Loans Receivable and Allowance for Loan Losses

Loans receivable that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are stated at their outstanding unpaid principal balances, net of an allowance for loan losses (allowance or ALL) and any deferred fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan or to the first review date if the loan is on demand. Certain qualifying loans of the Bank totaling $599.2 million at September 30, 2013, collateralize a letter of credit and a line of credit commitment the Bank has with the Federal Home Loan Bank (FHLB).

A summary of the Bank's loans receivable at September 30, 2013 and December 31, 2012 is as follows:



(in thousands)	September 30, 2013		December 31, 2012
Commercial and industrial	$	435,508	$	376,988
Commercial tax-exempt	82,507		92,202
Owner occupied real estate	300,555		268,372
Commercial construction and land development	124,376		100,399
Commercial real estate	450,611		394,404
Residential	94,227		83,899
Consumer	214,892		212,533
	1,702,676		1,528,797
Less: allowance for loan losses	27,425		25,282
Net loans receivable	$	1,675,251	$	1,503,515

The following table summarizes nonaccrual loans by loan type at September 30, 2013 and December 31, 2012:



(in thousands)	September 30, 2013		December 31, 2012
Nonaccrual loans:
Commercial and industrial	$	9,967	$	11,289
Commercial tax-exempt	—		—
Owner occupied real estate	4,924		3,119
Commercial construction and land development	11,723		6,300
Commercial real estate	6,904		5,659
Residential	7,316		3,203
Consumer	2,541		2,846
Total nonaccrual loans	$	43,375	$	32,416

Generally, the Bank's policy is to move a loan to nonaccrual status when it becomes 90 days past due or when the Bank does not believe it will collect all of its principal and interest payments. In addition, when a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the ALL. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. If a loan is substandard and accruing, accrued interest is recognized as income. Once a loan is on nonaccrual status, it is not returned to accrual status unless the loan has been current for at least six consecutive months and the borrower and/or any guarantors demonstrate the ability to repay the loan. Under certain circumstances such as bankruptcy, if a loan is under collateralized, or if the borrower and/or guarantors do not show evidence of the ability to pay, the loan may be placed on nonaccrual status even though it is not past due by 90 days or more. The total nonaccrual loan balance of $43.4 million exceeds the balance of total loans that are 90 days past due of $19.4 million at September 30, 2013 as presented in the aging analysis tables that follow.

Typically, commitments are canceled and no additional advances are made when a loan is placed on nonaccrual. At September 30, 2013 there was one nonaccrual loan with an unused commitment of $132,000.

The following tables are an age analysis of past due loan receivables as of September 30, 2013 and December 31, 2012:



			Past Due Loans										Recorded Investment in Loans 90 Days and Greater and Still Accruing
(in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due and Greater		Total Past Due		Total Loan Receivables
September 30, 2013
Commercial and industrial	$	427,524	$	2,105	$	945	$	4,934	$	7,984	$	435,508	$	—
Commercial tax-exempt	82,507		—		—		—		—		82,507		—
Owner occupied real estate	293,443		2,870		839		3,403		7,112		300,555		—
Commercial construction and land development	116,133		169		—		8,074		8,243		124,376		—
Commercial real estate	439,855		3,937		6,241		578		10,756		450,611		—
Residential	90,874		570		1,243		1,540		3,353		94,227		119
Consumer	211,593		1,875		563		861		3,299		214,892		—
Total	$	1,661,929	$	11,526	$	9,831	$	19,390	$	40,747	$	1,702,676	$	119



			Past Due Loans										Recorded Investment in Loans 90 Days and Greater and Still Accruing
(in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due and Greater		Total Past Due		Total Loan Receivables
December 31, 2012
Commercial and industrial	$	368,769	$	1,096	$	3,256	$	3,867	$	8,219	$	376,988	$	30
Commercial tax-exempt	92,202		—		—		—		—		92,202		—
Owner occupied real estate	265,817		610		353		1,592		2,555		268,372		—
Commercial construction and land development	89,250		4,251		4,318		2,580		11,149		100,399		188
Commercial real estate	386,821		3,846		78		3,659		7,583		394,404		—
Residential	76,587		4,303		1,252		1,757		7,312		83,899		—
Consumer	208,335		2,277		410		1,511		4,198		212,533		2
Total	$	1,487,781	$	16,383	$	9,667	$	14,966	$	41,016	$	1,528,797	$	220

The past due portfolio is constantly moving through collection efforts which include: restructures when appropriate, foreclosures or ultimately charge-offs. During the first nine months of 2013, $13.2 million of past due loans at December 31, 2012 improved to current status at September 30, 2013. Another $3.5 million of past due loan balances paid off during the first nine months of 2013. Additionally, $3.2 million and $2.7 million of those loans past due at December 31, 2012, were charged off and moved to foreclosed real estate, respectively. Another $22.7 million in current loans at December 31, 2012, became delinquent and were reported as past due at September 30, 2013. Out of the $22.7 million of loans that became past due after December 31, 2012, $10.8 million were 30-59 days past due, $7.7 million were 60-89 days past due while the remainder, or $4.2 million were 90 days past due or greater at September 30, 2013.

A summary of the ALL and balance of loans receivable by loan class and by impairment method as of September 30, 2013 and December 31, 2012 is detailed in the tables that follow:



(in thousands)	Comm. and industrial		Comm. tax-exempt		Owner occupied real estate		Comm. construction and land development		Comm. real estate		Residential		Con sumer		Unallocated		Total

September 30, 2013
Allowance for loan losses:
Individually evaluated for impairment	$	1,790	$	—	$	1,390	$	4,050	$	2,638	$	523	$	477	$	—	$	10,868
Collectively evaluated for impairment	7,473		75		787		3,439		3,113		356		839		475		16,557
Total ALL	$	9,263	$	75	$	2,177	$	7,489	$	5,751	$	879	$	1,316	$	475	$	27,425
Loans receivable:
Loans evaluated individually	$	12,806	$	—	$	5,185	$	14,946	$	15,307	$	8,187	$	3,295	$	—	$	59,726
Loans evaluated collectively	422,702		82,507		295,370		109,430		435,304		86,040		211,597		—		1,642,950
Total loans receivable	$	435,508	$	82,507	$	300,555	$	124,376	$	450,611	$	94,227	$	214,892	$	—	$	1,702,676



(in thousands)	Comm. and industrial		Comm. tax-exempt		Owner occupied real estate		Comm. construction and land development		Comm. real estate		Residential		Con sumer		Unallocated		Total

December 31, 2012
Allowance for loan losses:
Individually evaluated for impairment	$	2,399	$	—	$	1,451	$	2,470	$	800	$	—	$	—	$	—	$	7,120
Collectively evaluated for impairment	7,560		83		678		4,752		3,183		324		793		789		18,162
Total ALL	$	9,959	$	83	$	2,129	$	7,222	$	3,983	$	324	$	793	$	789	$	25,282
Loans receivable:
Loans evaluated individually	$	13,082	$	—	$	3,380	$	15,549	$	17,136	$	4,163	$	3,331	$	—	$	56,641
Loans evaluated collectively	363,906		92,202		264,992		84,850		377,268		79,736		209,202		—		1,472,156
Total loans receivable	$	376,988	$	92,202	$	268,372	$	100,399	$	394,404	$	83,899	$	212,533	$	—	$	1,528,797

The Bank may create a specific allowance for all of or a part of a particular loan in lieu of a charge-off or charge-down as a result of management's evaluation of impaired loans. In these instances, the Bank has determined that a loss is not imminent based upon available information surrounding the credit at the time of the analysis including, but not limited to, unresolved legal matters; however, management believes an allowance is appropriate to acknowledge the probable risk of loss.

Typically, commercial construction and land development and commercial real estate loans present a greater risk of nonpayment by a borrower than other types of loans. The market value of and cash flow from real estate, particularly real estate held for investment, can fluctuate significantly in a relatively short period of time. Commercial and industrial, tax exempt and owner occupied real estate loans generally carry a lower risk factor comparatively within the commercial portfolio because the repayment of these loans relies primarily on the cash flow from a business which is more stable and predictable.

Consumer loan collections are dependent on the borrower's continued financial stability and thus are more likely to be affected by adverse personal circumstances. Consumer and residential loans are also impacted by the market value of real estate. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans. The risk of nonpayment is affected by changes in economic conditions, the credit risks of a particular borrower, the term of the loan and, in the case of a collateralized loan, uncertainties as to the value of the collateral and other factors.

Management bases its quantitative analysis of probable future loan losses (when determining the ALL) on those loans collectively reviewed for impairment on a two-year period of actual historical losses. Management may increase or decrease the historical loss period at some point in the future based on the state of the local, regional and national economies and other circumstances.

The qualitative factors such as changes in levels and trends of charge-offs and delinquencies; material changes in the mix, volume or duration of the loan portfolio; changes in lending policies and procedures including underwriting standards; changes in the experience, ability and depth of lending management and other relevant staff; the existence and effect of any concentrations of credit; changes in the overall values of collateral; changes in the quality of the loan review program and changes in national and local economic trends and conditions among other things, are factors which have not been identified by the quantitative processes. The determination of qualitative factors inherently involves a higher degree of subjectivity and considers risk factors that may not have yet manifested themselves in historical loss experience.

The following tables summarize the transactions in the ALL for the three and nine months ended September 30, 2013 and 2012:



(in thousands)	Comm. and industrial			Comm. tax-exempt		Owner occupied real estate			Comm. construction and land development			Comm. real estate			Residential			Consumer			Unallocated		Total
2013
Balance at July 1	$	10,549		$	74	$	2,207		$	7,810		$	5,059		$	863		$	1,258		$	218	$	28,038
Provision charged to operating expenses	(437		)	1		4			(33		)	801			45			562			257		1,200
Recoveries of loans previously charged-off	613			—		—			(21		)	—			7			11			—		610
Loans charged-off	(1,462		)	—		(34		)	(267		)	(109		)	(36		)	(515		)	—		(2,423		)
Balance at September 30	$	9,263		$	75	$	2,177		$	7,489		$	5,751		$	879		$	1,316		$	475	$	27,425



(in thousands)	Comm. and industrial			Comm. tax-exempt			Owner occupied real estate			Comm. construction and land development			Comm. real estate			Residential			Consumer			Unallocated			Total
2013
Balance at January 1	$	9,959		$	83		$	2,129		$	7,222		$	3,983		$	324		$	793		$	789		$	25,282
Provision charged to operating expenses	1,085			(8		)	315			82			2,100			711			1,329			(314		)	5,300
Recoveries of loans previously charged-off	945			—			3			477			—			10			69			—			1,504
Loans charged-off	(2,726		)	—			(270		)	(292		)	(332		)	(166		)	(875		)	—			(4,661		)
Balance at September 30	$	9,263		$	75		$	2,177		$	7,489		$	5,751		$	879		$	1,316		$	475		$	27,425



(in thousands)	Comm. and industrial			Comm. tax-exempt		Owner occupied real estate		Comm. construction and land development			Comm. real estate			Residential			Consumer			Unallocated		Total
2012
Balance at July 1	$	10,575		$	74	$	2,117	$	8,917		$	3,139		$	438		$	797		$	101	$	26,158
Provision charged to operating expenses	398			6		294		(762		)	1,609			101			301			553		2,500
Recoveries of loans previously charged-off	15			—		—		64			55			3			20			—		157
Loans charged-off	(487		)	—		—		(625		)	(1,580		)	(198		)	(329		)	—		(3,219		)
Balance at September 30	$	10,501		$	80	$	2,411	$	7,594		$	3,223		$	344		$	789		$	654	$	25,596



(in thousands)	Comm. and industrial			Comm. tax-exempt		Owner occupied real estate			Comm. construction and land development			Comm. real estate			Residential			Consumer			Unallocated		Total
2012
Balance at January 1	$	8,400		$	79	$	729		$	7,840		$	3,241		$	435		$	831		$	65	$	21,620
Provision charged to operating expenses	2,832			1		1,766			464			1,749			168			381			589		7,950
Recoveries of loans previously charged-off	216			—		8			513			85			4			65			—		891
Loans charged-off	(947		)	—		(92		)	(1,223		)	(1,852		)	(263		)	(488		)	—		(4,865		)
Balance at September 30	$	10,501		$	80	$	2,411		$	7,594		$	3,223		$	344		$	789		$	654	$	25,596

The following table presents information regarding the Company's impaired loans as of September 30, 2013 and December 31, 2012:



	September 30, 2013						December 31, 2012
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans with no related allowance:
Commercial and industrial	$	9,577	$	14,109	$	—	$	7,426	$	11,746	$	—
Commercial tax-exempt	—		—		—		—		—		—
Owner occupied real estate	3,795		4,351		—		1,929		2,301		—
Commercial construction and land development	5,574		5,987		—		7,716		8,500		—
Commercial real estate	8,220		8,301		—		12,965		14,619		—
Residential	5,098		5,471		—		4,163		4,423		—
Consumer	2,818		3,095		—		3,331		3,547		—
Total impaired loans with no related allowance	35,082		41,314		—		37,530		45,136		—
Loans with an allowance recorded:
Commercial and industrial	3,229		3,229		1,790		5,656		6,526		2,399
Owner occupied real estate	1,390		1,390		1,390		1,451		1,451		1,451
Commercial construction and land development	9,372		9,372		4,050		7,833		7,833		2,470
Commercial real estate	7,087		7,087		2,638		4,171		4,172		800
Residential	3,089		3,089		523		—		—		—
Consumer	477		477		477		—		—		—
Total impaired loans with an allowance recorded	24,644		24,644		10,868		19,111		19,982		7,120
Total impaired loans:
Commercial and industrial	12,806		17,338		1,790		13,082		18,272		2,399
Commercial tax-exempt	—		—		—		—		—		—
Owner occupied real estate	5,185		5,741		1,390		3,380		3,752		1,451
Commercial construction and land development	14,946		15,359		4,050		15,549		16,333		2,470
Commercial real estate	15,307		15,388		2,638		17,136		18,791		800
Residential	8,187		8,560		523		4,163		4,423		—
Consumer	3,295		3,572		477		3,331		3,547		—
Total impaired loans	$	59,726	$	65,958	$	10,868	$	56,641	$	65,118	$	7,120

Compared to December 31, 2012, $25.8 million of impaired loans without a specific reserve remained impaired without a specific reserve at September 30, 2013. In addition $16.4 million of impaired loans with specific reserves at December 31, 2012 remained impaired with a specific reserve at September 30, 2013. A total of $13.2 million of loans were downgraded and deemed to be impaired subsequent to December 31, 2012, $3.8 million of these loans have a specific reserve related to them. A total of $2.4 million of loans impaired at December 31, 2012 were paid in full during the first nine months of 2013, $2.8 million were charged-off and $2.7 million were transferred to foreclosed real estate.

The following table presents additional information regarding the Company's impaired loans for the three and nine months ended September 30, 2013 and 2012:



	Three Months Ended								Nine Months Ended
	September 30, 2013				September 30, 2012				September 30, 2013				September 30, 2012
(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance:
Commercial and industrial	$	9,501	$	47	$	11,921	$	48	$	9,320	$	121	$	12,042	$	140
Commercial tax-exempt	—		—		—		—		—		—		—		—
Owner occupied real estate	3,808		—		2,379		27		2,841		—		4,465		150
Commercial construction and land development	6,366		43		9,682		166		7,399		133		10,668		417
Commercial real estate	10,229		104		12,238		79		11,550		360		11,699		175
Residential	5,355		13		4,270		13		4,942		49		3,946		31
Consumer	3,190		8		2,632		6		3,186		22		2,301		8
Total impaired loans with no related allowance	38,449		215		43,122		339		39,238		685		45,121		921
Loans with an allowance recorded:
Commercial and industrial	4,587		—		8,106		—		5,030		—		4,709		—
Owner occupied real estate	1,399		—		2,036		—		1,418		—		1,436		—
Commercial construction and land development	8,848		—		11,524		—		8,168		—		12,552		—
Commercial real estate	5,129		—		—		—		4,486		—		—		—
Residential	3,091		—		—		—		1,381		—		—		—
Consumer	478		—		—		—		214		—		—		—
Total impaired loans with an allowance recorded	23,532		—		21,666		—		20,697		—		18,697		—
Total impaired loans:
Commercial and industrial	14,088		47		20,027		48		14,350		121		16,751		140
Commercial tax-exempt	—		—		—		—		—		—		—		—
Owner occupied real estate	5,207		—		4,415		27		4,259		—		5,901		150
Commercial construction and land development	15,214		43		21,206		166		15,567		133		23,220		417
Commercial real estate	15,358		104		12,238		79		16,036		360		11,699		175
Residential	8,446		13		4,270		13		6,323		49		3,946		31
Consumer	3,668		8		2,632		6		3,400		22		2,301		8
Total impaired loans	$	61,981	$	215	$	64,788	$	339	$	59,935	$	685	$	63,818	$	921

Impaired loans averaged approximately $59.9 million and $63.8 million for the nine months ended September 30, 2013 and 2012, respectively. All nonaccrual loans are considered impaired and interest income is handled as discussed earlier in the nonaccrual section of this Note. Interest income continued to accrue on certain impaired loans totaling $685,000 and $921,000 for the nine months ended September 30, 2013 and 2012, respectively.

The Bank assigns loan risk ratings as credit quality indicators of its loan portfolio: pass, special mention, substandard accrual, substandard nonaccrual and doubtful. Monthly, we track commercial loans that are no longer pass rated. We review the cash flow, operating results and financial condition of the borrower and any guarantors, as well as the collateral position against established policy guidelines as a means of providing a targeted list of loans and loan relationships that require additional attention within the loan portfolio. Special mention loans are those loans that are currently adequately protected, but potentially weak. The potential weaknesses may, if not corrected, weaken the loan's credit quality or inadvertently jeopardize our credit position in the future. Substandard accrual and substandard nonaccrual assets are characterized by well-defined weaknesses that jeopardize the liquidation of the debt and by the possibility that the Bank will sustain some loss if the weaknesses are not corrected. Substandard accrual loans would move from accrual to nonaccrual when the Bank does not believe it will collect all of its contractual principal and interest payments. Some identifiers used to determine the collectibility are as follows: when the loan is 90 days past due in principal or interest, there are triggering events in the borrower's or any guarantor's financial statements that show continuing deterioration, the borrower's or any guarantor's source of repayment is depleting, or if bankruptcy or other legal matters are present, regardless if the loan is 90 days past due or not. Doubtful loans have all of the weaknesses inherent in those classified as substandard accrual and substandard nonaccrual with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Pass rated loans are reviewed throughout the year through the recurring review process of an independent loan review function and through the application of other credit metrics.

Credit quality indicators for commercial loans broken out by loan type are presented in the following tables for the periods ended September 30, 2013 and December 31, 2012. There were no loans classified as doubtful for the periods ended September 30, 2013 or December 31, 2012.



	September 30, 2013
(in thousands)	Pass		Special Mention		Substandard Accrual		Substandard Nonaccrual		Total
Commercial credit exposure:
Commercial and industrial	$	393,313	$	9,454	$	22,774	$	9,967	$	435,508
Commercial tax-exempt	82,507		—		—		—		82,507
Owner occupied real estate	284,355		3,983		7,293		4,924		300,555
Commercial construction and land development	108,560		—		4,093		11,723		124,376
Commercial real estate	437,256		607		5,844		6,904		450,611
Total	$	1,305,991	$	14,044	$	40,004	$	33,518	$	1,393,557



	December 31, 2012
(in thousands)	Pass		Special Mention		Substandard Accrual		Substandard Nonaccrual		Total
Commercial credit exposure:
Commercial and industrial	$	335,463	$	6,120	$	24,116	$	11,289	$	376,988
Commercial tax-exempt	92,202		—		—		—		92,202
Owner occupied real estate	253,338		4,160		7,755		3,119		268,372
Commercial construction and land development	81,219		5,046		7,834		6,300		100,399
Commercial real estate	379,313		574		8,858		5,659		394,404
Total	$	1,141,535	$	15,900	$	48,563	$	26,367	$	1,232,365

Consumer loan credit exposures are rated either performing or nonperforming as detailed below at September 30, 2013 and December 31, 2012:



	September 30, 2013
(in thousands)	Performing		Nonperforming		Total
Consumer credit exposure:
Residential	$	86,911	$	7,316	$	94,227
Consumer	212,351		2,541		214,892
Total	$	299,262	$	9,857	$	309,119



	December 31, 2012
(in thousands)	Performing		Nonperforming		Total
Consumer credit exposure:
Residential	$	80,696	$	3,203	$	83,899
Consumer	209,687		2,846		212,533
Total	$	290,383	$	6,049	$	296,432

A trouble debt restructuring (TDR) is a loan of which the contractual terms have been modified, resulting in the Bank granting a concession to a borrower who is experiencing financial difficulties, in order for the Bank to have a greater chance of collecting the indebtedness from the borrower. An additional benefit to the Bank in granting a concession is to possibly avoid foreclosure or repossession of loan collateral at a time when collateral values are low.

The following table presents the recorded investment at the time of restructure of new TDRs and their concession, modified during the three and nine month periods ended September 30, 2013 and 2012. The recorded investment at the time of restructure was the same pre-modification and post-modification, therefore there was no financial effect of the modification on the recorded investment. The loans included are considered TDRs as a result of the Bank implementing one or more of the following concessions: granting a material extension of time, entering into a forbearance agreement, adjusting the interest rate, accepting interest only payments for an extended period of time, a change in the amortization period or a combination of any of these concessions.



New TDRs with Concession Type:	Three Months Ended						Nine Months Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
(dollars in thousands)	Number of Contracts	Recorded Investment at Time of Restructure		Number of Contracts	Recorded Investment at Time of Restructure		Number of Contracts	Recorded Investment at Time of Restructure		Number of Contracts	Recorded Investment at Time of Restructure
Commercial and industrial:
Material extension of time	—	$	—	—	$	—	—	$	—	1	$	1,262
Interest rate adjustment	—	—		1	3,404		—	—		1	3,404
Change in amortization period	—	—		—	—		7	1,079		—	—
Combination of concessions	—	—		—	—		1	125		—	—
Owner occupied real estate:
Forbearance agreement	—	—		—	—		1	193		—	—
Commercial construction and land development:
Material extension of time	1	1,749		—	—		4	2,801		5	3,396
Combination of concessions	—	—		1	3,546		—	—		1	3,546
Commercial real estate:
Material extension of time	—	—		—	—		—	—		1	68
Change in amortization period	—	—		—	—		—	—		—	—
Combination of concessions	—	—		1	3,275		3	2,945		1	3,275
Residential:
Material extension of time	—	—		1	49		1	260		2	329
Forbearance agreement	1	3,096		—	—		1	3,096		—	—
Change in amortization period	1	346		—	—		1	346		—	—
Combination of concessions	—	—		—	—		—	—		1	195
Consumer:
Material extension of time	—	—		2	664		1	35		4	859
Forbearance agreement	1	480		—	—		1	480		—	—
Total	4	$	5,671	6	$	10,938	21	$	11,360	17	$	16,334

The following table represents loans receivable modified as TDR within the 12 months previous to September 30, 2013 and 2012, respectively, and that subsequently defaulted during the three and nine month periods ended September 30, 2013 and 2012, respectively. The Bank's policy is to consider a loan past due or delinquent if payment is not received on or before the due date.



TDRs That Subsequently Payment Defaulted:	Three Months Ended						Nine Months Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
(dollars in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial and industrial	1	$	179	1	$	2	10	$	5,051	2	$	177
Commercial tax-exempt	—	—		—	—		—	—		—	—
Owner occupied real estate	—	—		—	—		2	1,580		—	—
Commercial construction and land development	—	—		—	—		2	2,426		4	2,575
Commercial real estate	—	—		—	—		3	2,943		2	1,011
Residential	1	3,089		1	65		2	3,348		3	609
Consumer	1	477		—	—		2	575		1	178
Total	3	$	3,745	2	$	67	21	$	15,923	12	$	4,550

Of the 21 contracts that subsequently payment defaulted during the nine month period ended September 30, 2013, 20 were still in payment default at September 30, 2013. Thirteen of the 20 contracts totaling $13.0 million were less than 30 days past due.

All TDRs are considered impaired and, therefore, are individually evaluated for impairment in the calculation of the ALL. Prior to their classification as TDRs, certain of these loans had been collectively evaluated for impairment in the calculation of the ALL.