XML 25 R13.htm IDEA: XBRL DOCUMENT v3.21.2
Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2021
Receivables [Abstract]  
Allowance for Credit Losses Allowance for Credit Losses
 
Management reviews the appropriateness of the allowance for credit losses (“allowance” or "ACL") on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of operations. The Company has developed a methodology to measure the amount of estimated credit loss exposure inherent in the loan portfolio to assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 119, Measurement of Credit Losses on Financial Instruments ("CECL"), and Financial Instruments - Credit Losses and ASC Topic 326, Financial Instruments - Credit Losses (ASU 2016-3).

The Company uses a discounted cash flow ("DCF") method to estimate expected credit losses for all loan segments excluding the leasing segment. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, recovery lag probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on internal historical data.

The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loans utilizing the DCF method, management utilizes forecasts of national unemployment and a one year percentage change in national gross domestic product as loss drivers in the model.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations and timing expectations produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce a net present value of expected cash flows ("NPV"). An ACL is established for the difference between the NPV and amortized cost basis.

Since the methodology is based upon historical experience and trends, current conditions, and reasonable and supportable forecasts, as well as management’s judgment, factors may arise that result in different estimates. While management’s evaluation of the allowance as of September 30, 2021, considers the allowance to be appropriate, under certain conditions or assumptions, the Company would need to increase or decrease the allowance. In addition, various federal and State regulatory agencies, as part of their examination process, review the Company's allowance and may require the Company to recognize additions to the allowance based on their judgements and information available to them at the time of their examinations.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, and commercial letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to credit loss expense for off-balance sheet credit exposures included in provision expense in the Company's consolidated statements of income.

The following table details activity in the allowance for credit losses on loans for the three and nine months ended September 30, 2021 and 2020. The Company adopted ASU 2016-13 on January 1, 2020 using the modified retrospective approach. The transition adjustment included a decrease in the allowance of $2.5 million. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three Months Ended September 30, 2021
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$7,113 $29,201 $9,534 $1,590 $67 $47,505 
Charge-offs(157)0 0 (53)0 (210)
Recoveries16 2 65 58 0 141 
(Credit) provision for credit loss expense(774)(119)(184)(99)(1)(1,177)
Ending Balance$6,198 $29,084 $9,415 $1,496 $66 $46,259 

Three Months Ended September 30, 2020
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$11,113 $24,286 $15,012 $1,596 $75 $52,082 
Charge-offs0 0 (30)(145)0 (175)
Recoveries89 9 16 73 0 187 
(Credit) provision for credit loss expense(3,918)4,264 (65)(75)(7)199 
Ending Balance$7,284 $28,559 $14,933 $1,449 $68 $52,293 
Nine Months Ended September 30, 2021
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balances$9,239 $30,546 $10,257 $1,562 $65 $51,669 
Charge-offs(274)0 (51)(218)0 (543)
Recoveries116 1,040 229 153 0 1,538 
(Credit) provision for credit loss expense(2,883)(2,502)(1,020)(1)1 (6,405)
Ending Balance$6,198 $29,084 $9,415 $1,496 $66 $46,259 

Nine Months Ended September 30, 2020
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance, prior to adoption of ASC 326$10,541 $21,608 $6,381 $1,362 $0 $39,892 
Impact of adopting ASC 326(2,008)(5,917)4,459 850 82 (2,534)
Charge-offs(1)(1,305)(33)(409)0 (1,748)
Recoveries125 40 178 195 0 538 
(Credit) provision for credit loss expense(1,373)14,133 3,948 (549)(14)16,145 
Ending Balance$7,284 $28,559 $14,933 $1,449 $68 $52,293 

At September 30, 2021 and December 31, 2020, the balance of the allowance for credit losses for off-balance sheet exposures was $2.2 million and $1.9 million, respectively. The Company recorded a provision credit of $55,000 and a provision expense of $272,000 related to off-balance sheet credit exposures for the third quarter of 2021 and for the nine months ended September 30, 2021, respectively, compared to a provision credit of $417,000 and provision expense of $1.3 million, respectively, for the same periods in 2020.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans:

(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
September 30, 2021
Commercial and Industrial$107 $461 $328 $896 $29 
Commercial Real Estate36,494 0 2 36,496 3,180 
Total$36,601 $461 $330 $37,392 $3,209 

(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
December 31, 2020
Commercial and Industrial$103 $582 $110 $795 $122 
Commercial Real Estate24,277 1,418 0 25,695 186 
Total$24,380 $2,000 $110 $26,490 $308 

Loans are considered modified in a troubled debt restructuring ("TDR") when, due to a borrower’s financial difficulties, the Company makes concessions to the borrower that it would not otherwise consider. These modifications may include, among others, an extension for the term of the loan, and granting a period when interest-only payments can be made with the principal payments made over the remaining term of the loan or at maturity.
 
The following tables present information on loans modified in a TDR during the three and nine months ended September 30, 2021 and 2020. Post-modification amounts are presented as of September 30, 2021 and September 30, 2020.

September 30, 2021Three Months Ended
Defaulted TDRs2
(In thousands)Number of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of LoansPost-Modification Outstanding Recorded Investment
Residential real estate
  Home equity1
1 $112 $112 1 $201 
Total1 $112 $112 1 $201 
1  Represents the following concessions:  extension of term and reduction of rate.
2 TDRs that defaulted during the three months ended September 30, 2021 that were restructured in the prior twelve months.

September 30, 2020Three Months Ended
Defaulted TDRs2
(In thousands)Number of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of LoansPost-Modification Outstanding Recorded Investment
Commercial & industrial
  Commercial real estate other1
1 $196 $196 0 $0 
Consumer and other
Consumer and other1
1 4 4 0 0 
Total2 $200 $200 0 $0 
1  Represents the following concessions:  extension of term and reduction of rate.
2 TDRs that defaulted during the three months ended September 30, 2020 that were restructured in the prior twelve months.

September 30, 2021Nine Months Ended
Defaulted TDRs2
(In thousands)Number of
Loans		Pre-
Modification
Outstanding
Recorded
Investment		Post-Modification Outstanding Recorded InvestmentNumber of
Loans		Post-
Modification
Outstanding
Recorded
Investment
Residential real estate
Home equity1
1 $112 $112 1 $201 
Total1 $112 $112 1 $201 
1 Represents the following concessions:  extension of term and reduction of rate.
2 TDRs that defaulted during the nine months ended September 30, 2021 that were restructured in the prior twelve months.
Nine Months Ended
September 30, 2020
Defaulted TDRs2
(In thousands)Number of
Loans		Pre-
Modification
Outstanding
Recorded
Investment		Post-Modification Outstanding Recorded InvestmentNumber of
Loans		Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate
  Commercial real estate other1
1 $196 $196 1 $37 
Residential real estate
  Home equity1
2 121 121 0 87 
Consumer and other
Consumer and other1
1 4 4 0 0 
Total4 $321 $321 2 $124 
1 Represents the following concessions:  extension of term and reduction of rate.
2 TDRs that defaulted during the nine months ended September 30, 2020 that were restructured in the prior twelve months.
The following table presents credit quality indicators by total loans on an amortized cost basis by origination year as of September 30, 2021 and December 31, 2020.

September 30, 2021
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial & Industrial - Other:
Pass$99,129 $62,023 $57,126 $46,264 $43,901 $264,656 $138,153 $9,713 $720,965 
Special Mention164 815 532 141 310 523 705 0 3,190 
Substandard0 383 298 731 231 680 1,466 0 3,789 
Total Commercial & Industrial - Other$99,293 $63,221 $57,956 $47,136 $44,442 $265,859 $140,324 $9,713 $727,944 
Commercial and Industrial - PPP:
Pass$139,564 $2,366 $0 $0 $0 $0 $0 $0 $141,930 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial and Industrial - PPP$139,564 $2,366 $0 $0 $0 $0 $0 $0 $141,930 
Commercial and Industrial - Agriculture:
Pass$4,615 $7,736 $6,035 $9,497 $6,239 $3,590 $35,276 $566 $73,554 
Special Mention0 0 0 24 0 0 225 0 249 
Substandard0 89 17 0 106 2,328 1,992 0 4,532 
Total Commercial and Industrial - Agriculture$4,615 $7,825 $6,052 $9,521 $6,345 $5,918 $37,493 $566 $78,335 
Commercial Real Estate
Pass$229,984 $269,752 $255,296 $205,093 $226,830 $824,671 $56,018 $33,366 $2,101,010 
Special Mention0 1,774 11,982 3,151 2,190 74,499 360 0 93,956 
Substandard0 0 5,012 18,472 8,516 26,051 173 0 58,224 
Total Commercial Real Estate$229,984 $271,526 $272,290 $226,716 $237,536 $925,221 $56,551 $33,366 $2,253,190 
Commercial Real Estate - Agriculture:
Pass$13,096 $22,063 $30,564 $42,335 $23,616 $53,458 $2,252 $2,553 $189,937 
Special Mention0 483 0 0 0 381 49 0 913 
Substandard0 0 0 40 0 1,293 0 0 1,333 
Total Commercial Real Estate - Agriculture$13,096 $22,546 $30,564 $42,375 $23,616 $55,132 $2,301 $2,553 $192,183 
Commercial Real Estate - Construction
Pass$10,828 $11,619 $17,533 $7,591 $1,343 $7,391 $105,778 $7,148 $169,231 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 648 767 0 1,415 
Total Commercial Real Estate - Construction$10,828 $11,619 $17,533 $7,591 $1,343 $8,039 $106,545 $7,148 $170,646 
December 31, 2020
(In thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial & Industrial - Other:
Internal risk grade:
Pass$91,597 $72,639 $56,191 $60,714 $33,402 $301,027 $149,969 $16,301 $781,840 
Special Mention1,064 367 344 912 2,045 228 1,331 0 6,291 
Substandard412 305 933 485 292 783 1,646 0 4,856 
Total Commercial & Industrial - Other$93,073 $73,311 $57,468 $62,111 $35,739 $302,038 $152,946 $16,301 $792,987 
Commercial and Industrial - Agriculture:
Pass$11,536 $8,005 $11,162 $6,531 $3,539 $2,599 $41,936 $1,340 $86,648 
Special Mention0028729002,080 02,837 
Substandard9983020202,308 2,312 05,004 
Total Commercial and Industrial - Agriculture$11,635 $8,088 $11,190 $7,462 $3,539 $4,907 $46,328 $1,340 $94,489 
Commercial and Industrial - PPP:
Pass$291,252 $0 $0 $0 $0 $0 $0 $0 $291,252 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial and Industrial - PPP$291,252 $0 $0 $0 $0 $0 $0 $0 $291,252 
Commercial Real Estate
Pass$278,747 $246,331 $232,651 $237,487 $290,106 $664,027 $33,117 $64,903 $2,047,369 
Special Mention35 13,016 5,612 4,654 34,310 46,074 203 0 103,904 
Substandard0 4,933 18,395 6,172 5,625 17,610 302 0 53,037 
Total Commercial Real Estate$278,782 $264,280 $256,658 $248,313 $330,041 $727,711 $33,622 $64,903 $2,204,310 
Commercial Real Estate - Agriculture:
Pass$22,440 $35,081 $44,519 $22,356 $17,081 $44,559 $919 $5,602 $192,557 
Special Mention1,960 0 575 1,366 1,053 6 49 0 5,009 
Substandard0 0 0 1,777 713 1,527 283 0 4,300 
Total Commercial Real Estate - Agriculture$24,400 $35,081 $45,094 $25,499 $18,847 $46,092 $1,251 $5,602 $201,866 
Commercial Real Estate - Construction
Pass$14,465 $20,705 $7,999 $2,478 $1,879 $6,682 $85,513 $21,051 $160,772 
Special Mention0 0 0 0 0 467 1,453 0 1,920 
Substandard0 0 0 0 0 324 0 0 324 
Total Commercial Real Estate - Construction$14,465 $20,705 $7,999 $2,478 $1,879 $7,473 $86,966 $21,051 $163,016 
The following table presents credit quality indicators by total loans on an amortized cost basis by origination year as of September 30, 2021 and December 31, 2020, continued.

September 30, 2021
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Residential - Home Equity
Performing$1,395 $1,246 $3,157 $1,719 $1,728 $3,446 $165,588 $4,919 $183,198 
Nonperforming0 0 16 0 0 596 1,815 0 2,427 
Total Residential - Home Equity$1,395 $1,246 $3,173 $1,719 $1,728 $4,042 $167,403 $4,919 $185,625 
Residential - Mortgages
Performing$233,145 $289,745 $168,894 $104,697 $132,204 $317,803 $13,062 $917 $1,260,467 
Nonperforming0 0 242 568 696 8,006 26 0 9,538 
Total Residential - Mortgages$233,145 $289,745 $169,136 $105,265 $132,900 $325,809 $13,088 $917 $1,270,005 
Consumer - Direct
Performing$17,310 $11,569 $10,163 $5,962 $5,180 $11,265 $5,099 $0 $66,548 
Nonperforming0 5 64 63 11 0 3 $0 146 
Total Consumer - Direct$17,310 $11,574 $10,227 $6,025 $5,191 $11,265 $5,102 $0 $66,694 
Consumer - Indirect
Performing$1,484 $965 $308 $1,987 $484 $102 $0 $0 $5,330 
Nonperforming0 0 137 98 2 28 0 0 265 
Total Consumer Indirect$1,484 $965 $445 $2,085 $486 $130 $0 $0 $5,595 
December 31, 2020
(In thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Residential - Home Equity
Performing$1,440 $2,764 $1,052 $2,120 $722 $1,106 $188,614 $44 $197,862 
Nonperforming0 18 0 0 194 506 2,247 0 2,965 
Total Residential - Home Equity$1,440 $2,782 $1,052 $2,120 $916 $1,612 $190,861 $44 $200,827 
Residential - Mortgages
Performing$305,476 $193,543 $123,205 $155,699 $178,149 $255,556 $11,735 $1,617 $1,224,980 
Nonperforming0 258 455 706 1,404 7,305 52 0 10,180 
Total Residential - Mortgages$305,476 $193,801 $123,660 $156,405 $179,553 $262,861 $11,787 $1,617 $1,235,160 
Consumer - Direct
Performing$14,840 $11,127 $8,011 $6,632 $2,854 $10,840 $6,835 $0 $61,139 
Nonperforming5 74 167 12 0 2 0 0 260 
Total Consumer - Direct$14,845 $11,201 $8,178 $6,644 $2,854 $10,842 $6,835 $0 $61,399 
Consumer - Indirect
Performing$1,424 $1,878 $3,327 $1,128 $382 $93 $0 $0 $8,232 
Nonperforming0 67 44 7 36 15 0 0 169 
Total Consumer Indirect$1,424 $1,945 $3,371 $1,135 $418 $108 $0 $0 $8,401