NOTE 11 — Commitments and Contingencies

Legal Matters

In the normal course of business, the Company may be involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s consolidated financial statements. No legal proceedings existed at December 31, 2021 that would have a material adverse effect on the Company’s consolidated financial statements.

Credit Commitments and Contingencies

The Company is party to financial instruments with

off-balance-sheet

risk in the normal course of business to meet the financing needs of its customers. These instruments include commitments to extend credit and commitments to sell loans. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for

on-balance-

sheet instruments. Since some of the commitments are expected to expire without being drawn upon, and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements of the Company.

The contract amounts of credit-related financial instruments at December 31, 2021 and 2020 are summarized below:


	December 31, 2021
	Fixed Rate		Variable Rate		Total
Commitments to extend credit	$	21,586	$	56,921	$	78,507
Standby letters of credit		—		175		175
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program		1,214		—		1,214
Commitments to sell loans		5,410		—		5,410
Overdraft protection program commitments		3,993		—		3,993


	December 31, 2020
	Fixed Rate		Variable Rate		Total
Commitments to extend credit	$	12,084	$	41,778	$	53,862
Standby letters of credit		23		2,150		2,173
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program		1,087		—		1,087
Commitments to sell loans		53,847		—		53,847
Overdraft protection program commitments		4,104		—		4,104

Commitments to extend credit are agreements to lend to a customer at fixed or variable rates, 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. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; real estate; and stocks and bonds. Commitments to sell loans represent commitments obtained by the Company from a secondary market agency to purchase mortgages from the Company at specified interest rates and within specified periods of time.

Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all standby letters of credit have expiration dates within one year. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting these commitments. Standby letters of credit are not reflected in the consolidated financial statements, since recording the fair value of these guarantees would not have a significant impact on the consolidated financial statements.

The Company participates in the FHLB Mortgage Partnership Finance Program (the “Program”). In addition to entering into forward commitments to sell mortgage loans to a secondary market agency, the Company enters into firm commitments to deliver loans to the FHLB through the Program. Under the Program, loans are funded by the FHLB, and the Company receives an agency fee reported as a component of gain on sale of loans. The Company had $2.2 million of commitments to deliver loans through the Program as of December 31, 2021. Once delivered to the Program, the Company provides a contractually agreed-upon credit enhancement and performs servicing of the loans. Under the credit enhancement, the Company is liable for losses on loans delivered to the Program after application of any mortgage insurance and a contractually agreed-upon credit enhancement provided by the Program subject to an agreed-upon maximum. The Company receives a fee for this credit enhancement. The Company records a liability for expected losses in excess of anticipated credit enhancement fees. As of December 31, 2021, and 2020, the Company had no liability outstanding.

Unfunded commitments under overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit may or may not require collateral and may or may not contain a specific maturity date.

Lease Commitments

At December 31, 2021, the Company was obligated under noncancelable operating leases for office space or other commitments. Rent expense under operating leases, included in net occupancy and equipment expense, was $83 and $93 for the years ended December 31, 2021 and 2020, respectively.

Rent commitments before considering renewal options that generally are present, were as follows at December 31, 2021:


2022	$	85
2023		87
2024		15
Thereafter		—

Total	$	187