9. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

The Bank, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Bank pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case by case basis in accordance with the Bank’s credit policies. Collateral from the customer may be required based on the Bank’s credit evaluation of the customer and may include business assets of commercial customers, as well as personal property and real estate of individual customers or guarantors.

The Bank also extends binding commitments to customers and prospective customers. Such commitments assure a borrower of financing for a specified period of time at a specified rate. Additionally, the Bank makes binding purchase commitments to third party loan correspondent originators. These commitments assure that the Bank will purchase a loan from such correspondent originators at a specific price for a specific period of time. The risk to the Bank under such loan commitments is limited by the terms of the contracts. For example, the Bank may not be obligated to advance funds if the customer’s financial condition deteriorates or if the customer fails to meet specific covenants.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Bank’s customer(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Bank’s customer. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding.

The table below presents the Bank’s commitments, exclusive of Mortgage Banking loan commitments for each year ended:

(in thousands)	June 30, 2014		December 31, 2013

Unused warehouse lines of credit	$	150,368	$	208,424
Unused home equity lines of credit	233,511		230,361
Unused loan commitments - other	235,465		178,776
Commitments to purchase loans	50,578		—
Standby letters of credit	12,757		2,308
FHLB letters of credit	3,750		3,200
Total commitments	$	686,429	$	623,069

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Bank also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Bank does not deem this risk to be material.

At June 30, 2014 and December 31, 2013, the Bank had letters of credit from the FHLB issued on behalf of a RB&T client. This letter of credit was used as a credit enhancement for client bond offerings and reduced RB&T’s available borrowing line at the FHLB. The Bank uses a blanket pledge of eligible real estate loans to secure these letters of credit.

Legal Proceedings

As previously disclosed, on August 1, 2011, a lawsuit was filed in the U.S. District Court for the Western District of Kentucky styled Brenda Webb vs. Republic Bank & Trust Company d/b/a Republic Bank, Civil Action No. 3:11-CV-00423-TBR. The Complaint was brought as a putative class action and sought monetary damages, restitution and declaratory relief allegedly arising from the manner in which RB&T assessed overdraft fees. To update the disclosure set forth in Republic’s Form 10-K for the year ended December 31, 2013: during March 2014, the parties signed a Settlement Agreement that provided for the dismissal of the lawsuit. In April 2014, the Court entered an agreed order dismissing the case. Costs to settle the litigation were accrued by the Company during the first quarter of 2014 and paid during the second quarter of 2014. Such costs did not have a material effect on the Company’s financial position or results of operations.