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, Wisconsin, and Minnesota. 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, 2019 and January 1, 2020 follows:


	December 31, 2019		Credit		December 31, 2019		Impact of		January 1, 2020
	Statement		Risk		After		ASC 326		Post-ASC 326
(dollars in thousands)	Balance		Reclassifications		Reclassifications		Adoption		Adoption
Loans:
Commercial	$	2,890,296	$	(75,142)	$	2,815,154	$	2,679	$	2,817,833
Commercial real estate	5,166,792		(277,539)		4,889,253		1,637		4,890,890
BBCC	N/A		352,681		352,681		33		352,714
Residential real estate	2,334,289		—		2,334,289		105		2,334,394
Consumer	1,726,147		(1,726,147)		N/A		N/A		N/A
Indirect	N/A		935,584		935,584		10		935,594
Direct	N/A		228,524		228,524		2		228,526
Home equity	N/A		562,039		562,039		12		562,051
Total	$	12,117,524	$	—	$	12,117,524	$	4,478	$	12,122,002
Allowance:
Commercial	$	(22,585)	$	1,226	$	(21,359)	$	(7,150)	$	(28,509)
Commercial real estate	(21,588)		1,053		(20,535)		(25,548)		(46,083)
BBCC	N/A		(2,279)		(2,279)		(3,702)		(5,981)
Residential real estate	(2,299)		—		(2,299)		(6,986)		(9,285)
Consumer	(8,147)		8,147		N/A		N/A		N/A
Indirect	N/A		(5,319)		(5,319)		1,669		(3,650)
Direct	N/A		(1,863)		(1,863)		1,059		(804)
Home equity	N/A		(965)		(965)		(689)		(1,654)
Total	$	(54,619)	$	—	$	(54,619)	$	(41,347)	$	(95,966)


(dollars in thousands)	March 31, 2020		January 1, 2020
Commercial (1)	$	2,844,465	$	2,817,833
Commercial real estate	5,118,439		4,890,890
BBCC	367,139		352,714
Residential real estate	2,327,851		2,334,394
Indirect	953,136		935,594
Direct	211,793		228,526
Home equity	561,789		562,051
Total loans	12,384,612		12,122,002
Allowance for credit losses	(106,380)		(95,966)
Net loans	$	12,278,232	$	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; however, some loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

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 owner(s) and guarantor(s), and the ability to show relatively stable earnings as criteria to help mitigate risk.

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 also be impacted by changes in residential property values. Portfolio risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

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. Risk is further mitigated in that Old National retains the right to unconditionally cancel unfunded lines of credit due to deterioration of borrower credit history.

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. We have made a policy election to report accrued interest receivable as a separate line item on the balance sheet. Accrued interest receivable on loans totaled $54.0 million at March 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, 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 2 for more information about CECL for loans and unfunded loan commitments.

For the three months ended March 31, 2020 the allowance for credit losses increased primarily due to macroeconomic factors surrounding the COVID-19 pandemic. The forecast scenario includes a sharp decline in gross domestic product in the second quarter of 2020 with a return to growth by year end. The immediate increase in unemployment remains elevated through 2023. 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. The mitigating impact of the unprecedented 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 for the three months ended March 31, 2020 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
Three Months Ended March 31, 2020
Commercial	$	21,359	$	7,150	$	28,509	$	(5,042)	$	357	$	7,301	$	31,125
Commercial real estate	20,535		25,548		46,083		(1,292)		669		8,643		54,103
BBCC	2,279		3,702		5,981		(15)		66		(615)		5,417
Residential real estate	2,299		6,986		9,285		(300)		169		483		9,637
Indirect	5,319		(1,669)		3,650		(1,203)		414		805		3,666
Direct	1,863		(1,059)		804		(475)		152		341		822
Home equity	965		689		1,654		(118)		82		(8)		1,610
Total allowance for credit losses	$	54,619	$	41,347	$	95,966	$	(8,445)	$	1,909	$	16,950	$	106,380

The provision recapture for the BBCC portfolio was the result of several offsetting items. The economic forecast resulted in an increase to the provision for credit losses for the quarter, which was more than offset by a decrease related to the payoffs of several nonaccrual loans during the quarter. In addition, the BBCC portfolio has a lower weighted average life quarter over quarter, which resulted in a decrease to the allowance for credit losses that was needed at March 31, 2020.

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 for the three months ended March 31, 2020 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
March 31, 2020
Commercial:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	339,465	$	9,386	$	9,935	$	816	$	3,051	$	362,653
2016	177,397		6,799		4,268		784		803		190,051
2017	342,542		12,704		13,345		2,324		9,838		380,753
2018	312,229		12,995		7,893		5,905		157		339,179
2019	546,484		4,707		5,421		3,274		2,254		562,140
2020	213,893		1,708		751		—		—		216,352
Revolving Loans	581,830		39,157		18,326		3,905		—		643,218
Revolving to Term Loans	138,584		1,356		3,397		6,782		—		150,119
Total	$	2,652,424	$	88,812	$	63,336	$	23,790	$	16,103	$	2,844,465

Commercial real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	793,743	$	22,910	$	12,944	$	15,352	$	3,881	$	848,830
2016	596,312		12,915		17,519		14,368		212		641,326
2017	838,575		69,842		27,025		1,830		4,356		941,628
2018	864,477		7,933		23,741		3,525		3,300		902,976
2019	1,149,445		20,007		2,878		2,177		1,965		1,176,472
2020	280,341		—		39		—		—		280,380
Revolving Loans	25,474		500		212		—		—		26,186
Revolving to Term Loans	282,936		6,522		10,792		391		—		300,641
Total	$	4,831,303	$	140,629	$	95,150	$	37,643	$	13,714	$	5,118,439

BBCC:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	17,943	$	—	$	—	$	—	$	187	$	18,130
2016	30,762		1,024		551		538		53		32,928
2017	45,700		522		1,028		575		—		47,825
2018	61,865		512		—		1,070		61		63,508
2019	90,970		877		1,443		438		—		93,728
2020	26,069		172		—		46		—		26,287
Revolving Loans	58,040		4,044		644		76		—		62,804
Revolving to Term Loans	18,679		1,419		1,008		823		—		21,929
Total	$	350,028	$	8,570	$	4,674	$	3,566	$	301	$	367,139

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
March 31, 2020
Residential real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	826,831	$	20,629	$	847,460
2016	292,199		1,755		293,954
2017	303,763		661		304,424
2018	219,650		425		220,075
2019	561,322		97		561,419
2020	100,385		—		100,385
Revolving Loans	—		—		—
Revolving to Term Loans	134		—		134
Total	$	2,304,284	$	23,567	$	2,327,851
Indirect:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	53,056	$	277	$	53,333
2016	99,915		685		100,600
2017	152,882		1,113		153,995
2018	199,211		568		199,779
2019	348,865		242		349,107
2020	96,230		—		96,230
Revolving Loans	—		—		—
Revolving to Term Loans	92		—		92
Total	$	950,251	$	2,885	$	953,136
Direct:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	29,807	$	535	$	30,342
2016	15,445		249		15,694
2017	28,370		145		28,515
2018	48,587		214		48,801
2019	46,602		51		46,653
2020	12,485		—		12,485
Revolving Loans	27,834		—		27,834
Revolving to Term Loans	1,468		1		1,469
Total	$	210,598	$	1,195	$	211,793
Home equity:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	—	$	—	$	—
2016	240		326		566
2017	1,002		37		1,039
2018	719		—		719
2019	1,085		31		1,116
2020	—		—		—
Revolving Loans	535,095		189		535,284
Revolving to Term Loans	19,425		3,640		23,065
Total	$	557,566	$	4,223	$	561,789

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
March 31, 2020
Commercial	$	3,578	$	1,707	$	9,156	$	14,441	$	2,830,024	$	2,844,465
Commercial Real Estate	6,114		2,200		13,412		21,726		5,096,713		5,118,439
BBCC	419		156		234		809		366,330		367,139
Residential	13,895		4,603		9,255		27,753		2,300,098		2,327,851
Indirect	6,358		963		339		7,660		945,476		953,136
Direct	1,513		183		325		2,021		209,772		211,793
Home equity	1,755		474		1,761		3,990		557,799		561,789
Total	$	33,632	$	10,286	$	34,482	$	78,400	$	12,306,212	$	12,384,612


(dollars in thousands)	Beginning of Period Nonaccrual Amortized Cost		End of Period Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or More and Accruing		Interest Income Recognized on Nonaccrual
At or for the Three Months Ended March 31, 2020
Commercial	$	40,103	$	39,893	$	7,040	$	3	$	—
Commercial Real Estate	58,350		51,355		13,281		165		—
BBCC	4,530		3,869		—		—		—
Residential	20,970		23,567		—		112		—
Indirect	3,318		2,885		—		81		—
Direct	1,303		1,195		—		102		—
Home equity	3,857		4,223		34		195		—
Total	$	132,431	$	126,987	$	20,355	$	658	$	—

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. 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
March 31, 2020
Commercial	$	6,802	$	23,175	$	8,209	$	396	$	1,522
Commercial Real Estate	40,361		150		3,199		—		179
BBCC	1,930		1,614		59		246		—
Residential	23,567		—		—		—		—
Indirect	—		—		—		2,885		—
Direct	863		—		8		265		—
Home equity	4,223		—		—		—		—
Total loans	$	77,746	$	24,939	$	11,475	$	3,792	$	1,701

Old National has loan participations, which qualify as participating interests, with other financial institutions. At March 31, 2020, these loans totaled $849.4 million, of which $401.6 million had been sold to other financial institutions and $447.8 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.

For commercial TDRs, an allocated reserve is established within the allowance for credit losses for the difference between the carrying value of the loan and its computed value. To determine the computed value of the loan, one of 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 value, if the loan is collateral dependent. The allocated reserve is established as the difference between the carrying value of the loan


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Three months ended March 31, 2020
Commercial	$	12,412	$	(695)	$	(789)	$	—	$	10,928
Commercial Real Estate	14,277		(1,272)		(157)		—		12,848
BBCC	578		—		(16)		—		562
Residential	3,107		—		(67)		—		3,040
Indirect	—		3		(3)		—		—
Direct	983		2		(63)		—		922
Home equity	381		1		(8)		—		374
Total	$	31,738	$	(1,961)	$	(1,103)	$	—	$	28,674

TDRs included within nonaccrual loans totaled $11.8 million at March 31, 2020 and $13.8 million at December 31, 2019. Old National has allocated specific reserves to customers whose loan terms have been modified in TDRs totaling $1.4 million at March 31, 2020 and $0.9 million at December 31, 2019. At March 31, 2020, Old National had committed to lend an additional $0.9 million 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 three months ended March 31, 2020 and 2019 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 three months ended March 31, 2020 and 2019:


(dollars in thousands)			Total
Three Months Ended March 31, 2020
TDR:
Number of loans			—
Pre-modification outstanding recorded investment			—
Post-modification outstanding recorded investment			—

Three Months Ended March 31, 2019
TDR:
Number of loans			4
Pre-modification outstanding recorded investment			5,510
Post-modification outstanding recorded investment			5,510

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

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, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” 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 (50 U.S.C. 1601 et seq.) terminates. Accordingly, 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 modifications completed in the three months ended March 31, 2020 were immaterial.


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total






Three Months Ended March 31, 2019
Balance at beginning of period	$	21,742	$	23,470	$	2,277	$	7,972	$	55,461
Charge-offs	(160)		(235)		(178)		(2,319)		(2,892)
Recoveries	375		570		72		930		1,947
Provision	(1,551)		1,364		131		1,099		1,043
Balance at end of period	$	20,406	$	25,169	$	2,302	$	7,682	$	55,559


(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


(dollars in thousands)	Commercial		Commercial Real Estate - Construction		Commercial Real Estate - Other
Corporate Credit Exposure Credit Risk Profile by Internally Assigned Grade	December 31, 2019		December 31, 2019		December 31, 2019
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


(dollars in thousands)	Three Months Ended March 31, 2019
Average Recorded Investment
With no related allowance recorded:
Commercial	$	23,688
Commercial Real Estate - Construction	5,477
Commercial Real Estate - Other	40,135
Residential	2,289
Consumer	660
With an allowance recorded:
Commercial	11,347
Commercial Real Estate - Construction	8,690
Commercial Real Estate - Other	26,279
Residential	881
Consumer	1,693
Total	$	121,139


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Commercial	$	10,275	$	(7)	$	(1,029)	$	2,407	$	11,646
Commercial Real Estate	27,671		(75)		(1,562)		3,103		29,137
Residential	3,390		—		(143)		—		3,247
Consumer	2,374		(3)		(58)		—		2,313
Total	$	43,710	$	(85)	$	(2,792)	$	5,510	$	46,343