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 assets 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 originated loans through the PPP. Administered by the SBA, the PPP provided short-term relief primarily related to the disruption from COVID-19 to companies and non-profits that met 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 existed 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 assesses 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 bank’s 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 includes one- to four-family fixed and adjustable rate mortgages with repricing terms generally over five years, construction loans to individuals and bridge financing loans for qualifying customers. The Company's residential mortgages relate to properties located principally in the Chicago metropolitan area and southern Wisconsin or vacation homes owned by local residents. Due to interest rate risk considerations, the Company generally sells in the secondary market loans originated with long-term fixed rates, however, certain of these loans may be retained within the banks’ own portfolios where they are non-agency conforming, or where the terms of the loans make them favorable to retain. 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.

In accordance with ASC 326, the Company elected to not measure an allowance for credit losses on accrued interest as such accrued interest is written off in a timely manner when deemed uncollectible. Any such write-off of accrued interest will reverse previously recognized interest income. In addition, the Company elected to not include accrued interest within presentation and disclosures of the carrying amount of financial assets held at amortized cost. This election is applicable to the various disclosures included within the Company's financial statements. Accrued interest related to financial assets held at amortized cost is included within accrued interest receivable and other assets within the Company's Consolidated Statements of Condition and totaled $119.2 million at September 30, 2021, $121.9 million at December 31, 2020, and $116.9 million at September 30, 2020.


As of September 30, 2021			90+ days and still accruing		60-89 days past due		30-59 days past due
(In thousands)	Nonaccrual								Current		Total Loans
Loan Balances (includes PCD):
Commercial






Commercial, industrial and other, excluding PPP loans	$	26,468	$	—	$	9,768	$	24,086	$	10,045,662	$	10,105,984
Commercial PPP loans	—		—		—		1,138		1,080,850		1,081,988
Commercial real estate
Construction and development	1,030		—		—		12,631		1,330,054		1,343,715
Non-construction	22,676		—		5,395		67,187		7,446,741		7,541,999







Home equity	3,449		164		340		867		342,842		347,662
Residential real estate	22,633		—		1,540		1,076		1,522,487		1,547,736
Premium finance receivables
Commercial insurance loans	7,300		5,811		10,642		14,614		4,578,610		4,616,977
Life insurance loans	—		—		5,162		7,040		6,643,251		6,655,453

Consumer and other	384		126		16		125		21,878		22,529
Total loans, net of unearned income	$	83,940	$	6,101	$	32,863	$	128,764	$	33,012,375	$	33,264,043


As of December 31, 2020			90+ days and still accruing		60-89 days past due		30-59 days past due
(In thousands)	Nonaccrual								Current		Total Loans
Loan Balances (includes PCD):
Commercial






Commercial, industrial and other, excluding PPP loans	$	21,743	$	307	$	6,900	$	44,345	$	9,166,751	$	9,240,046
Commercial PPP loans	—		—		—		36		2,715,885		2,715,921
Commercial real estate
Construction and development	5,633		—		—		5,344		1,360,825		1,371,802
Non-construction	40,474		—		5,178		26,772		7,049,906		7,122,330







Home equity	6,529		—		47		637		418,050		425,263
Residential real estate	26,071		—		1,635		12,584		1,219,308		1,259,598
Premium finance receivables
Commercial insurance loans	13,264		12,792		6,798		18,809		4,002,826		4,054,489
Life insurance loans	—		—		21,003		30,465		5,805,968		5,857,436

Consumer and other	436		264		24		136		31,328		32,188
Total loans, net of unearned income	$	114,150	$	13,363	$	41,585	$	139,128	$	31,770,847	$	32,079,073


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 (includes PCD):
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

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:

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.


As of September 30, 2021	Year of Origination														Revolving		Total
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving		to Term		Loans
Loan Balances:
Commercial, industrial and other
Pass	$	1,876,457	$	1,567,410	$	1,005,156	$	711,177	$	481,140	$	620,202	$	3,301,541	$	10,236	$	9,573,319
Special mention	18,468		52,692		67,528		42,470		31,785		22,358		106,454		5,841		347,596
Substandard accrual	17,805		5,246		21,901		33,886		8,712		41,590		28,641		820		158,601
Substandard nonaccrual/doubtful	5,227		3,803		5,008		4,206		2,189		5,503		532		—		26,468
Total commercial, industrial and other	$	1,917,957	$	1,629,151	$	1,099,593	$	791,739	$	523,826	$	689,653	$	3,437,168	$	16,897	$	10,105,984
Commercial PPP
Pass	$	909,139	$	171,213	$	—	$	—	$	—	$	—	$	—	$	—	$	1,080,352
Special mention	—		1,356		—		—		—		—		—		—		1,356
Substandard accrual	—		280		—		—		—		—		—		—		280
Substandard nonaccrual/doubtful	—		—		—		—		—		—		—		—		—
Total commercial PPP	$	909,139	$	172,849	$	—	$	—	$	—	$	—	$	—	$	—	$	1,081,988
Construction and development
Pass	$	214,644	$	403,619	$	326,654	$	131,600	$	79,752	$	88,452	$	24,382	$	2,688	$	1,271,791
Special mention	282		8,475		12,144		17,685		23,435		3,234		—		—		65,255
Substandard accrual	—		—		316		2,558		2,132		478		155		—		5,639
Substandard nonaccrual/doubtful	—		—		—		—		—		1,030		—		—		1,030
Total construction and development	$	214,926	$	412,094	$	339,114	$	151,843	$	105,319	$	93,194	$	24,537	$	2,688	$	1,343,715
Non-construction
Pass	$	1,039,349	$	1,215,988	$	997,258	$	796,708	$	752,951	$	2,053,618	$	185,418	$	4,979	$	7,046,269
Special mention	3,517		10,307		51,203		61,392		44,193		155,150		—		—		325,762
Substandard accrual	—		1,960		33,544		20,725		21,345		69,718		—		—		147,292


Substandard nonaccrual/doubtful	—		—		—		112		169		22,395		—		—		22,676
Total non-construction	$	1,042,866	$	1,228,255	$	1,082,005	$	878,937	$	818,658	$	2,300,881	$	185,418	$	4,979	$	7,541,999
Home equity
Pass	$	8	$	—	$	—	$	—	$	28	$	7,050	$	319,725	$	—	$	326,811
Special mention	—		—		—		—		—		614		5,355		242		6,211
Substandard accrual	—		—		—		184		67		9,341		949		650		11,191
Substandard nonaccrual/doubtful	—		—		—		47		81		2,794		527		—		3,449
Total home equity	$	8	$	—	$	—	$	231	$	176	$	19,799	$	326,556	$	892	$	347,662
Residential real estate
Pass	$	672,993	$	299,739	$	193,715	$	79,703	$	87,361	$	162,230	$	—	$	—	$	1,495,741
Special mention	884		269		459		2,123		1,848		8,331		—		—		13,914
Substandard accrual	1,129		2,234		731		887		2,033		8,434		—		—		15,448
Substandard nonaccrual/doubtful	—		994		1,554		859		4,807		14,419		—		—		22,633
Total residential real estate	$	675,006	$	303,236	$	196,459	$	83,572	$	96,049	$	193,414	$	—	$	—	$	1,547,736
Premium finance receivables - commercial
Pass	$	4,453,036	$	106,802	$	13,179	$	1,429	$	49	$	—	$	—	$	—	$	4,574,495
Special mention	31,671		1,693		9		—		1		—		—		—		33,374
Substandard accrual	1,153		608		2		45		—		—		—		—		1,808
Substandard nonaccrual/doubtful	4,620		2,601		67		12		—		—		—		—		7,300
Total premium finance receivables - commercial	$	4,490,480	$	111,704	$	13,257	$	1,486	$	50	$	—	$	—	$	—	$	4,616,977
Premium finance receivables - life
Pass	$	340,318	$	782,936	$	734,280	$	673,416	$	699,250	$	3,424,672	$	—	$	—	$	6,654,872
Special mention	—		—		—		—		581		—		—		—		581
Substandard accrual	—		—		—		—		—		—		—		—		—
Substandard nonaccrual/doubtful	—		—		—		—		—		—		—		—		—
Total premium finance receivables - life	$	340,318	$	782,936	$	734,280	$	673,416	$	699,831	$	3,424,672	$	—	$	—	$	6,655,453
Consumer and other
Pass	$	2,769	$	1,120	$	1,254	$	1,230	$	84	$	4,595	$	10,647	$	—	$	21,699
Special mention	—		4		17		—		80		82		6		—		189
Substandard accrual	—		3		1		—		—		250		3		—		257
Substandard nonaccrual/doubtful	—		4		—		100		—		280		—		—		384
Total consumer and other	$	2,769	$	1,131	$	1,272	$	1,330	$	164	$	5,207	$	10,656	$	—	$	22,529
Total loans (1)
Pass	$	9,508,713	$	4,548,827	$	3,271,496	$	2,395,263	$	2,100,615	$	6,360,819	$	3,841,713	$	17,903	$	32,045,349
Special mention	54,822		74,796		131,360		123,670		101,923		189,769		111,815		6,083		794,238
Substandard accrual	20,087		10,331		56,495		58,285		34,289		129,811		29,748		1,470		340,516
Substandard nonaccrual/doubtful	9,847		7,402		6,629		5,336		7,246		46,421		1,059		—		83,940
Total loans	$	9,593,469	$	4,641,356	$	3,465,980	$	2,582,554	$	2,244,073	$	6,726,820	$	3,984,335	$	25,456	$	33,264,043

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.

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.

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 and incorporates third party economic forecasts. 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 assets rated as substandard nonaccrual and doubtful as well as 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, 2021, excluding loans carried at fair value, substandard nonaccrual loans totaling $47.3 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 $335,000 as of September 30, 2021.


Three months ended September 30, 2021			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	$	98,507	$	158,522	$	11,207	$	15,684	$	19,899	$	212	$	304,031

Other adjustments			—		—		—		(65)		—		(65)
Charge-offs	(1,352)		(406)		(59)		(10)		(1,390)		(112)		(3,329)
Recoveries	816		373		313		5		1,728		92		3,327
Provision for credit losses	11,811		(18,454)		(522)		593		(1,597)		260		(7,909)


Allowance for credit losses at period end	$	109,782	$	140,035	$	10,939	$	16,272	$	18,575	$	452	$	296,055
Individually measured	$	8,222	$	1,308	$	221	$	940	$	—	$	68	$	10,759
Collectively measured	101,560		138,727		10,718		15,332		18,575		384		285,296

Loans at period end
Individually measured	$	31,001	$	32,091	$	16,486	$	28,966	$	—	$	467	$	109,011
Collectively measured	11,156,971		8,853,623		331,176		1,487,791		11,272,430		22,062		33,124,053

Loans held at fair value	—		—		—		30,979		—		—		30,979


Three months ended September 30, 2020	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	$	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


Nine months ended September 30, 2021			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	$	94,212	$	243,603	$	11,437	$	12,459	$	17,777	$	422	$	379,910

Other adjustments	—		—		—		—		(2)		—		(2)
Charge-offs	(16,370)		(2,798)		(201)		(15)		(6,706)		(330)		(26,420)
Recoveries	2,170		1,087		742		245		6,749		158		11,151
Provision for credit losses	29,770		(101,857)		(1,039)		3,583		757		202		(68,584)


Allowance for credit losses at period end	$	109,782	$	140,035	$	10,939	$	16,272	$	18,575	$	452	$	296,055


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

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, 2021, the Company recognized approximately $(7.9) million and $(68.6) million of provision for credit losses, respectively, related to loans and lending agreements. The negative provision for such periods was primarily the result of improvements in the forecasted macroeconomic forecast, specifically the Company's macroeconomic forecasts of key model inputs (most notably, Commercial Real Estate Price Index and Baa corporate credit spreads) as well as improvements in characteristics of the Company's loan portfolios. While uncertainties remain regarding expected economic performance, macroeconomic forecasts as of September 30, 2021 assume that the impact of those uncertainties is less severe compared to that assumed at December 31, 2020. Other key drivers of provision for credit losses in

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, 2021, the Company recognized approximately $(7,000) and $22,000 of provision for credit losses related to held-to-maturity securities, respectively.

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, the Company’s Managed Assets Division conducts an overall credit and collateral review. A modification of a loan 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 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, 2021 and approximately $2.3 million of reserve was present and appropriately reserved for through the Company’s reserving methodology in the Company’s allowance for credit losses.

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, 2021, the Company had $2.5 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 $14.3 million and $17.7 million at September 30, 2021 and 2020, respectively.


Three months ended September 30, 2021 (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	1	$	1	1	$	1	—	$	—	—	$	—	—	$	—


Commercial real estate
Non-construction	—	—		—	—		—	—		—	—		—	—




Residential real estate and other	8	558		7	441		2	202		—	—		—	—
Total loans	9	$	559	8	$	442	2	$	202	—	$	—	—	$	—


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	—	$	—

During the three months ended September 30, 2021, nine loans totaling $559,000 were determined to be TDRs, compared to 36 loans totaling $7.6 million during the three months ended September 30, 2020. Of these loans extended at below market terms, the weighted average extension had a term of approximately 105 months during the quarter ended September 30, 2021 compared to 26 months for the quarter ended September 30, 2020. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 129 basis points and 116 basis points during the three months ended September 30, 2021 and 2020, respectively. Interest-only payment terms were approximately five months during the three months ended September 30, 2020. Additionally, no principal balances were forgiven during the quarters ended September 30, 2021 and 2020.


Nine months ended September 30, 2021 (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	6	$	547	6	$	547	—	$	—	—	$	—	—	$	—

Commercial real estate
Non-construction	5	2,944		4	2,401		2	656		1	113		—	—




Residential real estate and other	34	3,393		33	3,276		13	2,108		—	—		—	—
Total loans	45	$	6,884	43	$	6,224	15	$	2,764	1	$	113	—	$	—


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

During the nine months ended September 30, 2021, 45 loans totaling $6.9 million were determined to be TDRs, compared to 103 loans totaling $40.4 million during the nine months ended September 30, 2020. Of these loans extended at below market terms, the weighted average extension had a term of approximately 108 months during the nine months ended September 30, 2021 compared to 14 months for the nine months ended September 30, 2020. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 151 basis points and 143 basis points for the year-to-date periods ended September 30, 2021 and 2020, respectively. Interest-only payment terms were approximately six months and 13 months during the nine months ended September 30, 2021 and 2020, respectively. Additionally, no balances were forgiven in the first nine months of 2021 compared to $453,000 of principal balances were forgiven in the same period of 2020.