Loan and Lease Financings

6 Months Ended

Jun. 30, 2025

The Company evaluates loans and leases for credit quality at least annually, but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk). The Company uses two methods to assess credit risk: loan or lease credit quality grades and credit risk classifications. The purpose of the loan or lease credit quality grade is to document the degree of risk associated with individual credits, as well as inform management of the degree of risk in the portfolio taken as a whole. Credit risk classifications are used to categorize loans by degree of risk and to designate individual or committee approval authorities for higher risk credits at the time of origination. Credit risk classifications include categories for: Acceptable, Marginal, Special Attention, Special Risk, Restricted by Policy, Regulated and Prohibited by Law.

All loans and leases, except residential real estate loans‚ home equity loans, and consumer loans, are assigned credit quality grades on a scale from 1 to 12, with grade 1 representing superior credit quality. The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Company’s safety and soundness. Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, relationships in excess of $250,000 are reviewed quarterly as part of management’s evaluation of the appropriateness of the allowance for loan and lease losses. Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the exposure to increased risk; grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention. Credits that exhibit well-defined weaknesses and a distinct possibility of loss are considered “classified” and are graded 9 through 12 corresponding to the regulatory definitions of “substandard” (grades 9 and 10) and the more severe “doubtful” (grade 11) and “loss” (grade 12). For residential real estate and home equity and consumer loans, credit quality is based on the aging status of the loan and by payment activity. Nonperforming loans are those loans which are on nonaccrual status or are 90 days or more past due.

Below is a summary of the Company’s loan and lease portfolio segments and a discussion of the risk characteristics relevant to each portfolio segment.

Commercial and agricultural – loans are to entities within the Company’s local market communities. Loans are for business or agri-business purposes and include working capital lines of credit secured by accounts receivable and inventory that are generally renewable annually and term loans secured by equipment with amortizations based on the expected life of the underlying collateral, generally three to seven years. These loans are typically further supported by personal guarantees. Commercial exposure is to a wide range of industries and services. Risks in this sector are also varied and are most impacted by general economic conditions. Risk mitigants include appropriate underwriting and monitoring and, when appropriate, government guarantees, including Small Business Administration and Farm Service Agency.

Renewable energy – loans are for the purpose of financing primarily solar related projects and may include construction draw notes, operating loans, letters of credit and may entail a tax equity structure. Collateral in a multi-state area includes tangible assets of the borrower, assignment of intangible assets including power purchase agreements, and pledges of permits and licenses. Financing is provided to qualified borrowers throughout the continental United States with an emphasis on the regions east of the Rocky Mountains.

Auto and light truck – loans are secured by vehicles and borrowers are nationwide. The portfolio consists of multiple industries: auto rental, auto leasing and a small specialty vehicle segment which the Company is largely exiting. Borrowers in the auto rental segment are primarily independent auto rental entities with on-airport and off-airport locations, and some insurance replacement business. Loan terms are relatively short, generally eighteen months, but up to four years. Auto leasing customers lease to businesses and the Company takes assignment of the lease stream and places its lien on the vehicles. Terms are generally longer than the auto rental sector, three to seven years and match the underlying leases. Risks include economic risks and collateral risks, principally used vehicle values.

Medium and heavy duty truck – loans and full-service truck leases are secured by heavy-duty trucks, commonly Class 8 trucks, and are generally personally guaranteed. In addition to economic risks, collateral risk is significant. Financing is generally at full cost, plus additional expenditures to get the vehicle operational, such as taxes, insurance and fees. It takes three to four years of debt amortization to reach an equity position in the collateral.

Aircraft – loans are to domestic and foreign borrowers with the domestic segment further divided into two pools: 1) personal and business use, and 2) dealers and operators. The Company’s focus for the foreign sector is Latin America, principally Mexico and Brazil. Loans are primarily secured by new and used business jets and helicopters, with appropriate advances, amortizations of ten to fifteen years, and are generally guaranteed by individuals. The most significant risk in the Aircraft portfolio is collateral risk - volatility in underlying values and maintenance concerns. The portfolio is subject to national and global economic risks.

Construction equipment – loans are to borrowers throughout the country secured by specific equipment. The borrowers include highway and road builders, asphalt producers and pavers, suppliers of aggregate products, site developers, frac sand operations, general construction equipment dealers and operators, and crane rental entities. Generally, loans include personal guarantees. The construction equipment industry is heavily dependent on the U.S. economy and the global economy. Market growth is reliant on investments from public and private sectors into urbanization and infrastructure projects.

Commercial real estate – loans are generally to entities within the local market communities served by the Company with advances generally within regulatory guidelines. Historically, the Company’s exposure to commercial real estate had been primarily to the less risky owner-occupied segment although growth in the non-owner-occupied segment of this portfolio has increased over the last several years. The non-owner-occupied segment includes hotels, apartment complexes and warehousing facilities. There is generally limited exposure to construction loans although at present, construction exposures are comparably higher than previous periods. Many commercial real estate loans carry personal guarantees. Additional risks in the commercial real estate portfolio include interest rate risk, geographical concentration in northern Indiana and southwest Michigan and general economic conditions.

Residential real estate and home equity – loans predominantly include one-to-four family mortgages to borrowers in the Company’s local market communities and are appropriately underwritten and secured by residential real estate.

Consumer – loans are to individuals in the Company’s local markets and auto loans are generally secured by personal vehicles and appropriately underwritten.

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of June 30, 2025, and gross charge-offs for the six months ended June 30, 2025.


	Term Loans and Leases by Origination Year
(Dollars in thousands)	2025		2024		2023		2022		2021		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	93,436	$	108,659	$	100,458	$	57,419	$	29,178	$	22,420	$	367,269	$	—	$	778,839
Grades 7-12	2,184		263		4,763		6,265		1,939		2,200		39,373		—		56,987
Total commercial and agricultural	95,620		108,922		105,221		63,684		31,117		24,620		406,642		—		835,826
Current period gross charge-offs	—		9		134		109		10		—		592		—		854
Renewable energy
Grades 1-6	162,509		137,208		104,391		23,903		59,761		85,454		—		—		573,226
Grades 7-12	—		—		—		—		—		—		—		—		—
Total renewable energy	162,509		137,208		104,391		23,903		59,761		85,454		—		—		573,226
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Auto and light truck
Grades 1-6	298,186		308,845		182,256		66,832		16,175		9,437		—		—		881,731
Grades 7-12	3,444		43,483		40,456		2,675		28		644		—		—		90,730
Total auto and light truck	301,630		352,328		222,712		69,507		16,203		10,081		—		—		972,461
Current period gross charge-offs	—		1,484		129		226		1		—		—		—		1,840
Medium and heavy duty truck
Grades 1-6	51,172		75,851		63,097		58,580		16,524		8,488		—		—		273,712
Grades 7-12	—		—		1,336		5,026		2,155		7		—		639		9,163
Total medium and heavy duty truck	51,172		75,851		64,433		63,606		18,679		8,495		—		639		282,875
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Aircraft
Grades 1-6	175,262		292,317		170,152		260,878		131,374		76,629		7,364		—		1,113,976
Grades 7-12	—		2,881		7,371		6,957		—		3,653		—		—		20,862
Total aircraft	175,262		295,198		177,523		267,835		131,374		80,282		7,364		—		1,134,838
Current period gross charge-offs	—		—		485		—		—		—		—		—		485
Construction equipment
Grades 1-6	243,374		412,247		262,335		157,700		45,542		22,512		25,638		1,717		1,171,065
Grades 7-12	2,579		5,739		6,143		10,251		1,274		10,158		—		—		36,144
Total construction equipment	245,953		417,986		268,478		167,951		46,816		32,670		25,638		1,717		1,207,209
Current period gross charge-offs	—		201		816		—		—		—		—		—		1,017
Commercial real estate
Grades 1-6	98,895		288,915		292,665		214,490		119,180		212,841		74		—		1,227,060
Grades 7-12	46		1,225		9,494		5,228		5,889		3,808		—		—		25,690
Total commercial real estate	98,941		290,140		302,159		219,718		125,069		216,649		74		—		1,252,750
Current period gross charge-offs	—		2		—		—		—		4		—		—		6
Residential real estate and home equity
Performing	51,607		81,280		63,846		88,946		77,973		150,468		189,126		7,248		710,494
Nonperforming	—		—		145		612		215		1,015		1,448		97		3,532
Total residential real estate and home equity	51,607		81,280		63,991		89,558		78,188		151,483		190,574		7,345		714,026
Current period gross charge-offs	—		—		—		4		—		1		30		—		35
Consumer
Performing	22,492		34,954		25,399		20,035		6,456		1,916		12,725		—		123,977
Nonperforming	74		23		322		242		65		54		1		—		781
Total consumer	22,566		34,977		25,721		20,277		6,521		1,970		12,726		—		124,758
Current period gross charge-offs	$	272	$	163	$	113	$	147	$	44	$	2	$	11	$	—	$	752

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of December 31, 2024, and gross charge-offs for the year ended December 31, 2024.


	Term Loans and Leases by Origination Year
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	136,888	$	115,508	$	66,696	$	36,315	$	19,677	$	18,369	$	331,282	$	—	$	724,735
Grades 7-12	438		4,079		7,769		2,426		194		2,325		31,008		—		48,239
Total commercial and agricultural	137,326		119,587		74,465		38,741		19,871		20,694		362,290		—		772,974
Current period gross charge-offs	—		276		117		550		—		—		8,882		—		9,825
Renewable energy
Grades 1-6	150,951		145,126		22,110		70,606		22,329		76,144		—		—		487,266
Grades 7-12	—		—		—		—		—		—		—		—		—
Total renewable energy	150,951		145,126		22,110		70,606		22,329		76,144		—		—		487,266
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Auto and light truck
Grades 1-6	443,033		276,295		106,199		25,535		10,018		6,677		—		—		867,757
Grades 7-12	26,131		48,319		4,754		99		1,210		165		—		—		80,678
Total auto and light truck	469,164		324,614		110,953		25,634		11,228		6,842		—		—		948,435
Current period gross charge-offs	—		165		448		6		—		111		—		—		730
Medium and heavy duty truck
Grades 1-6	88,395		72,816		81,238		25,726		11,298		5,493		—		—		284,966
Grades 7-12	—		1,524		1,623		690		—		13		—		807		4,657
Total medium and heavy duty truck	88,395		74,340		82,861		26,416		11,298		5,506		—		807		289,623
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Aircraft
Grades 1-6	347,099		190,776		285,677		151,194		82,208		32,326		7,773		—		1,097,053
Grades 7-12	2,882		7,704		10,920		1,846		3,392		—		—		—		26,744
Total aircraft	349,981		198,480		296,597		153,040		85,600		32,326		7,773		—		1,123,797
Current period gross charge-offs	—		—		—		15		—		53		—		—		68
Construction equipment
Grades 1-6	488,870		325,443		208,114		70,258		33,095		10,890		25,916		1,966		1,164,552
Grades 7-12	2,716		10,650		11,686		1,679		12,629		—		—		—		39,360
Total construction equipment	491,586		336,093		219,800		71,937		45,724		10,890		25,916		1,966		1,203,912
Current period gross charge-offs	46		989		390		267		—		—		—		—		1,692
Commercial real estate
Grades 1-6	258,988		303,717		237,103		126,129		82,249		177,798		264		—		1,186,248
Grades 7-12	145		14,580		5,846		6,386		27		2,033		—		—		29,017
Total commercial real estate	259,133		318,297		242,949		132,515		82,276		179,831		264		—		1,215,265
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Residential real estate and home equity
Performing	87,045		69,439		94,441		81,345		79,575		85,333		173,876		6,210		677,264
Nonperforming	—		171		624		346		103		340		1,138		85		2,807
Total residential real estate and home equity	87,045		69,610		95,065		81,691		79,678		85,673		175,014		6,295		680,071
Current period gross charge-offs	—		3		—		32		—		—		30		1		66
Consumer
Performing	43,692		33,063		28,594		10,092		2,398		983		13,823		—		132,645
Nonperforming	22		352		336		57		33		20		—		—		820
Total consumer	43,714		33,415		28,930		10,149		2,431		1,003		13,823		—		133,465
Current period gross charge-offs	$	565	$	230	$	276	$	118	$	16	$	22	$	122	$	—	$	1,349

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status.


(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Accruing		Total Accruing		Total Nonaccrual		Nonaccrual with No Allowance for Credit Loss		Total
June 30, 2025
Commercial and agricultural	$	828,267	$	1,352	$	530	$	—	$	830,149	$	5,677	$	4,440	$	835,826
Renewable energy	573,226		—		—		—		573,226		—		—		573,226
Auto and light truck	899,953		27,184		4		—		927,141		45,320		9,251		972,461
Medium and heavy duty truck	282,875		—		—		—		282,875		—		—		282,875
Aircraft	1,134,838		—		—		—		1,134,838		—		—		1,134,838
Construction equipment	1,190,755		1,554		1,105		—		1,193,414		13,795		13,088		1,207,209
Commercial real estate	1,247,716		1,771		438		—		1,249,925		2,825		2,247		1,252,750
Residential real estate and home equity	708,876		950		668		119		710,613		3,413		—		714,026
Consumer	122,870		945		162		79		124,056		702		—		124,758
Total	$	6,989,376	$	33,756	$	2,907	$	198	$	7,026,237	$	71,732	$	29,026	$	7,097,969

December 31, 2024
Commercial and agricultural	$	767,942	$	275	$	42	$	—	$	768,259	$	4,715	$	3,167	$	772,974
Renewable energy	487,266		—		—		—		487,266		—		—		487,266
Auto and light truck	943,403		2,226		—		—		945,629		2,806		939		948,435
Medium and heavy duty truck	289,623		—		—		—		289,623		—		—		289,623
Aircraft	1,123,797		—		—		—		1,123,797		—		—		1,123,797
Construction equipment	1,185,936		—		—		—		1,185,936		17,976		17,404		1,203,912
Commercial real estate	1,203,967		9,703		—		—		1,213,670		1,595		1,055		1,215,265
Residential real estate and home equity	675,669		1,010		585		96		677,360		2,711		—		680,071
Consumer	131,585		852		208		10		132,655		810		—		133,465
Total	$	6,809,188	$	14,066	$	835	$	106	$	6,824,195	$	30,613	$	22,565	$	6,854,808

Accrued interest receivable on loans and leases at June 30, 2025, and December 31, 2024, was $27.41 million and $28.02 million, respectively.

A loan or lease is considered collateral-dependent when the borrower is experiencing financial difficulty and the loan or lease is expected to be repaid substantially through the operation or sale of the collateral. Expected credit losses for collateral-dependent loan and leases is based on the fair value of the collateral, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

The following table shows the amortized cost basis of collateral-dependent loans, segregated by portfolio segment, which are individually evaluated to determine credit losses.


(Dollars in thousands)	Real Estate		Equipment		General Business Assets		Total		Allowance on Collateral Dependent Loans and Leases
June 30, 2025
Commercial and agricultural	$	—	$	—	$	5,572	$	5,572	$	1,026

Auto and light truck	—		43,960		—		43,960		1,228


Construction equipment	—		13,088		—		13,088		—
Commercial real estate	2,387		—		—		2,387		2


Total	$	2,387	$	57,048	$	5,572	$	65,007	$	2,256

December 31, 2024
Commercial and agricultural	$	—	$	—	$	4,102	$	4,102	$	209

Auto and light truck	—		939		—		939		—


Construction equipment	—		17,404		—		17,404		—
Commercial real estate	1,055		—		—		1,055		—


Total	$	1,055	$	18,343	$	4,102	$	23,500	$	209

Loan Modifications to Borrowers Experiencing Financial Difficulty

The following table shows the amortized cost of loans and leases over $250,000 at June 30, 2025, and June 30, 2024, respectively, that were both experiencing financial difficulty and modified during the three months ended June 30, 2025, and June 30, 2024, respectively, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.


(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Payment Delay and Term Extension		% of Total Segment Financing Receivables
Three Months Ended June 30, 2025
Commercial and agricultural	$	—	$	4,026	$	—	$	—	0.48	%








Total	$	—	$	4,026	$	—	$	—	0.06	%

Three Months Ended June 30, 2024
Commercial and agricultural	$	—	$	—	$	—	$	5,920	0.82	%

Auto and light truck	—		—		—		8,348		0.83






Total	$	—	$	—	$	—	$	14,268	0.21	%

The following table shows the amortized cost of loans and leases over $250,000 at June 30, 2025, and June 30, 2024, respectively, that were both experiencing financial difficulty and modified during the six months ended June 30, 2025, and June 30, 2024, respectively, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.



(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Payment Delay and Term Extension		% of Total Segment Financing Receivables
Six months ended June 30, 2025
Commercial and agricultural	$	—	$	4,026	$	—	$	—	0.48	%




Construction equipment	—		498		—		—		0.04



Total	$	—	$	4,524	$	—	$	—	0.06	%

Six months ended June 30, 2024
Commercial and agricultural	$	—	$	108	$	—	$	5,920	0.84	%

Auto and light truck	—		—		—		32,550		3.22






Total	$	—	$	108	$	—	$	38,470	0.58	%

There were $2.80 million and $0.00 million in commitments to lend additional amounts to the borrowers included in the previous table at June 30, 2025, and June 30, 2024, respectively.

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the twelve months ended June 30, 2025, and June 30, 2024, respectively.


(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due
Twelve months ended June 30, 2025
Commercial and agricultural	$	5,028	$	—	$	—	$	—	$	—

Auto and light truck	—		—		—		7,863		7,863
Medium and heavy duty truck	2,586		—		—		—		—

Construction equipment	498		—		—		—		—
Commercial real estate	981		—		—		—		—


Total	$	9,093	$	—	$	—	$	7,863	$	7,863

Twelve months ended June 30, 2024
Commercial and agricultural	$	6,493	$	140	$	—	$	—	$	140

Auto and light truck	32,550		—		—		—		—
Medium and heavy duty truck	10,320		—		—		—		—





Total	$	49,363	$	140	$	—	$	—	$	140

The following table shows the financial effect of loan and lease modifications presented above to borrowers experiencing financial difficulty for the twelve months ended June 30, 2025, and June 30, 2024, respectively.


	Weighted- Average Interest Rate Reduction		Weighted- Average Term Extension (in months)	Weighted- Average Payment Delay (in months)	Combination Weighted-Average Payment Delay and Term Extension (in months)
Twelve months ended June 30, 2025
Commercial and agricultural	—	%	12	6	0

Auto and light truck	—		0	0	3
Medium and heavy duty truck	—		0	0	4

Construction equipment	—		5	0	0
Commercial real estate	—		0	6	0


Total	—	%	11	6	3

Twelve months ended June 30, 2024
Commercial and agricultural	—	%	9	6	10

Auto and light truck	—		0	0	3
Medium and heavy duty truck	—		0	0	6





Total	—	%	9	6	5

There was one modified loan to a borrower experiencing financial difficulty which had a payment default within twelve months of modification during the six month period ended June 30, 2025, and no modified loans to borrowers experiencing financial difficulty which had payment defaults within twelve months of modification during the six months ended June 30, 2024.

Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount.