Note 4.Loans and Leases

Major classifications of loans are as follows:


	March 31,		December 31,
(In thousands)	2016		2015
Commercial real estate	$	237,343	$	225,679
Construction and land development		61,095		47,984
Commercial and industrial		92,189		85,980
Multi-family		16,576		16,249
Residential real estate		49,370		51,588
Leases		67,267		64,341
Tax certificates		4,820		4,755
Consumer		2,487		2,527
Total loans, net of unearned income	$	531,147	$	499,103

We use a nine point grading risk classification system commonly used in the financial services industry as the credit quality indicator. The first four classifications are rated Pass. The riskier classifications include Pass-Watch, Special Mention, Substandard, Doubtful and Loss. The risk rating is related to the underlying credit quality and probability of default. These risk ratings are used in the calculation of the allowance for loan and lease losses.

Pass: includes credits that demonstrate a low probability of default;

Pass-watch: a classification which includes currently performing credits that are beginning to demonstrate above average risk through declining earnings, strained cash flows, increased leverage and/or weakening market fundamentals. This class may also include new loan originations which warrant approval but may contain certain risks that require closer than usual monitoring and supervision, such as construction loans;

Special mention: includes credits that have potential weaknesses that if left uncorrected could weaken the credit or result in inadequate protection of our position at some future date. While potentially weak, credits in this classification are marginally acceptable and loss of principal or interest is not anticipated;

Substandard accrual: includes credits that exhibit a well-defined weakness which currently jeopardizes the repayment of debt and liquidation of collateral even though they are currently performing. These credits are characterized by the distinct possibility that we may incur a loss in the future if these weaknesses are not corrected;

Non-accrual (substandard non-accrual, doubtful, loss): includes credits that demonstrate serious problems to the point that it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement.

All loans are assigned an initial loan risk rating by the Chief Credit Officer (“CCO”). The initial loan risk rating is approved by another member of executive management or by the appropriate loan committee approving the loan request. From time to time, and at the general direction of any of the various loan committees, the ratings may be changed based on the findings of that committee. Items considered in assigning ratings include the financial strength of the borrower and/or guarantors, the type of collateral, the collateral lien position, the type of loan and loan structure, any potential risk inherent in the specific loan type, higher than normal monitoring of the loan or any other factor deemed appropriate by any of the various committees for changing the rating of the loan. Any such change in rating is reflected in the minutes of that committee.

The following tables present risk ratings for each loan portfolio classification at March 31, 2016 and December 31, 2015.


As of March 31, 2016
(In thousands)	Pass		Pass-Watch		Special Mention		Substandard		Non-accrual		Total
Commercial real estate	$	206,461	$	28,638	$	848	$	—	$	1,396	$	237,343
Construction and land development		13,696		47,254		—		—		145		61,095
Commercial and industrial		82,202		7,255		42		1,869		821		92,189
Multi-family		16,320		256		—		—		—		16,576
Residential real estate		48,527		—		—		—		843		49,370
Leases		65,576		610		100		—		981		67,267
Tax certificates		3,782		—		—		—		1,038		4,820
Consumer		2,394		93		—		—		—		2,487
Total loans, net of unearned income	$	438,958	$	84,106	$	990	$	1,869	$	5,224	$	531,147


As of December 31, 2015
(In thousands)	Pass		Pass-Watch		Special Mention		Substandard		Non-accrual		Total
Commercial real estate	$	191,320	$	31,994	$	870	$	—	$	1,495	$	225,679
Construction and land development		4,429		43,410		—		—		145		47,984
Commercial and industrial		68,998		13,971		195		2,065		751		85,980
Multi-family		15,982		267		—		—		—		16,249
Residential real estate		50,699		—		—		—		889		51,588
Leases		62,896		319		39		—		1,087		64,341
Tax certificates		3,630		—		—		—		1,125		4,755
Consumer		2,439		88		—		—		—		2,527
Total loans, net of unearned income	$	400,393	$	90,049	$	1,104	$	2,065	$	5,492	$	499,103

The following tables present an aging analysis of past due payments for each loan portfolio classification at March 31, 2016 and December 31, 2015.


As of March 31, 2016	30-59 Days		60-89 Days		Accruing
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	—	$	—	$	—	$	1,396	$	235,947	$	237,343
Construction and land development		—		—		—		145		60,950		61,095
Commercial and industrial		1,190		58		—		821		90,120		92,189
Multi-family		—		—		—		—		16,576		16,576
Residential real estate		1,059		155		—		843		47,313		49,370
Leases		610		100		—		981		65,576		67,267
Tax certificates		—		—		—		1,038		3,782		4,820
Consumer		—		—		—		—		2,487		2,487
Total loans, net of unearned income	$	2,859	$	313	$	—	$	5,224	$	522,751	$	531,147


As of December 31, 2015	30-59 Days		60-89 Days		Accruing
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	96	$	—	$	—	$	1,495	$	224,088	$	225,679
Construction and land development		507		—		—		145		47,332		47,984
Commercial and industrial		910		592		—		751		83,727		85,980
Multi-family		—		—		—		—		16,249		16,249
Residential real estate		724		159		—		889		49,816		51,588
Leases		319		39		—		1,087		62,896		64,341
Tax certificates		—		—		—		1,125		3,630		4,755
Consumer		—		—		—		—		2,527		2,527
Total loans, net of unearned income	$	2,556	$	790	$	—	$	5,492	$	490,265	$	499,103

If interest had accrued on non-accrual loans, such income would have been approximately $158 thousand and $204 thousand for the three months ended March 31, 2016 and 2015, respectively.

Impaired Loans

Total cash collected on impaired loans during the three months ended March 31, 2016 and 2015 was $257 thousand and $1.3 million respectively, of which $257 thousand and $1.1 million was credited to the principal balance outstanding on such loans, respectively. Interest income recognized on a cash basis on impaired loans and leases was $0 and $135 thousand for the three months ended March 31, 2016 and 2015, respectively.

Troubled Debt Restructurings (“TDRs”)

The following table details our TDRs that are on an accrual status and non-accrual status at March 31, 2016 and December 31, 2015.


	As of March 31, 2016
				Non-
	Number of	Accrual		Accrual
(In thousands)	loans	Status		Status		Total TDRs
Commercial real estate	1	$	22	$	—	$	22
Construction and land development	1		—		145		145
Commercial and industrial	2		1,869		181		2,050
Residential real estate	1		—		88		88
Total	5	$	1,891	$	414	$	2,305


	As of December 31, 2015
				Non-
	Number of	Accrual		Accrual
(In thousands)	loans	Status		Status		Total TDRs
Commercial real estate	1	$	24	$	—	$	24
Construction and land development	1		—		145		145
Commercial and industrial	3		2,315		—		2,315
Residential real estate	1		—		92		92
Total	6	$	2,339	$	237	$	2,576

At March 31, 2016, there were no TDRs modified within the past 12 months, for which there was a payment default. We did not classify any loan modifications as TDRs during the first quarter of 2016 and 2015.

We may obtain physical possession of real estate collateralizing residential mortgage loans or home equity loans through or in lieu of, foreclosure. As of March 31, 2016, we have a foreclosed residential real estate property with a carrying value of $28 thousand as a result of physical possession. In addition, as of March 31, 2016, we had residential mortgage loans with a carrying value of $413 thousand collateralized by residential real estate property for which formal foreclosure proceedings were in process.