XML 17 R11.htm IDEA: XBRL DOCUMENT  v2.3.0.11
Reserve for Loan and Lease Losses
 6 Months Ended
Jun. 30, 2011
Reserve for Loan and Lease Losses  
Reserve for Loan and Lease Losses

Note 5.       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 we update our historical charge-off analysis, we review the look-back periods for each business loan portfolio.  Furthermore, we perform a thorough analysis of charge-offs, non-performing asset levels, special attention outstandings and delinquency 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.  We adjust the calculated historical based ratio as a result of our analysis of environmental factors, principally economic risk and concentration risk.  Key economic factors affecting our portfolios are growth in gross domestic product, unemployment rates, housing market trends, commodity prices, inflation, national and international economic volatility, global debt and capital markets and political stability or lack thereof.  Concentration risk is impacted primarily by geographic concentration in Northern Indiana and Southwestern Lower Michigan in our business banking and commercial real estate portfolios and by collateral concentration in our 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 adequate by management to absorb probable losses inherent in the loan and lease portfolio.  The determination of the reserve requires significant judgment reflecting management’s best estimate of probable loan and lease losses related to specifically identified loans and leases as well as probable losses in the remainder of the various loan and lease portfolios.  For purposes of determining the reserve, we have segmented our loans and leases into classes based on the associated risks within these segments.  We have determined that eight classes exist within our 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, percentage allocations for special attention loans and leases (classified loans and leases and internal watch list credits) without specific reserves, formula reserves (calculated by applying loss factors based upon a review of historical loss experience and qualitative factors) for each business lending division portfolio, and reserves for pooled homogeneous loans and leases.  Management’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.

 

Changes in the reserve for loan and lease losses, segregated by class, for the three months ended June 30, 2011 and 2010 are shown below.

 

 

 

 

 

Auto, light truck

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

Commercial and

 

and environmental

 

Medium and

 

Aircraft

 

equipment

 

Commercial

 

Residential

 

Consumer

 

 

 

(Dollars in thousands) 

 

agricultural loans

 

equipment

 

heavy duty truck

 

financing

 

financing

 

real estate

 

real estate

 

loans

 

Total

 

June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for loan and lease losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

16,305

 

$

7,924

 

$

5,065

 

$

30,903

 

$

6,798

 

$

15,535

 

$

2,542

 

$

1,088

 

$

86,160

 

Charge-offs

 

535

 

257

 

—

 

530

 

268

 

1,234

 

120

 

257

 

3,201

 

Recoveries

 

1,492

 

25

 

—

 

90

 

63

 

181

 

31

 

102

 

1,984

 

Net charge-offs (recoveries)

 

(957

)

232

 

—

 

440

 

205

 

1,053

 

89

 

155

 

1,217

 

Provision (recovery of provision)

 

(448

)

1,349

 

(481

)

(1,902

)

209

 

918

 

204

 

218

 

67

 

Balance, end of period

 

$

16,814

 

$

9,041

 

$

4,584

 

$

28,561

 

$

6,802

 

$

15,400

 

$

2,657

 

$

1,151

 

$

85,010

 

Ending balance: individually evaluated for impairment

 

$

3,051

 

$

105

 

$

172

 

$

817

 

$

20

 

$

639

 

$

—

 

$

—

 

$

4,804

 

Ending balance: collectively evaluated for impairment

 

$

13,763

 

$

8,936

 

$

4,412

 

$

27,744

 

$

6,782

 

$

14,761

 

$

2,657

 

$

1,151

 

$

80,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

551,820

 

$

473,925

 

$

155,423

 

$

607,567

 

$

274,968

 

$

568,226

 

$

390,389

 

$

95,839

 

$

3,118,157

 

Ending balance: individually evaluated for impairment

 

$

10,248

 

$

1,833

 

$

4,233

 

$

16,946

 

$

4,232

 

$

28,797

 

$

—

 

$

—

 

$

66,289

 

Ending balance: collectively evaluated for impairment

 

$

541,572

 

$

472,092

 

$

151,190

 

$

590,621

 

$

270,736

 

$

539,429

 

$

390,389

 

$

95,839

 

$

3,051,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for loan and lease losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

21,116

 

$

9,164

 

$

7,369

 

$

21,697

 

$

9,390

 

$

14,762

 

$

2,550

 

$

1,779

 

$

87,827

 

Charge-offs

 

542

 

332

 

1,278

 

208

 

1,139

 

2,200

 

195

 

432

 

6,326

 

Recoveries

 

319

 

9

 

—

 

91

 

102

 

23

 

23

 

148

 

715

 

Net charge-offs (recoveries)

 

223

 

323

 

1,278

 

117

 

1,037

 

2,177

 

172

 

284

 

5,611

 

Provision (recovery of provision)

 

(1,213

)

499

 

1,592

 

3,356

 

825

 

165

 

(1,394

)

1,968

 

5,798

 

Balance, end of period

 

$

19,680

 

$

9,340

 

$

7,683

 

$

24,936

 

$

9,178

 

$

12,750

 

$

984

 

$

3,463

 

$

88,014

 

Ending balance: individually evaluated for impairment

 

$

3,336

 

$

328

 

$

2,104

 

$

3,049

 

$

1,375

 

$

2,395

 

$

—

 

$

—

 

$

12,587

 

Ending balance: collectively evaluated for impairment

 

$

16,344

 

$

9,012

 

$

5,579

 

$

21,887

 

$

7,803

 

$

10,355

 

$

984

 

$

3,463

 

$

75,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

539,003

 

$

416,152

 

$

185,954

 

$

596,138

 

$

308,602

 

$

581,392

 

$

401,662

 

$

102,846

 

$

3,131,749

 

Ending balance: individually evaluated for impairment

 

$

20,872

 

$

3,568

 

$

7,301

 

$

11,935

 

$

10,127

 

$

28,397

 

$

—

 

$

—

 

$

82,200

 

Ending balance: collectively evaluated for impairment

 

$

518,131

 

$

412,584

 

$

178,653

 

$

584,203

 

$

298,475

 

$

552,995

 

$

401,662

 

$

102,846

 

$

3,049,549

 

 

Changes in the reserve for loan and lease losses, segregated by class, for the six months ended June 30, 2011 and 2010 are shown below.

 

 

 

 

 

Auto, light truck

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

Commercial and

 

and environmental

 

Medium and

 

Aircraft

 

equipment

 

Commercial

 

Residential

 

Consumer

 

 

 

(Dollars in thousands) 

 

agricultural loans

 

equipment

 

heavy duty truck

 

financing

 

financing

 

real estate

 

real estate

 

loans

 

Total

 

June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for loan and lease losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

20,544

 

$

7,542

 

$

5,768

 

$

29,811

 

$

8,439

 

$

11,177

 

$

2,518

 

$

1,075

 

$

86,874

 

Charge-offs

 

957

 

325

 

—

 

1,628

 

853

 

2,465

 

154

 

852

 

7,234

 

Recoveries

 

1,616

 

70

 

1

 

764

 

98

 

286

 

34

 

236

 

3,105

 

Net charge-offs (recoveries)

 

(659

)

255

 

(1

)

864

 

755

 

2,179

 

120

 

616

 

4,129

 

Provision (recovery of provision)

 

(4,389

)

1,754

 

(1,185

)

(386

)

(882

)

6,402

 

259

 

692

 

2,265

 

Balance, end of period

 

$

16,814

 

$

9,041

 

$

4,584

 

$

28,561

 

$

6,802

 

$

15,400

 

$

2,657

 

$

1,151

 

$

85,010

 

Ending balance: individually evaluated for impairment

 

$

3,051

 

$

105

 

$

172

 

$

817

 

$

20

 

$

639

 

$

—

 

$

—

 

$

4,804

 

Ending balance: collectively evaluated for impairment

 

$

13,763

 

$

8,936

 

$

4,412

 

$

27,744

 

$

6,782

 

$

14,761

 

$

2,657

 

$

1,151

 

$

80,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

551,820

 

$

473,925

 

$

155,423

 

$

607,567

 

$

274,968

 

$

568,226

 

$

390,389

 

$

95,839

 

$

3,118,157

 

Ending balance: individually evaluated for impairment

 

$

10,248

 

$

1,833

 

$

4,233

 

$

16,946

 

$

4,232

 

$

28,797

 

$

—

 

$

—

 

$

66,289

 

Ending balance: collectively evaluated for impairment

 

$

541,572

 

$

472,092

 

$

151,190

 

$

590,621

 

$

270,736

 

$

539,429

 

$

390,389

 

$

95,839

 

$

3,051,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for loan and lease losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

24,017

 

$

9,630

 

$

6,186

 

$

24,807

 

$

8,875

 

$

10,453

 

$

880

 

$

3,388

 

$

88,236

 

Charge-offs

 

890

 

804

 

1,879

 

2,775

 

1,648

 

2,540

 

360

 

809

 

11,705

 

Recoveries

 

564

 

43

 

39

 

163

 

144

 

23

 

24

 

297

 

1,297

 

Net charge-offs (recoveries)

 

326

 

761

 

1,840

 

2,612

 

1,504

 

2,517

 

336

 

512

 

10,408

 

Provision (recovery of provision)

 

(4,011

)

471

 

3,337

 

2,741

 

1,807

 

4,814

 

440

 

587

 

10,186

 

Balance, end of period

 

$

19,680

 

$

9,340

 

$

7,683

 

$

24,936

 

$

9,178

 

$

12,750

 

$

984

 

$

3,463

 

$

88,014

 

Ending balance: individually evaluated for impairment

 

$

3,336

 

$

328

 

$

2,104

 

$

3,049

 

$

1,375

 

$

2,395

 

$

—

 

$

—

 

$

12,587

 

Ending balance: collectively evaluated for impairment

 

$

16,344

 

$

9,012

 

$

5,579

 

$

21,887

 

$

7,803

 

$

10,355

 

$

984

 

$

3,463

 

$

75,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

539,003

 

$

416,152

 

$

185,954

 

$

596,138

 

$

308,602

 

$

581,392

 

$

401,662

 

$

102,846

 

$

3,131,749

 

Ending balance: individually evaluated for impairment

 

$

20,872

 

$

3,568

 

$

7,301

 

$

11,935

 

$

10,127

 

$

28,397

 

$

—

 

$

—

 

$

82,200

 

Ending balance: collectively evaluated for impairment

 

$

518,131

 

$

412,584

 

$

178,653

 

$

584,203

 

$

298,475

 

$

552,995

 

$

401,662

 

$

102,846

 

$

3,049,549