ | 829 |  | $ | 129 |  | $ | 466 |  | $ | 4 |  | $ | 4 |  | $ | 69 |  | $ | 107 |  | $ | 1,608 |
Average recorded investment in impaired loans during the quarter ended March 31, 2016 | $ | 4,283 |  | $ | 6,993 |  | $ | 3,129 |  | $ | 3,238 |  | $ | 868 |  | $ | 2,004 |  | $ | 1,239 |  | $ | 21,754 |
Interest income recognized on impaired loans during the quarter ended March 31, 2016 | $ | 57 |  | $ | 66 |  | $ | 16 |  | $ | 38 |  | $ | 4 |  | $ | 23 |  | $ | 13 |  | $ | 217 |
Average recorded investment in impaired loans during the quarter ended March 31, 2015 | $ | 3,718 |  | $ | 8,443 |  | $ | 2,915 |  | $ | 5,681 |  | $ | 627 |  | $ | 2,041 |  | $ | 1,743 |  | $ | 25,168 |
Interest income recognized on impaired loans during the quarter ended March 31, 2015 | $ | 62 |  | $ | 66 |  | $ | 6 |  | $ | 9 |  | $ | 5 |  | $ | 23 |  | $ | 19 |  | $ | 190 |
(in thousands) | Commercial and industrial |  | Commercial real estate, owner-occupied |  | Commercial real estate, investor |  | Construction |  | Home equity |  | Other residential |  | Installment and other consumer |  | Total |
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Recorded investment in impaired loans: |  |  |  |  |  |  |  |  |  |  |  |
With no specific allowance recorded | $ | 2,198 |  | $ | 4,111 |  | $ | 2,416 |  | $ | 2,687 |  | $ | 171 |  | $ | 1,214 |  | $ | 131 |  | $ | 12,928 |
With a specific allowance recorded | 2,522 |  | 2,882 |  | — |  | 551 |  | 388 |  | 797 |  | 1,120 |  | 8,260 |
Total recorded investment in impaired loans | $ | 4,720 |  | $ | 6,993 |  | $ | 2,416 |  | $ | 3,238 |  | $ | 559 |  | $ | 2,011 |  | $ | 1,251 |  | $ | 21,188 |
Unpaid principal balance of impaired loans | $ | 4,763 |  | $ | 6,993 |  | $ | 4,408 |  | $ | 3,424 |  | $ | 559 |  | $ | 2,011 |  | $ | 1,251 |  | $ | 23,409 |
Specific allowance | $ | 912 |  | $ | 70 |  | $ | — |  | $ | 1 |  | $ | 3 |  | $ | 67 |  | $ | 116 |  | $ | 1,169 |
Management monitors delinquent loans continuously and identifies problem loans, generally loans graded substandard or worse, to be evaluated individually for impairment testing. Generally, the recorded investment in impaired loans is net of any charge-offs from estimated losses related to specifically-identified impaired loans when they are deemed uncollectible. The charged-off portion of impaired loans outstanding at March 31, 2016 and December 31, 2015 totaled approximately $2.0 million and 2.1 million, respectively. In addition, the recorded investment in impaired loans is net of purchase discounts or premiums on acquired loans. At March 31, 2016 and December 31, 2015, unused commitments to extend credit on impaired loans, including loans to borrowers whose terms have been modified in TDRs, totaled $1.5 million and 1.3 million, respectively. The following tables disclose loans by major portfolio category and activity in the ALLL, as well as the related ALLL disaggregated by impairment evaluation method.
Allowance for Loan Losses Rollforward for the Period
(in thousands) | Commercial and industrial |  | Commercial real estate, owner-occupied |  | Commercial real estate, investor |  | Construction |  | Home equity |  | Other residential |  | Installment and other consumer |  | Unallocated |  | Total |
Three months ended March 31, 2016 |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |
Beginning balance | $ | 3,023 |  | $ | 2,249 |  | $ | 6,178 |  | $ | 724 |  | $ | 910 |  | $ | 394 |  | $ | 425 |  | $ | 1,096 |  | $ | 14,999 |
Provision (reversal) | (247 | ) | (630 | ) | 388 |  | 98 |  | 133 |  | 36 |  | 9 |  | 213 |  | — |
Charge-offs | (9 | ) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | (9 | )
Recoveries | 32 |  | — |  | 5 |  | — |  | 1 |  | — |  | — |  | — |  | 38 |
Ending balance | $ | 2,799 |  | $ | 1,619 |  | $ | 6,571 |  | $ | 822 |  | $ | 1,044 |  | $ | 430 |  | $ | 434 |  | $ | 1,309 |  | $ | 15,028 |
Three months ended March 31, 2015 |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |
Beginning balance | $ | 2,837 |  | $ | 1,924 |  | $ | 6,672 |  | $ | 839 |  | $ | 859 |  | $ | 433 |  | $ | 566 |  | $ | 969 |  | $ | 15,099 |
Provision (reversal) | (275 | ) | 170 |  | (383 | ) | (61 | ) | 63 |  | (3 | ) | (99 | ) | 588 |  | — |
Charge-offs | (2 | ) | — |  | — |  | — |  | — |  | — |  | (6 | ) | — |  | (8 | )
Recoveries | 60 |  | — |  | 3 |  | — |  | 1 |  | — |  | 1 |  | — |  | 65 |
Ending balance | $ | 2,620 |  | $ | 2,094 |  | $ | 6,292 |  | $ | 778 |  | $ | 923 |  | $ | 430 |  | $ | 462 |  | $ | 1,557 |  | $ | 15,156 |
Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands) | Commercial and industrial |  | Commercial real estate, owner-occupied |  | Commercial real estate, investor |  | Construction |  | Home equity |  | Other residential |  | Installment and other consumer |  | Unallocated |  | Total |
As of March 31, 2016:
Ending ALLL related to loans collectively evaluated for impairment | $ | 1,970 |  | $ | 1,490 |  | $ | 6,105 |  | $ | 818 |  | $ | 1,040 |  | $ | 361 |  | $ | 327 |  | $ | 1,309 |  | $ | 13,420 |
Ending ALLL related to loans individually evaluated for impairment | 829 |  | 129 |  | 466 |  | 4 |  | 4 |  | 69 |  | 107 |  | — |  | 1,608 |
Ending ALLL related to purchased credit-impaired loans | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 2,799 |  | $ | 1,619 |  | $ | 6,571 |  | $ | 822 |  | $ | 1,044 |  | $ | 430 |  | $ | 434 |  | $ | 1,309 |  | $ | 15,028 |
Loans outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collectively evaluated for impairment | $ | 209,184 |  | $ | 230,317 |  | $ | 701,780 |  | $ | 71,290 |  | $ | 109,646 |  | $ | 71,898 |  | $ | 22,556 |  | $ | — |  | $ | 1,416,671 |
Individually evaluated for impairment | 3,846 |  | 6,993 |  | 3,841 |  | 3,238 |  | 1,177 |  | 1,998 |  | 1,226 |  | — |  | 22,319 |
Purchased credit-impaired | 38 |  | 1,022 |  | 1,719 |  | — |  | 70 |  | — |  | — |  | — |  | 2,849 |
Total | $ | 213,068 |  | $ | 238,332 |  | $ | 707,340 |  | $ | 74,528 |  | $ | 110,893 |  | $ | 73,896 |  | $ | 23,782 |  | $ | — |  | $ | 1,441,839 |
Ratio of allowance for loan losses to total loans | 1.31 | % | 0.68 | % | 0.93 | % | 1.10 | % | 0.94 | % | 0.58 | % | 1.82 | % | NM |  | 1.04 | %
Allowance for loan losses to non-accrual loans | 13,329 | % | NM |  | 367 | % | NM |  | 132 | % | NM |  | 668 | % | NM |  | 564 | %
NM - Not Meaningful
Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands) | Commercial and industrial |  | Commercial real estate, owner-occupied |  | Commercial real estate, investor |  | Construction |  | Home equity |  | Other residential |  | Installment and other consumer |  | Unallocated |  | Total |
As of December 31, 2015:
Ending ALLL related to loans collectively evaluated for impairment | $ | 2,111 |  | $ | 2,179 |  | $ | 6,178 |  | $ | 723 |  | $ | 907 |  | $ | 327 |  | $ | 309 |  | $ | 1,096 |  | $ | 13,830 |
Ending ALLL related to loans individually evaluated for impairment | 904 |  | 70 |  | — |  | — |  | 3 |  | 67 |  | 116 |  | — |  | 1,160 |
Ending ALLL related to purchased credit-impaired loans | 8 |  | — |  | — |  | 1 |  | — |  | — |  | — |  | — |  | 9 |
Total | $ | 3,023 |  | $ | 2,249 |  | $ | 6,178 |  | $ | 724 |  | $ | 910 |  | $ | 394 |  | $ | 425 |  | $ | 1,096 |  | $ | 14,999 |
Loans outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collectively evaluated for impairment | $ | 214,695 |  | $ | 233,605 |  | $ | 711,737 |  | $ | 62,256 |  | $ | 111,673 |  | $ | 71,143 |  | $ | 21,388 |  | $ | — |  | $ | 1,426,497 |
Individually evaluated for impairment 1 | 4,582 |  | 6,993 |  | 2,416 |  | 3,238 |  | 559 |  | 2,011 |  | 1,251 |  | — |  | 21,050 |
Purchased credit-impaired | 175 |  | 1,711 |  | 1,726 |  | 1 |  | 68 |  | — |  | — |  | — |  | 3,681 |
Total | $ | 219,452 |  | $ | 242,309 |  | $ | 715,879 |  | $ | 65,495 |  | $ | 112,300 |  | $ | 73,154 |  | $ | 22,639 |  | $ | — |  | $ | 1,451,228 |
Ratio of allowance for loan losses to total loans | 1.38 | % | 0.93 | % | 0.86 | % | 1.11 | % | 0.81 | % | 0.54 | % | 1.88 | % | NM |  | 1.03 | %
Allowance for loan losses to non-accrual loans | 14,395 | % | NM |  | 325 | % | 72,400 | % | 532 | % | NM |  | 512 | % | NM |  | 688 | %
1 Total excludes $138 thousand PCI loans that have experienced credit deterioration post-acquisition declines in cash flows expected to be collected. These loans are included in the "purchased credit-impaired" amount in the next line below. NM - Not Meaningful Purchased Credit-Impaired Loans We evaluated loans purchased in acquisitions in accordance with accounting guidance in ASC 310-30 related to loans acquired with deteriorated credit quality. Acquired loans are considered credit-impaired if there is evidence of significant deterioration of credit quality since origination and it is probable, at the acquisition date, that we will be unable to collect all contractually required payments receivable. Management has determined certain loans purchased in our two acquisitions to be PCI loans based on credit indicators such as nonaccrual status, past due status, loan risk grade, loan-to-value ratio, etc. Revolving credit agreements (e.g., home equity lines of credit and revolving commercial loans) are not considered PCI loans as cash flows cannot be reasonably estimated. For acquired loans not considered credit-impaired, the difference between the contractual amounts due (principal amount) and the fair value is accounted for subsequently through accretion. We recognize discount accretion based on the acquired loan’s contractual cash flows using an effective interest rate method. The accretion is recognized through the net interest margin. The following table presents the outstanding balances and related carrying values of PCI loans as of March 31, 2016 and December 31, 2015.
| March 31, 2016 | December 31, 2015
PCI Loans (in thousands) | Unpaid principal balance |  | Carrying value |  | Unpaid principal balance |  | Carrying value |
Commercial and industrial | $ | 53 |  | $ | 38 |  | $ | 237 |  | $ | 175 |
Commercial real estate | 3,124 |  | 2,741 |  | 4,329 |  | 3,437 |
Construction | — |  | — |  | 187 |  | 1 |
Home equity | 223 |  | 70 |  | 224 |  | 68 |
Total purchased credit-impaired loans | $ | 3,400 |  | $ | 2,849 |  | $ | 4,977 |  | $ | 3,681 |
The activities in the accretable yield, or income expected to be earned, for PCI loans were as follows:
Accretable Yield | Three months ended
(in thousands) | March 31, 2016 | March 31, 2015
Balance at beginning of period | $ | 2,618 |  | $ | 4,027 |
Removals 1 | (778 | ) | (77 | )
Accretion | (98 | ) | (119 | )
Reclassifications from nonaccretable difference 2 | — |  | — |
Balance at end of period | $ | 1,742 |  | $ | 3,831 |
1 Represents the accretable difference that is relieved when a loan exits the PCI population due to pay-off, full charge-off, or transfer to repossessed assets, etc. 2 Primarily relates to changes in expected credit performance and changes in expected timing of cash flows. Pledged Loans Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with an unpaid principal balance of $866.3 million and $833.8 million at March 31, 2016 and December 31, 2015, respectively. In addition, we pledge a certain residential loan portfolio, which totaled $47.6 million and $45.2 million at March 31, 2016 and December 31, 2015, respectively, to secure our borrowing capacity with the Federal Reserve Bank (“FRB”). Also see Note 6, Borrowings.

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