Commitments and Contingent Liabilities

6 Months Ended

Jun. 30, 2011

Commitments and Contingent Liabilities [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES

Lease Commitments — The Company leases certain facilities at which it conducts its operations. Future minimum lease commitments under all non-cancelable operating leases as of June 30, 2011 are below:

(Dollars in thousands)
Amounts due in:
2011	$	408
2012		623
2013		488
2014		499
2015		164
Thereafter		270
Total	$	2,452

Legal Proceedings - The Company is involved in various pending and threatened legal actions arising in the ordinary course of business. The Company maintains reserves for losses from legal actions, which are both probable and estimable. In the opinion of management, the disposition of claims, currently pending will not have a material adverse affect on the Company’s financial position or results of operations.

FHLB Advances — The Company has advances from the FHLB totaling $91.0 million as of June 30, 2011 and $145.0 million as of June 30, 2010. The Company has a total of four fixed rate advances: one for $50.0 million with interest payable monthly, two for $10.0 million each with interest payable monthly, and one for $6.0 million with interest payable semiannually. In addition, the Company has one floating rate advance for $15.0 million. The floating rate adjusts quarterly to 3 month LIBOR plus 1 basis point, with interest payable quarterly.

The following table illustrates borrowings outstanding at the end of the period:

(Dollars in thousands)
Advance Amount		Interest Rate			Maturity
$	50,000		0.22	%	August 17, 2011
	6,000		0.33	%	February 28, 2012
	10,000		0.33	%	June 18, 2012
	15,000		0.26	%	March 5, 2013
	10,000		1.46	%	June 16, 2015

The borrowings are secured by an investment in FHLB stock, certain real estate mortgage loans which have been specifically pledged to the FHLB pursuant to their collateral requirements, and securities held in the Bank’s available-for-sale securities portfolio.

Based upon the level of FHLB advances, the Company was required to hold an investment in FHLB stock of $7.3 million. Furthermore, the Company has pledged $348.9 million of its commercial and real estate mortgage loans, and has borrowed $85.0 million against the pledged loans.

As of June 30, 2011, the Company held $34.2 million in securities with the FHLB for pledging purposes. Of this amount $6.0 million are pledged as collateral against borrowings, and the remaining securities are considered unpledged. At June 30, 2011, the Company had an available borrowing line at the FHLB of $119.8 million.

Other Available Borrowing Lines — The Company may periodically obtain secured borrowings from the Federal Reserve Bank (FRB). FRB borrowings outstanding were $0 as of June 30, 2011 and $0 as of June 30, 2010. The FRB’s discount window credit facility is limited to overnight borrowings. The Company has pledged $64.9 million in commercial loans as collateral as of June 30, 2011, and had available borrowing lines at the FRB of $53.7 million. In additions, at June 30, 2011, the Company had a federal funds borrowing line at two correspondent banks totaling $15.0 million.

Off-Balance Sheet Financial Instruments - In the ordinary course of business, the Company enters into various types of transactions, which involve financial instruments with off-balance sheet risk.

These instruments include commitments to extend credit and standby letters of credit, which are not reflected in the accompanying consolidated balance sheets. These transactions may involve, to varying degrees, credit and interest rate risk more than the amount, if any recognized, in the consolidated balance sheets.

Commitments to extend credit are agreements to lend to customers. These commitments have specified interest rates and have fixed expiration dates but may be terminated by the Company if certain conditions of the contract are violated. Although currently subject to draw down, many of the commitments do not necessarily represent future cash requirements.

Collateral held relating to these commitments varies, but includes real estate, securities, and cash. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Credit risk arises in these transactions from the possibility that a customer may not be able to repay the Bank upon default of performance.

Collateral held for standby letters of credit is based on an individual evaluation of each customer’s creditworthiness, but may include cash and securities. Commitments to extend credit and standby letters of credit bear similar credit risk characteristics as outstanding loans.

The Company’s commitments to extend credit are illustrated below:

(Dollars in thousands)
	June 30, 2011		December 31, 2010
Off-balance sheet commitments:
Commitments to extend credit	$	138,551	$	146,915
Standby letters of credit		3,067		3,509
Guaranteed commitments outstanding		1,274		1,299
Total commitments	$	142,892	$	151,723

The Company has mortgage loan purchase agreements with various mortgage bankers. The Company is obligated to perform certain procedures in accordance with these agreements. The agreements provide for conditions whereby the Company may be required to repurchase mortgage loans for various reasons, among which are (1) a mortgage loan is originated in violation of the mortgage banker’s requirement, (2) the Company breaches any term of the agreement, and (3) an early payment default occurs from a mortgage originated by the Company. As of June 30, 2011, the Company has recorded $357 thousand in other liabilities for estimated buy backs for early payment defaults, representations and warranties. The mortgage loan repurchase agreements are consistent with the standard representations and warranties of the loan sales agreements, and the Company considers the impact to the consolidated financial statements to be immaterial.

The Company entered into a mandatory forward loan volume commitment agreement with a purchaser of mortgage loans. Under the agreement, the Company was committed to deliver $264 million in loan volume over the period from March 1, 2010 through February 28, 2011. Upon failure to deliver minimum loan volume quarterly, the Company was responsible to pay a non-delivery fee to the purchaser. As of February 28, 2011, the Company met the volume commitments. As of June 30, 2011 there are no mandatory forward loan volume commitment agreements.