Commitments, Guarantees and Other Contingencies

9 Months Ended

Sep. 30, 2012

Commitments, Guarantees and Other Contingencies

17. Commitments, Guarantees and Other Contingencies

Lending Commitments and Standby Letters of Credit

Unused lending commitments to clients are not recorded in the Consolidated Balance Sheets until funds are advanced. For commercial clients, lending commitments generally take the form of unused revolving credit arrangements to finance clients’ working capital requirements. For retail clients, lending commitments are generally unused lines of credit secured by residential property. The Company routinely extends lending commitments for both floating and fixed-rate loans.

The following table summarizes the contractual amounts of the Company’s unused lending commitments relating to extension of credit with off-balance sheet risk at September 30, 2012 (in thousands).

Commitments to extend credit:
Revolving, open-end lines secured by single-family residential properties	$	53,381
Commercial real estate, construction, and land development loans secured by real estate
Single-family residential construction loan commitments		4,505
Commercial real estate, other construction loan, and land development loan commitments		49,095
Commercial and industrial loan commitments		21,843
Overdraft protection line commitments		25,650
Other		8,293
Total commitments to extend credit	$	162,767

Standby letters of credit are issued for clients in connection with contracts between clients and third parties. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The maximum potential amount of undiscounted future advances related to letters of credit was $3.7 million and $3.0 million at September 30, 2012 and December 31, 2011, respectively.

The reserve for estimated credit losses on unfunded commitments at September 30, 2012 and December 31, 2011 was $406 thousand and $378 thousand, respectively, and is recorded in Other liabilities in the Consolidated Balance Sheets.

Mortgage loan commitments originated by the Bank are for mortgage loans that are generally sold in the secondary market upon origination and are, therefore, short-term in nature. The commitments to originate mortgage loans that are intended to be sold are accounted for as freestanding derivative instruments and are recorded on the Consolidated Balance Sheets at fair value. For disclosure regarding these loan commitments and freestanding derivatives, see Note 18, Derivative Financial Instruments and Hedging Activities.

Loan Participations

The Company periodically sells portions of loans extended to clients in order to manage overall credit concentrations under loan participation agreements. With regard to loan participations, the Company serves as the lead bank and is therefore responsible for certain administrative and other management functions as agent to the participating banks. The participation agreements include certain standard representations and warranties related to the Company’s duties to the participating banks.

Contractual Obligations

In addition to the contractual commitments and arrangements previously described, the Company enters into other contractual obligations in the ordinary course of business. The following table summarizes the contractual obligations of time deposit accounts at September 30, 2012 (in thousands).

	Less than one year		Over one through three years		Over three through five years		Over five years		Total
Time deposit accounts	$	266,786	$	74,082	$	4,742	$	59	$	345,669

As described in Note 21, Branch Sale, on July 1, 2012 the Bank completed the sale of two branches, one of which was a leased facility under a lease agreement with a term through September 2015. While the lease has been assigned to the purchaser of the branches as of July 1, 2012, the Bank remains as a named party to the lease in the event the purchaser fails to satisfy its obligations. Future lease payments related to this facility to be made by the purchaser total $132 thousand.

There have been no other significant changes in future real property operating lease obligations as reported in our 2011 Annual Report on Form 10-K except as otherwise noted within this Quarterly Report on Form 10-Q.

Legal Proceedings

The Company is subject to actual and threatened legal proceedings and other claims arising out of the conduct of its business. Some of these suits and proceedings seek damages, fines or penalties. These suits and proceedings are being defended by or contested on the Company’s behalf. On the basis of information presently available, the Company does not believe that existing proceedings and claims will have a material impact on its financial position or results of operations.