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Credit Quality Indicators | 6 Months Ended
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Jun. 30, 2023
Risks and Uncertainties [Abstract] |
Credit Quality Indicators | Credit Quality Indicators The Company categorizes loans 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. The Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $1 million, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for the loans in their respective portfolios on an annual basis. The Company 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. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. 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. Substandard loans 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, 2023 and December 31, 2022, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
(In Thousands of Dollars) |  | Pass |  |  | Special Mention |  |  | Sub standard |  |  | Total |
June 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 347,171 |  |  | $ | 5,326 |  |  | $ | 4,569 |  |  | $ | 357,066 |
Non-owner occupied |  |  | 646,559 |  |  |  | 22,362 |  |  |  | 28,023 |  |  |  | 696,944 |
Farmland |  |  | 189,238 |  |  |  | 0 |  |  |  | 2,707 |  |  |  | 191,945 |
Other |  |  | 222,049 |  |  |  | 7,550 |  |  |  | 219 |  |  |  | 229,818 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 347,795 |  |  |  | 7,142 |  |  |  | 9,014 |  |  |  | 363,951 |
Agricultural |  |  | 58,869 |  |  |  | 0 |  |  |  | 457 |  |  |  | 59,326 |
Total loans |  | $ | 1,811,681 |  |  | $ | 42,380 |  |  | $ | 44,989 |  |  | $ | 1,899,050 |
(In Thousands of Dollars) |  | Pass |  |  | Special Mention |  |  | Sub standard |  |  | Total |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 324,979 |  |  | $ | 1,193 |  |  | $ | 4,285 |  |  | $ | 330,457 |
Non-owner occupied |  |  | 527,267 |  |  |  | 25,541 |  |  |  | 10,236 |  |  |  | 563,044 |
Farmland |  |  | 186,057 |  |  |  | 0 |  |  |  | 2,525 |  |  |  | 188,582 |
Other |  |  | 133,218 |  |  |  | 0 |  |  |  | 103 |  |  |  | 133,321 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 282,412 |  |  |  | 777 |  |  |  | 11,217 |  |  |  | 294,406 |
Agricultural |  |  | 58,002 |  |  |  | 250 |  |  |  | 337 |  |  |  | 58,589 |
Total loans |  | $ | 1,511,935 |  |  | $ | 27,761 |  |  | $ | 28,703 |  |  | $ | 1,568,399 |
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential, consumer indirect and direct loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. In the 1-4 family residential real estate portfolio at June 30, 2023, other real estate owned and foreclosure properties were $34 thousand and $178 thousand, respectively. At December 31, 2022, other real estate owned and foreclosure properties were $0 and $129 thousand, respectively. The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of June 30, 2023 and December 31, 2022. Nonperforming loans are loans past due 90 days or more and still accruing interest and nonaccrual loans.
|  | Residential Real Estate |  |  | Consumer |
(In Thousands of Dollars) |  | 1-4 Family Residential |  |  | Home Equity Lines of Credit |  |  | Indirect |  |  | Direct |  |  | Other |
June 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 846,249 |  |  | $ | 137,939 |  |  | $ | 233,846 |  |  | $ | 25,855 |  |  | $ | 8,156 |
Nonperforming |  |  | 2,959 |  |  |  | 628 |  |  |  | 363 |  |  |  | 152 |  |  |  | 3 |
Total loans |  | $ | 849,208 |  |  | $ | 138,567 |  |  | $ | 234,209 |  |  | $ | 26,007 |  |  | $ | 8,159 |
|  | Residential Real Estate |  |  | Consumer |
(In Thousands of Dollars) |  | 1-4 Family Residential |  |  | Home Equity Lines of Credit |  |  | Indirect |  |  | Direct |  |  | Other |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 472,335 |  |  | $ | 131,416 |  |  | $ | 204,248 |  |  | $ | 16,266 |  |  | $ | 7,712 |
Nonperforming |  |  | 3,013 |  |  |  | 793 |  |  |  | 375 |  |  |  | 191 |  |  |  | 2 |
Total loans |  | $ | 475,348 |  |  | $ | 132,209 |  |  | $ | 204,623 |  |  | $ | 16,457 |  |  | $ | 7,714 |
The following table presents total loans by risk categories and year of origination.
|  | Term Loans Amortized Cost Basis by Origination Year |
As of June 30, 2023 |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | Revolving Loans |  |  | Total |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 54,049 |  |  | $ | 254,672 |  |  | $ | 225,147 |  |  | $ | 143,875 |  |  | $ | 151,048 |  |  | $ | 373,002 |  |  | $ | 13,986 |  |  | $ | 1,215,779 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 4,496 |  |  |  | 12,838 |  |  |  | 8,515 |  |  |  | 9,389 |  |  |  | 0 |  |  |  | 35,238 |
Substandard |  |  | 0 |  |  |  | 0 |  |  |  | 1,650 |  |  |  | 3,841 |  |  |  | 2,063 |  |  |  | 24,149 |  |  |  | 1,108 |  |  |  | 32,811 |
Total commercial real estate loans |  | $ | 54,049 |  |  | $ | 254,672 |  |  | $ | 231,293 |  |  | $ | 160,554 |  |  | $ | 161,626 |  |  | $ | 406,540 |  |  | $ | 15,094 |  |  | $ | 1,283,828 |
Commercial real estate current period gross write-offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 1 |  |  | $ | 156 |  |  | $ | 0 |  |  | $ | 157 |
Commercial and industrial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 63,363 |  |  | $ | 97,102 |  |  | $ | 48,716 |  |  | $ | 29,047 |  |  | $ | 13,470 |  |  | $ | 29,190 |  |  | $ | 66,907 |  |  | $ | 347,795 |
Special mention |  |  | 0 |  |  |  | 174 |  |  |  | 616 |  |  |  | 75 |  |  |  | 1,038 |  |  |  | 10 |  |  |  | 5,229 |  |  |  | 7,142 |
Substandard |  |  | 228 |  |  |  | 3,408 |  |  |  | 333 |  |  |  | 783 |  |  |  | 294 |  |  |  | 1,006 |  |  |  | 2,962 |  |  |  | 9,014 |
Total commercial loans |  | $ | 63,591 |  |  | $ | 100,684 |  |  | $ | 49,665 |  |  | $ | 29,905 |  |  | $ | 14,802 |  |  | $ | 30,206 |  |  | $ | 75,098 |  |  | $ | 363,951 |
Commercial and industrial current period gross write-offs |  | $ | 0 |  |  | $ | 95 |  |  | $ | 377 |  |  | $ | 11 |  |  | $ | 16 |  |  | $ | 172 |  |  | $ | 0 |  |  | $ | 671 |
Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 18,279 |  |  | $ | 53,234 |  |  | $ | 32,543 |  |  | $ | 41,069 |  |  | $ | 21,627 |  |  | $ | 64,050 |  |  | $ | 17,305 |  |  | $ | 248,107 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Substandard |  |  | 0 |  |  |  | 0 |  |  |  | 369 |  |  |  | 216 |  |  |  | 61 |  |  |  | 2,390 |  |  |  | 128 |  |  |  | 3,164 |
Total agricultural loans |  | $ | 18,279 |  |  | $ | 53,234 |  |  | $ | 32,912 |  |  | $ | 41,285 |  |  | $ | 21,688 |  |  | $ | 66,440 |  |  | $ | 17,433 |  |  | $ | 251,271 |
Agricultural current period gross write-offs |  | $ | 0 |  |  | $ | 15 |  |  | $ | 44 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 4 |  |  | $ | 0 |  |  | $ | 63 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 26,642 |  |  | $ | 177,294 |  |  | $ | 169,952 |  |  | $ | 141,482 |  |  | $ | 51,291 |  |  | $ | 268,622 |  |  | $ | 3,699 |  |  | $ | 838,982 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 68 |  |  |  | 113 |  |  |  | 159 |  |  |  | 0 |  |  |  | 340 |
Substandard |  |  | 0 |  |  |  | 31 |  |  |  | 455 |  |  |  | 440 |  |  |  | 378 |  |  |  | 8,582 |  |  |  | 0 |  |  |  | 9,886 |
Total residential real estate loans |  | $ | 26,642 |  |  | $ | 177,325 |  |  | $ | 170,407 |  |  | $ | 141,990 |  |  | $ | 51,782 |  |  | $ | 277,363 |  |  | $ | 3,699 |  |  | $ | 849,208 |
Residential real estate current period gross write-offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 82 |  |  | $ | 0 |  |  | $ | 82 |
Home equity lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 0 |  |  | $ | 19 |  |  | $ | 10 |  |  | $ | 47 |  |  | $ | 67 |  |  | $ | 2,066 |  |  | $ | 134,014 |  |  | $ | 136,223 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 38 |  |  |  | 38 |
Substandard |  |  | 0 |  |  |  | 27 |  |  |  | 50 |  |  |  | 82 |  |  |  | 20 |  |  |  | 2,028 |  |  |  | 99 |  |  |  | 2,306 |
Total home equity lines of credit |  | $ | 0 |  |  | $ | 46 |  |  | $ | 60 |  |  | $ | 129 |  |  | $ | 87 |  |  | $ | 4,094 |  |  | $ | 134,151 |  |  | $ | 138,567 |
Home equity lines of credit current period gross write-offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 8 |  |  | $ | 0 |  |  | $ | 4 |  |  | $ | 0 |  |  | $ | 12 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 44,887 |  |  | $ | 87,410 |  |  | $ | 40,831 |  |  | $ | 27,009 |  |  | $ | 16,462 |  |  | $ | 43,017 |  |  | $ | 7,843 |  |  | $ | 267,459 |
Substandard |  |  | 0 |  |  |  | 168 |  |  |  | 65 |  |  |  | 245 |  |  |  | 176 |  |  |  | 262 |  |  |  | 0 |  |  |  | 916 |
Total consumer loans |  | $ | 44,887 |  |  | $ | 87,578 |  |  | $ | 40,896 |  |  | $ | 27,254 |  |  | $ | 16,638 |  |  | $ | 43,279 |  |  | $ | 7,843 |  |  | $ | 268,375 |
Consumer current period gross write-offs |  | $ | 0 |  |  | $ | 113 |  |  | $ | 46 |  |  | $ | 76 |  |  | $ | 30 |  |  | $ | 157 |  |  | $ | 33 |  |  | $ | 455 |
|  | Term Loans Amortized Cost Basis by Origination Year |
As of December 31, 2022 |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | Prior |  |  | Revolving Loans |  |  | Total |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 188,240 |  |  | $ | 174,841 |  |  | $ | 120,883 |  |  | $ | 138,342 |  |  | $ | 89,769 |  |  | $ | 256,103 |  |  | $ | 17,286 |  |  | $ | 985,464 |
Special mention |  |  | 0 |  |  |  | 711 |  |  |  | 1,861 |  |  |  | 5,286 |  |  |  | 624 |  |  |  | 18,252 |  |  |  | 0 |  |  |  | 26,734 |
Substandard |  |  | 0 |  |  |  | 18 |  |  |  | 256 |  |  |  | 1,968 |  |  |  | 267 |  |  |  | 10,952 |  |  |  | 1,163 |  |  |  | 14,624 |
Total commercial real estate loans |  | $ | 188,240 |  |  | $ | 175,570 |  |  | $ | 123,000 |  |  | $ | 145,596 |  |  | $ | 90,660 |  |  | $ | 285,307 |  |  | $ | 18,449 |  |  | $ | 1,026,822 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 100,368 |  |  | $ | 45,872 |  |  | $ | 34,110 |  |  | $ | 16,854 |  |  | $ | 13,574 |  |  | $ | 14,664 |  |  | $ | 56,970 |  |  | $ | 282,412 |
Special mention |  |  | 0 |  |  |  | 197 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 580 |  |  |  | 777 |
Substandard |  |  | 3,642 |  |  |  | 1,331 |  |  |  | 356 |  |  |  | 152 |  |  |  | 110 |  |  |  | 1,761 |  |  |  | 3,865 |  |  |  | 11,217 |
Total commercial loans |  | $ | 104,010 |  |  | $ | 47,400 |  |  | $ | 34,466 |  |  | $ | 17,006 |  |  | $ | 13,684 |  |  | $ | 16,425 |  |  | $ | 61,415 |  |  | $ | 294,406 |
Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 51,096 |  |  | $ | 36,376 |  |  | $ | 44,133 |  |  | $ | 23,661 |  |  | $ | 24,003 |  |  | $ | 45,490 |  |  | $ | 19,300 |  |  | $ | 244,059 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 250 |  |  |  | 250 |
Substandard |  |  | 0 |  |  |  | 379 |  |  |  | 235 |  |  |  | 72 |  |  |  | 0 |  |  |  | 2,146 |  |  |  | 30 |  |  |  | 2,862 |
Total agricultural loans |  | $ | 51,096 |  |  | $ | 36,755 |  |  | $ | 44,368 |  |  | $ | 23,733 |  |  | $ | 24,003 |  |  | $ | 47,636 |  |  | $ | 19,580 |  |  | $ | 247,171 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 83,951 |  |  | $ | 112,463 |  |  | $ | 76,095 |  |  | $ | 31,404 |  |  | $ | 22,918 |  |  | $ | 135,757 |  |  | $ | 3,956 |  |  | $ | 466,544 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 70 |  |  |  | 118 |  |  |  | 76 |  |  |  | 93 |  |  |  | 0 |  |  |  | 357 |
Substandard |  |  | 0 |  |  |  | 136 |  |  |  | 249 |  |  |  | 121 |  |  |  | 9 |  |  |  | 7,932 |  |  |  | 0 |  |  |  | 8,447 |
Total residential real estate loans |  | $ | 83,951 |  |  | $ | 112,599 |  |  | $ | 76,414 |  |  | $ | 31,643 |  |  | $ | 23,003 |  |  | $ | 143,782 |  |  | $ | 3,956 |  |  | $ | 475,348 |
Home equity lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 0 |  |  | $ | 10 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 16 |  |  | $ | 1,394 |  |  | $ | 128,622 |  |  | $ | 130,042 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 49 |  |  |  | 49 |
Substandard |  |  | 0 |  |  |  | 13 |  |  |  | 137 |  |  |  | 20 |  |  |  | 0 |  |  |  | 1,848 |  |  |  | 100 |  |  |  | 2,118 |
Total home equity lines of credit |  | $ | 0 |  |  | $ | 23 |  |  | $ | 137 |  |  | $ | 20 |  |  | $ | 16 |  |  | $ | 3,242 |  |  | $ | 128,771 |  |  | $ | 132,209 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 98,530 |  |  | $ | 46,945 |  |  | $ | 32,284 |  |  | $ | 20,849 |  |  | $ | 10,918 |  |  | $ | 10,942 |  |  | $ | 7,302 |  |  | $ | 227,770 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Substandard |  |  | 102 |  |  |  | 113 |  |  |  | 267 |  |  |  | 230 |  |  |  | 109 |  |  |  | 202 |  |  |  | 1 |  |  |  | 1,024 |
Total consumer loans |  | $ | 98,632 |  |  | $ | 47,058 |  |  | $ | 32,551 |  |  | $ | 21,079 |  |  | $ | 11,027 |  |  | $ | 11,144 |  |  | $ | 7,303 |  |  | $ | 228,794 |
The Company follows ASU 2016-13 to calculate the allowance for credit losses which requires projecting credit losses over the lifetime of the credits. The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans. Although the Company has a diversified loan portfolio, the credit risk in the loan portfolio is largely influenced by general economic conditions and trends of the counties and markets in which the debtors operate, and the resulting impact on the operations of borrowers or on the value of any underlying collateral. The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s loan portfolio segments. These segments are disaggregated into the loan pools for monitoring. A model of risk characteristics, such as loss history and delinquency experience, trends in past due and non-performing loans, as well as existing economic conditions and supportable forecasts are used to determine credit loss assumptions. The Company uses two methodologies to analyze loan pools. The cohort method and the PD/LGD. Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but aren’t limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios. The probability of default portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, loan restructuring for borrowers experiencing financial difficulty or is partially, or wholly, charged-off. Typically, a one-year time period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs. Loss given default LGD is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios. The following table presents the loan pools and the associated methodology used during the calculation of the allowance for credit losses in 2023.
Portfolio Segments |  | Loan Pool |  | Methodology |  | Loss Drivers
Residential real estate |  | 1-4 Family Residential Real Estate - 1st Liens |  | Cohort |  | Credit Loss History
|  | 1-4 Family Residential Real Estate - 2nd Liens |  | Cohort |  | Credit Loss History
Home Equity Lines of Credit |  | Home Equity Lines of Credit |  | Cohort |  | Credit Loss History
Consumer Finance |  | Cash Reserves |  | Cohort |  | Credit Loss History
|  | Direct |  | Cohort |  | Credit Loss History
|  | Indirect |  | Cohort |  | Credit Loss History
Commercial |  | Commercial and Industrial |  | PD/LGD |  | Credit Loss History
|  | Agricultural |  | PD/LGD |  | Credit Loss History
|  | Municipal |  | PD/LGD |  | Credit Loss History
Commercial real estate |  | Owner Occupied |  | PD/LGD |  | Credit Loss History
|  | Non-Owner Occupied |  | PD/LGD |  | Credit Loss History
|  | Multifamily |  | PD/LGD |  | Credit Loss History
|  | Farmland |  | PD/LGD |  | Credit Loss History
|  | Construction |  | PD/LGD |  | Credit 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 insufficient 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 establish 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 June 30, 2023, the Company had $741 million in unfunded commitments and set aside $1.98 million in anticipated credit losses. This reserve is recorded in other liabilities as opposed to the ACL. The determination of the ACL is complex and the Company makes decisions on the effects of factors that are inherently uncertain. Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgments as to the facts and circumstances related to particular situations or credits. For the three months ended June 30, 2023, the allowance for credit losses decreased from March 31, 2023 due to the improvement in the Company's maximum loss rates that anchor the qualitative factor adjustments and a reclassification of construction loan balances that were placed into their permanent loan pool. These factors were partially offset by adjustments to the Portfolio Composition and Growth qualitative factor for the Company's residential and consumer loan portfolios to account for a more defined qualitative methodology. Purchased Loans As a result of the Emlenton Merger, the Company acquired $740.7 million in loans.
|  | 2023 |
Par value of acquired loans at acquisition |  | $ | 797,616 |
Net purchase discount |  |  | (55,958 | )
Allowance for credit losses of PCD loans |  |  | (999 | )
Purchase price of loans at acquisition |  | $ | 740,659 |
Under ASU Topic 326, when loans are purchased with evidence of more than significant deterioration of credit, they are accounted for as purchase credit deteriorated (“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. During 2023, the Company acquired PCD loans with a fair value of $25.9 million, credit discount of $999 thousand and a noncredit discount of $5.5 million. The outstanding balance at June 30, 2023 and related allowance on PCD loans is as follows:
|  | Loan Balance |  |  | ACL Balance |
Commercial real estate |  |  |  |  |  |
Owner Occupied |  | $ | 1,739 |  |  | $ | 33 |
Non-owner Occupied |  |  | 35,694 |  |  |  | 1,222 |
Farmland |  |  | 13 |  |  |  | 0 |
Commercial |  |  |  |  |  |
Commercial and industrial |  |  | 2,655 |  |  |  | 160 |
Agricultural |  |  | 149 |  |  |  | 10 |
Residential real estate |  |  |  |  |  |
1-4 family residential |  |  | 3,512 |  |  |  | 21 |
Home equity lines of credit |  |  | 3 |  |  |  | 0 |
Total |  | $ | 43,765 |  |  | $ | 1,446 |

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