Note

–

Off Balance Sheet Risks, Commitments, and Contingent Liabilities

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. The financial instruments 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 Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client

may

be required based on the Company’s credit evaluation of the client and

may

include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(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 Company’s client. 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. Commitments to make loans are generally made for periods of

one

year or less.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client 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 Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does

not

deem this risk to be material.

liability is currently established for standby letters of credit.

The following table presents the contractual amounts of financial instruments with off-balance sheet risk for each period ended:

	March 31, 20 20				December 31, 201 9
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(in thousands)
Commitments to make loans	$	12,403	$	26,290	$	11,577	$	20,415
Unused lines of credit		8,684		96,982		7,916		111,230
Standby letters of credit		531		1,336		531		3,164

Commitments to make loans are generally made for periods of

one

year or less.

In connection with the purchase of loan participations, the Bank entered into risk participation agreements, which had notional amounts totaling

$26.6

million at

March 31, 2020

and

December 31, 2019.

The risk participation agreements are

not

designated against specific assets or liabilities under ASC

815,

Derivatives and Hedging, and, therefore, do

not

qualify for hedge accounting. The derivatives are recorded in other liabilities on the balance sheet at fair value and changes in fair value of both the borrower and the offsetting swap agreements are recorded (and essentially offset) in non-interest income.

In the normal course of business, the Company and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions

may

include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.

The Company contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will

not

have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such matters could be material to the Company’s operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s revenues or income for such period. The Company will accrue for a loss contingency if (

) it is probable that a future event will occur and confirm the loss and (

) the amount of the loss can be reasonably estimated. The Company is

not

currently involved in any material litigation.