Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
The following discussion and analysis is intended as a review of material changes in and significant factors affecting the financial condition and results of operations of First United Corporation and its consolidated subsidiaries for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained in Item 1 of Part I of this report, as well as the audited consolidated financial statements and related notes included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022.
Unless the context clearly suggests otherwise, references in this report to “us”, “we”, “our”, and “the Corporation” are to First United Corporation and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but are statements about management’s beliefs, plans and objectives about the future, as well as its assumptions and judgments concerning such beliefs, plans and objectives. These statements are evidenced by terms such as "anticipate," "estimate," "should," "expect," "believe," "intend," and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. The beliefs, plans and objectives on which forward-looking statements are based involve risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports that First United Corporation files with the Securities and Exchange Commission entitled "Risk Factors".
FIRST UNITED CORPORATION
First United Corporation is a Maryland corporation chartered in 1985 and a financial holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) under the Bank Holding Company Act of 1956, as amended, that elected financial holding company status in 2021. The Corporation’s primary business is serving as the parent company of First United Bank & Trust, a Maryland trust company (the “Bank”), First United Statutory Trust I (“Trust I”) and First United Statutory Trust II (“Trust II” and together with Trust I, “the Trusts”), both Connecticut statutory business trusts. The Trusts were formed for the purpose of selling trust preferred securities that qualified as Tier 1 capital. The Bank has two consumer finance company subsidiaries- OakFirst Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company – and two subsidiaries that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure – First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland limited liability company. In addition, the Bank owns 99.9% of the limited partnership interests in Liberty Mews Limited Partnership, a Maryland limited partnership formed for the purpose of acquiring, developing and operating low-income housing units in Garrett County, Maryland, and a 99.9% non-voting membership interest in MCC FUBT Fund, LLC, an Ohio limited liability company formed for the purpose of acquiring, developing and operating low-income housing units in Allegany County, Maryland.
At June 30, 2023, the Corporation’s total assets were $1.9 billion, net loans were $1.3 billion, and deposits were $1.6 billion. Shareholders’ equity at June 30, 2023 was $155.2 million.
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The Corporation maintains an Internet site at www.mybank.com on which it makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the six month periods ended June 30, 2023 and 2022 and is qualified in its entirety by the detailed information and unaudited financial statements, including the notes thereto, included elsewhere in this quarterly report.
As of the six months ended
June 30,
2023
2022
Per Share Data
Basic net income per common share
$
1.32
$
1.68
Diluted net income per common share
$
1.31
$
1.68
Basic book value per common share
$
23.12
$
20.22
Diluted book value per common share
$
23.07
$
20.19
Significant Ratios:
Return on Average Assets (a)
0.95
%
1.26
%
Return on Average Equity (a)
11.43
%
16.32
%
Average Equity to Average Assets
8.21
%
7.75
%
Capital Ratios:
Consolidated Total Capital (to risk weighted assets)
15.60
%
15.56
%
Consolidated Tier 1 Capital (to risk weighted assets)
14.40
%
14.41
%
Consolidated Common Equity Tier 1 Capital (to risk weighted assets)
12.40
%
12.35
%
Consolidated Tier 1 Capital (to average assets)
11.25
%
11.23
%
RESULTS OF OPERATIONS
Overview
Consolidated net income was $4.4 million for the second quarter of 2023, compared to $5.4 million for the second quarter of 2022 and $4.4 million for the first quarter of 2023. Basic and diluted net income was $0.66 per share for the second quarter of 2023, compared to basic and diluted net income per share of $0.82 for the second quarter of 2022. For the first quarter of 2023, basic net income was $0.66 per share and diluted net income was $0.65 per share.
The decrease in quarterly net income year-over-year was primarily driven by a $1.1 million increase in salaries and employee benefits due to an increase in health insurance costs related to unusually high claims, as well as increased salary expense for new hires, merit increases effective April 1, 2023, increased incentive compensation, and decreases in deferred loan costs due to decrease in loan reductions. Data processing expenses increased by $0.1 million, FDIC premiums increased by $0.1 million and miscellaneous expenses increased by $0.7 million primarily attributable to increased pension plan of $0.3 million, check fraud related expenses of $0.2 million, and increases in membership dues and licenses, mortgage escrow, debit card expense, and miscellaneous loan fees, partially offset by decreases in personnel related expense and loan service fees. An increase in net interest income of $0.2
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million and a decrease in income tax expense of $0.3 million also partially offset the decrease. The provision for credit losses was $0.4 million for the second quarter of 2023, compared to provision for loan loss of $0.6 million for the second quarter of 2022.
Year-to-date net income for the first six months of 2023 was $8.8 million compared to $11.1 million for the same period in 2022. The year-over-year decrease was primarily driven by a $2.4 million in salaries and employee benefits due primarily to increased salary expense of $1.1 million related to new hires and merit increases effective April 1, 2023, increased health insurance costs of $0.8 million associated with unusually high claims and increased incentive payouts of $0.2 million. Occupancy and equipment expense increased by $0.2 million, data processing expense increased by $0.3 million, and FDIC assessments increased by $0.1 million. Other miscellaneous expenses, such as loan service fees, dues and licenses, check fraud expenses, employee benefit plan expense, and miscellaneous expenses increased by $1.1 million. Provision for credit losses increased by $0.7 million when compared to the prior year period. These increases were partially offset by an increase in net interest income of $1.4 million, gains on sales of mortgages of $0.1 million, service charges on deposit accounts of $0.1 million, and debit card income of $0.1 million.
Other operating income, including gains, for the second quarter of 2023 increased slightly by $0.1 million when compared to the same period of 2022. Increases in service charges, debit card income, and gains on sales of mortgages were partially offset by decreases in wealth management income attributable to the decline in market values of assets under management.
Other operating income for the six months ended June 30, 2023 remained stable when compared to the same period of 2022. This increase was primarily due to the increase in gains on sales of residential mortgage loans of $0.1 million, service charges on deposit accounts of $0.1 million, and debit card income of $0.1 million, which was partially offset by decreases in wealth management income attributable to the decline in market values of assets under management.
Operating expenses increased by $1.9 million when comparing the second quarter of 2023 to the second quarter of 2022. This increase was primarily driven by a $1.1 million increase in salaries and employee benefits due to an increase in health insurance costs related to unusually high claims, as well as increased salary expense for new hires, merit increases effective April 1, 2023, and increased incentive compensation. Data processing expenses increased by $0.1 million, FDIC premiums increased by $0.1 million and miscellaneous expenses increased by $0.7 million primarily attributable to increased employee benefit plan costs of $0.3 million, check fraud related expenses of $0.2 million, and increases in membership dues and licenses, mortgage escrow interest expense, debit card expense, and miscellaneous loan fees, partially offset by decreases in personnel related expense and loan service fees.
For the six months ended June 30, 2023, non-interest expenses increased by $3.9 million when compared to the six months ended June 30, 2022. Salaries and employee benefits increased by $2.4 million year-over-year due primarily to increased salary expense of $1.1 million related to new hires and merit increases effective April 1, 2023, increased health insurance costs of $0.8 million associated with unusually high claims and increased incentive payouts of $0.2 million. Occupancy and equipment expense increased by $0.2 million, data processing expense increased by $0.3 million, and FDIC assessments increased by $0.1 million. Other miscellaneous expenses, such as loan service fees, dues and licenses, check fraud expenses, employee benefit plan expense, and miscellaneous expenses increased by $1.1 million.
Net Interest Income
Net interest income is our largest source of operating revenue. Net interest income is the difference between the interest that we earn on our interest-earning assets and the interest expense we incur on our interest-bearing liabilities. For analytical and discussion purposes, net interest income is adjusted to a fully tax equivalent (“FTE”) basis to facilitate performance comparisons between taxable and tax-exempt assets by increasing tax-exempt income by an amount equal to the federal income taxes that would have been paid if this income were taxable at the statutorily applicable rate. This is a non-GAAP disclosure and management believes it is not materially different than the corresponding GAAP disclosure.
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The tables below summarizes net interest income for the three month periods ended June 30, 2023 and 2022.
Non-GAAP
GAAP
Six Months Ended
Six Months Ended
June 30,
June 30,
(dollars in thousands)
2023
2022
2023
2022
Interest income
$
38,253
$
29,355
$
37,801
$
28,878
Interest expense
9,109
1,566
9,109
1,566
Net interest income
$
29,144
$
27,789
$
28,692
$
27,312
Net interest margin %
3.39
%
3.40
%
3.34
%
3.46
%
Three Months Ended
Three Months Ended
June 30,
June 30,
(dollars in thousands)
2023
2022
2023
2022
Interest income
$
20,197
$
14,967
$
19,972
$
14,731
Interest expense
5,798
760
5,798
760
Net interest income
$
14,399
$
14,207
$
14,174
$
13,971
Net interest margin %
3.26
%
3.46
%
3.21
%
3.52
%
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The following tables set forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the six- and three- month periods ended June 30 , 2023 and 2022:
Six Months Ended
June 30,
2023
2022
Average
Average
Average
Average
(dollars in thousands)
Balance
Interest
Yield/Rate
Balance
Interest
Yield/Rate
Assets
Loans
$
1,298,743
$
32,251
5.01
%
$
1,184,804
$
25,326
4.31
%
Investment Securities:
Taxable
338,817
3,547
2.11
%
356,878
2,946
1.66
%
Non taxable
26,099
963
7.44
%
27,447
1,005
7.38
%
Total
364,916
4,510
2.49
%
384,325
3,951
2.07
%
Federal funds sold
62,361
1,409
4.56
%
44,689
57
0.26
%
Interest-bearing deposits with other banks
3,342
45
2.72
%
4,487
5
0.21
%
Other interest earning assets
3,069
38
2.56
%
1,028
16
3.14
%
Total earning assets
1,732,431
38,253
4.45
%
1,619,333
29,355
3.66
%
Allowance for loan losses
(15,905)
(15,558)
Non-earning assets
172,461
172,839
Total Assets
$
1,888,987
$
1,776,614
Liabilities and Shareholders’ Equity
Interest-bearing demand deposits
$
365,491
$
2,021
1.11
%
$
291,220
$
182
0.13
%
Interest-bearing money markets
314,246
3,107
1.99
%
289,377
137
0.10
%
Savings deposits
236,383
135
0.12
%
247,573
36
0.03
%
Time deposits - Retail
124,684
832
1.35
%
148,377
521
0.71
%
Time deposits - Brokered
35,771
933
5.26
%
—
—
—
%
Short-term borrowings
52,332
60
0.23
%
60,144
39
0.13
%
Long-term borrowings
77,338
2,021
5.27
%
30,929
651
4.24
%
Total interest-bearing liabilities
1,206,245
9,109
1.52
%
1,067,620
1,566
0.30
%
Non-interest-bearing deposits
497,226
542,992
Other liabilities
30,497
29,337
Shareholders’ Equity
155,019
137,665
Total Liabilities and Shareholders’ Equity
$
1,888,987
$
1,777,614
Net interest income and spread
$
29,144
2.93
%
$
27,789
3.36
%
Net interest margin
3.39
%
3.46
%
(1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2023 and 2022. Non-GAAP interest income on a fully taxable equivalent was $452 and $477, respectively.
(2) Net interest margin is calculated as net interest income divided by average earning assets.
(3) The average yields on investments are based on amortized cost.
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Three Months Ended
June 30,
2023
2022
(dollars in thousands)
Average
Balance
Interest
Average
Yield/Rate
Average
Balance
Interest
Average
Yield/Rate
Assets
Loans
$
1,317,728
$
16,794
5.11
%
$
1,200,651
$
12,876
4.30
%
Investment Securities:
Taxable
337,032
1,779
2.12
%
350,602
1,540
1.76
%
Non taxable
26,093
479
7.36
%
26,879
500
7.46
%
Total
363,125
2,258
2.49
%
377,481
2,040
2.17
%
Federal funds sold
84,629
1,102
5.22
%
36,151
39
0.43
%
Interest-bearing deposits with other banks
1,735
19
4.46
%
3,728
4
0.43
%
Other interest earning assets
4,490
24
2.23
%
1,026
8
3.13
%
Total earning assets
1,771,707
20,197
4.57
%
1,619,037
14,967
3.71
%
Allowance for loan losses
(16,982)
(15,221)
Non-earning assets
175,369
166,785
Total Assets
$
1,930,094
$
1,770,601
Liabilities and Shareholders’ Equity
Interest-bearing demand deposits
$
377,773
$
1,132
1.20
%
$
298,571
$
93
0.12
%
Interest-bearing money markets
304,322
1,809
2.38
%
282,083
74
0.11
%
Savings deposits
226,172
56
0.10
%
251,187
18
0.03
%
Time deposits - retail
130,634
552
1.69
%
142,013
216
0.61
%
Time deposits - brokered
61,081
801
5.26
%
—
—
—
%
Short-term borrowings
47,356
29
0.25
%
60,727
21
0.14
%
Long-term borrowings
110,929
1,419
5.13
%
30,929
338
4.38
%
Total interest-bearing liabilities
1,258,267
5,798
1.85
%
1,065,510
760
0.29
%
Non-interest-bearing deposits
484,952
539,488
Other liabilities
31,517
30,564
Shareholders’ Equity
155,358
136,039
Total Liabilities and Shareholders’ Equity
$
1,930,094
$
1,771,601
Net interest income and spread
$
14,399
2.72
%
$
14,207
3.42
%
Net interest margin
3.26
%
3.52
%
(1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2023 and 2022. Non-GAAP interest income on a fully taxable equivalent was $226 and $236, respectively.
(2) Net interest margin is calculated as net interest income divided by average earning assets.
(3) The average yields on investments are based on amortized cost.
Net interest income, on a non-GAAP, FTE basis, increased by $0.2 million for the second quarter of 2023 when compared to the second quarter of 2022. This increase was driven by an increase of $5.2 million in interest income from an overall increase in yield of 86 basis points on interest earning assets and an increase in average balances of $152.7 million. Interest income on loans increased by $3.9 million due to the increase of 81 basis points in overall yield on the loan portfolio as new loans were booked at higher rates as well as adjustable-rate loans repricing in correlation to the rising rate environment and an increase in average balances of $117.1 million. Investment income increased by $0.2 million. The increase of $5.0 million in interest expense was driven by an increase of 142 basis points on interest paid on deposit accounts as well as an increase of $126.1 million in average balances of interest-bearing deposit accounts when compared to the same period of 2022. Increased deposit pricing is a result of the continued pressure on deposits as well as a shift in the deposit portfolio mix from non-interest-bearing deposits to interest-bearing accounts including the Insured Cash Sweep (“ICS”) product to ensure full FDIC insurance coverage. The net interest margin for the three months ended June 30, 2023 was 3.26%, compared to 3.52% for the three months ended June 30, 2022.
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Comparing the six months ended June 30, 2023 to the six months ended June 30, 2022, net interest income, on a non-GAAP, FTE basis, increased by $1.4 million. Interest income increased by $8.9 million and interest expense increased by $7.5 million. The yield on earning assets increased 79 basis points to 4.45% in 2023 compared to 3.66% in 2022 in correlation with the rising interest rate environment and new loans booked at higher rates. Interest expense on deposits increased $6.2 million while the average balances increased $100.0 million and interest on long-term borrowings increased $1.4 million relating to $80.0 million in Federal Home Loan Bank (“FHLB”) borrowings obtained during the first quarter of 2023 and an increase of interest rates on variable rate trust preferred borrowings. The increased interest expense resulted in an overall increase of 122 basis points on interest bearing liabilities. The net interest margin for the six months ended June 30, 2023 was 3.39%, compared to 3.46% for the six months ended June 30, 2022.
The following table sets forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the six and three month periods ended June 30, 2023 and 2022:
For the Six months ended June 30, 2023
compared to the Six months ended June 30, 2022
(in thousands and tax equivalent basis)
Volume
Rate
Net
Interest Income:
Loans
$
2,455
$
4,470
$
6,925
Taxable Investments
(150)
751
601
Non-taxable Investments
(50)
8
(42)
Federal funds sold
23
1,329
1,352
Interest-bearing deposits
(1)
41
40
Other interest earning assets
32
(10)
22
Total interest income
2,309
6,589
8,898
Interest Expense:
Interest-bearing demand deposits
48
1,791
1,839
Interest-bearing money markets
12
2,958
2,970
Savings deposits
(2)
101
99
Time deposits - Retail
(84)
395
311
Time deposits - Brokered
0
933
933
Short-term borrowings
(5)
26
21
Long-term borrowings
984
386
1,370
Total interest expense
953
6,590
7,543
Net interest income
$
1,356
$
(1)
$
1,355
(1) The change in interest income/expense due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
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For the Three months ended June 30, 2023 compared to the Three months ended June 30, 2022
(in thousands and tax equivalent basis)
Volume
Rate
Net
Interest Income:
Loans
$
1,259
$
2,659
$
3,918
Taxable Investments
(58)
297
239
Non-taxable Investments
(15)
(6)
(21)
Federal funds sold
52
1,011
1,063
Interest-bearing deposits
(2)
17
15
Other interest earning assets
27
(11)
16
Total interest income
1,263
3,967
5,230
Interest Expense:
Interest-bearing demand deposits
24
1,015
1,039
Interest-bearing money markets
6
1,729
1,735
Savings deposits
(2)
40
38
Time deposits - Retail
(17)
353
336
Time deposits - Brokered
0
801
801
Short-term borrowings
(5)
13
8
Long-term borrowings
876
205
1,081
Total interest expense
882
4,156
5,038
Net interest income
$
381
$
(189)
$
192
(1) The change in interest income/expense due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Provision for Credit Losses
Specific allocations have been made for loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance, and the qualitative factors affecting the allowance for credit losses (“ACL”) and allowance for loan losses (“ALL”) have been adjusted based on the current economic environment and the characteristics of the loan portfolio.
Other Income
The composition of other operating income for the six and three month periods ended June 30, 2023 and 2022 is illustrated in the following table:
Income as % of
Income as % of
Total Other Income
Total Other Income
Six Months Ended
Three Months Ended
June 30,
June 30,
(in thousands)
2023
2022
2023
2022
Service charges on deposit accounts
$
1,062
12%
$
928
11%
$
546
12%
$
463
11%
Other service charges
476
5%
445
5%
244
6%
232
5%
Trust department
3,995
46%
4,233
48%
2,025
45%
2,044
46%
Debit card income
1,986
23%
1,869
21%
1,031
23%
983
22%
Bank owned life insurance
616
7%
589
7%
311
7%
297
7%
Brokerage commissions
555
6%
533
6%
258
6%
313
7%
Other income
132
1%
198
2%
68
2%
81
2%
$
8,822
100%
$
8,795
100%
$
4,483
100%
$
4,413
100%
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Other Operating Expenses
The composition of other operating expenses for the six and three month periods ended June 30, 2023 and 2022 is illustrated in the following table:
Expense as % of
Expense as % of
Total Other Operating Expenses
Total Other Operating Expenses
Six Months Ended
Three Months Ended
June 30,
June 30,
(in thousands)
2023
2022
2023
2022
Salaries and employee benefits
$
14,155
56%
$
11,761
55%
$
6,865
55%
$
5,793
54%
FDIC premiums
470
2%
329
2%
277
2%
155
2%
Equipment
2,139
9%
2,073
10%
1,047
8%
1,029
10%
Occupancy expense of premises
1,527
6%
1,438
7%
743
6%
711
7%
Data processing expense
1,915
8%
1,626
8%
946
8%
805
8%
Marketing expense
254
1%
257
1%
137
1%
151
1%
Professional services
1,040
3%
1,084
5%
522
4%
564
5%
Contract labor
298
1%
323
2%
159
1%
158
1%
Telephone
226
1%
253
1%
116
1%
139
1%
Other real estate owned
142
1%
247
1%
18
0%
152
1%
Investor relations
189
1%
219
1%
132
1%
123
1%
Contributions
143
1%
63
0%
79
1%
42
0%
Other
2,651
10%
1,537
7%
1,470
12%
808
9%
$
25,149
100%
$
21,210
100%
$
12,511
100%
$
10,630
100%
Provision for Income Taxes
In reporting interim financial information, income tax provisions should be determined under the procedures set forth in Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (Section 740-270-30). This guidance provides that at the end of each interim period, an entity should make its best estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined should be used in providing for income taxes on a current year-to-date basis. The effective tax rate should reflect anticipated investment tax credits, capital gains rates, and other available tax planning alternatives. In arriving at this effective tax rate, however, no effect should be included for the tax related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect in reports for the interim period or for the fiscal year.
The effective income tax rates as a percentage of income for the six-month periods ended June 30, 2023 and June 30, 2022 were 24.0% and 24.5%, respectively. The decrease in the tax rate for the 2023 period was primarily related to a new low-income housing tax credit investment in 2022 that began generating tax credits during the fourth quarter of 2022. This tax credit is expected to continue through 2032.
FINANCIAL CONDITION
Balance Sheet Overview
Total assets at June 30, 2023 were $1.9 billion, representing an $80.2 million increase since December 31, 2022. During the first six months of 2023, cash and interest-bearing deposits in other banks increased by $14.2 million resulting from implementation of the contingency funding plan and obtaining $61.1 million of brokered certificates of deposit and $80.0 million in FHLB borrowings. Implementing the contingency funding plan and the increase in on-balance sheet liquidity was a precautionary move given the market disruption associated with the volatile banking environment and the near-term uncertainties regarding growth in the deposit portfolio. The increase in cash obtained from contingency funding was partially offset by the funding of loan growth during 2023. The investment portfolio decreased by $10.7 million associated with normal principal amortization and gross loans increased by $70.5 million. Other assets, including deferred taxes, premises and equipment, and accrued interest receivable,
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increased by $4.0 million as pension assets increased by $0.6 million, equity investments increased by $0.7 million, and deferred tax assets increased by $1.2 million.
Total liabilities at June 30, 2023 were $1.8 billion, representing a $76.9 million increase since December 31, 2022. Total deposits increased by $9.2 million since December 31, 2022. The increase in deposits during the first six months of 2023 was primarily attributable to $61.1 million in new brokered deposits, which was partially offset by a decrease of approximately $40.0 million in non-interest-bearing deposits due to a shift to interest bearing accounts, two large commercial customers having large deposit withdrawals totaling $39.5 million during 2023 to fund business activity, the effects of consumer and commercial spending and the competitive market for deposits. Short term borrowings decreased by $14.5 million since December 31, 2022 due to municipalities utilizing cash in our treasury management product for normal spending. Long term borrowings increased by $80.0 million in the first six months of 2023 when compared to December 31, 2022 due to the advance of $80.0 million in FHLB borrowings. The addition of brokered deposits and the FHLB borrowings was a precautionary move as described above.
Loan Portfolio
The following table presents the composition of our loan portfolio at the dates indicated:
(dollars in thousands)
June 30, 2023
December 31, 2022
Commercial real estate
$
483,485
36%
$
458,831
36%
Acquisition and development
79,003
6%
70,596
6%
Commercial and industrial *
249,683
18%
245,396
19%
Residential mortgage
475,540
35%
444,411
35%
Consumer
62,327
5%
60,260
5%
Total Loans
$
1,350,038
100%
$
1,279,494
100%
*Includes $0.1 million of Paycheck Protection Program loans at June 30, 2023 and $0.4 million at December 31, 2022
Outstanding loans of $1.4 billion at June 30, 2023 reflected growth of $70.5 million for the first six months of 2023. Since December 31, 2022, commercial real estate loans increased by $24.7 million and acquisition and development loans increased by $8.4 million. Commercial and industrial loans increased by $4.3 million since December 31, 2022. Growth in the commercial portfolios was driven by increased activity with existing clients as well as cultivating new business relationships. Residential mortgage loans increased by $31.1 million related to management’s strategic decision to book new mortgage loans at higher rates to our in-house portfolio. The consumer loan portfolio increased slightly by $2.1 million.
New commercial loan production for the three months ended June 30, 2023 was approximately $67.6 million. The pipeline of commercial loans as of June 30, 2023 was $22.5 million. At June 30, 2023, unfunded, committed commercial construction loans totaled approximately $42.6 million. Commercial amortization and payoffs were approximately $99.3 million through June 30, 2023 due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.
New consumer mortgage loan production for the second quarter of 2023 was approximately $32.3 million, with most of this production comprised of in-house mortgages. The pipeline of in-house, portfolio loans as of June 30, 2023, was $6.2 million. The residential mortgage production level normalized in the second quarter of 2023 due to the increasing interest rates that occurred throughout 2022 and 2023. Unfunded commitments related to residential construction loans totaled $21.0 million at June 30, 2023. Management began shifting activity toward the secondary market in the second quarter of 2023 to reduce the need for additional funding.
Non-accrual loans totaled $3.0 million at June 30, 2023, compared to $3.5 million at December 31, 2022. The decrease in non-accrual balances at June 30, 2023 was primarily driven by principal reductions in the residential mortgage portfolio. Other real estate owned (“OREO”) balances increased by $0.1 million since December 31, 2022 due to the addition of a new OREO property during the second quarter of 2023, which was partially offset by sale of OREO held by the Bank at December 31, 2022.
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Risk Elements of Loan Portfolio
The following table presents the risk elements of our loan portfolio at the dates indicated. Management is not aware of any potential problem loans other than those listed in this table or discussed below.
(dollars in thousands)
June 30,
2023
% of
Applicable
Portfolio
December 31,
2022
% of
Applicable
Portfolio
Non-accrual loans:
Commercial real estate
$
—
0.00%
$
145
0.03%
Acquisition and development
128
0.16%
146
0.21%
Residential mortgage
2,844
0.60%
3,204
0.72%
Consumer
—
0.00%
—
0.00%
Total non-accrual loans
$
2,972
0.22%
$
3,495
0.27%
Accruing Loans Past Due 90 days or more:
Residential mortgage
63
282
Consumer
97
25
Total loans past due 90 days or more
$
160
$
307
Total non-accrual and accruing loans past due 90 days or more
$
3,132
$
3,802
Other real estate owned
$
4,842
$
4,733
Total Non-performing assets
$
7,974
$
8,535
Non-accrual loans to total loans (as %)
0.22%
0.27%
Non-performing loans to total loans (as %)
0.23%
0.30%
Non-performing assets to total assets (as %)
0.41%
0.46%
Allowance for credit losses to non-accrual loans (as %)
568.81%
418.77%
Allowance for credit losses to non-performing assets (as %)
212.00%
171.48%
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Allowance for Credit Losses
The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a recovery for credit losses, which is recorded as a current period operating expense.
Determination of an appropriate ACL is inherently complex and requires the use of highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management.
Management believes it uses relevant information available to make determination about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed. While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.
The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources. Management evaluates the variability of market conditions by examining the peak and trough of economic cycles. These peaks and troughs are used to stress the base case model to develop a range of potential outcomes. Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio. Management enhances its calculation with the use of Moody’s economic forecast data to provide additional support to substantiate its ACL.
The following table presents a summary of the activity in the ACL and ALL for the six month periods ended June 30:
(dollars in thousands)
2023
2022
Balance, January 1
$
14,636
$
15,955
Impact of CECL Adoption
2,066
—
Charge-offs:
Commercial real estate
(87)
—
Acquisition and development
—
—
Commercial and industrial
(166)
(52)
Residential mortgage
(24)
(33)
Consumer
(518)
(545)
Total charge-offs
(795)
(630)
Recoveries:
Commercial real estate
5
1
Acquisition and development
7
20
Commercial and industrial
9
9
Residential mortgage
36
101
Consumer
93
76
Total recoveries
150
207
Net losses
(645)
(423)
Credit Loss Expense/(Credit)
848
205
Balance at end of period
$
16,905
$
15,737
Allowance for credit/loan losses to gross loans outstanding (as %)
1.25
%
1.28
%
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Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio
2023
2022
Commercial real estate
(0.04)%
0.00%
Acquisition and development
0.02%
(0.07)%
Commercial and industrial
(0.13)%
(0.23)%
Residential mortgage
0.01%
0.02%
Consumer
(1.40)%
0.45%
Investment Securities
At June 30, 2023, the total amortized cost basis of the available-for-sale investment portfolio was $146.5 million, compared to a fair value of $120.1 million. Unrealized gains and losses on securities available-for-sale are reflected in accumulated other comprehensive loss, a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $230.8 million, compared to a fair value of $199.1 million.
The following table presents the composition of our securities portfolio at amortized cost and fair values at the dates indicated:
June 30, 2023
December 31, 2022
Amortized
Fair Value
FV as %
Amortized
Fair Value
FV as %
(dollars in thousands)
Cost
(FV)
of Total
Cost
(FV)
of Total
Securities Available for Sale:
U.S. government agencies
$
11,028
$
9,541
9%
$
11,044
$
9,462
8%
Residential mortgage-backed agencies
43,224
35,867
30%
45,052
37,401
30%
Commercial mortgage-backed agencies
36,897
29,134
24%
37,393
30,732
23%
Collateralized mortgage obligations
24,836
20,125
17%
25,828
21,044
17%
Obligations of state and political subdivisions
10,837
10,566
9%
10,848
10,492
8%
Corporate bonds
1,000
747
1%
1,000
887
1%
Collateralized debt obligations
18,674
14,105
12%
18,664
15,871
13%
Total available for sale
$
146,496
$
120,085
100%
$
149,829
$
125,889
100%
Securities Held to Maturity:
U.S. treasuries
$
37,332
$
36,257
18%
$
37,204
$
35,611
18%
U.S. government agencies
67,873
55,762
28%
67,734
54,473
27%
Residential mortgage-backed agencies
26,970
23,706
12%
28,624
25,122
12%
Commercial mortgage-backed agencies
21,494
16,306
8%
22,389
17,821
9%
Collateralized mortgage obligations
55,104
44,980
23%
57,085
47,084
23%
Obligations of state and political subdivisions
21,986
22,060
11%
22,623
22,969
11%
Total held to maturity
$
230,759
$
199,071
100%
$
235,659
$
203,080
100%
Total fair value of investment securities available for sale decreased by $5.8 million since December 31, 2022 due to principal paydowns of the portfolio in the first six months of 2023 and declines in the fair value of investment securities of $2.4 million. At June 30, 2023, the securities classified as available-for-sale included a net unrealized loss of $26.4 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.
As discussed in Note 6 to the consolidated financial statements presented elsewhere in this report, the Corporation measures fair market values based on the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures . The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 3 prices or valuation techniques require inputs that are both significant to the valuation assumptions and are not readily observable in the market (i.e. supported with little or no market activity). These Level 3 instruments are valued based on both observable and unobservable inputs derived from the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
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Approximately $105.9 million of the available for sale portfolio was valued using Level 2 pricing and had net unrealized losses of $21.8 million at June 30, 2023. The remaining $14.1 million of the securities available for sale represents the entire collateralized debt obligation portfolio, which was valued using significant unobservable inputs (Level 3 assets). The $4.6 million in net unrealized losses associated with this portfolio relates to nine pooled trust preferred securities that comprise the collateralized debt obligation portfolio. Net unrealized losses of $1.6 million represent non-credit related impairment charges on seven of the securities, while $3.0 million of unrealized losses relates to two securities which have had no impairment-related charges.
Deposits
The following table presents the composition of our deposits at the dates indicated:
(dollars in thousands)
June 30, 2023
December 31, 2022
Non-interest-bearing demand deposits
$
466,628
29%
$
506,613
32%
Interest-bearing deposits:
Demand
393,234
25%
327,685
21%
Money Market
297,312
19%
365,192
23%
Savings deposits
215,649
14%
250,720
16%
Time deposits- retail
146,055
9%
120,523
8%
Time deposits- brokered
61,081
4%
—
0%
Total Deposits
$
1,579,959
100%
$
1,570,733
100%
Total deposits at June 30, 2023 increased by $9.2 million when compared to December 31, 2022. During the first six months of 2023, non-interest-bearing deposits decreased by $40.0 million primarily due a shift in the deposit portfolio mix from non-interest-bearing deposits to interest-bearing accounts including the ICS product to ensure full FDIC insurance coverage, consumer and commercial spending and the competitive deposit market. Interest bearing demand deposits increased by $65.5 million and traditional savings and money market accounts decreased by $103.0 million, which is primarily related to consumer spending habits during 2023, businesses utilizing cash, and two large customers reducing deposits by approximately $39.5 million for regular business purposes. Total time deposits increased by $86.6 million. This increase in time deposits was primarily driven by management’s decision to acquire $61.1 million in brokered deposits during the first quarter of 2023 due to the heightened uncertainty in the deposit market associated with the volatile banking environment as well as increased interest rates on a promotional nine-month CD product offered in early 2023.
The following table summarizes the percentage of deposits that are insured by deposit insurance or otherwise fully collateralized by securities compared to uninsured deposits as of June 30, 2023 and December 31, 2022.
June 30, 2023
December 31, 2022
(dollars in thousands)
Balance
Percent
Balance
Percent
Insured/collateralized deposits
$
1,350,060
85%
$
1,118,190
71%
Uninsured deposits
229,899
15%
452,543
29%
$
1,579,959
100%
$
1,570,733
100%
The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of June 30, 2023 and December 31, 2022.
June 30, 2023
December 31, 2022
(dollars in thousands)
Balance
Percent
Balance
Percent
Retail deposits
$
798,737
51%
$
855,014
55%
Business deposits
781,222
49%
715,719
45%
$
1,579,959
100%
$
1,570,733
100%
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Deposit outflows experienced in late 2022 and January 2023 were due to the competitive pricing landscape and inflationary spending. Changes in deposit levels were not directly related to the market disruptions during the first six months of 2023.
Borrowed Funds
The following table presents the composition of our borrowings at the dates indicated:
(in thousands)
June 30,
2023
December 31,
2022
Securities sold under agreements to repurchase
$
50,078
$
64,565
Total short-term borrowings
50,078
64,565
FHLB advances
$
80,000
$
—
Junior subordinated debt
30,929
30,929
Total long-term borrowings
$
110,929
$
30,929
Short term borrowings decreased $14.5 million since December 31, 2022, driven by the utilization of cash by municipalities in our Treasury Management product.
During the first quarter of 2023, management implemented the Contingency Funding plan and borrowed $80.0 million from FHLB in two advances with 12 and 18 month maturities.
Liquidity Management
Liquidity is a financial institution’s capability to meet customer demands for deposit withdrawals while funding all credit-worthy loans. The factors that determine the institution’s liquidity are:
● Reliability and stability of core deposits;
● Cash flow structure and pledging status of investments; and
● Potential for unexpected loan demand.
We actively manage our liquidity position through regular meetings of a sub-committee of executive management, known as the Treasury Team, which looks forward 12 months at 30-day intervals. The measurement is based upon the projection of funds sold or purchased position, along with ratios and trends developed to measure dependence on purchased funds and core growth. Monthly reviews by management and quarterly reviews by the Asset and Liability Committee under prescribed policies and procedures are designed to ensure that we will maintain adequate levels of available funds.
It is our policy to manage our affairs so that liquidity needs are fully satisfied through normal Bank operations. That is, the Bank will manage its liquidity to minimize the need to make unplanned sales of assets or to borrow funds under emergency conditions. The Bank will use funding sources where the interest cost is relatively insensitive to market changes in the short run (periods of one year or less) to satisfy operating cash needs. The remaining normal funding will come from interest-sensitive liabilities, either deposits or borrowed funds. When the marginal cost of needed wholesale funding is lower than the cost of raising this funding in the retail markets, the Corporation may supplement retail funding with external funding sources such as:
1. Unsecured Fed Funds lines of credit with upstream correspondent banks (M&T Bank, Pacific Coast Banker’s Bank, PNC Financial Services, Atlantic Community Bankers Bank and Community Bankers Bank).
2. Secured advances with the FHLB, which are collateralized by eligible one to four family residential mortgage loans, home equity lines of credit, commercial real estate loans.
3. Secured line of credit with the Fed Discount Window for use in borrowing funds up to 90 days, using municipal securities as collateral.
4. Brokered deposits, including CDs and money market funds, provide a method to generate deposits quickly. These deposits are strictly rate driven but often provide the most cost-effective means of funding growth.
5. One Way Buy CDARS/ICS funding – a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly.
6. Bank Term Funding Program – A Federal Reserve program collateralized by government agency securities, if needed.
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The following table presents sources of liquidity available to the Corporation as of June 30, 2023.
(dollars in thousands)
Total Availability
Amount Used
Net Availability
Internal Sources
Excess cash
$
66,969
$
-
$
66,969
Unpledged securities
56,338
-
56,338
External Sources
Federal Reserve (discount window)
9,735
-
9,735
Correspondent unsecured lines of credit
105,000
-
105,000
FHLB
217,493
82,500
134,993
Bank Term Funding Program*
87,263
-
87,263
$
542,798
$
82,500
$
460,298
*Bank Term Funding Program has been established and eligible securities with a total par balance of $87.3 million have been pledged to the program as of June 30, 2023
Management is not aware of any demands, commitments, events or uncertainties that are likely to materially affect our ability to meet our future capital requirements.
Due to the market disruption and uncertainties, management implemented the Liquidity Contingency Plan in the first quarter and believes that we have adequate liquidity available to respond to current and anticipated liquidity demands and is not aware of any trends or demands, commitments, events or uncertainties that are likely to materially affect our ability to maintain liquidity at satisfactory levels.
Market Risk and Interest Sensitivity
Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities that we engage in, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on our liabilities. Interest rate sensitivity refers to the degree that earnings will be impacted by changes in the prevailing level of interest rates. Interest rate risk arises from mismatches in the repricing or maturity characteristics between interest-bearing assets and liabilities. Management seeks to minimize fluctuating net interest margins, and to enhance consistent growth of net interest income through periods of changing interest rates. Management uses interest sensitivity gap analysis and simulation models to measure and manage these risks. The interest rate sensitivity gap analysis assigns each interest-earning asset and interest-bearing liability to a time frame reflecting its next repricing or maturity date. The differences between total interest-sensitive assets and liabilities at each time interval represent the interest sensitivity gap for that interval. A positive gap generally indicates that rising interest rates during a given interval will increase net interest income, as more assets than liabilities will reprice. A negative gap position would benefit us during a period of declining interest rates.
At June 30, 2023, we were asset sensitive.
Our interest rate risk management goals are:
● Ensure that the Board of Directors and senior management will provide effective oversight and ensure that risks are adequately identified, measured, monitored and controlled;
● Enable dynamic measurement and management of interest rate risk;
● Select strategies that optimize our ability to meet our long-range financial goals while maintaining interest rate risk within policy limits established by the Board of Directors;
● Use both income and market value oriented techniques to select strategies that optimize the relationship between risk and return; and
● Establish interest rate risk exposure limits for fluctuation in net interest income (“NII”), net income and economic value of equity.
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To manage interest sensitivity risk, management formulates guidelines regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These guidelines are based on management’s outlook regarding future interest rate movements, the state of the regional and national economy, and other financial and business risk factors. Management uses computer simulations to measure the effect on net interest income of various interest rate scenarios. Key assumptions used in the computer simulations include cash flows and maturities of interest rate sensitive assets and liabilities, changes in asset volumes and pricing, and management’s capital plans. This modeling reflects interest rate changes and the related impact on net interest income over specified periods.
We evaluate the effect of a change in interest rates of +/-100 basis points to +/-400 basis points on both NII and Net Portfolio Value (“NPV”) / Economic Value of Equity (“EVE”). We concentrate on NII rather than net income as long as NII remains the significant contributor to net income.
NII modeling allows management to view how changes in interest rates will affect the spread between the yield paid on assets and the cost of deposits and borrowed funds. Unlike traditional Gap modeling, NII modeling takes into account the different degree to which installments in the same repricing period will adjust to a change in interest rates. It also allows the use of different assumptions in a falling versus a rising rate environment. The period considered by the NII modeling is the next eight quarters.
NPV / EVE modeling focuses on the change in the market value of equity. NPV / EVE is defined as the market value of assets less the market value of liabilities plus/minus the market value of any off-balance sheet positions. By effectively looking at the present value of all future cash flows on or off the balance sheet, NPV / EVE modeling takes a longer-term view of interest rate risk. This complements the shorter-term view of the NII modeling.
Measures of NII at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.
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Based on the simulation analysis performed at June 30, 2023 and December 31, 2022, management estimated the following changes in net interest income, assuming the indicated rate changes:
(Dollars in thousands)
June 30,
2023
December 31,
2022
+400 basis points
$
2,901
$
1,112
+300 basis points
$
2,136
$
225
+200 basis points
$
1,405
$
173
+100 basis points
$
726
$
121
-100 basis points
$
(964)
$
(776)
-200 basis points
$
(2,697)
$
(3,165)
-300 basis points
$
(5,479)
$
(7,382)
-400 basis points
$
(8,956)
$
N/A
This estimate is based on assumptions that may be affected by unforeseeable changes in the general interest rate environment and any number of unforeseeable factors. Rates on different assets and liabilities within a single maturity category adjust to changes in interest rates to varying degrees and over varying periods of time. The relationships between lending rates and rates paid on purchased funds are not constant over time. Management can respond to current or anticipated market conditions by lengthening or shortening the Bank’s sensitivity through loan repricings or changing its funding mix. The rate of growth in interest-free sources of funds will influence the level of interest-sensitive funding sources. In addition, the absolute level of interest rates will affect the volume of earning assets and funding sources. As a result of these limitations, the interest-sensitive gap is only one factor to be considered in estimating the net interest margin.
Management believes that no material changes in our market risks, our procedures used to evaluate and mitigate those risks, or our actual or simulated sensitivity positions have occurred since December 31, 2022. Our NII simulation analysis as of December 31, 2022 is included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022 under the heading “Market Risk and Interest Sensitivity.
Impact of Inflation – Our assets and liabilities are primarily monetary in nature, and as such, future changes in prices do not affect the obligations to pay or receive fixed and determinable amounts of money. During inflationary periods, monetary assets lose value in terms of purchasing power and monetary liabilities have corresponding purchasing power gains. The concept of purchasing power is not an adequate indicator of the impact of inflation on financial institutions because it does not incorporate changes in our earnings.
Capital Resources
We require capital to fund loans, satisfy our obligations under the Bank’s letters of credit, meet the deposit withdrawal demands of the Bank’s customers, and satisfy our other monetary obligations. To the extent that deposits are not adequate to fund our capital requirements, we can rely on the funding sources identified above under the heading “Liquidity Management”.
In addition to operational requirements, the Bank is subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators. These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit. Based on capital ratios at June 30, 2023, the Bank was considered to be well-capitalized.
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The following table presents the Bank’s capital ratios as of the dates indicated:
June 30,
2023
December 31,
2022
Required for
Capital
Adequacy
Purposes
Required
to be Well
Capitalized
Total Capital (to risk-weighted assets)
13.87
%
14.37
%
8.00
%
10.00
%
Tier 1 Capital (to risk-weighted assets)
12.64
%
13.29
%
6.00
%
8.00
%
Common Equity Tier 1 Capital (to risk-weighted assets)
12.64
%
13.29
%
4.50
%
6.50
%
Tier 1 Capital (to average assets)
9.78
%
10.01
%
4.00
%
5.00
%
As of June 30, 2023 and December 31, 2022, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action. We adopted CECL effective January 1, 2023 and elected not to implement the regulatory agencies’ capital transition and instead opted to record the impact to our capital ratios immediately upon implementation.
Effective with the implementation of CECL, a $2.2 million, net of tax, adjustment was made to retained earnings. The adjustment did not have a material impact to our capital ratios.
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Contractual Obligations
The Corporation enters into contractual obligations in the normal course of business. Among these obligations are FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment. Comparing June 30, 2023 to December 31, 2022, short-term borrowings decreased $14.5 million, driven by a the utilization of cash balances by municipalities related to the overnight investments product. Long-term borrowings increased by $80.0 million during the quarter due to management’s decision to obtain $80 million in FHLB advances during the first quarter of 2023.
Commitments
Loan commitments are made to accommodate the financial needs of our customers. Letters of credit commit us to make payments on behalf of customers when certain specified future events occur. The credit risks inherent in loan commitments and letters of credit are essentially the same as those involved in extending loans to customers, and these arrangements are subject to our normal credit policies. We are not a party to any other off-balance sheet arrangements.
Commitments to extend credit in the form of consumer, commercial and business at the dates indicated were as follows:
(in thousands)
June 30,
2023
December 31,
2022
Residential Mortgage - home equity
$
72,726
$
70,845
Residential Mortgage - construction
21,241
25,499
Commercial
171,604
153,235
Consumer - personal credit lines
4,267
4,323
Standby letters of credit
6,893
14,325
Total
$
276,731
$
268,227
The increase of $8.5 million in commitments at June 30, 2023 when compared to December 31, 2022 was due to new business in construction commitments in the commercial portfolio as well as new home equity lines of credit.
Upon adoption of ASC 326 on January 1, 2023, the Corporation recorded an initial increase to the ACL for off-balance sheet exposures of $0.9 million. Credit loss expense for off-balance sheet credit exposures totaled $0.1 million for the six-month period ended June 30, 2023.
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Table of Contents
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