| Loans | Loans Loan balances as of June 30, 2021 and December 31, 2020 are summarized in the table below. Categories of loans include: (in thousands) June 30, 2021 December 31, 2020 Commercial loans Commercial and industrial $ 96,203 $ 75,387 Owner-occupied commercial real estate 87,136 89,785 Investor commercial real estate 28,871 13,902 Construction 117,970 110,385 Single tenant lease financing 913,115 950,172 Public finance 612,138 622,257 Healthcare finance 455,890 528,154 Small business lending 123,293 125,589 Total commercial loans 2,434,616 2,515,631 Consumer loans Residential mortgage 177,148 186,787 Home equity 17,510 19,857 Other consumer 271,796 275,692 Total consumer loans 466,454 482,336 Total commercial and consumer loans 2,901,070 2,997,967 Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other (1) 56,538 61,264 Total loans 2,957,608 3,059,231 Allowance for loan losses (28,066) (29,484) Net loans $ 2,929,542 $ 3,029,747 (1) Includes carrying value adjustments of $40.4 million and $42.7 million related to terminated interest rate swaps associated with public finance loans as of June 30, 2021 and December 31, 2020, respectively. The risk characteristics of each loan portfolio segment are as follows: Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee. This portfolio segment is generally concentrated in Central Indiana and adjacent markets and the greater Phoenix, Arizona market. Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in Central Indiana and adjacent markets and the greater Phoenix, Arizona market and its loans are often secured by manufacturing and service facilities, as well as office buildings. Investor Commercial Real Estate: These loans are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate. These loans typically incorporate a personal guarantee from the primary sponsor or sponsors. This portfolio segment generally involves larger loan amounts with repayment primarily dependent on the successful leasing and operation of the property securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans may be more adversely affected by changing economic conditions in the real estate markets, industry dynamics or the overall health of the local economy where the property is located. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type and are generally located in the state of Indiana or markets immediately adjacent to Indiana. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, economic and industry conditions together with other risk grade criteria. As a general rule, the Company avoids financing special use projects or properties outside of its designated market areas unless other underwriting factors are present to mitigate these additional risks. Construction: Construction loans are secured by land and related improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, and multi-family) properties or single family residential properties offered for sale by the builder. These loans generally finance a variety of project costs, including land, site preparation, architectural services, construction, closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes. This portfolio segment is generally concentrated in Central Indiana. Single Tenant Lease Financing: These loans are made on a nationwide basis to property owners of real estate subject to long-term lease arrangements with single tenant operators. The real estate is typically operated by regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria. Public Finance: These loans are made to governmental and not-for-profit entities to provide both tax-exempt and taxable loans for a variety of purposes including: short-term cash-flow needs; debt refinancing; economic development; quality of life projects; infrastructure improvements; and equipment financing. The primary sources of repayment for public finance loans include pledged revenue sources including but not limited to: general obligations; property taxes; income taxes; tax increment revenue; utility revenue; gaming revenues; sales tax; and pledged general revenue. Certain loans may also include an additional collateral pledge of mortgaged property or a security interest in financed equipment. Public finance lending has been conducted primarily in the Midwest, but continues to expand nationwide. Healthcare Finance: These loans are made to healthcare providers, primarily dentists, for practice acquisition refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases. The sources of repayment are primarily based on the identified cash flows from operations of the borrower and related entities if the real estate is held in a separate entity and secondarily on the underlying collateral provided by the borrower. This portfolio segment was initially concentrated in the Western United States but has since expanded throughout the rest of the country. Small Business Lending: These loans are to small businesses and generally carry a partial guaranty from the U.S. Small Business Administration ("SBA") under its 7(a) loan program. We generally sell the government guaranteed portion of SBA loans into the secondary market while retaining the non-guaranteed portion of the loan and the servicing rights. Loans in the small business lending portfolio have sources of repayment that are primarily based on the identified cash flows of the borrower and secondarily on any underlying collateral provided by the borrower. Loans may, but do not always, have a collateral shortfall. For SBA loans where the guaranteed portion is retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default. Cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Loans are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership changes, and facilitating equipment purchases. These loans also include loans originated by the Bank under the SBA’s Paycheck Protection Program, which are fully guaranteed by the SBA. This portfolio segment has an emerging geography, with a nationwide focus. Residential Mortgage: With respect to residential loans that are secured by 1-to-4 family residences and are generally owner occupied, the Company typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. Home Equity: Home equity loans and lines of credit are typically secured by a subordinate interest in 1-to-4 family residences. The properties securing the home equity portfolio segment are generally geographically diverse as the Company offers these products on a nationwide basis. Repayment of these loans and lines of credit is primarily dependent on the financial circumstances of the borrowers and may be impacted by changes in unemployment levels and property values on residential properties, among other economic conditions in the market. Other Consumer: These loans primarily consist of consumer loans and credit cards. Consumer loans may be secured by consumer assets such as horse trailers or recreational vehicles. Some consumer loans are unsecured, such as small installment loans, home improvement loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. Allowance for Loan Losses Methodology Company policy is designed to maintain an adequate allowance for loan losses (“ALLL”). The portfolio is segmented by loan type, and the required ALLL for types of performing homogeneous loans which do not have a specific reserve is determined by applying a factor based on average historical losses, adjusted for current economic factors and portfolio trends. Management adds qualitative factors for observable trends, changes in internal practices, changes in delinquencies and impairments, and external factors. Observable factors include changes in the composition and size of portfolios, as well as loan terms or concentration levels. The Company evaluates the impact of internal changes such as management and staff experience levels or modification to loan underwriting processes. Delinquency trends are scrutinized for both volume and severity of past due, nonaccrual, or classified loans, as well as any changes in the value of underlying collateral. Finally, the Company considers the effect of other external factors such as national, regional, and local economic and business conditions, as well as competitive, legal, and regulatory requirements. Loans that are considered to be impaired are evaluated to determine the need for a specific allowance by applying at least one of three methodologies: present value of future cash flows; fair value of collateral less costs to sell; or the loan’s observable market price. All troubled debt restructurings (“TDR”) are considered impaired loans. Loans evaluated for impairment are removed from other pools to prevent double-counting. Accounting Standards Codification (“ASC”) Topic 310, Receivables , requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the underlying collateral less costs to sell and allows existing methods for recognizing interest income. Provision for Loan Losses A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management attempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations. Policy for Charging Off Loans The Company’s policy is to charge off a loan at any point in time when it no longer can be considered a bankable asset, meaning collectible within the parameters of policy. A secured loan is generally charged down to the estimated fair value of the collateral, less costs to sell, no later than when it is 120 days past due as to principal or interest. An unsecured loan generally is charged off no later than when it is 180 days past due as to principal or interest. A home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest. The following tables present changes in the balance of the ALLL during the three and six months ended June 30, 2021 and 2020. (in thousands) Three Months Ended June 30, 2021 Allowance for loan losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses Recoveries Balance, Commercial and industrial $ 1,662 $ 267 $ (28) $ 2 $ 1,903 Owner-occupied commercial real estate 1,029 (8) — — 1,021 Investor commercial real estate 169 160 — — 329 Construction 1,420 (63) — — 1,357 Single tenant lease financing 13,178 418 (2,391) — 11,205 Public finance 1,748 (48) — — 1,700 Healthcare finance 7,755 (817) — — 6,938 Small business lending 700 214 (133) 2 783 Residential mortgage 601 (5) (6) 4 594 Home equity 57 4 — 2 63 Other consumer 2,323 (101) (131) 82 2,173 Total $ 30,642 $ 21 $ (2,689) $ 92 $ 28,066 Six Months Ended June 30, 2021 Allowance for loan losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses Recoveries Balance, Commercial and industrial $ 1,146 $ 701 $ (28) $ 84 $ 1,903 Owner-occupied commercial real estate 1,082 (61) — — 1,021 Investor commercial real estate 155 174 — — 329 Construction 1,192 165 — — 1,357 Single tenant lease financing 12,990 606 (2,391) — 11,205 Public finance 1,732 (32) — — 1,700 Healthcare finance 7,485 (547) — — 6,938 Small business lending 628 361 (212) 6 783 Residential mortgage 519 72 (6) 9 594 Home equity 48 63 (51) 3 63 Other consumer 2,507 (205) (313) 184 2,173 Total $ 29,484 $ 1,297 $ (3,001) $ 286 $ 28,066 Three Months Ended June 30, 2020 Allowance for loan losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses Recoveries Balance, Commercial and industrial $ 1,670 $ (141) $ (57) $ 5 $ 1,477 Owner-occupied commercial real estate 645 201 — — 846 Investor commercial real estate 128 2 — — 130 Construction 460 261 — — 721 Single tenant lease financing 10,755 563 — — 11,318 Public finance 1,483 59 — — 1,542 Healthcare finance 4,318 1,187 (743) — 4,762 Small business lending 265 (20) — 6 251 Residential mortgage 500 36 — 3 539 Home equity 53 (4) — 2 51 Other consumer 2,580 347 (216) 117 2,828 Total $ 22,857 $ 2,491 $ (1,016) $ 133 $ 24,465 Six Months Ended June 30, 2020 Allowance for loan losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses Recoveries Balance, Commercial and industrial $ 1,521 $ 205 $ (254) $ 5 $ 1,477 Owner-occupied commercial real estate 561 285 — — 846 Investor commercial real estate 109 21 — — 130 Construction 380 341 — — 721 Single tenant lease financing 11,175 143 — — 11,318 Public finance 1,580 (38) — — 1,542 Healthcare finance 3,247 2,258 (743) — 4,762 Small business lending 54 183 — 14 251 Residential mortgage 657 (107) (15) 4 539 Home equity 46 — — 5 51 Other consumer 2,510 661 (502) 159 2,828 Total $ 21,840 $ 3,952 $ (1,514) $ 187 $ 24,465 The following tables present the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2021 and December 31, 2020. (in thousands) Loans Allowance for Loan Losses June 30, 2021 Ending Balance: Ending Balance: Ending Balance Ending Balance: Ending Balance: Ending Balance Commercial and industrial $ 95,511 $ 692 $ 96,203 $ 1,453 $ 450 $ 1,903 Owner-occupied commercial real estate 83,649 3,487 87,136 1,021 — 1,021 Investor commercial real estate 28,871 — 28,871 329 — 329 Construction 117,970 — 117,970 1,357 — 1,357 Single tenant lease financing 910,742 2,373 913,115 10,838 367 11,205 Public finance 612,138 — 612,138 1,700 — 1,700 Healthcare finance 454,919 971 455,890 6,415 523 6,938 Small business lending (1) 122,084 1,209 123,293 783 — 783 Residential mortgage 174,717 2,431 177,148 594 — 594 Home equity 17,496 14 17,510 63 — 63 Other consumer 271,786 10 271,796 2,173 — 2,173 Total $ 2,889,883 $ 11,187 $ 2,901,070 $ 26,726 $ 1,340 $ 28,066 1 Balance of loans individually evaluated for impairment are guaranteed by the U.S. government. (in thousands) Loans Allowance for Loan Losses December 31, 2020 Ending Balance: Ending Balance: Ending Balance Ending Balance: Ending Balance: Ending Balance Commercial and industrial $ 74,870 $ 517 $ 75,387 $ 1,146 $ — $ 1,146 Owner-occupied commercial real estate 87,947 1,838 89,785 1,082 — 1,082 Investor commercial real estate 13,902 — 13,902 155 — 155 Construction 110,385 — 110,385 1,192 — 1,192 Single tenant lease financing 942,848 7,324 950,172 9,900 3,090 12,990 Public finance 622,257 — 622,257 1,732 — 1,732 Healthcare finance 527,144 1,010 528,154 7,485 — 7,485 Small business lending 125,589 — 125,589 628 — 628 Residential mortgage 185,241 1,546 186,787 519 — 519 Home equity 19,857 — 19,857 48 — 48 Other consumer 275,642 50 275,692 2,507 — 2,507 Total $ 2,985,682 $ 12,285 $ 2,997,967 $ 26,394 $ 3,090 $ 29,484 The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. A description of the general characteristics of the risk grades is as follows: • “Pass” - Higher quality loans that do not fit any of the other categories described below. • “Special Mention” - Loans that possess some credit deficiency or potential weakness, which deserve close attention. • “Substandard” - Loans that possess a defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. • “Doubtful” - Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event that lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable. • “Loss” - Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted. Nonaccrual Loans Any loan which becomes 90 days delinquent or for which the full collection of principal and interest may be in doubt will be considered for nonaccrual status. At the time a loan is placed on nonaccrual status, all accrued but unpaid interest will be reversed from interest income. Placing the loan on nonaccrual status does not relieve the borrower of the obligation to repay interest. A loan placed on nonaccrual status may be restored to accrual status when all delinquent principal and interest has been brought current, and the Company expects full payment of the remaining contractual principal and interest. The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios based on rating category and payment activity as of June 30, 2021 and December 31, 2020. June 30, 2021 (in thousands) Pass Special Mention Substandard Total Commercial and industrial $ 79,928 $ 15,563 $ 712 $ 96,203 Owner-occupied commercial real estate 79,730 3,919 3,487 87,136 Investor commercial real estate 28,871 — — 28,871 Construction 117,970 — — 117,970 Single tenant lease financing 901,505 9,237 2,373 913,115 Public finance 612,138 — — 612,138 Healthcare finance 454,312 615 963 455,890 Small business lending (1) 112,864 8,718 1,711 123,293 Total commercial loans $ 2,387,318 $ 38,052 $ 9,246 $ 2,434,616 1 Balance in “Substandard” is guaranteed by the U.S. government. June 30, 2021 (in thousands) Performing Nonaccrual Total Residential mortgage $ 175,895 $ 1,253 $ 177,148 Home equity 17,496 14 17,510 Other consumer 271,786 10 271,796 Total consumer loans $ 465,177 $ 1,277 $ 466,454 December 31, 2020 (in thousands) Pass Special Mention Substandard Total Commercial and industrial $ 74,138 $ 732 $ 517 $ 75,387 Owner-occupied commercial real estate 84,292 3,655 1,838 89,785 Investor commercial real estate 13,902 — — 13,902 Construction 110,385 — — 110,385 Single tenant lease financing 932,830 10,018 7,324 950,172 Public finance 622,257 — — 622,257 Healthcare finance 526,517 627 1,010 528,154 Small business lending 117,474 2,930 5,185 125,589 Total commercial loans $ 2,481,795 $ 17,962 $ 15,874 $ 2,515,631 December 31, 2020 (in thousands) Performing Nonaccrual Total Residential mortgage $ 185,604 $ 1,183 $ 186,787 Home equity 19,857 — 19,857 Other consumer 275,646 46 275,692 Total consumer loans $ 481,107 $ 1,229 $ 482,336 The following tables present the Company’s loan portfolio delinquency analysis as of June 30, 2021 and December 31, 2020. June 30, 2021 (in thousands) 30-59 60-89 90 Days Total Current Total Non- Total Loans Commercial and industrial $ 2 $ — $ — $ 2 $ 96,201 $ 96,203 $ 692 $ — Owner-occupied commercial real estate — — — — 87,136 87,136 — — Investor commercial real estate — — — — 28,871 28,871 3,487 — Construction — — — — 117,970 117,970 — — Single tenant lease financing — — — — 913,115 913,115 2,373 — Public finance — — — — 612,138 612,138 — — Healthcare finance — — — — 455,890 455,890 — — Small business lending (1) — — 1,209 1,209 122,084 123,293 1,209 — Residential mortgage — — 364 364 176,784 177,148 1,253 — Home equity — — — — 17,510 17,510 14 — Other consumer 89 9 — 98 271,698 271,796 10 — Total $ 91 $ 9 $ 1,573 $ 1,673 $ 2,899,397 $ 2,901,070 $ 9,038 $ — 1 Balance in “90 Days or More Past Due” is guaranteed by the U.S. government. December 31, 2020 (in thousands) 30-59 60-89 90 Days Total Current Total Non- Total Loans Commercial and industrial $ — $ — $ — $ — $ 75,387 $ 75,387 $ — $ — Owner-occupied commercial real estate — — — — 89,785 89,785 1,838 — Investor commercial real estate — — — — 13,902 13,902 — — Construction — — — — 110,385 110,385 — — Single tenant lease financing — — 4,680 4,680 945,492 950,172 7,116 — Public finance — — — — 622,257 622,257 — — Healthcare finance — — — — 528,154 528,154 — — Small business lending — — — — 125,589 125,589 — — Residential mortgage 49 — 269 318 186,469 186,787 1,183 — Home equity — 15 — 15 19,842 19,857 — — Other consumer 176 51 5 232 275,460 275,692 46 — Total $ 225 $ 66 $ 4,954 $ 5,245 $ 2,992,722 $ 2,997,967 $ 10,183 $ — Impaired Loans A loan is designated as impaired, in accordance with the impairment accounting guidance, when, based on current information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Payments with delays generally not exceeding 90 days outstanding are not considered impaired. Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be impaired. Generally, loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well-secured and in the process of collection. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. Impaired loans include nonperforming loans as well as loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. ASC Topic 310, Receivables , requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the underlying collateral, less costs to sell, and allows existing methods for recognizing interest income. The following table presents the Company’s impaired loans as of June 30, 2021 and December 31, 2020. June 30, 2021 December 31, 2020 (in thousands) Recorded Unpaid Specific Recorded Unpaid Specific Loans without a specific valuation allowance Commercial and industrial $ 3,487 $ 3,513 $ — $ 517 $ 517 $ — Owner-occupied commercial real estate — — — 1,838 1,850 — Single tenant lease financing — — — 1,315 1,334 — Healthcare finance — — — 1,010 1,010 — Small business lending (1) 1,209 1,209 — — — — Residential mortgage 2,431 2,566 — 1,546 1,652 — Home equity 14 15 — — — — Other consumer 10 47 — 50 120 — Total 7,151 7,350 — 6,276 6,483 — Loans with a specific valuation allowance Commercial and industrial 692 723 450 — — — Single tenant lease financing 2,373 2,463 367 6,009 6,036 3,090 Healthcare Finance 971 971 523 — — — Total 4,036 4,157 1,340 6,009 6,036 3,090 Total impaired loans $ 11,187 $ 11,507 $ 1,340 $ 12,285 $ 12,519 $ 3,090 1 Entire balance is guaranteed by the U.S. government. The table below presents average balances and interest income recognized for impaired loans during the three and six months ended June 30, 2021 and 2020. Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 (in thousands) Average Interest Average Interest Average Interest Average Interest Loans without a specific valuation allowance Commercial and industrial $ 259 $ — $ 594 $ 18 $ 259 $ 9 $ 1,330 237 $ 36 Owner-occupied commercial real estate 3,994 — 3,923 29 3,307 — 4,573 145 31 Single tenant lease financing 148 — — — 100 5 — — Healthcare finance — — — — 336 — — — Small business lending (1) 1,123 — — — 970 — — — Residential mortgage 2,410 9 1,352 — 2,192 13 1,313 — Home equity 15 — — — 13 — — — Other consumer 21 — 75 — 23 — 60 — Total 7,970 9 5,944 47 7,200 27 7,276 67 Loans with a specific valuation allowance Commercial and industrial 839 — 204 — 677 — 204 — Owner-occupied commercial real estate 1,420 — — — 473 — — — Single tenant lease financing 5,430 — 4,680 — 4,984 — 4,680 — Healthcare Finance 979 24 — — 815 36 — — Total 8,668 24 4,884 — 6,949 36 4,884 — Total impaired loans $ 16,638 $ 33 $ 10,828 $ 47 $ 14,149 $ 63 $ 12,160 $ 67 1 Entire balance is guaranteed by the U.S. government. The Company had $1.3 million in other real estate owned (“OREO”) as of June 30, 2021, which consisted of one commercial property with a carrying value of $1.2 million and one residential mortgage with a carrying value of $0.1 million. The Company did not have any OREO as of December 31, 2020. There were two loans totaling $0.4 million and no loans in the process of foreclosure at June 30, 2021 and December 31, 2020, respectively. Troubled Debt Restructurings The loan portfolio includes TDRs, which are loans that have been modified to grant economic concessions to borrowers who have experienced financial difficulties. These concessions typically result from loss mitigation efforts and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally not less than six consecutive months. When loans are modified in a TDR, any possible impairment similar to other impaired loans is evaluated based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or using the current fair value of the collateral, less selling costs, for collateral dependent loans. If it is determined that the value of the modified loan is less than the recorded balance of the loan, impairment is recognized through a specific allowance or charge-off to the allowance. In periods subsequent to modification, all TDRs, including those that have payment defaults, are evaluated for possible impairment, and impairment is recognized through the allowance. In the course of working with troubled borrowers, the Company may choose to restructure the contractual terms of certain loans in an effort to work out an alternative payment schedule with the borrower in order to optimize the collectability of the loan. Any loan modification is reviewed by the Company to identify whether a TDR has occurred when the Company grants a concession to the borrower that it would not otherwise consider based on economic or legal reasons related to a borrower’s financial difficulties. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status or the loan may be restructured to secure additional collateral and/or guarantees to support the debt, or a combination of the two. There was one portfolio residential mortgage loan classified as a new TDR during the three and six months ended June 30, 2021 with a pre-modification and post-modification outstanding recorded investment of $0.8 million. The Company did not allocate a specific allowance for that loan as of June 30, 2021. The modifications consisted of interest-only payments for a period of time. There was one portfolio residential mortgage loan classified as a new TDR during the three and six months ended June 30, 2020, with a pre-modification and post-modification outstanding recorded investment of $0.8 million. The Company did not allocate a specific allowance for that loan as of June 30, 2020. The modification consisted of an extension of the maturity date. There were no performing TDRs that had payment defaults within the twelve months following modification during the three and six months ended June 30, 2021 and 2020, respectively. Non-TDR Loan Modifications due to COVID-19 The “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” was issued by our banking regulators on March 22, 2020. This guidance encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) provides that loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will not be so classified. Modifications within the scope of this relief are in effect from the period beginning March 1, 2020 until the earlier of January 1, 2022 or 60 days after the date on which the national emergency related to the COVID-19 pandemic formally terminates. As of June 30, 2021, the Company had eight loans totaling $7.9 million in non-TDR loan modifications due to COVID-19. |
