OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2023

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

12. 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 year ended:

December 31, (in thousands)	2023		2022
Unused warehouse lines of credit	$	623,277	$	733,940
Unused home equity lines of credit		446,006		410,057
Unused loan commitments - other		1,159,284		951,021
Standby letters of credit		11,012		9,735
FHLB letter of credit		—		643
Total commitments	$	2,239,579	$	2,105,396

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 rollforward of the ACLC for years ended December 31, 2023 and 2022:

	ACLC Roll-forward
	Years Ended December 31,
	2023										2022
	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	$	190	$	(74)	$	—	$	—	$	116	$	154	$	36	$	—	$	—	$	190
Unused home equity lines of credit		332		(277)		—		—		55		247		85		—		—		332
Unused construction lines of credit		384		436		—		—		820		383		1		—		—		384
Unused loan commitments - other		344		5		—		—		349		268		76		—		—		344
Total	$	1,250	$	90	$	—	$	—	$	1,340	$	1,052	$	198	$	—	$	—	$	1,250

The Company increased its ACLC $90 million during 2023 primarily due to an increase in unused construction lines, which was partially offset by a decrease in home equity lines.