NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off
-balance sheet risks in the normal course of business
to meet the financing needs of its clients.
These financial instruments consist of commitments to extend credit and standby
The Company’s maximum exposure
to credit loss under standby letters of credit and commitments to extend credit is represented
the contractual amount of those instruments.
The Company uses the same credit policies in establishing commitments
letters of credit as it does for on-balance sheet instruments.
The amounts associated with the Company’s
obligations were as follows:
Commitments to extend credit are agreements to lend to a client so long as there is no violation of
any condition established in the
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee.
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a client to a third
The credit risk involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities. In
general, management does not anticipate any material losses as a result
of participating in these types of transactions.
potential losses arising from such transactions are reserved for in the same manner
as management reserves for its other credit
For both on- and off-balance sheet financial instruments, the Company
requires collateral to support such instruments when it is
The Company evaluates each client’s
creditworthiness on a case-by-case basis.
The amount of collateral
obtained upon extension of credit is based on management’s
credit evaluation of the counterparty.
Collateral held varies, but may
include deposits held in financial institutions; U.S. Treasury
securities; other marketable securities; real estate; accounts receivable;
property, plant and
equipment; and inventory.
The allowance for credit losses for off-balance sheet credit commitments
that are not unconditionally cancellable by the bank is
adjusted as a provision for credit loss expense and is recorded in other liabilities.
The following table shows the activity in the
The Company is a party to lawsuits and claims arising out of the normal course of business.
In management's opinion,
there are no known pending claims or litigation, the outcome of which
would, individually or in the aggregate, have a material effect
on the consolidated results of operations, financial position, or cash flows
of the Company.
The Company is a member of the Visa U.S.A. network.
Visa U.S.A member banks are
indemnify the Visa U.S.A.
network for potential future settlement of certain litigation (the “Covered Litigation”)
that relates to several
antitrust lawsuits challenging the practices of Visa
and MasterCard International.
In 2008, the Company, as a member
of the Visa
U.S.A. network, obtained Class B shares of Visa,
Inc. upon its initial public offering.
Since its initial public offering, Visa,
funded a litigation reserve for the Covered Litigation resulting in a reduction
in the Class B shares held by the Company.
first quarter of 2011, the Company sold its remaining
Class B shares.
Associated with this sale, the Company entered into a swap
contract with the purchaser of the shares that requires a payment to the
counterparty in the event that Visa, Inc.
revisions to the conversion ratio for its Class B shares.
Fixed charges included in the swap liability are payable quarterly
until the litigation reserve is fully liquidated and at which time the
aforementioned swap contract will be terminated.
Quarterly fixed payments approximate $
Conversion ratio payments and
ongoing fixed quarterly charges are reflected in earnings
in the period incurred.