3. Loans and Allowance for Credit Losses

The Company generally makes loans in its market areas of southern and central Mississippi; southern and central Alabama; northwest, central and southern Louisiana; the northern, central and panhandle regions of Florida; certain areas of east and northeast Texas; and the metropolitan areas of Nashville, Tennessee, Atlanta, Georgia and Charlotte, North Carolina. In addition, and to a lesser degree, the Bank makes loans both regionally and nationally, generally through its specialty lines of business, including the equipment finance, commercial real estate and healthcare segments, often with sponsors in our market areas.

The following table presents loans at their amortized cost basis by portfolio class at June 30, 2026 and December 31, 2025. The amortized cost basis is net of unearned income and excludes accrued interest totaling $108.0 million and $105.1 million at June 30, 2026 and December 31, 2025, respectively. Accrued interest is reflected in the accrued interest line item in the Consolidated Balance Sheets.

The following briefly describes the composition of each loan category and portfolio class.

Commercial and industrial

Commercial and industrial loans are made available to businesses for working capital (including financing of inventory and receivables), for business expansion, facilitating the acquisition of a business, and for the purchase of equipment and machinery, including equipment leasing. These loans are primarily made based on the identified cash flows of the borrower and, when secured, have the added strength of the underlying collateral.

Commercial non-real estate loans may be secured by the assets being financed or other tangible or intangible business assets such as accounts receivable, inventory, ownership, enterprise value or commodity interests, and may incorporate a personal or corporate guarantee; however, some short-term loans may be made on an unsecured basis, including a small portfolio of corporate credit cards, generally issued as a part of overall customer relationships.

Commercial real estate – owner occupied loans consist of commercial mortgages on properties where repayment is generally dependent on the cash flow from the ongoing operations and activities of the borrower. Like commercial non-real estate, these loans are primarily made based on the identified cash flows of the borrower, but they also have the added strength of the value of underlying real estate collateral.

Commercial real estate – income producing

Commercial real estate – income producing loans consist of loans secured by commercial mortgages on properties where the loan is made to real estate developers or investors and repayment is dependent on the sale, refinance, or income generated from the operation of the property. Properties financed include multifamily, retail, healthcare related facilities, industrial, office, hotel/motel and restaurants, and other commercial properties.

Construction and land development

Construction and land development loans are made to facilitate the acquisition, development, improvement and construction of both commercial and residential-purpose properties. Such loans are made to builders and investors where repayment is expected to be made from the sale, refinance or operation of the property or to businesses to be used in their business operations. This portfolio also includes residential construction loans and loans secured by raw land not yet under development.

Residential mortgages

Residential mortgages consist of closed-end loans secured by first liens on 1-4 family residential properties. The portfolio includes both fixed and adjustable rate loans, although most longer-term, fixed rate loans originated are sold in the secondary mortgage market.

Consumer

Consumer loans include second lien mortgage home loans, home equity lines of credit and nonresidential consumer purpose loans. Nonresidential consumer loans are made to finance the purchase of personal property, including automobiles, recreational vehicles and boats, and for other personal purposes (secured and unsecured), and also include deposit account secured loans. Consumer loans also include a small portfolio of credit card receivables issued on the basis of applications received through referrals from the Bank’s branches, online and other marketing efforts.

Allowance for Credit Losses

The calculation of the allowance for credit losses is performed using two primary approaches: a collective approach using a loss rate analysis for pools of loans that have similar risk characteristics, and a specific reserve analysis for credits individually evaluated. The allowance for credit losses for collectively evaluated portfolios is developed using multiple Moody’s macroeconomic forecasts applied in internally developed credit models for a two-year reasonable and supportable period. For additional information on our allowance for credit loss methodology, refer to Note 1 – Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

The allowance for credit losses at June 30, 2026 reflects a modest net increase in the funded and unfunded reserves, largely driven by the growth in the commercial loan portfolios and reflecting relatively stable credit metrics when compared to year-end. In arriving at the allowance for credit losses at June 30, 2026, the Company weighted Moody’s June 2026 baseline economic forecast at 50% and the downside mild recessionary S-2 scenario at 50%. The June 2026 baseline scenario, which Moody’s defines as the most likely outcome of where the economy is headed based on current conditions, reflects the potential impacts of current geopolitical conflicts and continued elevated inflation, and projects moderate GDP growth and gradually rising unemployment in the near term. The S-2 scenario assumes heightened geopolitical and trade disruptions, higher and sustained tariffs, elevated oil prices, and increased global uncertainty, triggering a mild recession beginning in the third quarter of 2026, and lasting for three quarters.

The allowance for credit losses at June 30, 2025 was down modestly on a net basis compared to December 31, 2024, largely driven by the declines in the commercial real estate - income producing and the construction and land development portfolios, that was partially offset by increases in certain other portfolios due to the expected impact of continued stress of market conditions on our borrowers. In arriving at the allowance for credit losses at June 30, 2025, the Company weighted the baseline economic forecast at 50% and the downside mild recessionary S-2 scenario at 50%.

Nonaccrual Loans and Certain Reportable Modified Loan Disclosures

As a part of our loss mitigation efforts, we may provide modifications to borrowers experiencing financial difficulty to improve long-term collectability of the loans and to avoid the need for repossession or foreclosure of collateral. Nonaccrual loans include reportable nonaccruing modified loans to borrowers experiencing financial difficulty (“MEFDs”) totaling $11.4 million and $5.8 million at June 30, 2026 and December 31, 2025, respectively. Total reportable MEFDs, both accruing and nonaccruing, were $154.3 million and $162.8 million at June 30, 2026 and December 31, 2025, respectively. Unfunded commitments to borrowers whose terms have been modified as a reportable MEFD were $3.1 million and $7.2 million at June 30, 2026 and December 31, 2025, respectively.

For the three months ended June 30, 2026, reportable modifications to borrowers experiencing financial difficulty consisted of weighted average term extensions totaling approximately one year for commercial loans, two years for residential mortgage loans and four years for consumer loans. Reportable modifications to borrowers experiencing financial difficulty during the six months ended June 30, 2026 consisted of weighted average term extensions totaling approximately 13 months for commercial loans, two years for residential mortgage loans and five years for consumer loans. The weighted average term of other than insignificant payment delays for the three months ended June 30, 2026 was two months for commercial loans. The weighted average term of other than insignificant payment delays for the six months ended June 30, 2026 was 11 months for commercial loans. In addition, the weighted-average interest rate reduction for residential loans during the six months ended June 30, 2026 was 164 basis points. Term extensions and payment delays are considered other than insignificant when they exceed six months when considering other modifications made in the prior twelve months.

Reportable modifications to borrowers experiencing financial difficulty during the three months ended June 30, 2025 consisted of weighted average term extensions totaling approximately two months for commercial loans and 17 months for residential mortgage loans. Reportable modifications to borrowers experiencing financial difficulty during the six months ended June 30, 2025 consisted of weighted average term extensions totaling approximately three months for commercial loans and 13 months for residential mortgage loans. The weighted average term of other than insignificant payment delays for the three months ended June 30, 2025 was four months for commercial loans. The weighted average term of other than insignificant payment delays for the six months ended June 30, 2025 was four months for commercial loans and one month for residential mortgage loans.

The tables that follow present the aging analysis of reportable modifications to borrowers experiencing financial difficulty by portfolio class at June 30, 2026 and December 31, 2025.

There were loans to four commercial borrowers totaling $32.8 million and two residential borrowers totaling $2.2 million with reportable term extensions and/or significant payment delays that had post modification payment defaults during the three months ended June 30, 2026. For the six month period ended June 30, 2026, there were loans to eight commercial borrowers totaling $72.9 million and three residential borrowers totaling $2.3 million with reportable term extensions and/or significant payment delays that had post modification payment defaults. There were loans to six commercial borrowers totaling $18.9 million with reportable term extensions and/or significant payment delays that had post modification payment defaults during the three months ended June 30, 2025. For the six month period ended June 30, 2025, there were loans to eight commercial borrowers totaling $20.8 million with reportable term extensions, significant payment delays and/or interest rate reductions that had post modification payment defaults. A payment default occurs if the loan is either 90 days or more delinquent or has been charged off as of the end of the period presented.

Aging Analysis