NOTE 22 - FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2022

Investments, All Other Investments [Abstract]

NOTE 22 - FINANCIAL INSTRUMENTS

NOTE 22 - FINANCIAL INSTRUMENTS

The Bank, in the normal course of business and to meet the financing needs of its customers, is a party to financial instruments with off-balance sheet risk.    These financial instruments include commitments to originate loans, letters of credit, and unadvanced funds on loans.  The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets.  The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments 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 originate loans are agreements to lend to a customer provided there are no violations of any conditions established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  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 borrower.  Collateral held varies, but may include secured interests in mortgages, accounts receivable, inventory, property, plant and equipment and income producing properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance by 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.  As of December 31, 2022 and 2021, the maximum potential amount of the Bank’s obligation was $0.8 million and $2.8 million, respectively, for financial, commercial and standby letters of credit.  If a letter of credit is drawn upon, the Bank may seek recourse through the customer’s underlying line of credit.  If the customer’s line of credit is also in default, the Bank may take possession of the collateral, if any, securing the line of credit.

Financial instruments with off-balance sheet credit risk are as follows:

December 31, (in thousands)		2022		2021
Residential	$	39,735	$	16,288
Home equity lines of credit		34,957		31,490
Commercial		44,356		41,544
Land		747		839
Real estate secured		119,795		90,161
Commercial and industrial		129,762		112,262
Municipal		2,538		541
Consumer		5,232		4,349
Unadvanced portions of loans		257,327		207,313
Commitments to originate loans		48,711		43,689
Letters of credit		777		2,835
Total	$	306,815	$	253,837

The allowance for off balance sheet commitments is calculated by applying a reserve percentage discounted by a utilization factor to the sum of unguaranteed unused lines of credit and loan contracts that the Bank has committed to but not funded as of year-end. The allowance for off-balance sheet commitments was $178 thousand and $146 thousand as of December 31, 2022 and December 31, 2021, respectively.