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Loans and Allowance for Credit Losses | 6 Months Ended
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Jun. 30, 2023
Receivables [Abstract] |
Loans and Allowance for Credit Losses | Loans and Allowance for Credit Losses The Bank makes loans to customers primarily in the Washington, D.C. metropolitan area and surrounding communities. A substantial portion of the Bank's loan portfolio consists of loans to businesses secured by real estate and other business assets. Loans, net of unamortized deferred fees, at June 30, 2023 and December 31, 2022 are summarized by portfolio segment as follows:
|  | June 30, 2023 |  | December 31, 2022
(dollars in thousands, except amounts in the footnote) |  | Amount |  | % |  | Amount |  | %
Commercial |  | $ | 1,431,284 |  |  | 18 | % |  | $ | 1,487,349 |  |  | 19 | %
PPP loans |  | 649 |  |  | — | % |  | 3,256 |  |  | — | %
Income-producing - commercial real estate |  | 4,086,049 |  |  | 53 | % |  | 3,919,941 |  |  | 51 | %
Owner-occupied - commercial real estate |  | 1,122,334 |  |  | 14 | % |  | 1,110,325 |  |  | 15 | %
Real estate mortgage - residential |  | 76,596 |  |  | 1 | % |  | 73,001 |  |  | 1 | %
Construction - commercial and residential |  | 862,869 |  |  | 11 | % |  | 877,755 |  |  | 12 | %
Construction - C&I (owner-occupied) |  | 132,843 |  |  | 2 | % |  | 110,479 |  |  | 1 | %
Home equity |  | 53,934 |  |  | 1 | % |  | 51,782 |  |  | 1 | %
Other consumer |  | 161 |  |  | — | % |  | 1,744 |  |  | — | %
Total loans |  | 7,766,719 |  |  | 100 | % |  | 7,635,632 |  |  | 100 | %
Less: allowance for credit losses |  | (78,029) |  |  |  |  | (74,444) |  |  |
Net loans (1) |  | $ | 7,688,690 |  |  |  |  | $ | 7,561,188 |  |  |
(1)Excludes accrued interest receivable of $44.1 million and $43.5 million at June 30, 2023 and December 31, 2022, respectively, which were recorded in other assets on the Consolidated Balance Sheets. Unamortized net deferred fees amounted to $30.4 million and $29.2 million at June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, the Bank serviced $349.5 million and $361.5 million, respectively, of multifamily FHA loans, SBA loans and other loan participations that are not reflected as loan balances on the Consolidated Balance Sheets. Real estate 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 approval authority. 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 that 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 $1.5 billion at June 30, 2023. A portion of the ADC portfolio includes loan-funded interest reserves at origination. ADC loans that provide for the use of interest reserves represent approximately 49.0% of the outstanding ADC loan portfolio at June 30, 2023. 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 a 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 these inherent risks, 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 that are monitored on an ongoing basis and 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 include monitoring of current and projected real estate market conditions. If a project has performed as expected, it is the customary practice of the Company to increase loan-funded interest reserves. The following table details activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2023 and 2022. 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 restrict the use of the allowance to absorb losses in other categories.
(dollars in thousands) |  | Commercial |  | Income-Producing Commercial Real Estate |  | Owner-Occupied -Commercial Real Estate |  | Real Estate Mortgage Residential |  | Construction -Commercial and Residential |  | Home Equity |  | Other Consumer |  | Total
Three Months Ended June 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 15,775 |  |  | $ | 38,140 |  |  | $ | 12,457 |  |  | $ | 1,002 |  |  | $ | 10,383 |  |  | $ | 593 |  |  | $ | 27 |  |  | $ | 78,377 |
Loans charged-off |  | (492) |  |  | (5,306) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,798) |
Recoveries of loans previously charged-off |  | 156 |  |  | — |  |  | 8 |  |  | — |  |  | 34 |  |  | — |  |  | 2 |  |  | 200 |
Net loans (charged-off) recovered |  | (336) |  |  | (5,306) |  |  | 8 |  |  | — |  |  | 34 |  |  | — |  |  | 2 |  |  | (5,598) |
Provision for (reversal of) credit losses |  | (65) |  |  | 5,652 |  |  | 340 |  |  | (191) |  |  | (485) |  |  | 2 |  |  | (3) |  |  | 5,250 |
Ending balance |  | $ | 15,374 |  |  | $ | 38,486 |  |  | $ | 12,805 |  |  | $ | 811 |  |  | $ | 9,932 |  |  | $ | 595 |  |  | $ | 26 |  |  | $ | 78,029 |
Six Months Ended June 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 15,655 |  |  | $ | 35,688 |  |  | $ | 12,702 |  |  | $ | 969 |  |  | $ | 8,801 |  |  | $ | 555 |  |  | $ | 74 |  |  | $ | 74,444 |
Loans charged-off |  | (1,360) |  |  | (5,306) |  |  | — |  |  | — |  |  | (136) |  |  | — |  |  | (50) |  |  | (6,852) |
Recoveries of loans previously charged-off |  | 232 |  |  | — |  |  | 8 |  |  | — |  |  | 34 |  |  | — |  |  | 5 |  |  | 279 |
Net loans (charged-off) recovered |  | (1,128) |  |  | (5,306) |  |  | 8 |  |  | — |  |  | (102) |  |  | — |  |  | (45) |  |  | (6,573) |
Provision for (reversal of) credit losses |  | 847 |  |  | 8,104 |  |  | 95 |  |  | (158) |  |  | 1,233 |  |  | 40 |  |  | (3) |  |  | 10,158 |
Ending balance |  | $ | 15,374 |  |  | $ | 38,486 |  |  | $ | 12,805 |  |  | $ | 811 |  |  | $ | 9,932 |  |  | $ | 595 |  |  | $ | 26 |  |  | $ | 78,029 |
Three Months Ended June 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 12,946 |  |  | $ | 39,193 |  |  | $ | 10,515 |  |  | $ | 381 |  |  | $ | 7,973 |  |  | $ | 467 |  |  | $ | 30 |  |  | $ | 71,505 |
Loans charged-off |  | (38) |  |  | — |  |  | (1,355) |  |  | — |  |  | — |  |  | — |  |  | (3) |  |  | (1,396) |
Recoveries of loans previously charged-off |  | 442 |  |  | — |  |  | — |  |  | — |  |  | 1,627 |  |  | — |  |  | 1 |  |  | 2,070 |
Net loans (charged-off) recovered |  | 404 |  |  | — |  |  | (1,355) |  |  | — |  |  | 1,627 |  |  | — |  |  | (2) |  |  | 674 |
Provision for (reversal of) credit losses |  | 2,404 |  |  | (5,073) |  |  | 3,636 |  |  | 409 |  |  | (1,106) |  |  | 180 |  |  | 36 |  |  | 486 |
Ending balance |  | $ | 15,754 |  |  | $ | 34,120 |  |  | $ | 12,796 |  |  | $ | 790 |  |  | $ | 8,494 |  |  | $ | 647 |  |  | $ | 64 |  |  | $ | 72,665 |
Six Months Ended June 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 14,475 |  |  | $ | 38,287 |  |  | $ | 12,146 |  |  | $ | 449 |  |  | $ | 9,099 |  |  | $ | 474 |  |  | $ | 35 |  |  | $ | 74,965 |
Loans charged-off |  | (552) |  |  | — |  |  | (1,355) |  |  | — |  |  | — |  |  | — |  |  | (3) |  |  | (1,910) |
Recoveries of loans previously charged-off |  | 496 |  |  | — |  |  | — |  |  | — |  |  | 1,627 |  |  | — |  |  | 2 |  |  | 2,125 |
Net loans (charged-off) recovered |  | (56) |  |  | — |  |  | (1,355) |  |  | — |  |  | 1,627 |  |  | — |  |  | (1) |  |  | 215 |
Provision for (reversal of) credit losses |  | 1,335 |  |  | (4,167) |  |  | 2,005 |  |  | 341 |  |  | (2,232) |  |  | 173 |  |  | 30 |  |  | (2,515) |
Ending balance |  | $ | 15,754 |  |  | $ | 34,120 |  |  | $ | 12,796 |  |  | $ | 790 |  |  | $ | 8,494 |  |  | $ | 647 |  |  | $ | 64 |  |  | $ | 72,665 |
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2023 and December 31, 2022:
|  | June 30, 2023 |  | December 31, 2022
|  | Business/Other |  |  |  | Business/Other |  |
(dollars in thousands) |  | Assets |  | Real Estate |  | Assets |  | Real Estate
Commercial |  | $ | 1,916 |  |  | $ | 986 |  |  | $ | 1,563 |  |  | $ | 1,871 |
Income-producing - commercial real estate |  | 2,000 |  |  | 22,722 |  |  | 2,000 |  |  | 4,328 |
Owner-occupied - commercial real estate |  | — |  |  | 19,179 |  |  | — |  |  | 19,187 |
Real estate mortgage - residential |  | — |  |  | 1,698 |  |  | — |  |  | 1,698 |
Construction - commercial and residential |  | — |  |  | 529 |  |  | — |  |  | — |
Other consumer |  | — |  |  | — |  |  | 50 |  |  | — |
Total |  | $ | 3,916 |  |  | $ | 45,114 |  |  | $ | 3,613 |  |  | $ | 27,084 |
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 inform 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 that 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 that 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.
Special Mention: | Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management's close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention.
Classified: | Classified (a) Substandard – Loans inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.
| Classified (b) Doubtful – Loans that have all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.
The Company's credit quality indicators are generally updated annually, however, credits rated "Special Mention" or below are reviewed more frequently. Based on the most recent analysis performed, the amortized cost basis of loans by risk category, class and year of origination are as follows:
(dollars in thousands) |  | Prior |  | 2019 |  | 2020 |  | 2021 |  | 2022 |  | 2023 |  | Revolving Loans Amort. Cost Basis |  | Revolving Loans Convert. to Term |  | Total |
June 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 192,960 |  |  | $ | 53,809 |  |  | $ | 57,194 |  |  | $ | 222,312 |  |  | $ | 161,306 |  |  | $ | 81,087 |  |  | $ | 648,638 |  |  | $ | 5,560 |  |  | $ | 1,422,866 |  |
Special Mention |  | — |  |  | — |  |  | — |  |  | — |  |  | 73 |  |  | — |  |  | 5,469 |  |  | — |  |  | 5,542 |  |
Substandard |  | 1,721 |  |  | 253 |  |  | — |  |  | 336 |  |  | — |  |  | — |  |  | 292 |  |  | 274 |  |  | 2,876 |  |
Total |  | 194,681 |  |  | 54,062 |  |  | 57,194 |  |  | 222,648 |  |  | 161,379 |  |  | 81,087 |  |  | 654,399 |  |  | 5,834 |  |  | 1,431,284 |  |
YTD Gross Charge-offs |  | (418) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (942) |  |  | (1,360) |  |
PPP loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | — |  |  | — |  |  | — |  |  | 649 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 649 |  |
Income producing - commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 1,344,042 |  |  | 403,563 |  |  | 307,222 |  |  | 510,702 |  |  | 701,572 |  |  | 312,572 |  |  | 198,470 |  |  | 2,625 |  |  | 3,780,768 |  |
Special Mention |  | 91,682 |  |  | 4,185 |  |  | 6,733 |  |  | — |  |  | — |  |  | — |  |  | 47,668 |  |  | — |  |  | 150,268 |  |
Substandard |  | 106,734 |  |  | 48,279 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 155,013 |  |
Total |  | 1,542,458 |  |  | 456,027 |  |  | 313,955 |  |  | 510,702 |  |  | 701,572 |  |  | 312,572 |  |  | 246,138 |  |  | 2,625 |  |  | 4,086,049 |  |
YTD Gross Charge-offs |  | (5,306) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,306) |  |
Owner occupied - commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 625,731 |  |  | 117,610 |  |  | 39,281 |  |  | 202,422 |  |  | 38,666 |  |  | 55,380 |  |  | 1,430 |  |  | 22,077 |  |  | 1,102,597 |  |
Substandard |  | 19,737 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 19,737 |  |
Total |  | 645,468 |  |  | 117,610 |  |  | 39,281 |  |  | 202,422 |  |  | 38,666 |  |  | 55,380 |  |  | 1,430 |  |  | 22,077 |  |  | 1,122,334 |  |
Real estate mortgage - residential |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 27,124 |  |  | 8,113 |  |  | 2,209 |  |  | 16,354 |  |  | 14,313 |  |  | 6,785 |  |  | — |  |  | — |  |  | 74,898 |  |
Substandard |  | 1,698 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,698 |  |
Total |  | 28,822 |  |  | 8,113 |  |  | 2,209 |  |  | 16,354 |  |  | 14,313 |  |  | 6,785 |  |  | — |  |  | — |  |  | 76,596 |  |
Construction - commercial and residential |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 45,206 |  |  | 13,385 |  |  | 110,119 |  |  | 237,410 |  |  | 272,209 |  |  | 32,506 |  |  | 110,636 |  |  | 1,776 |  |  | 823,247 |  |
Substandard |  | 529 |  |  | 39,093 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 39,622 |  |
Total |  | 45,735 |  |  | 52,478 |  |  | 110,119 |  |  | 237,410 |  |  | 272,209 |  |  | 32,506 |  |  | 110,636 |  |  | 1,776 |  |  | 862,869 |  |
YTD Gross Charge-offs |  | (136) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (136) |  |
Construction - C&I (owner occupied) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 19,353 |  |  | 4,335 |  |  | 56,948 |  |  | 641 |  |  | 41,730 |  |  | 3,403 |  |  | 6,433 |  |  | — |  |  | 132,843 |  |
Total |  | 19,353 |  |  | 4,335 |  |  | 56,948 |  |  | 641 |  |  | 41,730 |  |  | 3,403 |  |  | 6,433 |  |  | — |  |  | 132,843 |  |
Home equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 2,443 |  |  | — |  |  | 246 |  |  | 374 |  |  | 164 |  |  | — |  |  | 49,766 |  |  | 842 |  |  | 53,835 |  |
Substandard |  | — |  |  | 38 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 61 |  |  | — |  |  | 99 |  |
Total |  | 2,443 |  |  | 38 |  |  | 246 |  |  | 374 |  |  | 164 |  |  | — |  |  | 49,827 |  |  | 842 |  |  | 53,934 |  |
Other consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 7 |  |  | — |  |  | — |  |  | — |  |  | 114 |  |  | — |  |  | 40 |  |  | — |  |  | 161 |  |
Total |  | 7 |  |  | — |  |  | — |  |  | — |  |  | 114 |  |  | — |  |  | 40 |  |  | — |  |  | 161 |  |
YTD Gross Charge-offs |  | (50) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (50) |  |
Total Recorded Investment |  | $ | 2,478,967 |  |  | $ | 692,663 |  |  | $ | 579,952 |  |  | $ | 1,191,200 |  |  | $ | 1,230,147 |  |  | $ | 491,733 |  |  | $ | 1,068,903 |  |  | $ | 33,154 |  |  | $ | 7,766,719 |  |
Total YTD Gross Charge-offs |  | $ | (5,910) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (942) |  |  | $ | (6,852) |  |
(dollars in thousands) |  | Prior |  | 2018 |  | 2019 |  | 2020 |  | 2021 |  | 2022 |  | Revolving Loans Amort. Cost Basis |  | Revolving Loans Convert. to Term |  | Total |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 183,329 |  |  | $ | 47,393 |  |  | $ | 56,261 |  |  | $ | 64,163 |  |  | $ | 237,146 |  |  | $ | 144,390 |  |  | $ | 736,090 |  |  | $ | 8,570 |  |  | $ | 1,477,342 |  |
Special Mention |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 82 |  |  | 5,475 |  |  | — |  |  | 5,557 |  |
Substandard |  | 1,332 |  |  | 351 |  |  | 276 |  |  | — |  |  | — |  |  | — |  |  | 1,344 |  |  | 1,147 |  |  | 4,450 |  |
Total |  | 184,661 |  |  | 47,744 |  |  | 56,537 |  |  | 64,163 |  |  | 237,146 |  |  | 144,472 |  |  | 742,909 |  |  | 9,717 |  |  | 1,487,349 |  |
YTD Gross Charge-offs |  | (283) |  |  | (101) |  |  | (49) |  |  | — |  |  | — |  |  | — |  |  | (483) |  |  | — |  |  | (916) |  |
PPP loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | — |  |  | — |  |  | — |  |  | 2,479 |  |  | 777 |  |  | — |  |  | — |  |  | — |  |  | 3,256 |  |
Income producing - commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 1,016,529 |  |  | 439,221 |  |  | 480,474 |  |  | 334,165 |  |  | 542,143 |  |  | 744,328 |  |  | 192,089 |  |  | 358 |  |  | 3,749,307 |  |
Special Mention |  | 44,195 |  |  | 5,206 |  |  | 4,209 |  |  | 6,735 |  |  | — |  |  | — |  |  | 47,676 |  |  | — |  |  | 108,021 |  |
Substandard |  | 60,613 |  |  | 2,000 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 62,613 |  |
Total |  | 1,121,337 |  |  | 446,427 |  |  | 484,683 |  |  | 340,900 |  |  | 542,143 |  |  | 744,328 |  |  | 239,765 |  |  | 358 |  |  | 3,919,941 |  |
YTD Gross Charge-offs |  | (680) |  |  | (645) |  |  | (676) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,001) |  |
Owner occupied - commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 461,029 |  |  | 191,646 |  |  | 111,497 |  |  | 40,562 |  |  | 206,595 |  |  | 41,765 |  |  | 24,240 |  |  | 13,238 |  |  | 1,090,572 |  |
Substandard |  | 19,753 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 19,753 |  |
Total |  | 480,782 |  |  | 191,646 |  |  | 111,497 |  |  | 40,562 |  |  | 206,595 |  |  | 41,765 |  |  | 24,240 |  |  | 13,238 |  |  | 1,110,325 |  |
Real estate mortgage - residential |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 16,968 |  |  | 12,438 |  |  | 8,219 |  |  | 2,640 |  |  | 16,307 |  |  | 14,731 |  |  | — |  |  | — |  |  | 71,303 |  |
Substandard |  | 1,698 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,698 |  |
Total |  | 18,666 |  |  | 12,438 |  |  | 8,219 |  |  | 2,640 |  |  | 16,307 |  |  | 14,731 |  |  | — |  |  | — |  |  | 73,001 |  |
Construction - commercial and residential |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 84,522 |  |  | 71,841 |  |  | 90,560 |  |  | 189,023 |  |  | 191,127 |  |  | 159,771 |  |  | 90,911 |  |  | — |  |  | 877,755 |  |
Total |  | 84,522 |  |  | 71,841 |  |  | 90,560 |  |  | 189,023 |  |  | 191,127 |  |  | 159,771 |  |  | 90,911 |  |  | — |  |  | 877,755 |  |
Construction - C&I (owner occupied) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 14,816 |  |  | 8,160 |  |  | 11,810 |  |  | 33,854 |  |  | 653 |  |  | 34,679 |  |  | 6,507 |  |  | — |  |  | 110,479 |  |
Total |  | 14,816 |  |  | 8,160 |  |  | 11,810 |  |  | 33,854 |  |  | 653 |  |  | 34,679 |  |  | 6,507 |  |  | — |  |  | 110,479 |  |
Home equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 1,747 |  |  | — |  |  | — |  |  | 98 |  |  | 551 |  |  | — |  |  | 48,378 |  |  | 906 |  |  | 51,680 |  |
Substandard |  | — |  |  | — |  |  | 41 |  |  | — |  |  | — |  |  | — |  |  | 61 |  |  | — |  |  | 102 |  |
Total |  | 1,747 |  |  | — |  |  | 41 |  |  | 98 |  |  | 551 |  |  | — |  |  | 48,439 |  |  | 906 |  |  | 51,782 |  |
Other consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | 4 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 126 |  |  | 1,561 |  |  | 3 |  |  | 1,694 |  |
Substandard |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 50 |  |  | 50 |  |
Total |  | 4 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 126 |  |  | 1,561 |  |  | 53 |  |  | 1,744 |  |
YTD Gross Charge-offs |  | (3) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (75) |  |  | — |  |  | (78) |  |
Total Recorded Investment |  | $ | 1,906,535 |  |  | $ | 778,256 |  |  | $ | 763,347 |  |  | $ | 673,719 |  |  | $ | 1,195,299 |  |  | $ | 1,139,872 |  |  | $ | 1,154,332 |  |  | $ | 24,272 |  |  | $ | 7,635,632 |  |
Total YTD Gross Charge-Offs |  | $ | (966) |  |  | $ | (746) |  |  | $ | (725) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (558) |  |  | $ | — |  |  | $ | (2,995) |  |
Nonaccrual and Past Due Loans As part of the Company's comprehensive loan review process, management evaluates loans that are past-due 30 days or more. Management makes 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 90 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 table presents, by class of loan, an aging analysis and the recorded investments in loans past due on an amortized cost basis as of June 30, 2023 and December 31, 2022:
(dollars in thousands, except amount in the footnote) |  | Loans 30-59 Days Past Due |  | Loans 60-89 Days Past Due |  | Loans 90 Days or More Past Due |  | Total Past Due Loans |  | Current Loans |  | Nonaccrual Loans |  | Total Recorded Investment in Loans
June 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 8 |  |  | $ | 149 |  |  | $ | — |  |  | $ | 157 |  |  | $ | 1,429,162 |  |  | $ | 1,965 |  |  | $ | 1,431,284 |
PPP loans |  | — |  |  | — |  |  | — |  |  | — |  |  | 649 |  |  | — |  |  | 649 |
Income producing - commercial real estate (1) |  | — |  |  | 662 |  |  | — |  |  | 662 |  |  | 4,060,741 |  |  | 24,646 |  |  | 4,086,049 |
Owner occupied - commercial real estate |  | — |  |  | 1,066 |  |  | — |  |  | 1,066 |  |  | 1,121,259 |  |  | 9 |  |  | 1,122,334 |
Real estate mortgage - residential |  | — |  |  | — |  |  | — |  |  | — |  |  | 74,642 |  |  | 1,954 |  |  | 76,596 |
Construction - commercial and residential |  | — |  |  | 39,093 |  |  | — |  |  | 39,093 |  |  | 823,252 |  |  | 524 |  |  | 862,869 |
Construction - C&I (owner occupied) |  | — |  |  | — |  |  | — |  |  | — |  |  | 132,843 |  |  | — |  |  | 132,843 |
Home equity |  | — |  |  | 46 |  |  | — |  |  | 46 |  |  | 53,888 |  |  | — |  |  | 53,934 |
Other consumer |  | — |  |  | — |  |  | — |  |  | — |  |  | 161 |  |  | — |  |  | 161 |
Total |  | $ | 8 |  |  | $ | 41,016 |  |  | $ | — |  |  | $ | 41,024 |  |  | $ | 7,696,597 |  |  | $ | 29,098 |  |  | $ | 7,766,719 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 697 |  |  | $ | 643 |  |  | $ | — |  |  | 1,340 |  |  | $ | 1,483,521 |  |  | $ | 2,488 |  |  | 1,487,349 |
PPP loans |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,256 |  |  | — |  |  | 3,256 |
Income producing - commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,917,941 |  |  | 2,000 |  |  | 3,919,941 |
Owner occupied - commercial real estate |  | — |  |  | 279 |  |  | — |  |  | 279 |  |  | 1,110,029 |  |  | 17 |  |  | 1,110,325 |
Real estate mortgage – residential |  | — |  |  | — |  |  | — |  |  | — |  |  | 71,088 |  |  | 1,913 |  |  | 73,001 |
Construction - commercial and residential |  | 531 |  |  | — |  |  | — |  |  | 531 |  |  | 877,224 |  |  | — |  |  | 877,755 |
Construction - C&I (owner occupied) |  | — |  |  | — |  |  | — |  |  | — |  |  | 110,479 |  |  | — |  |  | 110,479 |
Home equity |  | — |  |  | 52 |  |  | — |  |  | 52 |  |  | 51,730 |  |  | — |  |  | 51,782 |
Other consumer |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  | 1,693 |  |  | 50 |  |  | 1,744 |
Total |  | $ | 1,228 |  |  | $ | 975 |  |  | $ | — |  |  | $ | 2,203 |  |  | $ | 7,626,961 |  |  | $ | 6,468 |  |  | $ | 7,635,632 |
The following presents the nonaccrual loans as of June 30, 2023 and December 31, 2022:
(dollars in thousands, except amounts in footnotes) |  | Nonaccrual with No Allowance for Credit Losses |  | Nonaccrual with an Allowance for Credit Losses |  | Total Nonaccrual Loans
June 30, 2023 |  |  |  |  |  |
Commercial |  | $ | 140 |  |  | $ | 1,825 |  |  | $ | 1,965 |
Income producing - commercial real estate |  | 20,439 |  |  | 4,207 |  |  | 24,646 |
Owner occupied - commercial real estate |  | 9 |  |  | — |  |  | 9 |
Real estate mortgage - residential |  | — |  |  | 1,954 |  |  | 1,954 |
Construction - commercial and residential |  | — |  |  | 524 |  |  | 524 |
Total (1) |  | $ | 20,588 |  |  | $ | 8,510 |  |  | $ | 29,098 |
December 31, 2022 |  |  |  |  |  |
Commercial |  | $ | 101 |  |  | $ | 2,387 |  |  | $ | 2,488 |
Income producing - commercial real estate |  | — |  |  | 2,000 |  |  | 2,000 |
Owner occupied - commercial real estate |  | 17 |  |  | — |  |  | 17 |
Real estate mortgage - residential |  | — |  |  | 1,913 |  |  | 1,913 |
Other consumer |  | — |  |  | 50 |  |  | 50 |
Total (1) |  | $ | 118 |  |  | $ | 6,350 |  |  | $ | 6,468 |
(1)Gross interest income of approximately $1.1 million and $532 thousand would have been recorded for the six months ended June 30, 2023 and 2022, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while $277 thousand and $6 thousand interest income was actually recorded on such loans for the six months ended June 30, 2023 and 2022, respectively. See Note 1 to the Consolidated Financial Statements for a description of the Company's policy for placing loans on nonaccrual status. Modifications with Borrowers Experiencing Financial Difficulty On January 1, 2023, the Company adopted the accounting guidance in ASU No. 2022-02, effective as of January 1, 2023, which eliminates the recognition and measurement of a TDR. Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are for modifications which have a direct impact on cash flows. The Company may offer various types of modifications when restructuring a loan. Commercial and industrial loans modified in a loan restructuring often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial mortgage and construction loans modified in a loan restructuring often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a loan restructuring may also involve extending the interest-only payment period. Loans modified in a loan restructuring for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for consumer and commercial loans that have been modified in a loan restructuring 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. Commercial and consumer loans modified in a loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a loan restructuring subsequently default, the Company evaluates the loan for possible further loss. 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. None of the loans that were modified during the three and six months ended June 30, 2023 experienced any subsequent payment defaults. The following table presents the amortized cost basis as of June 30, 2023 and the financial effect of loans modified to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023:
|  |  |  | June 30, 2023 |  |  |  |
(dollars in thousands) |  |  |  | Term Extension |  | Combination - Term Extension and Principal Payment Delay |  | Combination - Term Extension, Principal Payment Delay and Interest Rate Reduction |  | Total |  | Percentage of Total Loan Type |  | Weighted Average Term and Principal Payment Extension (1) |  | Weighted Average Interest Rate Reduction
Three months ended June 30, 2023: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  | $ | 30,833 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,833 |  |  | 2.2 | % |  | 3 months |  | — | %
Income producing - commercial real estate |  |  |  | — |  |  | 55,603 |  |  | 74,026 |  |  | 129,629 |  |  | 3.2 | % |  | 3 months |  | 2.90 | %
Owner occupied - commercial real estate |  |  |  | — |  |  | 19,170 |  |  | — |  |  | 19,170 |  |  | 1.7 | % |  | 3 months |  | — | %
Construction - commercial and residential |  |  |  | 6,971 |  |  | — |  |  | — |  |  | 6,971 |  |  | 0.8 | % |  | 6 months |  | — | %
Total |  |  |  | $ | 37,804 |  |  | $ | 74,773 |  |  | $ | 74,026 |  |  | $ | 186,603 |  |  |  |  |  |  |
Six months ended June 30, 2023: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  | $ | 30,833 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,833 |  |  | 2.2 | % |  | 5 months |  | — | %
Income producing - commercial real estate (2) |  |  |  | 7,184 |  |  | 57,823 |  |  | 74,026 |  |  | 139,033 |  |  | 3.4 | % |  | 5 months |  | 2.90 | %
Owner occupied - commercial real estate |  |  |  | — |  |  | 19,170 |  |  | — |  |  | 19,170 |  |  | 1.7 | % |  | 6 months |  | — | %
Construction - commercial and residential |  |  |  | $ | 6,971 |  |  | $ | — |  |  | $ | — |  |  | 6,971 |  |  | 0.8 | % |  | 6 months |  | — | %
Total |  |  |  | $ | 44,988 |  |  | $ | 76,993 |  |  | $ | 74,026 |  |  | $ | 196,007 |  |  |  |  |  |  |
(1)For loans that received multiple modifications during the six months ended June 30, 2023, calculated based on the aggregated impact of the extensions received during the period. (2)Includes one loan modified as a combination - principal payment delay and term extension during the first quarter of 2023 that was moved to nonaccrual status and incurred a $2.1 million charge off in the second quarter of 2023. The following table presents the performance of loans modified to borrowers experiencing financial difficulty during the six months ended June 30, 2023:
|  | June 30, 2023
|  | Payment Status (Amortized Cost Basis)
(dollars in thousands) |  | Current |  |  |  |  |  | Nonaccrual
Commercial |  | $ | 30,833 |  |  |  |  |  |  | $ | — |
Income producing - commercial real estate |  | 136,814 |  |  |  |  |  |  | 2,219 |
Owner occupied - commercial real estate |  | 19,170 |  |  |  |  |  |  | — |
Construction - commercial and residential |  | 6,971 |  |  |  |  |  |  | — |
Total |  | $ | 193,788 |  |  |  |  |  |  | $ | 2,219 |

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