Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

18. COMMITMENTS AND CONTINGENCIES

Data Processing and Network Operations

We have entered into contracts to manage our network operations, data processing and other related services. The projected amounts of future minimum payments contractually due are as follows:


(Dollars in thousands)
Year	Amount
2020	$	11,139
2021	7,768
2022	5,152
2023	3,021
2024	—

Legal Proceedings

In the ordinary course of business, we are subject to legal actions that involve claims for monetary relief. See Note 25 for additional information.

Financial Instruments With Off-Balance Sheet Risk

In the ordinary course of business, we are a party to financial instruments with off-balance sheet risk, in the normal course of business primarily to meet the financing needs of our customers. To varying degrees, these financial instruments involve elements of credit risk that are not recognized in the Consolidated Statements of Financial Condition.

Exposure to loss for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. We generally require collateral to support such financial instruments in excess of the contractual amount of those instruments and use the same credit policies in making commitments as we do for on-balance sheet instruments.

The following represents a summary of off-balance sheet financial instruments at year-end:


	December 31,
(Dollars in thousands)	2019		2018
Financial instruments with contract amounts which represent potential credit risk:
Construction loan commitments	$	360,981	$	177,767
Commercial mortgage loan commitments	106,626		43,624
Commercial loan commitments	919,353		629,729
Commercial owner-occupied commitments	57,144		43,879
Commercial standby letters of credit	148,131		71,233
Residential mortgage loan commitments	5,317		6,297
Consumer loan commitments	506,544		330,929
Total	$	2,104,096	$	1,303,458

At December 31, 2019, we had total commitments to extend credit of $2.1 billion. Commitments for consumer lines of credit were $506.5 million of which, $484.4 million were secured by real estate. Residential mortgage loan commitments generally have closing dates within a one month period but can be extended to six months. Not reflected in the table above are commitments to sell residential mortgages of $60.0 million and $32.4 million at December 31, 2019 and 2018, respectively.

Commitments provide for financing on predetermined terms as long as the customer continues to meet specific criteria. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. We evaluate each customer’s creditworthiness and obtain collateral based on our credit evaluation of the counterparty.

Indemnifications

•Secondary Market Loan Sales: Given the current interest rate environment, coupled with our desire not to hold these assets in our portfolio, we generally sell newly originated residential mortgage loans in the secondary market to mortgage loan aggregators and on a more limited basis to government-sponsored enterprises, such as the Federal Home Loan Mortgage Corp (FHLMC), the Federal National Mortgage Association (FNMA), and the FHLB. Loans held for sale are reflected on our Consolidated Statements of Financial Condition at their fair value with changes in the value reflected in our 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. 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.

We generally 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 an agreement to repurchase the loans. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There was one repurchase for $0.2 million for the year ended December 31, 2019 and no repurchases for the year ended December 31, 2018.

•Swap Guarantees: We entered into agreements with five unrelated financial institutions whereby those financial institutions entered into interest rate derivative contracts (interest rate swap transactions) 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 in the event 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. These swap guarantees are accounted for as credit derivatives.

At December 31, 2019, there were 172 variable-rate to fixed-rate swap transactions between the third-party financial institutions and our customers. The initial notional aggregate amount was approximately $941.0 million, with maturities ranging from under one year to 15 years. The aggregate fair value of these swaps to the customers was a liability of $26.4 million as of December 31, 2019, of which 156 swaps, with a liability of $27.4 million, were in paying positions to a third party. We had no reserves for the swap guarantees as of December 31, 2019.

At December 31, 2018, there were 136 variable-rate to fixed-rate swap transactions between the third-party financial institutions and our customers. The initial notional aggregated amount was approximately $581.5 million, with maturities ranging from under one year to 11 years. The aggregate fair value of these swaps to the customers was a liability of $0.3 million as of December 31, 2018, of which 50 swaps, with a liability of $4.6 million, were in paying positions to a third party. We had no reserves for the swap guarantees as of December 31, 2018.