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 letters of
The Company’s maximum
exposure to credit loss under standby letters of credit and
commitments to extend credit is represented by
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
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
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 cance
llable 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 outco
me of which would, individually or in the aggregate, have a material
on the consolidated results of operations, financial
position, or cash flows of the Company.
The Company is a member of the Visa
Visa U.S.A member banks
are required to
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
contract with the purchaser of the shares that requires
a payment to the counterparty in the event that Visa,
Inc. makes subsequent
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.