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 non-performance 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 following off-balance-sheet financial instruments, whose contract amounts represent credit risk, are outstanding at March 31, 2019 and December 31, 2018 (dollars in thousands):


	At March 31, 2019				At December 31, 2018
			Variable				Variable
	Fixed Rate		Rate		Fixed Rate		Rate
Undrawn lines of credit	$	13,655	$	170,430	$	7,737	$	130,547
Letters of credit		36,231		—		34,351		—
	$	49,886	$	170,430	$	42,088	$	130,547

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 March 31, 2019, the Bank’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Bank’s variable rate loan commitments had interest rates ranging from 4.5% to 9.5%, with a maturity of one year or more. At December 31, 2018, the Bank’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Bank’s variable rate loan commitments had interest rates ranging from 4.5% to 9.5%, with a maturity 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’s stand-by letters of credit of $36.2 million and $34.4 million as of March 31, 2019 and December 31, 2018, respectively, are collateralized by interest-bearing accounts of $29.8 and $23.0 million as of those respective years. The stand-by letters of credit mature within one year.