COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2024

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

7. COMMITMENTS AND CONTINGENCIES

Litigation and Regulatory Matters
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In the ordinary course of its operations, the Company and its subsidiaries are subject to loss contingencies related to legal and regulatory proceedings. The Company establishes accruals for those matters when a loss contingency is considered probable and the related amount is reasonably estimable. When applicable, the Company estimates loss contingencies and whether there is an accruable probable loss. When the Company is able to estimate such losses and when it is reasonably possible that the Company could incur losses in excess of the amounts accrued, the Company discloses the aggregate estimation of such possible losses.

As previously disclosed, on February 9, 2022, pursuant to the CFPB’s Notice and Opportunity to Respond and Advise process, the CFPB Office of Enforcement notified the Bank that it was considering recommending that the CFPB take legal action against the Bank in connection with alleged violations of Regulation E, 12 C.F.R. § 1005.17, and the Consumer Financial Protection Act, 12 U.S.C. §§ 5531 and 5536, in connection with the Bank’s overdraft practices and policies. In March 2023, the CFPB commenced settlement discussions with the Company to resolve the matter, and on December 7, 2023, the Bank entered into a Consent Order with the CFPB to resolve the matter. As of March 31, 2024, the Company has recorded a probable and estimable liability in connection with this matter

Financial Instruments with Off-Balance Sheet Risk
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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 and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized on the Company’s Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on the balance sheet. The Company considers historical loss and funding information, current and future economic conditions, risk ratings, and past due status among other factors in the consideration of expected credit losses in the Company’s off-balance sheet commitments to extend credit.

The Company also records an indemnification reserve based on historical statistics and loss rates related to mortgage loans previously sold. At March 31, 2024 and December 31, 2023, the Company’s reserve for unfunded commitments and indemnification reserve totaled $15.8 million and $16.5 million, respectively.

Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Letters of credit are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

The following table presents the balances of commitments and contingencies as of the periods ended (dollars in thousands):

	March 31, 2024		December 31, 2023
Commitments with off-balance sheet risk:
Commitments to extend credit(1)	$	5,865,505	$	5,961,238
Letters of credit		126,106		140,498
Total commitments with off-balance sheet risk	$	5,991,611	$	6,101,736

⁽¹⁾ Includes unfunded overdraft protection.

As of March 31, 2024 and December 31, 2023, the Company had approximately $220.1 million and $218.5 million, respectively, in deposits in other financial institutions of which $156.9 million and $154.4 million, respectively, served as collateral for cash flow, fair value and loan swap derivatives. The Company had approximately $60.1 million and $60.8 million, respectively, in deposits in other financial institutions that were uninsured at March 31, 2024 and December 31, 2023. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.

For asset/liability management purposes, the Company uses interest rate contracts to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. For the over-the-counter derivatives cleared with the central clearinghouses, the variation margin is treated as a settlement of the related derivatives fair values. Refer to Note 8 “Derivatives” within this Item 1 of this Quarterly Report for additional information.

As part of the Company’s liquidity management strategy, the Company pledges collateral to secure various financing and other activities that occur during the normal course of business. The following tables present the types of collateral pledged as of the periods ended (dollars in thousands):

	Pledged Assets as of March 31, 2024
			AFS		HTM
	Cash		Securities (1)		Securities (1)		Loans (2)		Total
Public deposits	$	—	$	754,132	$	615,378	$	—	$	1,369,510
Repurchase agreements		—		199,975		—		—		199,975
FHLB advances		—		46,448		—		3,244,890		3,291,338
Derivatives		156,891		60,868		—		—		217,759
Federal Reserve Discount Window		—		—		—		394,700		394,700
Other purposes		—		16,836		—		—		16,836
Total pledged assets	$	156,891	$	1,078,259	$	615,378	$	3,639,590	$	5,490,118

⁽¹⁾ Balance represents market value.

⁽²⁾ Balance represents book value.

	Pledged Assets as of December 31, 2023
			AFS		HTM
	Cash		Securities (1)		Securities (1)		Loans (2)		Total
Public deposits	$	—	$	749,398	$	621,494	$	—	$	1,370,892
Repurchase agreements		—		174,075		—		—		174,075
FHLB advances		—		48,718		—		2,960,926		3,009,644
Derivatives		154,382		61,311		—		—		215,693
Federal Reserve Discount Window (3)		—		411,661		17,356		418,468		847,485
Other purposes		—		15,591		—		—		15,591
Total pledged assets	$	154,382	$	1,460,754	$	638,850	$	3,379,394	$	5,633,380

⁽¹⁾ Balance represents market value.

⁽²⁾ Balance represents book value.

⁽³⁾ Includes AFS and HTM securities pledged under the BTFP program.