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OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

3 Months Ended

Mar. 31, 2024

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

9. 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)		March 31, 2024			December 31, 2023

Unused warehouse lines of credit		$	469,751		$	623,277
Unused home equity lines of credit			460,311			446,006
Unused loan commitments - other			1,146,352			1,159,284
Standby letters of credit			11,091			11,012
FHLB letter of credit			—			—
Total commitments		$	2,087,505		$	2,239,579

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 months ended March 31, 2024 and 2023:


			ACLC Roll-forward
			Three Months Ended March 31,
			2024															2023
			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			$	116		$	(8)		$	—		$	—		$	108		$	190		$	8		$	—		$	—		$	198
Unused home equity lines of credit				55			31			—			—			86			332			9			—			—			341
Unused construction lines of credit				820			(179)			—			—			641			384			163			—			—			547
Unused loan commitments - other				349			46			—			—			395			344			30			—			—			374

Total			$	1,340		$	(110)		$	—		$	—		$	1,230		$	1,250		$	210		$	—		$	—		$	1,460

The Company decreased its ACLC during the three months ended March 31, 2024 based on a decrease in the expected loss rate for its unused commitments.