NOTE 14-Commitments to Extend Credit   

 

In the normal course of business, the Corporation is a party to various financial transactions that are not funded as of the balance sheet date.  Off-balance sheet financial instruments, which enable Bank customers to meet their financing needs, are comprised mainly of commitments to extend credit and standby letters of credit.  Standby letters of credit are written conditional commitments issued by PeoplesBank to guarantee the performance of a customer to a third party.  The credit and market risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments.  To manage these risks, the Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments and requires collateral to support these letters of credit as deemed necessary.  Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees.  The amount of the liability as of December 31, 2014 and 2013, for guarantees under standby letters of credit issued was considered not material by management.  Normally, commitments to extend credit and letters of credit have fixed expiration dates or termination clauses, have specific rates and are for specific purposes.  Many of the commitments are expected to expire without being extended; therefore, total commitment amounts do not necessarily represent future cash requirements.   

 

A summary of outstanding commitments at December 31, 2014 and 2013 is shown below.