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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2025
Commitments and Contingencies |
Commitments and Contingencies | (7) Commitments and Contingencies The Bank 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 and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments to extend credit and standby letters of credit as it does for on-balance-sheet instruments. In most cases, the Bank requires collateral or other security to support financial instruments with credit risk.
(Dollars in thousands) |  |  |  |  |  |
|  | Contractual Amount |
|  | 9/30/25 |  |  | 12/31/24 |
Financial instruments whose contract amount represent credit risk: |  |  |  |  |  |
Commitments to extend credit |  | $ | 356,625 |  |  | $ | 348,876 |
Standby letters of credit |  | $ | 1,576 |  |  | $ | 1,675 |
Commitments to extend credit are conditional agreements to lend to a customer. Commitments generally have fixed expiration dates and because they may expire without being drawn upon, the total commitment amount of $358.2 million does not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by the Bank to pay a third party on behalf of a customer. Those letters of credit are primarily issued to businesses in the Bank’s delineated market area. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds real estate, equipment, automobiles and customer deposits as collateral supporting those commitments for which collateral is deemed necessary. The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, when this extension of credit is not unconditionally cancelable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding activity and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $1.2 million and $1.1 million at September 30, 2025 and December 31, 2024, respectively, is separately classified on the balance sheet within Other Liabilities. The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three and nine months ended September 30, 2025 and 2024.
(dollars in thousands) |  | For three months ended |  |  | For nine months ended |
|  | September 30, 2025 |  |  | September 30, 2024 |  |  | September 30, 2025 |  |  | September 30, 2024 |
Beginning Balance |  | $ | 1,258 |  |  | $ | 1,565 |  |  | $ | 1,101 |  |  | $ | 1,770 |
Provision for (recovery of) credit losses |  |  | (82 | ) |  |  | (406 | ) |  |  | 75 |  |  |  | (611 | )
Ending balance |  | $ | 1,176 |  |  | $ | 1,159 |  |  | $ | 1,176 |  |  | $ | 1,159 |
In 2023, the North Carolina Department of Transportation (“NCDOT”) acquired the Bank’s Mooresville branch office, situated on NC Highway 150 in Mooresville, NC through an eminent domain acquisition for the widening of NC Highway 150. During the second quarter of 2023, the Bank received a $1.5 million payment from the NCDOT for this property, which was recorded as an offset to the net book value of the asset, resulting in a $191,000 gain during the second quarter of 2023. Subsequently, the Bank spent considerable time and effort seeking additional monetary compensation for this property to more closely reflect the fair value of the property. A September 2025 bench ruling in the Bank’s favor requires that the NCDOT pay the Bank a total of $5.1 million for this property, including the $1.5 million payment the Bank received in 2023. The formal written order for this ruling had not been received by the Bank as of September 30, 2025. The Bank recorded $553,000 in legal expenses associated with the legal proceedings and a corresponding other payable for these fees as of September 30, 2025. The Bank expects to realize an additional $3.6 million gain on the involuntarily disposal of this property upon receiving the formal written order from the court.

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