Old National’s loans consist primarily of loans made to consumers and commercial clients in various industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing. Most of Old National’s lending activity occurs within our principal geographic markets of Indiana, Kentucky, Michigan, Minnesota, and Wisconsin. Old National manages concentrations of credit exposure by industry, product, geography, customer relationship, and loan size. While loans to lessors of both residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold.

The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The four loan portfolios are classified into seven segments of loans - commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity. The commercial and commercial real estate loan categories shown on the balance sheet include the same pool of loans as the commercial, commercial real estate, and BBCC portfolio segments. The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments. The composition of loans by portfolio segment as of December 31, 2020 follows:


	December 31, 2020		Segment		December 31, 2020
	Statement		Portfolio		After
(dollars in thousands)	Balance		Reclassifications		Reclassifications
Loans:
Commercial	$	3,956,422	$	(198,722)	$	3,757,700
Commercial real estate	5,946,512		(171,701)		5,774,811
BBCC	N/A		370,423		370,423
Residential real estate	2,248,422		—		2,248,422
Consumer	1,635,123		(1,635,123)		N/A
Indirect	N/A		913,902		913,902
Direct	N/A		164,807		164,807
Home equity	N/A		556,414		556,414
Total	$	13,786,479	$	—	$	13,786,479


(dollars in thousands)	December 31, 2020		January 1, 2020
Commercial (1) (2)	$	3,757,700	$	2,817,833
Commercial real estate	5,774,811		4,890,890
BBCC	370,423		352,714
Residential real estate	2,248,422		2,334,394
Indirect	913,902		935,594
Direct	164,807		228,526
Home equity	556,414		562,051
Total loans	13,786,479		12,122,002
Allowance for credit losses	(131,388)		(95,966)
Net loans	$	13,655,091	$	12,026,036

Commercial loans are classified primarily 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. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee;

Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Old National has participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments will also be deferred for the first six months of the loan term. The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020. No collateral or personal guarantees were required. Neither the government nor lenders are permitted to charge the recipients any fees. During 2020, Old National originated over 9,700 loans with balances in excess of $1.5 billion to new and existing customers through the PPP. At December 31, 2020, remaining PPP loans totaled $943.0 million.

On December 27, 2020, President Trump signed into law the CAA. The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. Old National is participating in the CAA’s second round of PPP lending. In mid-January Old National opened its lending portal and began processing PPP loan applications. Currently, Old National is focused on helping minority-owned business, women-owned business, not-for-profit entities, and existing first round PPP customers with the lending process. Additionally, section 541 of the CAA extends the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022.

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing Old National’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Included with commercial real estate are construction loans, which are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, financial analysis of the developers and property owners, and feasibility studies, if available. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders (including Old National), sales of developed property, or an interim loan commitment from Old National until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.

BBCC loans are typically granted to small businesses with gross revenues of less than $5 million and aggregate debt of less than $1 million. Old National has established minimum debt service coverage ratios, minimum FICO scores for owners and guarantors, and the ability to show relatively stable earnings as criteria to help mitigate risk. Repayment of these loans depends on the personal income of the borrowers and the cash flows of the business. These factors can be affected by changes in economic conditions such as unemployment levels.

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, Old National typically establishes a maximum loan-to-value ratio and generally requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can

Indirect loans are secured by automobile collateral, generally new and used cars and trucks from auto dealers that operate within our footprint. Old National typically mitigates the risk of indirect loans by establishing minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, conservative credit policies, and ongoing reviews of dealer relationships.

Direct loans are typically secured by collateral such as auto or real estate or are unsecured. Old National has established conservative underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers along with conservative credit policies.

Home equity loans are generally secured by 1-4 family residences that are owner occupied. Old National has established conservative underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, along with conservative credit policies as well as monitoring of updated borrower credit scores.

Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet. The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Old National has made a policy election to report accrued interest receivable as a separate line item on the balance sheet. Accrued interest receivable on loans totaled $57.3 million at December 31, 2020 and is excluded from the estimate of credit losses.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of its loan portfolio segments. These segments are further disaggregated into loan classes based on the level at which credit risk is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

The allowance level is influenced by loan volumes, loan AQR migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. See Note 1 for more information about CECL for loans and unfunded loan commitments.

The allowance for credit losses increased for the year ended December 31, 2020 primarily due to the implementation of ASC 326 and the macroeconomic factors surrounding the COVID-19 pandemic. The forecast scenario includes elevated unemployment, which is forecasted to increase slightly through the second quarter of 2021. The scenario also shows a slight decrease in nominal gross domestic product with a return to growth by the third quarter of 2021. In addition to these quantitative inputs, several qualitative factors were considered, including the risk that the economic decline, specifically unemployment and gross domestic product, prove to be more severe and/or prolonged than our baseline forecast. Also, the efficacy, distribution, and consumption of the vaccine along with new variants of the virus pose additional risk. The mitigating impact of any additional fiscal stimulus, including direct payments to individuals, increased unemployment benefits, as well as the various government sponsored loan programs, was also considered. Old National’s activity in the allowance for credit losses for loans by portfolio segment was as follows:


(dollars in thousands)	Balance at Beginning of Period		Impact of Adopting ASC 326		Sub-Total		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Year Ended December 31, 2020
Allowance for credit losses:
Commercial	$	21,359	$	7,150	$	28,509	$	(5,593)	$	3,629	$	4,022	$	30,567
Commercial real estate	20,535		25,548		46,083		(4,323)		4,515		29,535		75,810
BBCC	2,279		3,702		5,981		(95)		140		94		6,120
Residential real estate	2,299		6,986		9,285		(824)		633		3,514		12,608
Indirect	5,319		(1,669)		3,650		(2,754)		1,922		762		3,580
Direct	1,863		(1,059)		804		(1,763)		819		995		855
Home equity	965		689		1,654		(201)		922		(527)		1,848
Total allowance for credit losses	$	54,619	$	41,347	$	95,966	$	(15,553)	$	12,580	$	38,395	$	131,388

Old National maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet. Old National’s activity in the allowance for credit losses on unfunded loan commitments was as follows:

Old National’s management monitors the credit quality of its loans on an ongoing basis with the AQR for commercial loans reviewed annually or at renewal and the performance of its residential and consumer loans based upon the accrual status refreshed at least quarterly. Internally, management assigns an AQR to each non-homogeneous commercial, commercial real estate, and BBCC loan in the portfolio. The primary determinants of the AQR are the reliability of the primary source of repayment and the past, present, and projected financial condition of the borrower. The AQR will also consider current industry conditions. Major factors used in determining the AQR can vary based on the nature of the loan, but commonly include factors such as debt service coverage, internal cash flow, liquidity, leverage, operating performance, debt burden, FICO scores, occupancy, interest rate sensitivity, and expense burden. Old National uses the following definitions for risk ratings:

Classified – Substandard. Loans classified as substandard are inadequately protected by the current net 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 institution will sustain some loss if the deficiencies are not corrected.


	Risk Rating
(dollars in thousands)	Pass		Criticized		Classified - Substandard		Classified - Nonaccrual		Classified - Doubtful		Total
December 31, 2020
Commercial:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	262,538	$	5,369	$	8,441	$	4,379	$	610	$	281,337
2016	124,041		3,383		2,774		49		296		130,543
2017	227,710		9,508		9,836		6,951		2,748		256,753
2018	171,228		15,003		10,077		4,701		1,016		202,025
2019	420,736		9,603		6,369		3,754		—		440,462
2020	1,675,964		23,982		6,501		2,600		—		1,709,047
Revolving Loans	549,849		10,307		15,344		778		—		576,278
Revolving to Term Loans	148,508		2,685		3,049		7,013		—		161,255
Total	$	3,580,574	$	79,840	$	62,391	$	30,225	$	4,670	$	3,757,700

Commercial real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	513,658	$	33,490	$	8,665	$	12,564	$	3,274	$	571,651
2016	496,086		17,648		5,308		1,635		19,283		539,960
2017	677,119		46,994		26,691		9,456		18,926		779,186
2018	749,102		26,464		13,565		5,393		—		794,524
2019	1,041,305		49,271		4,700		2,054		1,832		1,099,162
2020	1,537,226		6,874		11,451		1,408		—		1,556,959
Revolving Loans	28,122		—		—		—		—		28,122
Revolving to Term Loans	382,219		19,804		2,911		313		—		405,247
Total	$	5,424,837	$	200,545	$	73,291	$	32,823	$	43,315	$	5,774,811

BBCC:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	5,327	$	—	$	—	$	—	$	30	$	5,357
2016	24,946		643		33		—		—		25,622
2017	36,288		414		246		200		70		37,218
2018	49,875		621		195		134		847		51,672
2019	73,913		1,403		1,417		551		3		77,287
2020	94,828		1,599		233		161		—		96,821
Revolving Loans	52,393		868		317		89		—		53,667
Revolving to Term Loans	19,353		1,259		701		1,466		—		22,779
Total	$	356,923	$	6,807	$	3,142	$	2,601	$	950	$	370,423

For residential real estate and consumer loan classes, Old National evaluates credit quality based on the aging status of the loan and by payment activity. The performing or nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost in residential real estate and consumer loans based on payment activity:


	Payment Performance
(dollars in thousands)	Performing		Nonperforming		Total
December 31, 2020
Residential real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	620,999	$	20,775	$	641,774
2016	202,457		2,131		204,588
2017	190,376		892		191,268
2018	132,107		680		132,787
2019	453,132		251		453,383
2020	624,435		65		624,500
Revolving Loans	—		—		—
Revolving to Term Loans	122		—		122
Total	$	2,223,628	$	24,794	$	2,248,422
Indirect:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	21,088	$	192	$	21,280
2016	52,225		429		52,654
2017	96,587		666		97,253
2018	134,893		777		135,670
2019	253,514		443		253,957
2020	352,989		22		353,011
Revolving Loans	—		—		—
Revolving to Term Loans	77		—		77
Total	$	911,373	$	2,529	$	913,902
Direct:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	19,465	$	526	$	19,991
2016	8,527		247		8,774
2017	16,182		64		16,246
2018	30,510		171		30,681
2019	29,189		141		29,330
2020	32,499		22		32,521
Revolving Loans	26,028		4		26,032
Revolving to Term Loans	1,229		3		1,232
Total	$	163,629	$	1,178	$	164,807
Home equity:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	—	$	116	$	116
2016	238		11		249
2017	891		—		891
2018	444		—		444
2019	997		37		1,034
2020	1		—		1
Revolving Loans	529,275		94		529,369
Revolving to Term Loans	20,314		3,996		24,310
Total	$	552,160	$	4,254	$	556,414

Old National does not record interest on nonaccrual loans until principal is recovered. For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest. Interest accrued but not received is reversed against earnings. Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status. Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured.


(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More		Total Past Due		Current		Total Loans
December 31, 2020
Commercial	$	2,977	$	664	$	2,100	$	5,741	$	3,751,959	$	3,757,700
Commercial real estate	887		128		27,272		28,287		5,746,524		5,774,811
BBCC	894		882		61		1,837		368,586		370,423
Residential	11,639		3,296		7,666		22,601		2,225,821		2,248,422
Indirect	5,222		960		492		6,674		907,228		913,902
Direct	753		533		426		1,712		163,095		164,807
Home equity	1,075		377		1,663		3,115		553,299		556,414
Total	$	23,447	$	6,840	$	39,680	$	69,967	$	13,716,512	$	13,786,479


	January 1, 2020		September 30, 2020		December 31, 2020
(dollars in thousands)	Nonaccrual Amortized Cost		Nonaccrual Amortized Cost		Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or More and Accruing
Commercial	$	40,103	$	34,188	$	34,895	$	3,394	$	122
Commercial real estate	58,350		67,859		76,138		22,152		20
BBCC	4,530		3,601		3,551		—		—
Residential	20,970		23,914		24,794		—		—
Indirect	3,318		2,619		2,529		—		12
Direct	1,303		1,264		1,178		27		13
Home equity	3,857		4,166		4,254		45		—
Total	$	132,431	$	137,611	$	147,339	$	25,618	$	167

When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of the collateral. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of collateral dependent loans by class of loan:


	Type of Collateral
(dollars in thousands)	Real Estate		Blanket Lien		Investment Securities/Cash		Auto		Other
December 31, 2020
Commercial	$	8,976	$	19,253	$	5,379	$	394	$	893
Commercial Real Estate	60,844		472		1,137		—		13,685
BBCC	1,425		1,929		63		134		—
Residential	24,794		—		—		—		—
Indirect	—		—		—		2,529		—
Direct	901		—		2		235		29
Home equity	4,254		—		—		—		—
Total loans	$	101,194	$	21,654	$	6,581	$	3,292	$	14,607

Old National has loan participations, which qualify as participating interests, with other financial institutions. At December 31, 2020, these loans totaled $1.043 billion, of which $478.9 million had been sold to other financial institutions and $563.6 million was retained by Old National. The loan participations convey proportionate ownership rights with equal priority to each participating interest holder; involve no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all cash flows are divided among the participating interest holders in proportion to each holder’s share of ownership; and no holder has the right to pledge the entire financial asset unless all participating interest holders agree.

Any loans that are modified are reviewed by Old National to identify if a TDR has occurred, which is when for economic or legal reasons related to a borrower’s financial difficulties, Old National Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status. The modification of the terms of such loans include one or a combination of the following: a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate of new debt with similar risk, or a permanent reduction of the recorded investment of the loan.

If we are unable to resolve a nonperforming loan issue, the credit will be charged off when it is apparent there will be a loss. For large commercial type loans, each relationship is individually analyzed for evidence of apparent loss based on quantitative benchmarks or subjectively based upon certain events or particular circumstances. Generally, Old National charges off small commercial loans scored through our small business credit center with contractual balances under $250,000 that are 90 days or more delinquent and do not have adequate collateral support. For residential and consumer loans, a charge off is recorded at the time foreclosure is initiated or when the loan becomes 120 to 180 days past due, whichever is earlier.

the following methods is selected: (1) the present value of expected cash flows discounted at the loan’s original effective interest rate, (2) the loan’s observable market price, or (3) the fair value of the collateral, if the loan is collateral dependent. The allocated reserve is established as the difference between the carrying value of the loan and the collectable value. If there are significant changes in the amount or timing of the loan’s expected future cash flows, impairment is recalculated and the valuation allowance is adjusted accordingly.


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Year Ended December 31, 2020
Commercial	$	12,412	$	633	$	(4,557)	$	2,602	$	11,090
Commercial real estate	14,277		4,801		(8,502)		7,030		17,606
BBCC	578		(19)		(447)		—		112
Residential	3,107		—		(283)		—		2,824
Indirect	—		9		(9)		—		—
Direct	983		23		(267)		—		739
Home equity	381		3		(102)		—		282
Total	$	31,738	$	5,450	$	(14,167)	$	9,632	$	32,653

TDRs included within nonaccrual loans totaled $14.9 million at December 31, 2020 and $13.8 million at December 31, 2019. Old National has allocated specific reserves to customers whose loan terms have been modified as TDRs totaling $1.6 million at December 31, 2020 and $0.9 million at December 31, 2019. At December 31, 2020, Old National had not committed to lend any additional funds to customers with outstanding loans that are classified as TDRs, compared to $2.3 million at December 31, 2019.

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the years ended December 31, 2020, 2019, and 2018 are the same except for when the loan modifications involve the forgiveness of principal. The following table presents loans modified as TDRs that occurred during the years ended December 31, 2020, 2019, and 2018:


(dollars in thousands)	Total
Year Ended December 31, 2020
TDR:
Number of loans	4
Pre-modification outstanding recorded investment	$	9,632
Post-modification outstanding recorded investment	9,632

Year Ended December 31, 2019
TDR:
Number of loans	14
Pre-modification outstanding recorded investment	$	21,131
Post-modification outstanding recorded investment	21,131

Year Ended December 31, 2018
TDR:
Number of loans	10
Pre-modification outstanding recorded investment	$	5,691
Post-modification outstanding recorded investment	5,691

The TDRs that occurred during 2020 increased the allowance for credit losses by $0.3 million and resulted in no charge-offs during 2020. The TDRs that occurred during 2019 increased the allowance for loan losses by $2.0 million and resulted in $3.9 million in charge-offs during 2019. The TDRs that occurred during 2018 did not have a material impact on the allowance for loan losses and resulted in no charge-offs during 2018.

The terms of certain other loans were modified during 2020 and 2019 that did not meet the definition of a TDR. It is our process to review all classified and criticized loans that, during the period, have been renewed, have entered into a forbearance agreement, have gone from principal and interest to interest only, or have extended the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on its debt in the foreseeable future without the modification. The evaluation is performed under our internal underwriting policy. We also evaluate whether a concession has been granted or if we were adequately compensated through a market interest rate, additional collateral or a bona fide guarantee. We also consider whether the modification was insignificant relative to the other terms of the agreement or the delay in a payment.

In general, once a modified loan is considered a TDR, the loan will always be considered a TDR, and therefore impaired, until it is paid in full, otherwise settled, sold, or charged off. However, guidance also permits for loans to be removed from TDR status when subsequently restructured under these circumstances: (1) at the time of the subsequent restructuring, the borrower is not experiencing financial difficulties, and this is documented by a current credit evaluation at the time of the restructuring, (2) under the terms of the subsequent restructuring agreement, the institution has granted no concession to the borrower; and (3) the subsequent restructuring agreement includes market terms that are no less favorable than those that would be offered for a comparable new loan. For loans subsequently restructured that have cumulative principal forgiveness, the loan should continue to be measured in accordance with ASC 310-10, Receivables – Overall. However, consistent with ASC 310-40-50-2, Troubled Debt Restructurings by Creditors, Creditor Disclosure of Troubled Debt Restructurings, the loan would not be required to be reported in the years following the restructuring if the subsequent restructuring meets both of these criteria: (1) has an interest rate at the time of the subsequent restructuring that is not less than a market interest rate; and (2) is performing in compliance with its modified terms after the subsequent restructuring.

On March 22, 2020, the Interagency Statement was issued by our banking regulators that 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 CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The table below presents these loan deferrals by loan category:


(dollars in thousands)	June 30, 2020 Deferrals Balance		September 30, 2020 Deferrals Balance		December 31, 2020 Deferrals Balance (1)		December 31, 2020 Number of Deferrals
Commercial and commercial real estate	$	1,170,119	$	125,603	$	53,823	101

Residential real estate	78,639		1,654		1,855		6
Consumer	54,786		10,315		8,224		348
Total	$	1,303,544	$	137,572	$	63,902	455


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total
Year Ended December 31, 2019
Allowance for loan losses:
Balance at beginning of period	$	21,742	$	23,470	$	2,277	$	7,972	$	55,461
Charge-offs	(3,819)		(2,846)		(661)		(7,463)		(14,789)
Recoveries	1,650		3,774		146		3,630		9,200
Provision	3,012		(2,810)		537		4,008		4,747
Balance at end of period	$	22,585	$	21,588	$	2,299	$	8,147	$	54,619

Year Ended December 31, 2018
Allowance for loan losses:
Balance at beginning of period	$	19,246	$	21,436	$	1,763	$	7,936	$	50,381
Charge-offs	(3,087)		(879)		(1,100)		(7,903)		(12,969)
Recoveries	1,519		2,740		2,118		4,706		11,083
Provision	4,064		173		(504)		3,233		6,966
Balance at end of period	$	21,742	$	23,470	$	2,277	$	7,972	$	55,461


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total
December 31, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	7,891	$	1,006	$	—	$	—	$	8,897
Collectively evaluated for impairment	14,692		20,582		2,299		7,954		45,527
Loans acquired with deteriorated credit quality	2		—		—		193		195
Total allowance for loan losses	$	22,585	$	21,588	$	2,299	$	8,147	$	54,619
Loans and leases outstanding:
Individually evaluated for impairment	$	41,479	$	63,288	$	—	$	—	$	104,767
Collectively evaluated for impairment	2,843,536		5,084,737		2,326,907		1,723,715		11,978,895
Loans acquired with deteriorated credit quality	5,281		18,767		7,382		2,432		33,862
Total loans and leases outstanding	$	2,890,296	$	5,166,792	$	2,334,289	$	1,726,147	$	12,117,524


	December 31, 2019
(dollars in thousands)	Commercial		Commercial Real Estate - Construction		Commercial Real Estate - Other
Corporate Credit Exposure Credit Risk Profile by Internally Assigned Grade
Grade:
Pass	$	2,702,605	$	665,512	$	4,191,455
Criticized	84,676		34,651		115,514
Classified - substandard	63,979		—		101,693
Classified - nonaccrual	22,240		12,929		38,822
Classified - doubtful	16,796		—		6,216
Total	$	2,890,296	$	713,092	$	4,453,700


(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2019
With no related allowance recorded:
Commercial	$	23,227	$	23,665	$	—
Commercial Real Estate - Construction	12,929		12,929		—
Commercial Real Estate - Other	37,674		38,112		—
Residential	1,774		1,794		—
Consumer	403		568		—
With an allowance recorded:
Commercial	18,252		18,305		7,891

Commercial Real Estate - Other	12,685		12,685		1,006
Residential	1,201		1,201		39
Consumer	1,094		1,094		55
Total	$	109,239	$	110,353	$	8,991


	Years Ended December 31,
(dollars in thousands)	2019		2018
Average Recorded Investment
With no related allowance recorded:
Commercial	$	22,629	$	21,295
Commercial Real Estate - Construction	6,465		—
Commercial Real Estate - Other	39,401		39,902
Residential	2,052		2,305
Consumer	923		832
With an allowance recorded:
Commercial	15,816		9,546
Commercial Real Estate - Construction	6,912		7,365
Commercial Real Estate - Other	20,420		27,317
Residential	981		840
Consumer	1,219		1,957
Total	$	116,818	$	111,359


(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More and Accruing		Nonaccrual		Total Past Due		Current
December 31, 2019
Commercial	$	1,489	$	498	$	—	$	39,036	$	41,023	$	2,849,273
Commercial Real Estate:
Construction	187		—		—		12,929		13,116		699,976
Other	2,223		665		181		45,038		48,107		4,405,593
Residential	11,054		2,426		20		21,023		34,523		2,299,766
Consumer:
Home equity	1,020		554		107		3,785		5,466		553,555
Auto	7,704		919		154		3,527		12,304		1,004,983
Other	1,372		147		108		1,074		2,701		147,138
Total	$	25,049	$	5,209	$	570	$	126,412	$	157,240	$	11,960,284


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Year Ended December 31, 2019
Commercial	$	10,275	$	(1,911)	$	(3,733)	$	10,231	$	14,862
Commercial real estate	27,671		(2,112)		(23,182)		10,027		12,404
Residential	3,390		—		(971)		557		2,976
Consumer	2,374		13		(1,207)		316		1,496
Total	$	43,710	$	(4,010)	$	(29,093)	$	21,131	$	31,738

Year Ended December 31, 2018
Commercial	$	12,088	$	(169)	$	(5,188)	$	3,544	$	10,275
Commercial real estate	34,705		561		(8,808)		1,213		27,671
Residential	3,315		23		(450)		502		3,390
Consumer	3,895		16		(1,969)		432		2,374
Total	$	54,003	$	431	$	(16,415)	$	5,691	$	43,710