OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2021

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

13. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

COVID-19 Pandemic

COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. Since March 2020, to slow the spread of COVID-19, jurisdictions within the U.S. have imposed economic and social restrictions on the population in general and non-essential businesses in particular. These restrictions in combination with the public’s response to them effectively suspended or curtailed economic activity for many industries across the U.S., with industries in the Company’s market footprint impacted.

While vaccines for the virus began rolling out during 2021, the future potential financial impact of the COVID-19 pandemic is still unknown at this time. This pandemic and the public’s response to it could cause the Company to experience a material adverse impact on its business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, MSRs, deferred tax assets, or counterparty risk derivatives.

Commitments to Extend Credit

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the contracts. For example, the Company may not be obligated to advance funds if the client’s financial condition deteriorates or if the client fails to meet specific covenants.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding.

The following table presents the Company’s commitments, exclusive of Mortgage Banking loan commitments for each year ended:

December 31, (in thousands)	2021		2020
Unused warehouse lines of credit	$	565,950	$	456,004
Unused home equity lines of credit		348,681		353,322
Unused loan commitments - other		828,229		775,128
Standby letters of credit		11,305		10,949
FHLB letter of credit		643		643
Total commitments	$	1,754,808	$	1,596,046

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third-party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and

extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material.

The following tables present a rollforward of the ACLC for years ended December 31, 2021 and 2020:

	ACLC Rollforward
	Years Ended December 31,
	2021										2020
	Beginning				Charge-				Ending		Beginning		ASC 326				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Adoption		Provision		offs		Recoveries		Balance
Loan Commitments
Unused warehouse lines of credit	$	79	$	75	$	—	$	—	$	154	$	—	$	55	$	24	$	—	$	—	$	79
Unused home equity lines of credit		173		74		—		—		247		—		89		84		—		—		173
Unused loan commitments - other		737		(86)		—		—		651		—		312		425		—		—		737
Total	$	989	$	63	$	—	$	—	$	1,052	$	—	$	456	$	533	$	—	$	—	$	989

The Company decreased its ACLC during 2021 based on a decrease in the expected loss rate for its unused commitments.