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Loan and Lease Financings | 9 Months Ended
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Sep. 30, 2022
Receivables [Abstract] |
Loan and Lease Financings | Loan and Lease FinancingsThe Company evaluates loans and leases for credit quality at least annually but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk). The Company uses two methods to assess credit risk: loan or lease credit quality grades and credit risk classifications. The purpose of the loan or lease credit quality grade is to document the degree of risk associated with individual credits as well as inform management of the degree of risk in the portfolio taken as a whole. Credit risk classifications are used to categorize loans by degree of risk and to designate individual or committee approval authorities for higher risk credits at the time of origination. Credit risk classifications include categories for: Acceptable, Marginal, Special Attention, Special Risk, Restricted by Policy, Regulated and Prohibited by Law. All loans and leases, except residential real estate and home equity loans and consumer loans, are assigned credit quality grades on a scale from 1 to 12 with grade 1 representing superior credit quality. The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Company’s safety and soundness. Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, relationships in excess of $250,000 are reviewed quarterly as part of management’s evaluation of the appropriateness of the allowance for loan and lease losses. Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the exposure to increased risk; grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention. Credits that exhibit well-defined weaknesses and a distinct possibility of loss are considered “classified” and are graded 9 through 12 corresponding to the regulatory definitions of “substandard” (grades 9 and 10) and the more severe “doubtful” (grade 11) and “loss” (grade 12). For residential real estate and home equity and consumer loans, credit quality is based on the aging status of the loan and by payment activity. Nonperforming loans are those loans which are on nonaccrual status or are 90 days or more past due. Below is a summary of the Company’s loan and lease portfolio segments and a discussion of the risk characteristics relevant to each portfolio segment. Commercial and agricultural – loans are to entities within the Company’s local market communities. Loans are for business or agri-business purposes and include working capital lines of credit secured by accounts receivable and inventory that are generally renewable annually and term loans secured by equipment with amortizations based on the expected life of the underlying collateral, generally three to seven years. These loans are typically further supported by personal guarantees. Commercial exposure is to a wide range of industries and services. Risks in this sector are also varied and are most impacted by general economic conditions. Risk mitigants include appropriate underwriting and monitoring and, when appropriate, government guarantees, including SBA and FSA. This portfolio sector also includes PPP loans, which are fully guaranteed by the SBA. As of September 30, 2022, PPP loan balances were $6.35 million which is net of unearned fees of $0.13 million. Solar – loans are for the purpose of financing solar related projects and may include construction draw notes, operating loans, letters of credit and may entail a tax equity structure. Collateral in a multi-state area includes tangible assets of the borrower, assignment of intangible assets including power purchase agreements, and pledges of permits and licenses. Financing is provided to qualified borrowers throughout the continental United States with an emphasis on the region east of the Rocky Mountains. Auto and light truck – loans are secured by vehicles and borrowers are nationwide. The portfolio consists of multiple industries: auto rental, auto leasing and specialty vehicle which includes bus, funeral car and step van. Borrowers in the auto rental segment are primarily independent auto rental entities with on-airport and off-airport locations, and some insurance replacement business. Loan amortizations are relatively short, generally eighteen months, but up to four years. Auto leasing customers lease to businesses and the Company takes assignment of the lease stream and places its lien on the vehicles. Terms are generally longer than the auto rental sector, three to seven years and match the underlying leases. Risks in both these segments include economic risks and collateral risks, principally used vehicle values. The bus segment is secured primarily by shuttle buses and motor coaches, the step van segment is secured by step vans and the funeral car segment is secured by hearses and limousines. Risks include lack of well-established mechanisms for disposition of collateral, such as auctions that are key to disposition of autos. Loans in the portfolio generally carry personal guarantees. Medium and heavy duty truck – loans and full-service truck leases are secured by heavy-duty trucks, commonly Class 8 trucks, and are generally personally guaranteed. In addition to economic risks, collateral risk is significant. Financing is generally at full cost, plus additional expenditures to get the vehicle operational, such as taxes, insurance and fees. It takes three to four years of debt amortization to reach an equity position in the collateral. Aircraft – loans are to domestic and foreign borrowers with the domestic segment further divided into two pools: 1) personal and business use, and 2) dealers and operators. The Company’s focus for the foreign sector is Latin America, principally Mexico and Brazil. Loans are primarily secured by new and used business jets and helicopters, with appropriate advances, amortizations of ten to fifteen years, and are generally guaranteed by individuals. The most significant risk in the Aircraft portfolio is collateral risk - volatility in underlying values and maintenance concerns. The portfolio is subject to national and global economic risks. Construction equipment – loans are to borrowers throughout the country secured by specific equipment. The borrowers include highway and road builders, asphalt producers and pavers, suppliers of aggregate products, site developers, frac sand operations, general construction equipment dealers and operators, and crane rental entities. Generally, loans include personal guarantees. The construction equipment industry is heavily dependent on the U.S. economy and the global economy. Market growth is reliant on investments from public and private sectors into urbanization and infrastructure projects. Commercial real estate – loans are generally to entities within the local market communities served by the Company with advances generally within regulatory guidelines. Historically, the Company’s exposure to commercial real estate had been primarily to the less risky owner-occupied segment although growth in recent years has been in the non-owner-occupied segment which now accounts for slightly less than half of the portfolio. The non-owner-occupied segment includes hotels, apartment complexes and warehousing facilities. There is limited exposure to construction loans. Many commercial real estate loans carry personal guarantees. Additional risks in the commercial real estate portfolio stem from geographical concentration in northern Indiana and southwest Michigan and general economic conditions. Residential real estate and home equity – loans predominantly include one-to-four family mortgages to borrowers in the Company’s local market communities and are appropriately underwritten and secured by residential real estate. Consumer – loans are to individuals in the Company’s local markets and auto loans are generally secured by personal vehicles and appropriately underwritten. The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of September 30, 2022.
| Term Loans and Leases by Origination Year |  |  |
(Dollars in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total
Commercial and agricultural |  |  |  |  |  |  |  |  |
Grades 1-6 | $ | 119,558 |  | $ | 126,915 |  | $ | 86,893 |  | $ | 39,376 |  | $ | 19,329 |  | $ | 18,808 |  | $ | 397,057 |  | $ | — |  | $ | 807,936 |
Grades 7-12 | 3,094 |  | 2,897 |  | 124 |  | 2,358 |  | 2,509 |  | 1,399 |  | 15,445 |  | — |  | 27,826 |
Total commercial and agricultural | 122,652 |  | 129,812 |  | 87,017 |  | 41,734 |  | 21,838 |  | 20,207 |  | 412,502 |  | — |  | 835,762 |
Solar |  |  |  |  |  |  |  |  |
Grades 1-6 | 69,556 |  | 115,921 |  | 37,240 |  | 72,710 |  | 18,631 |  | 33,467 |  | — |  | — |  | 347,525 |
Grades 7-12 | — |  | — |  | 1,103 |  | 5,732 |  | 705 |  | 3,570 |  | — |  | — |  | 11,110 |
Total solar | 69,556 |  | 115,921 |  | 38,343 |  | 78,442 |  | 19,336 |  | 37,037 |  | — |  | — |  | 358,635 |
Auto and light truck |  |  |  |  |  |  |  |  |
Grades 1-6 | 394,772 |  | 186,699 |  | 74,388 |  | 41,687 |  | 12,935 |  | 4,713 |  | — |  | — |  | 715,194 |
Grades 7-12 | 6,569 |  | 5,228 |  | 7,419 |  | 3,416 |  | 2,511 |  | 2,987 |  | — |  | — |  | 28,130 |
Total auto and light truck | 401,341 |  | 191,927 |  | 81,807 |  | 45,103 |  | 15,446 |  | 7,700 |  | — |  | — |  | 743,324 |
Medium and heavy duty truck |  |  |  |  |  |  |  |  |
Grades 1-6 | 114,007 |  | 72,478 |  | 50,579 |  | 38,281 |  | 12,679 |  | 4,986 |  | — |  | — |  | 293,010 |
Grades 7-12 | — |  | — |  | — |  | — |  | — |  | 58 |  | — |  | — |  | 58 |
Total medium and heavy duty truck | 114,007 |  | 72,478 |  | 50,579 |  | 38,281 |  | 12,679 |  | 5,044 |  | — |  | — |  | 293,068 |
Aircraft |  |  |  |  |  |  |  |  |
Grades 1-6 | 317,174 |  | 292,885 |  | 239,238 |  | 60,565 |  | 33,028 |  | 47,775 |  | 4,530 |  | — |  | 995,195 |
Grades 7-12 | 592 |  | — |  | 578 |  | — |  | — |  | 1,630 |  | — |  | — |  | 2,800 |
Total aircraft | 317,766 |  | 292,885 |  | 239,816 |  | 60,565 |  | 33,028 |  | 49,405 |  | 4,530 |  | — |  | 997,995 |
Construction equipment |  |  |  |  |  |  |  |  |
Grades 1-6 | 359,702 |  | 234,401 |  | 120,431 |  | 68,480 |  | 24,452 |  | 7,729 |  | 22,426 |  | 2,975 |  | 840,596 |
Grades 7-12 | 22,162 |  | 9,618 |  | 2,466 |  | 2,081 |  | 234 |  | 55 |  | — |  | 1,480 |  | 38,096 |
Total construction equipment | 381,864 |  | 244,019 |  | 122,897 |  | 70,561 |  | 24,686 |  | 7,784 |  | 22,426 |  | 4,455 |  | 878,692 |
Commercial real estate |  |  |  |  |  |  |  |  |
Grades 1-6 | 208,585 |  | 170,211 |  | 128,762 |  | 115,556 |  | 108,539 |  | 189,259 |  | 296 |  | — |  | 921,208 |
Grades 7-12 | 280 |  | 838 |  | 7,614 |  | 6,138 |  | 48 |  | 1,297 |  | — |  | — |  | 16,215 |
Total commercial real estate | 208,865 |  | 171,049 |  | 136,376 |  | 121,694 |  | 108,587 |  | 190,556 |  | 296 |  | — |  | 937,423 |
Residential real estate and home equity |  |  |  |  |  |  |  |  |
Performing | 89,237 |  | 101,190 |  | 101,388 |  | 35,269 |  | 7,274 |  | 85,733 |  | 142,535 |  | 3,779 |  | 566,405 |
Nonperforming | — |  | 186 |  | 926 |  | — |  | — |  | 669 |  | 188 |  | 228 |  | 2,197 |
Total residential real estate and home equity | 89,237 |  | 101,376 |  | 102,314 |  | 35,269 |  | 7,274 |  | 86,402 |  | 142,723 |  | 4,007 |  | 568,602 |
Consumer |  |  |  |  |  |  |  |  |
Performing | 59,856 |  | 39,184 |  | 15,115 |  | 9,045 |  | 3,854 |  | 1,032 |  | 20,323 |  | — |  | 148,409 |
Nonperforming | — |  | 69 |  | 30 |  | 40 |  | 15 |  | 14 |  | — |  | — |  | 168 |
Total consumer | $ | 59,856 |  | $ | 39,253 |  | $ | 15,145 |  | $ | 9,085 |  | $ | 3,869 |  | $ | 1,046 |  | $ | 20,323 |  | $ | — |  | $ | 148,577 |
The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of December 31, 2021.
| Term Loans and Leases by Origination Year |  |  |
(Dollars in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total
Commercial and agricultural |  |  |  |  |  |  |  |  |
Grades 1-6 | $ | 233,512 |  | $ | 123,947 |  | $ | 60,744 |  | $ | 55,231 |  | $ | 32,545 |  | $ | 20,184 |  | $ | 364,460 |  | $ | — |  | $ | 890,623 |
Grades 7-12 | 4,682 |  | 194 |  | 3,667 |  | 2,373 |  | 2,004 |  | 484 |  | 14,685 |  | — |  | 28,089 |
Total commercial and agricultural | 238,194 |  | 124,141 |  | 64,411 |  | 57,604 |  | 34,549 |  | 20,668 |  | 379,145 |  | — |  | 918,712 |
Solar |  |  |  |  |  |  |  |  |
Grades 1-6 | 159,244 |  | 42,073 |  | 81,593 |  | 18,979 |  | 34,889 |  | 3,780 |  | — |  | — |  | 340,558 |
Grades 7-12 | — |  | 1,138 |  | 5,882 |  | 724 |  | — |  | — |  | — |  | — |  | 7,744 |
Total solar | 159,244 |  | 43,211 |  | 87,475 |  | 19,703 |  | 34,889 |  | 3,780 |  | — |  | — |  | 348,302 |
Auto and light truck |  |  |  |  |  |  |  |  |
Grades 1-6 | 331,105 |  | 122,709 |  | 72,580 |  | 24,965 |  | 11,814 |  | 901 |  | — |  | — |  | 564,074 |
Grades 7-12 | 10,828 |  | 11,752 |  | 7,467 |  | 3,859 |  | 4,876 |  | 919 |  | — |  | — |  | 39,701 |
Total auto and light truck | 341,933 |  | 134,461 |  | 80,047 |  | 28,824 |  | 16,690 |  | 1,820 |  | — |  | — |  | 603,775 |
Medium and heavy duty truck |  |  |  |  |  |  |  |  |
Grades 1-6 | 92,252 |  | 68,354 |  | 57,967 |  | 23,210 |  | 12,419 |  | 5,265 |  | — |  | — |  | 259,467 |
Grades 7-12 | — |  | — |  | — |  | — |  | — |  | 273 |  | — |  | — |  | 273 |
Total medium and heavy duty truck | 92,252 |  | 68,354 |  | 57,967 |  | 23,210 |  | 12,419 |  | 5,538 |  | — |  | — |  | 259,740 |
Aircraft |  |  |  |  |  |  |  |  |
Grades 1-6 | 384,895 |  | 290,897 |  | 85,916 |  | 45,848 |  | 47,025 |  | 29,435 |  | 4,844 |  | — |  | 888,860 |
Grades 7-12 | 1,141 |  | 649 |  | — |  | 4,670 |  | 454 |  | 2,627 |  | — |  | — |  | 9,541 |
Total aircraft | 386,036 |  | 291,546 |  | 85,916 |  | 50,518 |  | 47,479 |  | 32,062 |  | 4,844 |  | — |  | 898,401 |
Construction equipment |  |  |  |  |  |  |  |  |
Grades 1-6 | 314,044 |  | 201,032 |  | 109,029 |  | 47,693 |  | 13,501 |  | 5,031 |  | 18,937 |  | 4,594 |  | 713,861 |
Grades 7-12 | 26,650 |  | 8,709 |  | 1,983 |  | 797 |  | 80 |  | — |  | — |  | 2,193 |  | 40,412 |
Total construction equipment | 340,694 |  | 209,741 |  | 111,012 |  | 48,490 |  | 13,581 |  | 5,031 |  | 18,937 |  | 6,787 |  | 754,273 |
Commercial real estate |  |  |  |  |  |  |  |  |
Grades 1-6 | 230,701 |  | 150,144 |  | 146,374 |  | 141,838 |  | 126,642 |  | 112,243 |  | 391 |  | — |  | 908,333 |
Grades 7-12 | 218 |  | 5,921 |  | 7,159 |  | 491 |  | 6,208 |  | 1,011 |  | — |  | — |  | 21,008 |
Total commercial real estate | 230,919 |  | 156,065 |  | 153,533 |  | 142,329 |  | 132,850 |  | 113,254 |  | 391 |  | — |  | 929,341 |
Residential real estate and home equity |  |  |  |  |  |  |  |  |
Performing | 105,345 |  | 114,682 |  | 41,185 |  | 9,706 |  | 11,720 |  | 89,646 |  | 122,281 |  | 4,555 |  | 499,120 |
Nonperforming | — |  | — |  | — |  | 13 |  | 421 |  | 655 |  | 293 |  | 88 |  | 1,470 |
Total residential real estate and home equity | 105,345 |  | 114,682 |  | 41,185 |  | 9,719 |  | 12,141 |  | 90,301 |  | 122,574 |  | 4,643 |  | 500,590 |
Consumer |  |  |  |  |  |  |  |  |
Performing | 58,866 |  | 24,307 |  | 17,031 |  | 8,284 |  | 2,263 |  | 697 |  | 21,378 |  | — |  | 132,826 |
Nonperforming | 37 |  | 107 |  | 43 |  | 30 |  | 33 |  | 4 |  | — |  | — |  | 254 |
Total consumer | $ | 58,903 |  | $ | 24,414 |  | $ | 17,074 |  | $ | 8,314 |  | $ | 2,296 |  | $ | 701 |  | $ | 21,378 |  | $ | — |  | $ | 133,080 |
The following table shows the amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status.
(Dollars in thousands) |  | Current |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days or More Past Due and Accruing |  | Total Accruing Loans |  | Nonaccrual |  | Total Financing Receivables
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and agricultural |  | $ | 834,918 |  |  | $ | 360 |  |  | $ | 41 |  |  | $ | — |  |  | $ | 835,319 |  |  | $ | 443 |  |  | $ | 835,762 |
Solar |  | 358,635 |  |  | — |  |  | — |  |  | — |  |  | 358,635 |  |  | — |  |  | 358,635 |
Auto and light truck |  | 725,421 |  |  | 234 |  |  | — |  |  | — |  |  | 725,655 |  |  | 17,669 |  |  | 743,324 |
Medium and heavy duty truck |  | 293,010 |  |  | — |  |  | — |  |  | — |  |  | 293,010 |  |  | 58 |  |  | 293,068 |
Aircraft |  | 995,787 |  |  | — |  |  | 1,630 |  |  | — |  |  | 997,417 |  |  | 578 |  |  | 997,995 |
Construction equipment |  | 872,660 |  |  | 1,568 |  |  | 217 |  |  | — |  |  | 874,445 |  |  | 4,247 |  |  | 878,692 |
Commercial real estate |  | 934,804 |  |  | — |  |  | — |  |  | — |  |  | 934,804 |  |  | 2,619 |  |  | 937,423 |
Residential real estate and home equity |  | 565,712 |  |  | 508 |  |  | 185 |  |  | 166 |  |  | 566,571 |  |  | 2,031 |  |  | 568,602 |
Consumer |  | 147,874 |  |  | 446 |  |  | 89 |  |  | — |  |  | 148,409 |  |  | 168 |  |  | 148,577 |
Total |  | $ | 5,728,821 |  |  | $ | 3,116 |  |  | $ | 2,162 |  |  | $ | 166 |  |  | $ | 5,734,265 |  |  | $ | 27,813 |  |  | $ | 5,762,078 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and agricultural |  | $ | 916,659 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 916,659 |  |  | $ | 2,053 |  |  | $ | 918,712 |
Solar |  | 348,302 |  |  | — |  |  | — |  |  | — |  |  | 348,302 |  |  | — |  |  | 348,302 |
Auto and light truck |  | 579,605 |  |  | — |  |  | — |  |  | — |  |  | 579,605 |  |  | 24,170 |  |  | 603,775 |
Medium and heavy duty truck |  | 259,467 |  |  | — |  |  | — |  |  | — |  |  | 259,467 |  |  | 273 |  |  | 259,740 |
Aircraft |  | 894,092 |  |  | 1,130 |  |  | 2,530 |  |  | — |  |  | 897,752 |  |  | 649 |  |  | 898,401 |
Construction equipment |  | 745,870 |  |  | 1,313 |  |  | — |  |  | — |  |  | 747,183 |  |  | 7,090 |  |  | 754,273 |
Commercial real estate |  | 926,345 |  |  | — |  |  | — |  |  | — |  |  | 926,345 |  |  | 2,996 |  |  | 929,341 |
Residential real estate and home equity |  | 498,854 |  |  | 212 |  |  | 54 |  |  | 245 |  |  | 499,365 |  |  | 1,225 |  |  | 500,590 |
Consumer |  | 132,464 |  |  | 332 |  |  | 30 |  |  | 4 |  |  | 132,830 |  |  | 250 |  |  | 133,080 |
Total |  | $ | 5,301,658 |  |  | $ | 2,987 |  |  | $ | 2,614 |  |  | $ | 249 |  |  | $ | 5,307,508 |  |  | $ | 38,706 |  |  | $ | 5,346,214 |
Accrued interest receivable on loans and leases at September 30, 2022 and December 31, 2021 was $15.19 million and $12.94 million, respectively. There were no loan and lease modifications classified as a troubled debt restructuring (TDR) during the three and nine months ended September 30, 2022. There was one nonperforming loan and lease modification classified as a troubled debt restructuring (TDR) during the three and nine months ended September 30, 2021. The classification between nonperforming and performing is determined at the time of modification. Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions. Modifications do not result in the contractual forgiveness of principal or interest. There were no modifications during the three and nine months ended September 30, 2022 and one modification during the three and nine months ended September 30, 2021 that resulted in an interest rate below market rate. There were no TDRs which had a payment default within the twelve months following modification during the three months ended September 30, 2022 and one TDR which had a payment default within the twelve months following modification during the nine months ended September 30, 2022. There were no TDRs which had payment defaults within the twelve months following modification during the three and nine months ended September 30, 2021. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual. The following table shows the recorded investment of loans and leases classified as troubled debt restructurings as of September 30, 2022 and December 31, 2021.
(Dollars in thousands) |  | September 30, 2022 |  | December 31, 2021
Performing TDRs |  | $ | — |  |  | $ | 319 |
Nonperforming TDRs |  | 4,042 |  |  | 6,742 |
Total TDRs |  | $ | 4,042 |  |  | $ | 7,061 |

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