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## NOTES TO FINANCIAL STATEMENTS 

## 10. COMMITMENTS AND CONTINGENCIES (Continued) 

## Operating Leases (Continued) 

Future minimum lease payments are as follows: 

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Rental expense included in occupancy and equipment expense totaled $419,030 and $408,276 for the years ended December 31, 2011 and 2010, respectively. 

## Financial Instruments with Off-Balance-Sheet Risk 

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. 

The following financial instruments represent off-balance-sheet credit risk: 

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The Bank’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for loans included on the balance sheet. 

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 payment of a fee. 

Since some of the commitments are expected to expire without being drawn upon, 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 obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, and deeds of trust on residential real estate and income-producing commercial properties. 

