Note 14 - Financial Instruments With Off-balance Sheet Risk

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Financial Instruments Disclosure [Text Block]

Not

e

14

: Financial Instruments with Off-Balance Sheet Risk

The Company 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, standby letters of credit and interest rate locks. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit 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 amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company

may

require collateral or other security to support the following financial instruments with credit risk.

At

December 31, 2017

and

2016,

financial instruments outstanding whose contract amounts represent credit risk were:

	December 31,
	20 17		20 16
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	161,222	$	130,252
Standby letters of credit		16,351		20,499
Mortgage loans sold with potential recourse		14,130		17,526

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. Commitments generally have fixed expiration dates or other termination clauses and

may

require payment of a fee. The commitments for lines of credit

may

expire without being drawn upon. Therefore, the total commitment amounts do

not

necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit. Some of these commitments are uncollateralized and do

not

contain a specified maturity date and

may

not

be drawn upon to the total extent to which the Company is committed.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a

third

party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies but

may

include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

The Company originates mortgage loans for sale to secondary market investors subject to contractually specified and limited recourse provisions. In

2017,

the Company originated

$13,912

and sold

$14,130

 to investors, compared to

$17,090

originated and

$17,526

sold in

2016.

Every contract with each investor contains certain recourse language. In general, the Company

may

be required to repurchase a previously sold mortgage loan if there is major noncompliance with defined loan origination or documentation standards, including fraud, negligence or material misstatement in the loan documents. Repurchase

may

also be required if necessary governmental loan guarantees are canceled or never issued, or if an investor is forced to buy back a loan after it has been resold as a part of a loan pool. In addition, the Company

may

have an obligation to repurchase a loan if the mortgagor defaults early in the loan term. This potential default period is approximately

twelve

months after sale of a loan to the investor.

At

December 31, 2017,

the Company had locked-rate commitments to originate mortgage loans amounting to approximately

$707

and loans held for sale of

$260.

Risks arise from the possible inability of counterparties to meet the terms of their contracts. The Company does

not

expect any counterparty to fail to meet its obligations.

The Company maintains cash accounts in other commercial banks. The Company had

$14

in deposits with correspondent institutions at

December 31, 2017

that was

not

insured by the Federal Deposit Insurance Corporation.