4.         LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the Company’s loan portfolio, by loan class, as of June 30, 2026 and December 31, 2025 was as follows:

At June 30, 2026 and December 31, 2025, all loans were pledged under a blanket collateral lien to secure actual or potential borrowings from the Federal Home Loan Bank (“FHLB”).

Allowance for Credit Losses

The following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the condensed consolidated balance sheet within other liabilities, as of and for the three and six months ended June 30, 2026 and June 30, 2025.

The Company utilizes three economic variables, forecasted unemployment, gross domestic product and single-family home prices, as loss drivers for its allowance for credit losses. During the quarter ended June 30, 2026, the levels of forecasted gross domestic product and single-family home prices improved. The Company recorded provision expense totaling $600,000 for the three months ended June 30, 2026 primarily due to an increase in qualitative factors to incorporate additional risk related to geopolitical matters. During the six months ended June 30, 2026, the Company recorded a provision for credit losses totaling $900,000 primarily due to increases in loans receivable coupled with the negative trends in forecast factors. Management believes the allowance for credit losses at June 30, 2026 appropriately reflected expected credit losses in the loan portfolio at that date.

Collateral Dependent Loans

In accordance with ASC 326, a loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. All loans individually analyzed were collateral dependent loans as of June 30, 2026 and December 31, 2025. The following table presents the amortized cost basis of collateral dependent loans by class, which are individually evaluated to determine expected credit losses, as of June 30, 2026 and December 31, 2025:

June 30, 2026

December 31, 2025

Foreclosure Proceedings

The Company had one consumer loan totaling $143,000 secured by residential real estate property that was in the process of foreclosure at June 30, 2026. The Company had no consumer loans secured by residential real estate property that were in the process of foreclosure at December 31, 2025.

Non-accrual and Past Due Loans

The Company’s loans by delinquency and non-accrual status, as of June 30, 2026 and December 31, 2025, was as follows:

The Company recognized $0 and $378,000 of interest income on nonaccrual loans during the three months ended June 30, 2026 and June 30, 2025, respectively. The Company recognized $2,000 and $378,000 of interest income on nonaccrual loans during the six months ended June 30, 2026 and June 30, 2025, respectively.

Loan Modifications

Occasionally, the Company modifies loans to borrowers in financial difficulty by providing principal forgiveness, term extension, payment delays or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

In some cases, the Company provides multiple types of concessions on one loan. 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. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following tables present the amortized cost basis of loans that were experiencing both financial difficulty and modification during the periods indicated, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below.

The amortized cost basis of loans that were experiencing both financial difficulty and modification during the three months ended June 30, 2026 were as follows:

The amortized cost basis of loans that were experiencing both financial difficulty and modification during the six months ended June 30, 2026 were as follows:

The amortized cost basis of loans that were experiencing both financial difficulty and modification during the three months ended June 30, 2025 were as follows:

The amortized cost basis of loans that were experiencing both financial difficulty and modification during the six months ended June 30, 2025 were as follows:

The Company had no commitments to lend additional funds to borrowers whose loans were modified at June 30, 2026 and June 30, 2025.

The following table presents the financial effect of the loan modifications to borrowers experiencing financial difficulty during the three-month period ended June 30, 2026:

The following table presents the financial effect of the loan modifications to borrowers experiencing financial difficulty during the six-month period ended June 30, 2026:

The following table presents the financial effect of the loan modifications to borrowers experiencing financial difficulty during the three-month period ended June 30, 2025:

The following table presents the financial effect of the loan modifications to borrowers experiencing financial difficulty during the six-month period ended June 30, 2025:

Loans that were modified within the previous twelve months were current on payments as of  June 30, 2026 and June 30, 2025.  There were no loans modified within the previous twelve months and for which there was a payment default during three- and six-month periods ended June 30, 2026 and June 30, 2025.

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently become 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 ACL is adjusted by the same amount.

Credit Quality Indicators

All loans are rated using the credit risk ratings and criteria adopted by the Company.  Risk ratings are adjusted as future circumstances warrant.  All credits risk rated 1, 2, 3, 4 or 5 equate to a Pass as indicated by Federal and State bank regulatory agencies; a 6 equates to a Special Mention; a 7 equates to Substandard; an 8 equates to Doubtful; and a 9 equates to a Loss.  For the definitions of each risk rating, see Note 3 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025.

The following tables present the loan portfolio by loan class, origination year, and internal risk rating as of June 30, 2026. Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to permanent loans, are presented by year of origination. Revolving loans converted to term loans totaled $6,631,000 and $1,780,000 as of June 30, 2026 and December 31, 2025, respectively.