Financial Instruments with Off-Balance Sheet Risk

12 Months Ended

Dec. 31, 2024

Financial Instruments with Off-Balance Sheet Risk

The Company is party to credit related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At December 31, 2024 and 2023, the contractual amounts of financial instruments with off-balance commitments are as follows (dollars in thousands):


	December 31,
	2024		2023
Commitments to grant loans	$	408	$	—
Credit card lines	762		448
Unfunded commitments under lines of credit	22,230		22,499
Standby letters of credit	4,491		3,598

Commitments to grant loans are agreements to extend loans to clients provided the clients are in compliance with terms and conditions outlined in the respective loan documents. These commitments often come with specific expiration dates or other termination conditions, such as maturity dates, and may necessitate the payment of fees. Notably, lines of credit commitments might expire without being utilized, implying that the total commitment amounts do not accurately forecast future cash outflows. For collateral requirements, the Bank determines the necessity and amount based on an analysis of the borrower.

Unfunded commitments under credit card lines are related to business credit cards and represent potential future extensions of credit to current clients. These commitments, which are revolving in nature, allow cardholders to access credit up to a pre-approved limit without additional underwriting at the time of each transaction. Unlike traditional term loans, business credit card commitments may be partially or fully drawn at the discretion of the cardholder, and the outstanding balance fluctuates based on usage and repayment. The Bank evaluates the creditworthiness of business credit card holders at origination and may periodically reassess risk exposure. The Bank offers both secured and unsecured cards and aims to mitigate associated credit risk through monitoring, transaction limits, and credit reviews.

Unfunded commitments under lines of credit represent potential future credit extensions to current clients. Commercial lines of credit typically feature maturity dates within one year and do not automatically renew. Conversely, consumer revolving lines of credit and home equity lines, offer draw periods ranging from three to ten years, respectively, also without automatic renewal. These lines of credit are discretionary, with actual funding potentially falling short of the full commitment amount.

Standby letters of credit are conditional commitments by the Bank, serving as guarantees of a client’s performance to a third party. These instruments are typically utilized to facilitate both public and private borrowing arrangements. Almost all letters of credit issued are set to expire within one year, subject to automatic renewal unless terminated by the Bank in accordance with the terms of the agreement. The credit risk associated with issuing letters of credit mirrors that of extending traditional loan facilities to clients, with collateral being secured as deemed necessary by the Bank.