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LOANS AND ALLOWANCE
 3 Months Ended
Mar. 31, 2023
Receivables [Abstract]  
LOANS AND ALLOWANCE
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 March 31, 2023 and December 31, 2022, were $9.4 million and $9.1 million, respectively.

The following table illustrates the composition of the Corporation’s loan portfolio by loan class for the periods indicated:
March 31, 2023December 31, 2022
Commercial and industrial loans$3,502,204 $3,437,126 
Agricultural land, production and other loans to farmers219,598 241,793 
Real estate loans:
Construction960,979 835,582 
Commercial real estate, non-owner occupied2,375,410 2,407,475 
Commercial real estate, owner occupied1,244,117 1,246,528 
Residential2,185,943 2,096,655 
Home equity621,354 630,632 
Individuals' loans for household and other personal expenditures172,389 175,211 
Public finance and other commercial loans959,467 932,892 
Loans$12,241,461 $12,003,894 


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.
March 31, 2023
Term Loans (amortized cost basis by origination year)Revolving loans amortizedRevolving loans converted
20232022202120202019Priorcost basisto termTotal
Commercial and industrial loans
Pass$344,116 $833,832 $459,180 $118,142 $110,854 $80,036 $1,351,418 $— $3,297,578 
Special Mention1,184 5,100 22,970 12,611 2,594 2,022 53,264 — 99,745 
Substandard— 35,900 13,576 2,748 10,391 5,012 36,459 — 104,086 
Doubtful— — 795 — — — — — 795 
Total Commercial and industrial loans345,300 874,832 496,521 133,501 123,839 87,070 1,441,141 — 3,502,204 
Current period gross write-offs— 57 37 88 31 30 — — 243 
Agricultural land, production and other loans to farmers
Pass12,568 42,153 35,465 34,244 14,954 30,246 47,301 — 216,931 
Special Mention— 286 760 — — 885 — — 1,931 
Substandard37 170 — 462 — 67 — — 736 
Total Agricultural land, production and other loans to farmers12,605 42,609 36,225 34,706 14,954 31,198 47,301 — 219,598 
Real estate loans:
Construction
Pass177,799 317,261 295,533 111,333 930 3,162 17,785 — 923,803 
Special Mention15,625 14,014 — — — — — — 29,639 
Substandard17 2,795 4,725 — — — — — 7,537 
Total Construction193,441 334,070 300,258 111,333 930 3,162 17,785 — 960,979 
Commercial real estate, non-owner occupied
Pass82,982 551,019 572,828 496,049 165,356 259,267 34,481 — 2,161,982 
Special Mention23,243 29,870 6,510 23,885 18,664 35,865 — — 138,037 
Substandard7,005 16,121 12,523 23,423 — 16,269 50 — 75,391 
Total Commercial real estate, non-owner occupied113,230 597,010 591,861 543,357 184,020 311,401 34,531 — 2,375,410 
Current period gross write-offs— 2 — — — — — — 2 
Commercial real estate, owner occupied
Pass53,588 240,722 306,558 309,989 114,099 122,322 31,628 — 1,178,906 
Special Mention63 17,766 2,692 5,623 732 3,502 4,076 — 34,454 
Substandard11,480 3,654 334 5,138 1,859 8,292 — — 30,757 
Total Commercial real estate, owner occupied65,131 262,142 309,584 320,750 116,690 134,116 35,704 — 1,244,117 
Current period gross write-offs— — — — 2 — — — 2 
Residential
Pass148,051 730,773 481,262 392,890 113,139 296,233 5,875 25 2,168,248 
Special Mention490 3,491 2,056 1,190 316 2,456 158 — 10,157 
Substandard— 1,168 2,099 717 480 3,074 — — 7,538 
Total Residential148,541 735,432 485,417 394,797 113,935 301,763 6,033 25 2,185,943 
Current period gross write-offs— 7 13 1 — 110 — — 131 
Home equity
Pass6,244 41,482 71,558 14,219 1,529 6,052 471,404 2,006 614,494 
Special Mention— 66 415 7 — 11 4,611 227 5,337 
Substandard— — 78 — — 354 1,050 41 1,523 
Total Home Equity6,244 41,548 72,051 14,226 1,529 6,417 477,065 2,274 621,354 
Current period gross write-offs— 18 25 2 20 169 — — 234 
Individuals' loans for household and other personal expenditures
Pass16,204 60,965 39,063 11,318 4,409 8,397 30,980 — 171,336 
Special Mention3 259 117 42 8 23 461 128 1,041 
Substandard— — — — — 12 — — 12 
Total Individuals' loans for household and other personal expenditures16,207 61,224 39,180 11,360 4,417 8,432 31,441 128 172,389 
Current period gross write-offs— 191 114 37 13 102 — — 457 
Public finance and other commercial loans
Pass13,114 214,727 210,600 159,678 97,254 242,322 21,772 — 959,467 
Total Public finance and other commercial loans13,114 214,727 210,600 159,678 97,254 242,322 21,772 — 959,467 
Loans$913,813 $3,163,594 $2,541,697 $1,723,708 $657,568 $1,125,881 $2,112,773 $2,427 $12,241,461 
Total current period gross charge-offs$— $275 $189 $128 $66 $411 $— $— $1,069 
December 31, 2022
Term Loans (amortized cost basis by origination year)Revolving loans amortizedRevolving loans converted
20222021202020192018Priorcost basisto 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 
Total past due loans equaled $82.9 million as of March 31, 2023 representing a $31.9 million increase from $51.0 million at December 31, 2022. The 60-89 days past due loans increased $21.0 million from December 31, 2022. Commercial and industrial, commercial real estate non-owner occupied and owner occupied segments increased $9.6 million, $3.0 million, and $7.4 million, respectively. The 90 days or more past due loans increased $11.0 million from December 31, 2022. Commercial and industrial and commercial real estate, non-owner occupied segments increased $4.5 million and $5.8 million, respectively. The 90 days or more past due and accruing loans increased $5.3 million from December 31, 2022, primarily in the commercial and industrial and commercial real estate, owner occupied segments. The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, for the periods indicated:
March 31, 2023
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$3,480,761 $4,438 $9,995 $7,010 $3,502,204 $4,631 
Agricultural land, production and other loans to farmers219,571 — — 27 219,598 — 
Real estate loans:
Construction957,367 3,612 — — 960,979 — 
Commercial real estate, non-owner occupied2,353,426 7,154 3,891 10,939 2,375,410 797 
Commercial real estate, owner occupied1,231,113 3,757 7,444 1,803 1,244,117 1,588 
Residential2,170,577 6,667 2,759 5,940 2,185,943 — 
Home equity615,199 2,626 2,214 1,315 621,354 16 
Individuals' loans for household and other personal expenditures171,336 408 633 12 172,389 — 
Public finance and other commercial loans959,258 209 — — 959,467 — 
Loans$12,158,608 $28,871 $26,936 $27,046 $12,241,461 $7,032 


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 


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 prior years, 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:
March 31, 2023December 31, 2022
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$11,051 $856 $3,292 $481 
Agricultural land, production and other loans to farmers64 — 54 — 
Real estate loans:
Construction— — 12 — 
Commercial real estate, non-owner occupied16,550 1,830 19,374 280 
Commercial real estate, owner occupied2,926 2,236 3,550 2,784 
Residential14,154 — 13,685 702 
Home equity1,811 — 2,247 — 
Individuals' loans for household and other personal expenditures20 — 110 — 
Loans$46,576 $4,922 $42,324 $4,247 
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 three months ended March 31, 2023 or 2022.

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 tables below 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. Commercial and Industrial collateral dependent loans and related allowance increased $8.9 million and $5.6 million, respectively, for the three months ended March 31, 2023. The total increase in the collateral dependent balance was offset by a decrease in the commercial real estate, non-owner occupied segment of $3.6 million for the three months ended March 31, 2023.
March 31, 2023
Commercial Real EstateResidential Real EstateOtherTotal Allowance on Collateral Dependent Loans
Commercial and industrial loans$— $— $50,996 $50,996 $13,937 
Real estate loans:
Construction— 10 — 10 1 
Commercial real estate, non-owner occupied22,908 — — 22,908 1,656 
Commercial real estate, owner occupied6,396 — — 6,396 361 
Residential— 1,588 — 1,588 253 
Home equity— 283 — 283 42 
Loans$29,304 $1,881 $50,996 $82,181 $16,250 


December 31, 2022
Commercial Real EstateResidential Real EstateOtherTotal Allowance 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 


In certain situations, the Corporation may modify the terms of a loan to a debtor experiencing financial difficulty. The modifications may include principal forgiveness, interest rate reductions, payment delays, term extensions or combinations of the above. The following table presents the amortized cost basis of loans at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
Term ExtensionCombination Interest Rate Reduction & Term Extension% of Total Class of Financing Receivable
Commercial and industrial loans$9,224 $— 0.26 %
Agricultural land, production and other loans to farmers37 — 0.02 %
Real estate loans:
Construction17 — — %
Commercial Real Estate, Non Owner Occupied97 5,966 0.26 %
Commercial Real Estate, Owner Occupied10,822 82 0.88 %
Total$20,197 $6,048 
The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2023.

Financial Effect of Loan Modifications
Term ExtensionCombination Interest Rate Reduction & Term Extension
Commercial and industrial loans
Added a weighted average life of 4 months to the life of the loans, which reduced monthly payment amounts for the borrowers.
Agricultural land, production and other loans to farmers
Added a weighted average life of 60 months to the life of the loans, which reduced monthly payment amounts for the borrowers.
Real estate loans:
Construction
Added a weighted average life of 24 months to the life of the loans, which reduced monthly payment amounts for the borrowers.
Commercial Real Estate, Non Owner Occupied
Added a weighted average life of 12 months to the life of the loans, which reduced monthly payment amounts for the borrowers.
Reduced the weighted average contractual interest rate from 7.81 percent to 7.40 percent. Added a weighted average 41 months to the life of loans, which reduced monthly payment amounts for the borrowers.
Commercial Real Estate, Owner Occupied
Added a weighted average life of 9 months to the life of the loans, which reduced monthly payment amounts for the borrowers.
Reduced the weighted average contractual interest rate from 10.25 percent to 6.61 percent. Added a weighted average 114 months to the life of loans, which reduced monthly payment amounts for the borrowers.
The following table presents the amortized cost basis of loans that had a payment default and were modified during the three months ended March 31, 2023 due to the borrowers experiencing financial difficulty. At this time, all of the modifications are current.

Payment Status
Current
Commercial and industrial loans$9,224 
Agricultural land, production and other loans to farmers37 
Real estate loans:
Construction17 
Commercial Real Estate, Non Owner Occupied6,063 
Commercial Real Estate, Owner Occupied10,904 
Total$26,245 

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

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 of 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 decreased $225,000 due to net charge-offs during the three months ended March 31, 2023. The allowance for credit losses increased $587,000 due to net recoveries during the three months ended March 31, 2022. There was no provision for credit losses during the three months ended March 31, 2023 and 2022. The following tables summarize changes in the allowance for credit losses by loan segment for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31, 2023
CommercialCommercial Real EstateConstructionConsumer & ResidentialTotal
Allowance for credit losses
Balances, December 31, 2022$102,216 $46,839 $28,955 $45,267 $223,277 
Provision for credit losses(1,199)(583)(384)2,166 — 
Recoveries on loans530 56 — 258 844 
Loans charged off(243)(4)— (822)(1,069)
Balances, March 31, 2023$101,304 $46,308 $28,571 $46,869 $223,052 

Three Months Ended March 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 losses7,571 (8,250)554 125 — 
Recoveries on loans139 707 — 206 1,052 
Loans charged off(8)(122)— (335)(465)
Balances, March 31, 2022$77,637 $53,000 $20,760 $44,587 $195,984 

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 customers 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:
March 31, 2023December 31, 2022
Amounts of commitments:
Loan commitments to extend credit$5,075,753 $4,950,724 
Standby letters of credit$42,898 $40,784 

The adoption of the CECL methodology for measuring credit losses on January 1, 2021 resulted in an accrual for off-balance sheet commitments of $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 is deemed appropriate by the Corporation and is reported in Other Liabilities as of March 31, 2023 in the Consolidated Condensed Balance Sheets.

The table below reflects the total allowance for credit losses for the off-balance sheet commitment for March 31, 2023 and 2022:
Three Months Ended
March 31, 2023
Balances, December 31, 2022$23,300 
Provision for credit losses— 
Balances, March 31, 2023$23,300 

Three Months Ended
March 31, 2022
Balances, December 31, 2021$20,500 
Provision for credit losses— 
Balances, March 31, 2022$20,500