First Bancorp Inc ME

Previous wording

The Company was incorporated in the State of Maine on January 15, 1985, and is the parent holding company of Bank. On January 28, 2016, the Board of Directors voted to change the Bank's name to First National Bank from The First, N.A.

Current wording

The Company was incorporated in the State of Maine on January 15, 1985, and is the parent holding company of the Bank. On January 28, 2016, the Board of Directors voted to change the Bank's name to First National Bank from The First, N.A.

Previous wording

The abbreviations and descriptions identified below are used throughout Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Financial Statement and Supplementary Data. The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-K.

Current wording

The abbreviations and descriptions identified below are used throughout Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation and Item 8 - Financial Statement and Supplementary Data. The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-K.

Previous wording

The Company's significant accounting policies are described in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements contained in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used be incorrect or change over time due to changes in circumstances. Management considers the ACL, fair value of securities, credit loss recognition on securities, goodwill, mortgage servicing rights, and derivative instruments designated as hedges to be Critical Accounting Estimates.

Current wording

The Company's significant accounting policies are described in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements contained in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used be incorrect or change over time due to changes in circumstances.

Previous wording

Allowance for Credit Losses. Management believes the ACL requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements. The ACL is based on Management's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio, off-balance sheet commitments, and investment portfolio. The ACL increased materially in 2023 after adoption of ASC 326; for further detail refer to Note 25, "New Accounting Pronouncements" to the consolidated financial statements contained in Item 8 of the Form 10-K.

Current wording

Allowance for Credit Losses. Management believes the ACL requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements. The ACL is based on Management's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio, off-balance sheet commitments, and investment portfolio.

Previous wording

Management regularly evaluates the allowance, typically monthly, to determine the appropriate level by taking into consideration factors such as the size and growth trajectory of the portfolio, quality trends as measured by key indicators, prior loan loss experience in major portfolio segments, local and national business and economic conditions, the results of any stress testing undertaken during the period, and Management's estimation of potential losses. Period-to-period changes to any or all of these of these factors could change the level of ACL required, in turn impacting our level of provision expense and ultimately our net income. Similarly, the use of different estimates or assumptions could produce different provisions for credit losses which would likely result in changes to the Company's net income. Further discussion of the ACL may be found in Note 3, "Investment Securities", Note 5, "Loans", and Note 6, "Allowance for Credit Losses", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Current wording

Management regularly evaluates the allowance, typically monthly, to determine the appropriate level by taking into consideration factors such as the size and growth trajectory of the portfolio, quality trends as measured by key indicators, prior loan loss experience in major portfolio segments, local and national business conditions, economic forecasts, the results of any stress testing undertaken during the period, and Management's estimation of potential losses. Period-to-period changes to any or all of these of these factors could change the level of ACL required, in turn impacting our level of provision expense and ultimately our net income. Similarly, the use of different estimates or assumptions could produce different provisions for credit losses which would likely result in changes to the Company's net income. In the12 months ended December 31, 2024, the ACL-Loans increased by $841,000, the ACL-Off-Balance Commitments decreased by $541,000 and the ACL-HTM Securities decreased by $238,000. Further discussion of the ACL may be found in Note 3, "Investment Securities", Note 5, "Loans" and Note 6, "Allowance for Credit Losses", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Previous wording

Fair Value of Securities. Determining a market price for securities carried at fair value is a critical accounting estimate in the Company's financial statements. Pricing of individual securities is subject to a number of factors including changes in market interest rates, changes in prepayment speeds and assumptions, changes in market tolerance for risk, and any changes in the risk profile of the security. The Company subscribes to a widely recognized, independent pricing service and updates carrying values no less frequently than monthly. It also validates the values provided by the pricing service no less frequently than quarterly by measuring against security prices provided by a secondary source. Results of the validation are reported to the ALCO each quarter and any variances between the two sources above defined thresholds are investigated by management. A finding that the Company's methodology for valuation of its investment securities is materially incorrect could result in changes to the carrying value of securities on its balance sheet and corresponding changes in shareholders equity position. As of December 31, 2023 the fair value of AFS securities decreased by $2.5 million and the fair value of HTM securities decreased by $441,000 from that of December 31, 2022. These decreases are due primarily to incoming cash flow from these investments being re-deployed to other segments of the balance sheet. Further discussion of the fair value of securities may be found in Note 3, "Investment Securities", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Current wording

The First Bancorp - 2024 Form 10-K - Page 23 carrying values no less frequently than monthly. It also validates the values provided by the pricing service no less frequently than quarterly by measuring against security prices provided by a secondary source. Results of the validation are reported to the ALCO each quarter and any variances between the two sources above defined thresholds are investigated by management. A finding that the Company's methodology for valuation of its investment securities is materially incorrect could result in changes to the carrying value of securities on its balance sheet and corresponding changes in shareholders equity position. As of December 31, 2024 the fair value of AFS securities decreased by $7.4 million and the fair value of HTM securities decreased by $23.6 million from that of December 31, 2023. These changes are due to a combination of rate-driven market price adjustments for the underlying securities and reinvestment of incoming cash flow to other segments of the balance sheet. Further discussion of the fair value of securities may be found in Note 3, "Investment Securities", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Previous wording

qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized as a charge to the ACL. The risks and uncertainties include changes in general economic conditions, the issuer's financial condition and/or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses. Securities that are in an unrealized loss position are reviewed at least quarterly to determine if recognition of a loss is required. The primary factors considered in this evaluation (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities' market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity and (f) any other information and observable data considered relevant, including the expectation of receipt of all principal and interest when due. The Bank invests only in investment grade securities and no credit losses have been recognized on securities currently held. Further discussion of credit loss recognition on securities may be found in Note 3, "Investment Securities", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Current wording

qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized as a charge to the allowance for credit losses. The risks and uncertainties include changes in general economic conditions, the issuer's financial condition and/or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses. Securities that are in an unrealized loss position are reviewed at least quarterly to determine if recognition of a loss is required. The primary factors considered in this evaluation (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities' market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity and (f) any other information and observable data considered relevant, including the expectation of receipt of all principal and interest when due. The Bank invests only in investment grade securities and no credit losses have been recognized on securities currently held. Further discussion of credit loss recognition on securities may be found in Note 3, "Investment Securities", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Previous wording

Mortgage Servicing Rights. The valuation of mortgage servicing rights is a critical accounting policy which requires significant estimates and assumptions. The Bank often sells mortgage loans it originates and retains the ongoing servicing of such loans, receiving a fee for these services, generally 0.25% of the outstanding balance of the loan per annum. Mortgage servicing rights are recognized at fair value when they are acquired through the sale of loans, and are reported in other assets. They are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. The rights are subsequently carried at the lower of amortized cost or fair value. Management uses an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value. The most important assumption is the anticipated loan prepayment rate, and increases in prepayment speed and amount result in lower valuations of mortgage servicing rights. The valuation may also include an evaluation for impairment based upon the fair value of the rights, which can vary depending upon current interest rates and prepayment expectations, as compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. The fair value of mortgage servicing rights as of December 31, 2023 decreased by 151,000 from that of December 31, 2022 primarily due to loan amortization and payoffs outpacing sales of new loans during the year, and no impairment was recognized as of either date. The use of different assumptions could produce a different valuation. All of the assumptions are based on standards the Company believes would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and/or benchmarked against independent public sources. Further information may be found in Note 4, "Mortgage Servicing Rights", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Current wording

Mortgage Servicing Rights. The valuation of mortgage servicing rights is a critical accounting policy which requires significant estimates and assumptions. The Bank often sells mortgage loans it originates and retains the ongoing servicing of such loans, receiving a fee for these services, generally 0.25% of the outstanding balance of the loan per annum. Mortgage servicing rights are recognized at fair value when they are acquired through the sale of loans, and are reported in other assets. They are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. The rights are subsequently carried at the lower of amortized cost or fair value. Management uses an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value. The most important assumption is the anticipated loan prepayment rate, and increases in prepayment speed and amount result in lower valuations of mortgage servicing rights. The valuation also includes an evaluation for impairment based upon the fair value of the rights, which can vary depending upon current interest rates and prepayment expectations, as compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. The fair value of mortgage servicing rights as of December 31, 2024 decreased by $529,000 from that of December 31, 2023 primarily due to loan amortization and payoffs outpacing sales of new loans during the year, and no impairment was recognized as of either date. The use of different assumptions could produce a different valuation. All of the assumptions are based on standards the Company believes would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and/or benchmarked against independent public sources. Further information may be found in Note 4, "Mortgage Servicing Rights", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Previous wording

Derivative Financial Instruments Designated as Hedges. The Company recognizes all derivatives in the consolidated balance sheets at fair value. On the date a derivative contract is entered into, the derivative is designated as a hedge of either a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), or a held for trading instrument (“trading instrument”). The relationships between hedging instruments and hedged items is formally documented, as is the risk management objective(s) and strategy for undertaking various hedge transactions. Both at the hedge’s inception and on an ongoing basis, determination is made as to whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of hedged items. Changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in OCI and are reclassified into earnings when the

Current wording

Derivative Financial Instruments Designated as Hedges. The Company recognizes all derivatives in the consolidated balance sheets at fair value. On the date a derivative contract is entered into, the derivative is designated as a hedge of either a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), or a held for trading instrument (“trading instrument”). The relationships between hedging instruments and hedged items is formally documented, as is the risk management objectives and strategy for undertaking various hedge transactions. Both at the hedge’s inception and on an ongoing basis, determination is made as to whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of hedged items. Changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in OCI and are reclassified into earnings when the forecasted transaction or related cash flows affect earnings. Changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is effective. Those derivatives that are classified as trading instruments, including customer loan swaps, are recorded at fair

Previous wording

The First Bancorp - 2023 Form 10-K - Page 24 forecasted transaction or related cash flows affect earnings. Changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is effective. Those derivatives that are classified as trading instruments, including customer loan swaps, are recorded at fair value with changes in fair value recorded in earnings. Hedge accounting is discontinued when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, that it is unlikely that the forecasted transaction will occur, or that the designation of the derivative as a hedging instrument is no longer appropriate. Among the factors that may influence the fair value of a derivative instrument are changes in market interest rates, changes in the time remaining to maturity of the instrument, or credit quality of the counter-party. Further information, including period-to-period changes in the fair value of derivatives, may be found in Note 14, "Financial Derivative Instruments", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Current wording

The First Bancorp - 2024 Form 10-K - Page 24 value with changes in fair value recorded in earnings. Hedge accounting is discontinued when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, that it is unlikely that the forecasted transaction will occur, or that the designation of the derivative as a hedging instrument is no longer appropriate. Among the factors that may influence the fair value of a derivative instrument are changes in market interest rates, changes in the time remaining to maturity of the instrument, or credit quality of the counter-party. Further information, including period-to-period changes in the fair value of derivatives, may be found in Note 14, "Financial Derivative Instruments", to the consolidated financial statements contained in Item 8 of the Form 10-K.

Previous wording

Certain information in Management's Discussion and Analysis of the Financial Condition and Results of Operations and elsewhere in this Report contains financial information determined by methods other than in accordance with GAAP. Management uses these “non-GAAP” measures in its analysis of the Company's performance (including for purposes of determining the compensation of certain executive officers and other Company employees) and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and with other financial institutions, as well as demonstrating the effects of significant gains and charges in the current period, in light of the disclosure practices employed by many other publicly-traded financial institutions. The Company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance.

Current wording

elsewhere in this Report contains financial information determined by methods other than in accordance with GAAP. Management uses these “non-GAAP” measures in its analysis of the Company's performance (including for purposes of determining the compensation of certain executive officers and other Company employees) and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and with other financial institutions, as well as demonstrating the effects of significant gains and charges in the current period, in light of the disclosure practices employed by many other publicly-traded financial institutions. The Company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance.

Previous wording

In several places net interest income is calculated on a fully tax-equivalent basis. Specifically included in interest income was tax-exempt interest income from certain investment securities and loans. An amount equal to the tax benefit derived from this tax-exempt income has been added back to the interest income total which, as adjusted, increased net interest income accordingly. Management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company's results of operations. Other financial institutions commonly present net interest income on a tax-equivalent basis. This adjustment is considered helpful in the comparison of one financial institution's net interest income to that of another institution, as each will have a different proportion of tax-exempt interest from its earning assets. Moreover, net interest income is a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, other financial institutions generally use tax equivalent net interest income to provide a better basis of comparison from institution to institution. The Company follows these practices. The following table provides a reconciliation of tax-equivalent financial information to the Company's consolidated financial statements, which have been prepared in accordance with GAAP. A Federal income tax rate of 21.0% was used in 2023 and 2022.

Current wording

In several places net interest income is calculated on a fully tax-equivalent basis. Specifically included in interest income was tax-exempt interest income from certain investment securities and loans. An amount equal to the tax benefit derived from this tax-exempt income has been added back to the interest income total which, as adjusted, increased net interest income accordingly. Management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company's results of operations. Other financial institutions commonly present net interest income on a tax-equivalent basis. This adjustment is considered helpful in the comparison of one financial institution's net interest income to that of another institution, as each will have a different proportion of tax-exempt interest from its earning assets. Moreover, net interest income is a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, other financial institutions generally use tax equivalent net interest income to provide a better basis of comparison from institution to institution. The Company follows these practices.

Previous wording

To provide period-to-period comparison of operating results prior to consideration of credit loss provision and income taxes, the non-GAAP measure of Pre-Tax, Pre-Provision Net Income is presented. The following table provided a reconciliation to Net Income:

Current wording

To provide period-to-period comparison of operating results prior to consideration of credit loss provision and income taxes, the non-GAAP measure of Pre-Tax, Pre-Provision Net Income is presented. The following table provides a reconciliation to Net Income:

Previous wording

The Company reported net income for the year ended December 31, 2023 of $29.5 million, down $9.5 million or 24.3% from a record level of $39.0 million reported for the year ended December 31, 2022. Earnings per common share on a fully diluted basis were $2.66 and $3.53, respectively, for the same periods, down $0.87 or 24.6%. The cycle of interest rate increases by the FOMC, initiated in 2022 and continuing into 2023, intended to quell inflationary pressure on the economy, increased the Bank's funding costs at a faster rate than earning asset yields, leading to a year-over-year decrease in earnings. Despite a challenging operating environment, loan growth remained robust, deposit growth was strong and asset quality continued to be excellent.

Current wording

The Company reported net income for the year ended December 31, 2024 of $27.0 million, down $2.5 million or 8.4% from $29.5 million reported for the year ended December 31, 2023. Earnings per common share on a fully diluted basis were $2.43 and $2.66, respectively, for the same periods, down $0.24 or 8.9%.

Previous wording

During 2023, total assets increased $207.5 million or 7.6%, ending the year at $2.947 billion. The loan portfolio increased $214.8 million or 11.2% in 2023, ending the year at $2.129 billion. The investment portfolio was down $11.6 million or 1.7% as cash flow from matured and amortizing securities was redeployed to other segments of the balance sheet rather than reinvested. On the liability side of the balance sheet, low-cost deposits decreased $95.1 million or 7.2%, to $1.223 billion as of

Current wording

During 2024, total assets increased $210.3 million or 7.1%, ending the year at $3.157 billion. The loan portfolio increased $211.5 million or 9.9% in 2024, ending the year at $2.341 billion. The investment portfolio was down $19.1 million or 2.8% as cash flow from matured and amortizing securities was redeployed to other segments of the balance sheet rather than reinvested. On the liability side of the balance sheet, core deposits increased $81.0 million or 5.3%, to $1.610 billion as of December 31, 2024. Certificates of deposit increased $44.6 million or 4.2% from the end of 2023. Local CDs increased $5.3 million and wholesale CDs increased $39.3 million at December 31, 2024 compared to December 31, 2023.

Previous wording

Asset quality continues to be strong and stable. Non-performing loans stood at 0.10% of total loans as of December 31, 2023 consistent with the 0.09% level of non-performing loans a year ago. Net chargeoffs were $233,000, or 0.01% of average loans in 2023, compared to $548,000, or 0.02% of average loans for the year ended December 31, 2022. Past due loans were 0.18% of total loans as of December 31, 2023, a modest increase from 0.08% of total loans at December 31, 2022.The allowance as a percentage of loans outstanding stood at 1.13% in 2023, up from 0.87% at December 31, 2022. The Company adopted ASC 326, the CECL standard, effective January 1, 2023 incurring a $6.3 million retained earnings adjustment in the first quarter. The provision for credit losses on loans was $1.3 million in 2023, as compared to $1.8 million in 2022. Most of the dollar increase in the ACL for loans is the result of CECL adoption and associated one-time adjustments.

Current wording

Asset quality continues to be strong and stable. Non-performing loans stood at 0.18% of total loans as of December 31, 2024 consistent with the 0.10% level of non-performing loans a year ago. Net chargeoffs were $463,000, or 0.02% of average loans in 2024, compared to $233,000, or 0.01% of average loans for the year ended December 31, 2023. Past due loans were 0.40% of total loans as of December 31, 2024, a modest increase from 0.18% of total loans at December 31, 2023. The allowance as a percentage of loans outstanding stood at 1.06% in 2024, down from 1.13% at December 31, 2023. The provision for credit losses on loans was $1.3 million in 2024, as compared to $1.3 million in 2023.

Previous wording

Maintaining a strong capital position is a top priority for the Company. The Company's total risk-based capital ratio was 13.66% as of December 31, 2023, solidly above the well-capitalized threshold of 10.0% set by the FDIC, the FRB, and the OCC.

Current wording

Maintaining a strong capital position is a top priority for the Company. The Company's total risk-based capital ratio was 13.22% as of December 31, 2024, solidly above the well-capitalized threshold of 10.0% set by the FDIC, the FRB, and the OCC.

Previous wording

Earnings performance in 2023 was solid though down from the prior year's record level. Net interest income on a tax-equivalent basis decreased $10.6 million or 13.6% for the year ended December 31, 2023 compared to the year ended December 31, 2022. Total interest income increased $35.1 million, or 37.8%, from 2022, while total interest expense increased $46.1 million, or 273.3%. The Company's tax-equivalent net interest margin was 2.49% in 2023, compared to 3.15% in 2022.

Current wording

Earnings performance in 2024 was solid though down from the prior year's level. Net interest income on a tax-equivalent basis decreased $1.2 million or 1.7% for the year ended December 31, 2024 compared to the year ended December 31, 2023. Total interest income increased $20.7 million, or 16.1%, from 2023, while total interest expense increased $22.0 million, or 34.9%. The Company's tax-equivalent net interest margin was 2.29% in 2024, compared to 2.49% in 2023. Net interest margin by quarter was 2.22%, 2.21%, 2.32% and 2.42% for the first through fourth quarters of 2024, respectively, as compared to 2.78%, 2.46%, 2.40%, and 2.34% in the same periods of 2023.

Previous wording

Non-interest income in 2023 was $15.4 million, a decrease of $1.4 million or 8.5% from the $16.9 million reported in 2022. The year-to-year decrease in non-interest income is primarily attributable to mortgage banking activity dropping 42.9% from 2022 and a decrease in debit card revenue of 15.2%, during the same period.

Current wording

Non-interest income in 2024 was $16.4 million, an increase of $918,000 or 5.9% from the $15.4 million reported in 2023. The year-to-year increase in non-interest income is primarily attributable to Wealth Management revenue growth of $309,000 or 6.6% from 2023, and an increase in other operating income of $395,000 or 14.6%, during the same period.

Previous wording

Non-interest expense in 2023 was $43.8 million, a decrease of $146,000 or 0.3% from the $43.9 million reported in 2022. Employee salary and benefit expense decreased $1.4 million or 5.9% from the prior year, due primarily to reduced incentive compensation accruals. A base rate increase imposed by the FDIC led to a $894,000 increase in deposit insurance premiums from the prior year. Income taxes on operating earnings were $6.2 million for the year ended December 31, 2023, down $2.2 million from the same period in 2022.

Current wording

Non-interest expense in 2024 was $47.2 million, an increase of $3.4 million or 7.8% from the $43.8 million reported in 2023. Employee salary and benefit expense increased $2.3 million or 10.4% from the prior year. Asset growth and premium calculation variances led to a $429,000 increase in deposit insurance premiums from the prior year. Income taxes on operating earnings were $5.5 million for the year ended December 31, 2024, down $645,000 from the same period in 2023.

Previous wording

The Company's operating ratios remain favorable, with a return on average assets of 1.03% and a return on average tangible common equity (non-GAAP) of 14.50% for the year ended December 31, 2023. Our non-GAAP efficiency ratio continues to be an important component in our overall performance and stood at 52.43% in 2023. Dividends paid to shareholders totaled $1.39 per share, representing 51.87% of basic earnings per share for the year.

Current wording

The Company's operating ratios remain favorable, with a return on average assets of 0.89% and a return on average tangible common equity (non-GAAP) of 12.35% for the year ended December 31, 2024. Our non-GAAP efficiency ratio continues to be an important component in our overall performance and stood at 56.66% in 2024. Dividends paid to shareholders totaled $1.43 per share, representing 58.44% of basic earnings per share for the year.

Previous wording

Net interest income on a tax-equivalent basis decreased 13.6% or $10.6 million to $67.9 million for the year ended December 31, 2023 from the $78.5 million reported for the year ended December 31, 2022. The Company's net interest margin was 2.49% in 2023, compared to 3.15% in 2022.

Current wording

Net interest income on a tax-equivalent basis decreased 1.7% or $1.2 million to $66.7 million for the year ended December 31, 2024 from the $67.9 million reported for the year ended December 31, 2023. The Company's net interest margin was 2.29% in 2024, compared to 2.49% in 2023.

Previous wording

Total interest income on a tax-equivalent basis in 2023 was $130.8 million, an increase of $35.5 million or 37.2% from the $95.4 million posted by the Company in 2022. Interest income in 2022 included $1.2 million of non-recurring PPP revenue. Growth in earning assets coupled with higher interest rates resulted in the period to period increase. Total interest expense in 2023 was $63.0 million, an increase of $46.1 million or 273.3% from the $16.9 million posted by the Company in 2022. Higher market interest rates resulting from FOMC actions coupled with changing customer product preferences to higher cost money market and CD products led to the period-to-period increase, resulting in the decrease in net interest income. Tax-exempt interest income amounted to $9.9 million for the year ended December 31, 2023, and $8.8 million for the year ended December 31, 2022.

Current wording

Total interest income on a tax-equivalent basis in 2024 was $151.6 million, an increase of $20.8 million or 15.9% from the $130.8 million posted by the Company in 2023. Growth in earning assets coupled with higher interest rates on both new and re-pricing of legacy transactions resulted in the period to period increase. Total interest expense in 2024 was $84.9 million, an increase of $22.0 million or 34.9% from the $63.0 million posted by the Company in 2023. Higher market interest rates resulting from prior FOMC actions coupled with changing customer product preferences to higher cost money market and CD products led to the period to period increase, resulting in the decrease in net interest income. Tax-exempt interest income amounted to $10.5 million for the year ended December 31, 2024, and $9.9 million for the year ended December 31, 2023.

Previous wording

The following tables present changes in interest income and expense attributable to changes in interest rates, volume, and rate/volume 1 for interest-earning assets and interest-bearing liabilities. Tax-exempt income is calculated on a tax-equivalent basis, using a 21.0% Federal income tax rate in 2023 and 2022.

Current wording

The following table presents changes in interest income and expense attributable to changes in interest rates, volume, and rate/volume 1 for interest-earning assets and interest-bearing liabilities. Tax-exempt income is calculated on a tax-equivalent basis, using a 21.0% Federal income tax rate in 2024 and 2023.

Previous wording

Non-interest income in 2023 was $15.4 million, a decrease of $1.4 million or 8.5% from the $16.9 million reported in 2022. The year-to-year decrease in non-interest income is primarily attributable to mortgage banking activity and debit card revenue. Mortgage banking revenue dropped 42.9% from 2022, as higher interest rates dramatically slowed origination activity, negatively impacting both gain on sale income and mortgage servicing rights valuation. Debit card revenue decreased $964,000 or 15.2% year-over-year, attributable to one time incentive payments received in 2022. Annual revenues at First National Wealth Management, the Bank's trust and investment management division, were stable, up 1.2% from 2022. Service charge revenues and other income also had modest increases for the year.

Current wording

Non-interest income in 2024 was $16.36 million, an increase of $918,000 or 5.9% from the $15.44 million reported in 2023. The year-to-year increase in non-interest income is primarily attributable to Wealth Management revenue growth of $309,000 or 6.6% from 2023, and an increase in other operating income of $395,000 or 14.6%, during the same period. Mortgage banking revenue dropped 2.3% from 2023, as higher interest rates muted origination activity, negatively impacting both gain on sale income and mortgage servicing rights valuation. Debit card revenue increased $72,000 or 1.3% year-over-year, while service charge revenues increased $161,000, or 8.5%.

Previous wording

Non-interest expense in 2023 was $43.8 million, a decrease of $146,000 or 0.3% from the $43.9 million reported in 2022. Employee salary and benefit expense decreased 5.9% from the prior year, due primarily to reduced incentive compensation accruals. A base rate increase imposed by the FDIC led to a $894,000 increase in deposit insurance premiums from the prior year. Occupancy expense and furniture & equipment expense each had modest dollar increases from 2022.

Current wording

Non-interest expense in 2024 was $47.2 million, an increase of $3.4 million or 7.8% from the $43.8 million reported in 2023. Employee salary and benefit expense increased 10.4% from the prior year, centered in wage adjustments, FTE count, and benefit costs. A larger asset base coupled with changes in several pricing formulas factors led to $429,000 increase in deposit insurance premiums from the prior year. Occupancy expense and furniture & equipment expense each had modest dollar increases from 2023.

Previous wording

Net loan charge-offs in 2023 were $233,000 or 0.01% of average loans, down from $548,000 or 0.02% of loans in 2022. Non-performing assets stood at 0.07% of total assets as of December 31, 2023 compared to 0.06% of total assets at December 31, 2022. Past-due loans were 0.18% of total loans as of December 31, 2023, a modest increase from 0.08% of total loans as of December 31, 2022.

Current wording

Net loan charge-offs in 2024 were $463,000 or 0.02% of average loans, up from $233,000 or 0.01% of loans in 2023. Non-performing assets stood at 0.14% of total assets as of December 31, 2024 compared to 0.07% of total assets at December 31, 2023. Past-due loans were 0.40% of total loans as of December 31, 2024, a modest increase from 0.18% of total loans as of December 31, 2023.

Previous wording

Income taxes on operating earnings were $6.2 million for the year ended December 31, 2023, down $2.2 million from 2022.

Current wording

Income taxes on operating earnings were $5.5 million for the year ended December 31, 2024, down $645,000 from 2023.

Previous wording

Net income for 2023 was $29.5 million, down 24.3% or $9.5 million from net income of $39.0 million that was posted in 2022. Earnings per share on a fully diluted basis for 2023 were $2.66, down $0.87 or 24.6% from the $3.53 reported for the year ended December 31, 2022.

Current wording

Net income for 2024 was $27.0 million, down 8.4% or $2.5 million from net income of $29.5 million that was posted in 2023. Earnings per share on a fully diluted basis for 2024 were $2.43, down $0.24 or 8.9% from the $2.66 reported for the year ended December 31, 2023.

Previous wording

Return on average assets in 2023 was 1.03%, down from the 1.49% posted in 2022. Return on average tangible common equity was 14.50% in 2023, compared to 19.15% in 2022. In 2023, the Company's dividend payout ratio (dividends declared per share divided by earnings per share) was 51.87%, compared to 37.64% in 2022. The Company's non-GAAP efficiency ratio – a benchmark measure of the amount spent to generate a dollar of income – was 52.43% in 2023, compared to 45.96% in 2022.

Current wording

Return on average assets in 2024 was 0.89%, down from the 1.03% posted in 2023. Return on average tangible common equity was 12.35% in 2024, compared to 14.50% in 2023. In 2024, the Company's dividend payout ratio (dividends declared per share divided by earnings per share) was 58.44%, compared to 51.87% in 2023. The Company's non-GAAP efficiency ratio – a benchmark measure of the amount spent to generate a dollar of income – was 56.66% in 2024, compared to 52.43% in 2023.

Previous wording

As of December 31, 2023, First National Wealth Management, the Bank's trust and investment management division, had assets under management or custody with a market value of $1.254 billion, consisting of 1,249 trust accounts, estate accounts, agency accounts, and self-directed individual retirement accounts. This compares to December 31, 2022, when 1,233 accounts with a market value of $1.179 billion were under management or custody.

Current wording

As of December 31, 2024, First National Wealth Management, the Bank's trust and investment management division, had assets under management or custody with a market value of $1.290 billion, consisting of 1,272 trust accounts, estate accounts, agency accounts, and self-directed individual retirement accounts. This compares to December 31, 2023, when 1,249 accounts with a market value of $1.254 billion were under management or custody.

Previous wording

Total assets of $2.947 billion at December 31, 2023 increased 7.6% or $207.5 million from $2.739 billion at December 31, 2022. The investment portfolio, including restricted equity securities decreased $11.6 million or 1.7% over December 31, 2022, and the loan portfolio increased $214.8 million or 11.2%. Year-over-year, average assets were up $243.3 million in 2023 over 2022. Average loans in 2023 were $252.9 million higher than in 2022, and average investments in 2023 were $5.6 million lower than in 2022.

Current wording

Total assets of $3.157 billion at December 31, 2024 increased 7.1% or $210.3 million from $2.947 billion at December 31, 2023. The investment portfolio, including restricted equity securities decreased $19.1 million or 2.8% over December 31, 2023, and the loan portfolio increased $211.5 million or 9.9%. Year-over-year, average assets were up $182.3 million in 2024 over 2023. Average loans in 2024 were $201.7 million higher than in 2023, and average investments in 2024 were $22.5 million lower than in 2023.

Previous wording

Non-performing assets to total assets stood at 0.07% at December 31, 2023, consistent with the 0.06% of total assets at December 31, 2022. In general terms, the Company's long-standing approach to working with borrowers and ethical loan underwriting standards helps alleviate some of the payment problems on customers' loans and minimizes actual loan losses, in Management's opinion. Opportunities were taken in both 2021 and 2022 to reduce the level of non-performing assets via no-recourse sales of mostly non-performing commercial and residential mortgage loans. The Company held no OREO property or repossessed assets at December 31, 2023.

Current wording

Non-performing assets to total assets stood at 0.14% at December 31, 2024, up slightly from the 0.07% of total assets at December 31, 2023. In general terms, the Company's long-standing approach to working with borrowers and ethical loan underwriting standards helps alleviate some of the payment problems on customers' loans and minimizes actual loan losses, in Management's opinion. The Company held one OREO property with a carrying value of $173,000, net of an allowance of $35,000 at December 31, 2024. There was no OREO or related allowance at December 31, 2023.

Previous wording

Net chargeoffs in 2023 were $233,000 or 0.01% of average loans outstanding, down $315,000 from 2022. Residential real estate term loans represent 31.6% of the total loan portfolio, and this loan category generally has a lower level of losses in comparison to other loan types. In 2023, residential mortgages had a recovery ratio of 0.003% compared to a loss ratio of 0.011% for the entire loan portfolio. The Company does not have a credit card portfolio or offer dealer consumer loans, which generally carry more risk and potentially higher losses than other types of consumer credit.

Current wording

Net chargeoffs in 2024 were $463,000 or 0.02% of average loans outstanding, up $230,000 from 2023. Residential real estate term loans represent 30.4% of the total loan portfolio, and this loan category generally has a lower level of losses in comparison to other loan types. In 2024, residential mortgages had a loss ratio of 0.001% compared to a loss ratio of 0.020% for the entire loan portfolio. The Company does not have a credit card portfolio or offer dealer consumer loans, which generally carry more risk and potentially higher losses than other types of consumer credit.

Previous wording

The ACL-loans ended 2023 at $24.0 million and stood at 1.13% of total loans outstanding, compared to $16.7 million and 0.87% of total loans outstanding at December 31, 2022. A $1.3 million provision for losses was made during the year ended 2023. The one-time CECL adoption adjustments, coupled with the provision and net charge off activity, resulted in the ACL increasing $7.3 million or 43.7% from December 31, 2022.

Current wording

The ACL-loans ended 2024 at $24.9 million and stood at 1.06% of total loans outstanding, compared to $24.0 million and 1.13% of total loans outstanding at December 31, 2023. A $1.3 million provision for losses was made during the year ended 2024.

Previous wording

During 2023, the investment portfolio, including restricted equity securities, decreased 1.7% to end the year at $670.7 million, compared to $682.3 million at December 31, 2022. Average investments in 2023 were $5.6 million lower than in 2022. The change in value of the portfolio is attributable primarily to limited reinvestment of incoming cash flow from amortizing and matured investments, as cash flow was re-directed to other segments of the balance sheet. As of December 31, 2023, mortgage-backed securities had a carrying value of $281.0 million and a fair value of $270.7 million. Of this total, securities with a fair value of $77.7 million or 28.7% of the mortgage-backed portfolio were issued by the GNMA and securities with a fair value of $193.0 million or 71.3% of the mortgage-backed portfolio were issued by the FHLMC and the FNMA.

Current wording

During 2024, the investment portfolio, including restricted equity securities, decreased 2.8% to end the year at $651.6 million, compared to $670.7 million at December 31, 2023. Average investments in 2024 were $22.5 million lower than in 2023. The change in value of the portfolio is attributable primarily to limited reinvestment of incoming cash flow from amortizing and matured investments, as cash flow was re-directed to other segments of the balance sheet. As of December 31, 2024, mortgage-backed securities had a carrying value of $271.8 million and a fair value of $260.4 million. Of this total, securities with a fair value of $72.8 million or 27.9% of the mortgage-backed portfolio were issued by the GNMA and securities with a fair value of $187.6 million or 72.1% of the mortgage-backed portfolio were issued by the FHLMC and the FNMA.

Previous wording

During the third quarter of 2014, the Company transferred securities with a total amortized cost of $89,780,000 with a corresponding fair value of $89,757,000 from AFS to HTM. The net unrealized loss, net of taxes, on these securities at the date of the transfer was $15,000. The net unrealized holding loss at the time of transfer continues to be reported in AOCI, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the net unrealized loss reported in AOCI will offset the effect on interest income of the discount for the transferred securities. The remaining unamortized balance of the net unrealized losses for the securities transferred from AFS to HTM was $56,000, net of taxes, at December 31, 2023. This compares to $64,000, net of taxes at December 31, 2022. These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

Current wording

During the third quarter of 2014, the Company transferred securities with a total amortized cost of $89,780,000 with a corresponding fair value of $89,757,000 from AFS to HTM. The net unrealized loss, net of taxes, on these securities at the date of the transfer was $15,000. The net unrealized holding loss at the time of transfer continues to be reported in AOCI, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the net unrealized loss reported in AOCI will offset the effect on interest income of the discount for the transferred securities. The remaining unamortized balance of the net unrealized losses for the securities transferred from AFS to HTM was $47,000, net of taxes, at December 31, 2024. This compares to $56,000, net of taxes at December 31, 2023. These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

Previous wording

The Company adopted ASC 326, the CECL standard, effective January 1, 2023. In conjunction with adoption, holdings of AFS securities and HTM securities were evaluated to determine the need to establish an ACL, if any. The total ACL for HTM securities was $434,000 as of December 31, 2023; there was no reserve as of December 31, 2022. Further details are included in Notes 3 and 25 of the accompanying financial statements.

Current wording

The Company adopted ASC 326, the CECL standard in 2023. In conjunction with adoption, holdings of AFS securities and HTM securities were evaluated to determine the need to establish an ACL, if any. The total ACL for HTM securities was $196,000 and $434,000 as of December 31, 2024 and 2023, respectively. Further details are included in Note 3 of the accompanying financial statements.

Previous wording

The AFS securities portfolio contains certain securities, the amortized cost of which exceeds fair value, which at December 31, 2023 amounted to $50.4 million, or 15.18% of the amortized cost of the total AFS securities portfolio. At December 31, 2022, this amount was $56.7 million, or 16.61% of the total AFS securities portfolio.

Current wording

The AFS securities portfolio contains certain securities, the amortized cost of which exceeds fair value, which at December 31, 2024 amounted to $54.2 million, or 16.48% of the amortized cost of the total AFS securities portfolio. At December 31, 2023, this amount was $50.4 million, or 15.18% of the total AFS securities portfolio.

Previous wording

As of December 31, 2023, the Company had AFS debt securities in an unrealized loss position with a fair value of $261.5 million and unrealized losses of $50.4 million, as identified in the table below. AFS securities in a continuous unrealized loss position of twelve months or more amounted to a fair value of $257.7 million as of December 31, 2023, compared with $192.5 million at December 31, 2022. The Company has concluded that these securities are fully collectible and that no charge against the allowance is required. This conclusion was based on the issuer's continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that the issuer will continue to do so, Management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value which may be at maturity, the expectation that the Company will receive 100% of future contractual cash flows, as well as the evaluation of the fundamentals of the issuer's financial condition and other objective evidence. The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at December 31, 2023.

Current wording

As of December 31, 2024, the Company had AFS debt securities in an unrealized loss position with a fair value of $257.6 million and unrealized losses of $54.2 million, as identified in the table below. Securities in a continuous unrealized loss position of twelve months or more amounted to a fair value $234.1 million as of December 31, 2024, compared with $257.7 million at December 31, 2023. The Company has concluded that these securities are fully collectible and that no charge against the allowance is required. This conclusion was based on the issuer's continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that the issuer will continue to do so, Management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value which may be at maturity, the expectation that the Company will receive 100% of future contractual cash flows, as well as the evaluation of the fundamentals of the issuer's financial condition and other objective evidence. The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at December 31, 2024.