FINANCIAL INSTITUTIONS INC
For the period ended Dec 31, 2024. Filed Mar 12, 2025.
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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 Mar 12, 2025
FISI$39.73+0.6%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 2024-03-13.
0000950170-24-030754
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-12.
0000950170-25-037918
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 193 previous paragraphs and 204 current paragraphs.
96 unchanged; 70 reworded; 36 added; 27 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 18 previous and 19 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 (36)
Current report
On April 1, 2024, the Company announced and closed the sale of the assets of its wholly owned subsidiary, SDN Insurance Agency, LLC (“SDN”), which provided a broad range of insurance services to personal and business clients, to NFP Property & Casualty Services, Inc. (“NFP”), a subsidiary of NFP Corp. The sale generated $27 million in proceeds, or a pre-tax gain of $13.7 million, after selling costs, of which $13.5 million was recognized in the second quarter of 2024. The all-cash transaction value represented approximately four times our 2023 insurance revenue. Following the sale of the assets of SDN, we changed the name of the entity to Five Star Advisors LLC and expect to utilize it to serve as a conduit to refer insurance business to NFP.
Current report
Settlement of Auto Lending Litigation
Current report
On March 7, 2025, following a mediation held on February 28, 2025, the Company entered into a Settlement Agreement (“the Settlement Agreement”) with plaintiffs in the previously disclosed class action lawsuit to which the Company and the Bank are parties, brought by borrowers in New York and Pennsylvania in Pennsylvania state court regarding notices the Bank sent to defaulting borrowers after their vehicles were repossessed, which were alleged to have not fully complied with the relevant portions of the Uniform Commercial Code in both states. As part of the Settlement Agreement, which is subject to court approval, we agreed to making a cash payment in the amount of $29.5 million in full resolution of the matter. We do not anticipate that additional amounts will be accrued for this matter in 2025 or other future periods. The Company determined that the March 7, 2025 event meets the definition of a recognized subsequent event in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 855, Subsequent Events, at the December 31, 2024 balance sheet date and has therefore recorded a $23.0 million pre-tax litigation accrual, which reflects the agreed upon settlement less approximately $6.5 million of available related insurance proceeds, in the Company’s December 31, 2024 consolidated financial statements. The settlement resulted in an after-tax loss of approximately $17.1 million in 2024.
Current report
Common Stock Offering and Subsequent Investment Securities Restructuring
Current report
On December 13, 2024, we completed a public, underwritten common stock offering of 4,600,000 shares at $25.00 per share, 600,000 shares of which were sold pursuant to the underwriters purchase option. Net proceeds of the capital raise were $108.6 million after deducting underwriting discount and commissions and other offering expenses. A portion of the proceeds was used to fund losses on the sale of $653.5 million of available-for-sale securities (“AFS”) with a weighted average book yield of 1.74% for a pre-tax loss of $100.2 million. We utilized net proceeds from the sale of the securities to purchase higher-yielding agency wrapped investment securities with a face value of $566.2 million and a weighted average book yield of 5.16%, coupled with an additional $76.4 million of agency wrapped securities with a weighted average yield of 5.45%. Following the transactions, the AFS portfolio has a tax equivalent yield of 4.41% and an average duration of approximately 6.3 years, while the total securities portfolio has a tax equivalent yield of 4.25% and an average duration of 6.2 years. The cumulative tangible book value earnback from the restructuring is expected to be approximately 3.75 years. The after-tax impact of the loss was approximately $75 million. We may also use the remaining net proceeds of the stock offering for general corporate purposes which may include the repayment of indebtedness. For additional information regarding the offering, see Note 18, Earnings Per Share, of the notes to the consolidated financial statements included in Part II, Item 8 to this Annual Report on Form 10-K.
Current report
Orderly Wind Down of Banking-as-a-Service “BaaS” Offerings
Current report
On September 16, 2024, we announced our intent to begin an orderly wind down of our BaaS offerings, following a careful review by our executive management and Board of Directors undertaken in conjunction with our annual strategic planning process. As of December 31, 2024, deposits and loans related to the Bank’s BaaS offerings approximated $100 million and $29 million, respectively. We continue to preliminarily target completion of the wind down sometime in 2025.
Current report
Sale of SDN
Current report
On April 1, 2024, the Company announced and closed the sale of the assets of SDN to NFP. The sale generated $27 million in proceeds, or a pre-tax gain of $13.7 million, after selling costs, which was included in net gain (loss) on other assets. The all-cash transaction value represented approximately four times our 2023 insurance revenue.
Current report
Fraudulent Activity
Current report
In early March 2024, the Company experienced charge-offs associated with fraudulent activity pertaining to deposit transactions conducted over the course of several business days by an in-market business customer of the Bank, which resulted in an $18.2 million pre-tax loss in 2024. The fraud exposure arose from non-contractual, external fraud, and was treated as an operational loss, recorded in deposit-related charged-off items, in noninterest expense in the first quarter of 2024, with a small recovery of $143 thousand being recorded in the second quarter of 2024.
Current report
The Bank is working with the appropriate law enforcement authorities in connection with this matter and is aggressively pursuing all legal recourse available to recover additional funds and minimize the loss. However, there can be no assurance that the Company will be able to recover any further offset to the deposit loss. The ultimate financial impact could be lower and will depend, in part, on the Bank’s success in its efforts to recover the funds.
Current report
We reported a net loss of $41.6 million for 2024, compared to net income of $50.3 million for 2023. This resulted in a -0.68% return on average assets and a -8.74% return on average equity. After preferred dividends, net loss available to common shareholders was $43.1 million or ($2.75) per diluted share for 2024, compared to net income available to common shareholders of $48.8 million or $3.15 per diluted share for 2023. The net loss for 2024 was primarily the result of a strategic investment securities restructuring, in which a portion of the proceeds from our December 2024 common stock offering was used to fund losses on the sale of $653.5 million of available-for-sale securities (“AFS”) with a weighted average book yield of 1.74% for a pre-tax loss of $100.2 million. The after-tax impact of the loss was approximately $75 million. We declared cash dividends of $1.20 per common share during 2024, consistent with 2023.
Current report
We reported a net loss in noninterest income of $46.7 million for 2024, compared to noninterest income of $48.2 million for 2023. The decrease in noninterest income was primarily attributable to an increase in net loss on investment securities, a decrease in income from company owned life insurance, and a decrease in insurance income, partially offset by an increase in net gain (loss) on other assets. The net loss on investments securities of $100.1 million for 2024 was reflective of the strategic investment securities portfolio restructuring in late December 2024 described above. Net loss on investment securities of $3.6 million for 2023 reflected the loss on the sale of approximately $54 million of lower yielding AFS securities agency mortgage-backed securities, reinvesting the proceeds of such sale into higher yielding bonds. Income from company owned life insurance decreased $6.6 million in 2024 compared to 2023, due to a normalized crediting rate associated with the separate account policies purchased in the fourth quarter of 2023. The decrease in insurance income was reflective of the sale of the assets of our insurance agency subsidiary, SDN, in April 2024. The gain from this sale of $13.7 million was included in net gain (loss) on other assets.
Current report
Noninterest expense for the full year 2024 totaled $178.9 million, a $41.7 million increase compared to $137.2 million in the prior year. The increase in noninterest expense was primarily attributable to the previously disclosed fraud matter and the provision for the litigation settlement. Computer and data processing expense increased $2.6 million year-over-year, as a result of strategic investments in data efficiency and marketing technology. Professional services expense of $7.7 million increased $2.4 million from 2023 primarily due to legal expenses associated with the previously mentioned fraud event. Other expense of $15.3 million increased $1.0 million from 2023, due in part to New York State capital base tax. Salaries and benefits expense of $66.1 million decreased $5.8 million from 2023, primarily due to the decrease in headcount as a result of the sale of our SDN subsidiary and organizational changes made in the fourth quarter of 2023.
Current report
Commercial business loans totaled $665.3 million, a decrease of $70.4 million, or 10%.
Current report
Commercial mortgage–construction loans totaled $582.6 million, an increase of $89.6 million, or 18%.
Current report
Commercial mortgage– non-owner occupied loans totaled $858.0 million, an increase of $69.5 million, or 9%.
Current report
Consumer indirect loans totaled $845.8 million, a decrease of $103.1 million, or 19%.
Current report
Total deposits were $5.10 billion at December 31, 2024, a decrease of $108.2 million from December 31, 2023, which was attributable to reductions in brokered deposits and lower reciprocal balances. The Bank reduced the outstanding balance of the brokered sweep deposit portfolio by $180.0 million in March 2024 through the utilization of more cost effecting funding sources.
Current report
The table below presents the composition of the provision for credit losses for the years ended December 31 (in thousands):
Current report
The decrease in the provision for credit losses–loans in 2024 compared to 2023 was primarily driven by a shift in mix of loan balances (consumer indirect category decreased and represented a smaller percentage of the portfolio), combined with positive trends in qualitative factors and a slight decrease in loan specific reserves.
Current report
Noninterest (Loss) Income
Current report
The following table summarizes our noninterest (loss) income for the years ended December 31 (in thousands):
Current report
The sale of the assets of our insurance subsidiary in April 2024 resulted in a gain on other assets of $13.7 million. The $4.6 million decline in insurance income was also attributed to this transaction.
Current report
A net loss on investment securities of $100.1 million was recognized in 2024 due to the sale of $653.5 million of AFS securities as part of the strategic investment securities restructuring resulting from the common stock offering. The after-tax impact of the loss was approximately $75 million. The net loss on investment securities in 2023 was reflective of the sale of $54 million in lower yielding AFS agency mortgage-backed securities at an after-tax loss of $2.8 million.
Current report
Salaries and employee benefits expense decreased $5.8 million, or 8%, to $66.1 million in 2024, compared to $71.9 million in 2023. The decrease was primarily due to the decrease in headcount as a result of the sale of our SDN subsidiary and the fourth quarter 2023 organizational changes.
Current report
Professional services expense increased $2.4 million, or 46%, to $7.7 million in 2024, compared to $5.6 million in 2023. Professional services expense for 2024 included $1.4 million of legal and other professional expense related to the deposit-related fraud event.
Current report
Provision for litigation settlement of $23.0 million in 2024 represented the pre-tax litigation accrual, which reflects the agreed upon settlement of $29.5 million less $6.5 million of available related insurance proceeds.
Current report
Deposit related charged-off items of $20.3 million in 2024 included an $18.2 million loss associated with charge-offs related to the deposit-related fraudulent activity we experienced in early March 2024.
Current report
Other expense of $15.3 million in 2024 increased $1.0 million, or 7%, compared to $14.2 million in 2023, primarily due to increases in the New York State capital base tax.
Current report
On December 13, 2024, we completed an underwritten public offering of 4,600,000 shares of common stock, including 600,000 shares as result of the underwriters exercising their overallotment option, at $25.00 per share. We received net proceeds of $108.6 million after deducting underwriting discounts and commissions, and offering expenses from the sale of our common stock. As intended, a portion of the net proceeds was used to fund losses associated with a strategic investment securities restructuring, which was completed in late December 2024. The proceeds may also be used for general corporate purposes which may include the repayment of indebtedness.
Current report
Time deposits for $1.55 billion;
Current report
Operating leases for $48.2 million.
Current report
Shelf Registration
Current report
We have an effective shelf registration statement on file with the SEC for an indeterminate number of securities that is effective for three years (expires December 4, 2027), around which time we expect to file a replacement shelf registration statement. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time securities, including common stock, debt securities, preferred stock, warrants and units. Under this shelf registration, we completed an underwritten public offering of 4,600,000 shares of common stock at $25.00 per share on December 13, 2024.
Removed paragraphs (27)
Previous report
Net income decreased $6.3 million to $50.3 million for 2023, compared to $56.6 million for 2022. This resulted in a 0.83% return on average assets and an 11.86% return on average equity. Net income available to common shareholders was $48.8 million or $3.15 per diluted share for 2023, compared to $55.1 million or $3.56 per diluted share for 2022. The decrease in net income reflects the impact of the prolonged higher interest rate environment on funding costs in 2023 that generated revenue pressure and adversely impacted current year earnings in comparison to 2022. We declared cash dividends of $1.20 per common share during 2023, an increase of $0.04 per common share, or 3%, compared to the prior year.
Previous report
Noninterest income totaled $48.2 million for the full year 2023, an increase of $2.0 million, or 4.3%, when compared to the prior year. The increase was primarily attributed to an increase in income from company owned life insurance (“COLI”) and partially offset by an increase in net loss on investment securities and a decrease in service charges on deposits. Included in income from company owned life insurance for 2023 was an approximate $8 million increase in income, which was generated by the surrender and redeploy of $53.9 million in cash surrender value of company owned life insurance, coupled with additional premium investment. The revenue from the transaction, which was partially offset by $5.4 million of related incremental income taxes, was based upon the crediting rate of the premium allocation to separate account investments, as supported by the performance of the underlying investment divisions. The cash surrender value of the separate account COLI and corresponding revenue is expected to stabilize in future periods. Net loss on investment securities of $3.6 million for the full year 2023 reflected the loss on the sale of approximately $54 million of lower yielding available-for-sale agency mortgage-backed securities, reinvesting the proceeds of such sale into higher yielding bonds. The decrease in service charges on deposits was primarily due to a reduction in nonsufficient fund fees as a result of January 2023 changes in the Bank’s consumer overdraft program that align with trends in community banking.
Previous report
Noninterest expense for the full year 2023 totaled $137.2 million, a $7.9 million increase compared to $129.4 million in the prior year. Computer and data processing expense increased $2.5 million year-over-year, as a result of strategic investments in technology, primarily driven by a new customer relationship management system implemented in late 2021. FDIC assessments increased $2.5 million, due in part to the increase in the base deposit insurance assessment rate schedules by two basis points, coupled with balance sheet growth compared to 2022. Salaries and benefits expense increased $2.3 million year-over-year, primarily due to annual merit increases, higher pension expenses and increased medical and dental claim activity, partially offset by lower stock-based compensation, executive bonuses and incentive compensation. Other expenses were $3.0 million higher than 2022 primarily due to interest charges related to collateral held for derivative transactions, higher insurance costs and the impact of inflationary pressures generally. These increases were partially offset by a decrease in restructuring charges in 2023, as restructuring charges related to the 2020 closing of five branches totaled $1.6 million in 2022.
Previous report
Commercial business loans totaled $735.7 million, an increase of $71.5 million, or 11%, from December 31, 2022.
Previous report
Commercial mortgage loans totaled $2.01 billion, an increase of $325.5 million, or 19%, from December 31, 2022.
Previous report
Residential real estate loans totaled $649.8 million, an increase of $59.9 million, or 10%, from December 31, 2022.
Previous report
Consumer indirect loans totaled $948.8 million, a decrease of $74.8 million, or 7%, from December 31, 2022.
Previous report
The provision for credit losses was $13.7 million for the year ended December 31, 2023 compared with $13.3 million for 2022. The provision for credit losses – loans was $14.2 million for 2023, compared with $11.0 million for 2022. The increase to the loan loss provision in 2023 was primarily driven by higher overall net charge-offs and specific reserves, partially offset by a decline in the level of unfunded commitments. Also included in the provision for credit losses was a credit loss benefit for unfunded commitments of $531 thousand for 2023, compared to credit loss expense of $2.3 million for 2022.
Previous report
Noninterest Income
Previous report
The following table summarizes our noninterest income for the years ended December 31 (in thousands):
Previous report
The following information discusses the significant changes in noninterest income for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Previous report
Service charges on deposits decreased $1.3 million, or 21% to $4.6 million in 2023, compared to $5.9 million in 2022. The decrease was primarily due to a reduction in nonsufficient funds fees as a result of January 2023 changes in the Bank’s consumer overdraft program that align with trends in community banking.
Previous report
Income from derivative instruments, net decreased $569 thousand, or 30%, to $1.4 million in 2023, compared to $1.9 million in 2022. Income from derivative instruments, net is based on the number and value of interest rate swap transactions executed during the year combined with the impact of changes in the fair value of borrower-facing trades.
Previous report
Net gain on sale of loans held for sale was $566 thousand in 2023, compared to $1.2 million in 2022. Included in 2022 was a gain of $586 thousand related to the sale of a $31.2 million portfolio of indirect loans in the second quarter of 2022.
Previous report
A net loss on investment securities of $3.6 million was recognized in 2023 due to the sale of approximately $54 million in lower yielding available-for-sale agency mortgage-backed securities at an after-tax loss of $2.8 million, reinvesting the proceeds of such sale into higher yielding bonds. The after-tax interest income benefit of $1.4 million annually translates to an earn-back to shareholders’ equity of two years.
Previous report
Net loss on tax credit investments of $252 thousand was recognized in 2023, compared to $815 thousand in 2022. The net losses include amortization of tax credit investments, partially offset by New York investment tax credits that are refundable and recorded in noninterest income.
Previous report
Other noninterest income increased $608 thousand, or 13%, to $5.3 million in 2023, compared to $4.7 million in 2022, primarily due to an increase in FHLB dividends which correlates with the increase in FHLB stock owned in 2023 compared to 2022.
Previous report
The following information discusses the significant changes in noninterest expense for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Previous report
Salaries and employee benefits expense increased $2.3 million, or 3%, to $71.9 million in 2023, compared to $69.6 million in 2022. The increase was primarily due to annual merit increases, higher pension expense and increases in medical and dental claim activity, partially offset by lower stock-based compensation, executive bonuses and incentive compensation.
Previous report
FDIC assessments expense increased $2.5 million to $4.9 million in 2023, compared to $2.4 million in 2022, due in part to the increase in the base deposit insurance assessment rate schedules by two basis points, coupled with balance sheet growth compared to 2022.
Previous report
Restructuring charges related to the 2020 closing of five branches totaled $114 thousand in 2023 and $1.6 million in 2022, representing selling costs and charges related to the write-down of real estate assets to fair market value based upon current market conditions.
Previous report
Other expense of $15.4 million in 2023 increased $3.0 million, or 25%, compared to $12.4 million in 2022, primarily due to interest charges related to collateral held for derivative transactions, higher insurance costs and the impact of general inflationary pressures.
Previous report
DECEMBER 31, 2022 AND DECEMBER 31, 2021
Previous report
U.S. Government Agencies and Government Sponsored Enterprises (“GSE”)
Previous report
As of December 31, 2023, there were two AFS securities with unrealized losses of $2.7 million in the U.S. Government agencies and GSE portfolio, both of which were in a continuous unrealized loss position for more than 12 months. The decline in fair value is attributable to changes in interest rates, not to credit quality. We do not have the intent to sell these securities and it is likely that we will not be required to sell the security before the anticipated recovery.
Previous report
Time deposits for $1.40 billion;
Previous report
Operating leases for $50.7 million.
Reworded paragraphs (70)
Previous wording
Financial Institutions, Inc. (the “Parent” and together with all its subsidiaries, “we,” “our,” or “us”), is a financial holding company headquartered in New York State. We offer a broad array of deposit, lending, and other financial services to individuals, municipalities and businesses in Western and Central New York through our wholly-owned New York-chartered banking subsidiary, Five Star Bank (the “Bank”). Our indirect lending network includes relationships with franchised automobile dealers in Western and Central New York, the Capital District of New York and Northern and Central Pennsylvania. Effective January 1, 2024, we exited the Pennsylvania automobile market in order to align our focus more fully around our core Upstate New York market. We also have loan production offices in Baltimore, Maryland, and Syracuse, New York, which expands our footprint into the Mid-Atlantic and Central New York regions. In addition, we offer Banking-as-a-Service (“BaaS”) and financial technology (“FinTech”) solutions. We offer insurance services through our wholly-owned subsidiary, SDN Insurance Agency, LLC (“SDN”), a full-service insurance agency. We offer customized investment advice, wealth management, investment consulting and retirement plan services through our wholly-owned subsidiary Courier Capital, LLC (“Courier Capital”) an SEC-registered investment advisory and wealth management firm.
Current wording
Financial Institutions, Inc. (the “Parent” and together with all its subsidiaries, “we,” “our,” or “us”), is a financial holding company headquartered in New York State. We offer a broad array of deposit, lending, and other financial services to individuals, municipalities and businesses in Western and Central New York through our wholly-owned New York-chartered banking subsidiary, Five Star Bank (the “Bank”). We have loan production offices in Baltimore, Maryland, and Syracuse, New York, which expands our footprint into the Mid-Atlantic and Central New York regions. Our indirect lending network includes relationships with franchised automobile dealers in Western and Central New York, and the Capital District of New York. Effective January 1, 2024, we exited the Pennsylvania automobile market in order to align our focus more fully around our core Upstate New York market. We offer customized investment advice, wealth management, investment consulting and retirement plan services through our wholly-owned subsidiary Courier Capital, LLC (“Courier Capital”) an SEC-registered investment advisory and wealth management firm.
Previous wording
Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly fees and other revenue from insurance, investment advisory and financial services provided to customers or ancillary services tied to loans and deposits. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace. We are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on our results of operations and financial condition.
Current wording
Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly investment advisory and financial services provided to customers or ancillary services tied to loans and deposits, and fees and other revenue from insurance, prior to the sale of the assets of SDN. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace. We are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on our results of operations and financial condition.
Previous wording
Net interest income was $165.7 million for 2023, compared to $167.4 million for 2022, a decrease of $1.7 million. Fully-taxable equivalent net interest income was $166.1 million in 2023, a decrease of $1.8 million, compared to 2022. Average interest-earning assets were $408.9 million higher than 2022 due to a $511.8 million increase in average loans and a $31.4 million increase in the average balance of Federal Reserve interest-earning cash, partially offset by a $134.3 million decrease in average investment securities.
Current wording
Net interest income was $163.6 million for 2024, compared to $165.7 million for 2023, a decrease of $2.1 million. Fully-taxable equivalent net interest income was $163.9 million in 2024, a decrease of $2.3 million, compared to 2023. Average interest-earning assets were $71.3 million higher than 2023 due to a $114.9 million increase in average loans and a $35.2 million increase in the average balance of Federal Reserve interest-earning cash, partially offset by a $78.8 million decrease in average investment securities.
Previous wording
Net interest margin was 2.94% for 2023, compared to 3.20% for 2022, primarily as a result of higher funding costs amid the rising interest rate environment, partially offset by an increase in the average yield on interest-earning assets.
Current wording
Net interest margin was 2.86% for 2024, compared to 2.94% for 2023, primarily due to higher funding costs amid the high interest rate environment that persisted for the majority of 2024.
Previous wording
The provision for credit losses was $13.7 million in 2023 compared to a provision of $13.3 million in 2022. Net charge-offs were $8.5 million in 2023, representing 0.20% of average loans, compared to $5.2 million, or 0.14% of average loans in 2022. Non-performing loans increased $16.5 million to $26.7 million compared to a year ago and represented 0.60% of total loans at December 31, 2023, compared to 0.25% of total loans at December 31, 2022. The increase in non-performing loans in the current year was driven by one commercial loan relationship totaling $13.6 million that was placed on nonaccrual status during the fourth quarter of 2023.
Current wording
The provision for credit losses was $6.2 million in 2024 compared to a provision of $13.7 million in 2023. Net charge-offs were $8.7 million in 2024, representing 0.20% of average loans, which were relatively flat compared with $8.5 million, or 0.20% of average loans in 2023. Non-performing loans increased $14.7 million to $41.4 million compared to a year ago and represented 0.92% of total loans at December 31, 2024, compared to 0.60% of total loans at December 31, 2023. The increase in non-performing loans in the current year was primarily driven by one $15.5 million commercial loan relationship that was placed on nonaccrual status during the third quarter of 2024. We have remained strategically focused on the importance of credit discipline, allocating resources to credit and risk management functions as the loan portfolio has grown. The ratio of allowance for credit losses on loans to non-performing loans was 116% at December 31, 2024, compared to 192% at December 31, 2023, with the decrease reflective of the higher level of nonperforming loans at December 31, 2024.
Previous wording
Income tax expense for the year was $12.8 million, representing an effective tax rate of 20.3% compared to $14.4 million, representing an effective tax rate of 20.3% in 2022. The decrease in income tax expense was primarily due to the decrease in income before income taxes in 2023 compared to 2022. Income tax expense for 2023 and 2022 included $5.4 million and $2.0 million, respectively, of incremental taxes associated with the COLI surrender and redeployment strategy executed in in the respective year. Effective tax rates are impacted by items of income and expense not subject to federal or state taxation. The Company’s effective tax rates differ from statutory rates primarily because of interest income from tax-exempt securities, earnings on COLI and tax credit investments placed in service.
Current wording
Income tax benefit for full year 2024 was $26.5 million, representing an effective tax rate of (38.9%), which was reflective of the net loss for the year. Income tax expense for 2023 was $12.8 million, representing an effective tax rate of 20.3%. Income tax expense for 2023 included $5.4 million of incremental taxes associated with the COLI surrender and redeployment strategy executed in 2023. Effective tax rates are impacted by items of income and expense not subject to federal or state taxation. The Company’s effective tax rates differ from statutory rates primarily because of interest income from tax-exempt securities, earnings on COLI and tax credit investments placed in service.
Previous wording
Total assets were $6.16 billion at December 31, 2023, up $363.6 million from $5.80 billion at December 31, 2022.
Current wording
Total assets were $6.12 billion at December 31, 2024, down $43.8 million from $6.16 billion at December 31, 2023.
Previous wording
Investment securities were $1.04 billion at December 31, 2023, down $107.5 million from December 31, 2022. The decrease from year-end 2022 was primarily the result of the use of portfolio cash flow to fund loan originations.
Current wording
Investment securities were $1.03 billion at December 31, 2024, down $8.8 million from December 31, 2023. The decrease from year-end 2023 was primarily due to repayment, sales, and maturities of investment securities, and the use of cash to fund loan originations and reduce short-term borrowings.
Previous wording
Total loans were $4.46 billion at December 31, 2023, up $411.7 million, or 10%, from December 31, 2022. The increase in loans in 2023 was primarily driven by strong commercial loan growth in the first half of the year. The following discusses significant changes within our loan portfolio:
Current wording
Total loans were $4.48 billion at December 31, 2024, up $17.1 million, or 0.4%, from December 31, 2023. The increase in loans in 2024 was primarily driven by strong commercial mortgage loan growth. The following discusses significant changes within our loan portfolio for the current year:
Previous wording
Total deposits were $5.21 billion at December 31, 2023, an increase of $283.5 million from December 31, 2022, which was driven by increases in nonpublic deposits associated with a money market advertising campaign during 2023, as well as reciprocal and Banking-as-a-Service deposit growth. Short-term borrowings were $185.0 million at December 31, 2023, a decrease of $20.0 million from December 31, 2022. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.
Current wording
Short-term borrowings were $99.0 million at December 31, 2024, a decrease of $86.0 million from December 31, 2023. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.
Previous wording
Shareholders’ equity was $454.8 million at December 31, 2023, compared to $405.6 million at December 31, 2022. Common book value per share was $28.40 at December 31, 2023, an increase of $3.09, or 12%, from $25.31 at December 31, 2022. Tangible common book value per share(1) was $23.69 at December 31, 2023, an increase of $3.16, or 15%, from $20.53 at December 31, 2022. The increase in shareholders’ equity as compared to December 31, 2022, was primarily attributable to an increase in retained earnings due to our net income for the year and a reduction in longer-term interest rates, which reduced accumulated other comprehensive loss associated with unrealized losses in the available for sale securities portfolio. Management believes the unrealized losses are temporary in nature, as the losses are associated with the increase in interest rates. The securities portfolio continues to generate cash flow and given the high quality of our agency mortgaged-backed securities portfolio, management expects the bonds to ultimately mature at a terminal value equivalent to par.
Current wording
Shareholders’ equity was $569.0 million at December 31, 2024, compared to $454.8 million at December 31, 2023. Common book value per share was $27.48 at December 31, 2024, a decrease of $0.92, or 3.2%, from $28.40 at December 31, 2023. Tangible common book value per share(1) was $24.45 at December 31, 2024, an increase of $0.76, or 3%, from $23.69 at December 31, 2023. The increase in shareholders’ equity as compared to December 31, 2023, was reflective of the $108.6 million net proceeds from the common stock offering and a decrease in our accumulated other comprehensive loss associated with unrealized losses on AFS securities portfolio, due to the investment securities restructuring, partially offset by the net loss for the year. Management believes the unrealized losses on the AFS securities portfolio are temporary in nature. The securities portfolio continues to generate cash flow and given the high quality of our agency mortgaged-backed securities portfolio, management expects the bonds to ultimately mature at a terminal value equivalent to par.
Previous wording
The Company’s leverage ratio was 8.18% at December 31, 2023 compared to 8.33% at December 31, 2022. The Bank’s leverage ratio and total risk-based capital ratio were 9.06% and 11.76%, respectively, at December 31, 2023, compared to 9.17% and 11.60%, respectively, at December 31, 2022.
Current wording
Our leverage ratio was 9.15% at December 31, 2024 compared to 8.18% at December 31, 2023. The Bank’s leverage ratio and total risk-based capital ratio were 9.79% and 12.60%, respectively, at December 31, 2024, compared to 9.06% and 11.76%, respectively, at December 31, 2023.
Previous wording
Additional financial highlights of the Company are as follows:
Current wording
Additional financial highlights are as follows:
Previous wording
Net interest income is our primary source of revenue, comprising 77% of revenue during the year ended December 31, 2023. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by changes in interest rates and by the amount and composition of interest-earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities and repricing frequencies.
Current wording
Net interest income was our primary source of revenue for the year ended December 31, 2024. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by changes in interest rates and by the amount and composition of interest-earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities and repricing frequencies.
Previous wording
The Federal Reserve influences the general market rates of interest, which impacts the deposit and loan rates offered by many financial institutions. The Federal Reserve increased the intended federal funds rate, which is the cost of immediately available overnight funds, throughout 2022 and 2023, in an attempt by the Federal Reserve to curb inflation. The first increase in March 2022 increased the federal funds rate by 25-basis points to 0.25% to 0.50%, followed by a 50-basis points increase in May 2022 to 0.75% to 1.00%. The Federal Reserve increased the federal funds rate by 75-basis points each in June, July, September, and November 2022, and by 50-basis points in December 2022 resulting in a federal funds rate of 4.25% to 4.50% as of year-end 2022. The Federal Reserve further increased the federal funds rate by 25-basis points each in February, March, May, and July 2023 resulting in a federal funds rate of 5.25% to 5.50% as of year-end 2023. Our loan portfolio is significantly affected by changes in the prime interest rate and changes in the prime interest rate generally follow changes in the federal funds rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, was 8.50% at December 31, 2023, compared to 7.50% at December 31, 2022.
Current wording
The Federal Reserve influences the general market rates of interest, which impacts the deposit and loan rates offered by many financial institutions. Throughout 2022 and 2023, the Federal Reserve increased the intended federal funds rate, which is the cost of immediately available overnight funds in an attempt by the Federal Reserve to curb inflation, resulting in a federal funds rate of 4.25% to 4.50% as of December 31, 2022. The Federal Reserve further increased the federal funds rate by 25-basis points each in February, March, May, and July 2023 resulting in a federal funds rate of 5.25% to 5.50% as of December 31, 2023. The federal funds rate remained at 5.50% until a 50-basis point reduction in September 2024. Amid cooling inflation, the rate decreased 25-basis points in both November and December, resulting in a federal funds rate of 4.25% to 4.50% as of December 31, 2024. Our loan portfolio is significantly affected by changes in the prime interest rate, which generally follow changes in the federal funds rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, was 7.50% at December 31, 2024, compared to 8.50% and 7.50% at December 31, 2023 and 2022, respectively.
Previous wording
The following table reconciles interest income per the consolidated statements of income to interest income adjusted to a fully taxable equivalent basis for the years ended December 31 (in thousands):
Current wording
The following table reconciles interest income per the consolidated statements of operations to interest income adjusted to a fully taxable equivalent basis for the years ended December 31 (in thousands):
Previous wording
Net interest income on a taxable equivalent basis for 2023 was $166.1 million, a decrease of $1.8 million compared to $167.9 million for 2022. The decrease in net interest income was due primarily to higher funding costs amid the rising interest rate environment.
Current wording
Net interest income on a taxable equivalent basis for 2024 was $163.9 million, a decrease of $2.3 million compared to $166.1 million for 2023. The decrease in net interest income was due primarily to higher funding costs amid the high interest rate environment that persisted for the majority of 2024.
Previous wording
Our net interest margin for 2023 was 2.94%, 26-basis points lower than 3.20% from the prior year. This decrease was a function of a 70-basis points decrease in the interest rate spread, partially offset by a 44-basis points higher contribution from net free funds. The change in interest rate spread was a net result of a 202-basis points increase in the average cost of interest-bearing liabilities, partially offset by a 132-basis points increase in the average yield on average interest-earning assets.
Current wording
Our net interest margin for 2024 was 2.86%, 8-basis points lower than 2.94% from the prior year. This decrease was a function of a 16-basis points decrease in the interest rate spread, partially offset by an 8-basis points higher contribution from net free funds. The change in interest rate spread was a net result of a 57-basis points increase in the average cost of interest-bearing liabilities, partially offset by a 41-basis points increase in the average yield on average interest-earning assets.
Previous wording
For the year ended December 31, 2023, the average yield on average interest-earning assets of 5.07% was 132-basis points higher than 2022. Loan yields increased 150-basis points during 2023 to 5.98%. The average yield on investment securities increased 11-basis points during 2023 to 1.92%. Overall, the interest-earning asset rate changes increased interest income by $64.3 million during 2023 and a favorable volume variance increased interest income by $25.6 million, which collectively drove an $89.9 million increase in interest income.
Current wording
For the year ended December 31, 2024, the average yield on average interest-earning assets of 5.48% was 41-basis points higher than 2023. Average loan yield increased 38-basis points during 2024 to 6.36%. The average yield on investment securities increased 28-basis points during 2024 to 2.20%. Overall, the interest-earning asset rate changes increased interest income by $19.4 million during 2024 and a favorable volume variance increased interest income by $7.5 million, which collectively drove a $27.0 million increase in interest income.
Previous wording
Average interest-earning assets were $5.65 billion for 2023 compared to $5.24 billion for 2022, an increase of $408.9 million, or 8%, with average loans up $511.8 million from $3.81 billion for 2022 to $4.32 billion for 2023, while average securities were down $134.3 million from $1.38 billion for 2022 to $1.25 billion for 2023. Securities represented 22.1% of average interest-earning assets during 2023 compared to 26.4% in 2022. Loans comprised 76.5% of average interest-earning assets during 2023 compared to 72.7% during 2022. The growth in average loans was primarily due to organic growth in commercial loans bolstered by our expansion into the Mid-Atlantic Region, as well as organic growth residential and other consumer loans, partially offset by a decline in consumer indirect. Loans generally have significantly higher yields compared to other interest-earning assets and, as such, have a more positive effect on the net interest margin. An increase in the volume of average loans resulted in a $27.6 million increase in interest income and higher interest rates increased interest income by $60.2 million. The decrease in the average balance of investment securities was primarily due to repayment and maturities of investment securities, and the use of cash to fund loan originations.
Current wording
Average interest-earning assets were $5.72 billion for 2024 compared to $5.65 billion for 2023, an increase of $71.3 million, or 1%, with average loans up $114.9 million from $4.32 billion for 2023 to $4.44 billion for 2024, while average investment securities were down $78.8 million from $1.25 billion for 2023 to $1.17 billion for 2024. Average investment securities represented 20.5% of average interest-earning assets during 2024 compared to 22.1% in 2023. The decrease in the average balance of investment securities was primarily due to repayment and maturities of investment securities, and the use of cash to fund loan originations and reduce short-term borrowings. Loans comprised 77.5% of average interest-earning assets during 2024 compared to 76.5% during 2023. The growth in average loans was primarily due to organic growth in commercial mortgage loans, as well as organic growth in residential and other consumer loans, partially offset by a planned reduction in our consumer indirect portfolio. Loans generally have significantly higher yields compared to other interest-earning assets and, as such, have a more positive effect on the net interest margin. An increase in the volume of average loans resulted in a $7.6 million increase in interest income and higher interest rates increased interest income by $16.0 million.
Previous wording
For the year ended December 31, 2023, the average cost of average interest-bearing liabilities of 2.75% was 202-basis points higher than 2022. The average cost of average interest-bearing deposits of 2.63% was 202-basis points higher than 2022 primarily due to the continued repricing of deposits at higher rates as a result of the rising interest rate environment that occurred in 2022 and continued into 2023. The average cost of total borrowings increased 65-basis points to 4.23% in 2023, compared to 3.58% in 2022.
Current wording
For the year ended December 31, 2024, the average cost of total interest-bearing liabilities of 3.32% was 57-basis points higher than 2023. The average cost of total interest-bearing deposits of 3.29% was 66-basis points higher than 2023 primarily due to the continued repricing of deposits at higher rates due to the higher interest rate environment that began in 2023 and persisted for the majority of 2024. The average cost of total borrowings decreased 39-basis points to 3.84% in 2024, compared to 4.23% in 2023.
Previous wording
Average interest-bearing liabilities of $4.39 billion in 2023 were $456.1 million, or 12%, higher than 2022. On average, interest-bearing deposits grew $307.5 million from $3.77 billion for 2022 to $4.08 billion for 2023, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $74.6 million, or 7%, to $1.03 billion. The increase in average deposits was due to growth in non-public deposits, brokered deposits, and reciprocal deposits, partially offset by a decrease in public deposits. Average short-term borrowings increased $100.8 million from $86.1 million in 2022 to $186.9 million in 2023 as short-term borrowings were utilized, in addition to deposits, to fund interest-earning asset growth. For further discussion of our reciprocal and brokered deposits, refer to the “Funding Activities—Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing deposit interest rate changes and volume changes resulted in an increase in interest expense of $77.8 million and $6.6 million, respectively, as compared to 2022, and total borrowings volume and interest rate changes contributed $7.3 million of higher interest expense during 2023.
Current wording
Average interest-bearing liabilities of $4.51 billion in 2024 were $122.5 million, or 3%, higher than 2023. On average, interest-bearing deposits grew $180.5 million from $4.08 billion for 2023 to $4.26 billion for 2024, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $77.2 million, or 7%, to $953.4 million. The increase in average deposits was due to growth in non-public deposits, public deposits, and reciprocal deposits, partially offset by a decrease in brokered deposits. Average short-term borrowings decreased $60.7 million from $186.9 million in 2023 to $126.2 million in 2024 as deposit growth enabled us to pay down short-term borrowings. For further discussion of our reciprocal and brokered deposits, refer to the “Funding Activities—Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing deposit interest rate changes and volume changes resulted in an increase in interest expense of $26.2 million and $6.4 million, respectively, as compared to 2023, and total borrowings volume and interest rate changes contributed $1.8 million and $1.7 million, respectively, of lower interest expense during 2024.
Previous wording
Company owned life insurance (“COLI”) income increased $6.6 million to $12.1 million in 2023, compared to $5.5 million in 2022. The increase was primarily attributable to income from the surrender and redeploy of $53.9 million in cash surrender COLI in 2023. The revenue from the transaction, which was partially offset by $5.4 million of related incremental income taxes, was based upon the credit rating of the premium allocation to separate account investments, as supported by the performance of the underlying investment divisions. The cash surrender value of the separate account COLI and the corresponding revenue is expected to stabilize in future periods. Included in income in 2022 was $2.0 million of income from the surrender and redeployment of $25.5 million in cash surrender value of company owned life insurance, which was offset by approximately $2.0 million of incremental income tax expense.
Current wording
Company owned life insurance (“COLI”) income decreased $6.6 million to $5.5 million in 2024, compared to $12.1 million in 2023. The decrease was primarily attributable to income from the surrender and redeploy of $53.9 million in cash surrender COLI in 2023. The revenue from the transaction, which was partially offset by $5.4 million of related incremental income taxes, was based upon the credit rating of the premium allocation to separate account investments, as supported by the performance of the underlying investment divisions.
Previous wording
Computer and data processing expense increased $2.5 million, or 14%, to $20.1 million in 2023, compared to $17.6 million in 2022. The increase was primarily a result of our strategic investments in data efficiency and marketing technology primarily driven by a new customer relationship management system implemented in late 2021.
Current wording
Computer and data processing expense increased $2.6 million, or 13%, to $22.7 million in 2024, compared to $20.1 million in 2023. The increase was primarily a result of our strategic investments in data efficiency and marketing technology.
Previous wording
The efficiency ratio for the year ended December 31, 2023 was 62.96% compared with 60.39% for 2022. The higher efficiency ratio was primarily the result of the increase in noninterest expense in 2023 as described above. The efficiency ratio is calculated by dividing total noninterest expense by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease indicates a more efficient allocation of resources. The efficiency ratio, a banking industry financial measure, is not required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance.
Current wording
The efficiency ratio for the year ended December 31, 2024 was 82.35% compared with 62.96% for 2023. The higher efficiency ratio was primarily the result of the increase in noninterest expense in 2024 as described above. The efficiency ratio is calculated by dividing total noninterest expense by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease indicates a more efficient allocation of resources. The efficiency ratio, a banking industry financial measure, is not required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance.
Previous wording
We recorded income tax expense of $12.8 million for 2023, compared to $14.4 million for 2022. The decrease in income tax expense was primarily due to the decrease in income before income taxes in 2023 as compared to 2022. In 2023 and 2022, we incurred additional taxes of approximately $5.4 million and $2.0 million, respectively, associated with the capital gains of the previously mentioned COLI surrenders coupled with a 10% modified endowment contract penalty that is typical of general account surrenders. In 2023 and 2022, we recognized tax credit investments resulting in a $3.0 million and $2.6 million, respectively, reduction in income tax expense, in each year, and a $252 thousand and $815 thousand net loss recorded in noninterest income, respectively.
Current wording
Income tax benefit was $26.5 million for 2024, reflective of the net loss reported for the year, compared to income tax expense of $12.8 million for 2023. In 2023, we incurred additional taxes of approximately $5.4 million associated with the capital gains of the previously mentioned COLI surrenders coupled with a 10% modified endowment contract penalty that is typical of general account surrenders. In 2024 and 2023, we recognized tax credit investments resulting in a $4.6 million and $3.0 million, respectively, reduction in income tax expense, in each year, and a $775 thousand and $252 thousand net loss recorded in noninterest income, respectively.
Previous wording
Our effective tax rate was 20.3% for both 2023 and 2022. Effective tax rates are typically impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities, earnings on company owned life insurance and the impact of tax credit investments. In addition, our effective tax rate for 2023 and 2022 reflects the New York State tax benefit generated by our real estate investment trust.
Current wording
Our effective tax rate was -38.9% for 2024, compared to 20.3% for 2023. Effective tax rates are typically impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities, earnings on company owned life insurance and the impact of tax credit investments. In addition, our effective tax rate for 2024 and 2023 reflects the New York State tax benefit generated by our real estate investment trust.
Previous wording
RESULTS OF OPERATIONS FOR THE YEARS ENDED
Current wording
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022
Previous wording
A discussion regarding our financial condition and results of operations at and for the year ended December 31, 2022 and year-to-year comparisons between 2022 and 2021, which are not included in this Form 10-K, can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and are incorporated by reference herein.
Current wording
A discussion regarding our financial condition and results of operations at and for the year ended December 31, 2023 and year-to-year comparisons between 2023 and 2022, which are not included in this Form 10-K, can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and are incorporated by reference herein.
Previous wording
At December 31, 2023, we had total assets of $6.16 billion, an increase of 6% from $5.80 billion as of December 31, 2022, largely attributable to organic loan growth, partially offset by a decrease in our investment securities portfolio. Net loans were $4.41 billion as of December 31, 2023, up $406.0 million, or 10%, compared to $4.01 billion as of December 31, 2022. The increase in net loans was primarily due to organic growth bolstered by our expansion into the Mid-Atlantic Region, as well as organic growth in residential real estate loans and other consumer loans, partially offset by a decrease in consumer indirect loans. Non-performing assets totaled $26.8 million as of December 31, 2023, up $16.6 million compared to December 31, 2022. The increase in non-performing assets was primarily driven by one commercial loan relationship totaling $13.6 million that was placed on nonaccrual status during the fourth quarter of 2023. Total deposits amounted to $5.21 billion as of December 31, 2023, up $283.5 million, or 6%, compared to December 31, 2022. As of December 31, 2023, borrowings totaled $309.5 million, compared to $279.2 million as of December 31, 2022. Common book value per common share was $28.40 and $25.31 as of December 31, 2023 and 2022, respectively. As of December 31, 2023, our total shareholders’ equity was $454.8 million compared to $405.6 million as of December 31, 2022. The increase in shareholders’ equity as compared to December 31, 2022, was primarily attributable to an increase in retained earnings due to our net income for the year and a reduction in longer-term interest rates, which reduced accumulated other comprehensive loss associated with unrealized losses in the available for sale securities portfolio.
Current wording
At December 31, 2024, we had total assets of $6.12 billion, a decrease of 1% from $6.16 billion as of December 31, 2023, reflective of a decrease in cash resulting from the decreased deposits and borrowings and a decrease in other assets, partially offset by a slight increase in loans, and the sale of the assets of our insurance subsidiary. Net loans were $4.43 billion as of December 31, 2024, up $20.1 million, compared to $4.41 billion as of December 31, 2023. The increase in net loans was primarily due to organic growth in our commercial mortgage loan portfolio, partially offset by a decrease in consumer indirect loans and commercial business loans. Non-performing assets totaled $41.5 million as of December 31, 2024, up $14.7 million compared to December 31, 2023. The increase in non-performing assets was primarily driven by one $15.5 million commercial loan relationship that was placed on nonaccrual status during the third quarter of 2024. Total deposits amounted to $5.10 billion as of December 31, 2024, down $108.2 million, or 2%, compared to December 31, 2023. As of December 31, 2024, borrowings totaled $223.8 million, compared to $309.5 million as of December 31, 2023. Common book value per common share was $27.48 and $28.40 as of December 31, 2024 and 2023, respectively. As of December 31, 2024, our total shareholders’ equity was $569.0 million compared to $454.8 million as of December 31, 2023. The increase in shareholders’ equity as compared to December 31, 2023, was reflective of the $108.6 million in net proceeds from the common stock offering, and a decrease in our accumulated other comprehensive loss associated with unrealized losses on AFS securities portfolio, due to the investment securities restructuring, partially offset by the net loss for the year.
Previous wording
Our available for sale (“AFS”) investment securities portfolio decreased $66.6 million from $954.4 million at December 31, 2022 to $887.7 million at December 31, 2023. The decrease from year-end 2022 was primarily the result of the use of portfolio cash flow to fund loan originations. Our AFS portfolio had a net unrealized loss totaling $150.3 million at December 31, 2023 compared to a net unrealized loss of $172.7 million at December 31, 2022. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change. A net loss on investment securities of $3.6 million was recognized in 2023 due to the sale of approximately $54 million in lower yielding available-for-sale agency mortgage-backed securities at an after-tax loss of $2.8 million, reinvesting the proceeds of such sale into higher yielding bonds. The after-tax interest income benefit of $1.4 million annually translates to an earn-back to shareholder’s equity of two years.
Current wording
Our AFS investment securities portfolio increased $23.4 million from $887.7 million at December 31, 2023 to $911.1 million at December 31, 2024. Our AFS portfolio had a net unrealized loss totaling $61.6 million at December 31, 2024 compared to a net unrealized loss of $150.3 million at December 31, 2023. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change. A net loss on investment securities of $100.1 million was recognized in 2024 due to the investment securities restructuring plan, which was executed in December 2024 following our common stock offering. As part of the restructuring, the Bank sold $653.5 million of AFS investment securities, which resulted in a pre-tax loss on the sale of securities of $100.2 million in the fourth quarter of 2024. The after-tax impact of the loss of approximately $75 million was entirely funded by a portion of the capital raised through our common stock offering that was downstreamed to the Bank. The net proceeds from the pre-tax sale of the securities were reinvested into higher yielding, agency wrapped investment securities.
Previous wording
The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date, repricing date or if market yields for such investments decline. We do not believe any of the securities in a loss position are impaired due to reasons of credit quality. Accordingly, as of December 31, 2023, we concluded that unrealized losses on our AFS securities are not impaired due to reasons of credit quality and no allowance for credit losses has been recognized on AFS securities. As the portfolio is managed from a liquidity, earnings, and risk standpoint, sales from the AFS portfolio may be warranted based upon prevailing market factors. The following discussion provides further details of our assessment of the AFS securities portfolio by investment category.
Current wording
The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date, repricing date or if market yields for such investments decline. We do not believe any of the securities in a loss position are impaired due to reasons of credit quality. Accordingly, as of December 31, 2024, we concluded that unrealized losses on our AFS securities were not impaired due to reasons of credit quality and no allowance for credit losses has been recognized on AFS securities. As the portfolio is managed from a liquidity, earnings, and risk standpoint, sales from the AFS portfolio may be warranted based upon prevailing market factors. The following discussion provides further details of our assessment of the AFS securities portfolio by investment category.
Previous wording
As of December 31, 2023, there were 199 securities in the AFS Agency MBS portfolio that were in an unrealized loss position with unrealized losses totaling $148.8 million. Of these, 196 were in an unrealized loss position for 12 months or longer and had an aggregate fair value of $813.7 million and unrealized losses of $148.8 million. The unrealized loss of these securities is driven by the timing of the purchases of fixed-rate securities during the extended low interest rate environments experienced in prior years, which has been compounded with subsequent increases in benchmark interest rates. However, these fixed-rate securities were purchased with the expectation that they will continue to prepay principal and the proceeds will be invested at current market rates.
Current wording
Our AFS portfolio as of December 31, 2024, reflected our strategic investment securities restructuring as a result of the common stock offering. As of December 31, 2024, there were 76 securities in the AFS Agency MBS portfolio with an aggregate fair value of $854.2 million that were in an unrealized loss position with unrealized losses totaling $62.5 million. Of these, 39 were in an unrealized loss position for 12 months or longer and had an aggregate fair value of $176.6 million and unrealized losses of $53.4 million. The unrealized loss of these securities was driven by the timing of the purchases of fixed-rate securities during the extended low interest rate environments experienced in prior years, which has been compounded with subsequent increases in benchmark interest rates. However, these fixed-rate securities were purchased with the expectation that they will continue to prepay principal and the proceeds will be invested at current market rates.
Previous wording
Our non-Agency MBS portfolio consists of positions in one privately issued whole loan collateralized mortgage obligations with a fair value and net unrealized gain of $325 thousand as of December 31, 2023. As of that date, the one non-Agency MBS was rated below investment grade. This security was not in an unrealized loss position.
Current wording
Our non-Agency MBS portfolio consists of positions in one privately issued whole loan collateralized mortgage obligations with a fair value and net unrealized gain of $365 thousand as of December 31, 2024. As of that date, the one non-Agency MBS was rated below investment grade. This security was not in an unrealized loss position.
Previous wording
As a member of the FHLB, the Bank is required to hold FHLB stock. The amount of required FHLB stock is based on the Bank’s asset size and the amount of borrowings from the FHLB. We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment currently exists. As a member of the FRB system, we are required to maintain a specified investment in FRB stock based on a ratio relative to our capital. At December 31, 2023, our ownership of FHLB and FRB stock totaled $11.0 million and $6.4 million, respectively, and is included in other assets and recorded at cost, which approximates fair value.
Current wording
As a member of the FHLB, the Bank is required to hold FHLB stock. The amount of required FHLB stock is based on the Bank’s asset size and the amount of borrowings from the FHLB. We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment currently exists. As a member of the FRB system, we are required to maintain a specified investment in FRB stock based on a ratio relative to our capital. At December 31, 2024, our ownership of FHLB and FRB stock totaled $11.3 million and $7.0 million, respectively, and is included in other assets and recorded at cost, which approximates fair value.
Previous wording
Total loans were $4.46 billion at December 31, 2023, an increase of $411.7 million, or 10%, from December 31, 2022. Commercial loans represented 61% of total loans at the end of 2023 and consumer loans represented 39% of total loans at December 31, 2023. The composition of our loan portfolio, excluding loans held for sale and including net unearned income and net deferred fees and costs, is summarized as follows (in thousands):
Current wording
Total loans were $4.48 billion at December 31, 2024, an increase of $17.1 million, from December 31, 2023. The composition of our loan portfolio, excluding loans held for sale and including net unearned income and net deferred fees and costs, is summarized as follows (in thousands):
Previous wording
Total commercial loans of $2.74 billion, or 61% of total loans at December 31, 2023, were comprised of commercial business loans of $735.7 million, or 16% of total loans, up $71.5 million, or 11%, from December 31, 2022, and commercial mortgage loans of $2.01 billion, or 45% of total loans, up $325.5 million, or 19%, from December 31, 2022. We typically originate commercial business loans of up to $25.0 million for small- to mid-sized businesses in our market area for working capital, equipment financing, inventory financing, accounts receivable financing, or other general business purposes. Loans of this type are in a diverse range of industries. We also offer commercial mortgage loans to finance the purchase of real property, which generally consists of real estate with completed structures. The majority of our commercial mortgage loans are secured by office buildings, manufacturing facilities, distribution/warehouse facilities, and retail centers, which are generally located in our local market area. Commercial loans include both owner-occupied and non-owner occupied commercial real estate loans. Approximately 16% and 19% of our total commercial loan portfolio at December 31, 2023 and December 31, 2022, respectively, was owner occupied real estate. As of December 31, 2023, commercial real estate (“CRE”) loans make up approximately 65% of total commercial loans, and 40% of total loans, commercial and industrial loans approximated 30% of total commercial loans, and 19% of total loans, and business banking unit loans were approximately 4% of total commercial loans and 3% of total loans. Our CRE committed credit exposure at December 31, 2023 related to approximately 42% multi-family, 17% office, 8% retail, 7% hospitality, 7% home builder, and 7% industrial property. Approximately 71% of our office exposure at December 31, 2023, or 12% of our total CRE exposure, related to Class B or medial office space. More than 90% of our CRE loans have full or limited personal or corporate recourse.
Current wording
Total commercial loans of $2.86 billion, represented 64% of total loans at December 31, 2024, compared to $2.74 billion, or 61% of total loans as of December 31, 2023. Commercial business loans of $665.3 million, or 15% of total loans, were down $70.4 million, or 10%, from December 31, 2023, and total commercial mortgage loans of $2.20 billion, or 49% of total loans, were up $194.3 million, or 10%, from December 31, 2023. The increase in commercial mortgage loans was attributable to increases in construction, multifamily, owner and non-owner occupied loans. As of December 31, 2024, commercial real estate (“CRE”) loans made up approximately 67% of total commercial loans, and 43% of total loans, commercial and industrial loans approximated 29% of total commercial loans, and 19% of total loans, and business banking unit loans were approximately 4% of total commercial loans and 3% of total loans. Our CRE committed credit exposure at December 31, 2024 related to approximately 44% multi-family, 17% office, 8% retail, 8% hospitality, 7% industrial property, and 5% home builder. Approximately 68% of our office exposure at December 31, 2024, or 12% of our total CRE exposure, related to Class B or medical office space. More than 75% of our office and 90% of our multifamily CRE loans have full or limited personal or corporate recourse.
Previous wording
We participate in various lending programs in which guarantees are supplied by U.S. government agencies, such as the SBA, U.S. Department of Agriculture, Rural Economic and Community Development and Farm Service Agency, among others. As of December 31, 2023, the principal balance of such loans (included in commercial loans) was $20.5 million, and the guaranteed portion amounted to $12.1 million.
Current wording
We participate in various lending programs in which guarantees are supplied by U.S. government agencies, such as the SBA, U.S. Department of Agriculture, Rural Economic and Community Development and Farm Service Agency, among others. As of December 31, 2024, the principal balance of such loans (included in commercial loans) was $21.8 million, and the guaranteed portion amounted to $13.4 million.
Previous wording
Consumer loans totaled $1.72 billion at December 31, 2023, up $14.8 million compared to 2022, and represented 39% of the 2023 year-end loan portfolio versus 42% at year-end 2022. Loans in this classification include residential real estate loans, residential real estate lines, indirect consumer and other consumer installment loans. Credit risk for these types of loans is generally influenced by general economic conditions, including inflation, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery on these smaller retail loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.
Current wording
Consumer loans totaled $1.61 billion at December 31, 2024, down $106.8 million compared to 2023, and represented 36% of the 2024 year-end loan portfolio versus 39% at December 31, 2023. Loans in this classification include residential real estate loans, residential real estate lines, indirect consumer and other consumer installment loans. Credit risk for these types of loans is generally influenced by general economic conditions, including inflation, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery on these smaller retail loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.
Previous wording
Residential real estate portfolios include conventional first lien mortgages and home equity loans and lines of credit. For conventional first lien mortgages, we generally limit the maximum loan to 85% of collateral value without credit enhancement (e.g., personal mortgage insurance). A portion of our fixed-rate conventional mortgage loans are sold in the secondary market with servicing rights retained. Our conventional mortgage products continue to be underwritten using FHLMC secondary marketing guidelines. Our underwriting guidelines for home equity products include a combination of borrower FICO (credit score), the LTV of the property securing the loan and evidence of the borrower having sufficient income to repay the loan. Currently, for home equity products, the maximum acceptable LTV is 90%. The average FICO score for new home equity production was 750 and 769 during the years ended December 31, 2023 and 2022, respectively.
Current wording
Residential real estate portfolios include conventional first lien mortgages and home equity loans and lines of credit. For conventional first lien mortgages, we generally limit the maximum loan to 85% of collateral value without credit enhancement (e.g., personal mortgage insurance). A portion of our fixed-rate conventional mortgage loans are sold in the secondary market with servicing rights retained. Our conventional mortgage products continue to be underwritten using FHLMC secondary marketing guidelines. Our underwriting guidelines for home equity products include a combination of borrower FICO (credit score), the LTV of the property securing the loan and evidence of the borrower having sufficient income to repay the loan. Currently, for home equity products, the maximum acceptable LTV is 90%. The average FICO score for new home equity production was 742 and 750 during the years ended December 31, 2024 and 2023, respectively.
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Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
(2) The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%.
Current report — wording carried from elsewhere
We typically originate commercial business loans of up to $25.0 million for small- to mid-sized businesses in our market area for working capital, equipment financing, inventory financing, accounts receivable financing, or other general business purposes. Loans of this type are in a diverse range of industries. We also offer commercial mortgage loans to finance the purchase of real property, which generally consists of real estate with completed structures. The majority of our commercial mortgage loans are secured by office buildings, manufacturing facilities, distribution/warehouse facilities, and retail centers, which are generally located in our local market area.