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Loans

12 Months Ended

Dec. 31, 2024

3. Loans

The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the allowance for credit losses for the past two years:


(In thousands)	December 31, 2024		December 31, 2023
SBA loans held for investment	$	36,859	$	38,584
SBA PPP loans		1,450		2,318
Commercial loans
SBA 504 loans		48,479		33,669
Commercial & industrial		147,186		128,402
Commercial real estate (1)		1,085,771		986,230
Commercial real estate construction		130,193		129,159
Residential mortgage loans		630,927		631,506
Consumer loans
Home equity		73,223		67,037
Consumer other		3,488		5,639
Residential construction loans		90,918		131,277
Total loans held for investment	$	2,248,494	$	2,153,821
SBA loans held for sale		12,163		18,242
Total loans	$	2,260,657	$	2,172,063

(1)

Commercial real estate includes Commercial Mortgage – Owner Occupied, Commercial Mortgage – Nonowner Occupied and Commercial Mortgage – Other. Commercial Mortgage – Other primarily includes multifamily and land loans.

Loans are made to individuals and commercial entities. Specific loan terms vary as to interest rate, repayment and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Bank. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type. A description of the Company’s different loan segments follows:

SBA Loans: SBA 7(a) loans, on which the SBA has historically provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the nonguaranteed portion held in the portfolio as a loan held for investment. SBA loans are for the purpose of providing working capital, business acquisitions, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans are guaranteed by

the businesses’ major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

Loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets, in the accompanying Consolidated Statements of Income.

Commercial Loans: Commercial credit is extended primarily to middle market and small business customers. Commercial loans are generally made in the Company’s market place for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. The SBA 504 program consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property. Loans are generally guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

Residential Mortgage, Consumer and Residential Construction Loans: The Company originates mortgage and consumer loans including principally residential real estate, home equity lines and loans and residential construction lines. The Company originates qualified mortgages which are generally sold in the secondary market and nonqualified mortgages which are generally held for investment. Each loan type is evaluated on debt to income, type of collateral, loan to collateral value, credit history and Company relationship with the borrower.

Inherent in the lending function is credit risk, which is the possibility a borrower may not perform in accordance with the contractual terms of their loan. A borrower’s inability to pay their obligations according to the contractual terms can create the risk of past due loans and, ultimately, credit losses, especially on collateral deficient loans. The Company minimizes its credit risk by loan diversification and adhering to credit administration policies and procedures. Due diligence on loans begins when the Company initiates contact regarding a loan with a borrower. Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source of funds for repayment of the loan and other factors, are analyzed before a loan is submitted for approval. The loan portfolio is then subject to on-going internal reviews for credit quality, as well as independent credit reviews by an outside firm.

The Company’s extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company’s loans. These policies and procedures are reviewed and approved by the Board of Directors on a regular basis.

Credit Ratings

The Company places all SBA, commercial and residential construction loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt. The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends. This credit risk rating analysis is performed when the loan is initially underwritten and then annually based on set criteria in the loan policy.

The Company uses the following regulatory definitions for criticized and classified risk ratings:

Pass: Risk ratings of 1 through 6 are used for loans that are performing, as they meet, and are expected to continue to meet, all of the terms and conditions set forth in the original loan documentation, and are generally current on principal and interest payments. These performing loans are termed “Pass”.

Special Mention: These loans have a potential weakness that deserves Management’s close attention. If left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard: These loans are inadequately protected by the current net worth and/or paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution may sustain some loss if the deficiencies are not corrected.

Loss: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values. Once a borrower is deemed incapable of repayment of unsecured debt, the loan is termed a “Loss” and charged-off immediately, subject to government guarantee.

For residential mortgage and consumer loans, Management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being delinquent for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. These credit quality indicators are updated on an ongoing basis, as a loan is placed on nonaccrual status as soon as Management believes there is sufficient doubt as to the ultimate ability to collect interest on a loan.

The following table shows the internal loan classification risk by loan portfolio classification by origination year as of December 31, 2024:


	Term Loans
	Amortized Cost Basis by Origination Year
(In thousands)		2024		2023		2022		2021		2020		2019 and Earlier		Revolving Loans Amortized Cost Basis		Total
SBA loans held for investment
Risk Rating:
Pass	$	2,167	$	1,580	$	5,205	$	4,961	$	5,570	$	10,085	$	-	$	29,568
Special Mention		-		769		1,740		356		508		729		-		4,102
Substandard		-		-		956		2,116		116		1		-		3,189
Total SBA loans held for investment	$	2,167	$	2,349	$	7,901	$	7,433	$	6,194	$	10,815	$	-	$	36,859
SBA loans held for investment
Current-period gross writeoffs	$	-	$	-	$	300	$	70	$	-	$	-	$	-	$	370

SBA PPP loans
Risk Rating:
Pass	$	-	$	-	$	-	$	1,450	$	-	$	-	$	-	$	1,450
Total SBA PPP loans	$	-	$	-	$	-	$	1,450	$	-	$	-	$	-	$	1,450

Commercial loans
Risk Rating:
Pass	$	189,371	$	167,190	$	331,349	$	161,508	$	123,225	$	330,131	$	94,369	$	1,397,143
Special Mention		-		-		6,269		1,737		-		3,108		17		11,131
Substandard		-		-		-		2		1,187		2,157		9		3,355
Total commercial loans	$	189,371	$	167,190	$	337,618	$	163,247	$	124,412	$	335,396	$	94,395	$	1,411,629
Commercial loans
Current-period gross writeoffs	$	-	$	-	$	38	$	138	$	200	$	107	$	150	$	633

Residential mortgage loans
Risk Rating:
Performing	$	93,825	$	73,862	$	224,295	$	65,192	$	44,366	$	122,916	$	-	$	624,456
Nonperforming		-		227		1,488		2,238		-		2,518		-		6,471
Total residential mortgage loans	$	93,825	$	74,089	$	225,783	$	67,430	$	44,366	$	125,434	$	-	$	630,927
Residential mortgage loans
Current-period gross writeoffs	$	-	$	-	$	-	$	150	$	-	$	-	$	-	$	150

Consumer loans
Risk Rating:
Performing	$	5,898	$	2,602	$	3,275	$	1,515	$	667	$	10,409	$	52,345	$	76,711
Total consumer loans	$	5,898	$	2,602	$	3,275	$	1,515	$	667	$	10,409	$	52,345	$	76,711
Consumer loans
Current-period gross writeoffs	$	-	$	-	$	63	$	100	$	-	$	198	$	-	$	361

Residential construction
Risk Rating:
Pass	$	36,522	$	16,889	$	26,683	$	7,766	$	1,154	$	1,357	$	-	$	90,371
Substandard		-		-		-		-		547		-		-		547
Total residential construction loans	$	36,522	$	16,889	$	26,683	$	7,766	$	1,701	$	1,357	$	-	$	90,918
Residential construction
Current-period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	277	$	-	$	277

Total loans held for investment	$	327,783	$	263,119	$	601,260	$	248,841	$	177,340	$	483,411	$	146,740	$	2,248,494

The following table shows the internal loan classification risk by loan portfolio classification by origination year as of December 31, 2023:


	Term Loans
	Amortized Cost Basis by Origination Year

(In thousands)			2023		2022		2021		2020		2019		2018 and Earlier		Revolving Loans Amortized Cost Basis		Total
SBA loans held for investment
Risk Rating:
Pass		$	1,938	$	5,339	$	4,723	$	6,083	$	2,634	$	10,996	$	-	$	31,713
Special Mention			-		1,765		356		510		-		31		-		2,662
Substandard			-		1,256		2,186		190		-		577		-		4,209
Total SBA loans held for investment		$	1,938	$	8,360	$	7,265	$	6,783	$	2,634	$	11,604	$	-	$	38,584
SBA loans held for investment
Current-period gross writeoffs		$	-	$	100	$	-	$	-	$	113	$	-	$	-	$	213

SBA PPP loans
Risk Rating:
Pass		$	-	$	-	$	2,318	$	-	$	-	$	-	$	-	$	2,318
Total SBA PPP loans		$	-	$	-	$	2,318	$	-	$	-	$	-	$	-	$	2,318

Commercial loans
Risk Rating:
Pass		$	139,622	$	343,755	$	181,419	$	128,165	$	101,274	$	271,469	$	96,988	$	1,262,692
Special Mention			-		-		1,815		-		1,570		7,423		395		11,203
Substandard			-		-		59		14		288		3,204		-		3,565
Total commercial loans		$	139,622	$	343,755	$	183,293	$	128,179	$	103,132	$	282,096	$	97,383	$	1,277,460
Commercial loans
Current-period gross writeoffs		$	-	$	-	$	150	$	-	$	350	$	252	$	-	$	752

Residential mortgage loans
Risk Rating:
Performing		$	102,892	$	253,919	$	72,586	$	51,999	$	30,482	$	109,302	$	-	$	621,180
Nonperforming			-		2,964		2,714		1,054		945		2,649		-		10,326
Total residential mortgage loans		$	102,892	$	256,883	$	75,300	$	53,053	$	31,427	$	111,951	$	-	$	631,506
Residential mortgage loans
Current-period gross writeoffs		$	-	$	-	$	25	$	-	$	-	$	68	$	-	$	93

Consumer loans
Risk Rating:
Performing		$	3,428	$	4,777	$	3,681	$	670	$	2,481	$	7,507	$	49,751	$	72,295
Nonperforming			-		-		-		125		-		256		-		381
Total consumer loans		$	3,428	$	4,777	$	3,681	$	795	$	2,481	$	7,763	$	49,751	$	72,676
Consumer loans
Current-period gross writeoffs		$	-	$	26	$	552	$	-	$	-	$	-	$	-	$	578

Residential construction loans
Risk Rating:
Performing		$	28,827	$	72,257	$	25,395	$	1,418	$	491	$	748	$	-	$	129,136
Nonperforming			-		-		-		547		-		1,594		-		2,141
Total residential construction loans		$	28,827	$	72,257	$	25,395	$	1,965	$	491	$	2,342	$	-	$	131,277
Residential construction
Current-period gross writeoffs		$	-	$	-	$	-	$	-	$	-	$	600	$	400	$	1,000

Total loans held for investment		$	276,707	$	686,031	$	297,252	$	190,775	$	140,165	$	415,756	$	147,134	$	2,153,821

Nonaccrual and Past Due Loans

Nonaccrual loans consist of loans that are not accruing interest as a result of principal or interest being delinquent for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as Management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans may be returned to an accrual status when the ability to collect is reasonably assured or when the loan is brought current as to principal and interest. The risk of loss is difficult to quantify and is subject to fluctuations in collateral values, general economic conditions and other factors. The Company values its collateral through the use of appraisals, broker price opinions and knowledge of its local market.

The following tables set forth an aging analysis of past due and nonaccrual loans as of December 31, 2024 and December 31, 2023:

December 31, 2024

90+ days

30‑59 days

60‑89 days

and still

Total past

(In thousands)

past due

accruing

Nonaccrual

due (1)

Current

Total loans

SBA loans held for investment

1,006

451

—

3,850

5,307

31,552

36,859

Commercial loans

SBA 504 loans

—

48,479

Commercial & industrial

941

—

1,228

2,169

145,017

147,186

Commercial real estate

22,378

2,339

—

1,746

26,463

1,059,308

1,085,771

Commercial real estate construction

—

130,193

Residential mortgage loans

15,654

4,094

760

5,711

26,219

604,708

630,927

Consumer loans

Home equity

479

2,162

—

2,641

70,582

73,223

Consumer other

—

3,447

3,488

Residential construction loans

—

547

90,371

90,918

Total loans held for investment

40,494

9,051

760

13,082

63,387

2,183,657

2,247,044

SBA loans held for sale

—

12,163

Total loans, excluding SBA PPP

40,494

9,051

760

13,082

63,387

2,195,820

2,259,207


	December 31, 2023
					90+ days
	30‑59 days		60‑89 days		and still				Total past
(In thousands)	past due		past due		accruing		Nonaccrual		due (1)		Current		Total loans
SBA loans held for investment	$	551	$	185	$	—	$	3,444	$	4,180	$	34,404	$	38,584
Commercial loans
SBA 504 loans		—		—		—		—		—		33,669		33,669
Commercial & industrial		288		78		—		283		649		127,753		128,402
Commercial real estate		1,732		—		—		1,665		3,397		982,833		986,230
Commercial real estate construction		—		—		—		—		—		129,159		129,159
Residential mortgage loans		8,719		1,378		946		10,326		21,369		610,137		631,506
Consumer loans
Home equity		14		—		—		381		395		66,642		67,037
Consumer other		28		55		—		—		83		5,556		5,639
Residential construction loans		2,580		—		—		2,141		4,721		126,556		131,277
Total loans held for investment		13,912		1,696		946		18,240		34,794		2,116,709		2,151,503
SBA loans held for sale		—		—		—		—		—		18,242		18,242
Total loans, excluding SBA PPP	$	13,912	$	1,696	$	946	$	18,240	$	34,794	$	2,134,951	$	2,169,745

(1)	At December 31, 2024 and 2023, the Company had no SBA PPP loans past due.

As of December 31, 2024 and 2023, the Company had accrued interest receivable of $11.3 million and $11.7 million relating to loans receivable, respectively. During the years ended December 31, 2024 and 2023 the company reversed $0.6 million and $0.9 million in interest income from nonaccrual loans, respectively.

Individually Evaluated Loans

The Company has defined individually evaluated loans to be all nonperforming loans. Management individually evaluates a loan when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract.

The following tables provide detail on the Company’s loans individually evaluated in the Company’s CECL evaluation with the associated allowance amount, if applicable, as of December 31, 2024 and December 31, 2023:


	December 31, 2024
	Unpaid				Allowance for
	principal		Recorded		Credit Losses
(In thousands)	balance		investment		Allocated
With no related allowance:
SBA loans held for investment	$	432	$	334	$	—
Commercial loans
Commercial & industrial		638		33		—
Commercial real estate		2,055		1,746		—
Total commercial loans		2,693		1,779		—
Residential mortgage loans		4,238		4,238		—
Total individually evaluated loans with no related allowance		7,363		6,351		—

With an allowance:
SBA loans held for investment		4,011		3,516		755
Commercial loans
Commercial & industrial		1,672		1,195		62
Total commercial loans		1,672		1,195		62
Residential mortgage loans		2,413		2,233		52
Residential construction loans		547		547		102
Total individually evaluated loans with a related allowance		8,643		7,491		971

Total individually evaluated loans:
SBA loans held for investment		4,443		3,850		755
Commercial loans
Commercial & industrial		2,310		1,228		62
Commercial real estate		2,055		1,746		—
Total commercial loans		4,365		2,974		62
Residential mortgage loans		6,651		6,471		52
Residential construction loans		547		547		102
Total individually evaluated loans	$	16,006	$	13,842	$	971


	December 31, 2023
	Unpaid				Allowance for
	principal		Recorded		Credit Losses
(In thousands)	balance		investment		Allocated
With no related allowance:
SBA loans held for investment	$	2,264	$	2,186	$	—
Commercial loans
Commercial real estate		2,734		1,607		—
Total commercial loans		2,734		1,607		—
Residential mortgage loans		7,146		7,121		—
Consumer loans
Home equity		390		388		—
Total consumer loans		390		388		—
Residential construction loans		2,757		2,141		—
Total individually evaluated loans with no related allowance		15,291		13,443		—

With an allowance:
SBA loans held for investment		1,383		1,258		348
Commercial loans
Commercial & industrial		638		283		283
Commercial real estate		209		58		58
Total commercial loans		847		341		341
Residential mortgage loans		4,182		4,151		306
Total individually evaluated loans with a related allowance		6,412		5,750		995

Total individually evaluated loans:
SBA loans held for investment		3,647		3,444		348
Commercial loans
Commercial & industrial		638		283		283
Commercial real estate		2,943		1,665		58
Total commercial loans		3,581		1,948		341
Residential mortgage loans		11,328		11,272		306
Consumer loans:
Home equity		390		381		—
Total consumer loans		390		381		—
Residential construction loans		2,757		2,141		—
Total individually evaluated loans	$	21,703	$	19,186	$	995

The Company did not recognize interest income on nonaccrual loans for the years ended December 31, 2024 and December 31, 2023.

Other Loan Information

Servicing Assets:

Loans sold to others and serviced by the Company are not included in the accompanying Consolidated Balance Sheets. The total amount of such loans serviced, but owned by third party investors, amounted to approximately $179.0 million and $184.2 million at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, the carrying value of

servicing assets was $0.7 million and $0.9 million, respectively, and is included in Prepaid expenses and other assets. A summary of the changes in the related servicing assets for the past two years follows:


	For the years ended December 31,
(In thousands)	2024		2023
Balance, beginning of year	$	881	$	691
Servicing assets capitalized		186		576
Amortization of expense, net		(404)		(386)
Balance, end of year	$	663	$	881

In addition, the Company had $0.5 million and $0.6 million in discounts related to the retained portion of unsold SBA loans at December 31, 2024 and 2023, respectively. These discounts are amortized to income over the same period of the balance of the loans sold.

As of December 31, 2024 and 2023, the Company held $3.4 million and $5.0 million, respectively, in Residential mortgage loans in the process of being sold.

Officer and Director Loans:

In the ordinary course of business, the Company may extend credit to officers, directors or their associates. These loans are subject to the Company’s normal lending policy. An analysis of such loans, all of which are current as to principal and interest payments, is as follows:


(In thousands)	December 31, 2024		December 31, 2023
Balance, beginning of year	$	7,894	$	8,124
New loans and advances		1,500		788
Loan repayments		(1,078)		(953)
Loans removed		—		(65)
Balance, end of year	$	8,316	$	7,894

Loan Portfolio Collateral:

The majority of the Company’s loans are secured by real estate. Declines in the market values of real estate in the Company’s trade area impact the value of the collateral securing its loans. This could lead to greater losses in the event of defaults on loans secured by real estate. At December 31, 2024 and December 31, 2023, approximately 96% of the Company’s loan portfolio was secured by real estate.

Modifications

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted-average remaining maturity model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of gross loans and type of concession granted during the twelve months ended December 31, 2024 and December 31, 2023:


	Payment Delay					Term Extension
		Principal	Percentage			Principal	Percentage
(In thousands)		Balance	of Loan Class			Balance	of Loan Class
SBA loans held for investment	$	93	0.3	%	$	—	—	%
Commercial loans
Commercial real estate		632	0.1			—	—
Commercial & industrial		—	—			1,882	2.4
Residential mortgage loans		—	—			1,033	0.2
Consumer loans
Home equity		—	—			2,162	3.0
Balance, December 31, 2024	$	725	0.1	%	$	5,077	0.2	%


	Principal Forgiveness					Payment Delay				Term Extension
		Principal	Percentage			Principal	Percentage			Principal	Percentage
(In thousands)		Balance	of Loan Class			Balance	of Loan Class			Balance	of Loan Class
SBA loans held for investment	$	9	0.1	%	$	—	—	%	$	—	—	%
Commercial loans
Commercial & industrial		—	—			—	—			835	0.1
Commercial real estate		—	—			1,290	0.1			732	0.1
Consumer loans
Home equity		—	—			—	—			103	0.1
Balance, December 31, 2023	$	9	0.1	%	$	1,290	0.1	%	$	1,670	0.1	%

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. One loan, a $2.2 million home equity loan, that was modified during the year ended December 31, 2024 was not in compliance with the modified terms as of December 31, 2024 compared to none as of December 31, 2023.