Note 14 - Financial Instruments With Off-Balance Sheet Risk

12 Months Ended

Dec. 31, 2011

Financial Instruments With Off Balance Sheet Risk

14. Financial Instruments With Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The financial instruments include commitments to extend credit and standby letters of credit.

These financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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 the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Total commitments to extend credit were $118 million and $127 million at December 31, 2011 and 2010, respectively. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit, if deemed necessary by the Company, is based on management’s credit evaluation of the counter-party. Collateral held varies, but may include accounts receivable, marketable securities, inventory, premises and equipment, residential real estate, and income producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that received when extending credit to customers. The fair value of these instruments is not considered material for disclosure. The Company had $25.0 million and $18.1 million in irrevocable letters of credit outstanding at December 31, 2011 and 2010, respectively.

The contractual amount of financial instruments with off-balance sheet risk was as follows at year-end.

December 31,	2011				2010
(In thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to extend credit, including unused lines of credit	$	34,399	$	83,173	$	45,695	$	81,069
Standby letters of credit		2,942		22,047		3,893		14,175
Total	$	37,341	$	105,220	$	49,588	$	95,244