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Loans, Allowance for Credit Losses, and Asset Quality Information | 9 Months Ended
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Sep. 30, 2023
Receivables [Abstract] |
Loans, Allowance for Credit Losses, and Asset Quality Information | Loans, Allowance for Credit Losses, and Asset Quality Information The following is a summary of the major categories of total loans outstanding:
($ in thousands) |  | September 30, 2023 |  | December 31, 2022
|  | Amount |  | Percentage |  | Amount |  | Percentage
Commercial and industrial |  | $ | 893,910 |  |  | 11 | % |  | $ | 641,941 |  |  | 9 | %
Construction, development & other land loans |  | 1,008,289 |  |  | 13 | % |  | 934,176 |  |  | 14 | %
Commercial real estate - owner occupied |  | 1,252,259 |  |  | 16 | % |  | 1,036,270 |  |  | 16 | %
Commercial real estate - non owner occupied |  | 2,509,317 |  |  | 31 | % |  | 2,123,811 |  |  | 32 | %
Multi-family real estate |  | 405,161 |  |  | 5 | % |  | 350,180 |  |  | 5 | %
Residential 1-4 family real estate |  | 1,560,140 |  |  | 19 | % |  | 1,195,785 |  |  | 18 | %
Home equity loans/lines of credit |  | 331,108 |  |  | 4 | % |  | 323,726 |  |  | 5 | %
Consumer loans |  | 67,169 |  |  | 1 | % |  | 60,659 |  |  | 1 | %
Subtotal |  | 8,027,353 |  |  | 100 | % |  | 6,666,548 |  |  | 100 | %
Unamortized net deferred loan fees |  | (316) |  |  |  |  | (1,403) |  |  |
Total loans |  | $ | 8,027,037 |  |  |  |  | $ | 6,665,145 |  |  |
Also included in the table above are various SBA loans, generally originated under the SBA 7A program, with additional information on these loans presented in the table below.
($ in thousands) |  | September 30, 2023 |  | December 31, 2022
Guaranteed portions of SBA loans included in table above |  | $ | 40,849 |  |  | 31,893 |
Unguaranteed portions of SBA loans included in table above |  | 113,081 |  |  | 116,910 |
Total SBA loans included in the table above |  | $ | 153,930 |  |  | 148,803 |
Sold portions of SBA loans with servicing retained - not included in tables above |  | $ | 364,859 |  |  | 392,370 |
At September 30, 2023 and December 31, 2022, there were remaining unaccreted discounts on the retained portion of sold SBA loans amounting to $3.6 million and $4.3 milion, respectively. At September 30, 2023 and December 31, 2022, l oans in the amount of $6.4 billion and $5.3 billion, respectively, were pledged as collateral for certain borrowings. At September 30, 2023 and December 31, 2022, total loans included loans to executive officers and directors of the Company, and their associates, totaling approximately $5.5 million and $6.0 million, respectively. There were two new loans and advances on existing loans totaling approximately $45,000 for the nine months ended September 30, 2023 and repayments amounted to $0.5 million for that period. Available credit on related party loans totaled $1.3 million and $1.2 million at September 30, 2023 and December 31, 2022, respectively. Management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features. As of September 30, 2023 and December 31, 2022, unamortized discounts on all acquired loans totaled $26.5 million and $11.6 million, respectively. Loan discounts are generally amortized as yield adjustments over the respective lives of the loans, so long as the loans perform. Nonperforming assets ("NPA") are defined as nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, foreclosed real estate, and prior to the adoption of ASU 2022-02 on January 1, 2023, TDRs. The following table summarizes the NPAs for each period presented.
($ in thousands) |  | September 30, 2023 |  | December 31, 2022
Nonaccrual loans |  | $ | 26,884 |  |  | 28,514 |
Modifications to borrowers in financial distress |  | 10,723 |  |  | — |
TDRs - accruing |  | — |  |  | 9,121 |
Total nonperforming loans |  | 37,607 |  |  | 37,635 |
Foreclosed real estate |  | 1,235 |  |  | 658 |
Total nonperforming assets |  | $ | 38,842 |  |  | 38,293 |
At September 30, 2023 and December 31, 2022, the Company had $3.2 million and $0.8 million, respectively, in residential mortgage loans in the process of foreclosure. At September 30, 2023, there were two loans with a commitment to lend additional funds of $0.1 million to borrowers whose loans were nonperforming. As of December 31, 2022, there was one such loan for an immaterial commitment to lend additional funds to the borrower whose loan was nonperforming. The following table is a summary of the Company’s nonaccrual loans by major categories as of September 30, 2023:
($ in thousands) |  | Nonaccrual Loans with No Allowance |  | Nonaccrual Loans with an Allowance |  | Total Nonaccrual Loans
Commercial and industrial |  | $ | 1,485 |  |  | 8,303 |  |  | 9,788 |
Construction, development & other land loans |  | — |  |  | 115 |  |  | 115 |
Commercial real estate - owner occupied |  | 879 |  |  | 7,110 |  |  | 7,989 |
Commercial real estate - non owner occupied |  | 1,941 |  |  | 1,127 |  |  | 3,068 |
Multi-family real estate |  | — |  |  | — |  |  | — |
Residential 1-4 family real estate |  | — |  |  | 2,979 |  |  | 2,979 |
Home equity loans/lines of credit |  | 538 |  |  | 2,242 |  |  | 2,780 |
Consumer loans |  | — |  |  | 165 |  |  | 165 |
Total |  | $ | 4,843 |  |  | 22,041 |  |  | 26,884 |
The following table is a summary of the Company’s nonaccrual loans by major categories as of December 31, 2022:
($ in thousands) |  | Nonaccrual Loans with No Allowance |  | Nonaccrual Loans with an Allowance |  | Total Nonaccrual Loans
Commercial and industrial |  | $ | 3,855 |  |  | 6,374 |  |  | 10,229 |
Construction, development & other land loans |  | — |  |  | 1,009 |  |  | 1,009 |
Commercial real estate - owner occupied |  | 3,903 |  |  | 5,770 |  |  | 9,673 |
Commercial real estate - non owner occupied |  | 1,107 |  |  | 1,725 |  |  | 2,832 |
Multi-family real estate |  | — |  |  | — |  |  | — |
Residential 1-4 family real estate |  | 157 |  |  | 3,132 |  |  | 3,289 |
Home equity loans/lines of credit |  | — |  |  | 1,397 |  |  | 1,397 |
Consumer loans |  | — |  |  | 85 |  |  | 85 |
Total |  | $ | 9,022 |  |  | 19,492 |  |  | 28,514 |
There was no interest income recognized during the periods presented on nonaccrual loans. The Company follows its nonaccrual policy of reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. The following table represents the accrued interest receivables written off by reversing interest income during each period indicated:
($ in thousands) |  | Nine Months Ended September 30, 2023 |  | For the Year Ended December 31, 2022 |  | Nine Months Ended September 30, 2022
Commercial and industrial |  | $ | 182 |  |  | 102 |  |  | 56 |
Construction, development & other land loans |  | 2 |  |  | 16 |  |  | 16 |
Commercial real estate - owner occupied |  | 105 |  |  | 123 |  |  | 106 |
Commercial real estate - non owner occupied |  | 8 |  |  | 15 |  |  | 2 |
Multi-family real estate |  | — |  |  | 1 |  |  | — |
Residential 1-4 family real estate |  | 29 |  |  | 45 |  |  | 32 |
Home equity loans/lines of credit |  | 39 |  |  | 20 |  |  | 17 |
Consumer loans |  | 2 |  |  | 2 |  |  | 2 |
Total |  | $ | 367 |  |  | 324 |  |  | 231 |
The following table presents an analysis of the payment status of the Company’s loans as of September 30, 2023:
($ in thousands) | Accruing 30-59 Days Past Due |  | Accruing 60-89 Days Past Due |  | Accruing 90 Days or More Past Due |  | Nonaccrual Loans |  | Accruing Current |  | Total Loans Receivable
Commercial and industrial | $ | 1,326 |  |  | 155 |  |  | — |  |  | 9,788 |  |  | 882,641 |  |  | 893,910 |
Construction, development & other land loans | 693 |  |  | 339 |  |  | — |  |  | 115 |  |  | 1,007,142 |  |  | 1,008,289 |
Commercial real estate - owner occupied | 1,864 |  |  | — |  |  | — |  |  | 7,989 |  |  | 1,242,406 |  |  | 1,252,259 |
Commercial real estate - non owner occupied | 76 |  |  | — |  |  | — |  |  | 3,068 |  |  | 2,506,173 |  |  | 2,509,317 |
Multi-family real estate | — |  |  | — |  |  | — |  |  | — |  |  | 405,161 |  |  | 405,161 |
Residential 1-4 family real estate | 2,200 |  |  | 1,349 |  |  | — |  |  | 2,979 |  |  | 1,553,612 |  |  | 1,560,140 |
Home equity loans/lines of credit | 720 |  |  | 111 |  |  | — |  |  | 2,780 |  |  | 327,497 |  |  | 331,108 |
Consumer loans | 270 |  |  | 136 |  |  | — |  |  | 165 |  |  | 66,598 |  |  | 67,169 |
Total | $ | 7,149 |  |  | 2,090 |  |  | — |  |  | 26,884 |  |  | 7,991,230 |  |  | 8,027,353 |
Unamortized net deferred loan fees |  |  |  |  |  |  |  |  |  |  | (316) |
Total loans |  |  |  |  |  |  |  |  |  |  | 8,027,037 |
The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2022:
($ in thousands) | Accruing 30-59 Days Past Due |  | Accruing 60-89 Days Past Due |  | Accruing 90 Days or More Past Due |  | Nonaccrual Loans |  | Accruing Current |  | Total Loans Receivable
Commercial and industrial | $ | 438 |  |  | 565 |  |  | — |  |  | 10,229 |  |  | 630,709 |  |  | 641,941 |
Construction, development & other land loans | 238 |  |  | 1,687 |  |  | — |  |  | 1,009 |  |  | 931,242 |  |  | 934,176 |
Commercial real estate - owner occupied | 124 |  |  | 48 |  |  | — |  |  | 9,673 |  |  | 1,026,425 |  |  | 1,036,270 |
Commercial real estate - non owner occupied | 496 |  |  | 49 |  |  | — |  |  | 2,832 |  |  | 2,120,434 |  |  | 2,123,811 |
Multi-family real estate | — |  |  | — |  |  | — |  |  | — |  |  | 350,180 |  |  | 350,180 |
Residential 1-4 family real estate | 3,415 |  |  | 25 |  |  | — |  |  | 3,289 |  |  | 1,189,056 |  |  | 1,195,785 |
Home equity loans/lines of credit | 457 |  |  | 371 |  |  | — |  |  | 1,397 |  |  | 321,501 |  |  | 323,726 |
Consumer loans | 249 |  |  | 66 |  |  | — |  |  | 85 |  |  | 60,259 |  |  | 60,659 |
Total | $ | 5,417 |  |  | 2,811 |  |  | — |  |  | 28,514 |  |  | 6,629,806 |  |  | 6,666,548 |
Unamortized net deferred loan fees |  |  |  |  |  |  |  |  |  |  | (1,403) |
Total loans |  |  |  |  |  |  |  |  |  |  | 6,665,145 |
Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans on nonaccrual with a net book balance of $500,000 or greater for designation as collateral dependent loans, as well as certain other loans that may still be accruing interest and/or are less than $500,000 in size that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the ACL. The following table presents an analysis of collateral dependent loans of the Company as of September 30, 2023:
($ in thousands) | Residential Property |  | Business Assets |  | Land |  | Commercial Property |  |  |  | Total Collateral-Dependent Loans
Commercial and industrial | $ | — |  |  | 2,542 |  |  | — |  |  | — |  |  |  |  | 2,542 |
Commercial real estate - owner occupied | — |  |  | — |  |  | — |  |  | 1,228 |  |  |  |  | 1,228 |
Commercial real estate - non owner occupied | — |  |  | — |  |  | — |  |  | 1,941 |  |  |  |  | 1,941 |
Home equity loans/lines of credit | 538 |  |  | — |  |  | — |  |  | — |  |  |  |  | 538 |
Total | $ | 538 |  |  | 2,542 |  |  | — |  |  | 3,169 |  |  |  |  | 6,249 |
The following table presents an analysis of collateral dependent loans of the Company as of December 31, 2022:
($ in thousands) | Residential Property |  | Business Assets |  | Land |  | Commercial Property |  |  |  | Total Collateral-Dependent Loans
Commercial and industrial | $ | — |  |  | 6,394 |  |  | — |  |  | — |  |  |  |  | 6,394 |
Commercial real estate - owner occupied | — |  |  | — |  |  | — |  |  | 4,578 |  |  |  |  | 4,578 |
Commercial real estate - non owner occupied | — |  |  | — |  |  | — |  |  | 2,145 |  |  |  |  | 2,145 |
Residential 1-4 family real estate | 157 |  |  | — |  |  | — |  |  | — |  |  |  |  | 157 |
Total | $ | 157 |  |  | 6,394 |  |  | — |  |  | 6,723 |  |  |  |  | 13,274 |
Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the ACL based on the fair value of collateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The Company's policy is to obtain third-party appraisals on any significant pieces of collateral. For loans secured by real estate, the Company's policy is to write nonaccrual loans down to 90% of the appraised value, which considers estimated selling costs that are usually incurred when disposing of real estate collateral. For real estate collateral that is in industries which may be undergoing heightened stress due to economic or other external factors, the Company may reduce the collateral values by an additional 10-25% of appraised value to recognize additional discounts that are estimated to be incurred in a near-term sale. For non real estate collateral secured loans, the Company generally writes nonaccrual loans down to 75% of the appraised value, which provides for selling costs and liquidity discounts that are usually incurred when disposing of non real estate collateral. For reviewed loans that are not on nonaccrual basis, the Company assigns a specific allowance based on the parameters noted above. The Company does not believe that there is significant excess collateral for any of the loan types noted above. The following tables presents the activity in the ACL on loans for each of the periods indicated. Fluctuations in the ACL each period are based on loan mix and growth, changes in the levels of nonperforming loans, economic forecasts impacting loss drivers, other assumptions and inputs to the CECL model, and as occurred in 2023, adjustments for acquired loan portfolios. Much of the change to the level of ACL during the nine months ended September 30, 2023 is attributed to the acquisition of GrandSouth. In addition to the "Day 1" allowance recorded for PCD loans of $5.6 million, the Company recorded a "Day 2" initial provision of $12.2 million related to the non-PCD loans in the GrandSouth portfolio. The balance of the change was a result of loan growth during the period and updated prepayment speed estimates in the CECL model. The higher rate environment has resulted in slower prepayments, thus increasing the projected ACL required.
($ in thousands) |  | Beginning balance |  | "Day 1" ACL for acquired PCD loans |  | Charge-offs |  | Recoveries |  | Provisions / (Reversals) |  | Ending balance
As of and for the three months ended September 30, 2023 |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 23,442 |  |  | — |  |  | (2,650) |  |  | 450 |  |  | 1,202 |  |  | 22,444 |
Construction, development & other land loans |  | 18,477 |  |  | — |  |  | (120) |  |  | 54 |  |  | (4,761) |  |  | 13,650 |
Commercial real estate - owner occupied |  | 16,381 |  |  | — |  |  | (24) |  |  | 34 |  |  | 1,873 |  |  | 18,264 |
Commercial real estate - non owner occupied |  | 26,274 |  |  | — |  |  | — |  |  | 302 |  |  | (1,240) |  |  | 25,336 |
Multi-family real estate |  | 3,946 |  |  | — |  |  | — |  |  | 3 |  |  | (481) |  |  | 3,468 |
Residential 1-4 family real estate |  | 14,305 |  |  | — |  |  | — |  |  | 50 |  |  | 4,374 |  |  | 18,729 |
Home equity loans/lines of credit |  | 3,717 |  |  | — |  |  | — |  |  | 11 |  |  | (431) |  |  | 3,297 |
Consumer loans |  | 2,688 |  |  | — |  |  | (409) |  |  | 67 |  |  | 664 |  |  | 3,010 |
Total |  | $ | 109,230 |  |  | — |  |  | (3,203) |  |  | 971 |  |  | 1,200 |  |  | 108,198 |
As of and for the nine months ended September 30, 2023 |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 17,718 |  |  | 5,197 |  |  | (6,361) |  |  | 1,216 |  |  | 4,674 |  |  | 22,444 |
Construction, development & other land loans |  | 15,128 |  |  | 49 |  |  | (120) |  |  | 277 |  |  | (1,684) |  |  | 13,650 |
Commercial real estate - owner occupied |  | 14,972 |  |  | 191 |  |  | (24) |  |  | 104 |  |  | 3,021 |  |  | 18,264 |
Commercial real estate - non owner occupied |  | 22,780 |  |  | 51 |  |  | (235) |  |  | 734 |  |  | 2,006 |  |  | 25,336 |
Multi-family real estate |  | 2,957 |  |  | — |  |  | — |  |  | 10 |  |  | 501 |  |  | 3,468 |
Residential 1-4 family real estate |  | 11,354 |  |  | 113 |  |  | — |  |  | 275 |  |  | 6,987 |  |  | 18,729 |
Home equity loans/lines of credit |  | 3,158 |  |  | 8 |  |  | (2) |  |  | 85 |  |  | 48 |  |  | 3,297 |
Consumer loans |  | 2,900 |  |  | 1 |  |  | (833) |  |  | 144 |  |  | 798 |  |  | 3,010 |
Total |  | $ | 90,967 |  |  | 5,610 |  |  | (7,575) |  |  | 2,845 |  |  | 16,351 |  |  | 108,198 |
($ in thousands) |  | Beginning balance |  | Charge-offs |  | Recoveries |  | Provisions / (Reversals) |  | Ending balance
As of and for the year ended December 31, 2022 |  |  |  |  |  |  |
Commercial and industrial |  | $ | 16,249 |  |  | (2,519) |  |  | 756 |  |  | 3,232 |  |  | 17,718 |
Construction, development & other land loans |  | 16,519 |  |  | — |  |  | 480 |  |  | (1,871) |  |  | 15,128 |
Commercial real estate - owner occupied |  | 12,317 |  |  | (214) |  |  | 691 |  |  | 2,178 |  |  | 14,972 |
Commercial real estate - non owner occupied |  | 16,789 |  |  | (849) |  |  | 1,281 |  |  | 5,559 |  |  | 22,780 |
Multi-family real estate |  | 1,236 |  |  | — |  |  | 11 |  |  | 1,710 |  |  | 2,957 |
Residential 1-4 family real estate |  | 8,686 |  |  | — |  |  | 17 |  |  | 2,651 |  |  | 11,354 |
Home equity loans/lines of credit |  | 4,337 |  |  | (43) |  |  | 600 |  |  | (1,736) |  |  | 3,158 |
Consumer loans |  | 2,656 |  |  | (840) |  |  | 207 |  |  | 877 |  |  | 2,900 |
Total |  | $ | 78,789 |  |  | (4,465) |  |  | 4,043 |  |  | 12,600 |  |  | 90,967 |
($ in thousands) |  | Beginning balance |  | Charge-offs |  | Recoveries |  | Provisions / (Reversals) |  | Ending balance
As of and for the three months ended September 30, 2022 |  |  |  |  |  |  |
Commercial and industrial |  | $ | 15,450 |  |  | (512) |  |  | 166 |  |  | 2,482 |  |  | 17,586 |
Construction, development & other land loans |  | 16,171 |  |  | — |  |  | 109 |  |  | (1,352) |  |  | 14,928 |
Commercial real estate - owner occupied |  | 14,921 |  |  | (52) |  |  | 25 |  |  | (436) |  |  | 14,458 |
Commercial real estate - non owner occupied |  | 20,124 |  |  | (418) |  |  | 85 |  |  | 991 |  |  | 20,782 |
Multi-family real estate |  | 2,149 |  |  | — |  |  | 2 |  |  | 383 |  |  | 2,534 |
Residential 1-4 family real estate |  | 8,650 |  |  | — |  |  | 1 |  |  | 2,064 |  |  | 10,715 |
Home equity loans/lines of credit |  | 2,086 |  |  | (2) |  |  | 85 |  |  | 597 |  |  | 2,766 |
Consumer loans |  | 2,630 |  |  | (221) |  |  | 38 |  |  | 371 |  |  | 2,818 |
Total |  | $ | 82,181 |  |  | (1,205) |  |  | 511 |  |  | 5,100 |  |  | 86,587 |
As of and for the nine months ended September 30, 2022 |  |  |  |  |  |  |
Commercial and industrial |  | $ | 16,249 |  |  | (2,030) |  |  | 636 |  |  | 2,731 |  |  | 17,586 |
Construction, development & other land loans |  | 16,519 |  |  | — |  |  | 376 |  |  | (1,967) |  |  | 14,928 |
Commercial real estate - owner occupied |  | 12,317 |  |  | (70) |  |  | 585 |  |  | 1,626 |  |  | 14,458 |
Commercial real estate - non owner occupied |  | 16,789 |  |  | (1,263) |  |  | 974 |  |  | 4,282 |  |  | 20,782 |
Multi-family real estate |  | 1,236 |  |  | — |  |  | 8 |  |  | 1,290 |  |  | 2,534 |
Residential 1-4 family real estate |  | 8,686 |  |  | — |  |  | 16 |  |  | 2,013 |  |  | 10,715 |
Home equity loans/lines of credit |  | 4,337 |  |  | (43) |  |  | 446 |  |  | (1,974) |  |  | 2,766 |
Consumer loans |  | 2,656 |  |  | (602) |  |  | 165 |  |  | 599 |  |  | 2,818 |
Total |  | $ | 78,789 |  |  | (4,008) |  |  | 3,206 |  |  | 8,600 |  |  | 86,587 |
Credit Quality Indicators The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type. The following describes the Company’s internal risk grades in ascending order of likelihood of loss:
| Risk Grade | Description
Pass: |  |
| 1 | Loans with virtually no risk, including cash secured loans.
| 2 | Loans with documented significant overall financial strength. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation.
| 3 | Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances.
| 4 | Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability.
| 5 | Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory.
| P (Pass) | Consumer loans that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels. These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines.
Special Mention: |  |
| 6 | Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.
Classified: |  |
| 7 | An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
| 8 | Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable. Loss appears imminent, but the exact amount and timing is uncertain.
| 9 | Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed.
| F (Fail) | Consumer loans with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc.
In the tables that follow, substantially all of the "Classified" loans have grades of 7 or Fail, with those categories having similar levels of risk. The tables below present the Company’s recorded investment in loans by credit quality indicators by year of origination or renewal as of the periods indicated. Acquired loans are presented in the year originated, not in the year of acquisition.
| Term Loans by Year of Origination |  |  |  |
($ in thousands) | 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  | Revolving |  | Total
As of September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  |  |  |  |  |
Pass | $ | 112,558 |  |  | 176,542 |  |  | 117,495 |  |  | 79,161 |  |  | 42,202 |  |  | 64,829 |  |  | 284,368 |  |  | 877,155 |
Special Mention | 550 |  |  | 171 |  |  | 115 |  |  | 206 |  |  | 968 |  |  | 864 |  |  | 2,867 |  |  | 5,741 |
Classified | 1,507 |  |  | 482 |  |  | 620 |  |  | 1,606 |  |  | 1,354 |  |  | 4,695 |  |  | 750 |  |  | 11,014 |
Total commercial and industrial | 114,615 |  |  | 177,195 |  |  | 118,230 |  |  | 80,973 |  |  | 44,524 |  |  | 70,388 |  |  | 287,985 |  |  | 893,910 |
Gross charge-offs, YTD | — |  |  | 1,036 |  |  | 691 |  |  | 249 |  |  | 672 |  |  | 1,196 |  |  | 2,517 |  |  | 6,361 |
Construction, development & other land loans |  |  |  |  |  |  |  |  |  |
Pass | 414,163 |  |  | 335,922 |  |  | 146,919 |  |  | 18,035 |  |  | 12,146 |  |  | 7,942 |  |  | 70,770 |  |  | 1,005,897 |
Special Mention | 693 |  |  | 368 |  |  | 60 |  |  | — |  |  | — |  |  | 97 |  |  | 22 |  |  | 1,240 |
Classified | 204 |  |  | 717 |  |  | 77 |  |  | 8 |  |  | 13 |  |  | 133 |  |  | — |  |  | 1,152 |
Total construction, development & other land loans | 415,060 |  |  | 337,007 |  |  | 147,056 |  |  | 18,043 |  |  | 12,159 |  |  | 8,172 |  |  | 70,792 |  |  | 1,008,289 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 120 |  |  | — |  |  | 120 |
Commercial real estate - owner occupied |  |  |  |  |  |  |  |  |  |
Pass | 161,535 |  |  | 322,115 |  |  | 310,113 |  |  | 204,501 |  |  | 97,149 |  |  | 110,290 |  |  | 17,842 |  |  | 1,223,545 |
Special Mention | 710 |  |  | 2,550 |  |  | 471 |  |  | 1,057 |  |  | 5,778 |  |  | 2,525 |  |  | 344 |  |  | 13,435 |
Classified | 4,545 |  |  | 1,514 |  |  | 1,624 |  |  | 261 |  |  | 2,299 |  |  | 4,952 |  |  | 84 |  |  | 15,279 |
Total commercial real estate - owner occupied | 166,790 |  |  | 326,179 |  |  | 312,208 |  |  | 205,819 |  |  | 105,226 |  |  | 117,767 |  |  | 18,270 |  |  | 1,252,259 |
Gross charge-offs, YTD | — |  |  | — |  |  | 22 |  |  | — |  |  | — |  |  | 2 |  |  | — |  |  | 24 |
Commercial real estate - non owner occupied |  |  |  |  |  |  |  |  |  |
Pass | 372,435 |  |  | 765,188 |  |  | 776,052 |  |  | 316,590 |  |  | 141,693 |  |  | 96,404 |  |  | 25,430 |  |  | 2,493,792 |
Special Mention | 295 |  |  | 199 |  |  | 38 |  |  | 4,617 |  |  | 1,190 |  |  | 6,069 |  |  | — |  |  | 12,408 |
Classified | 883 |  |  | 390 |  |  | 15 |  |  | — |  |  | 634 |  |  | 1,195 |  |  | — |  |  | 3,117 |
Total commercial real estate - non owner occupied | 373,613 |  |  | 765,777 |  |  | 776,105 |  |  | 321,207 |  |  | 143,517 |  |  | 103,668 |  |  | 25,430 |  |  | 2,509,317 |
Gross charge-offs, YTD | — |  |  | — |  |  | 235 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 235 |
Multi-family real estate |  |  |  |  |  |  |  |  |  |
Pass | 36,999 |  |  | 150,089 |  |  | 137,123 |  |  | 44,428 |  |  | 12,425 |  |  | 10,847 |  |  | 13,138 |  |  | 405,049 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Classified | — |  |  | 112 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 112 |
Total multi-family real estate | 36,999 |  |  | 150,201 |  |  | 137,123 |  |  | 44,428 |  |  | 12,425 |  |  | 10,847 |  |  | 13,138 |  |  | 405,161 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential 1-4 family real estate |  |  |  |  |  |  |  |  |  |
Pass | 224,015 |  |  | 438,604 |  |  | 321,353 |  |  | 193,916 |  |  | 96,780 |  |  | 269,201 |  |  | 2,273 |  |  | 1,546,142 |
Special Mention | 689 |  |  | 42 |  |  | 190 |  |  | 71 |  |  | 597 |  |  | 2,007 |  |  | 18 |  |  | 3,614 |
Classified | 535 |  |  | 258 |  |  | 352 |  |  | 505 |  |  | 520 |  |  | 8,214 |  |  | — |  |  | 10,384 |
Total residential 1-4 family real estate | 225,239 |  |  | 438,904 |  |  | 321,895 |  |  | 194,492 |  |  | 97,897 |  |  | 279,422 |  |  | 2,291 |  |  | 1,560,140 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Home equity loans/lines of credit |  |  |  |  |  |  |  |  |  |
Pass | 1,891 |  |  | 1,507 |  |  | 1,341 |  |  | 228 |  |  | 584 |  |  | 1,427 |  |  | 313,746 |  |  | 320,724 |
Special Mention | 167 |  |  | — |  |  | 121 |  |  | — |  |  | — |  |  | — |  |  | 73 |  |  | 361 |
Classified | 252 |  |  | 7 |  |  | 148 |  |  | 92 |  |  | 104 |  |  | 123 |  |  | 9,297 |  |  | 10,023 |
Total home equity loans/lines of credit | 2,310 |  |  | 1,514 |  |  | 1,610 |  |  | 320 |  |  | 688 |  |  | 1,550 |  |  | 323,116 |  |  | 331,108 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2 |  |  | 2 |
Consumer loans |  |  |  |  |  |  |  |  |  |
Pass | 13,809 |  |  | 14,457 |  |  | 5,781 |  |  | 2,595 |  |  | 575 |  |  | 669 |  |  | 28,963 |  |  | 66,849 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Classified | 87 |  |  | 112 |  |  | 49 |  |  | 20 |  |  | 3 |  |  | 1 |  |  | 48 |  |  | 320 |
Total consumer loans | 13,896 |  |  | 14,569 |  |  | 5,830 |  |  | 2,615 |  |  | 578 |  |  | 670 |  |  | 29,011 |  |  | 67,169 |
Gross charge-offs, YTD | 184 |  |  | 38 |  |  | 59 |  |  | 4 |  |  | — |  |  | — |  |  | 548 |  |  | 833 |
Total loans | $ | 1,348,522 |  |  | 2,211,346 |  |  | 1,820,057 |  |  | 867,897 |  |  | 417,014 |  |  | 592,484 |  |  | 770,033 |  |  | 8,027,353 |
Unamortized net deferred loan fees |  |  |  |  |  |  |  |  |  |  |  |  |  | (316) |
Total loans, net of deferred loan fees |  |  |  |  |  |  |  |  |  |  |  |  |  | 8,027,037 |
Total gross charge-offs, year to date | $ | 184 |  |  | 1,074 |  |  | 1,007 |  |  | 253 |  |  | 672 |  |  | 1,318 |  |  | 3,067 |  |  | 7,575 |
| Term Loans by Year of Origination |  |  |  |
($ in thousands) | 2022 |  | 2021 |  | 2020 |  | 2019 |  | 2018 |  | Prior |  | Revolving |  | Total
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  |  |  |  |  |
Pass | $ | 185,167 |  |  | 107,747 |  |  | 85,110 |  |  | 51,274 |  |  | 590 |  |  | 76,588 |  |  | 120,590 |  |  | 627,066 |
Special Mention | 342 |  |  | 166 |  |  | 648 |  |  | 1,312 |  |  | — |  |  | 990 |  |  | 332 |  |  | 3,790 |
Classified | 734 |  |  | 1,909 |  |  | 808 |  |  | 1,384 |  |  | — |  |  | 5,762 |  |  | 488 |  |  | 11,085 |
Total commercial and industrial | 186,243 |  |  | 109,822 |  |  | 86,566 |  |  | 53,970 |  |  | 590 |  |  | 83,340 |  |  | 121,410 |  |  | 641,941 |
Construction, development & other land loans |  |  |  |  |  |  |  |  |  |
Pass | 550,752 |  |  | 267,096 |  |  | 42,421 |  |  | 30,973 |  |  | — |  |  | 12,722 |  |  | 19,519 |  |  | 923,483 |
Special Mention | 5,128 |  |  | 5 |  |  | 3,679 |  |  | — |  |  | — |  |  | 100 |  |  | 13 |  |  | 8,925 |
Classified | 656 |  |  | 107 |  |  | 38 |  |  | 899 |  |  | — |  |  | 44 |  |  | 24 |  |  | 1,768 |
Total construction, development & other land loans | 556,536 |  |  | 267,208 |  |  | 46,138 |  |  | 31,872 |  |  | — |  |  | 12,866 |  |  | 19,556 |  |  | 934,176 |
Commercial real estate - owner occupied |  |  |  |  |  |  |  |  |  |
Pass | 258,025 |  |  | 305,324 |  |  | 190,464 |  |  | 96,495 |  |  | 179 |  |  | 141,053 |  |  | 15,499 |  |  | 1,007,039 |
Special Mention | 1,170 |  |  | 1,070 |  |  | 4,042 |  |  | 6,926 |  |  | — |  |  | 3,277 |  |  | 665 |  |  | 17,150 |
Classified | 3,060 |  |  | 208 |  |  | 84 |  |  | 1,572 |  |  | — |  |  | 6,790 |  |  | 367 |  |  | 12,081 |
Total commercial real estate - owner occupied | 262,255 |  |  | 306,602 |  |  | 194,590 |  |  | 104,993 |  |  | 179 |  |  | 151,120 |  |  | 16,531 |  |  | 1,036,270 |
Commercial real estate - non owner occupied |  |  |  |  |  |  |  |  |  |
Pass | 718,696 |  |  | 747,653 |  |  | 319,708 |  |  | 141,284 |  |  | — |  |  | 168,096 |  |  | 21,159 |  |  | 2,116,596 |
Special Mention | 545 |  |  | 44 |  |  | 394 |  |  | 1,363 |  |  | — |  |  | 1,180 |  |  | — |  |  | 3,526 |
Classified | 420 |  |  | 1,057 |  |  | — |  |  | 884 |  |  | — |  |  | 1,328 |  |  | — |  |  | 3,689 |
Total commercial real estate - non owner occupied | 719,661 |  |  | 748,754 |  |  | 320,102 |  |  | 143,531 |  |  | — |  |  | 170,604 |  |  | 21,159 |  |  | 2,123,811 |
Multi-family real estate |  |  |  |  |  |  |  |  |  |
Pass | 119,922 |  |  | 133,701 |  |  | 59,452 |  |  | 9,669 |  |  | — |  |  | 15,212 |  |  | 12,224 |  |  | 350,180 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Classified | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total multi-family real estate | 119,922 |  |  | 133,701 |  |  | 59,452 |  |  | 9,669 |  |  | — |  |  | 15,212 |  |  | 12,224 |  |  | 350,180 |
Residential 1-4 family real estate |  |  |  |  |  |  |  |  |  |
Pass | 317,282 |  |  | 274,756 |  |  | 186,102 |  |  | 98,559 |  |  | 185 |  |  | 301,885 |  |  | 1,379 |  |  | 1,180,148 |
Special Mention | 1,189 |  |  | 127 |  |  | 110 |  |  | 470 |  |  | — |  |  | 2,416 |  |  | — |  |  | 4,312 |
Classified | 763 |  |  | 251 |  |  | 221 |  |  | 359 |  |  | — |  |  | 9,072 |  |  | 659 |  |  | 11,325 |
Total residential 1-4 family real estate | 319,234 |  |  | 275,134 |  |  | 186,433 |  |  | 99,388 |  |  | 185 |  |  | 313,373 |  |  | 2,038 |  |  | 1,195,785 |
Home equity loans/lines of credit |  |  |  |  |  |  |  |  |  |
Pass | 869 |  |  | 1,091 |  |  | 349 |  |  | 237 |  |  | — |  |  | 2,020 |  |  | 309,786 |  |  | 314,352 |
Special Mention | 175 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 18 |  |  | 1,072 |  |  | 1,265 |
Classified | 106 |  |  | 156 |  |  | 94 |  |  | 87 |  |  | — |  |  | 213 |  |  | 7,453 |  |  | 8,109 |
Total home equity loans/lines of credit | 1,150 |  |  | 1,247 |  |  | 443 |  |  | 324 |  |  | — |  |  | 2,251 |  |  | 318,311 |  |  | 323,726 |
Consumer loans |  |  |  |  |  |  |  |  |  |
Pass | 35,406 |  |  | 7,946 |  |  | 3,610 |  |  | 1,056 |  |  | 3 |  |  | 1,250 |  |  | 10,953 |  |  | 60,224 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Classified | 320 |  |  | 31 |  |  | 3 |  |  | 1 |  |  | — |  |  | 25 |  |  | 55 |  |  | 435 |
Total consumer loans | 35,726 |  |  | 7,977 |  |  | 3,613 |  |  | 1,057 |  |  | 3 |  |  | 1,275 |  |  | 11,008 |  |  | 60,659 |
Total loans | $ | 2,200,727 |  |  | 1,850,445 |  |  | 897,337 |  |  | 444,804 |  |  | 957 |  |  | 750,041 |  |  | 522,237 |  |  | 6,666,548 |
Unamortized net deferred loan fees |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,403) |
Total loans, net of deferred loan fees |  |  |  |  |  |  |  |  |  |  |  |  |  | 6,665,145 |
Loan Modifications to Borrowers Experiencing Financial Difficulty Effective January 1, 2023, we adopted ASU 2022-02 which eliminated the accounting guidance for TDRs and requires disclosures for certain loan modifications when a borrower is experiencing financial difficulty. Occasionally, the Company modifies loans to borrowers in financial distress as a part of our loss mitigation activities. Various types of modification may be offered including principal forgiveness, term extension, payment delays, or interest rate reductions. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession may be granted. For loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The followings tables present the amortized cost basis at September 30, 2023 of the loans modified during the three and nine months then ended for borrowers experiencing financial difficulty, by loan category and type of concession granted.
($ in thousands) |  |  |  |  |  | Payment Delay |  | Term Extension |  |  |  |  |  | Combination - Interest Rate Reduction and Term Extension |  | Total |  | Percent of Total Class of Loans
As of and for the three months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  | $ | 1,142 |  |  | 117 |  |  |  |  |  |  | — |  |  | 1,259 |  |  | 0.14 | %
Construction, development & other land loans |  |  |  |  |  | — |  |  | 594 |  |  |  |  |  |  | — |  |  | 594 |  |  | 0.06 | %
Commercial real estate - owner occupied |  |  |  |  |  | — |  |  | 4,023 |  |  |  |  |  |  | — |  |  | 4,023 |  |  | 0.32 | %
Commercial real estate - non owner occupied |  |  |  |  |  | — |  |  | 131 |  |  |  |  |  |  | — |  |  | 131 |  |  | 0.01 | %
Residential 1-4 family real estate |  |  |  |  |  | — |  |  | 245 |  |  |  |  |  |  | — |  |  | 245 |  |  | 0.02 | %
Home equity loans/lines of credit |  |  |  |  |  | 24 |  |  | 401 |  |  |  |  |  |  | 99 |  |  | 524 |  |  | 0.16 | %
Consumer loans |  |  |  |  |  | — |  |  | 9 |  |  |  |  |  |  | — |  |  | 9 |  |  | 0.01 | %
Total |  |  |  |  |  | $ | 1,166 |  |  | 5,520 |  |  |  |  |  |  | 99 |  |  | 6,785 |  |  | 0.08 | %
As of and for the nine months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  | $ | 2,589 |  |  | 216 |  |  |  |  |  |  | — |  |  | 2,805 |  |  | 0.31 | %
Construction, development & other land loans |  |  |  |  |  | — |  |  | 594 |  |  |  |  |  |  | 10 |  |  | 604 |  |  | 0.06 | %
Commercial real estate - owner occupied |  |  |  |  |  | 185 |  |  | 4,302 |  |  |  |  |  |  | — |  |  | 4,487 |  |  | 0.36 | %
Commercial real estate - non owner occupied |  |  |  |  |  | — |  |  | 219 |  |  |  |  |  |  | — |  |  | 219 |  |  | 0.01 | %
Residential 1-4 family real estate |  |  |  |  |  | — |  |  | 750 |  |  |  |  |  |  | — |  |  | 750 |  |  | 0.05 | %
Home equity loans/lines of credit |  |  |  |  |  | 24 |  |  | 1,669 |  |  |  |  |  |  | 99 |  |  | 1,792 |  |  | 0.54 | %
Consumer loans |  |  |  |  |  | — |  |  | 66 |  |  |  |  |  |  | — |  |  | 66 |  |  | 0.10 | %
Total |  |  |  |  |  | $ | 2,798 |  |  | 7,816 |  |  |  |  |  |  | 109 |  |  | 10,723 |  |  | 0.13 | %
For the three and nine months ended September 30, 2023, there were no modifications for borrowers experiencing financial difficulty with principal forgiveness concessions. The following tables describes the financial effect for the three and nine months ended September 30, 2023 of the modifications made for borrowers experiencing financial difficulty:
|  | Financial Effect of Modification to Borrowers Experiencing Financial Difficulty
|  | Weighted Average Interest Rate Reduction |  |  |  | Weighted Average Payment Delay (in months) |  | Weighted Average Term Extension (in months)
For the three months ended September 30, 2023 |  |  |  |  |  |  |  |
Commercial and industrial |  | —% |  |  |  | 6 |  | 26
Construction, development & other land loans |  | —% |  |  |  | 0 |  | 8
Commercial real estate - owner occupied |  | —% |  |  |  | 0 |  | 32
Commercial real estate - non owner occupied |  | —% |  |  |  | 0 |  | 11
Residential 1-4 family real estate |  | —% |  |  |  | 0 |  | 23
Home equity loans/lines of credit |  | 2.61% |  |  |  | 24 |  | 84
Consumer loans |  | —% |  |  |  | 0 |  | 24
For the nine months ended September 30, 2023 |  |  |  |  |  |  |  |
Commercial and industrial |  | —% |  |  |  | 4 |  | 20
Construction, development & other land loans |  | 1.53% |  |  |  | 0 |  | 9
Commercial real estate - owner occupied |  | —% |  |  |  | 12 |  | 34
Commercial real estate - non owner occupied |  | —% |  |  |  | 0 |  | 13
Residential 1-4 family real estate |  | —% |  |  |  | 0 |  | 24
Home equity loans/lines of credit |  | 2.61% |  |  |  | 24 |  | 55
Consumer loans |  | —% |  |  |  | 0 |  | 9
The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months as of September 30, 2023:
|  | Payment Status (Amortized Cost Basis)
($ in thousands) |  | Current |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90+ Days Past Due
Commercial and industrial |  | $ | 2,805 |  |  | — |  |  | — |  |  | — |
Construction, development & other land loans |  | 604 |  |  | — |  |  | — |  |  | — |
Commercial real estate - owner occupied |  | 4,487 |  |  | — |  |  | — |  |  | — |
Commercial real estate - non owner occupied |  | 219 |  |  | — |  |  | — |  |  | — |
Residential 1-4 family real estate |  | 670 |  |  | 80 |  |  | — |  |  | — |
Home equity loans/lines of credit |  | 1,792 |  |  | — |  |  | — |  |  | — |
Consumer loans |  | 66 |  |  | — |  |  | — |  |  | — |
|  | $ | 10,643 |  |  | 80 |  |  | — |  |  | — |
None of the modifications made for borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023 are considered to have had a payment default. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount. TDR Disclosures Prior to the Adoption of ASU 2022-02 The restructuring of a loan was considered a TDR if both (i) the borrower was experiencing financial difficulties and (ii) the creditor had granted a concession. Concessions may have included interest rate reductions or below market interest rates, principal forgiveness, extension of terms and other actions intended to minimize potential losses. The vast majority of the Company’s TDRs modified during the three and nine months ended September 30, 2022 related to interest rate reductions combined with extension of terms. The Company does not generally grant principal forgiveness. The Company’s TDRs are classified as either nonaccrual or accruing based on the loan’s payment status. The TDRs that were nonaccrual were reported within the nonaccrual loan totals presented previously. The following table presents information related to loans modified in a TDR during the three and nine months ended September 30, 2022.
|  | For the three months ended September 30, 2022 |  | For the nine months ended September 30, 2022
($ in thousands) |  | Number of Contracts |  | Pre-Modification Restructured Balances |  | Post-Modification Restructured Balances |  | Number of Contracts |  | Pre-Modification Restructured Balances |  | Post-Modification Restructured Balances
TDRs - Accruing |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | — |  |  | $ | — |  |  | — |  |  | 1 |  |  | $ | 161 |  |  | 161 |
Construction, development & other land loans |  | — |  |  | — |  |  | — |  |  | 1 |  |  | 131 |  |  | 131 |
Residential 1-4 family real estate |  | — |  |  | — |  |  | — |  |  | 1 |  |  | 36 |  |  | 36 |
Home equity loans/lines of credit |  | 1 |  |  | 176 |  |  | 176 |  |  | 3 |  |  | 379 |  |  | 379 |
TDRs - Nonaccrual |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | 1 |  |  | 327 |  |  | 327 |  |  | 4 |  |  | 627 |  |  | 627 |
Commercial real estate - owner occupied |  | — |  |  | — |  |  | — |  |  | 2 |  |  | 784 |  |  | 784 |
Residential 1-4 family real estate |  | — |  |  | — |  |  | — |  |  | 1 |  |  | 36 |  |  | 36 |
Total TDRs arising during period |  | 2 |  |  | $ | 503 |  |  | 503 |  |  | 13 |  |  | $ | 2,154 |  |  | 2,154 |
The Company considered a TDR loan to have defaulted when it became 90 or more days delinquent under the modified terms, had been transferred to nonaccrual status, or had been transferred to foreclosed real estate. There were no accruing TDRs that were modified in the twelve months preceding September 30, 2022 and that defaulted during the three and nine months ended September 30, 2022. Concentration of Credit Risk Most of the Company's business activity is with customers located within the markets where it has banking operations. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy within its markets. Approximately 88% of the Company's loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations. Allowance for Unfunded Loan Commitments In addition to the ACL on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for unfunded commitments expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the ACL on loans. The allowance for unfunded loan commitments of $11.8 million and $13.3 million at September 30, 2023 and December 31, 2022, respectively, were separately classified on the Consolidated Balance Sheets within "Other liabilities." The following table presents the balance and activity in the allowance for unfunded loan commitments for the nine months ended September 30, 2023 and 2022 and for the twelve months ended December 31, 2022:
($ in thousands) |  | September 30, 2023 |  | December 31, 2022 |  | September 30, 2022
Beginning balance |  | $ | 13,306 |  |  | 13,506 |  |  | 13,506 |
"Day 2" provision for credit losses on unfunded commitments acquired from GrandSouth |  | 1,921 |  |  | — |  |  | — |
Charge-offs |  | — |  |  | — |  |  | — |
Recoveries |  | — |  |  | — |  |  | — |
Reversal of provision for unfunded commitments |  | (3,408) |  |  | (200) |  |  | (1,200) |
Ending balance |  | $ | 11,819 |  |  | 13,306 |  |  | 12,306 |
Allowance for Credit Losses - Securities Held to Maturity The ACL for securities held to maturity was insignificant at September 30, 2023 and December 31, 2022.

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