Loans | Note 4 - Loans Loans consist of the following: (Dollars in thousands) June 30, 2021 December 31, 2020 Loans held for sale $ 124,710 $ 191,512 LHFI: Loans secured by real estate: Commercial real estate $ 1,475,093 $ 1,370,928 Construction/land/land development 497,170 531,860 Residential real estate 966,301 885,120 Total real estate 2,938,564 2,787,908 Commercial and industrial (1) 1,570,791 1,817,862 Mortgage warehouse lines of credit 865,255 1,084,001 Consumer 16,253 17,991 Total loans accounted for at amortized cost 5,390,863 5,707,762 Loans accounted for at fair value 5,443 17,011 Total LHFI (2) 5,396,306 5,724,773 Less: Allowance for loan losses 77,104 86,670 LHFI, net $ 5,319,202 $ 5,638,103 ____________________________ (1) Includes $369.9 million and $546.5 million of PPP loans at June 30, 2021 and December 31, 2020, respectively. (2) Includes net deferred loan fees of $13.6 million and $13.7 million at June 30, 2021, and December 31, 2020, respectively. Included in total loans held for investment ("LHFI") were $5.4 million and $17.0 million of commercial real estate loans for which the fair value option was elected at June 30, 2021 and December 31, 2020, respectively. The Company mitigates the interest rate component of fair value risk on loans at fair value by entering into derivative interest rate contracts. See Note 5 - Fair Value of Financial Instruments for more information on loans for which the fair value option has been elected. The Company has been a participating lender in the Paycheck Protection Program ("PPP"). At June 30, 2021, there were approximately $369.9 million in PPP loans outstanding included in the Company’s commercial and industrial loan portfolio, including $9.3 million in net deferred loan fees. PPP loans have a maximum maturity of five years and earn interest at 1%. PPP loans are fully guaranteed by the U.S. government and can be forgiven by the Small Business Administration ("SBA") if the borrower uses the proceeds to pay specified expenses. The Company believes that the majority of its PPP loans will ultimately be forgiven by the SBA in accordance with the terms of the program, and as of June 30, 2021, forgiveness has been granted on $416.6 million of PPP loans. Credit quality indicators. As part of the Company's commitment to manage the credit quality of its loan portfolio, management annually updates and evaluates certain credit quality indicators, which include but are not limited to (i) weighted-average risk rating of the loan portfolio, (ii) net charge-offs, (iii) level of non-performing loans, (iv) level of classified loans (defined as substandard, doubtful and loss), and (v) the general economic conditions in the states in which the Company operates. The Company maintains an internal risk rating system where ratings are assigned to individual loans based on assessed risk. Loan risk ratings are the primary indicator of credit quality for the loan portfolio and are continually evaluated to ensure they are appropriate based on currently available information. The following is a summary description of the Company's internal risk ratings: • Pass (1-6) Loans within this risk rating are further categorized as follows: Minimal risk (1) Well-collateralized by cash equivalent instruments held by the Bank. Moderate risk (2) Borrowers with excellent asset quality and liquidity. Borrowers' capitalization and liquidity exceed industry norms. Borrowers in this category have significant levels of liquid assets and have a low level of leverage. Better than average risk (3) Borrowers with strong financial strength and excellent liquidity that consistently demonstrate strong operating performance. Borrowers in this category generally have a sizable net worth that can be converted into liquid assets within 12 months. Average risk (4) Borrowers with sound credit quality and financial performance, including liquidity. Borrowers are supported by sufficient cash flow coverage generated through operations across the full business cycle. Marginally acceptable risk (5) Loans generally meet minimum requirements for an acceptable loan in accordance with lending policy, but possess one or more attributes that cause the overall risk profile to be higher than the majority of newly approved loans. Watch (6) A passing loan with one or more factors that identify a potential weakness in the overall ability of the borrower to repay the loan. These weaknesses are generally mitigated by other factors that reduce the risk of delinquency or loss. • Special Mention (7) This grade is intended to be temporary and includes borrowers whose credit quality has deteriorated and is at risk of further decline. • Substandard (8) This grade includes "Substandard" loans under regulatory guidelines. Substandard loans exhibit a well-defined weakness that jeopardizes debt repayment in accordance with contractual agreements, even though the loan may be performing. These obligations are characterized by the distinct possibility that a loss may be incurred if these weaknesses are not corrected and repayment may be dependent upon collateral liquidation or secondary source of repayment. • Doubtful (9) This grade includes "Doubtful" loans under regulatory guidelines. Such loans are placed on nonaccrual status and repayment may be dependent upon collateral with no readily determinable valuation or valuations that are highly subjective in nature. Repayment for these loans is considered improbable based on currently existing facts and circumstances. • Loss (0) This grade includes "Loss" loans under regulatory guidelines. Loss loans are charged-off or written down when repayment is not expected. In connection with the review of the loan portfolio, the Company considers risk elements attributable to particular loan types or categories in assessing the quality of individual loans. The list of loans to be reviewed for possible individual evaluation consists of nonaccrual commercial loans over $100,000 with direct exposure, unsecured loans over 90 days past due, commercial loans classified substandard or worse over $100,000 with direct exposure, troubled debt restructurings ("TDRs"), consumer loans greater than $100,000 with a FICO score under 625, loans greater than $100,000 in which the borrower has filed bankruptcy, and all loans 180 days or more past due. Loans under $50,000 will be evaluated collectively in designated pools unless a loss exposure has been identified. Some additional risk elements considered by loan type include: • for commercial real estate loans, the debt service coverage ratio, operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; • for construction, land and land development loans, the perceived feasibility of the project, including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio; • for residential mortgage loans, the borrower's ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral; and • for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower's business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral. The following table reflects recorded investments in loans by credit quality indicator and origination year at June 30, 2021, excluding loans held for sale and loans accounted for at fair value. The Company had an immaterial amount of revolving loans converted to term loans at June 30, 2021. Term Loans Amortized Cost Basis by Origination Year 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total Commercial real estate: (1) Pass $ 189,743 $ 407,131 $ 296,870 $ 270,332 $ 141,340 $ 105,102 $ 21,030 $ 1,431,548 Special mention 4,352 — — 8,549 17,376 — 2,090 32,367 Classified 1,889 1,442 1,542 2,667 1,167 2,358 113 11,178 Total commercial real estate loans $ 195,984 $ 408,573 $ 298,412 $ 281,548 $ 159,883 $ 107,460 $ 23,233 $ 1,475,093 Current period gross charge-offs $ — $ — $ — $ 80 $ 24 $ 26 $ — $ 130 Current period gross recoveries — — — — — 6 — 6 Current period net charge-offs (recoveries) $ — $ — $ — $ 80 $ 24 $ 20 $ — $ 124 (1) Excludes $5.4 million of commercial real estate loans at fair value, which are not included in the loss estimation methodology due to the fair value option election. Construction/land/land development: Pass $ 89,726 $ 123,677 $ 129,910 $ 100,156 $ 11,989 $ 1,423 $ 16,016 $ 472,897 Special mention — — 10,202 — 1,003 — — 11,205 Classified 717 310 197 194 135 56 11,459 13,068 Total construction/land/land development loans $ 90,443 $ 123,987 $ 140,309 $ 100,350 $ 13,127 $ 1,479 $ 27,475 $ 497,170 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period gross recoveries — — — — — — — — Current period net charge-offs (recoveries) $ — $ — $ — $ — $ — $ — $ — $ — Residential real estate: Pass $ 168,979 $ 361,651 $ 114,062 $ 81,853 $ 85,279 $ 80,398 $ 56,958 $ 949,180 Special mention — 181 — — 776 189 — 1,146 Classified 134 1,521 2,280 2,929 2,169 6,715 227 15,975 Total residential real estate loans $ 169,113 $ 363,353 $ 116,342 $ 84,782 $ 88,224 $ 87,302 $ 57,185 $ 966,301 Current period gross charge-offs $ — $ — $ 58 $ — $ — $ — $ — $ 58 Current period gross recoveries — — — — — 17 — 17 Current period net charge-offs (recoveries) $ — $ — $ 58 $ — $ — $ (17) $ — $ 41 Term Loans Amortized Cost Basis by Origination Year 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total (Dollars in thousands) Commercial and industrial: Pass $ 355,351 $ 403,037 $ 123,736 $ 84,695 $ 19,025 $ 45,103 $ 485,076 $ 1,516,023 Special mention 534 2,671 1,633 2,546 362 — 3,889 11,635 Classified 13,497 2,503 1,364 4,037 4,556 6,856 10,320 43,133 Total commercial and industrial loans $ 369,382 $ 408,211 $ 126,733 $ 91,278 $ 23,943 $ 51,959 $ 499,285 $ 1,570,791 Current period gross charge-offs $ 9 $ 4 $ 54 $ — $ 467 $ 3,602 $ 1,664 $ 5,800 Current period gross recoveries — 4 35 — 77 159 19 294 Current period net charge-offs (recoveries) $ 9 $ — $ 19 $ — $ 390 $ 3,443 $ 1,645 $ 5,506 Mortgage Warehouse Lines of Credit: Pass $ — $ — $ — $ — $ — $ — $ 865,255 $ 865,255 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period gross recoveries — — — — — — — — Current period net charge-offs (recoveries) $ — $ — $ — $ — $ — $ — $ — $ — Consumer: Pass $ 3,736 $ 3,737 $ 2,079 $ 896 $ 103 $ 113 $ 5,547 $ 16,211 Classified — 28 3 — — 2 9 42 Total consumer loans $ 3,736 $ 3,765 $ 2,082 $ 896 $ 103 $ 115 $ 5,556 $ 16,253 Current period gross charge-offs $ — $ — $ 25 $ 2 $ — $ 8 $ 14 $ 49 Current period gross recoveries — — — 4 — 14 — 18 Current period net charge-offs (recoveries) $ — $ — $ 25 $ (2) $ — $ (6) $ 14 $ 31 The following table reflects recorded investments in loans by credit quality indicator and origination year at December 31, 2020, excluding loans held for sale and loans accounted for at fair value. The Company had an immaterial amount of revolving loans converted to term loans at December 31, 2020. Term Loans Amortized Cost Basis by Origination Year (Dollars in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total Commercial real estate: (1) Pass $ 393,317 $ 290,394 $ 312,051 $ 154,445 $ 46,132 $ 106,994 $ 18,419 $ 1,321,752 Special mention 824 113 2,410 20,691 — 1,656 2,145 27,839 Classified 2,806 1,678 6,704 6,586 1,476 1,093 994 21,337 Total commercial real estate loans $ 396,947 $ 292,185 $ 321,165 $ 181,722 $ 47,608 $ 109,743 $ 21,558 $ 1,370,928 Current period gross charge-offs $ — $ — $ — $ 3,622 $ 199 $ 1,103 $ — $ 4,924 Current period gross recoveries — — — — — 19 — 19 Current period net charge-offs $ — $ — $ — $ 3,622 $ 199 $ 1,084 $ — $ 4,905 (1) Excludes $17.0 million of commercial real estate loans at fair value, which are not included in the loss estimation methodology due to the fair value option election. Term Loans Amortized Cost Basis by Origination Year (Dollars in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total Construction/land/land development: Pass $ 189,311 $ 150,281 $ 138,000 $ 12,907 $ 1,812 $ 1,157 $ 18,892 $ 512,360 Special mention 323 10,421 135 1,003 — — — 11,882 Classified — 1,811 726 1,507 143 168 3,263 7,618 Total construction/land/land development loans $ 189,634 $ 162,513 $ 138,861 $ 15,417 $ 1,955 $ 1,325 $ 22,155 $ 531,860 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period gross recoveries — — — — — 1 — 1 Current period net charge-offs (recoveries) $ — $ — $ — $ — $ — $ (1) $ — $ (1) Residential real estate: Pass $ 367,652 $ 143,368 $ 103,450 $ 102,272 $ 41,522 $ 50,094 $ 53,854 $ 862,212 Special mention 188 — 29 1,875 9,287 803 — 12,182 Classified 1,857 2,403 2,982 511 1,344 1,533 96 10,726 Total residential real estate loans $ 369,697 $ 145,771 $ 106,461 $ 104,658 $ 52,153 $ 52,430 $ 53,950 $ 885,120 Current period gross charge-offs $ 94 $ 271 $ — $ 283 $ — $ 44 $ — $ 692 Current period gross recoveries — — — — — 202 — 202 Current period net charge-offs (recoveries) $ 94 $ 271 $ — $ 283 $ — $ (158) $ — $ 490 Commercial and industrial: Pass $ 851,780 $ 153,722 $ 110,092 $ 29,413 $ 9,927 $ 26,964 $ 511,220 $ 1,693,118 Special mention 4,860 2,059 26,438 423 — 14,843 8,077 56,700 Classified 5,436 12,250 5,859 5,450 5,950 6,707 26,392 68,044 Total commercial and industrial loans $ 862,076 $ 168,031 $ 142,389 $ 35,286 $ 15,877 $ 48,514 $ 545,689 $ 1,817,862 Current period gross charge-offs $ 189 $ 204 $ 87 $ 121 $ 3,228 $ 469 $ 2,404 $ 6,702 Current period gross recoveries — 42 20 81 185 112 582 1,022 Current period net charge-offs $ 189 $ 162 $ 67 $ 40 $ 3,043 $ 357 $ 1,822 $ 5,680 Mortgage Warehouse Lines of Credit: Pass $ — $ — $ — $ — $ — $ — $ 1,084,001 $ 1,084,001 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period gross recoveries — — — — — — — — Current period net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer: Pass $ 6,702 $ 3,318 $ 1,578 $ 203 $ 116 $ 83 $ 5,935 $ 17,935 Classified 28 8 — — 6 1 13 56 Total consumer loans $ 6,730 $ 3,326 $ 1,578 $ 203 $ 122 $ 84 $ 5,948 $ 17,991 Current period gross charge-offs $ — $ 39 $ 23 $ 8 $ — $ 4 $ 2 $ 76 Current period gross recoveries — — 1 7 5 7 4 24 Current period net charge-offs (recoveries) $ — $ 39 $ 22 $ 1 $ (5) $ (3) $ (2) $ 52 The following tables present the Company's loan portfolio aging analysis at the dates indicated: June 30, 2021 (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Loans Past Due 90 Days or More Total Past Due Current Loans Total Loans Receivable Accruing Loans 90 or More Days Past Due Loans secured by real estate: Commercial real estate (1) $ — $ — $ 1,091 $ 1,091 $ 1,479,445 $ 1,480,536 $ — Construction/land/land development 1,443 99 — 1,542 495,628 497,170 — Residential real estate 1,580 204 7,899 9,683 956,618 966,301 — Total real estate 3,023 303 8,990 12,316 2,931,691 2,944,007 — Commercial and industrial 267 264 17,494 18,025 1,552,766 1,570,791 — Mortgage warehouse lines of credit — — — — 865,255 865,255 — Consumer 100 5 — 105 16,148 16,253 — Total LHFI $ 3,390 $ 572 $ 26,484 $ 30,446 $ 5,365,860 $ 5,396,306 $ — ____________________________ (1) Includes $5.4 million of commercial real estate loans at fair value December 31, 2020 (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Loans Past Due 90 Days or More Total Past Due Current Loans Total Loans Receivable Accruing Loans 90 or More Days Past Due Loans secured by real estate: Commercial real estate (1) $ 1,072 $ — $ 3,172 $ 4,244 $ 1,383,695 $ 1,387,939 $ — Construction/land/land development 369 1 2,328 2,698 529,162 531,860 — Residential real estate 3,774 134 364 4,272 880,848 885,120 — Total real estate 5,215 135 5,864 11,214 2,793,705 2,804,919 — Commercial and industrial 703 1,097 12,625 14,425 1,803,437 1,817,862 — Mortgage warehouse lines of credit — — — — 1,084,001 1,084,001 — Consumer 113 9 2 124 17,867 17,991 — Total LHFI $ 6,031 $ 1,241 $ 18,491 $ 25,763 $ 5,699,010 $ 5,724,773 $ — ____________________________ (1) Includes $17.0 million of commercial real estate loans at fair value The following tables detail activity in the allowance for loan credit losses by portfolio segment. Accrued interest of $17.7 million and $19.5 million was not included in the book value for the purposes of calculating the allowance at June 30, 2021 and June 30, 2020, respectively. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Three Months Ended June 30, 2021 (Dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (1) Ending Balance Loans secured by real estate: Commercial real estate $ 18,397 $ 102 $ 3 $ (2,016) $ 16,282 Construction/land/land development 7,389 — — (1,787) 5,602 Residential real estate 8,294 58 8 815 9,059 Commercial and industrial 49,342 2,845 186 (1,634) 45,049 Mortgage warehouse lines of credit 923 — — (363) 560 Consumer 791 5 5 (239) 552 Total $ 85,136 $ 3,010 $ 202 $ (5,224) $ 77,104 ____________________________ (1) The $5.6 million net benefit for credit losses on the consolidated statements of income includes a $5.2 million net loan loss benefit, a $390,000 benefit for off-balance sheet commitments and a $5,000 provision for held to maturity securities credit losses for the three months ended June 30, 2021. Three Months Ended June 30, 2020 (Dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (1) Ending Balance Loans secured by real estate: Commercial real estate $ 9,254 $ 3,496 $ 4 $ 4,284 $ 10,046 Construction/land/land development 5,054 — — 1,806 6,860 Residential real estate 4,495 — 20 2,396 6,911 Commercial and industrial 35,823 3,073 87 12,444 45,281 Mortgage warehouse lines of credit 779 — — (177) 602 Consumer 658 18 3 125 768 Total $ 56,063 $ 6,587 $ 114 $ 20,878 $ 70,468 ____________________________ (1) The $21.4 million provision for credit losses on the consolidated statements of income includes a $20.9 million net loan loss provision, a $476,000 provision for off-balance sheet commitments and a $48,000 provision for held to maturity securities credit losses for the three months ended June 30, 2020. Six Months Ended June 30, 2021 (Dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (1) Ending Balance Loans secured by real estate: Commercial real estate $ 15,430 $ 130 $ 6 $ 976 $ 16,282 Construction/land/land development 8,191 — — (2,589) 5,602 Residential real estate 9,418 58 17 (318) 9,059 Commercial and industrial 51,857 5,800 294 (1,302) 45,049 Mortgage warehouse lines of credit 856 — — (296) 560 Consumer 918 49 18 (335) 552 Total $ 86,670 $ 6,037 $ 335 $ (3,864) $ 77,104 (1) The $4.2 million net benefit for credit losses on the consolidated statements of income includes a $3.9 million net loan loss benefit, a $338,000 benefit for off-balance sheet commitments and a $5,000 provision for held to maturity securities credit losses for the six months ended June 30, 2021. Six Months Ended June 30, 2020 (Dollars in thousands) Beginning Balance Impact of Adopting ASC 326 Charge-offs Recoveries Provision (1) Ending Balance Loans secured by real estate: Commercial real estate $ 10,013 $ (5,052) $ 3,668 $ 6 $ 8,747 $ 10,046 Construction/land/land development 3,711 1,141 — — 2,008 $ 6,860 Residential real estate 6,332 (2,526) 49 169 2,985 $ 6,911 Commercial and industrial 16,960 7,296 4,253 256 25,022 $ 45,281 Mortgage warehouse lines of credit 262 29 — — 311 $ 602 Consumer 242 360 42 7 201 768 Total $ 37,520 $ 1,248 $ 8,012 $ 438 $ 39,274 $ 70,468 (1) The $39.9 million provision for credit losses on the consolidated statements of income includes a $39.3 million net loan loss provision, a $611,000 provision for off-balance sheet commitments and a $48,000 provision for held to maturity securities credit losses for the six months ended June 30, 2020. The decrease in provision expense compared to the quarter and six months ended June 30, 2020, was primarily due to improvement in forecasted economic conditions during the quarter and six months ended June 30, 2021, as compared to deteriorating economic conditions during the quarter and six months ended June 30, 2020. The Company's credit quality profile in relation to the allowance for loan credit losses drove a decline of 17.7 million in the collectively evaluated portion of the reserve during the six months ended June 30, 2021, of which a $14.8 million decrease was related to qualitative factor changes across the Company's risk pools for the six months ended June 30, 2021. These declines were partially offset by an increase in certain specific loan reserves, at June 30, 2021. The provision for loan credit losses for the six months ended June 30, 2020, was driven by a significant increase in uncertainty related to the ongoing economic impact and duration of the current COVID-19 pandemic. Based upon the requirement of CECL, economic forecasts are essential for estimating the life of loan losses. The increased risk, as reflected in current and forecast adjustments, resulted in approximately $20.8 million in provision expense across the Company’s risk pools. An additional $6.1 million in provision expense was due to the current and forecast effects of individually evaluated loans. The provision for commercial and industrial loans included approximately $13.3 million related to current and forecasted factors as well as approximately $6.0 million related to individually evaluated loans. There were two significant charge-offs in commercial and industrial loans during the first half of 2020 totaling $2.5 million, as well as two significant charge-offs in commercial real estate loans totaling $3.4 million during the same period. The following tables show the recorded investment in loans by loss estimation methodology, excluding loans for which the fair value option was elected at June 30, 2021, and December 31, 2020. June 30, 2021 Collectively Evaluated Individually Evaluated (Dollars in thousands) Probability of Default Fair Value of Collateral Discounted Cash Flow Total Loans secured by real estate: Commercial real estate (1) $ 1,471,761 $ 1,091 $ 2,241 $ 1,475,093 Construction/land/land development 496,553 297 320 497,170 Residential real estate 956,152 8,323 1,826 966,301 Commercial and industrial 1,552,304 10,559 7,928 1,570,791 Mortgage warehouse lines of credit 865,255 — — 865,255 Consumer 16,253 — — 16,253 Total $ 5,358,278 $ 20,270 $ 12,315 $ 5,390,863 ____________________________ (1) Excludes $5.4 million of commercial real estate loans at fair value, which are not included in the loss estimation methodology due to the fair value option election. December 31, 2020 Collectively Evaluated Individually Evaluated (Dollars in thousands) Probability of Default Fair Value of Collateral Discounted Cash Flow Total Loans secured by real estate: Commercial real estate (1) $ 1,365,284 $ 3,173 $ 2,471 $ 1,370,928 Construction/land/land development 528,894 2,621 345 531,860 Residential real estate 879,015 2,009 4,096 885,120 Commercial and industrial 1,804,049 3,152 10,661 1,817,862 Mortgage warehouse lines of credit 1,084,001 — — 1,084,001 Consumer 17,991 — — 17,991 Total $ 5,679,234 $ 10,955 $ 17,573 $ 5,707,762 ____________________________ (1) Excludes $17.0 million of commercial real estate loans at fair value, which are not included in the loss estimation methodology due to the fair value option election. The following tables show the allowance for loan credit losses by loss estimation methodology at June 30, 2021, and December 31, 2020. June 30, 2021 Collectively Evaluated Individually Evaluated (Dollars in thousands) Probability of Default Fair Value of Collateral Discounted Cash Flow Total Loans secured by real estate: Commercial real estate $ 16,269 $ — $ 13 $ 16,282 Construction/land/land development 5,601 — 1 5,602 Residential real estate 8,324 28 707 9,059 Commercial and industrial 29,465 8,264 7,320 45,049 Mortgage warehouse lines of credit 560 — — 560 Consumer 552 — — 552 Total $ 60,771 $ 8,292 $ 8,041 $ 77,104 December 31, 2020 Collectively Evaluated Individually Evaluated (Dollars in thousands) Probability of Default Fair Value of Collateral Discounted Cash Flow Total Loans secured by real estate: Commercial real estate $ 14,896 $ 525 $ 9 $ 15,430 Construction/land/land development 8,062 128 1 8,191 Residential real estate 8,983 — 435 9,418 Commercial and industrial 44,714 1,707 5,436 51,857 Mortgage warehouse lines of credit 856 — — 856 Consumer 918 — — 918 Total $ 78,429 $ 2,360 $ 5,881 $ 86,670 Note that the Company is not using the collateral maintenance agreement practical expedient. The fair value of equipment collateral that secures commercial and industrial loans is estimated by third-party valuation experts. Collateral-dependent loans consist primarily of commercial real estate and commercial and industrial loans. These loans are individually evaluated when foreclosure is probable or when the repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral. Loan balances are charged down to the underlying collateral value when they are deemed uncollectible. Nonaccrual LHFI were as follows: Nonaccrual With No Nonaccrual (Dollars in thousands) Loans secured by real estate: June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020 Commercial real estate $ 1,511 $ 1,053 $ 1,544 $ 3,704 Construction/land/land development 353 1,319 621 2,962 Residential real estate 7,932 2,436 10,571 6,530 Total real estate 9,796 4,808 12,736 13,196 Commercial and industrial 69 82 17,723 12,897 Consumer — — 43 56 Total nonaccrual loans $ 9,865 $ 4,890 $ 30,502 $ 26,149 All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. Subsequent receipts on nonaccrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. At June 30, 2021, the Company had no funding commitments for which the terms have been modified in TDRs. For the six months ended June 30, 2021 and 2020, gross interest income that would have been recorded had the nonaccruing loans been current in accordance with their original terms was $880,000 and $736,000, respectively. No interest income was recorded on these loans while they were considered nonaccrual during the six months ended June 30, 2021 and 2020. The Company elects the fair value option for recording residential mortgage loans held for sale, as well as certain commercial real estate loans in accordance with U.S. GAAP. The Company had $1.6 million of nonaccrual mortgage loans held for sale that were recorded using the fair value option election at June 30, 2021, compared to $681,000 at December 31, 2020. There were no nonaccrual LHFI that were recorded using the fair value option election at June 30, 2021, or December 31, 2020. Loans classified as TDRs, excluding the impact of forbearances granted due to COVID-19, were as follows: (Dollars in thousands) June 30, 2021 December 31, 2020 TDRs Nonaccrual TDRs $ 4,701 $ 5,671 Performing TDRs 2,917 3,314 Total $ 7,618 $ 8,985 There were no loans classified as TDR's during the six months ended June 30, 2021. The tables below summarize loans classified as TDR's by loan and concession type during the six months ended June 30, 2020. Three Months Ended June 30, 2020 (Dollars in thousands) Number of Loans Restructured Pre-Modification Recorded Balance Term Concessions Interest Rate Concessions Combination of Term and Rate Concessions Total Modifications Commercial and industrial 2 $ 128 $ 127 $ — $ — $ 127 Total 2 $ 128 $ 127 $ — $ — $ 127 During the six months ended June 30, 2021, three loans with a combined outstanding principal balance of $743,000 defaulted after having been modified as a TDR within the previous 12 months. During the six months ended June 30, 2020, one loan with an outstanding principal balance of $14,000 defaulted after having been modified as a TDR within the previous 12 months. A payment default is defined as a loan that was 90 or more days past due. The modifications made during the six months ended June 30, 2020, did not significantly impact the Company's determination of the allowance for loan credit losses. The Company monitors the performance of the modified loans to their restructured terms on an ongoing basis. In the event of a subsequent default, the allowance for loan credit losses continues to be reassessed on the basis of an individual evaluation of each loan. |