| Loan and Lease Financings | Loan and Lease Financings The Company evaluates loans and leases for credit quality at least annually, but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk). The Company uses two methods to assess credit risk: loan or lease credit quality grades and credit risk classifications. The purpose of the loan or lease credit quality grade is to document the degree of risk associated with individual credits, as well as inform management of the degree of risk in the portfolio taken as a whole. Credit risk classifications are used to categorize loans by degree of risk and to designate individual or committee approval authorities for higher risk credits at the time of origination. Credit risk classifications include categories for: Acceptable, Marginal, Special Attention, Special Risk, Restricted by Policy, Regulated and Prohibited by Law. All loans and leases, except residential real estate loans‚ home equity loans, and consumer loans, are assigned credit quality grades on a scale from 1 to 12, with grade 1 representing superior credit quality. The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Company’s safety and soundness. Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, relationships in excess of $250,000 are reviewed quarterly as part of management’s evaluation of the appropriateness of the allowance for loan and lease losses. Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the exposure to increased risk; grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention. Credits that exhibit well-defined weaknesses and a distinct possibility of loss are considered “classified” and are graded 9 through 12 corresponding to the regulatory definitions of “substandard” (grades 9 and 10) and the more severe “doubtful” (grade 11) and “loss” (grade 12). For residential real estate and home equity and consumer loans, credit quality is based on the aging status of the loan and by payment activity. Nonperforming loans are those loans which are on nonaccrual status or are 90 days or more past due. Below is a summary of the Company’s loan and lease portfolio segments and a discussion of the risk characteristics relevant to each portfolio segment. Commercial and agricultural – loans are to entities within the Company’s local market communities. Loans are for business or agri-business purposes and include working capital lines of credit secured by accounts receivable and inventory that are generally renewable annually and term loans secured by equipment with amortizations based on the expected life of the underlying collateral, generally three Renewable energy – loans are for the purpose of financing solar related projects and may include construction draw notes, operating loans, letters of credit and may entail a tax equity structure. Collateral in a multi-state area includes tangible assets of the borrower, assignment of intangible assets including power purchase agreements, and pledges of permits and licenses. Financing is provided to qualified borrowers throughout the continental United States with an emphasis on the region east of the Rocky Mountains. Auto and light truck – loans are secured by vehicles and borrowers are nationwide. The portfolio predominantly consists of loans to borrowers in the auto rental and commercial auto leasing industries. Borrowers in the auto rental segment are primarily independent auto rental entities with on-airport and off-airport locations, and some insurance replacement business. Loan amortizations are relatively short, generally eighteen months, but up to four years. Auto leasing customers lease to businesses and the Company takes assignment of the lease stream and places its lien on the vehicles. Terms are generally longer than the auto rental sector, three Medium and heavy duty truck – loans and full-service truck leases are secured by heavy-duty trucks, commonly Class 8 trucks, and are generally personally guaranteed. In addition to economic risks, collateral risk is significant. Financing is generally at full cost, plus additional expenditures to get the vehicle operational, such as taxes, insurance and fees. It takes three Aircraft – loans are to domestic and foreign borrowers with the domestic segment further divided into two pools: 1) personal and business use, and 2) dealers and operators. The Company’s focus for the foreign sector is Latin America, principally Mexico and Brazil. Loans are primarily secured by new and used business jets and helicopters, with appropriate advances, amortizations of ten Construction equipment – loans are to borrowers throughout the country secured by specific equipment. The borrowers include highway and road builders, asphalt producers and pavers, suppliers of aggregate products, site developers, frac sand operations, general construction equipment dealers and operators, and crane rental entities. Generally, loans include personal guarantees. The construction equipment industry is heavily dependent on both the U.S. and global economy. Market growth is reliant on investments from public and private sectors into urbanization and infrastructure projects. Commercial real estate – loans are generally to entities within the local market communities served by the Company with advances generally within regulatory guidelines. Historically, the Company’s exposure to commercial real estate has been primarily to the less risky owner-occupied segment. The non-owner-occupied segment accounts for less than half of the commercial real estate portfolio and includes hotels, apartment complexes and warehousing facilities. There is limited exposure to construction loans. Many commercial real estate loans carry personal guarantees. Additional risks in the commercial real estate portfolio stem from geographical concentration in northern Indiana and southwest Michigan and general economic conditions. Residential real estate and home equity – loans predominantly include one-to-four family mortgages to borrowers in the Company’s local market communities and are appropriately underwritten and secured by residential real estate. Consumer – loans are to individuals in the Company’s local markets and auto loans are generally secured by personal vehicles and appropriately underwritten. The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of September 30, 2024, and gross charge-offs for the nine months ended September 30, 2024. Term Loans and Leases by Origination Year (Dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Total Commercial and agricultural Grades 1-6 $ 86,204 $ 124,539 $ 73,638 $ 50,359 $ 28,475 $ 21,606 $ 301,330 $ — $ 686,151 Grades 7-12 113 4,495 7,771 4,042 222 2,430 17,952 — 37,025 Total commercial and agricultural 86,317 129,034 81,409 54,401 28,697 24,036 319,282 — 723,176 Current period gross charge-offs — 210 62 542 — — 8,301 — 9,115 Renewable energy Grades 1-6 63,584 216,738 22,414 72,933 24,038 80,240 — — 479,947 Grades 7-12 — — — — — — — — — Total renewable energy 63,584 216,738 22,414 72,933 24,038 80,240 — — 479,947 Current period gross charge-offs — — — — — — — — — Auto and light truck Grades 1-6 361,444 347,812 131,622 32,423 12,750 8,592 — — 894,643 Grades 7-12 17,721 32,572 2,374 172 1,504 487 — — 54,830 Total auto and light truck 379,165 380,384 133,996 32,595 14,254 9,079 — — 949,473 Current period gross charge-offs — 144 167 6 — 1 — — 318 Medium and heavy duty truck Grades 1-6 65,957 77,979 88,191 30,056 14,240 7,823 — — 284,246 Grades 7-12 209 2,526 9,052 1,322 214 244 — 1,395 14,962 Total medium and heavy duty truck 66,166 80,505 97,243 31,378 14,454 8,067 — 1,395 299,208 Current period gross charge-offs — — — — — — — — — Aircraft Grades 1-6 226,280 201,007 306,783 162,390 95,957 38,786 7,642 — 1,038,845 Grades 7-12 2,882 7,786 10,727 1,874 3,687 — — — 26,956 Total aircraft 229,162 208,793 317,510 164,264 99,644 38,786 7,642 — 1,065,801 Current period gross charge-offs — — — 15 — 53 — — 68 Construction equipment Grades 1-6 337,390 358,746 233,124 83,327 40,519 17,548 22,126 3,098 1,095,878 Grades 7-12 3,006 12,092 15,075 2,114 13,202 — — — 45,489 Total construction equipment 340,396 370,838 248,199 85,441 53,721 17,548 22,126 3,098 1,141,367 Current period gross charge-offs — 89 369 140 — — — — 598 Commercial real estate Grades 1-6 149,116 336,622 239,491 132,654 87,077 191,618 273 — 1,136,851 Grades 7-12 145 9,920 3,751 3,226 422 2,508 — — 19,972 Total commercial real estate 149,261 346,542 243,242 135,880 87,499 194,126 273 — 1,156,823 Current period gross charge-offs — — — — — — — — — Residential real estate and home equity Performing 67,011 72,045 96,185 82,969 81,111 89,044 167,587 6,348 662,300 Nonperforming — 145 390 86 95 789 658 118 2,281 Total residential real estate and home equity 67,011 72,190 96,575 83,055 81,206 89,833 168,245 6,466 664,581 Current period gross charge-offs — 3 — — — — 10 — 13 Consumer Performing 36,364 37,515 32,886 12,141 3,029 1,321 11,738 — 134,994 Nonperforming 21 316 262 72 37 22 — — 730 Total consumer 36,385 37,831 33,148 12,213 3,066 1,343 11,738 — 135,724 Current period gross charge-offs 407 190 213 101 10 — 14 — 935 The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of December 31, 2023, and gross charge-offs for the year ended December 31, 2023. Term Loans and Leases by Origination Year (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Total Commercial and agricultural Grades 1-6 $ 155,656 $ 124,717 $ 68,473 $ 39,708 $ 18,658 $ 15,856 $ 299,495 $ — $ 722,563 Grades 7-12 7,502 2,657 4,886 501 293 418 27,403 — 43,660 Total commercial and agricultural 163,158 127,374 73,359 40,209 18,951 16,274 326,898 — 766,223 Current period gross charge-offs 668 499 15 17 4 — 3,102 — 4,305 Renewable energy Grades 1-6 177,364 23,679 86,836 29,138 56,935 25,756 — — 399,708 Grades 7-12 — — — — — — — — — Total renewable energy 177,364 23,679 86,836 29,138 56,935 25,756 — — 399,708 Current period gross charge-offs — — — — — — — — — Auto and light truck Grades 1-6 603,406 248,701 64,182 24,986 13,573 5,287 — — 960,135 Grades 7-12 908 1,848 474 2,490 632 425 — — 6,777 Total auto and light truck 604,314 250,549 64,656 27,476 14,205 5,712 — — 966,912 Current period gross charge-offs 126 360 128 33 19 63 — — 729 Medium and heavy duty truck Grades 1-6 96,254 114,490 44,069 24,645 15,264 4,202 — — 298,924 Grades 7-12 3,565 7,010 1,675 — 773 — — — 13,023 Total medium and heavy duty truck 99,819 121,500 45,744 24,645 16,037 4,202 — — 311,947 Current period gross charge-offs — — — — — — — — — Aircraft Grades 1-6 269,635 355,175 197,579 140,744 37,244 36,936 6,420 — 1,043,733 Grades 7-12 10,120 9,475 3,704 4,543 — 6,597 — — 34,439 Total aircraft 279,755 364,650 201,283 145,287 37,244 43,533 6,420 — 1,078,172 Current period gross charge-offs — — — — — — — — — Construction equipment Grades 1-6 459,884 333,008 131,838 64,998 29,543 7,803 26,044 2,346 1,055,464 Grades 7-12 6,915 20,826 1,037 510 — — — — 29,288 Total construction equipment 466,799 353,834 132,875 65,508 29,543 7,803 26,044 2,346 1,084,752 Current period gross charge-offs — 44 10 — — — — — 54 Commercial real estate Grades 1-6 336,287 251,055 148,597 105,282 86,452 187,306 275 — 1,115,254 Grades 7-12 678 5,313 2,576 651 4,372 1,017 — — 14,607 Total commercial real estate 336,965 256,368 151,173 105,933 90,824 188,323 275 — 1,129,861 Current period gross charge-offs — 39 30 — 179 — — — 248 Residential real estate and home equity Performing 87,767 110,058 89,458 88,232 30,681 72,211 152,037 5,575 636,019 Nonperforming — 107 74 — 414 756 536 67 1,954 Total residential real estate and home equity 87,767 110,165 89,532 88,232 31,095 72,967 152,573 5,642 637,973 Current period gross charge-offs — — — — — 54 39 8 101 Consumer Performing 53,023 47,789 19,739 6,286 2,539 1,021 12,063 — 142,460 Nonperforming 63 246 123 31 28 6 — — 497 Total consumer 53,086 48,035 19,862 6,317 2,567 1,027 12,063 — 142,957 Current period gross charge-offs 541 455 138 28 17 3 29 — 1,211 The following table shows the amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status. (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due and Accruing Total Nonaccrual Total September 30, 2024 Commercial and agricultural $ 716,077 $ 1,697 $ — $ — $ 717,774 $ 5,402 $ 723,176 Renewable energy 479,947 — — — 479,947 — 479,947 Auto and light truck 946,465 8 — — 946,473 3,000 949,473 Medium and heavy duty truck 299,208 — — — 299,208 — 299,208 Aircraft 1,065,801 — — — 1,065,801 — 1,065,801 Construction equipment 1,117,319 1,620 3,778 — 1,122,717 18,650 1,141,367 Commercial real estate 1,146,094 10,014 — — 1,156,108 715 1,156,823 Residential real estate and home equity 659,740 2,094 467 97 662,398 2,183 664,581 Consumer 134,214 667 112 3 134,996 728 135,724 Total $ 6,564,865 $ 16,100 $ 4,357 $ 100 $ 6,585,422 $ 30,678 $ 6,616,100 December 31, 2023 Commercial and agricultural $ 752,947 $ 9 $ — $ — $ 752,956 $ 13,267 $ 766,223 Renewable energy 399,708 — — — 399,708 — 399,708 Auto and light truck 962,226 20 — — 962,246 4,666 966,912 Medium and heavy duty truck 311,915 32 — — 311,947 — 311,947 Aircraft 1,069,830 8,113 229 — 1,078,172 — 1,078,172 Construction equipment 1,078,912 2,044 3,620 — 1,084,576 176 1,084,752 Commercial real estate 1,126,806 — 85 — 1,126,891 2,970 1,129,861 Residential real estate and home equity 634,345 1,623 51 142 636,161 1,812 637,973 Consumer 141,489 864 107 7 142,467 490 142,957 Total $ 6,478,178 $ 12,705 $ 4,092 $ 149 $ 6,495,124 $ 23,381 $ 6,518,505 Accrued interest receivable on loans and leases at September 30, 2024 and December 31, 2023 was $26.23 million and $25.35 million, respectively. The following table shows the amortized cost of loans and leases that were both experiencing financial difficulty and modified during the three months ended September 30, 2024 and September 30, 2023, respectively, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below. (Dollars in thousands) Payment Term Interest Combination % of Total Three Months Ended September 30, 2024 Commercial and agricultural $ 1,052 $ 10 $ — $ — 0.15 % Commercial real estate 988 — — — 0.09 Total $ 2,040 $ 10 $ — $ — 0.03 % Three Months Ended September 30, 2023 Commercial and agricultural $ 196 $ — $ — $ 500 0.09 % Total $ 196 $ — $ — $ 500 0.01 % The following table shows the amortized cost of loans and leases that were both experiencing financial difficulty and modified during the nine months ended September 30, 2024 and September 30, 2023, respectively, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below. (Dollars in thousands) Payment Term Interest Combination % of Total Nine Months Ended September 30, 2024 Commercial and agricultural $ 1,052 $ 118 $ — $ — 0.16 % Auto and light truck — — — 28,847 3.04 Commercial real estate 988 — — — 0.09 Total $ 2,040 $ 118 $ — $ 28,847 0.47 % Nine Months Ended September 30, 2023 Commercial and agricultural $ 3,360 $ 125 $ — $ 1,312 0.63 % Construction equipment — 1,809 — — 0.17 Commercial real estate 296 — 451 — 0.07 Total $ 3,656 $ 1,934 $ 451 $ 1,312 0.12 % There were $0.00 million and $0.19 million in commitments to lend additional amounts to the borrowers included in the previous table at September 30, 2024 and September 30, 2023, respectively. The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the twelve months ended September 30, 2024 and the nine months ended September 30, 2023. (Dollars in thousands) Current 30-59 60-89 90 Days or Total Twelve months ended September 30, 2024 Commercial and agricultural $ 1,170 $ — $ — $ — $ — Auto and light truck 28,847 — — — — Medium and heavy duty truck 8,645 — — — — Commercial real estate 988 — — — — Total $ 39,650 $ — $ — $ — $ — Nine months ended September 30, 2023 Commercial and agricultural $ 1,633 $ — $ — $ 3,164 $ 3,164 Construction equipment 1,809 — — — — Commercial real estate 747 — — — — Total $ 4,189 $ — $ — $ 3,164 $ 3,164 The following table shows the financial effect of loan and lease modifications during the periods presented in the previous table to borrowers experiencing financial difficulty. Weighted- Weighted- Weighted- Combination Weighted-Average Payment Delay and Term Extension (in months) Twelve months ended September 30, 2024 Commercial and agricultural — % 10 6 3 Auto and light truck — 0 0 3 Medium and heavy duty truck — 0 0 6 Commercial real estate — 0 6 0 Total — % 10 6 4 Nine months ended September 30, 2023 Commercial and agricultural — % 3 6 44 Construction equipment — 5 0 0 Commercial real estate 3.00 0 3 0 Total 3.00 % 4 6 44 There was one modified loan that had a payment default during the nine months ended September 30, 2024, and one modified loan that had a payment default during the nine months ended September 30, 2023, and were modified in the twelve months prior to that default to a borrower experiencing financial difficulty. Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount. |
