Financial Instruments With Off-Balance Sheet Risk

12 Months Ended

Dec. 31, 2011

Financial Instruments With Off-Balance Sheet Risk [Abstract]

Financial Instruments With Off-Balance Sheet Risk

Note 15. Financial Instruments With Off-Balance Sheet Risk

The Company is 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 and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recorded in the accompanying consolidated balance sheets. Such financial instruments are recorded when they are funded.

The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the balance sheet.

At December 31, 2011 and 2010, commitments under standby letters of credit were approximately $1,028,000 and $2,494,000, respectively. Undisbursed loan commitments aggregated approximately $27,742,000 and $21,130,000 at December 31, 2011 and 2010, respectively. Approximately $3,645,000 of the $27,742,000 and $1,879,000 of the $21,130,000 undisbursed loan commitments at December 31, 2011 and December 31, 2010, respectively, represented fixed rate loan commitments for which the interest rates committed ranged from 2.30% to 21.00% at December 31, 2011 and 2.05% to 18.00% at December 31, 2010.

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. 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 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. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

The Company has not been required to perform on any financial guarantees during any of the periods presented. The Company has not incurred any losses on its commitments for the years ended December 31, 2011 and 2010.