COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Commitments and Guarantees

In the normal course of business, the Company enters into a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and to conduct lending activities, including commitments to extend credit and standby and commercial letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.

Contractual or Notional Amounts of Financial Instruments

(Dollar amounts in thousands)



	December 31,
	2013		2012
Commitments to extend credit:
Commercial and industrial	$	897,483	$	737,973
Commercial real estate	167,792		168,105
Construction	12,756		18,986
Home equity lines	270,230		258,156
Credit card lines	32,553		25,459
Overdraft protection program ⁽¹⁾	170,956		176,328
All other commitments	109,311		105,344
Total commitments	$	1,661,081	$	1,490,351
Letters of credit:
Commercial real estate	$	39,275	$	52,145
Construction	4,496		5,696
All other	66,682		57,996
Total letters of credit	$	110,453	$	115,837
Unamortized fees associated with letters of credit ⁽²⁾⁽³⁾	$	582	$	740
Remaining weighted-average term, in months	9.83		13.20
Remaining lives, in years	0.1 to 14.7		0.1 to 11.6
Recourse on assets sold:
Unpaid principal balance of assets sold	$	170,330	$	50,110
Carrying value of recourse obligation ⁽²⁾	162		55


⁽¹⁾	Federal regulations regarding electronic fund transfers require customers to affirmatively consent to the institution's overdraft service for automated teller machine and one-time debit card transactions before overdraft fees may be assessed on the account. Customers are provided a specific line for the amount they may overdraw.


⁽²⁾	Included in other liabilities in the Consolidated Statements of Financial Condition.


⁽³⁾	The Company is amortizing these amounts into income over the commitment period.

Commitments to extend credit are agreements to lend funds to a customer, subject to contractual terms and covenants. Commitments generally have fixed expiration dates or other termination clauses, variable interest rates, and fee requirements, when applicable. Since many of the commitments are expected to expire without being drawn, the total commitment amounts do not necessarily represent future cash flow requirements.

In the event of a customer's non-performance, the Company's credit loss exposure is equal to the contractual amount of the commitments. The credit risk is essentially the same as extending loans to customers. The Company uses the same credit policies for credit commitments as its loans and minimizes exposure to credit loss through various collateral requirements.

Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent on the failure of the customer to perform according to the terms of the contract with the third party and are often issued in favor of a municipality where construction is taking place to ensure the borrower adequately completes the construction.

The maximum potential future payments guaranteed by the Company under standby letters of credit arrangements are equal to the contractual amount of the commitment. If a commitment is funded, the Company may seek recourse through the liquidation of the underlying collateral, including real estate, production plants and property, marketable securities, or receipt of cash.

As a result of the sale of certain 1-4 family mortgage loans, the Company is contractually obligated to repurchase any non-performing loans or loans that do not meet underwriting requirements at recorded value. In accordance with the sales agreements, there is no limitation to the maximum potential future payments or expiration of the Company's recourse obligation. No loans were required to be repurchased during the years ended December 31, 2013 or 2012.

During 2012, the Company entered into two forward commitments with the FHLB to borrow $250 million for a five year period beginning in 2014 at a weighted average interest rate of 2.0%. The Company terminated these forward commitments during the third quarter of 2013, resulting in a gain of $7.8 million recorded as a component of noninterest income in the Consolidated Statement of Income.

Legal Proceedings

In 2011, the Bank was named in a purported class action lawsuit filed in the Circuit Court of Cook County, Illinois on behalf of certain of the Bank’s customers who incurred overdraft fees. The lawsuit was based on the Bank’s practices relating to debit card transactions, and alleged that these practices resulted in customers being assessed excessive overdraft fees. The plaintiffs sought an unspecified amount of damages and other relief, including restitution. No class was ever certified. The Bank filed a motion to dismiss the plaintiffs’ complaint and, on January 23, 2013, the Circuit Court entered an order granting the Bank’s motion and dismissed the complaint with prejudice. The plaintiffs appealed the Circuit Court’s ruling. The plaintiffs subsequently filed a motion to dismiss their appeal, and the Appellate Court of Illinois entered an order dismissing the appeal on January 21, 2014.

There are certain other legal proceedings pending or threatened against the Company and its subsidiaries. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management believes that any liabilities arising from pending legal matters are not expected to have a material adverse effect on the Company's financial position, results of operations, or cash flows.