Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

We make commitments to extend credit in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because various commitments will expire without being fully drawn, the total commitment amount does not necessarily represent future cash requirements.

Our credit loss exposure is equal to the contractual amount of the commitment in the event of nonperformance by the borrower. We use the same credit underwriting criteria for all credit exposure. The amount of collateral obtained, if deemed necessary by us, is based on Management's credit evaluation of the borrower. Collateral types pledged may include accounts receivable, inventory, other personal property and real property.

The contractual amount of undrawn loan commitments and standby letters of credit not reflected in the consolidated statements of condition are as follows:



(in thousands)	June 30, 2018		December 31, 2017
Commercial lines of credit	$	222,547	$	224,370
Revolving home equity lines	186,652		177,678
Undisbursed construction loans	34,336		35,322
Personal and other lines of credit	12,408		11,758
Standby letters of credit	2,207		4,074
Total commitments and standby letters of credit	$	458,150	$	453,202

We record an allowance for losses on these off-balance sheet commitments based on an estimate of probabilities of the utilization of these commitments according to our historical experience on different types of commitments and expected loss. The allowance for losses on off-balance sheet commitments totaled $958 thousand as of June 30, 2018 and December 31, 2017, which is recorded in interest payable and other liabilities in the consolidated statements of condition.

Operating Leases

We rent certain premises under long-term, non-cancelable operating leases expiring at various dates through the year 2032. Most of the leases contain certain renewal options and escalation clauses. At June 30, 2018, the approximate minimum future commitments payable under non-cancelable contracts for leased premises are as follows:



(in thousands)	2018		2019		2020		2021		2022		Thereafter		Total
Operating leases	$	2,209	$	4,198	$	3,758	$	2,138	$	1,330	$	2,904	$	16,537

Rent expense included in occupancy expense totaled $1.2 million and $1.0 million for the three months ended June 30, 2018 and 2017, respectively. Rent expense totaled $2.3 million and $2.0 million for the six months ended June 30, 2018 and 2017, respectively.

Litigation Matters

We may be party to legal actions that arise from time to time during the normal course of business. We believe, after consultation with legal counsel, that litigation contingent liability, if any, would not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

The Bank is responsible for a proportionate share of certain litigation indemnifications provided to Visa U.S.A. ("Visa") by its member banks in connection with lawsuits related to anti-trust charges and interchange fees ("Covered Litigation"). The outcome of the Covered Litigation affects the conversion rate of Visa Class B common stock held by us to Visa Class A common stock, as discussed in Note 4, Investment Securities. The conversion rate may decrease if Visa makes more Covered Litigation settlement payments in the future, and the full effect on member banks is still uncertain. Presently, we are not aware of any significant future cash settlement payments required by the Bank on the Covered Litigation.

In 2012, Visa had reached a $4.0 billion interchange multidistrict litigation class settlement agreement for which it maintains an escrow account to be used for settlements or judgments in the Covered Litigation. Based on progress in recent settlement discussions in the U.S. interchange multi-district litigation, Visa recorded a $600 million litigation provision in the quarter ended June 30, 2018 and on June 28, Visa deposited an additional $600 million into the litigation escrow under the terms of the U.S. retrospective responsibility plan. Funding of the escrow triggers a conversion rate reduction of the Class B common stock to shares of Class A common stock. At June 30, 2018, according to Visa's Form 10-Q filed on July 27, 2018, the escrow account balance was $1.5 billion. As of the date of Visa's filing, it had reached settlement agreements with individual merchants representing 51% of the Visa-branded payment card sales volume of merchants who opted out of the 2012 settlement agreement. Litigation is ongoing and until the appeal process is complete, Visa is uncertain whether it will resolve the claims as contemplated by the settlement agreement and additional lawsuits may arise.