Loans, Allowance for Credit Losses, Credit Quality and Off-Balance Sheet Credit Exposures

9 Months Ended

Sep. 30, 2026

Loans, Allowance for Credit Losses, Credit Quality and Off-Balance Sheet Credit Exposures

Loans, Allowance for Credit Losses, Credit Quality and Off-Balance Sheet Credit Exposures

Note 5. Loans, Allowance for Credit Losses, Credit Quality and Off-Balance Sheet Credit Exposures

The composition of net loans as of the balance sheet dates was as follows:

The composition of net loans follows:
	September 30, 2026					December 31, 2025

Commercial & industrial	$	113,415,662		11.10	%	$	107,458,746		11.13	%
Purchased (1)		7,505,583		0.73	%		10,010,347		1.04	%
Commercial real estate		505,362,565		49.44	%		499,647,904		51.76	%
Municipal		67,850,278		6.64	%		62,078,419		6.43	%
Residential real estate - 1st lien		275,487,300		26.95	%		236,556,346		24.51	%
Residential real estate - Jr lien		49,900,699		4.88	%		46,472,047		4.81	%
Consumer		2,613,482		0.26	%		3,061,853		0.32	%
Total loans		1,022,135,569		100.00	%		965,285,662		100.00	%

ACL		(12,342,070	)				(10,864,983	)
Deferred net loan costs		1,234,875					786,604
Net loans	$	1,011,028,374				$	955,207,283

(1)

As of September 30, 2026, purchased loans consisted of $2.2 million in commercial loans and $5.3 million in consumer loans, compared to $3.0 million and $7.0 million, respectively, as of December 31, 2025.

Accrued interest receivable on loans totaled $4.2 million as of September 30, 2026 and $4.0 million as of December 31, 2025, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

Credit loss expense

Three Months Ended September 30,	2026			2025

Credit loss expense - loans	$	502,269		$	198,264
Credit loss (reversal) expense - OBS credit exposure		(28,960	)		60,489
Credit loss expense	$	473,309		$	258,753

Nine Months Ended September 30,	2026			2025

Credit loss expense - loans	$	1,491,801		$	1,011,761
Credit loss expense (reversal) - OBS credit exposure		93,980			(20,908	)
Credit loss expense	$	1,585,781		$	990,853

The following tables present the activity in the ACL on loans for the periods presented.

For the three months ended September 30, 2026

	Balance							Credit Loss			Balance
	June 30,							Expense			September 30,
	2026		Charge-offs			Recoveries		(Reversal)			2026

Commercial & Industrial	$	1,300,424	$	(40,803	)	$	9,057	$	(18,305	)	$	1,250,373
Purchased		24,782		0			0		(2,317	)		22,465
Commercial Real Estate		6,509,906		0			0		106,018			6,615,924
Municipal		111,459		0			0		58,167			169,626
Residential Real Estate - 1st Lien		3,294,909		0			3,806		318,303			3,617,018
Residential Real Estate - Jr Lien		615,647		0			0		29,025			644,672
Consumer		24,194		(27,512	)		13,932		11,378			21,992
Totals	$	11,881,321	$	(68,315	)	$	26,795	$	502,269		$	12,342,070

For the nine months ended September 30, 2026

	Balance							Credit Loss			Balance
	December 31,							Expense			September 30,
	2025		Charge-offs			Recoveries		(Reversal)			2026

Commercial & Industrial	$	627,062	$	(71,724	)	$	82,020	$	613,015		$	1,250,373
Purchased		30,221		0			0		(7,756	)		22,465
Commercial Real Estate		6,303,378		0			0		312,546			6,615,924
Municipal		155,196		0			0		14,430			169,626
Residential Real Estate - 1st Lien		3,120,462		0			11,435		485,121			3,617,018
Residential Real Estate - Jr Lien		600,940		0			0		43,732			644,672
Consumer		27,724		(75,233	)		38,788		30,713			21,992
Totals	$	10,864,983	$	(146,957	)	$	132,243	$	1,491,801		$	12,342,070

For the year ended December 31, 2025

	Balance							Credit Loss			Balance
	December 31,							Expense			December 31,
	2024		Charge-offs			Recoveries		(Reversal)			2025

Commercial & Industrial	$	727,488	$	(393,439	)	$	56,006	$	237,007		$	627,062
Purchased		22,415		0			0		7,806			30,221
Commercial Real Estate		6,487,700		0			0		(184,322	)		6,303,378
Municipal		167,719		0			0		(12,523	)		155,196
Residential Real Estate - 1st Lien		2,087,034		(13,757	)		14,367		1,032,818			3,120,462
Residential Real Estate - Jr Lien		291,239		0			0		309,701			600,940
Consumer		26,617		(93,021	)		35,633		58,495			27,724
Totals	$	9,810,212	$	(500,217	)	$	106,006	$	1,448,982		$	10,864,983

For the three months ended September 30, 2025

	Balance							Credit Loss			Balance
	June 30,							Expense			September 30,
	2025		Charge-offs			Recoveries		(Reversal)			2025

Commercial & Industrial	$	697,125	$	(7,645	)	$	36,142	$	(73,813	)	$	651,809
Purchased		32,580		0			0		416			32,996
Commercial Real Estate		6,760,034		0			0		23,032			6,783,066
Municipal		106,028		0			0		69,197			175,225
Residential Real Estate - 1st Lien		2,602,099		(13,490	)		2,966		42,720			2,634,295
Residential Real Estate - Jr Lien		326,582		0			0		140,527			467,109
Consumer		25,083		(8,912	)		12,413		(3,815	)		24,769
Totals	$	10,549,531	$	(30,047	)	$	51,521	$	198,264		$	10,769,269

For the nine months ended September 30, 2025

	Balance							Credit Loss			Balance
	December 31,							Expense			September 30,
	2024		Charge-offs			Recoveries		(Reversal)			2025

Commercial & Industrial	$	727,488	$	(46,517	)	$	51,911	$	(81,073	)	$	651,809
Purchased		22,415		0			0		10,581			32,996
Commercial Real Estate		6,487,700		0			0		295,366			6,783,066
Municipal		167,719		0			0		7,506			175,225
Residential Real Estate - 1st Lien		2,087,034		(13,757	)		3,451		557,567			2,634,295
Residential Real Estate - Jr Lien		291,239		0			0		175,870			467,109
Consumer		26,617		(80,825	)		33,033		45,944			24,769
Totals	$	9,810,212	$	(141,099	)	$	88,395	$	1,011,761		$	10,769,269

Credit Quality Grouping

In developing the ACL, management uses credit quality groupings to help evaluate trends in credit quality. The Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the portfolio is generally grouped by delinquency pool.

Group A loans - Pass– are loans that are expected to perform as agreed under their respective terms. Such loans carry a normal level of risk that does not require management attention beyond that warranted by the loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial purpose loans that are individually risk rated and retail loans that are rated by pool. Group A retail loans include performing consumer and residential real estate loans. Residential real estate loans are loans to individuals secured by 1-4 family homes, including first mortgages, home equity and home improvement loans. Loan balances fully secured by deposit accounts or that are fully guaranteed by the federal government are considered acceptable risk.

Group B loans – Special Mention - are loans that require greater attention than the acceptable risk loans in Group A. Characteristics of such loans may include, but are not limited to, borrowers that are experiencing negative operating trends such as reduced sales or margins, borrowers that have exposure to adverse market conditions such as increased competition or regulatory burden, or borrowers that have had unexpected or adverse changes in management. These loans have a greater likelihood of migrating to an unacceptable risk level if these characteristics are left unchecked. Group B is limited to commercial purpose loans that are individually risk rated.

Group C loans – Substandard/Doubtful – are loans that have distinct shortcomings that require a greater degree of management attention. Examples of these shortcomings include a borrower's inadequate capacity to service debt, poor operating performance, or insolvency. These loans are more likely to result in repayment through collateral liquidation. Group C loans range from those that are likely to sustain some loss if the shortcomings are not corrected, to those for which loss is imminent and non-accrual treatment is warranted. Group C loans include individually rated commercial purpose loans and retail loans adversely rated in accordance with the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification Policy. Group C retail loans include 1-4 family residential real estate loans and home equity loans past due 90 days or more with loan-to-value ratios greater than 60%, home equity loans 90 days or more past due where the Bank does not hold first mortgage, irrespective of loan-to-value, loans in bankruptcy where repayment is likely but not yet established, and lastly consumer loans that are 90 days or more past due.

Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk rating is based on the borrower's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the loan terms. Credit risk ratings are meant to measure risk versus simply record history. Assessment of expected future payment performance requires consideration of numerous factors. While past performance is part of the overall evaluation, expected performance is based on an analysis of the borrower's financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality of the borrower’s management. Other factors influencing the credit risk rating to a lesser degree include collateral coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry conditions. There are uncertainties inherent in this process.

Credit risk ratings are dynamic and require updating whenever relevant information is received. Risk ratings are assessed on an ongoing basis and at various points, including at delinquency or at the time of other adverse events. For larger, more complex or adversely rated loans, risk ratings are also assessed at the time of annual or periodic review. Lenders are required to make immediate disclosure to the Senior Lender of any known increase in loan risk, even if considered temporary in nature.

The risk ratings within the loan portfolio by loan segment and origination year, were as follows:

As of September 30, 2026													Revolving
													Loans		Revolving
	Term Loans Amortized Cost Basis by Origination Year												Amortized Cost		Loans Converted
	2026		2025		2024		2023		2022		Prior		Basis		to Term		Total
	*(Dollars in Thousands)*
Commercial & Industrial:
Pass	$	14,785	$	10,613	$	14,704	$	7,003	$	8,732	$	4,674	$	41,106	$	0	$	101,617
Special mention		0		8		139		128		928		53		3,827		0		5,083
Substandard/Doubtful		12		0		63		483		3,667		903		1,588		0		6,716
Total	$	14,797	$	10,621	$	14,906	$	7,614	$	13,327	$	5,630	$	46,521	$	0	$	113,416

Purchased:
Pass	$	3,410	$	0	$	0	$	2,008	$	57	$	2,031	$	0	$	0	$	7,506
Total	$	3,410	$	0	$	0	$	2,008	$	57	$	2,031	$	0	$	0	$	7,506

Commercial real estate:
Pass	$	41,210	$	60,449	$	49,729	$	71,120	$	71,841	$	139,509	$	44,881	$	0	$	478,739
Special mention		0		442		2,008		11,578		3,354		2,578		0		0		19,960
Substandard/Doubtful		0		0		1,743		194		115		4,414		198		0		6,664
Total	$	41,210	$	60,891	$	53,480	$	82,892	$	75,310	$	146,501	$	45,079	$	0	$	505,363

Municipal:
Pass	$	31,573	$	5,092	$	3,793	$	95	$	152	$	10,841	$	15,137	$	0	$	66,683
Special mention		0		0		0		0		0		1,167		0		0		1,167
Total	$	31,573	$	5,092	$	3,793	$	95	$	152	$	12,008	$	15,137	$	0	$	67,850

Residential real estate - 1st lien:
Pass	$	56,130	$	43,519	$	27,766	$	22,967	$	28,948	$	88,171	$	4,119	$	0	$	271,620
Special mention		0		0		0		233		469		344		0		0		1,046
Substandard/Doubtful		2,398		119		0		40		118		146		0		0		2,821
Total	$	58,528	$	43,638	$	27,766	$	23,240	$	29,535	$	88,661	$	4,119	$	0	$	275,487

Residential real estate - Jr lien:
Pass	$	1,513	$	5,748	$	3,748	$	1,125	$	1,284	$	1,197	$	33,178	$	1,784	$	49,577
Special mention		0		0		65		0		0		51		0		0		116
Substandard/Doubtful		0		0		0		0		0		11	$	197		0		208
Total	$	1,513	$	5,748	$	3,813	$	1,125	$	1,284	$	1,259	$	33,375	$	1,784	$	49,901

Consumer:
Pass	$	1,130	$	668	$	453	$	187	$	77	$	98	$	0	$	0	$	2,613
Total	$	1,130	$	668	$	453	$	187	$	77	$	98	$	0	$	0	$	2,613

Total Loans	$	152,161	$	126,658	$	104,211	$	117,161	$	119,742	$	256,188	$	144,231	$	1,784	$	1,022,136

As of September 30, 2026, there were (i) no Substandard/Doubtful loans within the Municipal loan segment, and (ii) no Special mention loans or Substandard/Doubtful loans within the Purchased or Consumer loan segments.

As of December 31, 2025													Revolving
													Loans		Revolving
	Term Loans Amortized Cost Basis by Origination Year												Amortized Cost		Loans Converted
	2025		2024		2023		2022		2021		Prior		Basis		to Term		Total
	*(Dollars in Thousands)*
Commercial & Industrial:
Pass	$	11,960	$	17,660	$	9,792	$	11,597	$	3,493	$	3,673	$	39,322	$	0	$	97,497
Special mention		0		0		7		91	$	29		0		1,102		0		1,229
Substandard/Doubtful		0		0		545		3,948		497		1,374		2,369		0		8,733
Total	$	11,960	$	17,660	$	10,344	$	15,636	$	4,019	$	5,047	$	42,793	$	0	$	107,459

Purchased:
Pass	$	4,213	$	0	$	3,046	$	67	$	733	$	1,951	$	0	$	0	$	10,010
Total	$	4,213	$	0	$	3,046	$	67	$	733	$	1,951	$	0	$	0	$	10,010

Commercial real estate:
Pass	$	59,936	$	55,850	$	81,591	$	88,236	$	32,288	$	118,864	$	44,536	$	0	$	481,301
Special mention		0		0		4,605		176		0		7,034		0		0		11,815
Substandard/Doubtful		220		1,217		0		0		0		5,095		0		0		6,532
Total	$	60,156	$	57,067	$	86,196	$	88,412	$	32,288	$	130,993	$	44,536	$	0	$	499,648

Municipal:
Pass	$	26,477	$	4,074	$	136	$	236	$	2,579	$	9,469	$	17,870	$	0	$	60,841
Special mention		0		0		0		0		0		1,238		0		0		1,238
Total	$	26,477	$	4,074	$	136	$	236	$	2,579	$	10,707	$	17,870	$	0	$	62,079

Residential real estate - 1st lien:
Pass	$	44,262	$	26,622	$	25,994	$	31,186	$	32,717	$	68,611	$	4,445	$	0	$	233,837
Special mention		0		0		154		183		224		158		0		0		719
Substandard/Doubtful		0		0		41		0		107		1,852		0		0		2,000
Total	$	44,262	$	26,622	$	26,189	$	31,369	$	33,048	$	70,621	$	4,445	$	0	$	236,556

Residential real estate - Jr lien:
Pass	$	6,149	$	3,005		1,490	$	1,425	$	279	$	1,030	$	31,264	$	1,686	$	46,328
Special mention		0		68		0		0		0		61		0		0		129
Substandard/Doubtful		0		0		0		0		0		15		0		0		15
Total	$	6,149	$	3,073	$	1,490	$	1,425	$	279	$	1,106	$	31,264	$	1,686	$	46,472

Consumer:
Pass	$	1,583	$	695	$	395	$	182	$	73	$	134	$	0	$	0	$	3,062
Total	$	1,583	$	695	$	395	$	182	$	73	$	134	$	0	$	0	$	3,062

Total Loans	$	154,800	$	109,191	$	127,796	$	137,327	$	73,019	$	220,559	$	140,908	$	1,686	$	965,286

As of December 31, 2025, there were (i) no Substandard/Doubtful loans within the Municipal loan segment and (ii) no Special mention or Substandard/Doubtful loans within the Purchased or Consumer loan segments.

Gross charge-offs, by loan segment and origination year, were as follows:

For the nine months ended September 30, 2026
	Term Loans Amortized Cost Basis by Origination Year
	2026		2025		2024		2023		2022		Prior		Total
	*(Dollars in Thousands)*
Current period gross charge-offs
Commercial & Industrial	$	0	$	41	$	0	$	18	$	13	$	0	$	72
Consumer		0		11		11		0		0		53		75
Total current period gross charge-offs	$	0	$	52	$	11	$	18	$	13	$	53	$	147

For the nine months ended September 30, 2026, there were no current period charge-offs within the Purchased, Commercial real estate, Municipal, Residential real estate 1^st lien, or Residential real estate Jr lien loan segments.

For the year ended December 31, 2025
	Term Loans and Charge Offs by Origination Year
	2025		2024		2023		2022		2021		Prior		Total
	*(Dollars in Thousands)*
Current period gross charge-offs
Commercial & Industrial	$	83	$	0	$	8	$	0	$	0	$	303	$	394
Residential real estate - 1st lien		0		0		0		13		0		0		13
Consumer		1		17		5		5		1		64		93
Total current period gross charge-offs	$	84	$	17	$	13	$	18	$	1	$	367	$	500

For the year ended, December 31, 2025, there were no current period gross charge-offs within the Purchased, Commercial real estate, Municipal, or Residential real estate Jr lien loan segments.

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the dates presented. There were two nonaccrual loans with a reserve of $542 thousand as of September 30, 2026, and none as of December 31, 2025.

			90 Days or
	Total		More and
September 30, 2026	Nonaccrual		Accruing

Commercial & industrial	$	5,568,921	$	0
Commercial real estate		3,144,527		685,561
Residential real estate - 1st lien		214,944		283,796
Residential real estate - Jr lien		207,502		0
Totals	$	9,135,894	$	969,357

			90 Days or
	Total		More and
December 31, 2025	Nonaccrual		Accruing

Commercial & industrial	$	5,720,577	$	0
Commercial real estate		1,020,249		0
Residential real estate - 1st lien		253,064		253,055
Residential real estate - Jr lien		15,741		225,568
Totals	$	7,009,631	$	478,623

The following is an age analysis of past due loans (including non-accrual) as of the balance sheet dates, by portfolio segment:

			90 Days		Total
September 30, 2026	30-89 Days		or More		Past Due		Current		Total Loans

Commercial & industrial	$	30,916	$	31,139	$	62,055	$	113,353,607	$	113,415,662
Purchased		0		0		0		7,505,583		7,505,583
Commercial real estate		1,716,470		699,117		2,415,587		502,946,978		505,362,565
Municipal		0		0		0		67,850,278		67,850,278
Residential real estate - 1st lien		565,663		428,830		994,493		274,492,807		275,487,300
Residential real estate - Jr lien		522,978		0		522,978		49,377,721		49,900,699
Consumer		16,080		0		16,080		2,597,402		2,613,482
Totals	$	2,852,107	$	1,159,086	$	4,011,193	$	1,018,124,376	$	1,022,135,569

			90 Days		Total
December 31, 2025	30-89 Days		or More		Past Due		Current		Total Loans

Commercial & industrial	$	11,044	$	987,634	$	998,678	$	106,460,068	$	107,458,746
Purchased		0		0		0		10,010,347		10,010,347
Commercial real estate		356,541		17,548		374,089		499,273,815		499,647,904
Municipal		0		0		0		62,078,419		62,078,419
Residential real estate - 1st lien		1,563,753		299,793		1,863,546		234,692,800		236,556,346
Residential real estate - Jr lien		402,645		225,568		628,213		45,843,834		46,472,047
Consumer		31,542		0		31,542		3,030,311		3,061,853
Totals	$	2,365,525	$	1,530,543	$	3,896,068	$	961,389,594	$	965,285,662

For all loan segments, loans over 30 days past due are considered delinquent.

The following table presents the amortized cost basis of collateral-dependent loans (i.e. repayment expected through underlying collateral, no other expected sources of repayment) as of the balance sheet dates, by collateral type:

	Business
	Assets (1)		Real Estate		Total
September 30, 2026
Commercial & industrial	$	2,681,250	$	0	$	2,681,250
Commercial real estate		0		1,356		1,356
Residential real estate - Jr lien		0		196,596		196,596
Totals	$	2,681,250	$	197,952	$	2,879,202

December 31, 2025
Commercial real estate	$	0	$	1,755	$	1,755
Residential real estate - 1st lien		0		153,661		153,661
Totals	$	0	$	155,416	$	155,416

(1) Including, but not limited to, inventory, equipment, and accounts receivable, but excluding real estate.

Residential real estate loans in process of foreclosure consisted of three loans in the aggregate amount of $324,419 and two loans in the aggregate amount of $273,031, as of September 30, 2026, and December 31, 2025, respectively.

Allowance for credit losses

Credit losses are charged against the allowance when management believes that future payments of a loan balance are unlikely. Subsequent recoveries, if any, are credited to the allowance. Unsecured loans are charged off when they become uncollectible and no later than 120 days past due. Unsecured loans to customers who subsequently file bankruptcy, are charged off within 30 days of receipt of the notification of filing or by the end of the month in which the loans become 120 days past due, whichever occurs first. For secured loans, both residential and commercial, the potential loss on these loans is carried as a loan loss reserve specific allocation; the loss portion is charged off when collection of the full loan appears unlikely. The unsecured portion of a real estate loan is that portion of the loan exceeding the "fair value" of the collateral less the estimated cost to sell. The value of the collateral is determined in accordance with the Company’s appraisal policy. The unsecured portion of a real estate secured loan is charged off by the end of the month in which the loan becomes 180 days past due.

As described below, the allowance consists of general and specific components. However, the entire allowance is available to absorb losses in the loan portfolio, regardless of general or specific components considered in determining the amount of the allowance.

General component

The general component of the ACL is based on methodologies, inputs, and assumptions utilized to estimate lifetime credit losses when applied to the following loan segments: commercial and industrial, purchased loans, CRE, municipal, residential real estate 1st lien, residential real estate Jr lien and consumer loans. The Company does not disaggregate its portfolio segments further into classes.

The Company utilizes a DCF approach to calculate the expected loss for each portfolio segment. Within the DCF model, probability of default (PD) and loss given default (LGD) assumptions are applied to calculate the expected loss for each segment. PD is management’s estimate of the probability the asset will default within a given timeframe and LGD is management’s estimate of the percentage of assets not expected to be collected due to default. The Company's PD and LGD assumptions may be derived from internal historical default and loss experience or from external data where there are not statistically meaningful loss events for a loan segment, or it does not have default and loss data that covers a full economic cycle.

As of September 30, 2026, the primary macroeconomic drivers used within the DCF model included forecasts of civilian unemployment and changes in national gross domestic product (GDP). Management monitors and assesses its macroeconomic drivers at least annually (generally in the fourth quarter, or more frequently as circumstances warrant) to determine whether they continue to be the most predictive indicator of losses within the Company's loan portfolio, and these macroeconomic drivers may change from time to time.

To determine its reasonable and supportable forecast, management may leverage macroeconomic forecasts obtained from various reputable sources, which may include, but are not limited to, the FOMC forecast and other publicly available forecasts from well recognized, leading economists or firms. The Company's reasonable and supportable forecast period generally ranges from one to three years, depending on the facts and circumstances of the current state of the economy, portfolio segment, and management's judgment of what can be reasonably supported. The model reversion period generally ranges from one to six years, and it also depends on the current state of the economy and management's judgments of such. Management monitors and assesses the forecast and reversion period at least annually, or more frequently as circumstances warrant. The Company used a one-year forecast and reversion period to calculate the ACL on loans as of September 30, 2026 and 2025.

When the DCF method is used to determine the ACL, management does not adjust the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

Expected credit losses are estimated over the contractual term of the loans. For term loans, the contractual life is calculated based on the maturity date. For commercial revolving loans with no stated maturity date, the contractual life is calculated based on the internal review date. For all other revolving loans, the contractual life is based on either the estimated maturity date or a default date. The contractual term excludes expected extensions, renewals, and modifications.

In calculating the ACL on loans, the contractual life of a loan must be adjusted for prepayments to arrive at expected cash flows. The Company models term loans using an annualized prepayment. When the Company has a specific expectation of differing payment behavior for a given loan, the loan may be evaluated individually. For revolving loans that do not have a principal payment schedule, a curtailment rate is factored into the expected cash flow.

Management has elected to use loss rate methodologies appropriate for each loan segment. The DCF method was chosen for the commercial and industrial, CRE, residential real estate 1^st lien, residential real estate Jr Lien and consumer loans. The DCF model, being periodic in nature, allows for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner. For the purchased loans segment, a long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Due to the lack of any historical loss data, a manual entry methodology was chosen for the municipal loans given the immaterial nature of the pool when considering prior loss history as well as the inability to reasonably forecast a PD or LGD for the pool.

Qualitative factors are also applied to include the levels of and trends in delinquencies and non-performing loans, levels of and trends in loan risk groups, trends in volumes and terms of loans, effects of any changes in loan related policies, experience, ability and the depth of management, documentation and credit data exception levels, national and local economic trends, external factors such as competition and regulation and lastly, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of CRE loans. This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available. Management’s review of the ACL during the third quarter of 2026 resulted in no changes to the risk status of any qualitative factor.

The qualitative factors are determined based on the various risk characteristics of each loan segment. The Company has policies, procedures and internal controls that management believes are commensurate with the risk profile of each of these segments. Major risk characteristics relevant to each portfolio segment are as follows:

Commercial & Industrial – Loans in this segment include commercial and industrial loans and to a lesser extent loans to finance agricultural production. Commercial loans are made to businesses and are generally secured by assets of the business, including trade assets and equipment. While not the primary collateral, in many cases these loans may also be secured by the real estate of the business. Repayment is expected from the cash flows of the business. A weakened economy, soft consumer spending, unfavorable foreign trade conditions and the rising cost of labor or raw materials are examples of issues that can impact credit quality in this segment.

Purchased –Loans in this segment are loans purchased through a loan purchasing program with BHG. BHG originates commercial loans to medical professionals and consumer loans to other professionals nationwide and sells them individually to a secondary market, primarily banks, through a bid process. The Bank has established conservative credit parameters and expects a low risk of default in this portfolio.

Commercial Real Estate – Loans in this segment are principally made to businesses and are generally secured by either owner-occupied, or non-owner occupied CRE. A relatively small portion of this segment includes farm loans secured by farmland and buildings. As with commercial and industrial loans, repayment of owner-occupied CRE loans is expected from the cash flows of the business and the segment would be impacted by the same risk factors as commercial and industrial loans. The non-owner occupied CRE portion includes both residential and commercial construction loans, vacant land and real estate development loans, multi-family dwelling loans and commercial rental property loans. Repayment of construction loans is expected from permanent financing takeout; the Company generally requires commitment or eligibility for the take-out financing prior to construction loan origination. Real estate development loans are generally repaid from the sale of the subject real property as the project progresses. Construction and development lending entail additional risks, including the project exceeding budget, not being constructed according to plans, not receiving permits, or the pre-leasing or occupancy rate not meeting expectations. Repayment of multi-family loans and commercial rental property loans is expected from the cash flow generated by rental payments received from the individuals or businesses occupying the real estate. CRE loans are impacted by factors such as competitive market forces, vacancy rates, cap rates, net operating incomes, lease renewals and overall economic demand. In addition, loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls. CRE lending also carries a higher degree of environmental risk than other real estate lending.

Municipal –Loans in this segment are made to local municipalities, attributable to municipal financing transactions and backed by the full faith and credit of town governments or dedicated governmental revenue sources, with no historical losses recognized by the Company. Qualitative factors are not utilized in the manual entry method for municipal loans.

Residential Real Estate - 1^st Lien – Loans in this segment are collateralized by first mortgages on 1 – 4 family owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Residential Real Estate – Jr Lien – Loans in this segment are collateralized by junior lien mortgages on 1 – 4 family residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Consumer – Loans in this segment are made to individuals for consumer and household purposes. This segment includes both loans secured by automobiles and other consumer goods, as well as loans that are unsecured. This segment also includes overdrafts, which are extensions of credit made to both individuals and businesses to cover temporary shortages in their deposit accounts and are generally unsecured. The Company maintains policies restricting the size and term of these extensions of credit. The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.

Specific component

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are also not included in the collective evaluation. In general, loans individually evaluated for estimated credit losses include those (i) greater than $100,000 with a nonaccrual status or (ii) that have other unique characteristics differing from the portfolio segment. Specific reserves are established when appropriate for such loans based on the present value of expected future cash flows of the loan. However, when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Modifications of Loans

A loan is considered modified if, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is reduced by the same amount.

The Company is deemed to have granted such a concession if it has modified a loan in any of the following ways:

	·	Reduced accrued interest;
	·	Reduced the original contractual interest rate to a rate that is below the current market rate for the borrower;
	·	Converted a variable-rate loan to a fixed-rate loan;
	·	Extended the term of the loan beyond an insignificant delay;
	·	Deferred or forgiven principal in an amount greater than three months of payments;
	·	Performed a refinancing and deferred or forgiven principal on the original loan;
	·	Capitalized protective advance to pay delinquent real estate taxes; or
	·	Capitalized delinquent accrued interest.

An insignificant delay or insignificant shortfall in the number of payments typically would not require the loan to be accounted for as modified. However, pursuant to regulatory guidance, any payment delays longer than three months is generally not considered insignificant. Management’s assessment of whether a concession has been granted also takes into consideration payments expected to be received from third parties, including third-party guarantors, provided the third party has the ability to perform on the guarantee.

The Company’s modified loans are principally a result of extending loan repayment terms to relieve cash flow difficulties. The Company has only, on a limited basis, reduced accrued interest or reduced interest rates for borrowers below the current market rate for the borrower. The Company has not generally forgiven principal within the terms of original restructurings, nor converted variable rate terms to fixed rate terms. However, the Company evaluates each potential loan modification on its own merits and does not foreclose the granting of any particular type of concession. In connection with modifications, the Company considers applicable regulatory guidance, including a 2023 Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts.

The following table presents the amortized cost basis of loans as of September 30, 2026, that were both experiencing financial difficulty and modified during the nine months ended September 30, 2026, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

			Total Class
	Term		of Financing
	Extension		Receivable

Commercial & Industrial	$	17,373		0.0153	%
Commercial Real Estate		61,380		0.0121	%
Total	$	78,753		0.0077	%

As of September 30, 2026, the Company was not committed to lend additional amounts to borrowers experiencing financial difficulty whose loans were previously modified.

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the nine months ended September 30, 2026.

	Weighted-
	Average
	Term Extension
	(months)

Commercial & Industrial		3
Commercial Real Estate		3

The Company closely monitors the performance of loans to borrowers experiencing financial difficulty that have been modified to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified during the last twelve months.

			Past Due
			90 Days
	Current		or More

Commercial & Industrial	$	17,373	$	0
Commercial Real Estate		61,308		13,556
Total	$	78,681	$	13,556

There was one loan to a borrower experiencing financial difficulty that was modified within the previous twelve months that had subsequently defaulted during the nine months ended September 30, 2026. Loans are considered defaulted at 90 days past due.

Allowance for Credit Losses on OBS Credit Exposures

In the ordinary course of business, the Company enters into commitments to extend credit, including commercial letters of credit and standby letters of credit. Such financial instruments are recorded as loans when they are funded.

The Company estimates expected credit losses on OBS credit exposures over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on OBS credit exposures is adjusted through credit loss expense. To appropriately measure expected credit losses, management disaggregates the OBS credit exposures into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using the Company's own historical experience to estimate the expected funded amount for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percentage of the amortized cost basis for each loan segment, is applied to calculate the ACL on OBS credit exposures as of the reporting date. The ACL on OBS credit exposures is presented within accrued interest and other liabilities on the consolidated balance sheets. As of September 30, 2026, and December 31, 2025, the ACL on OBS credit exposures totaled $722,635 and $628,655, respectively.