Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

Loans and Allowance for Credit Losses

Note 5. Loans and Allowance for Credit Losses

The Bank makes loans to customers primarily in the Washington, D.C. 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, 2018 and December 31, 2017 are summarized by type as follows:

	March 31, 2018						December 31, 2017
(dollars in thousands)	Amount			%			Amount			%
Commercial	$	1,426,042			22	%	$	1,375,939			21	%
Income producing - commercial real estate		3,137,498			47	%		3,047,094			48	%
Owner occupied - commercial real estate		800,747			12	%		755,444			12	%
Real estate mortgage - residential		103,932			2	%		104,357			2	%
Construction - commercial and residential		1,000,266			15	%		973,141			15	%
Construction - C&I (owner occupied)		40,547			1	%		58,691			1	%
Home equity		90,271			1	%		93,264			1	%
Other consumer		3,223			—			3,598			—
Total loans		6,602,526			100	%		6,411,528			100	%
Less: allowance for credit losses		(65,807	)					(64,758	)
Net loans	$	6,536,719					$	6,346,770

Unamortized net deferred fees amounted to $24.3 million and $23.9 million at March 31, 2018 and December 31, 2017, respectively.

As of March 31, 2018 and December 31, 2017, the Bank serviced $208.7 million and $195.3 million, respectively, of multifamily FHA loans, SBA loans and other loan participations 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, 2018, owner occupied - commercial real estate and construction - C&I (owner occupied) represent approximately 13% of the loan portfolio. At March 31, 2018, non-owner occupied commercial real estate and real estate construction represented approximately 62% of the loan portfolio. The combined owner occupied and commercial real estate loans represent approximately 75% 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 may be 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 22% of the loan portfolio at March 31, 2018 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 approximately 2% 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 as well as internal loan size guidelines.

Approximately 1% of the loan portfolio at March 31, 2018 consists of home equity loans and lines of credit and other consumer loans. These credits, while making up a small portion of the loan portfolio, demand the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank.

Approximately 2% of the loan portfolio consists of residential mortgage loans. The repricing duration of these loans was 19 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 or mature.

Loans are secured primarily by duly recorded first deeds of trust or mortgages. 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 generally 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 1.0. 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 $1.43 billion at March 31, 2018. A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represent approximately 81% of the outstanding ADC loan portfolio at March 31, 2018. 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.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2018 and 2017. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

				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
Three months ended March 31, 2018
Allowance for credit losses:
Balance at beginning of period	$	13,102		$	25,376		$	5,934		$	944		$	18,492	$	770		$	140		$	64,758
Loans charged-off		(853	)		(121	)		(132	)		—			—		—			—			(1,106	)
Recoveries of loans previously charged-off		3			—			1			2			60		117			3			186
Net loans (charged-off) recoveries		(850	)		(121	)		(131	)		2			60		117			3			(920	)
Provision for credit losses		1,106			1,213			(332	)		(212	)		190		(188	)		192			1,969
Ending balance	$	13,358		$	26,468		$	5,471		$	734		$	18,742	$	699		$	335		$	65,807
As of March 31, 2018
Allowance for credit losses:
Individually evaluated for impairment	$	3,014		$	2,628		$	500		$	—		$	500	$	—		$	80		$	6,722
Collectively evaluated for impairment		10,344			23,840			4,971			734			18,242		699			255			59,085
Ending balance	$	13,358		$	26,468		$	5,471		$	734		$	18,742	$	699		$	335		$	65,807
Three months ended March 31, 2017
Allowance for credit losses:
Balance at beginning of period	$	14,700		$	21,105		$	4,010		$	1,284		$	16,487	$	1,328		$	160		$	59,074
Loans charged-off		(137	)		(500	)		—			—			—		—			(63	)		(700	)
Recoveries of loans previously charged-off		13			50			1			2			3		1			7			77
Net loans (charged-off) recoveries		(124	)		(450	)		1			2			3		1			(56	)		(623	)
Provision for credit losses		7			729			15			(180	)		866		(241	)		201			1,397
Ending balance	$	14,583		$	21,384		$	4,026		$	1,106		$	17,356	$	1,088		$	305		$	59,848
As of March 31, 2017
Allowance for credit losses:
Individually evaluated for impairment	$	3,030		$	1,488		$	350		$	—		$	350	$	—		$	50		$	5,268
Collectively evaluated for impairment		11,553			19,896			3,676			1,106			17,006		1,088			255			54,580
Ending balance	$	14,583		$	21,384		$	4,026		$	1,106		$	17,356	$	1,088		$	305		$	59,848

The Company’s recorded investments in loans as of March 31, 2018 and December 31, 2017 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
March 31, 2018
Recorded investment in loans:
Individually evaluated for impairment	$	15,468	$	9,394	$	7,771	$	1,451	$	4,707	$	494	$	91	$	39,376
Collectively evaluated for impairment		1,410,574		3,128,104		792,976		102,481		1,036,106		89,777		3,132		6,563,150
Ending balance	$	1,426,042	$	3,137,498	$	800,747	$	103,932	$	1,040,813	$	90,271	$	3,223	$	6,602,526
December 31, 2017
Recorded investment in loans:
Individually evaluated for impairment	$	8,726	$	10,192	$	5,501	$	478	$	4,709	$	494	$	91	$	30,191
Collectively evaluated for impairment		1,367,213		3,036,902		749,943		103,879		1,027,123		92,770		3,507		6,381,337
Ending balance	$	1,375,939	$	3,047,094	$	755,444	$	104,357	$	1,031,832	$	93,264	$	3,598	$	6,411,528

At March 31, 2018, nonperforming loans acquired from Fidelity & Trust Financial Corporation (“Fidelity”) and Virginia Heritage Bank (“Virginia Heritage”) have a carrying value of $321 thousand and $452 thousand, and an unpaid principal balance of $379 thousand and $1.5 million, respectively, and were evaluated separately in accordance with ASC Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” At December 31, 2017, nonperforming loans acquired from Fidelity and Virginia Heritage had a carrying value of $297 thousand and $479 thousand, respectively, and an unpaid principal balance of $347 thousand and $1.5 million, respectively, and were evaluated separately in accordance with ASC Topic 310-30. 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.

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, 2018 and December 31, 2017.

			Watch and						Total
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loans
March 31, 2018
Commercial	$	1,381,816	$	28,758	$	15,468	$	—	$	1,426,042
Income producing - commercial real estate		3,123,614		4,490		9,394		—		3,137,498
Owner occupied - commercial real estate		756,551		36,425		7,771		—		800,747
Real estate mortgage – residential		101,831		650		1,451		—		103,932
Construction - commercial and residential		1,036,106		—		4,707		—		1,040,813
Home equity		89,091		686		494		—		90,271
Other consumer		3,131		1		91		—		3,223
Total	$	6,492,140	$	71,010	$	39,376	$	—	$	6,602,526
December 31, 2017
Commercial	$	1,333,050	$	34,163	$	8,726	$	—	$	1,375,939
Income producing - commercial real estate		3,033,046		3,856		10,192		—		3,047,094
Owner occupied - commercial real estate		696,754		53,189		5,501		—		755,444
Real estate mortgage – residential		103,220		659		478		—		104,357
Construction - commercial and residential		1,027,123		—		4,709		—		1,031,832
Home equity		92,084		686		494		—		93,264
Other consumer		3,505		2		91		—		3,598
Total	$	6,288,782	$	92,555	$	30,191	$	—	$	6,411,528

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. 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 March 31, 2018 and December 31, 2017.

(dollars in thousands)	March 31, 2018		December 31, 2017
Commercial	$	3,595	$	3,493
Income producing - commercial real estate		50		832
Owner occupied - commercial real estate		5,361		5,501
Real estate mortgage - residential		1,745		775
Construction - commercial and residential		2,051		2,052
Home equity		494		494
Other consumer		91		91
Total nonaccrual loans (1)(2)	$	13,387	$	13,238

(1) Excludes troubled debt restructurings (“TDRs”) that were performing under their restructured terms totaling $11.5 million at March 31, 2018 and $12.3 million at December 31, 2017.

(2) Gross interest income of $205 thousand and $304 thousand would have been recorded for the three months ended March 31, 2018 and 2017, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while the interest actually recorded on such loans was zero and $90 thousand for the three months ended March 31, 2018 and 2017, respectively. 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, 2018 and December 31, 2017.

	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
March 31, 2018
Commercial	$	6,179	$	1,209	$	3,595	$	10,983	$	1,415,059	$	1,426,042
Income producing - commercial real estate		13,452		4,562		50		18,064		3,119,434		3,137,498
Owner occupied - commercial real estate		3,336		1,105		5,361		9,802		790,945		800,747
Real estate mortgage – residential		6,590		—		1,745		8,335		95,597		103,932
Construction - commercial and residential		—		5,268		2,051		7,319		1,033,494		1,040,813
Home equity		—		90		494		584		89,687		90,271
Other consumer		5		17		91		113		3,110		3,223
Total	$	29,562	$	12,251	$	13,387	$	55,200	$	6,547,326	$	6,602,526
December 31, 2017
Commercial	$	2,705	$	748	$	3,493	$	6,946	$	1,368,993	$	1,375,939
Income producing - commercial real estate		4,398		6,930		832		12,160		3,034,934		3,047,094
Owner occupied - commercial real estate		522		3,906		5,501		9,929		745,515		755,444
Real estate mortgage – residential		6,993		1,244		775		9,012		95,345		104,357
Construction - commercial and residential		—		5,268		2,052		7,320		1,024,512		1,031,832
Home equity		307		—		494		801		92,463		93,264
Other consumer		45		6		91		142		3,456		3,598
Total	$	14,970	$	18,102	$	13,238	$	46,310	$	6,365,218	$	6,411,528

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, 2018 and March 31, 2017.

	Unpaid		Recorded		Recorded						Average Recorded				Interest Income
	Contractual		Investment		Investment		Total				Investment				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
March 31, 2018
Commercial	$	4,944	$	1,132	$	3,693	$	4,825	$	3,014	$	5,175	$	5,175	$	20	$	20
Income producing - commercial real estate		9,248		—		9,248		9,248		2,628		9,646		9,646		120		120
Owner occupied - commercial real estate		6,432		5,650		782		6,432		500		6,514		6,514		11		11
Real estate mortgage – residential		1,745		1,745		—		1,745		—		1,260		1,260		—		—
Construction - commercial and residential		2,051		1,533		518		2,051		500		2,052		2,052		—		—
Home equity		494		494		—		494		—		494		494		—		—
Other consumer		91		—		91		91		80		91		91		—		—
Total	$	25,005	$	10,554	$	14,332	$	24,886	$	6,722	$	25,232	$	25,232	$	151	$	151
March 31, 2017
Commercial	$	8,249	$	2,843	$	2,737	$	5,580	$	3,030	$	5,604	$	5,604	$	42	$	42
Income producing - commercial real estate		10,019		702		9,317		10,019		1,488		12,478		12,478		48		48
Owner occupied - commercial real estate		2,998		2,207		791		2,998		350		2,741		2,741		—		—
Real estate mortgage – residential		310		310		—		310		—		433		433		—		—
Construction - commercial and residential		3,255		2,717		538		3,255		350		2,664		2,664		—		—
Other consumer		94		—		94		94		50		110		110		—		—
Total	$	24,925	$	8,779	$	13,477	$	22,256	$	5,268	$	24,030	$	24,030	$	90	$	90

Modifications

A modification of a loan constitutes a 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. As of March 31, 2018, all performing TDRs were categorized as interest-only modifications.

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 three months ended March 31, 2018 and 2017.

	For the Three Months Ended March 31, 2018
(dollars in thousands)	Number of Contracts		Commercial		Income Producing - Commercial Real Estate		Owner Occupied - Commercial Real Estate		Construction - Commercial Real Estate		Total
Troubled debt restructings
Restructured accruing		8	$	1,230	$	9,198	$	1,071	$	—	$	11,499
Restructured nonaccruing		5		1,649		—		—		—		1,649
Total		13	$	2,879	$	9,198	$	1,071	$	—	$	13,148
Specific allowance			$	595	$	2,350	$	—	$	—	$	2,945
Restructured and subsequently defaulted			$	—	$	121	$	—	$	—	$	121

	For the Three Months Ended March 31, 2017
(dollars in thousands)	Number of Contracts		Commercial		Income Producing - Commercial Real Estate		Owner Occupied - Commercial Real Estate		Construction - Commercial Real Estate		Total
Troubled debt restructings
Restructured accruing		7	$	3,137	$	4,397	$	367	$	—	$	7,901
Restructured non-accruing		2		193		—		—		702		895
Total		9	$	3,330	$	4,397	$	367	$	702	$	8,796
Specific allowance			$	855	$	1,100	$	—	$	—	$	1,955
Restructured and subsequently defaulted			$	237	$	—	$	—	$	—	$	237

The Company had thirteen TDR’s at March 31, 2018 totaling approximately $13.1 million. Eight of these loans totaling approximately $11.5 million, are performing under their modified terms. During the three months of 2018, there was one default on a $121 thousand restructured loan which was charged off, as compared to the same period in 2017, which had one default on a $237 thousand restructured loan. 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 performing TDR totaling $786 thousand that was reclassified to nonperforming loans during the three months ended March 31, 2018, as compared to the same period in 2017, which had no performing TDRs reclassified to nonperforming loans. 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. There were no loans modified in a TDR during the three months ended March 31, 2018 and 2017.