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Financial Instruments with Off-Balance Sheet Risk | 12 Months Ended
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Dec. 31, 2021
Financial Instruments With Off-balance Sheet Risk |
Financial Instruments with Off-Balance Sheet Risk | Financial Instruments with Off-Balance Sheet Risk Various commitments to extend credit are made in the normal course of banking business. Letters of credit are also issued for the benefit of customers. These commitments are subject to loan underwriting standards and geographic boundaries consistent with the Company’s loans outstanding. Commitments to extend credit 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 or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Loan commitments outstanding and lines and letters of credit at December 31, 2021 and 2020 are as follows:
(dollars in thousands) |  | 2021 |  | 2020
Unfunded loan commitments |  | $ | 1,819,578 |  |  | $ | 2,175,271 |
Unfunded lines of credit |  | 108,209 |  |  | 107,683 |
Letters of credit |  | 112,509 |  |  | 70,779 |
Total |  | $ | 2,040,296 |  |  | $ | 2,353,733 |
Because most of the Company’s business activity is with customers located in the Washington, D.C. metropolitan area, a geographic concentration of credit risk exists within the loan portfolio, the performance of which will be influenced by the economy of the region. As of December 31, 2021, the total reserve for unfunded commitments was $4.4 million as compared to $5.5 million at December 31, 2020, and is accounted for as a liability on the Consolidated Statements of Financial Condition. See Note 1 for more information on the accounting policy for the allowance for unfunded commitments. The Bank maintains a reserve for the potential repurchase of residential mortgage loans, which amounted to $125 thousand at December 31, 2021 and $205 thousand at December 31, 2020. These amounts are included in other liabilities in the accompanying Consolidated Balance Sheets. Additions to the reserve are a component of other expenses in the accompanying Consolidated Statements of Income. The reserve is available to absorb losses on the repurchase of loans sold related to document and other fraud, early payment default and early payoff. Through December 31, 2021, no reserve charges have occurred related to fraud. The Company enters into interest rate lock commitments, which are commitments to originate loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The residential mortgage division either locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs under best efforts or commits to deliver the locked loan in a binding mandatory delivery program with an investor. Certain loans under rate lock commitments are covered under forward sales contracts of mortgage backed securities as a hedge of any interest rate risk. Forward sales contracts of mortgage backed securities are recorded at fair value with changes in fair value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts and mandatory contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates while taking into consideration the probability that the rate lock commitments will close or will be funded. These transactions are further detailed in Note 9 "Mortgage Banking Derivatives".

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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