14. COMMITMENTS AND CONTINGENCIES Off-balance sheet arrangements  In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk in order to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Companys maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to originate loans are conditional and are honored for up to 45 days subject to the Companys usual terms and conditions. Collateral is not required to support commitments. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. These guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies and is required in instances where the Company deems it necessary. Significant off-balance sheet commitments at September 30, 2019 are listed below (in thousands): Contract or Notional Amount Commitments to originate loans: Adjustable-rate $ 15,303 Fixed-rate 13,627 Standby letters of credit 2,070 Undisbursed loan funds and unused lines of credit 134,513 Total $ 165,513 At September 30, 2019, the Company had firm commitments to sell $660,000 of residential loans to the FHLMC. Typically, these agreements are short-term fixed-rate commitments and no material gain or loss is likely. Other Contractual Obligations - In connection with certain asset sales, the Company typically makes representations and warranties about the underlying assets conforming to specified guidelines. If the underlying assets do not conform to the specifications, the Company may have an obligation to repurchase the assets or indemnify the purchaser against loss. At September 30, 2019, loans under warranty totaled $107.5 million, which substantially represents the unpaid principal balance of the Companys loans serviced for the FHLMC. The Company believes that the potential for loss under these arrangements is remote. At September 30, 2019, the Company had an allowance for FHLMC loans of $12,000. The Bank is a public depository and, accordingly, accepts deposit and other public funds belonging to, or held for the benefit of, Washington and Oregon states, political subdivisions thereof, and municipal corporations. In accordance with applicable state law, in the event of default of a participating bank, all other participating banks in the state collectively assure that no loss of funds are suffered by any public depositor. Generally, in the event of default by a public depository, the assessment attributable to all public depositories is allocated on a pro rata basis in proportion to the maximum liability of each depository as it existed on the date of loss. The Company has not incurred any losses related to public depository funds for the six months ended September 30, 2019 and 2018. The Bank has entered into employment contracts with certain key employees, which provide for contingent payments subject to future events. Litigation  The Company is periodically a party to litigation arising in the ordinary course of business. In the opinion of management, these actions will not have a material effect, if any, on the Companys future consolidated financial position, results of operations and cash flows.