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Allowance for Credit Losses | 12 Months Ended
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Dec. 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 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, 2021 and 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 |  | Solar |  | Auto and light truck |  | Medium and heavy duty truck |  | Aircraft |  | Construction equipment |  | Commercial real estate |  | Residential real estate and home equity |  | Consumer |  | Total
2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year |  | $ | 16,680 |  |  | $ | 5,549 |  |  | $ | 28,926 |  |  | $ | 6,400 |  |  | $ | 34,053 |  |  | $ | 19,166 |  |  | $ | 22,758 |  |  | $ | 5,374 |  |  | $ | 1,748 |  |  | $ | 140,654 |
Charge-offs |  | 2,930 |  |  | — |  |  | 7,797 |  |  | — |  |  | — |  |  | 856 |  |  | — |  |  | 228 |  |  | 712 |  |  | 12,523 |
Recoveries |  | 812 |  |  | — |  |  | 1,316 |  |  | — |  |  | 687 |  |  | 473 |  |  | 19 |  |  | 16 |  |  | 341 |  |  | 3,664 |
Net charge-offs (recoveries) |  | 2,118 |  |  | — |  |  | 6,481 |  |  | — |  |  | (687) |  |  | 383 |  |  | (19) |  |  | 212 |  |  | 371 |  |  | 8,859 |
Provision (recovery of provision) |  | 847 |  |  | 1,036 |  |  | (2,821) |  |  | (385) |  |  | (1,112) |  |  | 890 |  |  | (3,086) |  |  | (78) |  |  | 406 |  |  | (4,303) |
Balance, end of year |  | $ | 15,409 |  |  | $ | 6,585 |  |  | $ | 19,624 |  |  | $ | 6,015 |  |  | $ | 33,628 |  |  | $ | 19,673 |  |  | $ | 19,691 |  |  | $ | 5,084 |  |  | $ | 1,783 |  |  | $ | 127,492 |
2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year |  | $ | 20,926 |  |  | $ | 2,745 |  |  | $ | 14,400 |  |  | $ | 4,612 |  |  | $ | 31,058 |  |  | $ | 14,120 |  |  | $ | 18,350 |  |  | $ | 3,609 |  |  | $ | 1,434 |  |  | $ | 111,254 |
Impact of ASC 326 adoption |  | (939) |  |  | 284 |  |  | (1,303) |  |  | 2,414 |  |  | 484 |  |  | 372 |  |  | (649) |  |  | 1,688 |  |  | 233 |  |  | 2,584 |
Adjusted balance, beginning of year |  | 19,987 |  |  | 3,029 |  |  | 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 (recoveries) |  | 240 |  |  | — |  |  | 6,608 |  |  | (3) |  |  | (945) |  |  | 2,675 |  |  | (21) |  |  | 41 |  |  | 590 |  |  | 9,185 |
Provision (recovery of provision) |  | (3,067) |  |  | 2,520 |  |  | 22,437 |  |  | (629) |  |  | 1,566 |  |  | 7,349 |  |  | 5,036 |  |  | 118 |  |  | 671 |  |  | 36,001 |
Balance, end of year |  | $ | 16,680 |  |  | $ | 5,549 |  |  | $ | 28,926 |  |  | $ | 6,400 |  |  | $ | 34,053 |  |  | $ | 19,166 |  |  | $ | 22,758 |  |  | $ | 5,374 |  |  | $ | 1,748 |  |  | $ | 140,654 |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year |  | $ | 15,555 |  |  | $ | 1,508 |  |  | $ | 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) |  | 5,747 |  |  | 1,237 |  |  | 605 |  |  | 1,409 |  |  | (66) |  |  | 3,276 |  |  | 2,575 |  |  | 152 |  |  | 898 |  |  | 15,833 |
Balance, end of year |  | $ | 20,926 |  |  | $ | 2,745 |  |  | $ | 14,400 |  |  | $ | 4,612 |  |  | $ | 31,058 |  |  | $ | 14,120 |  |  | $ | 18,350 |  |  | $ | 3,609 |  |  | $ | 1,434 |  |  | $ | 111,254 |
The allowance for loan and lease losses decreased year-over-year in 2021 for most portfolio segments due to improvements in credit quality, attributable in large part to government stimulus payments which provided much needed relief to our customers during the pandemic. The 2020 allowance includes the impact of adopting ASC 326 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 – loans declined year-over-year due to PPP debt forgiveness partially offset by modest loan growth in our core businesses. The decline in the allowance was principally due to improved credit quality as reflected by lower special attention loan balances. Solar – allowance increased due to loan growth. Credit quality is stable to improving. Auto and light truck – allowance decreased as a result of charge-offs and lower outstanding loan balances in the higher risk bus segment of the portfolio, which was significantly impacted by the pandemic. The decline in balances in the bus segment was more than offset by increases in the auto rental and leasing segments, which carry lower loss ratios. Medium and heavy duty truck – allowance decrease was principally attributable to a decrease in portfolio outstanding balances. Credit quality metrics continued to be relatively strong for this portfolio. Aircraft – the allowance was principally impacted by improved credit quality metrics and strengthening collateral values somewhat offset by loan growth and heightened economic concerns related to foreign loans. The Company has historically carried a higher allowance in this portfolio due to risk volatility. Construction equipment – allowance increase was driven by loan growth. Commercial real estate – allowance decrease was a result of declines in outstanding loan balances and also qualitative adjustments to the loss ratios for the hotel segment which was hard hit by the pandemic but is currently performing better than anticipated. Residential real estate and home equity – decreased allowance due to decline in loan balances. Consumer – segment saw an increase in allowance due to forecast adjustments and slight loan growth. Economic Outlook As of December 31, 2021, the most significant economic factors impacting our loan portfolios are the pandemic and the Omicron COVID variant surge, ongoing supply chain disruptions, and increasing inflation. The forecast considers global and domestic economic effects from the pandemic as well as other key economic factors such as unemployment and inflation which may impact our clients. The Company’s assumption was that economic growth will slow in 2022 and 2023 and inflation will remain above the 2% Federal Reserve target rate resulting in an adverse impact on the loan and lease portfolio over the next two years. 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, 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 for each of the three years ended December 31.
(Dollars in thousands) | 2021 |  | 2020 |  | 2019
Balance, beginning of year | $ | 4,499 |  |  | $ | 3,172 |  |  | $ | 3,075 |
Impact of ASC 326 adoption | — |  |  | 777 |  |  | — |
Adjusted balance, beginning of year | 4,499 |  |  | 3,949 |  |  | 3,075 |
(Recovery of) provision | (303) |  |  | 550 |  |  | 97 |
Balance, end of year | $ | 4,196 |  |  | $ | 4,499 |  |  | $ | 3,172 |

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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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