Note 13 - Commitments and Off-balance-sheet Risk

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Commitments Contingencies and Guarantees [Text Block]

NOTE 13 – 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, 2021 and 2020.

At year-end 2021 and 2020, 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:

	2021		2020
Commercial unused lines of credit	$	1,098,951,000	$	1,019,496,000
Unused lines of credit secured by 1 – 4 family residential properties		64,313,000		59,396,000
Credit card unused lines of credit		92,146,000		72,495,000
Other consumer unused lines of credit		64,876,000		30,707,000
Commitments to make loans		212,476,000		227,558,000
Standby letters of credit		33,109,000		20,543,000
Total commitments	$	1,565,871,000	$	1,430,195,000

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 have been 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 have been 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 3.00% to 5.00%. 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 have been 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 3.50% to 5.00%. These credit facilities generally mature and fully amortize within three to seven years. Effective January 1, 2022, we replaced the 30-Day Libor Rate with the CBM Term SOFR Rate for all new floating rate commercial loan commitments. It is expected that currently outstanding commercial loans tied to the 30-Day Libor Rate will convert to an equivalent fallback SOFR Rate on or about June 30, 2023.

The following instruments are considered financial guarantees under current accounting guidance. These instruments are carried at fair value as an other liability on our Consolidated Balance Sheets.

	2021				2020
	Contract		Carrying		Contract		Carrying
	Amount		Value		Amount		Value
Standby letters of credit	$	33,109,000	$	212,000	$	20,543,000	$	138,000