Loans held for investment summarized by portfolio segment are as follows (in thousands).

(1)

Included loans totaling $671.9 million at June 30, 2020 funded through the Paycheck Protection Program.

(2)

Primarily represents margin loans to customers and correspondents associated with broker-dealer segment operations.

Non-accrual loans, excluding those classified as held for sale, are summarized by class in the following table (in thousands).


	June 30,		December 31,
	2020		2019
Commercial real estate:
Non-owner occupied	$	3,519	$	3,813
Owner occupied		10,224		3,495
Commercial and industrial		32,259		15,262
Construction and land development		1,404		1,316
1-4 family residential		11,351		7,382
Consumer		308		26
Broker-dealer		—		—
	$	59,065	$	31,294

At June 30, 2020 and December 31, 2019, an additional $9.2 million and $4.8 million, respectively, of real estate loans secured by residential properties and classified as held for sale were in non-accrual status.

Loans accounted for on a non-accrual basis increased from December 31, 2019 to June 30, 2020, primarily due to the addition of commercial real estate loans totaling $9.1 million, a single commercial and industrial relationship totaling $11.8 million and various 1-4 family residential loans. The increase in commercial real estate loans in non-accrual status

at June 30, 2020 of $6.4 million was primarily related to the addition of 24 loans totaling $9.1 million, with a reserve of $1.4 million, that were previously accruing at December 31, 2019. This increase from December 31, 2019 was partially offset by the settlement of a single loan accounted for on a non-accrual basis with a carrying amount of $2.5 million. The increase in commercial and industrial loans in non-accrual status since December 31, 2019 was primarily due to a single relationship that included three loans totaling $11.8 million and had a $4.8 million reserve at June 30, 2020 and a CECL transition gross-up adjustment of $4.6 million related to a loan with an amortized cost of $6.8 million and a reserve of $4.4 million at June 30, 2020. The increase in 1-4 family residential loans in non-accrual status at June 30, 2020, compared to December 31, 2019, was primarily related to the classification of $4.0 million of loans as non-accrual, that were previously classified as accruing.

The following table provides further details associated with non-accrual loans (in thousands).


	Non-accrual Loans						Interest Income Recognized (1)
	With		With No				Three Months Ended		Six Months Ended
June 30, 2020	Allowance		Allowance		Total		June 30, 2020		June 30, 2020
Commercial real estate:
Non-owner occupied	$	2,174	$	1,345	$	3,519	$	86	$	(11)
Owner occupied		2,277		7,947		10,224		69		85
Commercial and industrial		25,566		6,693		32,259		102		402
Construction and land development		198		1,206		1,404		31		53
1-4 family residential		1,252		10,099		11,351		182		1,165
Consumer		308		—		308		2		(3)
Broker-dealer		—		—		—		—		—
	$	31,775	$	27,290	$	59,065	$	472	$	1,691

(1)	Interest income recognized on non-accrual loans during the three and six months ended June 30, 2019 was $0.3 million and $0.7 million, respectively.

The Company considers non-accrual loans to be collateral-dependent unless there are underlying mitigating circumstances. The practical expedient to measure the allowance using the fair value of the collateral has been implemented.

The Bank classifies loan modifications as troubled debt restructurings (“TDRs”) when it concludes that it has both granted a concession to a debtor and that the debtor is experiencing financial difficulties. Loan modifications are typically structured to create affordable payments for the debtor and can be achieved in a variety of ways. The Bank modifies loans by reducing interest rates and/or lengthening loan amortization schedules. The Bank may also reconfigure a single loan into two or more loans (“A/B Note”). The typical A/B Note restructure results in a “bad” loan which is charged off and a “good” loan or loans, the terms of which comply with the Bank’s customary underwriting policies. The debt charged off on the “bad” loan is not forgiven to the debtor.

In March 2020, the CARES Act was passed, which, among other things, allows the Bank to suspend the requirements for certain loan modifications to be categorized as a TDR, including the related impairment for accounting purposes. Therefore, the Bank is not reporting COVID-19 related modifications as TDRs. The Bank’s COVID-19 payment deferral programs allow for a deferral of principal and/or interest payments with such deferred principal payments due and payable on maturity date of the existing loan. As of June 30, 2020, the Bank’s actions included approval of $968.1 million in COVID-19 related loan modifications. The extent to which these measures will impact the Bank is uncertain, and any progression of these loans into non-accrual status, during future periods is uncertain and will depend on future developments that cannot be predicted.

Information regarding TDRs granted during the three and six months ended June 30, 2020, is shown in the following table (dollars in thousands). At June 30, 2020, the Bank had $0.1 million of unadvanced commitments to borrowers whose loans had been restructured in TDRs, while such unadvanced commitments were nominal at December 31, 2019.


	Three Months Ended June 30, 2020					Three Months Ended June 30, 2019
	Number of	Balance at		Balance at		Number of	Balance at		Balance at
	Loans	Extension		End of Period		Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—	—	$	—	$	—
Owner occupied	—		—		—	—		—		—
Commercial and industrial	1		6,750		2,000	3		7,993		7,973
Construction and land development	—		—		—	—		—		—
1-4 family residential	—		—		—	—		—		—
Consumer	—		—		—	—		—		—
Broker-dealer	—		—		—	—		—		—
	1	$	6,750	$	2,000	3	$	7,993	$	7,973


	Six Months Ended June 30, 2020					Six Months Ended June 30, 2019
	Number of	Balance at		Balance at		Number of	Balance at		Balance at
	Loans	Extension		End of Period		Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—	—	$	—	$	—
Owner occupied	—		—		—	—		—		—
Commercial and industrial	2		7,839		3,166	3		7,993		7,973
Construction and land development	—		—		—	—		—		—
1-4 family residential	—		—		—	—		—		—
Consumer	—		—		—	—		—		—
Broker-dealer	—		—		—	—		—		—
	2	$	7,839	$	3,166	3	$	7,993	$	7,973

The following table presents information regarding TDRs granted during the twelve months preceding June 30, 2020, for which a payment was at least 30 days past due (dollars in thousands). There were no TDRs granted during the twelve months preceding June 30, 2019 for which a payment was at least 30 days past due.


	Twelve Months Preceding June 30, 2020
	Number of	Balance at		Balance at
	Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—
Owner occupied	—		—		—
Commercial and industrial	1		1,625		1,421
Construction and land development	—		—		—
1-4 family residential	—		—		—
Consumer	—		—		—
Broker-dealer	—		—		—
	1	$	1,625	$	1,421

An analysis of the aging of the Company’s loan portfolio is shown in the following tables (in thousands).


													Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		Total		Past Due
June 30, 2020	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		90 Days or More
Commercial real estate:
Non-owner occupied	$	1,662	$	—	$	1,313	$	2,975	$	1,729,473	$	1,732,448	$	—
Owner occupied		1,822		681		6,662		9,165		1,302,110		1,311,275		—
Commercial and industrial		1,325		—		6,909		8,234		2,727,855		2,736,089		939
Construction and land development		3,755		—		29		3,784		928,115		931,899		—
1-4 family residential		8,700		1,807		5,755		16,262		656,581		672,843		—
Consumer		72		22		284		378		42,081		42,459		—
Broker-dealer		—		—		—		—		422,891		422,891		—
	$	17,336	$	2,510	$	20,952	$	40,798	$	7,809,106	$	7,849,904	$	939


													Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		Total		Past Due
December 31, 2019	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		90 Days or More
Commercial real estate:
Non-owner occupied	$	4,062	$	—	$	2,790	$	6,852	$	1,702,500	$	1,709,352	$	—
Owner occupied		1,813		880		3,265		5,958		1,285,213		1,291,171		—
Commercial and industrial		5,967		1,735		3,395		11,097		2,014,623		2,025,720		3
Construction and land development		7,580		1,827		—		9,407		931,157		940,564		—
1-4 family residential		12,058		3,442		6,520		22,020		769,000		791,020		—
Consumer		455		34		—		489		46,557		47,046		—
Broker-dealer		—		—		—		—		576,527		576,527		—
	$	31,935	$	7,918	$	15,970	$	55,823	$	7,325,577	$	7,381,400	$	3

In addition to the loans shown in the tables above, PrimeLending had $123.7 million and $102.7 million of loans included in loans held for sale (with an aggregate unpaid principal balance of $125.2 million and $104.0 million, respectively) that were 90 days past due and accruing interest at June 30, 2020 and December 31, 2019, respectively. These loans are guaranteed by U.S. government agencies and include loans that are subject to repurchase, or have been repurchased, by PrimeLending.

Management tracks credit quality trends on a quarterly basis related to: (i) past due levels, (ii) non-performing asset levels, (iii) classified loan levels and (iv) general economic conditions in state and local markets. The Company defines classified loans as loans with a risk rating of substandard, doubtful or loss.

A description of the risk rating internal grades for commercial loans is presented in the following table.


Risk Rating	Internal Grade	Risk Rating Description
Pass low risk	1 - 3	Represents loans to very high credit quality commercial borrowers of investment or near investment grade. These borrowers have significant capital strength, moderate leverage, stable earnings and growth, and readily available financing alternatives. Smaller entities, regardless of strength, would generally not fit in these grades. Commercial borrowers entirely cash secured are also included in this category.
Pass normal risk	4 - 7	Represents loans to commercial borrowers of solid credit quality with moderate risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality and the stability of the industry or market area.
Pass high risk	8 - 10	Represents "pass grade" loans to commercial borrowers of higher, but acceptable credit quality and risk. Such borrowers are differentiated from Pass Normal Risk in terms of size, secondary sources of repayment or they are of lesser stature in other key credit metrics in that they may be over-leveraged, under capitalized, inconsistent in performance or in an industry or an economic area that is known to have a higher level of risk, volatility, or susceptibility to weaknesses in the economy.
Watch	11	Represents loans on management's "watch list" and is intended to be utilized on a temporary basis for pass grade commercial borrowers where a significant risk-modifying action is anticipated in the near term.
Special mention	12	Represents loans with potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the loans and weaken the Company's credit position at some future date.
Substandard accrual	13	Represents loans, in accordance with regulatory guidelines, for which the accrual of interest has not been stopped, but are inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Substandard non-accrual	14	Represents loans, in accordance with regulatory guidelines, for which the accrual of interest has been stopped and includes loans where interest is more than 90 days past due and not fully secured and loans where a specific valuation allowance may be necessary.
Doubtful	15	Represents loans, in accordance with regulatory guidelines, that are placed on non-accrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty.
Loss	16	Represents loans, in accordance with regulatory guidelines, that are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. Rating is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

For 1-4 family residential and consumer loans, the Company utilizes separate credit models designed for these types of loans to estimate the PD and LGD grades for the allowance for credit losses calculation. The primary driver of the PD score is the borrower's FICO score at origination. A portion of the Company’s 1-4 family residential loans were acquired as part of a FDIC-assisted transaction in 2013 and the FICO information at origination was incomplete. The credit scores were refreshed in 2016 and these new scores were used as a proxy for the FICO score at origination. New originations and loan purchases are scored using the FICO score at origination. FICO score bands are assigned following prevalent industry standards and are used as the credit quality indicator for these types of loans. Substandard non-accrual loans are treated as a separate category in the credit scoring grid as the probability of default is 100% and the FICO score is no longer a relevant predictor.

The following table presents loans held for investment grouped by asset class and credit quality indicator, segregated by year of origination or renewal (in thousands).


	Amortized Cost Basis by Origination Year
												2015 and
June 30, 2020	2020		2019		2018		2017		2016			Prior	Revolving		Total
Commercial real estate: non-owner occupied
Internal Grade 1-3 (Pass low risk)	$	8,455	$	39,658	$	5,310	$	12,951	$	13,452	$	16,990	$	402	$	97,218
Internal Grade 4-7 (Pass normal risk)		123,378		157,843		160,125		124,013		160,255		105,776		22,671		854,061
Internal Grade 8-11 (Pass high risk and watch)		114,528		133,162		128,832		106,085		144,102		66,126		381		693,216
Internal Grade 12 (Special mention)		—		—		—		—		—		—		—		—
Internal Grade 13 (Substandard accrual)		3,620		10,571		8,550		13,949		8,153		39,591		—		84,434
Internal Grade 14 (Substandard non-accrual)		—		—		—		882		222		2,415		—		3,519
Commercial real estate: owner occupied
Internal Grade 1-3 (Pass low risk)	$	28,290	$	30,841	$	11,075	$	30,513	$	23,041	$	46,508	$	2	$	170,270
Internal Grade 4-7 (Pass normal risk)		104,569		143,052		216,241		84,590		69,401		111,861		29,618		759,332
Internal Grade 8-11 (Pass high risk and watch)		75,276		83,909		65,866		29,401		30,419		40,902		9,644		335,417
Internal Grade 12 (Special mention)		—		—		—		—		—		30		—		30
Internal Grade 13 (Substandard accrual)		4,418		2,427		3,945		7,614		6,840		10,758		—		36,002
Internal Grade 14 (Substandard non-accrual)		552		—		270		5,591		2,881		930		—		10,224
Commercial and industrial
Internal Grade 1-3 (Pass low risk)	$	22,556	$	12,880	$	6,327	$	5,761	$	4,310	$	698	$	19,218	$	71,750
Internal Grade 4-7 (Pass normal risk)		56,557		107,050		70,933		56,709		23,741		16,322		367,699		699,011
Internal Grade 8-11 (Pass high risk and watch)		66,368		84,275		50,768		20,955		33,751		3,035		183,972		443,124
Internal Grade 12 (Special mention)		6,211		1,337		—		350		—		—		301		8,199
Internal Grade 13 (Substandard accrual)		3,260		3,087		10,155		1,447		5,618		666		11,525		35,758
Internal Grade 14 (Substandard non-accrual)		11,441		10,413		1,851		446		646		3,448		4,014		32,259
Construction and land development
Internal Grade 1-3 (Pass low risk)	$	5,880	$	6,986	$	22,927	$	279	$	1,115	$	311	$	2,224	$	39,722
Internal Grade 4-7 (Pass normal risk)		121,835		184,223		75,290		32,349		7,530		4,572		23,898		449,697
Internal Grade 8-11 (Pass high risk and watch)		86,018		158,812		137,512		18,524		3,701		1,050		8,398		414,015
Internal Grade 12 (Special mention)		—		—		—		—		—		—		—		—
Internal Grade 13 (Substandard accrual)		—		1,112		—		5,356		—		—		—		6,468
Internal Grade 14 (Substandard non-accrual)		—		437		29		—		769		169		—		1,404
Construction and land development - individuals
FICO less than 620	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
FICO between 620 and 720		1,884		82		1,467		—		—		—		—		3,433
FICO greater than 720		6,086		5,330		5,744		—		—		—		—		17,160
Substandard non-accrual		—		—		—		—		—		—		—		—
Other (1)		—		—		—		—		—		—		—		—
1-4 family residential
FICO less than 620	$	719	$	882	$	3,704	$	229	$	1,049	$	38,230	$	538	$	45,351
FICO between 620 and 720		8,514		23,071		11,113		9,476		13,609		46,358		1,428		113,569
FICO greater than 720		44,434		110,514		94,278		49,710		48,653		95,031		6,342		448,962
Substandard non-accrual		—		—		—		98		476		10,777		—		11,351
Other (1)		11,881		18,060		9,735		2,211		1,418		9,764		541		53,610
Consumer
FICO less than 620	$	594	$	1,625	$	155	$	155	$	53	$	90	$	356	$	3,028
FICO between 620 and 720		2,795		4,283		792		846		156		125		2,347		11,344
FICO greater than 720		7,075		5,027		3,487		410		450		66		4,584		21,099
Substandard non-accrual		—		—		—		35		—		23		250		308
Other (1)		3,893		2,123		364		59		50		—		191		6,680

Total loans with credit quality measures	$	931,087	$	1,343,072	$	1,106,845	$	620,994	$	605,861	$	672,622	$	700,544	$	5,981,025
Commercial and industrial (mortgage warehouse lending)															$	774,129
Commercial and industrial (Paycheck Protection Program loans)															$	671,859
Broker-Dealer (margin loans and correspondent receivables)															$	422,891
Total loans held for investment															$	7,849,904

(1) Loans classified in this category were assigned a FICO score based on various factors specific to the borrower for credit modeling purposes.

Allowance for Credit Losses for Loans Held for Investment

The allowance for credit losses for loans held for investment represents management’s best estimate of all expected credit losses over the expected contractual life of our existing portfolio. Management revised its methodology for determining the allowance for credit losses upon the implementation of CECL. Management considers the level of allowance for credit losses to be a reasonable and supportable estimate of expected credit losses inherent within the loans held for investment portfolio as of June 30, 2020. While the Company believes it has an appropriate allowance for the existing loan portfolio at June 30, 2020, additional provision for losses on existing loans may be necessary in the future.

Future changes in the allowance for credit losses are expected to be volatile given dependence upon, among other things, the portfolio composition and quality, as well as the impact of significant drivers, including prepayment assumptions and macroeconomic conditions and forecasts. In addition to the allowance for credit losses, the Company maintains a separate allowance for credit losses related to off-balance sheet credit exposures, including unfunded loan commitments, and this amount is included in other liabilities within the consolidated balance sheets (see Note 14 to the consolidated financial statements). For further information on the policies that govern the estimation of the allowances for credit losses levels, see Note 1 to the consolidated financial statements.

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate credit losses over the reasonable and supportable forecast period. To determine our best estimate of expected credit losses as of June 30, 2020, the Company utilized a single macroeconomic baseline scenario published by a third party in June 2020 that was updated for continued deterioration in the U.S. economic outlook due to COVID-19 conditions.

The COVID-19 pandemic has resulted in a weak labor market and weak overall economic conditions that will affect borrowers across our lending portfolios and significant judgment is required to estimate the severity and duration of the current economic downturn, as well as its potential impact on borrower defaults and loss severity. In particular, macroeconomic conditions and forecasts regarding the duration and severity of the economic downturn are rapidly changing and remain highly uncertain as the resurgence of COVID-19 cases evolves nationally and in key geographies. It is difficult to predict exactly how borrower behavior will be impacted by these economic conditions as the effectiveness of government stimulus, customer relief and enhanced unemployment benefits should help mitigate in the short term, but the extent and duration of government stimulus as well as performance of recently implemented payment deferral programs remains uncertain.

The increase in the allowance for credit losses for loans held for investment during the six months ended June 30, 2020 was primarily attributable to changes within the Bank. As previously discussed, during the first quarter of 2020, the Company adopted the new CECL standard and recorded transition adjustment entries that resulted in an allowance for credit losses of $73.7 million as of January 1, 2020, an increase of $12.6 million. This increase included an increase in credit losses of $18.9 million from the expansion of the loss horizon to life of loan, partially offset by the elimination of the non-credit component within the historical allowance related to previously categorized PCI loans of $6.3 million.

During the three and six months ended June 30, 2020, the significant build in the allowance included provision for credit losses on individually evaluated loans of $6.2 million and $23.8 million, respectively, while the provision for credit losses on expected losses of collectively evaluated loans accounted for $59.9 million and $76.6 million, respectively, of the total respective provision primarily due to the increase in the expected lifetime credit losses under CECL attributable to the deteriorating economic outlook associated with the impact of the market disruption caused by the COVID-19 pandemic. The changes in the allowance for credit losses during the noted periods were also attributable to other factors including, but not limited to, loan growth, loan mix and changes in risk rating grades. The change in the allowance during the three and six months ended June 30, 2020 was also impacted by net charge-offs of $16.4 million and $17.9 million, respectively, primarily associated with loans specifically reserved for during the first quarter of 2020.

Changes in the allowance for credit losses for loans held for investment, distributed by portfolio segment, are shown below (in thousands).


	Balance,		Transition		Provision for				Recoveries on		Balance,
	Beginning of		Adjustment		(Reversal of)		Loans		Charged Off		End of
Three Months Ended June 30, 2020	Period		CECL		Credit Losses		Charged Off		Loans		Period
Commercial real estate	$	53,939	$	—	$	56,875	$	(4,274)	$	11	$	106,551
Commercial and industrial		38,550		—		5,176		(12,544)		681		31,863
Construction and land development		6,360		—		2,031		—		2		8,393
1-4 family residential		6,365		—		1,199		(170)		5		7,399
Consumer		1,203		—		319		(197)		104		1,429
Broker-dealer		322		—		426		—		—		748
Total	$	106,739	$	—	$	66,026	$	(17,185)	$	803	$	156,383


	Balance,		Transition		Provision for				Recoveries on		Balance,
	Beginning of		Adjustment		(Reversal of)		Loans		Charged Off		End of
Six Months Ended June 30, 2020	Period		CECL		Credit Losses		Charged Off		Loans		Period
Commercial real estate	$	31,595	$	8,073	$	71,350	$	(4,488)	$	21	$	106,551
Commercial and industrial		17,964		3,193		23,622		(13,984)		1,068		31,863
Construction and land development		4,878		577		2,938		(2)		2		8,393
1-4 family residential		6,386		(29)		1,400		(373)		15		7,399
Consumer		265		748		565		(373)		224		1,429
Broker-dealer		48		—		700		—		—		748
Total	$	61,136	$	12,562	$	100,575	$	(19,220)	$	1,330	$	156,383


	Balance,		Transition		Provision for				Recoveries on		Balance,
	Beginning of		Adjustment		(Reversal of)		Loans		Charged Off		End of
Three Months Ended June 30, 2019	Period		CECL		Credit Losses		Charged Off		Loans		Period
Commercial real estate	$	26,845	$	—	$	(1,731)	$	—	$	—	$	25,114
Commercial and industrial		21,268		—		1,254		(2,430)		322		20,414
Construction and land development		5,908		—		(1,512)		—		—		4,396
1-4 family residential		4,331		—		1,447		(871)		17		4,924
Consumer		409		—		(128)		(10)		12		283
Broker-dealer		48		—		(2)		—		—		46
Total	$	58,809	$	—	$	(672)	$	(3,311)	$	351	$	55,177


	Balance,		Transition		Provision for				Recoveries on		Balance,
	Beginning of		Adjustment		(Reversal of)		Loans		Charged Off		End of
Six Months Ended June 30, 2019	Period		CECL		Credit Losses		Charged Off		Loans		Period
Commercial real estate	$	27,100	$	—	$	(1,986)	$	—	$	—	$	25,114
Commercial and industrial		21,980		—		1,712		(4,248)		970		20,414
Construction and land development		6,061		—		(1,665)		—		—		4,396
1-4 family residential		3,956		—		1,836		(899)		31		4,924
Consumer		267		—		458		(464)		22		283
Broker-dealer		122		—		(76)		—		—		46
Total	$	59,486	$	—	$	279	$	(5,611)	$	1,023	$	55,177