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 June 30, 2016, December 31, 2015, and June 30, 2015 are summarized by type as follows:

	June 30, 2016						December 31, 2015						June 30, 2015
(dollars in thousands)	Amount			%			Amount			%			Amount			%
Commercial	$	1,140,863			21	%	$	1,052,257			21	%	$	960,506			21	%
Income producing - commercial real estate		2,461,581			45	%		2,115,478			42	%		1,863,583			41	%
Owner occupied - commercial real estate		584,358			11	%		498,103			10	%		497,834			11	%
Real estate mortgage - residential		150,129			3	%		147,365			3	%		149,842			3	%
Construction - commercial and residential		847,268			16	%		985,607			20	%		901,617			20	%
Construction - C&I (owner occupied)		100,063			2	%		79,769			2	%		54,134			1	%
Home equity		110,697			2	%		112,885			2	%		118,544			3	%
Other consumer		8,470			-			6,904			-			4,837			-
Total loans		5,403,429			100	%		4,998,368			100	%		4,550,897			100	%
Less: Allowance for Credit Losses		(56,536	)					(52,687	)					(48,921	)
Net loans	$	5,346,893					$	4,945,681					$	4,501,976

Unamortized net deferred fees amounted to $20.2 million, $18.4 million, and $16.1 million at June 30, 2016, December 31, 2015, and June 30, 2015, respectively.

As of June 30, 2016 and December 31, 2015, the Bank serviced $91.0 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 June 30, 2016, owner occupied commercial real estate and construction - C&I (owner occupied) represent 13% of the loan portfolio. At June 30, 2016, non-owner occupied commercial real estate and real estate construction represented approximately 61% of the loan portfolio. The combined owner occupied and commercial real estate loans represent 74% 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 June 30, 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 2.5% 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 2% of the loan portfolio at June 30, 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 22 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.

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 $947 million at June 30, 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 57.0% of the outstanding ADC loan portfolio at June 30, 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: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) borrower equity contribution; and (5) 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: (1) 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; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports; (4) 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 (5) 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 with Virginia Heritage Bank (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 and six months ended June 30, 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 June 30, 2016
Allowance for credit losses:
Balance at beginning of period	$	13,622		$	15,794		$	3,931		$	1,051		$	18,466		$	1,483		$	261		$	54,608
Loans charged-off		(1,888	)		(1	)		-			-			-			(92	)		(18	)		(1,999	)
Recoveries of loans previously charged-off		14			-			1			1			8			7			8			39
Net loans (charged-off) recoveries		(1,874	)		-			1			1			8			(85	)		(10	)		(1,960	)
Provision for credit losses		1,638			3,279			270			9			(1,450	)		158			(16	)		3,888
Ending balance	$	13,386		$	19,072		$	4,202		$	1,061		$	17,024		$	1,556		$	235		$	56,536
Six months ended June 30, 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		(2,693	)		(591	)		-			-			-			(96	)		(25	)		(3,405	)
Recoveries of loans previously charged-off		86			4			2			3			204			8			16			323
Net loans charged-off		(2,607	)		(587	)		2			3			204			(88	)		(9	)		(3,082	)
Provision for credit losses		4,430			5,537			921			(210	)		(4,268	)		352			169			6,931
Ending balance	$	13,386		$	19,072		$	4,202		$	1,061		$	17,024		$	1,556		$	235		$	56,536
As of June 30, 2016
Allowance for credit losses:
Individually evaluated for impairment	$	2,634		$	1,697		$	450		$	-		$	350		$	88		$	-		$	5,219
Collectively evaluated for impairment		10,752			17,375			3,752			1,061			16,674			1,468			235			51,317
Ending balance	$	13,386		$	19,072		$	4,202		$	1,061		$	17,024		$	1,556		$	235		$	56,536

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) recoveries		(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
As of 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

The Company’s recorded investments in loans as of June 30, 2016, December 31, 2015 and June 30, 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

June 30, 2016
Recorded investment in loans:
Individually evaluated for impairment	$	12,402	$	19,778	$	1,699	$	254	$	5,413	$	121	$	-	$	39,667
Collectively evaluated for impairment		1,128,461		2,441,803		582,659		149,875		941,918		110,576		8,470		5,363,762
Ending balance	$	1,140,863	$	2,461,581	$	584,358	$	150,129	$	947,331	$	110,697	$	8,470	$	5,403,429

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

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

At June 30, 2016, nonperforming loans acquired from Fidelity & Trust Financial Corporation (“Fidelity”) and Virginia Heritage Bank (“Virginia Heritage”) have a carrying value of $500 thousand and $1.2 million, and an unpaid principal balance of $558 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 June 30, 2016, December 31, 2015 and June 30, 2015.

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

June 30, 2016
Commercial	$	1,112,108	$	17,842	$	10,913	$	-	$	1,140,863
Income producing - commercial real estate		2,424,180		22,763		14,638		-		2,461,581
Owner occupied - commercial real estate		572,598		10,499		1,261		-		584,358
Real estate mortgage – residential		149,181		694		254		-		150,129
Construction - commercial and residential		938,148		3,770		5,413		-		947,331
Home equity		108,954		1,622		121		-		110,697
Other consumer		8,467		3		-		-		8,470
Total	$	5,313,636	$	57,193	$	32,600	$	-	$	5,403,429

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

June 30, 2015
Commercial	$	920,429	$	22,111	$	17,966	$	-	$	960,506
Investment - 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

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, 2016, December 31, 2015 and June 30, 2015.

(dollars in thousands)	June 30, 2016		December 31, 2015		June 30, 2015

Commercial	$	3,775	$	4,940	$	9,684
Income producing - commercial real estate		10,234		5,961		2,062
Owner occupied - commercial real estate		1,261		1,268		1,297
Real estate mortgage - residential		576		329		338
Construction - commercial and residential		5,413		557		585
Home equity		121		161		887
Other consumer		-		23		18
Total nonaccrual loans (1)(2)	$	21,380	$	13,239	$	14,871

(1)

Excludes troubled debt restructurings (“TDRs”) that were performing under their restructured terms totaling $7.3 million at June 30, 2016, $11.8 million at December 31, 2015 and $13.7 million at June 30, 2015.

(2)

Gross interest income of $687 thousand would have been recorded for the six months ended June 30, 2016 if nonaccrual loans shown above had been current and in accordance with their original terms, while interest actually recorded on such loans was $174 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 June 30, 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

June 30, 2016
Commercial	$	2,074	$	577	$	3,775	$	6,426	$	1,134,437	$	1,140,863
Income producing - commercial real estate		-		14,758		10,234		24,992		2,436,589		2,461,581
Owner occupied - commercial real estate		1,744		1,233		1,261		4,238		580,120		584,358
Real estate mortgage – residential		2,547		-		576		3,123		147,006		150,129
Construction - commercial and residential		-		4,227		5,413		9,640		937,691		947,331
Home equity		189		620		121		930		109,767		110,697
Other consumer		19		130		-		149		8,321		8,470
Total	$	6,573	$	21,545	$	21,380	$	49,498	$	5,353,931	$	5,403,429

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 June 30, 2016, December 31, 2015 and June 30, 2015.

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

June 30, 2016
Commercial	$	17,471	$	150	$	12,252	$	12,402	$	2,634	$	12,782	$	12,747	$	42		$	58
Income producing - commercial real estate		19,778		-		19,778		19,778		1,697		19,842		15,267		58			116
Owner occupied - commercial real estate		1,699		-		1,699		1,699		450		1,712		1,725		-			-
Real estate mortgage – residential		254		254		-		254		-		256		280		-			-
Construction - commercial and residential		5,413		4,871		542		5,413		350		5,418		7,096		-			-
Home equity		121		-		121		121		88		122		135		-			-
Other consumer		-		-		-		-		-		-		7		-			-
Total	$	44,736	$	5,275	$	34,392	$	39,667	$	5,219	$	40,132	$	37,257	$	100		$	174

December 31, 2015
Commercial	$	16,123	$	2,396	$	10,283	$	12,679	$	3,478	$	9,340	$	9,973	$	21		$	69
Income producing - commercial real estate		6,811		1,190		4,928		6,118		1,033		10,675		10,294		95			354
Owner occupied - commercial real estate		1,753		946		807		1,753		400		1,772		1,810		-			-
Real estate mortgage – residential		329		329		-		329		-		331		336		-			-
Construction - commercial and residential		10,454		4,877		5,577		10,454		950		8,031		7,594		(93	)		205
Home equity		161		116		45		161		38		411		650		-			-
Other consumer		22		19		3		22		3		47		31		(1	)		1
Total	$	35,653	$	9,873	$	21,643	$	31,516	$	5,902	$	30,607	$	30,688	$	22		$	629

June 30, 2015
Commercial	$	20,959	$	9,569	$	8,397	$	17,966	$	4,066	$	10,606	$	11,396	$	9		$	9
Income producing - commercial real estate		3,064		1,231		1,140		2,371		491		9,914		10,107		36			71
Owner occupied - commercial real estate		1,827		998		829		1,827		386		1,849		1,862		-			-
Construction - commercial and residential		17,891		12,250		5,641		17,891		803		7,496		8,041		99			198
Home equity		887		117		770		887		293		888		1,058		-			-
Other consumer		18		18		-		18		-		14		29		1			1
Total	$	44,646	$	24,183	$	16,777	$	40,960	$	6,039	$	30,767	$	32,493	$	145		$	279

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, 2016 and December 31, 2015.

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

June 30, 2016
Commercial		6	$	1,751	$	204	$	1,955
Income producing - commercial real estate		2		5,140		-		5,140
Owner occupied - commercial real estate		1		438		-		438
Construction - commercial and residential		1		-		4,998		4,998
Total		10	$	7,329	$	5,202	$	12,531

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 first six months of 2016, there was one default on a $5.0 million restructured loan, as compared to the first six 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 six months ended June 30, 2016. There were no nonperforming TDRs reclassified to nonperforming loans during the six months ended June 30, 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 two loans totaling $590 thousand modified in a TDR during the three months ended June 30, 2016, as compared to the three months ended June 30, 2015 which had one loan modified in a TDR totaling $272 thousand.