NOTE

– FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK

In the normal course of business, the Bank has outstanding commitments to extend credit and standby letters of credit, which are

not

included in the accompanying consolidated financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for instruments that are included in the consolidated balance sheets.

Financial instruments whose contract amounts represent off-balance-sheet credit risk are as follows as of

March 31, 2020

and

December 31, 2019:

	March 31,		December 31,
	2020		2019

Commitments to extend credit	$	22,617,514	$	25,739,246
Unused lines of credit		16,182,394		17,765,580
Totals	$	38,799,908	$	43,504,826

There were

commitments to originate and sell mortgage loans at

March 31, 2020

due to the Company exiting mortgage banking operations, see Note

– Discontinued Operations.

Commitments to extend credit are agreements to lend to a customer as long as there is

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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do

not

necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies by and

may

include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

The Company enters into leases in the normal course of business primarily for branch facilities or loan production offices. The leases have remaining terms ranging from

one

three

years, some of which include renewal options to extend the lease and options to terminate the lease. In addition, the Company has entered into subleases for space in certain vacated mortgage loan production offices, the terms of which range from

one

two

years. The Company’s leases and subleases do

not

include residual value guarantees or covenants. The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. The Company has elected

not

to recognize leases with original least terms of

months or less (short-term leases) on the balance sheet. Leases are recognized as operating or financing leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities are recognized at lease commencement date based upon the estimated present value of lease payments over the lease term. The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is

not

known. The discount rates used to calculate the present value of lease liabilities were based upon the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the later of the date we adopted the new lease accounting standard or lease commencement date. At

March 31, 2020

the balance sheet included

$1.1

million operating lease right-of-use assets and

$1.2

million operating lease liabilities.

The following table shows the future minimum lease payments, weighted average remaining lease terms and weighted average discount rates under operating lease arrangements as of

March 31, 2020.

	March 31, 2020
Year	Operating Leases

2020	$	399,613
2021		507,522
2022		370,816
Total minimum lease payments		1,277,951
Amounts representing interest (present value discount)		(33,764	)
Operating lease liabilities (present value of minimum lease payments)	$	1,244,187