17.	OFF-BALANCE SHEET ARRANGEMENTS AND COMMITMENTS

In the normal course of business and to meet the needs of its customers, the Bank is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments could involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company’s consolidated statements of financial condition.

The Bank does not use financial instruments with off-balance sheet risk as part of its asset/liability management program or for trading purposes. The Bank’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

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. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Standby letters of credit are conditional commitments issued by the Bank 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 loan facilities to customers.

The funding period for construction loans is generally

six

twenty

four

months and commitments to originate mortgage loans held for sale are generally outstanding for no more than

days.

In the normal course of business, the Bank makes commitments to buy or sell assets or to incur or fund liabilities. Commitments include, but are not limited to:

•

the origination, purchase or sale of loans; and

•

the fulfillment of commitments under letters of credit, extensions of credit on lines of credit, construction loans, and under predetermined overdraft protection limits.

December

31,

2016

and

2015,

the Bank’s off-balance sheet arrangements principally included lending commitments, which are described below (in thousands).

	2016		2015

Commitments to extend or originate loans	$	80,265	$	44,153
Rate lock agreements with customers		14,079		10,893
Funded mortgage loans committed to sell		8,954		7,326
Unadvanced portion of construction loans		75,365		50,109
Unused lines of credit		132,796		131,940
Revolving credit card unused credit*		--		5,414
Standby letters of credit		2,870		3,220
Overdraft protection limits		16,585		20,426

* Note that the Bank sold its credit card portfolio during the

second

quarter of

2016.

Total unfunded commitments to originate loans for sale and the related commitments to sell of

$1.8

million meet the definition of a derivative financial instrument. The related asset and liability are considered immaterial at

December

31,

2016.

Historically, a very small percentage of predetermined overdraft limits have been used. At

December

31,

2016,

overdrafts of accounts with Bounce Protection™ represented usage of

2.3%

of the limit.

December

31,

2016,

the Company had no interests in non-consolidated special purpose entities.