Note 14 - Commitments and Off-Balance Sheet Risk

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Commitments Contingencies and Guarantees [Text Block]

NOTE

14

– COMMITMENTS AND OFF-BALANCE-SHEET RISK

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan 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. Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to a

third

party. 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 drawn upon, the total commitment amounts do

not

necessarily represent future cash requirements.

These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. Our maximum exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on management’s credit assessment of the borrower. If required, estimated loss exposure resulting from these instruments is expensed and recorded as a liability. There was

no

liability balance for these instruments as of

December 31, 2018

and

2017.

At year-end

2018

and

2017,

the rates on existing off-balance sheet instruments were substantially equivalent to current market rates, considering the underlying credit standing of the counterparties.

Our maximum exposure to credit losses for loan commitments and standby letters of credit outstanding at year-end was as follows:

	2018		2017
Commercial unused lines of credit	$	784,895,000	$	682,202,000
Unused lines of credit secured by 1 – 4 family residential properties		57,378,000		61,606,000
Credit card unused lines of credit		47,432,000		39,807,000
Other consumer unused lines of credit		20,231,000		17,629,000
Commitments to make loans		101,517,000		184,923,000
Standby letters of credit		25,322,000		26,030,000
Total commitments	$	1,036,775,000	$	1,012,197,000

Commitments to make loans generally reflect our binding obligations to existing and prospective customers to extend credit, including line of credit facilities secured by accounts receivable and inventory, and term debt secured by either real estate or equipment. In most instances, line of credit facilities are for a

one

-year term and are at a floating rate tied to the Wall Street Journal Prime Rate or the

30

-Day Libor rate. For term debt secured by real estate, customers are generally offered a floating rate tied to the Wall Street Journal Prime Rate or the

30

-Day Libor rate, and a fixed rate currently ranging from

5.00%

to

7.00%.

These credit facilities generally balloon within

five

years, with payments based on amortizations ranging from

10

to

20

years. For term debt secured by non-real estate collateral, customers are generally offered a floating rate tied to the Wall Street Journal Prime Rate or the

30

-Day Libor rate, and a fixed rate currently ranging from

5.00%

to

7.50%.

These credit facilities generally mature and fully amortize within

three

to

seven

years.

The following instruments are considered financial guarantees under current accounting guidance. These instruments are carried at fair value.

	2018				2017
	Contract		Carrying		Contract		Carrying
	Amount		Value		Amount		Value
Standby letters of credit	$	25,322,000	$	126,000	$	26,030,000	$	122,000

We were required to have

$9.1

million and

$9.6

million of cash on hand or on deposit with the Federal Reserve Bank of Chicago to meet regulatory reserve and clearing requirements at

December 31, 2018

and

December 31, 2017,

respectively.