Acquired loans were transferred and are included in originated loans during 2021. This is to align with the calculation of the allowance for credit losses being used under the CECL model. Loans by class at year end were as follows:

	2021			2020
Originated loans:
Commercial real estate
Owner occupied	$	340,369		$	215,187
Non-owner occupied		533,240			309,777
Farmland		177,706			156,277
Other		138,282			78,140
Commercial
Commercial and industrial		313,836			385,831
Agricultural		54,659			44,922
Residential real estate
1-4 family residential		453,635			324,723
Home equity lines of credit		127,433			92,968
Consumer
Indirect		159,006			164,620
Direct		21,121			23,348
Other		9,395			9,868
Total originated loans	$	2,328,682		$	1,805,661
Acquired loans:
Commercial real estate
Owner occupied	$	0		$	45,101
Non-owner occupied		0			52,863
Farmland		0			26,080
Other		0			12,868
Commercial
Commercial and industrial		0			18,662
Agricultural		0			4,850
Residential real estate
1-4 family residential		0			89,118
Home equity lines of credit		0			17,383
Consumer
Direct		0			5,128
Other		0			97
Total acquired loans		0			272,150
Net deferred loan (fees) costs		2,400			233
Allowance for credit losses		(29,386	)		(22,144	)
Net loans	$	2,301,696		$	2,055,900

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics.

The following tables present the activity in the allowance for credit losses by portfolio segment for year ended December 31, 2021, and the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2020 and 2019:

The following table presents the recorded investment in nonaccrual and loans past due 90 days or more still on accrual by class of loans as of December 31, 2021 and 2020:

	2021				2020
	Nonaccrual		Loans Past Due 90 Days or More Still Accruing		Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Originated loans:
Commercial real estate
Owner occupied	$	433	$	0	$	0	$	335
Non-owner occupied		2,511		0		0		0
Farmland		274		0		0		0
Other		60
Commercial
Commercial and industrial		7,190		54		3,312		22
Agricultural		40		0		205		0
Residential real estate
1-4 family residential		3,363		459		866		223
Home equity lines of credit		917		36		603		0
Consumer
Indirect		455		123		648		64
Direct		227		53		157		111
Other		0		0		1		5
Total originated loans	$	15,470	$	725	$	5,792	$	760
Acquired loans:
Commercial real estate
Owner occupied	$	0	$	0	$	27	$	0
Non-owner occupied		0		0		362		0
Farmland		0		0		471		95
Commercial
Commercial and industrial		0		0		477		0
Agricultural		0		0		4		0
Residential real estate
1-4 family residential		0		0		4,128		1,469
Home equity lines of credit		0		0		186		0
Consumer
Direct		0		0		58		6
Total acquired loans	$	0	$	0	$	5,713	$	1,570
Total loans	$	15,470	$	725	$	11,505	$	2,330

The following tables present the aging of the recorded investment in past due loans as of December 31, 2021 and 2020 by class of loans. Note that loans on a current modification to defer payments under the CARES Act are included in loans not past due.

December 31, 2021	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Nonaccrual		Total Past Due		Loans Not Past Due		Total
Commercial real estate
Owner occupied	$	70	$	591	$	433	$	1,094	$	338,880	$	339,974
Non-owner occupied		394		311		2,511		3,216		529,490		532,706
Farmland		0		0		274		274		177,143		177,417
Other		56		0		60		116		137,878		137,994
Commercial
Commercial and industrial		256		100		7,244		7,600		304,932		312,532
Agricultural		100		28		40		168		54,706		54,874
Residential real estate
1-4 family residential		4,452		1,077		3,822		9,351		443,441		452,792
Home equity lines of credit		80		12		953		1,045		126,405		127,450
Consumer
Indirect		795		275		578		1,648		163,112		164,760
Direct		203		91		280		574		20,614		21,188
Other		0		0		0		0		9,395		9,395
Total loans	$	6,406	$	2,485	$	16,195	$	25,086	$	2,305,996	$	2,331,082

December 31, 2020	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Nonaccrual		Total Past Due		Loans Not Past Due		Total
Originated loans:
Commercial real estate
Owner occupied	$	0	$	0	$	335	$	335	$	214,460	$	214,795
Non-owner occupied		0		0		0		0		309,216		309,216
Farmland		0		0		0		0		156,053		156,053
Other		261		0		0		261		77,725		77,986
Commercial
Commercial and industrial		356		61		3,334		3,751		378,594		382,345
Agricultural		45		255		205		505		44,555		45,060
Residential real estate
1-4 family residential		1,668		974		1,089		3,731		320,129		323,860
Home equity lines of credit		419		0		603		1,022		91,957		92,979
Consumer
Indirect		1,046		285		712		2,043		168,245		170,288
Direct		284		120		268		672		22,789		23,461
Other		24		22		6		52		9,816		9,868
Total originated loans:	$	4,103	$	1,717	$	6,552	$	12,372	$	1,793,539	$	1,805,911
Acquired loans:
Commercial real estate
Owner occupied	$	0	$	0	$	27	$	27	$	45,072		45,099
Non-owner occupied		197		0		362		559		52,295		52,854
Farmland		0		0		566		566		25,513		26,079
Other		0		0		0		0		12,868		12,868
Commercial
Commercial and industrial		19		390		477		886		17,772		18,658
Agricultural		4		0		4		8		4,841		4,849
Residential real estate
1-4 family residential		1,954		821		5,597		8,372		80,745		89,117
Home equity lines of credit		23		0		186		209		17,175		17,384
Consumer
Direct		20		49		64		133		4,995		5,128
Other		0		0		0		0		97		97
Total acquired loans	$	2,217	$	1,260	$	7,283	$	10,760	$	261,373	$	272,133
Total loans	$	6,320	$	2,977	$	13,835	$	23,132	$	2,054,912	$	2,078,044

Total troubled debt restructurings were $3.9 million and $4.1 million at December 31, 2021 and 2020 respectively. The Company allocated $109 thousand and $81 thousand of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2021 and 2020, respectively. There were no commitments to lend additional amounts to borrowers with loans that were classified as troubled debt restructurings at December 31, 2021 and 2020.

During the years ending December 31, 2021, 2020 and 2019, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one, or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; an extension of an interest only period; a deferral of principal payments; a capitalization of interest and/or escrow or a legal concession.

Troubled debt restructuring modifications involved a reduction of the notes stated interest rate in the range of 0.24% to 4.075%. There were also extensions of the maturity dates on these and other troubled debt restructurings in the range of 22 days to 361 months.

The following tables present loans by class modified as troubled debt restructurings that occurred during the years ending December 31, 2021, 2020 and 2019:

The troubled debt restructurings described above increased the allowance for credit losses by $127 thousand and resulted in charge offs of $129 thousand during the year ended December 31, 2021.

The troubled debt restructurings described above increased the allowance for loan losses by $65 thousand and resulted in charge offs of $65 thousand during the year ended December 31, 2020.

			Pre- Modification		Post- Modification
December 31, 2019	Number of		Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings:	Loans		Investment		Investment
Originated loans:
Commercial
Commercial and industrial		1	$	12	$	12
Residential real estate						181
1-4 family residential		6		178		94
Home equity lines of credit		3		90		337
Indirect		39		337		46
Consumer		2		46		0
Total originated loans		51	$	663	$	670
Acquired loans:
Commercial real estate
Farmland		3		527		527
Commercial
Commercial and industrial		1		27		27
Residential real estate
1-4 family residential		4		201		205
Home equity lines of credit		1		17		17
Consumer		3		14		14
Total acquired loans		12	$	786	$	790
Total loans		63	$	1,449	$	1,460

The troubled debt restructurings described above increased the allowance for loan losses by $126 thousand and resulted in charge offs of $126 thousand during the year ended December 31, 2019.

The Company offered three-month deferrals upon request by borrowers. For those borrowers in industries that were greatly impacted by COVID-19, additional deferrals were considered and granted beyond the initial three month period. The range of the deferred months for subsequent requests were three to twelve months. The decline in deferred loans and balances is due to borrowers not requesting additional deferments and most continued to pay under the original terms of their loan.

Farmers is also a preferred SBA lender and dedicated significant additional staff and other resources to help our customers complete and submit their applications and supporting documentation for loans offered under the new Paycheck Protection Program (PPP) under CARES, so they could obtain SBA approval and receive funding as quickly as possible. During the period of the PPP program, the Company facilitated PPP assistance to 2,134 business customers totaling $256.4 million. The Company, on behalf of its customers, began processing borrower applications for PPP forgiveness at the beginning of September 2020. The SBA has up to ninety days to review an application for PPP forgiveness and provide a decision at the end of that review. Once forgiveness of the PPP loan has been communicated and payment is received from the SBA, the Company will record the cash received from the SBA, pay-off the loans based on the amount of forgiveness provided and accelerate the amount of net deferred loan fees/costs recognized for the portion of the PPP loans that are forgiven. During the period ended December 31, 2021, the Company has received life to date payments from the SBA for forgiveness of these loans totaling $254 million, or approximately 99.1% of the loans originated in 2020. The Company processed $107.9 million in new loans for PPP funding during 2021. The Company has received payments from the SBA for forgiveness of loans totaling $72.3 million, or approximately 67.1% of the PPP loans originated in 2021.

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 and leases 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. 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.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

December 31, 2020	Pass		Special Mention		Sub standard		Total
Originated loans:
Commercial real estate
Owner occupied	$	208,289	$	5,121	$	1,385	$	214,795
Non-owner occupied		290,773		11,240		7,203		309,216
Farmland		153,225		2,464		364		156,053
Other		77,432		387		167		77,986
Commercial
Commercial and industrial		372,083		1,522		8,740		382,345
Agricultural		44,527		320		213		45,060
Total originated loans	$	1,146,329	$	21,054	$	18,072	$	1,185,455
Acquired loans:
Commercial real estate
Owner occupied	$	44,031	$	87	$	981	$	45,099
Non-owner occupied		50,053		49		2,752		52,854
Farmland		24,637		100		1,342		26,079
Other		12,868		0		0		12,868
Commercial
Commercial and industrial		16,246		0		2,412		18,658
Agricultural		4,481		303		65		4,849
Total acquired loans	$	152,316	$	539	$	7,552	$	160,407
Total loans	$	1,298,645	$	21,593	$	25,624	$	1,345,862

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential, consumer and indirect loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

The following table presents the recorded investment in residential, consumer and indirect auto loans based on payment activity. Nonperforming loans are loans past due 90 days and still accruing interest and nonaccrual loans.

The following table presents total loans by risk categories and year of origination.

	Term Loans Amortized Cost Basis by Origination Year

As of December 31	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Commercial real estate
Risk Rating
Pass	$	177,091	$	143,421	$	169,670	$	121,520	$	107,577	$	221,235	$	22,473	$	962,987
Special mention		1,017		0		7,140		6,755		3,298		6,946		0		25,156
Substandard		0		721		2,664		498		3,321		14,721		606		22,531
Total commercial real estate loans	$	178,108	$	144,142	$	179,474	$	128,773	$	114,196	$	242,902	$	23,079	$	1,010,674

Commercial
Risk Rating
Pass	$	96,395	$	53,766	$	28,669	$	21,617	$	12,735	$	18,036	$	70,661	$	301,879
Special mention		572		105		108		278		3		0		124		1,190
Substandard		3,053		1,676		312		276		695		2,155		1,296		9,463
Total commercial loans	$	100,020	$	55,547	$	29,089	$	22,171	$	13,433	$	20,191	$	72,081	$	312,532

Agricultural
Risk Rating
Pass	$	45,015	$	51,913	$	28,652	$	29,372	$	19,032	$	34,069	$	20,921	$	228,974
Special mention		0		233		32		0		2,060		0		231		2,556
Substandard		353		19		62		20		0		277		30		761
Total agricultural loans	$	45,368	$	52,165	$	28,746	$	29,392	$	21,092	$	34,346	$	21,182	$	232,291

Residential real estate
Risk Rating
Pass	$	96,660	$	93,853	$	39,591	$	32,227	$	42,420	$	135,887	$	3,475	$	444,113
Special mention		0		74		134		82		95		48		0		433
Substandard		48		0		111		28		380		7,679		0		8,246
Total residential real estate loans	$	96,708	$	93,927	$	39,836	$	32,337	$	42,895	$	143,614	$	3,475	$	452,792

Home equity lines of credit
Risk Rating
Pass	$	820	$	959	$	233	$	468	$	752	$	2,765	$	119,430	$	125,427
Special mention		0		0		0		0		0		0		48		48
Substandard		0		0		20		142		74		1,590		149		1,975
Total home equity lines of credit	$	820	$	959	$	253	$	610	$	826	$	4,355	$	119,627	$	127,450

Consumer
Risk Rating
Pass	$	61,704	$	46,501	$	35,581	$	21,184	$	9,532	$	11,504	$	8,099	$	194,105
Special mention		0		0		0		0		0		0		0		0
Substandard		105		224		294		106		146		363		0		1,238
Total consumer loans	$	61,809	$	46,725	$	35,875	$	21,290	$	9,678	$	11,867	$	8,099	$	195,343

The Company adopted 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 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, becomes a troubled debt restructuring 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 2021.

According to 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 December 31, 2021, the Company had $607 million in unfunded commitments and set aside $533 thousand 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 factors 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.

As a result of the Cortland merger, the Company acquired $478.2 million in loans, excluding $4.0 million of loans held for sale. Par value of purchased loans was as follows (in thousands):

Under ASU Topic 326, when loans are purchased with evidence of more than significant 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 November 1, 2021, the Company acquired PCD loans with a fair value of $34.3 million, credit discount of $1.3 million and a noncredit discount of $1.1 million. The outstanding balance at December 31, 2021 and related allowance on these loans is as follows (in thousands):

At December 31, 2020, the Company had $917 thousand in loans that were accounted for as purchase credit impaired. Purchase credit impaired loans are loans acquired through business combinations with deteriorated credit quality that occurred subsequent to origination and have the probability that the Company would be unable to collect all contractually required payments from the borrower.