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Commitments and Contingencies
 12 Months Ended
Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 14. Commitments and Contingencies

 

Financial instruments:

 

The Bank is a party to financial instruments 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, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements.

  

Outstanding loan commitments, unused lines of credit and letters of credit are as follows:

 

    2012     2011     2010  
Loan commitments:                        
Construction and land development   $ 822,000     $ 260,000     $ -  
Other mortgage loans     6,225,000       3,070,000       2,013,000  
                         
    $ 7,047,000     $ 3,330,000     $ 2,013,000  
Unused lines of credit:                        
Home-equity lines   $ 9,882,497     $ 9,232,242     $ 8,130,179  
Commercial lines     8,615,844       9,368,770       10,738,826  
Secured consumer line     3,002       19,175       -  
Unsecured consumer lines     687,173       753,845       808,053  
                         
    $ 19,188,516     $ 19,374,032     $ 19,677,058  
                         
Letters of credit:   $ 32,000     $ 32,000     $ 71,762  

 

Loan commitments and lines of credit are agreements to lend to customers as long as there is no violation of any conditions of the contracts. Loan commitments generally have interest rates fixed at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Many of the loan commitments and lines of credit are expected to expire without being drawn upon; accordingly, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include deposits held in financial institutions, U.S. Treasury securities, other marketable securities, accounts receivable, inventory, property and equipment, personal residences, income-producing commercial properties, and land under development. Personal guarantees are also obtained to provide added security for certain commitments.

 

Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to guarantee the installation of real property improvements and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral and obtains personal guarantees supporting those commitments for which collateral or other securities is deemed necessary.

 

The Bank’s exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. As of December 31, 2012, the Bank has accrued $200,000 as a reserve for losses on unfunded commitments related to these financial instruments with off balance sheet risk, which is included in other liabilities.