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Allowance for Credit Losses
 3 Months Ended
Mar. 31, 2021
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]  
Allowance for Credit Losses Allowance for Credit Losses
Allowance for Loan and Lease Losses
The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolios utilizing guidance in Accounting Standards Codification (ASC) Topic 326. As permitted under The Cares Act, the Company adopted ASU 2016-13 on December 31, 2020. Therefore, the March 31, 2020 provision for credit losses and other allowance for loan and lease loss disclosures for the three months ended March 31, 2020 were calculated under the incurred loss method.
The determination of the allowance requires significant judgment to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually. In determining the allowance, the Company estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate. The allowance estimate considers relevant available information, from internal and external sources relating to the historical loss experience, current conditions, and reasonable and supportable forecasts for the Company’s outstanding loan and lease balances. The allowance is an estimation that reflects management’s evaluation of expected losses related to the Company’s financial assets measured at amortized cost. To ensure that the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance.
The Company categorizes its loan portfolios into nine segments based on similar risk characteristics. Loans within each segment are collectively evaluated using either: 1) a cohort cumulative loss rate methodology (“cohort”) or, 2) the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD).
The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the three months ended March 31, 2021 and 2020.
(Dollars in thousands)Commercial and
agricultural		SolarAuto and
light truck		Medium
and
heavy duty
truck		AircraftConstruction
equipment		Commercial
real estate		Residential
real estate
and home
equity		ConsumerTotal
March 31, 2021         
Balance, beginning of period$16,680 $5,549 $28,926 $6,400 $34,053 $19,166 $22,758 $5,374 $1,748 $140,654 
Charge-offs1 — 4,286 — — 8 — 5 152 4,452 
Recoveries377 — 49 — 119 254 15 1 135 950 
Net charge-offs (recoveries)(376)— 4,237 — (119)(246)(15)4 17 3,502 
Provision (recovery of provision)(1,605)209 4,654 (129)1,047 (3,103)1,561 (207)(29)2,398 
Balance, end of period$15,451 $5,758 $29,343 $6,271 $35,219 $16,309 $24,334 $5,163 $1,702 $139,550 
March 31, 2020         
Balance, beginning of period*$20,926 $2,745 $14,400 $4,612 $31,058 $14,120 $18,350 $3,609 $1,434 $111,254 
Charge-offs529 — 34 — 586 1,432 1 13 243 2,838 
Recoveries166 — 82 — 448 211 15 27 80 1,029 
Net charge-offs (recoveries)363 — (48)— 138 1,221 (14)(14)163 1,809 
Provision (recovery of provision)*(280)151 1,023 (256)(851)9,794 1,224 285 263 11,353 
Balance, end of period*$20,283 $2,896 $15,471 $4,356 $30,069 $22,693 $19,588 $3,908 $1,534 $120,798 
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore first quarter 2020 amounts reflect the incurred loss method.
The allowance for loan and lease losses increased during first quarter 2021 for the most concerning portfolio segment, the bus segment of the auto and light truck portfolio, due to downward migration in credit quality and increased risk as a result of the pandemic. Increases in the allowance for the remainder of the auto and light truck portfolio were driven by loan growth, as were increases in other portfolios. Likewise, decreases in the allowance in other portfolio segments were due to decreases in loan balances. The decrease in the allowance for the construction equipment was also driven by a reduction of impairments for loans evaluated individually. The impact of adopting ASC 326 is included in the beginning balance (December 31, 2020) of each loan segment.
Commercial and agricultural – loan balances increased during the period due to a $92.28 million net increase in PPP loans. Allowances were released as a result of paydowns exceeding loan originations on our core business products and minimal allowances were established for PPP loans, which have negligible risk.
Solar – allowance increased slightly to accommodate the limited loan growth in this portfolio segment.
Auto and light truck – allowance increased as a result of the significant impact the pandemic had on the bus segment of the portfolio with the increase in the allowance attributable primarily to credit deterioration in the bus segment, as well as a small increase for loan growth in the auto rental and leasing segments.
Medium and heavy duty truck – allowance decrease was principally attributable to a decline in loan balances during the period.
Aircraft – allowance increase was principally impacted by loan growth in the domestic segment.
Construction equipment – allowance decrease was mainly driven by lower impairments on loans evaluated individually and somewhat lower portfolio loan outstanding balances.
Commercial real estate – allowance increase was primarily due to credit deterioration in a hotel sector credit.
Residential real estate and home equity – allowance decreased as a result of lower portfolio outstanding balances.
Consumer – segment saw a decrease in the allowance due to somewhat lower outstanding loan balances.
Economic Outlook
As of March 31, 2021, the impact of the COVID-19 pandemic continues to adversely affect the loan and lease portfolios. The forecast considers global and domestic economic effects from the ongoing pandemic as well as the potential impact of U.S. monetary and fiscal policy, which may impact clients, particularly those who will benefit from a second round of paycheck protection program funds or targeted funds for struggling industry sectors such as transportation. The Company’s assumption was that the economic slowdown will have an adverse impact on the loan and lease portfolio over the next two years. GDP is expected to grow throughout 2021 but is not expected to return to pre-pandemic levels until 2022. Likewise, unemployment is not likely to get back to pre-shutdown levels until 2022.
As a result of the unprecedented economic uncertainty caused by the COVID-19 pandemic, the Company’s future loss estimates may vary considerably from the March 31, 2021 assumptions.
Liability for Credit Losses on Unfunded Loan Commitments
The liability for credit losses inherent in unfunded loan commitments is included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition. The following table shows the changes in the liability for credit losses on unfunded loan commitments.
Three Months Ended
March 31,
(Dollars in thousands)20212020
Balance, beginning of period*$4,499 $3,172 
Provision (recovery of provision)*94 94 
Balance, end of period*$4,593 $3,266 
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore first quarter 2020 amounts reflect the incurred loss method.