Note 12. Commitments and Contingencies

Unfunded Commitments

The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include un-advanced lines of credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The contractual amount of these commitments represents the Company’s exposure to credit loss. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

The table below shows the outstanding financial instruments whose contract amounts represent credit risk (dollars in thousands):

Undisbursed loans are commitments for possible future extensions of credit to existing customers. These loans are sometimes unsecured and the borrower may not necessarily draw upon the line the total amount of the commitment. Commitments to extend credit are generally at variable rates.

Contingencies

In the normal course of business, the Company may become involved in various legal proceedings. As of December 31, 2019, the Company is a defendant in a wrongful termination of employment lawsuit. The Company is contesting the claim and at December 31, 2019, the Company’s liabilities include an accrual of $30 thousand for litigation-related expenses incurred in connection with this claim. Although the Company believes that it will prevail on the merits, the litigation could have a lengthy process, and the ultimate outcome cannot be predicted.

Operating Leases

The Company has lease agreements for its offices in Brea and Fresno, California. The Company renewed its Brea office lease in January 2019 for an additional five-year term. The lease does not contain any additional options to renew. The Fresno office lease expires in 2020. There are no options to renew in the lease agreement; however, the Company has entered into discussions with the lessor on a new lease agreement. The Company has determined that both leases are operating leases.

Beginning on January 1, 2019, the Company has recorded right-of-use assets and lease liabilities in accordance with ASU 2016-02. The Company has elected not to reassess expired or existing leases for changes in classification. The Company has elected not to use hindsight to determine the term of existing leases and is using the term of the current lease agreements in its right-of-use asset calculations. As the interest rates implicit in the leases were not readily available, the Company used its incremental borrowing rates to determine the discount rates used in the asset calculations.

The table below presents information regarding our existing operating leases (dollars in thousands):



	For the Year Ended
	2019			2018
Lease cost
Operating lease cost	$	174		$	143
Other information
Cash paid for operating leases		164			149
Right-of-use assets obtained in exchange for operating lease liabilities		680			—
Weighted average remaining lease term (in years)		3.96			1.25
Weighted-average discount rate		4.77	%		—	%

Future minimum lease payments and lease costs for the twelve months ending December 31 are as follows (dollars in thousands):



	Lease Payments		Lease Costs
2020	$	149	$	153
2021		146		146
2022		150		146
2023		155		146
2024		—		—
Total	$	600	$	591

Contract Amount at:

December 31, 2019

December 31, 2018

Undisbursed loans