Loans Held for Investment

12 Months Ended

Dec. 31, 2024

Loans and Leases Receivable Disclosure [Abstract]

Loans Held for Investment

4. Loans Held for Investment

The components of loans were as follows at December 31, 2024 and 2023:

	December 31, 2024			December 31, 2023
	(dollars in thousands)
Residential mortgage loans (1-4 family):
Fixed	$	98,694		$	94,267
Variable		155,948			154,630
Construction		34,139			15,764
Total residential mortgage loans		288,781			264,661
Commercial loans
Real estate		241,063			206,267
Other		94,981			69,619
Total commerical loans		336,044			275,886
Consumer loans:
Home equity		106,550			98,331
Other consumer		26,690			27,740
Total consumer loans		133,240			126,071
Total loans held for investment		758,065			666,618
Less:
Undisbursed portion of mortgage loans		(161	)		(118	)
Net deferred loan costs (fees)		(1,007	)		(816	)
Allowance for credit losses		(6,244	)		(6,203	)
Total loans held for investment, net	$	750,653		$	659,481

Accrued interest receivable on loans held for investment totaled $4.1 million and $3.8 million as of December 31, 2024 and 2023, respectively, and was reported in accrued interest receivable on the statements of financial condition.

The Company has an established methodology to calculate the Allowance for Credit Losses (“ACL”) that assesses the risks and losses inherent in the Company’s loan portfolio. For purposes of determining the ACL, the Company segments certain loans in its portfolio by product type. The Company’s loans are segmented into the following pools: residential mortgage loans, commercial real estate loans, other commercial loans, home equity, and consumer loans. The Company also sub-segments these segments into classes based on the associated risks within those segments. Residential mortgage loans are divided into the following classes: fixed, variable and construction. Each class of loans requires significant judgment to determine the estimation method that fits the credit risk characteristics of its portfolio segment. The Company uses an internally developed model in this process. Management uses judgment in establishing additional input metrics for the modeling processes.

The model and assumptions the Company uses to determine the allowance are independently validated and reviewed to ensure that their theoretical foundation, assumptions, data integrity, computational processes, reporting practices and end-user controls are appropriate and properly documented. The following are the factors the Company uses to determine the ACL for each segment or class of loan.

Residential Mortgage Loans

All of our residential mortgage loans are centrally underwritten. When assessing credit risk, we analyze certain credit factors, such as, payment history, credit utilization and length of credit history. All of our residential mortgage loans are secured by real estate; therefore, we evaluate and estimate the current market value of the collateral property. Common risk factors that are not specific to individual loan transactions include economic conditions within our markets, including unemployment rates and potential changes in real estate collateral values due to market conditions. Personal events, disability, death or change in marital status of the borrower also increase risk in residential mortgage lending.

Residential Mortgage Loans (Fixed and Variable)

Characteristically, residential mortgage loans are secured by 1 – 4 family residential properties and residential lots. Declines in market value can result in residential mortgages with outstanding balances in excess of the collateral value of the property securing the loan.

Residential Construction Loans

Residential construction loans can experience delays in construction and cost overruns that can exceed the borrower’s financial ability to complete the construction project, which could result in unmarketable collateral.

Commercial Loans

All of our commercial loans are centrally underwritten. When assessing credit risk, we analyze the borrower’s ability to generate adequate cash flow to service the debt in accordance with the terms and conditions of the loan agreement. Usually, our commercial loans are secured by collateral and we assess the current value of the collateral. Additionally, the Company evaluates and assesses the financial strength and liquidity of the borrower’s principals because the Company generally requires the personal guarantees of the borrower’s principals. Common risk factors that are not specific to

individual loan transactions include economic conditions within our markets, including unemployment rates and potential changes in collateral values due to market conditions.

Commercial Real Estate

Commercial mortgage, commercial construction and land development loans are dependent upon the supply and demand for commercial real estate in the markets we serve as well as the demand for newly constructed residential homes and lots. A decrease in demand could result in decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our borrowers. Loans secured by non-residential properties and multifamily housing are dependent upon the ability of the property to produce cash flow sufficient to cover debt service and other operating expenses. These property types are susceptible to weak economic conditions which can result in high vacancy rates.

Other Commercial Loans

The repayment of commercial loans not secured by real estate is primarily dependent upon the ability of our borrowers to produce cash flows consistent with our original projections analyzed during the credit underwriting process. While our loans our generally secured by collateral with limitations on maximum loan to value ratios, there is a risk that liquidation of the collateral will not fully satisfy the loan balance.

Consumer Loans

All of the Company’s consumer loans are centrally underwritten. When assessing credit risk, we analyze certain credit factors, such as, payment history, credit utilization and length of credit history. Since a large percentage of consumer loans are secured, management evaluates the likely market value of the collateral. Common risk factors that are not specific to individual loan transactions include economic conditions within our markets. Personal events, disability, death or change in marital status of the borrower also increase risk in consumer lending.

Home Equity Loans

Home equity and home equity lines of credit loans are secured by first or junior liens on residential real estate making such loans susceptible to deterioration in residential real estate values. Additional risks include lien perfection deficiencies and the inherent risk that the borrower may draw on the lines in excess of their collateral value, particularly in a deteriorating real estate market.

Other Consumer Loans

Consumer loans include loans secured by personal property, such as automobiles, mobile homes and other title vehicles, such as boats and motorcycles. Consumer loans also include unsecured loans. The value of the underlying collateral for this loan category is especially volatile due to the potential rapid decline in values.

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of our borrowers to service their debt obligations. The relevant information includes current financial information, historical payment history, credit documentation, public information and current

economic trends, among other factors. The Company uses a risk grading matrix to assign risk grades to each of our commercial loans and a portion of our other loans. Loans are graded on a scale of 1 to 10. A description of the general characteristics of the ten grades is as follows:

Grade 1	Substantially Risk Free. Fully secured by own-Bank deposits.
Grade 2	Minimal. Minimal degree of risk in both short term and long term. No noted credit, collateral or technical deficiencies. Exemplary and established history with the Company and elsewhere. Exceptional financial strength and generally in the upper quartile of peer comparisons. Loans secured by properly margined and monitored marketable securities may also be in this category.

Grade 3 Moderate. Only moderate risk apparent in both short term and long term. Financial characteristics of borrower are strong. Demonstrated ability to generate sufficient cash flow to meet debt service requirements including 3-5 years of generating increasing or consistently strong levels of cashflow, the capital structure is strong with only moderate leverage, trends are favorable, and comparison to peer is positive. Credit reflects strong collateral values with proper margins, and/or is supported by strong guarantees.

Grade 4	Acceptable. Acceptable level of risk in both short term and long term. Borrower generates sufficient cash flow to meet debt service requirements with a comfortable margin and debt is adequately secured with appropriate collateral margins and supported by guarantees. Leverage, liquidity, margins, etc. are comparable to peer, but may not be as strong as borrowers risk rated 3.
Grade 5	Acceptable with Care. Risk is still considered acceptable, cash flow coverage of debt service requirements is adequate, but there are certain negative factors that could increase long term risk. Some common characteristics of these credits include: structure at variance with policy, LTV’s in excess of prescribed levels, trends negative but not materially adverse, leverage in excess of peer, etc.

Grade 6	Watch. Only marginally acceptable financial profiles, and financial trends are less favorable than prior periods. Short term risk may be acceptable, but negative factors could develop to make long term risk unacceptable. Weaknesses may include: outdated financials, inconsistent financial performance, strained liquidity, and adverse financial trends.
Grade 7	Special Mention. Increased level of risk (and, therefore, additional scrutiny) due to some weakening trend, poor performance, a particular circumstance or some other noted deficiency. Generally, repayment according to plan is still anticipated.

Grade 8 Substandard. Identified crucial weakness with associated loss potential. Substandard 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. An assessment under ASC 310 must be performed on credits identified for individual evaluation graded Substandard.

Grade 9

Doubtful. Full repayment or liquidation is highly questionable or improbable. Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently know facts, conditions and values, highly questionable and improbable. An assessment under ASC 310 must be performed on credits identified for individual evaluation graded Doubtful.

Grade 10

Loss. All outstanding principal and accrued interest is deemed uncollectible and is to be charged off promptly. Loans classified Loss are considered uncollectible and of such little value that their continuance as Bankable assets 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. Loans classified Loss requires a 100% specific reserve.

Loans with a risk rating of 1 through 6 are classified as “Pass” rated credits in the following tables. Nonrated loans are also classified as “Pass.” The following table presents the Company's recorded investment in loans by credit quality indicators by year of origin as of December 31, 2024 and gross charge-offs for the year ended December 31, 2024.

	Term Loans
1-4 Family Residential	2024		2023		2022		2021		2020		Prior		Revolving Lines		Total
Pass	$	15,139	$	61,966	$	66,541	$	30,758	$	22,112	$	47,915	$	—	$	244,431
Special Mention		—		—		257		—		—		32		—		289
Substandard		—		3,179		3,254		1,128		140		2,221		—		9,922
Doubtful		—		—		—		—		—		—		—		—
Total	$	15,139	$	65,145	$	70,052	$	31,886	$	22,252	$	50,168	$	—	$	254,642
Residential Construction	2024		2023		2022		2021		2020		Prior		Revolving		Total
Pass	$	23,044	$	11,095	$	—	$	—	$	—	$	—	$	—	$	34,139
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	23,044	$	11,095	$	—	$	—	$	—	$	—	$	—	$	34,139
Commercial Real Estate	2024		2023		2022		2021		2020		Prior		Revolving		Total
Pass	$	50,394	$	47,231	$	40,122	$	11,240	$	17,629	$	73,990	$	—	$	240,606
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		457		—		—		457
Doubtful		—		—		—		—		—		—		—		—
Total	$	50,394	$	47,231	$	40,122	$	11,240	$	18,086	$	73,990	$	—	$	241,063
Commercial	2024		2023		2022		2021		2020		Prior		Revolving		Total
Pass	$	39,529	$	4,011	$	6,107	$	8,062	$	5,041	$	4,138	$	23,556	$	90,444
Special Mention		—		—		1,424		—		—		188		—		1,612
Substandard		42		250		226		—		459		1,239		566		2,782
Doubtful		—		45		—		—		—		—		98		143
Total	$	39,571	$	4,306	$	7,757	$	8,062	$	5,500	$	5,565	$	24,220	$	94,981
Home Equity	2024		2023		2022		2021		2020		Prior		Revolving		Total
Pass	$	4,592	$	7,597	$	1,643	$	73	$	62	$	1,020	$	89,267	$	104,254
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		46		—		—		2		2,225		2,273
Doubtful		—		—		—		—		—		—		23		23
Total	$	4,592	$	7,597	$	1,689	$	73	$	62	$	1,022	$	91,515	$	106,550
Other Consumer	2024		2023		2022		2021		2020		Prior		Revolving		Total
Pass	$	10,209	$	9,673	$	3,628	$	1,045	$	507	$	7	$	1,235	$	26,304
Special Mention		189		—		—		—		—		—		—		189
Substandard		—		15		—		1		—		—		47		63
Doubtful		74		36		10		14		—		—		—		134
Total	$	10,472	$	9,724	$	3,638	$	1,060	$	507	$	7	$	1,282	$	26,690
All Loans	2024		2023		2022		2021		2020		Prior		Revolving		Total
Pass	$	142,907	$	141,573	$	118,041	$	51,178	$	45,351	$	127,070	$	114,058	$	740,178
Special Mention		189		-		1,681		—		—		220		-		2,090
Substandard		42		3,444		3,526		1,129		1,056		3,462		2,838		15,497
Doubtful		74		81		10		14		—		—		121		300
Total Loans	$	143,212	$	145,098	$	123,258	$	52,321	$	46,407	$	130,752	$	117,017	$	758,065
Gross charge-offs	$	—	$	123	$	374	$	45	$	178	$	21	$	920	$	1,661

Loans with a risk rating of 1 through 6 are classified as “Pass” rated credits in the following tables. Nonrated loans are also classified as “Pass.” The following table presents the Company's recorded investment in loans by credit quality indicators by year of origin as of December 31, 2023 and gross charge-offs for the year ended December 31, 2023.

	Term Loans
1-4 Family Residential	2023		2022		2021		2020		2019		Prior		Revolving Lines		Total
Pass	$	58,213	$	71,746	$	35,005	$	22,795	$	6,493	$	47,727	$	291	$	242,270
Special Mention		—		261		—		—		—		95		—		356
Substandard		808		1,767		653		328		124		2,591		—		6,271
Doubtful		—		—		—		—		—		—		—		—
Total	$	59,021	$	73,774	$	35,658	$	23,123	$	6,617	$	50,413	$	291	$	248,897
Residential Construction	2023		2022		2021		2020		2019		Prior		Revolving		Total
Pass	$	14,585	$	1,179	$	—	$	—	$	—	$	—	$	—	$	15,764
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	14,585	$	1,179	$	—	$	—	$	—	$	—	$	—	$	15,764
Commercial Real Estate	2023		2022		2021		2020		2019		Prior		Revolving		Total
Pass	$	42,867	$	43,365	$	11,703	$	17,491	$	14,490	$	52,597	$	12,537	$	195,050
Special Mention		—		—		—		—		—		9,394		—		9,394
Substandard		—		—		—		1,823		—		—		—		1,823
Doubtful		—		—		—		—		—		—		—		—
Total	$	42,867	$	43,365	$	11,703	$	19,314	$	14,490	$	61,991	$	12,537	$	206,267
Commercial	2023		2022		2021		2020		2019		Prior		Revolving		Total
Pass	$	9,265	$	2,120	$	5,936	$	4,457	$	769	$	1,292	$	41,555	$	65,394
Special Mention		—		—		—		286		208		—		1,281		1,775
Substandard		69		326		—		129		80		—		1,405		2,009
Doubtful		—		97		25		—		—		146		173		441
Total	$	9,334	$	2,543	$	5,961	$	4,872	$	1,057	$	1,438	$	44,414	$	69,619
Home Equity	2023		2022		2021		2020		2019		Prior		Revolving		Total
Pass	$	10,399	$	6,726	$	6,218	$	4,119	$	1,861	$	5,118	$	62,361	$	96,802
Special Mention		—		—		—		—		—		—		66		66
Substandard		—		680		—		—		175		130		441		1,426
Doubtful		—		—		—		—		—		—		37		37
Total	$	10,399	$	7,406	$	6,218	$	4,119	$	2,036	$	5,248	$	62,905	$	98,331
Other Consumer	2023		2022		2021		2020		2019		Prior		Revolving		Total
Pass	$	8,334	$	1,557	$	1,144	$	227	$	166	$	56	$	16,209	$	27,693
Special Mention		27		—		—		—		—		—		—		27
Substandard		13		—		—		—		—		—		7		20
Doubtful		—		—		—		—		—		—		—		—
Total	$	8,374	$	1,557	$	1,144	$	227	$	166	$	56	$	16,216	$	27,740
All Loans	2023		2022		2021		2020		2019		Prior		Revolving		Total
Pass	$	143,663	$	126,693	$	60,006	$	49,089	$	23,779	$	106,790	$	132,953	$	642,973
Special Mention		27		261		—		286		208		9,489		1,347		11,618
Substandard		890		2,773		653		2,280		379		2,721		1,853		11,549
Doubtful		—		97		25		—		—		146		210		478
Total Loans	$	144,580	$	129,824	$	60,684	$	51,655	$	24,366	$	119,146	$	136,363	$	666,618
Gross charge-offs	$	27	$	116	$	38	$	34	$	64	$	83	$	1,445	$	1,807

Allowance for Credit Losses and Recorded Investment in Loans Receivable

The following table outlines the changes in the allowance for credit losses by category, the allowance for loans individually and collectively evaluated, and the balances of loans individually and collectively evaluated, for the year ended December 31, 2024:

	1-4 Family					Commercial			Other			Home		Other
	Residential			Construction		Real Estate			Commercial			Equity		Consumer			Total
						(dollars in thousands)
Allowance
Beginning balance, January 1, 2024	$	1,210		$	1	$	2,218		$	1,586		$	536	$	652		$	6,203
Charge-offs		(306	)		—		—			(1,114	)		—		(241	)		(1,661	)
Recoveries		6			2		—			118			—		46			172
Provision for Credit Loss		550			132		63			296			300		189			1,530
Reallocations		786			404		(2,024	)		323			388		123			—
Balance at end of period	$	2,246		$	539	$	257		$	1,209		$	1,224	$	769		$	6,244
Ending allowance balance for loans individually evaluated	$	477		$	—	$	—		$	283		$	146	$	122		$	1,028
Ending allowance balance for loans collectively evaluated	$	1,769		$	539	$	257		$	926		$	1,078	$	647		$	5,216
Loans Receivable
Total period-end balance	$	254,642		$	34,139	$	241,063		$	94,981		$	106,550	$	26,690		$	758,065
Balance of loans individually evaluated	$	10,350		$	—	$	1,709		$	1,928		$	2,529	$	143		$	16,659
Balance of loans collectively evaluated	$	244,292		$	34,139	$	239,354		$	93,053		$	104,021	$	26,547		$	741,406

The following table outlines the changes in the allowance for credit losses by category, the allowance for loans individually and collectively evaluated, and the balances of loans individually and collectively evaluated, for the year ended December 31, 2023:

	1-4 Family						Commercial		Other			Home			Other
	Residential			Construction			Real Estate		Commercial			Equity			Consumer			Total
							(dollars in thousands)
Allowance
Beginning balance, January 1, 2023	$	839		$	3		$	880	$	4,303		$	385		$	888		$	7,298
Charge-offs		(5	)		—			—		(1,277	)		(47	)		(478	)		(1,807	)
Recoveries		—			—			3		30			—			30			63
Provision for Credit Loss		—			—			—		649			—			—			649
Reallocations		376			(2	)		1,335		(2,119	)		198			212			—
Balance at end of year	$	1,210		$	1		$	2,218	$	1,586		$	536		$	652		$	6,203
Ending allowance balance for loans individually evaluated	$	361		$	—		$	—	$	492		$	—		$	58		$	911
Ending allowance balance for loans collectively evaluated	$	849		$	1		$	2,218	$	1,094		$	536		$	594		$	5,292
Loans Receivable
Total period-end balance	$	248,897		$	15,764		$	206,267	$	69,619		$	98,331		$	27,740		$	666,618
Balance of loans individually evaluated	$	6,173		$	—		$	—	$	1,795		$	723		$	109		$	8,800
Balance of loans collectively evaluated	$	242,724		$	15,764		$	206,267	$	67,824		$	97,608		$	27,631		$	657,818

The Company had $13.0 million and $7.7 million of non-accruing loans as of December 31, 2024 and 2023, respectively. Management determined that a specific reserve of approximately $0.4 million and $0.9 million was necessary as of December 31, 2024 and 2023, respectively. The amount of interest income that would have been recorded in 2024 and 2023 is not significant.

The following tables present a summary by loan class of past due and non-accrual loans as of December 31, 2024 and 2023 (dollars in thousands):

					Greater Than								Past Due>
	30-59 Days		60-89 Days		90 Days		Total				Total		90 Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
December 31, 2024
1-4 family residential	$	16,549	$	6,043	$	6,026	$	28,618	$	226,024	$	254,642	$	—
Construction		—		—		—		—		34,139		34,139		—
Commercial real estate		101		—		—		101		240,962		241,063		—
Other commercial		401		194		622		1,217		93,764		94,981		—
Home equity		2,073		787		1,217		4,077		102,473		106,550		—
Other consumer		409		80		118		607		26,083		26,690		—
Total	$	19,533	$	7,104	$	7,983	$	34,620	$	723,445	$	758,065	$	—

	December 31, 2024
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
	No Allowance		with an Allowance		Loans
1-4 family residential	$	6,128	$	4,102	$	10,230
Construction		—		—		—
Commercial real estate		—		—		—
Other commercial		484		281		765
Home equity		1,670		164		1,834
Other consumer		35		125		160
Total	$	8,317	$	4,672	$	12,989

					Greater Than								Past Due>
	30-59 Days		60-89 Days		90 Days		Total				Total		90 Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
December 31, 2023
1-4 family residential	$	1,820	$	1,126	$	2,858	$	5,804	$	243,093	$	248,897	$	—
Construction		—		—		—		—		15,764		15,764		—
Commercial real estate		—		—		—		—		206,267		206,267		—
Other commercial		689		79		1,007		1,775		67,844		69,619		—
Home equity		1,135		593		396		2,124		96,207		98,331		—
Other consumer		273		171		5		449		27,291		27,740		—
Total	$	3,917	$	1,969	$	4,266	$	10,152	$	656,466	$	666,618	$	—

	December 31, 2023
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
	No Allowance		with an Allowance		Loans
1-4 family residential	$	2,226	$	3,108	$	5,334
Construction		—		—		—
Commercial real estate		426		—		426
Other commercial		422		892		1,314
Home equity		561		—		561
Other consumer		9		21		30
Total	$	3,644	$	4,021	$	7,665

There were two commercial loan modifications made to borrowers experiencing financial difficulty in the year ended December 31, 2024 totaling $311 thousand and one in the year ended December 31, 2023 totaling $34 thousand for which a term concession was granted. At December 31, 2024, there were 11 loans totaling $1.1 million with active short-term payment deferrals of principal, interest or both. At December 31, 2023, there were 10 loans totaling $858 thousand with active short-term payment deferrals of principal, interest or both.