FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

12 Months Ended

Dec. 31, 2011

Risks and Uncertainties [Abstract]

Concentration Risk Disclosure [Text Block]

19. FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

     The Bank has 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. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments. As of December 31, 2011, and 2010, outstanding commitments consist of the following:

	Contract or		Contract or
	Notional Amount		Notional Amount
(Dollars in thousands)	December 31, 2011		December 31, 2010
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit in the form of loans
Commercial	$	251,105	$	246,702
Real estate construction		23,932		10,568
Real estate mortgage
Mortgage		3,419		4,265
Home equity line of credit		150,196		154,073
Total real estate mortgage loans		153,615		158,338
Commercial real estate		10,993		7,756
Installment and consumer		9,907		10,734
Other 1		12,803		10,395
Standby letters of credit and financial guarantees		8,349		8,531
Account overdraft protection instruments		103,642		118,596
Total	$	574,346	$	571,620

¹ The category “other” represents commitments extended to clients or borrowers that have been extended but not yet fully executed. These extended commitments are not yet classified nor have they been placed into our loan system.

     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. Many of the commitments may expire without being drawn upon; therefore 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 upon extension of credit, is based on the Bank’s credit evaluation of the customer. Collateral held varies, but may include real property, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Total outstanding commitments of $574.3 million at December 31, 2011, increased by $2.7 million since December 31, 2010. Outstanding commitments for real estate construction increased by $13.4 million while outstanding commitments for account overdraft protection instruments decreased by $15.0 million in 2011, primarily as a result of an increase in the number of customers who have elected to not participate in our overdraft protection program for ATM and one time debit card transactions.

Standby letters of credit are conditional commitments issued to support a customer’s performance or payment obligation to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Interest rates on residential 1-4 family mortgage loan applications are typically rate locked during the application stage for periods ranging from 15 to 45 days, the most typical period being 30 days. These loans are locked with various qualified investors under a best-efforts delivery program. The Company makes every effort to deliver these loans before their rate locks expire. This arrangement generally requires the Bank to deliver the loans prior to the expiration of the rate lock. Delays in funding the loans may require a lock extension. The cost of a lock extension at times is borne by the borrower and at times by the Bank. These lock extension costs paid by the Bank are not expected to have a material impact on operations. This activity is managed daily.