COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

17. COMMITMENTS AND CONTINGENCIES

Secondary Market Loan Sales

Given the current interest rate environment and our overall asset and liability management approach, we typically sell newly originated residential mortgage loans in the secondary market to mortgage loan aggregators and on a more limited basis, to government sponsored entities (GSEs) such as FHLMC, FNMA, and the FHLB. Loans held for sale are reflected on our unaudited Consolidated Statements of Financial Condition at fair value with changes in the value reflected in our unaudited Consolidated Statements of Income. Gains and losses are recognized at the time of sale. We periodically retain the servicing rights on residential mortgage loans sold which results in monthly service fee income. The mortgage servicing rights are included in our intangible assets in our unaudited Consolidated Statements of Financial Condition. Otherwise, we sell loans with servicing released on a nonrecourse basis. Rate-locked loan commitments that we intend to sell in the secondary market are accounted for as derivatives under ASC 815, Derivatives and Hedging (ASC 815).

We do not sell loans with recourse, except for standard loan sale contract provisions covering violations of representations and warranties and, under certain circumstances, early payment default by the borrower. These are customary repurchase provisions in the secondary market for residential mortgage loan sales. These provisions may include either an indemnification from loss or the repurchase of the loans. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no repurchases during the three months ended March 31, 2020 as compared to one repurchase for $0.2 million during the three months ended March 31, 2019.

Swap Guarantees

We entered into agreements with four unrelated financial institutions whereby those financial institutions entered into interest rate derivative contracts (interest rate swap transactions) directly with customers referred to them by us. Under the terms of the agreements, those financial institutions have recourse to us for any exposure created under each swap transaction, only in the event that the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution. This is a customary arrangement that allows us to provide access to interest rate swap transactions for our customers without creating the swap ourselves. Fees received for the guarantee of payment are accounted for in accordance with ASC 460 - Guarantees, and amortized over the life of the loan.

At March 31, 2020 and December 31, 2019, there were 202 and 172 variable-rate to fixed-rate swap transactions between the third-party financial institutions and our customers, respectively. The initial notional aggregate amount was approximately $1.0 billion at March 31, 2020 compared to $941.0 million at December 31, 2019. At March 31, 2020, maturities ranged from under 1 year to 15 years. The aggregate net market value of these swaps to the customers was a liability of $84.3 million at March 31, 2020 and a liability of $26.4 million at December 31, 2019. At March 31, 2020, 200 swaps, with a liability of $85.5 million, were in paying positions to a third party; however, none of our customers were in default of the swap agreements. There were no payments made by the Company under the agreements at both March 31, 2020 and December 31, 2019.

Unfunded Lending Commitments

At March 31, 2020 and December 31, 2019, the unfunded lending commitments were $4.3 million and $1.5 million, respectively. The balance at March 31, 2020 was determined using the CECL methodology, which included a $3.0 million adjustment to retained earnings at the time of adoption. A credit for unfunded lending commitments of $0.2 million was recognized during the three months ended March 31, 2020, and a provision for unfunded lending commitments of $0.2 million was recognized during the three months ended March 31, 2019.