Note F

Impaired Loans and Allowance for Loan Losses

During the twelve months ended December 31, 2015, the total of newly identified Troubled Debt Restructurings ("TDRs") was $2.6 million, of which $1.9 million were accruing commercial real estate loans and $0.2 million were accruaing construction and land development loans.

The Company's TDR concessions granted generally do not include forgiveness of principal balances. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements. When a loan is modified as a TDR, there is not a direct, material impact on the loans within the consolidated balance sheet, as principal balances are generally not forgiven. Most loans prior to modification were classified as an impaired loan and the allowance for loan losses is determined in accordance with Company policy.

The following tables present accruing loans that were modified within the twelve months ending December 31, 2015 and 2014:

			Pre-		Post-
			Modification		Modification
	Number		Outstanding		Outstanding		Specific		Valuation
	of		Recorded		Recorded		Reserve		Allowance
	Contracts		Investment		Investment		Recorded		Recorded
	(In thousands)
2015:
Construction and Land Development		2	$	220	$	218	$	0	$	2
Residential Real Estate		1		27		26		0		1
Commercial Real Estate		3		1,881		1,787		0		94
Consumer		1		48		45		0		3
		7	$	2,176	$	2,076	$	0	$	100

2014:
Construction and Land Development		1	$	72	$	71	$	0	$	1
Residential Real Estate		6		687		638		0		49
Commercial Real Estate		1		4,300		3,975		0		325
		8	$	5,059	$	4,684	$	0	$	375

No accruing loans that were restructured within the twelve months ending December 31, 2015 defaulted during the twelve months ended December 31, 2015, and no loans restructured with the twelve month ending December 31, 2104 defaulted during the twelve months ended December 31, 2014. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and specific allowance for loan losses assigned in accordance with the Company's policy.

At December 31, 2015 and 2014, the Company's recorded investment in impaired loans (excluding purchased loans) and related valuation allowance was as follows:

	Impaired Loans
	for the Year Ended December 31, 2015
			Unpaid		Related		Average		Interest
	Recorded		Principal		Valuation		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	( In thousands )
With no related allowance recorded:
Construction and land development	$	107	$	255	$	0	$	1,252	$	6
Commercial real estate		2,363		3,911		0		2,880		16
Residential real estate		9,256		13,707		0		10,259		168
Commercial and financial		17		17		0		84		1
Consumer		264		349		0		141		3
With an allowance recorded:
Construction and land development		835		870		84		987		29
Commercial real estate		7,087		7,087		429		7,280		302
Residential real estate		12,447		12,803		1,964		15,136		337
Commercial and financial		0		0		0		0		0
Consumer		351		351		40		495		18
Total:
Construction and land development		942		1,125		84		2,239		35
Commercial real estate		9,450		10,998		429		10,160		318
Residential real estate		21,703		26,510		1,964		25,395		505
Commercial and financial		17		17		0		84		1
Consumer		615		700		40		636		21
	$	32,727	$	39,350	$	2,517	$	38,514	$	880

	Impaired Loans
	for the Year Ended December 31, 2014
			Unpaid		Related		Average		Interest
	Recorded		Principal		Valuation		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	( In thousands )
With no related allowance recorded:
Construction and land development	$	1,824	$	2,239	$	0	$	2,080	$	106
Commercial real estate		3,087		4,600		0		2,713		20
Residential real estate		11,898		16,562		0		11,366		198
Commercial and financial		120		120		0		110		8
Consumer		65		93		0		291		1
With an allowance recorded:
Construction and land development		886		931		159		1,213		81
Commercial real estate		8,359		8,469		529		10,446		461
Residential real estate		16,804		17,693		2,741		20,793		445
Commercial and financial		0		0		0		47		0
Consumer		534		562		112		543		25
Total:
Construction and land development		2,710		3,170		159		3,293		187
Commercial real estate		11,446		13,069		529		13,159		481
Residential real estate		28,702		34,255		2,741		32,159		643
Commercial and financial		120		120		0		157		8
Consumer		599		655		112		834		26
	$	43,577	$	51,269	$	3,541	$	49,602	$	1,345

Impaired loans also include loans that have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have been granted. At December 31, 2015 and 2014, accruing TDRs totaled $20.0 million and $25.0 million, respectively.

The average recorded investment in impaired loans for the years ended December 31, 2015, 2014 and 2013 was $38.5 million, $49.6 million, and $66.6 million, respectively. The impaired loans were measured for impairment based on the value of underlying collateral or the present value of expected future cash flows discounted at the loan's effective interest rate. The valuation allowance is included in the allowance for loan losses.

Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions to principal. For the years ended December 31, 2015, 2014 and 2013, the Company recorded $880,000, $1,345,000 and $1,260,000, respectively, in interest income on impaired loans.

For impaired loans whose impairment is measured based on the present value of expected future cash flows a total of $318,000, $456,000, and $1.1 million, respectively, for 2015, 2014 and 2013 was included in interest income and represents the change in present value attributable to the passage of time.

The nonaccrual loans and accruing loans past due 90 days or more (excluding purchased loans) were $12,758,000 and $0, respectively, at December 31, 2015, $18,563,000 and $17,000, respectively at the end of 2014, and were $27,672,000 and $160,000, respectively, at year-end 2013.

The purchased nonaccrual loans and accruing loans past due 90 days or more were $4,628,000 and $0, respectively at 2015, $2,577,000 and $196,000, respectively, at December 31, 2014. There were no purchased loans prior to 2014.

Activity in the allowance for loans losses (excluding PCI loans) for the three years ended December 31, 2015, 2014 and 2013 are summarized as follows:

	Beginning Balance		Provision for Loan Losses		Charge-Offs		Recoveries		Net (Charge-Offs) Recoveries		Ending Balance
	(In thousands)
December 31 , 2015
Construction and land development	$	722	$	1,296	$	(1,271)	$	404	$	(867)	$	1,151
Commercial real estate		4,528		2,010		(482)		700		218		6,756
Residential real estate		9,784		(2,208)		(779)		1,260		481		8,057
Commercial and financial		1,179		1,058		(726)		531		(195)		2,042
Consumer		794		552		(341)		117		(224)		1,122
	$	17,007	$	2,708	$	(3,599)	$	3,012	$	(587)	$	19,128
December 31 , 2014
Construction and land development	$	808	$	139	$	(640)	$	415	$	(225)	$	722
Commercial real estate		6,160		(2,917)		(398)		1,683		1,285		4,528
Residential real estate		11,659		(1,651)		(1,126)		902		(224)		9,784
Commercial and financial		710		697		(398)		170		(228)		1,179
Consumer		731		182		(193)		74		(119)		794
	$	20,068	$	(3,550)	$	(2,755)	$	3,244	$	489	$	17,007
December 31, 2013
Construction and land development	$	1,134	$	66	$	(604)	$	212	$	(392)	$	808
Commercial real estate		8,849		(522)		(2,714)		547		(2,167)		6,160
Residential real estate		11,090		3,273		(3,153)		449		(2,704)		11,659
Commercial and financial		468		(24)		(60)		326		266		710
Consumer		563		395		(253)		26		(227)		731
	$	22,104	$	3,188	$	(6,784)	$	1,560	$	(5,224)	$	20,068

As discussed in Note A, "Significant Accounting Policies," the allowance for loan losses is composed of specific allowances for certain impaired loans and general allowances grouped into loan pools based on similar characteristics. The Company's loan portfolio (excluding PCI loans) and related allowance at December 31, 2015 and 2014 is shown in the following tables.

	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
December 31, 2015	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
	(In thousands)

Construction and land development	$	942	$	84	$	107,731	$	1,067	$	108,673	$	1,151
Commercial real estate		9,450		429		989,938		6,327		999,388		6,756
Residential real estate		21,703		1,964		701,160		6,093		722,863		8,057
Commercial and financial		17		0		227,417		2,042		227,434		2,042
Consumer		615		40		85,248		1,082		85,863		1,122
	$	32,727	$	2,517	$	2,111,494	$	16,611	$	2,144,221	$	19,128

	Individually Evaluated for				Collectively Evaluated for
	Impairment				Impairment				Total
December 31, 2014	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
	(In thousands)

Construction and land development	$	2,710	$	159	$	82,769	$	563	$	85,479	$	722
Commercial real estate		11,446		529		821,609		3,999		833,055		4,528
Residential real estate		28,702		2,741		657,344		7,043		686,046		9,784
Commercial and financial		120		0		155,964		1,179		156,084		1,179
Consumer		599		112		52,808		682		53,407		794
	$	43,577	$	3,541	$	1,770,494	$	13,466	$	1,814,071	$	17,007

Loans collectively evaluated for impairment reported at December 31, 2015 included loans acquired from Grand on July 17, 2015 and BANKshares on October 1, 2014 that are not PCI loans. At December 31, 2015, the remaining fair value adjustment for loans acquired from Grand and BANKshares was approximately $14.2 million, or approximately 4.43% of the outstanding aggregate PUL balances. At December 31, 2014, the remaining fair value adjustments for loans acquired from BANKshares at the acquisition date was approximately $11.2 million, or 3.56% of the outstanding aggregate loan balances. These amounts, which represents the remaining fair value discount of each PUL, are accreted into interest income over the remaining lives of the related loans on a level yield basis. Provisioning for loan losses of $1.3 million and net charge-offs of $1.2 million were recorded for these loans during 2015. No provision for loan losses was recorded related to these loans at December 31, 2014. The table below summarizes PCI loans that were individually evaluated for impairment based on expected cash flows at December 31, 2015 and 2014.

	December 31, 2015				December 31, 2014
	PCI Loans Individually Evaluated for Impairment				PCI Loans Individually Evaluated for Impairment
	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance

Construction and land development	$	114	$	0	$	1,557	$	43
Commercial real estate		9,990		0		4,092		3
Residential real estate		922		0		851		18
Commercial and financial		1,083		0		1,312		0
Consumer		0		0		2		0
	$	12,109	$	0	$	7,814	$	64