COMMITMENTS AND CONTINGENCIES
Commitments to extend credit represent agreements to lend to customers that generally have fixed expiration dates or other termination clauses. At December 31, 2025 and December 31, 2024, commitments to extend credit totaled $771.7 million and $833.6 million, respectively. These commitments primarily consist of lines of credit provided to customers to finance the
completion of construction projects, as well as revolving lines of credit to operating companies to support working capital needs. Construction related lines of credit represented $452.8 million, or 58.7%, of total commitments to extend credit at December 31, 2025, compared to $445.3 million, or 53.4%, at December 31, 2024.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Those guarantees are primarily issued to support public and private borrowing arrangements. Outstanding standby letters of credit totaled $16.5 million at December 31, 2025 and $16.7 million at December 31, 2024.
The Company’s exposure to credit loss for commitments to extend credit and standby letters of credit in the event of nonperformance by the counterparty is represented by the contractual amounts of these instruments. The Company applies the same credit policies and underwriting standards to these commitments as it does to on-balance sheet credit exposures. Unless noted otherwise, commitments that expose the Company to credit risk are supported by collateral or other security.
Life-of-Loss Reserve on Unfunded Loan Commitments
The Company maintains a life-of-loss reserve on unfunded commercial lending commitments and standby letters of credit to provide for the risk of loss inherent in these arrangements. The reserve is calculated using a methodology similar to that used to determine the ACL on loans, adjusted to reflect the probability of drawdown on the unfunded commitment. The reserve for unfunded loan commitments is included on the Consolidated Balance Sheets, with changes recognized through earnings in the (recovery) provision for unfunded commitments.
The reserve for unfunded commitments fluctuates primarily based on changes in construction related commitments between reporting periods. A (recovery of) $(0.2) million was recorded for the year ended December 31, 2025, reflecting a decrease of $187 thousand compared to the year ended December 31, 2024.
The following table presents activity in the life-of-loss reserve for unfunded loan commitments as of and for the years ended December 31:
| | | | | | | | | | | | | | |
| (Dollars in Thousands) | | December 31, 2025 | | December 31, 2024 |
| Life-of-Loss Reserve on Unfunded Loan Commitments | | | | |
| Balance at beginning of period | | $ | 3,186 | | | $ | 3,193 | |
| | | | |
| | | | |
| Recovery for Unfunded Commitments | | (194) | | | (7) | |
| Balance at end of period | | $ | 2,992 | | | $ | 3,186 | |
The Company has a contractual commitment with a third party vendor for data processing services under a ten year agreement that is scheduled to expire at the end of 2028. Data processing expense totaled $5.7 million, $4.9 million and $3.9 million for the years ended 2025, 2024 and 2023, respectively.
Legal Proceedings
In the normal course of business, the Company is subject to various legal and administrative proceedings and claims. Such matters are subject to inherent uncertainties and unfavorable outcomes could occur. However, based on current information, management believes that the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial condition, results of operations, or cash flows.