Allowance for Credit Losses

9 Months Ended

Sep. 30, 2020

Credit Loss [Abstract]

Allowance for Credit Losses

Allowance for Credit Losses

In accordance with ASC 326, the Company is required to measure the allowance for credit losses of financial assets with similar risk characteristics on a collective or pooled basis. In considering the segmentation of financial assets measured at amortized cost into pools, the Company considered various risk characteristics in its analysis. Generally, the segmentation utilized represents the level at which the Company develops and documents its systematic methodology to determine the allowance for credit losses for the financial asset held at amortized cost, specifically the Company's loan portfolio and debt securities classified as held-to-maturity. Below is a summary of the Company's loan portfolio segments and major debt security types:

Commercial loans, including PPP loans: The Company makes commercial loans for many purposes, including working capital lines and leasing arrangements, that are generally renewable annually and supported by business assets, personal guarantees and additional collateral. Underlying collateral includes receivables, inventory, enterprise value and the assets of the business. Commercial business lending is generally considered to involve a slightly higher degree of risk than traditional consumer bank lending. This portfolio includes a range of industries, including manufacturing, restaurants, franchise, professional services, equipment finance and leasing, mortgage warehouse lending and industrial.

The Company also originates loans through PPP. Administered by the SBA, PPP provides short-term relief primarily related to the disruption from COVID-19 to companies and non-profits that meet the SBA’s definition of an eligible small business. Under the program, the SBA will forgive all or a portion of the loan if, during a certain period, loans are used for qualifying expenses. If all or a portion of the loan is not forgiven, the borrower is responsible for repayment. PPP loans are fully guaranteed by the SBA, including any portion not forgiven. The SBA guarantee exists at the inception of the loan and throughout its life and is not

separated from the loan if the loan is subsequently sold or transferred. As it is not considered a freestanding contract, the Company considers the impact of the SBA guarantee when measuring the allowance for credit losses.

Commercial real estate loans, including construction and development, and non-construction: The Company's commercial real estate loans are generally secured by a first mortgage lien and assignment of rents on the underlying property. Since most of the Company's bank branches are located in the Chicago metropolitan area and southern Wisconsin, a significant portion of the Company's commercial real estate loan portfolio is located in this region. As the risks and circumstances of such loans in construction phase vary from that of non-construction commercial real estate loans, the Company assessed the allowance for credit losses separately for these two segments.

Home equity loans: The Company's home equity loans and lines of credit are primarily originated by each of the bank subsidiaries in their local markets where there is a strong understanding of the underlying real estate value. The Company's banks monitor and manage these loans, and conduct an automated review of all home equity loans and lines of credit at least twice per year. The banks subsidiaries use this information to manage loans that may be higher risk and to determine whether to obtain additional credit information or updated property valuations. In a limited number of cases, the Company may issue home equity credit together with first mortgage financing, and requests for such financing are evaluated on a combined basis.

Residential real estate loans: The Company's residential real estate portfolio predominantly includes one- to four-family adjustable rate mortgages that have repricing terms generally from one to three years, construction loans to individuals and bridge financing loans for qualifying customers. The Company's adjustable rate mortgages relate to properties located principally in the Chicago metropolitan area and southern Wisconsin or vacation homes owned by local residents. The Company believes that since this loan portfolio consists primarily of locally originated loans, and since the majority of the borrowers are longer-term customers with lower LTV ratios, the Company faces a relatively low risk of borrower default and delinquency. It is not the Company's current practice to underwrite, and there are no plans to underwrite subprime, Alt A, no or little documentation loans, or option ARM loans.

Premium finance receivables: The Company makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are indirectly originated by working through independent medium and large insurance agents and brokers located throughout the United States and Canada. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance. This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. The Company performs ongoing credit and other reviews of the agents and brokers to mitigate against the risk of fraud.

The Company also originates life insurance premium finance receivables. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent insurance agents, financial advisors and legal counsel. The life insurance policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or certificates of deposit. In some cases, the Company may make a loan that has a partially unsecured position.

Consumer and other loans: Included in the consumer and other loan category is a wide variety of personal and consumer loans to individuals. The Company originates consumer loans in order to provide a wider range of financial services to their customers. Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk than mortgage loans due to the type and nature of the collateral.

U.S. government agency securities: This security type includes debt obligations of certain government-sponsored entities of the U.S. government such as the Federal Home Loan Bank, Federal Agricultural Mortgage Corporation, Federal Farm Credit Banks Funding Corporation and Fannie Mae. Such securities often contain an explicit or implicit guarantee of the U.S. government.

Municipal securities: The Company's municipal securities portfolio include bond issues for various municipal government entities located throughout the United States, including the Chicago metropolitan area and southern Wisconsin, some of which are privately placed and non-rated. Though the risk of loss is typically low, including within the Company, default history exists on municipal securities within the United States.

The tables below show the aging of the Company’s loan portfolio by the segmentation noted above at September 30, 2020, December 31, 2019 and September 30, 2019. For periods prior to January 1, 2020, PCI loans are disclosed in segmentation consistent with that discussed above for comparative purposes. For accounting purposes, including recognition of interest income, PCI loans were aggregated into pools by common risk characteristics separate from non-acquired loans. As a result of the implementation of ASU 2016-13, beginning in the first quarter of 2020, PCI loans transitioned to a classification of purchased financial assets with credit deterioration ("PCD"), which no longer maintains the prior pools and related accounting concepts.

Recognition of interest income on PCD loans is considered at the individual asset level following the Company's accrual policies, instead of based upon the entire pool of loans. As a result, such PCD loans are included within nonaccrual status, if applicable.

As of September 30, 2020			90+ days and still accruing		60-89 days past due		30-59 days past due
(In thousands)	Nonaccrual								Current		Total Loans
Loan Balances:
Commercial
Commercial, industrial and other, excluding PPP loans	$	42,036	$	—	$	2,168	$	48,271	$	8,805,511	$	8,897,986
Commercial PPP loans	—		—		—		—		3,379,013		3,379,013
Commercial real estate
Construction and development	10,980		—		—		12,150		1,310,019		1,333,149
Non-construction	57,835		—		8,299		41,312		6,982,547		7,089,993
Home equity	6,329		—		70		1,148		438,727		446,274
Residential real estate	22,069		—		814		2,443		1,359,484		1,384,810
Premium finance receivables
Commercial insurance loans	21,080		12,177		7,495		18,839		4,000,553		4,060,144
Life insurance loans	—		—		30,791		61,893		5,396,148		5,488,832
Consumer and other	422		175		273		493		53,991		55,354
Total loans, net of unearned income	$	160,751	$	12,352	$	49,910	$	186,549	$	31,725,993	$	32,135,555

As of December 31, 2019			90+ days and still accruing		60-89 days past due		30-59 days past due
(In thousands)	Nonaccrual								Current		Total Loans
Loan Balances:(1)
Commercial
Commercial, industrial and other, excluding PPP loans	$	37,224	$	1,855	$	3,275	$	77,324	$	8,166,242	$	8,285,920
Commercial PPP loans	—		—		—		—		—		—
Commercial real estate
Construction and development	2,112		3,514		5,292		48,964		1,223,567		1,283,449
Non-construction	24,001		11,432		26,254		48,603		6,626,537		6,736,827
Home equity	7,363		—		454		3,533		501,716		513,066
Residential real estate	13,797		5,771		3,089		18,041		1,313,523		1,354,221
Premium finance receivables
Commercial insurance loans	20,590		11,517		12,119		18,783		3,379,018		3,442,027
Life insurance loans	590		—		—		32,559		5,041,453		5,074,602
Consumer and other	231		287		40		344		109,276		110,178
Total loans, net of unearned income	$	105,908	$	34,376	$	50,523	$	248,151	$	26,361,332	$	26,800,290

As of September 30, 2019			90+ days and still accruing		60-89 days past due		30-59 days past due
(In thousands)	Nonaccrual								Current		Total Loans
Loan Balances:(1)
Commercial
Commercial, industrial and other, excluding PPP loans	$	43,931	$	382	$	12,860	$	51,487	$	8,086,942	$	8,195,602
Commercial PPP loans	—		—		—		—		—		—
Commercial real estate
Construction and development	2,024		576		88		7,050		1,032,473		1,042,211
Non-construction	19,533		4,416		9,541		26,048		6,346,918		6,406,456
Home equity	7,920		—		95		3,100		501,188		512,303
Residential real estate	13,447		3,244		1,868		1,433		1,198,674		1,218,666
Premium finance receivables
Commercial insurance loans	15,950		10,612		8,853		16,972		3,397,563		3,449,950
Life insurance loans	590		—		17,753		27,795		4,749,358		4,795,496
Consumer and other	224		117		55		272		88,819		89,487
Total loans, net of unearned income	$	103,619	$	19,347	$	51,113	$	134,157	$	25,401,935	$	25,710,171

(1)

Includes PCD loans and, for periods prior to the adoption of ASU 2016-13, PCI loans. PCI loans represented loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings disclosed in comparative periods are based upon contractually required payments. As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020.

Credit Quality Indicators

Credit quality indicators, specifically the Company's internal risk rating systems, reflect how the Company monitors credit losses and represents factors used by the Company when measuring the allowance for credit losses. The following discusses the Company's credit quality indicators by financial asset.

Loan portfolios

The Company's ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, the Company operates a credit risk rating system under which credit management personnel assign a credit risk rating (1 to 10 rating) to each loan at the time of origination and review loans on a regular basis. These credit risk ratings are also an important aspect of the Company's allowance for credit losses measurement methodology. The credit risk rating structure and classifications are shown below:

Pass (risk rating 1 to 5): Based on various factors (liquidity, leverage, etc.), the Company believes asset quality is acceptable and is deemed to not require additional monitoring by the Company.

Special mention (risk rating 6): Assets in this category are currently protected, potentially weak, but not to the point of substandard classification. Loss potential is moderate if corrective action is not taken.

Substandard accrual (risk rating 7): Assets in this category have well defined weaknesses that jeopardize the liquidation of the debt. Loss potential is distinct but with no discernible impairment.

Substandard nonaccrual/doubtful (risk rating 8 and 9): Assets have all the weaknesses in those classified “substandard accrual” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, improbable.

Loss/fully charged-off (risk rating 10): Assets in this category are considered fully uncollectible. As such, these assets have no carrying balance on the Company's Consolidated Statements of Condition.

Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including: a borrower’s financial strength, cash flow coverage, collateral protection and guarantees.

The Company’s Problem Loan Reporting system includes all loans with credit risk ratings of 6 through 9. This system is designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is reviewed and a portion of the outstanding loan balance may be deemed uncollectible and, as a result, no longer share similar risk characteristics as its related pool. If that is the case, the individual loan is considered collateral dependent and individually assessed for an allowance for credit loss. The Company’s individual assessment utilizes an independent re-appraisal of the collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held business or thinly traded securities). In the case of commercial real estate collateral, an independent third party appraisal is ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party valuation experts and may be adjusted depending upon market conditions.

Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to non-accrual status or a charge-off. If the Company determines that a loan amount or portion thereof is uncollectible, the loan’s credit risk rating is immediately downgraded to an 8 or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Company undertakes a thorough and ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the credit to minimize actual losses. In determining the appropriate charge-off for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.

The table below shows the Company’s loan portfolio by credit quality indicator and year of origination at September 30, 2020:

As of September 30, 2020	Year of Origination														Revolving		Total
(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving		to Term		Loans
Loan Balances:
Commercial, industrial and other
Pass	$	1,380,874	$	1,246,209	$	978,844	$	688,865	$	349,659	$	554,865	$	2,755,857	$	17,970	$	7,973,143
Special mention	38,670		115,731		75,859		69,144		53,537		21,993		128,730		138		503,802
Substandard accrual	15,054		134,060		74,803		43,066		13,169		31,280		66,437		1,136		379,005
Substandard nonaccrual/doubtful	1,254		1,027		4,483		6,143		7,517		12,285		9,045		282		42,036
Total commercial, industrial and other	$	1,435,852	$	1,497,027	$	1,133,989	$	807,218	$	423,882	$	620,423	$	2,960,069	$	19,526	$	8,897,986
Commercial PPP
Pass	$	3,379,013	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	3,379,013
Special mention	—		—		—		—		—		—		—		—		—
Substandard accrual	—		—		—		—		—		—		—		—		—
Substandard nonaccrual/doubtful	—		—		—		—		—		—		—		—		—
Total commercial PPP	$	3,379,013	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	3,379,013
Construction and development
Pass	$	176,894	$	454,031	$	255,974	$	157,559	$	82,421	$	63,379	$	22,358	$	—	$	1,212,616
Special mention	—		20,058		48,593		13,842		2,741		6,862		—		—		92,096
Substandard accrual	—		1,194		9,848		3,562		—		2,853		—		—		17,457
Substandard nonaccrual/doubtful	—		—		3,312		2,917		1,072		3,679		—		—		10,980
Total construction and development	$	176,894	$	475,283	$	317,727	$	177,880	$	86,234	$	76,773	$	22,358	$	—	$	1,333,149
Non-construction
Pass	$	940,359	$	1,024,971	$	957,701	$	797,355	$	684,954	$	1,736,025	$	180,231	$	7,007	$	6,328,603
Special mention	2,379		88,103		78,047		69,884		91,313		164,465		737		2,765		497,693
Substandard accrual	1,135		19,448		26,611		24,928		20,523		112,350		867		—		205,862
Substandard nonaccrual/doubtful	—		1,107		6,031		3,602		8,138		38,957		—		—		57,835
Total non-construction	$	943,873	$	1,133,629	$	1,068,390	$	895,769	$	804,928	$	2,051,797	$	181,835	$	9,772	$	7,089,993
Home equity
Pass	$	47	$	—	$	47	$	28	$	37	$	6,012	$	406,565	$	171	$	412,907
Special mention	—		—		—		393		83		3,615		7,852		565		12,508
Substandard accrual	—		—		134		—		248		12,037		1,118		993		14,530
Substandard nonaccrual/doubtful	—		56		190		90		227		4,113		1,529		124		6,329
Total home equity	$	47	$	56	$	371	$	511	$	595	$	25,777	$	417,064	$	1,853	$	446,274
Residential real estate
Pass	$	171,033	$	367,779	$	142,761	$	149,854	$	122,718	$	373,499	$	—	$	—	$	1,327,644
Special mention	314		1,570		2,686		2,770		2,440		8,558		—		—		18,338
Substandard accrual	1,425		516		1,359		2,537		5,422		5,500		—		—		16,759
Substandard nonaccrual/doubtful	—		962		1,892		3,618		3,347		12,250		—		—		22,069
Total residential real estate	$	172,772	$	370,827	$	148,698	$	158,779	$	133,927	$	399,807	$	—	$	—	$	1,384,810
Premium finance receivables - commercial
Pass	$	3,898,133	$	103,562	$	6,077	$	116	$	—	$	—	$	—	$	—	$	4,007,888
Special mention	25,295		1,674		4		—		—		—		—		—		26,973
Substandard accrual	2,291		1,803		109		—		—		—		—		—		4,203
Substandard nonaccrual/doubtful	9,435		11,057		587		1		—		—		—		—		21,080
Total premium finance receivables - commercial	$	3,935,154	$	118,096	$	6,777	$	117	$	—	$	—	$	—	$	—	$	4,060,144
Premium finance receivables - life
Pass	$	408,171	$	533,284	$	565,371	$	616,055	$	733,758	$	2,631,613	$	—	$	—	$	5,488,252
Special mention	—		—		—		580		—		—		—		—		580
Substandard accrual	—		—		—		—		—		—		—		—		—
Substandard nonaccrual/doubtful	—		—		—		—		—		—		—		—		—
Total premium finance receivables - life	$	408,171	$	533,284	$	565,371	$	616,635	$	733,758	$	2,631,613	$	—	$	—	$	5,488,832

Consumer and other
Pass	$	1,781	$	2,618	$	2,149	$	663	$	531	$	26,768	$	19,847	$	—	$	54,357
Special mention	24		26		—		127		—		147		2		—		326
Substandard accrual	10		6		—		—		—		230		3		—		249
Substandard nonaccrual/doubtful	1		12		3		17		—		389		—		—		422
Total consumer and other	$	1,816	$	2,662	$	2,152	$	807	$	531	$	27,534	$	19,852	$	—	$	55,354
Total loans (1)
Pass	$	10,356,305	$	3,732,454	$	2,908,924	$	2,410,495	$	1,974,078	$	5,392,161	$	3,384,858	$	25,148	$	30,184,423
Special mention	66,682		227,162		205,189		156,740		150,114		205,640		137,321		3,468		1,152,316
Substandard accrual	19,915		157,027		112,864		74,093		39,362		164,250		68,425		2,129		638,065
Substandard nonaccrual/doubtful	10,690		14,221		16,498		16,388		20,301		71,673		10,574		406		160,751
Total loans	$	10,453,592	$	4,130,864	$	3,243,475	$	2,657,716	$	2,183,855	$	5,833,724	$	3,601,178	$	31,151	$	32,135,555

(1) Includes $236.3 million of loans with COVID-19 related modifications that migrated from pass as of March 1, 2020 to special mention or substandard accrual as of September 30, 2020. These loans were qualitatively evaluated as a part of the measurement of the allowance for credit losses as of September 30, 2020.

Held-to-maturity debt securities

The Company conducts an assessment of its investment securities, including those classified as held-to-maturity, at the time of purchase and on at least an annual basis to ensure such investment securities remain within appropriate levels of risk and continue to perform satisfactorily in fulfilling its obligations. The Company considers, among other factors, the nature of the securities and credit ratings or financial condition of the issuer. If available, the Company obtains a credit rating for issuers from a Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration. If no such rating is available for an issuer, the Company performs an internal rating based on the scale utilized within the loan portfolio as discussed above. For purposes of the table below, the Company has converted any issuer rating from an NRSRO into the Company’s internal ratings based on Investment Policy and review by the Company’s management.

As of September 30, 2020	Year of Origination												Total
(In thousands)	2020		2019		2018		2017		2016		Prior		Balance
Amortized Cost Balances:
U.S. government agencies
1-4 internal grade	$	124,575	$	119,995	$	101,450	$	—	$	—	$	3,395	$	349,415
5-7 internal grade	—		—		—		—		—		—		—
8-10 internal grade	—		—		—		—		—		—		—
Total U.S. government agencies	$	124,575	$	119,995	$	101,450	$	—	$	—	$	3,395	$	349,415
Municipal
1-4 internal grade	$	—	$	162	$	7,590	$	43,863	$	10,172	$	149,128	$	210,915
5-7 internal grade	—		—		—		—		—		—		—
8-10 internal grade	—		—		—		—		—		—		—
Total municipal	$	—	$	162	$	7,590	$	43,863	$	10,172	$	149,128	$	210,915
Total held-to-maturity securities													$	560,330
Less: Allowance for credit losses													(63		)
Held-to-maturity securities, net of allowance for credit losses													$	560,267

Measurement of Allowance for Credit Losses

The Company's allowance for credit losses consists of the allowance for loan losses, the allowance for unfunded commitment losses and the allowance for held-to-maturity debt security losses. In accordance with ASC 326, the Company measures the allowance for credit losses at the time of origination or purchase of a financial asset, representing an estimate of lifetime expected credit losses on the related asset. When developing its estimate, the Company considers available information relevant to assessing the collectability of cash flows, from both internal and external sources. Historical credit loss experience is one input in the estimation process as well as inputs relevant to current conditions and reasonable and supportable forecasts. In considering past events, the Company considers the relevance, or lack thereof, of historical information due to changes in such things as financial asset underwriting or collection practices, and changes in portfolio mix due to changing business plans and strategies. In considering current conditions and forecasts, the Company considers both the current economic environment and the forecasted direction of the economic environment with emphasis on those factors deemed relevant to or driving changes in expected credit losses. As significant judgment is required, the review of the appropriateness of the allowance for credit losses is performed quarterly by various committees with participation by the Company's executive management.

	September 30,		December 31,		September 30,
(In thousands)	2020		2019		2019
Allowance for loan losses	$	325,959	$	156,828	$	161,763
Allowance for unfunded lending-related commitments losses	62,949		1,633		1,510
Allowance for loan losses and unfunded lending-related commitments losses	388,908		158,461		163,273
Allowance for held-to-maturity securities losses	63		—		—
Allowance for credit losses	$	388,971	$	158,461	$	163,273

The allowance for credit losses is measured on a collective or pooled basis when similar risk characteristics exist, based upon the segmentation discussed above. The Company utilizes modeling methodologies that estimate lifetime credit loss rates on each pool, including methodologies estimating the probability of default and loss given default on specific segments. Historical credit loss history is adjusted for reasonable and supportable forecasts developed by the Company on a quantitative or qualitative basis. Reasonable and supportable forecasts consider the macroeconomic factors that are most relevant to evaluating and predicting expected credit losses in the Company's financial assets. Currently, the Company utilizes an eight quarter forecast period using a single macroeconomic scenario provided by a third-party and reviewed within the Company's governance structure. For periods beyond the ability to develop reasonable and supportable forecasts, the Company reverts to historical loss rates at an input level, straight-line over a four quarter reversion period. Expected credit losses are measured over the contractual term of the financial asset with consideration of expected prepayments. Expected extensions, renewals or modifications of the financial asset are only considered when either 1) the expected extension, renewal or modification is contained within the existing agreement and is not unconditionally cancelable, or 2) the expected extension, renewal or modification is reasonably expected to result in a TDR. The methodologies discussed above are applied to both current asset balances on the Company's Consolidated Statements of Condition and off-balance sheet commitments (i.e. unfunded lending-related commitments).

Assets that do not share similar risk characteristics with a pool are assessed for the allowance for credit losses on an individual basis. These typically include assets experiencing financial difficulties, including substandard nonaccrual assets and assets currently classified or expected to be classified as TDRs. If foreclosure is probable or the asset is considered collateral-dependent, expected credit losses are measured based upon the fair value of the underlying collateral adjusted for selling costs, if appropriate. Underlying collateral across the Company's segments consist primarily of real estate, land and construction assets as well as general business assets of the borrower. As of September 30, 2020, substandard nonaccrual loans totaling $82.2 million in carrying balance had no related allowance for credit losses. For certain accruing current and expected TDRs, expected credit losses are measured based upon the present value of future cash flows of the modified asset terms compared to the amortized cost of the asset. Considering accounting relief provided under Section 4013 of the CARES Act, loans identified as being reasonably expected to be modified into TDRs in the future totaled $3.7 million as of September 30, 2020.

The Company does not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when assets are placed on nonaccrual status.

Loan portfolios

A summary of activity in the allowance for credit losses, specifically for the loan portfolio (i.e. allowance for loan losses and allowance for unfunded commitment losses), for the three and nine months ended September 30, 2020 and 2019 is as follows. Periods prior to January 1, 2020 are presented in accordance with accounting rules effective at that time.

Three months ended September 30, 2020				Commercial Real Estate			Home  Equity			Residential Real Estate			Premium Finance Receivables			Consumer and Other			Total Loans
(In thousands)	Commercial
Allowance for credit losses at beginning of period	$	133,597		$	197,126		$	12,189		$	11,915		$	17,592		$	690		$	373,109
Other adjustments	—			—			—			—			55			—			55
Charge-offs	(5,270		)	(1,529		)	(138		)	(83		)	(4,640		)	(103		)	(11,763		)
Recoveries	428			175			111			25			1,720			20			2,479
Provision for credit losses	(15,861		)	38,238			(485		)	(67		)	3,129			74			25,028
Allowance for credit losses at period end	$	112,894		$	234,010		$	11,677		$	11,790		$	17,856		$	681		$	388,908
Individually measured	$	10,642		$	4,741		$	196		$	680		$	—		$	108		$	16,367
Collectively measured	102,252			229,269			11,481			11,110			17,856			573			372,541
Loans at period end
Individually measured	$	49,900		$	79,661		$	22,962		$	30,596		$	—		$	548		$	183,667
Collectively measured	12,227,099			8,343,481			423,312			1,100,699			9,548,976			54,806			31,698,373
Loans held at fair value	—			—			—			253,515			—			—			253,515

Three months ended September 30, 2019	Commercial			Commercial Real Estate			Home  Equity			Residential Real Estate			Premium Finance Receivables			Consumer and Other			Total Loans
(In thousands)
Allowance for credit losses at beginning of period	$	74,893		$	64,750		$	3,631		$	8,146		$	8,940		$	1,541		$	161,901
Other adjustments	—			—			—			—			(13		)	—			(13		)
Charge-offs	(6,775		)	(809		)	(1,594		)	(25		)	(1,866		)	(117		)	(11,186		)
Recoveries	367			385			183			203			563			36			1,737
Provision for credit losses	4,642			2,122			1,500			1,087			1,742			(259		)	10,834
Allowance for credit losses at period end	$	73,127		$	66,448		$	3,720		$	9,411		$	9,366		$	1,201		$	163,273
Individually measured	$	10,606		$	3,600		$	313		$	315		$	—		$	106		$	14,940
Collectively measured	62,160			62,795			3,407			9,037			9,366			1,095			147,860
Loans acquired with deteriorated credit quality (1)	361			53			—			59			—			—			473
Loans at period end
Individually measured	$	58,030		$	32,155		$	18,702		$	21,889		$	—		$	274		$	131,050
Collectively measured	8,122,040			7,299,229			493,601			1,070,795			8,104,538			86,887			25,177,090
Loans acquired with deteriorated credit quality (1)	15,532			117,283			—			9,960			140,908			2,326			286,009
Loans held at fair value	—			—			—			116,022			—			—			116,022

(1) Prior to January 1, 2020, measurement of any allowance for loan losses on PCI loans were offset by the remaining discount related to the acquired pool. As a result of the adoption of ASU 2016-13, PCI loans transitioned to a classification of PCD. Measurement of any allowance for loan losses on PCD loans is no longer offset by the remaining discount.

Nine months ended September 30, 2020				Commercial Real Estate			Home  Equity			Residential Real Estate			Premium Finance Receivables			Consumer and Other			Total Loans
(In thousands)	Commercial
Allowance for credit losses at beginning of period	$	64,920		$	68,511		$	3,878		$	9,800		$	9,647		$	1,705		$	158,461
Cumulative effect adjustment from the adoption of ASU 2016-13	9,039			32,064			9,061			3,002			(4,959		)	(863		)	47,344
Other adjustments	—			—			—			—			24			—			24
Charge-offs	(13,109		)	(9,323		)	(1,378		)	(777		)	(11,258		)	(330		)	(36,175		)
Recoveries	924			931			451			115			3,663			119			6,203
Provision for credit losses	51,120			141,827			(335		)	(350		)	20,739			50			213,051
Allowance for credit losses at period end	$	112,894		$	234,010		$	11,677		$	11,790		$	17,856		$	681		$	388,908

Nine months ended September 30, 2019				Commercial Real Estate			Home  Equity			Residential Real Estate			Premium Finance Receivables			Consumer and Other			Total Loans
(In thousands)	Commercial
Allowance for credit losses at beginning of period	$	67,826		$	61,661		$	8,507		$	7,194		$	7,715		$	1,261		$	154,164
Other adjustments	—			(35		)	(20		)	(15		)	19			—			(51		)
Charge-offs	(24,658		)	(4,869		)	(2,372		)	(315		)	(9,085		)	(355		)	(41,654		)
Recoveries	974			1,112			313			372			1,853			152			4,776
Provision for credit losses	28,985			8,579			(2,708		)	2,175			8,864			143			46,038
Allowance for credit losses at period end	$	73,127		$	66,448		$	3,720		$	9,411		$	9,366		$	1,201		$	163,273

At January 1, 2020, the Company adopted ASU 2016-13, which replaced the previous incurred loss methodology for measuring the allowance for credit losses with a lifetime expected loss methodology. At adoption, the allowance for credit losses related to loans and lending agreements increased approximately $47.3 million, including an increase of approximately $33.2 million recorded to the allowance for unfunded commitment losses within accrued interest and other liabilities on the Company's Consolidated Statements of Condition, with an offsetting amount recorded directly to retained earnings, net of taxes. The remaining $14.2 million cumulative effect adjustment was recorded to the allowance for loan losses, presented separately on the Company's Consolidated Statements of Condition. Of the amount recorded to the allowance for loan losses, $11.0 million related to PCD loans with such offsetting amount added directly to the carrying balance of the loans and the remaining $3.2 million not related to PCD loans recorded directly to retained earnings, net of taxes, on the Company's Consolidated Statements of Condition.

For the three and nine month periods ended September 30, 2020, the Company recognized approximately $25.0 million and $213.1 million of provision for credit losses, respectively, related to loans and lending agreements. The increased provision was primarily the result of the continued change to macroeconomic conditions created by the COVID-19 pandemic, and the impact on the Company's macroeconomic forecasts of key model inputs (Commercial Real Estate Price Index, Baa corporate credit spreads, gross domestic product and Dow Jones Total Stock Market Index) as well as changes in the Company's loan portfolios. As of September 30, 2020, the Company's macroeconomic forecasts of such model inputs assumed an improvement in the economic outlook compared to the macroeconomic forecasts used in the measurement of the allowance for credit losses as of June 30, 2020. While the uncertainties around the path of the recovery are still present, macroeconomic forecasts as of September 30, 2020 assume that the impact of those uncertainties on economic growth is relatively less severe compared to that assumed at June 30, 2020. The commercial loan portfolio realized a negative provision for credit losses for the three months ended September 30, 2020, which was primarily driven by improving Dow Jones Total Stock Market Index and Baa corporate credit spread macroeconomic scenario variables.  A deterioration in the Commercial Real Estate Price Index for the initial portion of the Company's reasonable and supportable forecast period was a primary driver of the provision for credit losses within the commercial real estate portfolio during the same period. Other key drivers of provision for credit losses changes in these portfolios include, but are not limited to, net new loan growth and loan risk rating migration. Net charge-offs in the three and nine month periods ending September 30, 2020 totaled $9.3 million and $30.0 million, respectively.

Held-to-maturity debt securities

At January 1, 2020, the Company established an allowance for credit losses on its held-to-maturity debt securities totaling approximately $74,000, which is presented as a reduction to the amortized cost basis of held-to-maturity securities on the Company's Consolidated Statements of Condition. Such adjustment was recorded directly to the Company's retained earnings, net of taxes. For the three and nine month periods ended September 30, 2020, the Company recognized an approximately $2,000 and $11,000 credit to provision for credit losses related to held-to-maturity securities, respectively.

TDRs

At September 30, 2020, the Company had $78.5 million in loans modified in TDRs. The $78.5 million in TDRs represents 291 credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay.

The Company’s approach to restructuring loans is built on its credit risk rating system, which requires credit management personnel to assign a credit risk rating to each loan. In each case, the loan officer is responsible for recommending a credit risk rating for each loan and ensuring the credit risk ratings are appropriate. These credit risk ratings are then reviewed and approved by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors, including a borrower’s financial strength, cash flow coverage, collateral protection and guarantees. The Company’s credit risk rating scale is one through ten with higher scores indicating higher risk. In the case of loans rated six or worse following modification, the Company’s Managed Assets Division evaluates the loan and the credit risk rating and determines that the loan has been

restructured to be reasonably assured of repayment and of performance according to the modified terms and is supported by a current, well-documented credit assessment of the borrower’s financial condition and prospects for repayment under the revised terms.

A modification of a loan with an existing credit risk rating of 6 or worse or a modification of any other credit, which will result in a restructured credit risk rating of 6 or worse, must be reviewed for possible TDR classification. In that event, our Managed Assets Division conducts an overall credit and collateral review. A modification of these loans is considered to be a TDR if both (1) the borrower is experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession to a borrower that it would not otherwise consider. The modification of a loan where the credit risk rating is 5 or better both before and after such modification is not considered to be a TDR. Based on the Company’s credit risk rating system, it considers that borrowers whose credit risk rating is 5 or better are not experiencing financial difficulties and therefore, are not considered TDRs.

All credits determined to be a TDR will continue to be classified as a TDR in all subsequent periods, unless the borrower has been in compliance with the loan’s modified terms for a period of six months (including over a calendar year-end) and the current interest rate represents a market rate at the time of restructuring. The Managed Assets Division, in consultation with the respective loan officer, determines whether the modified interest rate represented a current market rate at the time of restructuring. Using knowledge of current market conditions and rates, competitive pricing on recent loan originations, and an assessment of various characteristics of the modified loan (including collateral position and payment history), an appropriate market rate for a new borrower with similar risk is determined. If the modified interest rate meets or exceeds this market rate for a new borrower with similar risk, the modified interest rate represents a market rate at the time of restructuring. Additionally, before removing a loan from TDR classification, a review of the current or previously measured impairment on the loan and any concerns related to future performance by the borrower is conducted. If concerns exist about the future ability of the borrower to meet its obligations under the loans based on a credit review by the Managed Assets Division, the TDR classification is not removed from the loan.

TDRs are individually assessed at the time of the modification and on a quarterly basis to measure an allowance for credit loss. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan's original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a reserve. Each TDR was individually assessed at September 30, 2020 and approximately $2.8 million of reserve was present and appropriately reserved for through the Company’s reserving methodology in the Company’s allowance for credit losses.

TDRs may arise when, due to financial difficulties experienced by the borrower, the Company obtains through physical possession one or more collateral assets in satisfaction of all or part of an existing credit. Once possession is obtained, the Company reclassifies the appropriate portion of the remaining balance of the credit from loans to OREO, which is included within other assets in the Consolidated Statements of Condition. For any residential real estate property collateralizing a consumer mortgage loan, the Company is considered to possess the related collateral only if legal title is obtained upon completion of foreclosure, or the borrower conveys all interest in the residential real estate property to the Company through completion of a deed in lieu of foreclosure or similar legal agreement. At September 30, 2020, the Company had $1.8 million of foreclosed residential real estate properties included within OREO. Furthermore, the recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $17.7 million and $12.6 million at September 30, 2020 and 2019, respectively.

The tables below present a summary of the post-modification balance of loans restructured during the three and nine months ended September 30, 2020 and 2019, respectively, which represent TDRs:

Three months ended September 30, 2020 (Dollars in thousands)	Total (1)(2)			Extension at Below Market Terms (2)			Reduction of Interest Rate (2)			Modification to  Interest-only Payments (2)			Forgiveness of Debt(2)
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	5	$	1,013	5	$	1,013	—	$	—	—	$	—	—	$	—
Commercial real estate
Non-construction	3	1,045		3	1,045		—	—		1	207		—	—
Residential real estate and other	28	5,538		21	5,281		13	1,829		1	190		—	—
Total loans	36	$	7,596	29	$	7,339	13	$	1,829	2	$	397	—	$	—

Three months ended September 30, 2019 (Dollars in thousands)	Total (1)(2)			Extension at Below Market Terms (2)			Reduction of Interest Rate (2)			Modification to  Interest-only Payments (2)			Forgiveness of Debt(2)
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	5	$	3,526	2	$	2,721	—	$	—	3	$	807	—	$	—
Commercial real estate
Non-construction	3	5,192		2	5,192		—	—		2	5,191		—	—
Residential real estate and other	60	4,879		59	4,568		9	1,048		1	311		—	—
Total loans	68	$	13,597	63	$	12,481	9	$	1,048	6	$	6,309	—	$	—

(1) TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.

(2) Balances represent the recorded investment in the loan at the time of the restructuring.

During the three months ended September 30, 2020, 36 loans totaling $7.6 million were determined to be TDRs, compared to 68 loans totaling $13.6 million during the three months ended September 30, 2019. Of these loans extended at below market terms, the weighted average extension had a term of approximately 26 months during the quarter ended September 30, 2020 compared to 13 months for the quarter ended September 30, 2019. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 116 basis points and 161 basis points during the three months ended September 30, 2020 and 2019, respectively. Interest-only payment terms were approximately five months and nine months during the three months ended September 30, 2020 and 2019, respectively. Additionally, no principal balances were forgiven in the third quarter of 2020 and 2019.

Nine months ended September 30, 2020 (Dollars in thousands)	Total (1)(2)			Extension at Below Market Terms (2)			Reduction of Interest Rate (2)			Modification to  Interest-only Payments (2)			Forgiveness of Debt(2)
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	17	$	10,046	13	$	5,772	—	$	—	4	$	3,257	1	$	432
Commercial real estate
Non-construction	17	19,180		14	14,556		3	921		7	5,752		—	—
Residential real estate and other	69	11,184		54	10,676		28	4,205		1	190		—	—
Total loans	103	$	40,410	81	$	31,004	31	$	5,126	12	$	9,199	1	$	432

Nine months ended September 30, 2019 (Dollars in thousands)	Total (1)(2)			Extension at Below Market Terms (2)			Reduction of Interest Rate (2)			Modification to  Interest-only Payments (2)			Forgiveness of Debt(2)
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	19	$	24,911	9	$	5,684	1	$	550	12	$	20,723	—	$	—
Commercial real estate
Non-construction	6	6,767		5	6,465		—	—		3	5,493		—	—
Residential real estate and other	102	15,126		101	14,815		24	4,537		1	311		—	—
Total loans	127	$	46,804	115	$	26,964	25	$	5,087	16	$	26,527	—	$	—

(1) TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.

(2) Balances represent the recorded investment in the loan at the time of the restructuring.

During the nine months ended September 30, 2020, 103 loans totaling $40.4 million were determined to be TDRs, compared to 127 loans totaling $46.8 million during the nine months ended September 30, 2019. Of these loans extended at below market terms, the weighted average extension had a term of approximately 14 months during the nine months ended September 30, 2020 compared to 14 months for the nine months ended September 30, 2019. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 143 basis points and 205 basis points for the year-to-date periods September 30, 2020 and 2019, respectively. Interest-only payment terms were approximately 13 months and

five months during the nine months ended September 30, 2020 and 2019, respectively. Additionally, $453,000 of principal balances were forgiven in the first nine months of 2020.

The following table presents a summary of all loans restructured in TDRs during the twelve months ended September 30, 2020 and 2019, and such loans that were in payment default under the restructured terms during the respective periods below:

(Dollars in thousands)	As of September 30, 2020			Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
	Total (1)(3)			Payments in Default  (2)(3)			Payments in Default  (2)(3)
	Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	22	$	11,476	7	$	4,607	7	$	4,607
Commercial real estate
Non-construction	18	19,432		13	14,595		13	14,595
Residential real estate and other	112	16,265		11	2,131		14	2,582
Total loans	152	$	47,173	31	$	21,333	34	$	21,784

(Dollars in thousands)	As of September 30, 2019			Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
	Total (1)(3)			Payments in Default  (2)(3)			Payments in Default  (2)(3)
	Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	20	$	25,041	5	$	1,949	8	$	13,554
Commercial real estate
Non-construction	7	7,137		2	682		3	984
Residential real estate and other	130	19,041		11	3,914		12	4,154
Total loans	157	$	51,219	18	$	6,545	23	$	18,692

(1) Total TDRs represent all loans restructured in TDRs during the previous twelve months from the date indicated.

(2) TDRs considered to be in payment default are over 30 days past-due subsequent to the restructuring.

(3)

Balances represent the recorded investment in the loan at the time of the restructuring.