Note 12 - Commitments and Contingent Liabilities

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

(12)    Commitments and Contingent Liabilities

As of June 30, 2022 and December 31, 2021, Bancorp had various commitments outstanding that arose in the normal course of business which are properly not reflected in the consolidated financial statements. Total off-balance sheet commitments to extend credit follows:

(in thousands)	June 30, 2022		December 31, 2021
Commercial and industrial	$	773,639	$	625,858
Construction and land development		456,863		292,351
Home equity		356,309		247,885
Credit cards		58,391		40,471
Overdrafts		61,377		51,104
Letters of credit		34,877		30,779
Other		93,596		76,721
Future loan commitments		328,977		325,983
Total off balance sheet commitments to extend credit	$	2,164,029	$	1,691,152

Commitments to extend credit are an agreement to lend to a customer either unsecured or secured, as long as collateral is available as agreed upon and there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, securities, equipment and real estate. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.

At June 30, 2022 and December 31, 2021, Bancorp had accrued $4.1 million and $3.5 million, respectively, in other liabilities for its estimate of credit losses for off balance sheet credit exposures. The CB acquisition resulted in a $500,000 increase to the ACL for off balance sheet credit exposures, with the corresponding offset recorded to goodwill (as opposed to provision expense). Further, provision expense of $500,000 and $100,000 was recorded for off balance sheet credit exposures for the three and six month periods ended June 30, 2022. The expense recorded for the three month period ended June 30, 2022 was driven largely by the addition of new lines of credit, and thus increased availability, within the C&D portfolio, offsetting the $400,000 negative provision that was recorded during the first quarter. Negative provision expense for off balance sheet credit exposures of $550,000 and $825,000 was recorded for the three and six month periods ended June 30, 2021, respectively, as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors and improvement in line of credit utilization during the prior year.

Standby letters of credit are conditional commitments issued by Bancorp to guarantee the performance of a customer to a first party beneficiary. Those guarantees are primarily issued to support commercial transactions. Standby letters of credit generally have maturities of one to two years.

Certain commercial customers require confirmation of Bancorp’s letters of credit by other banks since Bancorp does not have a rating by a national rating agency. Terms of the agreements range from one month to a year with certain agreements requiring between one and six months’ notice to cancel. If an event of default on all contracts had occurred at June 30, 2022, Bancorp would have been required to make payments of approximately $3 million, or the maximum amount payable under those contracts. No payments have ever been required because of default on these contracts. These agreements are normally secured by collateral acceptable to Bancorp, which limits credit risk associated with the agreements.

As of June 30, 2022, in the normal course of business, there were pending legal actions and proceedings in which claims for damages are asserted. Management, after discussion with legal counsel, believes the ultimate result of these legal actions and proceedings will not have a material adverse effect on the consolidated financial position or results of operations of Bancorp.