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Allowance for Credit Losses | 12 Months Ended
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Dec. 31, 2020
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract] |
Allowance for Credit Losses | Allowance for Credit Losses Allowance for Loan and Lease Losses The methodology used to estimate the appropriate level of the allowance for loan and lease losses is described in Note 1, under the heading “Allowance for Credit Losses.” The allowance for loan and lease losses at December 31, 2020, represents the Company’s current estimate of lifetime credit losses inherent in the loan and lease portfolio. The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for each of the three years ended December 31.
(Dollars in thousands) |  | Commercial and agricultural |  | Auto and light truck |  | Medium and heavy duty truck |  | Aircraft |  | Construction equipment |  | Commercial real estate |  | Residential real estate and home equity |  | Consumer |  | Total
2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year |  | $ | 23,671 |  |  | $ | 14,400 |  |  | $ | 4,612 |  |  | $ | 31,058 |  |  | $ | 14,120 |  |  | $ | 18,350 |  |  | $ | 3,609 |  |  | $ | 1,434 |  |  | $ | 111,254 |
Impact of ASC 326 adoption |  | (655) |  |  | (1,303) |  |  | 2,414 |  |  | 484 |  |  | 372 |  |  | (649) |  |  | 1,688 |  |  | 233 |  |  | 2,584 |
Adjusted balance, beginning of year |  | 23,016 |  |  | 13,097 |  |  | 7,026 |  |  | 31,542 |  |  | 14,492 |  |  | 17,701 |  |  | 5,297 |  |  | 1,667 |  |  | 113,838 |
Charge-offs |  | 903 |  |  | 7,107 |  |  | 15 |  |  | 855 |  |  | 4,090 |  |  | 37 |  |  | 74 |  |  | 893 |  |  | 13,974 |
Recoveries |  | 663 |  |  | 499 |  |  | 18 |  |  | 1,800 |  |  | 1,415 |  |  | 58 |  |  | 33 |  |  | 303 |  |  | 4,789 |
Net charge-offs |  | 240 |  |  | 6,608 |  |  | (3) |  |  | (945) |  |  | 2,675 |  |  | (21) |  |  | 41 |  |  | 590 |  |  | 9,185 |
Provision (recovery of provision) |  | (547) |  |  | 22,437 |  |  | (629) |  |  | 1,566 |  |  | 7,349 |  |  | 5,036 |  |  | 118 |  |  | 671 |  |  | 36,001 |
Balance, end of year |  | $ | 22,229 |  |  | $ | 28,926 |  |  | $ | 6,400 |  |  | $ | 34,053 |  |  | $ | 19,166 |  |  | $ | 22,758 |  |  | $ | 5,374 |  |  | $ | 1,748 |  |  | $ | 140,654 |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year |  | $ | 17,063 |  |  | $ | 14,689 |  |  | $ | 4,303 |  |  | $ | 33,047 |  |  | $ | 10,922 |  |  | $ | 15,705 |  |  | $ | 3,425 |  |  | $ | 1,315 |  |  | $ | 100,469 |
Charge-offs |  | 1,040 |  |  | 991 |  |  | 1,132 |  |  | 3,066 |  |  | 238 |  |  | 5 |  |  | 53 |  |  | 1,066 |  |  | 7,591 |
Recoveries |  | 664 |  |  | 97 |  |  | 32 |  |  | 1,143 |  |  | 160 |  |  | 75 |  |  | 85 |  |  | 287 |  |  | 2,543 |
Net charge-offs (recoveries) |  | 376 |  |  | 894 |  |  | 1,100 |  |  | 1,923 |  |  | 78 |  |  | (70) |  |  | (32) |  |  | 779 |  |  | 5,048 |
Provision (recovery of provision) |  | 6,984 |  |  | 605 |  |  | 1,409 |  |  | (66) |  |  | 3,276 |  |  | 2,575 |  |  | 152 |  |  | 898 |  |  | 15,833 |
Balance, end of year |  | $ | 23,671 |  |  | $ | 14,400 |  |  | $ | 4,612 |  |  | $ | 31,058 |  |  | $ | 14,120 |  |  | $ | 18,350 |  |  | $ | 3,609 |  |  | $ | 1,434 |  |  | $ | 111,254 |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year |  | $ | 16,228 |  |  | $ | 10,103 |  |  | $ | 4,844 |  |  | $ | 34,619 |  |  | $ | 9,343 |  |  | $ | 14,792 |  |  | $ | 3,666 |  |  | $ | 1,288 |  |  | $ | 94,883 |
Charge-offs |  | 229 |  |  | 3,308 |  |  | 23 |  |  | 12,222 |  |  | 288 |  |  | 70 |  |  | 63 |  |  | 909 |  |  | 17,112 |
Recoveries |  | 222 |  |  | 68 |  |  | — |  |  | 2,499 |  |  | 100 |  |  | 53 |  |  | 23 |  |  | 271 |  |  | 3,236 |
Net charge-offs (recoveries) |  | 7 |  |  | 3,240 |  |  | 23 |  |  | 9,723 |  |  | 188 |  |  | 17 |  |  | 40 |  |  | 638 |  |  | 13,876 |
Provision (recovery of provision) |  | 842 |  |  | 7,826 |  |  | (518) |  |  | 8,151 |  |  | 1,767 |  |  | 930 |  |  | (201) |  |  | 665 |  |  | 19,462 |
Balance, end of year |  | $ | 17,063 |  |  | $ | 14,689 |  |  | $ | 4,303 |  |  | $ | 33,047 |  |  | $ | 10,922 |  |  | $ | 15,705 |  |  | $ | 3,425 |  |  | $ | 1,315 |  |  | $ | 100,469 |
The allowance for loan and lease losses increased year-over-year in 2020 for most portfolio segments due to downward migration in credit quality and increased risk as a result of the pandemic. The impact of adopting ASC 326 is also noted for each loan segment. Generally, a decrease in the allowance upon adoption was related to shorter duration assets in the loan class and likewise, an increase was generally due to longer duration assets. Commercial and agricultural – loan growth was due primarily to PPP loans which have minimal credit risk. The decline in the allowance was principally due to the impact of the short duration lines of credit driving lower reserves and minimal reserves for PPP loans. Auto and light truck – allowance increased as a result of the significant impact the pandemic had on the portfolio, which includes the particularly hard-hit bus industry. The increase related to credit deterioration was somewhat offset by a lower allowance for the auto rental industry due to the short average duration of the loans. Loan balances declined somewhat year-over-year. Medium and heavy duty truck – allowance decrease was principally attributable to credit quality metrics continuing to be relatively strong therefore a recovery of provision was recognized during the period. Aircraft – the allowance was principally impacted by loan growth. The Company has historically carried a higher allowance in this portfolio due to volatility. The higher allowance during the period was due to charge-offs impacting the loss history and the long duration assets. Construction equipment – allowance increase was mainly driven by exposure to mining and frac sand industries. While the total Company exposure is limited, the impact of lower oil prices on this portfolio was relevant. Commercial real estate – allowance increase was a result of loan growth and exposure to industries hardest hit by the pandemic, i.e. hotels and accommodations and, to a lesser extent, retail and office buildings. The Company’s exposure to these industries is limited, but the impact was noticeable in this asset class. Residential real estate and home equity – increased allowance as a result of longer asset duration. Consumer – segment saw an increase in allowance due to portfolio mix and duration. Economic Outlook As of December 31, 2020, the COVID-19 pandemic created extraordinary circumstances affecting 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, including the recently passed Coronavirus Response and Relief Supplemental Appropriations Act, 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 December 31, 2020 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 for each of the three years ended December 31.
(Dollars in thousands) | 2020 |  | 2019 |  | 2018
Balance, beginning of year | $ | 3,172 |  |  | $ | 3,075 |  |  | $ | 3,050 |
Impact of ASC 326 adoption | 777 |  |  | — |  |  | — |
Adjusted balance, beginning of year | 3,949 |  |  | 3,075 |  |  | 3,050 |
Provision (recovery of provision) | 550 |  |  | 97 |  |  | 25 |
Balance, end of year | $ | 4,499 |  |  | $ | 3,172 |  |  | $ | 3,075 |

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- Definition The entire disclosure for allowance for credit losses. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -URI http://asc.fasb.org/topic&trid=2196771 + Details
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