NOTE 10: COMMITMENTS AND CONTINGENCIES

Pledged Assets

The Company pledges securities to serve as collateral for its repurchase agreements. At December 31, 2014 and 2013, the Company had pledged mortgage-related securities held to maturity with a carrying value of $2.9 billion at both dates. The Company also had pledged other securities held to maturity with a carrying value of $1.7 billion at December 31, 2014 and a carrying value of $2.1 billion at the prior year end. In addition, at December 31, 2014 and 2013, the Company had pledged available-for-sale mortgage-related securities with carrying values of $11.4 million and $79.9 million, respectively.

Loan Commitments and Letters of Credit

At December 31, 2014 and 2013, the Company had commitments to originate loans, including unused lines of credit, of $2.6 billion and $2.1 billion, respectively. The majority of the outstanding loan commitments at December 31, 2014 and 2013 had adjustable interest rates, and were expected to close within 90 days.

The following table sets forth the Company’s off-balance sheet commitments relating to outstanding loan commitments and letters of credit at December 31, 2014:


(in thousands)
Mortgage Loan Commitments:
Multi-family and commercial real estate	$	1,018,223
One-to-four family		495,854
Acquisition, development, and construction		301,763

Total mortgage loan commitments	$	1,815,840
Other loan commitments		734,326

Total loan commitments	$	2,550,166
Commercial, performance stand-by, and financial stand-by letters of credit		200,983

Total commitments	$	2,751,149

Lease Commitments

At December 31, 2014, the Company was obligated under various non-cancelable operating lease and license agreements with renewal options on properties used primarily for branch operations. The Company currently expects to renew such agreements upon their expiration in the normal course of business. The agreements contain periodic escalation clauses that provide for increases in the annual rents, commencing at various times during the lives of the agreements, which are primarily based on increases in real estate taxes and cost-of-living indices.

The projected minimum annual rental commitments under these agreements, exclusive of taxes and other charges, are summarized as follows:


(in thousands)
2015	$	27,381
2016		26,511
2017		23,631
2018		18,729
2019 and thereafter		62,269

Total minimum future rentals	$	158,521

The rental expense under these leases is included in “Occupancy and equipment expense” in the Consolidated Statements of Income and Comprehensive Income, and amounted to $35.2 million, $33.7 million, and $32.5 million, respectively, in the years ended December 31, 2014, 2013, and 2012. Rental income on Company-owned properties, netted in occupancy and equipment expense, was approximately $3.6 million, $3.9 million, and $3.4 million in the corresponding periods. There was no minimum future rental income under non-cancelable sublease agreements at December 31, 2014.

Financial Guarantees

The Company provides guarantees and indemnifications to its customers to enable them to complete a variety of business transactions and to enhance their credit standings. These guarantees are recorded at their respective fair values in “Other liabilities” in the Consolidated Statements of Condition. The Company deems the fair value of the guarantees to equal the consideration received.

The following table summarizes the Company’s guarantees and indemnifications at December 31, 2014:


(in thousands)	Expires Within One Year		Expires After One Year		Total Outstanding Amount		Maximum Potential Amount of Future Payments
Financial stand-by letters of credit	$	28,144	$	21,827	$	49,971	$	112,022
Performance stand-by letters of credit		9,901		—		9,901		9,885
Commercial letters of credit		13,832		198		14,030		79,076

Total letters of credit	$	51,877	$	22,025	$	73,902	$	200,983

The maximum potential amount of future payments represents the notional amounts that could be funded under the guarantees and indemnifications if there were a total default by the guaranteed parties or if indemnification provisions were triggered, as applicable, without consideration of possible recoveries under recourse provisions, or from collateral held or pledged.

The Company collects a fee upon the issuance of letters of credit. These fees are initially recorded by the Company as a liability, and are recognized as income at the expiration date of the respective guarantees. In addition, the Company requires adequate collateral, typically in the form of real property or personal guarantees, upon its issuance of financial stand-by, performance stand-by, and commercial letters of credit. In the event that a borrower defaults, loans with recourse or indemnification obligate the Company to purchase loans that it has sold or otherwise transferred to a third party. Also outstanding at December 31, 2014 were $191,000 of bankers’ acceptances.

In October 2007, Visa U.S.A., a subsidiary of Visa Inc. (“Visa”) completed a reorganization in contemplation of its initial public offering, which was subsequently completed in March 2008. As part of that reorganization, the Community Bank and the former Synergy Bank, along with many other banks across the nation, received shares of common stock of Visa. In accordance with GAAP, the Company did not recognize any value for this common stock ownership interest.

Visa claims that all Visa U.S.A. member banks are obligated to share with it in losses stemming from certain litigation against it and certain other named member banks (the “Covered Litigation”). Visa continues to set aside amounts in an escrow account to fund any judgments or settlements that may arise from the Covered Litigation, and reduced the amount of shares allocated to the Visa U.S.A. member banks by amounts necessary to cover such liability. Nevertheless, Visa U.S.A. member banks were required to record a liability for the fair value of their related contingent obligation to Visa U.S.A., based on the percentage of their membership interest. The Company has a $423,000 liability based on its best estimate of the combined membership interest of the Community Bank and the former Synergy Bank with regard to both settled and pending litigation in which Visa is involved.

Derivative Financial Instruments

The Company uses various financial instruments, including derivatives, in connection with its strategies to mitigate or reduce price risk resulting from changes in interest rates. The Company’s derivative financial instruments consist of financial forward and futures contracts, interest rate lock commitments (“IRLCs”), swaps, and options, and relate to mortgage banking operations, MSRs, and other risk management activities. These instruments vary in scope based on the level and volatility of interest rates, the type of assets held, and other changing market conditions. Please see Note 15, “Derivative Financial Instruments” for further information about our use of derivative financial instruments.

Legal Proceedings

The Company is involved in various legal actions arising in the ordinary course of its business. All such actions, in the aggregate, involve amounts that are believed by management to be immaterial to the financial condition and results of operations of the Company.