Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments

To meet the financing needs of our customers in the normal course of business, we are a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. At June 30, 2020 and December 31, 2019, we were committed to fund certain loans including letters of credit amounting to approximately $286 million and $316 million, respectively. The contractual amounts of a credit-related financial instrument, such as a commitment to extend credit, a credit-card arrangement or a letter of credit, represent the amount of potential accounting loss should the commitment be fully drawn upon, the customer were to default, and the value of any existing collateral securing the customer’s payment obligation becomes worthless. The loss reserve for unfunded loan commitments was $350 thousand at both June 30, 2020 and December 31, 2019.

As a result, we use the same credit policies in making commitments to extend credit and conditional obligations as we do for on-balance sheet instruments. Commitments generally have fixed expiration dates; however, since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis, using the same credit underwriting standards that are employed in making commercial loans. The amount of collateral obtained, if any, upon an extension of credit is based on our evaluation of the creditworthiness of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, residential real estate and income-producing commercial properties.

Borrowings

At June 30, 2020 and December 31, 2019, our borrowings and contractual obligations consisted of the following:


(Dollars in thousands)	June 30, 2020		December 31, 2019
FHLB advances—short-term	$	70,000	$	30,000
Other borrowings—short-term⁽¹⁾	3,962		—



Total	$	73,962	$	30,000

(1) Other borrowings are from the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPPLF") that extends credit to eligible financial institutions that originate PPP loans.

The table below sets forth the amounts of, the interest rates we pay on, and the maturity dates of these FHLB borrowings. These borrowings had a weighted-average annualized interest rate of 0.63% for the six months ended June 30, 2020.


Principal Amounts	Interest Rate		Maturity Dates
(Dollars in thousands)
50,000	0.22	%	September 30, 2020
10,000	1.71	%	December 30, 2020
10,000	1.62	%	January 25, 2021

At June 30, 2020, $470 million of loans were pledged to support our FHLB borrowings and our unfunded borrowing capacity. As of June 30, 2020, we had unused borrowing capacity of $239 million with the FHLB. The highest amount of borrowings outstanding at any month-end during the three months ended June 30, 2020 was $124 million. At June 30, 2020 and December 31, 2019, commercial and consumer loans of $187 million and $210 million, respectively, were pledged to secure borrowings from the FRB to support our unfunded borrowing capacity of $126 million and $146 million, respectively.

As of December 31, 2019, we had $30.0 million of outstanding short-term borrowings and no outstanding long-term borrowings that we had obtained from the FHLB. These borrowings had a weighted-average annualized interest rate of 1.82% for the year ended December 31, 2019. As of December 31, 2019, we had unused borrowing capacity of $172 million with the FHLB. The highest amount of borrowings outstanding at any month-end during the year ended December 31, 2019 was $55 million.

Litigation, Claims and Assessments

We are a defendant in or a party to a number of legal actions or proceedings that arise in the ordinary course of business. In some of these actions and proceedings, claims for monetary damages are asserted against us.

In accordance with applicable accounting guidance, we establish an accrued liability for lawsuits or other legal proceedings when they present loss contingencies that are both probable and estimable. We estimate any potential loss based upon currently available information and significant judgments and a variety of assumptions, and known and unknown uncertainties. Moreover, the facts and circumstances on which such estimates are based will change over time. Therefore, the amount of any losses we might incur in any lawsuits or other legal proceedings may exceed amounts which we had accrued based on our estimates and those estimates do not represent the maximum loss exposure that we may have in connection with any lawsuits or other legal proceedings.

Based on our evaluation of lawsuits and other proceedings that were pending against us as of June 30, 2020, the outcomes in those suits or other proceedings are not expected to have, either individually or in the aggregate, a material adverse effect on our consolidated financial position, results of operations or cash flows. However, in light of the inherent uncertainties involved, some of which are beyond our control, and the very large or indeterminate damages often sought in such legal actions or proceedings, an adverse outcome in one or more of these suits or proceedings could be material to our results of operations or cash flows for any particular reporting period.