XML 21 R12.htm IDEA: XBRL DOCUMENT v3.23.2
LOANS AND ALLOWANCE
 6 Months Ended
Jun. 30, 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 June 30, 2023 and December 31, 2022, were $27.3 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:
June 30, 2023December 31, 2022
Commercial and industrial loans$3,531,395 $3,437,126 
Agricultural land, production and other loans to farmers230,003 241,793 
Real estate loans:
Construction949,918 835,582 
Commercial real estate, non-owner occupied2,379,819 2,407,475 
Commercial real estate, owner occupied1,179,739 1,246,528 
Residential2,248,473 2,096,655 
Home equity614,366 630,632 
Individuals' loans for household and other personal expenditures172,896 175,211 
Public finance and other commercial loans963,624 932,892 
Loans$12,270,233 $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.
June 30, 2023
Term Loans (amortized cost basis by origination year)Revolving loans amortizedRevolving loans converted
20232022202120202019Priorcost basisto termTotal
Commercial and industrial loans
Pass$729,958 $621,373 $324,532 $104,165 $97,712 $62,081 $1,370,356 $30 $3,310,207 
Special Mention10,124 5,537 19,973 5,729 4,188 924 54,818 — 101,293 
Substandard1,470 34,900 11,649 10,618 4,347 2,013 52,518 — 117,515 
Doubtful— — 1,552 — — — 828 — 2,380 
Total Commercial and industrial loans741,552 661,810 357,706 120,512 106,247 65,018 1,478,520 30 3,531,395 
Current period gross write-offs196 85 340 109 57 92 — — 879 
Agricultural land, production and other loans to farmers
Pass19,826 40,472 34,147 32,710 14,360 29,187 57,453 — 228,155 
Special Mention— 266 736 — — 125 — — 1,127 
Substandard35 163 — 458 — 65 — — 721 
Total Agricultural land, production and other loans to farmers19,861 40,901 34,883 33,168 14,360 29,377 57,453 — 230,003 
Real estate loans:
Construction
Pass261,410 287,961 267,572 56,696 3,184 2,586 18,735 — 898,144 
Special Mention42,961 — — — — — — — 42,961 
Substandard15 3,612 5,186 — — — — — 8,813 
Total Construction304,386 291,573 272,758 56,696 3,184 2,586 18,735 — 949,918 
Commercial real estate, non-owner occupied
Pass186,868 520,251 571,103 473,530 159,184 236,905 28,807 — 2,176,648 
Special Mention35,854 23,713 6,185 20,666 18,544 28,369 49 — 133,380 
Substandard18,795 11,346 191 22,636 — 16,101 722 — 69,791 
Total Commercial real estate, non-owner occupied241,517 555,310 577,479 516,832 177,728 281,375 29,578 — 2,379,819 
Current period gross write-offs— 2 — — — — — — 2 
Commercial real estate, owner occupied
Pass78,115 219,693 291,902 285,053 104,801 101,825 26,379 — 1,107,768 
Special Mention7,061 17,962 5,484 3,946 3,767 4,714 4,085 — 47,019 
Substandard9,347 2,446 324 6,147 1,602 4,424 662 — 24,952 
Total Commercial real estate, owner occupied94,523 240,101 297,710 295,146 110,170 110,963 31,126 — 1,179,739 
Current period gross write-offs— — — — 2 — — — 2 
Residential
Pass265,212 719,278 464,773 379,390 110,163 279,528 8,262 67 2,226,673 
Special Mention937 5,008 3,064 1,062 941 3,522 — — 14,534 
Substandard14 1,805 1,505 1,555 434 1,922 31 — 7,266 
Total Residential266,163 726,091 469,342 382,007 111,538 284,972 8,293 67 2,248,473 
Current period gross write-offs— 42 135 3 — 53 — — 233 
Home equity
Pass8,165 36,789 67,851 11,793 1,159 5,619 471,557 1,952 604,885 
Special Mention— 931 — 1,214 — 43 4,625 200 7,013 
Substandard63 — 599 — — 176 1,398 232 2,468 
Total Home Equity8,228 37,720 68,450 13,007 1,159 5,838 477,580 2,384 614,366 
Current period gross write-offs— 161 182 67 79 993 — — 1,482 
Individuals' loans for household and other personal expenditures
Pass23,136 56,812 34,167 9,527 3,468 7,294 36,866 306 171,576 
Special Mention57 189 284 65 20 3 424 278 1,320 
Substandard— — — — — — — — — 
Total Individuals' loans for household and other personal expenditures23,193 57,001 34,451 9,592 3,488 7,297 37,290 584 172,896 
Current period gross write-offs3 428 183 48 22 137 — — 821 
Public finance and other commercial loans
Pass33,068 210,497 209,188 158,400 96,918 238,323 17,230 — 963,624 
Total Public finance and other commercial loans33,068 210,497 209,188 158,400 96,918 238,323 17,230 — 963,624 
Loans$1,732,491 $2,821,004 $2,321,967 $1,585,360 $624,792 $1,025,749 $2,155,805 $3,065 $12,270,233 
Total current period gross charge-offs$199 $718 $840 $227 $160 $1,275 $— $— $3,419 
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 $70.6 million as of June 30, 2023 representing a $19.6 million increase from $51.0 million at December 31, 2022. The 30-59 days past due loans increased $6.8 million from December 31, 2022. Commercial real estate owner occupied, residential, and home equity segments increased $3.3 million, $1.4 million, and $1.4 million, respectively. The 90 days or more past due loans increased $13.0 million from December 31, 2022 as commercial and industrial and commercial real estate, non-owner occupied segments increased $7.3 million and $5.6 million, respectively. The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, for the periods indicated:
June 30, 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$3,515,917 $5,165 $492 $9,821 $3,531,395 $278 
Agricultural land, production and other loans to farmers229,976 — — 27 230,003 — 
Real estate loans:
Construction947,715 1,898 — 305 949,918 — 
Commercial real estate, non-owner occupied2,362,561 6,475 — 10,783 2,379,819 — 
Commercial real estate, owner occupied1,171,933 7,793 13 — 1,179,739 — 
Residential2,228,923 10,033 3,657 5,860 2,248,473 — 
Home equity607,419 3,618 1,055 2,274 614,366 150 
Individuals' loans for household and other personal expenditures171,575 878 443 — 172,896 — 
Public finance and other commercial loans963,624 — — — 963,624 — 
Loans$12,199,643 $35,860 $5,660 $29,070 $12,270,233 $428 


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:
June 30, 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$34,756 $974 $3,292 $481 
Agricultural land, production and other loans to farmers62 — 54 — 
Real estate loans:
Construction305 — 12 — 
Commercial real estate, non-owner occupied12,136 11,142 19,374 280 
Commercial real estate, owner occupied2,923 2,111 3,550 2,784 
Residential16,360 — 13,685 702 
Home equity2,564 — 2,247 — 
Individuals' loans for household and other personal expenditures134 — 110 — 
Loans$69,240 $14,227 $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 and six months ended June 30, 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 $9.6 million and $10.9 million, respectively, for the six months ended June 30, 2023. Commercial real estate, owner occupied collateral dependent loans increased $4.5 million for the six months ended June 30, 2023. The total increase in the collateral dependent balance and related allowance was offset by a decrease in the commercial real estate, non-owner occupied segment of $8.0 million and $1.9 million, respectively, for the six months ended June 30, 2023.
June 30, 2023
Commercial Real EstateResidential Real EstateOtherTotal Allowance on Collateral Dependent Loans
Commercial and industrial loans$— $— $51,674 $51,674 $19,282 
Real estate loans:
Construction— 9 — 9 1 
Commercial real estate, non-owner occupied18,508 — — 18,508 160 
Commercial real estate, owner occupied11,448 — — 11,448 337 
Residential— 1,562 — 1,562 247 
Home equity— 278 — 278 41 
Loans$29,956 $1,849 $51,674 $83,479 $20,068 


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 tables present the amortized cost basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the three and six months ended June 30, 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.

Three Months Ended June 30, 2023
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
Payment DelayTerm ExtensionCombination Interest Rate Reduction & Term ExtensionCombination Payment Delay & Term Extension% of Total Class of Financing Receivable
Commercial and industrial loans$— $3,917 $110 $— 0.11 %
Real estate loans:
Commercial real estate, non-owner occupied— 1,570 — — 0.07 %
Commercial real estate, owner occupied5,664 2,032 — — 0.65 %
Residential— 14 — 458 0.02 %
Total$5,664 $7,533 $110 $458 
Six Months Ended June 30, 2023
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
Payment DelayTerm ExtensionCombination Interest Rate Reduction & Term ExtensionCombination Payment Delay & Term Extension% of Total Class of Financing Receivable
Commercial and industrial loans$— $12,897 $110 $— 0.37 %
Agricultural land, production and other loans to farmers— 35 — — 0.02 %
Real estate loans:
Construction— 15 — — — %
Commercial real estate, non-owner occupied— 12,394 5,954 — 0.77 %
Commercial real estate, owner occupied5,664 2,843 79 — 0.73 %
Residential— 14 — 458 0.02 %
Total$5,664 $28,198 $6,143 $458 


The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and six months ended June 30, 2023.

Three Months Ended June 30, 2023
Financial Effect of Loan Modifications
Payment DelayTerm ExtensionCombination Interest Rate Reduction & Term ExtensionCombination Payment Delay & Term Extension
Commercial and industrial loans
Extended loans by a weighted average of 6 months.
Reduced the weighted average contractual interest rate from 8.25% to 7.10%. Extended loans by a weighted average of 12 months.
Real estate loans:
Commercial real estate, non-owner occupied
Extended loans by a weighted average of 8 months.
Commercial real estate, owner occupied
Provided payment deferrals with weighted average delayed amounts of $4.5 million.
Extended loans by a weighted average of 6 months.
Residential
Extended loans by a weighted average of 11 months.
Provided payment deferrals with weighted average delayed amounts of $3,400. Extended loans by a weighted average of 3 months.
Six Months Ended June 30, 2023
Financial Effect of Loan Modifications
Payment DelayTerm ExtensionCombination Interest Rate Reduction & Term ExtensionCombination Payment Delay & Term Extension
Commercial and industrial loans
Extended loans by a weighted average of 7 months.
Reduced the weighted average contractual interest rate from 8.25% to 7.10%. Extended loans by a weighted average of 12 months.
Reduced the weighted average contractual interest rate from 8.25% to 7.10%. Extended loans by a weighted average of 12 months.
Agricultural land, production and other loans to farmers
Extended loans by a weighted average of 60 months.
Real estate loans:
Construction
Extended loans by a weighted average of 24 months.
Commercial real estate, non-owner occupied
Extended loans by a weighted average of 9 months.
Reduced the weighted average contractual interest rate from 7.81% to 7.40%. Extended loans by a weighted average of 41 months.
Commercial real estate, owner occupied
Provided payment deferrals with weighted average delayed amounts of $4.5 million.
Extended loans by a weighted average of 6 months.
Reduced the weighted average contractual interest rate from 10.25% to 6.61%. Extended loans by a weighted average of 12 months.
Residential
Extended loans by a weighted average of 11 months.
Provided payment deferrals with weighted average delayed amounts $3,400. Extended loans by a weighted average of 3 months.


The following tables present the amortized cost basis and payment status of loans that were modified during the three and six months ended June 30, 2023 due to the borrowers experiencing financial difficulty.

Three Months Ended June 30, 2023
Payment Status
Current30-89 Days Past Due90+ Days Past Due
Commercial and industrial loans$4,027 $— $— 
Real estate loans:
Commercial real estate, non-owner occupied1,570 — — 
Commercial real estate, owner occupied7,696 — — 
Residential159 108 205 
Total$13,452 $108 $205 

Six Months Ended June 30, 2023
Payment Status
Current30-89 Days Past Due90+ Days Past Due
Commercial and industrial loans$13,007 $— $— 
Agricultural land, production and other loans to farmers35 — — 
Real estate loans:
Construction15 — — 
Commercial real estate, non-owner occupied18,348 — — 
Commercial real estate, owner occupied8,586 — — 
Residential159 108 205 
Total$40,150 $108 $205 

Upon the Corporation'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 $1.9 million and $2.1 million, due to net charge-offs during the three and six months ended June 30, 2023, respectively. There was no provision for credit losses during the three and six months ended June 30, 2023. The allowance for credit losses increased $30.3 million and $30.9 million for the three and six months ended June 30, 2022, respectively. The increase was 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, $14.0 million was recorded to establish an allowance for credit losses on non-PCD loans acquired in the Level One acquisition. The following tables summarize changes in the allowance for credit losses by loan segment for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30, 2023
CommercialCommercial Real EstateConstructionConsumer & ResidentialTotal
Allowance for credit losses
Balances, March 31, 2023$101,304 $46,308 $28,571 $46,869 $223,052 
Provision for credit losses7,639 (7,151)1,502 (1,990)— 
Recoveries on loans66 — — 379 445 
Loans charged off(636)— — (1,714)(2,350)
Balances, June 30, 2023$108,373 $39,157 $30,073 $43,544 $221,147 

Six Months Ended June 30, 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 losses6,440 (7,734)1,118 176 — 
Recoveries on loans596 56 — 637 1,289 
Loans charged off(879)(4)— (2,536)(3,419)
Balances, June 30, 2023$108,373 $39,157 $30,073 $43,544 $221,147 
Three Months Ended June 30, 2022
CommercialCommercial Real EstateConstructionConsumer & ResidentialTotal
Allowance for credit losses
Balances, March 31, 2022$77,637 $53,000 $20,760 $44,587 $195,984 
Provision for credit losses805 (6,393)5,122 466 — 
CECL Day 1 non-PCD provision for credit losses2,957 5,539 871 4,588 13,955 
CECL Day 1 PCD ACL12,970 2,981 648 — 16,599 
Recoveries on loans569 201 — 399 1,169 
Loans charged off(710)— — (722)(1,432)
Balances, June 30, 2022$94,228 $55,328 $27,401 $49,318 $226,275 
Six Months Ended June 30, 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 losses8,376 (14,643)5,676 591 — 
CECL Day 1 non-PCD provision for credit losses2,957 5,539 871 4,588 13,955 
CECL Day 1 PCD ACL12,970 2,981 648 — 16,599 
Recoveries on loans708 908 — 605 2,221 
Loans charged off(718)(122)— (1,057)(1,897)
Balances, June 30, 2022$94,228 $55,328 $27,401 $49,318 $226,275 


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:
June 30, 2023December 31, 2022
Amounts of commitments:
Loan commitments to extend credit$5,036,010 $4,950,724 
Standby letters of credit$41,498 $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 June 30, 2023 in the Consolidated Condensed Balance Sheets.

The table below reflects the total allowance for credit losses for the off-balance sheet commitment for the three and six months ended June 30, 2023 and 2022:
Three Months Ended
June 30, 2023
Balances, March 31, 2023$23,300 
Provision for credit losses— 
Balances, June 30, 2023$23,300 

Six Months Ended
June 30, 2023
Balances, December 31, 2022$23,300 
Provision for credit losses— 
Balances, June 30, 2023$23,300 

Three Months Ended
June 30, 2022
Balances, March 31, 2022$20,500 
CECL Day 1 unfunded commitments provision for credit losses2,800 
Provision for credit losses— 
Balances, June 30, 2022$23,300 

Six Months Ended
June 30, 2022
Balances, December 31, 2021$20,500 
CECL Day 1 unfunded commitments provision for credit losses2,800 
Provision for credit losses— 
Balances, June 30, 2022$23,300