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Reserve for Loan and Lease Losses
 3 Months Ended
Mar. 31, 2019
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]  
Reserve for Loan and Lease Losses
Reserve for Loan and Lease Losses
The reserve for loan and lease loss methodology has been consistently applied for several years, with enhancements instituted periodically. Reserve ratios are reviewed quarterly and revised periodically to reflect recent loss history and to incorporate current risks and trends which may not be recognized in historical data. As the historical charge-off analysis is updated, the Company reviews the look-back periods for each business loan portfolio. Furthermore, a thorough analysis of charge-offs, non-performing asset levels, special attention outstandings and delinquency is performed in order to review portfolio trends and other factors, including specific industry risks and economic conditions, which may have an impact on the reserves and reserve ratios applied to various portfolios. The Company adjusts the calculated historical based ratio as a result of the analysis of environmental factors, principally economic risk and concentration risk. Key economic factors affecting the portfolios are growth in gross domestic product, unemployment rates, housing market trends, commodity prices, inflation and global economic and political issues. Concentration risk is impacted primarily by geographic concentration in Northern Indiana and Southwestern Lower Michigan in the business banking and commercial real estate portfolios and by collateral concentration in the specialty finance portfolios and exposure to foreign markets by geographic risk.
The reserve for loan and lease losses is maintained at a level believed to be appropriate by the Company to absorb probable losses inherent in the loan and lease portfolio. The determination of the reserve requires significant judgment reflecting the Company’s best estimate of probable loan and lease losses related to specifically identified impaired loans and leases as well as probable losses in the remainder of the various loan and lease portfolios. For purposes of determining the reserve, the Company has segmented loans and leases into classes based on the associated risk within these segments. The Company has determined that eight classes exist within the loan and lease portfolio. The methodology for assessing the appropriateness of the reserve consists of several key elements, which include: specific reserves for impaired loans, formula reserves for each business lending division portfolio including percentage allocations for special attention loans and leases not deemed impaired, and reserves for pooled homogeneous loans and leases. The Company’s evaluation is based upon a continuing review of these portfolios, estimates of customer performance, collateral values and dispositions, and assessments of economic and geopolitical events, all of which are subject to judgment and will change.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table shows the changes in the reserve for loan and lease losses, segregated by class, for the three months ended March 31, 2019 and 2018.
(Dollars in thousands)
 
Commercial and
agricultural loans
 
Auto and
light truck
 
Medium and
heavy duty truck
 
Aircraft
 
Construction
equipment
 
Commercial
real estate
 
Residential
real estate
and home
equity
 
Consumer
loans
 
Total
March 31, 2019
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, beginning of period
 
$
17,063

 
$
14,689

 
$
4,303

 
$
33,047

 
$
10,922

 
$
15,705

 
$
3,425

 
$
1,315

 
$
100,469

Charge-offs
 
79

 
409

 
—

 
3,000

 
195

 
—

 
21

 
250

 
3,954

Recoveries
 
34

 
9

 
—

 
185

 
104

 
9

 
3

 
75

 
419

Net charge-offs (recoveries)
 
45

 
400

 
—

 
2,815

 
91

 
(9
)
 
18

 
175

 
3,535

Provision (recovery of provision)
 
1,289

 
(30
)
 
106

 
3,208

 
52

 
120

 
(21
)
 
194

 
4,918

Balance, end of period
 
$
18,307

 
$
14,259

 
$
4,409

 
$
33,440

 
$
10,883

 
$
15,834

 
$
3,386

 
$
1,334

 
$
101,852

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, beginning of period
 
$
16,228

 
$
10,103

 
$
4,844

 
$
34,619

 
$
9,343

 
$
14,792

 
$
3,666

 
$
1,288

 
$
94,883

Charge-offs
 
25

 
316

 
—

 
29

 
5

 
7

 
11

 
163

 
556

Recoveries
 
49

 
6

 
—

 
44

 
19

 
21

 
6

 
73

 
218

Net charge-offs (recoveries)
 
(24
)
 
310

 
—

 
(15
)
 
(14
)
 
(14
)
 
5

 
90

 
338

Provision (recovery of provision)
 
1,357

 
1,017

 
(351
)
 
202

 
1,560

 
(36
)
 
(96
)
 
133

 
3,786

Balance, end of period
 
$
17,609

 
$
10,810

 
$
4,493

 
$
34,836

 
$
10,917

 
$
14,770

 
$
3,565

 
$
1,331

 
$
98,331

The following table shows the reserve for loan and lease losses and recorded investment in loans and leases, segregated by class, separated between individually and collectively evaluated for impairment as of March 31, 2019 and December 31, 2018.
(Dollars in thousands)
 
Commercial and
agricultural loans
 
Auto and
light truck
 
Medium and
heavy duty truck
 
Aircraft
 
Construction
equipment
 
Commercial
real estate
 
Residential
real estate
and home
equity
 
Consumer
loans
 
Total
March 31, 2019
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Reserve for loan and lease losses
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance, individually evaluated for impairment
 
$
42

 
$
488

 
$
—

 
$
—

 
$
149

 
$
20

 
$
124

 
$
—

 
$
823

Ending balance, collectively evaluated for impairment
 
18,265

 
13,771

 
4,409

 
33,440

 
10,734

 
15,814

 
3,262

 
1,334

 
101,029

Total reserve for loan and lease losses
 
$
18,307

 
$
14,259

 
$
4,409

 
$
33,440

 
$
10,883

 
$
15,834

 
$
3,386

 
$
1,334

 
$
101,852

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance, individually evaluated for impairment
 
$
2,773

 
$
3,955

 
$
—

 
$
1,251

 
$
1,393

 
$
1,844

 
$
342

 
$
—

 
$
11,558

Ending balance, collectively evaluated for impairment
 
1,143,258

 
550,123

 
285,631

 
829,186

 
639,642

 
816,615

 
514,377

 
135,797

 
4,914,629

Total recorded investment in loans
 
$
1,146,031

 
$
554,078

 
$
285,631

 
$
830,437

 
$
641,035

 
$
818,459

 
$
514,719

 
$
135,797

 
$
4,926,187

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Reserve for loan and lease losses
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance, individually evaluated for impairment
 
$
—

 
$
372

 
$
—

 
$
1,255

 
$
279

 
$
51

 
$
126

 
$
—

 
$
2,083

Ending balance, collectively evaluated for impairment
 
17,063

 
14,317

 
4,303

 
31,792

 
10,643

 
15,654

 
3,299

 
1,315

 
98,386

Total reserve for loan and lease losses
 
$
17,063

 
$
14,689

 
$
4,303

 
$
33,047

 
$
10,922

 
$
15,705

 
$
3,425

 
$
1,315

 
$
100,469

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance, individually evaluated for impairment
 
$
2,471

 
$
11,344

 
$
106

 
$
7,560

 
$
2,245

 
$
1,890

 
$
344

 
$
—

 
$
25,960

Ending balance, collectively evaluated for impairment
 
1,070,734

 
548,643

 
283,438

 
795,551

 
642,994

 
807,996

 
523,511

 
136,637

 
4,809,504

Total recorded investment in loans
 
$
1,073,205

 
$
559,987

 
$
283,544

 
$
803,111

 
$
645,239

 
$
809,886

 
$
523,855

 
$
136,637

 
$
4,835,464