NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank 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. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The Bank had outstanding the following off-balance-sheet financial instruments whose contract amounts represent credit risk at June 30, 2018 and December 31, 2017 (dollars in thousands):

	At June 30, 2018				At December 31, 2017
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Undrawn lines of credit	$	36,193	$	104,844	$	39,651	$	76,008
Letters of credit		24,915		-		23,741		-
	$	61,108	$	104,844	$	63,392	$	76,008

A commitment to extend credit is a legally binding agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally expire within two years. At June 30, 2018, the Bank’s fixed rate loan commitments are to make loans with interest rates ranging from 3.0% to 5.7% and maturities of one year or more. At December 31, 2017, the Bank’s fixed rate loan commitments had interest rates ranging from 3.5% to 9.5% and maturities of one year or more. The amount of collateral obtained, if any, by the Bank upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include mortgages on commercial and residential real estate, security interests in business assets, equipment, deposit accounts with the Bank or other financial institutions and securities.

The Bank has stand-by letters of credit in the amount of $24.9 million and $23.7 million included above as of June 30, 2018 and December 31, 2017, respectively, for which the Bank has pledged interest-bearing accounts of $0.9 million and $1.7 million as of June 30, 2018 and December 31, 2017, respectively. The stand-by letters of credit mature within one year.