COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2014

COMMITMENTS AND CONTINGENT LIABILITIES [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

11. COMMITMENTS AND CONTINGENT LIABILITIES

The Bank 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 and documentary letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The Company was contingently liable under standby letters of credit in the amount of $17 million and $18 million at December 31, 2014 and 2013, respectively. The outstanding letters of credit as of December 31, 2014 expire as follows (in thousands):

2015	$	16,732
2016		500
Total	$	17,232

Amounts due under these letters of credit would be reduced by any proceeds that the Company would be able to obtain in liquidating the collateral for the loans, which varies depending on the customer. At December 31, 2014 and 2013, commitments to originate loans and commitments under unused lines of credit for which the Bank is obligated amounted to $180 million and $113 million, respectively.

The Bank is required to maintain balances with the FRB to satisfy reserve requirements. In addition, the FRB continues to offer higher interest rates on overnight deposits compared to correspondent banks. The average balance maintained at the FRB during 2014 was $320 million compared to $200 million in 2013.

At December 31, 2014, the Company was obligated under a number of non-cancelable leases for land and buildings used for bank purposes. Minimum annual rentals, exclusive of taxes and other charges under non-cancelable operating leases, are as follows (in thousands):

	Capital		Operating
	Leases		Leases
2015	$	317	$	1,742
2016		329		1,514
2017		341		1,372
2018		347		1,031
2019		354		879
Thereafter		4,706		1,285
Total minimum lease payments		6,394	$	7,823
Less: amounts representing interest		1,883
Present value of minimum lease payments	$	4,511

Total rental expense for the years ended December 31, 2014, 2013 and 2012 amounted to $1.1 million, $1.6 million and $1.3 million, respectively.

The Company and the Bank are subject to legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to such ordinary course matters will not materially affect future operations and will not have a material impact on the Company’s consolidated financial statements. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.