Loans

6 Months Ended

Jun. 30, 2022

Loans and Leases Receivable, Net Amount [Abstract]

Loans

8. Loans

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics. Loans receivable consist of the following:

	June 30, 2022			December 31, 2021
	(In Thousands)
Real Estate:
Residential	$	1,382,202		$	1,167,466
Commercial		2,655,730			2,450,349
Construction		1,093,695			862,815
		5,131,627			4,480,630
Other Loans:
Commercial		991,803			895,638
Home equity and improvement		266,144			264,354
Consumer finance		180,539			126,417
		1,438,486			1,286,409
Loans before deferred loan origination fees and costs		6,570,113			5,767,039
Deduct:
Undisbursed construction loan funds		(688,849	)		(477,890	)
Net deferred loan origination fees and costs		9,559			7,019
Allowance for credit losses		(67,074	)		(66,468	)
Total loans	$	5,823,749		$	5,229,700

The Company has responded to the pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing $636.9 million to small businesses in our markets. As of June 30, 2022, the Company had $4.6 million in PPP loans, that remained unpaid and were included in commercial loans in the above loan table. As of December 31, 2021, the Company had $58.9 million in PPP loans.

The following table discloses allowance for credit loss (“ACL”) activity for the three and six months ended June 30, 2022 and 2021 by portfolio segment (in thousands):

Three Months Ended June 30, 2022	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	11,640		$	34,201		$	2,613		$	13,821		$	3,919		$	1,001		$	67,195
Charge-Offs		(861	)		(137	)		(16	)		(5,303	)		(248	)		(138	)		(6,703	)
Recoveries		673			455			3			184			79			37			1,431
Provisions		2,661			433			399			1,060			253			345			5,151
Ending Allowance	$	14,113		$	34,952		$	2,999		$	9,762		$	4,003		$	1,245		$	67,074

Six Months Ended June 30, 2022	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	12,029		$	32,399		$	3,004		$	13,410		$	4,221		$	1,405		$	66,468
Charge-Offs		(1,001	)		(144	)		(16	)		(5,313	)		(277	)		(241	)		(6,992	)
Recoveries		754			514			3			286			113			151			1,821
Provisions		2,331			2,183			8			1,379			(54	)		(70	)		5,777
Ending Allowance	$	14,113		$	34,952		$	2,999		$	9,762		$	4,003		$	1,245		$	67,074

Three Months Ended June 30, 2021	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	17,508		$	35,272		$	2,776		$	12,191		$	5,181		$	1,826		$	74,754
Charge-Offs		—			(605	)		—			—			—			(106	)		(711	)
Recoveries		82			153			12			505			165			38			955
Provisions		(2,322	)		(359	)		(49	)		(485	)		(358	)		(58	)		(3,631	)
Ending Allowance	$	15,268		$	34,461		$	2,739		$	12,211		$	4,988		$	1,700		$	71,367

Six Months Ended  June 30, 2021	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	17,534		$	43,417		$	2,741		$	11,665		$	4,739		$	1,983		$	82,079
Charge-Offs		—			(605	)		—			(70	)		(3	)		(142	)		(820	)
Recoveries		90			189			12			703			194			65			1,253
Provisions		(2,356	)		(8,540	)		(14	)		(87	)		58			(206	)		(11,145	)
Ending Allowance	$	15,268		$	34,461		$	2,739		$	12,211		$	4,988		$	1,700		$	71,367

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 2022
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	56	$	—	$	—	$	—	$	56
Commercial		12,614		—		3,083		—		15,697
Construction		—		—		—		—		—
Other Loans:
Commercial		2,659		616		4,204		—		7,479
Home equity and improvement		—		—		—		—		—
Consumer finance		—		—		—		—		—
Total	$	15,329	$	616	$	7,287	$	—	$	23,232

	December 31, 2021
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	226	$	—	$	—	$	—	$	226
Commercial		18,399		—		—		—		18,399
Construction		—		—		—		—		—
Other Loans:
Commercial		1,574		160		14,023		25		15,782
Home equity and improvement		—		—		—		—		—
Consumer finance		—		—		—		—		—
Total	$	20,199	$	160	$	14,023	$	25	$	34,407

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually analyzed loans. All loans greater than 90 days past due are placed on non-accrual status. The following table presents the current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned as of the dates indicated:

	June 30, 2022		December 31, 2021
	(In Thousands)
Non-accrual loans with reserve	$	25,088	$	35,480
Non-accrual loans without reserve		9,647		12,534
Loans 90 days plus past due and still accruing		—		—
Total non-performing loans		34,735		48,014
Real estate and other assets held for sale		462		171
Total non-performing assets	$	35,197	$	48,185
Troubled debt restructuring, still accruing	$	5,899	$	7,768

The following table presents the aging of the amortized cost in past due and non-accrual loans as of June 30, 2022, by class of loans (in thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential	$	1,363,720	$	272	$	5,970	$	4,829	$	11,071	$	6,237
Commercial		2,646,610		116		56		12,033		12,205		14,316
Construction		404,846		—		—		—		—		—
Other Loans:
Commercial		979,873		—		—		5,003		5,003		5,199
Home equity and improvement		260,139		1,502		276		1,413		3,191		1,798
Consumer finance		176,758		1,348		631		1,665		3,644		1,818
PCD		18,054		318		1,224		4,167		5,709		5,367
Total Loans	$	5,850,000	$	3,556	$	8,157	$	29,110	$	40,823	$	34,735

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2021, by class of loans (in thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential	$	1,144,533	$	234	$	5,340	$	7,487	$	13,061	$	9,034
Commercial		2,439,552		96		847		7,168		8,111		14,621
Construction		383,136		43		1,746		—		1,789		—
Other Loans:
Commercial		884,025		42		35		867		944		11,531
Home equity and improvement		257,055		1,851		408		1,634		3,893		2,051
Consumer finance		124,073		1,112		819		1,728		3,659		1,873
PCD		25,111		225		1,005		5,996		7,226		8,904
Total Loans	$	5,257,485	$	3,603	$	10,200	$	24,880	$	38,683	$	48,014

Troubled Debt Restructurings

As of June 30, 2022, and December 31, 2021, the Company had a recorded investment in TDRs of $19.4 million and $11.9 million, respectively. The Company allocated $593,000 and $378,000 of specific reserves to those loans at June 30, 2022, and December 31, 2021, respectively, and had committed to lend additional amounts totaling up to $277,000 and $348,000 at June 30, 2022, and December 31, 2021, respectively.

The Company had previously worked with borrowers that were impacted by the COVID-19 pandemic by providing modifications to include either interest only deferral or principal and interest deferral. These modifications ranged from one to nine months. As of June 30, 2022 and December 31, 2021, the Company had no active deferrals.

The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Each TDR is uniquely designed to meet the specific needs of the borrower. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral or an additional guarantor is often requested when granting a concession. Commercial mortgage loans modified in a TDR often involve temporary interest-only payments, re-amortization of remaining debt in order to lower payments and sometimes

reducing the interest rate lower than the current market rate. Residential mortgage loans modified in a TDR are comprised of loans where monthly payments are lowered, either through interest rate reductions or principal only payments for a period of time, to accommodate the borrowers’ financial needs, interest is capitalized into principal, or the term and amortization are extended. Home equity modifications are made infrequently and usually involve providing an interest rate that is lower than the borrower would be able to obtain due to credit issues. All retail loans where the borrower is in bankruptcy are classified as TDRs regardless of whether or not a concession is made.

Of the loans modified in a TDR as of June 30, 2022, $13.5 million were on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

The following tables present loans by class modified as TDRs that occurred during the three and six months ended June 30, 2022:

	Loans Modified as a TDR for the Three Months Ended June 30, 2022 (Dollars in Thousands)				Loans Modified as a TDR for the Six Months Ended June 30, 2022 (Dollars in Thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		7	$	761		8	$	1,013
Commercial		3		4,979		3		4,979
Construction		—		—		—		—
Other Loans:
Commercial		2		4,264		2		4,264
Home equity and improvement		3		79		3		79
Consumer finance		3		24		5		44
Total		18	$	10,107		21	$	10,379

The loans described above increased the ACL by $399,000 and $400,000 in the three and six months ended June 30, 2022, respectively.

	Loans Modified as a TDR for the Three Months Ended June 30, 2021 (Dollars in Thousands)				Loans Modified as a TDR for the Six Months Ended June 30, 2021 (Dollars in Thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		1	$	99		3	$	249
Commercial		—		—		—		—
Construction		—		—		—		—
Other Loans:
Commercial		2		869		5		1,578
Home equity and improvement		—		—		—		—
Consumer finance		—		—		—		—
Total		3	$	968		8	$	1,827

The loans described above increased the ACL by $367,000 and $373,000 in the three and six months ended June 30, 2021, respectively.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.

There were no TDRs that subsequently defaulted as of June 30, 2021. The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2022:

	Three Months Ended June 30, 2022				Six Months Ended June 30, 2022
	(Dollars in Thousands)				(Dollars in Thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		1	$	63		1	$	63
Commercial		—		—		—		—
Construction		—		—		—		—
Other Loans:
Commercial		—		—		—		—
Home equity and improvement		—		—		—		—
Consumer finance		—		—		—		—
Total		1	$	63		1	$	63

The TDRs that subsequently defaulted described above increased the ACL by $2,000 for each of the three and six months ended June 30, 2022.

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are analyzed individually by classifying the loans by credit risk. This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans and certain homogenous mortgage, home equity and consumer loans. This analysis is performed on a quarterly basis. Premier uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

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.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2022, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

Class	Unclassified		Special Mention		Substandard		Doubtful		Total classified		Total
Real Estate:
Residential	$	1,366,499	$	1,244	$	7,048	$	—	$	7,048	$	1,374,791
Commercial		2,556,783		77,224		24,808		—		24,808		2,658,815
Construction		404,846		—		—		—		—		404,846
Other Loans:
Commercial		956,133		21,428		7,315		—		7,315		984,876
Home equity and improvement		261,530		—		1,800		—		1,800		263,330
Consumer finance		178,565		—		1,837		—		1,837		180,402
PCD		17,632		95		6,036		—		6,036		23,763
Total Loans	$	5,741,988	$	99,991	$	48,844	$	—	$	48,844	$	5,890,823

As of December 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

Class	Unclassified		Special Mention		Substandard		Doubtful		Total classified		Total
Real Estate:
Residential	$	1,146,212	$	1,316	$	10,066	$	—	$	10,066	$	1,157,594
Commercial		2,324,846		93,676		29,141		—		29,141		2,447,663
Construction		365,403		19,522		—		—		—		384,925
Other Loans:
Commercial		856,402		14,815		13,752		—		13,752		884,969
Home equity and improvement		258,914		—		2,034		—		2,034		260,948
Consumer finance		125,879		—		1,853		—		1,853		127,732
PCD		19,547		101		12,689		—		12,689		32,337
Total Loans	$	5,097,203	$	129,430	$	69,535	$	—	$	69,535	$	5,296,168

The tables below present the amortized cost basis of loans by credit quality indicator and class of loans as of June 30, 2022 and December 31, 2021 (in thousands):

	Term of loans by origination
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of June 30, 2022
Real Estate
Residential:
Risk Rating
Pass	$	130,126	$	411,266	$	347,138	$	97,554	$	55,195	$	322,932	$	2,288	$	1,366,499
Special Mention		—		—		185		—		—		151		908		1,244
Substandard		—		1,109		640		1,078		561		3,660		—		7,048
Doubtful		—		—		—		—		—		—		—		—
Total	$	130,126	$	412,375	$	347,963	$	98,632	$	55,756	$	326,743	$	3,196	$	1,374,791
Commercial:
Risk Rating
Pass	$	349,863	$	509,480	$	525,116	$	340,337	$	220,518	$	598,695	$	12,774	$	2,556,783
Special Mention		2,362		289		—		307		16,867		56,726		673		77,224
Substandard		—		2,137		549		4,612		4,541		12,742		227		24,808
Doubtful		—		—		—		—		—		—		—		—
Total	$	352,225	$	511,906	$	525,665	$	345,256	$	241,926	$	668,163	$	13,674	$	2,658,815
Construction:
Risk Rating
Pass	$	250,401	$	55,693	$	52,861	$	—	$	143	$	—	$	45,748	$	404,846
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	250,401	$	55,693	$	52,861	$	—	$	143	$	—	$	45,748	$	404,846
Other Loans
Commercial:
Risk Rating
Pass	$	154,208	$	225,167	$	106,555	$	66,340	$	33,826	$	30,543	$	339,494	$	956,133
Special Mention		3,142		101		2,122		3,630		209		5,754		6,470		21,428
Substandard		40		121		4,244		5		225		230		2,450		7,315
Doubtful		—		—		—		—		—		—		—		—
Total	$	157,390	$	225,389	$	112,921	$	69,975	$	34,260	$	36,527	$	348,414	$	984,876
Home equity and Improvement:
Risk Rating
Pass	$	13,189	$	22,709	$	6,126	$	3,917	$	2,117	$	32,902	$	180,570	$	261,530
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		28		36		639		1,097		1,800
Doubtful		—		—		—		—		—		—		—		—
Total	$	13,189	$	22,709	$	6,126	$	3,945	$	2,153	$	33,541	$	181,667	$	263,330
Consumer Finance:
Risk Rating
Pass	$	78,957	$	39,974	$	20,955	$	17,464	$	6,353	$	4,294	$	10,568	$	178,565
Special Mention		—		—		—		—		—		—		—		—
Substandard		48		317		789		531		102		47		3		1,837
Doubtful		—		—		—		—		—		—		—		—
Total	$	79,005	$	40,291	$	21,744	$	17,995	$	6,455	$	4,341	$	10,571	$	180,402
PCD:
Risk Rating
Pass	$	—	$	—	$	—	$	158	$	370	$	13,334	$	3,770	$	17,632
Special Mention		—		—		—		—		—		95		—		95
Substandard		—		—		—		4		48		4,937		1,047		6,036
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	162	$	418	$	18,366	$	4,817	$	23,763

	Term of loans by origination
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of December 31, 2021
Real Estate
Residential:
Risk Rating
Pass	$	219,006	$	373,439	$	112,781	$	65,544	$	71,794	$	301,735	$	1,913	$	1,146,212
Special Mention		—		190		—		—		59		109		958		1,316
Substandard		465		780		1,198		1,006		2,095		4,522		—		10,066
Doubtful		—		—		—		—		—		—		—		—
Total	$	219,471	$	374,409	$	113,979	$	66,550	$	73,948	$	306,366	$	2,871	$	1,157,594
Commercial:
Risk Rating
Pass	$	514,333	$	493,575	$	388,117	$	230,734	$	237,712	$	451,113	$	9,262	$	2,324,846
Special Mention		294		5,349		5,533		11,055		49,993		20,662		790		93,676
Substandard		172		570		4,920		5,525		62		17,665		227		29,141
Doubtful		—		—		—		—		—		—		—		—
Total	$	514,799	$	499,494	$	398,570	$	247,314	$	287,767	$	489,440	$	10,279	$	2,447,663
Construction:
Risk Rating
Pass	$	198,221	$	100,606	$	55,707	$	10,039	$	685	$	145	$	—	$	365,403
Special Mention		—		12,500		—		5,996		1,026		—		—		19,522
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	198,221	$	113,106	$	55,707	$	16,035	$	1,711	$	145	$	—	$	384,925
Other Loans
Commercial:
Risk Rating
Pass	$	293,644	$	132,703	$	84,668	$	47,421	$	24,269	$	17,038	$	256,659	$	856,402
Special Mention		—		2,180		4,094		272		1,264		4,663		2,342		14,815
Substandard		136		11,550		23		288		388		131		1,236		13,752
Doubtful		—		—		—		—		—		—		—		—
Total	$	293,780	$	146,433	$	88,785	$	47,981	$	25,921	$	21,832	$	260,237	$	884,969
Home equity and Improvement:
Risk Rating
Pass	$	24,707	$	6,870	$	4,867	$	2,879	$	5,534	$	31,317	$	182,740	$	258,914
Special Mention		—		—		—		—		—		—		—		—
Substandard		15		—		28		48		27		690		1,226		2,034
Doubtful		—		—		—		—		—		—		—		—
Total	$	24,722	$	6,870	$	4,895	$	2,927	$	5,561	$	32,007	$	183,966	$	260,948
Consumer Finance:
Risk Rating
Pass	$	50,202	$	25,866	$	23,000	$	9,643	$	4,313	$	2,769	$	10,086	$	125,879
Special Mention		—		—		—		—		—		—		—		—
Substandard		196		707		619		129		67		131		4		1,853
Doubtful		—		—		—		—		—		—		—		—
Total	$	50,398	$	26,573	$	23,619	$	9,772	$	4,380	$	2,900	$	10,090	$	127,732
PCD:
Risk Rating
Pass	$	—	$	—	$	170	$	1,753	$	1,860	$	12,496	$	3,268	$	19,547
Special Mention		—		—		—		—		—		101		—		101
Substandard		—		—		67		28		3,242		6,490		2,862		12,689
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	237	$	1,781	$	5,102	$	19,087	$	6,130	$	32,337

Allowance for Credit Losses

The Company has adopted ASU 2016-13 (Topic 326 – Credit Losses) to calculate the ACL, which requires a projection of credit loss over the contract lifetime of the credit adjusted for prepayment tendencies. This valuation account is deducted from the loans amortized cost basis to present the net amount expected to be

collected on the loan. The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans.

The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s portfolio segments. These segments are further disaggregated into the loan pools for monitoring. When computing allowance levels, a model of risk characteristics, such as loss history and delinquency status, along with current conditions and a supportable forecast is used to determine credit loss assumptions.

The Company is generally utilizing two methodologies to analyze loan pools, DCF and probability of default/loss given default (“PD/LGD”).

A default can be triggered by one of several different asset quality factors including past due status, non-accrual status, TDR status or if the loan has had a charge-off. The PD/LGD utilizes charge off data from the Federal Financial Institutions Examination Council to construct a default rate. This default rate is further segmented based on the risk of the credit assigning a higher default rate to riskier credits.

The DCF methodology was selected as the most appropriate for loan segments with longer average lives and regular payment structures. The DCF model has two key components, the loss driver analysis combined with a cash flow analysis. The contractual cash flow is adjusted for PD/LGD and prepayment speed to establish a reserve level. The prepayment studies are updated quarterly by a third-party for each applicable pool. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.

The remaining life method was selected for the consumer direct loan segment since the pool contains loans with many different structures and payment streams and collateral. The weighted average remaining life uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.

Portfolio Segments	Loan Pool	Methodology	Loss Drivers
Residential real estate	1-4 Family nonowner occupied	DCF	National unemployment
	1-4 Family owner occupied	DCF	National unemployment
Commercial real estate	Commercial real estate nonowner occupied	DCF	National unemployment
	Commercial real estate owner occupied	DCF	National unemployment
	Multi Family	DCF	National unemployment
	Agriculture Land	DCF	National unemployment
	Other commercial real estate	DCF	National unemployment
Construction secured by real estate	Construction Other	PD/LGD	Call report loss history
	Construction Residential	PD/LGD	Call report loss history
Commercial	Commercial working capital	PD/LGD	Call report loss history
	Agriculture production	PD/LGD	Call report loss history
	Other commercial	PD/LGD	Call report loss history
Home equity and improvement	Home equity and improvement	PD/LGD	Call report loss history
Consumer finance	Consumer direct	Remaining life	Call report loss history
	Consumer indirect	DCF	National unemployment

According to the accounting standard, an entity may make an accounting policy election not to measure an allowance for credit losses for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely manner. The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables for all loan segments. Current policy dictates that a loan will be placed on nonaccrual status, with the current accrued interest receivable balance being written off, upon the loan being 90 days delinquent or when the loan is deemed to be collateral dependent and the collateral analysis shows less than 1.2 times discounted collateral coverage based on a current assessment of the value of the collateral.

In addition, ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the company must first establishes a loss expectation for extended (funded) commitments. This loss expectation, expressed as a ratio to the amortized cost basis, is then applied to the portion of unfunded commitments not considered unilaterally cancelable and is considered by the company’s management as likely to fund over the life of the instrument. At June 30, 2022, the Company had $1.7 billion in unfunded commitments and set aside $6.8 million in anticipated credit losses. This reserve is recorded in other liabilities as opposed to the ACL.

The determination of ACL is complex and the Company makes decisions on the effects of matters that are inherently uncertain. Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgements as to the facts and circumstances related to particular situations or credits. There may be significant changes in the ACL in future periods determined by prevailing factors at that point in time along with future forecasts.

Purchased Credit Deteriorated Loans

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as PCD. PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. The outstanding balance and related allowance on these loans as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

	As of June 30, 2022				As of December 31, 2021
	Loan Balance		ACL Balance		Loan Balance		ACL Balance
	(In Thousands)				(In Thousands)
Real Estate:
Residential	$	12,035	$	154	$	13,396	$	197
Commercial		1,727		29		5,878		151
Construction		—		—		—		—
		13,762		183		19,274		348
Other Loans:
Commercial		6,831		875		9,167		1,531
Home equity and improvement		2,814		118		3,405		154
Consumer finance		356		5		491		7
		10,001		998		13,063		1,692
Total	$	23,763	$	1,181	$	32,337	$	2,040

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $2.6 million as of June 30, 2022, and $3.3 million as of December 31, 2021.