The Bank makes loans to customers primarily in the Washington, D.C. metropolitan area and surrounding communities. A substantial portion of the Bank’s loan portfolio consists of loans to businesses secured by real estate and other business assets.

Loans, net of unamortized net deferred fees, at June 30, 2020 (unaudited) and December 31, 2019 are summarized by type as follows:

(1)	Excludes accrued interest receivable of $36.2 million and $21.3 million at June 30, 2020 and December 31, 2019, respectively, which is recorded in other assets.

Unamortized net deferred fees amounted to $34.8 million and $25.2 million at June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020 and December 31, 2019, the Bank serviced $96 million and $99 million, respectively, of multifamily FHA loans, SBA loans and other loan participations which are not reflected as loan balances on the Consolidated Balance Sheets.

Loan Origination / Risk Management

The Company’s goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation. Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations.

The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing real estate. At June 30, 2020, owner occupied - commercial real estate and construction – Commercial and Industrial (“C&I”) (owner occupied) represent approximately 14% of the loan portfolio . At June 30, 2020, non-owner occupied commercial real estate and real estate construction represented approximately 58% of the loan portfolio. The combined owner occupied and commercial real estate and construction loans represent approximately 72% of the loan portfolio. Real estate also serves as collateral for loans made for other purposes, resulting in 79% of all loans being secured by real estate. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions. The Bank typically requires a maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.0. Personal guarantees may be required, but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years.

The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing. This loan category represents approximately 20% of the loan portfolio at June 30, 2020 and was generally variable or adjustable rate. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent approximately 1.3% of the commercial loan category. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit as well as potential repairs to the SBA guarantees. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines.

Approximately 6% of the loan portfolio at June 30, 2020 consists of PPP loans to eligible customers. PPP loans are expected to primarily be repaid via forgiveness from the SBA. These loans are fully guaranteed as to principal and interest by the SBA and ultimately by the full faith and credit of the U.S. Government; as a result, they were approved utilizing different underwriting standards than the Bank's other commercial loans. PPP loans are included in the CECL model but do not carry an allowance for credit loss due to the aforementioned government guarantees.

Approximately 1% of the loan portfolio at June 30, 2020 consists of home equity loans and lines of credit and other consumer loans. These credits, while making up a small portion of the loan portfolio, demand the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank.

Approximately 1% of the loan portfolio consists of residential mortgage loans. The repricing duration of these loans was 16 months. These credits represent first liens on residential property loans originated by the Bank. While the Bank’s general practice is to originate and sell (servicing released) loans made by its Residential Lending department, from time to time certain loan characteristics do not meet the requirements of third party investors and these loans are instead maintained in the Bank’s portfolio until they are resold to another investor at a later date or mature.

Loans are secured primarily by duly recorded first deeds of trust or mortgages. In some cases, the Bank may accept a recorded junior trust position. In general, borrowers will have a proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is customarily required.

Construction loans require that the financial condition and experience of the general contractor and major subcontractors be satisfactory to the Bank. Guaranteed, fixed price contracts are required whenever appropriate, along with payment and performance bonds or completion bonds for larger scale projects.

Loans intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for residential structures, and 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums. Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.

Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner user commercial properties. Borrowers are generally required to put equity into each project at levels determined by the appropriate Loan Committee. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months.

Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect. Each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer. Prior to an advance, the Bank or its contractor inspects the project to determine that the work has been completed, to justify the draw requisition.

Commercial permanent loans are generally secured by improved real property which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan. The debt service coverage ratio is ordinarily at least 1.15 to 1.0. As part of the underwriting process, debt service coverage ratios are stress tested assuming a 200 basis point increase in interest rates from their current levels.

Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower. The preferred term is between 5 to 7 years, with amortization to a maximum of 25 years.

The Company’s loan portfolio includes acquisition, development and construction (“ADC”) real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.47 billion at June 30, 2020. A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represent approximately 59% of the outstanding ADC loan portfolio at June 30, 2020. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) the borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company recognizes that one of the risks inherent in the use of interest reserves is the potential masking of underlying problems with the project and/or the borrower’s ability to repay the loan. In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including: (1) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports; (4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects; and (5) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2020 and 2019. PPP loans are excluded from these tables since they do not carry an allowance for credit loss, as these loans are fully guaranteed as to principal and interest by the SBA, whose guarantee is backed by the full faith and credit of the U.S.

Government. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


			Income Producing -		Owner Occupied -		Real Estate		Construction -
			Commercial		Commercial		Mortgage -		Commercial and		Home		Other
(dollars in thousands)	Commercial		Real Estate		Real Estate		Residential		Residential		Equity		Consumer		Total
Three Months Ended June 30, 2020
Allowance for credit losses:
Balance at beginning of period	$	27,346	$	43,551	$	9,867	$	1,369	$	13,341	$	818	$	44		96,336
Loans charged-off		(7,145)		—		—		—		—		—		—		(7,145)
Recoveries of loans previously charged-off		5		—		—		—		—		—		1		6
Net loans charged-off		(7,140)		—		—		—		—		—		1		(7,139)
Provision for credit losses		7,872		8,312		2,474		181		467		294		(1)		19,599
Ending balance	$	28,078	$	51,863	$	12,341	$	1,550	$	13,808	$	1,112	$	44	$	108,796

Six Months Ended June 30, 2020
Allowance for credit losses:
Balance at beginning of period, prior to adoption of ASC 326	$	15,857	$	28,034	$	6,242	$	965	$	18,175	$	599	$	72	$	69,944
Impact of adopting ASC 326		892		11,230		4,674		(301)		(6,143)		245		17		10,614
Loans charged-off		(7,145)		(550)		—		—		(1,768)		—		—		(9,463)
Recoveries of loans previously charged-off		74		—		—		—		—		—		4		78
Net loans (charged-off) recoveries		(7,071)		(550)		—		—		(1,768)		—		4		(9,385)
Provision for credit losses		18,400		13,149		1,425		886		3,544		268		(49)		37,623
Ending balance	$	28,078	$	51,863	$	12,341	$	1,550	$	13,808	$	1,112	$	44	$	108,796

As of June 30, 2020
Allowance for credit losses:
Individually evaluated for impairment	$	8,797	$	5,260	$	405	$	746	$	1,383	$	107	$	3	$	16,701
Collectively evaluated for impairment		19,281		46,603		11,936		804		12,425		1,005		41		92,095
Ending balance	$	28,078	$	51,863	$	12,341	$	1,550	$	13,808	$	1,112	$	44	$	108,796

Three Months Ended June 30, 2019
Allowance for credit losses:
Balance at beginning of period	$	17,195	$	26,765	$	5,980	$	681	$	18,469	$	605	$	248	$	69,943
Loans charged-off		(1)		(1,847)		—		—		—		—		(2)		(1,850)
Recoveries of loans previously charged-off		37		302		2		2		37		—		13		393
Net loans charged-off		36		(1,545)		2		2		37		—		11		(1,457)
Provision for credit losses		905		1,790		(226)		672		500		(24)		(17)		3,600
Ending balance	$	18,136	$	27,010	$	5,756	$	1,355	$	19,006	$	581	$	242	$	72,086

Six Months Ended June 30, 2019
Allowance for credit losses:
Balance at beginning of period	$	15,857	$	28,034	$	6,242	$	965	$	18,175	$	599	$	72	$	69,944
Loans charged-off		(5)		(5,343)		—		—		—		—		(2)		(5,350)
Recoveries of loans previously charged-off		167		302		2		3		37		—		21		532
Net loans (charged-off) recoveries		162		(5,041)		2		3		37		—		19		(4,818)
Provision for credit losses		2,117		4,017		(488)		387		794		(18)		151		6,960
Ending balance	$	18,136	$	27,010	$	5,756	$	1,355	$	19,006	$	581	$	242	$	72,086

As of June 30, 2019
Allowance for credit losses:
Individually evaluated for impairment	$	7,905	$	1,000	$	475	$	650	$	—	$	—	$	—	$	10,030
Collectively evaluated for impairment		10,231		26,010		5,281		705		19,006		581		242		62,056
Ending balance	$	18,136	$	27,010	$	5,756	$	1,355	$	19,006	$	581	$	242	$	72,086

During the first quarter of 2020, we adopted ASU 2016-13, which replaced the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model. Upon adoption, the allowance for credit losses was increased by $14.7 million, which included a $4.1 million increase to the allowance for unfunded commitments, with no impact to the consolidated statement of operations. We recorded a $19.7 million and $34.0 million provision for credit losses for the three and six months ended second June 30, 2020 under CECL. We recorded $7.1 million and $9.4 million in net charge-offs during the three and six months ended June 30, 2020, respectively, compared to $1.5 million and $4.8 million during the three and six months ended June 30, 2019.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2020:


	Business/Other
(dollars in thousands)	Assets		Real Estate
Commercial	$	15,105	$	2,895
Income producing - commercial real estate		3,193		24,102
Owner occupied - commercial real estate		—		10,815
Real estate mortgage - residential		—		7,960
Construction - commercial and residential		—		5,385
Construction - C&I (owner occupied)		—		—
Home equity		—		600
Other consumer		6		—
Total	$	18,304	$	51,757

Credit Quality Indicators

The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company’s primary credit quality indicators are to use an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment.

The following are the definitions of the Company’s credit quality indicators:


Pass:	Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.

Watch:	Loan paying as agreed with generally acceptable asset quality; however the obligor’s performance has not met expectations. Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further setbacks. Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time.

Special Mention:	Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention.

Classified:	Classified (a) Substandard – Loans inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

	Classified (b) Doubtful – Loans that have all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.

Based on the most recent analysis performed, the risk category of loans by class of loans and year of origination is as follows:


June 30, 2020 (dollars in thousands)	2016		2017		2018		2019		2020		Prior		Total
Commercial
Pass		128,724		316,829		275,852		227,726		140,233		439,707		1,529,071
Watch		362		16,583		—		2,275		—		18,743		37,963
Special Mention		—		—		10,977		—		—		933		11,910
Substandard		4,667		2,128		2,565		459		—		18,293		28,112
Total		133,753		335,540		289,394		230,460		140,233		477,676		1,607,056
PPP loans
Pass		—		—		—		—		456,476		—		456,476
Total		—		—		—		—		456,476		—		456,476
Income producing - commercial real estate
Pass		412,724		520,542		726,838		807,571		208,386		970,544		3,646,605
Watch		—		—		—		4,324		—		721		5,045
Special Mention		800		—		—		—		—		4,843		5,643
Substandard		—		4,656		4,883		5,542		—		6,572		21,653
Total		413,524		525,198		731,721		817,437		208,386		982,680		3,678,946
Owner occupied - commercial real estate
Pass		107,303		117,523		221,811		92,496		15,673		358,051		912,857
Watch		—		—		—		—		—		40,465		40,465
Substandard		803		—		360		—		—		9,592		10,755
Total		108,106		117,523		222,171		92,496		15,673		408,108		964,077
Real estate mortgage - residential
Pass		3,423		10,394		15,429		28,234		5,701		21,844		85,025
Watch		—		—		—		—		—		617		617
Substandard		4,154		2,619		—		—		—		1,186		7,959
Total		7,577		13,013		15,429		28,234		5,701		23,647		93,601
Construction - commercial and residential
Pass		71,957		431,635		317,131		108,584		25,385		35,473		990,165
Substandard		2,298		408		—		—		—		2,679		5,385
Total		74,255		432,043		317,131		108,584		25,385		38,152		995,550
Construction - C&I (owner occupied)
Pass		11,689		5,482		41,084		27,557		17,441		32,612		135,865
Watch		—		2,124		11,087		—		—		769		13,980
Total		11,689		7,606		52,171		27,557		17,441		33,381		149,845
Home Equity
Pass		4,859		8,942		8,658		4,468		3,785		42,416		73,128
Watch		—		—		—		—		—		944		944
Substandard		—		—		—		—		—		849		849
Total		4,859		8,942		8,658		4,468		3,785		44,209		74,921
Other Consumer
Pass		177		85		121		106		28		764		1,281
Substandard		—		—		—		—		—		8		8
Total		177		85		121		106		28		772		1,289
Total Recorded Investment	$	753,940	$	1,439,950	$	1,636,796	$	1,309,342	$	873,108	$	2,008,625	$	8,021,761

The Company’s credit quality indicators are generally updated annually; however, credits rated watch or below are reviewed more frequently. The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of December 31, 2019:


											Total
(dollars in thousands)	Pass		Watch		Special Mention		Substandard		Doubtful		Loans
December 31, 2019
Commercial	$	1,470,636	$	38,522	$	11,460	$	25,288	$	—	$	1,545,906
Income producing - commercial real estate		3,667,585		16,069		—		19,093		—		3,702,747
Owner occupied - commercial real estate		925,800		53,146		—		6,463		—		985,409
Real estate mortgage - residential		98,228		628		—		5,365		—		104,221
Construction - commercial and residential		1,113,734		—		—		11,510		—		1,125,244
Home equity		78,626		948		—		487		—		80,061
Other consumer		2,160		—		—		—		—		2,160
Total	$	7,356,769	$	109,313	$	11,460	$	68,206	$	—	$	7,545,748

Nonaccrual and Past Due Loans

As part of its comprehensive loan review process, the Loan Committee or Credit Review Committee carefully evaluate loans which are past-due 30 days or more. The Committees make a thorough assessment of the conditions and circumstances surrounding each delinquent loan. The Bank’s loan policy requires that loans be placed on nonaccrual if they are ninety days past-due, unless they are well secured and in the process of collection. Additionally, Credit Administration specifically analyzes the status of development and construction projects, sales activities and utilization of interest reserves in order to carefully and prudently assess potential increased levels of risk requiring additional reserves.

The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of June 30, 2020 and December 31, 2019:


	Loans		Loans		Loans								Total Recorded
	30-59 Days		60-89 Days		90 Days or		Total Past		Current				Investment in
(dollars in thousands)	Past Due		Past Due		More Past Due		Due Loans		Loans		Non-Accrual		Loans
June 30, 2020
Commercial	$	603	$	3,046	$	—	$	3,649	$	1,586,686	$	16,721	$	1,607,056
PPP loans		—		—		—		—		456,476		—	$	456,476
Income producing - commercial real estate		—		14,203		—		14,203		3,647,464		17,279		3,678,946
Owner occupied - commercial real estate		542		212		—		754		952,568		10,755		964,077
Real estate mortgage - residential		—		—		—		—		85,385		8,216		93,601
Construction - commercial and residential		—		751		—		751		989,414		5,385		995,550
Construction - C&I (owner occupied)		—		—		—		—		149,845		—		149,845
Home equity		263		254		—		517		73,804		600		74,921
Other consumer		—		3		—		3		1,280		6		1,289
Total	$	1,408	$	18,469	$	—	$	19,877	$	7,942,922	$	58,962	$	8,021,761

December 31, 2019
Commercial	$	3,063	$	781	$	—	$	3,844	$	1,527,134	$	14,928	$	1,545,906
Income producing - commercial real estate		—		5,542		—		5,542		3,687,494		9,711		3,702,747
Owner occupied - commercial real estate		13,008		—		—		13,008		965,938		6,463		985,409
Real estate mortgage – residential		3,533		—		—		3,533		95,057		5,631		104,221
Construction - commercial and residential		—		—		—		—		1,113,735		11,509		1,125,244
Home equity		136		192		—		328		79,246		487		80,061
Other consumer		—		9		—		9		2,151		—		2,160
Total	$	19,740	$	6,524	$	—	$	26,264	$	7,470,755	$	48,729	$	7,545,748

The following presents the nonaccrual loans as of June 30, 2020 and December 31, 2019:


	June 30, 2020						December 31, 2019
	Nonaccrual with		Nonaccrual with		Total		Total
	No Allowance		an Allowance		Nonaccrual		Nonaccrual
(dollars in thousands)	for Credit Loss		for Credit Loss		Loans		Loans

Commercial		1,507		15,214		16,721		14,928
PPP loans		—		—		—		—
Income producing - commercial real estate		8,544		8,735		17,279		9,711
Owner occupied - commercial real estate		7,065		3,690		10,755		6,463
Real estate mortgage - residential		5,503		2,713		8,216		5,631
Construction - commercial and residential		2,298		3,087		5,385		11,509
Home equity		50		550		600		487
Other consumer		—		6		6		—
Total	$	24,967	$	33,995	$	58,962	$	48,729

(1)	Excludes TDRs that were performing under their restructured terms totaling $12.3 million at June 30, 2020 and $16.6 million at December 31, 2019.

(2)

Gross interest income of $1.7 million and $1.2 million would have been recorded for the six months ended June 30, 2020 and 2019, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while the interest actually recorded on such loans was $57 thousand and $86 thousand for the six months ended June 30, 2020 and 2019, respectively.

See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status.

Pre Adoption of CECL

Loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan was impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. The Bank’s loan policy requires that loans be placed on nonaccrual if they are ninety days past-due, unless they are well secured and in the process of collection. Impaired loans, or portions thereof, were charged-off when deemed uncollectible.

The following table presents, by class of loan, information related to impaired loans at December 31, 2019:


	Unpaid		Recorded		Recorded						Average Recorded		Interest Income
	Contractual		Investment		Investment		Total				Investment		Recognized
	Principal		With No		With		Recorded		Related		Year		Year
(dollars in thousands)	Balance		Allowance		Allowance		Investment		Allowance		To Date		To Date
December 31, 2019
Commercial	$	15,814	$	11,858	$	3,956	$	15,814	$	5,714	$	15,682	$	270
Income producing - commercial real estate		14,093		2,713		11,380		14,093		2,145		18,133		382
Owner occupied - commercial real estate		7,349		6,388		961		7,349		415		6,107		197
Real estate mortgage - residential		5,631		3,175		2,456		5,631		650		5,638		—
Construction - commercial and residential		11,509		11,101		408		11,509		100		8,211		92
Home equity		487		—		487		487		100		487		—
Other consumer		—		—		—		—		—		—		—
Total	$	54,883	$	35,235	$	19,648	$	54,883	$	9,124	$	54,258	$	941

Modifications

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. The most common change in terms provided by the Company is an extension of an interest only term. As of June 30, 2020, all performing TDRs were categorized as interest-only modifications.

Loans modified in a TDR for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.

In response to the COVID-19 pandemic and its economic impact to our customers, we implemented a short-term modification program that complies with the CARES Act and ASC 310-40 to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. As of June 30, 2020, we granted temporary modifications on approximately 708 loans representing approximately $1.63 billion (20% of total loans) in outstanding exposure. Some of these deferrals may not have met the criteria for treatment under U.S. GAAP as TDR. Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e. non-performing loans) due to the provision of the CARES Act that permits U.S. financial institutions to temporarily suspend the U.S. GAAP requirements to treat such short-term loan modifications as TDR. Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the Financial Accounting Standards Board.

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended June 30, 2020 and 2019.


	For the Six Months Ended June 30, 2020
					Income		Owner
	Number				Producing -		Occupied -		Construction -
	of				Commercial		Commercial		Commercial
(dollars in thousands)	Contracts		Commercial		Real Estate		Real Estate		Real Estate		Total
Troubled debt restructurings
Restructured accruing		10	$	1,420	$	10,016	$	836	$	—	$	12,272
Restructured nonaccruing		3		138		5,542		2,370		—		8,050
Total		13	$	1,558	$	15,558	$	3,206	$	—	$	20,322

Specific allowance			$	257	$	1,295	$	—	$	—	$	1,552

Restructured and subsequently defaulted			$	138	$	5,542	$	2,370	$	—	$	8,050


	For the Six Months Ended June 30, 2019
					Income		Owner
	Number				Producing -		Occupied -		Construction -
	of				Commercial		Commercial		Commercial
(dollars in thousands)	Contracts		Commercial		Real Estate		Real Estate		Real Estate		Total
Troubled debt restructurings
Restructured accruing		7	$	909	$	4,390	$	3,309	$	—	$	8,608
Restructured nonaccruing		4		2,831		—		—		—		2,831
Total		11	$	3,740	$	4,390	$	3,309	$	—	$	11,439

Specific allowance			$	—	$	1,000	$	—	$	—	$	1,000

Restructured and subsequently defaulted			$	—	$	2,300	$	—	$	—	$	2,300

The Company had thirteen TDR’s at June 30, 2020 totaling approximately $20.3 million. Ten of these loans totaling approximately $12.3 million are performing under their modified terms. For both the first six months of 2020 and 2019, there was one performing TDR loan, totaling $5.5 million and $2.3 million, respectively, that defaulted on its modified terms. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on non-accrual status. For the three months ended June 30, 2020, there were two restructured loans totaling approximately $870 thousand where the collateral was sold and the loans paid in full, as compared to the same period in 2019, when there was one restructured loan totaling approximately $4.8 million that had its collateral property sold for approximately $3 million and the remaining $1.8 million charged-off during the quarter. During the three months ended June 30, 2020, no loans were re-underwritten and removed from TDR status, as compared to the three months ended June 30, 2019, there was one loan totaling $10.4 million that was re-underwritten into two new loans which provided better collateral for the Bank. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. For both the three months ended June 30, 2020 and 2019, there were no loans modified in a TDR.