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LOANS AND ALLOWANCE
 3 Months Ended
Mar. 31, 2024
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, 2024 and December 31, 2023, were $15.1 million and $18.9 million, respectively.

The following table illustrates the composition of the Corporation’s loan portfolio by loan class as of the dates indicated:
March 31, 2024December 31, 2023
Commercial and industrial loans$3,722,365 $3,670,948 
Agricultural land, production and other loans to farmers234,431 263,414 
Real estate loans:
Construction941,726 957,545 
Commercial real estate, non-owner occupied2,368,360 2,400,839 
Commercial real estate, owner occupied1,137,894 1,162,083 
Residential2,316,490 2,288,921 
Home equity618,258 617,571 
Individuals' loans for household and other personal expenditures161,459 168,388 
Public finance and other commercial loans964,599 956,318 
Loans$12,465,582 $12,486,027 
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) nonperforming 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 - Loans that are 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 charging-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 and gross charge-offs by loan class and by year of origination for the periods 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, 2024
Term Loans (amortized cost basis by origination year)Revolving loans amortizedRevolving loans converted
20242023202220212020Priorcost basisto termTotal
Commercial and industrial loans
Pass$370,101 $996,601 $367,993 $231,487 $75,654 $79,364 $1,341,496 $— $3,462,696 
Special Mention482 46,079 13,757 1,215 4,807 2,895 59,223 — 128,458 
Substandard2,834 46,434 23,731 15,038 1,157 1,915 35,069 — 126,178 
Doubtful— 805 — — — — 4,228 — 5,033 
Total Commercial and industrial loans373,417 1,089,919 405,481 247,740 81,618 84,174 1,440,016 — 3,722,365 
Current period gross charge-offs740 554 45 71 345 76 — — 1,831 
Agricultural land, production and other loans to farmers
Pass10,864 28,681 37,013 30,569 30,261 37,157 58,787 — 233,332 
Special Mention— — 266 — — 146 — — 412 
Substandard— 56 143 — 454 34 — — 687 
Total Agricultural land, production and other loans to farmers10,864 28,737 37,422 30,569 30,715 37,337 58,787 — 234,431 
Real estate loans:
Construction
Pass100,743 321,996 267,749 158,342 8,135 9,639 12,414 — 879,018 
Special Mention729 25,332 2,064 652 20,846 — — — 49,623 
Substandard— 2,867 4,896 5,322 — — — — 13,085 
Total Construction101,472 350,195 274,709 164,316 28,981 9,639 12,414 — 941,726 
Commercial real estate, non-owner occupied
Pass113,217 345,073 449,978 497,967 409,018 329,186 15,892 — 2,160,331 
Special Mention28,438 45,237 15,281 11,039 2,757 46,235 — — 148,987 
Substandard— 14,773 9,670 216 20,068 2,059 85 — 46,871 
Doubtful— 11,472 699 — — — — — 12,171 
Total Commercial real estate, non-owner occupied141,655 416,555 475,628 509,222 431,843 377,480 15,977 — 2,368,360 
Current period gross charge-offs— 339 3 — — — — — 342 
Commercial real estate, owner occupied
Pass32,088 176,955 193,895 241,834 235,547 168,792 27,158 — 1,076,269 
Special Mention140 6,681 10,555 6,949 2,618 2,098 — — 29,041 
Substandard1,113 16,524 3,268 4,947 3,302 3,144 286 — 32,584 
Total Commercial real estate, owner occupied33,341 200,160 207,718 253,730 241,467 174,034 27,444 — 1,137,894 
Current period gross charge-offs— — — — 9 — — — 9 
Residential
Pass33,315 413,735 701,242 435,538 357,126 343,918 5,108 15 2,289,997 
Special Mention58 2,354 4,340 2,468 623 4,213 200 — 14,256 
Substandard180 801 3,555 2,690 1,017 3,994 — — 12,237 
Total Residential33,553 416,890 709,137 440,696 358,766 352,125 5,308 15 2,316,490 
Current period gross charge-offs— 39 266 28 21 24 — — 378 
Home equity
Pass5,302 9,261 27,980 59,097 11,158 5,046 489,371 2,102 609,317 
Special Mention— — 711 99 1,075 84 4,245 155 6,369 
Substandard63 — — 725 — 248 1,536 — 2,572 
Total Home Equity5,365 9,261 28,691 59,921 12,233 5,378 495,152 2,257 618,258 
Current period gross charge-offs— 12 2 17 1 125 — — 157 
Individuals' loans for household and other personal expenditures
Pass8,190 32,152 44,959 25,956 5,351 6,787 37,110 25 160,530 
Special Mention10 137 291 135 48 20 84 194 919 
Substandard— 10 — — — — — — 10 
Total Individuals' loans for household and other personal expenditures8,200 32,299 45,250 26,091 5,399 6,807 37,194 219 161,459 
Current period gross charge-offs20 190 131 62 21 12 — — 436 
Public finance and other commercial loans
Pass33,294 54,992 206,812 202,288 153,742 313,389 82 — 964,599 
Total Public finance and other commercial loans33,294 54,992 206,812 202,288 153,742 313,389 82 — 964,599 
Loans$741,161 $2,599,008 $2,390,848 $1,934,573 $1,344,764 $1,360,363 $2,092,374 $2,491 $12,465,582 
Total current period gross charge-offs$760 $1,134 $447 $178 $397 $237 $— $— $3,153 
December 31, 2023
Term Loans (amortized cost basis by origination year)Revolving loans amortizedRevolving loans converted
20232022202120202019Priorcost basisto termTotal
Commercial and industrial loans
Pass$1,175,967 $474,601 $253,148 $86,226 $47,910 $45,020 $1,393,756 $60 $3,476,688 
Special Mention34,356 3,911 1,546 5,149 2,986 241 45,994 — 94,183 
Substandard12,311 20,245 17,733 2,479 1,507 1,512 40,449 144 96,380 
Doubtful857 — — — — — 2,840 — 3,697 
Total Commercial and industrial loans1,223,491 498,757 272,427 93,854 52,403 46,773 1,483,039 204 3,670,948 
Current period gross charge-offs13,973 2,711 576 5,665 78 261 — — 23,264 
Agricultural land, production and other loans to farmers
Pass35,633 38,145 31,511 31,048 12,995 25,462 87,534 — 262,328 
Special Mention— 266 — — — 122 — — 388 
Substandard58 150 — 454 — 36 — — 698 
Total Agricultural land, production and other loans to farmers35,691 38,561 31,511 31,502 12,995 25,620 87,534 — 263,414 
Real estate loans:
Construction
Pass403,578 267,587 198,350 8,372 7,723 2,357 11,735 — 899,702 
Special Mention25,894 — — 20,846 — — — — 46,740 
Substandard1,451 4,330 5,322 — — — — — 11,103 
Total Construction430,923 271,917 203,672 29,218 7,723 2,357 11,735 — 957,545 
Commercial real estate, non-owner occupied
Pass373,378 504,280 535,327 418,553 141,320 200,821 16,744 — 2,190,423 
Special Mention76,382 21,145 7,005 4,531 19,479 27,941 37 — 156,520 
Substandard20,358 10,537 219 20,236 — 2,299 247 — 53,896 
Total Commercial real estate, non-owner occupied470,118 535,962 542,551 443,320 160,799 231,061 17,028 — 2,400,839 
Current period gross charge-offs— 66 — — — — — — 66 
Commercial real estate, owner occupied
Pass176,750 199,821 256,346 263,522 99,180 77,485 27,369 — 1,100,473 
Special Mention6,712 5,034 9,319 2,460 919 2,902 514 — 27,860 
Substandard18,092 3,712 4,183 4,545 289 2,929 — — 33,750 
Total Commercial real estate, owner occupied201,554 208,567 269,848 270,527 100,388 83,316 27,883 — 1,162,083 
Current period gross charge-offs48 — — — 2 — — — 50 
Residential
Pass395,363 695,056 442,495 365,297 98,654 254,718 4,988 83 2,256,654 
Special Mention2,167 5,591 3,202 1,924 1,065 4,837 200 81 19,067 
Substandard804 3,708 2,529 1,199 866 4,063 31 — 13,200 
Total Residential398,334 704,355 448,226 368,420 100,585 263,618 5,219 164 2,288,921 
Current period gross charge-offs101 252 208 3 3 94 — — 661 
Home equity
Pass9,375 29,784 61,591 11,084 1,092 3,875 484,330 5,837 606,968 
Special Mention— 715 — 1,092 15 2 5,031 149 7,004 
Substandard63 — 727 — — 123 2,589 97 3,599 
Total Home Equity9,438 30,499 62,318 12,176 1,107 4,000 491,950 6,083 617,571 
Current period gross charge-offs69 213 224 149 193 1,596 — — 2,444 
Individuals' loans for household and other personal expenditures
Pass35,781 49,295 28,387 6,726 2,070 5,904 38,619 772 167,554 
Special Mention184 246 138 69 — 14 176 — 827 
Substandard— 6 — — 1 — — — 7 
Total Individuals' loans for household and other personal expenditures35,965 49,547 28,525 6,795 2,071 5,918 38,795 772 168,388 
Current period gross charge-offs147 770 342 77 62 156 — — 1,554 
Public finance and other commercial loans
Pass65,357 208,347 204,863 155,132 91,619 229,355 1,645 — 956,318 
Total Public finance and other commercial loans65,357 208,347 204,863 155,132 91,619 229,355 1,645 — 956,318 
Loans$2,870,871 $2,546,512 $2,063,941 $1,410,944 $529,690 $892,018 $2,164,828 $7,223 $12,486,027 
Total current period gross charge-offs$14,338 $4,012 $1,350 $5,894 $338 $2,107 $— $— $28,039 
Total past due loans equaled $68.9 million as of March 31, 2024 representing a $10.3 million decrease from $79.2 million at December 31, 2023. The 30-59 days past due loans decreased $16.7 million from December 31, 2023 as commercial and industrial, commercial real estate, non-owner occupied and residential loan classes decreased $1.7 million, $12.2 million and $3.1 million, respectively. The 60-89 days past due loans decreased $1.7 million from December 31, 2023. The 90 days or more past due loans increased $8.0 million from December 31, 2023 as commercial real estate, non-owner occupied increased $11.3 million, which was partially offset by a decrease in residential of $2.3 million. The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, as of the dates indicated:
March 31, 2024
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$3,712,412 $3,279 $267 $6,407 $3,722,365 $1,585 
Agricultural land, production and other loans to farmers234,177 254 — — 234,431 — 
Real estate loans:
Construction941,726 — — — 941,726 — 
Commercial real estate, non-owner occupied2,341,845 746 2,988 22,781 2,368,360 — 
Commercial real estate, owner occupied1,136,405 939 6 544 1,137,894 — 
Residential2,293,704 8,741 4,197 9,848 2,316,490 1,185 
Home equity611,309 2,918 1,643 2,388 618,258 68 
Individuals' loans for household and other personal expenditures160,530 529 390 10 161,459 — 
Public finance and other commercial loans964,599 — — — 964,599 — 
Loans$12,396,707 $17,406 $9,491 $41,978 $12,465,582 $2,838 


December 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$3,657,447 $5,021 $1,622 $6,858 $3,670,948 $86 
Agricultural land, production and other loans to farmers263,414 — — — 263,414 — 
Real estate loans:
Construction955,588 — 1,957 — 957,545 — 
Commercial real estate, non-owner occupied2,376,184 12,995 195 11,465 2,400,839 — 
Commercial real estate, owner occupied1,161,869 — 104 110 1,162,083 — 
Residential2,259,496 11,810 5,472 12,143 2,288,921 — 
Home equity608,948 3,614 1,647 3,362 617,571 52 
Individuals' loans for household and other personal expenditures167,553 635 192 8 168,388 — 
Public finance and other commercial loans956,284 — — 34 956,318 34 
Loans$12,406,783 $34,075 $11,189 $33,980 $12,486,027 $172 


Loans are reclassified to a nonaccruing 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 nonaccrual 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 nonaccrual loans by loan class as of the dates indicated:
March 31, 2024December 31, 2023
Nonaccrual LoansNonaccrual Loans with no Allowance for Credit LossesNonaccrual LoansNonaccrual Loans with no Allowance for Credit Losses
Commercial and industrial loans$7,140 $305 $9,050 $1,015 
Agricultural land, production and other loans to farmers56 — 58 — 
Real estate loans:
Construction— — 520 — 
Commercial real estate, non-owner occupied23,213 10,650 11,932 11,095 
Commercial real estate, owner occupied2,687 1,936 3,041 2,257 
Residential25,900 — 25,140 — 
Home equity3,449 — 3,820 — 
Individuals' loans for household and other personal expenditures33 — 19 — 
Loans$62,478 $12,891 $53,580 $14,367 
Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. There was no interest income recognized on nonaccrual loans for the three months ended March 31, 2024 or 2023.

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. The total collateral dependent loan balance increased $17.4 million, primarily related to increases of $8.3 million and $8.6 million in commercial and industrial and commercial real estate, non-owner occupied, respectively, for the three months ended March 31, 2024. The total related allowance balance increased $9.5 million, primarily related to increases of $6.9 million and $2.6 million in commercial and industrial and commercial real estate, non-owner occupied, respectively, for the three months ended March 31, 2024.
March 31, 2024
Commercial Real EstateResidential Real EstateOtherTotal Allowance on Collateral Dependent Loans
Commercial and industrial loans$— $— $40,331 $40,331 $18,324 
Real estate loans:
Construction— 6 — 6 — 
Commercial real estate, non-owner occupied26,097 — — 26,097 2,672 
Commercial real estate, owner occupied10,100 — — 10,100 — 
Residential— 1,333 — 1,333 213 
Home equity— 218 — 218 29 
Loans$36,197 $1,557 $40,331 $78,085 $21,238 


December 31, 2023
Commercial Real EstateResidential Real EstateOtherTotal Allowance on Collateral Dependent Loans
Commercial and industrial loans$— $— $32,029 $32,029 $11,474 
Real estate loans:
Construction— 7 — 7 — 
Commercial real estate, non-owner occupied17,516 — — 17,516 35 
Commercial real estate, owner occupied9,452 — — 9,452 — 
Residential— 1,439 — 1,439 230 
Home equity— 223 — 223 30 
Loans$26,968 $1,669 $32,029 $60,666 $11,769 


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 these modifications. The following tables present the amortized cost basis of loans at March 31, 2024 and March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2024 and 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 March 31, 2024
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
Payment DelayTerm ExtensionInterest Rate ReductionCombination Payment Delay & Term Extension% of Total Class of Financing Receivable
Commercial and industrial loans$1,542 $2,798 $250 $14 0.12 %
Real estate loans:
Commercial real estate, owner occupied— 190 — — 0.02 %
Residential1,617 — — — 0.07 %
Home equity90 266 — — 0.06 %
Total$3,249 $3,254 $250 $14 
Three Months Ended March 31, 2023
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 tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31, 2024
Financial Effect of Loan Modifications
Payment DelayTerm ExtensionInterest Rate ReductionCombination Payment Delay & Term Extension
Commercial and industrial loans
Provided payment deferrals with weighted average delayed amounts of $50,000.
Extended loans by a weighted average of 15 months.
Reduced the weighted average contractual interest rate from 9.00% to 8.00%.
Provided payment deferrals with weighted average delayed amounts of $5,000. Extended loans by a weighted average of 3 months.
Real estate loans:
Commercial real estate, owner occupied
Extended loans by a weighted average of 5 months.
Residential
Provided payment deferrals with weighted average delayed amounts of $31,000.
Home equity
Provided payment deferrals with weighted average delayed amounts of $4,000.
Extended loans by a weighted average of 6 months.

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% to 7.40%. 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% to 6.61%. Added a weighted average 114 months to the life of loans, which reduced monthly payment amounts for the borrowers.
The following tables present the amortized cost basis and payment status of loans modified within the previous twelve months to borrowers experiencing financial difficulty, and that subsequently defaulted during the three months ended March 31, 2024 and 2023 and remained in default at period end.
Three Months Ended March 31, 2024
Payment Status
Current30-89 Days Past Due90+ Days Past Due
Commercial and industrial loans$4,605 $— $98 
Real estate loans:
Commercial real estate, owner occupied189 7 — 
Residential— 122 1,617 
Home equity356 — — 
Total$5,150 $129 $1,715 

Three Months Ended March 31, 2023
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 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 charged-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.

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 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, Commercial Real Estate ("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, charge-offs, and recoveries, (iv) changes in the quality of the credit review function, (v) changes in the experience, ability and depth of lending, investment, collection and other relevant management staff, (vi) changes in the volume and severity of past due financial assets, the volume of the nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vii) the value of underlying collateral for loans that are not collateral dependent, and (viii) other environmental factors such as regulatory, legal and technological considerations, as well as competition and changes in the economic and business conditions that affect the collectibility of financial assets. At CECL adoption, the Corporation established certain qualitative factors that were expected to correlate to losses within the loan portfolio. During a scheduled review of qualitative factors in 2023, the Corporation determined there had not been significant evidence of correlation to losses for the qualitative factors that included i) changes in experience, ability and depth of lending management and staff; ii) changes in lending policies and procedures; iii) changes in the quality of the credit review function; iv) portfolio mix and growth; and v) industry concentration. The Corporation decided to refine these qualitative factors in order to improve our ability to assess related risk and enhance our ability to correlate to losses. The Corporation’s evaluation of the qualitative approach resulted in an insignificant change to the ACL – Loans estimate.

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.

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 $253,000 during the three months ended March 31, 2024. Net charge-offs totaled $2.3 million and provision expense of $2.0 million was recorded during the three months ended March 31, 2024. The allowance for credit losses decreased $225,000 due to net charge-offs for the three months ended March 31, 2023. The following tables summarize changes in the allowance for credit losses by loan segment for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31, 2024
CommercialCommercial Real EstateConstructionConsumer & ResidentialTotal
Allowance for credit losses
Balances, December 31, 2023$97,348 $44,048 $24,823 $38,715 $204,934 
Provision for credit losses3,145 1,528 (4,454)1,781 2,000 
Recoveries on loans551 53 — 296 900 
Loans charged off(1,831)(351)— (971)(3,153)
Balances, March 31, 2024$99,213 $45,278 $20,369 $39,821 $204,681 
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 

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, 2024December 31, 2023
Amounts of commitments:
Loan commitments to extend credit$4,993,077 $5,025,790 
Standby letters of credit$72,956 $65,580 
The Corporation maintains an accrual for credit losses on off-balance sheet commitments using the CECL methodology. Reserves for unfunded commitments declined by $3.8 million during the year ended December 31, 2023, due to reserve release, which decreased the reserve to $19.5 million at December 31, 2023 and March 31, 2024. This reserve level remains appropriate and is reported in Other Liabilities as of March 31, 2024 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 months ended March 31, 2024 and 2023:
Three Months Ended
March 31, 2024March 31, 2023
Balance at beginning of the period$19,500 $23,300 
Provision for credit losses - unfunded commitments— — 
Ending balance$19,500 $23,300