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Note 5 - Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2015

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 5. Loans and Allowance for Credit Losses

The Bank makes loans to customers primarily in the Washington, DC metropolitan area and surrounding communities. A substantial portion of the Bank’s loan portfolio consists of loans to businesses secured by real estate and other business assets.

Loans, net of unamortized net deferred fees, at June 30, 2015, December 31, 2014, and June 30, 2014 are summarized by type as follows:

		June 30, 2015								December 31, 2014								June 30, 2014
(dollars in thousands)		Amount				%				Amount				%				Amount				%
Commercial		$	960,506				21	%		$	916,226				21	%		$	726,611				22	%
Income producing - commercial real estate			1,863,583				41	%			1,703,172				40	%			1,302,479				40	%
Owner occupied - commercial real estate			497,834				11	%			461,581				11	%			330,073				10	%
Real estate mortgage - residential			149,842				3	%			148,018				3	%			123,587				4	%
Construction - commercial and residential			901,617				20	%			793,432				18	%			642,264				20	%
Construction - C&I (owner occupied)			54,134				1	%			58,032				1	%			38,368				1	%
Home equity			118,544				3	%			122,536				3	%			108,931				3	%
Other consumer			4,837				-				109,402				3	%			7,116				-
Total loans			4,550,897				100	%			4,312,399				100	%			3,279,429				100	%
Less: Allowance for Credit Losses			(48,921	)							(46,075	)							(43,552	)
Net loans		$	4,501,976							$	4,266,324							$	3,235,877

Unamortized net deferred fees amounted to $16.1 million, $15.6 million, and $14.5 million at June 30, 2015, December 31, 2014, and June 30, 2014, respectively.

As of June 30, 2015 and December 31, 2014, the Bank serviced $31.4 million and $67.9 million, respectively, of SBA loans which are not reflected as loan balances on the consolidated balance sheets.

Loan Origination / Risk Management

The Company’s goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation. Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations.

The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and investment real estate. The combination of owner occupied commercial real estate and owner occupied commercial real estate construction represents 12% of the loan portfolio. At June 30, 2015, the combination of commercial real estate and real estate construction loans represents approximately 73% of the loan portfolio. When owner occupied commercial real estate and owner occupied commercial construction loans are excluded, the percentage of commercial real estate and construction loans to total loans decreases to 61%. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions. The Bank’s policy requires a maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.00. Personal guarantees are generally required, but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years.

The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing. This loan category represents approximately 21% of the loan portfolio at June 30, 2015 and was generally variable or adjustable rate. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent 1% of the commercial loan category of loans. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA.

Approximately 3% of the loan portfolio at June 30, 2015 consists of home equity loans and lines of credit and other consumer loans. These credits, while making up a smaller portion of the loan portfolio, demand the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank.

Approximately 3% of the loan portfolio consists of residential mortgage loans. These are typically loans underwritten to shorter terms, generally less than 10 years.

Loans are secured primarily by duly recorded first deeds of trust. In some cases, the Bank may accept a recorded junior trust position. In general, borrowers will have a proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is customarily required.

Construction loans require that the financial condition and experience of the general contractor and major subcontractors be satisfactory to the Bank. Guaranteed, fixed price contracts are required whenever appropriate, along with payment and performance bonds or completion bonds for larger scale projects.

Loans intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for residential structures, and; 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums. Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.

Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner user commercial properties. Borrowers are generally required to put equity into each project at levels determined by the appropriate Loan Committee. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months.

Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect. Each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or its Chief Financial Officer. Prior to an advance, the Bank or its contractor inspects the project to determine that the work has been completed, to justify the draw requisition.

Commercial permanent loans are secured by improved real property which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan. The debt service coverage ratio is ordinarily at least 1.15 to 1.00. As part of the underwriting process, debt service coverage ratios are stress tested assuming a 200 basis point increase in interest rates from their current levels.

Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower. The preferred term is between 5 to 7 years, with amortization to a maximum of 25 years.

The Company’s loan portfolio includes ADC real estate loans including both investment and owner occupied projects. ADC loans amounted to $955.8 million at June 30, 2015. A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans containing loan funded interest reserves represent approximately 41% of the outstanding ADC loan portfolio at June 30, 2015. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit including: (i) the feasibility of the project; (ii) the experience of the sponsor; (iii) the creditworthiness of the borrower and guarantors; (iv) borrower equity contribution; and (v) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company does not significantly utilize interest reserves in other loan products. The Company recognizes that one of the risks inherent in the use of interest reserves is the potential masking of underlying problems with the project and/or the borrower’s ability to repay the loan. In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including: (i) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination; (ii) a construction loan administration department independent of the lending function; (iii) third party independent construction loan inspection reports; (iv) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects; and (v) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.

From time to time the Company may make loans for its own portfolio or through its higher risk loan affiliate, ECV. Such loans, which are made to finance projects (which may also be financed at the Bank level), may have higher risk characteristics than loans made by the Bank, such as lower priority interests and/or higher loan to value ratios. The Company seeks an overall financial return on these transactions commensurate with the risks and structure of each individual loan. Certain transactions may bear current interest at a rate with a significant premium to normal market rates. Other loan transactions may carry a standard rate of current interest, but also earn additional interest based on a percentage of the profits of the underlying project or a fixed accrued rate of interest.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2015 and 2014. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

						Income				Owner								Construction
						Producing Commercial				Occupied Commercial				Real Estate Mortgage				Commercial and				Home				Other
(dollars in thousands)		Commercial				Real Estate				Real Estate				Residential				Residential				Equity				Consumer				Total
Three months ended June 30, 2015
Allowance for credit losses:
Balance at beginning of period		$	13,777			$	11,652			$	3,127			$	1,055			$	16,383			$	1,509			$	276			$	47,779
Loans charged-off			(2,307	)			(79	)			-				-				-				-				(16	)			(2,402	)
Recoveries of loans previously charged-off			24				18				1				1				9				2				18				73
Net loans charged-off			(2,283	)			(61	)			1				1				9				2				2				(2,329	)
Provision for credit losses			1,417				820				(15	)			26				1,241				(15	)			(3	)			3,471
Ending balance		$	12,911			$	12,411			$	3,113			$	1,082			$	17,633			$	1,496			$	275			$	48,921
Six months ended June 30, 2015
Allowance for credit losses:
Balance at beginning of period		$	13,222			$	11,442			$	2,954			$	1,259			$	15,625			$	1,469			$	104			$	46,075
Loans charged-off			(3,305	)			(397	)			-				-				-				(419	)			(87	)			(4,208	)
Recoveries of loans previously charged-off			75				18				2				3				104				4				67				273
Net loans charged-off			(3,230	)			(379	)			2				3				104				(415	)			(20	)			(3,935	)
Provision for credit losses			2,919				1,348				157				(180	)			1,904				442				191				6,781
Ending balance		$	12,911			$	12,411			$	3,113			$	1,082			$	17,633			$	1,496			$	275			$	48,921
For the period ended June 30, 2015
Allowance for credit losses:
Individually evaluated for impairment		$	4,066			$	491			$	386			$	-			$	803			$	293			$	-			$	6,039
Collectively evaluated for impairment			8,845				11,920				2,727				1,082				16,830				1,203				275				42,882
Ending balance		$	12,911			$	12,411			$	3,113			$	1,082			$	17,633			$	1,496			$	275			$	48,921

Three months ended June 30, 2014
Allowance for credit losses:
Balance at beginning of period		$	11,420			$	10,590			$	3,195			$	754			$	14,179			$	1,507			$	373			$	42,018
Loans charged-off			(1,378	)			-				-				(28	)			(225	)			-				(59	)			(1,690	)
Recoveries of loans previously charged-off			72				4				7				-				6				1				-				90
Net loans charged-off			(1,306	)			4				7				(28	)			(219	)			1				(59	)			(1,600	)
Provision for credit losses			1,299				151				71				232				1,527				(177	)			31				3,134
Ending balance		$	11,413			$	10,745			$	3,273			$	958			$	15,487			$	1,331			$	345			$	43,552
Six months ended June 30, 2014
Allowance for credit losses:
Balance at beginning of period		$	9,780			$	10,359			$	3,899			$	944			$	13,934			$	1,871			$	134			$	40,921
Loans charged-off			(1,651	)			-				(35	)			(90	)			(806	)			(149	)			(84	)			(2,815	)
Recoveries of loans previously charged-off			283				4				7				-				71				6				7				378
Net loans charged-off			(1,368	)			4				(28	)			(90	)			(735	)			(143	)			(77	)			(2,437	)
Provision for credit losses			3,001				382				(598	)			104				2,288				(397	)			288				5,068
Ending balance		$	11,413			$	10,745			$	3,273			$	958			$	15,487			$	1,331			$	345			$	43,552
For the Period Ended June 30, 2014
Allowance for credit losses:
Individually evaluated for impairment		$	3,501			$	732			$	1,102			$	-			$	1,605			$	208			$	-			$	7,148
Collectively evaluated for impairment			7,912				10,013				2,171				958				13,882				1,123				345				36,404
Ending balance		$	11,413			$	10,745			$	3,273			$	958			$	15,487			$	1,331			$	345			$	43,552

The Company’s recorded investments in loans as of June 30, 2015, December 31, 2014 and June 30, 2014 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:

						Income Producing				Owner occupied				Real Estate				Construction Commercial
						Commercial				Commercial				Mortgage				and				Home				Other
(dollars in thousands)		Commercial				Real Estate				Real Estate				Residential				Residential				Equity				Consumer				Total

June 30, 2015
Recorded investment in loans:
Individually evaluated for impairment		$	17,966			$	2,371			$	1,827			$	-			$	17,891			$	887			$	18			$	40,960
Collectively evaluated for impairment			942,540				1,861,212				496,007				149,842				937,860				117,657				4,819				4,509,937
Ending balance		$	960,506			$	1,863,583			$	497,834			$	149,842			$	955,751			$	118,544			$	4,837			$	4,550,897

December 31, 2014
Recorded investment in loans:
Individually evaluated for impairment		$	17,612			$	5,109			$	6,891			$	-			$	14,241			$	1,398			$	59			$	45,310
Collectively evaluated for impairment			898,614				1,698,063				454,690				148,018				837,223				121,138				109,343				4,267,089
Ending balance		$	916,226			$	1,703,172			$	461,581			$	148,018			$	851,464			$	122,536			$	109,402			$	4,312,399

June 30, 2014
Recorded investment in loans:
Individually evaluated for impairment		$	17,405			$	2,913			$	3,230			$	-			$	12,882			$	561			$	-			$	36,991
Collectively evaluated for impairment			709,206				1,299,566				326,843				123,587				667,750				108,370				7,116				3,242,438
Ending balance		$	726,611			$	1,302,479			$	330,073			$	123,587			$	680,632			$	108,931			$	7,116			$	3,279,429

At June 30, 2015, the nonperforming loans acquired have a carrying value of $1.9 million and an unpaid principal balance of $3.0 million, respectively, and were evaluated separately in accordance with ASC Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” The various impaired loans were recorded at estimated fair value with any excess being charged-off or treated as a non-accretable discount. Subsequent downward adjustments to the valuation of impaired loans acquired will result in additional loan loss provisions and related allowance for credit losses. Subsequent upward adjustments to the valuation of impaired loans acquired will result in accretable discount. No adjustments have been made to the fair value amounts of impaired loans subsequent to the allowable period of adjustment from the date of acquisition.

Credit Quality Indicators

The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company's primary credit quality indicators are to use an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment.

The following are the definitions of the Company's credit quality indicators:

Pass:

Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.

Watch:

Loan paying as agreed with generally acceptable asset quality; however the obligor’s performance has not met expectations. Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further setbacks. Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time.

Special Mention:

Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management's close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention.

Classified:	Classified (a) Substandard - Loans inadequately protected by the current sound 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 company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

	Classified (b) Doubtful - Loans that have all the weaknesses inherent in a loan classified 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. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.

The Company's credit quality indicators are updated generally on a quarterly basis, but no less frequently than annually. The following table presents by class and by credit quality indicator, the recorded investment in the Company's loans and leases as of June 30, 2015, December 31, 2014 and June 30, 2014.

						Watch and												Total
(dollars in thousands)		Pass				Special Mention				Substandard				Doubtful				Loans

June 30, 2015
Commercial		$	920,429			$	22,111			$	17,966			$	-			$	960,506
Income producing - commercial real estate			1,837,021				24,191				2,371				-				1,863,583
Owner occupied - commercial real estate			487,922				8,085				1,827				-				497,834
Real estate mortgage – residential			149,101				741				-				-				149,842
Construction - commercial and residential			937,069				791				17,891				-				955,751
Home equity			115,945				1,712				887				-				118,544
Other consumer			4,819				-				18				-				4,837
Total		$	4,452,306			$	57,631			$	40,960			$	-			$	4,550,897

December 31, 2014
Commercial		$	875,102			$	23,512			$	17,612			$	-			$	916,226
Income producing - commercial real estate			1,679,101				18,962				5,109				-				1,703,172
Owner occupied - commercial real estate			445,013				9,677				6,891				-				461,581
Real estate mortgage – residential			147,262				756				-				-				148,018
Construction - commercial and residential			827,503				9,720				14,241				-				851,464
Home equity			119,420				1,718				1,398				-				122,536
Other consumer			109,343				-				59				-				109,402
Total		$	4,202,744			$	64,345			$	45,310			$	-			$	4,312,399

June 30, 2014
Commercial		$	695,191			$	14,015			$	17,405			$	-			$	726,611
Investment - commercial real estate			1,286,730				12,836				2,913				-				1,302,479
Owner occupied - commercial real estate			313,523				13,320				3,230				-				330,073
Real estate mortgage – residential			122,681				906				-				-				123,587
Construction - commercial and residential			654,631				13,119				12,882				-				680,632
Home equity			106,468				1,902				561				-				108,931
Other consumer			7,116				-				-				-				7,116
Total		$	3,186,340			$	56,098			$	36,991			$	-			$	3,279,429

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table presents by class of loan, information related to nonaccrual loans as of the periods ended June 30, 2015, December 31, 2014 and June 30, 2014.

(dollars in thousands)		June 30, 2015				December 31, 2014				June 30, 2014

Commercial		$	9,684			$	12,975			$	8,671
Income producing - commercial real estate			2,062				2,645				2,676
Owner occupied - commercial real estate			1,297				1,324				3,230
Real estate mortgage - residential			338				346				650
Construction - commercial and residential			585				3,697				6,877
Home equity			887				1,398				403
Other consumer			18				58				-
Total nonaccrual loans (1)(2)		$	14,871			$	22,443			$	22,507

(1)

Excludes troubled debt restructurings (“TDRs”) that were performing under their restructured terms totaling $13.7 million at June 30, 2015, $13.5 million at December 31, 2014 and $7.9 million at June 30, 2014.

(2)

Gross interest income of $504 thousand would have been recorded in 2015 if nonaccrual loans shown above had been current and in accordance with their original terms, while interest actually recorded on such loans was $9 thousand. See Note 1 to the consolidated financial statements for a description of the Company’s policy for placing loans on nonaccrual status.

The following table presents by class, an aging analysis and the recorded investments in loans past due as of June 30, 2015 and December 31, 2014.

		Loans				Loans				Loans												Total Recorded
		30-59 Days				60-89 Days				90 Days or				Total Past				Current				Investment in
(dollars in thousands)		Past Due				Past Due				More Past Due				Due Loans				Loans				Loans

June 30, 2015
Commercial		$	2,056			$	983			$	9,684			$	12,723			$	947,783			$	960,506
Income producing - commercial real estate			1,669				6,231				2,062				9,962				1,853,621				1,863,583
Owner occupied - commercial real estate			531				-				1,297				1,828				496,006				497,834
Real estate mortgage – residential			1,625				-				338				1,963				147,879				149,842
Construction - commercial and residential			6,805				-				585				7,390				948,361				955,751
Home equity			-				641				887				1,528				117,016				118,544
Other consumer			113				55				18				186				4,651				4,837
Total		$	12,799			$	7,910			$	14,871			$	35,580			$	4,515,317			$	4,550,897

December 31, 2014
Commercial		$	1,505			$	4,032			$	12,975			$	18,512			$	897,714			$	916,226
Income producing - commercial real estate			1,825				5,376				2,645				9,846				1,693,326				1,703,172
Owner occupied - commercial real estate			1,089				214				1,324				2,627				458,954				461,581
Real estate mortgage – residential			-				-				346				346				147,672				148,018
Construction - commercial and residential			-				-				3,697				3,697				847,767				851,464
Home equity			-				1,365				1,398				2,763				119,773				122,536
Other consumer			284				81				58				423				108,979				109,402
Total		$	4,703			$	11,068			$	22,443			$	38,214			$	4,274,185			$	4,312,399

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

The following table presents, by class of loan, information related to impaired loans for the periods ended June 30, 2015, December 31, 2014 and June 30, 2014.


		Unpaid Contractual				Recorded Investment				Recorded Investment				Total								Average Recorded Investment								Interest Income Recognized
		Principal				With No				With				Recorded				Related				Quarter				Year				Quarter				Year
(dollars in thousands)		Balance				Allowance				Allowance				Investment				Allowance				To Date				To Date				To Date				To Date

June 30, 2015
Commercial		$	12,948			$	1,558			$	8,397			$	9,955			$	4,066			$	10,606			$	11,396			$	9			$	9
Income producing - commercial real estate			10,545				8,712				1,140				9,852				491				9,914				10,107				36				71
Owner occupied - commercial real estate			1,831				1,002				829				1,831				386				1,849				1,862				-				-
Real estate mortgage – residential			338				338				-				338				-				340				342				-				-
Construction - commercial and residential			5,641				-				5,641				5,641				803				7,156				7,699				99				198
Home equity			887				117				770				887				293				888				1,058				-				-
Other consumer			18				18				-				18				-				14				29				1				1
Total		$	32,208			$	11,745			$	16,777			$	28,522			$	6,039			$	30,767			$	32,493			$	145			$	279

December 31, 2014
Commercial		$	14,075			$	1,603			$	11,372			$	12,975			$	5,334			$	14,203			$	13,681			$	20			$	251
Income producing - commercial real estate			10,869				8,952				1,542				10,494				751				8,202				7,021				196				203
Owner occupied - commercial real estate			1,889				1,038				851				1,889				577				2,696				3,986				-				6
Real estate mortgage – residential			346				346				-				346				-				348				529				-				-
Construction - commercial and residential			8,785				8,176				609				8,785				927				10,113				10,967				436				1,147
Home equity			1,398				339				1,059				1,398				430				993				747				32				36
Other consumer			58				-				58				58				45				29				30				7				7
Total		$	37,420			$	20,454			$	15,491			$	35,945			$	8,064			$	36,584			$	36,961			$	691			$	1,650

June 30, 2014
Commercial		$	9,771			$	348			$	8,323			$	8,671			$	3,501			$	8,873			$	11,032			$	3			$	3
Investment - commercial real estate			6,416				1,512				4,529				6,041				732				5,841				5,861				43				78
Owner occupied - commercial			3,230				99				3,131				3,230				1,102				5,277				5,335				-				-
Real estate mortgage – residential			650				650				-				650				-				711				769				-				-
Construction - commercial and residential			12,516				4,347				7,071				11,418				1,605				11,822				12,192				49				552
Home equity			403				125				278				403				208				501				541				-				-
Other consumer			-				-				-				-				-				30				43				-				-
Total		$	32,986			$	7,081			$	23,332			$	30,413			$	7,148			$	33,055			$	35,773			$	95			$	633

Modifications

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial mortgage and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period.

Loans modified in a TDR for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company during the periods ended June 30, 2015 and December 31, 2014.

						TDRs Performing				TDRs Not Performing
(dollars in thousands)		Number of Contracts				to Modified Terms				to Modified Terms				Total TDRs

June 30, 2015
Commercial			2			$	272			$	219			$	491
Income producing - commercial real estate			3				7,790				-				7,790
Owner occupied - commercial real estate			1				534				-				534
Construction - commercial and residential			1				5,056				-				5,056
Total			7			$	13,652			$	219			$	13,871

December 31, 2014
Commercial			1			$	-			$	227			$	227
Income producing - commercial real estate			3				7,849				-				7,849
Owner occupied - commercial real estate			1				565				-				565
Construction - commercial and residential			1				5,088				-				5,088
Total			6			$	13,502			$	227			$	13,729

There were no TDR defaults during the six months ended June 30, 2015 and 2014. A default is considered to have occurred once the TDR is past due 90 days or more, or it has been placed on nonaccrual. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. At June 30, 2015 there were seven TDRs, as compared to six TDRs at December 31, 2014. There was one loan modified in a TDR during the three months ended June 30, 2015. For the three and six months ended June 30, 2014, there were no loans modified in a TDR.