12. Commitments, Contingencies and Concentrations of Risk

Legal Proceedings — In February 2004, the Bank was named as a defendant in a class action lawsuit entitled “James Baker v. Century Financial, et al,” which alleged violations of the Missouri Second Mortgage Loan Act (the “MSMLA”) by the Bank’s predecessor, Life Bank. The lawsuit alleged that Missouri homeowners were charged closing costs and related fees exceeding the amount permitted by the MSMLA. While Life Bank did not originate these mortgages, it did ultimately own and service them for a period of time, which plaintiffs allege creates potential liability under the MSMLA. The class action lawsuit was filed in the Circuit Court of Clay County, Missouri in 2000. The lawsuit seeks restitution of all improperly-charged closing fees and costs, prejudgment interest on improperly-charged closing fees and costs, restitution of all interest payments made by the homeowners, prejudgment interest on all interest paid by the homeowners, attorney’s fees, and punitive damages. In March 2005, the Bank’s motion to dismiss based on statute of limitations arguments was denied by the trial court without a written opinion. In August 2006, the Bank’s “preemption” motion — claiming that federal law preempted and superseded the MSMLA as to these loans — was also denied without a written opinion. The Bank answered plaintiffs’ complaint, and the parties have exchanged and answered discovery requests.

After a lengthy period of inactivity, the Bank was contacted by plaintiffs’ counsel to schedule depositions and discovery, and prepare the case to go to trial in 2015. The Board of Directors of the Company determined to establish a $1.7 million reserve related to the lawsuit during the fourth quarter of 2014, which the Board of Directors believes to be a reasonable estimate of the Company’s exposure as of December 31, 2014.

The Company is not involved in any other material pending legal proceedings other than legal proceedings occurring in the ordinary course of business. Management believes that none of these legal proceedings, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Company.

Lease Commitments — The Company leases a portion of its facilities from non-affiliates under operating leases expiring at various dates through 2023. The following schedule shows the minimum annual lease payments, excluding any renewals and extensions, property taxes, and other operating expenses, due under these agreements:

	Year ending December 31,
	(in thousands)
2015	$	3,023
2016	2,694
2017	2,395
2018	1,873
2019	1,735
Thereafter	736
Total	$	12,456

Rental expense under all operating leases totaled $2.8 million for 2014, $2.4 million for 2013, and $1.2 million for 2012.

Share-Based Compensation — The following table provides a summary of the expenses the Company has recognized related to share-based compensation awards. The table below also shows the impact those expenses have had on diluted earnings per share and the remaining expense associated with those awards for the years ended December 31:

	2014		2013		2012
	(in thousands, except per share data)
Share-based compensation expense:
Stock option expense	$	514	$	943	$	177
Total share-based compensation expense	514		943		177
Total share-based compensation expense, net of tax	$	312	$	582	$	108

Diluted shares outstanding	17,343,977		16,609,954		10,984,034
Impact on diluted earnings per share	$	0.018	$	0.035	$	0.010

Employment Agreements—The Company has entered into a three-year employment agreement with its Chief Executive Officer (“CEO”). This agreement provides for the payment of a base salary and a bonus based upon the CEO’s individual performance and the Company’s overall performance, provides a vehicle for the CEO’s use, and provides for the payment of severance benefits upon termination under specified circumstances. Additionally, the Bank has entered into three-year employment agreements with the following executive officers: Chief Banking Officer, the Chief Financial Officer and the Chief Credit Officer. The agreements provide for the payment of a base salary, a bonus based upon the individual’s performance and the overall performance of the Bank and the payment of severance benefits upon termination under specified circumstances.

Availability of Funding Sources—The Company funds substantially all of the loans, which it originates or purchases, through deposits, internally generated funds, and/or borrowings. The Company competes for deposits primarily on the basis of rates, and, as a consequence, the Company could experience difficulties in attracting deposits to fund its operations if the Company does not continue to offer deposit rates at levels that are competitive with other financial institutions. To the extent that the Company is not able to maintain its currently available funding sources or to access new funding sources, it would have to curtail its loan production activities or sell loans and investment securities earlier than is optimal. Any such event could have a material adverse effect on the Company’s results of operations, financial condition and cash flows.