14 .	GUARANTEES, COMMITMENTS AND CONTINGENCIES

The Bank

’s exposure to credit loss in the event of nonperformance by the other party for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making these commitments as it does for on-balance sheet instruments. For interest rate swap transactions and commitments to purchase or sell securities for forward delivery, the contract or notional amounts do

not

represent exposure to credit loss. The Bank controls the credit risk of these derivative instruments through credit approvals, limits and monitoring procedures. Certain derivative contracts have credit risk for the carrying value plus the amount to replace such contracts in the event of counterparty default. All of the Bank’s financial instruments are held for risk management and

not

for trading purposes. During the

six

-month periods ended

June 30, 2017

and

2016,

there were

credit losses associated with derivative contracts.

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit, letters of credit and others

that are

not

included in the consolidated financial statements. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. A summary of these commitments and contingent liabilities is presented below:

	June 30 , 2017		December 31, 2016
	(Dollars in Thousands)
Standby letters of credit	$	180	$	183
Commitments to extend credit	$	57,476	$	41,267

Standby letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a

third

party. The Bank has recourse against the customer for any amount that it is required to pay to a

third

party under a standby letter of credit. Revenues are recognized over the lives of the standby letters of credit. As of

June 30, 2017

and

December 31, 2016,

the potential amount of future payments that the Bank could be required to make under its standby letters of credit, which represent the Bank’s total credit risk in this category, is included in the table above.

A commitment

to extend credit is an agreement to lend to a customer as long as there is

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. 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 Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon the 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.

Commitments to purchase securities for delayed delivery require the Bank to purchase a specified security at a specified price for delivery on a specified date. Similarly, commitments to sell securities for delayed delivery require the Bank to sell a specified security at a specified price for delivery on a specified date. Market risk arises from potential movements in security values and interest rates between the commitment and delivery dates.

As of both

June 30, 2017

and

December 31, 2016,

there were

outstanding commitments to purchase securities for delayed delivery and

outstanding commitments to sell securities for delayed delivery.

The Company is self-insured for a significant portion of employee health benefits. However, we maintain stop-loss coverage with

third

party insurers to limit our individual claim and total exposure related to self-insurance. We estimate our accrued liability for the ultimate costs to close known claims, as well as claims incurred but

not

yet reported, as of the balance sheet date. Our recorded estimated liability for self-insurance is based on the insurance companies’ incurred loss estimates and management’s judgment, including assumptions and factors related to the frequency and severity of claims, our claims development history and our claims settlement practices. The assessment of loss contingencies and self-insurance reserves is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of self-insurance accruals. The ultimate settlement of loss contingencies and self-insurance reserves

may

differ significantly from amounts we have accrued in our consolidated financial statements.

2016,

the Bank entered into an agreement with a general contractor to manage construction of an office complex on a parcel of land located in the Birmingham, Alabama area that was purchased by the Bank in

2016.

As of

June 30, 2017,

construction of the office complex was nearing completion. Approximately

$10.1

million in cost had been incurred under the contract with the general contractor as of

June 30, 2017

and was included on the balance sheet in premises and equipment. Remaining contractual commitments with the general contractor totaled

$0.6

million.

Litigation

The Company is party to

certain ordinary course litigation, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should

not

have a material adverse effect on the Company’s consolidated financial statements or results of operations.