FIRST US BANCSHARES, INC.

Previous wording

First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Prior to its name change on October 11, 2016, Bancshares was known as United Security Bancshares, Inc. Bancshares and the Bank are headquartered in Birmingham, Alabama.

Current wording

First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one wholly-owned banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Bancshares and the Bank are headquartered in Birmingham, Alabama. Previously, the Bank operated two additional wholly-owned subsidiaries, Acceptance Loan Company ("ALC") and FUSB Reinsurance, Inc., both of which were legally dissolved in 2023, and all remaining assets and liabilities of these entities were transferred to the Bank prior to December 31, 2023.

Previous wording

The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

Current wording

The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance.

Previous wording

The allowance for credit losses is a contra-asset valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. The allowance for credit losses on loans and leases is adjusted through the provision for (recovery of) credit losses.

Current wording

The allowance for credit losses is a contra-asset valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. The allowance for credit losses on loans and leases is adjusted through the provision for credit losses.

Previous wording

Off-balance sheet credit exposures include unfunded lending commitments that represent unconditional commitments of the Company to lend to a borrower. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The following categories of off-balance sheet credit exposures have been identified: unfunded loan commitments, standby letters of credit, and financial guarantees (collectively, “unfunded lending commitments”). The allowance for credit losses on unfunded lending commitments is included in other liabilities on the Company’s consolidated balance sheet and is adjusted through the provision for (recovery of) credit losses. The estimate may include consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, as well as reasonable practical expedients or industry practices to assist in the evaluation of estimated funding amounts.

Current wording

Off-balance sheet credit exposures include unfunded lending commitments that represent unconditional commitments of the Company to lend to a borrower. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The following categories of off-balance sheet credit exposures have been identified: unfunded loan commitments, standby letters of credit, and financial guarantees (collectively, “unfunded lending commitments”). The allowance for credit losses on unfunded lending commitments is included in other liabilities on the Company’s consolidated balance sheet and is adjusted through the provision for credit losses. The estimate may include consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, as well as reasonable practical expedients or industry practices to assist in the evaluation of estimated funding amounts.

Previous wording

Expected credit losses on held-to-maturity debt securities are measured on a collective basis by major security type. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses on investment securities held-to-maturity is adjusted through the provision for (recovery of) credit losses.

Current wording

Expected credit losses on held-to-maturity debt securities are measured on a collective basis by major security type. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses on investment securities held-to-maturity is adjusted through the provision for credit losses.

Previous wording

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes in the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded in the provision for (recovery of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.

Current wording

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes in the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded in the provision for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.

Previous wording

Goodwill arises from business combinations and is generally determined as the excess of cost over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is determined to have an indefinite useful life and is not amortized, but is tested for impairment at least annually or more frequently if events or circumstances exist that indicate that a goodwill impairment test should be performed. The Company performs its annual goodwill impairment test as of October 1. Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value. In testing goodwill for impairment, U.S. GAAP permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In this qualitative assessment, the Company evaluates events and circumstances that may include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of the Company, the performance of the Company’s common stock, the key financial performance metrics of the Company’s reporting units and events affecting the reporting units to determine if it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, the Company performs the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. A recognized impairment loss cannot be reversed in future periods even if the fair value of the reporting unit subsequently recovers. Goodwill impairment was neither indicated nor recorded during the years ended December 31, 2023 or 2022. As of October 1, 2023, the date of our most recent impairment test, the Bank reporting unit had a fair value that was in excess of its carrying value. Variability in the market and changes in assumptions or subjective measurements used to estimate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations.

Current wording

Goodwill arises from business combinations and is generally determined as the excess of cost over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is determined to have an indefinite useful life and is not amortized, but is tested for impairment at least annually or more frequently if events or circumstances exist that indicate that a goodwill impairment test should be performed. The Company performs its annual goodwill impairment test as of October 1. Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value. In testing goodwill for impairment, U.S. GAAP permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In this qualitative assessment, the Company evaluates events and circumstances that may include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of the Company, the performance of the Company’s common stock, the key financial performance metrics of the Company’s reporting units and events affecting the reporting units to determine if it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, the Company performs the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. A recognized impairment loss cannot be reversed in future periods even if the fair value of the reporting unit subsequently recovers. Goodwill impairment was neither indicated nor recorded during the years ended December 31, 2024 or 2023. In both years, the Company identified one reporting unit (the "Bank reporting unit") for goodwill impairment testing. As of October 1, 2024, the date of the Company's most recent impairment test, the Bank reporting unit had a fair value that was in excess of its carrying value. Variability in the market and changes in assumptions or subjective measurements used to estimate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations.

Previous wording

Other intangible assets consist of core deposit intangible assets arising from acquisitions. Core deposit intangible assets have definite useful lives and are amortized on an accelerated basis over their estimated useful lives. The Company’s core deposit intangibles have estimated useful lives of seven years. Intangible assets are evaluated for impairment whenever events or circumstances exist that indicate that the carrying amount should be reevaluated. As of December 31, 2023, the Company had $0.2 million in other intangible assets, and there was no indication of impairment.

Current wording

Other intangible assets consist of core deposit intangible assets arising from acquisitions. Core deposit intangible assets have definite useful lives and are amortized on an accelerated basis over their estimated useful lives. The Company’s core deposit intangibles have estimated useful lives of seven years. Intangible assets are evaluated for impairment whenever events or circumstances exist that indicate that the carrying amount should be reevaluated. As of December 31, 2024, there was no indication of impairment associated with the Company's other intangible assets.

Previous wording

Other significant accounting policies, not involving the same level of measurable uncertainties as those discussed above, are nevertheless important to an understanding of the consolidated financial statements. Policies related to the right of use asset and lease liability, revenue recognition, and long-lived assets require difficult judgments on complex matters that are often subject to multiple and recent changes in the authoritative guidance. Certain of these matters are among topics currently under re-examination by accounting standard setters and regulators. Specific conclusions have not been reached by these standard setters, and outcomes cannot be predicted with confidence. See Note 2, “Summary of Significant Accounting Policies,” in the consolidated financial statements, which discusses accounting policies that we have selected from acceptable alternatives.

Current wording

Other significant accounting policies, not involving the same level of measurable uncertainties as those discussed above, are nevertheless important to an understanding of the consolidated financial statements. Policies related to the right of use asset and lease liability, revenue recognition, and long-lived assets require difficult judgments on complex matters that are often subject to multiple and recent changes in the authoritative guidance. See Note 2, “Summary of Significant Accounting Policies,” in the consolidated financial statements, which discusses accounting policies that we have selected from acceptable alternatives.

Previous wording

For the year ended December 31, 2023, the Company earned net income of $8.5 million, or $1.33 per diluted common share, compared to net income of $6.9 million, or $1.06 per diluted common share, for the year ended December 31, 2022.

Current wording

For the year ended December 31, 2024, the Company earned net income of $8.2 million, or $1.33 per diluted common share, compared to net income of $8.5 million, or $1.33 per diluted common share, for the year ended December 31, 2023. Summarized condensed consolidated statements of operations are included below for the years ended December 31, 2024 and 2023, respectively.

Previous wording

As of December 31, 2023, the Company's assets totaled $1,072.9 million, compared to $994.7 million as of December 31, 2022, an increase of 7.9%, primarily due to the loan and deposit growth described below.

Current wording

As of December 31, 2024, the Company's assets totaled $1,101.1 million, compared to $1,072.9 million as of December 31, 2023, an increase of 2.6%.

Previous wording

Total loans increased by $47.9 million, or 6.2%, as of December 31, 2023, compared to December 31, 2022. Loan volume increases during 2023 were driven primarily by growth in indirect consumer loans, commercial construction loans, and non-farm non-residential real estate loans. Growth in indirect consumer lending was consistent with continued demand for the products collateralized through the Company's indirect program, including recreational vehicles, campers, boats, horse trailers and cargo trailers. The increase in commercial construction lending (construction, land development and other land loans) was primarily attributable to continued growth in construction fundings on multi-family residential projects. The loan growth during 2023 was partially offset by decreases in the residential real estate (including 1-4 family and multi-family) and commercial and industrial categories, as well as the direct consumer and branch retail consumer categories. Loans in the direct consumer and branch retail categories were expected to decrease as they comprise the majority of ALC’s remaining loan balances.

Current wording

Total loans increased by $1.2 million, or 0.2%, as of December 31, 2024, compared to December 31, 2023. Loan volume increases during 2024 were driven primarily by growth in multi-family and non-farm, non-residential portfolios, partially offset by decreases in construction, commercial and industrial, 1-4 family residential and consumer categories.

Previous wording

Nonperforming assets, including loans in non-accrual status and OREO, totaled $3.0 million as of December 31, 2023 compared to $2.3 million as of December 31, 2022. The increase in nonperforming assets resulted primarily from one commercial real estate loan that moved into nonaccrual status during the third quarter of 2023. As a percentage of total assets, nonperforming assets totaled 0.28% as of December 31, 2023, compared to 0.24% as of December 31, 2022. Non-accrual loans as a percentage of total loans were 0.29% as of December 31, 2023, compared to 0.21% as of December 31, 2022. OREO totaled $0.6 million and 0.7 million as of December 31, 2023 and 2022, respectively.

Current wording

Nonperforming assets, including loans in non-accrual status and OREO, totaled $5.5 million as of December 31, 2024, compared to $3.0 million as of December 31, 2023. The increase in nonperforming assets during 2024 resulted primarily from one loan that was foreclosed and moved into OREO and another loan that moved into non-accrual status during 2024. As a percentage of total assets, nonperforming assets totaled 0.50% as of December 31, 2024, compared to 0.28% as of December 31, 2023.

Previous wording

Deposits totaled $950.2 million as of December 31, 2023, compared to $870.0 million as of December 31, 2022. The growth in 2023 included an increase of $96.4 million in interest-bearing deposits, partially offset by a decrease of $16.2 million in noninterest-bearing deposits. The shift to interest-bearing deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts amid the rising interest rate environment. The deposit growth in 2023 included growth of $20.2 million in wholesale brokered deposits that were acquired in order to further enhance the Company’s liquidity position following the bank failures that began during the first quarter of 2023. As of December 31, 2023, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $819.5 million, or 86.2% of total deposits, compared to $778.1 million, or 89.4% of total deposits, as of December 31, 2022.

Current wording

Deposits totaled $972.6 million as of December 31, 2024, compared to $950.2 million as of December 31, 2023. The growth in 2024 included an increase of $20.0 million in interest-bearing deposits and an increase in certificates of deposit of $16.9 million, partially offset by a decrease of $8.9 million in money market and savings deposits. The deposit growth in 2024 was partially offset by a decrease of $10.3 million in wholesale brokered deposits. As of December 31, 2024, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $837.7 million, or 86.1% of total deposits, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.

Previous wording

The Company declared cash dividends totaling $0.20 per share on its common stock during 2023, compared to cash dividends totaling $0.14 per share on its common stock during 2022.

Current wording

The Company declared cash dividends totaling $0.22 per share on its common stock during 2024, compared to cash dividends totaling $0.20 per share on its common stock during 2023.

Previous wording

During 2023, the Company completed share repurchases totaling 137,500 shares of its common stock at a weighted average price of $10.34 per share. The share repurchases were completed under the Company’s existing share repurchase program, which was amended in each of December 2019 and April 2021 to allow the repurchase of additional shares, and the Company's Board of Directors has periodically extended the expiration date of the program, most recently to December 31, 2024. As of December 31, 2023, a total of 459,313 shares remained available for repurchase under the program.

Current wording

During 2024, the Company completed share repurchases totaling 146,500 shares of its common stock at a weighted average price of $11.22 per share. The repurchases were completed under the Company’s previously announced share repurchase program, which was expanded in 2024 to authorize the purchase of 600,000 additional shares. As of December 31, 2024, a total of 912,813 shares remained available for repurchase under the program.

Previous wording

During 2023, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of December 31, 2023, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 10.88%. Its total capital ratio was 12.11%, and its Tier 1 leverage ratio was 9.36%.

Current wording

During 2024, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of December 31, 2024, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.31%. Its total capital ratio was 12.47%, and its Tier 1 leverage ratio was 9.50%.

Previous wording

(1) For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. Non-accruing loans averaged $1.7 million and $1.8 million for the years ended December 31, 2023 and 2022, respectively.

Current wording

(1) For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. Non-accruing loans averaged $3.1 million and $1.7 million for the years ended December 31, 2024 and 2023, respectively.

Previous wording

(2) Loan fees are included in the interest amounts presented. Loan fees totaled $0.6 million and $0.9 million for the years ended December 31, 2023 and December 31, 2022, respectively.

Current wording

(2) Loan fees are included in the interest amounts presented. Loan fees totaled $0.7 million and $0.6 million for the years ended December 31, 2024 and December 31, 2023, respectively.

Previous wording

Interest income increased by $11.6 million, comparing the 2023 to 2022. Of the increase, $8.1 million was attributable to higher average yields on interest-earning assets, while $3.5 million was attributable to growth in average loan volume comparing the two periods. The increase in average yield was attributable to the rise in market interest rates that began in 2022 and continued in 2023. The increase in interest income associated with loan volume increases was attributable to loan growth during 2023 of $47.9 million, or 6.2%.

Current wording

Interest income increased by $5.5 million, comparing 2024 to 2023. Of the increase, $3.5 million was attributable to higher average yields on interest-earning assets, while $1.9 million was attributable to growth in average loan volume comparing the two periods. The increase in average yield was attributable to elevated market interest rates that began in 2022 and remained throughout most of 2024 before the FRB began reducing the federal funds rate in September 2024. The increase in interest income associated with loan volume increases was attributable to higher average loan and investment balances in 2024 compared to 2023.

Previous wording

The Company’s non-interest income decreased by $0.1 million comparing 2023 to 2022, due primarily to gains on the sale of premises and equipment that occurred in 2022, but were not repeated in 2023, as well as reductions in ATM fee income. In recent periods, the Company’s sources of non-interest revenue have not fluctuated significantly, with the exception of nonrecurring increases or decreases that have occurred from time to time due to gains or losses on sales of assets or other nonrecurring sources. The majority of the Company’s sources of non-interest income are relatively stable and are not expected to change significantly in the near term. However, non-interest revenues earned from service charges and other fees on deposit accounts have generally declined in recent years for a number of reasons, including a changing regulatory environment associated with these types of revenues. Management continues to evaluate opportunities to add non-interest revenue streams and grow existing streams; however, significant growth in non-interest income is not expected in the near term.

Current wording

The Company’s non-interest income increased by $0.2 million comparing 2024 to 2023, due primarily to increases in lease income, bank-owned life insurance, and other miscellaneous revenue sources. The majority of the Company’s sources of non-interest income are relatively stable and are not expected to change significantly in the near term.

Previous wording

The provision for income taxes was $2.8 million and $2.1 million for the years ended December 31, 2023 and 2022, respectively. The Company’s effective tax rate was 24.7% and 23.8%, respectively, for the same periods.

Current wording

The provision for income taxes was $2.6 million and $2.8 million for the years ended December 31, 2024 and 2023, respectively. The Company’s effective tax rate was 24.0% and 24.7%, respectively, for the same periods.

Previous wording

The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 3.9 years and 3.5 years as of December 31, 2023 and 2022, respectively.

Current wording

The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 3.6 years and 3.9 years as of December 31, 2024 and 2023, respectively.

Previous wording

Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive loss, a separate component of shareholders’ equity. As of December 31, 2023, available-for-sale securities totaled $135.6 million, or 99.2% of the total investment portfolio, compared to $130.8 million, or 98.6% of the total investment portfolio, as of December 31, 2022. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate notes, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.

Current wording

Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive loss, a separate component of shareholders’ equity. As of December 31, 2024, available-for-sale securities totaled $167.9 million, or 99.6% of the total investment portfolio, compared to $135.6 million, or 99.2% of the total investment portfolio, as of December 31, 2023. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate notes, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.

Previous wording

Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of December 31, 2023, held-to-maturity securities totaled $1.1 million, or 0.8% of the total investment portfolio, compared to $1.9 million, or 1.4% of the total investment portfolio, as of December 31, 2022. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies and obligations of states and political subdivisions.

Current wording

Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of December 31, 2024, held-to-maturity securities totaled $0.7 million, or 0.4% of the total investment portfolio, compared to $1.1 million, or 0.8% of the total investment portfolio, as of December 31, 2023. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies and obligations of states and political subdivisions.

Previous wording

Due to decreases in the interest rate environment during the fourth quarter of 2023 compared to 2022, as well as investment purchases in 2023 at higher yields, unrealized losses net of unrealized gains decreased, particularly within the Company’s available-for-sale portfolio. Unrealized losses net of unrealized gains in the available-for-sale portfolio totaled $9.3 million as of December 31, 2023, compared to $11.1 million as of December 31, 2022. Unrealized losses net of unrealized gains within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.

Current wording

Net unrealized losses in the available-for-sale portfolio totaled $6.7 million as of December 31, 2024, compared to $9.3 million as of December 31, 2023. Net unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.

Previous wording

As of December 31, 2023, the Company evaluated both the available-for-sale and held-to-maturity portfolios for credit loss in accordance with the revised accounting guidance of ASC 326:"Financial Instruments - Credit Losses" ("ASC 326"). Based on these evaluations, management concluded that no credit losses were included in either portfolio and that the unrealized losses in both portfolios resulted from the prevailing interest rate environment.

Current wording

As of December 31, 2024, the Company evaluated both the available-for-sale and held-to-maturity portfolios for credit losses and concluded that no credit losses were included in either portfolio and that the unrealized losses in both portfolios resulted from the prevailing interest rate environment.

Previous wording

The Company's total loan portfolio increased by $47.9 million, or 6.2%, as of December 31, 2023, compared to December 31, 2022. The table below summarizes loan balances by portfolio category at the end of each of the most recent five years as of December 31, 2023:

Current wording

The Company's total loan portfolio increased by $1.2 million, or 0.2%, as of December 31, 2024, compared to December 31, 2023. The table below summarizes loan balances by portfolio category at the end of each of the most recent five years as of December 31, 2024:

Previous wording

The table below summarizes changes in the allowance for credit losses on loans and leases for each of the most recent five years as of December 31, 2023. For years ended December 31, 2022 and prior, information presented is as determined in accordance with ASC 310, Receivables, prior to the adoption of ASC 326:

Current wording

The table below summarizes changes in the allowance for credit losses on loans and leases for each of the most recent five years as of December 31, 2024. For years ended December 31, 2022 and prior, information presented is as determined in accordance with ASC 310, Receivables, prior to the adoption of ASC 326, Financial Instruments - Credit losses:

Previous wording

In connection with the adoption of the CECL accounting model, the Company also recorded an allowance for credit losses on unfunded lending commitments. Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. The CECL accounting guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection. As of December 31, 2023, the Company’s allowance for credit losses on unfunded commitments, which is recorded in other liabilities in the Company’s consolidated balance sheets, totaled $0.6 million. No allowance for credit losses on unfunded commitments was recorded by the Company in the four years prior to 2023.

Current wording

Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. ASC 326 guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection. As of December 31, 2024 and 2023, the Company’s allowance for credit losses on unfunded commitments, which is recorded in other liabilities in the Company’s consolidated balance sheets, totaled $0.4 million and $0.6 million, respectively. No allowance for credit losses on unfunded commitments was recorded by the Company in the years prior to 2023.

Previous wording

While no portion of the allowance is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table shows an allocation of the allowance for credit losses as of December 31, 2023 and 2022. The information presented as of December 31, 2022 is as determined in accordance with ASC 310, Receivables, prior to the adoption of ASC 326.

Current wording

While no portion of the allowance is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table shows an allocation of the allowance for credit losses as of December 31, 2024 and 2023.

Previous wording

The increase in nonperforming assets during 2023 resulted primarily from one commercial real estate loan that moved into non-accrual status during the year.

Current wording

The increase in nonperforming assets during 2024 resulted primarily from one loan that was foreclosed and moved into OREO and another loan that moved into non-accrual status during the year.

Previous wording

Deposits totaled $950.2 million as of December 31, 2023, compared to $870.0 million as of December 31, 2022. The growth in 2023 included an increase of $96.4 million in interest-bearing deposits, partially offset by a decrease of $16.2 million in noninterest-bearing deposits. The shift to interest-bearing deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts amid the rising interest rate environment. The deposit growth in 2023 included growth of $20.2 million in wholesale brokered deposits that were acquired in order to further enhance the Company’s liquidity position following the bank failures that began during the first quarter of 2023. As of December 31, 2023, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $819.5 million, or 86.2% of total deposits, compared to $778.1 million, or 89.4% of total deposits, as of December 31, 2022.

Current wording

Deposits totaled $972.6 million as of December 31, 2024, compared to $950.2 million as of December 31, 2023. The growth in 2024 included an increase of $20.0 million in interest-bearing deposits and an increase in certificates of deposit of $16.9 million, partially offset by a decrease of $8.9 million in money market and savings deposits. The shift to interest-bearing deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts amid the elevated interest rate environment. The deposit growth in 2024 was also partially offset by a decrease of $10.3 million in wholesale brokered deposits. As of December 31, 2024, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $837.7 million, or 86.1% of total deposits, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.

Previous wording

Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances and subordinated debt that are used by the Company as alternative sources of funds. As of December 31, 2023, these liabilities represented 2.5% of interest-bearing liabilities, compared to 4.2% as of December 31, 2022. The table below summarizes short- and long-term liabilities and related interest rate data as of and for the years ended December 31, 2023 and 2022.

Current wording

Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances and subordinated debt that are used by the Company as alternative sources of funds. As of both December 31, 2024 and 2023, these liabilities represented 2.5% of interest-bearing liabilities. The table below summarizes short- and long-term liabilities and related interest rate data as of and for the years ended December 31, 2024 and 2023.

Previous wording

As of December 31, 2023, shareholders’ equity totaled $90.6 million, or 8.4% of total assets, compared to $85.1 million, or 8.6% of total assets, as of December 31, 2022. The increase in shareholders’ equity resulted from increased earnings, net of dividends paid, combined with valuation increases in the Company's available-for-sale investment portfolio that reduced accumulated other comprehensive loss. The increase in shareholders' equity during the year was partially offset by the CECL transition adjustment which reduced retained earnings by $1.8 million, net of tax, as well as the repurchase of common shares by the Company in accordance with its established share repurchase program.

Current wording

As of December 31, 2024, shareholders’ equity totaled $98.6 million, or 9.0% of total assets, compared to $90.6 million, or 8.4% of total assets, as of December 31, 2023. The increase in shareholders’ equity during the year ended December 31, 2024 resulted primarily from earnings, net of dividends paid, partially offset by repurchases of shares of the Company's common stock. In addition, shareholders' equity was positively impacted during 2024 by reductions in the Company's accumulated other comprehensive loss resulting from changes in market interest rates, as well as the maturity of lower yielding investment securities.

Previous wording

During the year ended December 31, 2023 the Company completed repurchases of 137,500 shares of its common stock at a weighted average price of $10.34 per share, or $1.4 million in aggregate. The repurchased shares were allocated to treasury stock under the Company’s existing share repurchase program that was amended by the Board of Directors in each of December 2019 and April 2021 to allow the repurchase of additional shares. The Board has periodically extended the expiration date of the share repurchase program, most recently to December 31, 2024. Share repurchases under the program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate, subject to applicable regulatory requirements. The repurchase program does not obligate the Company to acquire any particular number of shares and may be suspended at any time at the Company’s discretion. As of December 31, 2023, 459,313 shares remained available for repurchase under the program.

Current wording

During the year ended December 31, 2024 the Company completed repurchases of 146,500 shares of its common stock at a weighted average price of $11.22 per share, or $1.6 million in aggregate. The repurchased shares were allocated to treasury stock under the Company’s previously announced share repurchase program, which was expanded in 2024 to authorize the purchase of 600,000 additional shares. Share repurchases under the program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate, subject to applicable regulatory requirements. The repurchase program does not obligate the Company to acquire any particular number of shares and may be suspended at any time at the Company’s discretion. As of December 31, 2024, 912,813 shares remained available for repurchase under the program.

Previous wording

During the year ended December 31, 2023, the Company declared dividends totaling $0.20 per common share, or approximately $1.2 million in aggregate amount, compared to $0.14 per common share, or approximately $0.8 million in aggregate amount, during the year ended December 31, 2022. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends.

Current wording

During the year ended December 31, 2024, the Company declared dividends totaling $0.22 per common share, or approximately $1.3 million in aggregate amount, compared to $0.20 per common share, or approximately $1.2 million in aggregate amount, during the year ended December 31, 2023. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends.

Previous wording

The asset portion of the balance sheet provides liquidity primarily from the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (4) principal payments and maturities from the investment portfolio. Loans maturing or repricing in one year or less amounted to $241.2 million as of December 31, 2023 and $212.5 million as of December 31, 2022. Investment securities forecasted to mature or reprice in one year or less were estimated to be $12.9 million and $7.1 million of the investment portfolio as of December 31, 2023 and 2022, respectively.

Current wording

The asset portion of the balance sheet provides liquidity primarily from the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (4) principal payments and maturities from the investment portfolio. Loans maturing or repricing in one year or less amounted to $279.0 million as of December 31, 2024 and $241.2 million as of December 31, 2023. Investment securities forecasted to mature or reprice in one year or less were estimated to be $29.6 million and $12.9 million of the investment portfolio as of December 31, 2024 and 2023, respectively.

Previous wording

Although some securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. The investment securities portfolio had an estimated average life of 3.9 years and 3.5 years as of December 31, 2023 and 2022, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

Current wording

Although some securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. The investment securities portfolio had an estimated average life of 3.6 years and 3.9 years as of December 31, 2024 and 2023, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

Previous wording

The Company had $10.0 million and $20.0 million in outstanding short-term borrowings under FHLB advances as of December 31, 2023 and 2022, respectively. In addition, on October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031. Net of unamortized debt issuance costs, the subordinated notes were recorded as long-term borrowings totaling $10.8 million and $10.7 million as of December 31, 2023 and 2022, respectively.

Current wording

The Company had $10.0 million in outstanding short-term borrowings under FHLB advances as of both December 31, 2024 and 2023. On October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031. Net of unamortized debt issuance costs, the subordinated notes were recorded as long-term borrowings totaling $10.9 million and $10.8 million as of December 31, 2024 and 2023, respectively.