Note 12 - Commitments and Contingent Liabilities

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

(12) Commitments and Contingent Liabilities

As of June 30, 2023 and December 31, 2022, Bancorp had various commitments outstanding that arose in the normal course of business which are properly not reflected in the condensed consolidated financial statements. Total off-balance sheet commitments to extend credit follows:

(in thousands)	June 30, 2023		December 31, 2022
Commercial and industrial	$	867,447	$	784,429
Construction and land development		510,785		449,028
Home equity		371,567		358,610
Credit cards		69,850		64,231
Overdrafts		55,343		57,193
Letters of credit		33,675		34,704
Other		94,054		93,419
Future loan commitments		292,585		221,973
Total off balance sheet commitments to extend credit	$	2,295,306	$	2,063,587

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, 2023 and December 31, 2022, Bancorp had accrued $5.1 million and $4.5 million, respectively, in other liabilities for its estimate of credit losses for off balance sheet credit exposures. Provision for credit loss expense for off balance sheet credit exposures of $200,000 and $575,000 was recorded for the three and six months ended June 30, 2023, driven by a decline in C&I utilization and increased availability stemming from the addition of new lines of credit.

Provision for credit loss expense for off balance sheet credit exposures (excluding acquisition-related activity) of $500,000 and $100,000 was recorded for the three and six months ended June 30, 2022. The expense recorded for the three months ended June 30, 2022 was driven largely by the addition of new lines of credit within the C&D portfolio, off setting the $400,000 of negative provision recorded during the First quarter of 2022. The ACL for off balance sheet credit exposures was also increased $500,000 during the First quarter of 2022 as a result of the CB acquisition with the offset recorded to goodwill (as opposed to provision expense).

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, 2023, 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, 2023, 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.