FS Bancorp, Inc.
For the period ended Dec 31, 2024. Filed Mar 17, 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 17, 2025
FSBW$43.55-0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-15.
0001437749-24-008140
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOverviewCritical Accounting Policies and EstimatesOur Business and Operating Strategy and GoalsComparison of Financial Condition at December 31, 2023 and December 31, 2022Average Balances, Interest and Average Yields/CostsRate/Volume AnalysisComparison of Results of Operations for the Years Ended December 31, 2023 and December 31, 2022Asset and Liability Management and Market RiskRecent Accounting PronouncementsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-17.
0001437749-25-008049
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOverviewCritical Accounting Policies and EstimatesOur Business and Operating Strategy and GoalsComparison of Financial Condition at December 31, 2024 and December 31, 2023Average Balances, Interest and Average Yields/CostsRate/Volume AnalysisComparison of Results of Operations for the Years Ended December 31, 2024 and December 31, 2023Asset and Liability Management and Market RiskRecent Accounting PronouncementsThe 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 123 previous paragraphs and 118 current paragraphs.
54 unchanged; 54 reworded; 9 added; 15 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 24 previous and 27 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
As a diversified lender, the Company specializes in originating various types of loans, including CRE, multi-family, construction, one-to-four-family, and home equity loans, as well as, consumer loans, such as fixture secured loans, and marine loans, along with commercial business loans. The Company's lending strategies aim to capitalize on new lending opportunities, arising from recent market consolidation, and focus on relationship lending.
Current report
***Liabilities.***Total liabilities increased $25.2 million to $2.73 billion at December 31, 2024, from $2.71 billion at December 31, 2023, primarily due to an increase of $214.1 million in borrowings, offset by a $182.9 million decrease in deposits.
Current report
CDs, which include both retail and non-retail CDs, decreased $67.9 million to $1.03 billion at December 31, 2024, from December 31, 2023, primarily due to a reduction in non-retail CDs. Retail CDs increased $151.8 million to $874.1 million at December 31, 2024, from $722.3 million at December 31, 2023, while non-retail CDs, which include brokered CDs, online CDs and public funds CDs decreased $219.7 million to $154.8 million, compared to $374.5 million at December 31, 2023. The decrease in non-retail CDs was primarily due to a decrease of $218.3 million in brokered CDs, as management shifted its funding source to FHLB advances for more favorable rates. Non-retail CDs represented 15.0% and 33.7% of total CDs at December 31, 2024 and December 31, 2023, respectively.
Current report
Borrowings increased $214.1 million to $307.8 million at December 31, 2024, from $93.7 million at December 31, 2023. The increased borrowings were primarily attributable to the decrease in total deposits, more specifically, brokered CDs, as management shifted its funding source to FHLB advances for more favorable rates. At December 31, 2024, borrowings were comprised of FHLB advances of $258.8 million, overnight borrowings of $41.0 million, and FRB borrowings of $8.0 million.
Current report
Net Interest Income**.**Net interest income decreased $198,000 to $123.1 million for the year ended December 31, 2024, from $123.3 million for the year ended December 31, 2023, as a $17.6 million increase in interest income was more than offset by a $17.8 million increase in interest expense. The increase in interest income was primarily driven by higher interest income on loans, reflecting both an increase in average loan balances and improved loan yields, while the greater increase in interest expense was due to higher deposit rates, particularly from increased interest on CDs.
Current report
The net interest margin (“NIM”) decreased 18 basis points to 4.30% for the year ended December 31, 2024, from 4.48% for the prior year. The decrease in NIM reflects rising deposit and borrowing costs, which outpaced the yields on interest-earning assets.
Current report
The increase in noninterest expense was primarily a result of increases in data processing expenses of $1.6 million, professional (consulting) and board fees of $1.5 million, and salaries and benefits of $1.5 million, largely due to a decline in consumer loan originations and related loan origination cost offsets to salaries and benefits. These increases were partially offset by a $1.6 million decrease in acquisition costs, as no acquisitions occurred in 2024.
Current report
As indicated by the table above, the Company's net interest income remains relatively stable across interest rate changes, indicating minimal exposure to immediate rate fluctuations. In a rising rate environment, net interest income declines modestly, with a 1.48% decrease at +300 basis points. In a declining rate environment, net interest income increases, with a 3.48% rise at -300 basis points.
Current report
The Company also uses interest-rate sensitivity "gap" analysis to provide a more general overview of its interest-rate risk profile. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. The table below shows the Company's interest-rate sensitivity gap position as of December 31, 2024.
Removed paragraphs (15)
Previous report
The Company’s earnings are also affected by fee income from mortgage banking activities, the provision for (recovery of) credit losses, service charges and fees, gains from sales of assets, operating expenses and income taxes. Most notable of these factors, the Company recorded a provision for credit losses of $4.8 million for the year ended December 31, 2023, compared to $6.2 million for the same period one year ago. The decreased provision in the current year was primarily due to a decrease in net loan growth, particularly in consumer loans and an increase in recoveries of reserves for unfunded commitments.
Previous report
***Business Combinations and Goodwill.***Pursuant to applicable accounting guidance, the Company recognizes assets acquired, including identified intangible assets, and liabilities assumed in acquisitions at their fair values as of the acquisition date. Transaction costs related to the acquisition are expensed in the period incurred. The determination of fair values involves estimates based on internal or third-party valuations, including appraisals, discounted cash flow analysis, and other techniques incorporating factors such as attrition, inflation, asset growth rates, discount rates, credit risk, and multiples of earnings. The determination of fair value may require us to make point-in-time estimates about discount rates, future expected cash flows, market conditions, and other future events that can be volatile in nature and challenging to assess. While we use the best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.
Previous report
In whole bank or bank branch acquisitions, the primary identifiable intangible asset recorded is the value of core deposit intangibles, representing the estimated value of long-term deposit relationships acquired. The determination involves assumptions and estimates, typically determined through discounted cash flow analysis, considering customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. Amortization of core deposit intangibles occurs over estimated useful lives reviewed periodically for reasonableness. These estimated useful lives, typically ranging from seven to 10 years with an accelerated rate of amortization, are periodically reviewed for reasonableness. Identifiable intangible assets, including core deposit intangibles, are assessed for impairment when events or changes suggest the carrying value may not be recoverable. The Company's policy dictates recognition of an impairment loss equal to the difference between the asset’s carrying amount and fair value if the expected undiscounted future cash flows are less than the carrying amount. Estimating future cash flows involves multiple estimates and assumptions, as previously mentioned.
Previous report
The ACL on purchase credit deteriorated (“PCD”) assets is recognized within business combination accounting with no initial impact to net income. Subsequent changes in estimates of expected credit losses on PCD loans are recognized through a provision for (reversal of) credit losses in subsequent periods as they arise. The ACL on non-PCD assets is recognized as provision expense in the same reporting period as the business combination. Estimated loan losses for acquired loans are determined using methodologies and applying estimates and assumptions that were described previously in the section above entitled, “Allowance for Credit Losses on Loans.”
Previous report
Non-PCD loans acquired are generally estimated at fair value using a discounted cash flow approach with differences from contractual unpaid principal balances referred to as “discounts.” These discounts are accreted to interest income over the loans' estimated remaining lives.
Previous report
Similar adjustments are made for premiums or discounts on acquired debt impacting interest expense over their remaining lives. Actual accretion or amortization may differ materially from our estimates impacting our operating results.
Previous report
Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. ASC 350–10 establishes standards for an impairment assessment of goodwill.
Previous report
The initial recognition of goodwill and other intangible assets, along with subsequent analyses, necessitates subjective judgments from management. These judgements involve estimating how acquired assets will perform in the future using valuation methods including discounted cash flow analysis. Additionally, the challenge arises as estimated cash flows may extend beyond 10 years, making them difficult to determine over an extended timeframe. Significant events and factors influencing these estimates include competitive forces, customer behaviors, attrition, changes in revenue growth trends, cost structures, technology, alterations in discount rates, and specific industry and market conditions. To validate assumptions in its estimates, the Company reviews the historical performance of underlying or similar assets, ensuring the reasonableness of cash flow estimates.
Previous report
The Company’s annual assessment of potential goodwill impairment was completed during the fourth quarter of 2023. Based on the results of this assessment, no goodwill impairment was recognized. Because of current economic conditions the Company continues to monitor goodwill and other intangible assets for impairment indicators throughout the year.
Previous report
On an on-going basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company’s policies related to these estimates can be found in “Note 1 – Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10–K. The Company’s accounting policies are discussed in detail in “Note 1 – Basis of Presentation and Summary” of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10–K.
Previous report
***Liabilities.***Total liabilities increased $307.0 million to $2.71 billion at December 31, 2022, from $2.40 billion at December 31, 2022, primarily due to $394.6 million in deposits, partially offset by a $92.8 million decrease in borrowings.
Previous report
At December 31, 2023, borrowings totaled $93.7 million and were comprised of the FRB borrowings from the BTFP of $89.9 million and FHLB fixed-rate advances of $3.9 million. Borrowings decreased $92.8 million to $93.7 million at December 31, 2023, from $186.5 million of FHLB advances at December 31, 2022. The decrease was partially attributable to a shift in funding mix from overnight borrowings to wholesale brokered CDs, as well as liquidity from the Branch Acquisition utilized to pay down borrowings and brokered deposits.
Previous report
Net Interest Income**.**Net interest income increased $19.0 million to $123.3 million for the year ended December 31, 2023, from $104.3 million for the year ended December 31, 2022. This increase was primarily attributed to an increase in interest income earned on loans, resulting from both an increase in the average balance of loans and an improved yield on loans. Additionally, there were minor contributions to the increase in interest income from taxable available-for-sale (“AFS”) investment securities and interest-bearing deposits at other financial institutions. These increases were partially offset by a $29.5 million increase in interest expense during the same period, primarily as a result of higher interest rates, higher utilization of borrowings and a shift in deposit mix from transactional accounts to higher cost CDs.
Previous report
The net interest margin (“NIM”) increased two basis points to 4.48% for the year ended December 31, 2023, from 4.46% for the prior year. The increase in NIM reflects new loan originations at higher market interest rates, variable rate interest-earning assets repricing higher following increases in market interest rates. The benefit of the higher rates and increase in interest-earning assets was partially offset by rising deposit and borrowing costs. Increases in average balances of higher costing CDs and borrowings placed additional pressure on the NIM.
Previous report
The increase in noninterest expense was primarily a result of a $6.0 million increase in salaries and benefits largely due to an increase in the number of FTEs as a result of the Branch Acquisition. Other increases included a $2.8 million in amortization of core deposit intangible, $2.3 million in operations, $1.2 million in occupancy, $1.2 million in FDIC insurance, $790,000 in data processing, and $664,000 in acquisition costs, partially offset by a decrease of $570,000 in professional and board fees.
Reworded paragraphs (54)
Previous wording
FS Bancorp and its subsidiary bank, 1st Security Bank, have been serving the Puget Sound area since 1907. Originally chartered as a credit union, known as Washington’s Credit Union, the credit union served various select employment groups. On April 1, 2004, the credit union converted to a Washington state-chartered mutual savings bank. On July 9, 2012, the Bank converted from mutual to stock ownership and became the wholly owned subsidiary of FS Bancorp.
Current wording
1st Security Bank has been serving the Puget Sound area since 1907, which includes when the predecessor to Anchor Bank, one of its banking acquisitions, was formed. On July 9, 2012, the Bank converted from mutual to stock ownership and became the wholly owned subsidiary of FS Bancorp.
Previous wording
As a diversified lender, the Company specializes in originating one-to-four-family loans, commercial real estate mortgages, second mortgages, consumer loans, marine lending, and commercial business loans. At December 31, 2023, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 63.0%, 26.6%, and 10.5% of the total loan portfolio, respectively.
Current wording
At December 31, 2024, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 63.7%, 24.5%, and 11.8% of the total loan portfolio, respectively.
Previous wording
Fixture secured loans to finance window, gutter, siding replacement, solar panels, spas, and other improvement renovations are a large segment of the consumer loan portfolio. These fixture-secured consumer loans are dependent on the Company's contractor/dealer network of 114 active dealers located throughout Washington, Oregon, California, Idaho, Colorado, Nevada, Arizona, Minnesota, Texas, Utah, Massachusetts, Montana, and recently, New Hampshire. Five of these contractor/dealers were responsible for 65.9% of the dollar volume of funded loans for the year ended December 31, 2023. To address concentration risks, management has consolidated any dealers owned by the same corporate entity under that entity as of December 31, 2023, rather than treating them as separate dealers. The Company funded $205.3 million, or approximately 9,000 loans in the fixture-secured consumer loan category during the year ended December 31, 2023.
Current wording
A significant portion of our consumer loan portfolio consists of fixture secured loans, which are used to finance home improvement projects such as window and gutter replacements, siding upgrades, solar panel installations, and spas. These loans rely heavily on our network of 46 active contractors and dealers across Washington, Oregon, California, Idaho, Colorado, Nevada, Arizona, Minnesota, Texas, Utah, Massachusetts, Montana, and New Hampshire. Five of these contractor/dealers were responsible for 74.1% of the dollar volume of funded loans for the year ended December 31, 2024. The Company funded $121.3 million, consisting of 5,444 loans in the fixture-secured consumer loan category during the year ended December 31, 2024.
Previous wording
The Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and from existing customers. Retail banking customers are also an important source of the Company’s loan originations. The Company originated $527.7 million of one-to-four-family loans (which included loans held for sale, loans held for investment and second lien mortgages classified as home equity loans) in addition to $15.9 million of loans brokered to other institutions through the home lending segment during the year ended December 31, 2023, of which $408.0 million were sold to investors. Of the loans sold to investors, $241.5 million were sold to the FNMA, FHLMC, FHLB, and/or GNMA with servicing rights retained for the purpose of further developing these customer relationships. At December 31, 2023, one-to-four-family residential mortgage loans held for investment totaled $567.7 million, or 23.3% of the total gross loan portfolio, while loans held for sale totaled $25.7 million and home equity loans totaled $69.5 million at that date.
Current wording
The Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and from existing customers. Retail banking customers are also an important source of the Company’s loan originations. The Company originated $695.2 million of one-to-four-family loans (which included loans held for sale, loans held for investment and fixed seconds) in addition to $20.5 million of loans brokered to other institutions through the home lending segment during the year ended December 31, 2024, of which $564.8 million were sold to investors. Of the loans sold to investors, $233.9 million were sold to the FNMA, FHLMC, FHLB, and GNMA with servicing rights retained for the purpose of further developing these customer relationships. At December 31, 2024, one-to-four-family residential mortgage loans held for investment totaled $617.3 million, or 24.4% of the total gross loan portfolio, while loans held for sale totaled $27.8 million and residential home equity loans totaled $75.1 million at that date.
Previous wording
For the year ended December 31, 2023, one-to-four-family loan originations and refinancing activity decreased as a result of increased market interest rates. Residential construction and development lending, while not as common as other loan origination options like one-to-four-family loans, continues to be an important element in our total loan portfolio, and we continue to take a disciplined approach by concentrating our efforts on loans to builders and developers in our market areas known to us. These short-term loans typically have a maturity period of six to 18 months, with disbursements not fully realized at origination, leading to a short-term reduction in net loans receivable.
Current wording
For the year ended December 31, 2024, one-to-four-family loan originations and refinancing activity increased compared to the prior period as a result of slightly decreased market interest rates and slightly more housing inventory. Residential construction and development lending, while not as common as other loan origination options like one-to-four-family loans, continues to be an important element in our total loan portfolio, and we continue to take a disciplined approach by concentrating our efforts on loans to builders and developers in our market areas known to us. These short-term loans typically have a maturity period of six to 18 months, with disbursements not fully realized at origination, leading to a short-term reduction in net loans receivable.
Previous wording
The Company’s earnings are primarily dependent upon net interest income, the difference between interest income and interest expense. Interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on these loans and investments. Interest expense is a function of the amount of deposits and borrowings outstanding during the same period and the interest rates paid on these deposits and borrowings.
Current wording
The Company’s earnings are primarily dependent upon net interest income, the difference between interest income and interest expense. Interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on these loans and investments. Interest expense is a function of the amount of deposits and borrowings outstanding during the same period and the interest rates paid on these deposits and borrowings. The Company's earnings are also affected by fee income from mortgage banking activities, the provision for (recovery of) credit losses, service charges and fees, gains from sales of assets, operating expenses and income taxes.
Previous wording
We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors. See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10–K for a summary of significant accounting policies and the effect on our financial statements.
Current wording
We prepare our consolidated financial statements in accordance with GAAP. In doing so, we must make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors. See “Note 1 – Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10–K for a summary of significant accounting policies and the effect on our financial statements.
Previous wording
Allowance for Credit Losses on Held-to-Maturity Securities. Management measures expected credit losses on held-to-maturity securities by individual security. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers credit ratings and historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
Current wording
ACL on Held-to-Maturity Securities. Management measures expected credit losses on held-to-maturity securities by individual security. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers credit ratings and historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
Previous wording
The held-to-maturity portfolio consists entirely of corporate securities. Securities are generally rated investment grade or higher. Securities are analyzed individually to establish a reserve.
Current wording
The held-to-maturity portfolio consists entirely of corporate securities. Securities are generally rated investment grade. Securities are analyzed individually to establish a reserve.
Previous wording
Allowance for Credit Losses on Available-for-Sale Securities. For available-for-sale securities in an unrealized loss position, management first assesses whether it intends to sell, or is more likely than not to 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 to 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 ACL is recorded, limited by the amount that the fair value is less than the amortized cost basis.
Current wording
ACL on Available-for-Sale Securities. For available-for-sale securities in an unrealized loss position, management first assesses whether it intends to sell or is more likely than not to 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 to 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 ACL is recorded, limited by the amount that the fair value is less than the amortized cost basis.
Previous wording
Changes in the ACL are recorded as a provision for (reversal of) credit losses. Losses are charged against the ACL when management believes the uncollectability 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 not included in the estimate of credit losses.
Current wording
Changes in the ACL are recorded as a provision for (recapture of) credit losses. Losses are charged against the ACL when management believes the uncollectability 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 not included in the estimate of credit losses.
Previous wording
Allowance for Credit Losses on Loans***.***The ACL on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the uncollectability of a loan balance is confirmed and recoveries are credited to the ACL when received. In the case of recoveries, amounts may not exceed the aggregate of amounts previously charged off.
Current wording
ACL on Loans***.***The ACL on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the uncollectability of a loan balance is confirmed and recaptures are credited to the ACL when received. In the case of recaptures, amounts may not exceed the aggregate of amounts previously charged off.
Previous wording
The Company has elected a non-discounted cash flow methodology with probability of default (“PD”) and loss given default (“LGD”) for all call report code cohorts (“cohorts”), except for the indirect and marine portfolios which are evaluated under a vintage methodology. The vintage methodology measures the expected loss calculation for future periods based on historical performance by the origination period of loans with similar life cycles and risk characteristics. Guaranteed portions of loans are measured with zero risk due to cash collateral and full guaranty.
Current wording
The Company has elected a non-discounted cash flow methodology with probability of default (“PD”) and loss given default (“LGD”) for all call report code cohorts (“cohorts”), except for the indirect and marine portfolios which are evaluated under a vintage methodology. The vintage methodology measures the expected loss calculation for future periods based on historical performance by the origination period of loans with similar life cycles and risk characteristics. Guaranteed portions of loans are measured with zero risk due to cash collateral and full government agency guaranty.
Previous wording
Where the primary and/or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral, impairment will generally be measured based upon expected future collateral proceeds, net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset(s) (i.e., past due taxes, liens, etc.). Estimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, use of consultants or other professionals with relevant market and/or property-specific knowledge, and any other sources of information believed appropriate by management under the specific circumstances. When appraisals are ordered to support the impairment analysis of an impaired loan, the appraisal is reviewed by the Company’s internal appraisal reviewer.
Current wording
Where the primary and/or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral, impairment will generally be measured based upon expected future collateral proceeds, net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset(s) (i.e., past due taxes, liens, etc.). Estimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, use of consultants or other professionals with relevant market and/or property-specific knowledge, and any other sources of information believed appropriate by management under the specific circumstances. When appraisals are ordered to support the impairment analysis of an individually evaluated loan, the appraisal is reviewed by the Company’s internal appraisal reviewer.
Previous wording
Allowance for Credit Losses on Unfunded Commitments. 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 ACL on unfunded commitments is adjusted through a provision for (recovery of) credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate utilizes the same factors and assumptions as the ACL on loans and is applied at the same collective cohort level.
Current wording
ACL on Unfunded Commitments. 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 ACL on unfunded commitments is adjusted through a provision for (recovery of) credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate utilizes the same factors and assumptions as the ACL on loans and is applied at the same collective cohort level.
Previous wording
The Company’s primary objective is to operate 1st Security Bank as a well-capitalized, profitable, independent, community-oriented financial institution, serving customers in its primary market area defined generally as the greater Puget Sound market area. The Company’s strategy is to provide innovative products and superior customer service to small businesses, industry and geographic niches, and individuals located in its primary market area. Services are currently provided to communities through the main office, 27 full-service bank branches and seven stand-alone loan production offices, which are supported with 24/7 access to on-line banking and participation in a worldwide ATM network.
Current wording
The Company’s primary objective is to operate 1st Security Bank as a well-capitalized, profitable, independent, community-oriented financial institution, serving customers in its primary market area defined generally as the greater Puget Sound market area. The Company’s strategy is to provide innovative products and superior customer service to small businesses, industry and geographic niches, and individuals located in its primary market area. Services are currently provided to communities through the main office, 27 full-service bank branches and 13 loan production offices (seven of which are stand-alone), which are supported with 24/7 access to on-line banking and participation in a worldwide ATM network.
Previous wording
***Growing and diversifying the loan portfolio and revenue streams.***The Company is a diversified lender that seeks to grow and maintain the current level of diversification in its portfolio. At December 31, 2023, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 63.0%, 26.5%, and 10.5% of the total loan portfolio, respectively.
Current wording
***Growing and diversifying the loan portfolio and revenue streams.***The Company is a diversified lender that seeks to grow and maintain the current level of diversification in its portfolio. At December 31, 2024, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 63.7%, 24.5%, and 11.8% of the total loan portfolio, respectively.
Previous wording
Maintaining strong asset quality**.** The Company believes that strong asset quality is a key to long-term financial success. The percentage of nonperforming loans to total gross loans were 0.45% and 0.39% at December 31, 2023 and 2022, respectively. The percentage of nonperforming assets to total assets were 0.37% and 0.35% at December 31, 2023 and 2022, respectively. Management actively addresses delinquent loans and nonperforming assets by pursuing aggressive collection efforts for consumer debts, marketing saleable foreclosed or repossessed properties, working on classified assets' resolutions and implementing loan charge-offs. In recent years, the Company focused on originating consumer loans for borrowers with higher credit scores, generally, over 720 while maintaining flexibility with its policy. While the Company plans to emphasize specific lending products, including commercial and multi-family real estate loans, construction and development loans (including speculative residential construction loans), and commercial business loans, it remains committed to expanding the size of its one-to-four-family residential mortgage loans and consumer loan portfolios. Throughout these initiatives, the Company maintains a conservative approach to lending and manages credit exposures by leveraging the expertise of experienced bankers.
Current wording
Maintaining strong asset quality**.** The Company believes that strong asset quality is a key to long-term financial success. The percentage of nonperforming loans to total gross loans were 0.54% and 0.45% at December 31, 2024 and 2023, respectively. The percentage of nonperforming assets to total assets were 0.45% and 0.37% at December 31, 2024 and 2023, respectively. Management actively addresses delinquent loans and nonperforming assets by pursuing aggressive collection efforts for consumer debts, marketing saleable foreclosed or repossessed properties, working on classified assets' resolutions and implementing loan charge-offs. In recent years, the Company focused on originating consumer loans for borrowers with higher credit scores, generally, over 720 while maintaining flexibility with its policy. While the Company plans to emphasize specific lending products, including commercial and multi-family real estate loans, construction and development loans (including speculative residential construction loans), and commercial business loans, it remains committed to expanding the size of its one-to-four-family residential mortgage loans and consumer loan portfolios. Throughout these initiatives, the Company maintains a conservative approach to lending and manages credit exposures by leveraging the expertise of experienced bankers.
Previous wording
***Assets.***Total assets increased $339.8 million, to $2.97 billion at December 31, 2023, from $2.63 billion at December 31, 2022. The increase was primarily due to increases in loans receivable, net of $210.6 million, securities available-for-sale of $63.7 million, total cash and cash equivalents of $24.3 million, certificates of deposit at other financial institutions of $19.5 million, and core deposit intangible of $14.0 million. The Company also transferred $8.1 million of residential MSRs to held for sale during the fourth quarter of 2023. The increase in total assets was primarily funded by deposit growth during the year ended December 31, 2023.
Current wording
***Assets.***Total assets increased $56.5 million to $3.03 billion at December 31, 2024, from $2.97 billion at December 31, 2023. The increase was primarily due to increases in loans receivable, net of $100.5 million, other assets of $21.3 million and FHLB stock of $13.5 million. These increases were partially offset by decreases in interest-bearing deposits at other financial institutions of $36.3 million, CDs at other financial institutions of $22.4 million, securities available-for-sale of $11.8 million, MSRs held for sale of $8.1 million and core deposit intangible of $3.6 million. The net increase in total assets was primarily funded by borrowings during the year ended December 31, 2024.
Previous wording
Loans receivable, net, increased $210.6 million, to $2.40 billion at December 31, 2023, from $2.19 billion at December 31, 2022. Total real estate loans increased $109.1 million, with increases in one-to-four-family portfolio loans of $98.3 million, commercial real estate loans of $32.3 million, home equity loans of $14.1 million, and multi-family loans of $4.0 million, offset by a decrease in construction and development loans of $39.5 million. Undisbursed construction and development loan commitments decreased $47.1 million, or 23.3%, to $154.6 million at December 31, 2023, as compared to $201.7 million at December 31, 2022. Consumer loans increased $77.2 million, primarily due to increases of $74.0 million in indirect home improvement loans and $2.7 million in marine loans. Additionally, commercial business loans increased $27.9 million due to an increase in commercial and industrial loans of $41.5 million, partially offset by a decrease in warehouse lending of $13.6 million due to higher residential mortgage interest rates and reduced refinance activity.
Current wording
Loans receivable, net, increased $100.5 million, to $2.50 billion at December 31, 2024, from $2.40 billion at December 31, 2023. Total real estate loans increased $83.3 million to $1.61 billion at December 31, 2024, compared to December 31, 2023, reflecting increases in one-to-four-family portfolio loans of $49.6 million, construction and development loans of $27.6 million, multi-family loans of $21.5 million, and home equity loans of $5.7 million, offset by a decrease in CRE loans of $21.0 million. Undisbursed construction and development loan commitments increased $19.5 million, or 12.6%, to $174.1 million at December 31, 2024, as compared to $154.6 million at December 31, 2023. Commercial business loans increased $44.1 million to $299.9 million at December 31, 2024, compared to December 31, 2023, as a result of increases in C&I loans of $48.7 million, offset by a decrease in warehouse lending of $4.7 million. Consumer loans decreased $26.6 million to $620.2 million at December 31, 2024, compared to December 31, 2023, primarily due to decreases of $28.0 million in indirect home improvement loans, offset by an increase of $1.6 million in marine loans.
Previous wording
Loans held for sale, consisting of one-to-four-family loans, increased by $5.6 million, or 27.7%, to $25.7 million at December 31, 2023, compared to $20.1 million at December 31, 2022. The Company continues to invest in its home lending operations and strategically adds production staff in the markets we serve.
Current wording
Loans held for sale, consisting of one-to-four-family loans, increased $2.2 million to $27.8 million at December 31, 2024, from $25.7 million at December 31, 2023. The Company continues to invest in its home lending operations and strategically manage production capacity in the markets we serve.
Previous wording
One-to-four-family loan originations for the year ended December 31, 2023, included $377.1 million of loans originated for sale, $150.5 million of portfolio loans including first and second liens, and $15.9 million of loans brokered to other institutions.
Current wording
One-to-four-family loan originations for the year ended December 31, 2024, included $535.6 million of loans originated for sale, $159.5 million of portfolio loans including first and second liens, and $20.5 million of loans brokered to other institutions.
Previous wording
During the year ended December 31, 2023, the Company sold $408.0 million of one-to-four-family loans, compared to $715.6 million one year ago. The decrease in loan purchase and refinance activity, as well as sales activity, compared to the prior year reflects the impact of higher interest rates. The cash margin on loans sold, net of deferred fees and capitalized expenses, increased to 1.59% for the year ended December 31, 2023, compared to 1.39% for the year ended December 31, 2022. Margin reported is based on actual loans sold into the secondary market and the related value of capitalized servicing, partially offset by recognized deferred loans fees and capitalized expenses. The gross cash margins on loans sold, were 3.07% and 2.78% for the years ended December 31, 2023 and 2022, respectively. Gross cash margins on loans sold is defined as the margin on loans sold without the impact of deferred loan costs.
Current wording
During the year ended December 31, 2024, the Company sold $564.8 million of one-to-four-family loans, compared to $408.0 million one year ago. Gross margin on home loans sales increased to 3.08% for the year ended December 31, 2024, compared to 3.07% for the year ended December 31, 2023. Gross margin is defined as the margin on loans sold without the impact of deferred loan costs.
Previous wording
The ACL on loans was $31.5 million, or 1.30% of gross loans receivable, excluding loans held for sale at December 31, 2023, compared to $28.0 million, or 1.26% of gross loans receivable, excluding loans held for sale, at December 31, 2022. The increase was primarily due to organic loan growth, increases in nonperforming loans, and the addition of loans acquired in the Branch Acquisition. The ACL - unfunded loan commitments decreased $1.0 million to $1.5 million at December 31, 2023, from $2.5 million at December 31, 2022, primarily due to a decrease in unfunded construction loan commitments.
Current wording
The ACL on loans was $31.9 million, or 1.26% of gross loans receivable (excluding loans held for sale), at December 31, 2024, compared to $31.5 million, or 1.30% of gross loans receivable (excluding loans held for sale), at December 31, 2023. The ACL on unfunded loan commitments decreased $123,000 to $1.4 million at December 31, 2024, from $1.5 million at December 31, 2023.
Previous wording
At December 31, 2023, loans classified as substandard or worse increased to $24.9 million, consisting of $24.5 million classified as substandard and $399,000 as doubtful, compared to $20.2 million at December 31, 2022, all of which loans were classified as substandard. This increase in substandard loans was primarily due to increases of $4.7 million in construction and development loans and $787,000 in indirect home improvement loans, partially offset by a decrease of $1.5 million in commercial and industrial loans.
Current wording
Classified loans totaled $22.9 million at December 31, 2024, all of which were classified as substandard, compared to $24.9 million at December 31, 2023, consisting of $24.5 million classified as substandard and $399,000 as doubtful. The $1.6 million decrease in substandard loans was primarily due to decreases of $1.3 million in commercial and industrial loans, $318,000 in commercial real estate loans, and $186,000 in indirect home improvement loans, partially offset by an increase of $281,000 in construction and development loans.
Previous wording
Nonperforming loans, consisting solely of nonaccrual loans, increased $2.3 million to $11.0 million at December 31, 2023, from $8.7 million at December 31, 2022. This increase was primarily due to a $4.7 million increase in nonaccrual construction and development loans, a $1.1 million increase in nonaccrual commercial real estate loans, and a $787,000 increase in nonaccrual indirect home improvement loans, partially offset by a $3.7 million decrease in nonaccrual commercial business loans and an $842,000 decrease in nonaccrual one-to-four family loans. These increases and decreases were largely due to the payment performance on a few loans. At December 31, 2023, nonperforming loans consisted of $4.7 million in construction and development loans, $2.7 million in commercial business loans, $1.9 million in indirect home improvement loans, $1.1 million in commercial real estate loans, $342,000 in marine loans, $173,000 of home equity loans, $96,000 in one-to-four-family loans, and $8,000 in other consumer loans. The ratio of nonperforming loans to total gross loans was 0.45% at December 31, 2023, compared to 0.39% at December 31, 2022. There were no OREO properties at December 31, 2023, and one OREO property totaling $570,000 at December 31, 2022. See “Item 1. Business – Lending Activities – Asset Quality” of this Form 10–K for additional information regarding the Company’s nonperforming loans.
Current wording
Nonperforming loans, consisting solely of nonaccrual loans, increased $2.6 million to $13.6 million at December 31, 2024, from $11.0 million at December 31, 2023, primarily due to increases in CRE loans of $1.7 million, commercial business loans of $763,000, construction and development loans of $280,000, partially offset by decreases in indirect home improvement loans of $186,000 and marine loans of $53,000. At December 31, 2024, nonperforming loans consisted of $5.0 million in construction and development loans, $3.4 million in commercial business loans, $2.8 million in CRE loans, $1.7 million in indirect home improvement loans, $289,000 in marine loans, $261,000 of home equity loans, $164,000 in one-to-four-family loans, and $14,000 in other consumer loans. The ratio of nonperforming loans to total gross loans was 0.54% at December 31, 2024, compared to 0.45% at December 31, 2023. We had no OREO at December 31, 2024 and 2023. See “Item 1. Business – Lending Activities – Asset Quality” of this Form 10–K for additional information regarding the Company’s nonperforming loans.
Previous wording
Total deposits increased $394.6 million to $2.52 billion at December 31, 2023, from $2.13 billion at December 31, 2022, primarily as a result of the Branch Acquisition in which we acquired approximately $425.5 million in deposits. CDs increased $367.0 million to $1.10 billion at December 31, 2023, from $729.8 million at December 31, 2022. Transactional accounts (noninterest-bearing checking, interest-bearing checking, and escrow accounts) increased $225.6 million to $914.9 million at December 31, 2023, from $689.3 million at December 31, 2022, due to increases of $116.1 million in noninterest-bearing checking, $108.9 million in interest-bearing checking and $547,000 in escrow accounts (also noninterest bearing) related to mortgages serviced. Money market and savings accounts decreased $198.0 million, to $510.7 million at December 31, 2023, from $708.6 million at December 31, 2022 as depositors shifted to higher yielding CDs and other investment alternatives.
Current wording
Total deposits decreased $182.9 million to $2.34 billion at December 31, 2024, from $2.52 billion at December 31, 2023, reflecting a decrease in brokered CDs. Transactional accounts (noninterest-bearing checking, interest-bearing checking, and escrow accounts) decreased $100.1 million to $814.7 million at December 31, 2024, from $914.9 million at December 31, 2023, due to decreases of $67.5 million in interest-bearing checking ($70.2 million of which was brokered deposits), $26.4 million in noninterest-bearing checking and $6.3 million in escrow accounts (also noninterest bearing) related to mortgages serviced. Money market and savings accounts decreased $14.9 million to $495.8 million at December 31, 2024, from $510.7 million at December 31, 2023 as depositors shifted to higher yielding CDs and other investment alternatives.
Previous wording
The Bank had uninsured deposits of approximately $606.5 million or 24.0% of total deposits, at December 31, 2023, compared to approximately $560.0 million or 26.3% of total deposits at December 31, 2022. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.
Current wording
The Bank had uninsured deposits of approximately $652.7 million or 27.9% of total deposits, at December 31, 2024, compared to approximately $606.5 million or 24.0% of total deposits at December 31, 2023. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.
Previous wording
Stockholders’*** Equity.***Total stockholders’ equity increased $32.8 million to $264.5 million at December 31, 2023, from $231.7 million at December 31, 2022. The increase in stockholders’ equity was primarily due to net income of $36.1 million earned during 2023, partially offset by cash dividends paid during the year of $7.8 million. In addition, stockholders' equity was positively impacted by unrealized gains on fair value and cash flow hedges of $3.0 million, net of tax, and unrealized net gains in securities available-for-sale of $5.3 million, net of tax, reflecting changes in market interest rates during the period, resulting in a $2.3 million increase in accumulated other income.
Current wording
Stockholders’*** Equity.***Total stockholders’ equity increased $31.3 million to $295.8 million at December 31, 2024, from $264.5 million at December 31, 2023. The increase in stockholders’ equity reflects net income of $35.0 million, partially offset by cash dividends totaling $8.3 million and stock repurchases totaling $2.9 million, which included $386,000 of shares repurchased in connection with withholding taxes paid on the vesting of restricted stock awards, and net exercise of stock options during the year 2024. Stockholders' equity was also impacted by decreases in unrealized net losses in securities available-for-sale of $5.2 million, net of tax, and by increases in unrealized net gains on fair value and cash flow hedges of $934,000, net of tax, reflecting sales of investment securities in unrealized loss positions and changes in market interest rates benefiting hedges during the period, resulting in a $6.2 million net decline in accumulated other comprehensive loss, net of tax.
Previous wording
Book value per common share was $34.36 at December 31, 2023, compared to $30.42 at December 31, 2022. The calculation of book value per share at December 31, 2023, was based on 7,698,401 common shares, derived by subtracting the 102,144 unvested restricted stock shares from the 7,800,545 reported common shares outstanding as of that date. Similarly, the book value per share at December 31, 2022, was calculated based on 7,617,655 common shares, obtained by subtracting the 118,530 unvested restricted stock shares from the 7,736,185 reported common shares outstanding as of that date.
Current wording
Book value per common share was $38.26 at December 31, 2024, compared to $34.36 at December 31, 2023. The calculation of book value per share at December 31, 2024, was based on 7,729,951 common shares, derived by subtracting the 103,063 unvested restricted stock shares from the 7,833,014 reported common shares outstanding as of that date. Similarly, the book value per share at December 31, 2023, was calculated based on 7,698,401 common shares, obtained by subtracting the 102,144 unvested restricted stock shares from the 7,800,545 reported common shares outstanding as of that date.
Previous wording
General**.**Net income was $36.1 million for the year ended December 31, 2023, and $29.6 million for the year ended December 31, 2022. The $6.4 million, or 21.6%, increase in net income was primarily due to a $19.0 million, or 18.2% increase in net interest income, a $2.4 million, or 13.2%, increase in noninterest income, and a $1.4 million, or 23.2%, decrease in the provision for credit losses, partially offset by a $14.6 million, or 18.4%, increase in noninterest expense and a $1.9 million, or 25.6%, increase in the provision for income taxes.
Current wording
General**.**Net income was $35.0 million for the year ended December 31, 2024, compared to $36.1 million for the year ended December 31, 2023, representing a $1.0 million or 2.9% decrease. The decrease was due to a $198,000, or 0.2%, decrease in net interest income, a $3.8 million, or 4.1%, increase in noninterest expense and a $737,000, or 15.4%, increase in the provision for credit losses, partially offset by a $1.1 million, or 5.2%, increase in noninterest income and $2.7 million, or 28.9%, decrease in the provision for income taxes.
Previous wording
Interest Income**.**Interest income for the year ended December 31, 2023, increased $48.5 million, to $167.2 million, from $118.7 million for the year ended December 31, 2022. The increase during the year was primarily attributable to a $412.9 million increase in the average balance of total interest-earning assets, primarily loans, and a 100-basis point increase in the average yield on total interest-earning assets. Interest income on loans receivable, including fees, increased $43.3 million, 38.8%, for the year ended December 31, 2023, compared to the prior year due to an increase in the average balance of loans outstanding during the period and to new loans being originated at higher rates, and variable-rate loans repricing higher following increases in market interest rates. In addition, interest income on taxable AFS investment securities and interest-bearing deposits at other financial institutions increased $3.1 million and $2.4 million, respectively, during the year ended December 31, 2023, compared to the prior year, primarily due to increases in market interest rates.
Current wording
Interest Income**.**Interest income for the year ended December 31, 2024, increased $17.6 million, to $184.8 million, from $167.2 million for the year ended December 31, 2023. The increase was attributable to a $108.0 million increase in the average balance of total interest-earning assets, primarily loans, and a 39-basis point increase in the average yield on total interest-earning assets. Interest income on loans receivable, including fees, increased $15.9 million, 10.3%, for the year ended December 31, 2024, compared to the prior year due to an increase in the average balance of loans outstanding during the period and to new loans being originated at higher rates, and variable-rate loans repricing higher following increases in market interest rates.
Previous wording
Interest Expense**.**Interest expense increased $29.5 million, to $43.9 million for the year ended December 31, 2023, from $14.4 million for the prior year, primarily due to an increase in interest expense on deposits of $27.3 million, primarily higher costing CDs, and on borrowings of $2.1 million. The average cost of funds for total interest-bearing liabilities increased 140 basis points to 2.32% for the year ended December 31, 2023, from 0.92% for the year ended December 31, 2022. The increase in interest expense was predominantly due to the increase in market rate for deposits and borrowings, and a shift in deposits to higher costing CDs. The average cost of total interest-bearing deposits increased 146 basis points to 2.12% for the year ended December 31, 2023, compared to 0.66% for the year ended December 31, 2022. The average cost of funds, including noninterest-bearing checking, increased 105 basis points to 1.72% for the year ended December 31, 2023, from 0.67% for the year ended December 31, 2022. The average balance of noninterest-bearing deposits, which include noninterest-bearing checking and escrow accounts, totaled $672.2 million and $580.0 million for the years ended December 31, 2023 and 2022, respectively.
Current wording
Interest Expense**.**Interest expense increased $17.8 million to $61.7 million for the year ended December 31, 2024, from $43.9 million for the prior year. The increase was primarily due to a $16.4 million increase in interest expense on deposits, mostly higher costing CDs, and a $1.4 million increase in borrowing costs. The average cost of funds for total interest-bearing liabilities increased 79 basis points to 3.11% for the year ended December 31, 2024, from 2.32% for the year ended December 31, 2023. The increase in interest expense was predominantly due to the increase in market rate for deposits and borrowings, and a shift in deposits to higher costing CDs.
Previous wording
Provision for Credit Losses**.**For the year ended December 31, 2023, the provision for credit losses was $4.8 million consisting of a $5.8 million provision for credit losses on loans partially offset by a $1.0 million reversal of the ACL on unfunded loan commitments, compared to a $6.2 million provision for credit losses, consisting of a $6.6 million provision for credit losses on loans partially offset by a $365,000 reversal of the ACL on unfunded loan commitments for the year ended December 31, 2022. The provision for credit losses on loans reflects the increase in total loans receivable, increased net charge-offs, and increased reserves on individually evaluated nonaccrual loans. The reversals of the allowance for credit losses on unfunded loan commitments for the years indicated above were a result of decreases in total unfunded commitments during those periods.
Current wording
Provision for Credit Losses**.**For the year ended December 31, 2024, the provision for credit losses was $5.5 million consisting of a $5.6 million provision for credit losses on loans partially offset by a $123,000 reversal of the ACL on unfunded loan commitments, compared to a $4.8 million provision for credit losses, consisting of a $5.8 million provision for credit losses on loans partially offset by a $1.0 million reversal of the ACL on unfunded loan commitments for the year ended December 31, 2023. The main reason for the 2024 provision for credit losses on loans was elevated net charge-offs. Additionally, the increase in the ACL on loans reflected organic loan growth, shifts in credit quality (including changes in classified, past due, and nonperforming loans), and adjustments to qualitative factors. The most significant qualitative factor change was an increase in qualitative reserves attributable to higher levels of past due, nonperforming, and net charge-offs on consumer loans relative to prior periods. The reversals of the allowance for credit losses on unfunded loan commitments for the years indicated above were a result of decreases in total unfunded loan commitments during those periods.
Previous wording
During the year ended December 31, 2023, net charge-offs totaled $2.2 million, compared to $1.4 million during the year ended December 31, 2022. The increase was primarily due to increases in net charge-offs of $1.3 million in indirect home improvement loans, partially offset by a decrease in net charge-offs of $395,000 in deposit accounts and overdrafts. A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL on loans and may adversely affect the Company’s financial condition and result of operations.
Current wording
During the year ended December 31, 2024, net charge-offs totaled $5.3 million, compared to $2.2 million during the year ended December 31, 2023. The increase was primarily due to increases in net charge-offs of $1.8 million in indirect home improvement loans, $905,000 in C&I loans, $313,000 in marine loans, and $71,000 in other consumer loans. A further decline in national and local economic conditions, as a result of the effects of inflation, a recession or slowed economic growth, among other factors, could result in a material increase in the ACL on loans and may adversely affect the Company’s financial condition and result of operations.
Previous wording
Noninterest Income**.**Noninterest income increased $2.4 million to $20.5 million for the year ended December 31, 2023, from $18.1 million for the year ended December 31, 2022. The following table provides a detailed analysis of the changes in the components of noninterest income:
Current wording
Noninterest Income**.**Noninterest income increased $1.1 million to $21.6 million for the year ended December 31, 2024, from $20.5 million for the year ended December 31, 2023. The following table provides a detailed analysis of the changes in the components of noninterest income:
Previous wording
The year over year increase include a $2.6 million increase in service charges and fee income as a result of less amortization of MSRs reflecting increased market interest rates and increased servicing fees from non-portfolio serviced loans and a $931,000 increase in other noninterest income, partially offset by a $1.2 million, or 15.2%, decrease in gain on sale of loans, primarily due to a reduction in origination and sales volume of loans held for sale and a reduction in gross margins of sold loans. Gross margins on home loan sales increased to 3.07% for the year ended December 31, 2023, from 2.78% for the year ended December 31, 2022.
Current wording
The year over year increase was primarily the result of an $8.4 million gain on sale of MSRs with no similar transaction occurring in the same period in 2023, and a $1.8 million increase in gain on sale of loans, partially offset by a $7.8 million loss on sale of investment securities resulting from management's strategic decision to increase the yields and reduce the duration of the securities portfolio, and a $1.1 million decrease in service charges and fee income due to a reduction in loan servicing fees due to the sale of MSRs in the first quarter of 2024. Gross margins on home loan sales slightly increased to 3.08% for the year ended December 31, 2024, from 3.07% for the year ended December 31, 2023.
Previous wording
Noninterest Expense**.**Noninterest expense increased $14.6 million to $93.7 million for the year ended December 31, 2023, from $79.2 million for the year ended December 31, 2022. The following table provides an analysis of the changes in the components of noninterest expense:
Current wording
Noninterest Expense**.**Noninterest expense increased $3.8 million to $97.6 million for the year ended December 31, 2024, from $93.7 million for the year ended December 31, 2023. The following table provides an analysis of the changes in the components of noninterest expense:
Previous wording
The efficiency ratio, which is noninterest expense as a percentage of net interest income and noninterest income, improved slightly to 62.47% for the year ended December 31, 2023, compared to 64.70% for the year ended December 31, 2022, primarily due to the growth in revenues outpacing the increase in noninterest expenses.
Current wording
The efficiency ratio, which is noninterest expense as a percentage of net interest income and noninterest income, improved slightly to 67.45% for the year ended December 31, 2024, compared to 62.47% for the year ended December 31, 2023, primarily due to the growth in revenues outpacing the increase in noninterest expenses.
Previous wording
Provision for Income Taxes**.**For the year ended December 31, 2023, the Company recorded a provision for income taxes of $9.2 million on pre-tax income of $45.3 million, as compared to a provision of income taxes of $7.3 million on pre-tax income of $37.0 million for the year ended December 31, 2022. There was a net deferred tax asset of $6.7 million at both December 31, 2023 and 2022. The effective corporate income tax rates for the years ended December 31, 2023 and 2022 were 20.4% and 19.8%, respectively. The increase in effective tax rate was partially attributable to an increase in disallowed interest expense on tax exempt assets due to an increase in the cost of funds. Disallowed interest expense was $1.9 million and $587,000 for the years ended December 31, 2023 and 2022, respectively. For additional information regarding income taxes, see “Note 12 – Income Taxes” of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10–K.
Current wording
Provision for Income Taxes**.**For the year ended December 31, 2024, the Company recorded a provision for income taxes of $6.6 million on pre-tax income of $41.6 million, compared to a $9.2 million provision on pre-tax income of $45.3 million in 2023. The $2.7 million decrease in the provision was primarily due to the purchase of alternative energy tax credits in 2024, which resulted in a gain of $2.3 million. There was a net deferred tax asset of $7.1 million and $6.7 million at December 31, 2024 and 2023, respectively. Excluding the effects of tax credits, the effective corporate income tax rates for the years ended December 31, 2024 and 2023 were 21.2% and 20.4%, respectively. For additional information regarding income taxes, see “Note 12 – Income Taxes” of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10–K.
Showing the first 40 of 54 pairs. Open the source sections for the rest.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
The average cost of total interest-bearing deposits increased 86 basis points to 2.98% for the year ended December 31, 2024, compared to 2.12% for the year ended December 31, 2023. The average cost of funds, including noninterest-bearing checking, increased 63 basis points to 2.34% for the year ended December 31, 2024, from 1.71% for the year ended December 31, 2023. The average balance of noninterest-bearing deposits, which include noninterest-bearing checking and escrow accounts, totaled $649.4 million and $672.2 million for the years ended December 31, 2024 and 2023, respectively.