COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.
Commitments to extend credit are agreements to lend to a client 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 total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. Collateral may or may not be required based on management’s credit evaluation of the customer. The majority of the Company’s commitments to extend credit and standby letters of credit are secured by real estate.
The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of 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 reflected in the consolidated financial statements.
The Company had the following outstanding financial commitments whose contractual amount represents potential credit risk at December 31:
| | | | | | | | | | | |
| (dollars in thousands) | 2025 | | 2024 |
| Commitments to extend credit | $ | 877,525 | | | $ | 925,076 | |
| Letters of credit issued to customers | 23,589 | | | 16,147 | |
| Commitments to contribute capital to other equity investments | 7,859 | | | 5,914 | |
| $ | 908,973 | | | $ | 947,137 | |
The Company entered into Supplemental Executive Retirement Plan (“SERP”) agreements to provide a 10-year benefit to certain key officers upon their retirement. Under these agreements, annual benefits range from $20 thousand to $75 thousand. In connection with the Merger, the Company assumed all SERP agreements from CALB, under the same terms and conditions, with the exception of the Chief Executive Officer whose maximum “targeted benefit amount” increased from 25% to 30% of the average of his three highest calendar years of base salary as part of his employment agreement with the Company. In connection with the retirement of the Company’s former CEO and the related Transition and Separation Agreement, $336 thousand benefits under the SERP were accelerated on December 31, 2025, resulting in a total SERP liability of $2.1 million.The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants. The expense incurred for these agreements in 2025 and 2024 was $1.3 million and $746 thousand, respectively. The Company is a beneficiary of life insurance policies that have been purchased as a method of financing the obligated benefits under these agreements.
In the normal course of business, the Company is named or threatened to be named as a defendant in various legal actions. The ultimate outcome with respect to these legal matters and claims cannot be determined. At this time, the Company believes that liability, if any, is not likely to be material to the consolidated balance sheets or consolidated statements of income.