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OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

6 Months Ended

Jun. 30, 2023

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

10. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

Commitments to Extend Credit

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the contracts. For example, the Company may not be obligated to advance funds if the client’s financial condition deteriorates or if the client fails to meet specific covenants.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding.

The following table presents the Company’s commitments, exclusive of Mortgage Banking loan commitments, for each period ended:


(in thousands)		June 30, 2023			December 31, 2022

Unused warehouse lines of credit		$	440,940		$	733,940
Unused home equity lines of credit			430,954			410,057
Unused loan commitments - other			1,175,149			951,021
Standby letters of credit			10,232			9,735
FHLB letter of credit			233			643
Total commitments		$	2,057,508		$	2,105,396

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third-party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material.

The following tables present a roll-forward of the ACLC for the three and six months ended June 30, 2023 and 2022:


			ACLC Roll-forward
			Three Months Ended
			2023															2022
			Beginning						Charge-						Ending			Beginning						Charge-						Ending
(in thousands)			Balance			Provision			offs			Recoveries			Balance			Balance			Provision			offs			Recoveries			Balance

Loan Commitments
Unused warehouse lines of credit			$	198		$	(53)		$	—		$	—		$	145		$	130		$	32		$	—		$	—		$	162
Unused home equity lines of credit				341			12			—			—			353			256			21			—			—			277
Unused construction lines of credit				547			86			—			—			633			—			—			—			—			—
Unused loan commitments - other				374			25			—			—			399			654			7			—			—			661

Total			$	1,460		$	70		$	—		$	—		$	1,530		$	1,040		$	60		$	—		$	—		$	1,100


			ACLC Roll-forward
			Six Months Ended June 30,
			2023															2022
			Beginning						Charge-						Ending			Beginning						Charge-						Ending
(in thousands)			Balance			Provision			offs			Recoveries			Balance			Balance			Provision			offs			Recoveries			Balance

Loan Commitments
Unused warehouse lines of credit			$	190		$	(45)		$	—		$	—		$	145		$	154		$	8		$	—		$	—		$	162
Unused home equity lines of credit				332			21			—			—			353			247			30			—			—			277
Unused construction lines of credit				384			249			—			—			633			—			—			—			—			—
Unused loan commitments - other				344			55			—			—			399			651			10			—			—			661

Total			$	1,250		$	280		$	—		$	—		$	1,530		$	1,052		$	48		$	—		$	—		$	1,100

The Company increased its ACLC during the three and six months ended June 30, 2023 based primarily on a change in the loan mix to loans with higher reserve rates.