Commitments and Contingencies

6 Months Ended

Jun. 30, 2024

Commitments and Contingencies Disclosure [Abstract]

Note 12 — Commitments and Contingencies

Credit-Related Commitments

In the ordinary course of business, the Company enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded, although they expose the Company to varying degrees of credit risk and interest rate risk in much the same way as funded loans.

Commitments to extend credit include revolving commercial credit lines, non-revolving loan commitments issued mainly to finance the merger and development or construction of real property or equipment, and credit card and personal credit lines. The availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower continues to meet credit standards established in the underlying contract and has not violated other contractual conditions. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower. Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates. A number of commercial and personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do not necessarily represent future cash requirements of the Company.

A substantial majority of the letters of credit are standby agreements that obligate the Company to fulfill a customer’s financial commitments to a third party if the customer is unable to perform. The Company issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services.

The contract amounts of these instruments reflect the Company’s exposure to credit risk. The Company undertakes the same credit evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support.

The table below presents the Company’s commitments to extend credit by commitment expiration date for the dates indicated:


(Dollars in thousands) June 30, 2024
	Less than One Year		One-Three Years		Three-Five Years		Greater than Five Years		Total
Commitments to extend credit(1)	$	770,653	$	708,622	$	399,854	$	43,227	$	1,922,356
Standby letters of credit	163,827		33,787		10,843		—		208,457
Total off-balance sheet commitments	$	934,480	$	742,409	$	410,697	$	43,227	$	2,130,813
December 31, 2023
Commitments to extend credit(1)	$	955,486	$	990,690	$	349,918	$	58,954	$	2,355,048
Standby letters of credit	103,280		20,458		32,957		—		156,695
Total off-balance sheet commitments	$	1,058,766	$	1,011,148	$	382,875	$	58,954	$	2,511,743

____________________________

(1)Includes $766.7 million and $759.4 million of unconditionally cancellable commitments at June 30, 2024, and December 31, 2023, respectively.

At June 30, 2024, the Company held 40 unfunded letters of credit from the FHLB totaling $760.8 million, with expiration dates ranging from July 17, 2024, to September 22, 2027. At December 31, 2023, the Company held 31 unfunded letters of credit from the FHLB totaling $693.6 million, with expiration dates ranging from January 14, 2024, to September 22, 2027.

Management establishes an asset-specific allowance for certain lending-related commitments and computes a formula-based allowance for performing consumer and commercial lending-related commitments. These are computed using a methodology similar to that used for the commercial loan portfolio, modified for expected maturities and probabilities of drawdown. The reserve for lending-related commitments was $3.4 million and $4.7 million at June 30, 2024, and December 31, 2023, respectively, and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

Loss Contingencies

Recently, the Company discovered certain questioned activity involving a former banker, and the Company currently estimated its net exposure to be approximately $4.7 million. The activity involved the banker, who has since been terminated, facilitating advances in and among certain customer loans and accounts that, in one or more instances, may not have been appropriately documented. Additionally, we have notified our insurance providers of anticipated claims resulting from this activity, but there is no consideration in this quarter’s financial results of any potential insurance recoveries. Our investigation into the questioned activity and impact on our financial statements remains ongoing.

As a result of these specific activities, the Company recorded a provision for loan credit losses of $3.2 million during the quarter ended June 30, 2024. In an effort to quantify the full extent of the activity, we have been working with our customers impacted by the activity in order to identify the amounts that may be owed to us, as well as the amounts that may be owed by us. One of the relationships impacted by this activity filed a lawsuit against the Bank. While this relationship has chosen to file a lawsuit, other relationships have continued to work with us, with certain relationships acknowledging amounts owed and either paying the amounts in full or entering into short-term agreements for repayment. During the quarter, several of the relationships impacted by the activity were placed on non-accrual, resulting in a reversal of $1.2 million of accrued interest and we recorded an additional $4.1 million provision for loan credit losses in conjunction with these loan relationships.

Also, as a result of the questioned activity and during the current quarter, the Company recorded additional expenses totaling $1.5 million, which consisted of a loss contingency and interest expense accrual of $1.2 million and professional fees, recorded in noninterest expense. $2.7 million of the aggregate $4.4 million loss contingency, interest expense accrual, and previously discussed $3.2 million provision expense, were out-of-period adjustments that negatively impacted diluted EPS by $0.06 and $0.07 for the three and six month periods ended June 30, 2024, respectively.

The Company is working with a third party forensic accounting team to confirm the Bank’s identification and reconciliation of the activity, and also assist in evaluating any additional impact from the questioned activity. The Company believes that there is at least a reasonable possibility that an additional loss may have been incurred in excess of the amount accrued above and that it is at least reasonably possible a change in the estimate will occur in the near term. As of the date of

this report, management has assessed that an estimate for this additional loss cannot be made. At this time, we believe that any ultimate loss arising from the situation will not be material to our financial position.

From time to time, the Company is also party to various other legal actions arising in the ordinary course of business. Currently, management has not identified any other loss contingencies, either individually or in the aggregate, that would have a material adverse effect on the consolidated financial position or liquidity of the Company.