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Allowance for Credit Losses
 12 Months Ended
Dec. 31, 2021
Receivables [Abstract]  
Allowance for Credit Losses Allowance for Credit Losses
 
Management reviews the appropriateness of the 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.

The Company uses a 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 rates 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, and scenario weightings, are also considered by management when developing the forecast metrics.

Due to the size and characteristics of the leasing portfolio, the Company uses the remaining life method, using the historical loss rate of the commercial and industrial segment, to determine the allowance for credit losses.

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.

The Company adopted ASU 2016-13 as of January 1, 2020 using the prospective transition approach for financial assets purchased with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI") and accounted for under ASC 310-30. In accordance with the standard, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining discount on the PCD assets will be accreted into interest income on a level-yield method over the life of the loans.

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 December 31, 2021, considers the allowance to be appropriate, under adversely different 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.

Changes in the allowance for credit losses for the years ended December 31, 2021, 2020 and 2019 are summarized as follows:

Allowance for Credit Losses - Loans and Leases
(In thousands)202120202019
Total allowance at beginning of year $51,669 $39,892 $43,410 
Impact of adopting ASU 2016-130 (2,534)0 
(Credit) provision for credit loss expense(2,805)16,151 1,366 
Recoveries on loans and leases1,725 631 906 
Charge-offs on loans and leases(7,746)(2,471)(5,790)
Total allowance at end of year$42,843 $51,669 $39,892 
 
Allowance for Credit Losses - Off-Balance Sheet Credit Exposures

(In thousands)202120202019
Liabilities for off-balance sheet credit exposures at beginning of period$1,920 $476 $748 
Impact of adopting ASU 2016-130 382 0 
Provision (credit) for credit loss expense related to off-balance sheet credit exposures586 1,062 (272)
Liabilities for off-balance sheet credit exposures at end of period$2,506 $1,920 $476 

The following table details activity in the allowance for credit losses for loans for the years ended December 31, 2021 and 2020. As previously discussed, the Company adopted ASU 2016-13 on January 1, 2020 using the modified retrospective approach. Results for the periods beginning after January 1, 2020 are presented under ASC 326. As a result of the adoption of ASC 326, the Company recorded a net cumulative-effect adjustment reducing the allowance for credit losses by $2.5 million. The allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
 
December 31, 2021
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$9,239 $30,546 $10,257 $1,562 $65 $51,669 
Charge-offs(274)(6,957)(77)(438)0 (7,746)
Recoveries118 1,175 236 196 0 1,725 
(Credit) provision for credit loss expense(2,748)49 (277)172 (1)(2,805)
Ending Balance$6,335 $24,813 $10,139 $1,492 $64 $42,843 
 
December 31, 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 ASU 2016-13$10,541 $21,608 $6,381 $1,362 $0 $39,892 
Impact of adopting ASU 2016-13(2,008)(5,917)4,459 850 82 $(2,534)
Charge-offs(2)(1,903)(84)(482)0 (2,471)
Recoveries131 58 194 248 0 631 
(Credit) provision for credit loss expense577 16,700 (693)(416)(17)16,151 
Ending Balance$9,239 $30,546 $10,257 $1,562 $65 $51,669 

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:

December 31, 2021
(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
Commercial and Industrial$142 $395 $328 $865 $26 
Commercial Real Estate13,334 0 1,931 15,265 40 
Residential Real Estate32 0 0 32 1 
Total$13,508 $395 $2,259 $16,162 $67 
  
Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. When modifications are provided for reasons other than as a result of the financial distress of the borrower, these loans are not classified as TDRs or impaired. These modifications primarily include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments and interest caught up over the remaining term of the loan or at maturity, among others.

The following tables present loans by class modified in 2021 and 2020 as troubled debt restructurings. Post-modification balances reflect paydowns and charge-offs at time of modification.
 
Troubled Debt Restructuring
December 31, 2021Year 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
2 219 219 1 201 
Total2 $219 $219 1 $201 
1Represents the following concessions: extension of term and reduction of rate.
2TDRs that defaulted during the 12 months ended December 31, 2021, that had been restructured in the prior twelve months.
December 31, 2020Year 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
Commercial & industrial
Commercial and industrial other1
1 $24 $24 0 $0 
Residential real estate
Mortgages1
2 274 274 1 37 
Home equity1
1 43 43 1 87 
Consumer and other
Consumer and other1
14 4 00 
Total5 $345 $345 2 $124 
1Represents the following concessions: extension of term and reduction of rate.
2TDRs that defaulted during the 12 months ended December 31, 2020, that had been restructured in the prior twelve months.

The Company's TDRs added during 2021 totaled $219,000, compared to $345,000 in 2020. At December 31, 2021, the Company was not committed to lend additional amounts to customers with outstanding loans that were classified as TDRs. The provisions of the CARES Act and the interagency guidance issued by Federal banking regulators provided clarification related to modifications and deferral programs to assist borrowers who are negatively impacted by the COVID-19 national emergency. The guidance and clarifications detail certain provisions whereby banks are permitted to make deferrals and modifications to the terms of a loan which would not require the loan to be reported as a troubled debt restructuring ("TDR"). In accordance with the CARES Act. Appropriations Act, and the interagency guidance, the Company elected to adopt the provisions to not report qualified loan modifications as TDRs during 2020 and 2021.
The following table presents credit quality indicators by total loans on an amortized cost basis by origination year as of December 31, 2021.

(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
Pass$123,996 $58,432 $54,116 $42,093 $35,725 $239,093 $125,476 $10,039 $688,970 
Special Mention156 770 450 100 201 393 1,417 0 3,487 
Substandard179 584 47 575 0 637 4,642 0 6,664 
Total Commercial and Industrial - Other$124,331 $59,786 $54,613 $42,768 $35,926 $240,123 $131,535 $10,039 $699,121 
Commercial and Industrial - PPP:
Pass$71,260 $0 $0 $0 $0 $0 $0 $0 $71,260 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial and Industrial - PPP$71,260 $0 $0 $0 $0 $0 $0 $0 $71,260 
Commercial and Industrial - Agriculture:
Pass$8,573 $6,782 $5,700 $10,136 $6,867 $3,186 $53,145 $595 $94,984 
Special Mention0 0 0 23 0 0 0 0 23 
Substandard0 85 11 0 93 2,316 1,660 0 4,165 
Total Commercial and Industrial - Agriculture$8,573 $6,867 $5,711 $10,159 $6,960 $5,502 $54,805 $595 $99,172 
Commercial Real Estate
Pass$325,874 $271,680 $249,266 $201,992 $212,991 $810,713 $44,264 $43,225 $2,160,005 
Special Mention0 1,763 11,772 3,217 2,167 61,723 358 0 81,000 
Substandard3,482 0 2,262 2,518 8,509 20,401 422 0 37,594 
Total Commercial Real Estate$329,356 $273,443 $263,300 $207,727 $223,667 $892,837 $45,044 $43,225 $2,278,599 
Commercial Real Estate - Agriculture:
Pass$23,151 $21,856 $28,943 $41,064 $23,195 $50,809 $1,949 $2,850 $193,817 
Special Mention0 479 0 0 0 350 35 0 864 
Substandard0 0 0 39 0 1,253 0 0 1,292 
Total Commercial Real Estate - Agriculture$23,151 $22,335 $28,943 $41,103 $23,195 $52,412 $1,984 $2,850 $195,973 
Commercial Real Estate - Construction
Pass$12,840 $10,025 $16,325 $7,542 $1,274 $6,559 $112,537 $10,037 $177,139 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 643 800 0 1,443 
Total Commercial Real Estate - Construction$12,840 $10,025 $16,325 $7,542 $1,274 $7,202 $113,337 $10,037 $178,582 
The following table presents credit quality indicators by total loans on an amortized cost basis by origination year as of December 31, 2021, continued.

(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Residential - Home Equity
Performing$2,033 $1,142 $3,041 $1,600 $1,572 $3,144 $161,630 $6,050 $180,212 
Nonperforming0 0 16 0 0 604 1,839 0 2,459 
Total Residential - Home Equity$2,033 $1,142 $3,057 $1,600 $1,572 $3,748 $163,469 $6,050 $182,671 
Residential - Mortgages
Performing$324,967 $282,202 $162,574 $97,778 $124,221 $275,133 $14,112 $1,205 $1,282,192 
Nonperforming0 0 241 702 693 7,060 23 0 8,719 
Total Residential - Mortgages$324,967 $282,202 $162,815 $98,480 $124,914 $282,193 $14,135 $1,205 $1,290,911 
Consumer - Direct
Performing$20,653 $10,735 $9,397 $5,542 $4,849 $10,602 $5,435 $0 $67,213 
Nonperforming0 9 44 117 12 0 1 $0 183 
Total Consumer - Direct$20,653 $10,744 $9,441 $5,659 $4,861 $10,602 $5,436 $0 $67,396 
Consumer - Indirect
Performing$1,809 $854 $812 $506 $362 $66 $0 $0 $4,409 
Nonperforming0 2 148 81 1 14 0 0 246 
Total Consumer - Indirect$1,809 $856 $960 $587 $363 $80 $0 $0 $4,655 
The following tables present credit quality indicators (internal risk grade) by class of commercial and industrial loans and commercial real estate loans as of December 31, 2020. 
(In thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
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 - 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 and Industrial - Agriculture:
Pass$11,536 $8,005 $11,162 $6,531 $3,539 $2,599 $41,936 $1,340 $86,648 
Special Mention0 0 28 729 0 0 2,080 0 2,837 
Substandard99 83 0 202 0 2,308 2,312 0 5,004 
Total Commercial and Industrial - Agriculture$11,635 $8,088 $11,190 $7,462 $3,539 $4,907 $46,328 $1,340 $94,489 
Commercial 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 December 31, 2020, continued.

(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