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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Policies) | 9 Months Ended
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Sep. 30, 2023
Receivables [Abstract] |
Loans and Leases Receivable, Allowance for Credit Losses | The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 1 – Nature of Operations and Summary of Significant Accounting Policies included in the Corporation’s Form 10-Q for the period ended March 31, 2023. During the first quarter of 2023, the Corporation adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted using a modified retrospective approach on January 1, 2023, resulting in a $484,000 increase to the ACL and a $1.3 million increase to the unfunded credit commitments reserve. A cumulative effect adjustment resulting in an $1.4 million decrease to retained earnings and a $465,000 increase to deferred tax assets was also recorded as of the adoption of ASU 2016-13. Quantitative Considerations The ACL is primarily calculated utilizing a discounted cash flow (“DCF”) model. Key inputs and assumptions used in this model are discussed below: •Forecast model - For each portfolio segment, a loss driver analysis (“LDA”) was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized peer FFIEC Call Report data for all pools. The Corporation plans to update the LDA annually. •Probability of default – PD is the probability that an asset will be in default within a given time frame. The Corporation has defined default as when a charge-off has occurred, a loan goes to non-accrual status, or a loan is greater than 90 days past due. The forecast model is utilized to estimate PDs. •Loss given default – LGD is the percentage of the asset not expected to be collected due to default. The LGD is derived from using a method referred to as Frye Jacobs which uses industry data. •Prepayments and curtailments – Prepayments and curtailments are calculated based on the Corporation’s own data. This analysis is updated annually. •Forecast and reversion – the Corporation has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. •Economic forecast – the Corporation utilizes a third party to provide economic forecasts under various scenarios, which are assessed against economic indicators and management’s observations in the market. As of June 30, 2023, the Corporation selected a forecast which forecasts unemployment between 3.81% and 4.58% and GDP growth change between 0.66% and 1.39% over the next four quarters. As of September 30, 2023, the Corporation selected a forecast which forecasts unemployment between 3.89% and 4.10% and GDP growth change between 1.06% and 1.87% over the next four quarters. Following the forecast period, the model reverts to long-term averages over four quarters. Management believes that the resulting quantitative reserve appropriately balances economic indicators with identified risks. Qualitative Considerations In addition to the quantitative model, management considers the need for qualitative adjustment for risks not considered in the DCF. Factors that are considered by management in determining loan collectability and the appropriate level of the ACL are listed below: •The Corporation’s lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries; •Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the Corporation operates that affect the collectability of financial assets; •The experience, ability, and depth of the Corporation’s lending, investment, collection, and other relevant management and staff; •The volume of past due financial assets, the volume of non-performing assets, and the volume and severity of adversely classified or graded assets; •The existence and effect of industry concentrations of credit; •The nature and volume of the portfolio segment or class; •The quality of the Corporation’s credit review function; •The effect of other external factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or pandemics.

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- Definition Disclosure of accounting policy for estimating the allowance for losses on loans and lease receivables. The disclosure may include (a) how the entity determines each element of the allowance, (b) which loans are evaluated individually and which loans are evaluated as a group, (c) how the entity determines both the allocated and unallocated portions of the allowance, (d) how the entity determines the loss factors applied to graded loans in order to develop a general allowance, and (e) what self-correcting mechanism the entity uses to reduce differences between estimated and actual losses. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 9 -Publisher FASB -URI https://asc.fasb.org//1943274/2147481962/310-10-50-9 + Details
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