Financial Instruments with Off-Balance Sheet Risk

We make commitments to extend credit in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because various commitments will expire without being fully drawn upon, the total commitment amount does not necessarily represent future cash requirements.

We are exposed to credit loss equal to the contract amount of the commitment in the event of nonperformance by the borrower. We use the same credit underwriting criteria for all credit exposure. The amount of collateral obtained, if deemed necessary by us, is based on Management's credit evaluation of the borrower. Collateral types pledged may include accounts receivable, inventory, other personal property and real property.

The contractual amount of undrawn loan commitments and standby letters of credit not reflected on the consolidated statements of condition are as follows:



(in thousands)	December 31, 2016		December 31, 2015
Commercial lines of credit	$	216,774	$	191,305
Revolving home equity lines	148,143		130,359
Undisbursed construction loans	44,798		39,442
Personal and other lines of credit	10,635		11,112
Standby letters of credit	1,939		4,381
Total commitments and standby letters of credit	$	422,289	$	376,599

We record an allowance for losses on these off-balance sheet commitments based on an estimate of probabilities of these commitments being drawn upon according to our historical utilization experience on different types of commitments and expected loss severity. We set aside an allowance for losses on off-balance sheet commitments in the amount of $899 thousand and $749 thousand as of December 31, 2016 and 2015, respectively, which is recorded in interest payable and other liabilities on the consolidated statements of condition. The increase in the reserve for off-balance sheet commitments in 2016 was primarily due to an increase in commitments and a decrease in average utilization. Approximately 42% of the commitments expire in 2017, approximately 42% expire between 2018 and 2024 and approximately 16% expire thereafter.