Financial Instruments with Off-Balance Sheet Risk

12 Months Ended

Dec. 31, 2023

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, the total commitment amount does not necessarily represent future cash requirements.

Our credit loss exposure is equal to the contractual 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 unfunded loan commitments and standby letters of credit not reflected in the consolidated statements of condition are as follows:


(in thousands)	December 31, 2023		December 31, 2022
Commercial lines of credit	$	259,989	$	292,204
Revolving home equity lines	218,935		218,907
Undisbursed construction loans	13,943		43,179
Personal and other lines of credit	9,136		10,842
Standby letters of credit	3,147		1,738
Total unfunded loan commitments and standby letters of credit	$	505,150	$	566,870

As of December 31, 2023, approximately 38% of the commitments expire in 2024, 51% expire between 2025 and 2031 and 11% expire thereafter.

We record an allowance for credit losses on unfunded loan commitments at the balance sheet date based on estimates of the probability that these commitments will be drawn upon according to historical utilization experience of the different types of commitments and expected loss rates determined for pooled funded loans. The allowance for credit losses on unfunded commitments totaled $1.1 million and $1.5 million as of December 31, 2023 and 2022, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

We recorded reversals of the provision for credit losses on unfunded commitments totaling $342 thousand, $318 thousand and $992 thousand in 2023, 2022, and 2021, respectively. The reversals in 2023 and 2022 were due primarily to decreases in total unfunded loan commitments. The reversal in 2021 was largely due to ongoing improvements in the underlying economic forecasts under the CECL accounting method at the time.