Allowance for Credit Losses

9 Months Ended

Sep. 30, 2024

Management reviews the appropriateness of the 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 September 30, 2024 considers the allowance to be appropriate, under certain 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 expense in the Company's consolidated statements of income.

The following tables detail activity in the allowance for credit losses on loans for the three and nine months ended September 30, 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 September 30, 2024
(In thousands)	Commercial & Industrial		Commercial Real Estate		Residential Real Estate		Consumer and Other		Finance Leases		Total
Allowance for credit losses:
Beginning balance	$	7,412	$	32,559	$	11,569	$	1,451	$	68	$	53,059
Charge-offs	(253)		0		0		(796)		0		(1,049)
Recoveries	11		3		5		118		0		137
Provision (credit) for credit loss expense	444		1,302		802		694		(5)		3,237
Ending Balance	$	7,614	$	33,864	$	12,376	$	1,467	$	63	$	55,384


Three Months Ended September 30, 2023
(In thousands)	Commercial & Industrial		Commercial Real Estate		Residential Real Estate		Consumer and Other		Finance Leases		Total
Allowance for credit losses:
Beginning balance	$	6,685	$	28,968	$	11,111	$	1,680	$	101	$	48,545
Charge-offs	0		0		0		(271)		0		(271)
Recoveries	8		1		4		81		0		94
Provision (credit) for credit loss expense	(241)		366		791		70		(18)		968
Ending Balance	$	6,452	$	29,335	$	11,906	$	1,560	$	83	$	49,336


Nine Months Ended September 30, 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-offs	(283)		0		0		(1,867)		0		(2,150)
Recoveries	29		6		130		336		0		501
Provision (credit) for credit loss expense	1,201		2,277		546		1,441		(16)		5,449
Ending Balance	$	7,614	$	33,864	$	12,376	$	1,467	$	63	$	55,384


Nine Months Ended September 30, 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 2016-13	2		16		46		0		0		64
Charge-offs	0		0		(2)		(546)		0		(548)
Recoveries	67		1,238		182		192		0		1,679
Provision (credit) for credit loss expense	344		794		526		556		(13)		2,207
Ending Balance	$	6,452	$	29,335	$	11,906	$	1,560	$	83	$	49,336

The following tables detail activity in the liabilities for off-balance sheet credit exposures for the three and nine months ended September 30, 2024 and 2023:


Three Months Ended September 30,
(In thousands)	2024		2023
Liabilities for off-balance sheet credit exposures at beginning of period	$	3,084	$	2,985
(Credit) provision for credit loss expense related to off-balance sheet credit exposures	(1,063)		182
Liabilities for off-balance sheet credit exposures at end of period	$	2,021	$	3,167


Nine Months Ended September 30,
(In thousands)	2024		2023
Liabilities for off-balance sheet credit exposures at beginning of period	$	2,270	$	2,796

(Credit) provision for credit loss expense related to off-balance sheet credit exposures	(249)		371
Liabilities for off-balance sheet credit exposures at end of period	$	2,021	$	3,167

The following tables present 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, as of September 30, 2024

and December 31, 2023:


(In thousands)	Real Estate		Business Assets		Other		Total		ACL Allocation
September 30, 2024
Commercial and Industrial	$	1,978	$	0	$	0	$	1,978	$	0
Commercial Real Estate	42,517		0		0		42,517		1,429


Total Loans and Leases	$	44,495	$	0	$	0	$	44,495	$	1,429


(In thousands)	Real Estate		Business Assets		Other		Total		ACL Allocation
December 31, 2023
Commercial and Industrial	$	2,035	$	0	$	0	$	2,035	$	0
Commercial Real Estate	42,333		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 troubled 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 as of September 30, 2024 of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted:


(In thousands)	Term Extension		Interest Rate Reduction		Payment Delay and Term Extension		Term Extension and Interest Rate Reduction		Payment Delay		Total		% of Total Class of Loans and Leases
Commercial and Industrial

Commercial and Industrial Other	$	12	$	490	$	0	$	0	$	75	$	577	0.07	%

Total Commercial and Industrial	12		490		0		0		75		577		0.06	%
Commercial Real Estate


Commercial Real Estate Other	0		3,022		0		0		394		3,416		0.13	%
Total Commercial Real Estate	0		3,022		0		0		394		3,416		0.10	%
Residential
Home Equity	0		0		0		41		0		41		0.02	%
Mortgages	0		0		0		0		486		486		0.04	%
Total Residential	0		0		0		41		486		527		0.03	%
Consumer

Consumer and Other	23		0		0		0		0		23		0.02	%
Total Consumer	23		0		0		0		0		23		0.02	%
Total Loans and Leases	$	35	$	3,512	$	0	$	41	$	955	$	4,543	0.08	%

There were no loan modifications made to borrowers experiencing financial difficulty that defaulted during the three and nine months ended September 30, 2024.

The following table shows the aging analysis of loan modifications made to borrowers experiencing financial difficulty as of September 30, 2024:


September 30, 2024	Payment Status (Amortized Cost Basis)
(In thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non-Accrual		Total
Commercial and Industrial

Commercial and industrial other	$	565	$	0	$	0	$	0	$	12	$	577
Total Commercial and Industrial	565		0		0		0		12		577
Commercial Real Estate


Commercial real estate other	3,416		0		0		0		0		3,416
Total Commercial Real Estate	3,416		0		0		0		0		3,416
Residential Real Estate
Home equity	0		0		0		0		41		41
Mortgages	155		0		0		0		331		486
Total Residential Real Estate	155		0		0		0		372		527
Consumer and Other

Consumer and other	0		0		0		0		23		23
Total Consumer and Other	0		0		0		0		23		23
Total	$	4,136	$	0	$	0	$	0	$	407	$	4,543

The following tables present credit quality indicators by total loans on an amortized cost basis by origination year as of September 30, 2024 and December 31, 2023:


September 30, 2024
(In thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total Loans
Commercial and Industrial - Other:
Pass	$	115,477	$	122,968	$	89,318	$	57,209	$	22,038	$	154,402	$	223,210	$	10,771	$	795,393
Special Mention	1,104		222		159		808		130		261		162		0		2,846
Substandard	440		0		0		52		17		681		418		0		1,608
Total Commercial and Industrial - Other	$	117,021	$	123,190	$	89,477	$	58,069	$	22,185	$	155,344	$	223,790	$	10,771	$	799,847
Current-period gross writeoffs	$	0	$	15	$	30	$	44	$	11	$	183	$	0	$	0	$	283
Commercial and Industrial - PPP:
Pass	$	0	$	0	$	0	$	176	$	38	$	0	$	0	$	0	$	214
Special Mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Total Commercial and Industrial - PPP	$	0	$	0	$	0	$	176	$	38	$	0	$	0	$	0	$	214
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial and Industrial - Agriculture:
Pass	$	9,215	$	25,104	$	10,475	$	2,366	$	1,754	$	7,016	$	32,153	$	1,980	$	90,063
Special Mention	0		0		0		38		0		0		0		0		38
Substandard	0		0		0		0		45		0		0		0		45
Total Commercial and Industrial - Agriculture	$	9,215	$	25,104	$	10,475	$	2,404	$	1,799	$	7,016	$	32,153	$	1,980	$	90,146
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial Real Estate
Pass	$	239,979	$	244,508	$	331,282	$	362,119	$	283,057	$	1,114,169	$	38,270	$	14,092	$	2,627,476
Special Mention	0		0		714		606		16,769		14,574		4,501		0		37,164
Substandard	0		988		15,017		2,121		0		46,264		1,044		0		65,434
Total Commercial Real Estate	$	239,979	$	245,496	$	347,013	$	364,846	$	299,826	$	1,175,007	$	43,815	$	14,092	$	2,730,074
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial Real Estate - Agriculture:
Pass	$	9,421	$	12,288	$	37,885	$	22,008	$	20,215	$	101,556	$	3,923	$	562	$	207,858
Special Mention	0		0		0		0		0		1,310		0		0		1,310
Substandard	0		0		0		0		0		174		0		0		174
Total Commercial Real Estate - Agriculture	$	9,421	$	12,288	$	37,885	$	22,008	$	20,215	$	103,040	$	3,923	$	562	$	209,342
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0


(In thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total Loans

Commercial Real Estate - Construction
Pass	$	6,000	$	444	$	685	$	6,904	$	2,010	$	0	$	311,747	$	25,832	$	353,622
Special Mention	0		0		0		0		0		0		17,400		0		17,400
Substandard	0		0		0		0		0		0		0		0		0
Total Commercial Real Estate - Construction	$	6,000	$	444	$	685	$	6,904	$	2,010	$	0	$	329,147	$	25,832	$	371,022
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Residential - Home Equity
Performing	$	16,352	$	2,904	$	2,219	$	1,071	$	575	$	13,568	$	158,769	$	1,918	$	197,376
Nonperforming	0		0		0		0		0		607		2,386		0		2,993
Total Residential - Home Equity	$	16,352	$	2,904	$	2,219	$	1,071	$	575	$	14,175	$	161,155	$	1,918	$	200,369
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Residential - Mortgages
Performing	$	81,994	$	133,491	$	175,375	$	243,173	$	208,186	$	516,498	$	0	$	0	$	1,358,717
Nonperforming	0		713		388		593		954		10,373		0		0		13,021
Total Residential - Mortgages	$	81,994	$	134,204	$	175,763	$	243,766	$	209,140	$	526,871	$	0	$	0	$	1,371,738
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Consumer - Direct
Performing	$	41,761	$	19,322	$	10,727	$	9,507	$	4,226	$	12,088	$	2,545	$	0	$	100,176
Nonperforming	0		4		0		0		0		77		55		0		136
Total Consumer - Direct	$	41,761	$	19,326	$	10,727	$	9,507	$	4,226	$	12,165	$	2,600	$	0	$	100,312
Current-period gross writeoffs	$	1,633	$	13	$	5	$	32	$	10	$	165	$	0	$	0	$	1,858
Consumer - Indirect
Performing	$	0	$	0	$	0	$	62	$	30	$	229	$	0	$	0	$	321
Nonperforming	0		0		0		0		0		16		0		0		16
Total Consumer - Indirect	$	0	$	0	$	0	$	62	$	30	$	245	$	0	$	0	$	337
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	9	$	0	$	0	$	9


December 31, 2023
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total 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 Mention	915		196		222		242		79		1,287		682		0		3,623
Substandard	0		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 Mention	0		0		47		0		0		0		0		0		47
Substandard	0		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 Mention	0		0		0		0		0		0		0		0		0
Substandard	0		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 Mention	0		632		0		17,133		11,422		16,100		0		0		45,287
Substandard	0		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 Mention	0		0		0		0		378		1,033		0		0		1,411
Substandard	0		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


(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total Loans
Commercial Real Estate - Construction
Pass	$	9,265	$	2,793	$	8,068	$	2,501	$	357	$	596	$	274,224	$	5,602	$	303,406
Special Mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Total Commercial Real Estate - Construction	$	9,265	$	2,793	$	8,068	$	2,501	$	357	$	596	$	274,224	$	5,602	$	303,406
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Residential - Home Equity
Performing	$	2,378	$	2,237	$	890	$	529	$	832	$	8,178	$	164,205	$	5,837	$	185,086
Nonperforming	0		0		0		0		0		337		2,893		0		3,230
Total Residential - Home Equity	$	2,378	$	2,237	$	890	$	529	$	832	$	8,515	$	167,098	$	5,837	$	188,316
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	20	$	0	$	0	$	20
Residential - Mortgages
Performing	$	131,004	$	186,401	$	256,127	$	221,945	$	109,594	$	456,167	$	0	$	0	$	1,361,238
Nonperforming	0		393		329		986		883		9,446		0		0		12,037
Total Residential - Mortgages	$	131,004	$	186,794	$	256,456	$	222,931	$	110,477	$	465,613	$	0	$	0	$	1,373,275
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Consumer - Direct
Performing	$	50,295	$	13,327	$	11,316	$	5,157	$	4,037	$	9,857	$	2,723	$	0	$	96,712
Nonperforming	2		0		0		0		70		157		1		0		230
Total Consumer - Direct	$	50,297	$	13,327	$	11,316	$	5,157	$	4,107	$	10,014	$	2,724	$	0	$	96,942
Current-period gross writeoffs	$	801	$	29	$	16	$	21	$	83	$	28	$	0	$	0	$	978
Consumer - Indirect
Performing	$	0	$	0	$	97	$	68	$	402	$	234	$	0	$	0	$	801
Nonperforming	0		0		0		0		30		10		0		0		40
Total Consumer - Indirect	$	0	$	0	$	97	$	68	$	432	$	244	$	0	$	0	$	841
Current-period gross writeoffs	$	0	$	0	$	0	$	0	$	53	$	14	$	0	$	0	$	67