Loans, net and allowance for credit losses

6 Months Ended

Jun. 30, 2026

Loans, net and allowance for credit losses

Loans, net and allowance for credit losses

5. Loans, net and allowance for credit losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs, unearned income and net unaccreted discounts on acquired loans, at June 30, 2026, and December 31, 2025 are summarized as follows. The Company had net deferred loan origination costs of $2.1 million and $1.9 million at June 30, 2026 and December 31, 2025, respectively. Unearned income was $1.4 million at June 30, 2026, and $1.5 million at December 31, 2025. The balance of net unaccreted discounts on acquired loans was $36.2 million and $42.7 million at June 30, 2026 and December 31, 2025, respectively.


(Dollars in thousands)		June 30, 2026			December 31, 2025
Commercial and industrial		$	712,705		$	667,948
Municipal			200,552			202,303
Real estate
Commercial			2,490,510			2,314,110
Residential			640,000			602,309
Total			3,130,510			2,916,419
Consumer
Indirect auto			82,721			93,742
Consumer other			16,775			17,496
Total			99,496			111,238
Equipment financing			159,558			168,988
Total		$	4,302,821		$	4,066,896

Allowance for Credit Losses

The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and held to maturity securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the ACL for loans is considered a critical accounting estimate by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded ACL. The ACL related to loans receivable and held to maturity debt securities is reported separately as a contra-asset on the consolidated balance sheets. The expected credit loss for off balance sheet commitments, including commitments to extend credit, unused portions of lines of credit and standby letters of credit, is reported on the consolidated balance sheets in other liabilities. The provision for credit losses related to unfunded commitments is reported in other noninterest expense in the consolidated statements of income and comprehensive income.

The Company excludes accrued interest receivable from the amortized cost basis of loans, available for sale securities, and held to maturity securities. Accrued interest receivable on loans, which is reported as a component of accrued interest receivable on the consolidated balance sheets, totaled $15.0 million and $14.7 million at June 30, 2026, and December 31, 2025, respectively. Accrued interest receivable is excluded from the estimate of credit losses as the Company has a policy to reverse accrued interest when a loan is placed on nonaccrual status. Accrued interest receivable on available for sale securities and held to maturity securities, also a component of accrued interest receivable on the consolidated balance sheets, totaled $2.8 million and $3.0 million, respectively, at June 30, 2026, and December 31, 2025 and is excluded from the estimate of credit losses, as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner.

For a further discussion of our methodology related to the ACL, refer to Note 1 entitled, “Summary of significant accounting policies,” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

The following tables present the changes in and period end balance of the allowance for credit losses at and for the three and six months ended June 30, 2026 and 2025.


		June 30, 2026
								Real Estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Beginning balance April 1, 2026		$	5,985		$	1,490		$	22,171		$	5,071		$	1,710		$	3,159		$	39,586
Charge-offs			(156)						(166)						(311)			(64)			(697)
Recoveries			6									1			156			154			317
Provisions (credits)			1,164			(287)			3,356			(470)			28			(686)			3,105
Ending balance		$	6,999		$	1,203		$	25,361		$	4,602		$	1,583		$	2,563		$	42,311

		June 30, 2025
								Real Estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Beginning balance April 1, 2025		$	6,422		$	1,249		$	20,861		$	5,069		$	2,281		$	5,172		$	41,054
Charge-offs			(415)						(62)						(259)			(415)			(1,151)
Recoveries			292						566			64			145			159			1,226
(Credits) provisions			(76)			197			(745)			(127)			14			498			(239)
Ending balance		$	6,223		$	1,446		$	20,620		$	5,006		$	2,181		$	5,414		$	40,890


		June 30, 2026
								Real Estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Beginning balance January 1, 2026		$	6,036		$	1,413		$	19,998		$	4,963		$	1,759		$	4,838		$	39,007
Charge-offs			(156)						(166)						(905)			(446)			(1,673)
Recoveries			27						3			10			257			188			485
Provisions (credits)			1,092			(210)			5,526			(371)			472			(2,017)			4,492
Ending balance		$	6,999		$	1,203		$	25,361		$	4,602		$	1,583		$	2,563		$	42,311

		June 30, 2025
								Real Estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Beginning balance January 1, 2025		$	6,004		$	1,072		$	21,804		$	4,924		$	2,540		$	5,432		$	41,776
Charge-offs			(572)						(62)			(92)			(646)			(1,012)			(2,384)
Recoveries			305						566			65			318			283			1,537
Provisions (credits)			486			374			(1,688)			109			(31)			711			(39)
Ending balance		$	6,223		$	1,446		$	20,620		$	5,006		$	2,181		$	5,414		$	40,890

The following table represents the allowance for credit losses by major classification of loans and whether the loans were individually or collectively evaluated and collateral dependent by class of loans at June 30, 2026 and December 31, 2025.


		June 30, 2026
								Real Estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Ending balance		$	6,999		$	1,203		$	25,361		$	4,602		$	1,583		$	2,563		$	42,311
Ending balance: individually evaluated for impairment			440						419			69						164			1,092
Ending balance: collectively evaluated for impairment		$	6,559		$	1,203		$	24,942		$	4,533		$	1,583		$	2,399		$	41,219
Loans receivable:
Ending balance		$	712,705		$	200,552		$	2,490,510		$	640,000		$	99,496		$	159,558		$	4,302,821
Individually evaluated - collateral dependent - real estate									7,023			1,890									8,913
Individually evaluated - collateral dependent - non-real estate			2,600															841			3,441
Collectively evaluated		$	710,105		$	200,552		$	2,483,487		$	638,110		$	99,496		$	158,717		$	4,290,467


		December 31, 2025
								Real Estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Ending balance		$	6,036		$	1,413		$	19,998		$	4,963		$	1,759		$	4,838		$	39,007
Ending balance: individually evaluated for impairment			404						451			78						399			1,332
Ending balance: collectively evaluated for impairment		$	5,632		$	1,413		$	19,547		$	4,885		$	1,759		$	4,439		$	37,675
Loans receivable:
Ending balance		$	667,948		$	202,303		$	2,314,110		$	602,309		$	111,238		$	168,988		$	4,066,896
Individually evaluated - collateral dependent - real estate			1,470						4,056			3,039									8,565
Individually evaluated - collateral dependent - non-real estate			485															1,153			1,638
Collectively evaluated		$	665,993		$	202,303		$	2,310,054		$	599,270		$	111,238		$	167,835		$	4,056,693

Nonaccrual Loans

The following table presents the Company’s nonaccrual loans, including non-purchased credit deteriorated (“PCD”) nonaccrual loans, at June 30, 2026 and December 31, 2025.



			June 30, 2026
			Total			Nonaccrual with			Nonaccrual with
			Nonaccrual			an Allowance for			no Allowance for
(Dollars in thousands)			Loans			Credit Losses			Credit Losses
Commercial and industrial		$	2,699		$	2,600		$	99
Municipal
Real estate:
Commercial			7,415			7,023			392
Residential			2,326			1,890			436
Consumer			371						371
Equipment financing			856			841			15
Total		$	13,667		$	12,354		$	1,313



			December 31, 2025
			Total			Nonaccrual with			Nonaccrual with
			Nonaccrual			an Allowance for			no Allowance for
(Dollars in thousands)			Loans			Credit Losses			Credit Losses
Commercial and industrial		$	1,955		$	1,016		$	939
Municipal
Real estate:
Commercial			4,152			1,178			2,974
Residential			2,511			67			2,444
Consumer			1,048						1,048
Equipment financing			1,130			828			302
Total		$	10,796		$	3,089		$	7,707

Interest income recorded on nonaccrual loans was $368 thousand and $417 thousand for the three and six-month period ending June 30, 2026, and $91 thousand and $143 thousand for the three and six months ended June 30, 2025.

The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

●

Pass - A loan to a borrower with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss nor designated as Special Mention.

●

Special Mention - A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification.

●

Substandard - A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or

weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

●

Doubtful – A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

●

Loss - A loan classified as Loss is considered uncollectible and of such little value that its continuance as bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be realized in the future.

The following table presents the amortized cost of loans and gross charge-offs by year of origination and by major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at June 30, 2026 and December 31, 2025:


		As of June 30, 2026
(Dollars in thousands)			2026			2025			2024			2023			2022			Prior			Revolving Loans Amortized Cost Basis			Revolving Loans Converted to Term			Total
Commercial and industrial
Pass		$	79,012		$	79,091		$	69,493		$	37,572		$	47,570		$	121,229		$	260,449		$	10		$	694,426
Special mention			36												300			15			1,873						2,224
Substandard			46			373			530			148			1,958			792			12,208						16,055
Total commercial			79,094			79,464			70,023			37,720			49,828			122,036			274,530			10			712,705

Municipal
Pass			18,410			12,249			4,266			1,181			44,955			117,647			1,844						200,552
Special mention
Substandard
Total municipal			18,410			12,249			4,266			1,181			44,955			117,647			1,844						200,552

Commercial real estate
Pass			262,447			400,923			141,666			158,685			526,125			947,847						1,396			2,439,089
Special mention						562						5,760			629			10,001									16,952
Substandard			97			1,144			1,146			1,547			12,023			18,297						215			34,469
Total commercial real estate			262,544			402,629			142,812			165,992			538,777			976,145						1,611			2,490,510

Residential real estate
Pass			31,623			55,146			36,952			38,658			64,674			239,711			172,104						638,868
Special mention
Substandard																		959			173						1,132
Total residential real estate			31,623			55,146			36,952			38,658			64,674			240,670			172,277						640,000

Consumer
Pass			12,556			21,434			15,801			18,214			15,170			8,263			7,717						99,155
Special mention
Substandard			2			8			78			83			117			47			6						341
Total consumer			12,558			21,442			15,879			18,297			15,287			8,310			7,723						99,496

Equipment financing
Pass			26,334			43,913			40,926			31,671			12,722			1,803									157,369
Special mention
Substandard						388			648			795			358												2,189
Total equipment financing			26,334			44,301			41,574			32,466			13,080			1,803									159,558

Total Loans		$	430,563		$	615,231		$	311,506		$	294,314		$	726,601		$	1,466,611		$	456,374		$	1,621		$	4,302,821

Gross charge-offs
Commercial and industrial		$			$			$	98		$			$			$	58		$			$			$	156
Municipal
Commercial real estate																		166									166
Residential real estate
Consumer						191			265			179			163			107									905
Equipment financing						10			179			76			181												446
Total gross charge-offs		$			$	201		$	542		$	255		$	344		$	331		$			$			$	1,673


		As of December 31, 2025
(Dollars in thousands)			2025			2024			2023			2022			2021			Prior			Revolving Loans Amortized Cost Basis			Revolving Loans Converted to Term			Total
Commercial and industrial
Pass		$	81,246		$	69,710		$	57,789		$	53,915		$	38,907		$	94,729		$	251,834		$	100		$	648,230
Special mention			300			572						2,725			36			9			8,718						12,360
Substandard						111			400			579			664			30			5,574						7,358
Total commercial			81,546			70,393			58,189			57,219			39,607			94,768			266,126			100			667,948

Municipal
Pass			23,125			4,324			1,354			45,369			88,165			38,331			1,635						202,303
Special mention
Substandard
Total municipal			23,125			4,324			1,354			45,369			88,165			38,331			1,635						202,303

Commercial real estate
Pass			359,323			146,483			175,145			566,480			441,660			586,189						71			2,275,351
Special mention			573									1,508			2,174			9,149									13,404
Substandard			542			508			1,217			7,841			6,870			8,377									25,355
Total commercial real estate			360,438			146,991			176,362			575,829			450,704			603,715						71			2,314,110

Residential real estate
Pass			56,021			38,109			40,913			66,927			104,534			148,121			146,380						601,005
Special mention
Substandard															258			869			177						1,304
Total residential real estate			56,021			38,109			40,913			66,927			104,792			148,990			146,557						602,309

Consumer
Pass			25,443			19,746			24,017			21,716			9,574			3,153			6,493						110,142
Special mention
Substandard			158			161			137			338			177			113			12						1,096
Total consumer			25,601			19,907			24,154			22,054			9,751			3,266			6,505						111,238

Equipment financing
Pass			50,357			51,024			43,364			21,050			724												166,519
Special mention									129			12															141
Substandard			287			664			691			686															2,328
Total equipment financing			50,644			51,688			44,184			21,748			724												168,988

Total Loans		$	597,375		$	331,412		$	345,156		$	789,146		$	693,743		$	889,070		$	420,823		$	171		$	4,066,896

Gross charge-offs
Commercial and industrial		$			$	300		$			$	24		$	57		$	493		$			$			$	874
Municipal
Commercial real estate												853						95									948
Residential real estate												92															92
Consumer						195			361			342			116			55									1,069
Equipment Financing			210			201			778			661															1,850
Total gross charge-offs		$	210		$	696		$	1,139		$	1,972		$	173		$	643		$			$			$	4,833

The major classifications of loans by past due status are summarized as follows at June 30, 2026 and December 31, 2025:


		June 30, 2026
								Greater												Loans > 90
		30-59 Days			60-89 Days			than 90			Total Past									Days and
(Dollars in thousands)		Past Due			Past Due			Days			Due			Current			Total Loans			Accruing
Commercial and industrial		$	422		$	403		$	927		$	1,752		$	710,953		$	712,705		$
Municipal															200,552			200,552
Real estate:
Commercial			1,641			3,028			4,758			9,427			2,481,083			2,490,510
Residential			2,954			426			1,498			4,878			635,122			640,000			451
Consumer			1,701			359			182			2,242			97,254			99,496
Equipment financing			972			191			318			1,481			158,077			159,558
Total		$	7,690		$	4,407		$	7,683		$	19,780		$	4,283,041		$	4,302,821		$	451


		December 31, 2025
								Greater												Loans > 90
		30-59 Days			60-89 Days			than 90			Total Past									Days and
(Dollars in thousands)		Past Due			Past Due			Days			Due			Current			Total Loans			Accruing
Commercial and industrial		$	1,090		$	147		$	1,827		$	3,064		$	664,884		$	667,948		$
Municipal															202,303			202,303
Real estate:
Commercial			3,943			1,459			3,550			8,952			2,305,158			2,314,110
Residential			2,948			1,413			1,748			6,109			596,200			602,309			524
Consumer			2,527			500			776			3,803			107,435			111,238
Equipment financing			733			747			495			1,975			167,013			168,988
Total		$	11,241		$	4,266		$	8,396		$	23,903		$	4,042,993		$	4,066,896		$	524

There were no residential real estate loans in the formal process of foreclosure at June 30, 2026. Residential real estate loans in the formal process of foreclosure were $0.6 million at December 31, 2025.

Allowance for Credit Losses on Off Balance Sheet Commitments

Off balance sheet commitments include commitments to extend credit, unused portions of lines of credit and standby letters of credit. The Company establishes an ACL for off-balance sheet commitments, which is included in other liabilities on the consolidated balance sheets, to provide for expected credit losses that may be incurred related to these instruments. The following table presents the activity in the ACL related to off balance sheet commitments, for the three and six months ended June 30, 2026 and 2025:


			For the Three Months Ended
(Dollars in thousands)			June 30, 2026			June 30, 2025
Beginning balance		$	1,081		$	677
Charge-off			(3)
Provision for credit losses recorded in noninterest expense			219			172
Total allowance for credit losses on off balance sheet commitments		$	1,297		$	849

			For the Six Months Ended
(Dollars in thousands)			June 30, 2026			June 30, 2025
Beginning balance		$	1,305		$	880
Charge-off			(3)			(1)
Credit to provision for credit losses recorded in noninterest expense			(5)			(30)
Total allowance for credit losses on off balance sheet commitments		$	1,297		$	849

The contractual amounts of off-balance sheet commitments at June 30, 2026 and December 31, 2025 are as follows:


(Dollars in thousands)		June 30, 2026			December 31, 2025
Commitments to extend credit		$	678,794		$	660,353
Unused portions of lines of credit			197,179			178,689
Standby letters of credit			72,570			54,970
		$	948,543		$	894,012

Modifications to Borrowers Experiencing Financial Difficulty

There were no modifications made to loans to borrowers experiencing financial difficulty during the three months and six months ended June 30, 2026. There were no modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2025.

The following table presents, by class of loans, information regarding modified loans to borrowers experiencing financial difficulty during the six months ended June 30, 2026 and 2025.

Other-Than-Insignificant Payment Delay

For the six months ended June 30,

2026

2025

Number
of

Amortized Cost

% of Total Class of Financing

Related

Number
of

Amortized Cost

% of Total Class of Financing

Related

(Dollars in thousands)

Loans

Basis

Receivable

Reserve

Loans

Basis

Receivable

Reserve

Modified Loans to Borrowers Experiencing Financial Difficulty:

Commercial and industrial

$

0.00%

$

1

$

242

0.036%

$

Total

$

$

1

$

242

$

The following table presents, by class of loans, information regarding the financial effect on modified loans to borrowers experiencing financial difficulty during the six months ended June 30, 2025.


		Other-Than-Insignificant Payment Delay
(Dollars in thousands)		No. of Loans			Balance	Financial Effect
For the Six Months Ended June 30, 2025
Nonaccrual modified loans to borrowers experiencing financial difficulty:
Commercial and industrial		1		$	242	Modified principal and interest payment to interest only for 4 months
Total		1		$	242