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Loans and reserve for credit losses
 6 Months Ended
Jun. 30, 2013
Receivables [Abstract]  
Loans and reserve for credit losses
Loans and reserve for credit losses

 The composition of the loan portfolio at June 30, 2013 and December 31, 2012 was as follows (dollars in thousands):
 
 
June 30, 2013
 
December 31, 2012
 
Amount
 
Percent
 
Amount
 
Percent
Commercial real estate:
 

 
 

 
 

 
 

Owner occupied
$
207,060

 
22.7
%
 
$
196,821

 
22.9
%
Non-owner occupied and other
326,817

 
35.8
%
 
328,480

 
38.3
%
Total commercial real estate loans
533,877

 
58.5
%
 
525,301

 
61.2
%
Construction
48,205

 
5.3
%
 
45,650

 
5.3
%
Residential real estate
95,775

 
10.5
%
 
85,494

 
10.0
%
Commercial and industrial
196,977

 
21.6
%
 
162,213

 
18.9
%
Consumer
37,740

 
4.1
%
 
39,506

 
4.6
%
Total loans
912,574

 
100.0
%
 
858,164

 
100.0
%
 
 
 
 
 
 
 
 
Less:
 

 
 

 
 

 
 

Deferred loan fees
(1,693
)
 
 

 
(1,846
)
 
 

Reserve for loan losses
(22,694
)
 
 

 
(27,261
)
 
 

Loans, net
$
888,187

 
 

 
$
829,057

 
 


 
For the six months ended June 30, 2013, total loan balances increased by $54.4 million mainly due to increased commercial and industrial portfolio primarily related to its syndicated national credit portfolio. In addition, local owner-occupied commercial real estate ("CRE") was higher and the Company increased its portfolio of originated adjusted rate mortgages and 15 year residential real estate loans.
 
A substantial portion of the Bank’s loans are collateralized by real estate in four major markets (Central, Southern and Northwest Oregon, as well as the greater Boise/Treasure Valley, Idaho area). As such, the Bank’s results of operations and financial condition are affected by general economic trends and, in particular, the local residential and commercial real estate markets it serves. Economic trends can significantly affect the strength of the local real estate market. Approximately 74% of the Bank’s loan portfolio at June 30, 2013 consisted of real estate-related loans, including construction and development loans, residential mortgage loans, and commercial loans secured by commercial real estate. While broader economic conditions currently appear to be stabilizing, real estate prices remain at markedly lower levels compared to periods before the economic recession that began in 2008. Should the period of lower real estate prices persist for an extended duration or should real estate markets further decline, the Bank could be materially and adversely affected. Specifically, collateral for the Bank’s loans would provide less security and the Bank’s ability to recover on defaulted loans by selling real estate collateral would be diminished. Real estate values could be affected by, among other things, a worsening of economic conditions, an increase in foreclosures, a decline in home sale volumes, and an increase in interest rates. Furthermore, the Bank may experience an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to the Bank given a sustained weakness or a weakening in business and economic conditions generally or specifically in the principal markets in which the Bank does business. An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of non-performing assets, net charge-offs, and loan loss provision. Management is targeting to reduce CRE concentration over the long term, but real estate-related loans will remain a significant portfolio component due to the nature of the economies, businesses, and markets we serve.
 
In the normal course of business, the Bank may participate portions of loans to third parties in order to extend the Bank’s lending capability or to mitigate risk. At June 30, 2013 and December 31, 2012, the portion of these loans participated to third-parties (which are not included in the accompanying condensed consolidated financial statements) totaled approximately $11.4 million and $12.7 million, respectively.
 
The reserve for loan losses represents management’s estimate of known and inherent losses in the loan portfolio as of the condensed consolidated balance sheet date and is recorded as a reduction to loans. The reserve for loan losses is increased by charges to operating expense through the loan loss provision, and decreased by loans charged-off, net of recoveries. The reserve for loan losses requires complex subjective judgments as a result of the need to make estimates about matters that are uncertain. The reserve for loan losses is maintained at a level currently considered adequate to provide for potential loan losses based on management’s assessment of various factors affecting the loan portfolio.
 
At June 30, 2013 and December 31, 2012, management believes that the Company’s reserve for loan losses is at an appropriate level under current circumstances and prevailing economic conditions. However the reserve for loan losses is based on estimates, and ultimate losses may vary from the current estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. Therefore, management cannot provide assurance that, in any particular period, the Company will not have significant losses in relation to the amount reserved. The level of the reserve for loan losses is also determined after consideration of bank regulatory guidance and recommendations and is subject to review by such regulatory authorities who may require increases or decreases to the reserve based on their evaluation of the information available to them at the time of their examinations of the Bank.
 
For purposes of assessing the appropriate level of the reserve for loan losses, the Company analyzes loans and commitments to loan, and the amount of reserves allocated to loans and commitments to loan in each of the following reserve categories: pooled reserves, specifically identified reserves for impaired loans, and the unallocated reserve. Also, for purposes of analyzing loan portfolio credit quality and determining the appropriate level of reserve for loan losses, the Company identifies loan portfolio segments and classes based on the nature of the underlying loan collateral.
 
The decline in the reserve for loan losses from December 31, 2012 to June 30, 2013 was mainly related to charge offs during the period, a significant portion of which relates to the Bank’s ongoing remediation of adversely classified loans.

Transactions and allocations in the reserve for loan losses and unfunded loan commitments, by portfolio segment, for the three and six months ended June 30, 2013 and 2012 were as follows (dollars in thousands):
 
Commercial
real estate
 
Construction
 
Residential
real estate
 
Commercial 
and 
industrial
 
Consumer
 
Unallocated
 
Total
Three months ended June 30, 2013
 

 
 

 
 

 
 

 
 

 
 

 
 

Allowance for Loan Losses
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at March 31, 2013
$
11,225

 
$
1,236

 
$
3,714

 
$
5,676

 
$
2,039

 
$
658

 
$
24,548

Loan loss provision (credit)
261

 
226

 
(570
)
 
887

 
(276
)
 
472

 
1,000

Recoveries
37

 
39

 
71

 
834

 
59

 
—

 
1,040

Loans charged off
(811
)
 
(659
)
 
(243
)
 
(2,049
)
 
(132
)
 
—

 
(3,894
)
Balance at end of period
$
10,712

 
$
842

 
$
2,972

 
$
5,348

 
$
1,690

 
$
1,130

 
$
22,694

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for unfunded lending commitments
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at March 31, 2013
$
48

 
$
268

 
$
25

 
$
75

 
$
24

 
$
—

 
$
440

Provision for unfunded loan commitments
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance at end of period
$
48

 
$
268

 
$
25

 
$
75

 
$
24

 
$
—

 
$
440

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for credit losses
 

 
 

 
 

 
 

 
 

 
 

 
 

Reserve for loan losses
$
10,712

 
$
842

 
$
2,972

 
$
5,348

 
$
1,690

 
$
1,130

 
$
22,694

Reserve for unfunded lending commitments
48

 
268

 
25

 
75

 
24

 
—

 
440

Total reserve for credit losses
$
10,760

 
$
1,110

 
$
2,997

 
$
5,423

 
$
1,714

 
$
1,130

 
$
23,134

 
Commercial
real estate

Construction

Residential
real estate

Commercial 
and 
industrial

Consumer

Unallocated

Total
Six months ended June 30, 2013
 


 


 


 


 


 


 

Allowance for Loan Losses
 


 


 


 


 


 


 

Balance at December 31, 2012
$
11,596


$
1,583


$
3,551


$
7,267


$
2,177


$
1,087


$
27,261

Loan loss provision (credit)
(19
)

542


(388
)

1,012


(190
)

43


1,000

Recoveries
215


163


188


1,346


118


—


2,030

Loans charged off
(1,080
)

(1,446
)

(379
)

(4,277
)

(415
)

—


(7,597
)
Balance at end of period
$
10,712


$
842


$
2,972


$
5,348


$
1,690


$
1,130


$
22,694






















Reserve for unfunded lending commitments
 


 


 


 


 


 


 

Balance at December 31, 2012
$
48


$
268


$
25


$
75


$
24


$
—


$
440

Provision for unfunded loan commitments
—


—


—


—


—


—


—

Balance at end of period
$
48


$
268


$
25


$
75


$
24


$
—


$
440






















Reserve for credit losses
 


 


 


 


 


 


 

Reserve for loan losses
$
10,712


$
842


$
2,972


$
5,348


$
1,690


$
1,130


$
22,694

Reserve for unfunded lending commitments
48


268


25


75


24


—


440

Total reserve for credit losses
$
10,760


$
1,110


$
2,997


$
5,423


$
1,714


$
1,130


$
23,134

  
 
Commercial
real estate
 
Construction
 
Residential
real estate
 
Commercial 
and 
industrial
 
Consumer
 
Unallocated
 
Total
Three months ended June 30, 2012
 

 
 

 
 

 
 

 
 

 
 

 
 

Allowance for Loan Losses
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at March 31, 2012
$
22,314

 
$
5,060

 
$
3,864

 
$
9,908

 
$
2,788

 
$
17

 
$
43,951

Loan loss provision (credit)
(145
)
 
(703
)
 
700

 
(429
)
 
(7
)
 
584

 
—

Recoveries
7

 
231

 
85

 
303

 
91

 
—

 
717

Loans charged off
(4,073
)
 
(59
)
 
(956
)
 
(997
)
 
(364
)
 
—

 
(6,449
)
Balance at end of period
$
18,103

 
$
4,529

 
$
3,693

 
$
8,785

 
$
2,508

 
$
601

 
$
38,219

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for unfunded lending commitments
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at March 31, 2012
$
28

 
$
29

 
$
184

 
$
487

 
$
822

 
$
—

 
$
1,550

Provision for unfunded loan commitments
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance at end of period
$
28

 
$
29

 
$
184

 
$
487

 
$
822

 
$
—

 
$
1,550

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for credit losses
 

 
 

 
 

 
 

 
 

 
 

 
 

Reserve for loan losses
$
18,103

 
$
4,529

 
$
3,693

 
$
8,785

 
$
2,508

 
$
601

 
$
38,219

Reserve for unfunded lending commitments
28

 
29

 
184

 
487

 
822

 
—

 
1,550

Total reserve for credit losses
$
18,131

 
$
4,558

 
$
3,877

 
$
9,272

 
$
3,330

 
$
601

 
$
39,769


 
Commercial
real estate

Construction

Residential
real estate

Commercial 
and 
industrial

Consumer

Unallocated

Total
Six months ended June 30, 2012
 


 


 


 


 


 


 

Allowance for Loan Losses
 


 


 


 


 


 


 

Balance at December 31, 2011
$
21,648

 
$
5,398

 
$
3,259

 
$
11,291

 
$
2,292

 
$
17

 
$
43,905

Loan loss provision (credit)
522

 
(1,192
)
 
1,832

 
(1,348
)
 
702

 
584

 
1,100

Recoveries
13

 
382

 
119

 
483

 
180

 
—

 
1,177

Loans charged off
(4,080
)
 
(59
)
 
(1,517
)
 
(1,641
)
 
(666
)
 
—

 
(7,963
)
Balance at end of period
$
18,103

 
$
4,529

 
$
3,693

 
$
8,785

 
$
2,508

 
$
601

 
$
38,219


 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for unfunded lending commitments
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at December 31, 2011
$
28

 
$
29

 
$
184

 
$
487

 
$
822

 
$
—

 
$
1,550

Provision for unfunded loan commitments
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance at end of period
$
28

 
$
29

 
$
184

 
$
487

 
$
822

 
$
—

 
$
1,550


 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for credit losses
 

 
 

 
 

 
 

 
 

 
 

 
 

Reserve for loan losses
$
18,103

 
$
4,529

 
$
3,693

 
$
8,785

 
$
2,508

 
$
601

 
$
38,219

Reserve for unfunded lending commitments
28

 
29

 
184

 
487

 
822

 
—

 
1,550

Total reserve for credit losses
$
18,131

 
$
4,558

 
$
3,877

 
$
9,272

 
$
3,330

 
$
601

 
$
39,769


 
An individual loan is impaired when, based on current information and events, management believes that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The following table presents the reserve for loan losses and the recorded investment in loans, by portfolio segment and impairment evaluation method at June 30, 2013 and December 31, 2012 (dollars in thousands):
 
Reserve for loan losses

Recorded investment in loans
 
Individually
evaluated for
impairment

Collectively
evaluated for
impairment

Total

Individually
evaluated for
impairment

Collectively
evaluated for
impairment

Total
June 30, 2013
 


 


 


 


 


 

Commercial real estate
$
2,152

 
$
8,560

 
$
10,712

 
$
42,477

 
$
491,400

 
$
533,877

Construction
5

 
837

 
842

 
1,664

 
46,541

 
48,205

Residential real estate
173

 
2,799

 
2,972

 
669

 
95,106

 
95,775

Commercial and industrial
331

 
5,017

 
5,348

 
6,922

 
190,055

 
196,977

Consumer
—

 
1,690

 
1,690

 
—

 
37,740

 
37,740

 
$
2,661

 
$
18,903

 
21,564

 
$
51,732

 
$
860,842

 
$
912,574

Unallocated
 

 
 

 
1,130

 
 

 
 

 
 

 
 

 
 

 
$
22,694

 
 

 
 

 
 



















December 31, 2012
 


 


 


 


 


 

Commercial real estate
$
1,088

 
$
10,508

 
$
11,596

 
$
42,859

 
$
482,442

 
$
525,301

Construction
440

 
1,143

 
1,583

 
9,734

 
35,916

 
45,650

Residential real estate
1,141

 
2,410

 
3,551

 
4,840

 
80,654

 
85,494

Commercial and industrial
829

 
6,438

 
7,267

 
9,602

 
152,611

 
162,213

Consumer
301

 
1,876

 
2,177

 
1,636

 
37,870

 
39,506

 
$
3,799

 
$
22,375

 
26,174

 
$
68,671

 
$
789,493

 
$
858,164

Unallocated
 

 
 

 
1,087

 
 

 
 

 
 

 
 

 
 

 
$
27,261

 
 

 
 

 
 



The Company uses credit risk ratings, which reflect the Bank’s assessment of a loan’s risk or loss potential, for purposes of assessing the appropriate level of reserve for loan losses. The Bank’s credit risk rating definitions along with applicable borrower characteristics for each credit risk rating are as follows:
 
Acceptable
 
The borrower is a reasonable credit risk and demonstrates the ability to repay the loan from normal business operations. Loans are generally made to companies operating in an economy and/or industry that is generally sound. The borrower tends to operate in regional or local markets and has achieved sufficient revenues for the business to be financially viable. The borrowers financial performance has been consistent in normal economic times and has been average or better than average for its industry.
 
A loan can also be considered Acceptable even though the borrower may have some vulnerability to downturns in the economy due to marginally satisfactory working capital and debt service cushion. Availability of alternate financing sources may be limited or nonexistent. In some cases, the borrower’s management, may have limited depth or continuity but is still considered capable. An adequate primary source of repayment is identified while secondary sources may be illiquid, more speculative, less readily identified, or reliant upon collateral liquidation. Loan agreements will be well defined, including several financial performance covenants and detailed operating covenants. This category also includes commercial loans to individuals with average or better than average capacity to repay.

Pass-Watch
 
Loans are graded Pass-Watch when temporary situations increase the level of the Bank’s risk associated with the loan, and remain graded Pass-Watch until the situation has been corrected. These situations may involve one or more weaknesses in cash flow, collateral value or indebtedness that could, if not corrected within a reasonable period of time, jeopardize the full repayment of the debt. In general, loans in this category remain adequately protected by the borrower’s net worth and paying capacity, or pledged collateral.
 
Special Mention
 
A Special Mention credit has potential weaknesses that may, if not checked or corrected, weaken the loan or leave the Bank inadequately protected at some future date. Loans in this category are deemed by management of the Bank to be currently protected but reflect potential problems that warrant more than the usual management attention but do not justify a Substandard classification.
 
Substandard
 
Substandard loans are those inadequately protected by the net worth and paying capacity of the obligor and/or by the value of the pledged collateral, if any. Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision and borrowers are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants.
 
CRE and construction loans are classified Substandard when well-defined weaknesses are present which jeopardize the orderly liquidation of the loan. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, and/or the project’s failure to fulfill economic expectations. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
 
In addition, Substandard loans also include impaired loans. Impaired loans bear the characteristics of Substandard loans as described above, and the Company has determined it does not expect timely payment of all contractually due interest and principal. Impaired loans may be adequately secured by collateral.
 
During the first quarter of 2013, the Bank significantly reduced loans classified as special mention and substandard by $57.2 million by working with customers to either payoff, paydown, restructure and/or foreclose on the loans. During the second quarter of 2013, an additional $11.3 million of loans classified as special mention and substandard were reduced.
 
The following table presents, by portfolio class, the recorded investment in loans by internally assigned grades at June 30, 2013 and December 31, 2012 (dollars in thousands):
 
 
Loan grades
 
 
 
Acceptable
 
Pass-Watch
 
Special
Mention
 
Substandard
 
Total
June 30, 2013
 

 
 

 
 

 
 

 
 

Commercial real estate:
 

 
 

 
 

 
 

 
 

Owner occupied
$
129,906

 
$
25,246

 
$
23,366

 
$
28,542

 
$
207,060

Non-owner occupied
227,647

 
64,932

 
18,706

 
15,532

 
326,817

Total commercial real estate loans
357,553

 
90,178

 
42,072

 
44,074

 
533,877

Construction
38,047

 
5,675

 
1,055

 
3,428

 
48,205

Residential real estate
89,592

 
1,794

 
1,294

 
3,095

 
95,775

Commercial and industrial
179,681

 
5,180

 
4,502

 
7,614

 
196,977

Consumer
37,134

 
605

 
—

 
1

 
37,740

 
$
702,007

 
$
103,432

 
$
48,923

 
$
58,212

 
$
912,574

 
 
 
 
 
 
 
 
 
 
December 31, 2012
 

 
 

 
 

 
 

 
 

Commercial real estate:
 

 
 

 
 

 
 

 
 

Owner occupied
$
122,125

 
$
26,326

 
$
13,622

 
$
34,748

 
$
196,821

Non-owner occupied
214,990

 
39,879

 
24,910

 
48,701

 
328,480

Total commercial real estate loans
337,115

 
66,205

 
38,532

 
83,449

 
525,301

Construction
25,308

 
6,079

 
1,795

 
12,468

 
45,650

Residential real estate
74,576

 
2,207

 
2,086

 
6,625

 
85,494

Commercial and industrial
126,208

 
7,005

 
6,473

 
22,527

 
162,213

Consumer
37,264

 
603

 
—

 
1,639

 
39,506

 
$
600,471

 
$
82,099

 
$
48,886

 
$
126,708

 
$
858,164



The significant decline in loans classified as substandard resulted from internal upgrades, payoffs, paydowns, loan sales and to a lesser extent, charge offs of credits previously rated substandard. Improved economic conditions contributed significantly to our upgrading of obligor credit quality.  
 
The following table presents, by portfolio class, an age analysis of past due loans, including loans placed on non-accrual at June 30, 2013 and December 31, 2012 (dollars in thousands):
 
30-89 days
past due
 
90 days
or more
past due
 
Total
past due
 
Current
 
Total
loans
June 30, 2013
 

 
 

 
 

 
 

 
 

Commercial real estate:
 

 
 

 
 

 
 

 
 

Owner occupied
$
428

 
$
3,088

 
$
3,516

 
$
203,544

 
$
207,060

Non-owner occupied
638

 
721

 
1,359

 
325,458

 
326,817

Total commercial real estate loans
1,066

 
3,809

 
4,875

 
529,002

 
533,877

Construction
574

 
1,109

 
1,683

 
46,522

 
48,205

Residential real estate
483

 
386

 
869

 
94,906

 
95,775

Commercial and industrial
3,020

 
1,797

 
4,817

 
192,160

 
196,977

Consumer
96

 
1

 
97

 
37,643

 
37,740

 
$
5,239

 
$
7,102

 
$
12,341

 
$
900,233

 
$
912,574

December 31, 2012
 

 
 

 
 

 
 

 
 

Commercial real estate:
 

 
 

 
 

 
 

 
 

Owner occupied
$
1,240

 
$
4,221

 
$
5,461

 
$
191,360

 
$
196,821

Non-owner occupied
8,660

 
7,183

 
15,843

 
312,637

 
328,480

Total commercial real estate loans
9,900

 
11,404

 
21,304

 
503,997

 
525,301

Construction
1,288

 
2,793

 
4,081

 
41,569

 
45,650

Residential real estate
818

 
364

 
1,182

 
84,312

 
85,494

Commercial and industrial
2,825

 
1,858

 
4,683

 
157,530

 
162,213

Consumer
61

 
12

 
73

 
39,433

 
39,506

 
$
14,892

 
$
16,431

 
$
31,323

 
$
826,841

 
$
858,164


 
Loans contractually past due 90 days or more on which the Company continued to accrue interest were $0.3 million and $1.5 million at June 30, 2013 and December 31, 2012, respectively.
 
The following table presents information related to impaired loans, by portfolio class, at June 30, 2013 and December 31, 2012 (dollars in thousands):
 
Impaired loans
 
 
 
With a
related
allowance
 
Without a
related
allowance
 
Total
recorded
balance
 
Unpaid
principal
balance
 
Related
allowance
June 30, 2013
 

 
 

 
 

 
 

 
 

Commercial real estate:
 

 
 

 
 

 
 

 
 

Owner occupied
$
10,006

 
$
5,916

 
$
15,922

 
$
18,671

 
$
1,936

Non-owner occupied
1,933

 
24,623

 
26,556

 
26,906

 
216

Total commercial real estate loans
11,939

 
30,539

 
42,478

 
45,577

 
2,152

Construction
796

 
868

 
1,664

 
1,833

 
5

Residential real estate
378

 
291

 
669

 
750

 
173

Commercial and industrial
4,461

 
2,460

 
6,921

 
8,795

 
331

Consumer
—

 
—

 
—

 
—

 
—

 
$
17,574

 
$
34,158

 
$
51,732

 
$
56,955

 
$
2,661

 
 
 
 
 
 
 
 
 
 
December 31, 2012
 

 
 

 
 

 
 

 
 

Commercial real estate:
 

 
 

 
 

 
 

 
 

Owner occupied
$
8,538

 
$
7,443

 
$
15,981

 
$
21,610

 
$
988

Non-owner occupied
3,712

 
23,166

 
26,878

 
32,630

 
100

Total commercial real estate loans
12,250

 
30,609

 
42,859

 
54,240

 
1,088

Construction
2,348

 
7,386

 
9,734

 
9,867

 
440

Residential real estate
4,530

 
310

 
4,840

 
5,018

 
1,141

Commercial and industrial
6,493

 
3,109

 
9,602

 
10,982

 
829

Consumer
1,636

 
—

 
1,636

 
1,638

 
301

 
$
27,257

 
$
41,414

 
$
68,671

 
$
81,745

 
$
3,799


 
At June 30, 2013 and December 31, 2012, the total recorded balance of impaired loans in the above table included $32.9 million and $43.6 million, respectively, of Troubled Debt Restructuring (“TDR”) loans which were not on non-accrual status.
 
The following table presents, by portfolio class, the average recorded investment in impaired loans for the three and six months ended June 30, 2013 and 2012:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Commercial real estate:
 

 
 

 
 

 
 

Owner occupied
$
15,179

 
$
15,768

 
$
15,447

 
$
15,583

Non-owner occupied
28,089

 
37,917

 
27,685

 
37,920

Total commercial real estate loans
43,268

 
53,685

 
43,132

 
53,503

Construction
2,479

 
5,142

 
4,897

 
5,142

Residential real estate
2,751

 
6,173

 
3,447

 
6,160

Commercial and industrial
8,043

 
10,801

 
8,563

 
10,933

Consumer
969

 
1,274

 
1,192

 
1,272

 
$
57,510

 
$
77,075

 
$
61,231

 
$
77,010


 
Interest income recognized for cash payments received on impaired loans for the six months ended June 30, 2013 was insignificant.

Information with respect to the Company’s non-accrual loans, by portfolio class, at June 30, 2013 and December 31, 2012 is as follows (dollars in thousands):
  
 
June 30, 2013
 
December 31, 2012
Commercial real estate:
 

 
 

Owner occupied
$
5,446

 
$
4,836

Non-owner occupied
1,022

 
5,756

Total commercial real estate loans
6,468

 
10,592

Construction
1,018

 
2,839

Residential real estate
734

 
556

Commercial and industrial
2,683

 
3,233

Total non-accrual loans
$
10,903

 
$
17,220

 
 
 
 
Accruing loans which are contractually past due 90 days or more:
 

 
 

Commercial real estate:
 

 
 

Owner occupied
26

 
—

Non-owner occupied
—

 
1,427

Total commercial real estate loans
26

 
1,427

Construction
134

 
—

Residential real estate
—

 
94

Commercial and industrial
97

 
—

Consumer
1

 
12

Total accruing loans which are contractually past due 90 days or more
$
258

 
$
1,533


 
TDRs
 
A loan is classified as a TDR when a borrower is experiencing financial difficulties and the Company grants a concession to the borrower in the restructuring that the Company would not otherwise consider in the origination of a loan. In some situations a borrower may be experiencing financial distress, but the Company does not provide a concession. These modifications are not considered TDRs. In other cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress. This could be the case if the Company is matching a competitor’s interest rate. These modifications would also not be considered TDRs. Finally, any renewals at existing terms for borrowers not experiencing financial distress would not be considered TDRs. A TDR loan is considered to be impaired and is individually evaluated for impairment.
 
The Company allocated $1.8 million and $2.7 million of specific reserves to customers whose loan terms have been modified in TDRs as of June 30, 2013 and December 31, 2012, respectively. TDRs involve the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow. As indicated above, TDRs may also include loans to borrowers experiencing financial distress that renewed at existing contractual rates, but below market rates for comparable credit quality. The Company has been actively utilizing these programs and working with its customers to improve obligor cash flow and related prospect for repayment. Concessions may include, but are not limited to, interest rate reductions, principal forgiveness, deferral of interest payments, extension of the maturity date, and other actions intended to minimize potential losses to the Company. For each commercial loan restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the new structure can be successful and whether cash flows will be sufficient to support the restructured debt. Generally, if the loan is on accrual at the time of restructuring, it will remain on accrual after the restructuring. After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.
 
Typically, once a loan is identified as a TDR it will retain that designation until it is paid off, because restructured loans generally are not at market rates following restructuring. Under certain circumstances a TDR may be removed from TDR status if it is determined to no longer be impaired and the loan is at a competitive interest rate. Under such circumstances, allowance allocations for loans removed from TDR status would be based on the historical allocation for the applicable loan grade and loan class.
 
As with other impaired loans, an allowance for loan loss is estimated for each TDR based on the most likely source of repayment for each loan. For impaired commercial real estate loans that are collateral dependent, the allowance is computed based on the fair value of the underlying collateral. For impaired commercial loans where repayment is expected from cash flows from business operations and/or sale of collateral, the allowance is computed based on a discounted cash flow computation. The allowance allocations for commercial TDRs where we have reduced the contractual interest rate are computed by measuring cash flows using the new payment terms discounted at the original contractual rate.
 
The following table presents, by portfolio segment, information with respect to the Company’s loans that were modified and recorded as TDRs during the three and six months ended June 30, 2013 and 2012 (dollars in thousands):
 
Three months ended June 30,
 
2013
 
2012
 
Number of
loans
 
TDR outstanding
recorded investment
 
Number of
loans
 
TDR outstanding
recorded investment
Commercial real estate
—

 
$
—

 
1

 
$
132

Construction
—

 
—

 
1

 
4,425

Residential real estate
—

 
—

 
3

 
83

Commercial and industrial
1

 
3

 
3

 
240

Consumer
—

 
—

 
18

 
151

 
1

 
$
3

 
26

 
$
5,031

 
Six months ended June 30,
 
2013
 
2012
 
Number of
loans
 
TDR outstanding
recorded investment
 
Number of
loans
 
TDR outstanding
recorded investment
Commercial real estate
5

 
$
27,677

 
4

 
$
1,729

Construction
—

 
—

 
1

 
4,425

Residential real estate
—

 
—

 
7

 
310

Commercial and industrial
4

 
277

 
9

 
581

Consumer
—

 
—

 
33

 
310

 
9

 
$
27,954

 
54

 
$
7,355



The increase in the outstanding recorded investment of loans modified and recorded as TDRs during the six months ended June 30, 2013 compared to the same period in 2012 was primarily the result of remediation to bolster cash flow of stressed loans, and includes the restructuring of a large CRE credit in the Bank’s loan portfolio during the first quarter of 2013. Outstanding recorded investment of loans modified and recorded as TDRs decreased during the second quarter of 2013 compared to the second quarter of 2012 was primarily the result of the remediation that had occurred prior to the second quarter of 2013 as the number of loans being restructured has decreased. 

At June 30, 2013 and 2012, the Company had remaining commitments to lend on loans accounted for as TDRs of $0 and $1.3 million, respectively.
 
The following table presents, by portfolio segment, the post modification recorded investment for TDRs restructured during the three and six months ended June 30, 2013 and 2012 by the primary type of concession granted:
 
Three Months Ended  
 June 30, 2013
Rate
reduction
 
Term
extension
 
Rate reduction
and term
extension
 
Total
Commercial real estate
$
—

 
$
—

 
$
—

 
$
—

Construction
—

 
—

 
—

 
—

Residential real estate
—

 
—

 
—

 
—

Commercial and industrial
—

 
3

 
—

 
3

Consumer
—

 
—

 
—

 
—

 
$
—

 
$
3

 
$
—

 
$
3

Three Months Ended  
 June 30, 2012
Rate
reduction
 
Term
extension
 
Rate reduction
and term
extension
 
Total
Commercial real estate
$
—

 
$
132

 
$
—

 
$
132

Construction
—

 
4,425

 
—

 
4,425

Residential real estate
—

 
83

 
—

 
83

Commercial and industrial
—

 
240

 
—

 
240

Consumer
—

 
151

 
—

 
151

 
$
—

 
$
5,031

 
$
—

 
$
5,031

Six Months Ended 
 June 30, 2013
Rate
reduction
 
Term
extension
 
Rate reduction
and term
extension
 
Total
Commercial real estate
$
3,809

 
$
2,368

 
$
21,500

 
$
27,677

Construction
—

 
—

 
—

 
—

Residential real estate
—

 
—

 
—

 
—

Commercial and industrial
174

 
103

 
—

 
277

Consumer
—

 
—

 
—

 
—

 
$
3,983

 
$
2,471

 
$
21,500

 
$
27,954

Six Months Ended 
 June 30, 2012
Rate
reduction
 
Term
extension
 
Rate reduction
and term
extension
 
Total
Commercial real estate
$
1,295

 
$
434

 
$
—

 
$
1,729

Construction
—

 
4,425

 
—

 
4,425

Residential real estate
—

 
310

 
—

 
310

Commercial and industrial
89

 
339

 
153

 
581

Consumer
—

 
310

 
—

 
310

 
$
1,384

 
$
5,818

 
$
153

 
$
7,355


The following table presents, by portfolio segment, the TDRs which had payment defaults during the six months ended June 30, 2013 and 2012 that had been previously restructured within the last twelve months prior to June 30, 2013 and 2012: 
 
Six months ended June 30,
 
2013
 
2012
 
Number of
loans
 
TDRs restructured in the
period with a payment
default
 
Number
of loans
 
TDRs restructured in the
period with a payment
default
Commercial real estate
2

 
$
3,500

 
—

 
$
—

Construction
—

 
—

 
—

 
—

Residential real estate
—

 
—

 
—

 
—

Commercial and industrial loans
—

 
—

 
—

 
—

Consumer loans
—

 
—

 
1

 
3

 
2

 
$
3,500

 
1

 
$
3