Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

The Corporation 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 and to manage the Corporation’s exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, forward loan commitments, loan-related derivative contracts and interest rate risk management contracts. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Corporation’s Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation’s credit policies with respect to interest rate swap agreements with commercial borrowers, commitments to extend credit and financial guarantees are similar to those used for loans. The interest rate swaps with other counterparties are generally subject to bilateral collateralization terms.

The following table presents the contractual and notional amounts of financial instruments with off-balance sheet risk:



(Dollars in thousands)	Mar 31, 2017		Dec 31, 2016
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Commercial loans		$480,502		$430,710
Home equity lines	240,973		232,375
Other loans	50,708		49,708
Standby letters of credit	7,084		6,250
Financial instruments whose notional amounts exceed the amount of credit risk:
Forward loan commitments:
Interest rate lock commitments	63,152		49,502
Commitments to sell mortgage loans	88,075		78,896
Loan related derivative contracts:
Interest rate swaps with customers	440,175		428,723
Mirror swaps with counterparties	440,175		428,723
Risk participation-in agreements	28,418		28,460
Interest rate risk management contracts:
Interest rate swaps	60,000		60,000

See Note 9 for additional disclosure pertaining to derivative financial instruments.

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. Each borrower’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the borrower.

Standby Letters of Credit

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support the financing needs of the Bank’s commercial customers. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The collateral supporting those commitments is essentially the same as for other commitments. Generally, standby letters of credit have a term of up to 1 year. As of March 31, 2017 and December 31, 2016, the maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $7.1 million and $6.3 million, respectively. At March 31, 2017 and December 31, 2016, there were no liabilities to beneficiaries resulting from standby letters of credit. Fee income on standby letters of credit was insignificant for the three months ended March 31, 2017 and 2016.

Forward Loan Commitments

Interest rate lock commitments are extended to borrowers and relate to the origination of residential real estate mortgage loans held for sale. To mitigate the interest rate risk inherent in these rate locks, as well as closed residential real estate mortgage loans held for sale, forward commitments are established to sell individual residential real estate mortgage loans. Both interest rate lock commitments and commitments to sell residential real estate mortgage loans are derivative financial instruments.

Leases

At March 31, 2017, the Corporation was committed to rent premises used in banking operations under non-cancellable operating leases. Rental expense under the operating leases amounted to $1.1 million for the three months ended March 31, 2017, compared to $973 thousand for the same period in 2016. The following table presents the minimum annual lease payments under the terms of these leases, exclusive of renewal provisions:




(Dollars in thousands)
April 1, 2017 to December 31, 2017		$2,650
2018	3,216
2019	2,910
2020	2,230
2021	1,933
2022 and thereafter	24,911
Total minimum lease payments		$37,850

Lease expiration dates range from 1 month to 24 years, with additional renewal options on certain leases ranging from 6 months to 5 years.