Note

. 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 March 31, 2016, December 31, 2015, and March 31, 2015 are summarized by type as follows:

	March 31, 2016						December 31, 2015						March 31, 2015
(dollars in thousands)	Amount			%			Amount			%			Amount			%
Commercial	$	1,060,047			21	%	$	1,052,257			21	%	$	933,715			21	%
Income producing - commercial real estate		2,138,091			40	%		2,115,478			42	%		1,739,483			40	%
Owner occupied - commercial real estate		569,915			11	%		498,103			10	%		493,003			11	%
Real estate mortgage - residential		149,159			3	%		147,365			3	%		147,871			3	%
Construction - commercial and residential		1,034,689			20	%		985,607			20	%		862,013			19	%
Construction - C&I (owner occupied)		87,324			2	%		79,769			2	%		49,558			1	%
Home equity		110,985			3	%		112,885			2	%		120,543			3	%
Other consumer		5,661			-			6,904			-			98,707			2	%
Total loans		5,155,871			100	%		4,998,368			100	%		4,444,893			100	%
Less: Allowance for Credit Losses		(54,608	)					(52,687	)					(47,779	)
Net loans	$	5,101,263					$	4,945,681					$	4,397,114

Unamortized net deferred fees amounted to $18.9 million, $18.4 million, and $15.8 million at March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

As of March 31, 2016 and December 31, 2015, the Bank serviced $77.7 million and $78.8 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 income producing real estate. At March 31, 2016, owner occupied commercial real estate and owner occupied commercial real estate construction represent 13% of the loan portfolio. At March 31, 2016, non-owner occupied commercial real estate and real estate construction represented approximately 60% of the loan portfolio. The combined owner occupied and commercial real estate loans represent 73% of the loan portfolio. 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 typically requires a maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.0. 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 March 31, 2016 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 2.7% 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 March 31, 2016 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. The repricing duration of these loans was 25 months. These credits represent first liens on residential property loans originated by the Bank. While the Bank’s general practice is to originate and sell (servicing released) loans made by its Residential Lending department, from time to time certain loan characteristics do not meet the requirements of third party investors and these loans are instead maintained in the Bank’s portfolio until they are resold to another investor at a later date.

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 their 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 $1.12 billion at March 31, 2016. 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 45.4% of the outstanding ADC loan portfolio at March 31, 2016. 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.

On July 24, 2015, the Company

completed the sale of the indirect consumer loan portfolio acquired in the Merger, amounting to approximately $80.3 million as of the time of sale. A

fair value adjustment on the sale of $879 thousand was recorded as an adjustment to the intangibles established in the Merger.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2016 and 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

(dollars in thousands)	Commercial			Income Producing Commercial Real Estate			Owner Occupied Commercial Real Estate		Real Estate Mortgage Residential			Construction Commercial and Residential			Home Equity			Other Consumer			Total
Three months ended March 31, 2016
Allowance for credit losses:
Balance at beginning of period	$	11,563		$	14,122		$	3,279	$	1,268		$	21,088		$	1,292		$	75		$	52,687
Loans charged-off		(805	)		(590	)		-		-			-			(4	)		(7	)		(1,406	)
Recoveries of loans previously charged-off		72			4			1		2			196			1			8			284
Net loans (charged-off) recoveries		(733	)		(586	)		1		2			196			(3	)		1			(1,122	)
Provision for credit losses		2,792			2,258			651		(219	)		(2,818	)		194			185			3,043
Ending balance	$	13,622		$	15,794		$	3,931	$	1,051		$	18,466		$	1,483		$	261		$	54,608
As of March 31, 2016
Allowance for credit losses:
Individually evaluated for impairment	$	2,922		$	868		$	360	$	-		$	310		$	88		$	-		$	4,548
Collectively evaluated for impairment		10,700			14,926			3,571		1,051			18,156			1,395			261			50,060
Ending balance	$	13,622		$	15,794		$	3,931	$	1,051		$	18,466		$	1,483		$	261		$	54,608

Three months ended March 31, 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		(998	)		(318	)		-		-			-			(419	)		(71	)		(1,806	)
Recoveries of loans previously charged-off		51			-			1		2			95			2			49			200
Net loans (charged-off) recoveries		(947	)		(318	)		1		2			95			(417	)		(22	)		(1,606	)
Provision for credit losses		1,502			528			172		(206	)		663			457			194			3,310
Ending balance	$	13,777		$	11,652		$	3,127	$	1,055		$	16,383		$	1,509		$	276		$	47,779
As of March 31, 2015
Allowance for credit losses:
Individually evaluated for impairment	$	5,771		$	568		$	400	$	-		$	550		$	289		$	5		$	7,583
Collectively evaluated for impairment		8,006			11,084			2,727		1,055			15,833			1,220			271			40,196
Ending balance	$	13,777		$	11,652		$	3,127	$	1,055		$	16,383		$	1,509		$	276		$	47,779

The Company’s recorded investments in loans as of March 31, 2016, December 31, 2015 and March 31, 2015 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:

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

March 31, 2016
Recorded investment in loans:
Individually evaluated for impairment	$	13,161	$	19,905	$	1,724	$	257	$	5,422	$	122	$	-	$	40,591
Collectively evaluated for impairment		1,046,886		2,118,186		568,191		148,902		1,116,591		110,863		5,661		5,115,280
Ending balance	$	1,060,047	$	2,138,091	$	569,915	$	149,159	$	1,122,013	$	110,985	$	5,661	$	5,155,871

December 31, 2015
Recorded investment in loans:
Individually evaluated for impairment	$	13,008	$	6,118	$	1,753	$	-	$	10,454	$	161	$	22	$	31,516
Collectively evaluated for impairment		1,039,249		2,109,360		496,350		147,365		1,054,922		112,724		6,882		4,966,852
Ending balance	$	1,052,257	$	2,115,478	$	498,103	$	147,365	$	1,065,376	$	112,885	$	6,904	$	4,998,368

March 31, 2015
Recorded investment in loans:
Individually evaluated for impairment	$	16,981	$	4,601	$	6,840	$	-	$	14,000	$	889	$	10	$	43,321
Collectively evaluated for impairment		916,734		1,734,882		486,163		147,871		897,571		119,654		98,697		4,401,572
Ending balance	$	933,715	$	1,739,483	$	493,003	$	147,871	$	911,571	$	120,543	$	98,707	$	4,444,893

At March 31, 2016, nonperforming loans acquired from Fidelity & Trust Financial Corporation (“Fidelity”) and Virginia Heritage have a carrying value of $504 thousand and $1.2 million, and an unpaid principal balance of $561 thousand and $2.3 million, 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 March 31, 2016, December 31, 2015 and March 31, 2015.

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

March 31, 2016
Commercial	$	1,031,263	$	16,788	$	11,996	$	-	$	1,060,047
Income producing - commercial real estate		2,110,620		12,709		14,762		-		2,138,091
Owner occupied - commercial real estate		559,390		9,262		1,263		-		569,915
Real estate mortgage – residential		146,804		2,098		257		-		149,159
Construction - commercial and residential		1,115,027		1,564		5,422		-		1,122,013
Home equity		109,065		1,798		122		-		110,985
Other consumer		5,657		4		-		-		5,661
Total	$	5,077,826	$	44,223	$	33,822	$	-	$	5,155,871

December 31, 2015
Commercial	$	1,021,427	$	17,822	$	13,008	$	-	$	1,052,257
Income producing - commercial real estate		2,096,032		13,328		6,118		-		2,115,478
Owner occupied - commercial real estate		488,496		7,854		1,753		-		498,103
Real estate mortgage – residential		146,651		714		-		-		147,365
Construction - commercial and residential		1,049,926		4,996		10,454		-		1,065,376
Home equity		110,870		1,854		161		-		112,885
Other consumer		6,877		5		22		-		6,904
Total	$	4,920,279	$	46,573	$	31,516	$	-	$	4,998,368

March 31, 2015
Commercial	$	891,850	$	24,884	$	16,981	$	-	$	933,715
Investment - commercial real estate		1,719,982		14,900		4,601		-		1,739,483
Owner occupied - commercial real estate		478,486		7,677		6,840		-		493,003
Real estate mortgage – residential		147,121		750		-		-		147,871
Construction - commercial and residential		889,346		8,225		14,000		-		911,571
Home equity		117,936		1,718		889		-		120,543
Other consumer		98,697		-		10		-		98,707
Total	$	4,343,418	$	58,154	$	43,321	$	-	$	4,444,893

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 March 31, 2016, December 31, 2015 and March 31, 2015.

(dollars in thousands)	March 31, 2016		December 31, 2015		March 31, 2015

Commercial	$	4,234	$	4,940	$	11,257
Income producing - commercial real estate		10,305		5,961		2,152
Owner occupied - commercial real estate		1,263		1,268		1,314
Real estate mortgage - residential		582		329		342
Construction - commercial and residential		5,422		557		3,608
Home equity		122		161		889
Other consumer		-		23		10
Total nonaccrual loans (1)(2)	$	21,928	$	13,239	$	19,572

(1)

Excludes troubled debt restructurings (“TDRs”) that were performing under their restructured terms totaling $6.8 million at March 31, 2016, $11.8 million at December 31, 2015 and $13.4 million at March 31, 2015.

(2)

Gross interest income of $335 thousand would have been recorded for the three months ended March 31, 2016 if nonaccrual loans shown above had been current and in accordance with their original terms, while interest actually recorded on such loans was $74 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 of loan, an aging analysis and the recorded investments in loans past due as of March 31, 2016 and December 31, 2015.

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

March 31, 2016
Commercial	$	2,401	$	995	$	4,234	$	7,630	$	1,052,417	$	1,060,047
Income producing - commercial real estate		15,041		-		10,305		25,346		2,112,745		2,138,091
Owner occupied - commercial real estate		3,159		894		1,263		5,316		564,599		569,915
Real estate mortgage – residential		-		-		582		582		148,577		149,159
Construction - commercial and residential		1,174		-		5,422		6,596		1,115,417		1,122,013
Home equity		-		-		122		122		110,863		110,985
Other consumer		12		54		-		66		5,595		5,661
Total	$	21,787	$	1,943	$	21,928	$	45,658	$	5,110,213	$	5,155,871

December 31, 2015
Commercial	$	4,130	$	1,364	$	4,940	$	10,434	$	1,041,823	$	1,052,257
Income producing - commercial real estate		2,841		-		5,961		8,802		2,106,676		2,115,478
Owner occupied - commercial real estate		3,189		902		1,268		5,359		492,744		498,103
Real estate mortgage – residential		-		-		329		329		147,036		147,365
Construction - commercial and residential		-		5,020		557		5,577		1,059,799		1,065,376
Home equity		-		77		161		238		112,647		112,885
Other consumer		56		60		23		139		6,765		6,904
Total	$	10,216	$	7,423	$	13,239	$	30,878	$	4,967,490	$	4,998,368

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 March 31, 2016, December 31, 2015 and March 31, 2015.

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

March 31, 2016
Commercial	$	17,305	$	1,165	$	11,996	$	13,161	$	2,922	$	12,920	$	16
Income producing - commercial real estate		19,905		5,143		14,762		19,905		868		13,012		58
Owner occupied - commercial real estate		1,724		461		1,263		1,724		360		1,739		-
Real estate mortgage – residential		257		257		-		257		-		293		-
Construction - commercial and residential		5,422		4,870		552		5,422		310		7,938		-
Home equity		122		-		122		122		88		142		-
Other consumer		-		-		-		-		-		11		-
Total	$	44,735	$	11,896	$	28,695	$	40,591	$	4,548	$	36,055	$	74

December 31, 2015
Commercial	$	16,123	$	2,396	$	10,283	$	12,679	$	3,478	$	9,973	$	69
Income producing - commercial real estate		6,811		1,190		4,928		6,118		1,033		10,294		354
Owner occupied - commercial real estate		1,753		946		807		1,753		400		1,810		-
Real estate mortgage – residential		329		329		-		329		-		336		-
Construction - commercial and residential		10,454		4,877		5,577		10,454		950		7,594		205
Home equity		161		116		45		161		38		650		-
Other consumer		22		19		3		22		3		31		1
Total	$	35,653	$	9,873	$	21,643	$	31,516	$	5,902	$	30,688	$	629

March 31, 2015
Commercial	$	13,080	$	1,464	$	9,793	$	11,257	$	5,771	$	12,116	$	-
Income producing - commercial real estate		10,668		8,753		1,222		9,975		568		10,235		35
Owner occupied - commercial real estate		1,867		1,025		842		1,867		400		1,878		-
Real estate mortgage – residential		342		342		-		342		-		344		-
Construction - commercial and residential		8,671		8,071		600		8,671		550		8,728		99
Home equity		889		118		771		889		289		1,144		-
Other consumer		10		-		10		10		5		34		-
Total	$	35,527	$	19,773	$	13,238	$	33,011	$	7,583	$	34,479	$	134

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 March 31, 2016 and December 31, 2015.

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

March 31, 2016
Commercial		4	$	1,165	$	207	$	1,372
Income producing - commercial real estate		2		5,143		-		5,143
Owner occupied - commercial real estate		1		461		-		461
Construction - commercial and residential		1		-		5,013		5,013
Total		8	$	6,769	$	5,220	$	11,989

December 31, 2015
Commercial		4	$	1,171	$	211	$	1,382
Income producing - commercial real estate		2		5,160		-		5,160
Owner occupied - commercial real estate		1		485		-		485
Construction - commercial and residential		1		5,020		-		5,020
Total		8	$	11,836	$	211	$	12,047

During the three months of 2016, there was one default on a $5.0 million restructured loan, as compared to the three months of 2015, which had no defaults on restructured loans. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. There was one nonperforming TDR totaling $5.0 million reclassified to nonperforming loans during the three months ended March 31, 2016. There were no nonperforming TDRs reclassified to nonperforming loans during the three months ended March 31, 2015. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If a loan modified in a TDR subsequently defaults, 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. There were no loans modified in a TDR during the three months ended March 31, 2016 and 2015.