COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2015

COMMITMENTS AND CONTINGENCIES [Abstract]

13. COMMITMENTS AND CONTINGENCIES

The Company, in the ordinary course of business, is a party to litigation arising from the conduct of its business. Management does not consider that these actions depart from routine legal proceedings and believes that such actions will not affect its financial position or results of its operations in any material manner. There are various outstanding commitments and contingencies, such as guarantees and credit extensions, including mostly variable-rate loan commitments of $282.1 million and $223.0 million at December 31, 2015 and 2014, respectively, which are not included in the accompanying consolidated financial statements. These commitments include unused commercial and home equity lines of credit.

The Company issues financial standby letters of credit that are irrevocable undertakings by the Company to guarantee payment of a specified financial obligation. Most of the Company's financial standby letters of credit arise in connection with lending relations and have terms of one year or less. The maximum potential future payments the Company could be required to make equals the contract amount of the standby letters of credit and amounted to $10.4 million and $3.2 million at December 31, 2015 and 2014, respectively. The fair value of the Company's liability for financial standby letters of credit was insignificant at December 31, 2015.

For commitments to originate loans, the Company's maximum exposure to credit risk is represented by the contractual amount of those instruments. Those commitments represent ultimate exposure to credit risk only to the extent that they are subsequently drawn upon by customers. The Company uses the same credit policies and underwriting standards in making loan commitments as it does for on-balance-sheet instruments. For loan commitments, the Company would generally be exposed to interest rate risk from the time a commitment is issued with a defined contractual interest rate.

At December 31, 2015, the Company was obligated under non-cancelable operating leases for certain premises. Rental expense aggregated $2.6 million, $2.5 million and $2.5 million for the years ended December 31, 2015, 2014 and 2013 respectively, which is included in premises and equipment expense in the consolidated statements of income.

The minimum annual lease payments under the terms of the operating lease agreements, as of December 31, 2015, were as follows:

(In thousands)
2016	$	2,024
2017		1,616
2018		1,460
2019		1,143
2020		1,133
Thereafter		2,946
Total	$	10,322

The Company is also obligated under legally binding and enforceable agreements to purchase goods and services from third parties, including data processing service agreements.