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Loans and Allowance for Credit Losses
 12 Months Ended
Dec. 31, 2022
Receivables [Abstract]  
Loans and Allowance for Credit Losses
LOANS AND ALLOWANCE FOR CREDIT LOSSES

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 December 31, 2022 and December 31, 2021, were $9.1 million and $11.2 million, respectively.

The following table illustrates the composition of the Corporation’s loan portfolio by loan class for the periods indicated:
December 31, 2022December 31, 2021
Commercial and industrial loans$3,437,126 $2,714,565 
Agricultural land, production and other loans to farmers241,793 246,442 
Real estate loans:
Construction835,582 523,066 
Commercial real estate, non-owner occupied2,407,475 2,135,459 
Commercial real estate, owner occupied1,246,528 986,720 
Residential2,096,655 1,159,127 
Home equity630,632 523,754 
Individuals' loans for household and other personal expenditures175,211 146,092 
Public finance and other commercial loans932,892 806,636 
Loans$12,003,894 $9,241,861 


The Level One acquisition added $1.6 billion in loans at acquisition, which included $43.5 million of Paycheck Protection Program ("PPP") loans. Additional details of the Level One acquisition are included in NOTE 2. ACQUISITIONS of these Notes to Consolidated Financial Statements. As of December 31, 2022, the Corporation had $4.7 million of PPP loans compared to the December 31, 2021 balance of $106.6 million. Additional details of the PPP are included in NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of these Notes to Consolidated Financial Statements.

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 December 31, 2022 include PPP loans with an origination year of 2021 and 2020 of $4.6 million and $102,000, respectively. Commercial and industrial loan balances as of December 31, 2021 include PPP loans with an origination year of 2021 and 2020 of $100.3 million and $6.3 million, respectively.


December 31, 2022
Term Loans (amortized cost basis by origination year)
20222021202020192018PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Commercial and industrial loans
Pass$1,064,687 $531,504 $141,985 $114,999 $43,136 $45,310 $1,302,562 $5,048 $3,249,231 
Special Mention2,164 18,005 11,900 5,727 1,012 2,181 27,702 150 68,841 
Substandard27,512 26,571 5,531 10,606 4,674 567 43,450 143 119,054 
Total Commercial and industrial loans1,094,363 576,080 159,416 131,332 48,822 48,058 1,373,714 5,341 3,437,126 
Agricultural land, production and other loans to farmers
Pass44,446 36,299 35,791 15,296 3,752 28,910 73,402 — 237,896 
Special Mention286 784 — — 281 632 — — 1,983 
Substandard178 — 490 — 94 1,152 — — 1,914 
Total Agricultural land, production and other loans to farmers44,910 37,083 36,281 15,296 4,127 30,694 73,402 — 241,793 
Real estate loans:
Construction
Pass366,414 301,986 117,541 11,428 857 3,224 17,167 — 818,617 
Special Mention16,922 — — — — — — — 16,922 
Substandard31 — — — — 12 — — 43 
Total Construction383,367 301,986 117,541 11,428 857 3,236 17,167 — 835,582 
Commercial real estate, non-owner occupied
Pass560,146 603,254 550,605 168,701 116,859 190,264 31,196 3,803 2,224,828 
Special Mention49,439 4,026 38,268 18,785 11,546 17,992 — — 140,056 
Substandard21,123 8,128 8,026 — 4,442 872 — — 42,591 
Total Commercial real estate, non-owner occupied630,708 615,408 596,899 187,486 132,847 209,128 31,196 3,803 2,407,475 
Commercial real estate, owner occupied
Pass260,725 316,665 330,441 114,015 63,816 81,286 33,123 3,378 1,203,449 
Special Mention7,744 6,125 2,245 3,481 1,210 2,984 1,328 — 25,117 
Substandard3,124 1,214 2,376 1,608 2,920 6,720 — — 17,962 
Total Commercial real estate, owner occupied271,593 324,004 335,062 119,104 67,946 90,990 34,451 3,378 1,246,528 
Residential
Pass758,161 489,301 401,353 114,420 77,768 229,812 5,365 46 2,076,226 
Special Mention2,839 2,924 1,972 513 396 2,588 34 — 11,266 
Substandard1,399 1,824 1,811 805 1,468 1,741 60 55 9,163 
Total Residential762,399 494,049 405,136 115,738 79,632 234,141 5,459 101 2,096,655 
Home equity
Pass40,768 75,670 14,621 1,572 1,348 3,325 486,924 281 624,509 
Special Mention— — — — 115 8 3,698 — 3,821 
Substandard— 79 — — 65 60 2,098 — 2,302 
Total Home Equity40,768 75,749 14,621 1,572 1,528 3,393 492,720 281 630,632 
Individuals' loans for household and other personal expenditures
Pass67,883 43,639 13,025 5,389 5,830 3,775 35,091 — 174,632 
Special Mention178 134 77 33 28 17 16 — 483 
Substandard1 — 3 — 84 8 — — 96 
Total Individuals' loans for household and other personal expenditures68,062 43,773 13,105 5,422 5,942 3,800 35,107 — 175,211 
Public finance and other commercial loans
Pass187,125 212,702 165,019 98,687 43,760 204,719 20,880 — 932,892 
Total Public finance and other commercial loans187,125 212,702 165,019 98,687 43,760 204,719 20,880 — 932,892 
Loans$3,483,295 $2,680,834 $1,843,080 $686,065 $385,461 $828,159 $2,084,096 $12,904 $12,003,894 
December 31, 2021
Term Loans (amortized cost basis by origination year)
20212020201920182017PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Commercial and industrial loans
Pass$1,019,757 $362,372 $144,520 $65,165 $21,575 $30,420 $990,335 $— $2,634,144 
Special Mention10,559 11,088 190 730 1,930 1,825 15,026 — 41,348 
Substandard2,811 2,127 7,432 2,932 431 747 22,593 — 39,073 
Total Commercial and industrial loans1,033,127 375,587 152,142 68,827 23,936 32,992 1,027,954 — 2,714,565 
Agricultural land, production and other loans to farmers
Pass50,251 45,164 22,195 7,689 6,153 36,074 74,871 — 242,397 
Special Mention— 1,543 — — — 252 264 — 2,059 
Substandard524 506 108 371 — 27 450 — 1,986 
Total Agricultural land, production and other loans to farmers50,775 47,213 22,303 8,060 6,153 36,353 75,585 — 246,442 
Real estate loans:
Construction
Pass215,167 200,169 63,589 979 1,762 2,453 17,201 — 501,320 
Special Mention20,737 270 — — — 46 — — 21,053 
Substandard— 693 — — — — — — 693 
Total Construction235,904 201,132 63,589 979 1,762 2,499 17,201 — 523,066 
Commercial real estate, non-owner occupied
Pass589,296 688,406 227,332 111,971 103,400 126,837 26,779 — 1,874,021 
Special Mention68,279 149,480 — — — 1,723 — — 219,482 
Substandard19,314 14,912 178 1,118 6,156 278 — — 41,956 
Total Commercial real estate, non-owner occupied676,889 852,798 227,510 113,089 109,556 128,838 26,779 — 2,135,459 
Commercial real estate, owner occupied
Pass299,186 392,383 92,338 43,252 46,044 48,571 33,998 — 955,772 
Special Mention5,665 5,953 738 1,532 902 1,301 149 — 16,240 
Substandard7,025 5,763 — 53 113 1,754 — — 14,708 
Total Commercial real estate, owner occupied311,876 404,099 93,076 44,837 47,059 51,626 34,147 — 986,720 
Residential
Pass349,726 353,691 103,028 69,745 55,240 210,669 2,955 73 1,145,127 
Special Mention1,034 1,394 1,456 306 172 2,106 — — 6,468 
Substandard1,004 1,575 335 1,248 108 3,257 — 5 7,532 
Total Residential351,764 356,660 104,819 71,299 55,520 216,032 2,955 78 1,159,127 
Home equity
Pass63,845 17,556 1,977 2,127 1,250 3,432 427,437 194 517,818 
Special Mention— 85 48 — — 24 3,451 — 3,608 
Substandard520 — — 8 91 70 1,639 — 2,328 
Total Home Equity64,365 17,641 2,025 2,135 1,341 3,526 432,527 194 523,754 
Individuals' loans for household and other personal expenditures
Pass67,749 23,452 11,893 11,197 2,008 4,928 24,406 — 145,633 
Special Mention79 85 50 33 20 58 134 — 459 
Total Individuals' loans for household and other personal expenditures67,828 23,537 11,943 11,230 2,028 4,986 24,540 — 146,092 
Public finance and other commercial loans
Pass231,319 178,316 100,679 39,098 105,964 128,942 22,318 — 806,636 
Total Public finance and other commercial loans231,319 178,316 100,679 39,098 105,964 128,942 22,318 — 806,636 
Loans$3,023,847 $2,456,983 $778,086 $359,554 $353,319 $605,794 $1,664,006 $272 $9,241,861 
Total past due loans equaled $51.0 million as of December 31, 2022, a $16.3 million increase from the total of $34.7 million for December 31, 2021. At December 31, 2022, 30-59 Days Past Due loans totaled $29.1 million, an increase of $14.0 million from December 31, 2021. The primary increases were in commercial real estate owner and non-owner occupied and residential portfolios. At December 31, 2022, 60-89 Days Past Due loans totaled $5.9 million, a decrease of $1.1 million from December 31, 2021. The primary decreases were in commercial and industrial loans and residential portfolios, offset by an increase in the home equity portfolio. At December 31, 2022, 90 Days or More Past Due loans totaled $16.0 million, an increase of $3.3 million from December 31, 2021. The primary increases were in the commercial and industrial and residential portfolios, offset by a decrease in the non-owner occupied commercial real estate portfolio. The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, for the years indicated:
December 31, 2022
Current30-59 Days
Past Due		60-89 Days
Past Due		90 Days or More Past DueTotalLoans > 90 Days or More Past Due
And Accruing
Commercial and industrial loans$3,429,314 $4,904 $434 $2,474 $3,437,126 $1,147 
Agricultural land, production and other loans to farmers241,739 — — 54 241,793 — 
Real estate loans:
Construction832,716 2,436 418 12 835,582 — 
Commercial real estate, non-owner occupied2,395,495 5,946 881 5,153 2,407,475 264 
Commercial real estate, owner occupied1,241,714 4,495 — 319 1,246,528 — 
Residential2,079,959 8,607 2,278 5,811 2,096,655 — 
Home equity624,543 2,206 1,782 2,101 630,632 326 
Individuals' loans for household and other personal expenditures174,629 343 142 97 175,211 — 
Public finance and other commercial loans932,778 114 — — 932,892 — 
Loans$11,952,887 $29,051 $5,935 $16,021 $12,003,894 $1,737 


December 31, 2021
Current30-59 Days
Past Due		60-89 Days
Past Due		90 Days or More Past DueTotalLoans > 90 Days or More Past Due
And Accruing
Commercial and industrial loans$2,708,539 $2,602 $2,437 $987 $2,714,565 $675 
Agricultural land, production and other loans to farmers246,380 36 — 26 246,442 — 
Real estate loans:
Construction522,349 717 — — 523,066 — 
Commercial real estate, non-owner occupied2,124,853 3,327 — 7,279 2,135,459 — 
Commercial real estate, owner occupied985,785 643 — 292 986,720 — 
Residential1,148,294 3,979 4,255 2,599 1,159,127 — 
Home equity518,643 3,327 281 1,503 523,754 288 
Individuals' loans for household and other personal expenditures145,634 375 83 — 146,092 — 
Public finance and other commercial loans806,636 — — — 806,636 — 
Loans$9,207,113 $15,006 $7,056 $12,686 $9,241,861 $963 


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. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in the prior year, if any, is charged to the allowance for credit losses. 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:

December 31, 2022December 31, 2021
Non-Accrual LoansNon-Accrual Loans with no Allowance for Credit LossesNon-Accrual LoansNon-Accrual Loans with no Allowance for Credit Losses
Commercial and industrial loans$3,292 $481 $7,598 $263 
Agricultural land, production and other loans to farmers54 — 631 524 
Real estate loans:
Construction12 — 685 — 
Commercial real estate, non-owner occupied19,374 28023,029 6,133 
Commercial real estate, owner occupied3,550 2,784 411 — 
Residential13,685 7029,153 2,160 
Home equity2,247 — 1,552 — 
Individuals' loans for household and other personal expenditures110 — 3 — 
Loans$42,324 $4,247 $43,062 $9,080 
Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due. There was no interest income recognized on non-accrual loans for the twelve months ended December 31, 2022 and 2021, 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 tables present the amortized cost basis of collateral dependent loans by loan class and their respective collateral type, which are individually evaluated to determine expected credit losses, for December 31, 2022 and 2021. The increase in collateral dependent loans of $38.8 million between 2022 and 2021, which is mostly in the commercial and industrial loan class, is primarily related to loans from the acquisition of Level One.
December 31, 2022
Commercial Real EstateResidential Real EstateOtherTotalAllowance on Collateral Dependent Loans
Commercial and industrial loans$— $— $42,101 $42,101 $8,367 
Real estate loans:
Construction— 10 — 10 1 
Commercial real estate, non-owner occupied26,534 — — 26,534 2,064 
Commercial real estate, owner occupied6,986 — — 6,986 776 
Residential— 2,382 — 2,382 260 
Home equity— 289 — 289 44 
Loans$33,520 $2,681 $42,101 $78,302 $11,512 

December 31, 2021
Commercial Real EstateResidential Real EstateOtherTotalAllowance on Collateral Dependent Loans
Commercial and industrial loans$— $— $8,075 $8,075 $2,672 
Agricultural land, production and other loans to farmers524 — 251 775 — 
Real estate loans:
Construction— 685 — 685 82 
Commercial real estate, non-owner occupied23,652 — — 23,652 5,510 
Commercial real estate, owner occupied1,044 — — 1,044 — 
Residential— 4,906 — 4,906 305 
Home equity— 394 — 394 64 
Loans$25,220 $5,985 $8,326 $39,531 $8,633 


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 twelve months ended December 31, 2022 and 2021, respectively.

Twelve Months Ended December 31, 2022
Pre- Modification Recorded BalanceTerm ModificationRate ModificationPost - Modification Recorded BalanceNumber of Loans
Commercial and industrial loans$61 $62 $— $62 1
Real estate loans:
Residential53— 56561
Total$114 $62 $56 $118 2 


Twelve Months Ended December 31, 2021
Pre- Modification Recorded BalanceTerm ModificationRate ModificationCombinationPost - Modification Recorded BalanceNumber of Loans
Commercial and industrial loans$348 $348 $— $— $348 2
Real estate loans:
Construction16— 16 — 161
Commercial real estate, non owner occupied12,922 12,976 12,976 1
Commercial real estate, owner occupied5129— 21 502
Residential691 449 126118693 9
Total$14,028 $13,802 $142 $139 $14,083 15 


Loans in the commercial and industrial and residential loan classes made up 52.5 percent and 47.5 percent, respectively, of the post-modification balances of the troubled debt restructured loans that occurred during the twelve months ending December 31, 2022. During the twelve months ended December 31, 2021, commercial real estate, non owner occupied made up 92.1 percent of the post-modification balance of the troubled debt restructured loans that occurred in the period.

The following table summarizes troubled debt restructures that occurred during the twelve months ended December 31, 2021, 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. None of the troubled debt restructures that occurred during the twelve months ended December 31, 2022 resulted in a subsequent default that remained in default at period end.
Twelve Months Ended December 31, 2021
Number of LoansRecorded Balance
Real estate loans:
Residential5 $475 
Total5 $475 


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 are not 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 $2.6 million and $4.2 million at December 31, 2022 and December 31, 2021, respectively.

Purchased Credit Deteriorated Loans

The Corporation acquired Level One on April 1, 2022 and performed an evaluation of the loan portfolio in which there were loans that, at acquisition, had more than an insignificant amount of credit quality deterioration. The carrying amount of those loans is shown in the table below:

Level One
Purchase price of loans at acquisition$41,347 
CECL Day 1 PCD ACL 16,599 
Par value of acquired loans at acquisition$57,946 
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 of a borrower 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 allowance for credit losses increased $27.9 million during the twelve months ended December 31, 2022. The allowance increased primarily due to $16.6 million of allowance for credit losses on PCD loans acquired in the Level One acquisition established through accounting adjustments on the acquisition date. In addition, a provision of $14.0 million was recorded to establish an allowance for credit losses on non-PCD loans acquired in the Level One acquisition. The allowance also had net charge offs of $2.7 million for the twelve months ended December, 31 2022. The following tables summarize changes in the allowance for credit losses by loan segment for the twelve months ended December 31, 2022 and 2021:
Twelve Months Ended December 31, 2022
CommercialCommercial Real EstateConstructionConsumer & ResidentialTotal
Allowance for credit losses
Balances, December 31, 2021$69,935 $60,665 $20,206 $44,591 $195,397 
Provision for credit losses16,697 (20,425)6,367 (2,639)— 
CECL Day 1 non-PCD provision for credit losses 2,957 5,539 871 4,588 13,955 
CECL Day 1 PCD ACL12,970 2,981 648 — 16,599 
Recoveries on loans872 1,096 863 1,096 3,927 
Loans charged off(1,215)(3,017)— (2,369)(6,601)
Balances. December 31, 2022$102,216 $46,839 $28,955 $45,267 $223,277 


Twelve Months Ended December 31, 2021
CommercialCommercial Real EstateConstructionConsumerResidentialConsumer & ResidentialTotal
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 reclassifications47,115 40,786 10,284 — — 32,463 130,648 
Impact of adopting ASC 32620,024 34,925 8,805 — — 10,301 74,055 
Balances, January 1, 2021 Post-ASC 326 adoption67,139 75,711 19,089 — — 42,764 204,703 
Provision for credit losses7,921 (11,093)1,122 — — 2,050 — 
Recoveries on loans724 580 1 — — 1,273 2,578 
Loans charged off(5,849)(4,533)(6)— — (1,496)(11,884)
Balances. December 31, 2021$69,935 $60,665 $20,206 $— $— $44,591 $195,397 
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 table summarizes changes in the allowance for loan losses by loan segment for the twelve months ended December 31, 2020:

Twelve Months Ended December 31, 2020
CommercialCommercial
Real Estate		ConsumerResidentialTotal
Allowance for loan losses:
Balances, December 31, 2019$32,902 $28,778 $4,035 $14,569 $80,284 
Provision for losses21,930 22,174 5,996 8,573 58,673 
Recoveries on loans819 431 260 666 2,176 
Loans charged off(8,536)(313)(643)(993)(10,485)
Balances, December 31, 2020$47,115 $51,070 $9,648 $22,815 $130,648 


The following table summarizes the average recorded investment and interest income recognized by loan class for the period indicated:

Twelve Months Ended December 31, 2020
Average
Recorded Investment		Interest
Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans$991 $— 
Real estate Loans:
Commercial real estate, non-owner occupied4,850 145 
Commercial real estate, owner occupied 1,429 — 
Residential840 3 
Individuals' loans for household and other personal expenditures3 — 
Total$8,113 $148 
Impaired loans with related allowance:
Commercial and industrial loans$267 $— 
Agricultural land, production and other loans to farmers589 — 
Real estate Loans:
Commercial real estate, non-owner occupied 44,119 — 
Commercial real estate, owner occupied 1,447 — 
Residential2,108 70 
Home equity473 14 
Total$49,003 $84 
Total Impaired Loans$57,116 $232 


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:
December 31, 2022December 31, 2021
Amounts of commitments:
Loan commitments to extend credit$4,950,724 $3,917,215 
Standby letters of credit$40,784 $34,613 


The adoption of the CECL methodology for measuring credit losses on January 1, 2021, as discussed more fully in the Allowance for Credit Loss on Loans section of this Note, and in NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of these Notes to Consolidated Financial Statements, increased the opening balance of our accrual for off-balance sheet commitments at adoption by $20.5 million. The Level One acquisition was responsible for an additional $2.8 million of provision for credit losses associated with off-balance sheet commitments, resulting in a total allowance for credit losses on off-balance sheet commitments of $23.3 million. This reserve level remains appropriate and is reported in Other Liabilities as of December 31, 2022 in the Consolidated Balance Sheets.

The following table details activity in the allowance for credit losses on off-balance sheet commitments:
20222021
Balance, January 1$20,500 $20,500 
CECL Day 1 unfunded commitments provision for credit losses2,800 — 
Balance, December 31$23,300 $20,500