4. LOANS

The following table sets forth the classification of the Company’s loans by loan portfolio segment for the periods presented.

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At June 30, 2025 and December 31, 2024, the Company was servicing approximately $373.6 million and $338.8 million, respectively, of loans for others. The Company had $5.0 million and $11.0 million of SBA loans held for sale at June 30, 2025 and December 31, 2024, respectively. The Company had $5.6 million and $1.4 million of residential real estate loans held for sale at June 30, 2025 and December 31, 2024, respectively.

For the three months ended June 30, 2025 and 2024, the Company sold loans totaling approximately $46.0 million and $35.3 million, respectively, recognizing net gains of $2.3 million and $2.6 million, respectively. For the six months ended June 30, 2025 and 2024, the Company sold loans totaling approximately $92.7 million and $62.0 million, respectively, recognizing net gains of $4.7 million and $5.1 million, respectively.

The following tables summarize the activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2025 and 2024:

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Allowance for Credit Losses on Unfunded Commitments

The Company has recorded an ACL for unfunded credit commitments, which is recorded in other liabilities. The provision for credit losses on unfunded commitments is recorded within the provision for credit losses on the Company’s income statement. The following table presents the allowance for credit losses for unfunded commitments for the three and six months ended June 30, 2025 and 2024:

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The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of June 30, 2025 and December 31, 2024:

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The Company recognized $212 thousand and $60 thousand of interest income on nonaccrual loans during the six months ended June 30, 2025 and 2024, respectively.

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Individually Analyzed Loans

The Company analyzes loans on an individual basis when management determined that the loan no longer exhibited risk characteristics consistent with the risk characteristics existing in its designed pool of loans, under the Company’s CECL methodology. Loans individually analyzed include certain nonaccrual loans.

As of June 30, 2025, the amortized cost basis of individually analyzed loans amounted to $11.7 million, of which $11.0 million were considered collateral dependent. For collateral dependent loans where foreclosure is probable or the borrower is experiencing financial difficulty and repayment is likely to be substantially provided through the sale or operation of the collateral, the ACL is measured based on the difference between the fair value of the collateral adjusted for sales costs and the amortized cost basis of the loan, at measurement date. Certain assets held as collateral may be exposed to future deterioration in fair value, particularly due to changes in real estate markets or usage.

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The following tables present the amortized cost basis and related allowance for credit loss of individually analyzed loans considered to be collateral dependent as of June 30, 2025 and December 31, 2024.

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The following tables present the aging of the amortized cost basis in past due loans as of June 30, 2025 and December 31, 2024 by class of loans:

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The Company may occasionally make modifications to loans where the borrower is considered to be in financial distress. Types of modifications include principal reductions, significant payment delays, term extensions, interest rate reductions or a combination thereof. The amount of principal reduction is charged-off against the allowance for credit losses. The Company did not have any loans that were both experiencing difficulties and modified during the three and six months ended June 30, 2024.

The following table presents the amortized cost basis of loans at June 30, 2025 that were both experiencing financial difficulty and modified during the three and six months ended June 30, 2025, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

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The Company had no commitment to lend additional funds to borrowers for which modifications described above were made during the three and six months ended June 30, 2025 and the year ended December 31, 2024.

The Company 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:

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The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and six months ended June 30, 2025:

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Upon the Company’s determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written 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. During the three and six months ended June 30, 2025, no loans that were modified in the last 12 months to borrowers experiencing financial difficulty had a payment default.

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Credit Quality Indicators:

The Company has adopted a credit risk rating system as part of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. When the lender learns of important financial developments, the risk rating is reviewed and adjusted if necessary. In addition, the Company engages a third-party independent loan reviewer that performs quarterly reviews of a sample of loans, validating the credit risk ratings assigned to such loans. The credit risk ratings play an important role in the establishment of the loan loss provision and to confirm the adequacy of the allowance for credit losses.

The Company 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, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. The Company uses the following definitions for risk ratings:

Special Mention: The loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the asset or in the Company’s credit position at some future date.

Substandard: The loan is inadequately protected by current sound worth and paying capacity of the obligor or collateral pledged, if any. Loans classified as Substandard 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.

Doubtful: The loan has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing factors, conditions, and values, highly questionable and improbable.

Loans not having a credit risk rating of Special Mention, Substandard or Doubtful are considered pass loans.

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The following table summarizes the Company’s loans by year of origination and internally assigned credit risk at June 30, 2025 and gross charge-offs for the six months ended June 30, 2025: