v3.26.1
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