Loans Held for Investment

3 Months Ended

Mar. 31, 2025

Loans and Leases Receivable Disclosure [Abstract]

Loans Held for Investment

4. Loans Held for Investment

The components of loans were as follows at March 31, 2025 and December 31, 2024:

	March 31, 2025			December 31, 2024
	(dollars in thousands)
Residential mortgage loans (1-4 family):
Fixed	$	99,022		$	98,694
Variable		153,078			155,948
Construction		38,928			34,139
Total residential mortgage loans		291,028			288,781
Commercial loans:
Real estate		253,054			241,063
Other		97,652			94,981
Total commerical loans		350,706			336,044
Consumer loans:
Home equity		106,089			106,550
Other consumer		23,885			26,690
Total consumer loans		129,974			133,240
Total loans held for investment		771,708			758,065
Less:
Undisbursed portion of mortgage loans		(153	)		(161	)
Net deferred loan costs (fees)		(970	)		(1,007	)
Allowance for credit losses		(6,195	)		(6,244	)
Total loans held for investment, net	$	764,390		$	750,653

Accrued interest receivable on loans held for investment totaled $4.1 million and $4.1 million as of March 31, 2025 and December 31, 2024, 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 are 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 March 31, 2025 and gross charge-offs for the three months ended March 31, 2025.

	Term Loans
1-4 Family Residential	2025		2024		2023		2022		2021		Prior		Revolving Lines		Total
Pass	$	3,599	$	14,832	$	59,528	$	64,873	$	29,400	$	66,882	$	—	$	239,114
Special Mention		—		—		—		256		—		30		—		286
Substandard		—		432		4,207		3,205		1,936		2,920		—		12,700
Doubtful		—		—		—		—		—		—		—		—
Total	$	3,599	$	15,264	$	63,735	$	68,334	$	31,336	$	69,832	$	—	$	252,100
Residential Construction	2025		2024		2023		2022		2021		Prior		Revolving		Total
Pass	$	1,436	$	30,067	$	7,425	$	—	$	—	$	—	$	—	$	38,928
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	1,436	$	30,067	$	7,425	$	—	$	—	$	—	$	—	$	38,928
Commercial Real Estate	2025		2024		2023		2022		2021		Prior		Revolving		Total
Pass	$	7,917	$	55,699	$	46,559	$	37,107	$	11,080	$	77,891	$	16,351	$	252,604
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		450		—		450
Doubtful		—		—		—		—		—		—		—		—
Total	$	7,917	$	55,699	$	46,559	$	37,107	$	11,080	$	78,341	$	16,351	$	253,054
Other Commercial	2025		2024		2023		2022		2021		Prior		Revolving		Total
Pass	$	21,956	$	27,357	$	3,931	$	5,004	$	7,675	$	11,765	$	14,945	$	92,633
Special Mention		—		—		—		—		42		269		224		535
Substandard		—		82		256		1,651		120		1,686		558		4,353
Doubtful		—		85		—		—		—		—		46		131
Total	$	21,956	$	27,524	$	4,187	$	6,655	$	7,837	$	13,720	$	15,773	$	97,652
Home Equity	2025		2024		2023		2022		2021		Prior		Revolving		Total
Pass	$	207	$	4,482	$	7,427	$	1,569	$	56	$	922	$	88,618	$	103,281
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		24		—		2		2,603		2,629
Doubtful		87		—		—		—		—		—		92		179
Total	$	294	$	4,482	$	7,427	$	1,593	$	56	$	924	$	91,313	$	106,089
Other Consumer	2025		2024		2023		2022		2021		Prior		Revolving		Total
Pass	$	10,494	$	7,066	$	942	$	2,671	$	979	$	497	$	945	$	23,594
Special Mention		—		186		—		—		—		—		—		186
Substandard		—		49		18		18		—		—		—		85
Doubtful		—		8		3		—		9		—		—		20
Total	$	10,494	$	7,309	$	963	$	2,689	$	988	$	497	$	945	$	23,885
All Loans	2025		2024		2023		2022		2021		Prior		Revolving		Total
Pass	$	45,609	$	139,503	$	125,812	$	111,224	$	49,190	$	157,957	$	120,859	$	750,154
Special Mention		-		186		-		256		42		299		224		1,007
Substandard		—		563		4,481		4,898		2,056		5,058		3,161		20,217
Doubtful		87		93		3		—		9		—		138		330
Total Loans	$	45,696	$	140,345	$	130,296	$	116,378	$	51,297	$	163,314	$	124,382	$	771,708
Gross charge-offs	$	—	$	-	$	87	$	-	$	-	$	37	$	334	$	458

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		2020		2019		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		2020		2019		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
Other Commercial	2024		2023		2022		2020		2019		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		2020		2019		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		2020		2019		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		2020		2019		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

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 three months ended March 31, 2025:

	1-4 Family						Commercial			Other			Home			Other
	Residential			Construction			Real Estate			Commercial			Equity			Consumer			Total
							(dollars in thousands)
Allowance
Beginning balance, January 1, 2025	$	2,246		$	539		$	257		$	1,209		$	1,224		$	769		$	6,244
Charge-offs		(25	)		(3	)		—			(244	)		(23	)		(163	)		(458	)
Recoveries		—			—			—			2			—			22			24
Provision for Credit Loss		23			—			—			216			19			127			385
Reallocations		(196	)		(341	)		(155	)		1,004			(314	)		2			—
Balance at end of period	$	2,048		$	195		$	102		$	2,187		$	906		$	757		$	6,195
Ending allowance balance for loans individually evaluated	$	728		$	—		$	—		$	477		$	261		$	92		$	1,558
Ending allowance balance for loans collectively evaluated	$	1,320		$	195		$	102		$	1,710		$	645		$	665		$	4,637
Loans Receivable
Total period-end balance	$	252,100		$	38,928		$	253,054		$	97,652		$	106,089		$	23,885		$	771,708
Balance of loans individually evaluated	$	12,648		$	—		$	1,701		$	3,530		$	2,695		$	263		$	20,837
Balance of loans collectively evaluated	$	239,452		$	38,928		$	251,353		$	94,122		$	103,394		$	23,622		$	750,871

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 year	$	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 Company had $15.4 million and $13.0 million of non-accruing loans as of March 31, 2025 and December 31, 2024, respectively. Management determined that a specific reserve of approximately $900 thousand and $400 thousand was necessary as of March 31, 2025 and December 31, 2024, respectively. The amount of interest income that would have been recorded in 2025 and 2024 is not material.

The following tables present a summary by loan class of past due and non-accrual loans as of March 31, 2025 and December 31, 2024 (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
March 31, 2025
1-4 family residential	$	18,725	$	2,708	$	5,231	$	26,664	$	225,436	$	252,100	$	—
Construction		2,399		—		—		2,399		36,529		38,928		—
Commercial real estate		63		—		—		63		252,991		253,054		—
Other commercial		2,038		51		805		2,894		94,758		97,652		—
Home equity		1,282		676		1,334		3,292		102,797		106,089		—
Other consumer		202		—		390		592		23,293		23,885		—
Total	$	24,709	$	3,435	$	7,760	$	35,904	$	735,804	$	771,708	$	—

	March 31, 2025
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
	No Allowance		with an Allowance		Loans
1-4 family residential	$	6,866	$	5,389	$	12,255
Construction		—		—		—
Commercial real estate		—		—		—
Other commercial		444		373		817
Home equity		1,410		523		1,933
Other consumer		405		38		443
Total	$	9,125	$	6,323	$	15,448

					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

There were no loan modifications made to borrowers experiencing financial difficulty in the three months ended March 31, 2025. There were two commercial loan modifications made to borrowers experiencing financial difficulty in the year ended December 31, 2024 totaling $311 thousand for which a term concession was granted. At March 31, 2025, there were 11 loans totaling $1.0 million with active short-term payment deferrals of principal, interest or both.