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Allowance for Credit Losses
 3 Months Ended
Mar. 31, 2024
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, 2024, 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, 2024 and 2023. 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, 2024
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$6,667 $31,581 $11,700 $1,557 $79 $51,584 
Charge-offs0 0 0 (445)0 (445)
Recoveries7 2 120 88 0 217 
Provision (credit) for credit loss expense912 (116)(639)196 (5)348 
Ending Balance$7,586 $31,467 $11,181 $1,396 $74 $51,704 
 
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 2016-132 16 46 0 0 64 
Charge-offs0 0 (2)(106)0 (108)
Recoveries46 1,246 64 33 0 1,389 
Provision (credit) for credit loss expense229 (1,363)(404)343 15 (1,180)
Ending Balance$6,316 $27,186 $10,858 $1,628 $111 $46,099 
 
The following table details activity in the liabilities for off-balance sheet credit exposures for the three months ended March 31, 2024 and 2023:

(In thousands)20242023
Liabilities for off-balance sheet credit exposures at beginning of period$2,270 $2,796 
Provision for credit loss expense related to off-balance sheet credit exposures506 355 
Liabilities for off-balance sheet credit exposures at end of period$2,776 $3,151 

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, 2024
(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
Commercial and Industrial$2,678 $0 $0 $2,678 $300 
Commercial Real Estate41,857 0 0 41,857 1,082 
Total Loans and Leases$44,535 $0 $0 $44,535 $1,382 
December 31, 2023
(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
Commercial and Industrial$2,035 $0 $0 $2,035 $0 
Commercial Real Estate42,333 0 0 42,333 1,082 
Total Loans and Leases$44,368 $0 $0 $44,368 $1,082 

Loan Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326) effective January 1, 2023. This standard eliminated the previous trouble debt restructuring accounting model and replaced it with guidance and disclosure requirements for identifying modifications to loans to borrowers experiencing financial difficulty. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The following table shows the amortized cost basis at March 31, 2024 of the loans modified to borrowers experiencing financial difficulty for the three months ended March 31, 2024, disaggregated by class of financing receivable and type of concession granted:

(In thousands)Term ExtensionInterest Rate ReductionPayment Delay and Term ExtensionTerm Extension and Interest Rate ReductionPayment DelayTotal% of Total Class of Loans and Leases
Commercial Real Estate
Commercial Real Estate Other$0 $3,084 $0 $0 $0 $3,084 0.12 %
Total Commercial Real Estate0 3,084 0 0 0 3,084 0.10 %
Residential
Mortgages0 0 0 0 396 396 0.03 %
Total Residential0 0 0 0 396 396 0.03 %
Consumer
Consumer and Other22 0 0 0 0 22 0.02 %
Total Consumer22 0 0 0 0 22 0.02 %
Total Loans and Leases$22 $3,084 $0 $0 $396 $3,502 0.06 %

There were no loan modifications made to borrowers experiencing financial difficulty that defaulted during the three months ended March 31, 2024.
The following table shows the aging analysis of loan modifications made to borrowers experiencing financial difficulty as of March 31, 2024:

March 31, 2024Payment Status (Amortized Cost Basis)
(In thousands)Current30-59 Days Past Due60-89 Days Past Due90+ Days Past DueNon-AccrualTotal
Commercial Real Estate
Commercial real estate other$3,084 $0 $0 $0 $0 $3,084 
Total Commercial Real Estate3,084 0 0 0 0 3,084 
Residential Real Estate
Mortgages157 0 0 0 239 396 
Total Residential Real Estate157 0 0 0 239 396 
Consumer and Other
Consumer and other0 0 0 0 22 22 
Total Consumer and Other0 0 0 0 22 22 
Total$3,241 $0 $0 $0 $261 $3,502 

There were no loan modifications made to borrowers experiencing financial difficulty as of March 31, 2023.
The following tables present credit quality indicators by total loans on an amortized cost basis by origination year as of March 31, 2024 and December 31, 2023:

March 31, 2024
(In thousands)20242023202220212020PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
Internal risk grade:
Pass$21,184 $122,804 $96,426 $64,762 $25,160 $167,533 $216,495 $4,592 $718,956 
Special Mention1,042 858 184 199 205 349 130 0 2,967 
Substandard0 735 31 69 162 2,922 1,710 0 5,629 
Total Commercial and Industrial - Other$22,226 $124,397 $96,641 $65,030 $25,527 $170,804 $218,335 $4,592 $727,552 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial and Industrial - PPP:
Pass$0 $0 $0 $233 $68 $0 $0 $0 $301 
Special Mention000000000
Substandard000000000
Total Commercial and Industrial - PPP$0 $0 $0 $233 $68 $0 $0 $0 $301 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial and Industrial - Agriculture:
Pass$2,581 $29,717 $11,582 $2,661 $2,624 $9,681 $38,347 $1,686 $98,879 
Special Mention0 0 0 44 0 0 0 0 44 
Substandard0 0 0 0 52 8 1 0 61 
Total Commercial and Industrial - Agriculture$2,581 $29,717 $11,582 $2,705 $2,676 $9,689 $38,348 $1,686 $98,984 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial Real Estate
Pass$61,676 $256,427 $341,242 $370,270 $289,733 $1,165,957 $19,507 $3,658 $2,508,470 
Special Mention0 0 627 0 17,012 24,274 0 0 41,913 
Substandard0 0 15,018 2,127 0 48,114 1,276 0 66,535 
Total Commercial Real Estate$61,676 $256,427 $356,887 372,397 306,745 1,238,345 $20,783 $3,658 $2,616,918 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial Real Estate - Agriculture:
Pass$417 $14,236 $38,943 $22,508 $20,752 $109,821 $4,132 $0 $210,809 
Special Mention0 0 0 0 0 1,378 0 0 1,378 
Substandard0 0 0 0 0 187 0 0 187 
Total Commercial Real Estate - Agriculture$417 $14,236 $38,943 $22,508 $20,752 $111,386 $4,132 $0 $212,374 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
(In thousands)20242023202220212020PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial Real Estate - Construction
Pass$0 $0 $690 $7,413 $2,057 $328 $306,104 $500 $317,092 
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 $0 $690 $7,413 $2,057 $328 $306,104 $500 $317,092 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Residential - Home Equity
Performing$72 $2,105 $2,021 $862 $496 $13,575 $164,952 $383 $184,466 
Nonperforming0 0 0 0 0 793 2,681 0 3,474 
Total Residential - Home Equity$72 $2,105 $2,021 $862 $496 $14,368 $167,633 $383 $187,940 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Residential - Mortgages
Performing$17,791 $134,697 $183,845 $252,852 $218,740 $551,972 $0 $0 $1,359,897 
Nonperforming0 0 391 422 877 9,566 0 0 11,256 
Total Residential - Mortgages$17,791 $134,697 $184,236 $253,274 $219,617 $561,538 $0 $0 $1,371,153 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Consumer - Direct
Performing$32,279 $21,706 $12,354 $10,538 $4,872 $13,201 $2,670 $0 $97,620 
Nonperforming0 0 3 13 0 256 7 0 279 
Total Consumer - Direct$32,279 $21,706 $12,357 $10,551 $4,872 $13,457 $2,677 $0 $97,899 
Current-period gross writeoffs$401 $8 $2 $16 $5 $10 $0 $0 $442 
Consumer - Indirect
Performing$0 $0 $0 $82 $54 $452 $0 $0 $588 
Nonperforming0 0 0 0 0 33 0 0 33 
Total Consumer - Indirect$0 $0 $0 $82 $54 $485 $0 $0 $621 
Current-period gross writeoffs$0 $0 $0 $0 $0 $3 $0 $0 $3 
December 31, 2023
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
Pass$130,993 $92,335 $68,030 $28,237 $33,618 $141,758 $212,349 $5,063 $712,383 
Special Mention915 196 222 242 79 1,287 682 0 3,623 
Substandard0 46 78 329 18 2,833 2,580 0 5,884 
Total Commercial and Industrial - Other$131,908 $92,577 $68,330 $28,808 $33,715 $145,878 $215,611 $5,063 $721,890 
Current-period gross writeoffs$6 $0 $0 $0 $0 $29 $0 $0 $35 
Commercial and Industrial - Agriculture:
Pass$24,924 $11,935 $3,341 $3,114 $3,268 $16,759 $36,728 $1,030 $101,099 
Special Mention0 0 47 0 0 0 0 0 47 
Substandard0 0 0 56 0 8 1 0 65 
Total Commercial and Industrial - Agriculture$24,924 $11,935 $3,388 $3,170 $3,268 $16,767 $36,729 $1,030 $101,211 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial and Industrial - PPP:
Pass$0 $0 $264 $140 $0 $0 $0 $0 $404 
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 $0 $264 $140 $0 $0 $0 $0 $404 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial Real Estate
Pass$246,016 $317,583 $365,975 $292,960 $272,722 $921,201 $34,346 $24,949 $2,475,752 
Special Mention0 632 0 17,133 11,422 16,100 0 0 45,287 
Substandard0 15,300 2,128 0 2,059 45,709 1,356 0 66,552 
Total Commercial Real Estate$246,016 $333,515 $368,103 $310,093 $286,203 $983,010 $35,702 $24,949 $2,587,591 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial Real Estate - Agriculture:
Pass$14,668 $37,256 $22,813 $21,001 $23,794 $93,890 $257 $6,364 $220,043 
Special Mention0 0 0 0 378 1,033 0 0 1,411 
Substandard0 0 0 0 170 46 0 0 216 
Total Commercial Real Estate - Agriculture$14,668 $37,256 $22,813 $21,001 $24,342 $94,969 $257 $6,364 $221,670 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0