Contingencies

6 Months Ended

Jun. 30, 2012

Contingencies [Abstract]

Contingencies

NOTE 4. CONTINGENCIES

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material effect on the Company’s consolidated financial statements.

While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the reserves may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowances for loan losses on loans and foreclosed real estate. Such agencies may require the Bank to recognize additions to the allowances for losses on loans or valuation of foreclosed real estate based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for losses on loans and valuation of foreclosed real estate may change materially in the near term.

During the Bank’s most recent regulatory examination a loan relationship, with total outstanding principal balances of $5,564,146 as of June 30, 2012, was criticized and management is currently evaluating its collateral position. Each of the loans in the relationship were assigned a credit rating of substandard, were on nonaccrual status, and were considered impaired at June 30, 2012 by management, and are disclosed as such in Note 6. Management’s most recent evaluation of collateral values resulted in no specific reserves for this relationship as of June 30, 2012. During the recent regulatory examination, examiners raised various issues related to the valuation of this relationship. Management disagrees with the examiners’ positions, and continues to utilize current appraisals and internal evaluations on this relationship. Additionally, management has retained a nationally recognized firm to perform further valuation analysis, which based on preliminary information supports management’s assertion that no specific allowance is needed. Potential losses or additional specific reserves, if any, are not known or reasonably estimable at this time.