COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2011

Note 8: COMMITMENTS AND CONTINGENCIES

Bancorp is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, provide funds under existing lines of credit, standby letters of credit and municipal warrants. Those instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheet. Bancorp uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments to originate loans, provide funds under existing lines of credit or to fund municipal warrants are agreements to lend to a customer as long as there is no violation of conditions established in the loan documents. Commitments generally have fixed expiration dates or other termination clauses. Total commitment amounts may not necessarily represent future cash-flow requirements. Standby letters of credit are conditional commitments issued by Bancorp to guarantee the performance of a customer to a third party. Commercial and standby letters of credit are granted primarily to commercial borrowers and are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Bancorp has not incurred any losses on its letter of credit commitments in 2011 or 2010.

The following is a summary of the off-balance-sheet financial instruments or contracts outstanding as of September 30, 2011: (dollars in thousands)

Unfunded commitments to extend credit	$	66,729
Credit card arrangements	$	11,369
Commitments to fund municipal warrants	$	4,427
Standby letters of credit	$	1,747

- Definition

The entire disclosure for commitments and contingencies.

+ References

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+ Details

Skagit State Bancorp, Inc. 10-Q