Commitments and Credit Risk

12 Months Ended

Dec. 31, 2012

Commitments And Credit Risk

Commitments and Credit Risk

Note 18: Commitments and Credit Risk

Total commercial and commercial real estate loans made up 35% and 34% of the loan portfolio at December 31, 2012 and December 31, 2011, respectively, with most of these loans secured by commercial real estate and business assets mainly located in Ohio. Installment loans account for approximately 1% of the loan portfolio for both years ended December 31, 2012 and 2011. These loans are secured by consumer assets including automobiles, which account for 39% and 38%, respectively, of the installment loan portfolio. Real estate loans comprise 64% of the loan portfolio as of both December 31, 2012 and 2011, respectively, and primarily include first mortgage loans on residential properties and home equity lines of credit. Included in cash and due from banks as of December 31, 2012 and 2011, is $2.5 million and $2.6 million, respectively, of uninsured deposits in the form of branch cash on hand.

Commitments to Originate Loans

Commitments to originate loans 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 and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

At December 31, 2012 and 2011, the Company had outstanding commitments to originate fixed-rate loans aggregating approximately $3.9 million and $731,000, respectively. The commitments extended over varying periods of time with the majority being disbursed within a one-year period.

Mortgage loans in the process of origination represent amounts that the Company plans to fund within a normal period of one year. Total mortgage loans in the process of origination amounted to approximately $1.8 million and $330,000 at December 31, 2012 and 2011, respectively.

The Company had undisbursed amounts of residential loans of $189,000, nonresidential of $463,000 and commercial loans of $27,000 at December 31, 2012. The Company had undisbursed amounts of residential loans of $320,000, nonresidential loans of $250,000 and commercial loans of $66,000 in land loans at December 31, 2011.

Standby Letters of Credit

Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Fees for letters of credit are initially recorded by the Company as deferred revenue and are included in earnings at the termination of the respective agreements.

Should the Company be obligated to perform under the standby letters of credit, the Company may seek recourse from the customer for reimbursement of amounts paid.

The Company had total outstanding standby letters of credit amounting to $207,000 and $145,000, at December 31, 2012 and 2011, respectively, with terms not exceeding eleven months. At both December 31, 2012 and 2011, the Company had no deferred revenue under standby letter of credit agreements.

Lines of Credit

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

At December 31, 2012, the Company had granted unused lines of credit to borrowers aggregating approximately $11.9 million and $17.8 million for commercial lines and open-end consumer lines, respectively. At December 31, 2011, unused lines of credit to borrowers aggregated approximately $11.3 million for commercial lines and $17.7 million for open-end consumer lines, respectively.

Leases

The Company currently leases two branch banking facilities under an operating lease. The first lease originated in fiscal 2000 for a ten year term and two five year renewal options of which the Company committed to another five year renewal ending in April 2014. The Company’s second operating lease commenced in fiscal 2001 for an original five year term with 3 five year renewal options and has currently renewed the third option to expire in April 2016. The minimum annual lease payments over the current lease term are as follows:

Fiscal year ended	(In thousands)
2013	$	61
2014		41
2015		31
2016		10
Total	$	143

The Company incurred rental expense under operating leases totaling approximately $59,000 and $50,000 for the twelve months ended December 31, 2012 and the nine months ended December 31, 2011, respectively.

There were no other material commitments or contingencies at December 31, 2012.