5) Loans

Loans were as follows for the periods indicated:

	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Loans held-for-investment:
Commercial	$	592,128		$	556,522
Real estate:
Commercial and residential		616,821			625,665
Land and construction		95,547			84,428
Home equity		74,993			76,833
Consumer		16,476			16,010

Loans		1,395,965			1,359,458
Deferred loan origination fees, net		(701	)		(742	)

Loans, net of deferred fees		1,395,264			1,358,716
Allowance for loan losses		(19,458	)		(18,926	)

Loans, net	$	1,375,806		$	1,339,790

At March 31, 2016 and December 31, 2015, total net loans included in the table above include $130,860,000, and $141,343,000, respectively, of the loans acquired in the Focus transaction that were not purchased credit impaired loans.

Changes in the allowance for loan losses were as follows for the periods indicated:

	Three Months Ended March 31, 2016
	Commercial			Real Estate			Consumer		Total
	(Dollars in thousands)
Balance, beginning of period	$	10,748		$	8,076		$	102	$	18,926
Charge-offs		(117	)		—			—		(117	)
Recoveries		32			216			—		248

Net (charge-offs) recoveries		(85	)		216			—		131
Provision (credit) for loan losses		616			(224	)		9		401

Balance, end of period	$	11,279		$	8,068		$	111	$	19,458

	Three Months Ended March 31, 2015
	Commercial			Real Estate			Consumer		Total
	(Dollars in thousands)
Balance, beginning of period	$	11,187		$	7,070		$	122	$	18,379
Charge-offs		(212	)		(2	)		—		(214	)
Recoveries		436			13			—		449

Net recoveries		224			11			—		235
Provision (credit) for loan losses		(555	)		473			22		(60	)

Balance, end of period	$	10,856		$	7,554		$	144	$	18,554

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, based on the impairment method at the following period-ends:

	March 31, 2016
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2	$	111	$	—	$	113
Collectively evaluated for impairment		11,277		7,957		111		19,345
Acquired with deterioriated credit quality		—		—		—		—

Total allowance balance	$	11,279	$	8,068	$	111	$	19,458


Loans:
Individually evaluated for impairment	$	190	$	3,891	$	3	$	4,084
Collectively evaluated for impairment		591,693		783,470		16,473		1,391,636
Acquired with deterioriated credit quality		245		—		—		245

Total loan balance	$	592,128	$	787,361	$	16,476	$	1,395,965

	December 31, 2015
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	174	$	112	$	—	$	286
Collectively evaluated for impairment		10,574		7,964		102		18,640
Acquired with deterioriated credit quality		—		—		—		—

Total allowance balance	$	10,748	$	8,076	$	102	$	18,926


Loans:
Individually evaluated for impairment	$	2,014	$	4,272	$	4	$	6,290
Collectively evaluated for impairment		554,271		782,654		16,006		1,352,931
Acquired with deterioriated credit quality		237		—		—		237

Total loan balance	$	556,522	$	786,926	$	16,010	$	1,359,458

Purchased Credit Impaired Loans:

The Company has purchased loans, for which there was, at acquisition, evidence of impaired credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these loans is as follows:

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Commercial	$	820	$	876
Outstanding balance	$	820	$	876
Carrying amount, net of discount of $575,000 and $639,000 at March 31, 2016 and December 31, 2015, respectively	$	245	$	237

The Company did not increase the allowance for loan losses for the purchased credit impaired loans listed above during the first three months of 2016 or during 2015. No allowance for loan losses were reversed during the first three months of 2016 or during 2015.

For these purchased credit impaired loans, the Company cannot reasonably estimate the cash flows expected to be collected on the loans and therefore has continued to account for those loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method. If, in the future, cash flows from the borrowers can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. Any loan accounted for under the cost recovery method is also still included as a nonaccrual loan.

The following table presents loans held-for-investment individually evaluated for impairment by class of loans as of March 31, 2016 and December 31, 2015. The recorded investment included in the following table represents loan principal net of any partial charge-offs recognized on the loans. The unpaid principal balance represents the recorded balance prior to any partial charge-offs. The recorded investment in consumer loans collateralized by residential real estate property that are in process of foreclosure according to local requirements of the applicable jurisdiction are not material as of March 31, 2016 and December 31, 2015.

	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(Dollars in thousands)
With no related allowance recorded:
Commercial	$	290	$	290	$	—	$	745	$	745	$	—
Real estate:
Commercial and residential		3,769		2,910		—		3,851		2,992		—
Land and construction		231		213		—		237		219		—
Home Equity		296		296		—		302		302		—
Consumer		3		3		—		4		4		—

Total with no related allowance recorded		4,589		3,712		—		5,139		4,262		—
With an allowance recorded:
Commercial		145		145		2		1,506		1,506		174
Real estate:
Home Equity		472		472		111		759		759		112

Total with an allowance recorded		617		617		113		2,265		2,265		286

Total	$	5,206	$	4,329	$	113	$	7,404	$	6,527	$	286

The following tables present interest recognized and cash-basis interest earned on impaired loans for the periods indicated:

	Three Months Ended March 31, 2016
			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	1,343	$	2,951	$	216	$	914	$	4	$	5,428
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest earned	$	—	$	—	$	—	$	—	$	—	$	—

	Three Months Ended March 31, 2015
			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	1,907	$	2,901	$	1,305	$	341	$	5	$	6,459
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest earned	$	—	$	—	$	—	$	—	$	—	$	—

Nonperforming loans include both smaller dollar balance homogenous loans that are collectively evaluated for impairment and individually classified loans. Nonperforming loans were as follows at period-end:

	March 31,
	March 31,				December 31, 2015
	2016		2015		December 31, 2015
	(Dollars in thousands)
Nonaccrual loans—held-for-investment	$	4,184	$	6,733	$	4,716
Restructured and loans over 90 days past due and still accruing		—		—		1,662

Total nonperforming loans		4,184		6,733		6,378
Other restructured loans		145		163		149

Impaired loans, excluding loans held-for-sale	$	4,329	$	6,896	$	6,527

The following table presents the nonperforming loans by class for the periods indicated:

	March 31, 2016						December 31, 2015
	Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total		Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total
	(Dollars in thousands)
Commercial	$	290	$	—	$	290	$	724	$	1,378	$	2,102
Real estate:
Commercial and residential		2,910		—		2,910		2,992		—		2,992
Land and construction		213		—		213		219		—		219
Home equity		768		—		768		777		284		1,061
Consumer		3		—		3		4		—		4

Total	$	4,184	$	—	$	4,184	$	4,716	$	1,662	$	6,378

The following tables present the aging of past due loans by class for the periods indicated:

	March 31, 2016
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Commercial	$	2,906	$	796	$	—	$	3,702	$	588,426	$	592,128
Real estate:
Commercial and residential		—		889		—		889		615,932		616,821
Land and construction		—		—		213		213		95,334		95,547
Home equity		1		295		—		296		74,697		74,993
Consumer		—		—		—		—		16,476		16,476

Total	$	2,907	$	1,980	$	213	$	5,100	$	1,390,865	$	1,395,965

	December 31, 2015
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Commercial	$	3,285	$	262	$	1,704	$	5,251	$	551,271	$	556,522
Real estate:
Commercial and residential		—		—		—		—		625,665		625,665
Land and construction		219		—		—		219		84,209		84,428
Home equity		—		—		284		284		76,549		76,833
Consumer		—		—		—		—		16,010		16,010

Total	$	3,504	$	262	$	1,988	$	5,754	$	1,353,704	$	1,359,458

Past due loans 30 days or greater totaled $5,100,000 and $5,754,000 at March 31, 2016 and December 31, 2015, respectively, of which $509,000 and $591,000 were on nonaccrual. At March 31, 2016, there were also $3,675,000 loans less than 30 days past due included in nonaccrual loans held for investment. At December 31, 2015, there were also $4,125,000 loans less than 30 days past due included in nonaccrual loans held for investment. Management's classification of a loan as "nonaccrual" is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company begins recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt. The loans may or may not be collateralized, and collection efforts are pursued.

Credit Quality Indicators

Concentrations of credit risk arise when a number of customers are engaged in similar business activities, or activities in the same geographic region, or have similar features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Company's loan portfolio is concentrated in commercial (primarily manufacturing, wholesale, and service) and real estate lending, with the balance in consumer loans. While no specific industry concentration is considered significant, the Company's lending operations are located in the Company's market areas that are dependent on the technology and real estate industries and their supporting companies. Thus, the Company's borrowers could be adversely impacted by a downturn in these sectors of the economy which could reduce the demand for loans and adversely impact the borrowers' ability to repay their loans.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loans terms. Classified loans are those loans that are assigned a substandard, substandard-nonaccrual, or doubtful risk rating using the following definitions:

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Substandard-Nonaccrual. Loans classified as substandard-nonaccrual are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any, and it is probable that the Company will not receive payment of the full contractual principal and interest. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. In addition, the Company no longer accrues interest on the loan because of the underlying weaknesses.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss. Loans classified as loss are considered uncollectable or of so little value that their continuance as assets is not warranted. This classification does not necessarily mean that a loan has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery would occur. Loans classified as loss are immediately charged off against the allowance for loan losses. Therefore, there is no balance to report at March 31, 2016 and December 31, 2015.

The following table provides a summary of the loan portfolio by loan type and credit quality classification at period end:

	March 31, 2016						December 31, 2015
	Nonclassified		Classified*		Total		Nonclassified		Classified*		Total
	(Dollars in thousands)
Commercial	$	580,826	$	11,302	$	592,128	$	547,536	$	8,986	$	556,522
Real estate:
Commercial and residential		608,771		8,050		616,821		617,865		7,800		625,665
Land and construction		95,334		213		95,547		84,209		219		84,428
Home equity		73,889		1,104		74,993		75,511		1,322		76,833
Consumer		16,183		293		16,476		15,705		305		16,010

Total	$	1,375,003	$	20,962	$	1,395,965	$	1,340,826	$	18,632	$	1,359,458


*	Classified loans in the table above include Small Business Administration ("SBA") guarantees.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company's underwriting policy.

The book balance of troubled debt restructurings at March 31, 2016 was $148,000, which included $3,000 of nonaccrual loans and $145,000 of accruing loans. The book balance of troubled debt restructurings at December 31, 2015 was $153,000, which included $4,000 of nonaccrual loans and $149,000 of accruing loans. Approximately $2,000 and $3,000 in specific reserves were established with respect to these loans as of March 31, 2016 and December 31, 2015, respectively. As of March 31, 2016 and December 31, 2015, the Company had no additional amounts committed on any loan classified as a troubled debt restructuring.

There were no new loans modified as troubled debt restructurings during the three month periods ended March 31, 2016 and 2015.

A loan is considered to be in payment default when it is 30 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings, within twelve months following the modification, during the three month periods ended March 31, 2016 and 2015.

A loan that is a troubled debt restructuring on nonaccrual status may return to accruing status after a period of at least six months of consecutive payments in accordance with the modified terms.