Commitments, Off-Balance Sheet Risk, and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments, Off-Balance Sheet Risk, and Contingencies [Abstract]

Commitments, Off-Balance Sheet Risk, and Contingencies

Note 14 - Commitments, Off-Balance Sheet Risk, and Contingencies

(Table amounts in $ 000s)

There are various contingent liabilities that are not reflected in the financial statements, including claims and legal actions arising in the ordinary course of business.  In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on financial condition or results of operations.

At year-end 2011 and 2010, reserves of $7,077,000 and $7,715,000 were required as deposits with the Federal Reserve or as cash on hand.  At year-end 2011, the Company earned interest on its deposits at the Federal Reserve at a rate of 0.25%.

Cash and cash equivalents at December 31, 2011 and 2010 included $32,327,000 and $17,900,000, respectively, at the Company's main correspondent bank, the Federal Reserve Bank.

Some financial instruments are used in the normal course of business to meet the financing needs of customers and to reduce exposure to interest rate changes.  These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees.  These involve, to varying degrees, credit and interest-rate risk in excess of the amount reported in the financial statements.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment.  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 used, the commitment does not necessarily represent future cash requirements.  Standby letters of credit and financial guarantees are conditional commitments to guarantee a customer's performance to a third party.

The same credit policies are used for commitments and conditional obligations as are used for loans.  Collateral or other security is normally not required to support financial instruments with credit risk.

A summary of the notional or contractual amounts of financial instruments with off-balance-sheet risk at year-end follows:

	2011		2010
Unused lines of credit and commitments to make loans:
Fixed rate	$	3,908	$	3,663
Variable rate		28,317		32,853
Total	$	32,225	$	36,516
Standby letters of credit	$	2,283	$	3,210

Commitments to make loans at a fixed rate have interest rates ranging primarily from 5.00% to 6.75% at December 31, 2011.

Commitments to make loans to related parties totaled $247,000 and $220,000 at December 31, 2011 and 2010, respectively.

Other real estate includes a property acquired in 1987 through the receipt of a deed in lieu of foreclosure.  This property is a former commercial/industrial site located overlooking Lake Michigan in Waukegan, Illinois, with a carrying value of $1,901,000 at December 31, 2011.  On January 4, 2012, the Company received a No Further Remediation Letter (“NFR”) from the Illinois Environmental Protection Agency stating that the property has been “released from further responsibilities under the Environmental Protection Act” and that “the site does not constitute a threat to human health and the environment and does not require further remediation.”  No determination has yet been made as to the ultimate use of the property, which must be approved by the City of Waukegan as part of its Lakefront Downtown Master Plan.  The appraised value of the property supports the Company's carrying value.