SECURITY FEDERAL CORP
For the period ended Dec 31, 2024. Filed Mar 14, 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 14, 2025
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-21.
0001437749-24-008852
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-14.
0001437749-25-007686
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 94 previous paragraphs and 90 current paragraphs.
38 unchanged; 43 reworded; 9 added; 13 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 12 previous and 11 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 (9)
Current report
Cash and cash equivalents increased $50.0 million or 39.0% to $178.3 million at December 31, 2024 compared to $128.3 million at December 31, 2023, due to increased deposits, while certificates of deposits with other banks decreased $1.1 million or 46.8% to $1.3 million at December 31, 2024 compared to the prior year end.
Current report
Loans receivable, net, including loans held for sale, increased $64.6 million or 10.4% to $687.1 million at December 31, 2024 from $622.5 million at December 31, 2023. The increase was due to growth across all loan categories, except other consumer loans, which declined slightly in 2024 as compared to 2023.
Current report
The most significant growth occurred in our residential and commercial real estate loan portfolios. Residential mortgage loans held for investment increased $30.8 million or 17.8% to $203.7 million at December 31, 2024 from $172.9 million at December 31, 2023. Commercial real estate loans increased $23.7 million or 9.0% to $288.5 million at December 31, 2024, from $264.8 million at December 31, 2023. Additionally, construction loans increased by $5.4 million, commercial and agricultural loans by $3.6 million, and HELOCs by $3.3 million. These increases were partially offset by a $677,000 decline in other consumer loans.
Current report
Net Income Available to Common Shareholders
Current report
We recorded a provision for credit losses of $1.4 million for the year ended December 31, 2024. This consisted of a $1.5 million provision for credit losses on loans and a $110,000 reversal of the provision credit losses on unfunded commitments, compared to a $246,000 provision for credit losses for the year ended December 31, 2023, which consisted of a $601,000 provision for credit losses on loans and a $355,000 reversal of the provision credit losses on unfunded commitments. The increase in the provision was due to overall growth in the loan portfolio, increased substandard loans and higher charge-offs during the year. Net charge-offs for the year ended December 31, 2024 totaled $155,000, compared to net recoveries of $6,000 in 2023. Non-performing assets, consisting solely of nonaccrual loans, increased $811,000, or 11.9%, to $7.6 million at December 31, 2024 from $6.8 million at December 31, 2023. Non-performing assets represented 0.47% and 0.44% of total assets at December 31, 2024 and 2023, respectively.
Current report
Non-interest expense increased $2.2 million or 6.2% to $38.1 million during the year ended December 31, 2024 compared to $35.9 million in 2023. This increase was primarily a result of increases in compensation and employee benefits, cloud service expense, and other non-interest expense, partially offset by a decrease in depreciation and maintenance of equipment expenses.
Current report
Compensation and employee benefits increased $1.5 million or 7.3% to $21.8 million during the year ended December 31, 2024 from $20.3 million in 2023. This increase was primarily due to an increase in employee salaries and annual cost-of-living adjustments.
Current report
Debit card expenses increased $125,000 or 8.7% to $1.6 million during the year ended December 31, 2024 from $1.4 million in 2023, primarily due higher transaction volumes and rising transaction costs. Occupancy expenses increased $121,000 or 3.8% to $3.3 million in 2024 from $3.2 million in 2023, primarily due to the addition of our newest branch in the second quarter of 2023.
Current report
Data processing expenses increased $105,000 or 8.0% to $1.4 million during the year ended December 31, 2024 and cloud services expenses increased $218,000 or 30.5% to $932,000 in 2024. These increases were the result of increases in the cost of services provided by third-party vendors and higher transaction volume when compared to the prior year.
Removed paragraphs (13)
Previous report
Loans receivable, net, including loans held for sale, increased $72.6 million or 13.2% to $622.5 million at December 31, 2023 from $549.9 million at December 31, 2022 primarily due to increases in residential mortgage and commercial real estate loans. In addition, HELOCs, other consumer loans, and commercial and agricultural loans also increased, while construction loans decreased during 2023 as compared to 2022.
Previous report
Residential mortgage loans held for investment increased $62.8 million or 57.1% to $172.9 million at December 31, 2023 from $110.1 million at December 31, 2022. Similarly, commercial real estate loans increased $12.6 million or 5.0% to $264.8 million at December 31, 2023 from $252.2 million at December 31, 2022, while construction loans decreased $8.3 million or 7.3% to $104.5 million at December 31, 2023 from $112.8 million at December 31, 2022.
Previous report
Further, commercial and agricultural loans increased to $33.3 million at December 31, 2023 up from $30.6 million at December 31, 2022. HELOCs increased to $34.5 million at December 31, 2023 up from $31.7 million at December 31, 2022 and other consumer loans increased to $24.5 million at December 31, 2023, up from $23.6 million at December 31, 2022.
Previous report
Property and equipment, net increased $677,000 or 2.4% to $28.6 million at December 31, 2023 from $28.0 million at December 31, 2022 due to capital costs related to branch improvements and construction of the Bank's newest branch.
Previous report
Non-performing loans increased in the construction, HELOC and other consumer loan categories during 2023 compared to 2022. There were no OREO properties at December 31, 2023 compared to $120,000 at December 31, 2022. The ratio of the allowance for credit losses to total loans was 1.98% and 2.09% at December 31, 2023 and 2022, respectively.
Previous report
Effective January 1, 2023, we adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, also known as CECL. This adoption resulted in a $2.0 million increase in the allowance for credit losses, comprised of increases in the allowance for credit losses on loans of $784,000 and on unfunded commitments of $1.2 million. The cumulative effect adjustment to retained earnings was $1.6 million, net of tax. For additional information, refer to “Recently Issued or Adopted Accounting Standards” in Note 1 of the Notes to Consolidated Financial Statements included under “Item 8. Financial Statements and Supplementary Data" in this 2023 Form 10-K.
Previous report
Net Income
Previous report
We recorded a provision for credit losses of $246,000 for the year ended December 31, 2023 compared to no provision during the year ended December 31, 2022. Non-performing assets increased $432,000, or 6.8%, to $6.8 million at December 31, 2023 from $6.4 million at December 31, 2022. Non-performing assets represented 0.44% and 0.49% of total assets at December 31, 2023 and 2022, respectively.
Previous report
Non-interest expense increased $1.7 million or 4.9% to $35.9 million during the year ended December 31, 2023 compared to $34.2 million during 2022. This increase was a result of increases in all non-interest expense categories, with the exception of a reduction in write-downs of land held for sale and a slight decrease in advertising expenses.
Previous report
Compensation and employee benefits increased $263,000 or 1.3% to $20.3 million during the year ended December 31, 2023 from $20.1 million for the year ended December 31, 2022, primarily due to annual cost-of-living increases and an increase in the number of full time equivalent employees as a result of a new branch opened in 2023. Occupancy expense increased $364,000 or 12.9% primarily due to an increase in depreciation expense on buildings as a result of our newest branch added in 2023.
Previous report
FDIC insurance expense increased by $246,000 or 65.7% due to increased rates in 2023. Data processing expenses increased $547,000 or 72.1% as a result of the Company’s decision during 2023 to transition data and proof operations from on-site to outsourced through our third-party core processor. In addition to the incremental increase in third-party costs, the volume of customers and transactions also increased when compared to the prior year.
Previous report
There were no write-downs of the fair value of land held for sale during 2023 compared to a $433,000 write-down in 2022 based on an updated appraisal.
Previous report
Other non-interest expense increased $343,000 or 7.5% to $4.9 million for the year ended December 31, 2023 compared to $4.5 million during 2022 due to increased operations and the addition of a new branch in 2023.
Reworded paragraphs (43)
Previous wording
Total assets increased $168.4 million or 12.2% to $1.5 billion at December 31, 2023 from $1.4 billion at December 31, 2022. This increase was primarily due to increases in cash and cash equivalents, net loans receivable and, to a lesser extent, other assets, partially offset by a decrease in investment securities.
Current wording
Total assets increased $62.1 million or 4.0% to $1.61 billion at December 31, 2024 from $1.55 billion at December 31, 2023. This increase was primarily due to increases in net loans receivable and cash and cash equivalents, partially offset by a decrease in investment securities and other assets.
Previous wording
Cash and cash equivalents increased $99.8 million or 350.1% to $128.3 million at December 31, 2023 compared to $28.5 million at December 31, 2022, due to increased deposits and borrowings. Total investment securities decreased $16.9 million or 2.4% to $700.7 million at December 31, 2023 from $717.6 million at December 31, 2022 as maturities, sales and principal paydowns exceeded purchases of investments during the year. The Company purchased $66.3 million of investment securities during the year ended December 31, 2023 compared to $210.3 million during 2022.
Current wording
Total investment securities decreased $39.9 million or 5.7% to $660.8 million at December 31, 2024 from $700.7 million at December 31, 2023 as maturities, sales and principal paydowns exceeded purchases of investments during the year. The Company purchased $71.9 million of investment securities during the year ended December 31, 2024 compared to $66.3 million during 2023.
Previous wording
Loans held for sale, comprised of fixed rate residential loans, increased $54,000 or 5.9% to $967,000 at December 31, 2023 from $913,000 at December 31, 2022. Typically, long-term fixed-rate residential real estate loans, when newly originated, are not retained in the portfolio but are promptly sold, unlike ARM loans, which are generally held in the portfolio. The Bank sells all its fixed-rate residential loans on a service-released basis. The total value of fixed-rate residential loans sold to institutional investors on a service-released basis was $21.6 million during the year ended December 31, 2023, compared to $48.5 million during the year ended December 31, 2022.
Current wording
Loans held for sale, comprised of fixed rate residential loans, totaled $599,000 at December 31, 2024 compared to $967,000 at December 31, 2023. Typically, long-term fixed-rate residential real estate loans, when newly originated, are not retained in the portfolio but are promptly sold, unlike ARM loans, which are generally held in the portfolio. The Bank sells its fixed-rate residential loans on a service-released basis. The total value of fixed-rate residential loans sold to institutional investors on a service-released basis was $30.2 million during the year ended December 31, 2024, compared to $21.6 million during the year ended December 31, 2023.
Previous wording
Other assets increased $10.1 million or 52.2% to $29.3 million at December 31, 2023 from $19.2 million at December 31, 2022. The increase was primarily the result of a $10.8 million increase in principal payments receivable on investment securities, which was related to the maturity of one investment security that matured on December 31, 2023 but payment was not received until the beginning of 2024.
Current wording
Other assets decreased $12.5 million or 42.7% to $16.8 million at December 31, 2024 from $29.2 million at December 31, 2023. The decrease was primarily the result of a $10.8 million decrease in principal payments receivable on investments. The higher balance in the prior year was due to the maturity of one investment security that matured on December 31, 2023 but payment was not received until the beginning of 2024.
Previous wording
The Bank’s non-performing assets increased $432,000 or 6.8% to $6.8 million at December 31, 2023, from $6.4 million at December 31, 2022. Non-performing assets represented 0.44% and 0.49% of total assets at December 31, 2023 and 2022, respectively.
Current wording
The Bank’s non-performing assets, consisting solely of nonaccrual loans, increased $811,000 or 11.9% to $7.6 million at December 31, 2024, from $6.8 million at December 31, 2023. At December 31, 2024 and 2023, the Bank did not have any loans that were 90 days or more past due and still accruing interest, or OREO. Non-performing assets represented 0.44% and 0.49% of total assets at December 31, 2024 and 2023, respectively. The ratio of the allowance for credit losses to total loans was 1.98% at both December 31, 2024 and 2023.
Previous wording
The largest increase in non-performing loans occurred in construction loans, which increased $753,000 or 654.8% to $868,000 at December 31, 2023 from $115,000 at December 31, 2022. Non-performing construction loans consisted of four loans to four borrowers with an average loan balance of $217,000 at December 31, 2023, compared to two loans to two borrowers with an average loan balance of $57,000 at December 31, 2022.
Current wording
The increase in non-performing assets at December 31, 2024, was primarily driven by higher levels of non-performing construction, residential real estate, and commercial and agricultural loans. This was partially offset by a decrease in non-performing commercial real estate loans compared to the year ended December 31, 2023. The largest increase occurred in non-performing construction loans, which increased $570,000 or 65.7% to $1.4 million at December 31, 2024 , from $868,000 at December 31, 2023. At December 31, 2024, non-performing construction loans consisted of four loans to four borrowers, with an average loan balance of $252,000, compared to four loans to four borrowers with an average loan balance of $217,000 at December 31, 2023.
Previous wording
Non-performing residential mortgage loans totaled $1.3 million at December 31, 2023, down slightly from $1.5 million at December 31, 2022. Non-performing residential mortgage loans at December 31, 2023 consisted of 16 loans to 16 borrowers with an average loan balance of $82,000, the largest of which was $291,000, compared to 16 loans to 16 borrowers with an average loan balance of $97,000, the largest of which was $250,000, at December 31, 2022.
Current wording
Non-performing residential real estate loans increased $400,000 or 30.6% to $1.7 million at December 31, 2024, up from $1.3 million at December 31, 2023. Non-performing residential real estate loans at December 31, 2024, consisted of 19 loans to 19 borrowers with an average loan balance of $113,000, the largest of which was $431,000, compared to 16 loans to 16 borrowers with an average loan balance of $82,000, the largest of which was $291,000, at December 31, 2023.
Previous wording
Non-performing HELOCs increased $224,000 or 118.5% to $413,000 at December 31, 2023 from $189,000 at December 31, 2022. Non-performing HELOCs consisted of five loans to five borrowers with an average loan balance of $83,000 at December 31, 2023, compared to five loans to five borrowers with an average loan balance of $38,000 at December 31, 2022.
Current wording
Non-performing commercial and agricultural loans increased $281,000 or 562.0% to $331,000 at December 31, 2024, compared to $50,000 at December 31, 2023. At December 31, 2024, non-performing commercial and agricultural loans consisted of five loans to five borrowers, with an average loan balance of $66,000, compared to three loans to three borrowers with an average loan balance of $17,000 at December 31, 2023.
Previous wording
Non-performing commercial real estate loans totaled $4.1 million at December 31, 2023, down slightly from $4.3 million at December 31, 2022. Non-performing commercial real estate loans consisted of five loans to five borrowers with an average loan balance of $825,000 at December 31, 2023, compared to three loans to three borrowers with an average loan balance of $1.1 million at December 31, 2022.
Current wording
Offsetting these increases was a $467,000 or 11.3% decrease in non-performing commercial real estate loans, which declined to $3.7 million at December 31, 2024, from $4.1 million at December 31, 2023. At December 31, 2024, non-performing commercial real estate loans consisted of seven loans to seven borrowers, with an average loan balance of $523,000, compared to five loans to five borrowers with an average loan balance of $825,000 at December 31, 2023.
Previous wording
Total deposits increased $84.9 million or 7.6% to $1.19 billion at December 31, 2023, up from $1.11 billion at December 31, 2022. The increase was the result of an $88.7 million or 62.5% increase in certificates of deposit balances and a $53.2 million or 15.2% increase money market account balances. These increase were partially offset by decreases in checking and savings account balances, which declined by $37.0 million or 7.3% and $19.9 million or 18.4%, respectively, during the same period. Management attributes the shift in the deposit mix to depositors seeking higher yielding CDs and other investment altern atives.** **Themajority of the Bank’s deposits are originated within the Bank’s immediate market area.
Current wording
The majority of the Bank’s deposits are originated within the Bank’s immediate market area. Total deposits increased $129.0 million or 10.8% to $1.32 billion at December 31, 2024, up from $1.19 billion at December 31, 2023. The increase primarily was the result of an $78.8 million or 34.2% increase in certificates of deposit balances, a $41.6 million or 10.3% increase money market account balances and, to a lesser extent, a $9.3 million or 2.0% increase in checking account balances. We believe the majority of the increases in deposits were due to competitive promotional rates for certificates of deposits and money market accounts in addition to a $19.7 million increase in total brokered deposits.
Previous wording
Brokered time deposits were $6.5 million and $6.0 million at December 31, 2023 and 2022, respectively. The Bank uses brokered time deposits to manage interest rate risk because they are accessible in bulk at rates typically only slightly higher than those in our market areas. A portion of these brokered time deposits give the Bank a call option that allows the Bank the choice to redeem them early should rates change. In addition, the Bank had $5.0 million in non-certificate brokered deposits at both December 31, 2023 and 2022. Brokered deposits were 1.0% of total deposits at both December 31, 2023 and 2022.
Current wording
We had brokered time deposits of $25.8 million and $6.5 million at December 31, 2024 and 2023, respectively. We use brokered time deposits as part of our interest rate risk management strategy, as they provide access to large deposit amounts at competitive rates that are typically slightly higher than those available in our market areas. A portion of these brokered time deposits includes a call option, allowing the Bank to redeem them early should interest rates shift. Additionally, the Bank maintained $5.4 million and $5.0 million in non-certificate brokered deposits at December 31, 2024 and 2023, respectively. Brokered deposits were 2.5% and 1.0% of total deposits at December 31, 2024 and 2023, respectively.
Previous wording
Total uninsured deposits (those that exceeded the FDIC insurance limit of $250,000) totaled $327.7 million and $350.1 million at December 31, 2023 and 2022, respectively. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. Certificates of deposits that exceeded the FDIC insurance limit of $250,000 totaled $50.2 million and $30.3 million at December 31, 2023 and 2022, respectively. The following table summarizes the maturity schedule of certificates of deposit with a balance of $250,000 or more at December 31, 2023:
Current wording
Total uninsured deposits (those that exceeded the FDIC insurance limit of $250,000) were $365.8 million and $327.7 million at December 31, 2024 and 2023, respectively. These estimates are based on methodologies and assumptions used for the Bank’s regulatory reporting requirements. Certificates of deposits exceeding the FDIC insurance limit totaled $96.0 million and $50.2 million at December 31, 2024 and 2023, respectively. The following table summarizes the maturity schedule of certificates of deposit with a balance of $250,000 or more at December 31, 2024:
Previous wording
Certificates of deposit scheduled to mature in one year or less totaled $198.3 million at December 31, 2023 compared to $97.2 million at December 31, 2022. Management’s policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing certificates of deposit will remain with the Bank.
Current wording
Certificates of deposit scheduled to mature in one year or less totaled $253.1 million at December 31, 2024 compared to $198.3 million at December 31, 2023. Management’s policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing certificates of deposit will remain with the Bank.
Previous wording
The Bank had no outstanding FHLB advances at December 31, 2023 and 2022. The Company had $119.2 million in outstanding borrowings under the FRB's BTFP with a weighted average borrowing rate of 4.60% at December 31, 2023 compared to $44.1 million in borrowings from the FRB discount window with a weighted average borrowing rate of 4.50% at December 31, 2022. During 2023, the Company elected to participate in the BTFP, allowing the Company to refinance its existing borrowings from the FRB discount window to receive a lower fixed rate. Advances made under the BTFP are for up to one year and would be extended at the one year overnight index swap ("OIS") rate as of the day the advance is made plus 10 basis points. Effective January 24, 2024, the FRB announced that future advances under the BTFP through its expiration on March 11, 2024 would be no lower than the interest rate on reserve balances in effect on the date the advance is made. The interest rate will be fixed for the term of the advance on the day the advance is made. At December 31, 2023, the Company had pledged as collateral for these borrowings investment securities with an amortized cost and fair value of $381.0 million and $350.6 million, compared to an amortized cost and fair value of $72.6 million and $69.2 million, respectively, at December 31, 2022, respectively.
Current wording
We had no outstanding FHLB advances at December 31, 2024 and 2023. We had $50.0 million in outstanding borrowings under the FRB's BTFP with a weighted average borrowing rate of 4.76% at December 31, 2024, compared to $119.2 million at December 31, 2023, with a weighted average borrowing rate of 4.60%. During 2023, we elected to participate in the BTFP to refinance existing FRB discount window borrowings at a lower fixed rate. Advances under the program have a one-year term and are priced at the OIS rate plus 10 basis points on the day the advance is made. Effective January 24, 2024, the FRB announced that future advances through the program’s expiration on March 11, 2024, would be set at no lower than the interest rate on reserve balances in effect at the time of the advance. At December 31, 2024, we had pledged investment securities with an amortized cost of $370.2 million and a fair value of $341.0 million as collateral for these borrowings compared to an amortized cost and fair value of $381.0 million and $350.6 million, respectively, at December 31, 2023, respectively.
Previous wording
Other borrowings decreased $8.4 million or 30.5% to $19.2 million at December 31, 2023 from $27.6 million at December 31, 2022. These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within one to three days, and the interest rate paid on these borrowings floats monthly with money-market type rates. The interest rate paid on the repurchase agreements was 1.49% and 0.75% at December 31, 2023 and 2022, respectively. The Company had pledged, as collateral for these repurchase agreements, investment securities with amortized costs and fair values of $44.7 million and $42.0 million at December 31, 2023, and $52.3 million and $49.8 million at December 31, 2022, respectively.
Current wording
Other borrowings increased $8.6 million or 45.0% to $27.8 million at December 31, 2024 from $19.2 million at December 31, 2023. These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within one to three days, and the interest rate paid on these borrowings floats monthly with money-market type rates. The interest rate paid on the repurchase agreements was 1.49% at both December 31, 2024 and 2023, respectively. We had pledged, as collateral for these repurchase agreements, investment securities with amortized costs and fair values of $42.1 million and $39.7 million at December 31, 2024, and $44.7 million and $42.0 million at December 31, 2023, respectively.
Previous wording
At both December 31, 2023 and 2022, the Company had $5.2 million in junior subordinated debentures outstanding and $26.5 million in subordinated debentures (“Notes”) outstanding. During the year ended December 31, 2022, the Company repurchased $3.5 million in principal amount of the Notes. For additional information, refer to Notes 12 and 13 of the Notes to Consolidated Financial Statements included under "Item 8. Financial Statements and Supplementary Data" in this 2023 Form 10-K.
Current wording
At both December 31, 2024 and 2023, the Company had $5.2 million in junior subordinated debentures outstanding. In addition, at December 31, 2024, the Company had $10.0 million in subordinated debentures (“Notes”) outstanding compared to $26.5 million at December 31, 2023. During the year ended December 31, 2024, the Company repurchased $16.5 million in principal of the Notes. For additional information, refer to Notes 12 and 13 of the Notes to Consolidated Financial Statements included under "Item 8. Financial Statements and Supplementary Data" in this 2024 Form 10-K.
Previous wording
Total shareholders' equity increased $12.1 million or 7.6% to $172.4 million at December 31, 2023 from $160.2 million at December 31, 2022. The increase was primarily attributable to net income of $10.2 million during 2023 and a $5.7 million decrease in accumulated other comprehensive loss, net of tax, related to the unrecognized gain in value of AFS securities during the year ended December 31, 2023. These increases were partially offset by $1.7 million in dividends paid to common shareholders and a $1.6 million, net of tax, adjustment to retained earnings related to the adoption of ASC 326 on January 1, 2023. Book value per common share was $27.68 at December 31, 2023 compared to $23.76 at December 31, 2022.
Current wording
Total shareholders' equity increased $10.0 million or 5.8% to $182.4 million at December 31, 2024 from $172.4 million at December 31, 2023. The increase was primarily attributable to net income available to common shareholders of $8.9 million during 2024 and a $3.9 million decrease in accumulated other comprehensive loss, net of tax, related to the unrecognized gain in value of AFS securities during the year ended December 31, 2024. These increases were partially offset by $1.8 million in dividends paid to common shareholders and $926,000 in dividends paid to preferred shareholders. Book value per common share was $31.21 at December 31, 2024 compared to $27.69 at December 31, 2023.
Previous wording
Net income was $10.2 million or $3.14 per basic common share for both the years ended December 31, 2023 and 2022. While net interest income increased $1.7 million to $39.2 million during the year ended December 31, 2023 compared to the prior year, this increase was offset by increases in the provision for credit losses, non-interest expense and the provision for income taxes. Additionally, there was a slight decrease in non-interest income.
Current wording
Net income available to common shareholders was $8.9 million or $2.77 per basic common share for the year ended December 31, 2024, compared to $10.2 million, or $3.14 per common share, for the year ended December 31, 2023. The decrease in net income was primarily due to increases in the provision for credit losses, non-interest expense and the provision for income taxes, partially offset by increases in net interest income and non-interest income.
Previous wording
Net interest income increased $1.7 million or 4.5% to $39.2 million for the year ended December 31, 2023, compared to $37.5 million in 2022. The increase was primarily due to higher interest income from loans and investments, which was partially offset by an increase in interest expense. The net interest margin on a tax-equivalent basis decreased 14 basis points to 2.89% for the year ended December 31, 2023 from 3.03% for the year ended December 31, 2022.
Current wording
Net interest income increased $2.6 million or 6.6% to $41.8 million for the year ended December 31, 2024, compared to $39.2 million in 2023. The increase was due to higher interest income from loans, deposits in other banks and, to a lesser extent, investments, partially offset by an increase in interest expense, principally on deposits. The net interest margin on a tax-equivalent basis decreased four basis points to 2.85% for the year ended December 31, 2024 from 2.89% for the year ended December 31, 2023.
Previous wording
Total average interest-earning assets increased $114.2 million or 9.1% to $1.36 billion for the year ended December 31, 2023 from $1.25 billion for the year ended December 31, 2022, with a 135 basis point increase in the average yield earned on these assets. Similarly, average interest-bearing liabilities increased $93.8 million or 10.1% to $1.0 billion for the year ended December 31, 2023 from $927.5 million for the year ended December 31, 2022, with an increase of 198 basis points in the average cost. The interest rate spread on a tax-equivalent basis decreased 63 basis points to 2.26% for the year ended December 31, 2023 from 2.89% in 2022.
Current wording
Total average interest-earning assets increased $107.9 million or 7.9% to $1.47 billion for the year ended December 31, 2024 from $1.36 billion for the year ended December 31, 2023, with a 48 basis point increase in the average yield earned on these assets. Similarly, average interest-bearing liabilities increased $107.1 million or 10.5% to $1.13 billion for the year ended December 31, 2024 from $1.02 billion for the year ended December 31, 2023, with an increase of 62 basis points in the average cost. The interest rate spread on a tax-equivalent basis decreased 14 basis points to 2.12% for the year ended December 31, 2024 from 2.26% in 2023.
Previous wording
Total interest income increased $22.4 million or 52.6% to $65.0 million for the year ended December 31, 2023, compared to $42.6 million for the year ended December 31, 2022 as a result of increased interest income across all interest earning assets.
Current wording
Total interest income increased $12.3 million or 19.0% to $77.3 million for the year ended December 31, 2024, compared to $65.0 million for the year ended December 31, 2023, as a result of increased interest income on loans, deposits in other banks and, to a lesser extent, investments.
Previous wording
Interest income on loans increased $7.2 million or 28.0% to $32.8 million for the year ended December 31, 2023 compared to $25.6 million for the year ended December 31, 2022. The increase was due to a $71.8 million increase in the average balance of loans outstanding during the year ended December 31, 2023 combined with a 62 basis point increase in the average loan yield.
Current wording
Interest income on loans increased $8.5 million or 25.8% to $41.3 million for the year ended December 31, 2024 compared to $32.8 million for the year ended December 31, 2023. The increase was due to a $71.3 million increase in the average balance of loans outstanding during the year ended December 31, 2024 combined with a 63 basis point increase in the average loan yield.
Previous wording
Total tax-equivalent interest income on investments increased $12.5 million, or 73.7%, due to a 178 basis point increase in the average yield earned on these assets during 2023 compared to 2022, partially offset by a $6.5 million decrease in the aggregate average balance of these interest-earning assets.
Current wording
Interest income on taxable investment securities increased $729,000, or 2.5%, due to a 30 basis point increase in the average yield earned on these assets during 2024 compared to 2023, partially offset by a $29.7 million decrease in the aggregate average balance of these interest-earning assets. Conversely, tax equivalent interest income on non-taxable investment securities decreased $239,000 or 31.2%, due to a $8.8 million decrease in the aggregate average balance of and a 16 basis point decrease in the average yield earned on these assets during 2024 compared to 2023.
Previous wording
Interest income on deposits with other banks increased $2.6 million, over 1,200%, to $2.8 million for the year ended December 31, 2023 compared to $203,000 for the year ended December 31, 2022, due to a $48.9 million increase in the average balance of deposits with other banks outstanding during the year ended December 31, 2023. The average yield earned on these deposits was 5.26% for the year ended December 31, 2023, down from 5.56% the prior year.
Current wording
Interest income on deposits with other banks increased $3.3 million or 121.0% to $6.1 million for the year ended December 31, 2024 compared to $2.8 million for prior year. This increase was due to a $67.1 million increase in the average balance of deposits with other banks. The average yield earned on these deposits was 5.11% for the year ended December 31, 2023, compared to 5.26% in 2023.
Previous wording
Total interest expense increased $20.7 million or 411.7% to $25.7 million for the year ended December 31, 2023, compared to $5.0 million for the year ended December 31, 2022, due to a 198 basis point increase in the average cost of interest-bearing liabilities and a $93.8 million or 10.1% increase in the average balance of these liabilities. The increase in interest expenses was driven predominantly by higher rates paid on deposits, which increased 196 basis points to 2.30% during 2023 from 0.34% in 2022. The average balance ofinterest-bearing deposits increased $52.9 million or 6.2% to $900.5 million during the year ended December 31, 2023 compared to $847.5 million during 2022.
Current wording
Total interest expense increased $9.8 million or 37.9% to $35.5 million for the year ended December 31, 2024, compared to $25.7 million for the year ended December 31, 2023, due to a 62 basis point increase in the average cost of interest-bearing liabilities and a $107.1 million or 10.5% increase in their average balance. Higher deposit rates were the primary reason, with the average rate paid on deposits increasing 68 basis points to 2.98% in 2024 from 2.30% in 2023. The average balance of interest-bearing deposits increased $101.1 million or 11.2% to $1.0 billion during the year ended December 31, 2024 compared to $900.5 million during 2023.
Previous wording
Interest expense on borrowings increased $2.9 million or 741.1% to $3.3 million during the year ended December 31, 2023 from $389,000 during the prior year. The increase was attributable to both a $43.6 million or 96.0% increase in the average balance of these liabilities and a 281 basis point increase in the average cost of borrowing to 3.67% in 2023 from 0.86% during 2022.
Current wording
Interest expense on FRB and other borrowings increased $686,000 or 21.0% to $4.0 million during the year ended December 31, 2024, compared to $3.3 million during the prior year. The increase was attributable to both a $7.8 million or 8.8% increase in the average balance of borrowings and a 41 basis point increase in the average cost of borrowing, which rose to 4.08% in 2024 from 3.67% during 2023.
Previous wording
The determination of the provision for credit losses is an integral part of management's ongoing monthly assessment of the loan portfolio's credit and the sufficiency of the allowance for credit losses. The Company follows established policies and procedures for evaluating and monitoring credit quality, employing both internal and external loan reviews to promptly identify potential problem loans. The Asset Classification Committee conducts a monthly review and the Board of Directors performs a quarterly evaluation of the adequacy of the allowance for credit losses.
Current wording
The provision for credit losses is determined as part of management's ongoing monthly assessment of the loan portfolio's credit quality and the adequacy of the allowance for credit losses. The Company follows established policies and procedures to evaluate and monitor credit quality, including internal and external loan reviews to identify potential problem loans. The Asset Classification Committee conducts monthly reviews, and the Board of Directors evaluates the adequacy of the allowance for credit losses on a quarterly basis.
Previous wording
Management believes the allowance for credit losses at December 31, 2023 is adequate based on its best estimates of the probable losses in the loan portfolio; however, these estimates are subject to uncertainty. Since the allowance for credit losses is an estimation, there is no guarantee that actual credit losses will not exceed the allowance or that further increases in the allowance will not be necessary in the future. A significant deterioration in national and local economic conditions, triggered by factors like inflation, recession, unemployment or money supply fluctuations, could lead to a substantial increase in the allowance for credit losses, potentially adversely impacting the Company’s financial condition and results of operations. In addition, bank regulatory agencies may require us to make additional provisions to the allowance for credit losses during examinations, based on their own judgments and estimates.
Current wording
Management believes the allowance for credit losses at December 31, 2024 is adequate based on its best estimates of the expected losses in the loan portfolio; however, these estimates are subject to uncertainty. Since the allowance for credit losses is an estimation, there is no guarantee that actual credit losses will not exceed the allowance or that further increases in the allowance will not be necessary in the future. A significant deterioration in national and local economic conditions, triggered by factors like inflation, recession, unemployment or money supply fluctuations, could lead to a substantial increase in the allowance for credit losses, potentially adversely impacting the Company’s financial condition and results of operations. In addition, bank regulatory agencies may require us to make additional provisions to the allowance for credit losses during examinations, based on their own judgments and estimates.
Previous wording
Non-interest income decreased $222,000 or 2.3% to $9.4 million for the year ended December 31, 2023 from $9.6 million for the year ended December 31, 2022. The decrease was primarily attributable to a decrease in gain on sales of loans, which was partially offset by increases in service fees on deposit accounts, trust income, grant income and ATM and check card fee income.
Current wording
Non-interest income increased $857,000 or 9.1% to $10.2 million for the year ended December 31, 2024 from $9.4 million for the year ended December 31, 2023, with increases occurring in all categories except other income. Increases in gain on sales of loans, trust income, and ATM and check card fee income were the primary drivers.
Previous wording
Gain on sales of loans decreased $1.1 million or 63.3% to $626,000 for the year ended December 31, 2023 compared to $1.7 million in 2022 as the dollar volume of loans sold to investors decreased. The Bank sold $21.6 million of loans in 2023 compared to $48.5 million during 2022.
Current wording
Gain on sales of loans increased $153,000 or 24.4% to $779,000 for the year ended December 31, 2024, compared to the prior year, as the dollar volume of loans sold to investors increased. The Bank sold $31.3 million of loans in 2024 compared to $22.1 million during 2023.
Previous wording
Service fees on deposit accounts increased $150,000 or 14.0% to $1.2 million for the year ended December 31, 2023 compared to $1.1 million in 2022 due to an increase in deposit accounts. Trust income increased $311,000 or 20.1% to $1.9 million during the year ended December 31, 2023 compared to $1.5 million in 2022 due to an increase in assets under management. ATM and check card fee income increased $202,000 or 7.2% to $3.0 million for the year ended December 31, 2023 compared to $2.8 million in 2022 reflecting higher transaction volume.
Current wording
Trust income increased $405,000 or 21.8% to $2.3 million for the year ended December 31, 2024 compared to $1.9 million in 2023 primarily due to non-recurring estate settlement fees received in 2024. ATM and check card fee income increased $152,000 or 4.9% to $3.2 million for the year ended December 31, 2024 compared to $3.0 million in 2023 reflecting higher transaction volume.
Previous wording
The Bank received $437,000 and $171,000 in grant income during the years ended December 31, 2023 and 2022, respectively. In both 2023 and 2022, the Bank was granted awards through the CDFI Fund Bank Enterprise Award program. These grants were allocated to support the Bank's ongoing initiatives in community development financing and service activities within the most economically distressed communities.
Current wording
We received $500,000 and $437,000 in grant income during the years ended December 31, 2024 and 2023, respectively. The grant income received in 2024 included a $220,000 CDFI Assistance Award and $280,000 through the CDFI Fund Bank Enterprise Award ("BEA") program. All grant income received in 2023 was from the BEA program. These grants were allocated to support the Bank's ongoing initiatives in community development financing and service activities within the most economically distressed communities.
Previous wording
The provision for income taxes decreased $421,000 or 15.6% to $2.3 million during the year ended December 31, 2023 compared to $2.7 million for the year ended December 31, 2022. The decrease was due to lower pre-tax income in 2023 and a $395,600 reduction in income tax expense as a result of tax credits associated with the new branch opened in 2023. The Company's combined federal and state effective tax rate was 18.3% for 2023 compared to 20.9% for 2022.
Current wording
The provision for income taxes increased $469,000 or 20.5% to $2.8 million during the year ended December 31, 2024 compared to $2.3 million for the year ended December 31, 2023, despite lower pre-tax income. The increase was primarily due to a $396,000 reduction in income tax expense in 2023 resulting from tax credits associated with the new branch opened during that year, partially offset by an increase in pre-tax net income. The Company's combined federal and state effective income tax rate was 21.9% for 2024 compared to 18.3% for 2023.
Previous wording
The Bank is subject to minimum capital requirements imposed by the FDIC. Based on capital levels at December 31, 2023, the Bank was considered to be well capitalized. At December 31, 2023, the Bank exceeded all regulatory capital requirements with Tier 1 leverage-based capital, Tier 1 risk-based capital, total risk-based capital, and common equity Tier 1 (CET1) capital ratios of 10.4%, 17.8%, 19.0%, and 17.8%, respectively. CET1 consists of Tier 1 capital less all capital components that are not considered common equity.
Current wording
The Bank is subject to minimum capital requirements imposed by the FDIC. Based on capital levels at December 31, 2024, the Bank was considered to be well capitalized. At December 31, 2024, the Bank exceeded all regulatory capital requirements with Tier 1 leverage-based capital, Tier 1 risk-based capital, total risk-based capital, and common equity Tier 1 (CET1) capital ratios of 9.9%, 18.7%, 20.0%, and 18.7%, respectively. CET1 consists of Tier 1 capital less all capital components that are not considered common equity.
Previous wording
In addition to the FDIC’s minimum capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At December 31, 2023, the Bank’s capital conservation buffer was 11.0%.
Current wording
In addition to the FDIC’s minimum capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At December 31, 2024, the Bank’s capital conservation buffer was 12.0%.
Previous wording
Our principal use of funds is the origination of mortgages and other loans and the purchase of investment securities. The Bank’s liquidity is impacted by the volume of loans sold and principal payments received. During the years ended December 31, 2023 and 2022, the Bank sold $22.1 million and $53.3 million in loans, respectively. During the same periods, the net increase in loans outstanding to include originations and principal repayments, excluding loans held for sale, totaled $72.6 million and $53.5 million, respectively. Further, purchases of investment securities totaled $66.3 million during 2023 compared to $210.3 million during 2022. Other uses of funds during the year ended December 31, 2023, included repayment of certain borrowings, purchases and improvements of premises and equipment, and dividend payments to shareholders totaling $1.6 million in the aggregate.
Current wording
Our principal use of funds is the origination of mortgages and other loans, and the purchase of investment securities. The Bank’s liquidity is impacted by the volume of loans sold and principal payments received. During the years ended December 31, 2024 and 2023, the Bank sold $31.3 million and $22.1 million in loans, respectively. During the same periods, the net increase in loans outstanding, accounting for originations and principal repayments (excluding loans held for sale), totaled $66.5 million and $74.7 million, respectively. Further, purchases of investment securities totaled $71.9 million during 2024 compared to $66.3 million during 2023. Other uses of funds in 2024 included debt repayment, property and equipment purchases and improvements, and $2.7 million in dividend payments to common and preferred shareholders.
Previous wording
Commitments to extend credit to customers are subject to the Bank’s normal credit policies and are essentially the same as those involved in extending loans to customers. Unused lines of credit on HELOCs, credit cards, and commercial loans amounted to $157.9 million at December 31, 2023. HELOCs are made on a floating rate basis with final maturities of 15 to 20 years. The Bank issues fixed rate credit cards, currently at 9.99%, and variable rate rewards credit cards with a floating rate equal to prime plus 9.99%. Credit cards are renewed every three years. The Bank had undisbursed loans-in-process of $13.3 million at December 31, 2023, which will be disbursed over an average of 90 days, and are included in the total unused commitments above. These commitments to originate loans and future advances of lines of credit are expected to be funded from loan amortizations and prepayments, deposit inflows, principle payments received on investments, and short-term borrowing capacity. See Note 18 of the Notes to the Consolidated Financial Statements included in"Item 8. Financial Statements and Supplementary Data" in this 2023 Form 10-K for additional information regarding our commitments and off-balance sheet arrangements.
Current wording
Commitments to extend credit are subject to the Bank’s normal credit policies. At December 31, 2024, unused lines of credit on HELOCs, credit cards, and commercial loans totaled $147.1 million. The Bank also had undisbursed loans-in-process of $11.3 million, included in total unused commitments. These commitments are expected to be funded through loan amortizations, deposit inflows, principal payments on investments, and short-term borrowing capacity. See Note 18 of the Notes to the Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" in this 2024 Form 10-K for additional information regarding our commitments and off-balance sheet arrangements.
Previous wording
We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations. Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises and equipment during 2024 that would materially impact liquidity. We also have purchase obligations, generally with remaining terms of less than three years and contracts with various vendors to provide services, including information processing, for periods generally ranging from one to five years, for which our financial obligations are dependent upon acceptable performance by the vendor. For the year ending December 31, 2024, we project that fixed commitments will include $522,000 of operating lease payments. See Note 5 of the Notes to the Consolidated Financial Statements included in"Item 8. Financial Statements and Supplementary Data" in this 2023 Form 10-K for additional information regarding our operating leases.
Current wording
We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations. Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises and equipment during 2024 that would materially impact liquidity. We also have purchase obligations, generally with remaining terms of less than three years and contracts with various vendors to provide services, including information processing, for periods generally ranging from one to five years, for which our financial obligations are dependent upon acceptable performance by the vendor. For the year ending December 31, 2025, we project that fixed commitments will include $475,000 of operating lease payments. See Note 5 of the Notes to the Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" in this 2024 Form 10-K for additional information regarding our operating leases.
Previous wording
The Bank’s liquidity has been positively impacted by increases in deposit levels in recent years. During the year ended December 31, 2023, deposits increased by $84.9 million. Our liquid assets in the form of cash and cash equivalents, certificates of deposit at other banks and investments increased to $831.3 million at December 31, 2023 from $747.2 million at December 31, 2022. Total certificates of deposit scheduled to mature in one year or less totaled $198.3 million at December 31, 2023. Management’s policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing certificates of deposit will remain with the Bank.
Current wording
The Bank’s liquidity has been positively impacted by increases in deposit levels in recent years. During the year ended December 31, 2024, deposits increased by $129.0 million. Our liquid assets in the form of cash and cash equivalents, certificates of deposit at other banks and investments increased to $840.4 million at December 31, 2024 from $831.3 million at December 31, 2023. Total certificates of deposit scheduled to mature in one year or less totaled $253.1 million at December 31, 2024. Management’s policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing certificates of deposit will remain with the Bank.
Previous wording
During the first quarter of 2023, the Company elected to participate in the FRB's BTFP, allowing the Company to refinance its existing borrowings from the FRB discount window to receive a lower fixed rate. Advances made under the BTFP are for up to one year and would be extended at the one year OIS rate as of the day the advance is made plus 10 basis points. Effective January 24, 2024, the FRB announced that future advances under the BTFP through its expiration on March 11, 2024 would be no lower than the interest rate on reserve balances in effect on the date the advance is made. The interest rate will be fixed for the term of the advance on the day the advance is made. At December 31, 2023, the Company had pledged as collateral for these borrowings investment securities with an amortized cost and fair value of $381.0 million and $350.6 million. Depository institutions may also borrow from the FRB discount window for periods as long as 90 days, and borrowings are prepayable and renewable by the borrower daily. Also during 2023, the Company entered the FRB’s Borrower-In-Custody ("BIC") program, which allows for the pledging of various loan types to secure FRB borrowings. As of December 31, 2023, the Company had pledged loan collateral for FRB borrowings with an amortized cost and collateral value of $93.6 million and $65.5 million, respectively.
Current wording
We had $50.0 million in outstanding borrowings under the FRB's BTFP with a weighted average borrowing rate of 4.76% at December 31, 2024, compared to $119.2 million at December 31, 2023, with a weighted average borrowing rate of 4.60%. During 2023, the Company elected to participate in the BTFP to refinance existing FRB discount window borrowings at a lower fixed rate. Advances under the program have a one-year term and are priced at the OIS rate plus 10 basis points on the day the advance is made. Effective January 24, 2024, the FRB announced that future advances through the program’s expiration on March 11, 2024, would be set at no lower than the interest rate on reserve balances in effect at the time of the advance. At December 31, 2024, we had pledged investment securities with an amortized cost of $370.2 million and a fair value of $341.0 million as collateral for these borrowings.
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