Note 8 - Commitments

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Commitments Disclosure [Text Block]

8.) Commitments:

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, standby letters of credit and financial guarantees. Such instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the Consolidated Balance Sheets. The contract or notional amounts on those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

In the event of nonperformance by the other party, the Company’s exposure to credit loss on these financial instruments is represented by the contract or notional amount of the instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet. The amount and nature of collateral obtained, if any, is based on management’s credit evaluation.

The following table is a summary of such contractual commitments:

	(Amounts in thousands)
	September 30,		December 31,
	2020		2019
Commitments to extend credit:
Fixed rate	$	45,921	$	19,755
Variable rate		89,153		75,147
Standby letters of credit		3,920		3,905

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. Generally, these financial arrangements have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. The increase in commitments is in line with the Company’s increased focus on commercial and industrial lending, and specifically construction loans requiring future draws.

The Company also offers limited overdraft protection as a non-contractual courtesy which is available to businesses as well as individually/jointly owned accounts in good standing for personal or household use. The Company reserves the right to discontinue this service without prior notice.

The following table is a summary of overdraft protection for the periods indicated:

	(Amounts in thousands)
	September 30,			December 31,
	2020			2019
Overdraft protection available on depositors' accounts	$	8,125		$	8,070
Balance of overdrafts included in loans		83			130
Average daily balance of overdrafts		463			112
Average daily balance of overdrafts as a percentage of available		5.70	%		1.39	%

Customer Derivatives - Interest Rate Swaps/Floors – The Company enters into interest rate swaps that allow our commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate into a fixed-rate. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps with both the customers and third party are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. There was no effect on earnings in any periods presented. At September 30, 2020, based on the contract values, the Company had four U.S. Government-sponsored mortgage-backed securities pledged for collateral on its interest rate swaps with the third party financial institution at a fair value of $5.0 million. At December 31, 2019 based upon the swap contract values, the Company had two U.S. Government-sponsored mortgage-backed securities pledged for collateral on its interest rate swaps with a third-party financial institution with a fair value of $2.8 million.

Summary information regarding these derivatives is presented below:

	(Amounts in thousands)
	Notional Amount						Fair Value
	September 30,		December 31,				September 30,			December 31,
	2020		2019		Interest Rate Paid	Interest Rate Received	2020			2019
Customer interest rate swap
Maturing in 2020	$	2,236	$	2,312	1 Mo. Libor + Margin	Fixed	$	6		$	4
Maturing in 2025		4,267		4,557	1 Mo. Libor + Margin	Fixed		321			134
Maturing in 2026		1,726		1,822	1 Mo. Libor + Margin	Fixed		118			19
Maturing in 2027		13,032		13,363	1 Mo. Libor + Margin	Fixed		1,567			636
Maturing in 2028		6,040		6,068	1 Mo. Libor + Margin	Fixed		1,055			548
Maturing in 2029		3,659		3,721	1 Mo. Libor + Margin	Fixed		338			(19	)
Maturing in 2030		5,983		3,649	1 Mo. Libor + Margin	Fixed		443			44
Maturing in 2032		2,551		—	1 Mo. Libor + Margin	Fixed		204			—
Maturing in 2033		1,102		1,121	1 Mo. Libor + Margin	Fixed		187			56
Total	$	40,596	$	36,613			$	4,239		$	1,422
Third party interest rate swap
Maturing in 2020	$	2,236	$	2,312	Fixed	1 Mo. Libor + Margin	$	(6	)	$	(4	)
Maturing in 2025		4,267		4,557	Fixed	1 Mo. Libor + Margin		(321	)		(134	)
Maturing in 2026		1,726		1,822	Fixed	1 Mo. Libor + Margin		(118	)		(19	)
Maturing in 2027		13,032		13,363	Fixed	1 Mo. Libor + Margin		(1,567	)		(636	)
Maturing in 2028		6,040		6,068	Fixed	1 Mo. Libor + Margin		(1,055	)		(548	)
Maturing in 2029		3,659		3,721	Fixed	1 Mo. Libor + Margin		(338	)		19
Maturing in 2030		5,983		3,649	Fixed	1 Mo. Libor + Margin		(443	)		(44	)
Maturing in 2032		2,551		—	Fixed	1 Mo. Libor + Margin		(204	)		—
Maturing in 2033		1,102		1,121	Fixed	1 Mo. Libor + Margin		(187	)		(56	)
Total	$	40,596	$	36,613			$	(4,239	)	$	(1,422	)

The following table presents the fair values of derivative instruments in the balance sheet:

	(Amounts in thousands)
	Assets			Liabilities
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
September 30, 2020
Interest rate derivatives	Other assets	$	4,239	Other liabilities	$	4,239
December 31, 2019
Interest rate derivatives	Other assets	$	1,422	Other liabilities	$	1,422