v3.26.1
LOANS AND ALLOWANCE FOR CREDIT LOSSES
 6 Months Ended
Jun. 30, 2026
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS AND ALLOWANCE FOR CREDIT LOSSES
The Company’s loan portfolio is grouped into segments, which are further broken down into classes to allow management to monitor the performance by the borrower and to monitor the yield on the portfolio. The risks associated with lending activities differ among the various loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. All of these factors may adversely impact both the borrower’s ability to repay its loans and the value of its associated collateral.
The Company has various types of commercial real estate loans, which have differing levels of credit risk. Owner-occupied commercial real estate loans are generally dependent upon the successful operation of the borrower’s business, with the cash flows generated from the business being the primary source of repayment of the loan. If the business suffers a downturn in sales or profitability, the borrower’s ability to repay the loan could be in jeopardy.
Non-owner occupied and multi-family commercial real estate loans and non-owner occupied residential loans present a different credit risk to the Company than owner-occupied commercial real estate loans, as the repayment of the loan is dependent upon the borrower’s ability to generate a sufficient level of occupancy to produce rental income that exceeds debt service requirements and operating expenses. Lower occupancy or lease rates may result in a reduction in cash flows, which hinders the ability of the borrower to meet debt service requirements and may result in lower collateral values. The Company generally recognizes that greater risk is inherent in these credit relationships compared to owner-occupied loans mentioned above.
Acquisition and development loans consist of 1-4 family residential construction and commercial and land development loans. The risk of loss on these loans is largely dependent on the Company’s ability to assess the property’s value at the completion of the project, which should exceed the property’s construction costs. During the construction phase, a number of factors could potentially negatively impact the collateral value, including cost overruns, delays in completing the project, competition, and real estate market conditions, which may change based on the supply of similar properties in the area. In the event the collateral value at the completion of the project is not sufficient to cover the outstanding loan balance, the Company must rely upon other repayment sources, if any, including the guarantors of the project or other collateral securing the loan.
Commercial and industrial loans include advances to businesses for general commercial purposes and include permanent and short-term working capital, machinery and equipment financing, and may be either in the form of lines of credit or term loans. Although commercial and industrial loans may be unsecured to our highest-rated borrowers, the majority of these loans are secured by the borrower’s accounts receivable, inventory and machinery and equipment. In a significant number of these loans, the collateral also includes the business real estate or the business owner’s personal real estate or assets. The Company attempts to mitigate this risk through its underwriting standards, including evaluating the creditworthiness of the borrower and, to the extent available, credit ratings on the business. Additionally, monitoring of the loans through annual renewals and meetings with the borrowers is typical. However, these procedures cannot eliminate the risk of loss associated with commercial and industrial lending.
Agricultural loans include advances to individuals or businesses to finance agricultural production or loans secured by farmland. Agricultural production may include the growing or storing of crops, the purchase and carrying of livestock, the purchase of farm machinery and equipment or the operations of a farm, including vehicles and consumer goods. The collateral securing these loans may include the real estate for agricultural production, the borrower's business or personal assets, inventory or equipment.
Municipal loans consist of extensions of credit to municipalities and school districts within the Company’s market area. These loans generally present a lower risk than commercial and industrial loans, as they are generally secured by the municipality’s full taxing authority, by revenue obligations, or by its ability to raise assessments on its clients for a specific utility.
The Company originates loans to its retail clients, including fixed-rate and adjustable first lien mortgage loans, with the underlying 1-4 family owner occupied residential property securing the loan. The Company’s risk exposure is minimized in these types of loans through the evaluation of the creditworthiness of the borrower, including credit scores and debt-to-income ratios, and underwriting standards, which limit the loan-to-value ratio to generally no more than 80% upon loan origination, unless the borrower obtains private mortgage insurance.
Home equity loans, including term loans and lines of credit, present a slightly higher risk to the Company than 1-4 family first liens, as these loans can be first or second liens on 1-4 family owner occupied residential property, but can have loan-to-value ratios of no greater than 85% of the value of the real estate taken as collateral. The creditworthiness of the borrower is considered, including credit scores and debt-to-income ratios.
Installment and other loans’ credit risk is mitigated through prudent underwriting standards, including evaluation of the creditworthiness of the borrower through credit scores and debt-to-income ratios and, if secured, the collateral value of the assets. These loans can be unsecured or secured by assets the value, of which may depreciate quickly or may fluctuate and may present a greater risk to the Company than 1-4 family residential loans.
The following table presents the loan portfolio by segment and class, excluding residential LHFS, at June 30, 2026 and December 31, 2025:
June 30, 2026December 31, 2025
Commercial real estate:
Owner occupied$679,295 $644,713 
Non-owner occupied1,305,379 1,260,198 
Multi-family229,425 236,703 
Non-owner occupied residential150,917 155,749 
Acquisition and development:
1-4 family residential construction39,344 41,489 
Commercial and land development198,399 198,234 
Agricultural97,729 121,417 
Commercial and industrial489,247 489,371 
Municipal33,950 25,302 
Residential mortgage:
First lien501,306 478,870 
Home equity - term5,401 5,972 
Home equity - lines of credit344,495 321,438 
Other - term(1)
20,929 22,906 
Installment and other loans17,215 18,331 
Total loans $4,113,031 $4,020,693 
(1) Other - term includes PACE loans with unearned income of $375 thousand and $505 thousand at June 30, 2026 and December 31, 2025, respectively.
In order to monitor ongoing risk associated with its loan portfolio and specific loans within the segments, management uses an internal grading system. The first several rating categories, representing the lowest risk to the Bank, are combined and given a “Pass” rating. Management generally follows regulatory definitions in assigning criticized ratings to loans, including "Special Mention," "Substandard," "Doubtful" or "Loss." The Special Mention category includes loans that have potential weaknesses that may, if not monitored or corrected, weaken the asset or inadequately protect the Bank's position at some future date. These assets pose elevated risk, but their weakness does not yet justify a more severe, or classified rating. Substandard loans are classified as they have a well-defined weakness, or weaknesses that jeopardize liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans include loans that management may determine to be either individually evaluated, referred to as "Substandard - Individually Evaluated Loan," or collectively evaluated, referred to as "Substandard Non-Individually Evaluated Loan." A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as Loss is deferred. Loss loans are considered uncollectible, as the borrowers are often in bankruptcy, have suspended debt repayments, or have ceased business operations. Once a loan is classified as Loss, there is little prospect of collecting the loan’s principal or interest and it is charged-off.
The Company has a loan review policy and program, which is designed to identify and monitor risk, evaluate the adequacy and adherence to internal credit policies and loan administration procedures, verify the quality of loan approval, monitoring and risk assessments, and assess the overall quality of the loan portfolio. The Management ERM Committee, comprised of executive officers, senior officers and loan department personnel, is charged with the oversight of overall credit quality and risk exposure of the Company's loan portfolio. This includes the monitoring of the lending activities of all Company personnel with respect to underwriting and processing new loans and the timely follow-up and corrective action for loans showing signs of deterioration in quality. A loan review program provides the Company with an independent review of the commercial loan portfolio on an ongoing basis. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as extended delinquencies, bankruptcy, repossession or death of the borrower occurs, which heightens awareness as to a possible credit event.
Internal loan reviews are completed annually on all commercial relationships with a committed loan balance in excess of $2.0 million, which includes confirmation of risk rating by an independent credit officer. In addition, all commercial relationships greater than $500 thousand rated special mention, substandard, doubtful or loss are reviewed quarterly and
corresponding risk ratings are reaffirmed by the Company's Problem Loan Committee, with subsequent reporting to the Management ERM Committee and the Board ERM Committee.
The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of June 30, 2026 and December 31, 2025. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan and payment activity. Residential mortgage, installment and other consumer loans are presented below based on payment performance: performing or nonperforming. Nonperforming includes substandard - individually evaluated loans.
Term Loans Amortized Cost Basis by Origination Year
As of June 30, 2026
20262025202420232022PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Commercial Real Estate:
Owner-occupied:
Risk rating
Pass$38,700 $97,504 $43,378 $79,624 $112,671 $242,647 $13,676 $3,572 $631,772 
Special mention— 952 10,199 6,245 — 13,953 1,928 — 33,277 
Substandard - Non-IEL— — 2,142 3,027 4,314 2,008 34 70 11,595 
Substandard - IEL— — — 643 776 1,232 — — 2,651 
Total owner-occupied loans$38,700 $98,456 $55,719 $89,539 $117,761 $259,840 $15,638 $3,642 $679,295 
Current period gross charge offs - owner-occupied$— $— $— $— $— $— $— $— $— 
Non-owner occupied:
Risk rating
Pass$117,483 $163,566 $88,633 $124,729 $183,365 $581,551 $9,815 $407 $1,269,549 
Special mention— — — 10,035 3,011 21,513 — — 34,559 
Substandard - Non-IEL— — — — 877 — — — 877 
Substandard - IEL— — — 131 134 129 — — 394 
Total non-owner occupied loans$117,483 $163,566 $88,633 $134,895 $187,387 $603,193 $9,815 $407 $1,305,379 
Current period gross charge offs - non-owner occupied$— $— $— $— $— $— $— $— $— 
Multi-family:
Risk rating
Pass$19,458 $13,778 $9,133 $6,309 $76,457 $91,034 $955 $47 $217,171 
Special mention— — — — 8,820 3,307 — — 12,127 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — 127 — — — 127 
Total multi-family loans$19,458 $13,778 $9,133 $6,309 $85,404 $94,341 $955 $47 $229,425 
Current period gross charge offs - multi-family$— $— $— $— $— $— $— $— $— 
Non-owner occupied residential:
Risk rating
Pass$6,942 $11,370 $8,834 $16,488 $24,859 $75,975 $220 $73 $144,761 
Special mention— — — 274 — 1,905 — 37 2,216 
Substandard - Non-IEL— — — 126 556 2,815 — 98 3,595 
Substandard - IEL— — — — 150 195 — — 345 
Total non-owner occupied residential loans$6,942 $11,370 $8,834 $16,888 $25,565 $80,890 $220 $208 $150,917 
Current period gross charge offs - non-owner occupied residential$— $— $— $— $37 $— $— $— $37 
continued
Term Loans Amortized Cost Basis by Origination Year
As of June 30, 2026
20262025202420232022PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Acquisition and development:
1-4 family residential construction:
Risk rating
Pass$14,396 $16,206 $1,403 $6,826 $— $513 $— $— $39,344 
Special mention— — — — — — — — — 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — — — — — 
Total 1-4 family residential construction loans$14,396 $16,206 $1,403 $6,826 $— $513 $— $— $39,344 
Current period gross charge offs - 1-4 family residential construction$— $— $— $— $— $— $— $— $— 
Commercial and land development:
Risk rating
Pass$30,615 $35,435 $56,450 $19,694 $33,425 $7,658 $7,665 $— $190,942 
Special mention— — — — — — — — — 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — 88 650 6,713 6 — — 7,457 
Total commercial and land development loans$30,615 $35,435 $56,538 $20,344 $40,138 $7,664 $7,665 $— $198,399 
Current period gross charge offs - commercial and land development$— $— $— $— $753 $— $— $— $753 
Agricultural
Risk rating
Pass$8,232 $11,645 $7,157 $8,988 $17,480 $32,105 $9,659 $929 $96,195 
Special mention— — — — — 58 24 — 82 
Substandard - Non-IEL— — 814 17 13 379 223 — 1,446 
Substandard - IEL— — — — 6 — — — 6 
Total agricultural loans$8,232 $11,645 $7,971 $9,005 $17,499 $32,542 $9,906 $929 $97,729 
Current period gross charge offs - agricultural$— $— $— $— $— $— $— $— $— 
Commercial and Industrial:
Risk rating
Pass$60,013 $62,232 $83,891 $28,537 $33,921 $46,803 $128,992 $5,070 $449,459 
Special mention— 7,565 1,387 5,668 171 748 13,191 52 28,782 
Substandard - Non-IEL— — 8 846 79 41 6,456 296 7,726 
Substandard - IEL— — 245 276 177 223 103 2,256 3,280 
Total commercial and industrial loans$60,013 $69,797 $85,531 $35,327 $34,348 $47,815 $148,742 $7,674 $489,247 
Current period gross charge offs - commercial and industrial$— $— $— $— $— $1,097 $122 $— $1,219 
Municipal:
Risk rating
Pass$9,681 $— $48 $— $8,594 $15,627 $— $— $33,950 
Special mention— — — — — — — — — 
Total municipal loans$9,681 $— $48 $— $8,594 $15,627 $— $— $33,950 
Current period gross charge offs - municipal$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of June 30, 2026
20262025202420232022PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Residential mortgage:
First lien:
Payment performance
Performing$46,690 $68,624 $51,687 $85,199 $88,897 $153,800 $— $— $494,897 
Nonperforming— — 624 1,234 551 4,000 — — 6,409 
Total first lien loans$46,690 $68,624 $52,311 $86,433 $89,448 $157,800 $— $— $501,306 
Current period gross charge offs - first lien$— $— $— $9 $— $— $— $— $9 
Home equity - term:
Payment performance
Performing$404 $676 $259 $464 $836 $2,630 $— $— $5,269 
Nonperforming— 77 — — — 55 — — 132 
Total home equity - term loans$404 $753 $259 $464 $836 $2,685 $— $— $5,401 
Current period gross charge offs - home equity - term$— $— $— $12 $— $— $— $— $12 
Home equity - lines of credit:
Payment performance
Performing$— $— $— $— $— $— $256,842 $84,552 $341,394 
Nonperforming— — — — — — 1,506 1,595 3,101 
Total residential real estate - home equity - lines of credit loans$— $— $— $— $— $— $258,348 $86,147 $344,495 
Current period gross charge offs - home equity - lines of credit$— $— $— $— $— $— $— $— $— 
Other - term:
Payment performance
Performing$— $— $20,929 $— $— $— $— $— $20,929 
Nonperforming— — — — — — — — — 
Total other - term loans$— $— $20,929 $— $— $— $— $— $20,929 
Current period gross charge offs - other - term$— $— $— $— $— $— $— $— $— 
Installment and other loans:
Payment performance
Performing$845 $426 $821 $994 $743 $322 $13,058 $2 $17,211 
Nonperforming— — — 4 — — — — 4 
Total Installment and other loans$845 $426 $821 $998 $743 $322 $13,058 $2 $17,215 
Current period gross charge offs - installment and other$— $181 $2 $— $— $— $59 $— $242 
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202520252024202320222021PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Commercial Real Estate:
Owner-occupied:
Risk rating
Pass$96,640 $46,784 $88,930 $103,934 $90,037 $152,232 $13,102 $3,642 $595,301 
Special mention— 10,810 1,713 — 6,721 8,927 93 — 28,264 
Substandard - Non-IEL— 723 1,499 4,411 3,837 3,822 1,658 70 16,020 
Substandard - IEL— — 643 821 974 2,690 — — 5,128 
Total owner-occupied loans$96,640 $58,317 $92,785 $109,166 $101,569 $167,671 $14,853 $3,712 $644,713 
Current period gross charge offs - owner-occupied$— $— $— $337 $— $3 $— $— $340 
Non-owner occupied:
Risk rating
Pass$174,958 $92,343 $126,924 $188,935 $305,539 $338,309 $9,044 $— $1,236,052 
Special mention— — 10,053 3,002 — 9,763 — — 22,818 
Substandard - Non-IEL— — — 883 — — — — 883 
Substandard - IEL— — 139 143 163 — — — 445 
Total non-owner occupied loans$174,958 $92,343 $137,116 $192,963 $305,702 $348,072 $9,044 $— $1,260,198 
Current period gross charge offs - non-owner occupied$— $— $— $— $— $— $— $— $— 
Multi-family:
Risk rating
Pass$15,347 $9,283 $6,800 $77,290 $45,263 $71,549 $860 $672 $227,064 
Special mention— — — 8,751 755 — — — 9,506 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — 133 — — — — 133 
Total multi-family loans$15,347 $9,283 $6,800 $86,174 $46,018 $71,549 $860 $672 $236,703 
Current period gross charge offs - multi-family$— $— $— $— $— $— $— $— $— 
Non-owner occupied residential:
Risk rating
Pass$9,829 $9,460 $17,833 $26,227 $24,378 $59,928 $479 $146 $148,280 
Special mention— 487 — 39 763 1,243 — 38 2,570 
Substandard - Non-IEL— — 128 561 2,445 1,210 — 100 4,444 
Substandard - IEL— — — 236 121 98 — — 455 
Total non-owner occupied residential loans$9,829 $9,947 $17,961 $27,063 $27,707 $62,479 $479 $284 $155,749 
Current period gross charge offs - non-owner occupied residential$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202520252024202320222021PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Acquisition and development:
1-4 family residential construction:
Risk rating
Pass$32,602 $5,145 $2,408 $411 $923 $— $— $— $41,489 
Special mention— — — — — — — — — 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — — — — — 
Total 1-4 family residential construction loans$32,602 $5,145 $2,408 $411 $923 $— $— $— $41,489 
Current period gross charge offs - 1-4 family residential construction$— $— $— $— $— $— $— $— $— 
Commercial and land development:
Risk rating
Pass$29,243 $53,272 $27,951 $57,777 $5,319 $3,213 $9,049 $— $185,824 
Special mention— — 4,166 — — — — — 4,166 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — 275 7,639 330 — — — 8,244 
Total commercial and land development loans$29,243 $53,272 $32,392 $65,416 $5,649 $3,213 $9,049 $— $198,234 
Current period gross charge offs - commercial and land development$— $— $— $— $— $— $— $— $— 
Agricultural
Risk rating
Pass$12,698 $8,621 $12,006 $19,421 $17,013 $25,466 $15,533 $723 $111,481 
Special mention— 1,491 1,670 1,240 1,120 3,878 98 — 9,497 
Substandard - Non-IEL— 74 — 9 199 — 148 — 430 
Substandard - IEL— — — 9 — — — — 9 
Total agricultural loans$12,698 $10,186 $13,676 $20,679 $18,332 $29,344 $15,779 $723 $121,417 
Current period gross charge offs - agricultural$— $— $— $— $25 $6 $— $— $31 
Commercial and Industrial:
Risk rating
Pass$76,830 $80,815 $36,440 $45,357 $40,702 $20,836 $137,914 $8,209 $447,103 
Special mention87 6,999 8,285 263 792 344 12,466 834 30,070 
Substandard - Non-IEL— 12 1,152 99 906 18 5,975 176 8,338 
Substandard - IEL— 321 227 233 179 912 — 1,988 3,860 
Total commercial and industrial loans$76,917 $88,147 $46,104 $45,952 $42,579 $22,110 $156,355 $11,207 $489,371 
Current period gross charge offs - commercial and industrial$— $— $406 $175 $56 $100 $499 $— $1,236 
Municipal:
Risk rating
Pass$— $55 $— $9,012 $2,841 $11,991 $— $— $23,899 
Special mention— — — — — 1,403 — — 1,403 
Total municipal loans$— $55 $— $9,012 $2,841 $13,394 $— $— $25,302 
Current period gross charge offs - municipal$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202520252024202320222021PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Residential mortgage:
First lien:
Payment performance
Performing$74,268 $54,459 $89,440 $92,611 $46,907 $114,926 $— $— $472,611 
Nonperforming— 626 1,060 176 134 4,263 — — 6,259 
Total first lien loans$74,268 $55,085 $90,500 $92,787 $47,041 $119,189 $— $— $478,870 
Current period gross charge offs - first lien$— $51 $— $— $27 $10 $— $— $88 
Home equity - term:
Payment performance
Performing$1,015 $319 $576 $894 $172 $2,814 $— $— $5,790 
Nonperforming87 — — — — 95 — — 182 
Total home equity - term loans$1,102 $319 $576 $894 $172 $2,909 $— $— $5,972 
Current period gross charge offs - home equity - term$— $— $— $36 $— $— $— $— $36 
Home equity - lines of credit:
Payment performance
Performing$— $— $— $— $— $— $223,787 $94,178 $317,965 
Nonperforming— — — — — — 25 3,448 3,473 
Total residential real estate - home equity - lines of credit loans$— $— $— $— $— $— $223,812 $97,626 $321,438 
Current period gross charge offs - home equity - lines of credit$— $— $— $— $— $23 $— $— $23 
Other - term:
Payment performance
Performing$— $22,906 $— $— $— $— $— $— $22,906 
Nonperforming— — — — — — — — — 
Total other - term loans$— $22,906 $— $— $— $— $— $— $22,906 
Current period gross charge offs - other - term$— $— $— $— $— $— $— $— $— 
Installment and other loans:
Payment performance
Performing$1,186 $1,052 $1,425 $1,153 $345 $213 $12,930 $25 $18,329 
Nonperforming— — 2 — — — — — 2 
Total Installment and other loans$1,186 $1,052 $1,427 $1,153 $345 $213 $12,930 $25 $18,331 
Current period gross charge offs - installment and other$453 $234 $6 $8 $4 $15 $74 $— $794 
For commercial real estate, acquisition and development, commercial and industrial and municipal segments, a loan is evaluated individually when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining expected credit losses, and whether the loan will be individually evaluated, include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not individually evaluated. Generally, loans that are more than 90 days past due will be individually evaluated for a specific reserve. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed to determine if the loan should be placed on nonaccrual status. Similarly, residential mortgage loans are individually evaluated if payment of the contractual principal balance is in doubt or if principal or interest have been in default for a period of 90 days or more, unless the loan is both well secured and is in process of collection. Nonaccrual loans are, by definition, deemed to be individually evaluated under CECL. A specific reserve allocation for individually evaluated loans is measured on a loan-by-loan basis by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For loans that are experiencing financial difficulty for extended periods of time, periodic updates on fair values are obtained, which may include updated appraisals. Updated fair values are incorporated into the analysis in the next reporting period.
Loan charge-offs, which may include partial charge-offs, are taken on an individually evaluated loan that is collateral dependent if the carrying balance of the loan exceeds the appraised value of the collateral, the loan has been placed on nonaccrual status or identified as uncollectible, and it is deemed to be a confirmed loss. Typically, loans with a charge-off or partial charge-off will continue to be individually evaluated. An individually evaluated loan with a partial charge-off may continue to have a specific reserve on it after the partial charge-off, if factors warrant.
At June 30, 2026 and December 31, 2025, the Company’s individually evaluated loans were measured based on the estimated fair value of the collateral securing the loan or the present value of future cash flows. For real estate loans, collateral consists of commercial or residential real estate, but in the case of commercial and industrial loans, it could also consist of accounts receivable, inventory, equipment or other business assets. Commercial and industrial loans may also have real estate collateral.
Updated appraisals are generally required every 18 months for classified commercial loans, secured by commercial real estate, in excess of $250 thousand. The “as is" value provided in the appraisal is often used as the fair value of the collateral in determining impairment, unless circumstances, such as subsequent improvements, approvals, or other circumstances, dictate that another value than that provided by the appraiser is more appropriate.
Commercial loans secured by real estate that are evaluated individually are measured at fair value using certified real estate appraisals that had been completed within the last 18 months. Appraised values are discounted for estimated costs to sell the property and other selling considerations to arrive at the property’s fair value. In those situations, in which it is determined an updated appraisal is not required for loans individually evaluated for credit expected losses, fair values are based on either an existing appraisal or a DCF analysis as determined by management. The approaches are discussed below:
•Existing appraisal – if the existing appraisal provides a strong loan-to-value ratio (generally 70% or lower) and, after consideration of market conditions and knowledge of the property and area, it is determined by the Credit Administration staff that there has not been a significant deterioration in the collateral value, the existing certified appraised value may be used. Discounts to the appraised value, as deemed appropriate for selling costs, are factored into the fair value.
•Discounted cash flows – in limited cases, DCF may be used on projects in which the collateral is liquidated to reduce the borrowings outstanding, and is used to validate collateral values derived from other approaches.
Collateral on loans evaluated individually is not limited to real estate, and may consist of accounts receivable, inventory, equipment or other business assets. Estimated fair values are determined based on borrowers’ financial statements, inventory ledgers, accounts receivable aging or appraisals from individuals with knowledge in the business. Stated balances are generally discounted for the age of the financial information or the quality of the assets. In determining fair value, liquidation discounts are applied to this collateral based on existing loan evaluation policies.
The Company distinguishes substandard loans for both loans individually and collectively evaluated, as it places less emphasis on a loan’s classification, and increased reliance on whether the loan was performing in accordance with the contractual terms. A substandard classification does not automatically meet the definition of an individually evaluated loan.
Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual extensions of credit classified as substandard. As a result, the Company’s methodology includes an evaluation of certain accruing commercial real estate, acquisition and development, commercial and industrial and municipal loans rated substandard to be collectively evaluated for credit expected losses. Although the Company believes these loans meet the definition of substandard, they are generally performing and management has concluded that it is likely the Company will be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.
The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without reserves on individually evaluated loans as of June 30, 2026 and December 31, 2025. The Company did not recognize interest income on nonaccrual loans during the three and six months ended June 30, 2026 and 2025.
June 30, 2026December 31, 2025
Nonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrual loansLoans Past Due 90+ AccruingNonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrual loansLoans Past Due 90+ Accruing
Commercial real estate:
Owner-occupied$227 $2,424 $2,651 $— $227 $4,901 $5,128 $68 
Non-owner occupied— 394 394 — — 445 445 — 
Multi-family— 127 127 — 133 — 133 — 
Non-owner occupied residential— 345 345 147 — 455 455 — 
Acquisition and development:
Commercial and land development2,253 5,204 7,457 — 3,005 5,239 8,244 — 
Agricultural— 6 6 — — 9 9 — 
Commercial and industrial105 3,175 3,280 25 1,197 2,663 3,860 — 
Residential mortgage:
First lien— 6,254 6,254 244 — 6,100 6,100 431 
Home equity – term— 132 132 — — 182 182 — 
Home equity – lines of credit— 3,101 3,101 172 — 3,473 3,473 190 
Other - term— — — 265 — — — 346 
Installment and other loans— 4 4 — 2 — 2 5 
Total$2,585 $21,166 $23,751 $853 $4,564 $23,467 $28,031 $1,040 
A loan is considered to be collateral-dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. At June 30, 2026 and December 31, 2025, substantially all individually evaluated loans were collateral-dependent and consisted primarily of commercial real estate, acquisition and development and residential mortgage loans, which were secured by commercial or residential real estate.
The following table presents the amortized cost basis of collateral-dependent individually evaluated loans by class as of June 30, 2026 and December 31, 2025:
Type of Collateral
June 30, 2026Business AssetsCommercial Real EstateEquipmentLandResidential Real EstateOtherTotal
Commercial real estate:
Owner occupied$— $2,651 $— $— $— $— $2,651 
Non-owner occupied— 394 — — — — 394 
Multi-family— 127 — — — — 127 
Non-owner occupied residential— 345 — — — — 345 
Acquisition and development:
Commercial and land development— 7,347 — 110 — — 7,457 
Agricultural— — 6 — — — 6 
Commercial and industrial2,583 — 704 — — — 3,287 
Residential mortgage:
First lien— — — — 6,077 — 6,077 
Home equity - term— — — — 132 — 132 
Home equity - lines of credit— — — — 3,101 — 3,101 
Installment and other loans— — 4 — — — 4 
Total$2,583 $10,864 $714 $110 $9,310 $— $23,581 
December 31, 2025
Commercial real estate:
Owner occupied$— $5,128 $— $— $— $— $5,128 
Non-owner occupied— 445 — — — — 445 
Multi-family— 133 — — — — 133 
Non-owner occupied residential— 455 — — — — 455 
Acquisition and development:
Commercial and land development— 7,897 — 347 — — 8,244 
Agricultural— — 9 — — — 9 
Commercial and industrial2,921 — 945 — — — 3,866 
Residential mortgage:
First lien— — — — 5,914 — 5,914 
Home equity - term— — — — 182 — 182 
Home equity - lines of credit— — — — 3,473 — 3,473 
Installment and other loans— — 2 — — — 2 
Total$2,921 $14,058 $956 $347 $9,569 $— $27,851 
The Company may modify loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, interest rate reduction or an other-than-insignificant payment delay. When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL. The Company may also provide multiple types of modifications on an individual loan.
During the three and six months ended June 30, 2026, the Company extended modifications to four borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan. During the three and six months ended June 30, 2025, the Company extended modifications to one and four borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan. For loans modified to borrowers experiencing financial difficulty in the prior twelve months, there are FDMs totaling $4.9 million that are on nonaccrual status and no FDMs that are 90 days or more past due and accruing at June 30, 2026. At June 30, 2026, the Company did not commit to lend additional amounts to borrowers experiencing financial difficulty, with a loan previously modified that was an FDM.
The following table presents the amortized cost of loans that were both experiencing financial difficulty and modified during the three and six months ended June 30, 2026 and 2025, by loan class and by type of modification. The percentage of the amortized cost of loans that were modified to borrowers experiencing difficulty as compared to the amortized cost of loan class is also presented below.
Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Term Extension and Principal ForgivenessCombination Term Extension and Interest Rate ReductionsTotal Class of Financing Receivable
Three Months Ended
June 30, 2026
Acquisition and development:
Commercial and land development$— $— $4,847 $— $— $— 2.44 %
Agricultural— — 194 — — — 0.20 %
Commercial and industrial— — 659 — — — 0.13 %
Total:$— $— $5,700 $— $— $— 
June 30, 2025
Commercial real estate:
Owner-occupied$— $— $726 $— $— $— 0.12 %
Total:$— $— $726 $— $— $— 
Six Months Ended
June 30, 2026
Acquisition and development:
Commercial and land development$— $— $4,847 $— $— $— 2.44 %
Agricultural— — 194 — — — 0.20 %
Commercial and industrial— — 659 — — — 0.13 %
Total:$— $— $5,700 $— $— $— 
June 30, 2025
Commercial real estate:
Owner-occupied$— $— $726 $— $— $— 0.12 %
Acquisition and development:
Commercial and land development— — 5,016 — — — 2.52 %
Total:$— $— $5,742 $— $— $— 
The Company monitors the performance of the modified loans to borrowers experiencing financial difficulty to determine the effectiveness of its modification efforts. At June 30, 2026, modified loans to borrowers experiencing financial difficulty that had a payment default in the twelve months following the modification totaled $4.5 million, which included commercial and land development loans with modified term extensions with an amortized cost of $4.5 million and an owner-occupied commercial real estate loan with a combination of a modified term extension and interest rate reduction with an amortized cost of $77 thousand. At June 30, 2025, modified loans to borrowers experiencing financial difficulty that had a payment default in the twelve months following the modification included a commercial and industrial loan with an extension modification with an amortized cost of $44 thousand.
The following table presents the performance of the loans modified during the three and six months ended June 30, 2026 and 2025, which includes loans that remain on nonaccrual status:
Current30-59 Days Past Due60-89 Days Past Due90 Days or More Past DueTotalNon-Accrual
June 30, 2026
Acquisition and development:
Commercial and land development$— $— $— $— $— $4,847 
Agricultural194 — — — 194 — 
Commercial and industrial659 — — — 659 — 
Total:$853 $— $— $— $853 $4,847 
June 30, 2025
Commercial real estate:
Owner-occupied$726 $— $— $— $726 $— 
Acquisition and development:
Commercial and land development4,747 — — — 4,747 269 
Total:$5,473 $— $— $— $5,473 $269 
The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the six months ended June 30, 2026 and 2025:
Principal ForgivenessWeighted Average Interest Rate ReductionWeighted Average Term Extension (in years)
June 30, 2026
Acquisition and development:
Commercial and land development$— — %0.4
Agricultural— — %1.0
Commercial and industrial— — %4.0
June 30, 2025
Commercial real estate:
Owner-occupied$— — %1.0
Acquisition and development:
Commercial and land development— — %0.3
Management further monitors the performance and credit quality of the loan portfolio by analyzing the length of time a portfolio is past due by aggregating loans based on its delinquencies. The following table presents the classes of the loan portfolio summarized by aging categories at June 30, 2026 and December 31, 2025:
30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Past Due		Loans Not Past DueTotal
Loans
June 30, 2026
Commercial real estate:
Owner occupied$831 $90 $1,015 $1,936 $677,359 $679,295 
Non-owner occupied338 260 — 598 1,304,781 1,305,379 
Multi-family— — 127 127 229,298 229,425 
Non-owner occupied residential163 — 147 310 150,607 150,917 
Acquisition and development:
1-4 family residential construction— — — — 39,344 39,344 
Commercial and land development253 — 2,341 2,594 195,805 198,399 
Agricultural— 17 — 17 97,712 97,729 
Commercial and industrial751 1,183 315 2,249 486,998 489,247 
Municipal— — — — 33,950 33,950 
Residential mortgage:
First lien525 1,808 3,229 5,562 495,744 501,306 
Home equity - term77 — 7 84 5,317 5,401 
Home equity - lines of credit1,689 218 1,255 3,162 341,333 344,495 
Other - term— — 265 265 20,664 20,929 
Installment and other loans51 11 — 62 17,153 17,215 
$4,678 $3,587 $8,701 $16,966 $4,096,065 $4,113,031 
December 31, 2025
Commercial real estate:
Owner occupied$1,066 $148 $1,770 $2,984 $641,729 $644,713 
Non-owner occupied462 792 — 1,254 1,258,944 1,260,198 
Multi-family100 — 133 233 236,470 236,703 
Non-owner occupied residential98 24 115 237 155,512 155,749 
Acquisition and development:
1-4 family residential construction— — — — 41,489 41,489 
Commercial and land development— 151 7,969 8,120 190,114 198,234 
Agricultural807 — — 807 120,610 121,417 
Commercial and industrial1,614 155 1,139 2,908 486,463 489,371 
Municipal— — — — 25,302 25,302 
Residential mortgage:
First lien9,264 3,158 4,085 16,507 462,363 478,870 
Home equity - term53 55 128 236 5,736 5,972 
Home equity - lines of credit2,101 491 2,715 5,307 316,131 321,438 
Other - term— — 346 346 22,560 22,906 
Installment and other loans28 13 5 46 18,285 18,331 
$15,593 $4,987 $18,405 $38,985 $3,981,708 $4,020,693 
The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the consolidated statements of income. Management calculates the quantitative portion of collectively evaluated loans for all loan categories, with the exception of the consumer loan segment, using DCF methodology. For purposes of calculating the quantitative portion of collectively evaluated reserves on the consumer loan segment, the remaining life methodology is utilized. For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code, which represents the loan classes based upon U.S. regulatory loan classification rules, in order to group loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated on an individual loan basis, and are excluded from the collective evaluation for the ACL. A specific reserve is assigned if the measured value of the loan is less than the current carrying value of the loan.
Based on management's analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the quantitatively calculated reserve calculated on collectively evaluated loans. As the quantitative reserve calculation incorporates historical conditions, management may consider an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions, which may be assigned at different levels of significance: minor, moderate or major. All factors noted above were within the Bank's CECL framework at June 30, 2026. These qualitative risk factors considered by management include significant or unexpected changes in:
Nature and Volume of Loans – including loan growth in the current and subsequent quarters based on the Company’s targeted growth and strategic plan, coupled with the types of loans booked based on risk management and credit culture; the number of exceptions to loan policy; and supervisory loan to value exceptions.
Concentrations of Credit and Changes within Credit Concentrations – including the composition of the Company’s overall portfolio makeup and management's evaluation related to concentration risk management and the inherent risk associated with the concentrations identified.
Lending Policies and Procedures, Underwriting Standards and Recovery Practices – including changes to credit policies and procedures, underwriting standards and perceived impact on anticipated losses, trends in the number of exceptions to loan policy, supervisory loan to value exceptions; and administration of loan recovery practices.
Delinquency and Classified Loan Trends – including delinquency percentages and internal loan ratings noted in the portfolio relative to economic conditions, severity of the delinquencies and the ratings and whether the ratios are trending upwards or downwards.
Collateral Valuation Trends – including underlying market conditions and impact on the collateral values securing the loans.
Experience, Ability and Depth of Management/Lending staff – including the level of experience of senior and middle management and the lending staff, turnover of the staff, and instances of repeat criticisms.
Quality of Loan Review System – including the level of experience of the loan review staff, in-house versus outsourced provider of review, turnover of the staff and instances of repeat criticisms from independent testing, which includes the evaluation of internal loan ratings of the portfolio.
Economic Conditions – including trends in the international, national, regional and local conditions that monitor the interest rate environment, inflationary pressures, the consumer price index, the housing price index, housing statistics, and bankruptcy rates.
Other External Factors - including regulatory and legal environment risks and competition.
The following table presents the activity in the ACL for the three and six months ended June 30, 2026 and 2025:
CommercialConsumer
Commercial
Real Estate		Acquisition
and
Development		AgriculturalCommercial
and
Industrial		MunicipalTotalResidential
Mortgage		Installment
and Other		TotalTotal
Three Months Ended
June 30, 2026
Balance, beginning of period$26,018 $5,937 $212 $6,247 $324 $38,738 $8,216 $509 $8,725 $47,463 
Provision for credit losses(743)162 (12)246 98 (249)468 119 587 338 
Charge-offs— (668)— (420)— (1,088)(21)(145)(166)(1,254)
Recoveries4 — — 32 — 36 7 42 49 85 
Balance, end of period$25,279 $5,431 $200 $6,105 $422 $37,437 $8,670 $525 $9,195 $46,632 
June 30, 2025
Balance, beginning of period$25,893 $6,150 $163 $7,362 $427 $39,995 $7,312 $497 $7,809 $47,804 
Provision for loan losses377 (566)3 29 (42)(199)223 185 408 209 
Charge-offs(111)— (6)(195)— (312)— (192)(192)(504)
Recoveries4 1 — 288 — 293 68 28 96 389 
Balance, end of period$26,163 $5,585 $160 $7,484 $385 $39,777 $7,603 $518 $8,121 $47,898 
Six Months Ended
June 30, 2026
Balance, beginning of period$25,552 $6,179 $127 $7,114 $328 $39,300 $7,708 $673 $8,381 $47,681 
Provision for credit losses(256)5 73 152 94 68 968 30 998 1,066 
Charge-offs(37)(753)— (1,219)— (2,009)(21)(242)(263)(2,272)
Recoveries20 — — 58 — 78 15 64 79 157 
Balance, end of period$25,279 $5,431 $200 $6,105 $422 $37,437 $8,670 $525 $9,195 $46,632 
June 30, 2025
Balance, beginning of period$29,551 $6,601 $110 $6,190 $320 $42,772 $5,240 $677 $5,917 $48,689 
Provision for credit losses(3,210)(1,018)81 1,265 65 (2,817)2,221 251 2,472 (345)
Charge-offs(186)— (31)(712)— (929)— (468)(468)(1,397)
Recoveries8 2 — 741 — 751 142 58 200 951 
Balance, end of period$26,163 $5,585 $160 $7,484 $385 $39,777 $7,603 $518 $8,121 $47,898