UNIVEST FINANCIAL Corp
For the period ended Dec 31, 2024. Filed Feb 24, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 24, 2025
UVSP$40.47+0.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-26.
0000102212-24-000010
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-24.
0000102212-25-000006
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 150 previous paragraphs and 146 current paragraphs.
101 unchanged; 35 reworded; 7 added; 14 removed; 0 previous and 3 current paragraphs rearranged.
Tables are not compared: 24 previous and 23 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (7)
Current report
Noninterest income for the year ended December 31, 2024 was $88.1 million, an increase of $11.2 million, or 14.6%, compared to 2023.
Current report
Other service fee income increased $2.4 million, or 19.1%, for the year ended December 31, 2024, primarily due to the net gain of $3.4 million generated from the sale of mortgage servicing rights associated with $591.1 million of serviced loans in the first quarter of 2024, partially offset by a $966 thousand decrease in servicing fees associated with these loans. Investment advisory commission and fee income increased $2.3 million, or 12.4%, for the year ended December 31, 2024, primarily due to increased assets under management and supervision driven by new business and market appreciation. Net gain on mortgage banking activities increased $1.6 million, or 42.7%, for the year ended December 31, 2024, primarily due to increased salable volume and favorable margins. Insurance commission and fee income increased $1.3 million, or 6.2%, for the year ended December 31, 2024, primarily due to increases of $1.0 million in premiums for commercial lines and $435 thousand in contingent commission income. Service charges on deposit accounts increased $1.0 million, or 14.7%, for the year ended December 31, 2024, primarily due to an increase of $950 thousand in treasury management fees.
Current report
Other income increased $1.2 million, or 40.0%, for the year ended December 31, 2024. Gains on the sale of Small Business Administration loans increased $1.9 million due to increased sale volume, partially offset by a $605 thousand decrease in interest rate swap income due to decreased demand.
Current report
Noninterest expense for the year ended December 31, 2024 was $198.0 million, an increase of $630 thousand, or 0.3%, compared to 2023.
Current report
Professional fees decreased $739 thousand, or 10.3%, for the year ended December 31, 2024, primarily due to a decrease of $1.0 million of consulting fees due to the costs of implementing our digital initiative in the prior year. Other expense decreased $842 thousand, or 2.9%, primarily driven by decreases in retirement plan costs of $857 thousand. Additionally, the year ended December 31, 2023 included $1.5 million in restructuring charges associated with the Corporation's financial service center optimization and expense management strategies deployed in response to macroeconomic headwinds.
Current report
Total borrowings decreased $79.6 million from December 31, 2023, primarily due to pay-downs of $85.0 million in long-term debt, partially offset by an increase of $4.9 million in customer repurchase agreements. These borrowings were replaced with lower cost deposits during the year.
Current report
The estimated sensitivities are based upon a number of assumptions, including the timing and magnitude of interest rate changes, prepayments on loans receivable and securities, pricing strategies on loans receivable and deposits, and replacement of asset and liability cash flows. While the assumptions used are bank specific and based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
Removed paragraphs (14)
Previous report
During the year ended December 31, 2022, the Corporation recorded $3.8 million in expenses, or $0.10 diluted earnings per share, related to the development of a comprehensive digital platform, which will blend our core operating systems together and allow Univest to seamlessly deliver existing products and services, digitally, across an expanded footprint.
Previous report
Noninterest income for the year ended December 31, 2022 was $77.9 million, a decrease of $5.3 million, or 6.4%, compared to 2021.
Previous report
Net gain on mortgage banking activities decreased $10.7 million, or 70.9%, for the year ended December 31, 2022, primarily due to a decrease in loan sales due to the higher interest rate environment and a contraction of gain on sale margins.
Previous report
Insurance commission and fee income increased $2.7 million, or 16.6%, for the year ended December 31, 2022, primarily due to incremental revenue attributable to the acquisition of the Paul I. Sheaffer insurance agency in the fourth quarter of 2021.
Previous report
Other service fee income increased $2.2 million, or 20.9%, for the year ended December 31, 2022, from the prior year. Servicing fees increased $1.3 million for the year ended December 31, 2022, driven by reduced amortization as a result of a decrease in prepayment speeds due to the higher interest rate environment. Additionally, interchange income increased $381 thousand for the year ended December 31, 2022, due to increased customer activity.
Previous report
Noninterest expense for the year ended December 31, 2022 was $186.8 million, an increase of $19.4 million, or 11.6%, compared to 2021.
Previous report
Salaries, benefits and commissions increased $11.6 million, or 11.1%, for the year ended December 31, 2022. This increase reflects the insurance acquisition in the fourth quarter of 2021, our expansion into Maryland and Western Pennsylvania and annual merit increases.
Previous report
Data processing expense increased $2.5 million, or 19.4%, primarily due to continued investments in technology, general price increases, and $653 thousand in support of our digital transformation initiative, a comprehensive digital platform which will blend our core operating systems together and allow Univest to personalize experiences and seamlessly deliver existing products and services, digitally, across an expanded footprint.
Previous report
Professional fees increased $1.6 million, or 21.4%, for the year ended December 31, 2022, primarily attributable to consulting fees totaling $3.0 million during 2022 in support of our digital transformation initiative. We had a $1.5 million investment in our Diversity, Equity and Inclusion training initiatives for the year ended December 31, 2021.
Previous report
Other expense increased $2.6 million, or 11.3%, primarily driven by increases in travel and entertainment expenses of $907 thousand and $773 thousand of fraud losses.
Previous report
The following table provides additional information on the Corporation's nonaccrual loans held for investment:
Previous report
Total borrowings increased $24.7 million from December 31, 2022 due to increases of $215.0 million in long-term debt, partially offset by decreases of $125.0 million in short-term FHLB overnight borrowings and $60.0 million in federal funds purchased.
Previous report
Other Liabilities
Previous report
Other liabilities increased $7.3 million, or 12.5%, from December 31, 2022, primarily due to increased accrued interest payable on certificates of deposits of $10.2 million. This increase was partially offset by a change in fair value of derivatives of $2.9 million. In May 2022, the Corporation entered into an interest rate swap classified as a cash flow hedge. At December 31, 2023 and 2022, the notional amount of the interest rate swap was $250.0 million and the fair value was a liability of $5.8 million and $8.6 million, respectively.
Reworded paragraphs (35)
Previous wording
Management, in order to prepare the Corporation's financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation's financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies could materially affect the results of operations and financial condition of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale and the calculation of the allowance for credit losses on loans and leases as critical accounting policies.
Current wording
In order to prepare the Corporation's financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the amounts reported in the Corporation's financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies could materially affect the results of operations and financial condition of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale and the calculation of the allowance for credit losses on loans and leases as critical accounting policies.
Previous wording
The Corporation reported net income of $78.1 million, or $2.64 diluted earnings per share, for 2022 compared to net income of $91.8 million, or $3.11 diluted earnings per share, for 2021.
Current wording
The Corporation reported net income of $75.9 million, or $2.58 diluted earnings per share, for 2024 compared to net income of $71.1 million, or $2.41 diluted earnings per share, for 2023.
Previous wording
The financial results for the year ended December 31, 2022 included bank owned life insurance ("BOLI") death benefit claims of $977 thousand, or $0.03 diluted earnings per share.
Current wording
The financial results for the year ended December 31, 2024 included a $3.4 million net gain ($2.7 million after-tax), or $0.09 diluted earnings per share, generated from the sale of mortgage servicing rights associated with $591.1 million of serviced loans. Additionally, the financial results for the year ended December 31, 2024 included bank owned life insurance ("BOLI") death benefit claims of $241 thousand, or $0.01 diluted earnings per share.
Previous wording
Reported net interest income for the year ended December 31, 2022 was $218.3 million, an increase of $29.9 million, or 15.9%, from the prior year. Net interest income, on a tax-equivalent basis, for the year ended December 31, 2022 was $220.2 million, an increase of $29.7 million, or 15.6%, from the prior year. The increase in tax-equivalent net interest income was due to an increase in interest income of $42.2 million, primarily driven by increases in asset yields, including loans and investments, due to the rising interest rate environment, coupled with significant loan growth in commercial, commercial real estate and construction loans, offset by a decrease in PPP loan income of $14.2 million. These increases were offset by an increase of $12.5 million in the cost of interest-bearing deposits, due to the rising interest rate environment. The net interest margin on a tax-equivalent basis for the year ended December 31, 2022 was 3.38% compared to 3.06% for 2021. The net interest margin increase was attributable to loan growth, the rapid increase in interest rates and the asset sensitivity of the Corporation's balance sheet, offset by an increase in cost of funds.
Current wording
Reported net interest income for the year ended December 31, 2024 was $211.2 million, a decrease of $8.8 million, or 4.0%, from the prior year. Net interest income, on a tax-equivalent basis, for the year ended December 31, 2024 was $212.3 million, a decrease of $8.9 million, or 4.0%, from the prior year. An increase in interest income of $40.6 million, driven by increases in asset yields, including loan and investment yields, and increases in the average balance of average interest-earning assets was outpaced by an increase in interest expense of $49.5 million, which was largely driven by an increase in the cost of, and the average balances of, interest-bearing deposits. The net interest margin on a tax-equivalent basis for the year ended
Previous wording
*Obligations of states and political subdivisions and municipal loans and leases are tax-exempt earning assets.
Current wording
*Obligations of states and political subdivisions are tax-exempt earning assets.
Previous wording
Net interest income includes net deferred (costs)/fees (amortization)/accretion of $(2.1) million, $(1.8) million and $8.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Current wording
Net interest income includes net deferred costs amortization of $2.7 million, $2.1 million and $1.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Previous wording
The provision for credit losses for the years ended December 31, 2023 and 2022 was $10.8 million and $12.2 million, respectively. During 2021, there was a reversal of provision for credit losses of $10.1 million. Net loan and lease charge-offs for the years ended December 31, 2023, 2022, and 2021 were $5.4 million, $3.9 million and $213 thousand, respectively. The increase in charge-offs in 2023 was due to $2.4 million in charge-offs related to two nonaccrual commercial loans to one borrower. The following table details information pertaining to the Corporation's allowance for credit losses on loans and leases as a percentage of loans and leases held for investment at the dates indicated.
Current wording
The provision for credit losses for the years ended December 31, 2024, 2023 and 2022 was $5.9 million, $10.8 million and $12.2 million, respectively. Net loan and lease charge-offs for the years ended December 31, 2024, 2023, and 2022 were $3.8 million, $5.4 million and $3.9 million, respectively. The year ended December 31, 2023 included $2.4 million in charge-offs related to two nonaccrual commercial loans to one borrower. The following table details information pertaining to the Corporation's allowance for credit losses on loans and leases as a percentage of loans and leases held for investment at the dates indicated.
Previous wording
Insurance commission and fee income increased $2.0 million, or 10.4%, for the year ended December 31, 2023, primarily due to increases of $1.4 million in premiums for group life and health and commercial lines and $595 thousand in contingent commission income. Service charge on deposits accounts increased $873 thousand, or 14.1%, for the year ended December 31, 2023, primarily due to an increase of $962 thousand in treasury management fees.
Current wording
Insurance commission and fee income increased $2.0 million, or 10.4%, for the year ended December 31, 2023, primarily due to increases of $1.4 million in premiums for group life and health and commercial lines and $595 thousand in contingent commission income. Service charges on deposits accounts increased $873 thousand, or 14.1%, for the year ended December 31, 2023, primarily due to an increase of $962 thousand in treasury management fees.
Previous wording
The provision for income taxes was $17.6 million, $19.1 million and $22.5 million for the years ended December 31, 2023, 2022 and 2021, respectively, at effective rates of 19.8%, 19.6% and 19.7%, respectively. The effective tax rates reflected the benefits of tax-exempt income from investments in municipal securities and loans and leases. Excluding this impact, the effective tax rate was 21.7% for the year ended December 31, 2023 and 21.3% for the years ended December 31, 2022 and 2021.
Current wording
The provision for income taxes was $19.4 million, $17.6 million and $19.1 million for the years ended December 31, 2024, 2023 and 2022, respectively, at effective rates of 20.3%, 19.8% and 19.6%, respectively. The effective tax rates reflected the benefits of tax-exempt income from investments in municipal securities and loans and leases. Excluding this impact, the effective tax rates were 22.1%, 21.7% and 21.3% for the years ended December 31, 2024, 2023 and 2022. The increase in the effective tax rate for 2024 compared to 2023 was primarily due to increases in state tax rates and the impact of stock-based compensation during the year.
Previous wording
Cash and interest-earning deposits increased $97.0 million, or 63.5%, from December 31, 2022, primarily due to increased interest earning deposits at the Federal Reserve Bank of $112.4 million due to increases in deposits and borrowings outpacing loan fundings.
Current wording
Cash and interest-earning deposits increased $79.0 million, or 31.6%, from December 31, 2023, primarily due to increased interest-earning deposits at the Federal Reserve Bank of $82.5 million due to increases in deposits outpacing loan growth, partially offset by the repayment of long-term debt.
Previous wording
Total investment securities at December 31, 2023 decreased $6.9 million, or 1.4%, from December 31, 2022. Maturities and pay-downs of $45.0 million, sales of $1.2 million, net amortization of purchased premiums and discounts of $1.2 million and calls of $500 thousand were partially offset by purchases of $33.3 million, which were primarily residential mortgage-backed securities, increases in the fair value of available-for-sale investment securities of $7.3 million, and a reversal of provision for credit losses of $409 thousand.
Current wording
Total investment securities at December 31, 2024 decreased $6.6 million, or 1.3%, from December 31, 2023. Maturities and pay-downs of $69.8 million, sales of $5.4 million net amortization of purchased premiums and discounts of $1.1 million, decreases in the fair value of available-for-sale investment securities of $1.0 million and a provision for credit losses of $108 thousand were partially offset by purchases of $70.7 million, which were primarily residential mortgage-backed securities.
Previous wording
Gross loans and leases held for investment at December 31, 2023 increased $444.0 million, or 7.3%, from December 31, 2022. The growth in gross loans and leases held for investment was primarily due to increases in commercial real estate, residential mortgage loans and lease financings.
Current wording
Gross loans and leases held for investment at December 31, 2024 increased $259.4 million, or 3.9%, from December 31, 2023. The growth in gross loans and leases held for investment was primarily due to increases in commercial, commercial real estate and residential mortgage loans, partially offset by a decrease in construction loans.
Previous wording
At December 31, 2023, nonaccrual loans and leases were $20.5 million and had a related allowance for credit losses on loans and leases of $1.8 million. At December 31, 2022, nonaccrual loans and leases were $13.4 million and had a related allowance for credit losses on loans and leases of $2.8 million. During the fourth quarter of 2023, a $6.1 million construction loan relationship was placed on nonaccrual status with an individual reserve of $1.1 million. Individual reserves have been established based on current facts and management's judgments about the ultimate outcome of these credits, including the most recent known data available on any related underlying collateral and the borrower's cash flows. The amount of the individual reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits.
Current wording
At December 31, 2024, nonaccrual loans and leases were $12.7 million and had a related allowance for credit losses on loans and leases of $1.9 million. At December 31, 2023, nonaccrual loans and leases were $20.5 million and had a related allowance for credit losses on loans and leases of $1.8 million. During the year, two nonaccrual modified construction loans to one borrower totaling $6.1 million were paid-off. At December 31, 2023, these loans had an individual reserve of $1.1 million. Individual reserves have been established based on current facts and management's judgments about the ultimate outcome of these credits, including the most recent known data available on any related underlying collateral and the borrower's cash flows. The amount of the individual reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits.
Previous wording
Net loan and lease charge-offs for the year ended December 31, 2023 were $5.4 million compared to net loan and lease charge-offs of $3.9 million for the year ended December 31, 2022. The increase in charge-offs for the year ended December 31, 2023 was primarily due to $2.4 million charge-offs recorded against two existing nonaccrual commercial loans to one borrower in the first quarter of 2023. As of December 31, 2022, the allowance for credit losses included a $2.1 million individual reserve for this relationship.
Current wording
Net loan and lease charge-offs for the year ended December 31, 2024 were $3.8 million compared to net loan and lease charge-offs of $5.4 million for the year ended December 31, 2023. Net charge-offs for the year ended December 31, 2023 included $2.4 million of charge-offs recorded against two nonaccrual commercial loans to one borrower.
Previous wording
Other real estate owned was $19.0 million at December 31, 2023, compared to $19.3 million at December 31, 2022.
Current wording
Other real estate owned was $20.1 million at December 31, 2024, compared to $19.0 million at December 31, 2023. During the year ended December 31, 2024, one residential real estate property with a carrying value of $156 thousand and one commercial real estate property with a carrying value of $252 thousand were transferred to OREO. Additionally, during the year ended December 31, 2024, $824 thousand in capitalized costs were recorded related to an existing property. Repossessed assets were $76 thousand at December 31, 2024. During the year ended December 31, 2024, repossessed assets totaling $68 thousand were sold. The Corporation had no repossessed assets at December 31, 2023.
Previous wording
Table 6—Nonaccrual and Past Due Loans and Leases; Other Real Estate Owned; and Related Ratios
Current wording
Table 6—Nonaccrual and Past Due Loans and Leases; Other Real Estate Owned; Repossessed Assets; and Related Ratios
Previous wording
At December 31, 2023, the allowance for credit losses on individually analyzed loans was $1.8 million, or 8.6% of the balance of individually analyzed loans of $20.7 million. At December 31, 2022, the allowance for credit losses on individually analyzed loans was $2.8 million, or 20.7% of the balance of individually analyzed loans of $13.4 million.
Current wording
At December 31, 2024, the allowance for credit losses on individually analyzed loans was $1.9 million, or 16.1% of the balance of individually analyzed loans of $12.1 million. At December 31, 2023, the allowance for credit losses on individually analyzed loans was $1.8 million, or 8.6% of the balance of individually analyzed loans of $20.7 million.
Previous wording
The Bank currently purchases bank owned life insurance to protect itself against the loss of key employees due to death and to offset or finance the Corporation's future costs and obligations to employees under its benefits plans. Bank owned life insurance increased $11.0 million, or 9.2%, from December 31, 2023, primarily due to $7.9 million of policies purchased during the first quarter of 2023.
Current wording
The Bank purchases bank owned life insurance to protect itself against the loss of key employees due to death and to offset or finance the Corporation's future costs and obligations to employees under its benefits plans. Bank owned life insurance increased $8.0 million, or 6.1%, from December 31, 2023, primarily due to $5.7 million of policies purchased during the first quarter of 2024.
Previous wording
Total deposits increased $462.3 million, or 7.8%, from December 31, 2022, primarily due to increases in public fund and brokered deposits, partially offset by decreases in commercial and consumer deposits. At December 31, 2023, noninterest bearing deposits represented 23.0% of total deposits, down from 34.6% at December 31, 2022. At December 31, 2023, unprotected deposits, which excludes insured, internal, and collateralized deposit accounts, represented 23.3% of total deposits, down from 31.0% at December 31, 2022.
Current wording
Total deposits increased $383.5 million, or 6.0%, from December 31, 2023, primarily due to increases in consumer, commercial, brokered and public funds deposits. At December 31, 2024, noninterest-bearing deposits totaled $1.4 billion and represented 20.9% of total deposits, compared to $1.5 billion representing 23.0% at December 31, 2023. Unprotected deposits, which excludes insured, internal, and collateralized deposit accounts, totaled $1.5 billion at December 31, 2024 and 2023. This represented 22.0% of total deposits at December 31, 2024, down from 23.3% at December 31, 2023.
Previous wording
At December 31, 2023 and 2022, the Corporation had $3.0 billion and $3.3 billion, respectively, in uninsured deposits in excess of the FDIC insurance limit of $250,000. At December 31, 2023 and 2022, the Corporation had $187.0 million and $95.0 million, respectively, in time deposits in excess of $250,000 maturing disclosed in the table below. Brokered deposits in the amount of $305.4 million and $35.3 million at December 31, 2023 and December 31, 2022, respectively, are not included in time deposits more than $250,000.
Current wording
At December 31, 2024 and 2023, the Corporation had $3.2 billion and $3.0 billion, respectively, in uninsured deposits in excess of the FDIC insurance limit of $250,000. At December 31, 2024 and 2023, the Corporation had $276.0 million and $187.0 million, respectively, in time deposits in excess of $250,000 maturing disclosed in the table below. Brokered deposits in the amount of $360.0 million and $305.4 million at December 31, 2024 and December 31, 2023, respectively, are not included in time deposits more than $250,000.
Previous wording
Short-term borrowings at December 31, 2023 included $6.3 million of customer repurchase agreements. Long-term debt at December 31, 2023 included $310.0 million of FHLB advances and $148.8 million of subordinated notes. At December 31, 2023 and 2022, the Bank had outstanding short-term letters of credit with the FHLB totaling $1.1 billion and $690.5 million, respectively, which were utilized to collateralize public fund deposits and other secured deposits.
Current wording
Short-term borrowings at December 31, 2024 consisted of $11.2 million of customer repurchase agreements. Long-term debt at December 31, 2024 consisted of $225.0 million of FHLB advances and $149.3 million of subordinated notes. At December 31, 2024 and 2023, the Bank had outstanding short-term letters of credit with the FHLB totaling $1.3 billion and $1.1 billion, respectively, which were utilized to collateralize public fund deposits and other secured deposits.
Previous wording
The increase in shareholders' equity at December 31, 2023 of $62.7 million from December 31, 2022 was primarily related to an increase in retained earnings of $46.1 million. Retained earnings was impacted by net income of $71.1 million, partially offset by $24.7 million of cash dividends paid during the year. Accumulated other comprehensive loss decreased by $11.5 million, primarily attributable to increases in the fair value of available-for-sale investment securities of $5.7 million, net of tax, and a increase in the fair value of derivatives of $2.3 million, net of tax. Treasury stock decreased by $4.9 million, primarily related to $5.4 million of stock issued under the dividend reinvestment and employee stock purchase plans and stock-based incentive plan activity, partially offset by repurchases of $462 thousand under the Corporation's share repurchase program.
Current wording
The increase in shareholders' equity at December 31, 2024 of $48.1 million from December 31, 2023 was primarily related to an increase in retained earnings of $51.1 million. Retained earnings was impacted by net income of $75.9 million, partially offset by $24.6 million in cash dividends paid during the year. Accumulated other comprehensive loss decreased by $6.7 million, which was primarily attributable to an increase in unrecognized actuarial losses related to the Corporation's pension plan of $6.7 million, net of tax. Treasury stock increased by $11.4 million, related to purchases of 802,535 shares on the open market under the stock repurchase plan and buybacks of 1,158 shares related to stock-based incentive plans, at a cost of $18.9 million, offset by $7.5 million of stock issued under the dividend reinvestment plan, employee stock purchase plan, and stock-based incentive plan activity.
Previous wording
The Banking segment reported pre-tax income of $89.1 million in 2023, $92.2 million in 2022 and $112.2 million in 2021. See the section of this Management's Discussion and Analysis under the heading "Results of Operations" and "Financial Condition" for a discussion of the key items impacting the Banking Segment.
Current wording
The Banking segment reported pre-tax income of $96.1 million in 2024, $90.3 million in 2023 and $93.5 million in 2022. See the section of this Management's Discussion and Analysis under the heading "Results of Operations" and "Financial Condition" for a discussion of the key items impacting the Banking Segment.
Previous wording
The Wealth Management segment reported pre-tax income of $6.2 million in 2023, $9.2 million in 2022 and $9.3 million in 2021. The pre-tax income decrease from 2022 was due to a $1.2 million adjustment recorded in 2022 for previously unrecorded revenue, an increase in employee salary expense as we continue to invest in revenue producing positions, and increases in data processing expense and consulting fees. Pre-tax income was relatively flat in 2022 as compared to 2021. Wealth Management assets under management and supervision were $4.7 billion as of December 31, 2023, $4.2 billion as of December 31, 2022 and $4.9 billion as of December 31, 2021.
Current wording
The Wealth Management segment reported pre-tax income of $6.1 million in 2024, $5.0 million in 2023 and $7.9 million in 2022. The pre-tax income increase from 2023 was primarily due to new customer relationships and appreciation of assets under management and supervision. The pre-tax income decrease in 2023 as compared to 2022 was primarily due to an increase in employee salary expense as we continued to invest in revenue producing positions, and increases in data processing expense and consulting fees. Wealth Management assets under management and supervision were $5.2 billion as of December 31, 2024, $4.7 billion as of December 31, 2023 and $4.2 billion as of December 31, 2022.
Previous wording
The Insurance segment reported pre-tax income of $5.1 million in 2023, $3.3 million in 2022 and $3.4 million in 2021, which included noninterest income of $21.5 million in 2023, $19.9 million in 2022 and $17.0 million in 2021. The increase in noninterest income in 2023 compared to 2022 was primarily due to increases in revenue from commercial lines of $1.0 million and contingent commission income of $600 thousand. The increase in noninterest income in 2022 compared to 2021 was driven by incremental revenue attributable to the insurance agency the Corporation acquired in the fourth quarter of 2021. The decrease in pre-tax income in 2022 compared to 2021 was primarily due to increases in salary expense as we continue to invest in revenue producing positions and increases in intangible expense amortization related to the previously referenced insurance agency acquisition.
Current wording
The Insurance segment reported pre-tax income of $5.7 million in 2024, $5.1 million in 2023 and $3.3 million in 2022, which included noninterest income of $22.5 million in 2024, $21.5 million in 2023 and $19.9 million in 2022. The increase in noninterest income in 2024 compared to 2023 was primarily due to increases in revenue from commercial lines of $1.0 million. The increase in noninterest income in 2023 compared to 2022 was primarily due to increases in revenue from commercial lines of $1.0 million and contingent commission income of $600 thousand.
Previous wording
At December 31, 2023, the Corporation had a Tier 1 risk-based capital ratio of 10.58% and total risk-based capital ratio of 13.90%. At December 31, 2022, the Corporation had a Tier 1 capital ratio of 10.37% and total risk-based capital ratio of 13.67%. The Corporation continues to be in the "well-capitalized" category under regulatory standards. Details on the capital ratios can be found in Note 21, "Regulatory Matters," included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K along with a discussion on dividend and other restrictions.
Current wording
At December 31, 2024, the Corporation had a Tier 1 risk-based capital ratio of 10.85% and total risk-based capital ratio of 14.19%. At December 31, 2023, the Corporation had a Tier 1 capital ratio of 10.58% and total risk-based capital ratio of 13.90%. The Corporation continues to be in the "well-capitalized" category under regulatory standards. Details on the capital ratios can be found in Note 21, "Regulatory Matters," included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K along with a discussion on dividend and other restrictions.
Previous wording
The primary functions of Asset/Liability Management are to minimize interest rate risk and to ensure adequate earnings, capital and liquidity while maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities. Management's objective with regard to interest rate risk is to understand the Corporation's sensitivity to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest income.
Current wording
The primary functions of Asset/Liability Management are to minimize interest rate risk and to ensure adequate earnings, capital and liquidity while maintaining an appropriate balance between the maturity and rate sensitivity of interest-earning assets and interest-bearing liabilities. Management's objective with regard to interest rate risk is to understand the Corporation's sensitivity to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest income.
Previous wording
The Corporation uses gap analysis and earnings at risk simulation modeling to quantify exposure to interest rate risk. The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a risk simulation model to measure short-term rate exposure. The Corporation runs various earnings simulation scenarios to quantify the impact of declining or rising interest rates on net interest income over a one-year and two-year horizon. The simulations use expected cash flows and repricing characteristics for all financial instruments at a point in time and incorporates company-developed, market-based assumptions regarding growth, pricing, and optionality such as prepayment speeds. As interest rates increase, fixed-rate assets tend to decrease in value; conversely, as interest rates decline, fixed-rate assets tend to increase in value.
Current wording
The Corporation uses gap analysis and earnings at risk simulation modeling to quantify exposure to interest rate risk. The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a risk simulation model to measure short-term rate exposure. The Corporation runs various earnings simulation scenarios to quantify the impact of declining or rising interest rates on net interest income over a one-year and two-year horizon. The simulations use expected cash flows and repricing characteristics for all financial instruments at a point in time and incorporate company-developed, market-based assumptions regarding growth, pricing, and optionality such as prepayment speeds. As interest rates increase, fixed-rate assets tend to decrease in value; conversely, as interest rates decline, fixed-rate assets tend to increase in value.
Previous wording
The table above indicates that the Corporation should anticipate a greater amount of liabilities repricing than assets in the next twelve months. However, this table and analysis is limited as it does not take into account the magnitude of repricing due to rate changes.
Current wording
The table above indicates that the Corporation holds a greater amount of liabilities that have the opportunity to reprice over assets in the next twelve months. This table is limited as it does not take into consideration the magnitude of the repricing change in relation to interest rate changes. Further, the estimated sensitivities are based upon a number of assumptions, including the timing and magnitude of interest rate changes, prepayments on loans receivable and securities, pricing strategies on loans receivable and deposits, and replacement of asset and liability cash flows. While the assumptions used are bank specific and based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
Previous wording
The changes to net interest income are shown in the below table at December 31, 2023. The results suggest the Corporation's year-end balance sheet is liability sensitive due to the current levels of deposit customer sensitivity and funding costs. Actual results will likely be different than modeled due to numerous factors, including interest rates earned on new loans and investments as well as rates paid on new and existing deposits and new borrowings. The changes to net interest income shown below are in compliance with the Corporation's policy guidelines.
Current wording
The changes to net interest income are shown in the below table at December 31, 2024. The results suggest the Corporation's year-end balance sheet is asset sensitive as net interest income is projected to increase in a rising rate environment. Actual results will likely be different than modeled due to numerous factors, including interest rates earned on new loans and investments as well as rates paid on new and existing deposits and new borrowings. The changes to net interest income shown below are in compliance with the Corporation's policy guidelines.
Previous wording
The Corporation focuses on both assessing the borrower's capacity and willingness to repay and obtaining sufficient collateral. Commercial, financial and agricultural loans are generally secured by the borrower's assets and by personal guarantees. Commercial real estate, construction and residential real estate secured for business purposes loans are originated primarily within the Pennsylvania, Maryland, Delaware and New Jersey market areas at prudent loan-to-value ratios and are often supported by guaranties. Management closely monitors the composition and quality of the total commercial loan portfolio to ensure that any credit concentrations by borrower or industry are identified and managed. See "Risk Factors" included herein under Item 1A for additional information on lending risk related to commercial loans.
Current wording
The Corporation focuses on both assessing the borrower's capacity and willingness to repay and obtaining sufficient collateral. Commercial, financial and agricultural loans are generally secured by the borrower's assets and by personal guarantees. Commercial real estate, construction and residential real estate secured for business purposes loans are originated primarily within the Pennsylvania, Maryland, Delaware and New Jersey market areas at prudent loan-to-value ratios and are often additionally supported by guaranties. Management closely monitors the composition and quality of the total commercial loan portfolio to ensure that any credit concentrations by borrower or industry are identified and managed. See "Risk Factors" included herein under Item 1A for additional information on lending risk related to commercial loans.
Previous wording
The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review, and monitoring procedures in place to mitigate these risks. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk primarily by using $1.00 buyout leases and equipment finance agreements, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term for the majority of the lease portfolio.
Current wording
Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk primarily by using $1.00 buyout leases and equipment finance agreements, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term for the majority of the lease portfolio.
Previous wording
The Corporation and its subsidiaries maintain ample ability to meet the liquidity needs of its customers. Our most liquid asset, unencumbered cash and cash equivalents, were $241.5 million at December 31, 2023. Unencumbered securities classified as available-for-sale, which provide additional sources of liquidity, totaled $23.3 million at December 31, 2023. Further, the Corporation and its subsidiaries had committed borrowing capacity from the Federal Home Loan Bank and Federal Reserve Bank of $3.4 billion at December 31, 2023, of which $1.9 billion was available. The Corporation and its subsidiaries also maintained unused uncommitted funding sources from correspondent banks of $369.0 million at December 31, 2023. Future availability under these uncommitted funding sources is subject to the prerogatives of the granting banks and may be withdrawn at will.
Current wording
The Corporation and its subsidiaries maintain ample ability to meet the liquidity needs of its customers. Our most liquid asset, unencumbered cash and cash equivalents, were $327.8 million and $241.5 million at December 31, 2024 and December 31, 2023, respectively. Unencumbered securities classified as available-for-sale, which provide additional sources of liquidity, totaled $55.4 million and $23.3 million at December 31, 2024 and December 31, 2023, respectively. Further, the Corporation and its subsidiaries had committed borrowing capacity from the Federal Home Loan Bank and Federal Reserve Bank of $3.7 billion and $3.4 billion at December 31, 2024 and December 31, 2023, respectively, of which $2.1 billion and $1.9 billion was available as of December 31, 2024 and December 31, 2023, respectively. The Corporation and its subsidiaries also maintained uncommitted funding sources from correspondent banks of $468.0 million at December 31, 2024 and $369.0 million at December 31, 2023. Future availability under these uncommitted funding sources is subject to the prerogatives of the granting banks and may be withdrawn at will.
Previous wording
Core deposits continue to be the largest significant funding source for the Corporation. These deposits are primarily generated from individuals, businesses, municipalities and non-profit customers located in our primary service areas. The Corporation faces increased competition for these deposits from a large array of financial market participants, including banks, credit unions, savings institutions, mutual funds, security dealers and others.
Current wording
Core deposits continue to be the largest significant funding source for the Corporation. These deposits are primarily generated from individuals, businesses, public funds and non-profit customers located in our primary service areas. The Corporation faces increased competition for these deposits from a large array of financial market participants, including banks, credit unions, savings institutions, mutual funds, security dealers and others.
Previous wording
As part of its diversified funding strategy, the Corporation also utilizes a mix of short-term and long-term wholesale funding providers. Wholesale funding includes federal funds purchases from correspondent banks, secured borrowing lines from the Federal Home Loan Bank of Pittsburgh, the Federal Reserve Bank of Philadelphia and brokered deposits and other similar sources.
Current wording
As part of its diversified funding strategy, the Corporation also utilizes a mix of short-term and long-term wholesale funding providers. Wholesale funding includes federal funds purchases from correspondent banks, secured borrowing lines from the Federal Home Loan Bank of Pittsburgh and the Federal Reserve Bank of Philadelphia, and brokered deposits and other similar sources.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
December 31, 2024 was 2.86% compared to 3.12% for 2023. The net interest margin decrease was attributable to the increase in interest rates and the liability sensitivity of the Corporation's balance sheet.
Current report — wording carried from elsewhere
Salaries, benefits and commissions increased $3.6 million, or 3.0%, for the year ended December 31, 2024, primarily due to an increase in incentive compensation due to increased profitability in the current year.
Current report — wording carried from elsewhere
The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review, and monitoring procedures in place to mitigate these risks.