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Loans, net and allowance for credit losses

9 Months Ended

Sep. 30, 2025

Loans, net and allowance for credit losses

Loans, net and allowance for credit losses

7. Loans, net and allowance for credit losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs and unearned income at September 30, 2025, and December 31, 2024 are summarized as follows. The Company had net deferred loan origination costs of $2.1 million and $1.7 million at September 30, 2025 and December 31, 2024, respectively. Unearned income was $1.4 million at September 30, 2025 and $1.3 million at December 31, 2024.


(Dollars in thousands)		September 30, 2025			December 31, 2024
Commercial
Commercial and industrial		$	664,615		$	648,102
Municipal			196,469			187,918
Total			861,084			836,020
Real estate
Commercial			2,278,746			2,294,113
Residential			588,519			551,383
Total			2,867,265			2,845,496
Consumer
Indirect auto			100,298			117,914
Consumer other			14,212			14,955
Total			114,510			132,869
Equipment financing			173,508			179,120
Total		$	4,016,367		$	3,993,505

Allowance for Credit Losses

The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and held to maturity securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the ACL for loans is considered a critical accounting estimate by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded

ACL. The ACL related to loans receivable and held to maturity debt securities is reported separately as a contra-asset on the Consolidated Balance Sheets. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the consolidated balance sheets in other liabilities while the provision for credit losses related to unfunded commitments is reported in other noninterest expense in the consolidated statements of income and comprehensive income.

The Company excludes accrued interest receivable from the amortized cost basis of loans, available for sale securities, and held to maturity securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $14.5 million and $13.2 million at September 30, 2025 and December 31, 2024, respectively and is excluded from the estimate of credit losses. Accrued interest receivable on available for sale securities and held to maturity securities, also a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $2.4 million and $0.2 million, respectively, at September 30, 2025 and is excluded from the estimate of credit losses, as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner. At December 31, 2024, accrued interest receivable on available for sale securities and held to maturity securities was $2.2 million and $0.2 million, respectively.

The following tables present the changes in and period end balance of the allowance for credit losses at and for the three and nine months ended September 30, 2025 and 2024.


		September 30, 2025
								Real estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Beginning Balance July 1, 2025		$	6,223		$	1,446		$	20,620		$	5,006		$	2,181		$	5,414		$	40,890
Charge-offs									(95)						(151)			(243)			(489)
Recoveries			12						116			20			109			23			280
(Credits) provisions			(487)			(43)			569			(285)			(346)			(246)			(838)
Ending balance		$	5,748		$	1,403		$	21,210		$	4,741		$	1,793		$	4,948		$	39,843

		September 30, 2024
								Real estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Beginning Balance July 1, 2024		$	2,171		$	711		$	15,156		$	4,230		$	855		$			$	23,123
Merger-related adjustments - Non PCD Loans			2,259			502			4,149			1,785			1,470			4,163			14,328
Merger-related adjustments PCD Loans			337			71			371			468			320			274			1,841
Charge-offs			(5)						(26)						(444)			(58)			(533)
Recoveries			10						70			4			310			58			452
(Credits) provisions			(162)			(321)			2,172			(1,241)			(528)			210			130
Ending balance		$	4,610		$	963		$	21,892		$	5,246		$	1,983		$	4,647		$	39,341


		September 30, 2025
								Real estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Beginning Balance January 1, 2025		$	6,004		$	1,072		$	21,804		$	4,924		$	2,540		$	5,432		$	41,776
Charge-offs			(572)						(157)			(92)			(797)			(1,255)			(2,873)
Recoveries			317						682			85			427			306			1,817
Provisions (Credits)			(1)			331			(1,119)			(176)			(377)			465			(877)
Ending balance		$	5,748		$	1,403		$	21,210		$	4,741		$	1,793		$	4,948		$	39,843

		September 30, 2024
								Real estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Beginning Balance January 1, 2024		$	2,272		$	788		$	14,153		$	3,782		$	900		$			$	21,895
Merger-related adjustments - Non PCD Loans			2,259			502			4,149			1,785			1,470			4,163			14,328
Merger-related adjustments PCD Loans			337			71			371			468			320			274			1,841
Charge-offs			(51)						(27)						(640)			(58)			(776)
Recoveries			90						70			8			393			58			619
(Credits) provisions			(297)			(398)			3,176			(797)			(460)			210			1,434
Ending balance		$	4,610		$	963		$	21,892		$	5,246		$	1,983		$	4,647		$	39,341

The following table represents the allowance for credit losses by major classification of loan and whether the loans were individually or collectively evaluated and collateral dependent by class of loans at September 30, 2025 and December 31, 2024.


		September 30, 2025
								Real estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for credit losses:
Ending balance		$	5,748		$	1,403		$	21,210		$	4,741		$	1,793		$	4,948		$	39,843
Ending balance: individually evaluated			402						697			67						561			1,727
Ending balance: collectively evaluated			5,346			1,403			20,513			4,674			1,793			4,387			38,116
Loans receivable:
Ending balance		$	664,615		$	196,469		$	2,278,746		$	588,519		$	114,510		$	173,508		$	4,016,367
Individually evaluated - collateral dependent - real estate			1,473						7,714			2,660									11,847
Individually evaluated - collateral dependent - non-real estate			663															1,726			2,389
Collectively evaluated			662,479			196,469			2,271,032			585,859			114,510			171,782			4,002,131


		December 31, 2024
								Real estate									Equipment
(Dollars in thousands)		Commercial			Municipal			Commercial			Residential			Consumer			Financing			Total
Allowance for loan losses:
Ending balance		$	6,004		$	1,072		$	21,804		$	4,924		$	2,540		$	5,432		$	41,776
Ending balance: individually evaluated for impairment			325						190									434			949
Ending balance: collectively evaluated for impairment		$	5,679		$	1,072		$	21,614		$	4,924		$	2,540		$	4,998		$	40,827
Loans receivable:
Ending balance			648,102		$	187,918		$	2,294,113		$	551,383		$	132,869		$	179,120		$	3,993,505
Individually evaluated - collateral dependent - real estate			906						15,326			3,212									19,444
Individually evaluated - collateral dependent - non-real estate			1,007						284									1,429			2,720
Collectively evaluated		$	646,189		$	187,918		$	2,278,503		$	548,171		$	132,869		$	177,691		$	3,971,341

Nonaccrual Loans

The following table presents the Company’s nonaccrual loans, including non-PCD nonaccrual loans, at September 30, 2025 and December 31, 2024.



			September 30, 2025
			Total			Nonaccrual with			Nonaccrual with
			Nonaccrual			an Allowance for			no Allowance for
(Dollars in thousands)			Loans			Credit Losses			Credit Losses
Commercial		$	1,955		$	1,070		$	885
Municipal
Real estate:
Commercial			7,714			1,222			6,492
Residential			2,300						2,300
Consumer			706						706
Equipment financing			1,711			1,409			302
Total		$	14,386		$	3,701		$	10,685



			December 31, 2024
			Total			Nonaccrual with			Nonaccrual with
			Nonaccrual			an Allowance for			no Allowance for
(Dollars in thousands)			Loans			Credit Losses			Credit Losses
Commercial		$	1,907		$	343		$	1,564
Municipal
Real estate:
Commercial			15,609			2,574			13,035
Residential			2,809						2,809
Consumer			744						744
Equipment financing			1,430			819			611
Total		$	22,499		$	3,736		$	18,763

Interest income recorded on nonaccrual loans was $160 thousand and $887 thousand for the three months ended September 30, 2025, and September 30, 2024, respectively. Interest income recorded on nonaccrual loans was $303 thousand and $961 thousand for the nine months ended September 30, 2025, and September 30, 2024, respectively.

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

●

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

●

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

●

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

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

●

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

●

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

The following table presents the amortized cost of loans and gross charge-offs by year of origination and by major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at September 30, 2025 and December 31, 2024:


		As of September 30, 2025
(Dollars in thousands)			2025			2024			2023			2022			2021			Prior			Revolving Loans Amortized Cost Basis			Revolving Loans Converted to Term			Total
Commercial
Pass		$	64,424		$	66,028		$	59,297		$	65,400		$	52,347		$	109,230		$	229,520		$	272		$	646,518
Special mention			661			1,186			1,113			499			43			2,676			1,532			865			8,575
Substandard									421			524			729			62			7,786						9,522
Total commercial			65,085			67,214			60,831			66,423			53,119			111,968			238,838			1,137			664,615

Municipal
Pass			21,706			4,594			1,328			47,935			95,785			22,479			2,642						196,469
Special mention
Substandard
Total municipal			21,706			4,594			1,328			47,935			95,785			22,479			2,642						196,469

Commercial real estate
Pass			216,604			150,957			183,586			592,251			465,555			610,483			116			397			2,219,949
Special mention			578									925			4,623			25,778						85			31,989
Substandard						1,222			3,476			7,902			6,353			7,855									26,808
Total commercial real estate			217,182			152,179			187,062			601,078			476,531			644,116			116			482			2,278,746

Residential real estate
Pass			43,831			38,460			41,899			69,329			107,218			154,143			132,490						587,370
Special mention
Substandard															121			951			77						1,149
Total residential real estate			43,831			38,460			41,899			69,329			107,339			155,094			132,567						588,519

Consumer
Pass			22,345			22,428			27,359			25,462			11,617			3,723			855						113,789
Special mention
Substandard						36			129			238			177			139			2						721
Total consumer			22,345			22,464			27,488			25,700			11,794			3,862			857						114,510

Equipment financing
Pass			40,597			55,340			48,703			25,170			1,058												170,868
Special mention			-			-			137			16															153
Substandard			331			728			564			864															2,487
Total equipment financing			40,928			56,068			49,404			26,050			1,058												173,508

Total Loans		$	411,077		$	340,979		$	368,012		$	836,515		$	745,626		$	937,519		$	375,020		$	1,619		$	4,016,367

Gross charge-offs
Commercial		$			$			$			$	24		$	57		$	491		$			$			$	572
Municipal
Commercial real estate												62						95									157
Residential real estate												92															92
Consumer						153			240			294			72			38									797
Equipment financing			46			34			711			464															1,255
Total Gross charge-offs		$	46		$	187		$	951		$	936		$	129		$	624		$			$			$	2,873



		December 31, 2024
(Dollars in thousands)			2024			2023			2022			2021			2020			Prior			Revolving Loans Amortized Cost Basis			Revolving Loans Converted to Term			Total
Commercial
Pass		$	61,657		$	69,329		$	83,123		$	64,488		$	29,950		$	91,906		$	199,737		$	68		$	600,258
Special mention			1,273			1,131			686			13,475			2,043			1,261			16,840						36,709
Substandard						300			854			904			85			597			8,395						11,135
Total commercial			62,930			70,760			84,663			78,867			32,078			93,764			224,972			68			648,102

Municipal
Pass			5,072			6,254			50,886			99,064			9,932			13,816			2,894						187,918
Special mention
Substandard
Total municipal			5,072			6,254			50,886			99,064			9,932			13,816			2,894						187,918

Commercial real estate
Pass			161,186			196,779			651,254			525,233			156,970			538,905									2,230,327
Special mention			1,231			46			2,724			4,361			1,635			24,951									34,948
Substandard						3,276			8,883			1,106			1,704			13,869									28,838
Total commercial real estate			162,417			200,101			662,861			530,700			160,309			577,725									2,294,113

Residential real estate
Pass			39,488			45,172			77,862			123,154			50,831			106,877			105,867			67			549,318
Special mention
Substandard												126			296			1,565			78						2,065
Total residential real estate			39,488			45,172			77,862			123,280			51,127			108,442			105,945			67			551,383

Consumer
Pass			28,872			38,223			38,668			18,963			4,132			2,495			853						132,206
Special mention
Substandard			65			156			209			124			43			64			2						663
Total consumer			28,937			38,379			38,877			19,087			4,175			2,559			855						132,869

Equipment financing
Pass			67,100			66,341			39,323			4,259															177,023
Special mention						261			125																		386
Substandard						697			1,014																		1,711
Total equipment financing			67,100			67,299			40,462			4,259															179,120

Total Loans		$	365,944		$	427,965		$	955,611		$	855,257		$	257,621		$	796,306		$	334,666		$	135		$	3,993,505

Gross charge-offs
Commercial		$			$	41		$			$	2		$			$	8		$			$			$	51
Municipal
Commercial real estate																		282									282
Residential real estate
Consumer			90			245			255			183			32			87									892
Equipment Financing						551			109																		660
Total gross charge-offs		$	90		$	837		$	364		$	185		$	32		$	377		$			$			$	1,885

The major classifications of loans by past due status are summarized as follows at September 30, 2025 and December 31, 2024:


		September 30, 2025
								Greater												Loans > 90
		30-59 Days			60-89 Days			than 90			Total Past									Days and
(Dollars in thousands)		Past Due			Past Due			Days			Due			Current			Total Loans			Accruing
Commercial		$	1,064		$	168		$	2,211		$	3,443		$	661,172		$	664,615		$	496
Municipal															196,469			196,469
Real estate:
Commercial			1,021			92			3,816			4,929			2,273,817			2,278,746
Residential			962			842			1,614			3,419			585,100			588,519			354
Consumer			2,341			695			398			3,434			111,076			114,510			36
Equipment financing			878			982			522			2,382			171,126			173,508
Total		$	6,266		$	2,779		$	8,561		$	17,607		$	3,998,760		$	4,016,367		$	886


		December 31, 2024
								Greater												Loans > 90
		30-59 Days			60-89 Days			than 90			Total Past									Days and
(Dollars in thousands)		Past Due			Past Due			Days			Due			Current			Total Loans			Accruing
Commercial		$	2,740		$	157		$	838		$	3,735		$	644,367		$	648,102		$
Municipal															187,918			187,918
Real estate:
Commercial			2,800			141			11,164			14,105			2,280,008			2,294,113
Residential			2,390			997			2,477			5,864			545,519			551,383			403
Consumer			2,393			539			492			3,424			129,445			132,869			55
Equipment financing			639			1,259			815			2,713			176,407			179,120
Total		$	10,962		$	3,093		$	15,786		$	29,841		$	3,963,664		$	3,993,505		$	458

The amount of residential loans in the formal process of foreclosure totaled $0.7 million at September 30, 2025 and $0.2 million at December 31, 2024.

Allowance for Credit Losses on Off Balance Sheet Commitments

The following table presents the activity in the ACL on off balance sheet commitments, which includes commitments to extend credit, unused portions of lines of credit and standby letters of credit, for the three and nine months ended September 30, 2025 and 2024:


			For the Three Months Ended
(Dollars in thousands)			September 30, 2025			September 30, 2024
Beginning balance		$	849		$	334
Merger related adjustments						1,179
Provision for (credit to) credit losses recorded in noninterest expense			252			(784)
Total allowance for credit losses on off balance sheet commitments		$	1,101		$	729

			For the Nine Months Ended
(Dollars in thousands)			September 30, 2025			September 30, 2024
Beginning balance		$	880		$	43
Merger related adjustments						1,179
Charge-off			(1)
Provision for (credit to) credit losses recorded in noninterest expense			222			(493)
Total allowance for credit losses on off balance sheet commitments		$	1,101		$	729

The contractual amounts of off-balance sheet commitments at September 30, 2025 and December 31, 2024 are as follows:


(Dollars in thousands)		September 30, 2025			December 31, 2024
Commitments to extend credit		$	629,573		$	589,725
Unused portions of lines of credit			170,946			150,840
Standby letters of credit			63,652			60,353
		$	864,171		$	800,918

Modifications to Borrowers Experiencing Financial Difficulty

The following table presents, by class of loans, information regarding nonaccrual modified loans to borrowers experiencing financial difficulty during the nine months ended September 30, 2025 and 2024. There were no new nonaccrual modified loans during the three months ended September 30, 2025 or 2024.

Other-Than-Insignificant Payment Delay

For the nine months ended September 30, 2025 and September 30, 2024

2025

2024

Number
of

Amortized Cost

% of Total Class of Financing

Related

Number
of

Amortized Cost

% of Total Class of Financing

Related

(Dollars in thousands)

Loans

Basis

Receivable

Reserve

Loans

Basis

Receivable

Reserve

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Commercial and industrial

1

$

242

0.036%

$

$

$

Total

$

242

$

$

$

There was one modification of an accruing loan in 2025. There were no modifications of accruing loans in 2024.

The following table presents, by class of loans, information regarding the financial effect on nonaccrual modified loans to borrowers experiencing financial difficulty during the nine months ended September 30, 2025 and 2024.



		Other-Than-Insignificant Payment Delay
(Dollars in thousands)		No. of Loans		Financial Effect
For the Nine Months Ended September 30, 2025
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial and Industrial		1		Modified principal and interest payment to interest only for 4 months

Total		1
For the Nine Months Ended September 30, 2024
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial and Industrial
Total

The following tables present, by class of loans, the amortized cost and performance status of nonaccrual modified loans to borrowers experiencing financial difficulty that have been modified in the nine months ended September 30, 2025 and 2024.


			For the Nine Months Ended September 30, 2025
(Dollars in thousands)			Current			30-89 Days Past Due			90 Days or More Past Due			Total
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial and Industrial		$			$			$	242		$	242
Total		$			$			$	242		$	242

			For the Nine Months Ended September 30, 2024
(Dollars in thousands)			Current			30-89 Days Past Due			90 Days or More Past Due			Total
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial and Industrial		$			$			$			$
Total		$			$			$			$