Note 4 - Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2025

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

4. Loans and Allowance for Credit Losses

Major categories of loans are as follows:

	September 30,		December 31,
(Dollars in Thousands)	2025		2024
Real estate:
Commercial	$	430,518	$	398,126
Construction/Land development		34,217		27,357
Residential		111,032		111,898
Commercial		51,864		50,405
Consumer		133		176
Total Loans		627,764		587,962
Less: Allowance for credit losses		4,257		4,260
Deferred origination fees, net of costs		1,050		709
	$	622,457	$	582,993

For purposes of monitoring the performance of the loan portfolio and estimating the allowance for credit losses, the Company's loans receivable portfolio is segmented as follows: (i) commercial real estate; (ii) construction and land development; (iii) residential; (iv) commercial and industrial; (v) and consumer.

Commercial real estate loans carry risks associated with the borrower’s ability to repay the loan from the cash flow derived from the underlying real estate. Risks inherent in managing a commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate. Real estate security diminishes risks only to the extent that a market exists for the subject collateral. These risks are attempted to be mitigated by carefully underwriting loans of this type and by following appropriate loan-to-value standards. The Company generally requires personal guarantees or endorsements with respect to these loans and loan-to-value ratios for real estate-commercial loans generally do not exceed 80%.

Construction and land development real estate loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget, and/or the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project. The Company generally requires personal guarantees or endorsements with respect to these loans and loan-to-value ratios for real estate-commercial loans generally do not exceed 80%.

Residential real estate mortgage loans, including equity lines of credit, carry risks associated with the continued credit-worthiness of the borrower and the changes in the value of the collateral.

Commercial and industrial loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.

Consumer loans carry risks associated with the continued credit-worthiness of the borrower and the value of the collateral. The Company's consumer loans consist primarily of installment loans made to individuals for personal, family and household purposes. These risks are attempted to be mitigated by following appropriate loan-to-value standards and an experienced management team for this type of portfolio.

The following tables present the amortized cost basis of loans on nonaccrual status as of September 30, 2025 and December 31, 2024:

	Nonaccrual		Nonaccrual		Loans Past
	With No		With		Due 90 Days
	Allowance		Allowance		or More and
(Dollars in thousands)	for Credit Loss		for Credit Loss		Still Accruing
September 30, 2025
Real estate:
Commercial	$	-	$	-	$	1,262
Construction and land development		-		-		-
Residential		-		-		-
Commercial		-		-		-
Consumer		-		-		-
	$	-	$	-	$	1,262
December 31, 2024
Real estate:
Commercial	$	-	$	2,440	$	-
Construction and land development		-		-		-
Residential		-		-		-
Commercial		-		-		-
Consumer		-		-		-
	$	-	$	2,440	$	-

The Company did not recognize any interest income on nonaccrual loans during the three or nine month periods ended September 30, 2025 or 2024.

At September 30, 2025, the Company had no nonaccrual loans. At December 31, 2024, the Company had three nonaccrual loans totaling $2.4 million which were secured by real estate, business assets and a personal guaranty. Gross interest income of $38 thousand would have been recorded in 2024 if these nonaccrual loans had been current and performing in accordance with their original terms.

An age analysis of past due loans, segregated by type of loan, is as follows:

					90 Days								Past Due 90
(Dollars in thousands)	30 - 59 Days		60 - 89 Days		or More		Total				Total		Days or More
September 30, 2025	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
Real estate:
Commercial	$	-	$	-	$	1,262	$	1,262	$	429,256	$	430,518	$	1,262
Construction and land development		-		-		-		-		34,217		34,217		-
Residential		202		-		-		202		110,830		111,032		-
Commercial		-		-		-		-		51,864		51,864		-
Consumer		-		-		-		-		133		133		-
Total	$	202	$	-	$	1,262	$	1,464	$	626,300	$	627,764	$	1,262
December 31, 2024
Real estate:
Commercial	$	-	$	-	$	404	$	404	$	397,722	$	398,126	$	-
Construction and land development		-		-		-		-		27,357		27,357		-
Residential		-		270		-		270		111,628		111,898		-
Commercial		-		-		-		-		50,405		50,405		-
Consumer		-		-		-		-		176		176		-
Total	$	-	$	270	$	404	$	674	$	587,288	$	587,962	$	-

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2025 and December 31, 2024:

	September 30,		December 31,
(Dollars in thousands)	2025		2024
Real estate:
Commercial	$	-	$	2,440
Residential		-		270
Commercial		-		-
	$	-	$	2,710

From time to time, loans to borrowers experiencing financial difficulty may be modified. Generally, the modifications we grant are extensions of terms, deferrals of payments for an extended period or interest rate reductions. Occasionally, we may modify a loan by providing principal forgiveness. In some cases, we will modify a loan by providing multiple types, or combinations, of concessions.

The following table presents the amortized cost basis of the loan modifications at September 30, 2025 and December 31, 2024 and the percentage of the amortized cost basis of the loan to the total cost basis of the class of loans and total loans.          

	September 30, 2025					December 31, 2024
			Total Class					Total Class
	Term		of Financing			Term		of Financing
(Dollars in thousands)	Extension		Receivable			Extension		Receivable
Commercial real estate	$	4,380		1.02	%	$	2,038		0.51	%

The Bank did not modift any loans during the three month period ended September 30, 2025, and it modified one commercial real estate loan to a borrower experiencing financial distress during the nine month period ended September 30, 2025. There were two modifications to borrowers experiencing financial distress during each of the three and nine month periods ended September 30, 2024. There were no loan payment defaults during the three or nine month periods ended September 30, 2025 or 2024.

Accrued interest receivable on loans totaled $2.0 million and $1.9 million at September 30, 2025 and December 31, 2024, respectively, and is included in accrued interest receivable on the consolidated balance sheets. Accrued interest receivable is not included as part of the amortized costs of loans for the allowance for credit losses estimate.

Credit Quality Indicators

As part of our portfolio risk management, the Company assigns a risk grade to each loan. The factors used to determine the grade are the payment history of the loan and the borrower, the value of the collateral and net worth of the guarantor, and cash flow projections of the borrower. Excellent, Above Average, Average, Acceptable, and Pass/Watch grades are assigned to loans with limited or no delinquent payments and more than sufficient collateral and/or cash flow.

A description of the general characteristics of loans characterized as watch list or classified is as follows:

Special Mention

A special mention loan is a loan that management believes has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset 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.

Borrowers may exhibit poor liquidity and leverage positions resulting from generally negative cash flow or negative trends in earnings. Access to alternative financing may be limited to finance companies for business borrowers and may be unavailable for commercial real estate borrowers.

Substandard

A substandard loan is a loan that management believes is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Such loans 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.

Borrowers may exhibit recent or unexpected unprofitable operations, an inadequate debt service coverage ratio, or marginal liquidity and capitalization. Substandard loans require more intense supervision by Company management.

Doubtful

A doubtful loan is a loan that management believes has all of the weaknesses inherent in a substandard loan with the added characteristic that the weaknesses, based on currently existing facts, conditions, and values, make collection or liquidation in full highly questionable and improbable.

Loans by credit grade, segregated by loan type, and year originated as of September 30, 2025 as well as charge-offs for the nine months ended September 30, 2025 were as follows:

	Term Loans Amortized Cost Basis by Origination
	As of and for the nine months ended September, 2025
(dollars in thousands)													Revolving
	2025		2024		2023		2022		2021		Prior		Loans		Total
Commercial Real Estate
Pass	$	63,805	$	46,571	$	26,582	$	59,483	$	53,005	$	150,047	$	5,501	$	404,274
Special Mention		2,200		12,762		-		5,914		-		-		400		21,276
Substandard		341		-		-		-		-		4,627		-		4,968
Doubtful		-		-		-		-		-		-		-		-
Total	$	65,626	$	59,333	$	26,582	$	65,397	$	53,005	$	154,674	$	5,901	$	430,518
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	646	$	-	$	646
Construction and Land Development
Pass	$	7,909	$	13,949	$	2,651	$	3,888	$	152	$	5,668	$	-	$	34,217
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	7,909	$	13,949	$	2,651	$	3,888	$	152	$	5,668	$	-	$	34,217
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential Real Estate
Pass	$	13,237	$	10,433	$	10,014	$	17,493	$	5,661	$	42,303	$	10,591	$	109,732
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		1,280		20		1,300
Doubtful		-		-		-		-		-		-		-		-
Total	$	13,237	$	10,433	$	10,014	$	17,493	$	5,661	$	43,583	$	10,611	$	111,032
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial
Pass	$	4,807	$	10,501	$	3,447	$	4,570	$	2,071	$	713	$	17,421	$	43,530
Special Mention		2,163		111		-		-		-		-		5,627		7,901
Substandard		8		-		-		-		-		-		425		433
Doubtful		-		-		-		-		-		-		-		-
Total	$	6,978	$	10,612	$	3,447	$	4,570	$	2,071	$	713	$	23,473	$	51,864
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Consumer
Pass	$	32	$	59	$	40	$	-	$	-	$	2	$	-	$	133
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	32	$	59	$	40	$	-	$	-	$	2	$	-	$	133
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Aggregate total
Pass	$	89,070		81,513		42,734		85,434		60,889		198,733		33,513		591,886
Special Mention		4,363		12,873		-		5,914		-		6,027		6,027		29,177
Substandard		349		-		-		-		-		445		445		6,701
Doubtful		-		-		-		-		-		-		-		-
Total	$	93,782		94,386		42,734		91,348		60,889		204,640		39,985		627,764
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	646	$	-	$	646

Loans by credit grade, segregated by loan type, and year originated as of December 31, 2024 as well as gross charge-offs for the year ended December 31, 2024 were as follows:

	Term Loans Amortized Cost Basis by Origination
	As of and for the year ended December 31, 2024
(dollars in thousands)													Revolving
	2024		2023		2022		2021		2020		Prior		Loans		Total
Commercial Real Estate
Pass	$	63,427	$	26,745	$	69,261	$	54,346	$	19,727	$	151,876	$	3,559	$	388,941
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		9,185		-		9,185
Doubtful		-		-		-		-		-		-		-		-
Total	$	63,427	$	26,745	$	69,261	$	54,346	$	19,727	$	161,061	$	3,559	$	398,126
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Construction and Land Development
Pass	$	14,710	$	3,365	$	1,568	$	1,443	$	930	$	5,341	$	-	$	27,357
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	14,710	$	3,365	$	1,568	$	1,443	$	930	$	5,341	$	-	$	27,357
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential Real Estate
Pass	$	12,385	$	10,592	$	18,474	$	9,363	$	7,084	$	44,409	$	7,985	$	110,292
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		1,582		24		1,606
Doubtful		-		-		-		-		-		-		-		-
Total	$	12,385	$	10,592	$	18,474	$	9,363	$	7,084	$	45,991	$	8,009	$	111,898
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	5	$	-	$	5
Commercial
Pass	$	9,928	$	5,017	$	5,675	$	2,632	$	472	$	467	$	21,040	$	45,231
Special Mention		4,674		-		-		-		-		-		-		4,674
Substandard		-		-		-		-		-		500		-		500
Doubtful		-		-		-		-		-		-		-		-
Total	$	14,602	$	5,017	$	5,675	$	2,632	$	472	$	967	$	21,040	$	50,405
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	152	$	-	$	152
Consumer
Pass	$	106	$	57	$	9	$	-	$	1	$	-	$	-	$	173
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		2		-		1		-		-		-		3
Doubtful		-		-		-		-		-		-		-		-
Total	$	106	$	59	$	9	$	1	$	1	$	-	$	-	$	176
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	5	$	-	$	5
Aggregate total
Pass	$	100,556		45,776		94,987		67,784		28,214		202,093		32,584		571,994
Special Mention		4,674		-		-		-		-		-		-		4,674
Substandard		-		2		-		1		-		11,267		24		11,294
Doubtful		-		-		-		-		-		-		-		-
Total	$	105,230	$	45,778	$	94,987	$	67,785	$	28,214	$	213,360	$	32,608	$	587,962
Charge-offs	$	-	$	-	$	-	$	-	$	-	$	162	$	-	$	162

The following tables detail activity in the allowance for credit losses and loan balances by portfolio as of and for the nine month periods ended September 30, 2025 and 2024, and as of and for the year ended December 31, 2024. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

													Allowance for credit losses ending				Outstanding loan balances
(Dollars in thousands)			Provision for										by evaluation method				evaluated:
Nine months ended	Beginning		(recovery of)			Charge					Ending
September 30, 2025	balance		credit losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	2,481	$	448		$	(646	)	$	-	$	2,283	$	-	$	2,283	$	-	$	430,518
Construction and land development		478		42			-			-		520		-		520		-		34,217
Residential		751		(130	)		-			21		642		-		642		-		111,032
Commercial		513		249			-			-		762		-		762		-		51,864
Consumer		4		(3	)		-			-		1		-		1		-		133
Unallocated		33		16			-			-		49		-		49		-		-
	$	4,260	$	622		$	(646	)	$	21	$	4,257	$	-	$	4,257	$	-	$	627,764

													Allowance for credit losses ending				Outstanding loan balances
(Dollars in thousands)			Provision for										by evaluation method				evaluated:
Nine months ended	Beginning		(recovery of)			Charge					Ending
September 30, 2024	balance		credit losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	2,448	$	(12	)	$	-		$	-	$	2,436	$	392	$	2,044	$	2,441	$	383,354
Construction and land development		253		162			-			-		415		-		415		-		30,328
Residential		1,013		(255	)		-			19		777		-		777		272		108,931
Commercial		494		200			(153	)		-		541		-		541		-		50,932
Consumer		2		3			(3	)		-		2		-		2		-		154
Unallocated		74		(54	)		-			-		20		-		20		-		-
	$	4,284	$	44		$	(156	)	$	19	$	4,191	$	392	$	3,799	$	2,713	$	573,699

													Allowance for credit losses ending				Outstanding loan balances
			Provision for										balance evaluated for impairment:				evaluated:
(Dollars in thousands)	Beginning		(recovery of)			Charge					Ending
December 31, 2024	balance		credit losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	2,448	$	33		$	-		$	-	$	2,481	$	360	$	2,122	$	2,440	$	395,686
Construction and land development		253		225			-			-		478		-		478		-		27,357
Residential		1,013		(281	)		(5	)		24		751		-		751		270		111,628
Commercial		494		171			(152	)		-		513		-		512		-		50,405
Consumer		2		7			(5	)		-		4		-		4		-		176
Unallocated		74		(41	)		-			-		33		-		33		-		-
	$	4,284	$	114		$	(162	)	$	24	$	4,260	$	360	$	3,899	$	2,710	$	585,252

Loans acquired from Carroll Community Bank in 2020 in connection with the Company’s acquisition of Carroll Bancorp, Inc. and Carroll Community Bank (collectively, the “Merger”) were measured at fair value at the acquisition date with no carryover of any allowance for credit losses. The following table provides activity for the accretable discount of purchased loans:

(Dollars in thousands)
Balance at December 31, 2024	$	286
Accretion		(114	)
Balance at September 30, 2025	$	172

The following table details activity in the allowance for credit losses on unfunded loan commitments for the three- and nine- month periods ended September 30, 2025 and 2024:

	Three Months		Three Months			Nine Moths			Nine Moths
	Ended		Ended			Ended			Ended
(dollars in thousands)	September 30, 2025		September 30, 2024			September 30, 2025			September 30, 2024
Beginning balance	$	173	$	196		$	240		$	228
Provision for/(recovery of) credit losses		21		(13	)		(46	)		(45	)
Ending balance	$	194	$	183		$	194		$	183

The following table provides a summary of all of the components of the allowance for credit losses:

	Three Months Ended September 30, 2025
(Dollars in thousands)	Held to maturity securities			Loans			Unfunded loan commitments		Total
Beginning balance	$	81		$	4,233		$	173	$	4,487
Provision for (recovery of) credit losses		(2	)		308			21		327
Charge-offs		-			(290	)		-		(290	)
Recoveries		-			6			-		6
Ending balance	$	79		$	4,257		$	194	$	4,530

	Three Months Ended September 30, 2024
(Dollars in thousands)	Held to maturity securities			Loans		Unfunded loan commitments			Total
Beginning balance	$	127		$	4,082	$	196		$	4,405
Provision for (recovery of) credit losses		(90	)		103		(13	)		-
Charge-offs		-			-		-			-
Recoveries		-			6		-			6
Ending balance	$	37		$	4,191	$	183		$	4,411

	Nine Months Ended September 30, 2025
(Dollars in thousands)	Held to maturity securities		Loans			Unfunded loan commitments			Total
Beginning balance	$	60	$	4,260		$	240		$	4,560
Provision for (recovery of) credit losses		19		622			(46	)		595
Charge-offs		-		(646	)		-			(646	)
Recoveries		-		21			-			21
Ending balance	$	79	$	4,257		$	194		$	4,530

	Nine Months Ended September 30, 2024
(Dollars in thousands)	Held to maturity securities		Loans			Unfunded loan commitments			Total
Beginning balance	$	36	$	4,284		$	228		$	4,548
Provision for (recovery of) credit losses		1		44			(45	)		-
Charge-offs		-		(156	)		-			(156	)
Recoveries		-		19			-			19
Ending balance	$	37	$	4,191		$	183		$	4,411