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Loans and Allowance

9 Months Ended

Sep. 30, 2021

LOANS AND ALLOWANCE

Loan Portfolio and Credit Quality

The Corporation's primary lending focus is small business and middle market commercial, commercial real estate, public finance and residential real estate, which results in portfolio diversification. The following tables show the composition of the loan portfolio and credit quality characteristics by collateral classification, excluding loans held for sale. Loans held for sale at September 30, 2021 and December 31, 2020, were $6.0 million and $4.0 million, respectively.

The following table illustrates the composition of the Corporation’s loan portfolio by loan class for the periods indicated:


	September 30, 2021		December 31, 2020

Commercial and industrial loans	$	2,573,615	$	2,776,699
Agricultural land, production and other loans to farmers	240,686		281,884
Real estate loans:
Construction	521,889		484,723
Commercial real estate, non-owner occupied	2,150,387		2,220,949
Commercial real estate, owner occupied	952,441		958,501
Residential	1,154,373		1,234,741
Home equity	531,307		508,259
Individuals' loans for household and other personal expenditures	135,093		129,479
Public finance and other commercial loans	781,785		647,939
Loans	$	9,041,576	$	9,243,174

As of September 30, 2021, the Corporation had $198.1 million of Paycheck Protection Program ("PPP") loans compared to the December 31, 2020 balance of $667.1 million. PPP loans are included in the commercial and industrial loan class. Additional details of the PPP are included in The CARES Act and the Paycheck Protection Program sections of the "COVID-19 UPDATE" in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q.

Credit Quality

As part of the ongoing monitoring of the credit quality of the Corporation's loan portfolio, management tracks certain credit quality indicators including trends related to: (i) the level of criticized commercial loans, (ii) net charge-offs, (iii) non-performing loans, (iv) covenant failures and (v) the general national and local economic conditions.

The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans. All large commercial credit grades are reviewed at a minimum of once a year for pass grade loans. Loans with grades below pass are reviewed more frequently depending on the grade. A description of the general characteristics of these grades is as follows:

•Pass - Loans that are considered to be of acceptable credit quality.

•Special Mention - Loans which possess some credit deficiency or potential weakness, which deserves close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation's credit position at some future date. Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification.

•Substandard - A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

•Doubtful - Loans that have all of the weaknesses of those classified as Substandard. However, based on currently existing facts, conditions and values, these weaknesses make full collection of principal highly questionable and improbable.

•Loss – Loans that are considered uncollectible and of such little value that continuing to carry them as an asset is not warranted. Loans will be classified as Loss when it is neither practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The following tables summarize the risk grading of the Corporation’s loan portfolio by loan class and by year of origination for the years indicated. Consumer loans are not risk graded. For the purposes of this disclosure, the consumer loans are classified in the following manner: loans that are less than 30 days past due are Pass, loans 30-89 days past due are Special Mention and loans greater than 89 days past due are Substandard. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. Loans that evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected are included in the applicable categories below. Commercial and industrial loan balances as of September 30, 2021 with an origination year of 2021 and 2020 include PPP loans of $182.2 million and $15.9 million, respectively.


	Term Loans (amortized cost basis by origination year)
	2021		2020		2019		2018		2017		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
Commercial and industrial loans
Pass	$	795,366	$	458,425	$	188,155	$	74,791	$	24,767	$	41,419	$	884,233	$	—	$	2,467,156
Special Mention	10,551		27,059		211		992		2,032		2,026		17,466		—		60,337
Substandard	5,912		2,327		6,058		2,948		480		776		27,621		—		46,122


Total Commercial and industrial loans	$	811,829	$	487,811	$	194,424	$	78,731	$	27,279	$	44,221	$	929,320	$	—	$	2,573,615
Agricultural land, production and other loans to farmers
Pass	37,000		48,740		23,447		9,152		7,451		39,875		63,254		—		228,919
Special Mention	84		1,561		—		—		—		391		274		—		2,310
Substandard	719		538		137		1,798		—		2,925		3,340		—		9,457


Total Agricultural land, production and other loans to farmers	$	37,803	$	50,839	$	23,584	$	10,950	$	7,451	$	43,191	$	66,868	$	—	$	240,686
Real estate loans:
Construction
Pass	132,653		202,455		114,065		31,056		2,229		2,559		15,671				500,688
Special Mention	20,839		275		—		—		—		—		—		—		21,114
Substandard	—		25		—		62		—		—		—		—		87


Total Construction	$	153,492	$	202,755	$	114,065	$	31,118	$	2,229	$	2,559	$	15,671	$	—	$	521,889
Commercial real estate, non-owner occupied
Pass	455,140		740,465		228,864		132,584		127,045		156,901		26,696		—		1,867,695
Special Mention	52,739		172,621		—		98		—		2,698		—		—		228,156
Substandard	19,437		25,983		180		1,169		7,477		290		—		—		54,536


Total Commercial real estate, non-owner occupied	$	527,316	$	939,069	$	229,044	$	133,851	$	134,522	$	159,889	$	26,696	$	—	$	2,150,387
Commercial real estate, owner occupied
Pass	221,409		423,411		99,381		45,467		49,800		58,497		32,468		—		930,433
Special Mention	1,548		6,064		745		1,604		—		1,326		149		—		11,436
Substandard	1,687		4,565		—		53		2,413		1,854		—		—		10,572


Total Commercial real estate, owner occupied	$	224,644	$	434,040	$	100,126	$	47,124	$	52,213	$	61,677	$	32,617	$	—	$	952,441
Residential
Pass	263,658		381,258		115,505		80,009		60,398		235,365		4,306		44		1,140,543
Special Mention	874		1,131		464		27		229		2,200		5		—		4,930
Substandard	1,103		3,134		105		1,267		109		3,182		—		—		8,900


Total Residential	$	265,635	$	385,523	$	116,074	$	81,303	$	60,736	$	240,747	$	4,311	$	44	$	1,154,373
Home equity
Pass	68,318		21,473		2,315		2,374		1,419		3,982		427,901		195		527,977
Special Mention	—		87		—		9		—		17		1,378		—		1,491
Substandard	472		—		—		—		94		200		1,073		—		1,839


Total Home Equity	$	68,790	$	21,560	$	2,315	$	2,383	$	1,513	$	4,199	$	430,352	$	195	$	531,307
Individuals' loans for household and other personal expenditures
Pass	41,367		30,506		17,797		13,132		2,657		5,684		23,659		—		134,802
Special Mention	31		101		65		45		7		15		11		—		275
Substandard	—		3		—		—		—		13		—		—		16


Total Individuals' loans for household and other personal expenditures	$	41,398	$	30,610	$	17,862	$	13,177	$	2,664	$	5,712	$	23,670	$	—	$	135,093
Public finance and other commercial loans
Pass	203,809		179,913		100,892		39,236		107,674		129,488		20,773		—		781,785




Total Public finance and other commercial loans	$	203,809	$	179,913	$	100,892	$	39,236	$	107,674	$	129,488	$	20,773	$	—	$	781,785
Loans	$	2,334,716	$	2,732,120	$	898,386	$	437,873	$	396,281	$	691,683	$	1,550,278	$	239	$	9,041,576


	December 31, 2020
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss		Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	2,562,077	$	117,503	$	97,119	$	—	$	—	$	—	$	—	$	2,776,699
Agricultural land, production and other loans to farmers	243,991		26,835		9,885		—		—		1,173		—		281,884
Real estate Loans:
Construction	446,846		10,445		5,549		—		—		21,763		120		484,723
Commercial real estate, non-owner occupied	1,979,827		160,304		80,818		—		—		—		—		2,220,949
Commercial real estate, owner occupied	907,566		17,641		33,294						—		—		958,501
Residential	199,338		2,261		7,058		—		—		1,020,687		5,397		1,234,741
Home equity	12,714		—		989		—		—		492,999		1,557		508,259
Individuals' loans for household and other personal expenditures	—		—		—		—		—		129,440		39		129,479

Public finance and other commercial loans	647,939		—		—		—		—		—		—		647,939
Loans	$	7,000,298	$	334,989	$	234,712	$	—	$	—	$	1,666,062	$	7,113	$	9,243,174

Total past due loans equaled $38.9 million as of September 30, 2021, a $33.9 million decrease from the total of $72.8 million for December 31, 2020. At September 30, 2021, 30-59 Days Past Due loans totaled $12.2 million, a decrease of $7.5 million from December 31, 2020. The primary decreases were in commercial and industrial and owner-occupied commercial real estate loans. At September 30, 2021, 60-89 Days Past Due loans totaled $3.5 million, a decrease of $7.6 million from December 31, 2020. The primary decrease was in commercial and industrial loans. At September 30, 2021, 90 Days or More Past Due loans totaled $23.2 million, a decrease of $18.8 million from December 31, 2020. The primary decrease was in non-owner occupied commercial real estate, due to the payoff of a $23.4 million relationship. This was offset by an increase in the commercial and industrial segment of $13.5 million due to one relationship, of $11.4 million, moving into non-accrual status. The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, for the years indicated:


	September 30, 2021
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total		Loans > 90 Days or More Past Due And Accruing
Commercial and industrial loans	$	2,554,111	$	2,667	$	507	$	16,330	$	2,573,615	$	1
Agricultural land, production and other loans to farmers	240,660		—		—		26		240,686		—
Real estate loans:
Construction	521,889		—		—		—		521,889		—
Commercial real estate, non-owner occupied	2,142,055		4,698		424		3,210		2,150,387		—
Commercial real estate, owner occupied	950,676		393		1,017		355		952,441		—
Residential	1,147,965		2,982		1,195		2,231		1,154,373		111
Home equity	528,760		1,197		355		995		531,307		43
Individuals' loans for household and other personal expenditures	134,801		233		43		16		135,093		2

Public finance and other commercial loans	781,785		—		—		—		781,785		—
Loans	$	9,002,702	$	12,170	$	3,541	$	23,163	$	9,041,576	$	157


	December 31, 2020
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total		Loans > 90 Days or More Past Due And Accruing
Commercial and industrial loans	$	2,761,473	$	5,866	$	6,571	$	2,789	$	2,776,699	$	594
Agricultural land, production and other loans to farmers	280,615		146		226		897		281,884		—
Real estate loans:
Construction	484,706		—		17		—		484,723		—
Commercial real estate, non-owner occupied	2,184,681		2,525		2,109		31,634		2,220,949		—
Commercial real estate, owner occupied	951,561		4,854		180		1,906		958,501		—
Residential	1,226,779		3,269		1,429		3,264		1,234,741		133
Home equity	503,596		2,644		559		1,460		508,259		19
Individuals' loans for household and other personal expenditures	129,049		334		96		—		129,479		—

Public finance and other commercial loans	647,939		—		—		—		647,939		—
Loans	$	9,170,399	$	19,638	$	11,187	$	41,950	$	9,243,174	$	746

Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. All unpaid accrued interest is reversed against earnings when considered uncollectible and at the time accrual is discontinued. Payments subsequently received on non-accrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance.

The following table summarizes the Corporation’s non-accrual loans by loan class for the periods indicated:


	September 30, 2021				December 31, 2020
	Non-Accrual Loans		Non-Accrual Loans with no Allowance for Credit Losses		Non-Accrual Loans
Commercial and industrial loans	$	16,817	$	628	$	2,329
Agricultural land, production and other loans to farmers	119		—		1,012
Real estate loans:
Construction	15		—		123
Commercial real estate, non-owner occupied	26,176		3,816		46,316
Commercial real estate, owner occupied	1,002		545		3,040
Residential	5,556		797		6,517
Home equity	1,804		—		2,095
Individuals' loans for household and other personal expenditures	13		—		39

Loans	$	51,502	$	5,786	$	61,471

There was no interest income recognized on non-accrual loans for the three and nine months ended September 30, 2021 and 2020, respectively.

Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses:


	September 30, 2021
	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans
Commercial and industrial loans	$	—	$	—	$	17,450	$	17,450	$	4,985
Agricultural land, production and other loans to farmers	—		—		300		300		—
Real estate loans:
Construction	—		15		—		15		1
Commercial real estate, non-owner occupied	26,703		—		—		26,703		6,463
Commercial real estate, owner occupied	1,846		—		—		1,846		21
Residential	—		2,927		—		2,927		327
Home equity	—		402		—		402		66


Loans	$	28,549	$	3,344	$	17,750	$	49,643	$	11,863

As detailed in NOTE 1. GENERAL of these Notes to Consolidated Condensed Financial Statements, the Bank's banking regulators issued guidance in March 2020 encouraging financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act had further provided that a qualified loan modification is exempt by law from classification as a troubled debt restructure as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. In accordance with that guidance, the Bank has offered short-term modifications made in response to COVID-19 to borrowers who were current and otherwise not past due. These included short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The Consolidated Appropriations Act, 2021 extended the expiration date for COVID-related loan modifications exempt from troubled debt restructuring classification until the earlier of January 1, 2022, or 60 days after the termination of the national emergency. Details of the Corporation's modifications are included in the "LOAN QUALITY" section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q.

In certain loan restructuring situations, the Corporation may grant a concession to a debtor experiencing financial difficulty, resulting in a troubled debt restructuring. A concession is deemed to be granted when, as a result of the restructuring, the Corporation does not expect to collect all original amounts due, including interest accrued at the original contract rate. If the payment of principal at original maturity is primarily dependent on the value of collateral, the current value of the collateral is considered in determining whether the principal will be repaid.

The following tables summarize troubled debt restructures in the Corporation's loan portfolio that occurred during the three months and nine months ended September 30, 2021 and 2020, respectively.


			Three Months Ended September 30, 2021
	Pre- Modification Recorded Balance		Term Modification		Rate Modification		Post - Modification Recorded Balance		Number of Loans

Real estate loans:
Construction	$	16	$	—	$	16	$	16	1
Commercial real estate, non owner occupied	12,922		12,976		—		12,976		1




Total	$	12,938	$	12,976	$	16	$	12,992	2


			Three Months Ended September 30, 2020
	Pre- Modification Recorded Balance		Term Modification		Rate Modification		Post - Modification Recorded Balance		Number of Loans


Real estate loans:


Residential	$	2,314	$	2,275	$	51	$	2,326	30
Home Equity	307		212		95		307		2
Individuals' loans for household and other personal expenditures	19		19		—		19		2
Total	$	2,640	$	2,506	$	146	$	2,652	34


			Nine Months Ended September 30, 2021
	Pre- Modification Recorded Balance		Term Modification		Rate Modification		Combination		Post - Modification Recorded Balance		Number of Loans
Commercial and industrial loans	$	348	$	348	$	—	$	—	$	348	2
Real estate loans:
Construction	16		—		16		—		16		1
Commercial real estate, non owner occupied	12,922		12,976		—		—		12,976		1
Commercial real estate, owner occupied	21		—		—		21		21		1
Residential	691		449		126		118		693		9


Total	$	13,998	$	13,773	$	142	$	139	$	14,054	14



			Nine Months Ended September 30, 2020
	Pre- Modification Recorded Balance		Term Modification		Rate Modification		Combination		Post - Modification Recorded Balance		Number of Loans
Commercial and industrial loans	$	654	$	654	$	—	$	—	$	654	3
Agricultural land, production and other loans to farmers	458		458		—		—		458		1
Real estate loans:

Commercial real estate, owner occupied	107		107		—		—		107		1
Residential	2,614		2,276		163		224		2,663		36
Home Equity	307		211		96		—		307		2
Individuals' loans for household and other personal expenditures	19		19		—		—		19		2
Total	$	4,159	$	3,725	$	259	$	224	$	4,208	45

Loans secured by commercial real estate, non-owner occupied made up 99.9 percent of the post-modification balances of the troubled debt restructured loans that occurred during the three months ending September 30, 2021 and 92.3 percent for the nine months ending September 30, 2021.

The following tables summarize troubled debt restructures that occurred during the twelve months ended September 30, 2021 and 2020, that subsequently defaulted during the period indicated and remained in default at period end. For purposes of this schedule, a loan is considered in default if it is 30-days or more past due.


	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Commercial and industrial loans	2	$	160	2	$	160
Real estate loans:

Residential	5	599		5	599


Total	7	$	759	7	$	759


	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Commercial and industrial loans	1	$	317	2	$	585
Real estate loans:
Commercial real estate, non owner occupied	1	106		1	106



Total	2	$	423	3	$	691

Commercial troubled debt restructured loans risk graded special mention, substandard, doubtful and loss are individually evaluated for apparent loss and may result in a specific reserve allocation in the allowance for credit loss. Commercial troubled debt restructures that aren't individually evaluated for a specific reserve are included in the calculation of allowance for credit losses through the loan segment loss analysis.

For all consumer loan modifications, an evaluation to identify if a troubled debt restructure has occurred is performed prior to making the modification. Any subsequent deterioration is addressed through the charge-off process or through a specific reserve allocation included in the allowance for credit loss. Consumer troubled debt restructures that are not individually evaluated for a specific reserve are included in the calculation of the allowance for credit losses through the loan segment loss analysis. Consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $3.9 million and $5.1 million at September 30, 2021 and September 30, 2020, respectively.

Allowance for Credit Losses on Loans

The Allowance for Credit Losses on Loans ("ACL - Loans") is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans over the contractual term. The ACL - Loans is adjusted by the provision for credit losses, which is reported in earnings, and reduced by charge offs for loans, net or recoveries. Provision for credit losses on loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Loans are charged off against the allowance when the uncollectibility of the loan is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

The allowance represents the Corporation’s best estimate of current expected credit losses on loans using relevant available information, from internal and external sources, related 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 current expected credit loss ("CECL") calculation is performed and evaluated quarterly and losses are estimated over the expected life of the loan. The level of the allowance for credit losses is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.

In calculating the allowance for credit losses, the loan portfolio was pooled into ten loan segments with similar risk characteristics. Common characteristics include the type or purpose of the loan, underlying collateral and historical/expected credit loss patterns. In developing the loan segments, the Corporation analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors.

The expected credit losses are measured over the life of each loan segment utilizing the Probability of Default / Loss Given Default methodology combined with economic forecast models to estimate the current expected credit loss inherent in the loan portfolio. This approach is also leveraged to estimate the expected credit losses associated with unfunded loan commitments incorporating expected utilization rates.

The Corporation sub-segmented certain commercial portfolios by risk level and certain consumer portfolios by delinquency status where appropriate. The Corporation utilized a four-quarter reasonable and supportable economic forecast period followed by a six-quarter, straight-line reversion period to the historical macroeconomic mean for the remaining life of the loans. Econometric modeling was performed using historical default rates and a selection of economic forecast scenarios published by Moody’s to develop a range of estimated credit losses for which to determine the best credit loss estimate within. Macroeconomic factors utilized in the modeling process include the national unemployment rate, BBB US corporate index, CRE price index and the home price index.

The Corporation qualitatively adjusts model results for risk factors that are not inherently considered in the quantitative modeling process, but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in the nature and volume of the loan portfolio, (ii) changes in the existence, growth and effect of any concentrations in credit, (iii) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (iv) changes in the quality of the credit review function, (v) changes in the experience, ability and depth of lending management and staff, and (vi) other environmental factors such as regulatory, legal and technological considerations, as well as competition.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The fair value of collateral supporting collateral dependent loans is evaluated on a quarterly basis.

No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the Small Business Administration ("SBA").

The risk characteristics of the Corporation’s portfolio segments are as follows:

Commercial

Commercial lending is primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the tangible assets being financed such as equipment or real estate or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Other loans may be unsecured, secured but under-collateralized or otherwise made on the basis of the enterprise value of an organization. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Corporation monitors commercial real estate loans based on collateral and risk grade criteria, as well as the levels of owner-occupied versus non-owner occupied loans.

Construction

Construction loans are underwritten utilizing a combination of tools and techniques including feasibility and market studies, independent appraisals and appraisal reviews, absorption and interest rate sensitivity analysis as well as the financial analysis of the developer and all guarantors. Construction loans are monitored by either in house or third party inspectors limiting advances to a percentage of costs or stabilized project value. These loans frequently involve the disbursement of significant funds with the repayment dependent upon the successful completion and, where necessary, the future stabilization of the project. The predominant inherent risk of this portfolio is associated with the borrower's ability to successfully complete a project on time, within budget and stabilize the projected as originally projected.

Consumer and Residential

With respect to residential loans that are secured by 1-4 family residences, which are typically owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans, such as small installment loans and certain lines of credit, are unsecured. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers and can also be impacted by changes in property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

The following tables summarize changes in the allowance for credit losses by loan segment for the three and nine months ended September 30, 2021:


	Three Months Ended September 30, 2021
	Commercial		Commercial Real Estate		Construction		Consumer & Residential		Total
Allowance for credit losses
Balances, June 30, 2021	$	63,681	$	72,701	$	17,077	$	46,316	$	199,775




Provision for credit losses	3,496		(3,850)		567		(213)		—

Recoveries on loans	204		370		—		261		835
Loans charged off	(137)		(115)		(4)		(382)		(638)
Balances, September 30, 2021	$	67,244	$	69,106	$	17,640	$	45,982	$	199,972


	Nine Months Ended September 30, 2021
	Commercial		Commercial Real Estate		Construction		Consumer		Residential		Consumer & Residential		Total
Allowance for credit losses
Balances, December 31, 2020	$	47,115	$	51,070	$	—	$	9,648	$	22,815	$	—	$	130,648
Credit risk reclassifications	—		(10,284)		10,284		(9,648)		(22,815)		32,463		—
Balances, December 31, 2020 after reclassifications	47,115		40,786		10,284		—		—		32,463		130,648
Impact of adopting ASC 326	20,024		34,925		8,805		—		—		10,301		74,055
Balances, January 1, 2021 Post-ASC 326 adoption	67,139		75,711		19,089		—		—		42,764		204,703
Provision for credit losses	666		(2,709)		(1,444)		—		—		3,487		—

Recoveries on loans	544		567		1		—		—		829		1,941
Loans charged off	(1,105)		(4,463)		(6)		—		—		(1,098)		(6,672)
Balances, September 30, 2021	$	67,244	$	69,106	$	17,640	$	—	$	—	$	45,982	$	199,972

Allowance for Loan Losses under prior GAAP ("Incurred Loss Model")

Prior to the adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2021, the Corporation maintained an allowance for loan losses in accordance with the incurred loss model as disclosed in the Corporation's 2020 Annual Report on Form 10-K.

The following tables summarize changes in the allowance for loan losses by loan segment for the three and nine months ended September 30, 2020:


	Three Months Ended September 30, 2020
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance for loan losses:
Balances, June 30, 2020	$	44,678	$	46,918	$	8,445	$	21,078	$	121,119
Provision for losses	7,299		2,990		971		1,284		12,544
Recoveries on loans	197		46		54		130		427
Loans charged off	(6,827)		—		(92)		(445)		(7,364)
Balances, September 30, 2020	$	45,347	$	49,954	$	9,378	$	22,047	$	126,726


	Nine Months Ended September 30, 2020
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance for loan losses:
Balances, December 31, 2019	$	32,902	$	28,778	$	4,035	$	14,569	$	80,284
Provision for losses	19,240		21,129		5,678		8,144		54,191
Recoveries on loans	746		271		152		248		1,417
Loans charged off	(7,541)		(224)		(487)		(914)		(9,166)
Balances, September 30, 2020	$	45,347	$	49,954	$	9,378	$	22,047	$	126,726

The table below shows the Corporation’s allowance for loan losses under the incurred loss model and loan portfolio by loan segment as of December 31, 2020.


	December 31, 2020
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance Balances:
Individually evaluated for impairment	$	223	$	12,246	$	—	$	432	$	12,901
Collectively evaluated for impairment	46,892		38,824		9,648		22,383		117,747

Total Allowance for Loan Losses	$	47,115	$	51,070	$	9,648	$	22,815	$	130,648
Loan Balances:
Individually evaluated for impairment	$	1,258	$	51,605	$	2	$	3,291	$	56,156
Collectively evaluated for impairment	3,505,863		3,805,808		129,477		1,739,709		9,180,857
Loans acquired with deteriorated credit quality	577		5,584		—		—		6,161
Loans	$	3,507,698	$	3,862,997	$	129,479	$	1,743,000	$	9,243,174

The following tables show the composition of the Corporation’s impaired loans, related allowance under the incurred loss model and interest income recognized while impaired by loan class as of the periods indicated:


	December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	1,059	$	991	$	—

Real estate Loans:
Commercial real estate, non-owner occupied	4,958		4,694		—
Commercial real estate, owner occupied	2,125		1,310		—
Residential	957		816		—

Individuals' loans for household and other personal expenditures	2		2		—

Total	$	9,101	$	7,813	$	—
Impaired loans with related allowance:
Commercial and industrial loans	$	268	$	268	$	223
Agricultural land, production and other loans to farmers	640		562		3
Real estate Loans:
Commercial real estate, non-owner occupied	44,016		43,715		11,686
Commercial real estate, owner occupied	2,061		1,323		557
Residential	2,041		2,014		352
Home equity	487		461		80


Total	$	49,513	$	48,343	$	12,901
Total Impaired Loans	$	58,614	$	56,156	$	12,901


	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	8,625	$	—	$	9,225	$	—

Real estate Loans:

Commercial and farmland	10,812		37		11,059		113
Residential	58		1		59		2

Individuals' loans for household and other personal expenditures	3		—		3		—

Total	$	19,498	$	38	$	20,346	$	115
Impaired loans with related allowance:
Commercial and industrial loans	$	1,018	$	—	$	1,018	$	—

Real estate Loans:

Commercial and farmland	33,390		—		33,543		—
Residential	2,921		18		2,951		53
Home equity	482		4		488		11


Total	$	37,811	$	22	$	38,000	$	64
Total Impaired Loans	$	57,309	$	60	$	58,346	$	179

Off-Balance Sheet Arrangements, Commitments And Contingencies

In the normal course of business, the Corporation has entered into off-balance sheet financial instruments which include commitments to extend credit and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial concerns that use lines of credit to supplement their treasury management functions, and thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing for their cash flows. Other typical lines of credit are related to home equity loans granted to customers. Commitments to extend credit generally have fixed expiration dates or other termination clauses that may require a fee.

Standby letters of credit are generally issued on behalf of an applicant (the Corporation’s customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of two years or less unless terminated beforehand due to criteria specified in the standby letter of credit. The standby letter of credit would permit the beneficiary to obtain payment from the Corporation under certain prescribed circumstances. Subsequently, the Corporation would seek reimbursement from the applicant pursuant to the terms of the standby letter of credit.

The Corporation typically follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer’s creditworthiness is typically evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include cash, real estate, marketable securities, accounts receivable, inventory, equipment and personal property.

The contractual amounts of these commitments are not reflected in the consolidated financial statements and only amounts drawn upon would be reflected in the future. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should the Corporation’s customers default on their resulting obligation to the Corporation, the maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those commitments.

Financial instruments with off-balance sheet risk were as follows:


	September 30, 2021		December 31, 2020
Amounts of commitments:
Loan commitments to extend credit	$	3,938,075	$	3,443,514
Standby letters of credit	$	33,986	$	29,555

The adoption of the CECL methodology for measuring credit losses, as discussed more fully in the Allowance for Credit Loss on Loans section of this Note, and in NOTE 1. GENERAL of these Notes to Consolidated Condensed Financial Statements, increased the opening balance of our accrual for off-balance sheet commitments at adoption by $20.5 million. This reserve level remains appropriate and is reported in Other Liabilities as of September 30, 2021 in the CONSOLIDATED CONDENSED BALANCE SHEETS.

The following table details activity in the allowance for credit losses on off-balance sheet commitments:


	Three Months Ended September 30, 2021
Balances, June 30, 2021	$	20,500

Provision for credit losses	—
Balances, September 30, 2021	$	20,500