Commitments and Contingent Liabilities

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingent Liabilities

5. COMMITMENTS AND CONTINGENT LIABILITIES

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans included on the balance sheet.

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. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, and deeds of trust on residential real estate and income-producing commercial properties.

At March 31, 2020 and December 31, 2019, the Company had outstanding commitments for loans of approximately $343.0 million and $390.0 million, respectively. Unfunded loan commitment reserves totaled $185,000 and $185,000 at March 31, 2020 and December 31, 2019, respectively.

Operating Leases

The Company leases various office premises under long-term operating lease agreements. These leases expire between 2020 and 2027, with certain leases containing either three, five, or seven year renewal options.

The following table reflects the quantitative information for the Company’s leases.

(Dollars in thousands)	March 31, 2020
Operating lease cost (cost resulting form lease payments)	$	621
Operating lease – operating cash flows (fixed payments)	$	491
Operating lease – ROU assets	$	9,867
Operating lease – liabilities	$	12,119
Weighted average lease term – operating leases		4.8 years
Weighted average discount rate – operating leases		2.58	%

The following table reflects the minimum commitments under these non-cancellable leases, before considering renewal options, as of March 31, 2020.

(Dollars in thousands)	March 31, 2020
2020	$	1,914
2021		2,431
2022		2,441
2023		1,497
2024		1,456
Thereafter		3,291
Total undiscounted cash flows		13,030
Discount on cash flows		(911	)
Total lease liability	$	12,119

Rent expense included in premises and equipment expense totaled $622,000 and $389,000 for the three months ended March 31, 2020 and 2019, respectively.

Contingencies

The Company may be subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Company.

For additional information regarding the impact of COVID-19, see footnote 7

Correspondent Banking Agreements

The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Insured financial institution deposits up to $250,000 are fully insured by the FDIC under the FDIC’s general deposit insurance rules.

At March 31, 2020, uninsured deposits at financial institutions were approximately $4.6 million. At December 31, 2019, uninsured deposits at financial institutions were approximately $4.0 million.