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Loans

9 Months Ended

Sep. 30, 2020

Loans And Leases Receivable Net Reported Amount [Abstract]

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

	September 30, 2020			December 31, 2019
	(In Thousands)
Real Estate:
Residential	$	1,194,940		$	324,773
Commercial		2,328,944			1,506,026
Construction		580,060			305,305
		4,103,944			2,136,104
Other Loans:
Commercial		1,263,565			578,071
Home equity and improvement		281,010			122,864
Consumer finance		128,995			37,649
		1,673,570			738,584
Loans before deferred loan origination fees and costs		5,777,514			2,874,688
Deduct:
Undisbursed construction loan funds		(300,174	)		(126,108	)
Net deferred loan origination fees and costs		(6,792	)		(2,259	)
Allowance for credit losses		(88,917	)		(31,243	)
Total loans	$	5,381,631		$	2,715,078

The following table discloses allowance for credit loss activity for the quarters ended September 30, 2020 and 2019 by portfolio segment (In Thousands):

Quarter Ended September 30, 2020	Residential Real Estate			Commercial Real Estate			Construction		Commercial		Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	23,783		$	44,057		$	1,137	$	11,839	$	4,216		$	3,523		$	88,555
Charge-Offs		—			(4,172	)		—		—		(12	)		(35	)		(4,219	)
Recoveries		7			581			—		266		41			28			923
Provisions⁽¹⁾		(5,622	)		8,109			1,352		1,139		148			(1,468	)		3,658
Ending Allowance	$	18,168		$	48,575		$	2,489	$	13,244	$	4,393		$	2,048		$	88,917

(1)

Allowance/provision are not comparable to prior periods due to the adoption of CECL.

Quarter Ended September 30, 2019	Residential Real Estate			Commercial Real Estate		Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,793		$	15,251	$	887	$	7,888		$	1,763		$	352		$	28,934
Charge-Offs		(74	)		—		—		(25	)		(12	)		(80	)		(191	)
Recoveries		6			61		—		30			77			6			180
Provisions		213			883		216		(5	)		(76	)		96			1,327
Ending Allowance	$	2,938		$	16,195	$	1,103	$	7,888		$	1,752		$	374		$	30,250

The following table discloses allowance for credit loss activity for the nine months ended September 30, 2020 and 2019 by portfolio segment (In Thousands):

Year-to-date Period Ended September 30, 2020	1-4 Family Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,867		$	16,302		$	996		$	9,003		$	1,700		$	375		$	31,243
Impact of ASC 326 Adoption		1,765			3,682			(223	)		(2,263	)		(521	)		(86	)		2,354
Acquisition related allowance for credit loss (PCD)		1,077			4,053			—			2,272			248			48			7,698
Charge-Offs		(257	)		(4,237	)		(1	)		(133	)		(98	)		(222	)		(4,948	)
Recoveries		223			1,110			—			1,602			177			146			3,258
Provisions⁽¹⁾⁽²⁾		12,493			27,665			1,717			2,763			2,887			1,787			49,312
Ending Allowance	$	18,168		$	48,575		$	2,489		$	13,244		$	4,393		$	2,048		$	88,917

(1)

Allowance/provision are not comparable to prior periods due to the adoption of CECL.

(2)

Provision for the nine months ended September, 30, 2020, includes $25.9 million as a result of the Merger with UCFC in the first quarter.

Year-to-date Period Ended September 30, 2019	1-4 Family Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,881		$	15,142		$	682	$	7,281		$	2,026		$	319		$	28,331
Charge-Offs		(257	)		(15	)		—		(225	)		(109	)		(255	)		(861	)
Recoveries		176			450			—		136			161			36			959
Provisions		138			618			421		696			(326	)		274			1,821
Ending Allowance	$	2,938		$	16,195		$	1,103	$	7,888		$	1,752		$	374		$	30,250

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 (in thousands):

As of December 31, 2019	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Home Equity and Improvement		Consumer Finance		Total
Allowance for credit loss attributable to:
Individually evaluated for impairment	$	115	$	85	$	—	$	174	$	48	$	—	$	422
Collectively evaluated for impairment		2,752		16,217		996		8,829		1,652		375		30,821
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total Allowance	$	2,867	$	16,302	$	996	$	9,003	$	1,700	$	375	$	31,243


Loans:
Individually evaluated for impairment	$	7,049	$	21,132	$	—	$	6,655	$	759	$	28	$	35,623
Collectively evaluated for impairment		318,106		1,490,306		206,721		573,244		122,963		37,808		2,749,148
Acquired with deteriorated credit quality		989		921		—		12		—		—		1,922
Total loans	$	326,144	$	1,512,359	$	206,721	$	579,911	$	123,722	$	37,836	$	2,786,693

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans for the three and nine months ended September 30, 2019 (in thousands):

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	5,251	$	50	$	50	$	5,005	$	138	$	131
Residential Non Owner Occupied		2,113		28		27		2,078		106		106
Total Residential Real Estate		7,364		78		77		7,083		244		237
CRE Owner Occupied		6,367		45		45		7,082		268		222
CRE Non Owner Occupied		1,898		19		19		1,943		70		63
Multi-Family Real Estate		175		5		5		604		32		32
Agriculture Land		12,981		168		114		13,206		544		405
Other CRE		479		13		11		810		66		61
Total Commercial Real Estate		21,900		250		194		23,645		980		783
Construction		—		—		—		—		—		—
Commercial Working Capital		6,224		55		55		7,302		281		217
Agriculture Production		—		—		—		—		—		—
Commercial Other		1,372		15		14		1,597		63		59
Total Commercial		7,596		70		69		8,899		344		276
Home Equity and Improvement		868		6		6		893		26		24
Consumer Finance		17		—		—		26		1		1
Total Impaired Loans	$	37,745	$	404	$	346	$	40,546	$	1,595	$	1,321

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of September 30, 2020 (in thousands):

	September 30, 2020
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	7,792	$	—	$	—	$	—	$	7,792
Commercial		26,769		—		—		—		26,769
Construction		—		—		—		—		—

Other Loans:
Commercial		2,077		8,377		8,132		171		18,757
Home equity and improvement		—		—		—		—		—
Consumer finance		—		—		—		—		—

Total	$	36,638	$	8,377	$	8,132	$	171	$	53,318

The following table presents loans individually evaluated for impairment by class of loans (in thousands):

	December 31, 2019
	Unpaid Principal Balance*		Recorded Investment		Allowance for Credit Loss Allocated
With no allowance recorded:
Residential Owner Occupied	$	86	$	86	$	—
Residential Non Owner Occupied		962		967		—
Total Residential Real Estate		1,048		1,053		—
CRE Owner Occupied		5,098		4,814		—
CRE Non Owner Occupied		1,815		1,006		—
Multi-Family Real Estate		128		130		—
Agriculture Land		12,734		12,792		—
Other CRE		—		—		—
Total Commercial Real Estate		19,775		18,742		—
Construction		—		—		—
Commercial Working Capital		5,417		5,435		—
Agriculture Production		—		—		—
Commercial Other		469		471		—
Total Commercial		5,886		5,906		—
Home Equity and Improvement		151		151		—
Consumer Finance		—		—		—
Total loans with no allowance recorded	$	26,860	$	25,852	$	—

With an allowance recorded:
Residential Owner Occupied	$	5,137	$	4,977	$	104
Residential Non Owner Occupied		1,014		1,019		11
Total Residential Real Estate		6,151		5,996		115
CRE Owner Occupied		2,085		1,623		60
CRE Non Owner Occupied		317		319		13
Multi-Family Real Estate		—		—		—
Agriculture Land		262		268		3
Other CRE		401		180		9
Total Commercial Real Estate		3,065		2,390		85
Construction		—		—		—
Commercial Working Capital		682		450		150
Agriculture Production		—		—		—
Commercial Other		318		299		24
Total Commercial		1,000		749		174
Home Equity and Improvement		654		608		48
Consumer Finance		28		28		—
Total loans with an allowance recorded	$	10,898	$	9,771	$	422

*Presented gross of charge-offs

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. All loans greater than 90 days past due are placed on non-accrual status. Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual purchase credit deteriorated (“PCD”) loans in its non-performing loans. As such, the non-performing loans as of September 30, 2020 include PCD loans accounted for pursuant to ASC Topic 326 as these loans are individually evaluated. The non-performing loans do not include PCD (formerly purchase credit impaired (“PCI”)) loans as of December 31, 2019, as the PCD loans prior to adopting ASC Topic 326 were evaluated on a pool basis. 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:

	September 30, 2020		December 31, 2019
	(In Thousands)
Non-accrual loans	$	48,360	$	13,437
Loans over 90 days past due and still accruing		—		—
Total non-performing loans		48,360		13,437
Real estate and other assets held for sale		521		100
Total non-performing assets	$	48,881	$	13,537
Troubled debt restructuring, still accruing	$	8,499	$	8,486

The following table presents the aging of the amortized cost in past due and non- accrual loans as of September 30, 2020, by class of loans (In Thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential		1,164,301		182		9,604		—		9,786		8,622
Commercial		2,292,281		196		507		—		703		12,336
Construction		277,936		—		1,587		—		1,587		363

Other Loans:
Commercial		1,221,219		137		75		—		212		749
Home equity and improvement		270,007		3,777		758		—		4,535		1,704
Consumer finance		125,829		1,584		874		—		2,458		857
PCD		49,744		230		1,360		—		1,590		23,729

Total Loans	$	5,401,317	$	6,106	$	14,765	$	—	$	20,871	$	48,360

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2019, by class of loans (In Thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non Accrual
Real Estate:
Residential		323,600		1,328		570		646		2,544		2,411
Commercial		1,509,132		339		172		2,716		3,227		7,609
Construction		206,721		—		—		—		—		—

Other Loans:
Commercial		576,988		273		206		2,444		2,923		2,961
Home equity and improvement		122,487		956		240		39		1,235		449
Consumer finance		37,622		143		64		7		214		7

Total Loans	$	2,776,550	$	3,039	$	1,252	$	5,852	$	10,143	$	13,437

Troubled Debt Restructurings

As of September 30, 2020, and December 31, 2019, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $18.8 million and $15.1 million, respectively. The Company allocated $1,067,000 and $388,000 of specific reserves to those loans at September 30, 2020, and December 31, 2019, respectively, and had committed to lend additional amounts totaling up to $389,000 and $226,000 at September 30, 2020, and December 31, 2019, respectively.

The Company has responded to the pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing $443.3 million to small businesses in our markets. Additionally, the Company is working with borrowers impacted by the COVID-19 pandemic and providing modifications to include either interest only deferral or principal and interest deferral. These modifications range from one to nine months. Through September 30, 2020, the Company had approximately $482.7 million in deferrals. A majority of these modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. In accordance with this guidance, such modified loans will be considered current and will continue to accrue interest during the deferral period.

A breakout of deferrals by loan category is as follows (in thousands):

	Balance deferred
Residential real estate	$	40,676
Commercial real estate		333,212
Construction		51,592
Commercial		49,751
Home equity and improvement		2,506
Consumer finance		5,005
Total	$	482,742

The following table is a breakout of commercial deferrals, which represent $434.6 million of the total deferred (in thousands):

Commercial deferral expirations	Balance
July	$	277,010
August		123,851
September		12,226
October		14,000
November		5,076
December		2,392
Total	$	434,555

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 September 30, 2020, $10.4 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 nine month periods ending September 30, 2020, and September 30, 2019:

	Loans Modified as a TDR for the Three Months Ended September 30, 2020 ($ in thousands)				Loans Modified as a TDR for the Nine Months Ended September 30, 2020 ($ 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	$	51		6	$	660
Commercial		1		451		5		7,327
Construction		—		—		—		—

Other Loans:
Commercial		3		7,347		8		7,503
Home equity and improvement		3		66		4		92
Consumer finance		—		—		—		—

Total		8	$	7,915		23	$	15,582

The loans described above increased the allowance for credit losses (“ACL”) by $758,000 and $790,000 in the three and nine month periods ending September 30, 2020.

	Loans Modified as a TDR for the Three Months Ended September 30, 2019 ($ in thousands)				Loans Modified as a TDR for the Nine Months Ended September 30, 2019 ($ 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		3	$	218		10	$	1,118
Commercial		—
Construction		—

Other Loans:
Commercial		2		241		4		253
Home equity and improvement		—				2		26
Consumer finance		—				—

Total		5	$	459		16	$	1,397

The loans described above increased the allowance for loan losses (“ALLL”), which is now known as the ACL under CECL, by $11,000 and $32,000 in the three and nine month periods ending September 30, 2019.

The following tables present loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three and nine month periods ended September 30, 2020, and September 30, 2019:

	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	($ in thousands)				($ 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		2	$	211		8	$	647
Commercial		2		128		4		322
Construction		—		—		—		—

Other Loans:
Commercial		—		—		2		250
Home equity and improvement		1		4		4		330
Consumer finance		—		—		1		21

Total		5	$	343		19	$	1,570

The TDRs that subsequently defaulted described above increased the ACL by $16,000 and $61,000 for the three month and nine month period ended September 30, 2020.

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.

	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	($ in thousands)				($ 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	$	76
Commercial		—		—
Construction		—		—		—		—

Other Loans:
Commercial		—		—		3		2,248
Home equity and improvement		—		—		1		61
Consumer finance		—		—		—		—

Total		—	$	—		5	$	2,385

The TDRs that subsequently defaulted described above had no effect on the
ALLL for the three month period and increased the ALLL by $4,000 for the nine month period ended September 30, 2019.

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 as to 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 September 30, 2020, 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		1,179,490		268		2,951		—		2,951		1,182,709
Commercial		2,165,668		108,011		31,641		—		31,641		2,305,320
Construction		256,743		23,143		—		—		—		279,886

Other Loans:
Commercial		1,188,604		24,618		8,958		—		8,958		1,222,180
Home equity and improvement		275,831		—		415		—		415		276,246
Consumer finance		129,025		—		119		—		119		129,144
PCD		28,867		11,442		34,754		—		34,754		75,063

Total Loans	$	5,224,228	$	167,482	$	78,838	$	—	$	78,838	$	5,470,548

As of December 31, 2019, 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		322,250		415		3,479		—		3,479		326,144
Commercial		1,462,065		27,197		23,097		—		23,097		1,512,359
Construction		205,076		1,645		—		—		—		206,721

Other Loans:
Commercial		548,012		24,162		7,737		—		7,737		579,911
Home equity and improvement		123,407		—		315		—		315		123,722
Consumer finance		37,816		—		20		—		20		37,836

Total Loans	$	2,698,626	$	53,419	$	34,648	$	—	$	34,648	$	2,786,693

The table below presents the amortized cost basis of loans by credit quality indicator and class of loans based on the most recent analysis performed ($ in thousands):

	Term of loans by origination
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
As of September 30, 2020

Real Estate
Residential:
Risk Rating
Pass	$	125,421	$	218,510	$	154,561	$	149,717	$	155,430	$	373,173	$	2,678	$	1,179,490
Special Mention		—		—		55		—		119		94		—		268
Substandard		—		—		168		—		210		2,573				2,951
Doubtful		—		—		—		—		—		—		—		—
Total	$	125,421	$	218,510	$	154,784	$	149,717	$	155,759	$	375,840	$	2,678	$	1,182,709

Commercial:
Risk Rating
Pass	$	389,956	$	450,107	$	326,896	$	324,772	$	215,844	$	441,861	$	16,232	$	2,165,668
Special Mention		6,031		7,229		20,294		43,354		10,213		19,893		997		108,011
Substandard		—		284		7,225		2,065		1,423		18,393		2,251		31,641
Doubtful		—		—		—		—		—		—		—		—
Total	$	395,987	$	457,620	$	354,415	$	370,191	$	227,480	$	480,147	$	19,480	$	2,305,320

Construction:
Risk Rating
Pass	$	160,203	$	64,944	$	15,822	$	11,727	$	3,898	$	149	$	-	$	256,743
Special Mention		12,500		—		10,643		—		—		—		—		23,143
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	172,703	$	64,944	$	26,465	$	11,727	$	3,898	$	149	$	-	$	279,886

Other Loans
Commercial:
Risk Rating
Pass	$	578,907	$	159,783	$	88,449	$	50,745	$	26,127	$	29,800	$	254,793	$	1,188,604
Special Mention		1,000		1,881		2,662		2,447		—		5,208		11,420		24,618
Substandard		105		233		569		554		313		1,397		5,787		8,958
Doubtful		—		—		—		—		—		—		—		—
Total	$	580,012	$	161,897	$	91,680	$	53,746	$	26,440	$	36,405	$	272,000	$	1,222,180

Home equity and Improvement:
Risk Rating
Pass	$	5,088	$	8,274	$	4,911	$	8,633	$	8,530	$	31,999	$	208,396	$	275,831
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		115		300		415
Doubtful		—		—		—		—		—		—		—		—
Total	$	5,088	$	8,274	$	4,911	$	8,633	$	8,530	$	32,114	$	208,696	$	276,246

Consumer Finance:
Risk Rating
Pass	$	36,327	$	41,252	$	22,426	$	12,651	$	5,512	$	3,622	$	7,235	$	129,025
Special Mention		—		—		—		—		—		—		—		—
Substandard		8		99		4		—		8		—		—		119
Doubtful		—		—		—		—		—		—		—		—
Total	$	36,335	$	41,351	$	22,430	$	12,651	$	5,520	$	3,622	$	7,235	$	129,144

PCD:
Risk Rating
Pass	$	6,465	$	314	$	685	$	588	$	1,961	$	17,547	$	1,307	$	28,867
Special Mention		—		202		1,398		3,585		1,162		4,026		1,069		11,442
Substandard		—		—		—		14,506		2,811		5,180		12,257		34,754
Doubtful		—		—		—		—		—		—		—		—
Total	$	6,465	$	516	$	2,083	$	18,679	$	5,934	$	26,753	$	14,633	$	75,063

Allowance for Credit Losses (“ACL”)

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 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. 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. 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 remaining life method was selected for the consumer 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	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 finance	Remaining life	Call report loss history

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 to the 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 considered by the company’s management as likely to fund over the life of the instrument. At September 30, 2020, the Company had $1.4 billion in unfunded commitments and set aside $6.0 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 Loans

As a result of the Merger, the Company acquired $2.3 billion in loans. Par value of purchased loans follows (in thousands):

	2020
Par value of acquired loans at acquisition	$	2,314,588
Credit discount		34,610
Non-credit discount/(premium) at acquisition		(8,497	)
Purchase price of loans at acquisition	$	2,340,701

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. On January 31, 2020, the Company acquired PCD loans with a fair value of $79.1 million, credit discount $7.7 million and a noncredit discount of $4.1 million. The outstanding balance at September 30, 2020 and related allowance on these loans is as follows (in thousands):

	Loan Balance		ACL Balance
	(In Thousands)
Real Estate:
Residential	$	15,157	$	175
Commercial		24,797		2,199
Construction		—		—
		39,954		2,374
Other Loans:
Commercial		29,407		4,261
Home equity and improvement		4,764		222
Consumer finance		938		37
		35,109		4,520
Total	$	75,063	$	6,894

At September 30, 2020 the Company had $1.8 million in loans that had previously been accounted for as purchase credit impaired.

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $6.0 million as of September 30, 2020, and $981,000 as of December 31, 2019. The increase is primarily a result of the Merger.