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Allowance for Credit Losses
 3 Months Ended
Mar. 31, 2024
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. 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 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 March 31, 2024 and 2023.
(Dollars in thousands)Commercial and
agricultural		Renewable energyAuto and
light truck		Medium
and
heavy duty
truck		AircraftConstruction
equipment		Commercial
real estate		Residential
real estate
and home
equity		ConsumerTotal
March 31, 2024         
Balance, beginning of period$17,385 $6,610 $16,858 $8,965 $37,653 $26,510 $23,690 $7,698 $2,183 $147,552 
Charge-offs7,068 — 1 — 68 292 — 13 229 7,671 
Recoveries86 — 653 — 368 199 181 8 53 1,548 
Net charge-offs (recoveries)6,982 — (652)— (300)93 (181)5 176 6,123 
Provision (recovery of provision)6,860 248 74 (177)(1,029)387 (27)115 144 6,595 
Balance, end of period$17,263 $6,858 $17,584 $8,788 $36,924 $26,804 $23,844 $7,808 $2,151 $148,024 
March 31, 2023         
Balance, beginning of period$14,635 $7,217 $18,634 $7,566 $41,093 $24,039 $17,431 $6,478 $2,175 $139,268 
Charge-offs564 — 112 — — 1 39 1 324 1,041 
Recoveries172 — 541 — 226 — 3 233 60 1,235 
Net charge-offs (recoveries)392 — (429)— (226)1 36 (232)264 (194)
Provision (recovery of provision)1,844 (929)(505)263 (1,186)1,541 1,905 (89)205 3,049 
Balance, end of period$16,087 $6,288 $18,558 $7,829 $40,133 $25,579 $19,300 $6,621 $2,116 $142,511 
The allowance for credit losses increased during the quarter in response to loan growth and increased special attention outstandings which are reserved at higher rates. The previous quarter’s forecast adjustment was maintained as it continues to be applicable to economic conditions expected during the forecast period. The Company remains cautious on the forward outlook and our forecast adjustment represents expectations for fragile growth during the forecast period. Ongoing risks include tightened credit conditions, elevated inflation, high interest rates, and continued geopolitical uncertainty. Credit quality metrics reflect higher special attention outstandings during the quarter, continued modest non-performing levels, and low delinquency rates. Charge-off activity during the quarter increased, predominantly due to charge-offs on two accounts in the commercial and agricultural portfolio, offset by ongoing recoveries in our auto and light truck and aircraft portfolios.
Commercial and agricultural – the decrease in the allowance in the current quarter was principally due to a decrease in loan balances and the elimination of a specific impairment on one account because of a charge-off during the period, partially offset by higher historical loss rates in the portfolio.
Renewable energy – the allowance increased due to higher loan balances. Credit quality remains stable.
Auto and light truck – the allowance increased during the quarter due to loan growth and an increase in special attention outstandings which are reserved at higher rates.
Medium and heavy duty truck – the allowance decreased due to a decline in loan balances. The near-term industry outlook remains weak due to overcapacity concerns and lower freight rates.
Aircraft – the allowance decreased during the quarter as loan growth in the domestic portfolio was offset by a decline in loan balances in the higher reserved foreign segment coupled with lower historical loss rates in the portfolio due to recovery activity. The Company has historically carried a higher allowance in this portfolio due to historical risk volatility.
Construction equipment – the allowance increased primarily due to continued loan growth in the portfolio.
Commercial real estate – the allowance increased due to loan growth. Higher interest rates and shifting demand dynamics have impacted commercial real estate. The majority of the Company’s real estate exposure is owner-occupied, and exposure to non-owner-occupied office property is minimal.
Residential real estate and home equity – the allowance increased due to loan growth.
Consumer – the allowance decreased slightly due to lower loan outstandings.
Economic Outlook
As of March 31, 2024, the most significant economic factors impacting the Company’s loan portfolios are a fragile domestic growth outlook, impacted by elevated inflation, and high interest rates, along with ongoing foreign conflicts and elevated geopolitical uncertainty. Questions surrounding the timing and velocity of future interest rate cuts persist. The Company remains concerned about the impact of tighter credit conditions on the economy and the effect that may have on future economic growth. Consumer stressors are building, and the Company remains concerned about small businesses and their ability to control expenses and compete for labor while absorbing the impact of higher interest rates and higher cost of capital. Tightened lending conditions and the current high-rate environment are impacting commercial real estate activity. The forecast considers global and domestic economic impacts from these factors as well as other key economic factors such as change in gross domestic product and unemployment which may impact the Company’s clients. The Company’s assumption is that economic growth will be below trend during the forecast period with inflation slowly moving back towards the 2% Federal Reserve target rate resulting in an adverse impact on the loan and lease portfolio over the next two years.
As a result of geopolitical risks and economic uncertainty, the Company’s future loss estimates may vary considerably from the March 31, 2024 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
March 31,
(Dollars in thousands)20242023
Balance, beginning of period$8,182 $5,616 
Provision882 1,035 
Balance, end of period$9,064 $6,651