Note 5 Allowance for Loan Losses

The tables below detail the Company’s allowance for loan losses (“ALL”) and recorded investment in loans as of and for the three and six months ended June 30, 2016 and 2015:


	Three months ended June 30, 2016
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	28,684	$	3,861	$	4,325	$	296	$	37,166
Non 310-30 beginning balance		28,610		3,803		4,289		249		36,951
Charge-offs		(3,375)		—		(140)		(171)		(3,686)
Recoveries		12		56		16		126		210
Provision		4,733		1,298		339		30		6,400
Non 310-30 ending balance		29,980		5,157		4,504		234		39,875
ASC 310-30 beginning balance		74		58		36		47		215
Charge-offs		—		(41)		—		—		(41)
Recoveries		—		—		—		—		—
(Recoupment) provision		(72)		194		(36)		(29)		57
ASC 310-30 ending balance		2		211		—		18		231
Ending balance	$	29,982	$	5,368	$	4,504	$	252	$	40,106


	Three months ended June 30, 2015
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	11,913	$	2,823	$	3,787	$	350	$	18,873
Non 310-30 beginning balance		11,293		2,686		3,787		336		18,102
Charge-offs		(1)		(220)		(95)		(357)		(673)
Recoveries		33		109		—		55		197
Provision		259		262		955		374		1,850
Non 310-30 ending balance		11,584		2,837		4,647		408		19,476
ASC 310-30 beginning balance		620		137		—		14		771
Charge-offs		—		—		—		(14)		(14)
Recoveries		—		—		—		—		—
Provision (recoupment)		12		(11)		2		5		8
ASC 310-30 ending balance		632		126		2		5		765
Ending balance	$	12,216	$	2,963	$	4,649	$	413	$	20,241


	Six months ended June 30, 2016
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	17,261	$	4,166	$	5,281	$	411	$	27,119
Non 310-30 beginning balance		16,473		3,939		5,245		385		26,042
Charge-offs		(3,484)		(276)		(197)		(388)		(4,345)
Recoveries		24		65		23		185		297
Provision		16,967		1,429		(567)		52		17,881
Non 310-30 ending balance		29,980		5,157		4,504		234		39,875
ASC 310-30 beginning balance		788		227		36		26		1,077
Charge-offs		—		(41)		—		—		(41)
Recoveries		—		—		—		—		—
(Recoupment) provision		(786)		25		(36)		(8)		(805)
ASC 310-30 ending balance		2		211		—		18		231
Ending balance	$	29,982	$	5,368	$	4,504	$	252	$	40,106
Ending allowance balance attributable to:
Non 310-30 loans individually evaluated for impairment	$	14,933	$	3	$	39	$	2	$	14,977
Non 310-30 loans collectively evaluated for impairment		15,047		5,154		4,465		232		24,898
ASC 310-30 loans		2		211		—		18		231
Total ending allowance balance	$	29,982	$	5,368	$	4,504	$	252	$	40,106
Loans:
Non 310-30 individually evaluated for impairment	$	37,265	$	842	$	7,369	$	240	$	45,716
Non 310-30 collectively evaluated for impairment		1,406,609		423,178		667,461		26,258		2,523,506
ASC 310-30 loans		46,875		101,719		19,341		1,347		169,282
Total loans	$	1,490,749	$	525,739	$	694,171	$	27,845	$	2,738,504


	Six months ended June 30, 2015
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	10,384	$	3,042	$	3,771	$	416	$	17,613
Non 310-30 beginning balance		9,916		2,820		3,743		413		16,892
Charge-offs		(51)		(222)		(177)		(565)		(1,015)
Recoveries		54		124		30		138		346
Provision		1,665		115		1,051		422		3,253
Non 310-30 ending balance		11,584		2,837		4,647		408		19,476
ASC 310-30 beginning balance		468		222		28		3		721
Charge-offs		—		—		—		(14)		(14)
Recoveries		—		—		—		—		—
Provision (recoupment)		164		(96)		(26)		16		58
ASC 310-30 ending balance		632		126		2		5		765
Ending balance	$	12,216	$	2,963	$	4,649	$	413	$	20,241
Ending allowance balance attributable to:
Non 310-30 loans individually evaluated for impairment	$	685	$	6	$	202	$	—	$	893
Non 310-30 loans collectively evaluated for impairment		10,899		2,831		4,445		408		18,583
ASC 310-30 loans		632		126		2		5		765
Total ending allowance balance	$	12,216	$	2,963	$	4,649	$	413	$	20,241
Loans:
Non 310-30 individually evaluated for impairment	$	32,940	$	884	$	7,371	$	46	$	41,241
Non 310-30 collectively evaluated for impairment		1,131,346		269,492		615,796		29,354		2,045,988
ASC 310-30 loans		39,903		166,481		31,162		3,749		241,295
Total loans	$	1,204,189	$	436,857	$	654,329	$	33,149	$	2,328,524

In evaluating the loan portfolio for an appropriate ALL level, non-impaired loans that were not accounted for under ASC 310-30 were grouped into segments based on broad characteristics such as primary use and underlying collateral. Within the segments, the portfolio was further disaggregated into classes of loans with similar attributes and risk characteristics for purposes of applying loss ratios and determining applicable subjective adjustments to the ALL. The application of subjective adjustments was based upon qualitative risk factors, including economic trends and conditions, industry conditions, asset quality, loss trends, lending management, portfolio growth and loan review/internal audit results. During the first quarter of 2016, the Company updated the loan classifications in its allowance for loan losses model to include owner occupied commercial real estate and agriculture within the commercial loan segment and present energy as its own loan class within the commercial segment. The prior year presentation has been reclassified to conform to the current year presentation.

The Company had $3.5 million and $4.0 million net charge-offs of non 310-30 loans during the three and six months ended June 30, 2016, respectively. Credit quality remained at acceptable levels within the non 310-30 loan portfolio during the three and six months ended June 30, 2016, with the exception of the energy sector portfolio. Management's evaluation resulted in a provision for loan losses on the non 310-30 loans of $6.4 million and $17.9 million during the three and six months ended June 30, 2016, respectively. The increase in provision was driven by a net $4.3 million increase in reserves against the energy sector portfolio for the three months ended June 30, 2016 and a net $15.0 million increase for the six months ended June 30, 2016.

During the six months ended June 30, 2016, the Company re-estimated the expected cash flows of the loan pools accounted for under ASC 310-30. The re-measurement resulted in a net provision of $57 thousand and a net recoupment of $805 thousand for the three and six months ended June 30, 2016, respectively, which was comprised primarily of a provision of $195 thousand in the non-owner occupied commercial real estate segment, offset by recoupments of $73 thousand and $3 thousand in the commercial real estate and residential real estate segments, respectively, for the three months ended June 30, 2016, and primarily a recoupment of $786 thousand in the commercial segment for the six months ended June 30, 2016.

The Company had $0.5 million and $0.7 million net charge offs of non ASC 310-30 loans during the three and six months ended June 30, 2015, respectively. Strong credit quality trends in the non 310-30 loan portfolio continued during the three and six months ended June 30, 2015, and management’s evaluation resulted in a provision for loan losses on the non 310-30 loans of $1.9 million and $3.3 million, respectively.

During the six months ended June 30, 2015, the Company re-estimated the expected cash flows of the loan pools accounted for under ASC 310-30 utilizing the same cash flow methodology used at the time of acquisition. The re-measurement resulted in a net provision of $8 thousand and $58 thousand for the three and six months ended June 30, 2015, which were comprised primarily of provision of $12 thousand and $164 thousand in the commercial segment during the three and six months ended June 30, 2015, respectively, and recoupment of $11 thousand and $96 thousand in the non-owner occupied commercial real estate segment, respectively, during the three and six months ended June 30, 2015.