Commitments and Contingent Liabilities

9 Months Ended

Sep. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingent Liabilities

5. COMMITMENTS AND CONTINGENT LIABILITIES

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans included on the balance sheet.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, and deeds of trust on residential real estate and income-producing commercial properties.

At September 30, 2021 and December 31, 2020, the Company had outstanding unfunded commitments for loans of approximately $580.4 million and $491.1 million, respectively. Unfunded loan commitment reserves, included in the allowance for loan losses, totaled $380,000 and $305,000 at September 30, 2021 and December 31, 2020, respectively.

The outstanding unfunded commitments for loans at September 30, 2021 was comprised of fixed rate commitments of approximately $26.9 million and variable rate commitments of approximately $553.5 million. The following table reflects the interest rate and maturity ranges for the unfunded fixed rate loan commitments as of September 30, 2021.

			Over One
	Due in		Year But
	One Year		Less Than		Over
(Dollars in thousands)	Or Less		Five Years		Five Years		Total
Unfunded fixed rate loan commitments:
Interest rate less than or equal to 4.00%	$	13,461	$	1,841	$	6,646	$	21,948
Interest rate between 4.00% and 5.00%		2,245		1,160		995		4,400
Interest rate greater than or equal to 5.00%		250		345		—		595
Total unfunded fixed rate loan commitments	$	15,956	$	3,346	$	7,641	$	26,943

Operating Leases

The Company leases various office premises under long-term operating lease agreements. These leases expire between 2021 and 2027, with certain leases containing either three, five, or seven year renewal options.

The following table reflects the quantitative information for the Company’s leases at September 30, 2021.

	September 30,
(Dollars in thousands)	2021
Operating lease cost (cost resulting from lease payments)	$	1,578
Operating lease - operating cash flows (fixed payments)	$	1,818
Operating lease - ROU assets	$	6,914
Operating lease - liabilities	$	8,774
Weighted average lease term - operating leases		2.6 years
Weighted average discount rate - operating leases		0.60	%

The following table reflects the minimum commitments under these non-cancellable leases, before considering renewal options, as of September 30, 2021.

	September 30,
(Dollars in thousands)	2021
2021	$	613
2022		2,441
2023		1,497
2024		1,456
2025		1,500
Thereafter		1,792
Total undiscounted cash flows		9,299
Discount on cash flows		(525	)
Total lease liability	$	8,774

Rent expense included in premises and equipment expense totaled $521,000 and $619,000 for the three months ended September 30, 2021 and 2020, respectively. Rent expense included in premises and equipment expense totaled $1.6 million and $1.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Contingencies

The Company is involved in legal proceedings arising from normal business activities. Management, based upon the advice of legal counsel, believes the ultimate resolution of all pending legal actions will not have a material effect on the Company’s financial position or results of operations.

Correspondent Banking Agreements

The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Insured financial institution deposits up to $250,000 are fully insured by the FDIC under the FDIC’s general deposit insurance rules.

At September 30, 2021, uninsured deposits at financial institutions were approximately $39.5 million. At December 31, 2020, uninsured deposits at financial institutions were approximately $8.7 million.