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Commitments, Contingencies, and Concentrations of Credit Risk
 12 Months Ended
Dec. 31, 2011
Commitments Contingencies And Concentrations Of Credit Risk  
Commitments, Contingencies, and Concentrations of Credit Risk

Note 13. Commitments, Contingencies, and Concentrations of Credit Risk

 

See Note 2 for discussion regarding a pending purchase of eleven bank branches from another bank.

 

See Note 11 with respect to future obligations under noncancelable operating leases.

 

In the normal course of the Company’s business, there are various outstanding commitments and contingent liabilities such as commitments to extend credit that are not reflected in the financial statements. The following table presents the Company’s outstanding loan commitments at December 31, 2011.

 

($ in millions)            
             
Type of Commitment   Fixed Rate   Variable Rate   Total
Outstanding closed-end loan commitments   $ 39       278       317  
Unfunded commitments on revolving lines of credit, credit cards and home equity loans     32       185       217  
Total   $ 71       463       534  

 

At December 31, 2011 and 2010, the Company had $7.1 million and $7.5 million, respectively, in standby letters of credit outstanding. The Company has no carrying amount for these standby letters of credit at either of those dates. The nature of the standby letters of credit is a guarantee made on behalf of the Company’s customers to suppliers of the customers to guarantee payments owed to the supplier by the customer. The standby letters of credit are generally for terms for one year, at which time they may be renewed for another year if both parties agree. The payment of the guarantees would generally be triggered by a continued nonpayment of an obligation owed by the customer to the supplier. The maximum potential amount of future payments (undiscounted) the Company could be required to make under the guarantees in the event of nonperformance by the parties to whom credit or financial guarantees have been extended is represented by the contractual amount of the standby letter of credit. In the event that the Company is required to honor a standby letter of credit, a note, already executed with the customer, is triggered which provides repayment terms and any collateral. Over the past two years, the Company has had to honor several insignificant standby letters of credit, which have been or are being repaid by the borrower without any loss to the Company. Management expects any draws under existing commitments to be funded through normal operations.

 

The Company is not involved in any legal proceedings which, in management’s opinion, could have a material effect on the consolidated financial position of the Company.

 

The Bank grants primarily commercial and installment loans to customers throughout its market area, which consists of Anson, Beaufort, Bladen, Brunswick, Buncombe, Cabarrus, Carteret, Chatham, Columbus, Dare, Davidson, Duplin, Guilford, Harnett, Iredell, Lee, Montgomery, Moore, New Hanover, Onslow, Randolph, Richmond, Robeson, Rockingham, Rowan, Scotland, Stanly and Wake Counties in North Carolina, Chesterfield, Dillon, Florence and Horry Counties in South Carolina, and Montgomery, Pulaski, Washington and Wythe Counties in Virginia. The real estate loan portfolio can be affected by the condition of the local real estate market. The commercial and installment loan portfolios can be affected by local economic conditions.

 

The Company’s loan portfolio is not concentrated in loans to any single borrower or to a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.

 

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, the Company monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc), and loans with high loan-to-value ratios. Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life. For example, the Company makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored to manage the associated risks. The Company has determined that there is no concentration of credit risk associated with its lending policies or practices.

 

The Company’s investment portfolio consists principally of obligations of government-sponsored enterprises, mortgage-backed securities guaranteed by government-sponsored enterprises, corporate bonds, FHLB stock and general obligation municipal securities. The following are the fair values at December 31, 2011 of available for sale and held to maturity securities to any one issuer/guarantor that exceed $2.0 million, with such amounts representing the maximum amount of credit risk that the Company would incur if the issuer did not repay the obligation.

 

($ in thousands)                 
Issuer     Amortized Cost       Fair Value  
Ginnie Mae - mortgage-backed securities   $ 66,888       70,016  
Small Business Administration - pooled bonds     39,034       39,055  
Federal Home Loan Bank System - bonds     20,511       20,655  
Federal Farm Credit bonds     14,000       14,010  
Federal Home Loan Bank of Atlanta  - common stock     10,904       10,904  
Fannie Mae - mortgage-backed securities     9,422       10,045  
Bank of America - trust preferred securities     7,085       6,368  
Freddie Mac - mortgage-backed securities     4,688       4,939  
Craven County, North Carolina municipal bond     3,665       4,041  
First Citizens Bancorp (South Carolina) – bond / trust preferred securities     3,996       3,842  
Spartanburg, South Carolina Sanitary Sewer District municipal bond     3,301       3,628  
Richmond County, North Carolina municipal bond     2,610       2,793  
South Carolina State municipal bond     2,124       2,338  
Virginia State Housing Authority municipal bond     2,194       2,304  
First Citizens Bancorp (North Carolina) - trust preferred security     2,108       2,278  

  

Until February 27, 2009, the FHLB redeemed their stock at par as borrowings were repaid. On February 27, 2009, the FHLB announced that they would no longer automatically redeem their stock when loans are repaid. Instead, they stated that they would evaluate whether they would repurchase stock on a quarterly basis. During the second half of 2010, the FHLB repurchased $1.8 million of stock from the Company. During 2011, the FHLB repurchased $4.4 million of stock from the Company.

 

The Company places its deposits and correspondent accounts with the Federal Home Loan Bank of Atlanta, the Federal Reserve Bank, and Bank of America and sells its federal funds to Bank of America. At December 31, 2011, the Company had deposits in the Federal Home Loan Bank of Atlanta totaling $17.6 million, deposits of $117.6 million in the Federal Reserve Bank, and deposits of $54.9 million in Bank of America and federal funds sold to Bank of America of $0.6 million. None of the deposits held at the Federal Home Loan Bank of Atlanta, the Federal Reserve Bank, or the federal funds sold to Bank of America are FDIC-insured, however the Federal Reserve Bank is a government entity and therefore risk of loss is minimal. The deposits held at Bank of America are fully guaranteed by the FDIC under its Temporary Liquidity Guarantee Program which guarantees, until December 31, 2013, an unlimited amount of non-interest bearing deposits.