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Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2021
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]  
Allowance for Credit Losses Allowance for Credit Losses
Allowance for Loan and Lease Losses
The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolios utilizing guidance in Accounting Standards Codification (ASC) Topic 326. As permitted under The Cares Act, the Company adopted ASU 2016-13 on December 31, 2020. Therefore, the September 30, 2020 provision for credit losses and other allowance for loan and lease loss disclosures for the three and nine months ended September 30, 2020 were calculated under the incurred loss method.
The determination of the allowance requires significant judgment to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually. In determining the allowance, the Company estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate. The allowance estimate considers relevant available information, from internal and external sources relating to the historical loss experience, current conditions, and reasonable and supportable forecasts for the Company’s outstanding loan and lease balances. The allowance is an estimation that reflects management’s evaluation of expected losses related to the Company’s financial assets measured at amortized cost. To ensure that the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance.
The Company categorizes its loan portfolios into nine segments based on similar risk characteristics. Loans within each segment are collectively evaluated using either: 1) a cohort cumulative loss rate methodology (“cohort”) or, 2) the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD).

The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the three months ended September 30, 2021 and 2020.
(Dollars in thousands)Commercial and
agricultural		SolarAuto and
light truck		Medium 
and
heavy duty 
truck		AircraftConstruction
equipment		Commercial
real estate		Residential
real estate
and home
equity		ConsumerTotal
September 30, 2021         
Balance, beginning of period$14,832 $5,867 $27,221 $5,888 $35,301 $17,908 $22,578 $5,066 $1,700 $136,361 
Charge-offs21 — 407 — — 551 — — 98 1,077 
Recoveries176 — 479 — 153 170 — 3 49 1,030 
Net charge-offs (recoveries)(155)— (72)— (153)381 — (3)49 47 
Provision (recovery of provision)179 (15)(1,451)(158)975 (1,083)(1,253)96 151 (2,559)
Balance, end of period$15,166 $5,852 $25,842 $5,730 $36,429 $16,444 $21,325 $5,165 $1,802 $133,755 
September 30, 2020         
Balance, beginning of period*$25,059 $3,948 $17,371 $4,649 $31,101 $23,872 $19,936 $3,821 $1,526 $131,283 
Charge-offs182 — 4,382 — — 21 36 61 210 4,892 
Recoveries231 — 263 — 191 347 15 1 75 1,123 
Net charge-offs (recoveries)(49)— 4,119 — (191)(326)21 60 135 3,769 
Provision (recovery of provision)*(4,378)392 11,997 (192)953 (1,395)1,834 (29)121 9,303 
Balance, end of period*$20,730 $4,340 $25,249 $4,457 $32,245 $22,803 $21,749 $3,732 $1,512 $136,817 
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore amounts during the third quarter of 2020 reflect the incurred loss method.
The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the nine months ended September 30, 2021 and 2020.
(Dollars in thousands)Commercial and
agricultural		SolarAuto and
light truck		Medium
and
heavy duty
truck		AircraftConstruction
equipment		Commercial
real estate		Residential
real estate
and home
equity		ConsumerTotal
September 30, 2021         
Balance, beginning of period$16,680 $5,549 $28,926 $6,400 $34,053 $19,166 $22,758 $5,374 $1,748 $140,654 
Charge-offs307 — 5,060 — — 559 — 42 355 6,323 
Recoveries694 — 664 — 513 424 19 14 282 2,610 
Net charge-offs (recoveries)(387)— 4,396 — (513)135 (19)28 73 3,713 
Provision (recovery of provision)(1,901)303 1,312 (670)1,863 (2,587)(1,452)(181)127 (3,186)
Balance, end of period$15,166 $5,852 $25,842 $5,730 $36,429 $16,444 $21,325 $5,165 $1,802 $133,755 
September 30, 2020         
Balance, beginning of period*$20,926 $2,745 $14,400 $4,612 $31,058 $14,120 $18,350 $3,609 $1,434 $111,254 
Charge-offs753 — 4,416 — 840 1,582 37 74 640 8,342 
Recoveries533 — 403 — 694 937 43 31 233 2,874 
Net charge-offs (recoveries)220 — 4,013 — 146 645 (6)43 407 5,468 
Provision (recovery of provision)*24 1,595 14,862 (155)1,333 9,328 3,393 166 485 31,031 
Balance, end of period*$20,730 $4,340 $25,249 $4,457 $32,245 $22,803 $21,749 $3,732 $1,512 $136,817 
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore amounts during the first nine months of 2020 reflect the incurred loss method.
The allowance for credit losses decreased during the most recent quarter and year-to-date in 2021 in response to improving credit quality as evidenced by declining total special attention credit outstandings. Customers benefited from recent economic growth, particularly beginning in the second quarter, and many businesses’ balance sheets were enhanced by stimulus funds. Bus segment customers of the auto and light truck portfolio have generally resumed full principal and interest payments, and many received Coronavirus Economic Relief for Transportation Services (“CERTS”) funds during the third quarter. The Company continues to have concerns about the long-term sustainability of many of these customers and has therefore maintained large reserves for this portfolio segment. The Company reviewed its qualitative factors and forecast adjustments as of quarter-end and made minor adjustments to the forecast factors given the economy is beginning to slow sooner than was anticipated when it revised the forecast adjustment last quarter-end. Previously, the Company reduced qualitative adjustments related to COVID-19 in most of its portfolios and believes those adjustments remain pertinent. This quarter, increases in the allowance for various portfolios, particularly aircraft, were driven by loan growth and to a lesser extent, the forecast adjustment. Decreases in the auto and light truck and construction equipment portfolios were due to decreased balances on special attention credits and in the commercial real estate portfolio were due to lower loan balances. Year-to-date, increases in the allowance for aircraft and solar are attributable to loan growth and in auto and light truck are due to loan growth and increased risk in the bus segment. Decreases in the allowance for the commercial and agriculture portfolio and the construction equipment portfolio are due principally to lower special attention balances and in the commercial real estate portfolio, the decrease is due to a decline in outstanding loan balances. The impact of adopting ASC 326 is included in the beginning balance (December 31, 2020) of each loan segment.
Commercial and agricultural – loan balances decreased during the quarter due to a $143.47 million net decrease in PPP loans offset somewhat by loan originations from core business products. Allowances established for new loans as well as the forecast adjustment resulted in a slight increase in the allowance for the quarter. Minimal allowances were established for PPP loans, which have negligible risk. For the nine months ended September 30, 2021, allowances were released primarily from adjustments made to COVID-19 related qualitative factors and lower special attention outstanding balances slightly offset by limited growth in core business products.
Solar – allowance decreased slightly for the quarter and increased year-to-date to accommodate the limited loan growth and payments in this portfolio segment. A COVID-19 adjustment was not established for this portfolio as it was deemed to not be materially impacted by the pandemic.
Auto and light truck – allowance decreased for the quarter due to upgrading a significant special attention credit somewhat offset by loan growth and revising the forecast adjustment. The decrease in the allowance year-to-date is due to net charge-offs primarily in the bus segment partially offset by increased provision expense resulting from loan growth in the auto rental and leasing segments and credit deterioration in the bus segment.
Medium and heavy duty truck – allowance decrease was principally attributable to a decline in loan balances during the periods.
Aircraft – the allowance increase was attributable to loan growth in the domestic sector and, to a lesser extent, the impact of revisions to the forecast factors. Year-to-date, the increase in the allowance was principally impacted by loan growth in both the foreign and domestic sector.
Construction equipment – allowance decrease for the third quarter was driven by paydowns and the elimination of an impairment reserve on special attention loans somewhat offset by the impact of the forecast adjustment. Year-to-date, the decrease is driven by lower total impairments on loans evaluated individually.
Commercial real estate – allowance decrease was due to a decline in outstanding loan balances. For the nine months ended September 30, 2021, the decrease is due to a decline in loan balances and adjustments to the COVID-19 factors.
Residential real estate and home equity – allowance increased during the third quarter due to the impact of revising the forecast adjustment. Year-to-date, the decrease in the allowance is due to the slight decline in portfolio outstanding balances.
Consumer – segment saw a slight increase in the allowance for the third quarter and year-to-date due to loan growth and the forecast adjustment.
Economic Outlook
As of September 30, 2021, the impact of the COVID-19 pandemic continues to adversely affect the loan and lease portfolios. The forecast considers global and domestic economic effects from the ongoing pandemic as well as the potential impact of U.S. monetary and fiscal policy, which may impact clients, particularly those who benefited from paycheck protection program funds or from targeted funds for struggling industry sectors such as transportation. The Company’s assumption was revised this quarter given the softening GDP growth projections. The Company continues to believe that the pandemic will have an adverse impact on the loan and lease portfolio over the next two years with the impact on the portfolios being more severe in the first twelve months of the forecast period than previously anticipated. GDP growth exceeded expectations during the first half of 2021 but is slowing at a faster pace than we projected last quarter and was a significant impetus for the forecast adjustments made this quarter. Likewise, job growth is lower than the Company initially anticipated.
As a result of the unprecedented economic uncertainty caused by the COVID-19 pandemic, the Company’s future loss estimates may vary considerably from the September 30, 2021 assumptions.
Liability for Credit Losses on Unfunded Loan Commitments
The liability for credit losses inherent in unfunded loan commitments is included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition. The following table shows the changes in the liability for credit losses on unfunded loan commitments.
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Dollars in thousands)2021202020212020
Balance, beginning of period*$4,317 $3,525 $4,499 $3,172 
Provision (recovery of provision)*46 39 (136)392 
Balance, end of period*$4,363 $3,564 $4,363 $3,564 
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore third quarter 2020 amounts reflect the incurred loss method.