FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

12 Months Ended

Dec. 31, 2020

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

NOTE 16 — 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 as of December 31, 2020 and 2019 (in thousands):

	At December 31, 2020				At December 31, 2019
			Variable				Variable
	Fixed Rate		Rate		Fixed Rate		Rate
Undrawn lines of credit	$	19,024	$	266,696	$	17,204	$	193,767
Letters of credit		34,264		—		47,743		—
	$	53,288	$	266,696	$	64,947	$	193,767

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 both December 31, 2020 and 2019, the Bank’s fixed rate loan commitments are to make loans with interest rates ranging from 3.0% to 5.6% 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 letters of credit of $34.3 million and $47.7 million as of December 31, 2020 and 2019, respectively, for which the Bank has received collateral in the form of accounts of $26.9 million and $29.8 million as of December 31, 2020 and 2019, respectively.