Note 15. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

Leases

At December 31, 2012, the Company was obligated under certain non-cancelable leases with initial or remaining terms of one year or more. Minimum future obligations under non-cancelable leases in effect at December 31, 2012 are as follows:

	Minimum Future Lease Payments
(in thousands)	Facilities		Equipment		Total
2013	$	564	$	56	$	620
2014	485		31		516
2015	196		17		213
2016	161		—		161
2017	124		—		124
2018 and thereafter	541		—		541
Total	$	2,071	$	104	$	2,175

Total rental expense under leases amounted to $734 thousand, $725 thousand and $636 thousand in 2012, 2011 and 2010, respectively.

In January of 2013, the Company received approval from the OCC to relocate its Wilkes-Barre, Pennsylvania branch office. The relocation to the new site, which is less than one mile from the current site, is anticipated to occur by the end of the second quarter of 2013. The lease obligation associated with the current site expires in May 2013. On February 11, 2013, the Company entered into a 12-year lease agreement for the new location, which commences April 1, 2013. Minimum future obligations under this new non-cancelable lease are included in the above table.

Financial Instruments with off-balance sheet commitments

The Company 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 extend credit and standby letters of credit that involve varying degrees of credit, interest rate or liquidity risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.

Financial instruments whose contract amounts represent credit risk at December 31 are as follows:

	December 31,
(in thousands)	2012		2011
Commitments to extend credit	$	166,722	$	138,715
Standby letters of credit	35,277		36,286

Commitments to extend credit are agreements to lend to customers in accordance with contractual provisions. These commitments usually are for specific periods or contain termination clauses and may require the payment of a fee. The total amounts of unused commitments do not necessarily represent future cash requirements, in that commitments often expire without being drawn upon.

Letters of credit and financial guarantees are agreements whereby the Company guarantees the performance of a customer to a third party. Collateral may be required to support letters of credit in accordance with management’s evaluation of the creditworthiness of each customer. The credit exposure assumed in issuing letters of credit is essentially equal to that in other lending activities.

Federal Home Loan Bank — Mortgage Partnership Finance Program

Under a secondary market loan servicing program with the FHLB, the Company, in exchange for a monthly fee, provides a credit enhancement guarantee to the FHLB for foreclosure losses in excess of 1% of original loan principal sold to the FHLB. At December 31, 2012, the Company serviced payments on $13.5 million of first lien residential loan principal under these terms for the FHLB. At December 31, 2012, the maximum obligation for such guarantees by the Company would be approximately $1.5 million if total foreclosure losses on the entire pool of loans exceed approximately $77 thousand. Management believes the likelihood of a reimbursement for loss payable to the FHLB beyond the monthly credit enhancement fee is remote.

Concentrations of Credit Risk

Cash Concentrations: The Bank maintains cash balances at several correspondent banks. The Company did not maintain any due from bank accounts in excess of the $250 thousand limit covered by the Federal Deposit Insurance Corporation as of December 31, 2012 or 2011.

Loan Concentrations: The Company attempts to limit its exposure to concentrations of credit risk by diversifying its loan portfolio and closely monitoring any concentrations of credit risk. The commercial real estate and construction, land acquisition and development portfolios comprise $264.3 million, or 44.2% of gross loans at December 31, 2012. Geographic concentrations exist because the Company provides its services in its primary market area of Northeastern Pennsylvania and conducts limited activities outside of that area. The Company had commercial real estate and construction, land acquisition and development loans of $29.3 million, or 4.9%, of gross loans to customers outside of it primary market area.

At December 31, 2012 and 2011, the Bank’s loan portfolio was concentrated in loans in the following industries. At December 31, 2011, approximately ninety-seven percent of loans included in the Solid Waste Landfills were fully secured by cash collateral on deposit at the Bank. These loans were included in the aggregate of the $118.7 million of loans to related parties that were repaid during 2012.

	December 31, 2012			December 31, 2011
(in thousands)	Amount	% of gross loans		Amount	% of gross loans
Land subdivision	17,658	2.95	%	19,626	2.89	%
Shopping centers/complexes	21,068	3.52	%	18,722	2.76	%
Gas stations	5,245	0.88	%	17,118	2.52	%
Office complexes/units	9,801	1.64	%	16,091	2.37	%
Solid waste landfills	13,233	2.21	%	42,270	6.22	%
Hotels	13,596	2.27	%	13,771	2.03	%

Litigation

On May 24, 2012, a putative shareholder by the name of Lori Gray filed a complaint in the Court of Common Pleas in Lackawanna County against certain present and former directors of the Company (including all of the current directors except Steven R. Tokach and Thomas J. Melone) and Demetrius & Company, LLC (“Demetrius”) alleging, inter alia, breach of fiduciary duty, abuse of control, corporate waste, unjust enrichment and, in the case of Demetrius, professional negligence, negligent misrepresentation, breach of contract and aiding and abetting breach of fiduciary duty. The Company has been named as a nominal defendant. This matter is in a preliminary stage and the Company cannot determine the outcome or potential range of loss at this time.

On September 5, 2012, Fidelity and Deposit Company of Maryland (“F&D”) filed an action against the Company and its subsidiary, First National Community Bank, as well as several current and former officers and directors of the Company, in the United States District Court for the Middle District of Pennsylvania. F&D has asserted a claim for the rescission of a directors’ and officers’ insurance policy and a bond that it had issued to the Company. On November 9, 2012, the Company and the Bank answered the claim and asserted counterclaims. The Company and the other defendants are defending the claims, but the matter is in a very preliminary stage and the Company cannot reasonably determine the outcome or potential range of loss at this time.

The Company is also a party to routine litigation involving various aspects of its business, none of which, in the opinion of management and its legal counsel, is expected to have a material adverse impact on the consolidated financial condition, results of operations or liquidity of the Company.