NOTE 13 - COMMITMENTS AND CONTINGENCIES Commitments - 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 financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the Consolidated Balance Sheets. The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The following table provides a summary of the Companys commitments at December 31, 2019 and 2018: December 31, December 31, 2019 2018 COMMITMENTS TO EXTEND CREDIT REAL ESTATE LOANS Commercial $ 247 $ 5,836 Construction and development 95,031 76,889 One-to-four-family (includes locks for salable loans) 39,697 35,714 Home equity 47,880 41,204 Multi-family 622 515 Total real estate loans 183,477 160,158 CONSUMER LOANS 22,176 18,560 COMMERCIAL BUSINESS LOANS Commercial and industrial 72,731 72,880 Warehouse lending 33,888 44,243 Total commercial business loans 106,619 117,123 Total commitments to extend credit $ 312,272 $ 295,841 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. Since many of the commitments are expected to expire without being drawn upon, the amount of the total commitments do not necessarily represent future cash requirements. The Company evaluates each customers 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 managements credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties. Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may not be drawn upon to the total extent to which the Company is committed. The Company has established reserves for estimated losses from unfunded commitments of $293,000 and $299,000 at December 31, 2019 and 2018, respectively. One-to-four-family commitments included in the table above are accounted for as fair value derivatives and do not carry an associated holdback. The Company also sells one-to-four-family loans to the FHLB of Des Moines that require a limited level of recourse if the loans default and exceed a certain loss exposure. Specific to that recourse, the FHLB of Des Moines established a first loss account (FLA) related to the loans and required a credit enhancement (CE) obligation by the Bank to be utilized after the FLA is used. Based on loans sold through December 31, 2019, the total loans sold to the FHLB were $66.4 million with the FLA being $938,000 and the CE obligation at $811,000 or 1.2% of the loans outstanding. Management has established a holdback of 10% of the outstanding CE obligation, or $272,000, which is a part of the off-balance sheet holdback for loans sold. There were no outstanding delinquencies on the loans sold to the FHLB of Des Moines at December 31, 2019 and December 31, 2018. Contingent liabilities for loans held for sale - In the ordinary course of business, loans are sold with limited recourse against the Company and may have to subsequently be repurchased due to defects that occurred during the origination of the loan. The defects are categorized as documentation errors, underwriting errors, early payoff, early payment defaults, breach of representation or warranty, servicing errors, and/or fraud. When a loan sold to an investor without recourse fails to perform according to its contractual terms, the investor will typically review the loan file to determine whether defects in the origination process occurred. If a defect is identified, the Company may be required to either repurchase the loan or indemnify the investor for losses sustained. If there are no such defects, the Company has no commitment to repurchase the loan. The Company has recorded a holdback reserve of $1.2 million and $1.0 million to cover loss exposure related to these guarantees for one-to-four-family loans sold into the secondary market at December 31, 2019 and 2018, respectively, which is included in other liabilities in the Consolidated Balance Sheets. The Company has entered into a severance agreement with its Chief Executive Officer (CEO). The severance agreement, subject to certain requirements, generally includes a lump sum payment to the CEO equal to 24 months of base compensation in the event their employment is involuntarily terminated, other than for cause or the executive terminates his employment with good reason, as defined in the severance agreement. The Company has entered into change of control agreements with its Chief Financial Officer/Chief Operating Officer, Chief Lending Officer, Chief Credit Officer, Chief Risk Officer, Chief Human Resources Officer, Senior Vice President Compliance Officer, Executive Vice President of Retail Banking and Marketing, and the Executive Vice President of Home Lending. The change of control agreements, subject to certain requirements, generally remain in effect until canceled by either party upon at least 24 months prior written notice. Under the change of control agreements, the executive generally will be entitled to a change of control payment from the Company if the executive is involuntarily terminated within six months preceding or 12 months after a change in control (as defined in the change of control agreements). In such an event, the executives would each be entitled to receive a cash payment in an amount equal to 12 months of their then current salary, subject to certain requirements in the change of control agreements. The Bank received 7,158 shares of Class B common stock in Visa, Inc. at no cost as a result of the Visa initial public offering (IPO) in March 2008. These Class B shares of stock held by the Bank could be converted to Class A shares at a conversion rate of 1.6228 (reduced from a conversion rate of 1.6298 previously reported), when all litigation pending as of the date of the IPO is concluded. At December 31, 2019, the date that litigation will be concluded cannot be determined. Until such time, the stock cannot be redeemed and the sale of Class B shares is restricted. These shares are considered an equity security without a readily determinable market value and the Banks current carrying value is $0. Visa, Inc. Class A stocks market value at December 31, 2019 and December 31, 2018 was $187.90 per share and $131.94 per share, respectively. As a result of the nature of our activities, the Company is subject to various pending and threatened legal actions, which arise in the ordinary course of business. From time to time, subordination liens may create litigation which requires us to defend our lien rights. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on our financial position. The Company had no material pending legal actions at December 31, 2019.