OFF-BALANCE-SHEET ARRANGEMENTS, COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we are a party to certain financial instruments with off-balance-sheet risk to meet the financing needs of our customers. These off-balance-sheet instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount reflected in the financial statements. The contract or notional amounts of these instruments reflect the extent of involvement and exposure to credit loss that we have in these particular classes of financial instruments. The allowance for credit losses on these off-balance-sheet credit exposures is calculated using the same methodology as loans including a conversion or usage factor to anticipate ultimate exposure and expected losses and is included in other liabilities on our consolidated balance sheets.
Allowance for off-balance-sheet credit exposures were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2025 | | 2024 | | 2023 |
| | | | | |
| Balance at beginning of period | $ | 3,141 | | | $ | 3,932 | | | $ | 3,687 | |
| | | | | |
| Provision for (reversal of) off-balance-sheet credit exposures | 25 | | | (791) | | | 245 | |
| Balance at end of period | $ | 3,166 | | | $ | 3,141 | | | $ | 3,932 | |
Contractual commitments to extend credit are agreements to lend to a customer provided the terms established in the contract are met. Commitments to extend credit generally have fixed expiration dates and may require the payment of fees. Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in commitments to extend credit and similarly do not necessarily represent future cash obligations.
Financial instruments with off-balance-sheet risk were as follows (in thousands):
| | | | | | | | | | | |
| | December 31, 2025 | | December 31, 2024 |
| | | |
| Commitments to extend credit | $ | 840,794 | | | $ | 865,178 | |
| Standby letters of credit | 19,456 | | | 16,532 | |
| Total | $ | 860,250 | | | $ | 881,710 | |
We apply the same credit policies in making commitments to extend credit and standby letters of credit as we do for on-balance-sheet instruments. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include cash or cash equivalents, negotiable instruments, real estate, accounts receivable, inventory, oil, gas and mineral interests, property, plant and equipment.
Securities. In the normal course of business we buy and sell securities. At December 31, 2025 and December 31, 2024, there were no unsettled trades to purchase securities and nounsettled trades to sell securities.
Deposits. There were no unsettled issuances of brokered CDs at December 31, 2025 or December 31, 2024.
Litigation. We are involved with various litigation in the normal course of business. Management, after consulting with our legal counsel, believes that any liability resulting from litigation will not have a material effect on our financial position, results of operations or liquidity.