Financial Instruments with Off-Balance Sheet Risk

12 Months Ended

Dec. 31, 2020

Risks and Uncertainties [Abstract]

Financial Instruments with Off-Balance Sheet Risk

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 to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of originating loans or providing funds under existing lines or letters of credit. These commitments 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 and may require payment of a fee. Since many commitments are expected to expire, the total commitment amounts do not necessarily represent future cash requirements. Commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the accompanying consolidated statements of financial condition.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual or notional amount of those instruments. The Company controls credit risk of its commitments to fund loans through credit approvals, limits and monitoring procedures. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company evaluates each customer for creditworthiness.

The Company receives collateral to support commitments when deemed necessary. The most significant categories of collateral include real estate properties underlying mortgage loans, liens on personal property, and cash on deposit with the Bank.

The Company maintains an allowance for credit losses to provide for commitments related to loans associated with undisbursed loan funds and unused lines of credit. The allowance for these commitments was $31.1 million at December 31, 2020 and $3.3 million at December 31, 2019. The change in the allowance for credit losses for off-balance sheet commitments during the year ended December 31, 2020 was primarily attributable to the adoption of ASC 326 on January 1, 2020, the acquisition of Opus in June 2020, as well as the deterioration in economic forecasts employed in the Company’s CECL model. See Note 5 - Allowance for Credit Losses for additional information.

The Company’s commitments to extend credit at December 31, 2020 were $1.95 billion and $1.58 billion at December 31, 2019. The 2020 balance is primarily composed of $1.52 billion of undisbursed commitments for C&I loans.