Loan Quality And Allowance For Credit Losses

6 Months Ended

Jun. 30, 2026

Loan Quality And Allowance For Credit Losses [Abstract]

Loan Quality And Allowance For Credit Losses

Note 6. Loan Quality and Allowance for Credit Losses

The Bank categorizes 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, and current economic trends, among other factors. Management utilizes a risk rating scale ranging from 1-Prime to 9-Loss to evaluate loan quality. This risk rating scale is used primarily for commercial purpose loans. Consumer purpose loans are identified as either performing or nonperforming based on the payment status of the loans. Nonperforming consumer loans are loans that are nonaccrual or 90 days or more past due and still accruing. The Bank uses the following definitions for risk ratings:

Pass (1-5): Loans are considered pass credits with lower or average risk and are not otherwise classified.

Other Assets Especially Mentioned (OAEM) (6): Loans classified as OAEM have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the borrower’s credit position at some future date.

Substandard (7): Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that

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

Doubtful (8): Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss (9): Loans classified as Loss are considered uncollectable and the loan will be charged-off in the period it is deemed uncollectable. There were no loans in this category.

Loans that do not share risk characteristics with pooled loans are evaluated on an individual basis. Loans evaluated individually are not included in the pool evaluation, this includes collateral dependent loans. Loans are considered Collateral Dependent when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the sale of the collateral, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any discounts and selling costs as appropriate.

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated 6–OAEM or worse and obtains a new appraisal or asset valuation for any loans placed on nonaccrual or rated 7-Substandard or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. When determining the ACL, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Enterprise Risk Management Committee of the Board of Directors.

The Bank previously reported loans of $4.2 million (classified as Substandard, rated 7) to a related party of a Bank Director who was considered an “insider” under Regulation O. During the second quarter of 2026, there was a change in reporting status for this Director, as it relates to the borrower, and as of June 30, 2026, this loan is not considered a related party loan.

‎

The following table presents loans by year of origination and internally assigned risk ratings:

(Dollars in thousands)													Revolving		Revolving
	Term Loans												Loans		Loans
	Amortized Cost Basis by Origination Year												Amortized		Converted
As of June 30, 2026	2026		2025		2024		2023		2022		Prior		Cost Basis		to Term		Total
Residential real estate 1-4 family:
Commercial:
Risk rating:
Pass (1-5)	$	5,883	$	6,424	$	4,552	$	13,806	$	5,984	$	26,878	$	6,342	$	—	$	69,869
OAEM (6)		—		—		—		—		—		—		95		—		95
Substandard (7)		—		—		—		—		—		225		—		—		225
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		5,883		6,424		4,552		13,806		5,984		27,103		6,437		—		70,189
Consumer:
Performing		20,392		45,182		43,310		56,060		26,714		42,066		73,349		15,781		322,854
Nonperforming		—		—		—		—		—		—		19		—		19
Total Consumer		20,392		45,182		43,310		56,060		26,714		42,066		73,368		15,781		322,873
Total	$	26,275	$	51,606	$	47,862	$	69,866	$	32,698	$	69,169	$	79,805	$	15,781	$	393,062
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate construction:
Commercial:
Risk rating:
Pass (1-5)	$	2,772	$	3,237	$	5,132	$	907	$	253	$	2,036	$	1,319	$	—	$	15,656
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		—		—		—
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		2,772		3,237		5,132		907		253		2,036		1,319		—		15,656
Consumer:
Performing		7,459		25,460		5,503		—		—		—		—		—		38,422
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		7,459		25,460		5,503		—		—		—		—		—		38,422
Total	$	10,231	$	28,697	$	10,635	$	907	$	253	$	2,036	$	1,319	$	—	$	54,078
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk rating:
Pass (1-5)	$	57,170	$	133,971		141,092		203,310	$	92,414	$	260,368	$	15,667	$	—	$	903,992
OAEM (6)		—		—		—		12,376		914		6,676		15		—		19,981
Substandard (7)		1,603		—		—		21,875		221		1,694		—		—		25,393
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	58,773	$	133,971	$	141,092	$	237,561	$	93,549	$	268,738	$	15,682	$	—	$	949,366
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial:
Risk rating:
Pass (1-5)	$	9,213	$	13,656	$	20,461	$	8,422	$	17,273	$	93,488	$	37,490	$	—	$	200,003
OAEM (6)		—		—		—		7		328		1,234		198		—		1,767
Substandard (7)		—		—		381		—		389		—		3,339		—		4,109
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	9,213	$	13,656	$	20,842	$	8,429	$	17,990	$	94,722	$	41,027	$	—	$	205,879
Current period gross charge-offs	$	(2)	$	—	$	(55)	$	—	$	(209)	$	—	$	(645)	$	—	$	(911)
Consumer:
Performing		980		1,256		858		521		94		1,435		3,085		—		8,229
Nonperforming		—		—		—		—		—		—		5		—		5
Total	$	980	$	1,256	$	858	$	521	$	94	$	1,435	$	3,090	$	—	$	8,234
Current period gross charge-offs	$	(29)	$	—	$	—	$	(5)	$	—	$	(3)	$	(26)	$	—	$	(63)

‎

(Dollars in thousands)													Revolving		Revolving
	Term Loans												Loans		Loans
	Amortized Cost Basis by Origination Year												Amortized		Converted
As of December 31, 2025	2025		2024		2023		2022		2021		Prior		Cost Basis		to Term		Total
Residential real estate 1-4 family:
Commercial:
Risk rating:
Pass (1-5)	$	6,601	$	4,914	$	14,483	$	6,381	$	8,982	$	23,381	$	5,237	$	—	$	69,979
OAEM (6)		—		—		—		—		—		—		95		—		95
Substandard (7)		—		—		—		—		—		222		—		—		222
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		6,601		4,914		14,483		6,381		8,982		23,603		5,332		—		70,296
Consumer:
Performing		35,726		45,927		60,145		27,930		13,385		31,675		67,410		15,872		298,070
Nonperforming		—		—		—		—		—		—		20		—		20
Total Consumer		35,726		45,927		60,145		27,930		13,385		31,675		67,430		15,872		298,090
Total	$	42,327	$	50,841	$	74,628	$	34,311	$	22,367	$	55,278	$	72,762	$	15,872	$	368,386
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate construction:
Commercial:
Risk rating:
Pass (1-5)	$	4,228	$	16,503	$	1,204	$	—	$	1,093	$	1,488	$	—	$	—	$	24,516
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		—		—		—
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		4,228		16,503		1,204		—		1,093		1,488		—		—		24,516
Consumer:
Performing		24,744		4,865		—		—		—		—		—		—		29,609
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		24,744		4,865		—		—		—		—		—		—		29,609
Total	$	28,972	$	21,368	$	1,204	$	—	$	1,093	$	1,488	$	—	$	—	$	54,125
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk rating:
Pass (1-5)	$	137,253	$	126,702	$	206,916	$	96,083	$	84,154	$	189,407	$	12,236	$	—	$	852,751
OAEM (6)		—		—		12,956		448		689		11,924		—		—		26,017
Substandard (7)		—		544		22,040		239		—		1,980		—		—		24,803
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	137,253	$	127,246	$	241,912	$	96,770	$	84,843	$	203,311	$	12,236	$	—	$	903,571
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial:
Risk rating:
Pass (1-5)	$	17,563	$	23,890	$	11,979	$	19,675	$	33,813	$	65,515	$	45,425	$	—	$	217,860
OAEM (6)		—		—		8		359		1,323		—		198		—		1,888
Substandard (7)		—		553		—		583		—		—		4,615		—		5,751
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	17,563	$	24,443	$	11,987	$	20,617	$	35,136	$	65,515	$	50,238	$	—	$	225,499
Current period gross charge-offs	$	(9)	$	—	$	(17)	$	—	$	(2)	$	(8)	$	—	$	—	$	(36)
Consumer:
Performing		1,853		1,145		709		201		1,499		—		4,245		—		9,652
Nonperforming		—		—		—		—		—		—		5		—		5
Total	$	1,853	$	1,145	$	709	$	201	$	1,499	$	—	$	4,250	$	—	$	9,657
Current period gross charge-offs	$	(71)	$	(6)	$	(18)	$	(3)	$	(1)	$	(2)	$	(30)	$	—	$	(131)

‎

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the date presented:

	June 30, 2026						December 31, 2025
(Dollars in thousands)	Nonaccrual and Loans past due 90 Days or more						Nonaccrual and Loans past due 90 Days or more
					Loans past due						Loans past due
	Nonaccrual		Nonaccrual		90 Days or more		Nonaccrual		Nonaccrual		90 Days or more
	Without ACL		With ACL		Still Accruing		Without ACL		With ACL		Still Accruing
June 30, 2026
Residential Real Estate 1-4 Family
First liens	$	51	$	—	$	—	$	—	$	—	$	—
Junior liens and lines of credit		19		—		—		20		—		—
Total		70		—		—		20		—		—
Residential real estate - construction		—		—		—		—		—		—
Commercial real estate		221		17,387		—		1,029		7,119		—
Commercial		49		—		—		55		290		—
Consumer		—		—		5		—		—		5
Total	$	340	$	17,387	$	5	$	1,104	$	7,409	$	5

The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)	Loans Past Due						Total				Total
	30-59 Days		60-89 Days		90 Days+		Past Due		Current		Loans
June 30, 2026
Residential Real Estate 1-4 Family
First liens	$	158	$	597	$	51	$	806	$	295,589	$	296,395
Junior liens and lines of credit		238		160		—		398		96,269		96,667
Total		396		757		51		1,204		391,858		393,062
Residential real estate - construction		—		—		—		—		54,078		54,078
Commercial real estate		284		—		7,027		7,311		942,055		949,366
Commercial		126		—		49		175		205,704		205,879
Consumer		31		28		5		64		8,170		8,234
Total	$	837	$	785	$	7,132	$	8,754	$	1,601,865	$	1,610,619

	Loans Past Due						Total				Total
	30-59 Days		60-89 Days		90 Days+		Past Due		Current		Loans
December 31, 2025
Residential Real Estate 1-4 Family
First liens	$	145	$	855	$	—	$	1,000	$	275,897	$	276,897
Junior liens and lines of credit		333		160		20		513		90,976		91,489
Total		478		1,015		20		1,513		366,873		368,386
Residential real estate - construction		—		—		—		—		54,125		54,125
Commercial real estate		542		—		1,029		1,571		902,000		903,571
Commercial		500		1		345		846		224,653		225,499
Consumer		55		19		5		79		9,578		9,657
Total	$	1,575	$	1,035	$	1,399	$	4,009	$	1,557,229	$	1,561,238

At June 30, 2026, the Bank had $17.4 million of loans considered to be collateral dependent.  These loans are comprised of a commercial real estate construction loan totaling $8.6 million for a mixed-use project with a specific reserve of $1.2 million and a commercial real estate loan totaling $8.8 million secured by six commercial office buildings with a specific reserve of $734 thousand, to unrelated borrowers. At December 31, 2025, collateral dependent loans totaled $7.1 million for a commercial real estate construction loan for a mixed-use project with a specific reserve of $892 thousand. At June 30,

2025, the Bank had two commercial relationships for $10.3 million that were considered to be collateral dependent and there was no specific reserve for these loans.

At June 30, 2026 and December 31, 2025, the Bank had $0 of residential properties in the process of foreclosure.

The Bank may modify loans to borrowers experiencing financial difficulty (BEFD) by providing modifications such as principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit loss. The Bank may also provide multiple types of concessions on one loan.

During the second quarter of 2026, the Bank provided modifications to two unrelated BEFD. One $7.0 million CRE loan was modified with a term extension that had a more-than-significant payment delay. As of June 30, 2026, this loan had matured and repayment has been delayed under the terms of a forbearance agreement. As part of the forbearance agreement, the Bank has committed to lend $2.5 million to the borrower and had advanced $1.6 million as of June 30, 2026, for a total of $8.6 million outstanding to this BEFD as of June 30, 2026. The payment terms of the new loan are also covered by the terms of the forbearance agreement. This loan is on nonaccrual status as of June 30, 2026, and a $1.2 million specific reserve has been established for this loan. The second loan modification was for an $8.8 million CRE loan that was granted interest only payments until the third quarter of 2026 when it is scheduled to return to full principal and interest payments. The Bank has no commitment to lend additional amounts to this borrower. As of June 30, 2026, this loan was on nonaccrual and had a specific reserve of $734 thousand.

The following table presents the amortized cost basis of loans at June 30, 2026 that were both experiencing financial difficulty and modified during the three months ended June 30, 2026, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below. There were no loans modified during the first quarter of 2026; therefore, the loans modified for the six months ended June 30, 2026 equals those modified during the second quarter of 2026. There were no loans modified during the three and six month periods ended June 30, 2025.

Combination

Combination

Term Extension

Term Extension

Total Class

(Dollars in thousands)

Principal

Payment

Term

Interest Rate

and Principal

and Interest

of Financing

Forgiveness

Delay

Extension

Reduction

Forgiveness

Rate Reduction

Receivable

June 30, 2026

Commercial real estate

$

—

$

15,786

$

—

$

—

$

—

$

—

1.66%

The Bank closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last 12 months:

(Dollars in thousands)			Loans Past Due						Total
	Current		30-59 Days		60-89 Days		90 Days+		Past Due
June 30, 2026
Commercial real estate	$	8,759	$	—	$	—	$	7,027	$	7,027

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended June 30, 2026:

			Weighted-		Weighted-
			Average		Average
(Dollars in thousands)	Principal		Interest Rate		Term
	Forgiveness		Reduction		Extension
June 30, 2026
Commercial real estate		—		0.00%		0.5 years

As of December 31, 2025 there were no modifications made to borrowers experiencing financial difficulty that had a payment default and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure.

‎

The following table presents, by class, the activity in the Allowance for Credit Losses (ACL) for the periods shown:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
ACL at March 31, 2026	$	1,733	$	510	$	692	$	14,580	$	3,037	$	177	$	20,729
Charge-offs		—		—		—		—		(564)		(22)		(586)
Recoveries		—		—		—		—		100		21		121
Provision		50		14		(36)		1,838		(209)		(57)		1,600
ACL at June 30, 2026	$	1,783	$	524	$	656	$	16,418	$	2,364	$	119	$	21,864
ACL at December 31, 2025	$	1,665	$	500	$	652	$	14,042	$	3,641	$	155	$	20,655
Charge-offs		—		—		—		—		(911)		(63)		(974)
Recoveries		—		—		67		—		279		35		381
Provision		118		24		(63)		2,376		(645)		(8)		1,802
ACL at June 30, 2026	$	1,783	$	524	$	656	$	16,418	$	2,364	$	119	$	21,864
ACL at March 31, 2025	$	1,529	$	470	$	455	$	12,480	$	3,394	$	116	$	18,444
Charge-offs		—		—		—		—		(10)		(43)		(53)
Recoveries		—		—		—		—		21		6		27
Provision		108		18		106		372		55		45		704
ACL at June 30, 2025	$	1,637	$	488	$	561	$	12,852	$	3,460	$	124	$	19,122
ACL at December 31, 2024	$	1,497	$	461	$	376	$	12,004	$	3,182	$	133	$	17,653
Charge-offs		—		—		—		—		(13)		(61)		(74)
Recoveries		—		—		3		—		75		11		89
Provision		140		27		182		848		216		41		1,454
ACL at June 30, 2025	$	1,637	$	488	$	561	$	12,852	$	3,460	$	124	$	19,122