OTHER COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ACTIVITIES

12 Months Ended

Dec. 31, 2012

OTHER COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ACTIVITIES

OTHER COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ACTIVITIES

17. OTHER COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ACTIVITIES

Credit Related Financial Instruments. 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. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the accompanying consolidated balance sheets.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument is represented by the contractual amount of these commitments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

A summary of financial instruments outstanding whose contract amounts represent credit risk is as follows at year-end:

(In thousands)	2012		2011
Commitments to originate new loans	$	50,218	$	26,184
Unused funds on commercial and other lines of credit	339,738		229,084
Unadvanced funds on home equity lines of credit	255,340		225,315
Unadvanced funds on construction and real estate loans	98,945		163,135
Standby letters of credit	28,339		32,622
Lease obligation	12,641		—
Total	$	785,221	$	676,340

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. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company considers standby letters of credit to be guarantees and the amount of the recorded liability related to such guarantees was not material at year-end 2012.

Operating Lease Commitments. Future minimum rental payments required under operating leases at year-end 2012 are as follows: 2013— $6.5 million; 2014 — $6.6 million; 2015 — $6.7 million; 2016 — $6.7 million; 2017 - $7.2 million and all years thereafter — $103.8 million. The leases contain options to extend for periods up to eighteen years. The cost of such rental options is not included above. Total rent expense for the years 2012, 2011, and 2010 amounted to $4.7 million, $3.2 million, and $3.2 million, respectively.

Lease Obligations. Future obligations required under the capital lease at year-end 2012 are $754 thousand in 2013; $753 thousand in 2014; $751 thousand in 2015; $715 thousand in 2016; $680 thousand in 2017; and $8.1 million all years thereafter.  Amortization under the capital lease is included with premises and equipment depreciation and amortization expense.

Future obligations required under the financing lease at year-end 2012 are $80 thousand in 2013; $80 thousand in 2014; $80 thousand in 2015; $80 thousand in 2016; $81 thousand in 2017; and $1.9 million all years thereafter.  Amortization under the financing lease is included with premises and equipment depreciation and amortization expense.

Employment and Change in Control Agreements. The Company and the Bank have entered into a three-year employment agreement with one senior executive.  The Company and the Bank also have change in control agreements with several officers which provide a severance payment in the event employment is terminated in conjunction with a defined change in control.

Legal Claims.Various legal claims arise from time to time in the normal course of business. In the opinion of management, claims outstanding at year-end 2012 will have no material effect on the Company’s financial statements.