1 unchanged sentence
This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto for the years ended December 31, 2024 and 2023, which are included in Item 8 of Part II of this annual report.
−Removed: First United Corporation is a financial holding company that, through the Bank and its non-bank subsidiaries, provides an array of financial products and services primarily to customers in four Western Maryland counties and four Northeastern West Virginia counties.
+Added: First United Corporation is a financial holding company that, through the Bank and its non-bank subsidiaries, provides an array of financial products and services primarily to customers in four Western Maryland counties and three Northeastern West Virginia counties.
Its principal operating subsidiary is the Bank, which consists of a community banking network of 22 branch offices located throughout its market areas.
Our primary sources of revenue are interest income earned from our loan and investment securities portfolios and fees earned from financial services provided to customers.
−Removed: For the year ended December 31, 2023, net income was $15.1 million on a GAAP basis, inclusive of a $3.3 million, net of tax, loss on the sale of securities and $0.5 million, net of tax, in increased expenses related to announced branch closures that occurred on February 29, 2024, and $18.8 million on a non-GAAP basis compared to GAAP and non-GAAP basis income of $25.0 million in 2022.
−Removed: The year-over-year $10.0 million decrease in GAAP net income was driven by an increase in total operating expenses of $7.1 million.
−Removed: Salaries and employee benefits increased by $3.4 due primarily to increased salary expense of $2.0 million related to new hires, the competitive environment for labor and merit increases effective April 1, 2023, increased health insurance costs of $1.0 million associated with unusually high claims and decreases of $0.4 in deferred loan costs.
−Removed: Occupancy and equipment expense increased by $0.7 million due primarily to accelerated depreciation and lease termination expenses associated with the announced branch closures that occurred on February 29, 2024, data processing expense increased by $0.5 million due to the implementation of new technology, and FDIC assessments increased by $0.4 million.
−Removed: Other miscellaneous expenses, such as loan service fees, dues and licenses, check fraud expenses, employee benefit plan expense, and miscellaneous expenses increased by $2.0 million and professional fees increased by $0.6 million due to the $0.8 million cash receipt related to reimbursement of litigation expenses that were previously expensed and was credited to expenses in 2022.
−Removed: Provision for credit losses increased by $2.2 million when compared to prior year due to increased loan growth during 2023 and qualitative factors with the implementation of Accounting Standards Update 2016-13:
−Removed: Financial Instruments- Credit Losses (“CECL”) .
−Removed: Net losses on available-for-sale (“AFS”) securities increased by $4.2 million when compared to prior year due to the sale of securities in the fourth quarter of 2023.
−Removed: Net interest income decreased by $0.8 million due to compression of the net interest margin as experienced industry-wide during 2023.
−Removed: These increases were partially offset by increases in gains on sales of mortgages of $0.3 million, service charges on deposit accounts of $0.2 million, and $0.1 million increase in debit card income.
−Removed: Income taxes were down by $3.7 million when comparing the two periods due primarily to reductions in pre-tax income.
−Removed: The provision for credit losses was $1.6 million for the year ended December 31, 2023 and a credit of $0.6 million for the year ended December 31, 2022.
+Added: For the years ended December 31, 2024 and 2023, net income was $20.6 million and $15.1 million, respectively, on a GAAP (generally accepted accounting principles) basis.
+Added: Net income for the year ended December 31, 2024 was inclusive of $0.4 million, net of tax, in increased expenses related to branch closures that occurred on February 29, 2024 and adjusted net income was $21.0 million on a non-GAAP basis.
+Added: Net income for the year ended December 31, 2023 was
+Added: inclusive of a $3.3 million loss, net of tax, on the sale of securities and $0.5 million, net of tax, in increased expenses related to announced branch closures and adjusted net income was $18.8 million on a non-GAAP basis.
+Added: The provision for credit losses was $2.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31, 2023.
Net charge-offs of $2.2 million were recorded for the year ended December 31, 2024, compared to $0.9 million for 2023.
The ratio of the ACL to loans outstanding was 1.23% at December 31, 2024 compared to 1.24% at December 31, 2023.
−Removed: Other operating income, including net losses/gains on sales of mortgage loans and sales of investment securities, decreased by approximately $3.6 million when compared to 2022.
−Removed: This decrease was primarily related to a $4.2 million loss recognized through the sale of AFS investment securities as part of a strategic balance sheet restructuring in the fourth quarter of 2023.
−Removed: This loss was partially offset by a $0.2 million in increases in service charges on deposit accounts, $0.1 million increase in wealth management income, and $0.3 million increase in gains on sales of residential mortgages.
−Removed: Other operating expenses increased $7.1 million compared to the year ended December 31, 2022.
−Removed: Salaries and employee benefits increased by $3.4 due primarily to increased salary expense of $2.0 million related to new hires, the competitive environment for labor and merit increases effective April 1, 2023, increased health insurance costs of $1.0 million associated with unusually high claims and decreases of $0.4 in deferred loan costs.
−Removed: Occupancy and equipment
−Removed: expense increased by $0.7 million due to the expenses related to the branch closures, data processing expense increased by $0.5 million as a result of the implementation of a new sales management system, and FDIC assessments increased by $0.4 million.
−Removed: Professional fees increased by $0.6 million related to increased audit expenses in correlation to the new CECL implementation and increased legal and professional expenses due to the receipt of an $0.8 million in proceeds credited to expense in 2022 related to reimbursement of legal and professional expenses previously recorded.
−Removed: Other miscellaneous expenses increased by $2.0 million primarily driven by increased check fraud related expenses of $0.5 million, increased employee benefit costs of $1.1 million, increased escrow account fees due to the rising rate environment, miscellaneous loan fees and an increase of $0.2 million in fees associated with the Intrafi Cash Service (“ICS”) product.
+Added: Other operating income, including net gains/(losses) on sales of mortgage loans and sales of investment securities, increased by approximately $5.4 million when compared to 2023.
+Added: This increase was primarily related to a $4.2 million loss recognized through the sale of available-for-sale (“AFS”) investment securities as part of a strategic balance sheet restructuring in the fourth quarter of 2023.
+Added: Wealth management income, which includes trust department revenue and brokerage commissions, increased by $1.1 million due to improving market conditions, increased annuity sales and growth in new and existing customer relationships.
+Added: Service charge and debit card income was stable when comparing 2024 to 2023.
+Added: Other operating expenses decreased by $0.6 million when compared to the year ended December 31, 2023.
+Added: The decrease was primarily attributable to a $1.0 million decrease in occupancy and equipment expenses related primarily to the branch closures announced in 2023, a $0.2 million decrease in marketing expenses, and a $0.2 million decrease in professional services expenses.
+Added: Other miscellaneous expenses decreased by $0.4 million driven by a $0.5 million decrease in check fraud expenses.
+Added: These decreases were partially offset by $0.5 million in increased salaries and employee benefits related to increased incentives, 401(k) expenses, wellness expenses, and reduced offsets related to loan origination, which were partially offset by reductions in life and health insurance costs.
+Added: Net OREO costs increased by $0.4 million due to gains on the sale of OREO recognized in 2023, and data processing expenses increased by $0.4 million.
Outstanding loans of $1.5 billion at December 31, 2024 reflected growth of $74.1 million in 2024.
−Removed: Since December 31, 2022, commercial real estate loans increased by $34.9 million, acquisition and development loans increased by $6.5 million and commercial and industrial loans increased by $29.2 million.
−Removed: Growth in the commercial portfolios was driven by increased activity with existing clients as well as cultivating new business relationships.
−Removed: Residential mortgage loans increased $55.5 million related to management’s strategic decision to book new mortgage loans at higher rates to our in-house portfolio during the first half of 2023 and then shifted production to sales in the secondary market during the second half of 2023.
−Removed: The consumer loan portfolio increased slightly by $1.2 million.
−Removed: Net interest income, on a non-GAAP, fully-taxable equivalent (“FTE”) basis, decreased by $1.1 million in 2023 compared to 2022.
−Removed: Interest expense on deposits increased by $16.0 million due to an increase in balances of $102.3 million and an increase in yield of 141 basis points.
−Removed: Interest expense on long-term borrowings increased $3.5 million related to $80.0 million in Federal Home Loan Bank (“FHLB”) borrowings obtained during the first quarter of 2023 and an increase in interest rates on variable rate trust preferred borrowings.
−Removed: The increased interest expense resulted in an overall increase of 151 basis points on interest bearing liabilities.
−Removed: This increase was partially offset by an increase of $18.4 million in interest income.
−Removed: The yield on earning assets increased 78 basis points to 4.63% in 2023 compared to 3.85% in 2022 in correlation with the rising interest rate environment, new loans booked at higher rates as well as adjustable rate loans repricing.
−Removed: The net interest margin was 3.26% in 2023 compared to 3.56% in 2022.
−Removed: Comparing the year ended December 31, 2023 with the year ended December 31, 2022, interest income increased by $18.4 million.
−Removed: Interest and fees on loans increased by $15.1 million and investment income increased by $0.2 million.
−Removed: Excess cash balances during 2023 were invested at the Fed Funds rate, which also positively affected interest income for the year ended December 31, 2023 when compared to 2022.
−Removed: Increases in loan interest income stemmed from the growth of core loans at higher rates in 2023.
−Removed: The rate earned on the loan portfolio increased by 74 basis points when comparing the year ended December 31, 2023 to the year ended December 31, 2022.
−Removed: Total deposits at December 31, 2023 decreased by $19.8 million when compared to December 31, 2022.
−Removed: In March 2023, the Corporation obtained $61.1 million in new brokered deposits.
−Removed: In August 2023, the Corporation obtained $30.0 million of brokered deposits to pre-fund the maturity of a $30.4 million brokered certificate of deposit that matured in September 2023.
−Removed: In December 2023, $30.6 million in brokered deposits matured and were repaid.
−Removed: In addition, retail certificates of deposit increased by $45.0 million due primarily to a promotional nine-month certificate of deposit product offered in 2023.
−Removed: Interest-bearing demand deposits increased by $23.2 million and money market accounts increased by $20.5 million due to a shift in the deposit portfolio mix from non-interest-bearing accounts to interest-bearing accounts including the ICS product to ensure full FDIC insurance.
−Removed: These increases were offset by decreases in non-interest-bearing deposits of $78.9 million and savings accounts of $59.5 million due to the shift to interest-bearing demand deposit accounts, two relationships having large, planned 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.
+Added: Since December 31, 2023, commercial real estate loans increased by $32.7 million, acquisition and development loans increased by $18.2 million, commercial and industrial loans increased by $12.9 million, residential mortgage loans increased by $18.9 million, and consumer loans decreased by $8.6 million.
+Added: Net interest income, on a non-GAAP, fully-taxable equivalent (“FTE”) basis, increased by $2.7 million in 2024 when compared to 2023.
+Added: Interest income increased by $10.4 million.
+Added: Average loan balances increased by $87.2 million and the overall yield increased by 53 basis points in correlation with the elevated rate environment as new loans were booked at higher rates and adjustable-rate loans repriced to higher rates.
+Added: Interest expense on deposits increased by $6.6 million while the average deposit balances increased by $19.4 million, driven by increases in average balances of $6.7 million in interest-bearing demand deposits, $5.3 million in retail time deposits, and $80.1 million in money market balances, partially offset by decreases in savings balances of $39.1 million and brokered time deposits of $33.5 million.
+Added: Interest expense on short-term borrowings increased by $1.3 million due to the Bank’s utilization of the BTFP program in 2024.
+Added: The increased interest expense resulted in an overall increase of 56 basis points on the cost of interest-bearing liabilities.
+Added: The net interest margin was 3.38% and 3.26% for the years ended December 31, 2024 and 2023, respectively.
+Added: Total deposits at December 31, 2024 increased by $23.9 million when compared to December 31, 2023.
+Added: Interest-bearing demand deposits increased by $35.9 million in 2024, which included the shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts due to management’s strategy to release pledging of investment securities for municipalities to provide additional liquidity.
+Added: Money market accounts increased by $61.5 million due primarily to the expansion of current and new relationships throughout the year and a shift from certificates of deposit.
+Added: Traditional savings accounts decreased by $20.3 million and time deposits decreased by $52.4 million.
+Added: The decrease in time deposits was due to a decrease of $22.4 million in retail CDs related to maturities of a nine-month special CD promotion in 2023 and the maturity and repayment of $30.0 million in brokered CDs during the year.
+Added: The Bank has worked closely with customers as these retail CDs mature to transition them to other deposit and wealth management products offered by the Bank.
Estimates and Critical Accounting Policies
4 unchanged sentences
The Corporation identifies the following critical accounting policies may affect our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements.
−Removed: Allowance for Credit Losses
+Added: Allowance for Credit Losses- Loans
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.
3 unchanged sentences
The reasonableness of the ACL is reviewed quarterly by management.
−Removed: Management believes it uses relevant information available to make determinations about the ACL and it has established the existing allowance in accordance with GAAP.
+Added: Management believes that it uses relevant information available to make determinations 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.
4 unchanged sentences
Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio.
+Added: For the year ended December 31, 2024 the range of outcomes would produce a 9.0% reduction or a 72.2% increase in reserves based on the best-case and worst-case scenarios, respectively.
The ACL is also discussed below in Item 7 under the heading “Allowance for Credit Losses” and in Note 5 to the Consolidated Financial Statements.
1 unchanged sentence
As of December 31, 2024, the Corporation had approximately $140.0 million in unsecured lines of credit with its correspondent banks, $36.6 million available through a secured line of credit with the Federal Reserve Discount Window, and approximately $213.6 million of secured borrowings with the FHLB.
−Removed: The Corporation also had approximately $69.5 million available through the BTFP offered by the Federal Reserve.
−Removed: Additionally, the Corporation has access to the brokered certificates of deposit market.
−Removed: The Corporation’s and the Bank’s capital ratios are strong, and both institutions are considered to be well-capitalized by applicable regulatory measures
+Added: Additionally, the Corporation has access to the brokered money market and certificates of deposit markets.
+Added: The Bank’s capital ratios are strong, and the Bank is considered to be well-capitalized by applicable regulatory measures.
Adoption of New Accounting Standards and Effects of New Accounting Pronouncements
2 unchanged sentences
Net Interest Income
−Removed: Net interest income is our largest source of operating revenue.
−Removed: 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.
+Added: Net interest income is our largest source of operating revenue and 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 an 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.
7 unchanged sentences
Net interest margin %
−Removed: Net interest income, on a non-GAAP, FTE basis, decreased by $1.1 million (1.8%) during the year ended December 31, 2023 when compared to the year ended December 31, 2022, driven by a $19.5 million (407.1%) increase in interest expense, which was partially offset by an increase in interest income of $18.4 million (29.1%).
−Removed: The net interest margin, on an FTE basis, decreased to 3.26% for the year ended December 31, 2023 from 3.56% for the year ended December 31, 2022.
−Removed: Comparing the year ended December 31, 2023 with the year ended December 31, 2022, interest income increased by $18.4 million.
−Removed: Interest and fees on loans increased by $15.1 million investment income increased by of $0.2 million.
−Removed: The increase in interest on loans was primarily due to an increase of $116.7 million in average loan balance in 2023 compared to 2022.
+Added: Net interest income, on a non-GAAP, FTE basis, increased by $2.7 million (4.7%) during the year ended December 31, 2024 when compared to the year ended December 31, 2023, driven by a $10.4 million (12.8%) increase in interest income, which was partially offset by an increase in interest expense of $7.7 million (31.8%).
+Added: The net interest margin, on an FTE basis, increased to 3.38% for the year ended December 31, 2024 from 3.26% for the year ended December 31, 2023.
+Added: Comparing the year ended December 31, 2024 with the year ended December 31, 2023, interest income increased by $10.4 million driven by an increase of $12.2 million in interest and fees on loans.
+Added: The increase in interest on loans was primarily due to an increase of $87.2 million in average loan balance in 2024 when compared to 2023.
The rate earned on the loan portfolio increased by 53 basis points when comparing the year ended December 31, 2024 to the year ended December 31, 2023.
−Removed: The increase in investment income was due to the 20 basis point increase in yield during 2023, which was partially offset by the $21.1 million reduction in average balances.
−Removed: Other interest income increased by $3.1 million during 2023 primarily due to a 397 basis point increase in interest income of funds held at the Federal Reserve as well as an increase of $20.9 million in average balances.
−Removed: The increase in interest expense for 2023 was driven by an an increase in interest expense on deposits of $16.0 million due to an increase in balances of $102.3 million and an increase in yield of 141 basis points.
−Removed: Interest expense on long-term borrowings increased $3.5 million related to $80.0 million in FHLB borrowings obtained during the first quarter of 2023 and an increase in interest rates on variable rate trust preferred borrowings.
−Removed: The increased interest expense resulted in an overall increase of 151 basis points on interest bearing liabilities.
+Added: Investment income decreased by $1.3 million due to a $61.2 million reduction in average balances, which was partially offset by the 4-basis point increase in yield during 2024.
+Added: Other interest income decreased by $0.4 million during 2024 primarily due to a $10.0 million decrease in average balances held at the Federal Reserve in 2024 when compared to 2023.
+Added: The increase in interest expense for 2024 was driven by an increase in interest expense on deposits of $6.6 million due to an increase in average balances of $19.4 million and an increase in rate of 56 basis points.
+Added: Interest expense on short- term borrowings increased by $1.3 million due to a $10.5 million increase in average balances and a 222-basis point increase in rate due to utilization of the BTFP in 2024.
As shown below, the composition of total interest income between 2024 and 2023 remained relatively stable.
12 unchanged sentences
Total earning assets
−Removed: Allowance for loan losses
+Added: Allowance for credit losses
Non-earning assets
1 unchanged sentence
Interest-bearing demand deposits
−Removed: Interest-bearing money markets
+Added: Interest-bearing money markets- retail
+Added: Interest-bearing money markets- brokered
Savings deposits
30 unchanged sentences
Interest-bearing demand deposits
−Removed: Interest-bearing money markets
+Added: Interest-bearing money markets- retail
+Added: Interest-bearing money markets- brokered
Savings deposits
7 unchanged sentences
Provision for Credit Losses
−Removed: The provision for credit losses was $1.6 million for the year ended December 31, 2023 and a credit of $0.6 million for the year ended December 31, 2022.
+Added: The provision for credit losses was $2.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31, 2023.
Net charge-offs of $2.2 million were recorded for the year ended December 31, 2024 compared to net charge-offs of $0.9 million for 2023.
−Removed: The ratio of the ACL to loans outstanding was 1.24% at December 31, 2023 compared to an ALL 1.14% at December 31, 2022.
+Added: The ratio of the ACL to loans outstanding was 1.23% at December 31, 2024 compared to 1.24% at December 31, 2023.
The ACL reflects a level commensurate with the risk inherent in our loan portfolio.
−Removed: For periods prior to the adoption of the CECL standard, we recognized credit losses on loans that were collectively evaluated for impairment based on an incurred loss approach, which limited our measurement of credit losses to credit events that were estimated to have already occurred.
Effective January 1, 2023, we adopted CECL, which replaced the incurred loss impairment model with an expected loss model.
10 unchanged sentences
Total other operating income
−Removed: Other operating income, exclusive of gains, increased $0.5 million during the year ended December 31, 2023 when compared to the same period of 2022.
−Removed: The increase was primarily a result of a increase of $0.2 million in service charges on deposit accounts, an increase of $0.1 million in wealth management income, and a $0.1 million increase in debit card income.
−Removed: Net losses of $3.9 million were reported for the year ended December 31, 2023 compared to net gains of $0.2 million for the same period in 2022.
−Removed: The Corporation recognized a $4.2 millon loss in the sale of AFS investment securities as part of the balance sheet restructuring in the fourth quarter of 2023.
−Removed: This loss was partially offset by an increase of $0.3 million in gains on sale of residential mortgages.
−Removed: The following table shows the components of net losses for the year ended December 31, 2023 and net gains for the year ended December 31, 2022.
+Added: Other operating income, exclusive of gains, increased by $1.1 million for the year ended December 31, 2024 when compared to the same period of 2023.
+Added: The increase was primarily a result of an increase of $1.1 million in wealth management income due to increased market values of assets under management, increased annuity sales and growth in new and existing customer relationships.
+Added: Net gains of $0.4 million were reported for the year ended December 31, 2024 compared to net losses of $3.9 million for the same period in 2023.
+Added: The Corporation recognized a $4.2 million loss in the sale of AFS investment securities as part of the balance sheet restructuring in the fourth quarter of 2023.
+Added: Gains on sales of residential mortgages were $0.4 million for the years ending December 31, 2024 and 2023.
+Added: The following table shows the components of net gains for the year ended December 31, 2024 and net losses for the year ended December 31, 2023.
(in thousands)
1 unchanged sentence
Available-for-sale securities:
−Removed: Realized gains from sales and calls
Realized losses from sales and calls
−Removed: Held-to-Maturity:
−Removed: Realized gains on calls
Gains on sale of loans held for sale
−Removed: (Loss)/Gain on disposal of fixed assets
−Removed: Net (losses)/gains
+Added: Loss on disposal of fixed assets
+Added: Net gains/(losses)
Other Operating Expense
6 unchanged sentences
Contract labor
−Removed: Total OREO (income)/expenses, net
+Added: Total OREO expenses/(income), net
Investor relations
2 unchanged sentences
Total other operating expense
−Removed: Other operating expenses increased $7.1 million for the year ended December 31, 2023 when compared to 2022.
−Removed: Salaries and employee benefits increased by $3.4 due primarily to increased salary expense of $2.0 million related to new hires, the competitive environment for labor and merit increases effective April 1, 2023, increased health insurance costs of $1.0 million associated with unusually high claims and decreases of $0.4 in deferred loan costs.
−Removed: Occupancy and equipment expense increased by $0.7 million due to the expenses related to the announced branch closures that occurred on February 29, 2024, data processing expense increased by $0.5 million as a result of the implementation of a new sales management system, and FDIC assessments increased by $0.4 million.
−Removed: Professional fees increased by $0.6 million related to increased audit expenses in correlation to the new CECL implementation and increased legal and professional expenses due to the receipt of an $0.8 million in proceeds credited to expense in 2022 related to previously expensed legal and professional fees.
−Removed: Other miscellaneous expenses increased by $2.0 million primarily driven by increased check fraud related expenses of $0.5 million, increased employee benefit costs of $1.1 million, increased escrow account fees due to the rising rate environment, miscellaneous loan fees and an increase of $0.2 million in fees associated with the ICS product.
+Added: Other operating expenses decreased by $0.6 million for the year ended December 31, 2024 when compared to 2023.
+Added: The decrease was primarily attributable to a $1.0 million decrease in occupancy and equipment expenses related to the branch closures announced in 2023, a $0.2 million decrease in marketing expenses, and a $0.2 million decrease in professional services expenses.
+Added: Other miscellaneous expenses decreased by $0.4 million driven by a $0.5 million decrease in check fraud expenses.
+Added: These decreases were partially offset by $0.5 million in increased salaries and employee benefits related to increased incentives, 401(k) expenses, wellness expenses, and reduced offsets related to loan origination costs, which were partially offset by reductions in life and health insurance costs.
+Added: Net OREO costs increased $0.4 million due to gains on the sale of OREO recognized in 2023, and $0.4 million in increased data processing expenses.
Applicable Income Taxes
2 unchanged sentences
Our effective income tax rates as a percentage of income for the years ended December 31, 2024 and December 31, 2023 were 24.5% and 22.7%, respectively.
−Removed: 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.
−Removed: This tax credit will continue through 2032.
−Removed: At December 31, 2023, the Corporation had Maryland Net Operating Losses (“NOLs”) of $39.1 million for which a deferred tax asset of $2.6 million has been recorded.
+Added: The increase in the tax rate for the 2024 period was primarily related to changes in allocations of state income tax expense.
+Added: At December 31, 2024, the Corporation had Maryland Net Operating Losses (“NOLs”) of $36.3.
+Added: million for which a deferred tax asset of $2.4 million has been recorded.
There was also a Maryland state interest expense carryforward of $3.9 million, for which a deferred tax asset of $0.3 million has been recorded.
1 unchanged sentence
The valuation allowance was $2.6 million and $2.8 million at December 31, 2024 and 2023, respectively.
−Removed: We have concluded that no valuation allowance is deemed necessary for our remaining federal and state deferred tax assets at December 31, 2023, as it is more likely than not that they will be realized based on the expected reversal of
−Removed: deferred tax liabilities, the generation of future income sufficient to realize the deferred tax assets as they reverse, and the ability to implement tax planning strategies to prevent the expiration of any carry-forward periods.
+Added: We have concluded that no valuation allowance is deemed necessary for our remaining federal and state deferred tax assets at December 31, 2024, as it is more likely than not that they will be realized based on the expected reversal of deferred tax liabilities, the generation of future income sufficient to realize the deferred tax assets as they reverse, and the ability to implement tax planning strategies to prevent the expiration of any carry-forward periods.
GAAP and Non-GAAP Measures
−Removed: The following tables sets forth certain selected financial data for the years ended December 31, 2023 and 2022 under generally accepted accounting principles (“GAAP”) (as reported) and non-GAAP.
+Added: The following tables sets forth certain selected financial data for the years ended December 31, 2024 and 2023 under GAAP (as reported) and non-GAAP.
A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with GAAP in the United States.
−Removed: The Corporation’s management believes the presentation of non-GAAP financial measures provide investors with a greater understanding of the Corporation’s operating results in addition to the results measured in accordance with GAAP.
+Added: The Corporation’s management believes that the presentation of non-GAAP financial measures provides investors with a greater understanding of the Corporation’s operating results in addition to the results measured in accordance with GAAP.
While management uses these non-GAAP measures in its analysis of the Corporation’s performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP.
−Removed: The following non-GAAP financial measures exclude losses on the sale of AFS securities and accelerated depreciation and lease termination expenses related to announced branch closures that occurred on February 29, 2024.
+Added: The following non-GAAP financial measures exclude losses on the sale of AFS securities in 2023 and accelerated depreciation and lease termination expenses related to the branch closures that occurred on February 29, 2024.
For the year ended
5 unchanged sentences
Significant Ratios:
−Removed: Return on Average Assets (a) - as reported
−Removed: Loss on sale of AFS securities, accelerated depreciation and lease termination expenses, net of income tax effect
−Removed: Adjusted Return on Average Assets (a) (non-GAAP)
−Removed: Return on Average Equity (a) - as reported
−Removed: Loss on sale of AFS securities, accelerated depreciation and lease termination expenses, net of income tax effect
−Removed: Adjusted Return on Average Equity (a) (non-GAAP)
+Added: Return on Average Assets - as reported
+Added: Loss on sale of AFS securities, net of income tax effect
+Added: Accelerated depreciation and lease termination expenses, net of income tax effect
+Added: Adjusted Return on Average Assets (non-GAAP)
+Added: Return on Average Equity - as reported
+Added: Loss on sale of AFS securities, net of income tax effect
+Added: Accelerated depreciation and lease termination expenses, net of income tax effect
+Added: Adjusted Return on Average Equity (non-GAAP)
(in thousands, except for per share amount)
4 unchanged sentences
Adjusted net income (non-GAAP)
−Removed: Basic earnings per share - as reported
+Added: Basic and diluted earnings per share - as reported
Loss on sale of securities
1 unchanged sentence
Income tax effect of adjustment
−Removed: Adjusted basic earnings per share (non-GAAP)
−Removed: Diluted earnings per share - as reported
+Added: Adjusted basic and diluted earnings per share (non-GAAP)
CONSOLIDATED BALANCE SHEET REVIEW
−Removed: Total assets at December 31, 2023 increased by $57.7 million, or 3.1%, when compared to December 31, 2022.
−Removed: During the year, cash balances decreased by $24.6 million, investment securities decreased by $50.1 million and gross loans increased by $127.2 million.
−Removed: In the first quarter of 2023, management made the strategic decision to obtain $61.1 million in brokered certificates of deposit and $80.0 million of FHLB borrowings to strengthen on-balance sheet liquidity in light of the disruption in the banking industry.
−Removed: $30.0 million of the brokered deposits were repaid in September 2023 and during the third quarter, in anticipation of increasing rates, management pre-funded the $30.7 million of brokered deposits set to mature in the fourth quarter of 2023 at the same rate in order to maintain cash balances and control interest expense.
−Removed: Investment in FHLB stock increased by $4.2 million during the year related to the borrowings obtained in the first quarter.
−Removed: Other assets, including OREO, deferred taxes, premises and equipment, and accrued interest receivable, increased by $3.5 million.
−Removed: Total liabilities increased by $47.6 million since December 31, 2022.
−Removed: Total deposits decreased by $19.8 million during the year.
−Removed: Interest-bearing demand deposits and money market accounts increased by $23.2 million and $20.5 million, respectively, due to 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, where balances grew by approximately $104.0 million.
−Removed: These increases were offset by decreases in non-interest-bearing deposits of $78.9 million and savings accounts of $59.5 million as we saw businesses and consumers utilizing cash due to the rising rate and inflationary environment.
−Removed: Total certificates of deposit increased by $75.0 million primarily due to an increase of $30.0 million in brokered certificates of deposits and $45.0 million in retail certificates of deposit.
−Removed: Short-term borrowings decreased by $19.1 million since December 31, 2022 primarily due to one municipal customer moving funds from an overnight investment product to a non-interest bearing deposit product in 2023 as well as regular fluctuations in municipal deposit balances.
−Removed: Long-term borrowings increased by $80.0 million in 2023 when compared to December 31, 2022 due to the acquisition of $80.0 million in FHLB borrowings in the first quarter of 2023.
+Added: Total assets at December 31, 2024 were $2.0 billion, representing a $67.2 million increase since December 31, 2023.
+Added: During 2024, cash and interest-bearing deposits in other banks increased by $28.6 million.
+Added: The investment portfolio decreased by $41.5 million primarily due to the maturities of $37.5 million of U.S.
+Added: Treasury bonds during the year, normal principal amortization and maturities of our mortgage-backed securities and municipal portfolios.
+Added: Cash proceeds from investments were shifted to gross loans, which increased by $74.1 million.
+Added: OREO decreased by $1.4 million due to sales of properties.
+Added: Pension assets increased by $6.6 million driven by increased market values.
+Added: Deferred tax assets decreased by $1.1 million as we experienced increased fair market values on AFS securities and pension assets when compared to December 31, 2023.
+Added: Total liabilities at December 31, 2024 were $1.8 billion, representing a $49.7 million increase since December 31, 2023.
+Added: Total deposits increased by $23.9 million when compared to December 31, 2023 related to increases in interest-bearing demand deposits of $35.9 million and money markets of $61.5 million, partially offset by the decrease of savings deposits by $20.3 million, retail time deposits of $22.4 million, and the repayment of $30.0 million in brokered certificates of deposits.
+Added: Short-term borrowings increased by $20.0 million since December 31, 2023, which were comprised of $50.0 million in overnight borrowings from the Federal Reserve offset by a shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts as a result of management’s strategy to release pledging of investment securities for municipalities in order to allow those securities to be available for liquidity.
+Added: The overnight borrowings were replaced with brokered certificates of deposit in January 2025.
+Added: Long-term borrowings increased by $10.0 million in 2024.
+Added: Maturities of FHLB advances of $40.0 million in March and $40.0 million in September were fully repaid.
+Added: During the third quarter and after the Federal Reserve’s announcement that rates would be reduced by 50 basis points, management made the strategic decision to lock in borrowing costs by placing $90.0 million in FHLB advances with maturities of 12- and 18-months at a weighted average rate of 3.89%.
+Added: Of this amount, $41.1 million was utilized to prepay the principal and accrued interest of the BTFP borrowings at a rate of 4.87% that was scheduled to mature in January of 2025 and approximately $30.0 million was utilized to repay overnight borrowings related to the repayment of the $40.0 million FHLB advance that matured in September at a rate of 4.53%.
+Added: The remainder was used to fund loan growth in the fourth quarter of 2024.
As indicated below, the total interest-earning asset mix remained relatively constant at December 31, 2024 as compared to December 31, 2023.
3 unchanged sentences
Cash and cash equivalents
−Removed: The year-end total liability mix has remained relatively consistent during the two-year period as illustrated below.
+Added: The year-end total liability mix has remained stable during the two-year period as illustrated below.
Year End Percentage
3 unchanged sentences
Loan Portfolio
−Removed: The Bank is actively engaged in originating loans to customers primarily in Allegany County, Frederick County, Garrett County, and Washington County in Maryland, and in Berkeley County, Mineral County, Monongalia County, and Harrison County in West Virginia;
−Removed: and the surrounding regions of West Virginia and Pennsylvania.
+Added: The Bank is actively engaged in originating loans to customers primarily in Allegany County, Frederick County, Garrett County, and Washington County in Maryland, and in Berkeley County, Mineral County, and Monongalia County, in West Virginia;
+Added: and the surrounding regions of Maryland, West Virginia, Virginia and Pennsylvania.
We have policies and procedures designed to mitigate credit risk and to maintain the quality of our loan portfolio.
20 unchanged sentences
Outstanding loans of $1.5 billion at December 31, 2024 reflected growth of $74.1 million in 2024.
−Removed: Since December 31, 2022, commercial real estate loans increased by $34.9 million, acquisition and development loans increased by $6.5 million and commercial and industrial loans increased by $29.2 million.
−Removed: Growth in the commercial portfolios was driven by increased activity with existing clients as well as cultivating new business relationships.
−Removed: Residential mortgage loans increased $55.5 million related to management’s strategic decision to book new mortgage loans at higher rates to our in-house portfolio during the first half of 2023.
−Removed: The consumer loan portfolio increased slightly by $1.2 million.
+Added: Since December 31, 2023, commercial real estate loans increased by $32.7 million, acquisition and development loans increased by $18.2 million, commercial and industrial loans increased by $12.9 million, residential mortgage loans increased $18.9 million, and consumer loans decreased by $8.6 million.
New commercial loan production for the year ended December 31, 2024 was approximately $189.5 million.
The pipeline of commercial loans as of December 31, 2024 was approximately $11.5 million.
−Removed: At December 31, 2023, unfunded, committed commercial construction loans totaled approximately $29.6 million.
Commercial amortization and payoffs were approximately $114.1 million through December 31, 2024 due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.
2 unchanged sentences
The residential mortgage production level declined in the fourth quarter of 2024 due to the increasing interest rates and seasonality of this line of business.
−Removed: Unfunded commitments related to residential construction loans totaled $17.6 million on December 31, 2023.
−Removed: Beginning in the second quarter of 2023, management began shifting more activity towards the secondary market.
−Removed: The following table presents loans in our commercial real estate portfolio by industry type.
+Added: The following table presents loans in our commercial real estate portfolio by industry type at December 31, 2024.
(in thousands)
8 unchanged sentences
Health care and social assistance
−Removed: Management of companies and enterprises
Manufacturing
43 unchanged sentences
Acquisition and development
+Added: Commercial and industrial
Residential mortgage
1 unchanged sentence
Accruing Loans Past Due 90 days or more:
+Added: Commercial real estate
Residential mortgage
1 unchanged sentence
Total non-accrual and past due 90 days or more
−Removed: Modified Loans:
−Removed: Non-accrual (included above)
−Removed: Total modified loans
+Added: Other repossessed assets
Other real estate owned
Total Non-performing assets
+Added: Modified Loans:
+Added: Total modified loans
Individually evaluated loans without a valuation allowance
−Removed: Individually evaluated loans with a valuation allowance
Total individually evaluated loans
10 unchanged sentences
Residential mortgage
−Removed: We would have recognized $0.4 million in interest income for the year ended December 31, 2023 had our non-accrual loans been current and performing in accordance with their terms.
−Removed: During 2023, we recognized, on a cash basis, $0.3 million of interest income on non-accrual loans that paid off.
−Removed: Effective January 1, 2023, the Corporation adopted the accounting guidance in ASU 2022-02, which eliminated the recognition and measurement of TDRs.
−Removed: Due to the removal of the TDR designation, the Corporation evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan.
+Added: We would have recognized $0.8 million and $0.4 million in interest income for the years ended December 31, 2024 and 2023, respectively, had our non-accrual loans been current and performing in accordance with their terms.
+Added: During 2024 and 2023, we recognized, on a cash basis, $0.2 million and $0.3 million, respectively, of interest income on non-accrual loans that paid off.
Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the above.
2 unchanged sentences
otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan.
−Removed: For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 19, Fair Value Measurements.
−Removed: There were no loan modifications made to borrowers facing financial difficulties in the year ending December 31, 2023.
+Added: For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 17, Fair Value of Financial Instruments.
+Added: From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty.
+Added: In some cases, these modifications may result in new loans.
+Added: Loan modifications to borrowers may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things.
+Added: The below table shows details of loans modified to borrowers experiencing financial difficulty at December 31, 2024:
+Added: December 31, 2024
+Added: (in thousands)
+Added: Term Extension
+Added: Percentage of Total Loan Type
+Added: Weighted Average Term and Principal Payment Extension
+Added: December 31, 2024
+Added: Owner-occupied commercial real estate
+Added: Commercial and industrial
+Added: All loans presented in the table above were performing in accordance with their modified terms at December 31, 2024
Allowance for Credit Losses
−Removed: Effective January 1, 2023, we adopted Accounting Standards Update (“ASU”) No.
+Added: Effective January 1, 2023, we adopted the accounting guidance in FASB’s Accounting Standards Update (“ASU”) No.
2016-13 , Financial Instruments- Credit Losses (Topic 326):
1 unchanged sentence
In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology of CECL.
−Removed: Refer to Note 5, Loans and Related Allowance for Credit Losses, for further discussion of these portfolio segments.
+Added: Refer to Note 5, Loans and Related Allowance for Credit
+Added: Losses, for further discussion of these portfolio segments.
The adoption of ASU 2016-13 resulted in a Day 1 adjustment of $2.9 million to our ACL, including an increase of $2.0 million to the ACL for loans and $0.9 million to the ACL for unfunded commitments.
5 unchanged sentences
The reasonableness of the ACL is reviewed quarterly by management.
−Removed: 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.
+Added: Management believes that 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.
5 unchanged sentences
Management enhances its calculation with the use of Moody’s economic forecast data to provide additional support to substantiate its ACL.
−Removed: The ACL was $17.5 million at December 31, 2023 compared to an allowance for loan loss (“ALL”) of $14.6 million at December 31, 2022.
−Removed: The provision for credit losses was $1.6 million for the year ended December 31, 2023, compared to a credit to provision of $0.6 million for the year ended December 31, 2022.
−Removed: The provision expense recorded in 2023 was primarily related to strong loan growth and increases in qualitative risk factors related to the uncertainty of the economy, inflation levels, and rising interest rates, which was partially offset by the reduction of historical loss factors related to the strength of our overall portfolio.
+Added: The ACL was $18.2 million at December 31, 2024 compared to $17.5 million at December 31, 2023.
+Added: The provision for credit losses was $2.9 million for the year ended December 31, 2024 compared to $1.7 million for the year ended December 31, 2023.
+Added: The provision expense recorded in 2024 was primarily related to the movement of approximately $12.1 million of commercial and industrial loans to non-accrual in the first quarter of 2024 and loan growth offset in future quarters related to reduction in non-accruals, strong asset quality and improvements in qualitative factors.
Net charge-offs of $2.2 million were recorded for the year ended December 31, 2024 and $0.9 million for the year ended December 31, 2023.
The ratio of the ACL to loans outstanding was 1.23% at December 31, 2024 and 1.24% at December 31, 2023.
−Removed: The ratio of net charge-offs to average loans for the year ended December 31, 2023 was an annualized 0.07%, compared to of 0.06% for the year ended December 31, 2022.
−Removed: The increase in net charge-offs was primarily related to increased charge-offs in our commercial loan portfolio.
+Added: The ratio of net charge-offs to average loans for the year ended December 31, 2024 was an annualized 0.16% compared to 0.07% for the year ended December 31, 2023.
+Added: The increase in net charge-offs was related to our commercial and industrial portfolio charge-offs of equipment loan balances on one non-accrual relationship during 2024.
+Added: The consumer portfolio charge offs also increased during 2024 related to $0.4 million in charge-offs of overdrawn demand deposit balances during the first quarter and $0.1 million in charge offs of student loan accounts.
Our special assets team continues to effectively collect on charged-off loans, resulting in ongoing overall low charge-off ratios.
−Removed: Accruing loans past due 30 days or more increased to 0.24%, compared to 0.16% at December 31, 2022.
+Added: Accruing loans past due 30 days or more was 0.32% at December 31, 2024 compared to 0.24% at December 31, 2023.
Non-accrual loans totaled $4.9 million at December 31, 2024 compared to $4.0 million at December 31, 2023.
−Removed: The increase in non-accrual balances at December 31, 2023 was primarily related to two commercial real estate loans with a combined balance of $0.8 million added to non-accrual in 2023.
−Removed: This was partially offset by reductions in principal balance of existing non-accrual loans.
−Removed: The ACL at December 31, 2023 is adequate to provide for probable losses inherent in our loan portfolio.
−Removed: Amounts that will be recorded for the provision for loan losses in future periods will depend upon trends in the loan balances, including the composition of the loan portfolio, changes in loan quality and loss experience trends, potential recoveries on previously charged-off loans and changes in other qualitative factors.
−Removed: Management also applies interest rate risk, collateral value and debt service sensitivity analyses to the CRE loan portfolio and obtains new appraisals on specific loans under defined parameters to assist in the determination of the periodic provision for credit losses.
−Removed: The following table presents a summary of the activity in the ACL and ALL by major loan category for the past two years.
−Removed: Analysis of Activity in the Allowance for Credit/Loan Losses
+Added: The increase in non-accrual balances at December 31, 2024 related to two commercial and industrial loan relationships totaling $12.1 million that were moved to non-accrual during the first quarter of 2024.
+Added: Subsequent to being moved to non-accrual, one of the borrowers liquidated collateral and reduced the balances by $5.5 million.
+Added: Additionally, a total of $2.8 million in collateral was moved to repossessed assets in the fourth quarter of 2024.
+Added: We recognized $1.3 million in net charge-offs
+Added: and $3.0 million in principal reductions on the other commercial credit during 2024 related to the liquidation of collateral at depressed prices.
+Added: The Bank continues to liquidate collateral on both loan relationships.
+Added: Management believes that the ACL at December 31, 2024 is adequate to provide for losses over the life of the loan portfolio.
+Added: Amounts that will be recorded for the provision for credit losses in future periods will depend upon trends in the loan balances, including the composition of the loan portfolio, changes in loan quality and loss experience trends, potential recoveries on previously charged-off loans and changes in other qualitative factors.
+Added: Management also applies interest rate risk, collateral value and debt service sensitivity analyses to the commercial real estate loan portfolio and obtains new appraisals on specific loans under defined parameters to assist in the determination of the periodic provision for credit losses.
+Added: The following table presents a summary of the activity in the ACL by major loan category for the past two years.
+Added: Analysis of Activity in the Allowance for Credit Losses
For the Years Ended December 31,
3 unchanged sentences
Commercial real estate
−Removed: Acquisition and development
Commercial and industrial
7 unchanged sentences
Net credit losses
−Removed: Provision/credit for credit/loan losses
+Added: Provision for credit losses
Balance at end of period
−Removed: Allowance for credit/loan losses to total loans (as %)
+Added: Allowance for credit losses to total loans (as %)
Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio
7 unchanged sentences
Accordingly, the entire ACL is considered available to absorb losses in any category.
−Removed: Allocation of the Allowance for Credit/Loan Losses
+Added: Allocation of the Allowance for Credit Losses
For the Years Ended December 31,
24 unchanged sentences
Total held to maturity
−Removed: Total AFS and HTM securities totaled $311.5 million at December 31, 2023, representing a $50.1 million decrease compared to December 31, 2022.
−Removed: In the third quarter of 2023, management elected to redeem $17.8 million from a non-rated municipal TIF bond at par.
−Removed: During December of 2023, management made a strategic decision to restructure the balance sheet by selling AFS investment securities totaling $20.4 million with a book value of $24.6 million, resulting in an after-tax loss of $3.2 million.
−Removed: The securities had a weighted average book yield of approximately 1.3% and a weighted average life of approximately 6.65 years.
−Removed: Additional decreases in the investment portfolio were primarily related to normal principal amortization.
−Removed: Proceeds from sales and principal amortization during 2023 were used primarily to enhance on-balance sheet liquidity and to fund loan growth throughout the year.
−Removed: The Corporation reassessed the classification of certain investments and, effective February 1, 2022, the Corporation transferred $139.0 million of callable agencies, obligation of state and political subdivisions, and collateralized mortgage obligations from available for sale to held to maturity securities.
−Removed: The transfer occurred at fair value.
−Removed: The related unrealized loss of $8.4 million included in other comprehensive loss remained in other comprehensive loss, to be amortized out of other comprehensive loss with an offsetting entry to interest income as a yield adjustment over the remaining term of the securities.
−Removed: No gain or loss was recorded at the time of transfer.
−Removed: The transfer of these securities was completed in an effect to mitigate further decline in fair market value value in a rising rate environment.
−Removed: Management’s assessment of the potential included lower yielding bonds and the risk of extension in an up 300 basis point shock.
−Removed: As discussed in Note 19 to the Consolidated Financial Statements presented elsewhere in this report, we measure fair market values based on the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures .
+Added: The total fair value of AFS securities was $94.5 million and the book value of HTM securities totaled $175.6 million at December 31, 2024, representing a decrease of $2.7 million and $38.8 million, respectively, since December 31, 2023.
+Added: In 2024, $37.5 million in U.S.
+Added: Treasury bonds matured and the proceeds were used to repay the $40.0 million FHLB advance that matured in March.
+Added: Additionally, there were $15.0 million in maturities, calls, and principal paydowns in the portfolio.
+Added: New investment purchases in the amount of $11.2 million were made during 2024 to enhance the overall yield of the portfolio.
+Added: Management intends to hold the portfolio relatively stable in 2025 by reinvesting cashflows back into the portfolio to enhance the overall yield of the portfolio.
+Added: The investment portfolio is primarily utilized for liquidity purposes, management of interest sensitivity and collateralization needs.
+Added: As discussed in Note 17 to the Consolidated Financial Statements presented elsewhere in this report, we measure fair market values based on the fair value hierarchy established in FASB’s Accounting Standards Codification 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).
−Removed: 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.
−Removed: supported with little or no market activity).
+Added: 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.
−Removed: Approximately $82.5 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $16.8 million at December 31, 2023.
−Removed: The remaining $14.7 million of the securities available-for-sale represents the entire collateralized debt obligation (“CDO”) portfolio, which was valued using significant unobservable inputs, or Level 3 pricing.
−Removed: The $4.0 million in net unrealized losses associated with the CDO portfolio relates to nine pooled trust preferred securities that comprise the CDO portfolio.
+Added: Approximately $79.8 million of the AFS portfolio was valued using Level 2 pricing and had net unrealized losses of $17.7 million at December 31, 2024.
+Added: The remaining $14.7 million of the AFS securities represents the collateralized debt obligation (“CDO”) portfolio, which was valued using significant unobservable inputs, or Level 3 pricing.
+Added: The $4.0 million in net unrealized losses associated with the CDO portfolio relates to nine pooled trust preferred securities.
The following table sets forth the contractual or estimated maturities of the components of our investment securities portfolio as of December 31, 2024 and the weighted average yields on a tax-equivalent basis.
13 unchanged sentences
Held to Maturity:
−Removed: US treasuries
government agencies
7 unchanged sentences
The weighted average yield was calculated using historical cost balances and does not give effect to changes in fair value.
−Removed: The following table sets forth the deposit balances by major category for 2023 and 2022:
+Added: The following table sets forth the deposit balances by major category for December 31, 2024 and 2023:
Deposit Balances
4 unchanged sentences
Interest-bearing deposits:
+Added: Money market- retail
+Added: Money market- brokered
Savings deposits
2 unchanged sentences
Total Deposits
−Removed: Total deposits at December 31, 2023 decreased by $19.8 million when compared to December 31, 2022.
−Removed: In March 2023, the Corporation obtained $61.1 million in new brokered deposits.
−Removed: In August 2023, the Corporation obtained $30.0 million of brokered deposits to pre-fund the maturity of a $30.4 million brokered certificate of deposit that matured in September 2023.
−Removed: In December 2023, $30.6 million in brokered deposits matured and were repaid.
−Removed: In addition, retail certificates of deposit increased by $45.0 million due primarily to a promotional nine-month certificate of deposit product offered in 2023.
−Removed: Interest-bearing demand deposits increased by $23.2 million and money market accounts increased by $20.5 million due to a shift in the deposit portfolio mix from non-interest-bearing accounts to interest-bearing accounts including the ICS product to ensure full FDIC insurance.
−Removed: These increases were offset by decreases in non-interest-bearing deposits of $78.9 million and savings accounts of $59.5 million due to the shift to interest-bearing demand deposit accounts, two relationships having large, planned 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.
+Added: Total deposits at December 31, 2024 increased by $23.9 million when compared to December 31, 2023.
+Added: Interest-bearing demand deposits increased by $35.9 million in 2024, which included the shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts due to management’s strategy to release pledging of investment securities for municipalities to provide additional liquidity.
+Added: Money market accounts increased by $61.5 million due primarily to the expansion of current and new relationships throughout the year and a shift from certificates of deposit.
+Added: Traditional savings accounts decreased by $20.3 million and time deposits decreased by $52.4 million.
+Added: The decrease in time deposits was due to a decrease of $22.4 million in retail CDs related to maturities of a nine-month special CD promotion in 2023 and the maturity and repayment of $30.0 million in brokered CDs during the year.
+Added: The Bank has worked closely with customers as these retail CDs mature to transition them to other deposit and wealth management products offered by the Bank.
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 December 31, 2024 and December 31, 2023.
−Removed: December 31, 2023
−Removed: December 31, 2022
(in thousands)
3 unchanged sentences
The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of December 31, 2024 and December 31, 2023.
−Removed: December 31, 2023
−Removed: December 31, 2022
(in thousands)
4 unchanged sentences
(in thousands)
+Added: Overnight borrowings at Federal Reserve Discount Window
Securities sold under agreements to repurchase
7 unchanged sentences
(in thousands)
+Added: Overnight borrowings, weighted average interest rate of 4.50% at December 31, 2024
Securities sold under agreements to repurchase:
4 unchanged sentences
Approximate weighted average rate during the year
−Removed: Short-term borrowings decreased by $19.1 million when compared to December 31, 2022.
−Removed: The decrease from December 31, 2022 was primarily related to one large municipal customer moving approximately $12.0 million in funds from an overnight investment sweep prodduct to a non-interest-bearing deposit product as well as regular fluctuations in other municipal customer balances.
−Removed: Long-term boorowings increased by $80.0 million in 2023 due to the acquisition of $80.0 million in FHLB borrowings in the first quarter of 2023.
+Added: Short-term borrowings increased by $20.0 million when compared to December 31, 2023 due to an increase of $50.0 million in overnight borrowings from the Federal Reserve, offset by a shift of approximately $22.0 million in overnight investment sweep balances into FDIC insured accounts due to management’s strategy to release pledging of investment securities for municipalities to provide additional liquidity.
+Added: The overnight borrowings were replaced with brokered certificates of deposit in January 2025.
+Added: Long-term borrowings increased by $10.0 million when compared to December 31, 2023.
+Added: Maturities of FHLB advances of $40.0 million in March and $40.0 million in September were fully repaid.
+Added: During the third quarter and after the Federal Reserve’s announcement that rates would be reduced by 50 basis points, management made the strategic decision to lock in borrowing costs by placing $90.0 million in FHLB advances with maturities of 12- and 18-months and a weighted average rate of 3.89%.
+Added: Of this amount, $41.1 million was utilized to prepay the principal and accrued interest of the BTFP borrowing at a rate of 4.87% that was scheduled to mature in January of 2025 and approximately $30.0 million was utilized to repay overnight borrowings related to the repayment of the September $40.0 million maturity at a rate of 4.53%.
+Added: The remainder was used to fund loan growth in the fourth quarter of 2024.
Management will continue to closely monitor interest rates within the context of its overall asset-liability management process.
See the discussion under the heading “Interest Rate Sensitivity” in this Item 7 for further information on this topic.
−Removed: At December 31, 2023, we had additional borrowing capacity with the FHLB totaling $145.4 million, an additional $140.0 million of unused lines of credit with various financial institutions, and $12.2 million of an unused secured line of credit with the Federal Reserve Discount Window.
−Removed: Additionally, we had $69.5 million available through the Federal Reserve’s BTFP.
−Removed: See Note 10 to the Consolidated Financial Statements presented elsewhere in this annual report for further details about our borrowings and additional borrowing capacity, which is incorporated herein by reference.
+Added: At December 31, 2024, we had additional borrowing capacity with the FHLB totaling $213.6 million, an additional $140.0 million of unused lines of credit with correspondent financial institutions, and $36.6 million of an unused secured line of credit with the Federal Reserve Discount Window.
+Added: See Note 9 to the Consolidated Financial Statements
+Added: presented elsewhere in this annual report for further details about our borrowings and additional borrowing capacity, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
3 unchanged sentences
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.
−Removed: We use the same credit policies in making commitments and conditional obligations
−Removed: as we do for on-balance sheet instruments.
+Added: We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.
We generally require collateral or other security to support the financial instruments with credit risk.
8 unchanged sentences
To the extent that deposits are not adequate to fund our capital requirements, we can rely on the funding sources identified below under the heading “Liquidity Management”.
−Removed: At December 31, 2023, the Bank had $140.0 million available through unsecured lines of credit with correspondent banks, $12.2 million available through a secured line of credit with the Federal Reserve Discount Window and approximately $145.4 million available through the FHLB.
−Removed: Additionally, we had $69.5 million available through the Federal Reserve’s BTFP.
+Added: At December 31, 2024, the Bank had $140.0 million available through unsecured lines of credit with correspondent banks, $36.6 million net available through a secured line of credit with the Federal Reserve Discount Window and approximately $213.6 million net available through the FHLB.
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.
4 unchanged sentences
The total risk-based capital ratios of the Corporation and the Bank at December 31, 2023 were 15.64% and 14.05%, respectively.
−Removed: At December 31, 2023, the most recent notification from the regulators categorizes the Corporation and the Bank as “well capitalized” under the regulatory framework for prompt corrective action.
+Added: At December 31, 2024, the most recent notification from the regulators categorizes the Bank as “well capitalized” under the regulatory framework for prompt corrective action.
See Note 3 to the Consolidated Financial Statements presented elsewhere in this annual report for additional information regarding regulatory capital ratios.
16 unchanged sentences
Cash and various securities may also be pledged as collateral.
−Removed: ● Secured line of credit with the Federal Reserve Discount Window for use in borrowing funds up to 90 days, using municipal and corporate securities as collateral.
+Added: ● Secured line of credit with the Federal Reserve Discount Window for use in borrowing funds up to 90 days, using eligible investment securities as collateral.
● Brokered deposits, including CDs and money market funds, provide a method to generate deposits quickly.
1 unchanged sentence
● One Way Buy CDARS/ICS funding – a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly.
−Removed: ● Secured line of credit with the FRB BTFP for use in borrowing funds up to 365 days using US government agency bonds as collateral.
The following table presents sources of liquidity available to the Corporation as of December 31, 2024.
7 unchanged sentences
Correspondent unsecured lines of credit
−Removed: Bank Term Funding Program*
−Removed: *Bank Term Funding Program has been established and eligible securities with a total par balance of $69.5 million have been pledged to the program as of December 31, 2023.
−Removed: In January 2024, the Company borrowed $40.0 million from the Bank Term Funding Program to enhance on-balance sheet liquidity.
−Removed: 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.
+Added: We have adequate liquidity available to respond to current and anticipated liquidity demands and are 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
2 unchanged sentences
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.
−Removed: Interest rate sensitivity refers to the degree that earnings will
−Removed: be impacted by changes in the prevailing level of interest rates.
+Added: 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.
54 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.