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 September 30, 2020, the Company was a defendant in a wrongful termination of employment lawsuit. On October 16, 2020, the Company reached a settlement agreement with the plaintiff. Under the terms of the agreement, the Company is not liable for any settlement payments.

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. In March 2020, the Company signed an agreement to extend the Fresno office lease for two additional years to March 31, 2022. 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. Right-of-use assets included in Other Assets were $478 thousand and $536 thousand at September 30, 2020 and December 31, 2019, respectively. Lease liabilities included in Other Liabilities were $490 thousand and $545 thousand at September 30, 2020 and December 31, 2019, respectively.

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


	For the
	Three months ended						Nine months ended						Year ended
	September 30,						September 30,						December 31,
	2020			2019			2020			2019			2019
Lease cost
Operating lease cost	$	44		$	43		$	131		$	130		$	174
Other information
Cash paid for operating leases		43			41			127			123			164
Right-of-use assets obtained in exchange for operating lease liabilities		—			—			53			680			680
Weighted average remaining lease term (in years)		2.79			4.17			2.79			4.17			3.96
Weighted-average discount rate		4.60	%		4.77	%		4.60	%		4.77	%		4.77	%

Future minimum lease payments and lease costs for the twelve months ending September 30, are as follows (dollars in thousands):



	Lease Payments		Lease Costs
2021	$	172	$	174
2022		163		160
2023		154		146
2024		39		37
Total	$	528	$	517

Contract Amount at:

September 30,
2020

December 31,
2019

Undisbursed loans