COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2011

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE N.  COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance-sheet risk entered into 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, which are not included in the accompanying consolidated financial statements.  Commitments to extend credit are agreements to lend money at fixed and variable rates with fixed expiration dates or termination clauses.  The Bank applies the same credit standards used in the lending process when extending these commitments, and periodically reassesses the customer's creditworthiness through ongoing credit reviews.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  Collateral is obtained based on the Bank's assessment of the transaction.  At December 31, 2011 and 2010, the Bank's commitments to extend credit totaled $34,883,644 and $38,844,486, respectively.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  The credit risk and collateralization policy involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.  The Bank had total unfunded letters of credit of $4,124,034 and $4,427,377 as of December 31, 2011 and 2010, respectively.

The Bank is required to maintain reserves at the Federal Reserve Bank.  This requirement approximated $107,000 at December 31, 2011.  The Bank is in compliance with this requirement.

There were $2,914,468 and $6,074,014 loans held for sale at December 31, 2011 and December 31, 2010, respectively.

At December 31, 2011, the total available lines of credit with several correspondent banks amounted to $33 million with an outstanding balance of $0 at December 31, 2011.  Subsequent to year-end, and the announcement of the Formal Agreement, two correspondent banks have cancelled $24.5 million of its line of credit to the Bank, and it is expected that other correspondent banks will take similar actions due to their own internal policies.  These cancellations are not expected to materially affect the Bank's liquidity position since the availability under the Bank's lines of credit is not included as part of the Bank's monthly analysis of available liquidity.  Additionally, the Bank has available borrowing capacity of $72 million at the Federal Home Loan Bank and approximately $16 million at the Federal Reserve Discount Window.

The Company and its wholly-owned subsidiary, the Bank, are involved in certain litigation incurred in the normal course of business.  In the opinion of management and legal counsel, liabilities arising from such claims, if any, would not have a material effect upon the Company's consolidated financial statements.