The Company’s lending can be summarized into five primary categories: commercial loans, commercial real estate loans, real estate construction loans, retail real estate loans, and retail other loans. Distributions of the loan portfolio by loan category were as follows (dollars in thousands):

Net deferred loan origination costs included in the balances above were $12.9 million as of June 30, 2022, compared to $9.0 million as of December 31, 2021. Net accretable purchase accounting adjustments included in the balances above reduced loans by $7.2 million as of June 30, 2022, and $8.8 million as of December 31, 2021. Commercial balances include loans originated under the PPP with an amortized cost of $7.6 million as of June 30, 2022, and $75.0 million as of December 31, 2021.

There were no retail real estate loans purchased during the three or six months ended June 30, 2022. In comparison, the Company purchased $32.2 million of retail real estate loans during the three and six months ended June 30, 2021.

The Company utilizes a loan grading scale to assign a risk grade to all of its loans. A description of the general characteristics of each grade is as follows:

All loans are graded at their inception. Commercial lending relationships that are $1.0 million or less are usually processed through an expedited underwriting process. Most commercial loans greater than $1.0 million are included in a portfolio review at least annually. Commercial loans greater than $0.35 million that have a grading of special mention or worse are typically reviewed on a quarterly basis. Interim reviews may take place if circumstances of the borrower warrant a more frequent review.

The following table is a summary of risk grades segregated by category of portfolio loans (dollars in thousands):

Risk grades of portfolio loans, further sorted by origination year are as follows (dollars in thousands):

An analysis of the amortized cost basis of portfolio loans that are past due and still accruing, or on a non-accrual status, is as follows (dollars in thousands):

Gross interest income recorded on 90+ days past due loans, and that would have been recorded on non-accrual loans if they had been accruing interest in accordance with their original terms, was $0.3 million and $0.5 million for the three and six months ended June 30, 2022, respectively. Gross interest income recorded on 90+ days past due loans, and that would have been recorded on non-accrual loans if they had been accruing interest in accordance with their original terms, was $0.4 million and $0.9 million for the three and six months ended June 30, 2021, respectively. The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was insignificant for the three months ended June 30, 2022, and was $0.4 million for the six months ended June 30, 2022. The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was insignificant for the three and six months ended June 30, 2021.

Loans that were newly designated as TDRs during the periods presented, are summarized as follows (dollars in thousands):

(1)

TDRs may include multiple concessions; those that include an interest rate concession and payment concession are shown in the rate modification column.

There were no TDRs entered into during the 12 months ended June 30, 2022, or 2021, that had subsequent defaults during the three or six months ended June 30, 2022, or 2021. A default occurs when a loan is 90 days or more past due or transferred to non-accrual.

Gross interest income that would have been recorded in the three and six months ended June 30, 2022, and 2021, if TDRs had performed in accordance with their original terms compared with their modified terms, was insignificant.

As of June 30, 2022, the Company had $0.8 million of residential real estate in the process of foreclosure. The Company follows Federal Housing Finance Agency guidelines on single-family foreclosures and real estate owned evictions on portfolio loans.

Loans Modified Under the CARES Act or Interagency Statement

The CARES Act provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. Federal regulatory agencies, in consultation with FASB, also issued an Interagency Statement to encourage financial institutions to work with borrowers affected by COVID-19, and to update guidance which allowed banks to modify loans of customers stressed by COVID-19 without having to classify the loan as a TDR. The Company’s TDR loan totals do not include the following modified loans with payment deferrals that fall under the CARES Act or Interagency Statement, which suspended GAAP requirements related to TDR classification (dollars in thousands):


	As of June 30, 2022				As of December 31, 2021
	Number of		Recorded		Number of		Recorded
	Contracts		Investment		Contracts		Investment
COVID-19 loan modifications
Commercial loans:
Interest-only deferrals		11	$	31,925		32	$	128,730
Retail loans:
Mortgage and personal loan deferrals		1		99		2		137
Total COVID-19 loans modifications		12	$	32,024		34	$	128,867

Loans Evaluated Individually

The Company evaluates loans with disparate risk characteristics on an individual basis. The following tables provide details of loans evaluated individually, segregated by category. The unpaid principal balance represents customer outstanding contractual principal balances excluding any partial charge-offs. Recorded investment represents the amortized cost of customer balances net of any partial charge-offs recognized on the loan. Average recorded investment is calculated using the most recent four quarters (dollars in thousands):


	As of June 30, 2022
	Unpaid		Recorded Investment								Average
	Principal		With No		With				Related		Recorded
	Balance		Allowance		Allowance		Total		Allowance		Investment
Loans evaluated individually
Commercial	$	10,282	$	932	$	6,092	$	7,024	$	2,826	$	8,317
Commercial real estate		8,099		1,923		4,100		6,023		2,000		5,748
Real estate construction		262		262		—		262		—		272
Retail real estate		2,290		2,121		25		2,146		25		2,890
Total loans evaluated individually	$	20,933	$	5,238	$	10,217	$	15,455	$	4,851	$	17,227


	As of December 31, 2021
	Unpaid		Recorded Investment								Average
	Principal		With No		With				Related		Recorded
	Balance		Allowance		Allowance		Total		Allowance		Investment
Loans evaluated individually
Commercial	$	10,247	$	498	$	6,490	$	6,988	$	3,564	$	8,791
Commercial real estate		6,456		5,750		—		5,750		—		6,390
Real estate construction		272		272		—		272		—		282
Retail real estate		2,514		2,345		25		2,370		25		4,093
Total loans evaluated individually	$	19,489	$	8,865	$	6,515	$	15,380	$	3,589	$	19,556

Management's evaluation as to the ultimate collectability of loans includes estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers. Collateral dependent loans are loans in which repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment. Loans are written down to the lower of cost or fair value of underlying collateral, less estimated costs to sell. The Company had $4.1 million and $7.9 million of collateral dependent loans secured by real estate or business assets as of June 30, 2022, and December 31, 2021, respectively.

Allowance for Credit Losses

Management estimates the ACL balance using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience beginning in 2010. As of June 30, 2022, the Company expects continued economic uncertainty in the markets in which it operates, and around levels of delinquencies, over the next 12 months. Management adjusted the historical loss experience for these expectations with an immediate reversion to historical loss rate beyond this forecast period. PPP loans were excluded from the ACL calculation as they are 100% government guaranteed.

The following tables summarize activity in the ACL. Allocation of a portion of the ACL to one category does not preclude its availability to absorb losses in other categories (dollars in thousands):


	Three Months Ended June 30, 2022
			Commercial		Real Estate		Retail
	Commercial		Real Estate		Construction		Real Estate		Retail Other		Total
ACL balance, March 31, 2022	$	24,173	$	37,339	$	5,705	$	17,555	$	3,441	$	88,213
Provision for credit losses		(743)		1,028		(63)		312		1,119		1,653
Charged-off		(208)		(1,372)		—		(17)		(82)		(1,679)
Recoveries		137		187		27		134		85		570
ACL balance, June 30, 2022	$	23,359	$	37,182	$	5,669	$	17,984	$	4,563	$	88,757


	Six Months Ended June 30, 2022
			Commercial		Real Estate		Retail
	Commercial		Real Estate		Construction		Real Estate		Retail Other		Total
ACL balance, December 31, 2021	$	23,855	$	38,249	$	5,102	$	17,589	$	3,092	$	87,887
Provision for credit losses		(492)		(190)		447		142		1,493		1,400
Charged-off		(208)		(1,372)		—		(33)		(191)		(1,804)
Recoveries		204		495		120		286		169		1,274
ACL balance, June 30, 2022	$	23,359	$	37,182	$	5,669	$	17,984	$	4,563	$	88,757


	Three Months Ended June 30, 2021
			Commercial		Real Estate		Retail Real
	Commercial		Real Estate		Construction		Estate		Retail Other		Total
ACL balance, March 31, 2021	$	23,025	$	43,306	$	6,879	$	19,978	$	755	$	93,943
Day 1 PCD ⁽¹⁾		3,546		336		—		129		167		4,178
Provision for credit losses		(1,420)		(3,390)		671		404		2,035		(1,700)
Charged-off		(1,000)		(317)		—		(157)		(64)		(1,538)
Recoveries		205		39		49		151		83		527
ACL balance, June 30, 2021	$	24,356	$	39,974	$	7,599	$	20,505	$	2,976	$	95,410


	Six Months Ended June 30, 2021
			Commercial		Real Estate		Retail
	Commercial		Real Estate		Construction		Real Estate		Retail Other		Total
ACL balance, December 31, 2020	$	23,866	$	46,230	$	8,193	$	21,992	$	767	$	101,048
Day 1 PCD ⁽¹⁾		3,546		336		—		129		167		4,178
Provision for credit losses		(2,084)		(6,085)		(579)		(1,873)		2,125		(8,496)
Charged-off		(1,262)		(620)		(209)		(160)		(251)		(2,502)
Recoveries		290		113		194		417		168		1,182
ACL balance, June 30, 2021	$	24,356	$	39,974	$	7,599	$	20,505	$	2,976	$	95,410

(1)

The Day 1 PCD is attributable to the CAC acquisition in the second quarter of 2021.

The following tables present the ACL and amortized cost of portfolio loans by category (dollars in thousands):


	As of June 30, 2022
	Portfolio Loans						ACL Attributed to Portfolio Loans
	Collectively		Individually				Collectively		Individually
	Evaluated for		Evaluated for				Evaluated for		Evaluated for
	Impairment		Impairment		Total		Impairment		Impairment		Total
Portfolio loan category
Commercial	$	1,912,656	$	7,024	$	1,919,680	$	20,533	$	2,826	$	23,359
Commercial real estate		3,222,067		6,023		3,228,090		35,182		2,000		37,182
Real estate construction		465,923		262		466,185		5,669		—		5,669
Retail real estate		1,588,767		2,146		1,590,913		17,959		25		17,984
Retail other		292,910		—		292,910		4,563		—		4,563
Portfolio loans and related ACL	$	7,482,323	$	15,455	$	7,497,778	$	83,906	$	4,851	$	88,757


	As of December 31, 2021
	Portfolio Loans						ACL Attributed to Portfolio Loans
	Collectively		Individually				Collectively		Individually
	Evaluated for		Evaluated for				Evaluated for		Evaluated for
	Impairment		Impairment		Total		Impairment		Impairment		Total
Portfolio loan category
Commercial	$	1,936,898	$	6,988	$	1,943,886	$	20,291	$	3,564	$	23,855
Commercial real estate		3,114,057		5,750		3,119,807		38,249		—		38,249
Real estate construction		385,724		272		385,996		5,102		—		5,102
Retail real estate		1,510,606		2,370		1,512,976		17,564		25		17,589
Retail other		226,333		—		226,333		3,092		—		3,092
Portfolio loans and related ACL	$	7,173,618	$	15,380	$	7,188,998	$	84,298	$	3,589	$	87,887