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Allowance for Credit Losses
 3 Months Ended
Mar. 31, 2023
Receivables [Abstract]  
Allowance for Credit Losses Allowance for Credit Losses
 
Management reviews the appropriateness of the allowance for credit losses ("allowance" or "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 Discounted Cash Flow ("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 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.

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 March 31, 2023, 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 for credit loss expense in the Company's consolidated statements of income.
The following table details activity in the allowance for credit losses on loans and leases for the three months ended March 31, 2023 and 2022. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three Months Ended March 31, 2023
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$6,039 $27,287 $11,154 $1,358 $96 $45,934 
Impact of adopting ASU 2022-222 16 46 0 0 64 
Charge-offs0 0 (2)(106)0 (108)
Recoveries46 1,246 64 33 0 1,389 
(Credit) provision for credit loss expense229 (1,363)(404)343 15 (1,180)
Ending Balance$6,316 $27,186 $10,858 $1,628 $111 $46,099 
 
Three Months Ended March 31, 2022
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$6,335 $24,813 $10,139 $1,492 $64 42,843 
Charge-offs(23)(27)0 (196)0 (246)
Recoveries20 42 109 92 0 263 
(Credit) provision for credit loss expense695 (1,846)199 200 18 (734)
Ending Balance$7,027 $22,982 $10,447 $1,588 $82 $42,126 
 
The following table details activity in the liabilities for off-balance sheet credit exposures for the three months ended March 31, 2023 and 2022:

(In thousands)20232022
Liabilities for off-balance sheet credit exposures at beginning of period$2,796 $2,507 
Provision for credit loss expense related to off-balance sheet credit exposures355 214 
Liabilities for off-balance sheet credit exposures at end of period$3,151 $2,721 
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:

March 31, 2023
(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
Commercial Real Estate$10,547 $0 $0 $10,547 $0 
Residential Real Estate181 0 0 181 0 
Total$10,728 $0 $0 $10,728 $0 

December 31, 2022
(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
Commercial and Industrial$642 $28 $0 $670 $0 
Commercial Real Estate13,209 0 78 13,287 0 
Commercial Real Estate - Agriculture1,515 0 0 1,515 0 
Residential Real Estate188 0 0 188 3 
Total$15,554 $28 $78 $15,660 $3 

The Company adopted ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2022-02") effective January 1, 2023. ASU 2022-02 eliminates the guidance on troubled debt restructurings (TDRs) and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases, which has been incorporated in the credit quality table below.
 
There were no new borrowers experiencing financial difficulty in the first quarter of 2023, and no new TDRs reported in the first quarter of 2022.

The following tables present credit quality indicators by total loans on an amortized cost basis by origination year as of March 31, 2023 and December 31, 2022:
March 31, 2023
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
Internal risk grade:
Pass$16,897 $113,621 $80,606 $36,432 $44,230 $167,183 $203,174 $1,170 $663,313 
Special Mention0 0 120 338 132 1,339 800 0 2,729 
Substandard0 0 102 417 65 1,562 4,916 0 7,062 
Total Commercial and Industrial - Other$16,897 $113,621 $80,828 $37,187 $44,427 $170,084 $208,890 $1,170 $673,104 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial and Industrial - PPP:
Pass$0 $0 $383 $303 $0 $0 $0 $0 $686 
Special Mention000000000
Substandard000000000
Total Commercial and Industrial - PPP$0 $0 $383 $303 $0 $0 $0 $0 $686 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial and Industrial - Agriculture:
Pass$2,152 $15,034 $4,399 $4,162 $3,479 $12,092 $23,745 $0 $65,063 
Special Mention0 0 56 0 0 0 20 0 76 
Substandard0 0 0 67 0 13 4 0 84 
Total Commercial and Industrial - Agriculture$2,152 $15,034 $4,455 $4,229 $3,479 $12,105 $23,769 $0 $65,223 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial Real Estate
Pass$39,210 $340,604 $367,485 $317,991 $278,372 $1,021,145 $35,794 $2,056 $2,402,657 
Special Mention0 643 0 1,682 11,380 21,234 0 0 34,939 
Substandard0 74 109 0 3,147 35,482 124 0 38,936 
Total Commercial Real Estate$39,210 $341,321 $367,594 319,673 292,899 1,077,861 $35,918 $2,056 $2,476,532 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial Real Estate - Agriculture:
Pass$2,578 $34,652 $23,976 $22,525 $24,893 $100,038 $2,158 $1,450 $212,270 
Special Mention0 0 0 0 396 1,115 0 0 1,511 
Substandard0 0 0 0 183 50 0 0 233 
Total Commercial Real Estate - Agriculture$2,578 $34,652 $23,976 $22,525 $25,472 $101,203 $2,158 $1,450 $214,014 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial Real Estate - Construction
Pass$0 $30,152 $73,446 $17,738 $11,859 $16,312 $62,168 $8,114 $219,789 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial Real Estate - Construction$0 $30,152 $73,446 $17,738 $11,859 $16,312 $62,168 $8,114 $219,789 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Residential - Home Equity
Performing$499 $2,357 $1,033 $610 $953 $10,589 $164,730 $317 $181,088 
Nonperforming0 0 0 0 0 288 2,260 0 2,548 
Total Residential - Home Equity$499 $2,357 $1,033 $610 $953 $10,877 $166,990 $317 $183,636 
Current-period gross writeoffs$0 $0 $0 $0 $0 $2 $0 $0 $2 
Residential - Mortgages
Performing$15,811 $192,106 $269,413 $235,432 $116,045 $501,085 $0 $0 $1,329,892 
Nonperforming0 218 330 619 670 10,485 0 0 12,322 
Total Residential - Mortgages$15,811 $192,324 $269,743 $236,051 $116,715 $511,570 $0 $0 $1,342,214 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Consumer - Direct
Performing$26,213 $16,366 $13,338 $6,844 $5,762 $11,873 $3,205 $0 $83,601 
Nonperforming0 0 0 0 63 108 3 0 174 
Total Consumer - Direct$26,213 $16,366 $13,338 $6,844 $5,825 $11,981 $3,208 $0 $83,775 
Current-period gross writeoffs$33 $0 $0 $14 $20 $3 $0 $0 $70 
Consumer - Indirect
Performing$0 $0 $139 $127 $885 $554 $0 $0 $1,705 
Nonperforming0 0 0 0 55 23 0 0 78 
Total Consumer - Indirect$0 $0 $139 $127 $940 $577 $0 $0 $1,783 
Current-period gross writeoffs$0 $0 $0 $0 $31 $5 $0 $0 $36 
December 31, 2022
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
Internal risk grade:
Pass$124,190 $79,861 $38,158 $41,391 $33,238 $156,038 $215,890 $6,466 $695,232 
Special Mention0 127 421 285 271 1,380 501 0 2,985 
Substandard0 111 442 35 733 503 5,659 0 7,483 
Total Commercial and Industrial - Other$124,190 $80,099 $39,021 $41,711 $34,242 $157,921 $222,050 $6,466 $705,700 
Commercial and Industrial - Agriculture:
Pass$16,694 $4,120 $4,944 $4,186 $7,734 $4,883 $42,097 $215 $84,873 
Special Mention0580000500108
Substandard007100165092
Total Commercial and Industrial - Agriculture$16,694 $4,178 $5,015 $4,186 $7,734 $4,899 $42,152 $215 $85,073 
Commercial and Industrial - PPP:
Pass$0 $416 $340 $0 $0 $0 $0 $0 $756 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial and Industrial - PPP$0 $416 $340 $0 $0 $0 $0 $0 $756 
Commercial Real Estate
Pass$342,311 $367,104 $311,607 $279,587 $203,016 $812,563 $10,906 $24,503 $2,351,597 
Special Mention643 3,406 1,688 11,462 2,555 25,361 0 0 45,115 
Substandard78 110 0 3,394 1,692 35,221 132 0 40,627 
Total Commercial Real Estate$343,032 $370,620 $313,295 $294,443 $207,263 $873,145 $11,038 $24,503 $2,437,339 
Commercial Real Estate - Agriculture:
Pass$33,241 $24,125 $22,831 $25,576 $37,835 $65,112 $3,131 $1,235 $213,086 
Special Mention0 0 0 401 0 1,142 0 0 1,543 
Substandard0 0 0 186 38 110 0 0 334 
Total Commercial Real Estate - Agriculture$33,241 $24,125 $22,831 $26,163 $37,873 $66,364 $3,131 $1,235 $214,963 
Commercial Real Estate - Construction
Pass$23,105 $75,245 $27,584 $14,842 $9,083 $7,268 $42,701 $1,288 $201,116 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial Real Estate - Construction$23,105 $75,245 $27,584 $14,842 $9,083 $7,268 $42,701 $1,288 $201,116 
The following tables present credit quality indicators by total loans on an amortized cost basis by origination year as of December 31, 2022, continued:

December 31, 2022
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Residential - Home Equity
Performing$3,030 $1,062 $637 $992 $792 $3,183 $175,451 $1,085 $186,232 
Nonperforming0 0 0 14 0 25 2,352 0 2,391 
Total Residential - Home Equity$3,030 $1,062 $637 $1,006 $792 $3,208 $177,803 $1,085 $188,623 
Residential - Mortgages
Performing$187,129 $272,235 $239,584 $117,391 $66,605 $452,221 $0 $0 $1,335,165 
Nonperforming218 335 628 682 1,552 7,738 0 0 11,153 
Total Residential - Mortgages$187,347 $272,570 $240,212 $118,073 $68,157 $459,959 $0 $0 $1,346,318 
Consumer - Direct
Performing$31,243 $13,999 $7,372 $6,138 $4,386 $8,029 $4,070 $0 $75,237 
Nonperforming0 0 3 93 76 0 3 0 175 
Total Consumer - Direct$31,243 $13,999 $7,375 $6,231 $4,462 $8,029 $4,073 $0 $75,412 
Consumer - Indirect
Performing$0 $156 $146 $1,092 $635 $101 $0 $0 $2,130 
Nonperforming0 0 0 76 10 8 0 0 94 
Total Consumer - Indirect$0 $156 $146 $1,168 $645 $109 $0 $0 $2,224