Allowance For Credit Losses | NOTE 6 – Allowance for Credit Losses For 2019 and prior, we maintained an allowance and loan portfolios as of the reporting dates based on our estimate of probable Contingencies Topic Effective January 1, 2020, we ASU 2016-13, Financial Instruments - Credit Losses (Topic Losses on Financial Instruments , probable, incurred loss model with a measurement of expected portfolio of loans and leases. the origination of a loan or lease and will be adjusted in each See further discussion of the adoption of this accounting standard and a summary of the Company’s Summary of Significant Accounting Policies. date and June 30, 2020 is below. The following tables summarize activity in the allowance for Three Months Ended June 30, 2020 (Dollars in thousands) Equipment Finance Working Capital Loans CVG CRA & PPP Total Allowance for credit losses, beginning of period $ 37,774 $ 7,200 $ 7,086 $ — $ 52,060 (7,724) (686) (904) — (9,314) 729 17 74 — 820 Net charge-offs (6,995) (669) (830) — (8,494) Realized cashflows from Residual Income 1,272 — — — 1,272 16,499 1,431 876 — 18,806 Allowance for credit losses, end of period $ 48,550 $ 7,962 $ 7,132 $ — $ 63,644 Net investment in leases and loans, before allowance $ 846,057 $ 42,078 $ 81,449 $ 5,095 $ 974,679 Three Months Ended June 30, 2019 (Dollars in thousands) Equipment Finance Working Capital Loans CVG CRA Total Allowance for credit losses, beginning of period $ 13,975 $ 1,684 $ 1,223 $ — $ 16,882 (4,508) (602) (345) — (5,455) 482 51 61 — 594 (4,026) (551) (284) — (4,861) 3,467 807 482 — 4,756 Allowance for credit losses, end of period $ 13,416 $ 1,940 $ 1,421 $ — $ 16,777 Net investment in leases and loans, before allowance $ 942,508 $ 51,748 $ 83,299 $ 1,493 $ 1,079,048 Six Months Ended June 30, 2020 (Dollars in thousands) Equipment Finance Working Capital Loans CVG CRA & PPP Total Allowance for credit losses, December 31, 2019 $ 18,334 $ 1,899 $ 1,462 $ — $ 21,695 Adoption of ASU 2016-13 (CECL) (1) 9,264 (3) 2,647 — 11,908 Allowance for credit losses, January 1, 2020 $ 27,598 $ 1,896 $ 4,109 $ — $ 33,603 (14,214) (1,965) (1,633) — (17,812) 1,254 55 163 — 1,472 Net charge-offs (12,960) (1,910) (1,470) — (16,340) Realized cashflows from Residual Income 2,425 — — — 2,425 31,487 7,976 4,493 — 43,956 Allowance for credit losses, end of period $ 48,550 $ 7,962 $ 7,132 $ — $ 63,644 Net investment in leases and loans, before allowance $ 846,057 $ 42,078 $ 81,449 $ 5,095 $ 974,679 Six Months Ended June 30, 2019 (Dollars in thousands) Equipment Finance Working Capital Loans CVG CRA Total Allowance for credit losses, beginning of period $ 13,531 $ 1,467 $ 1,102 $ — $ 16,100 (8,840) (1,275) (673) — (10,788) 1,214 71 61 — 1,346 (7,626) (1,204) (612) — (9,442) 7,511 1,677 931 — 10,119 Allowance for credit losses, end of period $ 13,416 $ 1,940 $ 1,421 $ — $ 16,777 Net investment in leases and loans, before allowance $ 942,508 $ 51,748 $ 83,299 $ 1,493 $ 1,079,048 __________________ (1) Financial Instruments - Credit Losses (Topic Financial Instruments , which changed our accounting policy and estimated allowance, discussion in Note 2, “Summary of Significant Accounting Policies”, Estimate of Current Expected Credit Losses Starting with the January 1, 2020 adoption of CECL, the Company recognizes upon the origination of a loan or lease, and that estimate will credit losses takes into consideration all cashflows the Company recoveries after charge-off, amounts related to and certain future cashflows from residual assets. As part of its estimate of expected credit losses, specific to each quantitative factors to assess whether the historical loss experience characteristics of the current portfolio and the expected future incorporates all available information relevant to considering the collectability and business conditions, default trends, changes in its portfolio internal and external factors. Current Measurement The Company selected a vintage loss model as the approach to segments and for all pools, primarily because the timing of the losses the company is able to develop a predictable and reliable loans to vintages by origination date, measures our historical a loss curve based on the averages of all vintages, and predicts (or by applying the expected net loss rates to the remaining life of each open Additional detail specific to the measurement of each portfolio summarized below. Equipment Finance: Equipment Finance consists of Equipment Finance Agreements, Installment The risk characteristics referenced to develop pools of Equipment credit score ratings, which is a measurement that combines many risk scores, existence of a guarantee, and various characteristics of the borrower’s measured a pool of true leases so that any future cashflo that pool. The Company’s measurement of analyzed the correlation of its own loss data from 2004 to 2019 approach for reasonable and supportable forecast. forecast about the future, specifically the unemployment rate methodology reverts from the forecast data to its own loss data variables, on a straight-line basis. At each reporting date, the Company considers current conditions, including environment, when determining the appropriate measurement portfolio. line reversion period, based on its initial assessment of the appropriate However, starting with the March 31, period and 12-month straight line reversion period. based on observed market volatility in late March, 30, 2020 due to continuing uncertainty of the duration and level of impact environment and the Company’s portfolio, underlying its economic forecasted variables beyond a 6-month period. portfolio segment resulted in the recognition of provision of $ 10.1 20.9 ended June 30, 2020, respectively. After completing the forecast adjustment, the Company assessed increased the reserve for a $ 3.4 2020 based on an analysis that incorporates the current forecasted peak levels of unemployment and business bankruptcy. Working Capital: The risk characteristics referenced to develop pools of Working considering an estimation of loss for direct-sourced loans versus loans historical relationship with its direct-sourced customers typically from brokers where the Company has no prior credit relationship The Company’s measurement of Working Capital loans duration, the Company did not define a standard methodology to conditions. conditions and the environment that will impact the performance adjustment. At each reporting date, the Company considers current conditions, including environment, when determining the appropriate measurement portfolio. However, starting with its March 31, conditions due to COVID-19, the Company developed alternate characteristics of its portfolio, its most likely expectation for credit losses for the Working increased risk to the collectability of its portfolio from COVID increased and the Company recognized provision associated with 1.5 7.0 the three and six months ended June 30, 2020, respectively. Commercial Vehicle Transportation-related equipment leases and characteristics to be significant enough to warrant disaggregating this The Company’s measurement of data from an external source. The Company has limited history of this appropriate to develop an estimate based on a combination of history of performance of this segment, and the limited size of methodology to adjust its loss estimate based on a forecast of economic assess through a qualitative adjustment whether there are changes performance of these loans that should be considered for At each reporting date, the Company considers current conditions, including environment, when determining the appropriate measurement January 1, 2020 adoption date, there were no qualitative adjustment to 31, 2020 measurement, driven by the elevated risk of credit loss driven Company developed alternate scenarios for expected credit magnitudes of potential exposures. segment based on the increased risk to its borrowers and increased and increased the reserve and recognized provision associated 0.4 3.3 for the three and six months ended June 30, 2020, Community Reinvestment Act (CRA) and Paycheck Protection CRA loans are comprised of loans originated under a line of loans are comprised of loans that are guaranteed by the Small Business allowance specific to these populations Specific Analysis: As part of our analysis of expected credit losses, we may analyze of contracts, in situations where such loans exhibit unique risk characteristics similar losses to the rest of their pool. no analysis. For the three and six months ended June 30, 2020, the Company has recognized 34.7 respectively, driven by increasing COVID-19 pandemic. the effects of the pandemic on our portfolio Further, the Company instituted a customers during this period. the timing of the modified loans resuming payment. Our reserve as of June 30, 2020, and the qualitative and economic historical loss experience, including loss experience through the 2008 on our judgements about the extent of the impact of the COVID extent and timing of impacts from COVID-19 on unemployment rates expectations of the performance of our portfolio in the current environment. or increases to our credit loss estimate, in the future, and such portfolio, including the performance of the modified portfolio, developments or unforeseen circumstances that impact our portfolio. Loan Modification Program: In response to COVID-19, starting in mid-March 2020, business customers that request relief who were current under 30, 2020 for Equipment Finance and CVG typically included a deferral of the partial amount of payment. The Company’s COVID-modification first requests to defer customers for up to 3 months; starting in June, extend the modification period for certain customers up to 6 months in total. The below table outlines certain data on the modified population below the table on the status of this population subsequent to Equipment Finance Working (Dollars in thousands) and CVG Capital Total Net investment in leases and loans Completed modifications $ 115,941 $ 17,876 $ 133,817 % of total segment 12.5% 42.4% 13.7% Number of active modifications as of June 30, 2020 4,564 453 5,017 Interest income recognized for the three months ended June 30, 2020 on modified loans (1) $ 2,295 $ 1,633 $ 3,928 Weighted-average before modification 56.0 15.7 after modification 59.0 18.9 As discussed further below, the and as such these loans were not put on non-accrual upon modification. total income recognized for the three months, for any loan that TDRs are restructurings of leases and loans in which, due to the borrower's would not otherwise consider for borrowers of similar credit 2020, that the FASB June 30, 2020 and December 31, 2019, the Company did no t have any TDRs. Based on their modified terms as of June 30, 2020, 25 % of our total modified contracts had already resumed their regular payment schedule before the end of the second quarter, 7 2% were scheduled to resume payment in the third quarter and the 3 % were scheduled to resume payment in the fourth quarter. Through July 24, 2020, we processed modifications for an additional to the modified population of Working Credit Quality At origination, the Company utilizes an internally developed decisions for new contracts. external credit scores, existence of a guarantee, and various characteristics used to create pools of loans for analysis in the Company’s believe this segmentation allows our loss modeling to properly adjustments to underwriting standards. provision. On an ongoing basis, to monitor the credit quality of its portfolio, portfolio and delinquency migration to monitor risk and default trends. We the credit quality of our portfolio on an ongoing basis because of near term charge-offs and can help with identifying The following tables provide information about delinquent leases as-of the dates presented. In response to COVID-19, starting in mid-March 2020, business customers that request relief who are current under has been impacted by the COVID-19 crisis. contracts, and those contracts are presented in the below delinquency their status with respect to the modified terms. modifications. Portfolio by Origination Year as of Total 2020 2019 2018 2017 2016 Prior Receivables (Dollars in thousands) Equipment Finance 30-59 $ 1,392 $ 5,493 $ 2,764 $ 1,833 $ 501 $ 144 $ 12,127 60-89 1,277 5,008 3,551 2,030 810 190 12,866 90+ 461 3,519 2,722 1,564 784 139 9,189 Total Past Due 3,130 14,020 9,037 5,427 2,095 473 34,182 Current 163,706 333,621 179,308 94,036 34,558 6,646 811,875 Total 166,836 347,641 188,345 99,463 36,653 7,119 846,057 Working Capital 30-59 91 344 32 — — — 467 60-89 177 206 — — — — 383 90+ — 279 — — — — 279 Total Past Due 268 829 32 — — — 1,129 Current 16,277 24,238 396 38 — — 40,949 Total 16,545 25,067 428 38 — — 42,078 CVG 30-59 58 313 147 210 9 — 737 60-89 220 124 143 160 13 — 660 90+ 54 62 236 252 33 — 637 Total Past Due 332 499 526 622 55 — 2,034 Current 11,940 37,580 17,728 8,951 3,138 78 79,415 Total 12,272 38,079 18,254 9,573 3,193 78 81,449 CRA & PPP Total Past Due — — — — — — — Current 5,095 — — — — — 5,095 Total 5,095 — — — — — 5,095 Net investment in leases and loans, before allowance $ 200,748 $ 410,787 $ 207,027 $ 109,074 $ 39,846 $ 7,197 $ 974,679 Portfolio by Origination Year as of Total 2019 2018 2017 2016 2015 Prior Receivables (Dollars in thousands) Equipment Finance 30-59 $ 1,420 $ 1,755 $ 935 $ 454 $ 169 $ 17 $ 4,750 60-89 1,023 1,055 685 366 80 4 3,213 90+ 947 1,522 1,090 527 163 7 4,256 Total Past Due 3,390 4,332 2,710 1,347 412 28 12,219 Current 424,559 236,068 135,419 55,119 16,461 1,407 869,033 Total 427,949 240,400 138,129 56,466 16,873 1,435 881,252 Working Capital 30-59 566 18 — — — — 584 60-89 16 52 — — — — 68 90+ 203 — — — — — 203 Total Past Due 785 70 — — — — 855 Current 57,706 2,343 38 — — — 60,087 Total 58,491 2,413 38 — — — 60,942 CVG 30-59 50 126 90 99 — — 365 60-89 5 15 188 46 — — 254 90+ — 178 158 53 — — 389 Total Past Due 55 319 436 198 — — 1,008 Current 42,536 22,531 13,442 4,976 130 — 83,615 Total 42,591 22,850 13,878 5,174 130 — 84,623 CRA Total Past Due — — — — — — — Current 1,398 — — — — — 1,398 Total 1,398 — — — — — 1,398 Net investment in leases and loans, before allowance $ 530,429 $ 265,663 $ 152,045 $ 61,640 $ 17,003 $ 1,435 $ 1,028,215 Net investments in Equipment Finance and CVG leases and 120 days or more. Income recognition resumes when a lease or loan becomes less there were no Working Capital Loans past due. The loan is removed from non-accrual status once sufficient management. At June 30, 2020 and December 31, 2019, no accruing. The following tables provide information about non-accrual leases and |