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

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 June 30, 2020 follows:


	June 30, 2020		Segment		June 30, 2020
	Statement		Portfolio		After
(dollars in thousands)	Balance		Reclassifications		Reclassifications
Loans:
Commercial	$	4,307,505	$	(193,861)	$	4,113,644
Commercial real estate	5,403,316		(166,369)		5,236,947
BBCC	N/A		360,230		360,230
Residential real estate	2,229,298		—		2,229,298
Consumer	1,675,582		(1,675,582)		N/A
Indirect	N/A		933,723		933,723
Direct	N/A		194,573		194,573
Home equity	N/A		547,286		547,286
Total	$	13,615,701	$	—	$	13,615,701


(dollars in thousands)	June 30, 2020		January 1, 2020
Commercial (1) (2)	$	4,113,644	$	2,817,833
Commercial real estate	5,236,947		4,890,890
BBCC	360,230		352,714
Residential real estate	2,229,298		2,334,394
Indirect	933,723		935,594
Direct	194,573		228,526
Home equity	547,286		562,051
Total loans	13,615,701		12,122,002
Allowance for credit losses	(128,394)		(95,966)
Net loans	$	13,487,307	$	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.

Section 1102 of the CARES Act created the Paycheck Protection Program (“PPP”), a program administered by the Small Business Administration (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 six months of the loan. The PPP commenced on April 3, 2020 and is available to qualified borrowers through August 8, 2020, or as long as the appropriated funding is available. No collateral or personal guarantees are required. Neither the government nor lenders are permitted to charge the recipients any fees.

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. 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 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.

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 $56.9 million at June 30, 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.

The allowance for credit losses increased for the three and six months ended June 30, 2020 primarily due to macroeconomic factors surrounding the COVID-19 pandemic. The forecast scenario includes elevated unemployment, which is forecasted to increase slightly through the first quarter of 2021. The scenario also shows a decrease in nominal gross domestic product with a return to growth by the second 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. 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.


(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 June 30, 2020
Commercial	$	31,125	$	—	$	31,125	$	(136)	$	553	$	(1,924)	$	29,618
Commercial real estate	54,103		—		54,103		(1,160)		246		17,880		71,069
BBCC	5,417		—		5,417		(66)		56		925		6,332
Residential real estate	9,637		—		9,637		(16)		42		4,581		14,244
Indirect	3,666		—		3,666		(367)		494		660		4,453
Direct	822		—		822		(405)		231		187		835
Home equity	1,610		—		1,610		(82)		79		236		1,843
Total allowance for credit losses	$	106,380	$	—	$	106,380	$	(2,232)	$	1,701	$	22,545	$	128,394

Six Months Ended June 30, 2020
Commercial	$	21,359	$	7,150	$	28,509	$	(5,178)	$	910	$	5,377	$	29,618
Commercial real estate	20,535		25,548		46,083		(2,452)		915		26,523		71,069
BBCC	2,279		3,702		5,981		(81)		122		310		6,332
Residential real estate	2,299		6,986		9,285		(316)		211		5,064		14,244
Indirect	5,319		(1,669)		3,650		(1,570)		908		1,465		4,453
Direct	1,863		(1,059)		804		(880)		383		528		835
Home equity	965		689		1,654		(200)		161		228		1,843
Total allowance for credit losses	$	54,619	$	41,347	$	95,966	$	(10,677)	$	3,610	$	39,495	$	128,394

The provision recapture for the three months ended June 30, 2020 for the commercial 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 in balances in the commercial portfolio (excluding PPP loans) during the quarter. PPP loans were factored in the provision for credit losses for the three months ended June 30, 2020; however, due to the SBA guaranty and our borrowers’ adherence to the PPP terms, the provision impact was insignificant.

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 and six months ended June 30, 2020 was as follows:


(dollars in thousands)	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Allowance for credit losses on unfunded loan commitments:
Balance at beginning of period	$	8,950	$	2,656
Impact of adopting ASC 326	—		4,549
Sub-Total	8,950		7,205
Expense (reversal of expense) for credit losses	2,076		3,821
Balance at end of period	$	11,026	$	11,026

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
June 30, 2020
Commercial:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	315,486	$	8,196	$	6,818	$	2,474	$	1,746	$	334,720
2016	164,951		4,737		4,641		832		619		175,780
2017	315,876		8,898		16,141		4,139		8,925		353,979
2018	279,110		16,801		11,808		5,219		483		313,421
2019	537,539		8,710		5,960		4,175		—		556,384
2020	1,683,849		2,347		1,133		—		—		1,687,329
Revolving Loans	502,947		19,101		13,462		3,067		—		538,577
Revolving to Term Loans	137,905		2,622		6,821		6,106		—		153,454
Total	$	3,937,663	$	71,412	$	66,784	$	26,012	$	11,773	$	4,113,644

Commercial real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	696,386	$	17,734	$	17,006	$	15,380	$	3,214	$	749,720
2016	568,658		7,647		19,770		2,362		9,965		608,402
2017	769,069		53,841		38,710		3,886		4,267		869,773
2018	851,522		12,341		14,757		4,310		3,256		886,186
2019	1,030,103		39,620		2,754		2,172		1,920		1,076,569
2020	678,684		2,326		1,326		—		—		682,336
Revolving Loans	27,710		—		244		—		—		27,954
Revolving to Term Loans	318,622		6,370		10,647		368		—		336,007
Total	$	4,940,754	$	139,879	$	105,214	$	28,478	$	22,622	$	5,236,947

BBCC:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	12,140	$	—	$	—	$	—	$	91	$	12,231
2016	28,945		765		52		120		—		29,882
2017	42,552		639		196		408		72		43,867
2018	58,668		768		39		380		464		60,319
2019	87,160		1,411		1,199		529		—		90,299
2020	44,309		1,061		232		692		—		46,294
Revolving Loans	48,419		2,685		520		75		—		51,699
Revolving to Term Loans	21,631		1,682		1,110		1,216		—		25,639
Total	$	343,824	$	9,011	$	3,348	$	3,420	$	627	$	360,230

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
June 30, 2020
Residential real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	783,682	$	20,693	$	804,375
2016	258,164		2,201		260,365
2017	263,238		628		263,866
2018	182,395		611		183,006
2019	532,392		117		532,509
2020	184,982		65		185,047
Revolving Loans	—		—		—
Revolving to Term Loans	130		—		130
Total	$	2,204,983	$	24,315	$	2,229,298
Indirect:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	39,794	$	231	$	40,025
2016	82,247		651		82,898
2017	133,548		1,018		134,566
2018	176,931		629		177,560
2019	317,495		306		317,801
2020	180,779		—		180,779
Revolving Loans	—		—		—
Revolving to Term Loans	94		—		94
Total	$	930,888	$	2,835	$	933,723
Direct:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	25,369	$	521	$	25,890
2016	12,951		278		13,229
2017	24,025		126		24,151
2018	41,987		157		42,144
2019	39,424		53		39,477
2020	21,258		—		21,258
Revolving Loans	26,350		—		26,350
Revolving to Term Loans	2,072		2		2,074
Total	$	193,436	$	1,137	$	194,573
Home equity:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	—	$	—	$	—
2016	436		225		661
2017	1,067		37		1,104
2018	990		—		990
2019	1,116		30		1,146
2020	—		—		—
Revolving Loans	519,472		274		519,746
Revolving to Term Loans	19,878		3,761		23,639
Total	$	542,959	$	4,327	$	547,286

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
June 30, 2020
Commercial	$	1,229	$	845	$	5,489	$	7,563	$	4,106,081	$	4,113,644
Commercial Real Estate	312		10,728		14,547		25,587		5,211,360		5,236,947
BBCC	828		416		135		1,379		358,851		360,230
Residential	13,331		4,319		9,696		27,346		2,201,952		2,229,298
Indirect	3,187		580		791		4,558		929,165		933,723
Direct	856		260		435		1,551		193,022		194,573
Home equity	1,234		684		1,758		3,676		543,610		547,286
Total	$	20,977	$	17,832	$	32,851	$	71,660	$	13,544,041	$	13,615,701


	January 1, 2020		March 31, 2020		June 30, 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	$	39,893	$	37,785	$	8,163	$	70
Commercial Real Estate	58,350		51,355		51,100		19,412		330
BBCC	4,530		3,869		4,048		—		—
Residential	20,970		23,567		24,315		—		42
Indirect	3,318		2,885		2,835		—		175
Direct	1,303		1,195		1,137		59		162
Home equity	3,857		4,223		4,326		32		—
Total	$	132,431	$	126,987	$	125,546	$	27,666	$	779

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
June 30, 2020
Commercial	$	9,143	$	19,503	$	7,628	$	456	$	1,107
Commercial Real Estate	38,065		2,251		3,156		—		160
BBCC	1,836		1,936		80		190		—
Residential	24,315		—		—		—		—
Indirect	—		—		—		2,835		—
Direct	862		—		8		255		—
Home equity	4,326		—		—		—		—
Total loans	$	78,547	$	23,690	$	10,872	$	3,736	$	1,267

Old National has loan participations, which qualify as participating interests, with other financial institutions. At June 30, 2020, these loans totaled $871.4 million, of which $376.4 million had been sold to other financial institutions and $495.0 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, if the loan is


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Three Months Ended June 30, 2020
Commercial	$	10,928	$	—	$	(330)	$	—	$	10,598
Commercial Real Estate	12,848		19		(161)		—		12,706
BBCC	562		31		(446)		—		147
Residential	3,040		—		(28)		—		3,012
Indirect	—		2		(2)		—		—
Direct	922		—		(143)		—		779
Home equity	374		1		(8)		—		367
Total	$	28,674	$	53	$	(1,118)	$	—	$	27,609

Six Months Ended June 30, 2020
Commercial	$	12,412	$	(694)	$	(1,120)	$	—	$	10,598
Commercial Real Estate	14,277		(1,253)		(318)		—		12,706
BBCC	578		31		(462)		—		147
Residential	3,107		—		(95)		—		3,012
Indirect	—		5		(5)		—		—
Direct	983		2		(206)		—		779
Home equity	381		2		(16)		—		367
Total	$	31,738	$	(1,907)	$	(2,222)	$	—	$	27,609

TDRs included within nonaccrual loans totaled $11.3 million at June 30, 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 June 30, 2020 and $0.9 million at December 31, 2019. At June 30, 2020, Old National had committed to lend an additional $0.7 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 six months ended June 30, 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 six months ended June 30, 2020 and 2019:


(dollars in thousands)	Total
Six Months Ended June 30, 2020
TDR:
Number of loans	—
Pre-modification outstanding recorded investment	$	—
Post-modification outstanding recorded investment	—

Six Months Ended June 30, 2019
TDR:
Number of loans	12
Pre-modification outstanding recorded investment	$	20,044
Post-modification outstanding recorded investment	20,044

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 (50 U.S.C. 1601 et seq.) 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 the volume of loan deferrals through June 30, 2020 by loan category:


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total
Three Months Ended June 30, 2019
Balance at beginning of period	$	20,406	$	25,169	$	2,302	$	7,682	$	55,559
Charge-offs	(604)		(389)		(140)		(1,743)		(2,876)
Recoveries	334		1,205		9		1,058		2,606
Provision	2,412		(2,674)		98		1,167		1,003
Balance at end of period	$	22,548	$	23,311	$	2,269	$	8,164	$	56,292

Six Months Ended June 30, 2019
Balance at beginning of period	$	21,742	$	23,470	$	2,277	$	7,972	$	55,461
Charge-offs	(764)		(624)		(318)		(4,063)		(5,769)
Recoveries	709		1,775		81		1,989		4,554
Provision	861		(1,310)		229		2,266		2,046
Balance at end of period	$	22,548	$	23,311	$	2,269	$	8,164	$	56,292


(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


(dollars in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Average Recorded Investment
With no related allowance recorded:
Commercial	$	23,242	$	21,585
Commercial Real Estate - Construction	10,996		5,519
Commercial Real Estate - Other	34,387		35,378
Residential	2,325		2,309
Consumer	1,076		838
With an allowance recorded:
Commercial	13,965		15,997
Commercial Real Estate - Construction	3,160		8,294
Commercial Real Estate - Other	22,493		24,368
Residential	866		874
Consumer	1,358		1,577
Total	$	113,868	$	116,739


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total
Three Months Ended June 30, 2019
Balance at beginning of period	$	11,646	$	29,137	$	3,247	$	2,313	$	46,343
(Charge-offs)/recoveries	(93)		4		—		4		(85)
(Payments)/disbursements	25		(16,702)		(167)		(117)		(16,961)
Additions	7,294		6,924		—		316		14,534
Balance at end of period	$	18,872	$	19,363	$	3,080	$	2,516	$	43,831

Six Months Ended June 30, 2019
Balance at beginning of period	$	10,275	$	27,671	$	3,390	$	2,374	$	43,710
(Charge-offs)/recoveries	(100)		(71)		—		(1)		(172)
(Payments)/disbursements	(1,004)		(18,264)		(310)		(173)		(19,751)
Additions	9,701		10,027		—		316		20,044
Balance at end of period	$	18,872	$	19,363	$	3,080	$	2,516	$	43,831