Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2025

Loans and Allowance for Credit Losses [Abstract]

NOTE 5 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for any chargeoffs, the allowance for credit losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Generally, all loan classes are placed on nonaccrual status not later than 90 days past due, unless the loan is well-secured and in the process of collection. All interest accrued, but not collected, for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table summarizes the composition of the loan portfolio:

	Total Loans
($ in thousands)	September 30, 2025			December 31, 2024

Commercial & industrial	$	117,581		$	124,764
Commercial real estate - owner occupied		137,442			134,431
Commercial real estate - nonowner occupied		397,865			345,142
Agricultural		65,150			64,680
Residential real estate		309,140			308,378
Home equity line of credit (HELOC)		64,306			53,811
Consumer		19,061			15,529

Total loans		1,110,545			1,046,735
Allowance for credit losses		(15,943	)		(15,096	)

Loans, net	$	1,094,602		$	1,031,639

The totals shown above are net of accretable discounts on acquired loans and deferred loan fees and costs, which totaled $0.64 million in net fees at September 30, 2025, and $0.15 million in net costs at December 31, 2024.

The risk characteristics of each loan portfolio segment are as follows:

Commercial & Industrial and Agricultural

Commercial & industrial loans and agricultural loans are primarily underwritten based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial Real Estate (Owner and Nonowner Occupied)

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied versus non-owner-occupied commercial real estate loans.

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally underwritten based on estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential Real Estate, HELOC and Consumer

Residential and consumer loans consist of two segments – residential mortgage loans and personal loans. Residential mortgage loans are secured by 1-4 family residences and are generally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. HELOCs are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that these loans are of smaller individual amounts and spread over a large number of borrowers.

Allowance for Credit Losses (ACL)

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes that the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

Accrued interest receivable related to loans totaled $3.8 million at September 30, 2025, and $3.3 million at December 31, 2024, and is excluded from the estimate of credit losses.

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments:

●

Commercial & Industrial - Commercial & industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial & industrial loans and lease financing agreements is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease.

●

Commercial Real Estate - Owner Occupied - Owner occupied commercial real estate loans consist of loans to purchase, construct, or refinance owner occupied nonresidential properties. This includes office buildings and other commercial facilities. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation as the commercial real estate collateral may be more adversely affected by conditions in the real estate markets or in the general economy.

●

Commercial Real Estate – Nonowner Occupied - Nonowner occupied commercial real estate loans consist of loans to purchase, construct, or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as multifamily properties. The primary risk associated with nonowner occupied commercial real estate loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation as the commercial real estate collateral may be more adversely affected by conditions in the real estate markets or in the general economy.

●

Agricultural - Agricultural loans consist of loans or lines of credit to finance farmland, equipment, and general business needs or other assets. The primary risk associated with agricultural loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan.

●

Residential Real Estate – Residential real estate mortgage loans consist of loans to purchase, construct, or refinance the borrower’s primary dwelling, second residence or vacation home and are often secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral.

●

Home Equity Line of Credit (HELOCs) - Home equity loans consist of HELOCs and other lines of credit secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by junior liens as a substantial decline in value could render the junior lien position effectively unsecured.

●

Consumer - Consumer loans consist of loans to finance unsecured home improvements, personal assets, such as automobiles or recreational vehicles, and revolving lines of credit that can be secured or unsecured. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.

The Company utilizes a Discounted Cash Flow (“DCF”) method to estimate the quantitative portion of the ACL for all loan pools evaluated on a collective pooled basis, with the exception of the credit card and consumer loan portfolios, which are estimated using the Remaining Life Method. For each segment, a Loss Driver Analysis (“LDA”) is performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA utilizes the Company’s own Federal Financial Institutions Examination Council’s (“FFIEC”) Call Report data, as well as peer institution data.

In creating the DCF model, the Company has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. The Company’s own loan-level loss data from January 2016 through September 30, 2025, contained within the model was supplemented with peer data in most loan pools as there was not sufficient loan-level detail from prior cycles reflecting similar economic conditions as the forecasted loss drivers to result in a sound calculation.

Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. The Company utilizes data from Federal Reserve Economic Data (“FRED”) to provide economic forecasts under various scenarios, which are applied to loan pools to reflect credit risk in the current economic environment.

Additional key assumptions in the DCF model include the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment rates. When possible, the Company utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. When possible, the Company utilizes its own LGDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own LGDs, the LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. The Company utilizes its own prepayment and curtailment rates in the ACL estimate. In pools where observations are not sufficient, the Company utilizes the model’s most relevant benchmark rate.

Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. A number of factors are considered including economic forecast uncertainty, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, impact of rising interest rates, external factors and other considerations. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. The qualitative analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above. During each reporting period, management also considers the need to adjust the baseline lifetime loss rates for factors that may cause expected losses to differ from those experienced in the historical loss periods.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate.

The Company is also required to consider expected credit losses associated with loan commitments over the contractual period in which it is exposed to credit risk on the underlying commitments. Any allowance for off-balance sheet credit exposures is reported in Other liabilities on the Company’s consolidated balance sheet and is increased or decreased through a provision for credit loss expense on the Company’s consolidated statement of income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same methodology, inputs and assumptions as the funded portion of loans at the segment level applied to the amount of commitments expected to be funded.

While the Company’s policies and procedures used to estimate the ACL, as well as the resultant provision for credit losses charged to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or particular industry conditions, which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.

During the first quarter of 2025, the Company completed the acquisition of Marblehead. The Company performed an analysis of the acquired non-PCD loan portfolio as part of the acquisition process and recorded a provision for credit losses of $0.23 million subsequent to the date of acquisition.

The following tables summarize the activity related to the ACL for the three and nine months ended September 30, 2025, and September 30, 2024, and for the twelve months ended December 31, 2024.

($ in thousands) For the three months ended September 30, 2025	Balance, beginning of period		Initial allowance for credit losses on acquired PCD loans		Chargeoffs			Recoveries		Provision (benefit) for Credit Losses			Balance, end of period

Commercial & industrial	$	1,928	$	-	$	-		$	-	$	(16	)	$	1,912
Commercial real estate - owner occupied		1,837		-		-			-		63			1,900
Commercial real estate - nonowner occupied		6,533		-		-			-		170			6,703
Agricultural		244		-		-			-		8			252
Residential real estate		4,247		-		-			-		(33	)		4,214
HELOC		633		-		-			3		34			670
Consumer		223		-		(11	)		6		74			292
Total	$	15,645	$	-	$	(11	)	$	9	$	300		$	15,943

($ in thousands) For the nine months ended September 30, 2025	Balance, beginning of period		Initial allowance for credit losses on acquired PCD loans		Chargeoffs			Recoveries		Provision (benefit) for Credit Losses			Balance, end of period

Commercial & industrial	$	2,666	$	5	$	(61	)	$	-	$	(698	)	$	1,912
Commercial real estate - owner occupied		1,806		-		-			-		94			1,900
Commercial real estate - nonowner occupied		5,721		-		-			2		980			6,703
Agricultural		884		-		-			-		(632	)		252
Residential real estate		3,330		-		-			-		884			4,214
HELOC		520		-		(4	)		3		151			670
Consumer		169		-		(81	)		9		195			292
Total	$	15,096	$	5	$	(146	)	$	14	$	974		$	15,943

($ in thousands) For the three months ended September 30, 2024	Balance, beginning of period		Chargeoffs			Recoveries		Provision (benefit) for Credit Losses			Balance, end of period

Commercial & industrial	$	2,755	$	-		$	-	$	(179	)	$	2,576
Commercial real estate - owner occupied		1,967		-			-		(130	)		1,837
Commercial real estate - nonowner occupied		5,449		-			-		82			5,531
Agricultural		912		-			-		(48	)		864
Residential real estate		3,798		-			-		(52	)		3,746
HELOC		534		-			-		11			545
Consumer		197		(29	)		2		9			179
Total	$	15,612	$	(29	)	$	2	$	(307	)	$	15,278

($ in thousands) For the nine months ended September 30, 2024	Balance, beginning of period		Chargeoffs			Recoveries		Provision (benefit) for Credit Losses			Balance, end of period

Commercial & industrial	$	2,003	$	(42	)	$	6	$	609		$	2,576
Commercial real estate - owner occupied		1,952		-			-		(115	)		1,837
Commercial real estate - nonowner occupied		5,718		-			-		(187	)		5,531
Agricultural		440		-			-		424			864
Residential real estate		4,936		-			-		(1,190	)		3,746
HELOC		510		-			-		35			545
Consumer		227		(53	)		21		(16	)		179
Total	$	15,786	$	(95	)	$	27	$	(440	)	$	15,278

($ in thousands) For the twelve months ended December 31, 2024	Balance, beginning of period		Chargeoffs			Recoveries		Provision (benefit) for Credit Losses			Balance, end of period

Commercial & industrial	$	2,003	$	(233	)	$	5	$	891		$	2,666
Commercial real estate - owner occupied		1,952		-			-		(146	)		1,806
Commercial real estate - nonowner occupied		5,718		-			-		3			5,721
Agricultural		440		-			-		444			884
Residential real estate		4,936		(3	)		-		(1,603	)		3,330
HELOC		510		-			-		10			520
Consumer		227		(53	)		34		(39	)		169
Total	$	15,786	$	(289	)	$	39	$	(440	)	$	15,096

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the ACL.

The following table presents an analysis of collateral-dependent loans of the Company as of September 30, 2025, and December 31, 2024.

($ in thousands)	Collateral Type						Allocated
September 30, 2025	Real Estate		Other		Total		Allowance

Commercial & industrial	$	1,644	$	721	$	2,365	$	65
Commercial real estate - owner occupied		429		-		429		13
Commercial real estate - nonowner occupied		144		-		144		-
Agricultural		-		-		-		-
Residential real estate		782		-		782		22
HELOC		-		-		-		-
Consumer		-		-		-		-
Total	$	2,999	$	721	$	3,720	$	100

($ in thousands)	Collateral Type						Allocated
December 31, 2024	Real Estate		Other		Total		Allowance

Commercial & industrial	$	2,252	$	625	$	2,877	$	380
Commercial real estate - owner occupied		429		-		429		13
Commercial real estate - nonowner occupied		370		-		370		-
Agricultural		-		-		-		-
Residential real estate		801		-		801		26
HELOC		-		-		-		-
Consumer		-		-		-		-
Total	$	3,852	$	625	$	4,477	$	419

Under the current expected credit loss (“CECL”) model, for collateral dependent loans, the Company has adopted the practical expedient to measure the ACL based on the fair value of collateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

Credit Risk Profile

The Company categorizes 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. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Pass (grades 1 – 4): Loans which management has determined to be performing as expected and in agreement with the terms established at the time of loan origination.

Special Mention (5): Loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.

Substandard (6): Loans are 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 Company will sustain some loss if the deficiencies are not corrected.

Doubtful (7): Loans classified as doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.

Loss (8): Loans are considered uncollectable and of such little value that continuing to carry them as assets on the Company’s financial statement is not warranted. Loans will be classified as Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis. The following table presents loan balances by credit quality indicators and gross chargeoffs by loan category and year of origination as of September 30, 2025.

($ in thousands)	Term Loans by Year of Origination												Revolving		Revolving Loans Converted
September 30, 2025	2025		2024		2023		2022		2021		Prior		Loans		to Term		Total

Commercial & industrial
Pass (1 - 4)	$	14,622	$	19,952	$	10,335	$	10,180	$	12,208	$	16,186	$	30,479	$	404	$	114,366
Special Mention (5)		-		32		-		-		235		120		225		339		951
Substandard (6)		-		57		285		153		-		158		99		213		965
Doubtful (7)		-		-		153		433		204		481		-		28		1,299
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	14,622	$	20,041	$	10,773	$	10,766	$	12,647	$	16,945	$	30,803	$	984	$	117,581
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	33	$	28	$	-	$	61

Commercial real estate - owner occupied
Pass (1 - 4)	$	24,279	$	18,882	$	22,647	$	15,142	$	20,507	$	32,291	$	3,032	$	231	$	137,011
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		430		-		-		430
Doubtful (7)		-		-		-		-		-		1		-		-		1
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	24,279	$	18,882	$	22,647	$	15,142	$	20,507	$	32,722	$	3,032	$	231	$	137,442
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial real estate - nonowner occupied
Pass (1 - 4)	$	61,548	$	97,771	$	40,303	$	49,538	$	36,599	$	104,009	$	7,844	$	-	$	397,612
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		144		-		109		-		-		253
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	61,548	$	97,771	$	40,303	$	49,682	$	36,599	$	104,118	$	7,844	$	-	$	397,865
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Pass (1 - 4)	$	8,754	$	6,305	$	6,485	$	12,853	$	10,016	$	9,031	$	11,694	$	12	$	65,150
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	8,754	$	6,305	$	6,485	$	12,853	$	10,016	$	9,031	$	11,694	$	12	$	65,150
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential real estate
Pass (1 - 4)	$	21,812	$	26,315	$	39,352	$	95,161	$	69,651	$	55,336	$	1	$	-	$	307,628
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		263		99		240		910		-		-		1,512
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	21,812	$	26,315	$	39,615	$	95,260	$	69,891	$	56,246	$	1	$	-	$	309,140
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Home equity line of credit (HELOC)
Pass (1 - 4)	$	443	$	-	$	88	$	97	$	272	$	53	$	56,485	$	6,675	$	64,113
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		38		85		70		193
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	443	$	-	$	88	$	97	$	272	$	91	$	56,570	$	6,745	$	64,306
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	4	$	-	$	-	$	4

Consumer
Pass (1 - 4)	$	5,237	$	1,320	$	1,654	$	2,462	$	837	$	1,048	$	6,501	$	-	$	19,059
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		2		-		-		-		-		2
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	5,237	$	1,320	$	1,654	$	2,464	$	837	$	1,048	$	6,501	$	-	$	19,061
Current period gross chargeoffs	$	-	$	2	$	4	$	-	$	-	$	-	$	75	$	-	$	81

Total Loans
Pass (1 - 4)	$	136,695	$	170,545	$	120,864	$	185,433	$	150,090	$	217,954	$	116,036	$	7,322	$	1,104,939
Special Mention (5)		-		32		-		-		235		120		225		339		951
Substandard (6)		-		57		548		398		240		1,645		184		283		3,355
Doubtful (7)		-		-		153		433		204		482		-		28		1,300
Loss (8)		-		-		-		-		-		-		-		-		-
Total Loans	$	136,695	$	170,634	$	121,565	$	186,264	$	150,769	$	220,201	$	116,445	$	7,972	$	1,110,545
Current period gross chargeoffs	$	-	$	2	$	4	$	-	$	-	$	37	$	103	$	-	$	146

The following table presents loan balances by credit quality indicators and gross chargeoffs by loan category and year of origination as of December 31, 2024.

($ in thousands)	Term Loans by Year of Origination												Revolving		Revolving Loans Converted
December 31, 2024	2024		2023		2022		2021		2020		Prior		Loans		to Term		Total

Commercial & industrial
Pass (1 - 4)	$	22,688	$	12,927	$	12,813	$	14,207	$	9,101	$	10,022	$	36,363	$	3,204	$	121,325
Special Mention (5)		-		355		-		-		133		-		25		-		513
Substandard (6)		-		-		585		-		-		673		1,147		88		2,493
Doubtful (7)		-		153		-		204		-		48		-		28		433
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	22,688	$	13,435	$	13,398	$	14,411	$	9,234	$	10,743	$	37,535	$	3,320	$	124,764
Current period gross chargeoffs	$	-	$	42	$	25	$	23	$	143	$	-	$	-	$	-	$	233

Commercial real estate - owner occupied
Pass (1 - 4)	$	15,070	$	30,372	$	20,002	$	24,406	$	13,491	$	30,140	$	463	$	49	$	133,993
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		430		-		-		-		430
Doubtful (7)		-		-		-		7		-		1		-		-		8
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	15,070	$	30,372	$	20,002	$	24,413	$	13,921	$	30,141	$	463	$	49	$	134,431
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial real estate - nonowner occupied
Pass (1 - 4)	$	94,098	$	47,026	$	50,942	$	40,584	$	39,093	$	72,609	$	118	$	-	$	344,470
Special Mention (5)		398		-		-		-		-		-		-		-		398
Substandard (6)		-		-		154		-		-		120		-		-		274
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	94,496	$	47,026	$	51,096	$	40,584	$	39,093	$	72,729	$	118	$	-	$	345,142
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Pass (1 - 4)	$	8,100	$	8,295	$	14,482	$	10,748	$	2,618	$	8,967	$	11,470	$	-	$	64,680
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	8,100	$	8,295	$	14,482	$	10,748	$	2,618	$	8,967	$	11,470	$	-	$	64,680
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential real estate
Pass (1 - 4)	$	31,291	$	41,982	$	100,375	$	76,146	$	28,237	$	28,797	$	-	$	-	$	306,828
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		279		-		256		50		965		-		-		1,550
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	31,291	$	42,261	$	100,375	$	76,402	$	28,287	$	29,762	$	-	$	-	$	308,378
Current period gross chargeoffs	$	-	$	-	$	-	$	3	$	-	$	-	$	-	$	-	$	3

Home equity line of credit (HELOC)
Pass (1 - 4)	$	-	$	-	$	-	$	12	$	18	$	51	$	46,908	$	6,591	$	53,580
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		48		139		44		231
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	12	$	18	$	99	$	47,047	$	6,635	$	53,811
Current period gross chargeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer
Pass (1 - 4)	$	1,909	$	1,993	$	3,247	$	725	$	319	$	94	$	7,229	$	-	$	15,516
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		13		-		-		-		-		-		13
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	1,909	$	1,993	$	3,260	$	725	$	319	$	94	$	7,229	$	-	$	15,529
Current period gross chargeoffs	$	-	$	-	$	-	$	5	$	2	$	-	$	46	$	-	$	53

Total Loans
Pass (1 - 4)	$	173,156	$	142,595	$	201,861	$	166,828	$	92,877	$	150,680	$	102,551	$	9,844	$	1,040,392
Special Mention (5)		398		355		-		-		133		-		25		-		911
Substandard (6)		-		279		752		256		480		1,806		1,286		132		4,991
Doubtful (7)		-		153		-		211		-		49		-		28		441
Loss (8)		-		-		-		-		-		-		-		-		-
Total Loans	$	173,554	$	143,382	$	202,613	$	167,295	$	93,490	$	152,535	$	103,862	$	10,004	$	1,046,735
Current period gross chargeoffs	$	-	$	42	$	25	$	31	$	145	$	-	$	46	$	-	$	289

The following tables present the Company’s loan portfolio aging analysis as of September 30, 2025, and December 31, 2024.

($ in thousands)	30-59 Days		60-89 Days		90 Days or Greater		Total Past
September 30, 2025	Past Due		Past Due		Past Due		Due		Current		Total Loans

Commercial & industrial	$	-	$	347	$	1,957	$	2,304	$	115,277	$	117,581
Commercial real estate - owner occupied		-		-		429		429		137,013		137,442
Commercial real estate - nonowner occupied		207		-		206		413		397,452		397,865
Agricultural		-		-		-		-		65,150		65,150
Residential real estate		21		573		629		1,223		307,917		309,140
HELOC		90		136		100		326		63,980		64,306
Consumer		159		146		-		305		18,756		19,061
Total Loans	$	477	$	1,202	$	3,321	$	5,000	$	1,105,545	$	1,110,545

	30-59 Days		60-89 Days		90 Days or Greater		Total Past
December 31, 2024	Past Due		Past Due		Past Due		Due		Current		Total Loans

Commercial & industrial	$	354	$	-	$	2,927	$	3,281	$	121,483	$	124,764
Commercial real estate - owner occupied		-		-		429		429		134,002		134,431
Commercial real estate - nonowner occupied		-		-		370		370		344,772		345,142
Agricultural		-		-		-		-		64,680		64,680
Residential real estate		215		1,021		787		2,023		306,355		308,378
HELOC		131		15		130		276		53,535		53,811
Consumer		193		27		-		220		15,309		15,529
Total Loans	$	893	$	1,063	$	4,643	$	6,599	$	1,040,136	$	1,046,735

All loans past due 90 days are systematically placed on nonaccrual status.

When a loan is moved to nonaccrual status, total unpaid interest accrued to date is reversed from income. Subsequent payments are applied to the outstanding principal balance with the interest portion of the payment recorded on the balance sheet as a contra-loan. Interest received on nonaccrual loans may be realized once all contractual principal amounts are received. It is at the discretion of management to determine when a loan is placed back on accrual status once a borrower establishes a history of six consecutive timely principal and interest payments. The categories of nonaccrual loans as of September 30, 2025, and December 31, 2024, are presented in the following tables.

	September 30, 2025
($ in thousands)	Nonaccrual loans with no allowance		Nonaccrual loans with an allowance		Total nonaccrual loans

Commercial & industrial	$	2,181	$	62	$	2,243
Commercial real estate - owner occupied		-		429		429
Commercial real estate - nonowner occupied		349		-		349
Agricultural		-		-		-
Residential real estate		1,293		107		1,400
Home equity line of credit (HELOC)		193		-		193
Consumer		2		-		2

Total loans	$	4,018	$	598	$	4,616

	December 31, 2024
($ in thousands)	Nonaccrual loans with no allowance		Nonaccrual loans with an allowance		Total nonaccrual loans

Commercial & industrial	$	2,301	$	626	$	2,927
Commercial real estate - owner occupied		7		430		437
Commercial real estate - nonowner occupied		370		-		370
Agricultural		-		-		-
Residential real estate		1,428		111		1,539
Home equity line of credit (HELOC)		231		-		231
Consumer		12		-		12

Total loans	$	4,349	$	1,167	$	5,516

Modifications made to Borrowers Experiencing Financial Difficulty

In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. These modifications allow the borrowers short-term cash relief to allow them to improve their financial condition. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowance for Credit Losses section of this note. For the nine months ended September 30, 2025, and September 30, 2024, the Company did not modify any loans made to borrowers experiencing financial difficulty.

The Company had no commitments to lend to borrowers experiencing financial difficulty for which the Company had modified an existing loan as of September 30, 2025, and September 30, 2024. The Company monitors loan payments on an ongoing basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and its ability to generate positive cash flows during the loan term. For the nine months ended September 30, 2025, and September 30, 2024, the Company had no loan modifications made to borrowers experiencing financial difficulty for which there was a payment default within the 12 months following the modification date.

Unfunded Loan Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when the extension of credit is not unconditionally cancellable (i.e. the commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the ACL for loans. The allowance for credit losses for unfunded loan commitments of $1.5 million at September 30, 2025, is classified on the balance sheet within Other liabilities.

The following table presents the balance and activity in the ACL for unfunded loan commitments for the three and nine months ended September 30, 2025, and September 30, 2024.

	Three Months Ended September 30,					Nine Months Ended September 30,
($ in thousands)	2025			2024		2025		2024
Balance, beginning of period	$	1,650		$	909	$	1,340	$	776
Adjustment for acquired loans		-			-		3
Provision for unfunded commitments		(176	)		507		131		640
Balance, end of period	$	1,474		$	1,416	$	1,474	$	1,416

SB FINANCIAL GROUP, INC. 10-Q